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Sector Specific Sources of Competitiveness in the Western Balkans

Recommendation for a Regional Investment Strategy

image of Sector Specific Sources of Competitiveness in the Western Balkans

The Western Balkan region benefits from a cost-competitive labour force and geographic and cultural proximity to EU markets. However, cost competitiveness as a source of differentiation is not sustainable. Cost levels are increasing gradually in some sectors, reducing firms’ profitability. In order to sustain competitiveness, the Western Balkans needs to move up the value chain, from investing in automated technology to producing higher-quality goods and enhancing its human capital. This report examines the apparel manufacturing, automotive components and business process and technology outsourcing sectors, focusing on market competitiveness factors, industry key success factors and policy recommendations.

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Introduction

In view of the European Union’s wider strategy to promote growth and stability in the Western Balkans on the road to EU accession, attracting a growing share of foreign direct investment (FDI) is a key priority for the region. FDI inflows help to sustain economic growth. They generate employment in the formal sector, promote exports, rebalance growing trade deficits and maintain the process of economic reconstruction. By global standards, FDI in the Western Balkans has been limited. In addition, it has focused more on privatisation deals than on much needed greenfield investment. 

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