Building bridges

By Ian Clover

The Western Balkan region suffered massive infrastructural damage during the troubles of the 1990s. Even today there is still much work to be done, but great strides have been made already, as Ian Clover discovered.

“If you visit Sarajevo or Belgrade, you will be surprised by the lack of reminders of the war in the 1990s. All of the buildings have been renovated. Bridges have been repaired. Tourism is back.”

That familiar sound of chinking cutlery and background chatter fills the air all along the picturesque embankment of the Ljubljanica River, which winds its pretty path through the historic heart of Ljubljana, the capital city of Slovenia. The local literati mingle contentedly with wealthy German, French and Italian tourists on the plazas of the numerous cafes and restaurants that vie for custom along the riverbank. The distant horizon is formed of dazzling snow-peaked mountains, while the imposing Ljubljana Castle looms large from a hilltop over the city, at once charming and peaceful, yet also hinting at a tumultuous past.

Thus far undiscovered by the invading hordes of stag weekenders, Ljubljana's old world charm, beautifully kept squares, mountain backdrop and laid-back, bohemian atmosphere reminds one of Prague perhaps 30 years ago. Quaint yet modern, this stunning city is a testament to its inhabitants and its geographical location. Its progressive residents have helped to forge a national GDP that is among the highest in south eastern Europe; no mean feat when one considers just how close the country came to all-out war with its neighbours less than 20 years ago.

Today, Slovenia remains the only former Yugoslav country to be granted EU entry, having been admitted in 2004. Prior to the troubles in the Balkan region in the early 1990s, Slovenia was seen as the most likely to thrive and prosper. Independence from the Socialist Federal Republic of Yugoslavia (SFR Yugoslavia) was declared in June 1991 and - but for the brief interferences by the Yugoslav army in Slovenia's Ten-Day War - the country escaped pretty much unscathed from the catastrophic fallout of the ensuing War in (the former) Yugoslavia.

However, peace in Slovenia became the exception to the rule. By the summer of 1991, a series of conflicts were sparking up throughout the Western Balkans region hundreds of kilometres to the immediate south. The entire area (now comprised of Croatia, Serbia, Montenegro, Bosnia and Herzegovina and parts of Macedonia and Albania) imploded along ethnic and nationalistic lines; Europe and the EU turned its back on the belligerents, and NATO was brought in to try to bring peace and stability to the region, often with disastrous consequences as fire was fought with fire across the land.

While Ljubljana escaped relatively unscathed, other cities of a similar character and size were not so lucky. Sarajevo, Belgrade, Zagreb, Dubrovnik and Mostar all suffered heavy infrastructural damage throughout the war, forever altering their landscape and severely hindering their economic capabilities after the wars ended. Smaller towns were incapacitated; road and rail networks destroyed and, perhaps most iconically, Mostar's Old Bridge was obliterated: images of its rubble-strewn foundations severing the city's two sides became a powerful symbol of a formerly united region at war with itself.

Road to recovery

We live in relatively trouble-free times today. While Kosovan spats continue to niggle sporadically every year, the rest of the region has set about rebuilding, restructuring and, while not quite reuniting, at least displaying some degree of harmony and collaboration. Much of this harmony has been as a result of better economic stability thanks to the aid efforts of a number of banks and organisations that have been instrumental in assisting the region's recovery.

One such bank is Germany's KfW Entwicklungsbank who, along with the European Investment Bank (EIB) and the European Bank for Reconstruction and Development (EBRD), has delivered not just financial aid but a guiding hand to the region since the troubles first subsided in the mid 1990s. "Jointly with the EBRD and the EIB we offer long-term financing and, because we are an AAA-rated bank, we combine this financing with a very strong support network and implementation support for infrastructure projects," says Roland Siller, First Vice President at KfW. "So our support is not all about finance; it is also about technical assistance and knowledge transfer."

By 1995 the Yugoslav troubles had dissipated enough to allow and enable foreign aid to reach the region safely. The immediate aftermath of the war was an immensely critical time - wounds were raw, emotions were high and one false move by any authority, politician or official body could have easily reignited the fragile truce that had tentatively settled across the beautiful but battered Balkan landscape in the weeks and months immediately after guns were downed. "Foreign aid to the region peaked twice," reveals Asteris Huliaris, Professor in the Department of Politics and International Relations at the University of Peloponnese in Greece, and a noted scholar on the Balkan region. "First in the 1995 to 1997 period - when a significant amount of assistance was given to Bosnia, and secondly in 2001-2 after NATO bombings had severely damaged Kosovo."

Huliaris reveals that development assistance for the Balkans between 1995 and 2006 ranged between €6 to €6.5 billion per year. "In Bosnia for the first three years after 1995, foreign aid received by the locals was approximately $1400 per head, which is higher than any other figure for national state building projects since WWII. This money largely went on rebuilding much of the infrastructure that was destroyed by the bombing, with humanitarian expertise instrumental in ensuring the money reached its intended recipients."

The situation in the immediate aftermath of the war was bleak. Europe was faced with its greatest humanitarian disaster since the Second World War, with thousands of displaced refugees without homes, running water, electricity or hope. "At KfW, we started with emergency help right after the war," continues Siller. "This entailed rehabilitating the major infrastructure of all of the countries that comprise the Western Balkans. Initially this meant ensuring that the water supply was turned back on and remained stable for the full 24 hours a day, and then it developed into more structured investments."

Infrastructure investment

Since that first post-war cleanup and calming period, the Western Balkans region has hit a number of roadblocks on its path to recovery, but has also overcome just as many hurdles and attained a great number of successes. "Our assistance in the region developed over time into a focus on three main issues," says Siller. "One is municipal infrastructure in the environmental area, such as water sewerage and solid waste management. The second area that the KfW is focusing on is renewable energy and the challenges of rebuilding and integrating the regional electricity market.

"In Bosnia we have, for instance, invested in new hydro power plants and in a new wind farm. Finally, we offer support for micro enterprises and SME-development via the banking sector."

Working as part of the Western Balkans Investment Framework (WBIF), KfW have entered into a number of collaborative efforts with the EBRD, the EIB and the International Monetary Fund (IMF) to help bring stability and prosperity back to the Western Balkans. Following the initial focus on shoring up the countries' existing infrastructure, the WBIF has pooled and coordinated various sources of finance (in the form of leveraged loans and grants) and expertise for 'priority projects' in the region, which include supporting SMEs and investing in energy efficiency.

At the launch of the WBIF, Olli Rehn, European Commissioner for Enlargement, remarked: "In turbulent times, the EU's enlargement process provides an anchor of stability to the countries of the Western Balkans. The EU stands by the region to help it alleviate the impact of the economic crisis. The Western Balkans Investment Framework is a tangible demonstration of this joint effort to support the integration and the economic recovery of the region as it will pool together resources for priority infrastructure projects." The European Commission has so far allocated €110 million in funding for municipal infrastructure projects in the region, in addition to invaluable man hours of technical assistance and expertise. EU Member States are invited to donate, and the various banks involved in the joint frameworks for the region have devised a number of strategies for the careful apportioning of aid and expertise to those countries most in need of it.

"There are a number of joint programs that KfW and other banks are involved in where it makes sense to share risk," says Siller. "We co-finance bigger projects with the EIB and EBRD, and have just put together a 'Green for Growth Fund', an energy-efficiency framework with the EIB and European Commission, where we also invite private investors to invest. Another project we are co-financing with the EIB is a major investment in the port infrastructure of Zadar in Croatia."

The EU's involvement in the Western Balkans is an encouraging and clear indication to countries such as Croatia, Serbia, Montenegro and Bosnia that accession to the Union is achievable and something that should be strived for. Currently, Croatia is the front-runner thanks to the great strides its infrastructural and political landscape has made since the end of the troubles. "Croatia is certainly much more advanced than a good part of the rest of the Western Balkans," admits Siller. "I think they still need more investment on their larger infrastructure. They are well-placed to be admitted to the EU in the coming years. However, for us at KfW Development Bank, our focus has now switched to those countries that are still a little way off accession, countries like Serbia, Bosnia Herzegovina, Albania and even Kosovo, who may be looking at 2020 before being granted entry to the EU."

Corruption concerns

So what could be holding these countries back from EU membership? Billions of euros have been spent on roads, railways, electricity and water supply, schools, TV and phone lines and other areas of infrastructural importance in the region, yet there remains a very real problem of corruption at some governmental levels. "Much of the aid to the Western Balkans has been wasted," reveals Huliaris. "Money that was meant for development assistance has been either embezzled by corrupt officials or was badly coordinated in the first place and hampered by bureaucracy.

"In 1998, the Office of High Representative, which oversaw the initial stages of Bosnia's reconstruction, created an investigative unit that discovered that at least $20 million in aid intended for the rebuilding of public buildings was embezzled by corrupt officials from all ethnic groups. And in 2005 it was revealed that $11 million from the USA meant for the support of national redevelopment in Montenegro's electricity grid was diverted to overseas accounts. Again in June 2008, the United Nations taskforce on EU-financed operations in Kosovo found evidence of extensive theft, corruption and widespread breaches of contract totalling $80 million."

Despite the relatively recent findings of corruption in 2008, Huliaris is positive that lessons have been learnt and foreign aid is now not only making it through to its intended recipients, but that the countries of the Western Balkans are acting more responsibly and transparently than ever before. After all, if EU accession is their aim, they realise that they had better start toeing the line. "Donors have learnt from their mistakes. The administrative capacity has gradually improved. Corruption - while still a problem - can be overcome by better aid monitoring and evaluation. In Bosnia for example, there is the Peace Implementation Council, which is a group of 59 countries and international organisations that provide short humanitarian and construction assistance, sets objectives, monitors progress and establishes benchmarks. A similar program offers guidance and oversight in Kosovo too so, although belatedly, the problems of poor coordination and application are being addressed and overcome."

One problem that has emerged from such intense investment, involvement and attention on the region is that of 'enlargement fatigue', better known as aid dependence. Countries like Bosnia, Albania and Kosovo have an entrenched mindset and way of doing things that has been forged by decades of striving for independence, decades behind the Iron Curtain and the recent troubles at the turn of the Millennium. Such a fractious history has engendered a different mentality from those in the rest of Europe, and as a result the influx of aid and investment has had an impact on the people there. "Bosnia and Kosovo have been suffering from aid dependency, without a doubt," remarks Huliaris. "The have found it increasingly difficult to cope with fewer grants and reduced free access to aid."

Such dependence on financial assistance has led to high unemployment rates in the region, particularly in Bosnia where jobless figures stand at 45 percent. Old Socialist mentalities prevail; State help is expected and the relationship between working hard and a better quality of life is skewed. However, there are signs that the people of the Western Balkans are taking on board the lessons and expertise being cast their way by foreign investors. "There is a lot of entrepreneurial spirit in the Balkans," says Huliaris. "If you travel throughout the region you will be surprised by just how much people are trying to make a living by devising personal strategies for survival and economic stability."

Siller agrees. "We have invested in building up sub-bands of investment like the Pro-Credit network or the European Fund for South East Europe (EFSE), and we can see that there have been strong changes in small and midsize companies building up. However," he warns, "I would still say that the infrastructure for these companies is not at a level that we would like. There is still much to be done."

Modern marvels

Change in the Western Balkans has been impressive, frustrating, dramatic, bedevilled and sweeping since the end of the troubles. The goal of EU membership seems very real for Croatia, while the other countries in the region know that they have some way to go before that dream can become a reality. Political stability and peace have been, largely, achieved. Prosperity is next on the agenda. "I think we need to be a bit more modest in what we ask for from the region," says Siller. "The changes that have occurred so far - political stability being the main one - have been quite dramatic. But there is still some way to go. We have, for instance, begun programs on municipal infrastructure such as water and sewerage in Serbia's secondary cities - this level of regional focus is very important.

"It is the same situation for Albania: KfW is working on a large program, co-financed by the EU and other investors, on water infrastructure. A third example I could give is on energy, where we are financing a €70 million program for the first wind farm for Bosnia. There will be a transmission line from Albania to Kosovo, delivering a truly regional project for the energy community in southeast Europe. Having the same standards of energy, water and transport infrastructure in every country in the region is really important."

Region-wide projects such as these take time. A political climate that is steady helps, as does the continued investment of European banks, the EU and private benefactors. Corruption is being tackled on a daily basis, and mentalities within the Balkan nations are slowly but surely coming around to a more enterprising way of thinking. "There is certainly a good amount of knowledge there that we can build upon," says Siller. "At KfW we have a lot of experience in helping municipalities, and in the Balkans we are experiencing a gradual increase in the quality of management of the services and a reduction in technical and administrative losses. For instance, in the program we have in Serbia we have instilled competitive elements, so if a company is successful in reducing its technical losses, it receives a higher investment in the second term of our program. So that helps increase professionalism, plus we have engineers on hand to offer support, which is very well received by the institutions. Tendering for projects is better than ever too, so we can be sure that the money gets to where it should go."

Increased professionalism and transparency is helping the Balkan nations to help themselves. With infrastructural progress steady, cultural and political modernisation is following suit. "I think the Balkans are changing in ways that are not always apparent in statistics,"' says Huliaris. "For example, if you visit Sarajevo or Belgrade, you will be surprised by the lack of reminders of the war in the 1990s. All of the buildings have been renovated. Bridges have been repaired. Tourism is back. The Balkans were, even before the war, portrayed as the Third World of Europe, which led to the creation of the term 'Balkanisation'. This is no longer correct. The region is improving spectacularly."

The reasons behind such spectacular improvement are manifold, and foreign aid and investment has played a massive part in modernising the countries affected by the war, enabling their citizens to pursue their goals and dreams unhindered, just like their fellow Europeans. "You now have more accountable institutions," concludes Huliaris. "You have democracy. In almost all of the states the media is freer than ever. A number of well-educated people are returning from the rest of Europe as the economic crisis has forced them home. Economic policies have improved.  Foreign aid policies are better. For example, in Kosovo recently 120,000 houses were rebuilt with the minimum of fuss. Refugees have come back. Serbia's infrastructure has been improved dramatically. Sarajevo is like a different place - even those who have lived there for decades remark at just how much the situation has improved."

There is still some way to go for Croatia, Serbia, Bosnia, Montenegro, Kosovo and Albania. Public infrastructure is still in need of investment; road and rail links between the countries need improving, as do relationships; brain drain is still an issue in some of the countries and ethnic tensions remain. That being said, a more prosperous region, with more economic equality, will lead to greater harmony and collaboration, which can only help ease future tensions and set every nation on the path towards the promise land of EU membership.  The EU's Foreign Affairs Chief, Catherine Ashton, said recently in a statement: "Integrating the Western Balkans into the European family of nations remains one of the last challenges to building a democratic and unified Europe." Music, no doubt, to the ears of the millions in the region who still remember the all-too recent horrors of the last war, and the hopelessness of a situation that looks to have a bright future over the not-too distant horizon.

 

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Rebuilding the Mostar Bridge

The beautiful Old Bridge in Mostar had stood for centuries in the heart of the town in the Herzegovina region of the Balkans before it was bombed in 1993. In 1999, a project to rebuild and restore the Old Bridge to its former grandeur was implemented, jointly financed by the EBRD and via sizeable donations from Spain (who had a large contingent of peacekeeping troops in the town during the troubles). The project was completed in the spring of 2004 and the bridge reopened in July of that year.

 

FACT: Today, the income of the average Croatian is double the income of the average Serb and four times higher than the income of the average Albanian

 

Work in progress

Bosnia and Herzegovina

In the immediate aftermath of the war, it soon became apparent that Bosnia and Herzegovina was the most widely devastated region, losing most of its existing transport network and suffering extensive damage to residential areas. Even today, the number of residential dwellings is below 1991 levels.

Bosnia has much work to do on its transportation infrastructure, while Montenegro's only rail connections are with Serbia.

Serbia

The bulk of Serbia's damage was inflicted upon the country's bridges and institutional buildings, but the Serbian government has grand plans for its transportation corridors, which it sees as the lifeblood for a reinvigorated economy and infrastructure. It has earmarked €4 billion for its infrastructure, with €1.6 billion to be spent on road networks and €1.1 billion to be spent on its rail networks over the next four years.

Croatia

Many of Croatia's cities and towns escaped widespread damage, so the country has been able to focus its efforts on repairing its damaged transport network and infrastructure, boosted by EU, public and private funds.

Kosovo

Massive amounts of foreign aid was ploughed into Kosovo between 1999-2004, totalling $3.1 billion altogether. Today, residential housing remains a problem, as does general utility infrastructure, such as water, electricity and sanitation.

Albania

There is no rail line connecting Albania to its neighbouring Balkan countries. However, the country is on course to complete its section of a four-lane highway connecting Kosovo and Albania to the region's main road network. This investment is costing €1.4 billion.

Montenegro

The EU has invested more than €131 million in Montenegro's infrastructure in the past few years, with the country's road network receiving the bulk of the funds. Other recipients will be local authorities and several government departments.

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Economic crisis

Despite the vast quantities of funding that has been ploughed into the region, the economic crisis has, inevitably, had a negative impact upon the financial aid finding its way to the Western Balkans. A recent lack of funding has hindered the simultaneous construction of road, rail and air projects, hindering the region's ability to generate a truly harmonised transport network. When times are tight, it is only natural for governments' stimulus plans to focus more internally, and the Western Balkans is no different.

However, an improved transport network for the Western Balkans would increase the region's collective GDP, create jobs and help offset the high trade balance deficits that currently damage the region's ability to trade on a level playing field. It would also help to attract tourists and improve social mobility - key indicators of a progressive and stable society. The global financial crisis has slowed investment into the country, but awareness remains strong; as does the will to assist wherever possible. Integration into the EU is not only sought by the states of the Western Balkans, but by the EU itself. "The Balkans are part of Europe, geographically, culturally, historically, economically, in fact in every way you care to think," wrote EU Environment Commissioner Janez Potocnik in Eurozine earlier this year. "The fact is that all Balkan countries would today be members of the European Union had the recent terrible war in the region been avoided. But it was not. It happened, and it is a reminder to all of us of how fragile Europe, and especially this region, still is."

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KfW Entwicklungsbank (the German Development Bank)

Acting on behalf of the German federal government, KfW Entwicklungsbank finances investment and advisory services in developing countries. It generally works together with government institutions in the countries concerned. Its aim is to build up and expand a social and economic infrastructure and to create efficient financial institutions while protecting resources and ensuring a healthy environment