The U.S. Should Double-Down on the Balkans

Photo: Shutterstock, Private archive

The Balkans has become increasingly popular for foreign direct investment and, correspondingly, the subject of intense geo-political focus. Much of this investment has come from China, Russia and the U.A.E., and so perhaps it is no surprise that in 2020 the United States dramatically increased its involvement in the region by establishing its first International Development Finance Corporation (DFC) office outside the United States, backed by nearly $4 billion in funding, in Belgrade, Serbia.

The current administration seems to continue to pay attention to the Balkan region, as evidenced by recent sanctions imposed by the U.S. impacting the region, especially Bulgaria; however, Biden’s immediate termination of the DFC’s first CEO suggests at least some changes in store. It is our view that this administration would be well-advised to prioritize the region, which historically has played an outsized role in world events and seems increasingly poised to do so again.

The Balkans always has been consequential, in no small part because it sits in Europe and is geographically proximate to the Middle East, Africa, Asia, and the Baltics – and accordingly, outside investment has increased rapidly in recent years in line with geopolitical and strategic interests.

For example, in 2020, 873 million euros was invested in the Western Balkans by the European Investment Bank, an almost 50% increase from 2019. Many countries, like Russia, continue to assert historical claims over the region.

For countries seeking European influence, the Balkans serves as an easier entry-point than its significantly more regulated northern neighbors. For the Chinese, the region is yet another emerging economy that has the potential to be dominated through the seemingly unlimited resources China brings to bear. And the Middle East sees a place that is religiously and culturally aligned, considering the majority Muslim Bosnia & Herzegovina, Kosovo, and Albania, and significant minority Muslim populations within Bulgaria, Montenegro, and North Macedonia.

Considering the scenario described above, it is not surprising that China has invested tens of billions of dollars in the Balkans related in part to its Belt & Road initiative, which directly traverses the region. Likewise, Russia has invested similar amounts, especially in connection with the energy sector which it has long controlled and where it has increasing ambitions, most recently manifested in the Nordstream 2 Pipeline which will supply energy throughout southeastern Europe.

Additionally, Chinese and Russians together currently lead a race to vaccinate the region, which underscores its importance the United States’ primary global competitors attach to the region. The Middle East has taken notice with UAE investors focusing primarily on construction and real estate, such as luxury vacation projects built by Saudi real estate developer Dar Al-Arkan in Bosnia & Herzegovina as well as a 2-billion-euro investment in the Port of Durres, in Albania.

Against this backdrop, the U.S. would be ill-advised to unwind the DFC that was established less than a year ago or to decrease its regional investment. To the contrary, the current administration should double down and recognize the geostrategic importance of the region, which persists independent of the change in administration in the US.

The DFC was established in large part to promote U.S. investment in strategic fashion to counter perceived threats by China and Russia, especially with respect to energy and telecom security and diversification (notably, DFC investment is not restricted to U.S. companies or transactions). U.S. investment fosters local influence and diplomatic leverage, which will become even more critical as foreign involvement in the region increases.

The inflow of U.S. money into the Balkans also will result in increased regional scrutiny from US. enforcement agencies, creating additional avenues for the U.S. to protect its interests and to ensure a fair playing field for all. The concomitant financial benefits to these countries, of course, will ensure that this market continues to emerge, bringing more jobs and feeding more mouths – something that is good for the world, bringing prosperity, stability, and peace to a sometimes troubled region.

Parts of the region, primarily the Western Balkans, remain overwhelmingly pro-European Union integration – even in Serbia, the largest skeptic in the region, a majority of 64% of the population support EU accession, according to December 2020 estimates. Many of the countries in this part of the continent have faced an uphill battle to joining the EU and have often complained that the EU needs to “do more” to facilitate the process of becoming full members – increased investment by the US and its Western European partners, including allowing the DFC to flourish, would be a strong statement of their commitment to the region and integrating it fully into Euro-Atlantic structures.

Failure by the U.S. to continue to invest, by contrast, will result in unchecked Russian and Chinese influence, which Europe has shown a limited appetite to counter. To the extent that geopolitics is a zero-sum game, the U.S. will find itself falling behind in a critical part of the world. It’s not hard to imagine that Chinese and Russian investment will be tied to military investment, resulting in weapons and armies situated within uncomfortably close proximity to the rest of Europe and to other NATO military sites. Indeed, in late May, Serbia and Russia launched joint military exercises including 200 special troops near Serbia’s capital. A few months earlier, the Russian embassy in Bosnia & Herzegovina had already stated that it would “react” if the country further engages with NATO.

The Balkans clearly welcomes increased U.S. involvement. The DFC was well-received by those inside and outside of Belgrade. Countries that have leaned towards stronger political ties with Europe, such as Croatia, Slovenia, and Bosnia & Herzegovina, welcome investments that may facilitate their further integration with Europe and the West.

Other countries, such as Serbia and Montenegro, see that U.S. investment comes with fewer ties that accompany Chinese investment, for example, and offer the best opportunity for local businesses to prosper without being appropriated. Yet other countries, like Romania which has become an IT and digital powerhouse, see the benefit of aligning with the U.S., which offers the most opportunity for synergistic relationships with Silicon Valley and other digital hotspots.

In sum, the Balkans is a region of increasing geopolitical and strategic importance. The current U.S. administration’s foreign policy should reflect this fact and include increased investment.

The resulting benefits will flow not only to the U.S. and its geopolitical interests, but to the financial well-being of the region and overall global stability.

About the authors:

G. Scott Hulsey is an attorney at Kobre & Kim, a leading international law firm, who specializes in white collar criminal and regulatory enforcement matters. Mr. Hulsey is a former high-ranking Department of Justice official who was detailed to the U.S. Embassy in Sarajevo, initially providing technical advice to local prosecutors combating terrorism, and later serving as the Department’s top in-country representative.

Jen Kosydar is the Director of International Operations for GlobalSource LLC, a boutique private intelligence and consulting firm. Ms. Kosydar has worked in various capacities in the Balkans for over a decade, acting for clients in an investment consultancy role and completing asset tracing and recovery projects, in addition to previously working in the political section of the U.S. Embassy in Tirana.