Italy pushes for investments into Western Balkan strategic sectors

Rome: Rome is keen to see its companies invest into strategic sectors in the Western Balkans, a region of six EU-aspiring countries that have close economic links to Italy.

Benefiting from its geographic proximity and historic ties, Italy is already one of the top investors and trading partners of the Western Balkan countries. It is also a proponent of their deeper integration with the EU.

At a conference in the Italian city of Trieste, ‘Italy and the Western Balkans: Growth and Integration’, on January 24, Prime Minister Giorgia Meloni and other Italian officials stressed the region’s strategic importance to Italy; as pointed out by Meloni, her government’s aim is to “bring more Italy to the Balkans”.

“Our companies already play a leading role in the region, but we must revitalise this presence and invest in strategic sectors,” the prime minister elaborated in her address to the event.

“I am thinking not only about infrastructure and power grids but also about the development of small and medium-sized enterprises [SMEs], for whom the Italian model can offer truly cutting-edge expertise. At the same time, we must take full advantage of the opportunities offered by the countries in this region, and make the most of the substantial growth margins that exist for our companies in those very important markets.”

Foreign Minister Antonio Tajani talked of bringing together “all the Italian forces of the various sectors, entrepreneurial and political, also with the blessing of the EU, to launch an ever stronger presence of our country in a region that must also become part of the European market.”

In 2019, a submarine power link between Montenegro and Italy was brought into operation. The 445-km cable runs between the electrical substations in Cepagatti, in the province of Pescara, and Lastva, in the municipality of Kotor, and was built by Italian energy company Terna. This turned Montenegro into a gateway for connections between Italy and other Southeast European countries. “By connecting to the electricity grids of Bosnia, Serbia, Kosovo, Albania and, through Serbia, Bulgaria and Romania, as well as the Italian and therefore European one, Montenegro will be able to serve as an electricity exchange platform between Eastern and Western nations,” said a press release from Terna at the time.

The following year, the Trans Adriatic Pipeline (TAP) was put into operation. It is part of the Southern Gas Corridor that transports natural gas from the Shah Deniz II field in Azerbaijan to Europe – an important part of the European efforts to reduce dependence on Russian gas. The pipeline connects with the Trans Anatolian Pipeline (Tanap) at the Greek-Turkish border, then runs on across Greece, Albania and the Adriatic Sea to southern Italy.

EU Enlargement Commissioner Olivier Varhelyi highlighted the transmission line in his speech at the conference, calling it a “great example of the valuable contribution and evidence of the mutual benefits for EU member states and for the Western Balkan region”. “[I]n the long term, hopefully already in the medium term, we should be able to bring through Italy to the Western Balkans green electricity from North Africa. These are the new challenges where the Western Balkans and Italy would be the new energy entry point for Europe, and for Central Europe,” he commented.

More controversially, the idea of transporting fresh water under the Adriatic Sea from Albania to Italy’s water-scarce Puglia region has been mooted. In November 2022, an article published by Italy’s Corriere della Sera revealed the €1bn proposal to build a pipeline from the Albanian Gjirokaster region to Puglia. Irrigated since Roman times, Puglia has an increasingly arid climate that has put at risk its future as an agricultural region.

Sergio Fontana, the president of Confindustria Puglia, which represents Italian companies in Albania, commented that Puglia faces Albania “a place very rich in water”. “We have exceptional close relations with Albania. We have a huge opportunity to address the water crisis, proactively. We can give life to a large and ambitious project: to build an impressive water infrastructure in the Adriatic Sea between Puglia and Albania,” said Fontana as reported by Corriere della Sera.

The countries along the eastern Adriatic have suffered a series of Italian invasions over the last couple of millennia, from the Romans through the Venetians to the fascist invasion in the Second World War. The former two left the region with a legacy of Roman remains and Venetian architecture.

More recently, there has been a strong tradition of Italian investment into the region during peacetime. This endured even during the socialist era. One of the most notable connections was between Fiat and Serbia’s Kragujevac. From the mid-1950s, the car factory in Kragujevac produced Fiats as well as Zastava and Yugo cars. The factory was badly damaged in the Nato bombing of Yugoslavia in 1999, but less than a decade later, Fiat agreed to buy the plant and take a majority stake in a new joint venture with the Serbian government, Fiat Automobili Srbija (FAS). FCA Srbija, as it is now called, remained one of Serbia’s top exporters, and is currently being converted to electric car production.

Elsewhere in the region, Albania’s clothing and textile industry is largely geared to importing materials that are then turned into partially or fully finished garments or shoes and re-exported, a process dubbed ‘facon’. The industry developed thanks to Albania’s low costs – this is a labour-intensive sector and Albania has the lowest minimum wage in Europe – and its proximity to Italy, one of the world’s leading fashion countries.

According to industry insiders, typically, clothes and shoes are exported almost complete to Italy, where Italian workers add the final touches and packaging, allowing the products to go out to the shops with the prestigious ‘Made in Italy’ label.

Italian companies have also invested across a range of other sectors in Albania, including energy, agriculture, telecoms and infrastructure, and there is a large Albanian diaspora within Italy. The ties are such that Vanity Fair Italy wrote in a 2019 article on investment destinations abroad that “Albania, for some, is the twentieth region of Italy”. A look at the departures and arrivals boards at Tirana International Airport confirms this; a good half of the flights are to or from Italian cities.

The clothing and textiles and auto parts sectors have also proved attractive for Italian investors in Bosnia, where the Association of Italian Businessmen in Bosnia and Herzegovina was launched in 2022 with the aim of supporting investors. Italian ambassador to Bosnia Marco Di Ruzza noted that Italy became the top exporting country to Bosnia the previous year.

However, not all investments have been successful. Italian energy company A2A bowed out of its investment into Montenegrin utility EPCG, choosing in 2017 to exercise a put option to sell its 41.7% stake. The decision is understood to be based mainly on the Italian company’s lack of enthusiasm for the project to extend the capacity of the TE Pljevlja coal-fired power plant, which had been criticised for its lack of economic viability.

Their commitment to eventual EU accession, and the reforms carried out during this process, has made the Western Balkans countries increasingly attractive to investors from EU countries, combined with their low costs and proximity to the EU market.

Meloni and Tajani also stressed Italy’s support for the EU accession of the Western Balkans countries, especially in the context of the war in Ukraine. Tajani commented that Rome wants an acceleration of the accession processes of the countries of the Western Balkans.

The Italian premier described the Western Balkans as a “region that is of strategic importance for Italy’s national interests”. “Being close to this region, Italy is well aware of its vital importance for the whole of Europe’s future. We know from experience that anything that happens on the other side of the Adriatic has immediate repercussions on us,” she commented.

With Russia’s invasion of Ukraine in 2022, there has been an added impetus for EU enlargement to the Western Balkans. The war raised fears that Moscow would seek to destabilise the region, which has two notorious flashpoints: the long-standing ethnic tensions in northern Kosovo and the secessionist ambitions of Bosnia’s Republika Srpska.

“Current geopolitical dynamics make this conference more necessary than ever. The Russian Federation’s war of aggression against Ukraine (we are now into the eleventh month) presents us with choices that are inevitably strategic in nature. Europe has a great responsibility towards the Balkans and must be committed to reaffirming this region’s sense of belonging to our world and our values,” said Meloni.

“Italy will continue to spearhead efforts for the Western Balkans’ European integration process to be able to continue with even more impetus and determination. For us, this is also an issue of absolute importance that regards our national security, and this is also why we cannot neglect it,” she added.

Varhelyi made a similar point for the bloc as a whole. “[W]ith the present geopolitical and economic crisis instigated by Russia’s war against Ukraine, enlargement is back among the top three priorities of the European Union. And not only of the European Union, but also the leaders of the European Union,” he said. “This is why it is even more essential to give a push, a stronger support than ever before to our neighbours, not only to keep them on the EU path, but also to accelerate their integration into the European Union.”