A sound business environment supports economic growth by creating the right conditions for businesses to thrive, invest and innovate. This chapter evaluates the progress of the Western Balkan economies in converging with the EU, focusing on the conditions that enable businesses to enhance their competitiveness and compete on an equal footing. It specifically examines credit provision and the financial stability of banks as drivers of private investment. Additionally, it analyses fair market competition by shedding light on corruption and informality. Finally, the chapter explores trade integration, with a particular focus on the capacity of small and medium-sized enterprises to participate in international trade.
Economic Convergence Scoreboard for the Western Balkans 2025
Abstract
The Western Balkan economies have worked to improve their business environments, but the region still lags behind the EU. Figure 4.1 depicts each economy’s overall convergence in the business environment cluster, with scores reflecting their relative distance from the corresponding EU averages. It also breaks down the performance of the individual economies across eight key indicators that measure progress in this cluster, along with the regional average for each indicator.
Note: The scores – both overall and for individual indicators – were calculated to reflect each economy’s performance relative to the EU average, which is set at 100. The exact values for each indicator are presented in the graphs within the subsequent analysis section. For more information about the calculation of the scores, as well as the overall methodological approach, please consult the Methodology Annex.
The regional outlook for the business environment cluster is positive, with all economies having surpassed half of the EU average scores. However, progress has been limited, as the region narrowed the gap with the EU by only 1 point between 2014 and 2023. Montenegro leads the region, while Albania ranks the lowest.
Difficulties in accessing affordable financing constrain businesses’ ability to meet their investment needs across the region, limiting broader economic growth prospects. While banks demonstrate strong financial stability, as reflected by low non-performing loan (NPL) rates, the high cost of borrowing, stringent collateral requirements and the absence of targeted schemes designed for small and medium-sized enterprises (SMEs) restrict the growth of corporate credit. Despite these challenges, private investment levels by businesses remain comparable with those in the EU – yet they are likely insufficient to provide the boost needed to accelerate growth and convergence.
Meanwhile, persistent and sometimes growing perceptions of corruption affect fair competition and deter investors. Weak political commitment to the establishment of comprehensive anti-corruption frameworks and limited resources for enforcement agencies hinder an effective and consistent policy response. Additionally, the continued presence of informality distorts the level-playing field and reduces labour productivity. The low labour productivity levels in the region, coupled with high labour taxation and underdeveloped social security systems, present obstacles to curbing informal employment.
Nevertheless, the Western Balkan economies have been attracting increasing levels of foreign direct investment (FDI), supported by an open and non-restrictive environment and generous incentive regimes. These high levels of FDI carry the potential to boost the long-term economic growth needed for convergence; however, they are not always directed towards export-oriented and high-value-added sectors. Moreover, trade flows in goods and services in the region remain lower than those of EU counterparts and are constrained by limited industrial bases and the presence of non-tariff barriers. SMEs, which form the backbone of the Western Balkan economies' economic activity, show signs of weakening compared to their EU counterparts, and Support programmes aimed at improving the integration of SMEs into regional and global value chains and promoting the update of e-commerce remain weak and underutilised.
A sound business environment encourages investment, promotes entrepreneurship and enhances productivity by enabling businesses to operate efficiently. It is essential for driving economic growth, and in the Western Balkans, it is an important way of accelerating economic convergence.
Non-performing loans (NPLs) can undermine credit availability by threatening the financial stability of banks, limiting business access to finance, and hindering investment. The Western Balkan economies have made significant strides in reducing their NPL share (Figure 4.2), with an average NPL ratio of 4.2% in 2020-23, down from 13.6% in 2014-16. This trend aligns with improvements seen in the EU, where the NPL share decreased to 3.2% in 2020-23. Kosovo stands out with a substantially low NPL ratio of 2.1%, outperforming the EU; in contrast, Montenegro has the highest NPL share, exceeding 6%.
Percentage of total outstanding loans
Sources: (IMF, 2025[1]). Data for Serbia from (National Bank of Serbia, 2024[2]).
Since the launch of the Vienna Initiative1 in 2009, the Western Balkan economies have made continuous strides in enhancing banking supervision to ensure adherence to proper credit underwriting standards and risk management practices, resulting in a decline in the share of NPLs.
In 2017, Serbia became the first economy in the region to comply fully with Basel III standards, which are a set of internationally agreed-upon regulations to strengthen the regulation, supervision and risk management of banks. In this context, Serbia’s co-ordinated efforts under a broader strategic framework, the NPL reduction plan, helped to reduce its share of NPLs by nearly 17 percentage points between 2014 and 2023. The plan included a comprehensive asset quality review that resulted in adjustments in bank capital ratios, capital injections and loan restructuring, and tax incentives for NPL sales (IMF, 2017[3]).
In the other Western Balkan economies, where full compliance with the Basel III standards has not yet been achieved, NPL shares have also significantly improved due to prudent supervision. For instance, in Kosovo, actions undertaken by the Central Bank have contributed to the lowest NPL share in the region. Measures included the active use of moral suasion to encourage banks to lower their loan-to-deposit ratios to prudent levels, enhanced daily monitoring of the banking sector, and stress testing. As a result, Kosovar banks have adopted a cautious approach, particularly during the 2000s (IMF, 2013[4]), while still managing to sustain credit growth (see next section). However, excessively low NPLs may also point to overly conservative lending practices, with banks avoiding the riskiest segments such as start-ups – in fact, a relatively higher level of banking sector concentration in Kosovo, which exceeds the EU average, may limit competition and reduce incentives to move beyond safe and traditional lending models, hence meriting closer policy attention (IMF, 2024[5]).
Easy and affordable access to credit is crucial for economic growth as it empowers businesses to invest, innovate and expand. However, despite signs pointing to the overall health of the financial system, domestic credit to the private sector across the region remains limited at 47.3% of GDP in 2020-23, significantly below the EU average of 86.0% (Figure 4.3). Overall, the performance of individual economies shows limited variation, ranging from 35.1% in Albania to 54.5% in North Macedonia.
Percentage of GDP
Sources: (World Bank, 2024[6]). Data for the European Union from (Eurostat, 2024[7]).
The share of credit-constrained firms across the region was estimated at 45.0% in 2022, compared to close to 6.2% in the EU (EIB, 2022[8]; 2023[9]).2 This disparity reflects key structural barriers, including high interest rates, which have curbed the demand for bank financing. Available data suggest that Western Balkan businesses face higher borrowing costs than their EU peers: in January 2023, average lending rates in the Western Balkan economies were at 5.4%, which was 1.4 percentage points higher than the EU average levels (4.0%), with particularly high levels observed in Serbia (7.5%), Montenegro (6.6%) and Albania (6.3%) (CEIC, 2025[10]).
In the context of increased banking supervision and improved oversight, there has been a significant decrease in NPLs, as discussed in the previous section. However, the more cautious approach adopted by banks is evident in the continued use of stringent collateral requirements. According to the only available data among the Western Balkan economies, 37.2% of firms in Serbia required collateral to issue a new loan in 2022, whereas this figure was much lower in most EU economies, such as Greece (28.5%) or the Slovak Republic (21.0%) (OECD, 2024[11]). Higher perceived risks stemming from corporate governance deficiencies, along with challenges regarding collateral enforcement and liquidation processes, have tightened collateral requirements for businesses across the region (Statovci et al., 2023[12]; OECD, 2022[13]).3
Meanwhile, access to finance is further constrained by incomplete asset registration. While cadastre information systems are generally up-to-date and cover all territories – apart from Montenegro – registries for security pledges are often incomplete in Western Balkan economies (except Albania and Serbia). This situation leaves local banks with insufficient information on assets, making the assessment of movable assets especially challenging.
Beyond bank financing, there are few financing options for the region’s businesses, with 88% of credit-constrained firms choosing not to rely on any form of external financing (EIB, 2023[9]). Therefore, tailored policies such as public credit guarantee schemes and dedicated credit lines can be crucial policy tools to improve access to credit for businesses, especially SMEs. Across the region, Kosovo is the only Western Balkan economy surpassing the EU average with respect to access to bank finance for SMEs, with more than 61.8% of corporate credit directed towards SMEs in 2022, compared to 49.5% in the EU (OECD, 2024[14]). This is partly due to Kosovo’s business landscape being disproportionately dominated by SMEs compared to its Western Balkan peers and the EU, both in terms of number and key economic indicators.4 However, Kosovo also stands out in terms of public financial support for SMEs, which reached 3.7% of GDP in 2022 – significantly higher than in Serbia and Albania, where it remained below 1% (OECD, 2024[14]). Most of this support is provided by the Kosovo Credit Guarantee Fund (KCGF), which supplied EUR 116.7 million (1.3% of GDP) of credit guarantees to 6 865 SMEs in 2022, as well as EUR 98 million (1.1% of GDP) of loans to 1 750 SMEs (KCGF, 2023[15]).5
Private investment is essential for long-term economic growth as it contributes to driving the accumulation of physical capital, such as factories and machinery, which boosts business productivity and expands the production of goods and services. Between 2020 and 2023, private investment in the Western Balkan economies averaged 18.7% of GDP, a figure comparable to the EU average of 19.3% (Figure 4.4). However, this average largely reflects the figure for Kosovo, which, at 24.6% of GDP, exceeded the EU average. In contrast, private investment in all remaining economies lags the EU average, with Serbia and Bosnia and Herzegovina recording levels as low as 16.2% and 16.4% of GDP, respectively. This is particularly significant, given that middle-income economies converging to higher levels of income would be expected to exhibit substantially higher investment rates.
Percentage of GDP
Notes: OECD imputations for Bosnia and Herzegovina and Montenegro. For more details on this process, please refer to the Methodology Annex. Data are unavailable for Bosnia and Herzegovina (2022, 2023) and Montenegro (2022, 2023).
Sources: (Eurostat, 2024[16]) and (World Bank, 2024[17]). Additional data for Albania sent by INSTAT to the OECD.
As stated in the previous sections, low levels of corporate credit represent the primary obstacle to private investment growth in the Western Balkans, with an estimated financing gap for the region’s businesses amounting to 2.5% of GDP (Akbas, Betz and Gattini, 2023[18]). However, enterprises in the region also continue to face significant non-financial barriers that hinder their ability to scale up and expand operations. In particular, there is an uneven playing field, with preferential treatment for certain firms or sectors or informal practices distorting competition.
The informal sector in the Western Balkans is sizeable and contributes to market imbalances. As a result, formal firms may see reduced profits and lower returns on investment, discouraging expansion or new investment. The informal sector in all Western Balkan economies except Serbia is estimated to account for over 30% of GDP, compared to the EU average of 23%. This distortive impact is recognised by the private sector across the region: 32% of businesses in North Macedonia identify practices of informal competitors as a major or very severe constraint, while over 20% report similar concerns in Montenegro and Serbia, compared to around 5% in the most advanced EU economies (World Bank, 2025[19]).6
The level-playing field is further compromised by the sizeable economic footprint of state-owned enterprises (SOEs), which sometimes enjoy favourable treatment. In Serbia and Montenegro, SOEs account for about 5% of total employment, a share that rises to 8.4% in Bosnia and Herzegovina – significantly above the OECD average of 3.8% (OECD, 2024[14]).7 In most of the region’s economies, SOEs receive public subsidies and indirect financial support, often because they fail to achieve positive rates of return or are outright loss-making. Some SOEs maintain their market power through quasi-monopolistic positions and insufficient competition policy enforcement. For example, in Serbia, SOEs receive approximately 60% of all corporate subsidies in the economy, benefit from explicit loan guarantees for investment projects, and, if primarily funded by the state budget, are protected from bankruptcy proceedings (OECD, 2024[20]).
The region lacks a robust innovation ecosystem to stimulate private investment in intellectual property products. Private sector investments in research and development (R&D) remain negligible, accounting for less than one-third of total R&D investment in most economies (OECD, 2024[14]). While the reasons for this underinvestment are multifaceted, ranging from limited financing options to a shortage of highly skilled scientists and researchers, the lack of meaningful collaboration opportunities between businesses, research institutions and government bodies further restricts private sector engagement in R&D. Infrastructure to support such collaboration is scarce across the region, with the notable exception of Serbia. For example, plans to establish centralised science and technology parks have yet to materialise in Albania, Montenegro and North Macedonia. Furthermore, most Western Balkan economies offer only limited direct financial support, such as voucher schemes, competitive co-operative grants or tax incentives, to encourage business-academia co-operation (see the Skills chapter for more details).
FDI is a vital source of capital accumulation and technology transfer, enhancing productivity and promoting long-term economic growth. The Western Balkan economies continue to attract significant FDI, with net inflows reaching 6.4% of GDP between 2020 and 2023, more than four times the EU average of 1.5% (Figure 4.5). Montenegro stands out with net FDI inflows nearing 11% of GDP during the period, followed by Albania, Kosovo and Serbia, which were all clustered around 7% of GDP.
Percentage of GDP
Source: (World Bank, 2024[21]).
The Western Balkan economies are among the most open to FDI globally, as measured by the OECD FDI Regulatory Restrictiveness Index, which covers statutory measures discriminating against foreign investors.8 The region’s score was just under half that of the OECD average in 2020, indicating a less restrictive investment regime (OECD, 2024[22]). Notably, all foreign investors are treated as domestic legal entities once incorporated and headquartered in the domestic market. In all economies except for Kosovo, there are FDI restrictions for only a few sectors deemed of strategic importance, such as defence, energy and media. Despite these minimal restrictions, the Western Balkan economies have yet to implement a framework for comprehensive FDI screening mechanisms. In addition, although the relative openness to FDI may be beneficial for attracting investment, it may also expose the region to potentially harmful impacts from specific types and sources of investments.
The Western Balkan economies have established solid legal investment frameworks, which streamline investor entry and safeguard their assets. The extensive investment agreement network of the region’s economies also provides extra safeguards for foreign investors. However, in Bosnia and Herzegovina, the varying regulations between its entities and cantons create an increased administrative burden and heighten uncertainty for investors.
Investor incentives have also been a cornerstone of FDI attraction strategies. The Western Balkans already offer low corporate income tax (CIT) rates -none exceeding 15% - compared to an OECD average of 21.5% (OECD, 2024[14]). These are further complemented by generous tax breaks with an emphasis on R&D, as seen in Bosnia and Herzegovina, Kosovo and Serbia, along with land concessions and streamlined procedures for business registration and licensing.9 Such incentives have been most notably applied within the region’s network of special economic zones (numbering approximately 40), which provide foreign investors with value-added tax and customs exemptions, along with efficient transport links, reliable utilities, and facilities for industrial production (RCC, 2024[23]).10
Although the Western Balkan economies have been attracting higher levels of FDI inflows, these investments do not always target export-oriented and high-value-added sectors that would sustain long-term economic growth. For instance, manufacturing accounts for less than 10% of FDI inflows in Albania, Kosovo and Montenegro, as most investments are directed towards the real estate sector. In Kosovo, 63% of FDI inflows in 2023 went into real estate (CEFTA, 2024[24]).11
Corruption increases businesses’ operating costs, distorts competition and renders the regulatory environment unpredictable. In the Western Balkans, corruption remains a persistent challenge for businesses. The region’s performance on the World Bank’s Control of Corruption indicator, which assesses perceptions of corruption and the effectiveness of anti-corruption policies, reveals worsening outcomes for Western Balkan economies. Between 2020 and 2023, the region’s average score declined to -0.39, compared to -0.34 in the previous period (2014-16), remaining significantly below the EU average (0.95). Kosovo and Albania are the only Western Balkan economies that have managed to improve their performance over time, although their levels still fall far below the EU average (Figure 4.6). By contrast, the extent of perceived corruption has increased considerably in Bosnia and Herzegovina, North Macedonia and Serbia.
Composite score
Note: The composite score ranges from -2.5 (perception of widespread corruption) to 2.5 (perception of very low corruption).
Source: (World Bank, 2024[25]).
The lack of strong political commitment across the region has presented obstacles to effectively combating corruption. This is particularly evident in the absence of long-term strategic frameworks for anti-corruption policy. At the time of writing, and despite ongoing efforts, Kosovo’s anti-corruption efforts were not based on any strategic framework, with the last framework having expired in 2017.12 Montenegro and Bosnia and Herzegovina adopted new strategies in 2024 after five years without such documents.13 At the same time, corruption prevention bodies across the region struggle to fully implement their mandate due to limited human and financial resources and a constrained ability to fight high-level corruption effectively. For instance, from 2018 to 2022, the total number of imprisonments for high-level corruption remained below 10 in Albania, Kosovo and Montenegro (OECD, 2024[14]).14
The Western Balkan economies need to do more to encourage businesses to adopt strong internal controls and anti-corruption measures for enhanced business integrity. Business integrity policies in the region are generally weak, and existing laws do not explicitly address corruption risk management in companies. There is no evidence that any of the region’s economies actively incentivise companies to adopt corporate anti-corruption policies that could mitigate potential liabilities. In Bosnia and Herzegovina, Kosovo and North Macedonia, if a business is found guilty of corruption, those who have implemented measures to prevent such behaviour may still incur the same legal penalties as those who have not, which discourages businesses from fostering a culture of integrity (OECD, 2024[14]).
However, over the last few years, Western Balkan economies have made progress towards disclosing beneficial owners to improve business transparency and prevent the misuse of corporate structures for illegal activities. Such registers have been established in all economies except Bosnia and Herzegovina; however, the reliability of recorded information remains uncertain, as it is difficult to determine to what extent the accuracy and completeness of the data are verified.
Informality distorts market competition, puts formal businesses at a disadvantage and results in lower government revenues, restricting public investment in areas essential for long-term economic growth. Moreover, informal firms tend to have lower productivity due to limited access to capital, training and technology (OECD, 2024[26]). Informality remains a significant concern in the Western Balkan economies, with informal employment15 levels substantially higher than the EU average: 19% of total employment compared to about 3% in the EU (Figure 4.7). In Albania and Kosovo, despite substantial decreases since 2014, informal employment was still estimated to account for over 25% of total employment in 2020‑23.
Percentage of population in employment
Notes: OECD imputations for Kosovo (2014, 2015, 2016, 2023) and Montenegro (2017, 2023). For more details on this process, please refer to the Methodology Annex. Data are unavailable for Albania (2021, 2022), Kosovo (2021, 2022) and Montenegro (2014, 2015, 2021, 2022).
Sources: Data for Albania are from (WIIW, 2024[27]) and additional data sent by INSTAT. Data for Bosnia and Herzegovina are from (ILO, 2024[28]). Data for Kosovo are from (ETF, 2024[29]) and additional data sent by KAS. Data for Montenegro are from (UNDP, 2016[30]). Data for North Macedonia are from (MAKSTAT, 2025[31]). Data for Serbia are from (SORS, 2025[32]).
Low labour productivity across the Western Balkan economies, at around 40% of EU average levels, is one of the key reasons driving informality. Firms with higher productivity potentially face greater opportunity costs from informal practices, which incentivises formalisation under the right conditions (La Porta and Shleifer, 2014[33]). While labour productivity is shaped by a combination of structural, institutional and economic factors, evidence suggests that policies aimed at strengthening human capital, with a particular focus on managerial and entrepreneurial skills, can support the shift towards formal employment. Inefficiencies in the Western Balkan education systems, which often fail to equip individuals with labour market relevant skills, drive informal employment, particularly among the youth (RCC, 2021[34]). Moreover, the development of managerial skills in the region seems to be constrained by the lack and quality of business support services, such as training programmes and business advisory services, which shows the need for enhanced public support (OECD, 2022[13]).
In addition to low labour productivity levels, the high cost of hiring labour is another barrier to formalisation, as businesses may avoid facing the associated tax burden. As noted earlier, the average CIT rate in the Western Balkan economies is relatively low compared to the OECD, but this trend does not apply to labour taxation. In fact, the share of social security contributions (SSCs) relative to gross income exceeds 20% in the region, excluding Kosovo, and is particularly high in Serbia and Bosnia and Herzegovina. Notably, in Serbia, despite the reduction of the contribution rate for mandatory pension and disability insurance from 25.5% in 2021 to 24.0% in 2023, SSCs remain high at 35.1% of gross wages, compared to the OECD average of 26.1%. Bosnia and Herzegovina exhibits comparable figures, with SSCs reaching 41.5% of gross wage in the Federation of Bosnia and Herzegovina (FBiH) and 31.0% in Republika Srpska (RS) (OECD, 2024[14]).
By offering unemployment benefits, health insurance and pensions, robust social security systems can also make formal employment more attractive by offsetting the costs of SSCs and taxes with long-term benefits. However, across Western Balkan economies, underdeveloped social assistance and security systems discourage individuals from participating in the formal sector. Social assistance benefits are generally low, often leaving recipients below the at-risk-of-poverty risk thresholds. In this context, Kosovo remains the only Western Balkan economy that has not developed an unemployment benefits scheme, with no planned reforms to introduce such a system (OECD, 2024[35]).
Trade can significantly enhance economic growth by expanding market access, encouraging specialisation in production and driving innovation. However, while all Western Balkan economies increasingly trade more goods and services, they still fall short of the average EU levels.16 In 2020-23, trade flows per capita represented 44.7% of EU levels, up from 35.9% in 2014-16, with the most substantial progress observed in Serbia and North Macedonia, which saw respective gains close to 15 percentage points (Figure 4.8).17 There is considerable variation among economies, with Kosovo and Albania at 25% of EU levels in 2020‑23, and North Macedonia close to 70%.
Sum of exports and imports of goods and services per capita in 2021 USD in PPP
Sources: OECD calculations are based on (World Bank, 2024[36]) and (World Bank, 2024[37]).
Since the adoption of the Central European Free Trade Agreement (CEFTA) agreement in 2006, the Western Balkan economies have consistently worked to enhance trade facilitation, making trade easier and less costly in the region. Efforts have especially intensified since 2017, beginning with implementing the Multi-Annual Action Plan on a Regional Economic Area in the Western Balkan economies (2017-20), followed by the Common Regional Market (CRM) Action Plan for 2021-24. These efforts have focused on harmonising trade policies and regulations with EU standards and improving intra-regional infrastructure, including the establishment of Green Lanes (see the Connectivity and Infrastructure chapter for more details) (RCC, 2023[38]).
The effectiveness of these initiatives is reflected in the performance of the Western Balkan economies in the OECD Trade Facilitation Indicators, with average performance increasing from 1.16 in 2017 to 1.35 in 2022. However, the region still trails behind the OECD average of 1.76 (OECD, 2024[14]; 2018[39]). Ongoing non-tariff barriers such as limited co-operation between trade authorities for data exchange, lengthy pre-arrival processing and clearance of shipments, and the absence of a paperless trade environment limit the trade potential of the Western Balkan economies (OECD, 2024[14]). These challenges have notably contributed to the stagnation of intra-regional trade, which remained steady at 11% of the region’s total trade between 2016 and 2023 (CEFTA, 2024[40]).
The trade performance of the Western Balkan economies is also curbed by their low industrial base. The exports of goods in the region stood at 18.7% of GDP in 2023, which is far below the EU’s average level of 38.0% (Eurostat, 2024[41]; 2024[42]). Apart from North Macedonia, which outperforms the EU average (44.8%), primarily due to its chemicals and machinery sectors, exports of goods remain low across the region. This is especially evident in Albania (13.2%), Montenegro (3.5%) and Kosovo (2.8%), where exports of services play a much more significant role in total trade (Eurostat, 2024[41]).18 Tourism is the most significant economic sector in both Albania and Montenegro, accounting for, respectively, 21.5% and 25.6% of employment in 2023 (OECD, 2024[43]).
SMEs that export can tap into larger markets, allowing them to scale beyond the limitations of constrained domestic demand in the small Western Balkan economies. This not only contributes to GDP growth but also generates broader positive spillover effects across the economy. On average, SMEs in the region contribute a higher share to total exports compared to their EU peers. However, their export share has shown a declining trend – accounting for 53.9% of total goods and services exports in 2020-2023, down from 57.3% in 2014-2016 (Figure 4.9).
Despite SMEs’ export share being comfortably higher than that of their EU counterparts, there are some concerning signs. First, given the business demographics of the Western Balkans – particularly the relatively greater economic weight of SMEs compared to those in the EU – a higher SME export share may be expected and should not necessarily be interpreted as a reflection of effective policies or strong competitiveness. In fact, the declining share of SME exports in the Western Balkans is occurring in a context where their overall economic weight is proportionally increasing, a trend not observed in the EU. Between 2020 and 2023, SMEs in the region contributed an average of 70.1% to gross value added (GVA), up from 65.7% in 2014-2016. In contrast, the SME contribution to GVA in the EU declined over the same period, from 58.3% to 52.3% (Table 4.1). Moreover, there is limited evidence suggesting that SMEs across the region scale up and experience productivity growth – an outcome typically expected as a result of exporting. Based on the available data, the average productivity of Western Balkan SMEs was estimated at just 26.6% of their EU peers in 2020, ranging from 18.3% in Albania to 30.8% in Serbia (European Commission, 2025[44]).
SME exports in percentage of total exports
Notes: OECD imputations for Kosovo (2017, 2020) and Montenegro (2019, 2020). For more details on this process, please refer to the Methodology Annex. Data are unavailable for Albania (2014), Bosnia and Herzegovina (2015, 2016, 2021, 2022, 2023), Kosovo (2014, 2015, 2021, 2022, 2023), Montenegro (2014, 2021, 2022, 2023), North Macedonia (2014, 2021, 2022, 2023) and Serbia (2023). To better evaluate SMEs’ export performance in the Business Environment cluster score calculations, the ratio of their share in total exports to their share in total GVA has been considered. A ratio greater than 1 indicates that SMEs export goods and services more than their proportional contribution to the economy, whereas a ratio below 1 suggests that they are exporting less relative to their economic weight.
Sources: (Eurostat, 2025[45]), (OECD, 2022[13]) and (OECD, 2019[46]). Additional data for Albania were sent to the OECD by INSTAT. Additional data for Kosovo were sent by KAS to the OECD. Additional data for Serbia were sent by SORS to the OECD.
Sources: (Eurostat, 2025[47]), (OECD, 2022[13]) and (OECD, 2019[46]). Additional data for Albania from (INSTAT, 2024[48]). Additional data for Bosnia and Herzegovina from (Agency for Statistics of Bosnia and Herzegovina, 2020[49]; 2023[50]; 2024[51]) and (European Commission, 2025[44]). Additional data for Kosovo from (European Commission, 2024[52]; 2025[44]). Additional data for Montenegro from (MONSTAT, 2024[53]). Additional data for North Macedonia from (MAKSTAT, 2024[54]; 2024[55]). Additional data for Serbia from (SORS, 2024[56]).
While trade facilitation measures have generally made exporting and importing cheaper and easier, SMEs continue to face unique challenges that necessitate additional support to engage effectively in international trade. Export promotion programmes are essential tools to facilitate SMEs' access to foreign markets, and all Western Balkan economies provide a combination of financial and non-financial export assistance to SMEs. The most prevalent programmes support trade fair participation, advisory services and business-to-business (B2B) matchmaking. However, information about available export promotion support remains fragmented, which hampers its overall uptake (OECD, 2022[13]). Notably, Kosovo, Montenegro and Serbia lack dedicated, centralised portals for accessing information about existing operating export programmes (OECD, 2022[13]).
Cross-border e-commerce can also support SMEs’ export growth by reducing transaction costs and streamlining logistics processes, enabling SMEs to reach a broader customer base. Available data indicate that Serbia has the highest percentage of firms using e-commerce for sales in the region at 28.9%, followed closely by Bosnia and Herzegovina at 22.9%, with both economies exceeding the EU average of 22.1% (Eurostat, 2024[57]). However, the adoption of e-commerce significantly trails behind in the remaining economies, revealing the need for policies to develop SMEs’ capabilities to adopt e-commerce (see the Digital Transformation chapter for more details).
While export promotion programmes and e-commerce can facilitate access to new markets, economic structures also play a role in some of the region’s low share of SMEs in exports. Economies with larger industrial sectors, such as Serbia and North Macedonia, tend to exhibit higher export levels combined with a lower contribution of SMEs. SMEs remain underrepresented within these sectors, primarily due to the higher fixed costs associated with production. For example, in the EU, while the manufacturing sector generated two-thirds of total exports of goods in 2022, it only accounted for 6% of SMEs (European Commission, 2023[58]; Eurostat, 2025[45]).
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← 1. The European Bank Coordination “Vienna” Initiative is a framework for safeguarding the financial stability of emerging Europe. The initiative has provided a forum for decision making and co-ordination that helped prevent a systemic banking crisis in the region and ensured that credit kept flowing to the real economies during the crisis. For more, see: https://vienna-initiative.com/.
← 2. It can also be added that SMEs accounted for only 39% of outstanding loans from commercial banks in 2022, compared to 49.5% in the EU (OECD, 2024[14]). This highlights the increased difficultly for SMEs in Western Balkan economies to access corporate credit.
← 3. It could be noted that despite stringent collateral requirements, Albania, Montenegro and Serbia have implemented regulations that ease provisioning requirements for SME lending through decreased risk-weight coefficients to incentivise commercial banks to develop corporate credit for SMEs.
← 4. Kosovo is the Western Balkan economy where SMEs account for the largest share of the economy. In 2020-23, Kosovar SMEs contributed 86.5% of gross value added, compared to a Western Balkan average of 70.1% and an EU average of 52.3%. Regarding key indicators such as employment and exports, Kosovo also outperforms the EU and is only surpassed by Albania for employment and Montenegro for exports in the region. See Table 3.1 for more details.
← 5. KCGF’s financial support is strengthened by the Central Bank of Kosovo, which offers capital relief for KCGF loan exposures to promote SME lending.
← 6. The EU average does include data from Croatia, Finland, Hungry, Ireland, the Netherlands, Portugal, Slovenia and Spain.
← 7. The OECD's top 15 economies are Norway, Latvia, Estonia, Hungary, France, Finland, Czechia, Slovak Republic, Italy, Sweden, Türkiye, Ireland, Iceland, Austria, and New Zealand.
← 8. The 2023 OECD FDI Regulatory Restrictiveness Index covers 104 countries.
← 9. For example, Serbia offers a CIT deduction of twice the value of qualifying investments into R&D, as well as a 30% tax credit on investments into new companies that perform qualifying innovative activities. Serbia also offers profit-based tax incentives, which include a ten-year tax holiday for investors who hire over 100 workers and invest over RSD 1 billion (Serbian dinar) (EUR 8 500 000). This tax holiday is proportional to the investment made, and the number of employees must be retained throughout the tax period. Corporate income from royalties that meet certain conditions can also benefit from an 80% tax deduction. Since 2018, Albania has introduced numerous profit-based tax incentives. For example, qualifying companies in the software production, agriculture, agrotourism or automotive industries are eligible for a reduced 5% CIT rate.
← 10. Special economic zones in Albania, North Macedonia and Serbia also emphasise attracting more technology-intensive FDIs, such as in information and communication technologies (ICT), by providing more advanced assistance for administrative processes and higher-quality office spaces.
← 11. The industrial sector encompasses manufacturing, electricity, gas, steam and air conditioning supply and water supply, sewerage, waste management and remediation sectors.
← 12. There were public consultations on Kosovo’s Anti-Corruption Strategy 2025-29 in December 2024, but no precise timeline for adoption has been communicated.
← 13. North Macedonia stands out as the only Western Balkan economy with a framework continuously in place: the National Strategy for Prevention of Corruption and Conflict of Interest 2021-25. After the expiration of anti-corruption frameworks in 2023, Albania adopted the Inter-Sectoral Anti-Corruption Strategy (ISACS) 2024-30 in November 2024, and Serbia adopted the National Anticorruption Strategy 2024-28 in July 2024, and the related 2024-25 Action Plan in December 2024.
← 14. No data available for Bosnia and Herzegovina and Serbia.
← 15. The definition of informal employment follows (United Nations, 2025[61]). Informal employment comprises persons who, in their main or secondary jobs, were in one of the following categories:
Own-account workers, employers and members of producers’ cooperatives employed in their own informal sector enterprises (the characteristics of the enterprise determine the informal nature of their jobs).
Own-account workers engaged in the production of goods exclusively for own final use by their household (e.g. subsistence farming), if covered in employment.
Contributing family workers if they work in formal or informal sector enterprises (they usually do not have explicit, written contracts of employment and are not subject to labour legislation, social security regulations, or collective agreements, which determines the informal nature of their jobs).
Employees holding informal jobs, whether employed by formal sector enterprises, informal sector enterprises, or as paid domestic workers by households (employees are considered to have informal jobs if their employment relationship is, in law or in practice, not subject to national labour legislation, income taxation, social protection or entitlement to certain employment benefits).
Employment comprises all persons of working age who, during a short reference period (one week), were engaged in any activity to produce goods or provide services for pay or profit.
← 16. Trade flows of goods and services represent the value of all goods and other market services provided to the rest of the world. They include the value of merchandise, freight, insurance, transport, travel, royalties and license fees, as well as other services such as communication, construction, financial, information, business, personal and government services. They exclude compensation of employees and investment income (formerly called factor services) and transfer payments.
← 17. While trade openness is generally measured by the ratio of total exports and imports on GDP, this measure suffers from the “small economy bias”. The larger the economy, the greater the degree to which it will be self-sufficient, reducing trade openness, whereas a smaller economy will normally be more dependent on foreign trade, resulting in greater trade openness – see theoretical work of (Spolaore and Wacziarg, 2002[59]). For instance, Kosovo exhibits a higher trade openness than Germany, with imports and exports standing for 110% of GDP in 2023 in Kosovo versus 83% in Germany (World Bank, 2024[60]). Using trade per capita corrects this bias, with Germany importing and exporting USD 52 643 per capita in 2023, compared to USD 15 000 in Kosovo.
← 18. Exports of goods include 1) food, drinks and tobacco; 2) raw materials; 3) mineral fuels, lubricants and related materials; 4) chemicals and related products; 5) machinery and transport equipment; and 6) commodities.