The Western Balkans grow faster than the EU and attract FDI at four times the EU average, supported by a €6 billion EU Reform and Growth Facility — yet trade at a perception discount. Gazmend Kelmendi, CEO of ERAM Invest, sets out the data, the sectors, and the capital architecture defining the region's next investment cycle.

By Gazmend Kelmendi, Chief Executive Officer, ERAM Invest Ltd. Published: 13 May 2026, Category: ERAM Perspectives Reading time: ~10 minutes

Executive summary

Two narratives currently coexist about the Western Balkans. The first — older, slower-moving, and dominant in international risk committees — frames the region as fragmented, politically uncertain, and structurally lagging European Union peers. The second — supported by the data of the past five years — describes a region growing faster than the European Union, attracting foreign direct investment at multiples of the EU average, and now underpinned by a €6 billion European Union financing instrument designed specifically to accelerate convergence with the Single Market.

The distance between these two narratives is what disciplined capital should price. In our view, that distance defines the principal opportunity in European frontier-to-emerging markets in this cycle.

This paper sets out the data, the structural drivers, the sector priorities, and the capital architecture that, taken together, support a positive but risk-aware investment case for the Western Balkans — and the positioning ERAM Invest has built to serve that case.

“In the Western Balkans, the institutional opportunity is no longer about discovery; it is about disciplined structuring of capital.” — Gazmend Kelmendi, CEO, ERAM Invest

1. The macro picture

The headline indicators are not consistent with the region’s reputation:

Growth above the European Union average. The World Bank projects combined economic growth of 3.0% in 2025, 3.1% in 2026, and 3.6% in 2027 for Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia. By 2027, GDP is forecast to reach 4.0% in Serbia, 3.9% in Kosovo, and 3.5% in Albania. Regional growth of 3.0% in 2025 will still exceed that of the European Union, supporting continued, albeit gradual, convergence with living standards in advanced economies. Europa Europa
FDI consistently above the European Union average. The region has experienced a steady rise in foreign direct investment, with net inflows averaging 6.4% of GDP in 2020–23, more than four times the EU average. FDI inflows are expected to average 4.7% of GDP in 2025, still well above European Union norms. European Commission Europa
A more resilient banking sector. Non-performing loans have fallen on average from over 13% to 4.2% over the last decade. European Commission
Disciplined public finances. Total public and publicly guaranteed debt is expected to decline slightly to 44.4% of GDP by the end of 2025, with regional fiscal deficits projected to remain below 3% of GDP. Europa
Long-run convergence. Since 2003, GDP per capita adjusted for purchasing power parity in the Western Balkans grew by approximately 120%, rising from USD 9,725 in 2003 to USD 21,305 in 2023. European Commission

These are not frontier-market indicators. They are the indicators of a mid-cycle convergence story trading at a perception discount.

2. Key Insight One — Undervalued Market Entry

The Western Balkans offer one of the few European markets in which the combination of asset valuation, competitive intensity, and risk-adjusted return still favours the disciplined entrant. Three observations support this view.

Lower asset valuations relative to European Union comparables. Across infrastructure, energy, real estate, and mid-market industrial assets, transaction multiples in the WB6 trade at a discount to comparable EU-CEE assets, reflecting historical perception of country and execution risk rather than current fundamentals. The convergence of regulation, accounting standards, and banking practice with the European Union framework is steadily eroding the justification for that discount.

Limited competition from institutional capital. The region remains under-allocated by global pension funds, sovereign wealth funds, infrastructure funds, and mid-market private equity. Beyond a relatively concentrated group of regional family offices, development finance institutions (DFIs), and a small number of pan-European private equity houses, institutional participation is still building. For early entrants able to structure deals to institutional standards, this scarcity of competing capital is a meaningful pricing advantage.

High return potential relative to risk-adjusted benchmarks. Spreads on comparable risk in the Western Balkans continue to exceed those of neighbouring EU-CEE jurisdictions, particularly in renewables, infrastructure, real estate, and mid-market industrial credit. Where transactions are properly structured — with DFI participation, hedging, and contractual risk allocation — the risk-adjusted return profile is genuinely attractive, not speculative.

The mispricing is not a function of poor underlying economics. It is a function of an outdated narrative.

3. Key Insight Two — European Union Convergence as a Growth Driver

The structural anchor of the regional investment thesis is European Union convergence. Three mechanisms make this concrete for investors.

Regulatory harmonisation with European Union standards

Each Western Balkans economy is engaged in a continuous, monitored process of aligning its regulatory framework, accounting standards, banking supervision, public procurement rules, environmental standards, and competition policy with the European Union acquis communautaire. The pace varies by jurisdiction, but the trajectory is consistent — and is now reinforced by binding Reform Agendas tied to disbursements under the European Union’s Reform and Growth Facility.

Access to European Union funding instruments

A multi-instrument architecture of European Union and multilateral capital now sits behind the regional pipeline:

The Reform and Growth Facility for the Western Balkans. A total financial envelope of €6 billion for 2024–2027, consisting of €2 billion in grants and €4 billion in concessional loans, with payment conditioned on the Western Balkans’ partners implementing specific socio-economic and fundamental reforms. The Growth Plan has the potential to double the size of the Western Balkan economies within the next decade. OECD Lexportus
The Western Balkans Investment Framework (WBIF). At least half of the Facility’s overall envelope will be allocated through the WBIF, supporting infrastructure investments and connectivity, including transport, energy, green and digital transitions. At least 37% of non-repayable financial support through the WBIF will be dedicated to climate objectives. ResearchGate White & Case LLP
The Instrument for Pre-Accession Assistance (IPA). A standing multi-year EU funding instrument supporting institutional capacity, rule of law, and socio-economic development in candidate countries.
EBRD, EIB, and IFC. The principal multilateral lenders to the region, providing senior project debt, equity, and policy-linked instruments, frequently in syndicates with European commercial banks.

In combination, these instruments are reshaping the regional capital stack: blended-finance structures combining EU grants, DFI senior debt, commercial bank participation, mezzanine, and disciplined sponsor equity are now the regional template, not the exception.

Increasing transparency and governance improvements

The Reform Agendas embedded in the Reform and Growth Facility, the Common Regional Market Action Plan 2025–2028, and the Berlin Process commitments are advancing transparency, public procurement integrity, and judicial reform on a multi-year timeline. The Common Regional Market is structured around the four freedoms — free movement of goods, services, capital and people — with the objective to consolidate and enhance competitiveness and economic cooperation. It brings concrete benefits to citizens, fosters economic development, and enhances the region’s competitiveness, deeper convergence with the EU and its gradual integration into the EU Single Market in selected areas. European Commission GOV.UK

These reforms do not eliminate governance risk. They reduce it, year on year, in measurable and externally monitored ways.

4. Key Insight Three — Sector Priorities

Capital flowing into the region is concentrating around four sector clusters with the strongest combination of bankability, EU policy alignment, and regional fundamentals.

Renewable Energy and Energy Transition

The defining sector of the regional capital agenda. Wind, solar, hydro, battery storage, district heating, and transmission modernisation are anchored by WBIF climate-objective grants, EBRD/EIB/IFC senior debt, and a maturing corporate Power Purchase Agreement market across the wider Southeast Europe. The Carbon Border Adjustment Mechanism (CBAM), now in its definitive phase, is converting industrial decarbonisation from a reputational issue into a margin issue across the region. The Western Balkans are targeting 20 GW of new renewable capacity by 2040.

Infrastructure and Logistics

Corridor X, Corridor VIII, the Adriatic-Ionian alignment, and the rail backbone connecting Belgrade–Pristina–Tirana–Durrës form the spine of a multi-decade infrastructure programme, alongside ports, airports, intermodal logistics, and the digital backbone of the Common Regional Market. The funding architecture is hybrid: EU and DFI grants, sovereign concessional borrowing, and Public–Private Partnership (PPP) and concession structures for the bankable segments. ERAM Invest’s PPP Advisory and PPP Financing practice is directly aligned with this segment.

Real Estate Development

Urban regeneration, mixed-use districts, healthcare and education campuses, hospitality assets along the Adriatic coast, and selective logistics-park development represent a deep pipeline of bankable real estate opportunities. Pricing remains attractive relative to comparable EU-CEE assets, particularly in capital-city urban expansion programmes such as those structured by the Municipality of Prishtina and equivalent regional administrations.

Manufacturing and Industrial Processing

The region’s cost-competitive industrial base — automotive components in Serbia and North Macedonia, food processing across Albania and Kosovo, metals and minerals processing in Bosnia and Herzegovina, light manufacturing across the WB6 — is integrating progressively into European value chains. Reshoring, near-shoring, and European Union supply-chain resilience policy are structural tailwinds. CBAM-driven decarbonisation of industrial processes is a near-term margin pressure and a medium-term modernisation catalyst.

5. The competitiveness stack

For an investor evaluating the region, the competitive economics compare favourably with EU-CEE peers:

Low corporate income tax. Corporate income tax rates not exceeding 15% — compared to an OECD average of 21.5% — 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. Kosovo at 10%, Montenegro at 9–15%, North Macedonia at 10%, Bosnia and Herzegovina at 10%, Serbia at 15%, Albania at 15%. CEFTA
A dense Special Economic Zone network. Approximately 40 special economic zones across the region provide foreign investors with value-added tax and customs exemptions, along with efficient transport links, reliable utilities, and facilities for industrial production. CEFTA
Open foreign investment regimes. The Western Balkan region remains increasingly accessible to foreign investment, without an established FDI screening mechanism, with limited requirements for licensing approvals and ownership thresholds, apart from specific sectors. Sensitive sectors (defence, banking, energy, media) are subject to standard sectoral oversight. CEFTA
A demographically young, multilingual workforce with rising educational attainment and digital fluency, at gross-wage levels materially below European Union averages.
EU-anchored monetary stability. Most countries have adopted exchange rate regimes that officially or unofficially peg their currencies to the euro; Kosovo and Montenegro use the euro directly, materially reducing foreign-exchange risk in EUR-denominated transactions. Wbif

6. Country profile snapshot

A stratified, not uniform, market:

Serbia — the largest WB6 economy and the deepest FDI destination; manufacturing, automotive, and technology investment supported by an extensive SEZ network. The defining medium-term theme is decarbonisation and the financing required to deliver it.
Kosovo — a 10% corporate tax rate, euro-denominated economy, young workforce, and resilient growth trajectory. By 2027, GDP is forecast to reach 3.9% in Kosovo, second in the region. Increasing engagement from U.S. and European capital across energy, infrastructure, ICT, and real estate. European Commission
Albania — robust tourism and infrastructure momentum, supported by strong GDP performance and meaningful FDI inflows; Adriatic coast development and Tirana urban expansion are the dominant private-capital themes.
North Macedonia — a competitive light-manufacturing and automotive-components hub, anchored by long-standing SEZ policy.
Montenegro — the region’s highest FDI-to-GDP ratio, driven by tourism, real estate, and financial services, alongside a growing renewables programme.
Bosnia and Herzegovina — politically more complex, but with structurally compelling assets in hydropower, metals, agribusiness, and underdeveloped infrastructure; the most underserved capital market in the region.

7. The capital architecture: where bankability is decided

The most important development for institutional capital in the region is not the volume of opportunities — it is the increasing sophistication of the capital stacks required to bring them to financial close.

The bankable structures of 2026 are layered, not monolithic. Blended finance has become the regional template: WBIF grants, EBRD/EIB/IFC senior debt, commercial bank participation, mezzanine and private credit, and disciplined sponsor equity combine in patterns that materially reduce the cost of capital. PPP structures are increasingly the preferred channel where the public sector is the counterparty — in municipal infrastructure, healthcare, education, district heating, water and waste-water, and renewables-backed civic assets. Mezzanine and private credit, historically scarce in the region, are now actively deployable instruments. Mid-market private equity is recalibrating around industrial manufacturing, agribusiness, healthcare, and digital infrastructure.

The operational conclusion is unambiguous: in the Western Balkans, the bankability of an opportunity is decided less by the asset itself than by the structuring partner. The advisory layer — the ability to arrange capital across DFIs, commercial banks, mezzanine providers, private equity, and offtake counterparties — is the binding constraint, not the capital itself.

8. The risks, named honestly

A credible investment thesis must name its risks. For the Western Balkans, the principal ones are:

Political and geopolitical risk — elevated relative to EU-CEE peers, particularly in Bosnia and Herzegovina and at certain regional interfaces. Disciplined sponsors price this risk; they do not ignore it.
Rule-of-law and institutional capacity gaps — present in places, but increasingly anchored to externally monitored Reform Agendas tied to European Union disbursements.
Grid and infrastructure constraints — binding for renewables and industrial scale-up, requiring coordination with national transmission system operators and the Energy Community Secretariat.
Currency exposure — meaningful in non-euro jurisdictions (Serbia, North Macedonia, Albania, Bosnia and Herzegovina), although mitigated by euro pegs and deep EUR-denominated debt markets.
CBAM transition costs — a near-term margin issue for non-EU industrial exporters, and a medium-term modernisation catalyst.

None of these are structural barriers to institutional investment. They are pricing factors, and they are increasingly being absorbed into disciplined transaction structures.

9. ERAM Invest Perspective

ERAM Invest positions itself as a regional gateway for international capital — structuring bankable projects and connecting local opportunities with global investors.

That positioning is operational, not aspirational. Built in Pristina and operating across the Western Balkans and the wider Central and Eastern Europe, ERAM Invest combines three institutional capabilities:

Origination on the ground. Direct relationships with sponsors, municipalities, sector champions, and public-sector counterparties across the WB6, sourcing investment-ready opportunities at source rather than at intermediary level.
Structuring to institutional standards. Bankable feasibility, financial modelling, risk allocation, and capital-stack design that meet the requirements of DFIs, commercial bank seniors, private credit, mezzanine providers, and institutional equity.
International capital connectivity. Through ERAM Invest’s Full Membership of the IMCI+ World Advisors Alliance and our established network of partner institutions, the firm channels opportunities to international investors across Europe, North America, and the Gulf, and supports them through to financial close.

Our solution set spans project finance, PPP Advisory and PPP Financing, private credit, mezzanine, private equity, and structured capital, across the Energy and Renewables, Infrastructure, Real Estate, Industrial Manufacturing, Healthcare, Digital Infrastructure, and Agriculture sectors.

10. Outlook to 2030

Three forces will define the next four years of Western Balkans capital flows:

European Union integration acceleration. Each successful Reform Agenda milestone, each new step in the Common Regional Market, and each successful WBIF disbursement compresses the perception discount the region has historically traded at.
The green and digital transitions. Renewables, storage, grid modernisation, data centres, and digital public infrastructure will absorb the largest single share of regional capital deployment over the cycle.
The institutionalisation of the capital stack. As DFI debt, European Union grants, commercial finance, mezzanine, and private equity combine into mature blended structures, the region’s renewables, infrastructure, and industrial sectors will increasingly be financed on European, not frontier, terms.

The Western Balkans are no longer a region waiting to be discovered by capital. They are a region waiting to be structured for capital. The next cycle will reward those who arrive early enough — and with the right partners — to structure it.

About the author Gazmend Kelmendi is the Chief Executive Officer of ERAM Invest Ltd., a corporate finance advisory and principal investment firm based in Pristina, Kosovo, focused on capital arrangement, project finance, private capital, and PPP advisory across the Western Balkans and the wider Central and Eastern Europe. ERAM Invest is a Full Member of the IMCI+ World Advisors Alliance.

For mandates and partnership enquiries: [email protected] · www.eraminvest.com

Tags: Albania, Bosnia and Herzegovina, EBRD, EU Growth Plan, EU Integration, FDI, Kosov, Montenegro, North Macedonia, Reform and Growth Facility, Serbia, WB6, WBIF, Western Balkans

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The Investment Landscape in the Western Balkans: Opportunity Beyond Perception