Bolstering Economic Dynamism in the Western Balkans

June 16, 2022


USAID CATALYZE Engines of Growth is developing a viable pipeline of investment-ready SMEs in the West Balkans through technical assistance, training, and administrative support in the information technology, agribusiness, and manufacturing sectors. Photo: Nikola Aleksic, Belgrade, Serbia
USAID CATALYZE Engines of Growth develops a viable pipeline of investment-ready SMEs in the West Balkans through various support in the information technology, agribusiness, and manufacturing sectors. Photo: Nikola Aleksic, Belgrade, Serbia

In early 2022, the Western Balkans (Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia, and Serbia) started to emerge from the ravages of the COVID-19 pandemic, boasting rising industrial production, exports to the European Union (EU), increases in wages, and credit growth. The region is ripe for investment, but Russia’s war against Ukraine threatens this recovery, through higher energy and food costs, disruption in supply chains, and interruptions in trade. Despite real and perceived risks, private capital investment in domestic companies can play an important role in stimulating economic growth and creating much-needed jobs.

The United States Agency for International Development (USAID) CATALYZE Engines of Growth activity is helping to stimulate private capital investment in the Western Balkans region to small and medium-sized enterprises (SMEs), which are critical to the development and broader economic growth and vibrancy. Many SMEs have exhausted financing available with commercial banks in the region which tend to be extremely risk-averse, requiring high collateral requirements for loans. Other SMEs have outgrown their respective domestic markets and are eager to break into the regional and EU markets. CATALYZE Engines of Growth is enabling private equity investments as alternative sources of financing to SMEs, working with experienced private equity investment partners to expand and upgrade local companies, leading to business growth.

CATALYZE collaborates with selected partners to expand the diversity of new financial products and services to SMEs that better meet their needs and facilitate long-term growth. According to the European Private Equity and Venture Capital Association, private equity investments typically result in a doubling of employment and a 3X increase in the value of the company. While private equity and venture capital (VC) investments are active in neighboring EU member countries such as Bulgaria, the Western Balkans are underdeveloped for private equity and venture capital funds. With a total regional population of 17.6 million people and an economy of nearly EUR 100 billion, regional equity fund investors are less enthusiastic about the Western Balkans due to the small size of the countries, the shallow market economy, the perception that there are not enough profitable investments, and the thin capital market.

SME investment readiness is a prerequisite before any successful equity investments can be made especially in the Western Balkan region, where the private sector only began to develop one generation ago, and entrepreneurs are unaccustomed to the different financing options. Therefore, getting SMEs ready for equity investments requires a more comprehensive approach, compared to what is required in developed financial market economies. It requires improving governance in companies which is not an easy task when first-generation entrepreneurs do not trust others to run their businesses. It also requires developing an ecosystem of supporting services as most local lawyers and financial service providers are unaware of how to conduct private equity transactions.

Because there is a shortage of private equity investment-ready SMEs in the region, CATALYZE Engines of Growth is focused on funding support for the development of a robust supply of equity-ready SMEs and women-led and -owned SMEs (W-SMEs) that are eager to accept equity investments to grow their businesses. To begin to address this gap, CATALYZE is partnering with WM Equity Partners (WMEP), which is providing investment-readiness technical assistance working with SMEs to educate and prepare them for private equity investments. This requires working closely with SME business owners so that they understand and are familiar with the due diligence and investment process. WMEP is organizing several events to support SMEs, starting with general awareness-raising events to explain what equity means, and to matchmaking events between prospective investors and companies. Additional support includes helping companies to develop investment memos and other business plan documentation to showcase companies to investors.

“This support is critical at this juncture. Without equity investments, this region is increasingly vulnerable to the economic instability this war is creating. Mobilizing private capital now builds resiliency for the long-term,” said Amanda Fernandez, USAID CATALYZE Chief of Party.

What SMEs in the Western Balkans Are Saying

“We are a metal processing company, and we need a new production line but worry about the risk that comes with loans from banks.”

“We have exhausted our debt financing possibilities and need equity to grow.”

“We need an equity partner with the right experience to help us grow our wood-processing company.”

Learn more about USAID CATALYZE Engines of Growth in the West Balkans here.


USAID CATALYZE, implemented by Palladium, is an 8-year program designed to mobilize $2 billion in private capital for development impact, especially in underserved social sectors and frontier markets across the globe, complemented by a cross-cutting inclusion of gender-lens investing. CATALYZE supports blended finance solutions working with local and international businesses and investors to explore and find commercially-viable opportunities and approaches to creating jobs, developing sustainable social services, tightening and rationalizing supply chains, and advancing inclusive growth. We work across 27 countries in Asia, Africa, Europe, Latin America, and the Caribbean, with 190 partners, including financial institutions, business advisory service providers, anchor firms, and job trainers.