Hristova Zaevska: The Region must reorient toward sectors such as energy and artificial intelligence

Economic development and green finance expert from Skopje, Olimpija Hristova Zaevska, has assessed that foreign direct investment (FDI) is both a key driver of economic growth and one of its principal constraints in the Western Balkans. According to her, accelerating development requires significantly higher economic growth—around seven percent annually—which entails a shift in the region's economic model, greater emphasis on high value-added industries, and measures to retain skilled talent.

According to Hristova Zaevska, the region has recorded a substantial inflow of investment—approximately 6.4 percent of gross domestic product (GDP)—with North Macedonia ranking among the better-performing countries in attracting FDI, according to UNCTAD reports.

However, she noted that over the years the region has failed to establish stronger linkages between foreign investment and the domestic economy, as most investments have focused on product assembly and exports, with limited transfer of knowledge and technology.

“What has largely driven our growth is also one of our greatest obstacles. The region can point to substantial foreign investment. Around 6.4 percent of regional GDP comes into the six Western Balkan countries. According to the latest UNCTAD reports, North Macedonia ranks 31st globally in attracting foreign direct investment, so we are performing well in that respect. However, what fuels that growth while simultaneously limiting it is the fact that we have failed over the years to create stronger connections between foreign direct investment and the domestic economy,” Hristova Zaevska told Kosovo Online.

She added that global trends are changing and that the region must reorient itself toward sectors with higher value added, including energy, artificial intelligence, and industries supporting the energy transition.

“There are more competitive countries for the traditional type of foreign investment, and if we want faster economic growth, we need to position ourselves around new technologies. These primarily include energy, artificial intelligence, components for electric vehicles, and everything that supports the energy transition,” the Macedonian economist said.

According to Hristova Zaevska, the key challenge in this transformation is the shortage of human capital, as highly educated professionals frequently leave their home countries, making it more difficult to transform the economy toward technologically advanced industries.

She also identified the economy's limited absorptive capacity as an additional obstacle, despite the availability of capital.

According to her, financial resources are available, but domestic companies are not utilizing them sufficiently because both businesses and the economy have a low absorptive capacity.

“My view is that there is sufficient capital available in both North Macedonia and the region. I work with international financial institutions as well as domestic commercial banks, and I closely monitor the sector. There is clear interest in expanding the supply of financing. However, the absorptive capacity of our companies and our economy remains very low,” she said.

Speaking about living standards, Hristova Zaevska pointed out that, at its current growth rate, North Macedonia would need approximately 60 years to reach the average standard of living in the European Union.

In her opinion, significantly faster economic growth—around seven percent annually—is required to accelerate convergence, which would necessitate changing the existing economic model, focusing more strongly on high value-added industries, and adopting measures to retain skilled professionals.

According to her, Serbia is currently the most advanced economy in the region, followed by Montenegro and Albania, while Bosnia and Herzegovina and Kosovo lag behind, primarily because of weaker institutions. Nevertheless, she noted that Bosnia and Herzegovina and Kosovo have achieved measurable progress over the past 15 years, whereas North Macedonia has experienced stagnation in converging toward European standards over the last decade.

“In fact, although Kosovo and Bosnia are, so to speak, at the bottom, they have still recorded roughly a ten-percent improvement over the past fifteen years if we measure their growth or convergence. Unlike them, North Macedonia has stagnated over the past decade. In other words, we are standing still and are not catching up with Europe as we should,” Hristova Zaevska said.

She identified several strategic priorities, including attracting high value-added investments accompanied by mandatory spending on research and development, further expanding the ICT sector, and developing service industries such as consulting and accounting. She also emphasized the importance of proactive government policies—including tax incentives and other support measures—to retain skilled professionals and stimulate exports of services.

She stressed the need to strengthen knowledge transfer within the domestic economy, including encouraging the return of highly qualified professionals from abroad, drawing on successful European examples.

Among the sectors with the greatest future potential, she highlighted energy, smart agriculture, and carbon credit projects, while emphasizing that their successful implementation would require a clearer institutional framework and more effective strategic planning.

Hristova Zaevska also underscored the importance of developing a common Western Balkan market, arguing that individual economies are too small to attract major investments independently, whereas removing barriers and deepening regional integration would benefit both domestic entrepreneurs and foreign investors.

“I must say that the common market we are trying to establish at the Western Balkan level must become a much higher priority. As an individual country, we are simply too small a market. For both domestic and foreign investors, our market is too limited, and we need to continue advancing the agenda of removing barriers between our countries. This would encourage not only large investors but also small entrepreneurs whose products would have a far more meaningful market across the Western Balkans than in North Macedonia alone,” Hristova Zaevska concluded.