Why the Balkans is Ripe for an Impact Fund

Strategically located at the crossroads of Europe, the Balkan region has become a growing focus for investment and development. With Bulgaria and Romania already in the European Union (EU) since 2007, and Albania, Bosnia and Herzegovina, Montenegro, North Macedonia, and Serbia advancing toward membership, the region now combines political momentum, geographic advantage, and untapped economic opportunity.

As European companies localize supply chains, the Balkans are well placed to host critical production and build new industrial clusters in areas such as green technology, biotechnology, and electric vehicle manufacturing, according to the European Union’s Growth Plan for the Western Balkans. Given the ongoing political conflict, the EU has also rediscovered enlargement as a political instrument to consolidate its influence on its southern borders.

Between 2007 and 2020, the Western Balkans countries received a total of €7.6 billion in country allocations from the EU. Flagship institutional initiatives such as the Economic and Investment Plan for the Western Balkans (EIP), which allocates up to €9 billion in EU funds, with the capacity to mobilize as much as €20 billion in private capital through mechanisms like the Western Balkan Guarantee Facility; and the EU Growth Plan, which focuses on enhanced economic integration with the EU single market, completion of a common regional market, fundamental reforms, and increased financial assistance through a new €6 billion; have played a pivotal role in catalyzing investment momentum in the region, with key institutional actors such as the European Investment Bank (EIB), the European Bank for Reconstruction and Development (EBRD), KfW, and the International Finance Corporation (IFC) actively engaged in supporting this transformation.

Despite meaningful support from public and development finance, the region still grapples with persistent socio-economic gaps and constrained capital flows. For many small and medium enterprises (SMEs), accessing funds needed for growth remains a major hurdle, with the financing gap estimated at €2.4 billion. The landscape is equally challenging for entrepreneurs and high-impact ventures, who struggle to find debt capital due to high interest rates, stringent collateral requirements and complex application procedures, finds the OECD’s 2025 Economic Convergence Scoreboard for the Western Balkans.

Beyond financial barriers, the region’s infrastructure is aging, with half of installed energy capacity over 35 years old, and basic services such as transport and digital connectivity not yet meeting the standards seen elsewhere in Europe. On the workforce front, high taxes and low productivity push many into informal jobs, with weak social safety failing to bring them back to formal employment. The same OECD report finds employers are feeling the strain, too, as persistent labor shortages are deepened by ongoing emigration and a lack of research and development investment.

Lastly, the transition to a greener economy is urgent, with an estimated minimum €27 billion gap to achieve net-zero emissions by 2050. Taken together, these challenges highlight the need for catalytic, thoughtfully structured investment and systemic reforms if the Balkans are to realize full potential.

Counterbalancing the gaps is a decade of stabilization, reform, and an enterprising spirit that has gradually shifted perceptions from risk to opportunity. Investors are drawn in not just by the promise of growth, but by tangible progress: foreign direct investment flows into the region outpaced the European average by over 4x between 2020 and 2023 while creditworthiness also improved simultaneously in the same timeframe.

Behind this momentum lie strategic measures, such as business-friendly tax policies, land concessions, and streamlined procedures for registration and licensing, all designed to foster a welcoming environment for fresh capital and new ideas.

The banking sector, once challenged by high non-performing loans, now stands as a testament to improved oversight and financial discipline.

Education has improved with advanced attainment levels almost nearing the benchmarks set by the EU, nurturing a skilled talent pool ready to drive growth. Enhanced digital infrastructure connects even the most remote communities, underscoring a commitment to inclusivity and numerous Balkan nations are now recognized as “Emerging Innovators”, a recognition to their steadfast progress improvement in innovation outcomes.

Lastly, the region’s private equity funds are outperforming market standards, with internal rate of returns (IRR) reaching up to 17%.

Together, these positive trends signal a region on the cusp of transformation, well-positioned to capitalize on future investment and unlock its considerable potential.

Targeted capital can make the largest difference as the Balkans reach a critical turning point, buoyed by strong fundamentals, growing institutional capital, and energetic entrepreneurship. There is clear potential for impact-oriented investors to catalyze lasting transformation with instruments and approach attuned to local realities.

Strategic investments in workforce skills and education can close productivity gaps and foster a new generation of innovators, while infrastructure upgrades in energy, transport, and digital connectivity offer lucrative prospects for integrating the region more deeply with European markets and bridging urban-rural divides.

For investors seeking high-growth environments, addressing the SME financing gap and supporting access to flexible financing instruments such as venture debt are especially compelling. Patient, risk-tolerant capital can empower high-impact ventures to scale, while targeted funding for social inclusion and environmental sustainability can help unlock green opportunities.

Impact investing has emerged as a compelling engine to drive lasting and systemic changes towards a more equitable and sustainable world, with the Global Impact Investing Network (GIIN) estimating the current size of the global impact investment landscape now standing at approximately €1.33 trillion in assets under management, stewarded by nearly 4,000 organizations worldwide.

Fundamentally, first-mover impact investors who act decisively and operate with strong local partners will not only achieve attractive returns but also help shape the future of the Balkan ecosystem, making the region one of Europe’s most promising investment landscapes.