Impact investment for skills and societies in the Western Balkans
In March 2022, a new report: Exploration of Impact Investment for Skills Creation: Existing actions, emerging trends, implementation modalities, best practice. A case study with relevance to the Western Balkans region was published in the framework of the cooperation between the Joint Research Centre of the European Commission and the ETF, with complementary contributions from both institutions in addition to input from external experts.
Focused on the Western Balkans region, the report examines how impact investment can be used to fill the gap in skills development, by redirecting funding to SMEs and their skills ecosystems. After reviewing how impact investment has already been used for skills development in key European innovation systems, it suggests how it could be applied in the Western Balkans.
The EU's Social Business Initiative of 2011 introduced impact investment to the EU and the trend has been reinforced by the EU's response to the COVID-19 pandemic and the European Green Deal, and by the growing appetite for Environmental, Social and Governance (ESG) investing.
Impact investment is not philanthropy; the fact of generating financial gains is its prerequisite. But it incorporates non-financial objectives too, like sharing value among targeted stakeholders. A new alignment of public and private interests, impact investment's initiatives lie on a spectrum, with exclusively financial returns at one extreme and an exclusive focus on social impact at the other.
The report identifies the lack of relevant skills as a major obstacle to innovation in the Western Balkans, and the absence of initiatives to invest in human capital is exacerbating that situation. SMEs are the backbone of growing economies, so supporting SMEs is the key to ensuring growth, innovation and job creation. But middle-income countries like those in the region need a certain level of human capital to be able to supply the technical, managerial and marketing capacities required to boost production processes in the sector.
So what instruments can be used to help build sustainable skills in the Western Balkans? The report recommends enhancing current financial instruments, such as the Western Balkans Enterprise Development and Innovation Facility. Supported by international donors, the Facility aims to enhance access to finance for SMEs via bank loans at improved conditions, as well as access to targeted equity investment. Expanding the platform's services will help promote inclusive skills creation initiatives in the region, and nurture nascent regional innovation ecosystems.
New instruments also have a role to play in developing an impact investment market to support skills development in the Western Balkans. Among them, the report highlights the InvestEU Fund – with a budgetary envelope of €430 million – and the Economic and Investment Plan for the Western Balkans.
There are three main recommendations:
1. These new instruments can combine existing tools and create new ones, but their effective design and implementation will require political commitment and the broader engagement of the private sector in skills development.
2. Strategic planning and monitoring is required. Measuring the social effects of impact investment will require adapting the approaches currently used by financial institutions. The report recommends using smart specialisation to move SME skills forward, tailoring training to local needs, and designating a dedicated institution for SME skills-building in the region.
3. Specific measures are necessary for SME training. New initiatives for SME funding should leverage equity finance as opposed to debt finance. Intellectual property should be a key consideration for innovative SMEs in their business decisions. And innovation ecosystems –especially when designed as clusters – offer an effective way of meeting the challenges faced by the SME sector.
If these challenges can be tackled successfully, the report concludes that impact investment has a key role to play in reducing the brain drain in the Western Balkans, and supporting the creation of high-value jobs.
To find out more about all these issues be sure to watch the ETF's live interview: Impact investment for skills and societies: a focus on the Western Balkans held on 29 June 2022.
The interview is available on Facebook and all our social media channels.
Guests included:
Nikica Mojsoska-Blazevski, CEO, Macedonia2025.
Aleksandra Kostova, Programme Manager, European Commission, Directorate General for Neighbourhood and Enlargement negotiations.
Elena Andonova, Policy Officer, Innovation and Policy, Joint Research Centre, European Commission.
Siria Taurelli, Senior Human Capital Development Expert, European Training Foundation.