What Europe can learn from business environment reform in the Western Balkans

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The European Union and the Western Balkans are not separated by a simple divide between good and bad regulation. Across countries, governments have adopted regulatory impact assessment, public consultation, digital services and administrative simplification. The more consequential difference lies in consistent implementation across the full regulatory cycle. EU Member States generally have stronger systems for designing rules, but many still evaluate existing regulation too rarely and provide weak feedback to people participating in consultations. Western Balkan administrations have built many of the same formal instruments through accession reforms, yet application is more selective, enforcement less predictable and public services less interoperable. Evidence from North Macedonia and Serbia shows that technical assistance can produce laws, tools, platforms and capable institutions. It also shows that these outputs do not automatically become business outcomes when laws remain unadopted, courts are slow, agencies lack ownership or firms cannot use the services created. Future support should therefore reward full delivery, from analysis and consultation to adoption, implementation, enforcement, review and measurable effects on firms.

From Rules on Paper to Results in Practice

Context

Business environment regulation shapes the costs, risks and opportunities facing every enterprise. It includes entry and licensing, taxation, access to finance, commercial justice, competition, inspections, insolvency, digital public services and the predictability of rulemaking itself. Its quality matters for investment and productivity, but also for fairness. Smaller firms have less capacity than large firms to absorb uncertain procedures, repeated reporting requirements and long court delays.

The comparison between the EU 27 and the six Western Balkan economies is strategically important because regulatory convergence is a central part of accession. Albania, Bosnia and Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia are aligning laws and institutions with the Union acquis while also trying to raise productivity and retain people with marketable skills. The OECD Economic Convergence Scoreboard 2025 illustrates the scale of the wider convergence challenge. Only 34 per cent of adults in the Western Balkans had at least basic digital skills, compared with 56 per cent in the European Union.

The EU itself is not a finished model. Regulatory impact assessment and consultation are now widely established, but evaluation after adoption is much less systematic. The OECD assessment of better regulation across the European Union finds that only about one quarter of Member States require periodic evaluation of existing rules. Fewer than half publish a response explaining how consultation comments influenced the final proposal. The European comparison is therefore best understood as a difference in degree and institutional consistency, not as a binary contrast.

Intervention Overview

Business environment reform in the Western Balkans is supported through a layered architecture. National governments lead legal and administrative reform. The European Union provides political incentives, finance and technical assistance. The OECD, SIGMA, World Bank, European Bank for Reconstruction and Development and other partners provide diagnostics, benchmarking and implementation support. Business associations, chambers, banks and business support organisations connect policy with enterprise experience.

The Instrument for Pre Accession Assistance is the central European financing framework. IPA II covered 2014 to 2020 with a budget of EUR 12.8 billion and placed greater emphasis on sector approaches and performance indicators. IPA III provides EUR 14.162 billion for 2021 to 2027 and programmes assistance around thematic priorities rather than fixed national envelopes. This design aims to reward performance and respond more flexibly to accession needs (European Commission overview of IPA).

The Growth Plan for the Western Balkans adds a stronger results based instrument. Its Reform and Growth Facility provides EUR 6 billion for 2024 to 2027, comprising EUR 2 billion in grants and EUR 4 billion in concessional loans. Payments depend on implementing agreed Reform Agendas. The plan combines access to parts of the single market, deeper regional economic integration, fundamental reforms and increased financial assistance (European Commission Growth Plan).

At intervention level, the North Macedonia evaluation examined EUR 20 million in IPA II support for private sector development between 2017 and 2024. The portfolio combined technical assistance for internal market alignment, grants and advisory services for enterprises, and a loan scheme implemented through the European Bank for Reconstruction and Development. This mix is distinctive because it links reform of the enabling environment with direct firm support.

Evidence: What Worked

The strongest achievements are visible at output level. Better regulation procedures, electronic portals, business registers, impact assessment guidance and administrative inventories now exist across much of the region. These instruments matter because they create a basis for transparency and make future improvement possible. Their presence also shows that accession incentives can translate European practices into national administrative systems.

Digital tax administration provides some of the clearest outcome evidence. In Montenegro, 99.6 per cent of value added tax returns, 98 per cent of corporate income tax returns and 96 per cent of personal income tax returns were submitted electronically in 2022. This indicates that digitalisation can become routine when a service is mandatory, useful and supported by a functioning administrative process (OECD Montenegro profile).

Serbia offers another mixed but substantive success. Electronic company registration became mandatory in May 2023, and 51.1 per cent of individuals interacted online with public authorities, close to the reported EU average of 50.7 per cent. Serbia also developed an administrative burden calculator, an electronic consultation portal and a large register of administrative procedures (OECD Serbia profile). The EU for Better Business Environment report estimates that administrative burden declined from 2.95 per cent of gross domestic product in 2021 to 2.91 per cent in 2022.

Some finance instruments have reached firms more effectively than conventional lending alone. Kosovo improved its OECD access to finance score to 2.9 out of 5 in 2024, with the Kosovo Credit Guarantee Fund identified as a regional model for expanding small enterprise lending (OECD Kosovo profile). Bosnia and Herzegovina presents a useful counterexample to simple rankings. Small and medium enterprise loans represented about 44 per cent of corporate credit in 2022, while non performing loans fell from 15.1 per cent in 2013 to 3.8 per cent in 2023. These results coexist with weak regulatory institutions, showing that specific financial outcomes can improve even where the overall governance environment remains difficult (OECD Bosnia and Herzegovina evidence).

The North Macedonia evaluation found credible firm level effects from grants and advisory services. Participating firms reported modernised production, reduced waste, energy savings, installation of solar panels and some employment gains. These are plausible outcomes supported by interviews, site visits and firm records. They should not, however, be converted into claims about national growth or employment because the evaluation could not establish macroeconomic attribution.

Evidence: What Did Not Work

The weakest link is the passage from regulatory drafting to actual implementation. The North Macedonia evaluation found that technical assistance generated strong legal and institutional outputs, yet several draft laws were not adopted or applied. The resulting gap limited effects on competition, consumer protection and the wider business environment. A regulation cannot improve firm behaviour, service quality or market fairness while it remains a draft.

Consultation is another area where formal systems often exceed practical use. Serbia had an established framework and an electronic portal, but consultations covered only about 29 per cent of draft laws and 30 per cent of draft regulations in 2022 (OECD Serbia profile). In North Macedonia, consultation summaries are available through the ENER platform, but timelines, objectives and forthcoming topics are not systematically published in advance (OECD North Macedonia profile). These weaknesses reduce the ability of smaller firms and civil society organisations to prepare evidence and participate meaningfully.

Digital portals do not guarantee digital government. North Macedonia had only 95 fully transactional services among about 392 assessed services in 2022, and only 50 institutions were connected to the national interoperability platform. Montenegro connected 37 registers against a target of about 300. Serbia also continued to face limited data exchange and incomplete application of the once only principle. The common problem is not the absence of websites, but incomplete redesign of administrative processes behind them.

Judicial delay continues to weaken legal certainty. In Montenegro, the time needed for commercial court decisions rose from 197 days in 2021 to 442 days in 2022 (OECD Montenegro profile). The regional OECD assessment reports that civil and commercial cases take 572 days on average and that alternative dispute resolution remains underused (OECD Western Balkans Competitiveness Outlook regional profile). Faster registration cannot compensate for slow contract enforcement.

Access to finance programmes also produced uneven additionality. Firms consulted in North Macedonia valued grants more than the loan scheme. They described loans as complex, costly and better suited to enterprises that were already bankable. The reported constraint was therefore not finance in the abstract, but suitable risk bearing capital for younger or less collateralised firms. Grant administration also created burdens through repeated checks, gaps between calls and procedures that sometimes shifted benefits towards financial intermediaries.

Finally, the sustainability of business support organisations was weak. Several participating organisations remained dependent on donor projects and lacked viable service models. Staff turnover and fragmented donor support further reduced continuity. Building an organisation is not the same as building a durable market for its services.

Lessons Learned

The first lesson is that the regulatory cycle must be treated as a chain. Diagnosis, impact assessment, consultation, legal drafting, adoption, implementation, enforcement, monitoring and review are interdependent. Assistance focused mainly on drafting can report high output delivery while leaving the actual business constraint unchanged.

The second lesson is that digital reform succeeds when law, data and service design move together. High electronic tax filing reflects an integrated process with clear obligations and incentives. Low use of optional portals often reflects weak interoperability, parallel paper procedures or limited user support. Digitalisation should therefore be measured by completed transactions, data reuse, processing time and user experience, not by portal counts.

The third lesson is that finance instruments should be judged by additionality. A loan extended to a firm that could already borrow may be commercially sound but creates limited public value. Guarantees, grants, seed capital and advisory services can address different constraints. Programme design should identify which firms would otherwise remain underserved and track whether support changes investment, productivity, energy use or employment.

The fourth lesson is that formal alignment does not eliminate political economy. State owned enterprises, informal competition, corruption risks and selective enforcement can preserve unequal conditions even when rules are aligned with European standards. Bosnia and Herzegovina illustrates this interaction. Its banking indicators improved while its broader institutional environment remained weak.

The fifth lesson concerns evidence. The EU 27 is assessed through the OECD Indicators of Regulatory Policy and Governance, while Western Balkan economies are assessed through SIGMA, OECD competitiveness dimensions and other tools. These instruments differ in scope, definitions and timing. Fully harmonised numerical comparison of regulatory quality is therefore not available. This limits league table comparisons but strengthens the case for a shared accession monitoring framework.

Implications for Policy and Programming

  1. Reward full cycle delivery. Reform milestones should cover adoption, implementing rules, budget, staffing, digital processes, enforcement and review. Draft legislation alone should not count as a completed reform.
  2. Make consultation traceable. Administrations should publish forward plans, consultation evidence and a reasoned response showing how comments changed the proposal. This would improve accountability in both the EU and the Western Balkans.
  3. Reinforce independent quality control. Regulatory oversight bodies need authority to return inadequate impact assessments and require consultation where legal criteria are met. Quality control should also cover delegated and secondary legislation.
  4. Build evaluation into regulation. Important rules should include objectives, indicators, data responsibilities and a review date at adoption. The EU experience shows that ex post evaluation remains the weakest part of better regulation even in relatively mature systems.
  5. Measure digital completion. Monitoring should track end to end transactions, processing time, accessibility, data reuse and user satisfaction. Portals and service inventories are useful outputs, not final outcomes.
  6. Prioritise commercial justice. Court timeliness, enforcement of judgments, mediation use and insolvency performance should receive the same attention as business entry. Predictability after a contract fails matters as much as speed when a company starts.
  7. Target finance to market gaps. Public support should combine guarantees, grants, seed capital and advice according to firm maturity and risk. Evaluations should test whether supported firms were genuinely underserved and whether private finance was mobilised rather than displaced.
  8. Strengthen ownership and sustainability. Business support organisations should have credible revenue models, mandates and staffing plans before donor finance ends. Partner institutions should co design support and finance recurrent costs where public functions are involved.
  9. Address competition and integrity together. State ownership policy, procurement transparency, corporate integrity and action against informal competition are part of the business environment, not separate governance topics.
  10. Use Growth Facility conditionality carefully. The Reform and Growth Facility creates an opportunity to connect payments with verified implementation. Indicators should balance legal alignment with service delivery and enterprise experience, while avoiding incentives to choose easily counted but low impact reforms.

Potential for Scaling and Transferability

Several components are suitable for regional scaling. Credit guarantee mechanisms can be adapted where banking supervision is credible and lenders have incentives to serve smaller firms. Electronic tax filing and business registration can transfer where identification, payment and data exchange systems are ready. Consultation portals and administrative procedure registers are relatively affordable, but their value depends on mandatory use, quality assurance and public feedback.

Scaling should not mean copying a platform without its institutional foundations. Bosnia and Herzegovina requires solutions compatible with its complex distribution of authority. Kosovo faces gaps in digital and regulatory data. Montenegro must connect digital progress with judicial performance. North Macedonia needs stronger implementation ownership and interoperability. Serbia can scale established digital and regulatory tools, but should increase their consistent use. Albania needs to combine its digital public service model with support for people and firms facing barriers to access.

Regional learning would be valuable in four areas: guarantee fund governance, interoperable registers, consultation quality control and evaluation of existing regulation. Common indicators under the accession process could reduce the present evidence gap. Transfer should be conditional on local mandate, data capacity, recurrent finance and institutional ownership.

Methodological Notes

This synthesis triangulates five main evidence types. The OECD EU report uses three rounds of the Indicators of Regulatory Policy and Governance, covering conditions at the end of 2017, 2020 and 2023. It assesses formal systems, methodology, oversight and transparency for impact assessment, stakeholder engagement and ex post evaluation.

The OECD Western Balkans Competitiveness Outlook uses a broader framework and scores policy dimensions on a scale from 0 to 5. The World Bank Business Ready framework separates regulatory framework, public services and operational efficiency. The 2025 edition was interim and covered 101 economies. These sources are useful for comparison but do not prove that higher scores caused better business outcomes.

The North Macedonia evaluation used mixed methods and the OECD DAC criteria, complemented by EU added value. It included 49 stakeholder interviews, focus groups and visits to 25 firms. This supports credible interpretation of implementation and firm experience, but the sample is not statistically representative. The evaluation identified micro level effects while explicitly limiting claims about national productivity, jobs or poverty.

The analysis also draws on a Serbia specific semiannual business environment report and European Commission programme information. Data years differ across sources. Country comparisons should therefore be read as a structured evidence review, not as a harmonised ranking.

Stakeholder Perspectives

Participating firms in North Macedonia valued practical investment support, advisory services and grants that enabled modernisation, energy efficiency and reduced waste. Their criticism focused on loan complexity, repeated verification, uncertainty between grant calls and the limited fit of standard finance for less established businesses. This perspective suggests that programme success depends as much on transaction costs and instrument design as on the nominal amount of finance.

Implementing organisations reported that European support brought useful standards, methods and political leverage. At the same time, several business support organisations remained dependent on donor projects. Their experience underlines the need to distinguish temporary project capacity from durable institutional capability.

Business participants in Serbia have similarly raised concerns about frequent regulatory change, parafiscal charges, slow commercial disputes and inconsistent consultation. The coexistence of improving digital services with continuing uncertainty shows why user experience must complement institutional self reporting.

Key Data Points and Indicators

  1. EU ex post review: Only about one quarter of EU Member States require periodic evaluation of existing regulation (OECD EU report).
  2. Consultation feedback in the EU: Fewer than half of Member States publish a response explaining how consultation input influenced proposals (OECD EU report).
  3. Global implementation gap: Business Ready records about 68 points out of 100 for regulatory quality and operational efficiency in business location, compared with about 43 for public services and transparency (World Bank analysis).
  4. Serbia consultation coverage: About 29 per cent of draft laws and 30 per cent of draft regulations were consulted on in 2022 (OECD Serbia profile).
  5. Montenegro commercial justice: Commercial court decision time rose from 197 days in 2021 to 442 days in 2022 (OECD Montenegro profile).
  6. North Macedonia digital services: Only 95 of about 392 services were fully transactional in 2022, and 50 institutions were connected to the interoperability platform (OECD North Macedonia profile).
  7. Albania financial inclusion: Bank account penetration was 44.2 per cent of adults in 2021, compared with a Western Balkans average of 71.2 per cent (OECD Albania evidence).
  8. Regional digital skills: At least basic digital skills were held by 34 per cent of adults in the Western Balkans, compared with 56 per cent in the EU (OECD Convergence Scoreboard).
  9. IPA III: EUR 14.162 billion is available for 2021 to 2027 (European Commission IPA overview).
  10. Reform and Growth Facility: EUR 6 billion is available for 2024 to 2027, comprising EUR 2 billion in grants and EUR 4 billion in concessional loans (European Commission Growth Plan).

Further Resources and Links

Primary evidence

Programme and evaluation resources

Country evidence