For all the political promises about the Western Balkans’ European future, one figure offers a sobering measure of how far that future remains from everyday life: 43 percent.

According to the OECD, the region’s average GDP per capita reached 43 percent of the European Union average in 2025, compared with 27 percent in 2003. That is progress, but it is also a reminder of how slowly the distance between the Western Balkans and their richer neighbors is shrinking. Two decades of growth have narrowed the gap without putting prosperity within easy reach.

A February 2024 study by the European Bank for Reconstruction and Development offered an even starker warning. Based on the growth trends it examined, full convergence with EU living standards could take 70 years or more. The estimate was conditional, not a prediction of an unavoidable future. Its significance lies in what it suggests about the cost of continuing along the same path.

The question, then, is larger than how quickly the region’s economies will grow next year. Why has growth failed to bring them closer to developed European economies more rapidly? And what would have to change for the next generation to inherit something better than another promise of eventual convergence?

The answer involves more than attracting investment, securing EU membership or improving institutions, although all three matter. It also depends on what an economy produces, how effectively it uses capital and whether domestic companies can compete beyond their own borders. Growth becomes durable prosperity when businesses acquire the capacity to do more valuable work.

Serbia illustrates why capital inflows, impressive as they may be, cannot tell the whole story. The European Commission’s 2025 Serbia Report recorded foreign direct investment equivalent to roughly $5 billion in 2024, or 5.6 percent of GDP. For an economy of Serbia’s size, that is a substantial inflow. But the amount invested reveals less than politicians might wish about how profoundly an economy is changing.

A foreign company can open a factory, hire workers and raise exports. Those are real gains, particularly in communities where secure employment has been scarce. The deeper question is whether local suppliers enter the company’s supply chain, employees acquire advanced skills, and activities such as engineering, research and design become established in the country. A factory’s immediate contribution and its capacity to strengthen the surrounding economy are related, but they are not identical.

What matters is the knowledge, expertise and commercial capability that investment leaves behind. When competitiveness rests chiefly on cheap labor and state subsidies, a country risks remaining a convenient place to manufacture products conceived elsewhere. As wages rise, that model becomes harder to sustain unless productivity rises with them.

Foreign investment is therefore an essential opportunity, especially for economies with limited domestic capital. Its benefits are greatest when it helps local businesses become stronger, builds skills that travel between employers and supports activities capable of generating higher incomes. The challenge is to make an investment’s value extend beyond the investor’s own operations.

Poland and Romania offer useful points of comparison. Both have benefited from EU membership, access to the single market and connections with European industry. Their experience shows that catching up can proceed more quickly than it has in the Western Balkans. Yet treating their progress simply as a reward for joining the EU overlooks the development of production, skills and businesses able to serve international customers.

Romania’s computer and information services sector is particularly instructive. In its Transition Report 2024–25, the EBRD describes how targeted tax measures, liberalization and an educated workforce helped the sector develop. Its analysis identifies Romania as having the highest labor productivity in these services among EBRD economies belonging to the EU since 2010.

The lesson is not that a tax break can conjure a competitive industry into existence. Policies had people and capabilities to work with. An educated workforce helped businesses take advantage of the incentives, while companies’ ability to compete internationally gave the sector room to expand. The strength lay in how those elements worked together.

Serbia and its neighbors need not reproduce Romania’s model. They need to identify where their own capabilities could support competitive industries, whether in industrial technologies, energy, software, financial services or specialized manufacturing. These are possibilities to examine, not a ready-made list of national winners. The relevant question is how existing strengths can develop into products and services that customers abroad will pay more to buy.

That requires a broader understanding of productivity. Too often, the discussion reduces it to workers’ education or willingness to work harder. Skills matter enormously, but even an excellent employee cannot compensate indefinitely for obsolete machinery, poor management or disorganized production. The conditions in which people work help determine what their efforts can achieve.

Technology, business processes, infrastructure, access to finance and predictable rules all shape productivity. A small manufacturer may have a good product and loyal customers yet lack the equipment or expertise to fulfill larger orders. A service business may have talented staff but no management structure capable of supporting expansion. These limitations can hold companies back even when demand exists.

Without long-term financing, investment in automation and new technology gets postponed. When every decision rests with an owner, expansion into several markets can overwhelm the business. When regulations are unpredictable, investments that take years to repay become more difficult to justify. Improving productivity means addressing those constraints together, rather than assigning the entire burden to workers or schools.

The financial system has a central role in that process. Banks provide working capital and finance investment and expansion, but a conventional loan will not suit every promising business. A company with steady revenues and predictable cash flow may be able to borrow on reasonable terms. A young technology company without that record may need investors willing to accept greater uncertainty in exchange for a share of its future value.

Venture capital, private equity and corporate bond markets can serve different needs as businesses develop. None is a universal solution, and each requires an appropriate legal and commercial environment. Together with bank lending, however, they can broaden the routes through which viable companies obtain the resources to grow. An economy needs financing suited to the businesses it hopes to develop.

Those businesses also have responsibilities. Professional management, transparent accounts and sound corporate governance make it easier for outside investors to assess risks and commit money for the long term. Expanding access to capital requires both financial institutions able to support growing companies and companies capable of earning their confidence. Available money does little for development if productive firms cannot use it.

EU integration can strengthen this environment, but it cannot substitute for domestic change. Membership brings access to the single market and a shared regulatory framework. Neither automatically makes a business more efficient or ensures that an investment produces lasting benefits. The opportunities become more valuable when courts function effectively, competition is fair, infrastructure is reliable, and education equips people for the work available.

In Serbia, the relationship between substantial foreign investment and the domestic private sector exposes this challenge. The European Commission’s 2025 report notes the state’s continuing importance in the economy, weaknesses in the governance of state-owned enterprises and an uneven playing field that constrains private businesses. Attracting investors while leaving those problems unresolved limits what investment can accomplish.

Domestic companies need room to compete on quality and price, with access to finance and predictable operating conditions. If political connections influence who succeeds, productive businesses face an additional obstacle to expansion.

European integration should therefore be judged partly by what happens inside the economy: whether companies become more efficient, new export activities emerge and workers gain access to better jobs. Laws adopted and funds received are necessary measures of progress, but incomplete ones.

Demography makes the cost of delay harder to ignore. Emigration, aging populations and shortages of particular skills are reducing the pool of people available to build a more productive economy. Slow development encourages skilled workers to leave; their departure can, in turn, make faster development more difficult. The region cannot assume that its workforce will remain intact while reforms proceed at a comfortable pace.

Nor should stopping all emigration be the goal. People move to study, pursue careers and gain experience, and mobility is part of European economic life. The distinction is between leaving because an opportunity abroad is attractive and leaving because a worthwhile career at home seems impossible. Governments cannot erase that difference with campaigns appealing to patriotism.

Retaining skilled people requires competitive pay, competent management, greater professional responsibility and businesses that offer careers beyond a small domestic market. Those opportunities depend on an economy capable of supporting them. Companies that become more productive can afford better wages and more demanding roles, giving people stronger reasons to build their futures locally.

For Serbia and the wider Western Balkans, the next decade should be assessed by the economy that growth creates. Investment announcements, employment figures and new roads remain important. So do domestic firms’ spending on technology, their ability to sell more valuable products abroad and their capacity to expand without permanent reliance on subsidies. The latter indicators attract fewer ceremonies, but reveal whether the foundations of prosperity are becoming stronger.

Central and Eastern Europe’s experience offers grounds for ambition. The Western Balkans’ slower progress also shows the limits of relying on proximity to the EU, inexpensive labor and foreign capital. Sustained convergence requires institutions that support long-term planning and businesses able to turn investment into higher productivity.

Seventy years is a warning, not a timetable the region must accept. Its future depends on whether economic growth gives people a credible reason to stay and gives domestic companies the means to compete. The promise of catching up with Europe will mean more when it becomes visible in the work people do, the wages they earn and the careers they can imagine at home.