The Yugo, a communist-era car from the former Yugoslavia, was widely ridiculed for shedding its parts on roads across Europe and the United States. Zastava, which made Yugo, fared even worse than its product. After the Balkan conflicts of the 1990s, the factory was reduced to producing only 18,000 cars in 2002. Then Fiat entered the picture in 2008, investing more than a billion euro to make Zastava one of its most modern factories anywhere in the world. Now it is producing more than 100,000 cars a year and exporting to the European Union and the United States. Bosch and more than forty other international companies have set up operations in Serbia to supply parts to this factory and to other car producers in Europe; domestic investors also started entering the sector. Exports of the Serbian automotive industry has increased almost tenfold since the 1990s and are likely to expand further with recovery of European and global growth. Serbia's emergence as a successful exporter of competitive cars and parts is a symbol of a new era for the six countries of the Western Balkans: Albania, Bosnia and Herzegovina, Kosovo, the Former Yugoslav Republic (FYR) of Macedonia, Montenegro, and Serbia. As late reformers, they can benefit from rising wages in the rapidly reforming transition countries of the European Union and from greater cost consciousness among firms adapting to lower global growth. The six (of which all but Albania were born from the break-up of Yugoslavia) largely missed out on earlier opportunities to thrive in the post-Cold War era. Today, with peace and enhanced collaboration, coupled with future prospects of European Union membership, the Western Balkan countries have another opportunity to build prosperity. This report addresses the following question: How can these countries raise economic growth rates and ensure sustained improvement in welfare for their citizens? Finding the right answer will help the countries' aspiration for income convergence with the EU, where on average people enjoy incomes that are three times higher
