The European Union faces a mounting challenge in the Western Balkans as a surge of foreign investment, much of it from the United Arab Emirates (UAE), tests the bloc’s ability to promote transparent governance while enlargement gathers new political momentum.

A new study from the Carnegie Europe think-tank warns that while foreign-funded marinas, towers and coastal resorts have helped reshape skylines from Belgrade to Durrës, the terms under which these projects proceed risk entrenching weak institutions rather than preparing countries for EU membership. The report argues that the EU must better align its political ambitions with economic engagement if it wants to steer the region’s development model.

“In systems where administrative capacity is weak and political loyalty outweighs merit, the race to attract capital can erode rather than strengthen institutions,” Carnegie writes. The result, it says, is a model where progress is “measured more often in concrete than in governance”. 

High-stakes moment

Foreign investment has surged in recent years as Western Balkan governments court financiers to drive growth and bolster political legitimacy. Between 2020 and 2023, net FDI inflows averaged 6.4% of GDP — more than four times the EU average, according to the report — with Serbia, Montenegro and Albania capturing the lion’s share. Much of this money has flowed into real estate, coastal redevelopment and tourism rather than industry, sectors Carnegie notes are “prone to speculation and money laundering everywhere”, especially where oversight is weak.

Among the most active external players is the UAE. Through networks of real-estate developers and bilateral agreements, the country has financed flagship commercial and tourism ventures across the region. These investments, Carnegie warns, often take advantage of “the space between EU rules and domestic enforcement”, particularly in candidate countries where political elites can “secure faster alternative sources of legitimacy and capital”. 

Carnegie frames this dynamic through the concept of “corrosive capital”, developed by the Center for International Private Enterprise (CIPE) and defined as investment that “not only exploit[s] governance gaps in countries with weak or corrupt structures, but also make[s] those gaps wider”. 

The report argues that enlargement conditionality, once the EU’s most powerful influence in the region, has lost traction when governments find less demanding partners to bankroll transformative projects. “The issue is a lack not of norms but of enforcement and credible consequences when those norms are breached.”

Governance vulnerabilities in Montenegro 

Montenegro, long considered one of the region’s frontrunners for EU accession, is cited by Carnegie as a prime example of how formal alignment can mask deeper governance vulnerabilities. While Brussels has praised Podgorica’s legislative progress, large investments have continued to “bypass competitive procurement”. 

The report points to a draft 2025 Montenegro-UAE framework agreement that would have allowed Emirati-backed developments to operate outside national planning rules, using “simplified authorisation” procedures and special zones governed by bespoke regulations. Though ultimately suspended, its provisions showed how major strategic ventures could unfold “beneath the legal surface” of the EU rule-acquis.

In the coastal town of Ulcinj, a luxury tourism plan promoted by UAE developer Eagle Hills — initially announced as a €35bn investment — was exempted from established procurement requirements. Civil society groups warned the deal enabled land allocation “without the need for public bidding”, while environmental groups raised alarms over potential damage to Velika Plaža and the Buna/Bojana Delta.

“Montenegro’s experience illustrates how EU enlargement toward states with rule-of-law deficits can foster political economies shaped by corrosive capital—where external investment exploits governance gaps instead of closing them,” the report says. “Corrosive capital emerges not in defiance of Europeanisation but under the cover of it.”

Belgrade Waterfront

Serbia’s Belgrade Waterfront, a €3.5bn riverfront redevelopment led by Eagle Hills, remains one of the most emblematic examples of corrosive capital, Carnegie argues.

The project proceeded through a series of “legal exceptions and political discretion”, backed by a special law that “bypassed public-oversight and urban-planning requirements”. Authorities designated the scheme a “project of national importance”, allowing rapid approvals and curbing public consultation. Activists filed more than 2,000 objections during planning procedures, but nearly all were dismissed.

Though the Serbian government has hailed the development as a symbol of national renewal, the cost to taxpayers has drawn scrutiny. According to Carnegie, Serbia financed over €1bn in preparatory works while more than €1.2bn worth of public land was transferred to the project entity “without compensation”. 

The 2016 overnight demolitions in the Savamala district — carried out by masked men who were never prosecuted, and sparking a wave of protests — exposed the coercive side of discretionary governance. The episode, Carnegie argues, illustrates how “opaque exemptions erode trust” and “undermine the attainment of a unified and transparent system”. 

Albania’s controversial port transformation

In Albania, the reconstruction of the Port of Durrës into a luxury marina has become a lightning rod for criticism. Carnegie describes the plan as “a case study in corrosive capital”, where public authorities traded “regulatory discipline” for visual spectacle and rapid delivery.

The €2bn redevelopment, led by a UAE-backed consortium, was granted “strategic investor” status, opening the door to land transfers, tax incentives and fast-tracked approvals. While promoted as an upgrade aligning Albania with EU maritime standards, the project is backed by only “€160mn of injected capital — half guaranteed by the state.” Commercial port activities will be relocated to Porto Romano at significant cost.

The European Commission withdrew earlier funding, warning that investment regulations must ensure “transparency, competition, and equal treatment”. Domestic critics say the public will shoulder the risks while the benefits accrue to a narrow circle of political and business interests. The project, the report notes, is widely perceived as “a deal for the few”. 

Moreover, the shift of cargo operations from Durrës to Porto Romano, a former industrial zone contaminated by decades of chemical and petroleum waste, underscores the highlights fragilities of investment-first planning.

Carnegie warns that the Durrës-Porto Romano restructuring “created a chain reaction of ecological displacement, institutional opacity, and public liability”. Feasibility studies are incomplete and impact assessments delayed, the report says, while dredging risks disturbing “toxic sludge that contains heavy metals and hydrocarbons”. 

Biodiversity-rich areas such as the Fllakë Lagoon now sit adjacent to “spoil heaps left by preliminary works”, with fishermen reporting declining catches. While Albania’s environmental laws mirror EU directives, Carnegie argues enforcement remains selective, allowing corrosive capital to thrive in the gap between formal compliance and practice.

EU oversight, the report concludes, is often limited to “procedural language”, normalising exceptionalism rather than curbing it.

A regional pattern 

Across Albania, Montenegro and Serbia, Carnegie identifies a shared political economy in which major projects advance through centralised negotiations, ad hoc legal frameworks and limited public scrutiny. Municipal authorities are frequently sidelined, and oversight bodies lack resources and independence.

While civic activism has constrained some projects, notably in Belgrade, EU influence has been limited. The bloc’s financial presence, the report argues, has not translated into alternative, rules-based investments that can compete with rapid, high-visibility capital from outside Europe.

“The decisive variable is governance, not geography or investor origin,” Carnegie writes. EU member states, such as Hungary and Croatia, have shown that UAE-backed projects can be halted or reshaped when subject to robust oversight and independent planning systems.

The report proposes five steps to strengthen EU leverage. First, it urges the EU to use accession chapters more strategically, embedding experts inside ministries to identify “in real time” how “legal loopholes, administrative shortcuts, or political discretion” derail alignment. Chapter closure should hinge more directly on procurement integrity, environmental permitting and judicial independence.

Second, the creation of a regional “corrosive capital watchdog” would provide public dashboards comparing major foreign-backed projects across borders.

Third, municipalities should be empowered through EU-supported partnerships, giving them the tools to scrutinise and manage investment “on their own terms”. 

Fourth, a proposed regional centre for sustainable tourism and environmental governance in Ulcinj would address chronic shortages of professional capacity to apply EU standards.

Finally, Carnegie calls for an EU-UAE framework ensuring that Emirati investment is channelled through procurement and environmental rules compatible with EU law. A municipal-level investment platform could direct capital toward smaller, transparent projects, while an EU-led observatory would benchmark compliance.

Across all measures, the report stresses that credibility depends on enforcement: “Without visible partnership and enforceable standards, others step in to define what development looks like.”

The Carnegie study concludes that Western Balkan governments, municipalities and civic actors already shape what foreign capital can achieve. The EU’s task is to ensure those rules are clear, consistent and resilient.