Presentation on theme: "7th PERC Summer School Bratislava, 6-7 October 2014 Investment and employment perspectives. FDI and EU accession of SEE countries and NIS Bruno S. Sergi."— Presentation transcript:
7th PERC Summer School Bratislava, 6-7 October 2014 Investment and employment perspectives. FDI and EU accession of SEE countries and NIS Bruno S. Sergi University of Messina
EU accession vs. Eurasian Project SEE and NIS European Union vs. Eurasian visions Russia/China
Key points on labour markets and growth - From global to regional facts Global unemployment rose by nearly 4 million in 2013, over 30 million higher than before the onset of the global crisis, reaching 200 million, with the global unemployment rate unchanged at 6%. With few exceptions, labour productivity growth rates in developing regions have been higher than those in the advanced economies; this trend is projected to persist over the medium term. Productivity growth and faster growth are key ingredients for sustainable improvements in living standards and poverty reduction (however, note Brazil ….. and Russia …..). The US economy has created 248 thousand jobs in September 2014 and the unemployment rate fell to 5.9%. The manufacturing sector has been one of the drivers of this recent growth in employment. Several Australia’s job boards connecting age-friendly employers looking for older workers (45+ and sometimes 40+ !!!).
Growth in SEE Region - 2013 A good agricultural year and growth in industry supported the region’s economic activity in 2013. Increased demand for regional exports (NB: exports can contribute to growth and to reinforce shared linkages between productivity and export performance). Exports grew by ca 17%, led by particularly rapid growth of Serbian exports: export of machinery and transport equipment (e.g., Serbia and Macedonia). Mineral fuels exports (Albania and Montenegro). The region’s domestic demand contracted, due to declining remittances to the region too, reflecting a sluggish economic recovery and prevailing high unemployment in EU countries. Although the region experienced limited growth of 2.2% in 2013 (growth at or exceeding 3% in Kosovo, Macedonia and Montenegro), such an economic recovery did not translate into job creation unemployment, falling remittances and limited credit to the economy were unable to boost domestic consumption or investment in the region.
Unemployment While in the Developed Economies and the EU labour market conditions showed no signs of improvement during 2013, in Central and South-Eastern Europe (non-EU) and CIS countries, the fall in unemployment recorded since the crisis peak of 2009 was reversed in 2013. Youth Unemployment in South East Europe: Averting a Lost Generation Unemployment was at an average rate of over 24% in 2013, particularly prevalent among vulnerable groups, such as youth, women and the low-skilled. Youth unemployment has the potential to permanently hamper the region’s first generation to grow up after the transition away from communism and unemployment early in one’s career can permanently reduce future earnings and delay the acquisition of valuable on-the-job skills (NB: youth themselves are an extremely heterogeneous group). This means that countries could miss out on their most productive generation to date. Some 50% of the working population is now outside of the workforce: unemployment among youth averaged over 49% (as high as 55.3% in Kosovo and 62.8% in Bosnia and Herzegovina).
FDI Manufacturing sector Oil-related industries Export and services
Russia as a special case FDI flows from Europe have been shrinking recently, also in anticipation of escalating tensions over Eastern Ukraine, and speeded up during the first quarter of 2014, when the first wave of sanctions was agreed. FDI flows from Asia (mostly China) picked up during the same period. During the first three months of 2014, European net FDI inflows to Russia amounted to $2.9bn (2bn of which coming from the euro area), i.e. down 63% year on year. Asian net FDI flows to Russia were instead $1.2bn (1bn of which coming from China), i.e. up 560% year on year, but capital flight is expected to reach $120bn (2014-end)and the value of the ruble is plummeting. The amount of loans to Russia non-financial corporations and households from foreign lenders, over the period 2007-2014Q1: these are net loans and show the expected negative net new lending by European lenders and the positive and net new lending by Chinese lenders. For now, Russia’s growth is almost zero, inflation ca 8%, and sanctions have limited Russia’s access to international capital markets and much needed technology. The government will not stimulate the faltering economy by increasing spending, but injections of state capital will support major companies and infrastructure development (……. vs. compare with Brazil).
FDI: The “Country of Origin” preferences The population of Moldova, Ukraine and Russia prefer investment from the EU (52%, 57% and 43% respectively). Uzbekistan and Azerbaijan are orientated towards investment from “other countries beyond the CIS and the EU” (NB: for Uzbekistan, the most preferred “other countries” are Japan and China; for Azerbaijan Turkey). Georgia has approximately an evenly high level of investment preferences for the EU countries (52%) and “other countries” (59%), where the most preferred “other country” is the U.S. (48% of respondents). Investment from CIS countries is predominantly preferred in Tajikistan (74% of respondents) and Kyrgyzstan (65%). Among post-Soviet countries, the most attractive source of investment is Russia (39%). NB: In 2014 over 13,000 people from ten CIS countries and Georgia (between 1,000 and 2,000 people in each country) took part in the EDB’s annual poll on the topic of integration priorities of population. Source: The Centre for Integration Studies of the Eurasian Development Bank, “EDB Integration Barometer – 2014”. Eurasian Development Bank’s Centre for Integration Studies and the Eurasian Monitor International Research Agency.
Special cases: Oil-related industry The strong correlation between economic performance and oil-related industry underscores the continued reliance of countries such as Russia, Kazakhstan and Azerbaijan on their energy exports. Oil-related exports resulted in a high exports-to-GDP ratio and an increase in the realization of much-needed investment in the energy sector helped the economy to grow rapidly. e.g., oil-related revenues have allowed the Azerbaijani government to invest in social protection.
Export and Services Services are increasingly being traded internationally, recording a 5% annual growth (7% in 2014/Q1 and 6% 2013/Q3). The most dynamic services sectors between 2008 and 2013 were computer and information services (9.1 % annual average growth), followed by personal, cultural and recreational services (8.9 %), then by other business and professional services (6.8%). It is in computer and information services sector that developing economies record highest growth rates: 13 % on average annually since 2008, compared with 7.5 % for developed countries. Other fast growing services sector for developing nations are financial and insurance services, with average yearly rise of almost 11%. Sources: UNCTAD and WTO
Balkan Economic Competitiveness Makes Uneven Progress The World Economic Forum’s annual survey measured 12 factors, including infrastructure, education and training, labour market efficiency, technological readiness and innovation in 144 countries worldwide. The latest Global Competitiveness Report 2014-2015 shows that Bulgaria, Romania, Macedonia and Serbia had moved up in the world competitive rankings. Croatia and Albania dropped a few positions. (Note that Bosnia and Kosovo were not included in the survey). Bulgaria is the leader in SEE, ranked 54th overall in the world; Albania as the worst (97th overall), just behind Serbia; Romania ranked 59th overall in the world and showed the biggest progress compared to last year’s report, in which it was ranked 76th. Bulgaria scored worst when it comes to “favouritism in decisions of government officials” where it was ranked 134th. Romania ranked 116th for the “wastefulness of government spending” and for its capacity to retain talent ranked 128th. Macedonia (63rd) moved up per ten places. The country scored worst, in 108th place, for its market size, GDP and exports, while it scored best and was ranked 38th for its goods market efficiency. Montenegro remained in 67th place, the same as last year. The country was awarded its lowest rank, 134th, for its market size, and got its best ranking for health and primary education, 29th. Serbia on the other hand, moved five places up, reaching 94th place on the list. The country was ranked 140th for “cooperation in labour-employer relations”, was also given a lowly ranking for government efficiency, 135th. The best ranking for Serbia was 49th place for technology.
Source: Whiteshield Partners Capability and Innovation Potential Index 2013; UN Comtrade database, Whiteshield Partners. Legend – Tier 1: Strong capabilities – Tier 4: Limited capabilities.
Central Asia/Eurasia Lack of trust: in the light of the Soviet Union heritage, policy-makers may find it difficult to go beyond the national focus paradigm to embrace collaboration. A new mindsets of policy-makers is a must with a common and shared vision. Limited national capabilities: maximizing the potential of energy resources, creating diversified economies and integrating into regional value chains. Most countries of the region are far behind the curve in terms of capability, innovation and knowledge building. Some countries have vast lands to manage, others with complex sub-national regional issues or governance challenges. To unlock their competitiveness potential, most countries also have an imperative to align their efforts to interconnect transport and logistics routes allowing them to compete regionally and internationally.
Conclusions The long-term success of these economies is still dependent on imported productivity gains. However, as these countries approach the technological standards of more advanced economies, they require to unlock new sources of long-term growth and a renewed focus on improving competitiveness: - strengthened governance and anti-corruption, - better social protection as it seems that economic performance is stronger in countries that devote growing amount of resources to social protection, although causation can go in both ways, - improve higher per capita incomes that lead to better health and education, which in turn boost productivity as well as improves job quality, - active labour market policies, - shifting the focus of education systems towards science, technology and engineering to seize the large benefits from education and innovation, - greater integration in European/Asian and global markets, - creating an investment climate conducive to export-led growth. Thank you!