1. EU Funded Projectimplemented by Support to IFI Coordination in the Western Balkans and Turkey 26 February 2014 A New Growth Model in the Western Balkans? B Snoy, IFI Coordination Office Regional Cooperation Council Western Balkans and Europe 2020 – Supporting Convergence and Growth, 31March 2011

2. 2 Context oReview of latest thinking from EC, IFIs and Think Tanks regarding policy changes needed post-crisis oContribute to the formulation of new growth strategies/agenda/initiatives and to development of new assistance programmes oLink with assessment of impact of austerity measures on investment programmes oSynopsis report available in April

3. 3 Limitation of pre-crisis growth model oUnbalanced growth driven by domestic demand with high imports oToo much consumption (both public and private), too little domestic savings oWeakness and limited diversification of export sector oInvestment excessively concentrated in construction activities oHigh size of government compared to countries at comparable per capita income level

4. 4 Limitations of pre-crisis growth model oHigh dependence on foreign capital inflows oFDI concentrated on acquisition of privatised assets (primarily in the financial sector) with little greenfield investment oLow contribution of labour inputs to growth oFinancial sector fragilities oIncomplete transition linked to incomplete reforms

5. 5 Main themes for new growth agenda oFrom exogenous to endogenous growth (EC) oRecreating fiscal room for manœuvre (IMF) oPlaying the global game of competitiveness (World Bank) oInvigorating trade, integration and export-led growth (EBRD) oImproving the business environment (EBRD & OECD) oDeveloping local currency finance and new instruments such as PPPs (EBRD & OECD) oContribution of think tanks & academics

6. 6 EC: From exogenous to endogenous growth oEuropean Economy Occasional Paper 62, June 2010 oNeed for a growth model less dependent on external capital inflows oEncourage flows that enhance the intrinsic competitiveness & productive capacity of economies oModerate those which fuel domestic and external imbalances oShift the composition of investment to tradable sector oPromote structural reforms that enhance domestic savings oFocus on completion of unfinished transition reform agenda, including labour market reform oConvergence with adoption of acquis communautaire

7. 7 World Bank - Playing the global game of competitiveness oShift of emphasis from demand to supply side oPrepare for a more competitive external environment oSkills, technology absorption, capacity, institution building & the overall business environment will become more important oThe new markets to be conquered are those of the emerging countries

8. 8 « Turmoil at Twenty » World Bank, 2010 Infrastructure and labour skills emerged as binding constraints to growth & raised cost of weak institutions Private investment crucial for opening infrastructure bottlenecks Requires competitive trading regimes & predictable &credible regulatory frameworks State has the important task of continually strengthening institutions that provide essential public goods (e.g. regulation, supervision and education)

9. 9 « Western Balkan Integration and the EU » World Bank, 2008 oDeeper integration within CEFTA will bring benefits. Need for an agreement on services oHuman capital development and return migration can help oReduction in telecommunication costs and efficient transport are catalysts for development

10. 10 « Investment matters » World Bank, 2009 Investment rates are too low ICT investment plays important role in improving the quality of overall investment WBC trail in R&D spending & most of funding comes from the public sector Improving the quality of public investment is key Plan properly and implement public infrastructure projects in order to maximize the « crowding in » effect and avoid « crowding out » effect

11. 11 Improving the business environment oCommon denominator of policy advice given by EC, OECD and IFIs oMajor business environment concerns: skills availability, infrastructure, tax administration, corruption and crime oSignificance of transport as a business environment constraint oNeed to enhance broadband internet penetration

12. 12 Conclusions The end of complacency: the transition agenda must be completed Improving the business environment is the cornerstone of the post crisis agenda New growth agenda is a revised and reinforced version of the old agenda of structural reforms. « Europe 2020 can provide inspiration for a framework for smart, sustainable and inclusive growth »

13. EU Funded Projectimplemented by Support to IFI Coordination in the Western Balkans and Turkey 26 February 2014 Thank you for your attention!