 CIS 7 Poverty and Growth Conference Investment Climate and Financial Sector Reforms EBRD 1

Investment Climate is a complex, loose notion Focus on Governance: What should be the relationship between the state and private enterprises? transparent and predictable rules level playing field - allow competition to work attractive climate for investors accountable: listen to enterprise concerns 3

Transparent and predictable rules Problem: “I accept the need for regulation but I spend more than 10% of my time negotiating with officials” make public service more attractive (pay, tenure, qualifications) clarify responsibilities of different government agencies (e.g. reform of tax code, law on inspections) legal reform - not just “parachute” consultants but give training and continuous advice (need for long-term donor funds) 3

Level playing field Problem: “My license has been refused because the official in charge protects the business interests of the “big guys” ” simplify business registration, access to land, allow spin-offs from state firms reduce implicit subsidies (e.g. energy) and misuse of public monopolies (e.g. transport access; access to processing facilities for agricultural producers) 3

Attractive climate for investors Problem: “The returns don’t justify the risks of investing in the CIS7” FDI p.c. US$ 128 in CIS7, US$ 1200 in eastern Europe investors’ view: landlocked, security concerns, high political risks - will need very attractive conditions government’s view: how can we prevent a “sell-out”? => role of IFI’s to provide balance ? Is there more scope for marketing investment opportunities? 3

Financial Sector Problem: “We’d like to lend more to SMEs but cannot find a suitable local bank to work with” Banking requires experience, takes time to develop Lack of share capital limits lending State ownership and related parties => misallocation of existing finance Creditors rights are weak => discourages entry of reputable foreign banks 3

Financial sector cont. Role of IFIs/donors Training to improve credit skills, SME credit lines, establishment of microfinance institutions => donor support critical Policy dialogue through central bank (assistance in bank supervision, financial sector assessments) Attract reputable foreign banks and support competition through equity participation Reform of legal framework (e.g. EBRD secured transactions law model)