Development challenges in the Europe and CIS region(s) Ben Slay Senior economist UNDP Bureau for Europe and CIS 25 June 2009

Key points n “Region” or “regions”? Country differences and commonalities n Shared development challenges: –Response to the global economic crisis –Climate change  transitions to low carbon economies –Improvements in governance, state capacity

“Region” or “regions”? Differences & commonalities n Major differences among: EU-12, Western Balkans, CIS countries n Four overlapping commonalities: –European orientation n Accession, candidacy, neighbourhood –Post-communist legacies n Transition challenges –New states: Successors to USSR, Yugoslavia, Czechoslovakia n State capacity challenges –Emerging markets n Vulnerability to global financial crisis

Commonalities  cooperation n New EU member states—Success stories in: –Single market access, competitiveness –Economic transition, modernisation –Stable, consolidated parliamentary democracies— Electoral outcomes are: n Not known in advance n Accepted by losers n Such accomplishments: –Are appreciated in partner countries –Can be the basis for “supply” of development cooperation services from new member states

Key commonality: Transition and growth n Transition creates “U- “ or “J-shaped” economic growth paths, reflecting: –Transition recession –Recovery growth n Typical of almost all transition economies –Irrespective of energy prices, exports, EU membership n Economic crisis is now changing this “Transition recession” “Recovery growth”

Common “emerging market vulnerability” Common “emerging market vulnerability” Regional GDP growth trends Source: IMF World Economic Outlook, April 2009

IMF country forecasts Source: IMF World Economic Outlook, April 2009

So far, many EU-12 countries are holding up Numbers of unemployed (LFS data), June 2008 = 100 Source: Eurostat

Possible lessons from EU-12 for programme countries? n In preparation for membership, new EU member states: –Significantly improved: n Business environment n Investment climate –Developed capacity for more effective policies in: n Social inclusion/“flexicurity” n Regional development –Strengthened “absorption capacity” for EU funding n Clear relevance for accession, neighbourhood countries

Climate change: Commonalities, partnerships n Both EU-12, programme countries inherited very energy inefficient economies n Results—High levels of: –Energy use –Greenhouse gas emissions n Both groups of countries have: –Incentives to attract carbon finance under Kyoto, post-Kyoto mechanisms –Common interests in run-up to Copenhagen climate change summit (December 2009)

In 1990: Programme, EU-12 countries emit lots of CO 2 CO 2 emitted per $ of GDP Kilotons emitted per million PPP$ GDP. Source: UNDP Human Development Report Office.

By 2004: Slovakia, Romania were below global averages CO 2 emitted per $ of GDP Kilotons emitted per million PPP$ GDP. Source: UNDP Human Development Report Office.

Possible lessons from EU-12 for programme countries? n In preparation for membership, EU-12: –Modernised their energy sectors via: n Foreign direct investment n Adoption of acquis communautaire‘s energy, environmental chapters, policy frameworks –Began: n Paying cost-recovery prices for energy n Accessing Kyoto cap-and-trade carbon finance n After accession, they learned to participate in European Trading System n Clear relevance for accession, ENP countries

Conclusions n There are clear differences between and among EU-12, programme countries n But important commonalities remain, in terms of: –Demand-supply relationships vis-à-vis transition-related expertise –Common interests in reforms to: n Domestic political, economic institutions n Global governance frameworks

Estonia