1. OECD Private Sector Development 1 Impact of the crisis on regional economies and economic co-operation initiatives in the Black Sea and Caspian Thessaloniki, November 2009 OECD EURASIA COMPETITIVENESS PROGRAMME INITIATIVE FOR THE SOUTH CAUCASUS AND UKRAINE

2. OECD Private Sector Development 2 1.The competitiveness challenge 2.Potential policy priorities to enhance competitiveness 3.The need for a focused and demand driven regional approach

3. OECD Private Sector Development 3 GDP growth in the region is impacted by the financial crisis Average GDP growth falling in 2009 Source: OECD Development Centre / IMF Source: EBRD; e. estimate; p. projection

4. OECD Private Sector Development 4 Source: OECD Development Centre / IMF Reliance on external financing is increasing On average 13% of GDP for BSEC region

5. OECD Private Sector Development 5 How to improve both quantity and quality of FDI? A measure of competitiveness: FDI growth is slowing down How to support the quality and quantity of FDI? Central Europe: First Wave of FDI SEE: Second wave of FDI SCU: Third wave? Source: EBRD Transition report 2008, OECD Analysis Impact of the financial crisis estimate projection FDI in USD million

6. OECD Private Sector Development 6 The region remains cost competitive Example: Cost competitiveness in labour for the Republic of Moldova Source: International Labour Organization; zdnetasia; Wall Street Journal, OECD interviews Leveraging their competitive labour costs in services Relative comparison of average monthly labor cost in services (2005) HungaryPolandCroatia Bosnia &H Montenegro Serbia R.Moldova India Index (100: Hungary) (1) Sample of CEE countriesWB countries covered by the project Other references FYR Macedonia AlbaniaUNMIK Note: Monthly wages have been calculated on 2003-05 or 2003-06 average; using the LABORSTA Labour Statistics Database and covering, unless specified only the category J (financial intermediation) and K (business activities, real estate and renting). For Albania overall figures are based on category I (transport, storage and communications) due to the absence of statistics on J/K in the ILO databases (1) average monthly wages in all services Up to 7 times lower Example of SEE

7. OECD Private Sector Development 7 Cost competitiveness is a short term advantage The need to move up the value-chain Cost competitiveness is not sustainable Markets like India and China are clear low-cost alternatives. Cost levels in some sectors are increasing by up to 15% annually, impacting negatively on margins and potentially eroding market share levels. Limited access to finance and strategies to reinvest capital in technology and human capital is a risk. Significant gaps in human capital limit the opportunities to move up the value chain Skills gaps in high growth industries such as ICT reach 60%. Coordination between ministries of education and economy and dialogue with civil society are limited. Limited focus on sector specific policy barriers as well value-added services

8. OECD Private Sector Development 8 Policy priorities to enhance competitiveness Based on feedback from countries of the region Sustained Competitiveness How to tailor human capital policies and practices to support financial and business services? How to support FDI by removing policy barriers and supporting specific sectors? How to address the impact of the financial crisis, especially in terms of access to finance? Which key areas need to be address to enhance investment and competitiveness in the Black Sea (SCU)? Human Capital Investment climate policy and promotion Financial Markets Development The need to focus on SME competitiveness

9. OECD Private Sector Development 9 Improving National Competitiveness Enhancing Regional Business Climate Prioritisation of policies to improve the business climate Policy Working Groups Policy guideline and targeted implementation OECD Sector Competitiveness Strategy Surveys of investors and private sector perception Evaluation of policy reforms Supporting in implementing reforms OECD Eurasia Competitiveness Programme New OECD Mandate (2008) covering two regions and 11 countries

10. OECD Private Sector Development 10 Example : Monitoring policies at the regional level Addressing reforms through regional working groups and peer review The OECD Investment Reform Index The SME Charter Chaired by a country of the region and OECD country Strong involvement of regional policy makers, private sector and OECD experts Focused on delivering a “How To” guideline on implementation of reforms in the targeted policy area Regional Policy Working Group Example for South East Europe

11. OECD Private Sector Development 11 OECD Policies for Competitiveness Assessment Framework “Policies for Competitiveness” Dimensions Which key topics should be addressed within each Policy Working Group? 1.Investment Climate Policy and Promotion 2.Financial Markets Development 3.Human Capital for financial and business services 4.Others Dimension Sub dimension Investment Climate Policy and Promotion Sub dimension SCORE Sub dimension Indicators Investment Promotion and Facilitation Indicator SCORE Indicators Level of Reform Investment Promotion and Facilitation Example of Indicators Strategy Implementing Agency Monitoring and Evaluation Sub-national coordination FDI-SME linkages Client relationship management (CRM) Policy Advocacy Aftercare services Free Economic Zones SCORE Level 1Level 2Level 3Level 4Level 5 Source: OECD PfC Assessment Framework

12. OECD Private Sector Development 12 Example: Investment climate policy and promotion FDI Policy Promotion and Facilitation Transparency Framework Strategy Institutional support Monitoring and evaluation National and sub-national coordination Investment promotion services and activities FDI-SME linkages One stop shop Client relationship management Policy advocacy Aftercare services Free Economic Zones Publication avenues and tools Prior notification and stakeholder consultations Procedural transparency Non-discrimination Restrictions to national treatment Review of restrictions to national treatment Approval procedures Admittance of business personnel Transfers of FDI related capital FDI incentives Performance requirements Property rights Land ownership Titling and cadastre Intellectual property Investor protection Expropriation guarantees International agreements Arbitration Initial area of focus Source: OECD PfC Assessment Framework

13. OECD Private Sector Development 13 The need to focus on Investment Promotion and Facilitation Overall high level of reform Source: OECD Survey

14. OECD Private Sector Development 14 Good FDI performance and average FDI potential Source: UNCTAD 2004-07, Ranking of 141 countries, OECD Analysis FDI Performance and Potential Improvement of FDI attractiveness through policy reform High FDI Performance Low FDI Performance High FDI Potential Low FDI Potential FDI Inflows < 0 FDI/GDP ratio = 1 (world shares) Median of 141 countries Armenia Turkey Georgia Azerbaijan Hong Kong, China Czech Republic FDI Potential is measured through a wide set of indicators such as: GDP per capita and growth Share of global exports Share of R&D spending Country risk Share of world FDI stock FDI Performance is measured through the ratio of a country‘s share in global FDI inflows to its share in global GDP. Below potential Front-runners Under-performers Above potential Jordan Luxembourg Norway UAE Egypt Kazakhstan

15. OECD Private Sector Development 15 Example: Developing and implementing country / sector specific competitiveness strategies Example for Republic of Moldova Sector specific approaches help focus reform efforts

16. OECD Private Sector Development 16 Engaging the region and listening to country priorities The initiative was formally launched at a Ministerial Conference held on 1 April 2009 at the OECD Ministers and high-level representatives of all countries of the region (Armenia, Azerbaijan, Georgia, Republic of Moldova and Ukraine) adopted a statement to enhance competitiveness in the region The conference was chaired by Poland and Sweden in collaboration with Czech EU Presidency and the EC Strong collaboration with the private sector

17. OECD Private Sector Development 17 Contact details ORGANISATION FOR ECONOMIC COOPERATION AND DEVELOPMENT Directorate for Financial and Enterprise Affairs Private Sector Development Division Fadi Farra Head Eurasia Competitiveness Programme Tel:+ 33 1 45247820 Fax :+ 33 1 45249335 Mobile:+ 33 6 19133282 e-mail:Fadi.Farra@oecd.orgFadi.Farra@oecd.org Daniel Quadbeck Policy Analyst Eurasia Competitiveness Programme Tel:+ 33 1 45247522 Fax :+ 33 1 45249335 e-mail:Daniel.Quadbeck@oecd.orgDaniel.Quadbeck@oecd.org