1. Stability Pact for South Eastern Europe Round Table on Regional Cooperation in SEE INVESTMENT OPPORTUNITIES IN THE SOUTH EASTERN EUROPE Belgrade 3 rd October, 2005

3. Most promising market in Europe SEE cover an area about the size of Germany and Italy combined SEE cover an area about the size of Germany and Italy combined Population (55 million) comparable to Italy or CEB countries Population (55 million) comparable to Italy or CEB countries Dynamic growth, regional integration, as well as integration into the EU, accelerate catching-up process with the EU and CEB countries Dynamic growth, regional integration, as well as integration into the EU, accelerate catching-up process with the EU and CEB countries 1990s as lost decade, first decade of 21 st century could become a decade of SEE 1990s as lost decade, first decade of 21 st century could become a decade of SEE Potentially, the most promising market in Europe - political stability, faster economic reforms, improved legal framework and greater legal security being crucial prerequisites in the medium-term Potentially, the most promising market in Europe - political stability, faster economic reforms, improved legal framework and greater legal security being crucial prerequisites in the medium-term

4. SEE integrating into the EU Accession to the EU high on the agenda of 8 SEE countries Accession to the EU high on the agenda of 8 SEE countries - Bulgaria and Romania expected to accede in 2007 or 2008 - 5 Western Balkan countries in SAP concluded or negotiating SAA - Moldova – part of the EU “Wider Europe” initiative

5. EU and the Balkans Stabilization and Association Process presents a long term policy of EU towards this region aiming to: Support structural reforms of these countries in order to prepare them for EU membership, Support structural reforms of these countries in order to prepare them for EU membership, Strengthen the stability in the region through the association process, Strengthen the stability in the region through the association process, Putting emphasis is on trade policy harmonization, improved border management and administrative capacity building, Putting emphasis is on trade policy harmonization, improved border management and administrative capacity building, Signing of the Stabilization and Association Agreement. Signing of the Stabilization and Association Agreement.

6. Stabilization and Association Agreement Stabilization and Association Agreement is modified according to the specific conditions of each Western Balkans country. Stabilization and Association Agreement is modified according to the specific conditions of each Western Balkans country. The country which signs the SAA is being recognized as a potential EU candidate. The country which signs the SAA is being recognized as a potential EU candidate. SAAs have to be ratified by the country in question, the EU and all of its member states. SAAs have to be ratified by the country in question, the EU and all of its member states. The aims of the SAA: The aims of the SAA: Political stabilization Political stabilization Development of regional cooperation Development of regional cooperation Establishing closer links and dialog with WB countries. Establishing closer links and dialog with WB countries.

7. With the entry of 10 new members in the EU in 2004, the agenda for the next round of enlargement focuses on candidates from South Eastern Europe. With the entry of 10 new members in the EU in 2004, the agenda for the next round of enlargement focuses on candidates from South Eastern Europe.

8. SEE countries - relations with EU Romania – candidate for membership. Romania – candidate for membership. Bulgaria – candidate for membership. Bulgaria – candidate for membership. Croatia – candidate for membership. Croatia – candidate for membership. Macedonia – submitted the candidature. Macedonia – submitted the candidature. Albania – negotiations on SAA. Albania – negotiations on SAA. Bosnia and Herzegovina – Feasibility study. Bosnia and Herzegovina – Feasibility study. Serbia and Montenegro – Feasibility study (negotiations on SAA – scheduled for 5. October). Serbia and Montenegro – Feasibility study (negotiations on SAA – scheduled for 5. October). Moldova – Partnership and Cooperation Agreement. Moldova – Partnership and Cooperation Agreement.

9. Regional organizations/initiatives in SEE SEECP - South East Europe Cooperation Process SEECP - South East Europe Cooperation Process Stability Pact for South Eastern Europe Stability Pact for South Eastern Europe SECI - South East Europe Cooperation Initiative SECI - South East Europe Cooperation Initiative BSEC - Black Sea Economic Cooperation BSEC - Black Sea Economic Cooperation CEI - Central European Initiative CEI - Central European Initiative AII - Adriatic – Ionian Initiative AII - Adriatic – Ionian Initiative DCP - Danube Cooperation Process DCP - Danube Cooperation Process CEFTA - Central European Free Trade Area CEFTA - Central European Free Trade Area

10. General characteristics of regional initiatives Main goal: regional cooperation and EU integration. Main goal: regional cooperation and EU integration. Need for building up "regional perspective" during pre- accession period. Need for building up "regional perspective" during pre- accession period. Developing regional ownership – mobilizing initiatives coming from the region – needed regional leadership. Developing regional ownership – mobilizing initiatives coming from the region – needed regional leadership. Positive influence. Positive influence. Insufficient coordination. Insufficient coordination. Overlap of initiatives. Overlap of initiatives. Lack of financial resources. Lack of financial resources. Wide range of activities. Wide range of activities. Top down character. Top down character.

11. South Eastern Europe Italy Slovenia Albania Hungary Romania Bulgaria Greece Serbia and Montenegro Bosnia and Herzegovina Croatia FYRM Western Balkans

12. Business environment Macroeconomic stability sustained Macroeconomic stability sustained Early transition phase completed Early transition phase completed Structural changes initiated Structural changes initiated Private sector accounts about 62% of GDP in SEE – vibrant source of growth and employment Private sector accounts about 62% of GDP in SEE – vibrant source of growth and employment Privatization is well advanced Privatization is well advanced Labor costs well below those in CEB Labor costs well below those in CEB Initiated institutional reforms critical for private sector development, integration into the EU and long-term prosperity Initiated institutional reforms critical for private sector development, integration into the EU and long-term prosperity

13. Growing business opportunities Robust growth Robust growth Economic and political stability is returning Economic and political stability is returning Considerable foreign investment inflow Considerable foreign investment inflow Continuing improvement of business climate Continuing improvement of business climate Increased access to trade, domestic finance and foreign investment – expanding opportunities Increased access to trade, domestic finance and foreign investment – expanding opportunities International community important catalyst for other investors through selected assistance International community important catalyst for other investors through selected assistance Private sector in SEE – engine of growth Private sector in SEE – engine of growth

14. SEE economic forecast for 2005 GDP growth remains strong - the average rate of seven SEE countries is expected to be around 5%. GDP growth remains strong - the average rate of seven SEE countries is expected to be around 5%. Domestic demand remains the main engine of economic growth in the region. Domestic demand remains the main engine of economic growth in the region. Foreign demand is weak and the growth of exports will be slower in 2005, compared to the previous year. Foreign demand is weak and the growth of exports will be slower in 2005, compared to the previous year.

15. In 2005 the current account balances will improve, especially in those economies where CA deficits are the highest (Bosnia-Herzegovina and Serbia and Montenegro). In 2005 the current account balances will improve, especially in those economies where CA deficits are the highest (Bosnia-Herzegovina and Serbia and Montenegro). Slight improvement is expected in most SEE countries regarding the unemployment rate due to the strong economic growth and new investments by foreign investors. Slight improvement is expected in most SEE countries regarding the unemployment rate due to the strong economic growth and new investments by foreign investors. But, progress in privatization process may have a dampening effect on the employment in these countries. But, progress in privatization process may have a dampening effect on the employment in these countries. SEE economic forecast for 2005

16. General characteristics of SEE economy Insufficient harmonization with the European standards. Insufficient harmonization with the European standards. High share of black economy. High share of black economy. Inadequate competitiveness. Inadequate competitiveness. Lack of working capital and credit support. Lack of working capital and credit support. Unsatisfactory infrastructure. Unsatisfactory infrastructure. Problem regarding trade balances and budgets. Problem regarding trade balances and budgets. Corruption and criminal. Corruption and criminal. Small economies. Small economies. Slow pace of reforms. Slow pace of reforms. High unemployment. High unemployment. Brain drain – emigration of young and qualified experts. Brain drain – emigration of young and qualified experts.

28. Foreign support and investments needed Further recovery and growth largely depend on foreign financial inflows and know-how Further recovery and growth largely depend on foreign financial inflows and know-how Cumulative net FDI to the region about US$ 32 billion in 1989-2003 (US$ 125 billion in CEB) Cumulative net FDI to the region about US$ 32 billion in 1989-2003 (US$ 125 billion in CEB) 450 multinational companies in the region (of which 50% are present in more than one SEE country 450 multinational companies in the region (of which 50% are present in more than one SEE country Over 550.000 jobs Over 550.000 jobs The Regional Network of Foreign Investors Councils in SEE The Regional Network of Foreign Investors Councils in SEE

32. Trade cooperation in the SEE Small share of mutual trade in the overall trade with the world. Small share of mutual trade in the overall trade with the world. Average 13%, varies from 10 – 20%. Average 13%, varies from 10 – 20%. High percentage of trade with EU. High percentage of trade with EU. Average from 50 – 80% Average from 50 – 80% Italy and Germany dominate. Italy and Germany dominate.

36. Main barriers for doing business in SEE Starting up is still costly and time consuming Starting up is still costly and time consuming Ineffective implementation of regulations Ineffective implementation of regulations Corruption and red type Corruption and red type Underdeveloped financial intermediation and lack of access to sources of finance Underdeveloped financial intermediation and lack of access to sources of finance Restrictive and poor quality labor legislation Restrictive and poor quality labor legislation Size of informal sector Size of informal sector

38. Why to invest in the Balkans? Low cost area (labor costs, taxes) Low cost area (labor costs, taxes) High profits High profits Low competition Low competition Preferential trade regime with the EU Preferential trade regime with the EU Growing bilateral and multilateral cooperation in the region (FTA, Regional Energy Market, REBIS) Growing bilateral and multilateral cooperation in the region (FTA, Regional Energy Market, REBIS)

39. Trade Liberalization  Commonwealth of the Independent States Trade Liberalization Network of 29 bilateral Free Trade Agreements (8 countries). Network of 29 bilateral Free Trade Agreements (8 countries). Serbia is in the middle of the SEE Free Trade Area – duty free access to a market of 60 mill people. Serbia is in the middle of the SEE Free Trade Area – duty free access to a market of 60 mill people. Serbia and Montenegro is the only country outside the CIS that has an FTA with the Russian Federation  – market of 150 million people. Serbia and Montenegro is the only country outside the CIS that has an FTA with the Russian Federation  – market of 150 million people. Identification and elimination of non-tariff barriers. Identification and elimination of non-tariff barriers. Establishment of a multilateral free trade agreement. Establishment of a multilateral free trade agreement.

40. Crossroads of 2 Pan-European Transportation Corridors