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Contents
The Investment Compact for South East Europe and the OECD The Organisation for Economic Co-operation and Development Messages from the OECD Secretary-General and the Secretary General of RCC The Economies of South East Europe: Key facts and gures A decade of reform has improved the business climate However, important economic development challenges remain How the Investment Compact For South East Europe supports the SEE Region Programme overview and governance Investment Compact projects: Five pillars of work Bibliography of key Investment Compact publications and papers 2 3 4 6 7 9 11 12 13 19
* This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.
2 . OECD 2012 SEE PROGRAMME OVERVIEW
I would like to congratulate the Investment Compact on its achievements in supporting reforms in the region...
The OECD Investment Compact for South East Europe has been instrumental in supporting economic stability and development in our region.
OECD 2012 . 5
Albania Bosnia and Herzegovina Bulgaria Croatia Kosovo* The former Yugoslav Republic of Macedonia Republic of Moldova Montenegro Romania Serbia
3.2 3.8
6.3 6.0
2.9 -0.2
B+ B
BBB BBBN.A
2.1
10,367
5.4
1.3
BB
3.6
3,373
5.2
2.5
N.A
BB BB+ BB
SEE
55.7
10,307
5.9
0.5
1. WB World Development Indicators, 2. IMF World Economic Outlook, 3. Standard & Poors
* This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.
6 . OECD 2012 SEE PROGRAMME OVERVIEW
We acknowledge the engagement, support and eorts of our international partners, in particular the OECD. Our cooperation benets the region and the European Union. European Commissioner tefan Fle Enlargement and European Neighbourhood Policy European Commission
Commitment to SME Policy In 2009, the Western Balkan economies endorsed the European Small Business Act (SBA) as the main guidance tool for SME policy in the region. The SBA provides a demanding set of guidelines aiming to improve policies that promote entrepreneurship and SME growth. Western Balkan economies have committed to monitoring and reporting back on their progress in implementing the SBA principles with the support of the OECD Investment Compact.
.7 OECD 2012 SEE PROGRAMME OVERVIEW OECD 2012 SEE PROGRAMME OVERVIEW . 7
of application, for a fee of less than EUR 60. As access to finance remains difficult, international financial institutions together with the OECD Investment Compact are launching large regional initiatives, such as the Western Balkan Enterprise Development and Innovation Facility, aimed at providing significant funds, guarantees and technical assistance to innovative, highgrowth SMEs. Intra-regional and multilateral economic convergence SEE economies signed the Central European Trade Agreement (CEFTA) in 2006, which aims to expand trade in goods and services and eliminate trade barriers between SEE economies. SEE economies have also made significant progress in converging towards the European Union (EU) acquis communautaire and becoming members of the WTO. Most economies have either joined the EU or they are now candidates or potential candidates for EU accession. However, different paces in adopting EU standards create new difficulties in the form of non-tariff barriers.
FOREIGN DIRECT INVESTMENT (FDI) TRENDS FDI, net inows for the SEE Region (BoP, current billion US$) 37.1 29.7 37.6
16.5 10.3
4.6 4.3 3.8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Source: UNCTADStat
Membership in the European Union, CEFTA and the WTO as of January 2012 European Union Albania Bosnia and Herzegovina Bulgaria Croatia Kosovo* The former Yugoslav Republic of Macedonia Republic of Moldova Montenegro Romania Serbia Potential Candidate Potential Candidate Member Acceding Country Potential Candidate Candidate Neighbourhood Policy Candidate Member Candidate CEFTA 2006 Party Party Party Party Party Party Party Party Party Party WTO Member Negotiations in Progress Member Member N.A Member Member Negotiations in Progress Member Negotiations in Progress
* This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.
8 . OECD 2012 SEE PROGRAMME OVERVIEW
Yearly Industrial Production (% of 1989 industrial production) 200 OECD Croatia 150 The former Yoguslav Rep. of Macedonia Bulgaria
100
50
0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009
Source: EBRD Transition Reports and OECD.Stat
Current Account in 2009 as a Percentage of GDP EU-27 average SEE Economies Serbia Romania Montenegro Moldova FYR Macedonia Croatia Bulgaria Bosnia and Herzegovina Albania -30
Source: UNCTADStat
-25
-20
-15
-10
-5
High unemployment Unemployment rates in many SEE economies remain considerably higher than in the EU countries. It is important to note that even during the boom years, unemployment was stubbornly high. This points to a need to better align education and training with labour market requirements. Need to transition from low-cost to knowledge-based economy With increasing global competition from emerging economies in Asia, for example, SEE can no longer compete for market shares based on low cost production. If the region is to set a path for long-term growth and prosperity, it will have to build a new economic model based on knowledge-intensive production underpinned by innovation and human capital. Various barometers indicate that the SEE region has the capacity to improve its performance in these areas:
The OECDs assessment of 15-year olds
HIGH UNEMPLOYMENT IN THE REGION (2011) Unemployment rate (% of labour force) 43.3 45.4
20.7
KO S
Source: CIA World Factbook *This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.
mastery of basic skills in math, reading and science (PISA ranking) shows that scores for all SEE economies are lagging well behind OECD averages.
Whereas high tech exports represent an
average of 16.9% of manufactured goods exports in the European Union, in SEE the levels are significantly lower, ranging from 3.1% in the former Yugoslav Republic of Macedonia to 10.9% in Croatia in 2009.2
2. World Bank 10 . OECD 2012 SEE PROGRAMME OVERVIEW
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How the Investment Compact for South East Europe supports the SEE region
The Investment Compact for South East Europe helps governments design better policies and implement them more effectively. Strong ownership by the region, open dialogue, and a framework based on OECD best practices have enabled the Compact to have a tangible impact on improving the SEE business climate, strengthening regional co-operation and fostering economic development and stability.
The 2011 Ministerial Conference of the Investment Compact endorsed the South East Europe 2020 Vision, a roadmap for long-term growth modelled on the Europe 2020 strategy, but adapted to the regions needs. This sent a strong message that the region is committed to taking ownership of its own destiny with a clear roadmap for reform to 2020. The conference also celebrated a decade of achievements as well as the transfer of operational management of the SEE Investment Committee to the Regional Cooperation Council in Sarajevo. The OECD Investment Compact will continue to provide policy guidance and analytical support to the region and assist governments in implementing the South East Europe 2020 Vision.
Ministerial Conference: Building a 2020 Vision for South East Europe, November 2011. OECD/Benjamin Renout
The 2011 Ministerial Conference of the Investment Compact endorsed the South East Europe 2020 Vision, a roadmap for long-term growth modelled on the Europe 2020 strategy, but adapted to the region. This sent a strong message that the region is committed to taking ownership of its own destiny with a clear roadmap for reform to 2020.
11
The joint eorts of the OECD, the countries of the region and the donor community has made the Investment Compact a model for other regional initiatives. Manfred Schekulin Deputy Director General Trade Policy and European Integration Federal Ministry of Economy, Family and Youth of Austria, Chair of the OECD Investment Committee Former co-chair of the Investment Compact
A COMBINATION OF REGIONAL OWNERSHIP AND OECD EXPERTISE ENSURE IMPACT IN SUSTAINABLY IMPROVING THE BUSINESS ENVIRONMENT
Political support:
Policy dialogue:
Assessment:
Regional Working Groups Innovation Human Capital Investment Promotion Access to Finance Tax
POLITICAL SUPPORT
Ministerial conferences, meetings of the SEE Investment Committee at the regional level, and endorsement by SEE governments and the EU of the SEE 2020 Vision secures strong political support for the Compacts mandate over the coming decade.
THE SOUTH EAST EUROPE 2020 VISION Inspired by the "Europe 2020" strategy launched by the EU in 2010 to promote smart, sustainable and inclusive growth in EU member states the economies of South East Europe endorsed their own "2020 Vision" at the 2011 SEE Ministerial Conference, "Building a 2020 Vision for South East Europe". The SEE 2020 Vision is the product of close collaboration between the Investment Compact and governments of the region. It defines a strategy for the region that focuses on stimulating the key long-term drivers of growth: innovation, skills and trade integration. Pillars of the SEE 2020 Vision: Integrated growth through deeper regional trade and investment linkages and policies that are nondiscriminatory, transparent and predictable
Smart growth through the commitment to innovate and compete on value-added rather than on labour costs Sustainable growth through raising the level of private sector competitiveness, entrepreneurship and a commitment to
corruption in order to create a business-friendly environment. The SEE 2020 Vision's strong regional dimension in setting targets and developing implementation mechanisms will allow economies to benchmark their progress on each of these pillars. The commitment to regional targets will also send a clear signal of regional ownership: the region is now able to define its own roadmap for future reforms. The Investment Compact looks forward to a second decade of partnership with South East Europe to achieve even greater prosperity for all economies of the region.
POLICY DIALOGUE
Regional policy working groups allow economies to exchange experiences, conduct peer reviews and develop recommendations to address common policy challenges.
Innovation Working Group The Working Group on Innovation provides a platform for the exchange of good practices on issues such as formulating innovation policies, creating voucher schemes, establishing competence and technology centres, launching business plan competitions and fostering Triple Helix partnerships between science, business and local government. Human Capital Working Group Using good international and regional practice as a benchmark, the Working Group provides a platform for exchanging views, peer learning, and developing new ideas on how to face common challenges in skills development. It helps transfer knowledge to the region on how to design and implement skills gap analyses and supports policy makers in devising appropriate policy responses to bridge these gaps Access to Finance Working Group The focus of this Working Group is to find solutions to help SMEs in the region access the financing they need. It examines good practices in developing credit guarantee schemes, credit information sharing schemes and investment readiness programme. It also conducts thorough reviews of the status of bankruptcy legislation in the Western Balkans and provides recommendations on how to best reform the current regime. Taxation Working Group Senior tax policy officials of ministries of finance of the economies participating in the SEE Investment Committee come together in this Working Group to initiate discussions on tax policy, with a focus on issues including tax compliance and tax reform. Investment Promotion Working Group This Working Group provides a framework to discuss investment in different sectors as well as prospects for industry growth. Concrete results have included the creation of a business network and an interactive regional supplier database.
ASSESSMENT
The Programmes flagship publications and key projects assess national policy frameworks to help governments benchmark their performance in relation to business climate reforms.
Investment Reform Index The Investment Reform Index (IRI) is a qualitative assessment of policy settings and institutional conditions that shape the environment for direct investment in the Western Balkan economies. The IRI examines eight policy dimensions: investment policy and promotion, human capital development, trade policy and facilitation, access to finance, regulatory reform and parliamentary processes, tax policy analysis, infrastructure for investment, and SME policy. Drawing on the OECD Policy Framework for Investment, the IRI uses a unique scoring system to measure performance in each business climate dimension and related sub-dimensions. Final scores are attributed with the input of both government and business stakeholders. SEE country partners have welcomed the IRI as an innovative and useful tool to benchmark their systems against international good practice and to identify key areas for reform. The next edition will be published in 2013. Implementing the European Small Business Act in the EU Pre-Accession Region This project aims to improve the business environment for SMEs in the Western Balkans and Turkey by implementing the ten principles of the European Small Business Act and was launched in November 2010. Independent monitoring of the elimination of non-tariff barriers among CEFTA parties Since January 2009, the Investment Compact has supported signatories of the CEFTA to derive the full benefits of CEFTA implementation in two key areas: The CEFTA Aid for Trade project aims to reduce/eliminate non-tariff barriers, particularly those that impact main trade flows.
The Supporting CEFTA Structures with the Monitoring and Implementation of Investment-related Clauses of the CEFTA 2006
monitors the investment-related clauses of the 2006 CEFTA agreement. Supporting SME Policy in the Republic of Moldova This project helps the Government of the Republic of Moldova to develop a coherent policy framework for SME sector competitiveness sector and economic growth. In 2011 it released a report on Fostering SME Development: Republic of Moldova, which analysed the main barriers to the development of the SME sector.
16 . OECD 2012 SEE PROGRAMME OVERVIEW
the information and communication technology sector These recommendations were transformed into action plans which were implemented by governments and resulted in:
a regional network of investment promotion agencies using a common web platform to promote Western Balkan
A proposed follow-up project (in 2013) should establish sectoral working groups and pilot projects to continue implementation of these recommendations and at the same time to identify new niche markets where Western Balkans economies can be competitive
IMPLEMENTATION
The Programme provides assistance to SEE governments and policy makers in successfully implementing key policy recommendations.
Regional Competitiveness Initiative (RCI): The Regional Competitiveness Initiative, funded by the EU, aims to strengthen the competitiveness of Western Balkan economies by increasing productivity through human capital development and innovation in manufacturing and service firms. The initiative consists of specific pilot projects implemented at the national level. The first four pilot projects were implemented in 2011: Mechanisms to finance business services in support of innovation (voucher schemes) in Montenegro
The establishment of a Competence Technology Centre (CTC) in Serbia Assistance to the government in designing its overall policy framework for innovation in the Former Yugoslav Republic of
Macedonia
Co-operation with the triple helix of research-business-government communities in Bosnia and Herzegovina Launch of a business plan competition in Albania Creation of policy frameworks for innovation in Croatia and Kosovo*
Through these projects, the Investment Compact provides analytical support, policy guidance, capacity building and implementation support to enhance innovation and human capital development. Finally, the RCI also supports regional cooperation and policy dialogue through the regional working group on Innovation and Human Capital Development and the projects Steering Committee. The RCI is already having impact in the region. Examples include the inclusion of innovation as a major pillar of the new governments electoral programme in FYR Macedonia, the allocation of funds to an SME voucher scheme by the government of Montenegro, a commitment by the Serbian government to set up competence centres, and broad participation in co-operation between academia, business and local government in Bosnia and Herzegovina, which has led to the launch of new products. * This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo declaration of independence.
18 . OECD 2012 SEE PROGRAMME OVERVIEW
2007 SME Policy Index 2007 - Report on the Implementation of the European Charter for Small Enterprises in the Western Balkans. How South East European Countries Statistics Measure Foreign Direct Investment. Improving the Process of Economic Reform Legislation in FYR Macedonia, OECD/GTZ. Improving the Process of Economic Reform Legislation in Montenegro, OECD/GTZ . The Impact of FDI on the Restructuring of the Metal Processing Industry in Bosnia and Herzegovina. The Role of Foreign Direct Investment in the Croatian Economy.
Investment Compact for SEE (2006), Report of Activities. 2005 Anti-Corruption Measures in South Eastern Europe: Civil Societys Involvement. The Business Registration Process in South East Europe: A Peer Review. The Employment Impact of FDI: The Experience of South East European Countries, Discussion Paper. Monitoring the Regulatory Governance Reform Priorities in South East European Countries, Implementation Report.
Foreign Investors Council White Book: Proposals for Improvement of the Investment Climate in Serbia. Investment Compact: Regulatory Governance in South East European Countries: Progress and Challenges. Regulatory Governance in South East European Countries: Progress and Challenges. The Informal Economy in Albania: Analysis and Policy Recommendations. Progress in Policy Reform in South East Europe: Monitoring Instruments. Albania: Enterprise Policy Performance
South East Europe: Enterprise Policy Performance Assessment, OECD/EBRD. Albania: Enterprise Policy Performance Assessment, OECD/EBRD. Bosnia and Herzegovina: Enterprise Policy Performance Assessment, OECD/EBRD. Bulgaria: Enterprise Policy Performance Assessment, OECD/EBRD. Croatia: Enterprise Policy Performance Assessment, OECD/EBRD. FYR Macedonia: Enterprise Policy Performance Assessment, OECD/EBRD. Moldova: Enterprise Policy Performance Assessment, OECD/EBRD. Montenegro: Enterprise Policy Performance
Progress in Policy Reform in South East Europe: Monitoring Instruments. Bosnia and Herzegovina: Enterprise Policy Performance Assessment, OECD/EBRD Bulgaria: Enterprise Policy Performance Assessment, OECD/EBRD Croatia: Enterprise Policy Performance Assessment, OECD/EBRD
Assessment, OECD/EBRD. 2003 A Survey on the Role of Taxation in FDI in South East Europe. Competition Law and Policy in South East Europe, OECD Journal: Competition Law and Policy, pp. 7-82. Foreign Investors Council: Proposals for
Assessment, OECD/EBRD. Romania: Enterprise Policy Performance Assessment, OECD/EBRD. Serbia: Enterprise Policy Performance Assessment, OECD/EBRD. 2002 Progress in Policy Reform in South East Europe: Monitoring Instruments. 2001 Progress in Policy Reform in South East Europe: Monitoring Instruments. Monitoring instruments: Progress in Policy Reform in FR of Yugoslavia Serbia.
Romania: Enterprise Policy Performance Assessment, OECD/EBRD. Serbia and Montenegro: Enterprise Policy Performance Assessment, OECD/EBRD. 2004 Effective Policies for Small Business: A Guide for the Policy Review Process and Strategic Plans for Micro, Small and Medium Enterprise Development, OECD/UNIDO.
20 . OECD 2012 SEE PROGRAMME OVERVIEW
Improvement of the Investment Climate in Serbia. Progress in Policy Reform in South East Europe: Monitoring Instruments. Tax Policy Assessment and Design in Support of Direct Investment: A Study of Countries in South East Europe. White Paper on Corporate Governance in South East Europe.
KEY CONTACTS:
Mr Alan Paic Head of Programme alan.paic@oecd.org For general enquiries: investmentcompact@oecd.org Media contact: Ms Vanessa Valle Communications Manager vanessa.vallee@oecd.org