Lessons learned from EBRD-sponsored high-level investors’ councils

1. Lessons learned from EBRD-sponsored high-level investors’ councils D. Otorbaev PPD International Workshop Vienna, 28-29 April 2009

2. Content • Diagnostics • Our region • How to organize the process, risks etc. • Role of governments • Steps taken to date • Networking; internal & external processes • How to do things together?

3. Why smaller countries? Role of capital • Bigger countries (Russia, Ukraine) • reformers “acquired” power, since they acquired the capital • market reforms often faster (larger companies driven) • Smaller countries (ETCs) (reforms are slower) • capital spread over many companies • ‘divide and rule’ law works better

4. Why smaller countries? Budgets • Bigger countries • national wealth generated by big companies (Gazprom, Lukoil, Kaymunaigaz, etc.) • Role of small businesses not visible (little input to GDP, and budget revenues) • In all countries of operation the SME sector is strongly under-developed! • Institutional/fundamental problem

5. Why smaller countries? Jobs • Why in smaller countries SME development is crucial? • Jobs (agriculture, services) • Economies are fully dependant on their performance • Characteristics of private sector • Fragmented • Not organized

6. Why smaller countries? Conclusion • Big companies will fix things on ‘ad hoc’ basis • They have their own dialogues (‘investment councils’) • Smaller and medium-sized enterprises (SMEs) cannot reach the governments • Policy dialogue will help to all private sector • to channel their messages to the governments • to strengthen their lobbying power

7. Role of government • Most of government policies designed to help the private sector impede its development • Why governments can’t do much? • Low level of ability or competence • High level of corruption • Influence of special-interest groups • How governments can help business?

8. How governments can help business? Just get out of the way!

9. PPD: Practicality • We should do it based on pure practicality (not academic or ‘political’ reasons) • To lend more, we have to lower the risks • What are our clients saying during private conversations? • They with us not for only for financial contribution • Protection (“roof”)

10. PPD: Institutions • Why to protect only on “case by case” basis? • What to do with smaller businesses? • To build “protection” institutions • Advocacy and lobbying groups (rule of law) • To build public-private partnership/training • via sustainable dialogue/mandatory capacity building component

11. How to make reforms? • To support reformers in the Governments • How to help reformists? To build the ‘team’ • To ‘train’ and to motivate private sector players • To mobilize Parliaments (including training) • To support/enforce the ‘fair play’ rules • Finally: to strengthen/train the entire ‘team’ • We need a fair referee (leadership of country)

12. What donors can offer? • To harmonize donors practices in the country • our shareholders demand • How to make it? (involve WB/IMF, bilaterals) • conditionality (reforms in exchange to investments) • What private sector needs from the Bank? • finance, yes; TC, yes. But not only … • protection

13. Consultative councils • Bank has good reputation/must use it • Push to start consultative process between main stakeholders (in each country) • Governments (chairmanship with the country leadership)/limited other government participation • business communities, including foreign investors • donors • Parliaments

14. Consultative councils • Agenda • Medium term (legislation, regulation) • Short term (implementation) • The key goal: building the partnership within the council (building the ‘team’) • TA funds are needed to support small secretariats of consultative councils

15. Risks • Lack of commitment from local stakeholders • Political risk (inability, unwillingness) • That is why we are not in all ETCs as yet • Lack of local capacity to run the secretariats • Too broad agenda/duplication • Internal commitments/reputational risk • Sufficient senior resources

16. First results • Political will - Kyrgyz Republic, Armenia, Georgia, Mongolia, Tajikistan • Support of secretariats (5 countries/2 years) • Head, two economists, one lawyer, secretary • Councils are operational in 4 countries (in Georgia is to be established)

17. The role of ROs • Setting up the programmes • To develop the councils’ agendas • To organize the working groups (with other donors) • To work with other donors and private sectors • To help to the secretariat • Training and monitoring

18. The role of HQ • Advisory Board on PPD (endorsed by ExCom) • SEECCA BGD (Chairman), Country Directors, Director of ETCI Team, OCE, LTT • Agenda • Update on progress and issues arising • Staff assigned (HQ/ROs) • Inputs needed from OCE/OGC (LTT)

19. Building the team • Bank’s mission – let’s be practical (‘win-win’) • Better investment climate – more investments • Nobody will lose • Why we have chances? • Overall economic climates are favourable • Positive result is matter of time • We could do it fast. Let’s do it together

20. Thank you