Development challenges in the Europe and CIS region(s)

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

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

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

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

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

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

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

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

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

10. Climate change: Commonalities, partnerships • Both EU-12, programme countries inherited very energy inefficient economies • Results—High levels of: • Energy use • Greenhouse gas emissions • 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)

11. In 1990: Programme, EU-12 countries emit lots of CO2 CO2 emitted per $ of GDP Kilotons emitted per million PPP$ GDP. Source: UNDP Human Development Report Office.

12. By 2004: Slovakia, Romania were below global averages CO2 emitted per $ of GDP Kilotons emitted per million PPP$ GDP. Source: UNDP Human Development Report Office.

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

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

15. Estonia