OECD EURASIA COMPETITIVENESS PROGRAMME INITIATIVE FOR THE SOUTH CAUCASUS AND UKRAINE

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

2. The competitiveness challenge Potential policy priorities to enhance competitiveness The need for a focused and demand driven regional approach

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

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

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

6. The region remains cost competitive Example: Cost competitiveness in labour for the Republic of Moldova Example of SEE Leveraging their competitive labour costs in services Index (100: Hungary) Relative comparison of average monthly labor cost in services (2005) Up to 7 times lower (1) Hungary Poland Croatia Serbia Albania UNMIK Bosnia &H India R.Moldova FYR Macedonia Montenegro Sample of CEE countries WB countries covered by the project Other references 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 Source: International Labour Organization; zdnetasia; Wall Street Journal, OECD interviews

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. Policy priorities to enhance competitiveness Based on feedback from countries of the region Which key areas need to be address to enhance investment and competitiveness in the Black Sea (SCU)? How to tailor human capital policies and practices to support financial and business services? Sustained Competitiveness 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? The need to focus on SME competitiveness

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

10. Example : Monitoring policies at the regional level Addressing reforms through regional working groups and peer review Example for South East Europe The OECD Investment Reform Index The SME Charter Regional Policy Working Group • 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

11. OECD Policies for Competitiveness Assessment Framework Which key topics should be addressed within each Policy Working Group? “Policies for Competitiveness” Dimensions • Investment Climate Policy and Promotion • Financial Markets Development • Human Capital for financial and business services • Others Level 1 Level 2 Level 3 Level 4 Level 5 Source: OECD PfC Assessment Framework

12. Example: Investment climate policy and promotion Initial area of focus Initial area of focus Promotion and Facilitation Transparency FDI Policy • 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 • 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 Source: OECD PfC Assessment Framework

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

14. Good FDI performance and average FDI potential FDI Performance and Potential Low FDI Performance High FDI Performance 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 Hong Kong,China Luxembourg Norway UAE High FDI Potential • 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 Kazakhstan Median of 141 countries Czech Republic Jordan Turkey Azerbaijan Egypt Armenia Low FDI Potential Georgia Under-performers Above potential FDI/GDP ratio = 1 (world shares) FDI Inflows < 0 Improvement of FDI attractiveness through policy reform Source: UNCTAD 2004-07, Ranking of 141 countries, OECD Analysis

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

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. 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.org Daniel Quadbeck Policy Analyst Eurasia Competitiveness Programme Tel: + 33 1 45247522 Fax : + 33 1 45249335 e-mail: Daniel.Quadbeck@oecd.org