The OECD Investment Compact for South East Europe

1. The OECD Investment Compact for South East Europe Supporting Investment Climate Reform for Growth and Employment Vienna Economic Forum – 10 November 2008

2. Overview • Programme objective, organisation and Strategic Framework • Activities and Achievements • Future strategy

3. Objectives • Launched in 2000, the OECD Investment Compact for South East Europe is a regional programme designed to improve the investment climate and to encourage private sector development in South East Europe through the implementation of reforms to enhance domestic and foreign investment. • Based in the OECD, the programme has its own institutional structure, including the South East Europe Investment Committee and an annual Ministerial conference.

4. Strategic Framework Focus of Investment Compact Program A. Enterprise and SME Development B. Policy and Promotion Specific to FDI Investment Reform Index (IRI) SME Policy Index 1. Monitoring and Evaluation Project on Sector Specific Sources of Competitiveness Thematic Working Groups with policy recommendations Country specific projects (ex: FDI Strategy in Moldova) 2. Implemen-tation Support 4 Areas Structured Public/Private Debate through OECD tools Involvement of Business Advisory Council, Regional Foreign Investors Councils and local chambers 3. Private Sector Support Annual Ministerial for the SEE Region 4. Political Support

5. Programme Structure Regional Co-operation Council OECD Directorate for Financial and Enterprise Affairs Co-chairs: OECD Country + SEE Country + OECD OECD donor countries Investment Compact for South East Europe Regional Working Groups: Anti-Corruption Human Capital Investment Promotion Regulatory Reform SEE country economic teams SEE Investment Committee International organisations Private sector

6. Financial contributors to the Investment Compact • Austria (also co-chair of the initiative) • Belgium Flanders • Bulgaria • Central European Initiative (CEI) • Czech Republic • European Commission • Germany • Hungary • Ireland • Italy • Romania • Slovenia • United States

7. Summary of Achievements Overall achievements in the last seven years • Enhanced the investment environment by: • Accelerating reforms through identification of priorities and guidance on how to implement them • Moving countries closer to OECD standards through adherence as observers to OECD Committees • Improving brand image with sector specific investment promotion events • Helped increase the capacity of policy makers and engagement of the private sector through the transfer of OECD methodologies, tools and instruments taking into account the specific circumstances of the region. • Promoted a culture of continuous improvement with the systematic monitoring and evaluation of reforms based the Investment Reform Index and the SME Policy Index • Encouraged regional ownership of the reform process with the launch of the South East Europe Investment Committee and regional thematic Working Groups to improve policy dialogue and implementation of investment reforms.

8. Most recent achievement: Strengthening Sector Specific Sources of Competitiveness • Regional Study on Sector Competitiveness • Will translate into launch of an ambitious project to support implementation • See www.investmentcompact.org The Western Balkans

9. Example of Findings: Business Process and Technology Outsourcing (BPTO) advantages Leveraging their competitive labour costs in services Index (100: Hungary) Relative comparison of average monthly labor cost in services (2005) Up to 5 times lower (1) UNMIK Poland Croatia Serbia Albania Hungary Moldova India Bosnia &H 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

10. Example of findings: Sector specific gaps in Human Capital 50% of BPO firms have difficulties finding skilled and educated workers 70% of BPO firms find education and training to be key policy issues Skills and education of available workers Key issues within human capital policy 50% Source: OECD RCS, OECD 2007

11. Investment Compact: Promoting Reforms for more and better invesment FDI in USD Million SEE: Second wave of FDI Central Europe: First Wave of FDI Eurasia: Third wave? Source: EBRD Transition report 2007, OECD Analysis

12. Programme focus 2009-2010 Focus of Investment Compact Programme A. Enterprise and SME Development B. Policy and Promotion Specific to FDI Investment Reform Index (IRI) 2009 SME Policy Index 2009 1. Monitoring and Evaluation Regional Competitiveness Initiative (RCI) Selected national business climate strategy projects 2. Implemen-tation Support 4 Areas • Collaboration with private sector around IRI 2009 • Business Advisory Council (BAC) • Foreign Investor Councils • Eurochambers and local chambers of commerce 3. Private Sector Support Ministerial planned to end 2009 in collaboration with Regional Cooperation Council 4. Political Support

13. Collaboration with RCC • Collaboration with the RCC • CEFTA 2006: the Investment Compact will assist in monitoring the three investment-related clauses of the CEFTA 2006 and incorporate them within the findings of the IRI 2009. Monitoring and evaluation of CEFTA 2006 may be expanded to include contributions by the CEFTA structures to the IRI’s Trade Policy and Administration dimension. • Other policy dimensions: The RCC priority areas of Infrastructure, Human Capital Development and Justice and Home Affairs will benefit from the IRI evaluation and priority setting process within those dimensions. Strong involvement of the RCC will also enhance both the quality of IRI outputs and its impact on policy reform in SEE. • Joint Ministerial end 2009:Take stock of achievements and define the roadmap going forward to improve regional competitiveness

14. Flagship project: Regional Competitiveness Initiative • Match supply and demand • Align ministries • Develop tools to analyse skills gaps and • shortages • Review the labour market regime • Develop a mechanism for dialogue with • civil society Sustained Competitiveness • Remove sector specific policy barriers on a continuous basis • Set-up regional sector specific • working groups • Develop sector • specific monitoring tools • Channel innovation efforts • Assess the success levels of current cluster initiatives • Develop an organisational structure and governance model at the national level • Map out the objectives and scope of competitive clusters to channel innovation efforts

15. Flagship project: IRI 2009 • Policy Scope • Investment policy and promotino • Tax policy and administration • Trade policy • Anti-corruption • Financial sector development • Human Capital development • Infrastructure • SME policy • Regulatory reform and parliaments • Expected Results • An overview of each SEE country’s performance on business climate policy reform, allowing benchmarking relative to peers • Jointly defined policy priorities to further improve the business climate • Recommendations on how to make improvements within each policy dimension and concrete examples of OECD best practices • Follow up support in implementation of reforms from both the OECD an other international organisations.

16. Anthony O’Sullivan Head of DivisionPrivate Sector Development Organisation for Economic Co-operation and Development (OECD) anthony.osullivan@oecd.org www.oecd.org THANK YOU FOR YOUR ATTENTION! Contact