The Black Sea Region: New Challenges and Opportunities for Regional Cooperation Berlin, May 2009

1. OECD EURASIA COMPETITIVENESS PROGRAMME INITIATIVE FOR THE SOUTH CAUCASUS AND UKRAINE The Black Sea Region: New Challenges and Opportunities for Regional Cooperation Berlin, May 2009

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

3. Is the region competitive?FDI trends indicate potential interest from investors FDI in USD Million SEE: Second wave of FDI Central Europe: First Wave of FDI Black-Sea: Third wave? Source: EBRD Transition report 2008, OECD Analysis

4. GDP growth in the region is impacted by the financial crisisAverage GDP growth falling in 2008 Source: EBRD; e. estimate; p. projection Source: OECD Development Centre / IMF

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

6. FDI growth is slowing down after a period of high growth South Caucasus and Ukraine: FDI Net Inflows 1999-2007 (in US$ million) FDI per capita up to 6 times lower than South East Europe Source: EBRD Transition report 2008

7. 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

8. 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

9. 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

10. 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

11. 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

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

13. Engaging the region and listening to country priorities • The initiative was formally launched at a Ministerial Conference held on 01 April 2009 at the OECD. • Ministers and high-level representatives of all countries of the region (Armenia, Azerbaijan, Georgia, Ukraine and Moldova) 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