Cecilia Sager, ManagerKarin C. Millett, Head Investment GenerationInvestment Generation Vienna Office FIAS, World Bank Group Thessaloniki, September 11, 2008 Investing in Emerging European Markets: Trends and Prospects Strategic Partnership between Hellenic Ministry of Foreign Affairs and FIAS

Key Elements of Today’s Presentation Strategic Partnership between Hellenic Ministry of Foreign Affairs and FIAS FIAS, a joint facility of the WB, IFC and MIGA Overview of global and Eastern Europe FDI flows Factors influencing FDI flows, including trends and prospects FIAS Investment Generation Vienna Office—in the region, for the region, reaching out to private sector investors

Strategic Partnership: Hellenic Ministry of Foreign Affairs (MFA) and FIAS Based on discussions, MFA and FIAS have agreed to: –Establish productive link between FIAS Investment Generation work and Greek and other European countries to facilitate investments in regions of mutual interest. –Geographic priorities: Eastern Europe and Middle East/North Africa –Building bilateral linkages between FIAS work and Greek private sector –Shared staffing and knowledge exchange

The interests of our audience… Before we tell you about us, we would like to hear about you, our audience –Private sector? Already investing abroad? Where? Sectoral interests? –Consultants? Areas of interest? –Academics? Areas of interest? –Other? Our work may be relevant to all of you as actors and agents in public policy, the marketplace and research

World Bank Group—Who we are World Bank (IBRD/IDA), IFC, MIGA World Bank—lending to governments for development priorities IFC – advisory services, investment in private sector, both equity participation and loans MIGA – providing guarantees (insurance) to private sector against: breach of contract by government, expropriation, war and civil disturbance, currency transfer restrictions FIAS – the Investment Climate Advisory Service (partnership of WB, IFC, MIGA)

FIAS: 20 years of experience in investment climate FIAS total program spending Multi-donor advisory service on investment climate 105 staff in 8 locations Mission: increase private investments in developing countries Business model: require client requests and 50% co-funding 219 projects in 82 countries (last 3 years)

WBG - Stimulating Reform through Benchmarking Doing Business - annual review of around 180 countries - and selected cities - to assess objective measures of business regulations and their enforcement –Doing Businees in SEE - covers 22 cities in seven economies: Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYROM, Montenegro, and Serbia FDI Indicators - new FIAS instrument to review specific conditions for cross-border investment

DB and FDI Indicators: what they measure Starting a business Dealing with licenses Employing workers Registering property Getting credit Protecting investors Paying taxes Trading across borders Enforcing contracts Closing a business Foreign ownership restrictions Investment promotion Pre-establishment procedures Access to land Currency convertibility and repatriation Expropriation and int’l arbitration DB vs. FDI INDICATORS

Doing Business Indicators SEE & CIS (1) World Bank-Doing Business Report 2009 rank2008 rankChange in rank Albania Armenia Azerbaijan Bosnia and Herzegovina Bulgaria4544 Croatia Georgia FYROM Kazakhstan

Doing Business Indicators SEE & CIS (2) World Bank Doing Business Report 2009 rank2008 rankChange in rank Kyrgyz Republic Moldova Montenegro Romania47 0 Russia Serbia Tajikistan Turkey Turkmenistanna Ukraine Uzbekistan

World Bank Group’s Role in Investment Climate Development Creating the institutional foundations for effective markets Promoting open and competitive markets Ensuring social safety nets TO CONTRIBUTE TO: –Job and wealth creation –Opportunity for all –Better governance

FDI Indicators: Benchmarking Investment Climate for FDI Objectives - Extend thematic coverage of DB indicators to areas of FDI regulation in order to: –Stimulate appetite for investment climate reforms (as effectively demonstrated by DB) –Respond to needs of public policy makers, business,TA providers, and academics Coverage - Six topical indicators measuring FDI regulation and administrative processes. Methodology consistent with DB and anchored in standardized surveys administered primarily to investment lawyers, accountants and consultants. Timing - 22 pilot countries tested in 4 successive phases (Nov ’07 – Oct ’08). Rollout in 80 countries, planned for Jan’09.

FDI Indicators: Examples of preliminary results from pilot tests Types of land occupancy rights available for a foreign firm: Right to Buy (Freehold) Right to Lease (Leasehold) PrivateStatePrivateState Cameroon Ethiopia Ghana Mozambique Nigeria (1) Many countries continue to have sector- specific restrictions on FDI: (2) Several countries in Sub-Saharan Africa require an additional approval for foreign investors: (3) The quality of land rights for foreign investors varies considerably across the world: (4) Sub-Saharan African countries vary significantly in the type of land occupancy rights they offer: Can a foreign company establish a subsidiary without an investment approval? Yes/NoMedian # Days (if ‘No’) Cameroon14 Ethiopia10 GhanaN/A Mozambique60 NigeriaN/A - Yes - No sectoral openness index (0-100) quality of land use rights index (0-100) sectoral openness index (0-100)

Factors other than Investment Climate affect FDI flows—prospects are good… Cross-border mergers and acquisition (vs. Greenfield investments) are the major drivers of global FDI US and the EU15 continue to dominate as recipients of world FDI Among emerging markets, China remains by far the main recipient of FDI Liberalization of trade and investment policies expected to continue Developing countries increasingly outward investors *Source: World Investment Prospects to 2011; The Economist Intelligence Unit

However….. Geopolitical climate more threatening Signs of emerging protectionism against FDI, particularly among developed countries Apparent weakening of appetite for globalization Financial market woes making financing tighter

Factors influencing location decision Factors attracting investment by region (per cent of total number of responses for all factors in the region) North AmericaEU15 New EU12SEE and CIS South, East and South-East Asia World average Follow the leader Skilled labor Low-cost labor Size of local market Access to capital market Access to natural resources Access to regional market Growth of local market Government effectiveness, incentives Stable investment environment Source: UNCTAD, WIPS

Investment trends in SEE & CIS Top investment destinations Top investors Key sectoral opportunities include: automotive components, light manufacturing, IT services, back office services

However, there are challenges… Deficiencies in investment climate and doing business conditions Availability of labor (sometimes due to skills mix, other times the cost, and sometimes the lack of availability due to outward migration) Inadequate infrastructure Slowdown in growth in Europe - possibly recession - will affect FDI flows in short term

FIAS Experience with Investor Outreach in the Western Balkans Invest in Western Balkans Program commenced operations in 2005, based in Vienna –Primary objective: To promote investment in Western Balkans through improving outreach capacity of Investment Promotion Intermediaries Extensive network of relationships with potential investors IWB results to date: Investments/Jobs: 10 investments generated (€145m), 500 direct jobs, 750 indirect jobs, 54 investor site visits Enhancing client promotional capacity: Strengthened marketing capability in partner institutions – marketing strategies and outreach plans In 2008, IWB helped secure an investment by Oberndorfer in Croatia. This €5 million investment in the construction materials sector is their first investment outside of Austria and Phase I entails 60 direct jobs.

FIAS Investment Generation Vienna Office – in the region, for the region Leading FIAS Investment Generation work in Eastern Europe and Central Asia. Communicating Policy Reform through public- private dialogue, engaging with domestic and foreign investors in client countries Providing advice and technical assistance to analyze, package and implement reforms Assisting with formulating and implementing national FDI strategies, based on sectoral competitiveness Actively reaching out to potential investors to: - Stimulate interest in productive investment, particularly in Greenfield investment

Improved Investment climate Improved Investor Servicing FDI friendly policies Increased investment flows Investment Jobs Feedback Loop Investment Generation Vienna - Goals

THANK YOU! Cecilia Sager and Karin Millett