Promoting Job Creation in BSEC and CA Countries: What Role for the Private Sector? Karin C. Millett, Head FIAS Investment Generation-Vienna Bucharest, June 23, 2008

Economic Growth ‘It is absolutely crucial to recognize that all economic growth takes place at the level of the productive enterprise – otherwise it is impossible to have a clear understanding of the growth process.’ (Arnold Harberger, December 2005) Not all productive enterprises are private, but the majority will be.

Private Sector as the Engine Significant structural changes have taken place since the transition to market economies, though the pace of job destruction has often outpaced that of job creation. In a market economy, it is clear that the private sector is the primary creator of jobs. However, job creation by private sector highly dependent on whether the policy environment obstructs or enables private enterprises to form, operate and exit business. While important reforms enacted by countries represented here, evidence suggests much still to be done in many countries to create a conducive environment for private sector development.

Doing Business Indicators (1) World Bank - Doing Business Report 2008 rank 2007 rank Change in rank Albania Armenia Azerbaijan Bulgaria Georgia Greece Kazakhstan71 0 Kyrgyz Republic Moldova

Doing Business Indicators (2) World Bank - Doing Business Report 2008 rank 2007 rank Change in rank Romania Russia Serbia Tajikistan153 0 Turkey Turkmenistanna Ukraine139 0 Uzbekistan

A key question is productivity Two general approaches to increasing productivity, ‘yeast’ and ‘mushrooms’ (Arnold Harberger) –Yeast makes everything rise uniformly, e.g., knowledge, education, ICT –Mushrooms which ‘pop up’ in unpredictable places and happen in an industry at the level of the firm, which is the locus of growth, leading to real cost reduction (TFP) A third approach is to reduce the ‘friction’ in the economic machine: working on the institutional milieu. –This offers opportunity for a public-private dialogue to improve that milieu, through identifying ‘where the shoe pinches’ for the private sector.

Towards a more competitive private sector Red Tape Poor Productivity Costly and unreliable Utilities Logistics. Competitiveness Labor Cost Corruption 7

Capacity buildingReform management Learning about good practice Good policies and regulations matter Source: WDR05. 8

Builds momentum for business environment refor ms Helps prioritize binding constraints Ensure that reform design fits local needs and capacity Smoothen/accelerate implementation of policy reforms Promotes accountability, transparency, good governance Builds trust and restore confidence in post conflict/crisis env. Public Private Dialogue as a Tool 9 PPD reforms  Workable reforms  Reforms that work

The Key Stakeholders and Processes in PPD Define project brief Investment climate constraints (Existing benchmarks and surveys) Stakeholder investigation (Field interviews and focus groups) Private sectorIntermediariesPublic authoritiesCivil Society Most significant reforms (Field interviews and focus groups ) Stakeholder analysis Design decision 10

Examples of reforms resulting from PPD Turkey— Coordination Council for Improvement of Investment Climate led to new framework of laws to facilitate FDI and dramatically simplify procedure of registering a new company. Bosnia— Bulldozer initiative yielded many reforms, incl. slashing statutory capital requirements when registering a LLC.

Example of long-term successful PPD Ireland’s Social Partnership (started in early 1970s, became a real force in 1980s, as economy hit a crisis) - Government, private sector, labor unions, farmers, and NGOs—chaired by Prime Minister’s Office –Identifying key competitiveness issues and addressing social equity. - Important factor in transition from a high- inflation, volatile economy to a low inflation, stable and competitive economy Expert Group on Future Skills Needs

Benefits and Outputs from PPD Focusing on this will bring the others 13

Embarking on a PPD Process FIAS/WBG can provide advice and assistance, drawing on experiences of over 40 countries around the globe. Manuals, guidelines and success stories are featured on line for those who want to learn more.

Charter of Good Practice Lessons learned Tools for practitioners Case studies Online partnerships PPD Workshop 15

THANK YOU! Karin Millett