Lessons learned from EBRD- sponsored high-level investors’ councils D. Otorbaev PPD International Workshop Vienna, April 2009

Content 1. Diagnostics –Our region –How to organize the process, risks etc. –Role of governments 2. Steps taken to date –Networking; internal & external processes 3. How to do things together?

Why smaller countries? Role of capital Bigger countries (Russia, Ukraine) –reformers “acquired” power, since they acquired the capital –market reforms often faster (larger companies driven) Smaller countries (ETCs) (reforms are slower) –capital spread over many companies –‘divide and rule’ law works better

Why smaller countries? Budgets Bigger countries –national wealth generated by big companies (Gazprom, Lukoil, Kaymunaigaz, etc.) –Role of small businesses not visible (little input to GDP, and budget revenues) In all countries of operation the SME sector is strongly under-developed! –Institutional/fundamental problem

Why smaller countries? Jobs Why in smaller countries SME development is crucial? –Jobs (agriculture, services) –Economies are fully dependant on their performance Characteristics of private sector –Fragmented –Not organized

Why smaller countries? Conclusion Big companies will fix things on ‘ad hoc’ basis –They have their own dialogues (‘investment councils’) Smaller and medium-sized enterprises (SMEs) cannot reach the governments Policy dialogue will help to all private sector –to channel their messages to the governments –to strengthen their lobbying power

Role of government Most of government policies designed to help the private sector impede its development Why governments can’t do much? –Low level of ability or competence –High level of corruption –Influence of special-interest groups How governments can help business?

Just get out of the way!

PPD: Practicality We should do it based on pure practicality (not academic or ‘political’ reasons) To lend more, we have to lower the risks What are our clients saying during private conversations? –They with us not for only for financial contribution –Protection (“roof”)

PPD: Institutions Why to protect only on “case by case” basis? What to do with smaller businesses? To build “protection” institutions –Advocacy and lobbying groups (rule of law) To build public-private partnership/training –via sustainable dialogue/mandatory capacity building component

How to make reforms? To support reformers in the Governments How to help reformists? To build the ‘team’ –To ‘train’ and to motivate private sector players –To mobilize Parliaments (including training) –To support/enforce the ‘fair play’ rules Finally: to strengthen/train the entire ‘team’ We need a fair referee (leadership of country)

What donors can offer? To harmonize donors practices in the country –our shareholders demand How to make it? (involve WB/IMF, bilaterals) –conditionality (reforms in exchange to investments) What private sector needs from the Bank? –finance, yes; TC, yes. But not only … –protection

Consultative councils Bank has good reputation/must use it Push to start consultative process between main stakeholders (in each country) –Governments (chairmanship with the country leadership)/limited other government participation –business communities, including foreign investors –donors –Parliaments

Consultative councils Agenda –Medium term (legislation, regulation) –Short term (implementation) The key goal: building the partnership within the council (building the ‘team’) TA funds are needed to support small secretariats of consultative councils

Risks Lack of commitment from local stakeholders –Political risk (inability, unwillingness) –That is why we are not in all ETCs as yet Lack of local capacity to run the secretariats Too broad agenda/duplication Internal commitments/reputational risk –Sufficient senior resources

First results Political will - Kyrgyz Republic, Armenia, Georgia, Mongolia, Tajikistan Support of secretariats (5 countries/2 years) –Head, two economists, one lawyer, secretary Councils are operational in 4 countries (in Georgia is to be established)

The role of ROs Setting up the programmes –To develop the councils’ agendas –To organize the working groups (with other donors) –To work with other donors and private sectors To help to the secretariat Training and monitoring

The role of HQ Advisory Board on PPD (endorsed by ExCom) –SEECCA BGD (Chairman), Country Directors, Director of ETCI Team, OCE, LTT Agenda –Update on progress and issues arising –Staff assigned (HQ/ROs) –Inputs needed from OCE/OGC (LTT)

Building the team Bank’s mission – let’s be practical (‘win-win’) –Better investment climate – more investments –Nobody will lose Why we have chances? –Overall economic climates are favourable Positive result is matter of time We could do it fast. Let’s do it together

Thank you