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

Overview 1.Programme objective, organisation and Strategic Framework 2.Activities and Achievements 3.Future strategy

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.

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

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

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

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. Summary of Achievements

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

Example of Findings: Business Process and Technology Outsourcing (BPTO) advantages Source: International Labour Organization; zdnetasia; Wall Street Journal, OECD interviews Leveraging their competitive labour costs in services Relative comparison of average monthly labor cost in services (2005) Hungary PolandCroatia Bosnia &H Montenegro Serbia MoldovaIndia Index (100: Hungary) (1) Sample of CEE countriesWB countries covered by the project Other references FYR Macedonia Albania UNMIK Note: Monthly wages have been calculated on or 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 Up to 5 times lower

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

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

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

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 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

Flagship project: Regional Competitiveness Initiative Human Capital Development Sector Policy Reforms Competitive Clusters Sustained Competitiveness 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 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

Flagship project: IRI 2009 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. Policy Scope 1.Investment policy and promotino 2.Tax policy and administration 3.Trade policy 4.Anti-corruption 5.Financial sector development 6.Human Capital development 7.Infrastructure 8.SME policy 9.Regulatory reform and parliaments

Anthony O’Sullivan Head of Division Private Sector Development Organisation for Economic Co-operation and Development (OECD) Contact THANK YOU FOR YOUR ATTENTION!