FASTER, MORE INCLUSIVE AND GREENER GROWTH World Bank Group Country Partnership Strategy October 2010

I.Recent Accomplishments II. Development Challenges III.World Bank Group Support Contents

Recent Accomplishments  Strong track record of macroeconomic stability  Improved business environment  Accelerating growth prior to crisis  Improving social and human development indicators I.

Strong track record on macroeconomic stability, moderate public and external debt 4 as % of GDP SEE includes Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Montenegro, Romania and Serbia Source: World Economic Outlook, October 2010, Online database

Improved business environment and pick-up in investments 5 SEE refers to: see Notes on Slide 4 Source: Doing Business ReportSource: State Statistics Office

Accelerating growth prior to crisis and mild impact of the crisis 6 Real GDP growth SEE refers to: see Notes on Slide 4 Source: World Economic Outlook, October 2010, Online database

Improving key social and human development indicators  Life expectancy is increasing and infant mortality is declining  Enrollment is increasing rapidly in secondary and tertiary education 7 Source: State Statistics Office Source: UN Human Development Report

 Context  Challenges to: - Faster growth - More inclusive growth - Greener growth Development Challenges II.

Medium-term country development context:  challenging post-crisis environment - Tighter financing constraints - Below potential growth of main developed partners - Significant uncertainties  anchored in country’s EU accession process - Stimulate exports and investments - Main driver for reforms - Largest donor Context 9

Context Strategy to meet development objectives:   Faster growth by improving competitiveness.   More inclusive growth by strengthening employability and social protection.   Greener growth through more sustainable use of resources and direct climate action. 10

I. Faster growth Challenge: Create jobs  Unemployment began to fall prior to crisis  But jobs have been low-paid  Post-crisis recovery could be jobless 11 Source: Labor Force Survey, State Statistics Office

Ease of DB3269 Starting a Business613 Construction Permits Employing Workers58122 Registering Property6388 Getting Credit4341 Protecting Investors2088 Paying Taxes2628 Trading Across Borders6263 Enforcing Contracts6462 Closing a Business  Biggest problems of doing business:  Access to finance  Courts  Tax rates  Corruption Doing BusinessBEEPS I. Faster growth Challenge: Improve business environment 12 Source: Doing Business Report Source: WB/EBRD BEEPS At-A-Glance 2008

I. Faster growth Challenge: Build skills  Quality of education needs to improve at all levels  Access issues still exist  R&D spending should be reconsidered 13 Source: WB/EBRD BEEPS At-A-Glance 2008

II. More inclusive growth Challenge: Reduce poverty  Poverty is “sticky” - growth has not translated into lower poverty  The global crisis and slower-growth in the future pose further challenges 14 Source: World Bank Staff calculations based on 2008 HBS data from the State Statistics Office

II. More inclusive growth Challenge: Strengthen social protection  Benefits only help moderate poverty  System needs to be streamlined and consolidated  Number of programs remain categorical 15 Source: World Bank Staff calculations based on 2008 HBS data from the State Statistics Office

II. More inclusive growth Challenge: Improve health service delivery  Health indicators remain below EU levels  Effectiveness and efficiency needs to increase 16

III. Greener growth Challenge: Deal with climate change 17 ECA Countries with greatest vulnerability and exposure to climate change in the 21 st century: Macedonia ranks 5 th on exposure in ECA

III. Greener growth Challenge: Improve water management  Pressures on water supply and water sector administration are growing  About 75 percent of the country is classified as semi-arid  By 2030, the average river run-off is projected to fall by 25 percent. 18

III. Greener growth Challenge: Energy supply and efficiency  Fossil fuels account for more than 80% energy consumption  GHG emissions per unit of GDP are about 2.5 times higher than EU15 average  Energy consumption per capita is low but per unit of GDP is high 19

 International Bank for Reconstruction and Development (IBRD)  International Finance Corporation (IFC) World Bank Group Support World Bank Group Support III.

Current IBRD program 21  The current portfolio includes 14 loans and four grants totaling US$337.4 million in commitments

IBRD Program for (Program for TBD) 22 Virtually every activity will be designed to help prepare for EU membership Development Policy Lending (budget support) Investment Lending (energy, catastrophic risk insurance) Lending of about $50 million p.a. Labor Markets; Poverty Competitiveness; Science and Technology Green Growth; Agriculture and Climate Change Health Water Sector Assessment Analytical and Advisory Activities

Current IFC Program 23  Historical commitments: US$182 mil.  Current portfolio: US$88 mil.  4 active projects (loans and equity)  power distribution, banking, telecoms  5 active advisory programs  5 active advisory programs (total funding >US$ 5 mil)  corporate governance, international standards, mediation, solid waste management, renewable energy  IFC PPP Transaction Advisory  IFC PPP Transaction Advisory (PPP Hydro power: Chebren and Galishte)  Business Environment  Business Environment (Doing Business Report, regulatory reform) IFC Investments: IFC Advisory Services

IFC program for  IFC investment targets by 2014 Double the portfolio; new investments >US$100 million:  Real Sectors  Real Sectors - agribusiness, construction materials, pharmaceuticals, health & education, regional South-South Investments  Financial Sector  Financial Sector - Loans to SMEs, agribusiness, energy efficiency, trade finance  Infrastructure/Energy  Infrastructure/Energy - Renewables, waste, water supply, municipal finance  IFC PPP Transaction Advisory:  hydro-power generation, wind farms, road operation and maintenance, health, water supply, solid waste management  IFC Advisory Services:  advisory support to further improve investment climate and competitiveness in line with country’s EU accession aspirations

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Background slides IV

Strong macroeconomic performance 27

Foreign Direct Investment (FDI) 28

Slide 29 Worsening per capita water availability