1. Enhancing South East Europe Competitiveness through innovation and human capital development
Bank of Greece-University of Oxford (SEESOX) Conference
Athens, February

2. Overall business climate issues in South East Europe
Agenda
Overall business climate issues in South East Europe
Supporting SMEs in South East Europe
Boosting Innovation and skills in South East Europe

3. Business Climate as measured by the Investment Reform Index 2010
IRI – SEE average score
Main improvement points – Investment Policy and Promotion
Land title registration and cadastre is slow
Permits for foreign workers are cumbersome in BiH and FYROM
FDI Incentives on sub-national level need more clarity
FDI-related capital transfer remain in AL, SRB and BiH
One-stop shop for investors (IPAs to approve permits)
Weak aftercare in BiH, BG, MNE and RO
Legal frameworks for PPPs to be developed
Need to improve IP rights enforcement
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

4. Business Climate as measured by the Investment Reform Index 2010
IRI – SEE average score
Main improvement points – Human Capital Development
Basic skills in education system are much lower than OECD average (BG, MNE, RO, SRB) or comparable to it (HR)
Misalignment between profile of skills supplied by the education system and the needs of the private sector
Little or no government strategy on Continuous Education and Training
High tax wedges on labour, except in AL, BG
Temporary labour contracts restricted to specific purposes (seasonal work, replacements)
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

5. Business Climate as measured by the Investment Reform Index 2010
IRI – SEE average score
Main improvement points – Trade Policy and Facilitation
Implement agreement on agricultural tariffs (manufactured product tariffs already minimal)
Monitor and decrease non-tariff barriers to trade: sanitary and phytosanitary, technical
Continue integration in multilateral trade system (WTO members: AL, HR, FYROM, MD: negotiating: BiH, SRB, MNE)
Main improvement points – Access to Finance
Develop competition in banking sector
Improve credit information and credit guarantee schemes
Develop stock markets and venture capital/business angel networks
Develop export guarantee schemes
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

6. Business Climate as measured by the Investment Reform Index 2010
IRI – SEE average score
Main improvement points – Regulatory Reform
Regulatory Impact Assessment to be developed
Improve co-ordination of parliaments and governments
Formalize dialogue with civil society
Main improvement points – Tax Policy Analysis
Improve simulation instruments such as corporate income tax microsimulation, tax wedge model, marginal effective tax rate model
Assess cost of compliance for SMEs
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

7. After the crisis, support to SMEs and innovation is seen as key to sustainable growth

8. Overall business climate issues in South East Europe
Agenda
Overall business climate issues in South East Europe
Supporting SMEs in South East Europe
Boosting Innovation and skills in South East Europe

9. Overall Conclusions of the 2009 SME Policy Index
Good overall progress on the implementation of the European Charter for SMEs
However: uneven progress across the 10 dimensions of the Charter:
Good progress for policy areas that directly affect operational environment of SMEs (e.g. company registration, regulatory reform, access to finance).
More modest progress in introducing targeted policies for specific types of SMEs (e.g. start-ups, innovative SMEs). Even in the cases where such policies have been formulated, the amount of available resources is very low, compared to EU Member States.
The contribution of human capital to the region’s competitiveness remains a particular constraint to the Western Balkan economies.
Implementation is still in an early phase in some economies.

10. Detailed recommendations of the 2009 SME Policy index (1/2)
Entrepreneurship and training
Entrepreneurship to be considered as key competence by education community
Co-operation needed among education policy makers to achieve life-long entrepreneurship training
Cheaper and faster start-up
Compliance phase: strive to balance the need for inspection and compliance with burden on SMEs
Need to establish an electronic registry for all companies to create a centre of collection and dissemination of company data
Better legislation and regulation
Apply the “silence is consent” principle widely
Regulatory impact assessment should be further implemented, and redundant legislation eliminated
BiH and Kosovo under UNSCR 1244/99 still lack a coherent legislation with an effective institutional framework and strategy
Availability of skills
Develop training needs analysis to identify skills gaps
Promote the training market
Improving online access for SMEs
Continue developing e-government, notably by developing an e-signature

11. Detailed recommendations of the 2009 SME Policy index (2/2)
Getting more out of the single market
Export promotion: provide export insurance and export credit
Competitiveness support: targeted measures, monitor impact
Taxation and access to finance
Increase domestic bank lending by allowing banks to shift to cash-flow lending (without collateral)
Lower barriers and costs for transferring remittances
Strengthen property rights and contract law
Improve credit information and bankruptcy laws
Improve credit guarantee schemes
Promote leasing, venture capital funds and private equity
Strengthening the technological capacities of SMEs
Extend support to initiatives establishing inter-firm clusters and networks (+voucher schemes, incubators,…
Improve international cooperation through Enterprise Europe network
Coordinate policymaking across Ministries in areas such as IP rights, incubators, clusters and skills development

12. Overall business climate issues in South East Europe
Agenda
Overall business climate issues in South East Europe
Supporting SMEs in South East Europe
Boosting Innovation and skills in South East Europe

13. South East Europe performance on innovation is very low
Western Europe average
CEE average
Upper middle income countries
Lower middle income countries
Source: Data from Knowledge Economy indicators, World Bank, OECD analysis

14. What is an innovation system?
Social and Human Capital
Universities
S&T Training and Education
Absorptive Capacity
‘Follower’ firms; Intermediate and End Consumers and Professional Users
Market for Goods and Services
Research Capacity
Universities; Govt Laboratories
Basic Scientific Research
Technology and Innovation Performance
‘Creative’ Firms
Applied RTD and Product /Process Development
Knowledge Users
Knowledge Creators
Public Sector
Private Sector
Source: Nauwelaers, 2003

15. Public research input and output ranges from insignificant to catch-up with developed countries
Source: Data from Science and Technology in the Western Balkans (inco-net), Knowledge Economy indicators, World Bank, OECD analysis

16. Private R&D input and output are mostly below the average for upper middle income countries
Source: Data from Global Competitiveness Review, Knowledge Economy indicators, World Bank, OECD analysis

17. What can policy do to enhance the Innovation system?
The Impact of RTD on Competitiveness and Employment (IRCE), EC, 2003

18. with the financial support of the European Union
Regional Competitiveness Initiative
Overview
with the financial support of the European Union
Objectives:
Support medium and long-term competitiveness of the Western Balkans.
Provide capacity building support to Western Balkan public administrations via pilot projects.
Focus Areas:
Human capital development – To address major skills gaps.
Innovation – To strengthen innovative capacities and support absorption of technology by the private sector.
Duration :
Financial support : European Union (DG Enlargement)
Implementing agency: OECD

19. with the financial support of the European Union
Pilot projects
with the financial support of the European Union
Mechanisms to finance business services in support of innovation (voucher schemes)
The establishment of a Competence Research Centre (CRC)
Assist the government in conceiving the overall policy framework for innovation
Co-operation within the ‘triple helix’ of research-business-government communities
Greater time and staff commitment

20. with the financial support of the European Union
Thank you for your attention Alan Paic Principal Administrator OECD Investment Compact for South East Europe Private Sector Development Division Organisation for Economic Co-operation and Development (OECD)