THE CONTINUAL GROWTH OF THE REGION

1
2008
THE CONTINUAL GROWTH OF THE REGION
Regional Cooperation on Social-Economic
Development in South Eastern Europe Sarajevo,
May 15th, 2008.
REPUBLIC OF SERBIA
Ministry of Economy and Regional Development
Velimir Gavrilovic, Assistant Minister
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REGIONAL INITIATIVES AND ECONOMIC COOPERATION

• Regional Cooperation Council
• Central European Free Trade Agreement
• OECD Investment Compact Initiative
• SEE Investment Committee
• Business Advisory Council for South Eastern
  Europe
• Energy Community of South Eastern Europe
• Cooperation Process in South Eastern Europe
• Central Europian Initiative
• Organization of the Black See Economic
  Cooperation
• The Adriatic Ionian Initiative
• South Eastern Cooperative Initiative
• The European Common Aviation Area Agreement
• Danube Cooperation Process
• International Sava River Basin Commision
• Migration, Asylum, Refugees Regional Initiative

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CEFTA
CEFTA (South East Europe Free Trade Area)
market of app. 30 million consumers
EU member states EFTA member states
 CEFTA member states

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Real GDP Growth Rate () in SEE Countries
Source EBRD Transition Report update May, 2007

• Estimation
• Projection
• GDP growth forecasts for 2008 (Source
  http//www.ebrd.com/country/sector/econo/stats/gdp
  .xls)

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Real GDP Growth Rate () in SEE Countries
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Growth Comparison with Other Regions
Source EBRD Transition Report 2007
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Inflation, GDP Deflator (Annual )

• Source The World Bank Group

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Foreign Direct Investment, Net, in mil. EUR

• Source EBRD Transition Report update May, 2007

• Estimate
• Projection
• EBRD forecasts for 2008 in millions US
  (Source http//www.ebrd.com/country/sector/econo/
  stats/fore.xls)

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Foreign Direct Investment, Net, 2000-2007 in
mil. EUR
Source EBRD
10
 Foreign Direct Investment, Gross (BoP, mil.
USD)

• Source The World Bank Group

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 Foreign Direct Investment, Gross,
2000-2006(BoP, mil. USD)
Source World Bank Group
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Credit Ratings of SEE Countries
Source INVESTMENT COMPACT FOR SOUTH EAST EUROPE
- REPORT OF ACTIVITIES Paris, France November
2007

• Long Term Issuer Default Rating
• Country Ceiling for Foreign Currency Bonds - Long
  Term
• Credit rating foreign currency

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Transition in the Region

• Three phases of reform
• First phase small-scale privatisation, price,
  trade and foreign exchange liberalisation
• Second phase large-scale privatisation, banking,
  and non-bank financial institutions
• Third phase governance, competition, and
  infrastructure

Source EBRD Transition Report 2007
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Wide Variation in Reform
Source EBRD Transition Report 2007
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Strong Growth and Reforms, but Deep Unhappiness

• Most people strongly committed to democracy but
  moderately to markets
• Widespread dissatisfaction
• Upheaval in labour markets
• Long-term unemployed
• Brain drain has serious implication for the
  future
• Self employed and skilled more satisfied, support
  markets

Source EBRD Transition Report 2007
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Most People Perceive Relative Decline
Source EBRD Transition Report 2007
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Weaker Support for Markets, but Still Positive
Source EBRD Transition Report 2007
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Good Results

• Croatia and FYR of Macedonia are among the top 10
  reformers in the World Banks Doing Business
  Report for 2007 and Serbia topped this poll in
  2006
• Anti-corruption measures in the region are
  recognized and are resulting in SEE countries
  moving further up Transparency Internationals
  ratings
• All the countries in the region have managed to
  catch the EU accession train with SAA signing
• SEE is increasingly perceived as a good
  destination for investment

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Southeast Europe Attractiveness Survey

• ERNST YOUNG RESEARCH April 2008
• 216 directors from around the world were asked
  whether they find a certain country from
  Southeast Europe attractive for investment.
• 62 of directors were from Western Europe, 17
  from North America, 9 from Southeast Europe, 5
  from Asia, 4 from Central and East Europe and 3
  from the rest of the world.

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Southeast Europe Attractiveness Survey

• Criteria used for grading labor costs and skill
  level, domestic market, transport, logistic and
  telecommunication infrastructure, quality of
  life, transparency and stability, corporation tax
  rates, cost of land and related regulations,
  flexibility of labor regulations, potential
  productivity increase, foreign directors
  treatment, specific language and cultural
  capabillity.
• 67 directors found business environment
  significatively improved in the region in the
  past 3 years.
• 43 of interviewed directors expressed their
  interes to continue investing in the region.

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SEE Survey Country Ranking

• Croatia and Bosnia and Herzegovina were not
  included in last years survey while Moldova
  was. Source Croatian National Bank

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Attractiveness of the European Regions for
Potential Investors
Source Ernst Young Southeast Europe
Attractiveness Survey 2008 102 international
executives
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Costs and Productivity Drive Attractiveness
Source Ernst Young Southeast Europe
Attractiveness Survey 2008 216 international
executives
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Labor Intensive Activities Dominate
Source Ernst Young Southeast Europe
Attractiveness Survey 2008 216 international
executives
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A Leading Destination for Shared Services Centers
(SCC)
Source Ernst Young Southeast Europe
Attractiveness Survey 2008 216 international
executives
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Weaknesses in Quality and Infrastructure
Source Ernst Young Southeast Europe
Attractiveness Survey 2008 216 international
executives
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Knowledge Based Activities Generate Low Interest
Source Ernst Young Southeast Europe
Attractiveness Survey 2008 216 international
executives
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Favourable Tax Regime
Corporate Profit Tax Rates
Montenegro 9
Serbia 10
Bulgaria 10
Romania
16
Hungary
16
Poland
19
Croatia
20
Czech Republic
21
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Favourable Tax Regime
Personal Income Tax Rates
Bulgaria 10
Serbia 12
Montenegro 15
Romania 16
Hungary
18-36
Poland
19-40
Croatia
15-45
Slovenia
16-41
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Is Policy Reform Making a Difference to the
Investment Environment in South East Europe?

• Accession to the European Union (EU) is a strong
  impetus, but more could be done to achieve
  far-reaching policy reform.
• Reforms are not proceeding at the same pace and
  some SEE countries still need to make further
  efforts in establishing the basic legal and
  institutional framework for key policy dimensions
  related to investment.
• Policy inconsistencies send conflicting signals
  to investors.
• The gap between the leading reformers in the
  region, and other SEE countries is widening.
• Time is running out for the region to achieve its
  full investment, growth and employment potential.

Source Progress in Policy Reforms to improve
the Investment Climate in South East Europe -
Investment Reform Index 2006
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THE REGION NEEDS BETTER

• Policy consistency
• Public governance regulatory reform,
  anti-corruption, competition
• Judiciary
• Title to land regulation
• Investments in knowledge
• Response on other economic, social and security
  challenges

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THE REGION NEEDS MORE

• Greenfield investments
• Governments investments in infrastructure
• Exports
• FDI SME linkages
• Intraregional trade and investment
• Energy efficiency
• Renewable energy

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• THANK YOU
• FOR YOUR ATTENTION
• Ministry of Economy and Regional Development of
  the Republic of Serbia
• www.merr.sr.gov.yu