THE INVESTMENT COMPACT APPROACH TO INCREASING INVESTMENT IN SEE

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THE INVESTMENT COMPACT APPROACH TO INCREASING
INVESTMENT IN SEE

• CEI Meeting Bratislava, 23 November 2005

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Content

• Evolution of the Investment Environment in SEE
• Objectives and Impact of the Investment Compact
• Investment Compact strategy
• The Investment Reform Index

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Evolution of the Investment Environment in the
SEE Region
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Evolution of the Investment Environment in the
SEE Region
FDI is steadily increasing in the SEE region
Almost 80 of FDI is still concentrated on
Romania, Bulgaria, and Croatia
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Evolution of the Investment Environment in the
SEE Region
The FDI stock in South East Europe is still low
compared to the Central and Eastern European
Countries
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Evolution of the Investment Environment in the
SEE Region
Intra-regional inward FDI stock is still
negligible
Composition of FDI Stock per Country () - Focus
on top 5 investing countries -
Other China Germany France Macedonia
Other
Other
Other
Other
Other
Other
Other
UK
Luxembourg
Germany
Switzerland
Switzerland
Netherlands
Cyprus
Greece
Antilles
Netherlands
Netherlands
Germany
Italy
Germany
Italy
Italy
Antilles
USA
USA
Greece
Slovenia
USA
Italy
Greece
Germany
UK
Lithuania
France
Germany
Greece
Spain
Germany
Italy
Greece
Netherlands
Austria
Netherlands
Hungary
Austria
Russia
Netherlands
Austria
Austria
Croatia
Note Data range 2002-2005 Source wiiw and
Country Sources
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Context
The SEE region has made significant progress in
designing and implementing reforms, namely

• National treatment all SEE countries have
  implemented reforms to encourage equal treatment
  of all countries in the area of tax and
  competition Romania is an adherent to the OECD
  Investment Instruments
• Regulatory reform regulatory reform is
  progressing and has remained a priority for all
  SEE countries. For example
• Moldova has implemented the Guillotine Process to
  reduce business regulations
• In 2002 BiH implemented the Bulldozer Project to
  improve the business climate, and passed 50
  reforms in under 150 days
• Corporate income tax the SEE region is
  continuing to decrease corporate income tax and
  improve tax administration
• SEE has some of the lowest corporate income taxes
  in Europe Examples include Serbia (10),
  Montenegro (9), Bulgaria (15) and Romania (16)
• Privatisation SEE countries have made
  significant progress in privatisations,
  especially in the banking sector. Major
  privatisations in 2005 include
• Romania the Romanian Commercial Bank and the
  Romanian Savings Bank (underway)
• Albania the Albanian Savings Bank
• Montenegro - Kombinat Aluminijuma Podgorica
  (Aluminum)
• Access to finance the completion of
  reconstruction of the banking sector and
  financial reforms has significantly improved
  access to finance, especially for small- and
  medium-sized businesses

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Context
The SEE region, however, has several challenges
facing it in the coming years, especially

• EU integration the process of EU integration is
  driving reform in SEE countries. The 2007
  accession of Bulgaria and Romania to the EU will
  redefine the area and pose new challenges for the
  countries on the accession path, for example
• Once Romania joins the EU, stricter visa
  agreements will be required between Moldova and
  Romania
• With accession to the EU, Bulgaria and Romania
  will no longer be members of the Network of
  Bilateral Free Trade Agreements
• Private investment the level of private
  investment in the SEE region, both domestic and
  foreign, remains insufficient. Policies are
  needed to promote more Greenfield and SME
  investment
• Competitiveness the SEE region is facing strong
  competition from China and other newly
  industrialised nations
• Privatisation the SEE region has been very
  successful at privatising state-owned
  enterprises, especially in the banking, oil and
  telecommunications sectors, but many of the most
  difficult privatisation schemes were saved for
  last, for example the steel, gas distribution,
  and municipal services industries in many SEE
  countries
• Implementation many SEE countries have ratified
  key legislation to improve the investment
  environment. The challenge now is to demonstrate
  concrete application of the principles that were
  ratified

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Objectives and Impact of the Investment Compact
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Objectives and Impact of the Investment Compact
Investment Compact for South East Europes
objective is to increase regional stability via
increased investment
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Objectives and Impact of the Investment Compact
The Investment Compact has had a significant
impact in improving the investment climate
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Objectives and Impact of the Investment Compact
Reactions from the Region
The Investment Compact strategy is ambitious
and detailed document and when countries from the
SEE region try as much as possible to reach the
standards and best practices it outlines, it will
significantly improve the investment situation
and the image of the region. Miglena Mileva,
Chief Expert of the Bulgarian Investment Policy
Directorate
Evaluation and Measurement
The Investment Compact has done a very good work
in promoting greater regional cooperation on
investment issues, in reshaping the investment
promotion approach in Albania and SEE region, and
in fostering direct contacts with potential
investors from OECD countries. Estela Dashi,
Director of the Albanian Investment Promotion
Agency
Implementation Support
In 2001, the OECD was instrumental in helping us
set up the Foreign Investors Council (FIC) in
Serbia. The FIC now has 120 members, have
produced 3 annual white books on government
priorities for reform and this year organized a
first Reality Check session with top government
policy makers. Mike Ahern, President of the
Foreign Investors Council, Serbia and Montenegro
Private Sector Support
During the last four years the co-operation with
the OECD Investment Compact allowed Romania not
only to build a better regional presence, but
also to start sharing best practice with other
countries in the region. Gheorghe Copos,
Romanian Vice-Prime Minister
Political Support
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Investment Compact Strategy
Strategy
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Strategy
The Investment Compact is launching into Phase II
Increased Regional Ownership
Phase II implement a regional investment
framework
Phase I promote regional stability through
co-operation, growth and employment
Time
2005
2000
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Three key components of the IC strategy
Strategy
Three key components of IC strategy
FRAMEWORK EVALUATION
IMPLEMENTATION
REGIONAL OWNERSHIP
Regional Investment Framework and IRI
Specific support for the weaker countries
Increased support from CEE and Baltic states

• Holistic framework to improving the investment
  environment
• Comparative evaluation and monitoring through the
  Investment Reform Index

• Country Investment Policy Analysis and
  implementation

• Active involvement of the wider region of Eastern
  Europe and Baltic states as best practices in EU
  integration and improving the investment
  environment

TRIPARTITE APPROACH OF GOVERNMENT, PRIVATE SECTOR
AND OECD
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The Investment Reform Index
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Investment Reform Index
The IRI is guided by four key objectives
Regional Collab-oration and Peer Review
Targeted Support in Imple-mentation
Public and Private Sector Involvement
Structured Evaluation
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Investment Reform Index
The IRI measures investment reform with 10 key
dimensions
Main focus of evaluation in 2006
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Investment Reform Index
Each dimension is broken down into main
sub-dimensions Example Tax Framework
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Investment Reform Index
Each sub-dimension is broken down into core
indicators Example Tax Framework ? Tax
Administration
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Investment Reform Index
Each indicator is broken down into levels of
reform Example Tax Framework ? Tax Administration
Note This table has been simplified for
presentation purposes each level of reform and
Best Practice example is fully detailed in the
actual IRI. 1Best Practice refers to a country,
usually in Central Europe or one of the Baltic
States, which has made significant reforms in
each indicator.
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Investment Reform Index
Evaluation is based on a Tripartite Review which
combines government, the private sector and the
OECD

• Team of government experts, including the
  Ministry of Economy,
• SME Agency/Development, IPA, Ministry of Finance,
  Competition
• Authority, etc.
• Evaluate annual targets and actions taking into
  account input from the private sector and the
  OECD
• Conduct progress measurement
• Participate in peer reviews to validate results

• OECD IC Core Team
• Support CET and FIC in each country to set annual
  targets and measure progress
• Publish progress on targets twice a year
• Co-ordinate peer-review process
• Manage and update IRI

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Investment Reform Index
Gathering information for scores will follow a
specific process Example Anti-Corruption
CET
Investment Compact
Private Sector
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Investment Reform Index
What is different about the Investment Reform
Index

• Comprehensive evaluation of the investment
  environment structured along 10 key dimensions in
  line with OECD standards
• Tripartite participatory approach to evaluation
  and measurement including governments, the
  private sector, and the OECD
• Practical tool for governments to define
  priorities for reform
• Living Index The Investment Compact website will
  include an interactive space where individuals
  and experts can comment on particular aspects of
  the review

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2005-2006 Next Steps for the Investment Reform
Index
Investment Reform Index