A New Growth Model in the Western Balkans?

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A New Growth Model in the Western Balkans?

• B Snoy, IFI Coordination Office
• Regional Cooperation Council
• Western Balkans and Europe 2020 Supporting
  Convergence and Growth, 31March 2011

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Context

• Review of latest thinking from EC, IFIs and Think
  Tanks regarding policy changes needed post-crisis
• Contribute to the formulation of new growth
  strategies/agenda/initiatives and to development
  of new assistance programmes
• Link with assessment of impact of austerity
  measures on investment programmes
• Synopsis report available in April

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Limitation of pre-crisis growth model

• Unbalanced growth driven by domestic demand with
  high imports
• Too much consumption (both public and private),
  too little domestic savings
• Weakness and limited diversification of export
  sector
• Investment excessively concentrated in
  construction activities
• High size of government compared to countries at
  comparable per capita income level

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Limitations of pre-crisis growth model

• High dependence on foreign capital inflows
• FDI concentrated on acquisition of privatised
  assets (primarily in the financial sector) with
  little greenfield investment
• Low contribution of labour inputs to growth
• Financial sector fragilities
• Incomplete transition linked to incomplete
  reforms

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Main themes for new growth agenda

• From exogenous to endogenous growth (EC)
• Recreating fiscal room for manœuvre (IMF)
• Playing the global game of competitiveness (World
• Bank)
• Invigorating trade, integration and export-led
• growth (EBRD)
• Improving the business environment (EBRD OECD)
• Developing local currency finance and new
• instruments such as PPPs (EBRD OECD)
• Contribution of think tanks academics

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EC From exogenous to endogenous growth

• European Economy Occasional Paper 62, June 2010
• Need for a growth model less dependent on
  external capital inflows
• Encourage flows that enhance the intrinsic
  competitiveness productive capacity of
  economies
• Moderate those which fuel domestic and external
  imbalances
• Shift the composition of investment to tradable
  sector
• Promote structural reforms that enhance domestic
  savings
• Focus on completion of unfinished transition
  reform agenda, including labour market reform
• Convergence with adoption of acquis communautaire

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World Bank - Playing the global game of
competitiveness

• Shift of emphasis from demand to supply side
• Prepare for a more competitive external
  environment
• Skills, technology absorption, capacity,
  institution building the overall business
  environment will become more important
• The new markets to be conquered are those of the
  emerging countries

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 Turmoil at Twenty  World Bank, 2010

• Infrastructure and labour skills emerged as
  binding constraints to growth raised cost of
  weak institutions
• Private investment crucial for opening
  infrastructure bottlenecks
• Requires competitive trading regimes
  predictable credible regulatory frameworks
• State has the important task of continually
  strengthening institutions that provide essential
  public goods (e.g. regulation, supervision and
  education)

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 Western Balkan Integration and the EU  World
Bank, 2008

• Deeper integration within CEFTA will bring
  benefits. Need for an agreement on services
• Human capital development and return migration
  can help
• Reduction in telecommunication costs and
  efficient transport are catalysts for development

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 Investment matters  World Bank, 2009

• Investment rates are too low
• ICT investment plays important role in improving
  the quality of overall investment
• WBC trail in RD spending most of funding comes
  from the public sector
• Improving the quality of public investment is key
• Plan properly and implement public infrastructure
  projects in order to maximize the  crowding in 
  effect and avoid  crowding out  effect

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Improving the business environment

• Common denominator of policy advice given by EC,
  OECD and IFIs
• Major business environment concerns skills
  availability, infrastructure, tax administration,
  corruption and crime
• Significance of transport as a business
  environment constraint
• Need to enhance broadband internet penetration

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Conclusions

• The end of complacency the transition agenda
  must be completed
• Improving the business environment is the
  cornerstone of the post crisis agenda
• New growth agenda is a revised and reinforced
  version of the old agenda of structural reforms .
• Europe 2020 can provide inspiration for a
  framework for smart, sustainable and inclusive
  growth

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Thank you for your attention!