OECD and the Black Sea region: Promoting private sector development and job creation. By F.Bonaglia
The OECD and the Black Sea RegionPromoting private sector development and job creation Federico Bonaglia Head of Policy Dialogue Division OECD Development Centre Black Sea Forum – 07 October 2011
1 The OECD and the Black Sea Region 2 Key Messages 3 The short term economic outlook 4 Priority actions and “how to”?2
BSEC-CA 2008: Transition, Globalisation and Labour in the Black Sea and Central Asia Regions Focus on the BSEC-CA Regions • A cross-country comparative analysis of macroeconomic and policy developments of the BSEC-CA region, involving 12 BSEC and 5 CA countries Black Sea and Central Asia: Promoting Work and Well-being • Recent economic developments in the BSEC-CA regions (Part I) • Work and well-being: policy challenges in the global environment (Part II)3
EESC 2010-11: Meet a Twin Challenge - Improving social services and supporting private sector development Focus on 5 EESC Countries • Armenia • Azerbaijan • Georgia • Republic of Moldova • Ukraine Target Issues • Recent Economic and Policy Review • Regional Trade and Co-operation • Social Development (MDG) • Private Sector Development (PSD) Access to Finance Foreign Direct Investment Human Capital Formation4
EESC 2011: Competitiveness Outlook Target Issues • The Competitiveness Potential of Eastern Europe and South Caucasus • Strengthening the Pillars of Competitiveness • Developing Human Capital • Improving Access to Financing for Smaller Enterprises • Maximising the Potential of Foreign Direct Investment • Diversifying FDI and Developing Competitiveness Strategies: The Case of Ukraine5
1 The OECD and the Black Sea Region 2 Key Messages 3 The short term economic outlook 4 Priority actions and “how to”?6
Key messages • Persisting structural vulnerabilities accentuated the impact of the crisis. • The social and employment dimensions • Private sector development • Scope for improving the effectiveness of public policies and unleashing economic potential of the region • Go structural, go green, go social.7
1 The OECD and the Black Sea Region 2 Key Messages 3 The short term economic outlook 4 Priority actions and “how to”?8
Growth Regional GDP growth has been impacted Trend by the financial crisis Growth in Real GDP (%) 15,0 10,0 5,0 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 -5,0 -10,0 Average Black Sea Average EESC countries Average non EESC countries Source: IMF, World Economic OutlookV-shaped recovery, but high exposure to trade shocks:• Over 2001-07 the EESC countries’ average growth rate was very high (10 %).• Regional economic growth fell from +6 % in 2008 to -6 % in 2009. Ukraine and Armenia acknowledged large falls of GDP (-14.8 % and -14.2 % respectively).• The EESC countries are highly exposed to international trade shocks as their economies rely heavily on energy, food and raw materials. 9
External The Crisis and its Impact on External FundsFinancing in the EESC Region 50 25% 45 40 20% External financing / GDP (%) 35 30 15%USD billion 25 20 10% 15 10 5% 5 0 0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 External financing/GDP (right-hand axis) External financing Source: IMF Balance of payments Capital inflows (including loans and portfolio investment) FDI Inflows database, OECD Analysis Workers remittances Capital inflows Ukraine 10
The external environment (OECD Eco. Outlook – September 2011)11
1 The OECD and the Black Sea Region 2 Key Messages 3 The short term economic outlook 4 Priority actions and “how to”?12
Social “Quality of life” issues should be given more indicators attention MDGs to be reached by 2015 Armenia Azerbaijan Georgia Moldova Ukraine Far On At Far On At Far On At Far On At Far On AtGoal 1:Eradicate extreme poverty and hunger x x x x xGoal 2: Achieve universal primary education x x x x xGoal 3: Gender equality and empower women x x x x xGoal 4: Reduce child mortality x x x x xGoal 5: Improve maternal health x x x x xGoal 6: Reduce and slow down the spread of x x x x xHIV/AIDS and Tuberculosis, and initiate a trend todecrease their scaleGoal 7: Ensure environmental sustainability and x x x x xaccess to clean waterGoal 8: A global partnership for development Not included in the studiesSource: authors’ assessment based on country studies• Regional problems of quality of education, despite high enrolment rates, inherited from the Soviet Union; Worsened health conditions• Crude death rate is alarmingly high in the 5 countries with an average of 11.4‰ for 2000-10 – Ukraine (16‰) and Moldova (12.7‰) 13
Exports Need to diversify trade Export specialisation (Balassa Index): 2007-2008SITC groupREV 3 0 1 2 3 4 5 6 7 8 9 Commodities Machinery Food and crude animal & chemicals Miscellaneous and beverages mineral manufactured and live materials vegetable and related Manufactured transactions not & tobacco fuels goods transport animals (ex. fuel) oils products articles classified equipment elsewhereArmenia 1.3 33.4 7.9 0.1 0.0 0.2 7.0 0.2 1.3 0.0Azerbaijan 1.4 0.6 0.2 13.9 2.7 0.3 0.3 0.1 0.0 0.6Georgia 3.7 27.3 12.0 0.6 0.6 1.9 3.3 0.7 0.4 0.9RepublicMoldova 6.2 30.4 5.2 0.0 15.0 0.4 2.1 0.5 4.7 13.1Ukraine 2.9 3.0 4.0 0.9 11.8 1.4 6.0 0.9 0.5 2.2 Source: WITS - World Bank • The EESC countries have similarities in exports (mostly in beverage and tobacco). • They need to move up to higher quality food and processed agro-products as part of product and market diversification. 14
PSD High labour productivity growth, yet strong room for improvement Labour productivity performance in CA and EESC compared to the world (1993-2008) 15% growth above world average Labour productivity growth relative to the world** 1999 10% 2001 2003 2004 2001 2006 2007 5% 2005 2002 2002 2007 2008 2000 2004 2006 1998 2003 2005 2000 1999 2008 0% 1997 1997 1998 1996 growth below world -5% average 1996 1995 Central Asia* -10% 1995 1993 -15% 1994 1993 -20% Eastern Europe and South Caucasus 1994 -25% -89% -88% -87% -86% -85% -84% -83% -82% -81% -80% -79% -78% -77% -76% -75% Labour productivity value relative to the world averageNote: GDP per employee is calculated as GDP in constant 2000 USD divided by employment over 15 years old; GDP per employee is not adjusted for cyclical fluctuations, number ofwork-hours and other factors that have an impact on GDP per employee but are non-related to productivity; *Central Asia region does not include Afghanistan; **labour productivitygrowth relative to the world is calculated as the difference between GDP per employee growth rate in the region and GDP per employee growth rate in the world. 15Source: OECD analysis based on World Development Indicators database (World Bank).
PSD Need to support the development of a vibrant private sector and SMEs Despite their large number, SMEs contribute very The informal economy remains relatively large little to GDP and employment between 41% and 62% (of GDP). 80% 100 % High 80 60% Share in employment (%) Income R. of Moldova 62 60 Ukraine 52 Georgia 47 40% 44 Armenia 41 43 40 Azerbaijan 20% 18 Belarus 20 Low Income 0% 0 0% 20% 40% 60% 80% Share in GDP (%)Sources: Armenia: SME DNC (2010), Republic of Armenia Ministry of Justice Legal Entities StateRegistry Agency; Azerbaijan: World Bank International Finance Corporation – Study of Small Source: Schneider, Friedrich , Andreas Buehn, and Claudio E.and Medium Enterprises in Azerbaijan; Belarus: Ministry of Economy of the Republic of Belarus; Montenegro (2010), “New Estimates for the shadow Economies all overGeorgia: geostat.ge, Business Statistics; Republic of Moldova: National Bureau of Statistics of 16 the World”, International Economic Journal, 24: 4, pp. 443-461the Republic of Moldova; Ukraine: State Statistics Committee of Ukraine; World Bank PolicyResearch Working Paper 3127
Human Need to close the skills gap Capital especially in technology sectors Policies for Competitiveness Assessment Framework results for Eastern Europe and the South Caucasus across the Human Capital Development dimension Best practice level High Level of reform Low Development of the The inclusiveness of Consultative Teacher recruitment Development of the Workforce skills Development of a VET system strategy formulation processes in the VET and retention teacher workforce strategy work-related system system of CET Vocational Education and Training Underdeveloped or non-existent Lack of a system of Continuing systems do not fulfil the needs of workforce skills strategy to close Education and Training industry and employers are not the gap between available skills synchronized with the needs of sufficiently involved in and the skills required on the the labour market educational decision making labour marketNote: No survey data available for Belarus. “Best practice” represents the benchmark used in the PfC surveys which corresponds to the OECD and non-OECD best 17practice. High represents a level of reform that meets best practice, low - lack of reform.Source: Policies for Competitiveness Assessment Framework 2010 results (OECD).
Finance Need to improve access to finance especially for SMEs Policies for Competitiveness Assessment Framework results for Eastern Europe and the South Caucasus across the Access to finance dimension Best practice level High Level of reform Low Effective regulatory Access to bank finance Guarantee schemes Early-stage finance Improving skills (quality Access to capital market framework of demand) Lack of guarantee schemes (export and mutual Need for further develop early-stage guarantee schemes) that would create an financing (micro-financing, business incentive for banks to increase lending to SMEs is angels, venture capital) to improve access a key barrier to business development to (risk) financing for SMEs 18Source: Policies for Competitiveness Assessment Framework 2010 results (OECD).
FDI Need to attract „quality‟ FDI to support policies economic diversification and employment Policies for Competitiveness Assessment Framework results for Eastern Europe and the South Caucasus across the Investment Promotion dimension Best practice levelHighLevel of reformLow (Sub-)National Client rel. Free economic Aftercare Institutional Strategy One-stop shop Policy advocacy FDI-SME Monitoring and co-ordination managagement zones services support linkages evaluation Lack of coherent investment promotion Need to improve policy Further developing FDI-SME strategies to attract quality investment advocacy and public-private linkage programmes would that support economic diversification dialogue to strengthen links help to boost local and boost local employment (FDI-SME between investment employment and create linkage programmes) promotion and investment business opportunities for policy reform domestic companies 19 Source: Policies for Competitiveness Assessment Framework 2010 results (OECD).
Priority Areas for Action • Policy Focus: Facilitating access to finance Addressing skill gaps Promoting Greenfield investments • Sector-wide approach: Green energy IT sector Food and agriculture Transport infrastructure20
How to do it? • Policy reviews and peer learning – Education and skills – OECD strategies and toolkits for Green Growth and Innovation • Regional approaches and enhanced co- operation21
To know more • www.oecd.org/dev • www.oecd.org/daf/psd/eurasia Thank you!22