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2008. THE CONTINUAL GROWTH OF THE REGION. Regional C ooperation on S ocial- E conomic D evelopment in South Eastern Europe Sarajevo, May 15 th , 2008. REPUBLIC OF SERBIA. Ministry of Economy and Regional Development. Velimir Gavrilovi ć, Assistant Minister.

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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 Gavrilović, 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

* Estimation

** Projection

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

Source: EBRD Transition Report – update May, 2007



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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

* Estimate

** Projection

*** EBRD forecasts for 2008 – in millions US $ (Source: http://www.ebrd.com/country/sector/econo/stats/fore.xls)

Source: EBRD Transition Report – update May, 2007



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 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

  • Long Term Issuer Default Rating

  • Country Ceiling for Foreign Currency Bonds - Long Term

  • Credit rating foreign currency

Source: INVESTMENT COMPACT FOR SOUTH EAST EUROPE - REPORT OF ACTIVITIES Paris, France November 2007


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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 Bank’s 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 International’s 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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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.

Southeast Europe Attractiveness Survey


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SEE Survey 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 capabillityCountry 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 Investors

Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 – 216 international executives


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Labor Intensive Activities Dominate Investors

Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 – 216 international executives


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A Leading Destination for Shared Services Centers (SCC) Investors

Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 – 216 international executives


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Weaknesses in Quality and Infrastructure Investors

Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 – 216 international executives


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Knowledge Based Activities Generate Low Interest Investors

Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 – 216 international executives


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Favourable Tax Regime Investors

Corporate Profit Tax Rates

Montenegro9%

Serbia10%

Bulgaria10%

Romania 16%

Hungary16%

Poland 19%

Croatia 20%

Czech Republic 21%


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Favourable Tax Regime Investors

Personal Income Tax Rates

Bulgaria 10%

Serbia 12%

Montenegro 15%

Romania16%

Hungary 18-36%

Poland 19-40%

Croatia 15-45%

Slovenia16-41%


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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.

Is Policy Reform Making a Difference to the Investment Environment in South East Europe?

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: but more could be done to achieve far-reaching policy reform.

  • 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: but more could be done to achieve far-reaching policy reform.

  • Greenfield investments

  • Government’s investments in infrastructure

  • Exports

  • FDI – SME linkages

  • Intraregional trade and investment

  • Energy efficiency

  • Renewable energy


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THANK YOU but more could be done to achieve far-reaching policy reform.

FOR YOUR ATTENTION

Ministry of Economy and Regional Development of the Republic of Serbia

www.merr.sr.gov.yu


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