Next Generation Competitiveness Initiative (NGCI)

1. Next Generation Competitiveness Initiative (NGCI) Presentation by OECD Investment Compact for the South East Europe Investment Committee Sarajevo, Bosnia and Herzegovina 19 June 2013

2. Next Generation Competitiveness Initiative:Historical context Albania, Bosnia and Herzegovina, Croatia, FYR Macedonia, Kosovo*, Montenegro, and Serbia 2012 2010 2007 2008 2011 2009 2013 2014 2015 * This designation is without prejudice to positions on status, and is in line with UNSCR 1244 and the ICJ Opinion on the Kosovo Declaration of Independence

3. Next Generation Competitiveness Initiative:Contribution to SEE 2020 NGCI Monitoring NGCI Sector work

4. Next Generation Competitiveness Initiative:Sector component objectives Objectives: Support SEE 2020 Strategy by identifying and addressing barriers to higher value-added investment and moving to higher value added activities. Source: Presentation by Gary Gereffi, Duke University, “Global Value Chains and Development in Latin America:Emerging Trends and New Realities”, 31 October 2012, San Jose, Costa Rica

5. Next Generation Competitiveness Initiative:Sector component methodology Identify sectors and establish 3 regional sector-specific working groups comprised of Western Balkan businesses and government officials Assess the barriers to competitiveness of regional value chains in the global marketplace Develop recommendations and actions to enhance the competitiveness of 3 sectors, addressing the policy barriers.

6. Next Generation Competitiveness Initiative:Sector component roadmap 2013 2014 2015 Analysis and short listing of sectors Identification of 3 sectors and designation of sector working group membership Launch of first sector working group Identification of key constraints limiting sector competitiveness Develop recommendations and actions in each sector working group Identify appropriate bodies to implement recommendations and pilot actions Develop a monitoring system for the implementation of actions Review key lessons learned throughout project Greater time and staff commitment

7. Next Generation Competitiveness Initiative:Sector component development process • First Working Group meeting June – September October November 2014 • Data collection • Desk research • Consultation with OECD and technical experts • Proposal drafted • First WGC meeting • Endorsement by SEEIC • Consultation with WGC to identify members of working groups

8. Analytical framework for sector selection

9. Analytical framework for sector selection

10. Services account for the largest and increasing share of GDP

11. FDI has been mainly market-seeking and concentrated in services NB: Data include Albania, Bosnia and Herzegovina, Croatia and the FYR Macedonia

12. Travel accounts for the largest share of service exports Includes business and personal travel Legal, accounting, consulting, architectural, etc. services Road, railway, sea and air passenger and freight transport Source: UN Service Trade Database

13. RCA indices show the export specialisation of WB economies Low tech Medium-Low tech Medium-high tech High tech RCA indices in 2009 Source: Based on OECD STAN BTD. CEFTA also includes Moldova. No data available for Kosovo*

14. Which sectors have potential for future growth? Source: based on OECD STAN BTD

15. Analytical framework for sector selection

16. Depending on the industry, supply chains tend to be more or less regional Intra and extra-CEFTA exports (%) of intermediate goods in 2009 by disaggregated industries Source: OECD (2012). CEFTA also includes Moldova. No data available for Kosovo*

17. Depending on the industry, supply chains tend to be more or less regional Intra and extra-CEFTA exports (%) of intermediate goods in 2009 by disaggregated industries Glass and glass products, clay, ceramics, bricks, cement, lime and plaster, cutting and shaping Office machinery and computers Electric valves and tubes, television and radio transmitters, television and radio receivers, sound or video recording apparatus Source: OECD (2012). CEFTA also includes Moldova. No data available for Kosovo*

18. The RCA matrix helps identify economies’ positions in supply chains RCA in final good exports Other / No evidence of supply chains Final stage supply chains No propensity to import intermediate goods Propensity to import intermediate goods imports First stage supply chains Intermediate stage supply chains RCA in intermediate good exports Source: OECD (2012)

19. An example: Serbia’s industries’ positions in supply chains Year: 2009

20. WB economies present supply chain complementarities in selected sectors Economies’ positions in supply chains (2009) Source: OECD (2012). No data available for Kosovo*

21. Governments in the region support similar sectors Sectors prioritised by WB economies Source: based on National Strategies and Investment Promotion Agencies

22. Analytical framework for sector selection

23. Broader criteria to be used for identification of areas of local current and potential strengths Broader criteria to be used for identification of areas of local current and potential strengths * Industry specific indicators could be developed in consultation with industry experts Source: “Industrial upgrading through value chains in Western Balkans: the issues for analysis” Presentation by Prof. Slavo Radosevic, NGCI Workshop, OECD

24. How to assess the future growth potential of sectors? Identify sectors with declining RCA in countries whose GDP pc is twice of individual WB countries Source: “Industrial upgrading through value chains in Western Balkans: the issues for analysis” Presentation by Prof. Slavo Radosevic, NGCI Workshop, OECD

25. Next Generation Competitiveness Initiative:Sector component development process • First Working Group meeting June – September October November 2014 • Data collection • Desk research • Consultation with OECD and technical experts • Proposal drafted • First WGC meeting • Endorsement by SEEIC • Consultation with WGC to identify members of working groups

26. Working Group on Competitiveness Composition: Government institutions and departments in charge of competitiveness, industrial and sector policy. • Activities: • Promoting regional cooperation in competiveness policy reforms; • Identification of sectors with potential regional value chains; • Assessing policy barriers to greater value chain development; • Developing policy recommendations at the industry and sector level to enhance regional value chains; • Reviewing actions to promote regional value chains in the global marketplace; • Strengthening regional value chains by actively supporting the creation of transnational clusters and business networks; • Enhancing coordination and peer reviews on SME policy First meeting: Early October 2013

27. Next Generation Competitiveness Initiative:Sector component timeframe 2013 2014 2015 2016 Identification of sectors 1st sector group Develop recommendations Sector group meetings Sector group meetings Sector group meetings Sector work Identify barriers 2nd sector group Identify barriers Develop recommendations 3rd sector group Identify barriers Develop recommendations

28. Next Generation Competitiveness Initiative:Contribution to SEE 2020 SEE 2020 Monitoring Sector work

29. Next Generation Competitiveness Initiative:Monitoring component historical context 2010 2012 2013 2005 2006 2011 4th SEE ministerial in Sofia, Bulgaria, 10 June Ministers agree on the need for a regional framework for investment consistent with EU principles and inspired by the OECD Policy Framework for Investment. 5th SEE ministerial in Vienna, Austria on 27 June Ministers endorse a “Regional framework on Investment” Completion of first Investment Reform Index 2nd Investment Reform Index released 6th SEE Ministerial SEE 2020 Vision based on five pillars (integrated, smart, sustainable, inclusive and governance for growth 7th SEE Ministerial Endorsement of SEE 2020 headline targets 8th SEE Ministerial Endorsement of SEE 2020 Strategy Greater time and staff commitment

30. Next Generation Competitiveness Initiative:Monitoring component structure • Assess policies used to implement the SEE 2020 Strategy, based on tools developed by the OECD • Regional Framework for Investment (IRI) • Product-Market Regulation, • Labour Market Regulation, • Services Trade Restrictiveness Index, • Government at a Glance, • Education at a Glance, • Innovation Strategy Track progress on the achievement of overall progress on the achievement of the Strategy, including but not limited to the headline targets Follow the SEE 2020 Strategy, including its pillars and dimensions

31. Next Generation Competitiveness Initiative:Monitoring component structure Indicators Pillars Dimensions A. Free Trade Area Policy Impact/ Outcome Integrated 1. Free Flow of goods Qualitative Quantitative Smart 2. Free Flow of Services • National treatment restrictions (OECD) • Transfer of capital (OECD) • FDI incentives • (OECD) • Procedures to start a foreign business (#) • Time required to start a foreign business (days) • Time required to lease public land (days) • Source: World Bank, Investing Across borders • Intra-regional trade in goods (Headline target) • FDI inflows to the region (Headline target) • FDI per capita • Greenfield vs Privatisation FDI Sustainable 3. Free Flow of Investment 3.1 Treatment and protection of investors 3.2 Coordination of investment policies Inclusive Governancefor growth 4. Free Flow of Skilled Labour B. Competitive Economic Environment C. Integration into Global Economy

32. Next Generation Competitiveness Initiative:Monitoring component structure 1. National treatment not contained in primary or secondary legislation on private FDI. 2. Government in process of incorporating “national treatment” into primary and secondary legislation on private FDI. 3. National treatment is incorporated in primary and secondary legislation with clearly defined restrictions. 4. Level 3 plus government reduces restrictions by reciprocal commitments made through bilateral, regional, or multilateral agreements. 5. Level 4 plus the government unilaterally reduces restrictions to national treatment on the basis of periodic reviews of its foreign investment policy. Indicators Pillars Dimensions A. Free Trade Area Policy Impact/ Outcome Integrated 1. Free Flow of goods Qualitative Quantitative Smart 2. Free Flow of Services • National treatment restrictions (OECD) • Transfer of capital (OECD) • FDI incentives • (OECD) • Procedures to start a foreign business (#) • Time required to start a foreign business (days) • Time required to lease public land (days) • Source: World Bank, Investing Across borders • Intra-regional trade in goods (Headline target) • FDI inflows to the region (Headline target) • FDI per capita • Greenfield vs Privatisation FDI Sustainable 3. Free Flow of Investment 3.1 Treatment and protection of investors 3.2 Coordination of investment policies Inclusive Governancefor growth 4. Free Flow of Skilled Labour B. Competitive Economic Environment C. Integration into Global Economy 32

33. Next Generation Competitiveness Initiative:Monitoring “Sustainable Growth/Competitiveness” Dimensions Policy Impact/Outcome 1. Competition Policy • 1 Public ownership • 1.1 Scope of public enterprise sector • 1.2 Gov't involvement in network sectors • 1.3 Direct control over business enterprises • 2 Public involvement in business operations • 2.1 Price controls • 2.2 Use of command and control regulation • 3. Regulatory and administrative opacity • 3.1 Licenses and permits system • 3.2 Communication and simplification of rules and procedures • 5. Barriers to competition • 5.1 Legal barriers • 5.2 Antitrust exemptions • Source: OECD, Product Market Regulation • Herfindahl index for main sectors • % of state-owned enterprises • Volume of state aid • Number of cases handled by Competition Authority • Number of complaints about dominant market position • Number of bailout cases • Source: EC, Competition authorities • 1. Growth of exports of goods and services per capita • 2. WEF Global Competitiveness Index • Source: National Statistical Offices, EUROSTAT, international organisations Work in progress 2. Business Integrity 3. Infrastructure 4. Access to finance 5. SME policy 6. Tax policy 7. Sectoral policy

34. Next Generation Competitiveness Initiative:Monitoring “Sustainable Growth/Competitiveness” Dimensions Policy Impact/Outcome 1. Competition Policy • 1 Telecommunications • 1.1 Transparency of the regulator • 1.2 Independence of the regulator from the executive • 1.3 Regulation of roaming and termination charges of mobile operators • 2 Transport (Road, rail, air) • 2.1 Transparency of the decision-making process of the regulatory body • 2.2 Independence of the regulatory body from the executive • 2.3 Liberalisation of domestic aviation • 3 Energy • 3.1 Transparency of the decision-taking process of the regulatory body • 3.2 Independence of the regulatory body from the executive • 3.3 Terms and conditions of third party access to the electricity transmission grid • Source: OECD • Fixed line, mobile and broadband penetration rate • Active operators providing fixed-line telephone services • Annual expenditure on road construction / maintenance • Length of road network • Paved roads as a percentage of total road length • Annual expenditure on rail network construction / upgrade / maintenance • Total length of rail network/country area • Volume of road/railway/air traffic • Number of necessary documents to get an electricity connection for business • Number of electricity providers • Source: OECD, World Bank • Time to obtain a new telephone line for business • Average cost of a peak fixed-line call to Germany • Telephone faults • Average cost of a tonne of airfreight to Frankfurt • Average cost of a passenger ticket to Frankfurt • Average time required to obtain an electricity connection for business • Average industrial electricity tariff • Number of brownouts • Source: OECD, SEETO, national data 2. Business Integrity 3. Infrastructure 4. Access to finance 5. SME policy Work in progress 6. Tax policy 34 7. Sectoral policy

35. Next Generation Competitiveness Initiative:Monitoring “Sustainable Growth/Competitiveness” Dimensions Policy Impact/Outcome 1. Competition Policy • 1. Legal and regulatory framework • 1.1 Insolvency laws • 1.2 Ranking the quantity of information maintained by credit information institutions • 1.3 Development of Cadastre • 1.4 Collateral and provisions • 1.5 Registration system for moveable assets • 2. Loan guarantee schemes • 3.1 Credit guarantee schemes • 3.2 Mutual guarantee schemes • 3.3 Export credit guarantee schemes • 3. Selected demand-side skills • 4.1 Investment readiness • Source: OECD • Debt financing • Number of banks offering loans • Documents required to approve a loan • Admin procedures required for cadastre / Moveable assets • Average level of collateral required • Volume of credit guarantees • Volume of collateral-free loans • Volume of microfinance • Leasing/factoring • Number of providers offering leasing contracts • Number of providers offering factoring • Equity financing • Volume and number of business angel deals • Volume and number of early-stage VC • Volume and number of IPOs • Source: OECD, EC, EBRD • 1. Share of bank loans in external financing of new fixed assets • 2. Credit to companies (% of GDP) • 3. Credit to individuals (% of GDP) • 4. Average interest rate to enterprises (%) • 5. Market capitalisation (% of GDP) • 6. Number of start-ups financed • Source: OECD, EC, WDI, IFS 2. Business Integrity 3. Infrastructure 4. Access to finance 5. SME policy Work in progress 6. Tax policy 7. Sectoral policy

36. Next Generation Competitiveness Initiative:Monitoring “Sustainable Growth/Competitiveness” Dimensions Policy Impact/Outcome • 1. Growth of enterprise creation • 2. Number and share of HGEs of all registered companies • 3. Survival rate of companies • 4. Job creation by SMEs • Source: National statistics offices 1. Competition Policy • Ten principles of SBA • 1.Regulatory framework for SME policy making • 2. Operational environment for SMEs • 3. Access to finance for SMEs • 4. Skills and innovation • 5. Internationalisation of SMEs • 6. Support services for SMEs and public procurement • 7. Entrepreneurial learning • 8. Bankruptcy and second chance for SMEs • 9. Standards and technical regulation • 10. SMEs in green economy • Source: OECD SME Policy Index • 1. Number of days to complete the overall registration process of a business • 2. Min. capital requirements to start a business • 3. Costs connected with registration • 4. Fully functioning incubators • 5. Volume of public R&D grants • 6; Volume of SME vouchers • Source: OECD, World Bank Doing Business 2. Business Integrity 3. Infrastructure 4. Access to finance 5. SME policy Work in progress 6. Tax policy 7. Sectoral policy

37. Next Generation Competitiveness Initiative:Monitoring component output (illustrative only)

38. 2014 2015 2013 Next Generation Competitiveness Initiative:Monitoring component timeline SEE 2020 Monitoring Release of “Regional Competitiveness Outlook” Grids distributed to regional organisations Consult regional organisations OECD work on grids Review meetings with regional organisations/governments, experts and private sector 1st analysis SEE ministerial Feedback on grids from governments Grids received from contact points

39. Grids distributed to contact points from regional organisations/ • Implementation starts Next Generation Competitiveness Initiative:Monitoring component development process March • Feedback from governments distributed by contact points from regional organisations June – September October – December January-February April • SEE 2020 targets • RCC • European Commission • Regional stakeholders • Relevant OECD Directorates • Relevance • Measurability • Cost • Relevance • Measurability • Cost

40. Next Generation Competitiveness Initiative:Implementation of monitoring component Regional organisations Government self- assessment Independent experts Private Sector

41. Next Generation Competitiveness Initiative:Implementation of monitoring component BEFORE: Contact point in each country NOW: Contact point in each regional organisation ALB BIH HRV XK MKD MNE SRB CEFTA SEEIC SEECEL ERI SEE Intergovernmental WG on Social Agenda 2020 SEEHN Regional Research & Innovation Platform e-SEE TFCS NALAS RAI

42. Next Generation Competitiveness Initiative:Co-operation with regional organisations • OECD will work with regional organisations per dimension(s) • Joint meetings on dimensions to be foreseen • Free trade area, Competitive economic environment, Integration into global economy and Competitiveness • Education/Competences, Skills and Inclusive Education, and Employment • Effective public services and Anti-Corruption • OECD needs one contact point from each regional organisation

43. Next Generation Competitiveness Initiative:Tasks and responsibilities of contact points Co-ordinating the tasks with all seven economies • Validating the assessment grids for the monitoring process • Distributing the grids to the contact points in the national governments and explaining the modalities to each question • Collecting the answers to the grid questions from the countries • Sending filled-out grids to the OECD for assessment • Collecting quantitative data for the Impact/Outcome indicators from National Statistical Offices, Central Banks and Chambers of Commerce of the countries • Analysing data and trends for Annual report (with OECD guidance) • Communicating OECD requests/inquiries to the contact points in the national administrations and vice versa • Organizing the meetings with country representatives (including private sector consultation as needed) Estimated workload: 60-80 working days per year

44. Thank you for your attention. Alan Paic Head of Programme OECD Investment Compact for SEE Milan Konopek Policy Analyst OECD Investment Compact for SEE Organisation for Economic Co-operation and Development (OECD) Alan.Paic@oecd.org Milan.Konopek@oecd.org www.investmentcompact.org