MAKING REGIONAL VALUE CHAINS HAPPEN IN THE WESTERN BALKANS

Paris, 13 June 2013

This project is funded by the European Union

2

The Next Generation Competitiveness Initiative (NGCI)

Funding and implementation

• Project funded by the European Commission• Implemented by the OECD Investment Compact

Geographical coverage

Albania, Bosnia and Herzegovina, Croatia, Kosovo*, FYR Macedonia, Montenegro and Serbia

Objective

Strengthening the competitiveness of the WBs through better integration in value chains:

• Deeper integration in value chains (“quantity” challenge)

• Upgrading in value chains (“quality” challenge)

Rationale for a sector focus

• Allows to generate greater interest and involvement from the private sector

• Useful approach to understand obstacles to doing business

• With limited resources, a sector-specific approach can have impact

3

Project timeline

Preparatory Phase April – November 2013

Implementation PhaseJanuary 2014 to April 2016

• Sector identification based on analysis and consultations with stakeholders• Establishment of sectoral working groups

• Identification of barriers to value chain development

• Pilot projects to support regional value chains

4

Value chains in a global context

• Post-Washington Consensus world – Global economic recession of 2008-09 and rise of contending centres of economic and political power

• Large emerging economies like China, India and Brazil are both export platforms and turning inward

• Small economies are seeking specialized niches in the global economy and regional economic blocs

• Lead firms in global value chains are streamlining and consolidating their sourcing and production networks

Source: Presentation by Gary Gereffi, Duke University, October 31, 2012Tapping into International Value Chains, Opportunities & Challenges for Latin America, San Jose, Costa Rica

5

FDI in the Western Balkans: comparable to central Europe but more resilient

Source: UNCTAD (2013)

Western Balkans Central Europe

MNE ALB SRB HRV MKD BIH CZE HUN SVK SVN0%

5%

10%

15%

20%

25% FDI inflows as % of GDP (average)

2009-2011 2000-2008

6

Export performance has been below potential

Source: WDI (2013) - NB: Czech Republic, Hungary, Slovakia and Slovenia are included in Central Europe. Poland is not included because it is a significantly larger market.

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Exports of Goods and Services (% of GDP)

Average Central Europe Average WB

7

Motives for relocations suggest that the region could attract more FDI

0%

10%

20%

30%

40%

50%

60%

70%

80%72%

27% 26%

13% 12% 11%8%

4%

Main motives for production relocations

Source: European Manufacturing Survey, 2009

A combination of factors makes the region attractive

  ALB BIH HRV XK MKD MNE SRB Benchmarkcountries

Labour costs Unit labour costs(2009, Index SVK=100)

? 106 117  ? 114 159 122 SVK: 100

Time to market (h)Road transport. time to Frankfurt

18h 13h 8h 18h 16h 16h 12hSVK: 7h

TUR: 23h 

Cost of energy Industrial electricity tariff EUR per MWh (2009)

60 50 90 60 60 70 40SVK: 140TUR: 80

Natural resourcesMain natural resources available in the economy

Coast,Metals,

Metals, Wood,Coal

Coast,Wood,Land,

Petroleum

Metals,WoodCoal-

Lignite

Metals,Land

Coast,Metals,Wood

Metals,Wood,Land

 Skills Enrollment in tertiary education in 2009 (%)

30% 36% 49%  ? 40% 45% 50%SVK: 54% TUR:46%

9

Objectives of the workshop

Identify sectors where regional

value chains exist or could be developed

Discuss ways to identify barriers limiting value

chain development in these sectors

Examine concrete policy actions to

address these barriers

1 2 3

10

Session 1

Identify sectors where regional

value chains exist or could be developed

Discuss ways to identify barriers limiting value

chain development in these sectors

Examine concrete policy actions to

address these barriers

1 2 3

11

Key question of the session

How do we identify 3 sectors for further value chain analysis?

12

Potential for regional cooperation

Competitiveness of the Western Balkans sectors in the global marketplace

Value-added potential

Analytical framework for sector selection

13

Analytical framework for sector selection

Potential for regional cooperation

Competitiveness of the Western Balkans sectors in the global marketplace

Value-added potential

14

Services account for the largest and increasing share of GDP

2000 20100

10

20

30

40

50

60

70

80

90

100

Sectors' share of GDP in the Western Balkans

Agriculture Industry Services

Western Balkans

Central Europe0

20

40

60

80

100

Sectors' share of GDP in 2010 in the WB and CE

15

Food, metals and chemicals account for most of manufacturing turnover

Top 10 manufacturing sectors in CEFTA by turnover (yearly average 2008-10)

Source: OECD (2012)Nb- CEFTA includes Moldova as well as the Western Balkan economies.

IndustryTurnover (EUR bn)

Share Employment Share

Food products and beverages 12.0 28% 222521 21%

Basic metals 3.7 9% 46582 4%

Fabricated metal products 3.5 8% 98772 9%

Chemicals and chemical products 3.4 8% 46816 4%

Non-metallic mineral products (glass, ceramics, cement, stone products, etc.)

2.8 7% 60206 6%

Coke, refined petroleum and nuclear fuel

2.8 7% 10593 1%

Textiles, apparel and leather 2.0 5% 207988 19%

Rubber and plastic products 1.7 4% 43452 4%

Electrical machinery and apparatus, nec

1.4 3% 37509 3%

Furniture and other manufacturing 1.2 3% 52953 5%

16

FDI has been mainly market-seeking and concentrated in services

NB: Data include Albania, Bosnia and Herzegovina, Croatia and the FYR Macedonia

33.1%

15.5%

9.9%

2.2%

7.0%2.3%

2.3%

3.9%

23.7%

FDI Stocks by Activity in 2010 (% of Total FDI Stocks)

Financial intermediation

Wholesale, retail trade, repair of motor vehicles etc

Transport, storage and commu-nication

Construction

Real estate, renting and business activities

Mining and quarrying

Hotels and restaurants

Other

Manufacturing

17

Coke/petroleum, food and metals have attracted most FDI in the past years

Source: Vienna Institute for International Economic Studies. NACE REV. 1

Economy SectorSum of inflows from 2007 to 2010 (EUR mn)

Bosnia and Herzegovina

Coke, and petroleum products 311

Metals 127

Food products 92

Croatia

Coke, and petroleum products 1045

Other non-metallic mineral products 269

Metals 101

Serbia

Food products 489

Metals 413

Transport equipment 161

The FYR Macedonia

Transport equipment 124

Food products 69

Metals 27

Data for FDI inflows in the FYR Macedonia in 2008 are not available so only the inflows in 2007, 2009 and 2010 are summed up.

18

The top exporting industries are basic metals, machinery and equipment and textiles

Source: based on OECD STAN BTD - NB- No data available for Kosovo*

Basic Metals

Machinery and Equipment

Textiles, Leather and Footwear

Food, Beverages and Tobacco

Chemicals

Transport Equipment

Coke and Petroleum Products

Fabricated Metal Products

Rubber and Plastics

Wood and Cork

Paper Products, Printing and Publishing

Pharmaceuticals

Other Non-Metallic Mineral Products

0 2,000,000 4,000,000Total exports in 2011 (bn USD)

Iron and steel, non-

ferrous metals

Major trade deficit in

petroleum: WBs net importer

Electric appliancesIndustrial machinery

and equipmentClothing accessories,

Footwear, Leather goods

19

Travel accounts for the largest share of service exports

Travel

Other business services

Transportation

Communications services

Construction services

Computer and information servicesPersonal, cultural, and recreational

servicesFinancial services

Royalties and license fees

Insurance services

Service exports in 2011 (bn USD)

ALB BIH HRV MNE SRB MKD

Source: UN Service Trade Database

Includes business and

personal travel

Legal, accounting, consulting,

architectural, etc. services Road, railway,

sea and air passenger and

freight transport

20

Exports in chemicals, rubber and plastics and machinery have grown faster than other sectors

Source: based on OECD STAN BTD NB- No data available for Kosovo*

500 1000 1500 2000 2500 3000 3500 4000 4500 5000 55000%

2%

4%

6%

8%

10%

12%

14%

16%

5.8%

14.9%

10.9%

7.9%

8.4%

11.0%

5.9%

3.5%

10.5%

10.8%

11.0%

5.9%

6.2%5.1%

Exports in 2011 and annual growth (2006-2011)

Western Balkans exports in 2011 (mn USD)

WB

export

s (a

nn

ual

gro

wth

2006-2

011)

21

RCA indices show the export specialisation of WB economies

  CEFTA ALB BIH HRV MKD MNE SRBWood and Cork 3.91 1.32 7.50 5.07 0.51 5.54 2.38Textiles, Leather and Footwear 2.29 8.75 2.09 1.45 5.00 0.12 1.66Other Non-Metallic Mineral Products 2.25 2.33 1.47 3.31 2.24 0.25 1.33Food, Beverages and Tobacco 1.92 0.80 0.97 1.51 2.02 2.08 2.61Fabricated Metal Products 1.68 2.09 2.69 1.71 0.99 0.75 1.48Basic Metals 1.61 0.93 1.89 0.48 3.77 8.71 2.22Electrical Machinery and Apparatus n.e.c 1.23 0.63 0.56 1.71 0.48 0.07 1.19Rubber and Plastics Products 1.16 0.37 0.73 0.63 0.84 0.08 2.33Pulp, Paper, Printing and Publishing 1.09 1.00 1.17 1.07 0.32 0.64 1.45Coke, Petroleum Products 1.06 0.27 0.92 2.02 0.20 0.42 0.43Other Transport Equipment 0.92 0.02 0.20 1.96 0.08 0.23 0.45Machinery and Equipment, n.e.c 0.67 0.11 0.61 0.86 0.30 0.82 0.67Chemicals and Chemical Products 0.50 0.06 0.40 0.63 0.46 0.09 0.52Motor Vehicles, Trailers and Semi-Trailers 0.29 0.04 0.51 0.27 0.10 0.12 0.32Pharmaceuticals 0.23 0.05 0.04 0.21 1.34 0.03 0.06Medical, Precision and Optical Instruments 0.21 0.04 0.10 0.28 0.16 0.03 0.20Radio, TV and Communication Equipment 0.20 0.07 0.02 0.34 0.03 0.04 0.20ICT 0.19 0.07 0.04 0.28 0.06 0.04 0.22Office, Accounting and Computing Machinery 0.15 0.10 0.02 0.16 0.05 0.04 0.27

RCA indices in 2009

Source: Based on OECD STAN BTD. CEFTA also includes Moldova. No data available for Kosovo*

22

Which sectors have potential for future growth?

Source: based on OECD STAN BTD

0% 2% 4% 6% 8% 10% 12%0%

2%

4%

6%

8%

10%

12%

14%

16%

5.8%

14.9%

10.9%

7.9%8.4%

11.0%

5.9%

3.5%

10.5%10.8%

11.0%

5.9%

6.2%

5.1%

Growth in WB exports and EU27 import demand

Growth in EU27 imports (annual growth 2006-2011)

WB

export

s (a

nn

ual

gro

wth

2006-2

011)

23

Analytical framework for sector selection

Potential for regional cooperation

Competitiveness of the Western Balkans sectors in the global marketplace

Value-added potential

24

Depending on the industry, supply chains tend to be more or less regional

Other Non-Metallic Mineral Prod.

Office, Computers

Paper, Printing and Publishing

Fabricated Metal Products

Basic Metals

Electrical Machinery n.e.c

Machinery and Equipment, n.e.c

Textiles, Clothing

Other Transport Equipment

Manufacturing n.e.c; Recycling

0 20 40 60 80 100

Intermediate exports: Intra vs. Extra-CEFTA (2009)

intra-CEFTA extra-CEFTA

Source: OECD (2012). CEFTA also includes Moldova. No data available for Kosovo*

25

The RCA matrix helps identify economies’ positions in supply chains

No RCA in intermediate goods

imports

RCA in intermediate good exports

RCA in intermediate goods imports

No evidence of supply chains

First stage supply chains

Final stage supply chains

Intermediate stage supply

chains

RCA in final good exports

Source: OECD (2012)

26

An example: Serbia’s industries’ positions in supply chains

Year: 2009

4

3

2

1

0

1

2

3

4

352580.75105161.79

790686.83181245.32

269691.91

96091.08

134926.64

153675.05

65830.71

542308.7170822.23801187.89

Manufacturing n.e.c.

No RCA in intermedi-ate goods imports

No Evident InternationalSupply Chains

RCA in final goods exports

Final StageSupply Chains

RCA in intermediate goods imports

First StageSupply Chains

Intermediate StageSupply Chains

RCA in intermediate goods exports

27

Industry First stage

Intermediate stages Final stages

Food, beverages and tobacco SRB BIH HRV MKD MNE

Textiles, Clothing ALB BIH HRV MKD SRB

Wood and Cork BIH HRV MNE SRB ALB BIH

Paper, Printing and Publishing ALB BIH HRV SRB BIH SRB

Coke, Petroleum Products HRV

Rubber and Plastics MKD SRB

Basic Metals BIH MNE MKD SRB

Fabricated metal products BIH ALB HRV MKD

SRB SRB

Electrical machinery, nec HRV SRB

Motor vehicles, Trailers BIH

WB economies present supply chain complementarities in selected sectors

Economies’ positions in supply chains (2009)

Source: OECD (2012). No data available for Kosovo*

28

ALB BIH HRV XK MKD MNE SRB

Metal industry

Textile, Apparel

Wood processing

Agro-food

Mining

Construction

Automotive

Pharmaceuticals

ICT

Tourism

Banking

Energy

Governments in the region support similar sectors

Sectors prioritised by WB economies

Source: based on National Strategies and Investment Promotion Agencies

29

Multidimensional view of the analysis

0 0.5 1 1.5 2 2.5 3 3.5 4 4.50%

5%

10%

15%

20%

25%

30%

2.9%

4.6%

28.1%

2.8%

6.7%

16.7%

4.1%

6.5%

2.1%2.9%

7.9%

1.3%

3.4%

14.0%

RCAs in exports (2009)

FD

I st

ocks

(% o

f m

an

ufa

ctu

rin

g F

DI,

2010)

The size of the bubble represents the size of the sector as a % of manufacturing output.The colour of the bubble represents the extent to which governments in the WB prioritise the sector.

0-2 economies prioritise the sector 3-4 economies prioritise the sector

5-7 countries prioritise the sector

30

What could be the shortlist of sectors: Food, beverages, and tobacco; Travel; Metals; Textiles?

How much weight should we attach to RCA, FDI stocks, size of sector as % of manufacuting input, growth in demand and existing government priorities?

What other factors should be considered (e.g., employment, R&D capacity, etc.)?

Is there potential for moving to higher value added?

Discussion questions

31

Session 2

Identify sectors where regional

value chains exist or could be developed

Discuss ways to identify barriers limiting value

chain development in these sectors

Examine concrete policy actions to

address these barriers

1 2 3

32

What are the main obstacles which limit Western Balkan economies’ integration and upgrading in regional and global value chains?

What approaches should be used to identify barriers to value chain development?

What is the feasibility of different types of upgrading in different sectors (process, product, functional, upgrading)?

Key questions

33

Session 3

Identify sectors where regional

value chains exist or could be developed

Discuss ways to identify barriers limiting value

chain development in these sectors

Examine concrete policy actions to

address these barriers

1 2 3

34

How can Western Balkans co-operate to create regional value chains which can successfully compete in the global market?

Where could the OECD Investment Compact achieve the greatest impact through an 18 month pilot project?

Have projects in the past aimed at helping firms join or upgrade in regional/global value chains?

Key questions

35

ANNEX

36

Multidimensional view of the analysis (II)

0 0.5 1 1.5 2 2.5 3 3.5 4 4.50%

2%

4%

6%

8%

10%

12%

2.9%

4.6%

28.1%

2.8%

3.5%

5.8%

4.1%

6.5%

3.5%

7.9%

RCAs in exports

Gro

wth

in

EU

dem

an

d (

an

nu

al

gro

wth

, 2006-

2011)

The size of the bubble represents the size of the sector as a % of manufacturing output.The colour of the bubble represents the extent to which governments in the WB prioritised the sector.

0-2 economies prioritised the sector 3-4 economies prioritised the sector

5-7 countries prioritised the sector

37

FDI inflows, bn USD

Source: UNCTAD (2013)

2000 2001 2002 2003 2004 2005 2006 2008 2009 2010 2011

-2000

0

2000

4000

6000

8000

10000

12000

ALB BIH HRV MNESRB MKD SVK CZE

38

Share of total EU imports by selected trade partners (% total EU imports)

Source: Eurostat

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

0%

5%

10%

15%

20%

TUR Western Balkans North African countries Russia

United States China (except Hong Kong)

39

Central Europe 2011

Western Balkans 2011

Central Europe 2001

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Exports by industry (% of manufactured exports)

Food products, Beverages and Tobacco Textiles, Textile Products, Leather and Footwear Wood and Products of Wood and Cork Pulp, Paper, Paper Products, Printing and Publishing Manufacturing not elsewhere classified; Recycling Coke, Refined Petroleum Products and Nuclear Fuel Rubber and Plastics Products Other Non-Metallic Mineral Products Basic Metals

WB exports are concentrated in low and medium-low tech industries

Source: based on OECD STAN BTD - NB- No data available for Kosovo. Poland is not included in the Central European economies because it is a significantly larger market.

Low tech industries Medium-high tech High-techMedium-low tech

40

Exports from Kosovo*

Source: Kosovo Agency of Statistics

Manufactured goods classified chiefly by material

Crude materials, inedible, except fuels

Food and live animals

Mineral fuels, lubricants and related materials

Machinery and transport equipment

Beverages and tobacco

Miscellaneous manufactured articles

Chemicals and related products, n.e.s.

Commodities and transactions not classified else. in the SITC

Animal and vegetable oils, fats and waxes

0 50,000 100,000 150,000

Exports from Kosovo* (thousand EUR)

2007 2011

41

FDI stocks by manufacturing industry (2007)

Source: Vienna Institute for International Economic Studies. NACE REV. 1

ALB

BIH

HRV

MKD

-20% 0% 20% 40% 60% 80% 100%

Food, beverages and tobacco Textiles and leather productsWood products Pulp, paper products, publish. & printingCoke, petroleum products Rubber and plasticsOther non-metallic mineral products Basic metals and fabricated metal productsMachinery and equipment n.e.c. Electrical and optical equipmentTransport equipment Chemical productsOther

42

Source: Vienna Institute for International Economic Studies. NACE REV. 1

FDI stocks by manufacturing industry (2010)

ALB

BIH

HRV

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Food, beverages and tobacco Textiles and leather productsWood products Pulp, paper products, publish. & printingCoke, petroleum products Rubber and plasticsOther non-metallic mineral products Basic metals and fabricated metal productsMachinery and equipment n.e.c. Electrical and optical equipmentTransport equipment Chemical productsOther

43

FDI Stocks by Manufacturing Sector (EUR mn)

Source: Vienna Institute for International Economic Studies. NACE REV. 1. NACE 2 digit manufacturing

26 Other non-metallic mineral products

19 Tanning and dressing of leather, mfr. of rel. articles

28 Fabricated metal products, ex machin. and equip.

27 Basic metals

25 Rubber and plastic products

20 Wood, products of wood and cork, ex furniture etc

17 Textiles

37 Recycling

-20 0 20 40 60 80 100 120 140Albania

2007 2010

44

FDI Stocks by Manufacturing Sector (EUR mn)

Source: Vienna Institute for International Economic Studies. NACE REV. 1

23 Coke, refined petroleum products and nuclear fuel15 Food products and beverages

26 Other non-metallic mineral products27 Basic metals

21 Pulp, paper and paper products24 Chemicals and chemical products

34 Motor vehicles, trailers and semi-trailers28 Fabricated metal products, ex machin. and equip.

20 Wood, products of wood and cork, ex furniture etc29 Machinery and equipment n.e.c.

19 Tanning and dressing of leather, mfr. of rel. articles37 Recycling

25 Rubber and plastic products31 Electrical machinery and apparatus n.e.c.

36 Furniture, manufacturing n.e.c.30 Office machinery and computers

17 Textiles18 Wearing apparel, dressing and dyeing of fur

22 Publishing, printing, reproduction of recorded media33 Medical, precision, optical instr., watches & clocks

Other not elsewhere classified industries (15-37)

0 50 100 150 200 250 300 350 400 450

Bosnia and Herzegovina

2007 2010

45

FDI Stocks by Manufacturing Sector (EUR mn)

Source: Vienna Institute for International Economic Studies. NACE REV. 1

23 Coke, refined petroleum products and nuclear fuel

15 Food products and beverages

24 Chemicals and chemical products

32 Radio, TV and communic. equipment and apparatus

36 Furniture, manufacturing n.e.c.

17 Textiles

29 Machinery and equipment n.e.c.

25 Rubber and plastic products

35 Other transport equipment

27 Basic metals

37 Recycling

0 500 1000 1500 2000 2500 3000Croatia

2007 2010

46

RCAs with the EU by industry in 2007

Industries ALB BIH HRV MKD MLD MNE SRBTechnological intensity

Radio, television, communication 0.02 0.03 1.27 ↔ 0.08 0.04 0.01 0.11 High

Machinery and equipment, n.e.c. 0.25 0.66 1.03 ↑ 0.11 0.21 0.1 0.48 Medium - high

Other transport equipment 0.09 0.06 4.11 ↔ 0.12 0.05 0.38 1.24 ↑ Medium - high

Electrical machinery and apparatus 0.06 0.57 1.38 ↔ 0.19 0.72 0.01 1.37 Medium – high

Motor vehicles 0.03 1.02 ↔ 0.28 0.04 0.03 0 0.1 Medium -high

Fabricated metal products 0.43 2.04 ↔ 1.89 ↔ 0.33 0.58 0.37 1.6 ↔ Medium - low

Other non-metallic mineral products 2.19 ↑ 0.14 2.07 ↔ 1.21↔ 4.82 ↔ 0.03 1.3 ↑ Medium - low

Rubber and plastics products 0.19 0.55 0.42 0.17 0.43 0.01 1.89 ↔ Medium - low

Basic metals 0.28 1.86 ↔ 0.45 5.21 ↔ 0.66 11.54 3.71 ↔ Medium – low

Coke, refined petroleum products, nuclear fuel 0.4 2.04 1.17 ↔ 0.04 0.23 NA 0.06 Medium – low

Food products and beverages 0.44 0.47 0.92 0.64 2.92 ↔ 0.35 1.67 ↔ Low

Furniture 0.97 4.84 ↔ 2.36 ↔ 0.21 1.11 ↑ 0.07 0.8 Low

Paper and paper products 1.84 ↔ 0.48 0.87 0.15 0.93 0 0.61 Low

Textiles 1.35 ↔ 0.62 1.30 ↔ 1.51 ↔ 2.18 ↔ 0.19 1.01 ↑ Low

Tobacco products NA 0.01 0.5 0.04 0.21 NA 0.01 Low

Wearing apparel 18.99

↔ 3.77

↔ 2.40 ↔ 18.08

↔11.11

↔ 0.29 2.05 ↔ Low

Wood and products of wood 1.3 ↔ 5.64 ↔ 3.48 ↔ 0.35 0.21 1.4 1.87 ↔ Low