Stability Pact for South Eastern Stability Pact for South Eastern Europe Europe

Round Table on Regional Round Table on Regional Cooperation in SEECooperation in SEE

INVESTMENT OPPORTUNITIES IN INVESTMENT OPPORTUNITIES IN THE SOUTH EASTERN EUROPETHE SOUTH EASTERN EUROPE

BelgradeBelgrade33rdrd October, 2005 October, 2005

Most promising market in Most promising market in EuropeEurope

SEE cover an area about the size of SEE cover an area about the size of Germany and Italy combinedGermany and Italy combined

Population (55 million) comparable to Italy Population (55 million) comparable to Italy or CEB countries or CEB countries

Dynamic growth, regional integration, as Dynamic growth, regional integration, as well as integration into the EU, accelerate well as integration into the EU, accelerate catching-up process with the EU and CEB catching-up process with the EU and CEB countriescountries

1990s as lost decade, first decade of 211990s as lost decade, first decade of 21stst century could become a decade of SEEcentury could become a decade of SEE

Potentially, the most promising market in Potentially, the most promising market in Europe -political stability, faster economic Europe -political stability, faster economic reforms, improved legal framework and reforms, improved legal framework and greater legal security being crucial greater legal security being crucial prerequisites in the medium-termprerequisites in the medium-term

SEE integrating into the EUSEE integrating into the EU

Accession to the EU high on the Accession to the EU high on the agenda of 8 SEE countriesagenda of 8 SEE countries- Bulgaria and Romania expected to Bulgaria and Romania expected to

accede in 2007 or 2008accede in 2007 or 2008- 5 Western Balkan countries in SAP 5 Western Balkan countries in SAP

concluded or negotiating SAAconcluded or negotiating SAA- Moldova – part of the EU “Wider Moldova – part of the EU “Wider

Europe” initiativeEurope” initiative

EU and the BalkansEU and the BalkansStabilization and Association Process presents Stabilization and Association Process presents

a longa longterm policy of EU towards this region aiming term policy of EU towards this region aiming

to:to: Support structural reforms of these countries Support structural reforms of these countries

in order to prepare them for EU membership,in order to prepare them for EU membership, Strengthen the stability in the region Strengthen the stability in the region

through the association process,through the association process, Putting emphasis is on trade policy Putting emphasis is on trade policy

harmonization, improved border harmonization, improved border management and administrative capacity management and administrative capacity building, building,

Signing of the Stabilization and Association Signing of the Stabilization and Association Agreement.Agreement.

Stabilization and Association Stabilization and Association AgreementAgreement

Stabilization and Association Agreement is Stabilization and Association Agreement is modified according to the specific conditions modified according to the specific conditions of each Western Balkans country.of each Western Balkans country.

The country which signs the SAA is being The country which signs the SAA is being recognized as a potential EU candidate.recognized as a potential EU candidate.

SAAs have to be ratified by the country in SAAs have to be ratified by the country in question, the EU and all of its member states.question, the EU and all of its member states.

The aims of the SAA:The aims of the SAA: Political stabilizationPolitical stabilization Development of regional cooperationDevelopment of regional cooperation Establishing closer links and dialog with WB Establishing closer links and dialog with WB

countries. countries.

With the entry of 10 new members in the With the entry of 10 new members in the EU in 2004, the agenda for the next EU in 2004, the agenda for the next round of enlargement focuses on round of enlargement focuses on candidates from South Eastern Europe.candidates from South Eastern Europe.

SEE countries - relations SEE countries - relations with EUwith EU

Romania – candidate for membership.Romania – candidate for membership. Bulgaria – candidate for membership.Bulgaria – candidate for membership. Croatia – candidate for membership.Croatia – candidate for membership. Macedonia – submitted the candidature.Macedonia – submitted the candidature. Albania – negotiations on SAA.Albania – negotiations on SAA. Bosnia and Herzegovina – Feasibility study.Bosnia and Herzegovina – Feasibility study. Serbia and Montenegro – Feasibility study Serbia and Montenegro – Feasibility study

(negotiations on SAA – scheduled for 5. (negotiations on SAA – scheduled for 5. October).October).

Moldova – Partnership and Cooperation Moldova – Partnership and Cooperation Agreement. Agreement.

Regional Regional organizations/initiatives in organizations/initiatives in

SEESEE SEECP - South East Europe Cooperation SEECP - South East Europe Cooperation

Process Process Stability Pact for South Eastern EuropeStability Pact for South Eastern Europe SECI - South East Europe Cooperation SECI - South East Europe Cooperation

InitiativeInitiative BSEC - Black Sea Economic CooperationBSEC - Black Sea Economic Cooperation CEI - Central European Initiative CEI - Central European Initiative AII - Adriatic – Ionian InitiativeAII - Adriatic – Ionian Initiative DCP - Danube Cooperation ProcessDCP - Danube Cooperation Process CEFTA - Central European Free Trade AreaCEFTA - Central European Free Trade Area

General characteristics of General characteristics of regional initiativesregional initiatives

Main goal: regional cooperation and EU Main goal: regional cooperation and EU integration.integration.

Need for building up "regional perspective" Need for building up "regional perspective" during pre-accession period .during pre-accession period .

Developing regional ownership – mobilizing Developing regional ownership – mobilizing initiatives coming from the region – needed initiatives coming from the region – needed regional leadership.regional leadership.

Positive influence.Positive influence. Insufficient coordination.Insufficient coordination. Overlap of initiatives.Overlap of initiatives. Lack of financial resources.Lack of financial resources. Wide range of activities.Wide range of activities. Top down character.Top down character.

South Eastern Europe

Italy

Slovenia

Albania

Hungary

Romania

Bulgaria

Greece

Serbia and Montenegro

Bosnia and Herzegovina

Croatia

FYRM

Western Balkans

Business environmentBusiness environment Macroeconomic stability sustainedMacroeconomic stability sustained Early transition phase completedEarly transition phase completed Structural changes initiatedStructural changes initiated Private sector accounts about 62% of Private sector accounts about 62% of

GDP in SEE – vibrant source of growth GDP in SEE – vibrant source of growth and employment and employment

Privatization is well advancedPrivatization is well advanced Labor costs well below those in CEBLabor costs well below those in CEB Initiated institutional reforms critical for Initiated institutional reforms critical for

private sector development, integration private sector development, integration into the EU and long-term prosperityinto the EU and long-term prosperity

Growing business Growing business opportunitiesopportunities

Robust growth Robust growth Economic and political stability is returningEconomic and political stability is returning Considerable foreign investment inflow Considerable foreign investment inflow Continuing improvement of business Continuing improvement of business

climateclimate Increased access to trade, domestic finance Increased access to trade, domestic finance

and foreign investment – expanding and foreign investment – expanding opportunitiesopportunities

International community important catalyst International community important catalyst for other investors through selected for other investors through selected assistanceassistance

Private sector in SEE – engine of growthPrivate sector in SEE – engine of growth

SEE economic forecast SEE economic forecast for 2005for 2005

GDP growth remains strong - the GDP growth remains strong - the average rate of seven SEE countries average rate of seven SEE countries is expected to be around 5%.is expected to be around 5%.

Domestic demand remains the main Domestic demand remains the main engine of economic growth in the engine of economic growth in the region.region.

Foreign demand is weak and the Foreign demand is weak and the growth of exports will be slower in growth of exports will be slower in 2005, compared to the previous year.2005, compared to the previous year.

In 2005 the current account balances will In 2005 the current account balances will improve, especially in those economies where improve, especially in those economies where CA deficits are the highest (Bosnia-CA deficits are the highest (Bosnia-Herzegovina and Serbia and Montenegro). Herzegovina and Serbia and Montenegro).

Slight improvement is expected in most SEE Slight improvement is expected in most SEE countries regarding the unemployment rate countries regarding the unemployment rate due to the strong economic growth and new due to the strong economic growth and new investments by foreign investors.investments by foreign investors.

But, progress in privatization process may But, progress in privatization process may have a dampening effect on the employment have a dampening effect on the employment in these countries.in these countries.

SEE economic forecast SEE economic forecast for 2005for 2005

General characteristics of General characteristics of SEE economy SEE economy

Insufficient harmonization with the European Insufficient harmonization with the European standards.standards.

High share of black economy.High share of black economy. Inadequate competitiveness.Inadequate competitiveness. Lack of working capital and credit support.Lack of working capital and credit support. Unsatisfactory infrastructure.Unsatisfactory infrastructure. Problem regarding trade balances and budgets.Problem regarding trade balances and budgets. Corruption and criminal.Corruption and criminal. Small economies.Small economies. Slow pace of reforms.Slow pace of reforms. High unemployment. High unemployment. Brain drain – emigration of young and qualified Brain drain – emigration of young and qualified

experts.experts.

Foreign support and Foreign support and investments neededinvestments needed

Further recovery and growth largely Further recovery and growth largely depend on foreign financial inflows and depend on foreign financial inflows and know-howknow-how

Cumulative net FDI to the region about Cumulative net FDI to the region about US$ 32 billion in 1989-2003 (US$ 125 US$ 32 billion in 1989-2003 (US$ 125 billion in CEB)billion in CEB)

450 multinational companies in the 450 multinational companies in the region (of which 50% are present in more region (of which 50% are present in more than one SEE countrythan one SEE country

Over 550.000 jobs Over 550.000 jobs The Regional Network of Foreign The Regional Network of Foreign

Investors Councils in SEEInvestors Councils in SEE

Trade cooperation in the SEETrade cooperation in the SEE

Small share of mutual trade in Small share of mutual trade in the overall trade with the world.the overall trade with the world. Average 13%, varies from 10 – 20%.Average 13%, varies from 10 – 20%.

High percentage of trade with High percentage of trade with EU.EU. Average from 50 – 80%Average from 50 – 80% Italy and Germany dominate.Italy and Germany dominate.

Main barriers for doing Main barriers for doing business in SEEbusiness in SEE

Starting up is still costly and time Starting up is still costly and time consumingconsuming

Ineffective implementation of Ineffective implementation of regulationsregulations

Corruption and red typeCorruption and red type Underdeveloped financial Underdeveloped financial

intermediation and lack of access to intermediation and lack of access to sources of financesources of finance

Restrictive and poor quality labor Restrictive and poor quality labor legislation legislation

Size of informal sectorSize of informal sector

Why to invest in the Why to invest in the Balkans?Balkans?

Low cost area (labor costs, taxes)Low cost area (labor costs, taxes) High profitsHigh profits Low competitionLow competition Preferential trade regime with the Preferential trade regime with the

EUEU Growing bilateral and multilateral Growing bilateral and multilateral

cooperation in the region (FTA, cooperation in the region (FTA, Regional Energy Market, REBIS)Regional Energy Market, REBIS)

Trade Liberalization

Commonwealth of the Independent States

Trade LiberalizationTrade Liberalization Network of 29 bilateral Free Network of 29 bilateral Free

Trade Agreements (8 Trade Agreements (8 countries).countries).

Serbia is in the middle of the Serbia is in the middle of the SEE Free Trade Area – duty SEE Free Trade Area – duty free access to a market of 60 free access to a market of 60 mill people.mill people.

Serbia and Montenegro is the Serbia and Montenegro is the only country outside the CIS only country outside the CIS that has an FTA with the that has an FTA with the Russian FederationRussian Federation – market – market of 150 million people.of 150 million people.

Identification and elimination Identification and elimination of non-tariff barriers.of non-tariff barriers.

Establishment of a multilateral Establishment of a multilateral free trade agreement.free trade agreement.

Crossroads of Crossroads of 2 Pan-2 Pan-EuropeanEuropean Transportation Transportation

CorridorsCorridors