Defining and Strengthening Sector Specific Sources of Competitiveness in the Western Balkans a REGIONAL INVESTMENT STRATEGY
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Defining and Strengthening Sector Specific Sources of Competitiveness in the Western Balkans RECOMMENDATION FOR A REGIONAL INVESTMENT STRATEGY Advance Copy The Organisation for Economic Co-operation and Development (OECD) The Organisation for Economic Co-operation and Development is a unique forum where the governments of 30 market democracies work together to address the economic, social and governance challenges of globalisation as well as to exploit its opportunities (www.oecd.org/about). The Organisation provides a setting where governments can compare policy experiences, seek answers to common problems, identify good practice, and co-ordinate domestic and international policies. The OECD also shares expertise and exchanges views with more than 100 other countries and economies, from Brazil, China and Russia to the least developed countries in Africa. The OECD member countries are: Australia, Austria, Belgium, Canada, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, the Netherlands, New Zealand, Norway, Poland, Portugal, the Slovak Republic, Spain, Sweden, Switzerland, Turkey, the United Kingdom and the United States. The European Commission takes part in the work of the OECD. The OECD Private Sector Development Division (PSD) The OECD Private Sector Division of the Directorate for Financial and Enterprise Affairs brings together under one umbrella horizontal regional programmes aimed at enhancing sustainable growth and employment through better policy to improve the business climate. The Division assists regions in developing and implementing effective policy reforms to enhance investment, competitiveness, and private sector development in several regions. Programmes include the Investment Compact for South East Europe, the Middle East and North Africa Investment Programme, and the Eurasia Programme. The Division’s work is based on seven pillars: Leveraging of OECD good practices and experience to support non-OECD countries Support in implementation of reform Comprehensive approach through process of economic reform Combination of horizontal and vertical approaches Communication focus Regional and country specific projects The Division was created to respond to the growing demand for private sector development policy advice in non- OECD economies, which increasingly requires a horizontal, cross-issue approach. The OECD Investment Compact for SEE Programme Launched in 2000, the Investment Compact for South East Europe is a leading programme designed to improve the investment climate and to encourage private sector development in South East Europe. The Investment Compact supports South East European countries with practical tools to increase investment, growth and employment, and supports the EU integration process. The programme operates within the Private Sector Development Division of the Organisation for Economic Co- operation and Development (OECD) in close partnership with the Regional Co-operation Council (RCC), and has its own institutional structure including an Investment Committee and an annual Ministerial Conference. The Investment Compact member countries are: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, The former Yugoslav Republic of Macedonia, Moldova, Montenegro, Romania and Serbia. Kosovo under UNSCR 1244 participates as an observer. Each country participates in the work of the programme through a Country Economic Team headed by a senior level governmental official. The Regional Co-operation Council The Regional Cooperation Council (RCC) was officially launched on 27 February 2008, as the successor of the Stability Pact for South Eastern Europe. The RCC is intended to sustain focused regional cooperation in South Eastern Europe through a regionally owned and led framework that also supports European and Euro-Atlantic integration. It will be turned to developmental projects and creation of a political climate susceptible to implementing projects of a wider, regional character, to the benefit of each individual country. This work is published on the responsibility of the Secretary-General of the OECD. The opinions expressed and arguments employed herein do not necessarily reflect the official views of the Organisation or of the governments of its member countries. This document has been produced with the financial assistance of the European Union. The views expressed herein can in no way be taken to reflect the official opinion of the European Union. FOREWORD The competitiveness of the economies of the Western Balkans represents a strategic European interest. Well-functioning market economies resistant to global competitive pressures will further contribute to the political stabilisation of the Western Balkan region, but also to achieving the EU's main policy objective for the years to come: growth and jobs for Europe. Enhancing competitiveness and preparing the region for future EU accession will entail attracting investments and promoting private sector development. It is crucial that these objectives be pursued at a regional level. Further regional economic integration will better prepare the economies of the Western Balkans for the EU Single Market as well as increase their appeal as destinations for much needed investment. In view of the global competition to attract investment, dedicated investment and private sector development policies are needed to enable countries to gain a comparative advantage. It is therefore important for governments to identify what such sources of competitive advantage might be, and to remove sector-specific policy barriers in order to achieve them. The objective of the project “Defining and Strengthening Sector Specific Sources of Competitiveness”, co-financed by the European Commission and implemented by the OECD in co- operation with the Regional Cooperation Council and the World Bank, is to support the Western Balkans in defining and implementing a targeted investment promotion agenda. This report provides policy makers and the private sector with proposals for actions based on a robust analysis of investor demand problems and sector-specific policy barriers that currently prevent local firms from growing their operations in four key sectors. The report’s recommendations to move up the value chain by improving human capital and channelling innovation efforts constitute an important message for policy makers. This report is the result of a collaborative effort with policy makers in each economy of the Western Balkans, as well as representatives of the private sector. It will serve as a basis for the future definition and implementation of a roadmap to strengthen and sustain regional competitiveness. Michael Leigh Hido Biščević Carolyn Ervin Director-General Secretary General Director Directorate-General for Regional Cooperation Council Directorate for Financial and Enlargement Enterprise Affairs European Commission OECD RECOMMENDATION FOR A REGIONAL INVESTMNENT STRATEGY - © OECD 2008 3 ACKNOWLEDGEMENTS Country Economic Team (CET) Leaders in the Western Balkans have ensured overall support and acted as co-ordinators of the different agencies and bodies within their governments. The CET Leaders are: Ennio Bodzo (Albania), Dragisa Mekic (Bosnia and Herzegovina), Tajana Kesic-Sapic (Croatia), Zoran Stavrevski (The former Yugoslav Republic of Macedonia), Nada Medenica (Montenegro) and Jasna Matic (Serbia). Each Investment Promotion Agency (IPA) in the Western Balkans has contributed by providing input for the sectoral analysis as well as support during country missions, under the supervision of the IPA heads. The IPA heads are: Denis Kalenja (Executive Director, Albanian Foreign Investment Promotion Agency), Haris Bašić (Director, Foreign Investment Promotion Agency of Bosnia and Herzegovina), Slobodan Mikac (Managing Director, Trade and Investment Promotion Agency of Croatia), Remzi Ahmeti (Acting CEO, Investment Promotion Agency of Kosovo under UNSCR 1244), Viktor Mizo (CEO, Agency for Foreign Investments of The former Yugoslav Republic of Macedonia), Petar Ivanovic (CEO, Montenegrin Investment Promotion Agency) and Vesna Peric (Director, Serbian Investment and Export Promotion Agency). Key data on the four sectors that are the focus of this report – apparel manufacturing, automotive components, and business process and information technology outsourcing – have been provided by national offices of statistics in the Western Balkans. These are: the Institute of Statistics of Albania, the Agency of Statistics of Bosnia and Herzegovina, the Federal Office of Statistics of the Federation of Bosnia and Herzegovina, the Institute of Statistics of the Republika Srpska, the Central Bureau of Statistics of the Republic of Croatia, the Statistical Office of Kosovo under UNSCR 1244, the State Statistical Office of The former Yugoslav Republic of Macedonia, the Statistical Office of Montenegro, and the Statistical Office of the Republic of Serbia. In addition, statistics on foreign direct investment flows and stocks have been contributed by national central banks: the Bank of Albania, the Central Bank of Bosnia and Herzegovina, the Croatian National Bank, the National Bank of The former Yugoslav Republic of Macedonia, the Central Bank of Montenegro and the National Bank of Serbia. The Regional Capability Survey in all the markets covered by the study was carried out by Prism Research (Bosnia and Herzegovina) under the supervision of Dino Djipa. The European Commission (Yngve Engström, Head