OECD EURASIA COMPETITIVENESS PROGRAMME
Enhancing Investment, Competitiveness and Private Sector Development in Central Asia,
South Caucasus and Ukraine
Fadi Farra
Head
OECD Eurasia Program
June 2008
OECD Private Sector Development Division
OECD Eurasia Competitiveness Programme
OECD Private Sector Development
1
Promotion job creation in BSEC and CA countries
What role for the private sector?
1. The OECD Eurasia Competitiveness Programme
2. Promotion job creation in Eurasia – A sector specific approach
OECD Private Sector Development
2
Eurasia: The need to improve the business climate
Strong economic performance in both Central Asia and South Caucasus/Ukraine
Regions
• However strong economic growth disparities and fluctuations across
countries
FDI levels and growth still relatively low
• Average FDI per capita up to 6 times lower than South East Europe or
CEE
• Average FDI growth a third lower than regions like South East Europe
• Limited FDI diversification in most countries
Need to improve business climate to attract investment and develop the private
sector and employment further
OECD Private Sector Development
3
OECD Eurasia Competitiveness Programme
New OECD Mandate (2008) covering two regions and 11 countries
Central Asia
The South Caucasus and Ukraine
Armenia
Afghanistan
Azerbaijan
Kazakhstan
Georgia
Kyrgyztan
Ukraine
Mongolia
Tadjiskistan
Observers: Moldova and Belarus
Turkmenistan
Uzbeskistan
Partnership with
BSEC and EC
Partnership with
OSCE and EC
OECD Private Sector Development
4
Focus on results and implementation to improve investment
and competitiveness
Enhancing Regional
Business Climate
Improving National
Competitiveness
Identification and prioritisation of regional barriers to
investment and how to remove them
Creation of policy networks in specific policy areas like
investment policy, trade, enterprise development,
financial sector development
Development of “how to” guidelines at the regional
level to implement specific policy reforms
Surveys of investors and private sector perception to
assess and measure impact
Evaluation of policy reforms to improve the business
environment
Time-bound and measurable priorities for reforms
Country-specific assistance in implementing reforms
OECD Private Sector Development
5
Four pillars to improve the business climate
Improving the business climate and Competitiveness
in Eurasia
A. Enterprise and SME
Development
1. Monitoring
and Evaluation
B. Policy and Promotion
Specific to FDI
Investment Reform Index (IRI)
SME Policy Index
4 Areas
Sector Specific Sources of Competitiveness
2. Implementation Support
Enterprise Forum
Thematic Working Groups
Sector Specific Regional
Investment Promotion
Structured Public/Private Debate
3. Private
Sector Support
4. Political
Support
Sector Specific Studies
Regional Foreign Investors
Council, White Book and
Investor Forum
Annual Ministerial meetings for South Caucasus, Ukraine
and Central Asia Regions
OECD Private Sector Development
6
An example: Monitoring policies at the regional level
… and addressing reforms through working groups
Example for South
The OECD Investment Reform Index
East Europe
Policy Working Group
Chaired by a country of the region and OECD country
Strong involvement of regional policy makers, private sector and OECD experts
Focused on delivering a “How To” guidelines on implementation of
skills development programmes
OECD Private Sector Development
DRAFT NOT FOR DISTRIBUTION
7
Promotion job creation in BSEC and CA countries
What role for the private sector?
1. The OECD Eurasia Competitiveness Programme
2. Promotion job creation in Eurasia – A sector specific approach
OECD Private Sector Development
8
The cost competitiveness trap
Key sectors in the Eurasia regions are able to compete based on low cost
• Labour cost in services [e.g. Business Process Outsourcing (BPO),
Information and Communication Technology (ICT)] is up to 5 times
lower than in Eastern Europe.
• Manufacturing cost up to 5 times lower than Western Europe
However cost competitiveness is not sustainable
• Markets like India and China are clear low-cost alternatives.
• Cost levels in some sectors are increasing by up to 15% annually,
impacting negatively on margins and potentially eroding market share
levels.
• Limited access to finance and strategies to reinvest capital in
technology and human capital is a risk.
To sustain competitiveness, the countries in of the Central Asia region and
Black Sea regions need to start moving up the value-chain and diversify
their sources of FDI
OECD Private Sector Development
9
Three challenges need to be addressed to sustain
competitiveness at the regional level
Significant gaps in human capital and the need for human capital reform
linking education and market needs
• Skills gaps in high growth industries such as ICT reach 60%.
• Coordination between ministries of education and economy and
dialogue with civil society are limited.
Limited focus on value-added services and innovation and the need to
further link research and businesses
Lack of longer term sector-specific reforms and the need for institutional
methods to continuously identify and remove sector specific policy barriers
OECD Private Sector Development
10
Example for a sector: Business Process Outsourcing (BPO)
Example for the Republic of Moldova
Leveraging their competitive labour costs in services
Index
(100:
Hungary)
Relative comparison of average monthly labor cost in services (2005)
104
100
88
40
37
34
31
21.9
21.5
15
(1)
4.4
Hungary Poland
Croatia Bosnia
Serbia
Albania UNMIK
&H
FYR
Montenegro
Macedonia
Republic
India
of Moldova
Sample of CEE countries
Note: Monthly wages have been calculated on 2003-05 or 2003-06 average; using the LABORSTA Labour Statistics Database and covering, unless specified only the category J
(financial intermediation) and K (business activities, real estate and renting). For Albania overall figures are based on category I (transport, storage and communications) due to the
absence of statistics on J/K in the ILO databases
(1) average monthly wages in all services
Source: International Labour Organization; zdnetasia; Wall Street Journal, OECD interviews
OECD Private Sector Development
11
The human capital gap
50% of BPO firms have difficulties finding
skilled and educated workers
Skills and education of available workers
70% of BPO firms find education and training to
be key policy issues
Key issues within human capital policy
50%
Source: OECD 2008
OECD Private Sector Development
12
Engaging the private sector for short term results
How to address the lack of skilled
resources in the short term?
During Pre-employment through offering of
internships, intervention in university
courses, exchange programs with foreign
vendors and universities
During employment through linkage
programs, company training including
sector/technical-specific training like CAD,
ERP, Vendor Managed Inventory for textile
or Design for Manufacturability Software
and Computer Aided Engineering for
automotive
Post employment through the usage of ecourses in particular on new applications
and processes like PHP/MYSQL, Ajax, PHP.Net , XML, Flash Animation & Action Script
Short term actions:
Engaging the private sector
• Review government practices and private
sector practices to upgrade skills e.g.
government sponsored coaching
programmes; tax relief for training,
company sponsored trainings; exchange
programmes
• Implementation of policies through a
sector specific approach e.g. internships,
coaching, vocational training, digital
learning)
• Development of linkage programs
OECD Private Sector Development
DRAFT NOT FOR DISTRIBUTION
13
Policy reforms to move up the value chain and diversify FDI
The Republic of Kazakhstan example
How to improve sector competitiveness for the Republic of Kazakhstan
Match supply and demand
• Align ministries
• Develop tools to analyse skills gaps and
shortages
• Review the labour market regime
• Develop a mechanism for dialogue with
civil society
Human Capital
Development
Sustained
Competitiveness
Competitive
Clusters
Sector Policy
Reforms
Channel innovation efforts
• Assess the success levels of current cluster initiatives
• Develop an organisational structure and governance
model at the national level
• Map out the objectives and scope of competitive
clusters to channel innovation efforts
Remove sector specific policy
barriers on a continuous basis
• Set-up sector specific
working groups
• Develop sector
specific monitoring tools
OECD Private Sector Development
14
Key Success factors
Clear links with the National Development Plan and priorities to ensure
sustainability
Close partnership with the private sector to accelerate reforms at the sector
level
Inclusion of all relevant donors efforts to avoid any overlap
Practical approach with a gradual implementation based on pilots and
championing stakeholders to deliver tangible results
A focus on policy priorities, execution and communication
15
OECD Private Sector Development
15
Appendix
OECD Private Sector Development
16
Governance: Strong collaboration with regional bodies
South Caucasus and Ukraine
Co-chairs: OECD Country + SCU
Country + OECD
OECD donor
countries
SCU Competitiveness
Committee
Regional Working Groups*:
Human Capital
Investment Promotion
Transportation
Trade
Eurasia- SCU
country
economic teams
SCU
Competitiveness
Programme
International
organisations
Regional Offices and
presence:
-Istanbul
-Moldova
Private sector
Partners: Black Sea Economic Cooperation (BSEC) and EC
* Note: Tentative groups being discussed with countries of the region
OECD Private Sector Development
17
Governance: Strong collaboration with regional bodies (II)
Central Asia
Co-chairs: OECD Country + CA
Country + OECD
CA Competitiveness
Committee
Regional Working Groups*:
Human Capital
Investment Promotion
Infrastructure
Trade
Financial Markets
CA
Competitiveness
Programme
Regional Offices and
presence:
-Istanbul
OECD donor
countries
Eurasia- CA
country
economic teams
International
organisations
Private sector
Partners: OSCE and EC
* Note: Tentative groups being discussed with countries of the region
OECD Private Sector Development
18
1. How to find relevant local and foreign companies: Sector database
Building a database with company profiles and offering
DATA CREATION AND STORAGE
• Creation and maintenance of the
reference company databases
• Automatic update of Moldova
statistical databases
• Automatic update of registered
information by company (in
coordination with the National
Statistical Bureau)
• Automatic feedback between MIEPO
and company included in the database
COMPANY PROFILES:
Includes:
• General information
• Financial information
• Key contacts
• History
• Subsidiaries
• Activities
• Actions in Moldova and abraod
• Organisation changes
• Founders
• Actions with international players
DATA ANALYSIS AND
MINING
• Search by company
offering and segments
• Group/ Community
management together
with international
companies
• Possibility to leverage
the database for lead
generation:
identification of
company having
representatives in
Moldova ‘active’ and
those that are ‘prospect’
OECD Private Sector Development
19
2. How to identify and prioritise skills improvement efforts: Skill gap analysis
Example for call centers - languages
Excluding salary expectations, major discrepancy between supply and demand
Qualitative performance
Language students and company demand
Evolution of demand and supply
Italian language
Quality of curricula (1)
# of
people
5
Entreprises
Awareness
0
Quality of graduates
Supply/Demand Equilibrium
Students
250
230
Demand
200
150
100
43
61
35
Supply
26
23
13
0
2003 2004 2005 2006 2007 F2008
Notes (1): Ranking: (1) Poor; (5) outstanding
Source: OECD field survey
OECD Private Sector Development
20