Bank of Greece-University of Oxford (SEESOX) Conference
Athens, February 11 2011

Agenda
•
•
•

Business Climate as measured by the Investment Reform
Index 2010
IRI – SEE average score
0 1 2
Investment Policy and
Promotion
3 4 5
Human capital development
Trade policy and facilitation
Access to Finance
Regulatory reform and parliamentary processes
Main improvement points – Investment Policy and
Promotion
• Land title registration and cadastre is slow
• Permits for foreign workers are cumbersome in BiH and FYROM
• FDI Incentives on sub-national level need more clarity
• FDI-related capital transfer remain in AL, SRB and BiH
• One-stop shop for investors (IPAs to approve permits)
• Weak aftercare in BiH, BG, MNE and RO
• Legal frameworks for PPPs to be developed
• Need to improve IP rights enforcement
Tax policy analysis
Score
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

Business Climate as measured by the Investment Reform
Index 2010
IRI – SEE average score
0 1 2
Investment Policy and
Promotion
3
Human capital development
Trade policy and facilitation
Access to Finance
Regulatory reform and parliamentary processes
4 5
Main improvement points – Human Capital
Development
• Basic skills in education system are much lower than
OECD average (BG, MNE, RO, SRB) or comparable to it
(HR)
• Misalignment between profile of skills supplied by the education system and the needs of the private sector
• Little or no government strategy on Continuous
Education and Training
• High tax wedges on labour, except in AL, BG
• Temporary labour contracts restricted to specific purposes (seasonal work, replacements)
Tax policy analysis
Score
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

Business Climate as measured by the Investment Reform
Index 2010
IRI – SEE average score
Investment Policy and
Promotion
Human capital development
Trade policy and facilitation
0 1 2 3 4 5 Main improvement points – Trade Policy and
Facilitation
• Implement agreement on agricultural tariffs
(manufactured product tariffs already minimal)
• Monitor and decrease non-tariff barriers to trade: sanitary and phytosanitary, technical
• Continue integration in multilateral trade system
(WTO members: AL, HR, FYROM, MD: negotiating:
BiH, SRB, MNE)
Access to Finance
Regulatory reform and parliamentary processes
Tax policy analysis
Score
Main improvement points – Access to Finance
• Develop competition in banking sector
• Improve credit information and credit guarantee schemes
• Develop stock markets and venture capital/business angel networks
• Develop export guarantee schemes
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

Business Climate as measured by the Investment Reform
Index 2010
IRI – SEE average score
0 1 2
Investment Policy and
Promotion
3
Human capital development
4 5
Main improvement points – Regulatory Reform
• Regulatory Impact Assessment to be developed
• Improve co-ordination of parliaments and governments
• Formalize dialogue with civil society
Trade policy and facilitation
Access to Finance
Regulatory reform and parliamentary processes
Tax policy analysis
Main improvement points – Tax Policy Analysis
• Improve simulation instruments such as corporate income tax microsimulation, tax wedge model, marginal effective tax rate model
• Assess cost of compliance for SMEs
Score
Note: (1) Dimensions on SME policy, which was derived from the SME policy index and on infrastructure were not scored

After the crisis, support to SMEs and innovation is seen as key to sustainable growth

Agenda
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•
•

Overall Conclusions of the 2009 SME Policy Index
• Good overall progress on the implementation of the European
Charter for SMEs
• However: uneven progress across the 10 dimensions of the Charter:
• Good progress for policy areas that directly affect operational environment of
SMEs (e.g. company registration, regulatory reform, access to finance).
• More modest progress in introducing targeted policies for specific types of
SMEs (e.g. start-ups, innovative SMEs). Even in the cases where such policies have been formulated, the amount of available resources is very low, compared to EU Member States.
• The contribution of human capital to the region’s competitiveness remains a particular constraint to the Western Balkan economies.
• Implementation is still in an early phase in some economies.

Detailed recommendations of the 2009 SME Policy index (1/2)
• Entrepreneurship and training
 Entrepreneurship to be considered as key competence by education community
 Co-operation needed among education policy makers to achieve life-long entrepreneurship training
• Cheaper and faster start-up
 Compliance phase: strive to balance the need for inspection and compliance with burden on SMEs
 Need to establish an electronic registry for all companies to create a centre of collection and dissemination of company data
• Better legislation and regulation
 Apply the “silence is consent” principle widely
 Regulatory impact assessment should be further implemented, and redundant legislation eliminated
 BiH and Kosovo under UNSCR 1244/99 still lack a coherent legislation with an effective institutional framework and strategy
• Availability of skills
 Develop training needs analysis to identify skills gaps
 Promote the training market
• Improving online access for SMEs
 Continue developing e-government, notably by developing an e-signature

Detailed recommendations of the 2009 SME Policy index (2/2)
• Getting more out of the single market
 Export promotion: provide export insurance and export credit
 Competitiveness support: targeted measures, monitor impact
• Taxation and access to finance
 Increase domestic bank lending by allowing banks to shift to cash-flow lending (without collateral)
 Lower barriers and costs for transferring remittances
 Strengthen property rights and contract law
 Improve credit information and bankruptcy laws
 Improve credit guarantee schemes
 Promote leasing, venture capital funds and private equity
• Strengthening the technological capacities of SMEs
 Extend support to initiatives establishing inter-firm clusters and networks (+voucher schemes, incubators,…
 Improve international cooperation through Enterprise Europe network
 Coordinate policymaking across Ministries in areas such as IP rights, incubators, clusters and skills development

Agenda
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•
•

10
9
8
7
6
5
4
3
2
1
0
South East Europe performance on innovation is very low
Innovation performance of SEE countries
Western Europe average
CEE average
Upper middle income countries
Lower middle income countries
Source: Data from Knowledge Economy indicators, World Bank, OECD analysis

What is an innovation system?
Knowledge
Users
Social and Human Capital
Universities
S&T Training and
Education
Knowledge
Creators
Research Capacity
Universities; Govt
Laboratories
Basic Scientific
Research
Source: Nauwelaers, 2003
Public Sector
Absorptive Capacity
‘Follower’ firms; Intermediate and End Consumers and
Professional Users
Market for Goods and
Services
Technology and Innovation
Performance
‘Creative’ Firms
Applied RTD and Product
/Process Development
Private Sector

Public research input and output ranges from insignificant to catch-up with developed countries
700
Western Europe avg.
600
500
High Income avg.
400
Greece
300
Croatia
200
Turkey
Serbia
Bulgaria
100
0
0
BiH
FYROM
Romania
Upper middle Income avg.
Alb.
0,5 1 1,5
Total expenditure for R&D, as % of GDP
Source: Data from Science and Technology in the Western Balkans (inco-net), Knowledge
Economy indicators, World Bank, OECD analysis
2 2,5

Private R&D input and output are mostly below the average for upper middle income countries
20
18
16
14
Western Europe avg.
High Income avg.
12
10
Upper
Middle
Income Croatia
Greece
8
6
4
Bulgaria
Rep. Moldova
BiH Serbia
2
0
2
Albania
FYROM
2,5
Romania
3 3,5 4
Private sector spending on R&D (1-7)
4,5
Source: Data from Global Competitiveness Review, Knowledge Economy indicators, World
Bank, OECD analysis
5

What can policy do to enhance the Innovation system?
The Impact of RTD on Competitiveness and Employment (IRCE), EC, 2003

Regional Competitiveness Initiative
Overview
Objectives:
 Support medium and long-term competitiveness of the Western with the financial support of the
European Union
Balkans.
 Provide capacity building support to Western Balkan public administrations via pilot projects.
Focus Areas:
1.
Human capital development – To address major skills gaps.
2.
Innovation – To strengthen innovative capacities and support absorption of technology by the private sector.
Duration : 2010-2013
Financial support : European Union (DG Enlargement)
Implementing agency: OECD
18

Pilot projects with the financial support of the
European Union
Mechanisms to finance business services in support of innovation
(voucher schemes)
Assist the government in conceiving the overall policy framework for innovation
Cooperation within the ‘triple helix’ of research-businessgovernment communities
19

Thank you for your attention
Alan Paic
Principal Administrator
OECD Investment Compact for South East Europe
Private Sector Development Division
Organisation for Economic Co-operation and Development (OECD)
Alan.Paic@oecd.org
www.investmentcompact.org
with the financial support of the
European Union