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Investment Reform Index 2010Monitoring Policies and Institutions for Direct Investmentin South-East Europe OECD 2010

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Chapter 1

Investment Policy and Promotion


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I.1. INVESTMENT POLICY AND PROMOTION

INVESTMENT REFORM INDEX 2010 OECD 2010 37

The process of updating real estate cadastres and land title registries in urban and ruralareas has advanced since the results of IRI 2006. In many instances, SEE economies aremoving to digitise their land title registries and cadastral books. Overall, the titling of urban areas is largely completed. In Kosovo, the process of updating cadastral books andland titles lags considerably behind the rest of the SEE economies.

Legal frameworks are in place covering different forms of intellectual property rights(IPRs) in SEE economies. However, proper enforcement of IPR laws remains a challengeand greater efforts are needed in this regard.

Nearly all SEE economies are signatories to both the New York Convention onRecognition and Enforcement of Foreign Arbitral Awards and the WashingtonConvention on the Settlement of Investment Disputes between States and Nationals of Other States (the ICSID Convention). Montenegro and the Republic of Moldova have notratified the ICSID Convention, while Kosovo is not a party to the New York Convention.

Albania, Bulgaria, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia,the Republic of Moldova, Montenegro and Serbia have sufficiently developed investmentpromotion strategies. Croatia, Romania and Kosovo are in the process of developing newinvestment promotion strategies.

All SEE economies have publicly funded investment promotion agencies (IPAs) that aretasked to attract and facilitate entry of foreign investors. The IPAs have fixed annualbudgets and receive the support of senior government officials. Bulgaria, Croatia, theformer Yugoslav Republic of Macedonia and Serbia have the most advanced IPAs. Theseorganisations tend to hire staff with experience in both public and private sectors. TheseIPAs also use detailed planning mechanisms to support their operations.

Croatia, Serbia and Albania have the most advanced programmes in the regionfacilitating commercial linkages between FDI and domestic small- and medium-sizedenterprises (SMEs). The remaining SEE economies have not launched SME-FDI linkageprogrammes, although they do operate supplier databases.

The majority of IPAs in SEE do their best to help foreign investors navigate licensing andapproval procedures, either at the national or subnational level. Continued vigilance isneeded to find efficient means of improving licenses and permit approvals.

IPAs in Croatia, the former Yugoslav Republic of Macedonia and Serbia were found tooffer high-quality aftercare services to investors. Services typically include assistance infinding local suppliers, housing searches for expatriates, facilitating expatriate workpermits and communication between investors and municipalities.

All SEE economies publish their investment-related laws and subsequent amendmentsin their official gazettes. English versions of investment-related laws can be found on thewebsites of IPAs in Bulgaria, Bosnia and Herzegovina, Montenegro, Serbia and Kosovo. Inthe former Yugoslav Republic of Macedonia, national legislation harmonised with theEuropean Union (EU) acquis is available in English. English summaries of investment-related laws can be found on the websites of IPAs in Albania, Croatia and Romania.

With respect to investment-related legislation, official procedures exist for prior

notification and consultations in SEE economies. However, concerns have been raised bymembers of the private sector that consultations are pro forma, with not enough timegiven to stakeholders to consider new proposals and provide thoughtful feedback.


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INVESTMENT REFORM INDEX 2010 OECD 201038

Private-sector representatives in some countries also hold that consultations occur onan ad hoc basis, and that only larger business interests are invited to participate.

The procedures and criteria for acquiring business-related licenses and permits at thenational level appear more clear and transparent when compared to similarrequirements at the municipal level. Interviews with private-sector representativesindicated that in all SEE economies, procedures and criteria are inconsistent acrossdifferent municipalities.

Privatisation is nearing its final phase in many SEE economies, with foreign investmenthaving played an important role. Public-private partnerships (PPPs) are in their infancy.SEE economies have either introduced new legislative frameworks to address PPPs orhave expanded existing laws covering concessions and procurement. PPP units withingovernments are being created and tools to undertake cost-benefit analysis andmonitoring are being developed.

1.2. Investment policy and promotion assessment frameworkThe benefits of private investment are widely recognised and include expansion of

productive capacity, job creation, income growth, technological diffusion and enterprisedevelopment. Creating a business environment that is conducive to all forms of investment is an important policy challenge for emerging market economies.

The experience of OECD economies has shown that legal and regulatory frameworksunderpinned by principles of transparency and non-discrimination are instrumental inattracting foreign enterprises and in benefiting from their presence (OECD, 2002). Foreigninvestment is unlikely to occur unless investors have a reasonable understanding of theenvironment in which they will be operating. Over the years, OECD member countries havesought to develop international rules of the game relating to the treatment of international investment, by agreeing to instruments such as the Declaration andDecisions on International Investment and Multinational Enterprises.

The analytical framework presented in this chapter is inspired by many of theelements contained in various OECD instruments and policy tools to assist governments indeveloping and promoting stable, transparent and predictable business environments forinternational investment. As depicted in Figure 1.2 , the framework used comprises foursubdimensions: foreign direct investment (FDI) policy, with a focus on the legal andregulatory framework for foreign investment based on the principles of stability andpredictability; investment promotion services and activities to promote and facilitateinward investors; transparency of laws, regulations and procedures, including access tosenior policy makers through consultations; and frameworks supporting privatisation andpublic-private partnerships (PPPs).

1.3. Results by subdimensionSubdimension: Foreign direct investment policy

The assessment of foreign direct investment (FDI) policies covers three broadlydefined policy areas critical to attracting foreign enterprises: non-discrimination, propertyrights and investor protection. Non-discrimination concerns the treatment accorded toforeign investors relative to domestic investors. The assessment of property rightsexamines the extent to which ownership of property is legally recognised and protected.This includes both tangible property ( i.e. real estate) and intangible property ( i.e.
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intellectual property rights). The assessment of investor protection covers instrumentsthat provide investors with protection against discriminatory acts by the host government,as well as tools to resolve disputes.

Overall the performance of South-East Europe (SEE) economies in this subdimensionis very good. As illustrated in Figure 1.3 , there is considerable homogeneity acrosseconomies reflecting high degrees of non-discriminatory treatment for foreign investorsand their investments in the SEE region. EU members Romania and Bulgaria received thehighest scores, whereas variation among the Western Balkan economies was small.Challenges regarding protection and enforcement of property rights in Kosovo resulted inthat economy receiving the lowest score of the group.

Figure 1.2. Assessment framework for investment policy and promotion

FDI policy Transparency Privatisation and PPPs

National treatment Admittance of personnel Transfers FDI incentives Performance

requirements Land ownership Titling, cadastre

and restitution Intellectual property

rights Expropriation International investment

agreements International

arbitration

Strategy Institutional support Monitoring

and evaluation FDI-SME linkages One-stop shop Client relationship

management Policy advocacy Aftercare services

Publication avenuesand tools

Prior notificationand stakeholderconsultations

Procedural transparency

Privatisation strategy Privatisation consultations Restrictions on foreign

investor participationin privatisation

PPP units PPP legislation PPP consultations PPP cost-benefit analysis PPP monitoring

Investment promotionand facilitation

Investment policyand promotion

Figure 1.3. FDI policy subdimension: Average scores

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Restrictions to national treatment

The principle of national treatment stipulates that, in like situations, a governmenttreats investments controlled by nationals or residents of another country no lessfavourably than domestic investors. In practice, most countries maintain certain

restrictions on foreign investment in order to fulfil certain policy objectives such as theprotection of industries deemed to be strategic. Many countries also maintain restrictionson foreign investment in order to protect essential security interests and public order. Akey finding of the OECDs Freedom of Investment Project is that any restrictions designedto protect national security should be transparent, subject to accountability andproportional to the objective pursued. 1 Restrictions can be trans-sectoral (and appliedacross all economic sectors) or they might be sector-specific, such as in financial services,telecommunications or transportation. The OECD encourages countries to be transparentabout their security-related restrictions to national treatment and subjects them to peerreview, using its Guidance on Recipient Country Investment Measures Relating to National

Security (OECD, 2009).This indicator is assessed on the basis of: whether restrictions to national

treatment are clearly codified in laws and regulations and whether public authoritiestake steps to review, and when appropriate, reduce the number of restrictions tonational treatment on a periodic basis.

SEE economies have made considerable progress in incorporating the principle of national treatment in their FDI-related legislative frameworks. Since the OECD InvestmentCompacts first comprehensive national treatment review in 2003, SEE economies havetaken steps to eliminate various restrictions to national treatment. For example, Croatia,Montenegro and Serbia have indicated that previous trans-sectoral reciprocity conditionsfor inward foreign investment no longer apply. No evidence was found to indicate any SEEeconomy had imposed a new restriction or reversed a previous liberalisation since theInvestment Review Index (IRI) in 2006. SEE economies refrain from using trans-sectoralscreening procedures for foreign investment. In most SEE economies, foreign-controlledenterprises are required to notify their presence by registering in local commercial courtsor business registry agencies.

For sectors covered by separate legislative frameworks, such as air and maritimetransport, banking, financial services and fishing, investors must meet certain technicalrequirements before being admitted into the host country. The ubiquitous presence of

foreign banks and mobile phone operators in SEE is an illustration of progress in reducingrestrictions to national treatment in banking and telecommunications sectors.

Typical forms of restriction to national treatment in the SEE region include:

a 49% foreign ownership limitation in industries and sectors related to armsmanufacturing, trading and production ( e.g. Bosnia and Herzegovina, the formerYugoslav Republic of Macedonia, Montenegro, Serbia and Kosovo). In the Republic of Moldova, arms manufacturing and production are under state monopoly;

a limitation on foreign ownership of agricultural land (nearly all SEE economies exceptKosovo);

restrictions on the purchase of real estate in areas deemed sensitive, e.g. forests, borderzones, national parks and historical areas (a restriction common to all SEE economies inone form or another); and
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restrictions on maritime transport services ( e.g. Albania, Bulgaria, Croatia, Montenegroand Serbia), air transport ( e.g. Bosnia and Herzegovina, Croatia, Serbia, Romania) andfishing ( e.g. Albania, Bulgaria, Croatia and Montenegro).

The motivation for eliminating national treatment restrictions in SEE economiescomes as a result of efforts to join the European Union (EU) and the World TradeOrganization (WTO). Bulgaria and Romania became full members of the EU in 2007. Theirlaws governing inward investment are in line with EU regulations on free movement of capital and the right of establishment. Both economies are members of the WTO and applyinvestment-related commitments regarding the Agreement on Trade-Related InvestmentMeasures (the TRIMS Agreement) and the General Agreement on Trade in Services (GATS)Mode 3. 2 Romania is the only SEE economy which is an adherent to the OECD Declarationon International Investment and Multinational Enterprises, and participates actively in thedeliberations of the OECDs Investment Committee. As a result of its OECD commitments,Romania provides an annual update on national treatment restrictions to the OECDs

Investment Committee.For the remaining SEE economies, the primary driver of reform of investment-related

laws (and, as a result, elimination of national treatment) is their relationship with the EU.Bosnia and Herzegovina, Croatia, the former Yugoslav Republic of Macedonia, the Republicof Moldova, Montenegro, Serbia and Kosovo have their restrictions to national treatmentreviewed each year in progress reports produced by the European Commission. WTOmembers such as Croatia, the former Yugoslav Republic of Macedonia and the Republic of Moldova can have their restrictions questioned by other WTO members during periodicWTO Trade Policy Reviews.

This assessment found little evidence to suggest that SEE economies undertakeunilateral or domestically driven reviews of restrictions to national treatment. An exampleof an international best practice in this area is Canadas recent review of competitiveness.This review examined, inter alia, national treatment restrictions in specific sectors such asair transport and telecommunications (see Box 1.1 ).

Admittance of business personnel in support of FDI

Restricting the ability of foreign nationals to work in affiliates of foreign enterprisesmay discourage potential inward investors. Stipulations that nationals or residents mustform a majority of the board of directors may undermine foreign owners control over theirholdings and possibly make them hesitant to invest. Similarly, if regulations restrict theemployment of foreign nationals, investors may judge that they cannot find the necessaryspecialised expertise to make their investment worthwhile.

This indicator assesses the degree to which members of boards of directors can beforeign nationals and whether temporary entry is granted to workers with specialisedknowledge ( e.g. engineers, architects, accountants) in support of foreign enterpriseoperations.

This assessment shows that Albania, Bulgaria, Croatia, Montenegro, Romania, Serbiaand Kosovo do not impose nationality requirements on members of boards of directors,nor restrictions to temporary entry for specialised business personnel supporting theoperations of foreign-controlled enterprises. Although Bosnia and Herzegovina performedwell under this indicator, its Foreign Investors Council expressed concern aboutcumbersome procedures regarding temporary entry of workers (Foreign Investors Council,
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2008). The former Yugoslav Republic of Macedonia and the Republic of Moldova do notimpose nationality restrictions on boards of directors. However, private-sectorrepresentatives in the former Yugoslav Republic of Macedonia expressed concern thatprocedures for approving temporary workers are time-consuming. In the Republic of Moldova, the government has imposed a quota of up to 1 300 persons for temporary labour.

Transfer of FDI-related capital

Transferring investment-related capital, including repatriated earnings and liquidatedcapital, is important for any business to be able to make, operate and maintaininvestments in another country. OECD member countries have a long history of maintaining open, non-discriminatory and transparent regulations on transfers of capital.The OECDs Code of Liberalisation of Capital Movements and the Code of Liberalisation of Current Invisible Operations constitute legally binding rules that stipulate progressive,non-discriminatory liberalisation of capital movements, the right of establishment andcurrent invisible transactions (mostly services). Public authorities, however, may need tolimit capital transfers, but only in specific circumstances such as balance of paymentcrises, tax evasion or suspected money laundering.

This indicator assesses whether laws, regulations or international commitments (suchas acceptance of International Monetary Fund [IMF] Article VIII) have been implemented toprovide for the free transfer of FDI-related capital ( e.g. transfers of profits, dividends,proceeds from sales of investments).

Inward transfers of FDI-related capital are generally made freely and without delay inSEE economies. Nearly all SEE economies have accepted IMF Article VIII whereby members

undertake not to impose restrictions on payments and transfers for current internationaltransactions, and not to engage or permit any of their fiscal agencies to undertake anydiscriminatory currency arrangements or multiple currency practices, except with IMF

Box 1.1. Domestic investment policy reviews:Canadas Competition Policy Review Panel

In 2007, the government of Canada created a Competition Policy Review Panel to examinedomestic investment and competition policy with a view to enhancing Canadas long-termcompetitiveness. The Panels mandate included reviewing Canadas restrictions to nationaltreatment in sectors such as air transport, uranium mining and telecommunications.

The Panel held extensive consultations across Canada with a broad cross-section of stakeholders. In response to its consultation paper Sharpening Canadas CompetitiveEdge, the Panel received 155 submissions from domestic and foreign businesses, lawfirms, governments, individuals, academics, unions and non-governmental organisationsin Canada, as well as government officials from the United States, Australia, the OECD andthe European Union. More than 20 studies were commissioned by the Panel and 13 full-daysessions of consultations and round tables were organised across Canada.

The Panels final recommendations were released in July 2008 in a publication titled

Compete to Win and among other things, recommended removing certain foreignownership limitations in the air transport, uranium mining, telecommunications andbroadcasting sectors. All of the research papers and written submissions by stakeholdersare publicly available on the Panels website.Source: Competition Policy Review Panel ( www.competitionreview.ca )


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approval. Private-sector interviews and reports by other international institutions did notindicate concerns regarding transfers of FDI-related capital for Bulgaria, Croatia, theRepublic of Moldova, Montenegro, Romania and Kosovo. European Commission countryreports for 2009 highlighted some restrictions in Albania (certain restrictions still remainon capital movements as part of the Stabilisation and Association Agreements [SAA]) andSerbia (outward payment procedures appear slow). In 2008, the IMF noted that Bosnia andHerzegovina had not accepted the obligations under Article VIII, Sections 2, 3 and 4, andmaintains restrictions on the transferability of balances and interest accrued on frozenforeign-currency deposits, subject to Fund jurisdiction under Article VIII (IMF, 2008).

FDI incentives

In the competition for FDI, many countries offer various forms of incentives to lureprospective investors. The OECD Checklist for Foreign Direct Investment Incentive Policiesdefines FDI incentives as measures designed to influence the size, location or industry of a FDI investment project by affecting its relative cost or by altering the risks attached to itthrough inducements that are not available to comparable domestic investors (OECD,2003b). FDI incentives can take the form of fiscal incentives ( e.g. reduced direct corporatetax), financial incentives ( e.g. infrastructure or job training subsidies) and regulatoryincentives ( e.g. relaxation of environmental, social and labour standards).

This indicator examines whether SEE economies publish their FDI incentives andwhether the criteria for granting them are publicly available. In addition, SEE economieswere asked to indicate whether they review their incentives using a cost-benefit analysisand whether the incentives are fixed for a limited time period.

Typical FDI incentives used by SEE economies include:

tax holidays: full or partial reduction of profit tax for a defined period;

grants: cash grants based on number of new jobs created;

subsidised locations: subsidised access to premises or sites ( e.g. industrial parks); and

free trade zones: areas where a special regime for import duties, sales and profit taxesapplies.

Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Montenegro, Romaniaand Serbia provide FDI incentives in a non-discriminatory manner and make publiclyavailable the criteria used to determine how the incentives will be granted. In addition,these economies perform various forms of cost-benefit analysis (CBA) to monitor whetherthe incentives are meeting their public policy objectives, and apply sunset clauses ( i.e.fixing the duration of their incentive schemes). CBA tends to be applied by the ministry of finance.

The Republic of Moldova and Bosnia and Herzegovina did not provide information onwhether their incentives undergo periodic CBA. In addition to lacking sunset clauses andmethods for conducting CBA, incentive schemes in Albania ( e.g. Albania for 1 EuroProgramme) and Kosovo ( e.g. those incentives offered by municipalities) were not clearregarding the specific criteria that investors would have to meet in order to benefit fromthem.

Information on FDI incentives offered at the central government level in the SEEeconomies is usually available on the websites of their respective investment promotionagencies. However, information on incentives at the subnational or municipal level is less


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readily available. The criteria used to grant the incentives are unclear and their duration isnot consistently published. The scope for their discretionary application is high.

Performance requirements

Performance requirements are conditions that host countries impose on theoperations of foreign enterprises. In some instances a foreign enterprise may be requiredto meet a performance requirement to receive a specific advantage (subsidy or taxincentive). An example of a performance requirement which is inconsistent with manyinternational trade agreements is one requiring a level of local procurement ( e.g. localcontent requirements). In many cases, performance requirements can discourage inwardFDI flows (OECD, 2006c).

This indicator examines whether performance requirements exist and whether theyare applied transparently. The indicator takes into account efforts to review performancerequirements based on a cost-benefit analysis and whether the government has taken

steps to eliminate any performance requirements on the basis of multilateral, bilateral orunilateral commitments.

All SEE economies performed extremely well on this indicator. In no instances did thisassessment find that performance requirements, such as local content requirements, wereimposed on investors. Albania, Bulgaria, Croatia, the Republic of Moldova, the formerYugoslav Republic of Macedonia and Romania are all WTO members and adhere to theTRIMS Agreement. Bosnia and Herzegovina, Montenegro and Serbia are in the process of acceding to the WTO and have made commitments not to apply performancerequirements inconsistent with the TRIMS Agreement. Although not in the WTO accession

process, Kosovo has indicated that its FDI laws and regulations prohibit the types of performance requirements prohibited by the TRIMS Agreement.

Land ownership

Secure and transferrable rights to rural, urban and other types of land and forms of property are a prerequisite for a healthy investment environment (OECD, 2006a). Clearlydefined ownership rights provide investors with an incentive to undertake newinvestments and maintain existing ones. Circumstances may arise where foreign investorsare restricted from owning certain types of land. However, these restrictions should beclearly defined in laws. In OECD countries, certain foreign ownership restrictions remainon specific types of land. For example, Mexico does not permit foreign-controlledenterprises from owning agricultural land (OECD, 2009).

This indicator assesses whether land ownership rights are clearly defined in laws andif there is discrimination between domestic and foreign investors. The key criteria include:whether foreign investors can own industrial real estate, residential properties or ruralland; and the extent to which procedures for purchasing property are preferential fordomestic investors.

Foreign-controlled enterprises established in SEE economies can own industrial andresidential land. In addition to foreign-controlled enterprises established in their

territories, Bulgaria and Romania permit foreign enterprises established in the EU to ownindustrial and agricultural land. 3 Domestic legislation in Kosovo provides foreign-controlled enterprises the opportunity to own residential, industrial and agricultural land.
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Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, the Republic of Moldova and Montenegro allow foreign-controlled enterprises registered in their countriesto own industrial and residential land with some restrictions. There are no restrictions forindustrial or residential land in Croatia since January 2009 for EU legal or physical entities.For legal and physical persons outside of the EU, restrictions are eliminated based onreciprocity. According to entity-level legislation in Bosnia and Herzegovina (law onagricultural plants), foreign legal and domestic persons cannot become owners of certainspecified assets, such as natural resources. The right to use such assets for economicpurposes is provided by the granting of concessions. In some cases, reciprocity conditionsare applied to foreign investors.

In Croatia, the ministry of justice must give its consent to foreign investors of non-EUstates wanting to purchase real estate or property. 4 Agricultural and protected areascannot be owned by foreign investors.

In the former Yugoslav Republic of Macedonia, foreign legal entities are permitted to

acquire construction land, business facilities, tourist capacities, apartments, houses andfactories, with the exception of agricultural land and border zones. Administrativeprocedures for acquisition of land by foreign investors remain more burdensome thanthose applying to domestic investors.

The Republic of Moldova restricts foreign enterprises and persons from owningagricultural land. Montenegro allows foreign investors to acquire industrial real estate andresidential properties. The new Montenegrin Property Law passed in 2009 restricts foreignownership of agricultural land, land near border zones, forests and cultural landmarks.However, the law provides certain exceptions to these restrictions and in some instances aforeign investor could own land in these areas.

The circumstances for foreign investors owning land in Albania and Serbia are slightlymore restrictive than in other SEE economies. In Albania, foreign physical and juridicalpersons are entitled to buy state-owned non-agricultural land provided that the value of investment is at least three times higher than the value of the land. This restriction isapplied to foreign individuals and foreign juridical persons, but not to legal entitiesregistered in Albania owned by foreigners. 5 Foreign-owned enterprises established inSerbia may purchase certain types of land and own real estate. However, foreign legalentities do not have the right to own urban construction land or agricultural land (althoughthe latter can be leased). However, the recently enacted Law on Urban Planning and

Construction will allow for foreign ownership of urban construction land, which isexpected to become fully operational upon the adoption of specific legislation on landprivatisation in 2010.

Land titling, cadastres and restitution

Land titles contain crucial legal information about a parcel of land, such as thename of the registered owner(s), historical title details and registration numbers.Similarly, cadastres are comprehensive registers of real property that include details of ownership, tenure, precise location, dimensions and value of individual parcels of land.Having accurate and up-to-date land titles and cadastral registers is critical to a stable

and predictable business climate. Indeed, the economic benefit of accurate andverifiable title registers and cadastres has been observed by World Bank studies wherevalues of rural land in Brazil, Indonesia and Thailand increased anywhere from 43% to


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81% after being properly titled (World Bank, 2005). Restitution is a process of returningland or property to its rightful owners. An effective restitution process reassuresinvestors that land or property they acquire for business purposes is not claimed byother parties.

This indicator assesses whether a system of land titling and real property cadastres isin place. It also assesses the extent to which SEE economies have progressed in registeringland and real property, and the status of restitution processes.

The process of updating real estate cadastres and land title registries in urban andrural areas in SEE economies is moving forward, compared to the results of IRI 2006. Asseen in Figure 1.4 , progress in updating cadastral maps and land registers in SEE is even,with the exception of Kosovo. In many instances, SEE economies are digitising their landtitle registries and cadastral books. Overall, the titling of urban areas is largely completedin SEE economies and governments have initiated restitution procedures. As theserestitution processes unfold, scores in this indicator will likely rise.

As a result of reforms initiated in 2003, Croatia has converted nearly 100% of total landregistries to an electronic format, with three-quarters being verified against cadastrerecords. The backlog of land registry cases has been reduced by 75% from 2004 to 2009.Maps for 56% of cadastral municipalities are now in digital format in the state geodeticoffice. In addition, an electronic register of liens on movable property is in place andoperated by FINA (a state-owned financial mediation firm). Problems do exist, however,with unsettled property claims.

In the former Yugoslav Republic of Macedonia, cadastral maps had been updated for90% of municipalities by end of August 2009 (compared to 46% in 2005). Registration of landtitles is progressing in rural areas, although more slowly than in urban centres.

In the Republic of Moldova, nearly 85% of properties were registered in cadastral maps.

Information from the real property register is public and has been available online since 2006.In Albania, 70% of rural properties are registered in cadastral maps while 37 out of 138

cadastral zones are completed in urban areas. The restitution process is ongoing.

Figure 1.4. Cadastres, land titles and restitution


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In Bosnia and Herzegovina, the process of land titling digitisation is under way in bothentities with the support of the World Banks LARIS Project. In the Federation, 70% of landcertificates have been downloaded to LARIS. In the Republika Srpska, 7 out of 19 municipalcourts have completed downloading information to LARIS. Although cadastral informationis accessible, there is concern that information might be unreliable.

In Bulgaria, the titling of properties within urban areas and the restitution process arealmost complete. Electronic cadastral maps are under development. However, someproblems were reported with registration of rural areas.

In Montenegro, 70% of land has been digitised in the form of topographic data cardsand 47% of general data in cadastral maps is in electronic form (this is largely completedfor urban areas). The government plans to finish digitisation of cadastral maps in five yearsas part of a World Bank project. Land titling is largely completed in urban centres, althoughprogress is slower in rural areas. The restitution programme is ongoing.

In Romania, the titling of properties is mostly complete with fewer than 10% of

requests remaining to be processed. These delays appear to be the result of legal disputesand slow property restitution. Digitisation of the cadastral maps is underway. However theprocess is uneven and progress depends upon resources within the municipalities incharge or on annual allocations from the state budget.

In Serbia, cadastral mapping is expected to be completed during 2010. As of thebeginning of 2009, over 87% of municipal cadastres were completed in Serbia. An electronicregister of liens on movable property is in place at the Serbian Business Registers Agency.At the time of writing, a new bill on the restitution of property nationalised after WorldWar II was to be sent to parliament by late 2009.

The process of updating cadastral books and land titles remains problematic inKosovo. In 2004, a law on cadastres came into force. However, there are indications that theaccuracy of cadastral books and land title registries is questionable. The restitution processis slow. One recent study by the Organization for Security and Co-operation in Europe(OSCE) points to numerous cases of fraudulent property transfers resulting in overlappingand inaccurate cadastral information (OSCE, 2009a).

Intellectual property rightsIntellectual property rights (IPRs) give businesses an incentive to invest in the

development of new products and services. They also give their holders the confidence to

share new technologies through various commercial arrangements such as joint venturesand licensing agreements (OECD, 2006a). Typical instruments that safeguard IPRs includepatents, trademarks, copyright, industrial designs and geographic indications.International bodies such as the WTO and World Intellectual Property Organisation (WIPO)require their members to undertake binding commitments to protect IPRs. The OECD,while not having binding instruments, has developed guidelines on particular aspects of IPRs, such as access to research data from public sources and licensing of geneticinventions (OECD, 2007a).

This indicator assesses: the completeness of domestic legal frameworks protectingIPRs, whether international commitments have been undertaken through membership in

the WTO and WIPO, and evidence of IPR enforcement.While the legal frameworks in SEE economies cover different forms of IPRs, evidence

of enforcement is weak and greater efforts are still needed. However, in comparison to the


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results of the IRI in 2006, progress has been made in nearly all SEE economies. As seen inFigure 1.5 , Romania, Bulgaria, Croatia, Serbia and the former Yugoslav Republic of Macedonia have demonstrated greater success in enforcement. Albania, Bosnia andHerzegovina, the Republic of Moldova and Montenegro are not far behind. Enforcement of IPR laws in Kosovo lags significantly behind the other SEE economies.

Bulgaria and Romania, as EU and WTO members, have shown progress in efforts to

enforce their IPR regimes. In Romania, for example, a working group on IPR enforcementhas been established and is co-ordinated by the prosecutors office. The working groupbrings together public authorities and private-sector representatives to monitor the fightagainst counterfeiting and piracy.

Croatia has made considerable progress in IPR enforcement, as evidenced by thelowest estimated rate of software piracy, at 58%, in the SEE region (see Figure 1.6 ). However,greater co-operation between the ministry of justice, the customs agency and the stateinspectorate could further reduce instances of IPR infringement.

Serbia has taken important steps to align its IPR legislation with international bestpractices and European standards ( EC Progress Report , 2009). The government introducedadditional legislation that provides authorities with new powers to conduct inspections of suspected violators of IPRs. New departments to deal with IP protection cases have beenestablished within Serbian district courts, supported by additional training for lawenforcement personnel.

In the former Yugoslav Republic of Macedonia the government established theCoordinative Body for IPRs (CBIP) in April 2007 to reduce IPR infringements, especiallycounterfeiting and piracy. The CBIP ensures co-ordinated whole-of-governmentapproaches to IPR policy development and enforcement. In 2009, the CBIPs work led tofrequent and well-co-ordinated action across the country resulting in seizure and

destruction of counterfeit goods ( EC Progress Report , 2009).Albania, Bosnia and Herzegovina, the Republic of Moldova and Montenegro were

assessed similar scores for their efforts to enact and enforce IPR laws. Each of these economies

Figure 1.5. Scores for intellectual property rights indicator


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has a functional IP registration office and is working to pass laws and train law enforcementofficials with a view to reducing IPR infringement. Trademark and copyright infringementremains the most common violation of IPR in the SEE region. Greater efforts should be madeto confiscate and destroy infringing goods. Continued training for public prosecutors and lawenforcement officials is needed to improve the effectiveness of the enforcement system.

The situation in Kosovo is the most precarious. Reliable statistics on IPR infringementdo not exist and the IP registration office has yet to begin operation (other than receivingapplications). Court cases for IPR infringement are not accessible and the most recentEuropean Commission Progress Report notes that enforcement of IPR laws remains very weak,with high levels of counterfeiting and piracy.

Compensation for expropriationIn certain situations, governments have a legitimate need to take possession of private

property for public purposes, for example, to develop critical infrastructure such as roadsand power stations. In these instances where public authorities initiate expropriationprocedures, a system of timely, adequate and effective compensation of the expropriatedparty is a necessity. Provisions on compensation in cases of expropriation are a commonfeature in both domestic legislation and investment treaties between OECD members.

This indicator assesses whether: compensation for expropriation is provided indomestic laws; compensation is prompt, adequate, and effective; expropriation orders canbe reviewed by independent judicial authorities; international arbitration is available; anda record of enforcing international awards exists.

The SEE economies score well under this indicator, as compensation for expropriationor nationalisation is provided under constitutional provisions or separate FDI legislation.Legitimate expropriation is typically defined in narrow cases in the public interest with theexpropriated party entitled to fair market value compensation. Expropriation orders in SEE

economies can be subject to judicial review, with opportunities to appeal decisions.Kosovo received slightly lower scores for this indicator than other SEE economies. The

perceived inefficiency of the commercial court system in Kosovo by a recent study (OSCE,

Figure 1.6. Estimated personal computer software piracy rates

Note: Data for Kosovo under UNSCR 1244/99 not available.Source: Sixth Annual BSA-IDC Global Software 08 Piracy Study .


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2009b) raises questions about its capacity to resolve potential disputes related toexpropriation.

International investment agreements

International investment agreements promote cross-border investment by reducingrestrictions on sectors closed to FDI, offering foreign investors minimum levels of protection based on international legal standards, and making the rights and obligations of the parties more stable and predictable (OECD, 2008). The OECD through its InvestmentCommittee is taking stock of emerging patterns in investment agreements entered into byOECD countries and developing countries. In recent years, it has explored various topicssuch as indirect expropriation, transparency in investor state dispute settlement, anddefinitions of investors and investments (OECD, 2006b).

This indicator assesses: the number of investment agreements signed and whethersigned international investment treaties have been ratified in parliament: the scope of those

treaties ( e.g. is a broad definition of investment used, is national treatment provided at the pre-and post-establishment phases, are there provisions for investor-state dispute settlement) andwhether the government reviews the operation of those treaties with its treaty partners.

The majority of bilateral investment treaties signed between the SEE economiesthemselves are broadly consistent with one another in terms of the treatment andprotection they provide to investors and their investments. For example, similar open,asset-based definitions for terms such as investment, investor and returns are used.Provisions on fair and equitable treatment providing full security and protection arecommon and most-favoured nation and national treatments are applied at the post-

establishment phase of investment. The Central European Free Trade Agreement (CEFTA)is a regional free trade agreement among Albania, Bosnia and Herzegovina, Croatia, theformer Yugoslav Republic of Macedonia, Montenegro, the Republic of Moldova, Serbia andUNMIK/Kosovo. It includes an investment chapter where national treatment is applied atthe pre-establishment phase of investment. Numerous bilateral investment treaties (BITs)also exist between SEE economies and OECD member countries.

Croatia, Montenegro, Romania and Serbia have indicated that all of their signed BITshave been ratified and entered into force. Albania, Bosnia and Herzegovina, Bulgaria, theRepublic of Moldova and the former Yugoslav Republic of Macedonia have ratified themajority of their signed BITs. Kosovo 6 has signed only two BITs (with Albania and Turkey).

International arbitration

Investor-state dispute settlement mechanisms contained in most investment treatiesprovide rights to foreign investors to seek redress for damages arising out of allegedbreaches by host governments of investment-related obligations (OECD, 2006b). One of theprimary benefits of investor-to-state arbitration is that it tries to de-politicise disputesbetween investors and host governments, as the dispute settlement process is undertakenin a neutral forum.

This indicator examines whether the SEE economies are party to the New York

Convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958) and theWashington Convention on the Settlement of Investment Disputes between States andNationals of Other States (the ICSID Convention) (1965). Key criteria to assess this indicator
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are: ratification of the New York and ICSID conventions and whether foreign arbitralawards are recognised and consistently enforced by domestic courts.

Nearly all SEE economies are signatories to the New York and ICSID conventions.Montenegro and the Republic of Moldova have not ratified the ICSID Convention, whileKosovo is not a party to the New York Convention. All of the SEE economies have indicatedthat awards resulting from international arbitration are recognised in their economies.However, assessing whether the SEE economies consistently enforce arbitration awards isdifficult, as the number of arbitration cases involving SEE economies is small.

Subdimension: Investment promotion and facilitationThis subdimension, addressing investment promotion and facilitation (IPF), covers

issues bearing on the IPF strategy, the institution implementing the strategy (such as theInvestment Promotion Agency), and the monitoring and evaluation mechanisms in placeto gauge progress. The IPF subdimension also assesses specific investment promotionservices and activities to attract and retain foreign investment. These activities include,among others, the development of linkages between foreign investors and localenterprises, implementing client relationship management processes and one-stop shopassistance for foreign investors in their pre-establishment phases.

All SEE economies recognise the importance of investment promotion and facilitationservices for foreign investors. In the IRI 2006 only two economies, Bulgaria and Serbia,surpassed a score of 3 for this subdimension. As seen in Figure 1.7 , in the IRI 2010 five SEEeconomies received scores of 3 or higher: Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Montenegro and Serbia. Investment promotion services and activities in theseeconomies benefit from well-staffed investment promotion agencies (IPAs), improved

client relationship management systems and a greater commitment to aftercare services.Areas for improvement across nearly all SEE economies in this subdimension include:facilitating commercial linkages between foreign enterprises and domestic businesses;and expediting approvals of licenses and permits for foreign businesses, especially at thesubnational level.

Figure 1.7. Investment promotion and facilitation subdimension: Average scores


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StrategyAn investment promotion strategy can help attract new investors and retain existing

ones, especially in smaller, more remote markets or in those countries with a recenthistory of macroeconomic and political instability (OECD, 2008). At its most basic, aninvestment promotion strategy should identify specific objectives along with the actions toreach those objectives. An example of such a strategy is the Czech Republics OperationalProgramme Enterprise and Innovation 2007-13, which was launched in 2007 by theMinistry of Industry and Trade. The objective is to increase the competitiveness of theCzech economy and bring innovation performance in industry and services closer to thelevel of leading European countries. 7

The strategy indicator considers whether a strategy has been ratified by government,identification of specific sectors to be promoted to foreign investors, an organisationalstructure ( e.g. responsibilities of senior management and implementing units in the IPA),planning mechanisms relevant to human and financial resource needs ( e.g. budget

estimates) and the presence of a timetable for review.Bulgaria, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia,

Montenegro and Serbia all have investment strategies containing most of the elementsconsidered in the indicator. For example, in Bulgaria, the National Investment PromotionStrategy was launched for the period 2005-10 with clear differentiation of both middle-term (2005-06) and long-term (up to 2010) goals. The investment promotion plan is alignedwith the major priorities of the governments National Development Plan 2007-13 andincludes measures for investment promotion in seven priority areas.

Albania and the Republic of Moldova have investment promotion strategic plans thatidentify areas where they should compete and offer services. However, their strategic plansdo not offer details on organisational structures within the IPA that will meet plannedobjectives.

Romania is in the process of restructuring its IPA (ARIS) and has drafted a newstrategic plan for the period 2008-11. Croatia is in the process of drafting an investmentpromotion strategy which is expected to be passed by the government by the end of 2009.The main elements of its investment promotion strategy are described in the StrategicDevelopment Framework for Croatia 2006-13.

Kosovo is in the process of developing an investment promotion strategy under theauthority of the Ministry of Trade and Industry.

Implementing agencyThe implementing agency (or IPA) is responsible for executing the investment

promotion strategy. It can have several functions, including that of demand generator ( e.g.image building, marketing and promotion) and investment facilitator ( e.g. helping foreigninvestors navigate through regulatory procedures). For example, Denmarks IPA, Invest inDenmark, has units dedicated to the following activities and sectors: one-stop shopservices, business development, information and communication technologies (ICT), lifesciences, renewable energies, maritime services, marketing and communications, andquality assurance.

This indicator considers whether: the IPA has the backing of senior governmentofficials; its internal organisation is developed; staff are drawn from both the public andprivate sectors and speak multiple languages; the annual budget is based on a carefully
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defined programme of work and covers all overhead and human resource costs; the IPA hasan internal planning mechanism which consists of a calendar of events, statistical trackingdatabase and internal rules of procedure; and a system exists for monitoring andevaluating results of activities.

All of the SEE economies have publicly funded IPAs that are tasked to attract andfacilitate entry of foreign investors. The IPAs have fixed annual budgets and have thesupport of senior government officials.

Bulgaria, Croatia, the former Yugoslav Republic of Macedonia and Serbia have themost advanced IPAs. Staff in these organisations tend to be hired with experience in boththe public and private sectors. These IPAs also use detailed planning mechanisms tosupport their operations. In addition, these IPAs tend to be organised into severalfunctional departments and provide training for their staff. The IPA in the former YugoslavRepublic of Macedonia (InvestMacedonia) for example, is staffed with 25 employees andhas 23 economic promoters in different countries worldwide (with a plan to have a total of

32 promoters by the beginning of 2010).Albania, Bosnia and Herzegovina, the Republic of Moldova, Montenegro and Romania

are not far behind the first group. The difference in their scores for this indicator lays in thelack of detail provided regarding internal planning mechanisms used to support theiroperations. In some cases, staff was primarily hired from the public sector with littleprivate-sector experience.

A major problem with the IPA of Kosovo is that staff is not fluent in foreign languages.Interviews conducted with private-sector representatives in Kosovo indicate that the IPAscapacities would need to be strengthened.

Monitoring and evaluation

Monitoring and evaluation mechanisms can be used to track an IPAs performance anddetermine whether its objectives are being met and at what cost. Monitoring andevaluation can have several benefits. It can shape the IPAs decisions on resource allocation(if necessary, dispensing with activities and services shown to be ineffective). It can alsoprovide accountability to oversight bodies. The results of monitoring and evaluationexercises should be publicly available in the form of an annual report and where possiblebenchmarked against performance of other IPAs.

The criteria used in this indicator include whether: annual reports are prepared by theIPA, activities undertaken by the IPA are assessed, the performance is benchmarkedagainst other IPAs and the annual report is publicly released.

The IPAs in Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Montenegro,Romania and Serbia monitor performance and produce annual reports for their oversightbodies or ministries on their performance and on levels of FDI. In the interest of transparency, these reports (or their summaries) should be publicly released on their IPAwebsites. They also produce quarterly internal reports.

The IPAs of Albania, Bosnia and Herzegovina, the Republic of Moldova and Kosovo donot have detailed monitoring and evaluation mechanisms in place.

With the exception of Kosovo, the IPAs in SEE participate in benchmarking exercisesundertaken by other international organisations, such as that described in the WorldBanks Global Investment Benchmarking report (World Bank, 2009).


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SME-FDI linkages

Small- and medium-sized enterprises (SMEs) in middle-income countries contributenearly 55% of total employment and 40% of GDP (OECD, 2004). Improving the economicperformance of SMEs is therefore an important facet of broader economic development.

Commercial relationships or business linkages between SMEs and FDI can be a powerfulconduit for sharing knowledge, skills and management.

This indicator considers whether: the IPA has a defined linkage strategy ( e.g. havespecific sectors been prioritised and are there potential foreign and local participants), abasic operating structure exists ( i.e. is there a unit within the IPA that implements thelinkage programme), a monitoring mechanism exists to track the linkage programmesprogress and whether the linkage programme has been expanded to other sectors.

Croatia, Serbia and Albania have the most advanced SME-FDI linkages programmes inthe region. Albanias IPA (AlbInvest) launched a pilot linkage programme in the garment,fisheries and wood industry sectors, with the purpose of expanding export markets,encouraging investment in new technology and matchmaking. Croatias IPA supportslinkages through its information and communication technology (ICT) cluster (CRO-ICT),Croatian Semiconductor Cluster (SEMICRO) and Croatian Angel Network (CRANE). The IPAexpanded its linkage programme to include the gourmet-food sector and organised anexhibition of eight Croatian food companies in Spain and Portugal. The IPA in Serbia (SIEPA)launched a two-year supplier development programme in co-operation with the WorldBank. The programme operated with the support of 14 multinational enterprises in Serbiathat acted as supervisors. The purpose of the programme was to upgrade the managementskills and production processes of participating Serbian SMEs using the European

Foundation for Quality Model.In the former Yugoslav Republic of Macedonia, the Law on the Establishment of the

Agency for Foreign Investment is being amended in order to expand the IPAs mandate toinclude export promotion. The IPA believes this will enhance its ability to promote greatercommercial linkages between foreign investors and local SMEs.

The IPAs in the remaining SEE economies have not launched SME-FDI linkageprogrammes. Most have various forms of supplier databases where foreign investors canlook for domestic suppliers. However, specific initiatives to facilitate business relationshipsbetween domestic SMEs and FDI are limited.

One-stop shop

To assist foreign investors in overcoming regulatory hurdles, an IPA may designate asingle point of contact or a one-stop shop (OSS). The basic idea is that an investor wouldonly have to contact a single entity to obtain all the necessary paperwork in onestreamlined and co-ordinated process, rather than having to go through numerousgovernment bodies. One of the best examples of an OSS is Singapores EconomicDevelopment Board, which provides foreign investors with nearly all the approvals andclearances required for their investment.

This indicator assesses to what extent foreign investors can rely on an IPAs OSS

services. An IPA which can provide on-site approval for licenses, permits and otherregistration steps will receive a higher score than an IPA which only collects the necessarydocuments and forwards them to the appropriate bodies within the government.


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None of the SEE IPAs provide true OSS service. The majority of IPAs in SEE do their bestto help foreign investors navigate licensing and approval procedures either at the nationalor subnational level. However, they do not have the authority to approve licenses orpermits.

Client relationship managementA process for client relationship management (CRM) enables an IPA to manage

relations with foreign investors in an organised and strategic manner. Using a CRM-basedsystem, the IPA can keep track of key foreign investor information such as contacts,exchange of communications, meetings and location preferences. A CRM-based systemshould go beyond recording basic corporate information about potential foreign investors.IPAs can analyse the data from CRM-based processes to identify their most likely foreigninvestors, enrich and individualise presentations and marketing campaigns, and servewider geographical regions.

This indicator considers whether: the IPA has a system in place to track foreigninvestors corporate information and all exchanges of communication between the IPA andthe foreign investor, noting specific preferences in location; there is timely follow-up of investor inquiries; the CRM database is structured, regularly updated, user-friendly andeasily accessible; and the IPA uses information gathered from its CRM system to tailorpromotional material to investors.

Croatia, the former Yugoslav Republic of Macedonia and Serbia have the mostadvanced CRM systems among the SEE economies. In Croatia, the IPA consistently updatesit contacts database and arranges meetings tailored to the specific needs of interestedforeign investors. The IPA uses a custom-made information technology CRM system. As

part of its ISO certification programme, the IPA must respond to each investor inquirywithin two days.

In the former Yugoslav Republic of Macedonia, the IPA uses a statistical trackingmechanism for corporate information about all foreign companies that have contacted theagency or participated in promotional events (road shows, investment forums, etc.). TheIPA tracks all exchanges of communication and meetings with potential investors andfollows up with the potential investors.

In Serbia, SIEPA collects information on all interested investors ( i.e. those withinquiries, or who contacted the IPA on more than one occasion), no matter their size orsector. CRM software was tailored to suit SIEPAs specific requirements. Presentations aredeveloped initially on a common platform. However, they are eventually modified to meetthe specific interests of individual investors. Although SIEPA is capable of providingrelevant information on all industries in Serbia, there are some sectors which areprioritised, and specialist advisors are appointed for each of these sectors.

Bosnia and Herzegovina, Bulgaria, Montenegro and Romania have more limited CRMsystems. In most cases, they have FDI databases which track basic corporate information.However, there is little evidence to suggest the IPAs are using their CRM resources to targetinvestors from a range of geographic destinations.

Albania, the Republic of Moldova and Kosovo are in the process of developing their

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Policy advocacy

Given its close relationship with the foreign investor community, an IPA should be wellpositioned to bring key policy constraints (legal, regulatory or administrative) to theattention of policy makers.

The indicator considers whether: a specific unit exists within the IPA to undertakepolicy advocacy activities, regular consultations are held with foreign investors, annualassessments of the impact of FDI are undertaken and the unit has a specific role in thedevelopment of investment policy.

IPAs in Bulgaria, Montenegro and Serbia demonstrated that they undertakefrequent consultations with foreign investors, produce annual assessments on theimpact of FDI and have designated staff (if not entire units) responsible for policyadvocacy. In Bulgaria, the IPA has the authority to propose changes in regulatory andadministrative practices to the Ministry of Economy and Energy based on reviews of existing measures.

In Montenegro, the IPA (MIPA) consults regularly with domestic business associationsand foreign investors. The head of the agency reports to the prime minister and isfrequently consulted on reforms to investment-related changes in policy or regulations.

In Serbia, policy advocacy functions are performed by senior staff and management.Consultations with the private sector are frequent, and as a result of the IPAs efforts thegovernment introduced a decree on investment incentives in 2006.

In the former Yugoslav Republic of Macedonia, the government created an FDICommittee chaired by the prime minister and consisting of cabinet ministers and seniorofficials from all relevant economic ministries responsible for investment-related policyfiles to examine barriers to FDI. The IPA, InvestMacedonia, participates in the deliberationsof the FDI Committee by identifying obstacles to FDI and proposing solutions. The FDICommittee has initiated amendments to laws and regulations as a result of InvestMacedonias contributions. InvestMacedonia plans to have a fully operational policyadvocacy unit from January 2010.

IPAs in Croatia and Romania undertake policy advocacy activities such as consultingwith foreign investors and undertaking annual assessments of FDI. However, informationwas not available to assess how their activities have led to reforms in investment-relatedlaws or regulations, or whether the IPAs have designated units to undertake policyadvocacy activities.

Limited policy advocacy activities were noted in Albania, Bosnia and Herzegovina, theRepublic of Moldova and Kosovo.

Aftercare services

Aftercare services that IPAs provide to foreign investors are intended to retain existingforeign investors in the host country or facilitate their expansion. Aftercare services canrange from assisting foreign investors with administrative procedures (such as obtainingbuilding permits and licenses) to more advanced services such as identifying localsuppliers. For example, Austrias IPA provides a suite of aftercare services for interested

foreign investors which include identification and selection of appropriate sites (such asoffice locations and commercial properties), practical support in the initial phases of start-up and identifying potential Austrian investment partners and suppliers.


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This indicator considers the type of aftercare services an IPA provides to foreigninvestors, such as administrative support ( e.g. assistance with obtaining licenses andpermits) or operational support ( e.g. finding local suppliers). The indicator also considerswhether the IPA provides investors with guaranteed response times to inquiries.

IPAs in Croatia, Serbia and the former Yugoslav Republic of Macedonia were found tooffer extensive aftercare services. In Croatia, the IPA offers investors assistance withfinding local suppliers and housing for expatriates. The IPA has started implementation of customer responsiveness guarantees, with the goal of providing an initial response to aninvestors inquiry within 48 hours. In Serbia, the provision of aftercare services is a keycomponent of the IPAs strategy. The IPA provides operational aftercare services, such ashelping investors find local suppliers, facilitating expatriate work permits, and bridgingcommunication between investors and municipalities. Similar services are provided by theIPA in the former Yugoslav Republic of Macedonia.

IPAs in Bosnia and Herzegovina, Bulgaria, Montenegro and Romania recognise the

importance of aftercare services. However they need to demonstrate their ability to providesupport to established foreign investors.

Evidence of aftercare services in Albania, the Republic of Moldova and Kosovo washard to come by for this assessment. Interviews with private-sector representativesindicated that these IPAs offer limited aftercare services.

Subdimension: TransparencyTransparency remains one of the top concerns of investors worldwide. In 2003, the

OECD adopted a Framework for Investment Policy Transparency to help OECD and non-OECD economies to address this concern (OECD, 2003a). Transparency can be improved bycodifying primary and subordinate investment laws and making them publicly available,undertaking prior notification and consultation efforts with interested parties andstakeholders regarding reforms to investment policies and regulations, and improvingelements of procedural transparency such as ensuring that criteria for issuing licenses andpermits are published.

The performance of SEE economies in this subdimension improved relative to IRI 2006.As illustrated in Figure 1.8 , four economies received a score of 4: Albania, Bulgaria,Montenegro and Romania. They are closely followed by Bosnia and Herzegovina, Croatia,the former Yugoslav Republic of Macedonia and Serbia. The Republic of Moldova saw its

score improve compared to IRI 2006, while Kosovo was the only SEE economy to receive ascore between levels 2 and 3. Publication of laws and regulations is standard practice acrossall SEE economies, and in many cases laws are available in English. There are stillchallenges in ensuring that private-sector representatives and other stakeholders aregiven fair opportunities to comment on new or amended investment-related measures. Inaddition, improving the availability of information on licenses and permits at thesubnational level is a concern to representatives of the private sector.

Publication avenues and tools

In the OECD, good regulatory practices include the codification of primary and

secondary investment-related legislation and public access to this information via theInternet. Most OECD members provide their legislation or descriptions of their policies inat least one foreign language, generally English.
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This indicator assesses the extent to which laws and regulations are codified andpublicly available on the Internet and whether English translation can be obtained for freeor at limited cost.

All SEE economies publish their investment-related laws and subsequentamendments in their official gazettes. Versions of these laws in their original language canbe found electronically on the websites of the official gazettes or ministries of justice.

English versions of investment-related laws can be found on the websites of IPAs inBulgaria, Bosnia and Herzegovina, Montenegro, Serbia and Kosovo. In the former YugoslavRepublic of Macedonia, national legislation harmonised with the EU acquis is available inEnglish. English summaries of investment-related laws can also be found on the websitesof IPAs in Albania, Croatia and Romania. However, in the Republic of Moldova, Englishtranslations of laws or summaries are not publicly available.

Prior notification and stakeholder consultationsGiving prior notification and inviting consultation with interested parties are

considered good practices for public sector transparency. Engaging foreign investors andother stakeholders in the process of investment-related regulatory changes can

contribute to the legitimacy and effectiveness of new measures. Furthermore, enablingfeedback through prior notification and consultation, before taking decisions, can helppublic authorities develop better investment regulations and build support forcompliance.

This indicator assesses the extent to which governments give prior notification tointerested parties regarding new (or revisions to existing) investment laws and regulations.In addition, the indicator considers if the government holds face-to-face consultationswith a broad range of interested parties on a periodic basis and releases summaries ortranscripts of those consultations.

In all SEE economies, amendments to existing investment-related legislation or theintroduction of new legislation are subject to prior notification and a consultation process.For example, in the former Yugoslav Republic of Macedonia, ministries are required to postdraft laws on their websites in order to enable wider public discussion. Furthermore, the

Figure 1.8. Transparency subdimension: Average scores


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ministries have an obligation to keep their laws posted on the websites for at least a yearafter their adoption.

Although official procedures exist for prior notification and consultations, concernshave been raised by some members of the private sector. For instance, businessrepresentatives in Albania, Bulgaria, the Republic of Moldova, Romania and Kosovo feltconsultations tend to be of a pro forma nature, with not enough time given to stakeholders toconsider new proposals and provide thoughtful feedback. In Montenegro, representativesfrom the private sector expressed dismay when reporting that subnational authorities tendto enact measures without any prior notification or consultation.

In Bosnia and Herzegovina, Croatia, Serbia and Kosovo, members of the private sectorfelt that consultations were limited to a narrow group of stakeholders, usually largerbusiness interests. And in Albania, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Montenegro and Serbia, private-sector representatives were concerned thatconsultations took place on an ad hoc basis.

Transcripts or summaries of consultations are not released by public authorities in anyof the SEE economies.

Procedural transparencyRegistration and other authorisation procedures for permits and licenses impose costs

on business, whether in time or money. Because these formalities can also be a source of administrative discretion and corruption, it is crucial that they be administered in atransparent, uniform and impartial manner. Procedural transparency provides investorswith opportunities to register complaints or appeal decisions by public authorities andallows for prompt and impartial reviews.

This indicator assesses the level of transparency associated with procedures requiredfor obtaining permits and licenses. The indicator considers whether the criteria forapproving licenses or other permits are clear and publicly available, whether the investoris provided with a rationale in cases where an investment is denied and whetheropportunities exist to appeal negative decisions.

The procedures and criteria for acquiring business-related licenses and permits at thenational level in the SEE economies appear to be reasonably clear and transparent.However, the situation at the subnational or municipal level is of concern. Interviews withprivate-sector representatives indicated that procedures and criteria are inconsistent

across different municipalities in all SEE economies. IPAs tend to do their best to helpinvestors navigate these procedures at the municipal level.

In Albania, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Montenegro,Romania and Serbia, investors are informed in writing if a decision has been made to denya license, permit or an investment in a sensitive sector ( e.g. arms production). Indeed,investors are also informed in writing if permits and licenses are granted, as the practice of silence is consent is only at the initial stages of implementation in SEE. Private-sectorrepresentatives in Bulgaria had the impression that decisions regarding approvals weremade on a discretionary basis and that approvals for smaller investors were prolonged inorder to expedite those for larger investors.

In Albania, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, the Republicof Moldova, Montenegro, Romania and Serbia, appeals of decisions are permitted ininstances where a permit or license had initially been denied. Private-sector


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experience with PPP projects (excluding concessions) is lacking. Exchanges of international best practices and joint learning would be beneficial for all SEE economiesas they move forward in this policy field.

Consultation with stakeholdersA key lesson learned by many OECD countries is that a communication strategy should

be in place to explain privatisation policies and processes, and to allay stakeholder concerns(OECD, 2003c). An effective communication campaign should be directed at stakeholders

explaining the policy objectives of privatisation and the means by which they will beachieved. This can help respond to public concerns and secure support for the policy.

This indicator assesses the consultation process with stakeholders, and considerswhether a wide spectrum of stakeholders is included in the process. These stakeholdersmay include domestic and foreign businesses, academia, non-governmental organisations(NGOs) and civil society. In addition, the indicator assesses whether consultations arearranged on a consistent or ad hoc basis.

In Montenegro, consultations on privatisation are open to domestic and foreignbusinesses and all third parties including academics, labour organisations, NGOs and other

civil society groups. In Romania, the government undertakes regular consultations withstakeholders through the Commission for Social Dialogue and the Authority for StateAssets Recovery (AVAS) on economic issues including privatisation. The Commission forSocial Dialogue meets monthly. Typical stakeholders included in consultations arecompany managers, employees, trade unions, advisors and financial services bodies.

Bulgaria, Croatia and Serbia undertake regular and timely consultations on upcomingprivatisations with both the domestic and foreign business communities. Yet interestedthird parties appear to be excluded from consultations on specific privatisation projects.The former Yugoslav Republic of Macedonia indicated that consultations include foreignand domestic businesses. However, the nature of those consultations is ad hoc, as the

privatisation process is nearing its end.Albania, Bosnia and Herzegovina, and Kosovo undertake ad hoc forms of consultations

on upcoming privatisations, primarily involving domestic businesses.

Figure 1.9. Privatisation and PPP policy subdimension: Average scores


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The Republic of Moldova did not indicate the nature of its consultation process.

Foreign ownership restrictionsPolicy on foreign ownership of privatised state-owned enterprises can be a sensitive

issue, particularly in the context of industries considered to be of national and strategicimportance. The rationale for opening up privatisation transactions to foreign investors isthat they can be an important source of capital, especially where the domestic pool of capital is too small to absorb any offerings. This is particularly relevant to emerging marketeconomies and former transition economies where domestic financial resources may beinsufficient. The experience of OECD countries has shown that only a very narrowlimitation has been required to address specific national security and public interestconcerns. Post-privatisation control devices are provisions and arrangements thatgovernments put in place to retain a degree of control over the privatised enterprise. Acommon post-privatisation control device is the use of golden shares that providegovernments with special powers and veto rights in fully or partially privatised companies.Golden shares have been used by OECD countries including France, the Netherlands, Spain,Portugal, Belgium, New Zealand, Italy, the Czech Republic, Poland, Hungary and Turkey(OECD, 2003c).

All SEE economies have relied heavily on foreign investors in the privatisation process,with very limited interference by the host government. In Croatia, post-privatisationcontrol devices may be used by the government in very specific areas, such as those relatedto national security and the public interest. Golden shares are permitted by law in Albania,however in practice they have not been used. The Romanian government has indicatedthat it has terminated the use of golden shares.

Bulgaria, Bosnia and Herzegovina, the former Yugoslav Republic of Macedonia, Kosovo,Montenegro and Serbia indicated that they do not have policies on golden shares.

Existence of a PPP unitPPP units are created to manage a governments PPP programme. As noted in the OECD

Principles for Private Sector Participation in Infrastructure , authorities responsible for privately-operated infrastructure projects should have the capacity to manage the commercialprocesses involved and to partner on an equal basis with their private sector counterparts.

This indicator assesses: whether the government has created a PPP unit; whether it isstaffed with a multidisciplinary team of lawyers, finance experts, economists and projectmanagers; whether the unit has a policy co-ordinating role or simply an advisory function;and whether it enjoys high-level political support within government.

In contrast to privatisation of state-owned enterprises, PPPs are new phenomena inSEE. With the exception of the Republic of Moldova, Serbia and Kosovo, PPP units to someextent have been established in the rest of the SEE economies.

Croatia appears to have the most advanced PPP unit (an agency called AJPP) which wasestablished in 2008. AJPP is staffed with 11 employees (a mix of lawyers, economists,engineers, accountants, etc.). AJPP assesses and approves PPP projects, while the Ministryof Finance conducts financial impact assessments. The Ministry of Finance is in charge of

the strategic and policy framework for PPP.In Montenegro, PPP units are project-specific. The first unit of its kind was created for

the recently announced highway between the port of Bar and the municipality of Boljare


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PPP consultations

The success of PPP projects depends on public authorities communicating toconsumers and other interested stakeholders that PPP undertakings are in the publicinterest (OECD, 2007b). Open, transparent and consistent consultations with relevant

stakeholders, including but not limited to, consumers ( i.e. domestic end users), domesticbusinesses, potential foreign investors and others allow public authorities to build supportfor PPP projects.

This indicator considers whether the government undertakes consultations prior toengaging in a PPP project and who they include. An additional consideration is whether theconsultations are held periodically or on an ad hoc basis.

According to Concession Law 08/09, Montenegrin officials must provide anopportunity for interested stakeholders to voice their views on proposed concessions orPPPs. Once a public invitation for consultations is issued, the hearings should take placewithin 30 days. The hearings are open to all interested stakeholders.

In Bosnia and Herzegovina, consultations on potential PPP projects are open todifferent stakeholders, including foreign investors. In some instances, these consultationsare primarily geared to foreign investors.

Bulgaria reported holding public consultations on PPPs. However, according to thequarterly surveys of the business climate conducted by the ESTAT Agency on behalf of theCentre for Economic Development, only 5%-10% of interviewed entrepreneurs perceive PPPprocedures as transparent and fair.

In 2009, Croatia initiated consultations on PPPs in the form of a Public ProcurementSystem Forum. The Forum is open to domestic business interests, non-governmentalorganisations and academics. It appears that foreign investors are excluded.

In Romania, the contracting authority should elaborate a substantiation study prior tolaunching a PPP project, providing an opportunity for public consultations. However,consultations appear not to be mandated by legislation.

The remaining SEE economies, Albania, the former Yugoslav Republic of Macedonia,the Republic of Moldova, Serbia and Kosovo, appear at best to hold ad hoc consultations onPPPs and with limited stakeholder participation, usually domestic business interests.

Approach to cost-benefit assessment for PPP projects

The decision to involve the private sector in projects should be guided by anassessment of the relative long-term costs and benefits. A cost-benefit assessment (oranalysis) should take into account: all alternative modes of delivery, the degree to whichcosts can be recovered from end users, a risk assessment based on the public interest ( e.g.shifting too much risk onto the private sector may result in higher prices for consumers),and the potential public financial implications ( e.g. fiscal implications of issuingguarantees, including in the event of macroeconomic crises). This indicator considerswhether public authorities examine these elements when undertaking a CBA for PPPprojects.

Albania, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia, Montenegro,Serbia and Romania undertake CBAs prior to PPP projects. Although different CBA methodsare employed, they generally involve common elements such as calculations based on


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alternative modes of delivery, costs that can be recovered from end users and riskassessments based on the public interest.

In the Republic of Moldova, the government uses feasibility studies which mustinclude a risk analysis.

In Kosovo, the draft PPP law calls for CBAs that include an investment-grade feasibilitystudy, a value for money assessment and a public-sector comparator.

PPP monitoringEnsuring that PPP projects meet their stated policy objectives calls for specific

monitoring mechanisms over the lifetime of the PPP project. The OECD Principles for PrivateSector Participation in Infrastructure advises that formal agreements between publicauthorities and the public sector should be specified in terms of verifiable infrastructureservices to be provided to the public on the basis of

3 - Investment Policy and Promotion OECD1

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