Spotlight on SEE: Spotlight on SEE: an overview of private sector an overview of private sector

activity and investment activity and investment

Peter Sanfey, Elisabetta Falcetti, Peter Sanfey, Elisabetta Falcetti,

Anita Taci and Sladjana TepicAnita Taci and Sladjana Tepic

16 April 200416 April 2004

SEE: Opportunity and PotentialSEE: Opportunity and Potential

Growth exceeding CEB, driven by private sector expansion

Private sector share of GDP > 60%

Improving investment climate

Increasing access to finance

FDI at record levels

Expanding intra- and inter-regional trade

4.64.5

2.42.3

4.3

3.6

0

1

2

3

4

5

6

7

CEB SEE

Pe

r c

en

t

2001 2002 2003

Growing economiesGrowing economies

Privatisation has advanced…Privatisation has advanced…

0

0.5

1

1.5

2

2.5

3

3.5

4

1995 1996 1997 1998 1999 2000 2001 2002 2003

Central Europe & Baltics South-Eastern Europe

Commonwealth of Independent States

Large scale privatisation

Average EBRD Transition Indicator Score

……and the business climate improvedand the business climate improved

0.00

1.00

2.00

3.00

4.00Finance

Infrastructure

Taxation

RegulationJudiciary

Rule of Law

Corruption

1999 2002Source: BEEPS

0

10

20

30

40

50

60

Albania Bosnia &Herz.

Bulgaria Croatia FYRMacedonia

Moldova Romania Serbia &Mont.

0

10

20

30

40

50

60

1999 2002 2003 Real growth in 2003 (right axis)

% of GDP

Credit to private sector growingCredit to private sector growing

Source: EBRD, IMF - International Financial Statistics, and central banks of countries in the region.

-2

0

2

4

6

8

10

12

1996 1997 1998 1999 2000 2001 2002 2003 (E)

FDI Portfolio InvestmentOther Investment including bank loans Total capital flows, net

US$ billion

Sources: EBRD, IMF, World Economic Outlook, UNCTAD

Capital flows and FDI peaked in 2003Capital flows and FDI peaked in 2003

Trade opportunities expandingTrade opportunities expanding

Trade liberalisation advanced: most tariff barriers removed

Regional FTAs: 26 out of 28 signed, but implementation is a key challenge

Access to EU markets improving

SEE: Challenges and RisksSEE: Challenges and Risks

Overall transition lags behind CEB

Doing formal business is difficult – informal activities around 1/3 of GDP

Financial intermediation is limited

Limited “greenfield” investment so far

Non-tariff barriers to trade remain significant

Reforms in SEE lag behind CEBReforms in SEE lag behind CEB

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

Av

era

ge

tra

ns

itio

n s

co

re, 2

00

3

CEB SEE CIS

0

20

40

60

80

100

Finance Infrastructure Taxes Regulations Judiciary Corruption Crime

Taxation, corruption and access to Taxation, corruption and access to finance remain key constraintsfinance remain key constraints

Source : BEEPS

0

20

40

60

80

100

Albania Bosnia &Herz

Bulgaria Croatia FYRMacedonia

Moldova Romania Serbia &Mont

Internal funds/retained earnings Equity

Commercial banks Family or friends

Money lenders or other informal sources Leasing arrangement

Government Other

Internal funds are main source of Internal funds are main source of funds for SMEsfunds for SMEs

Source : BEEP (2002)

-50

0

50

100

150

200

1995 1996 1997 1998 1999 2000 2001 2002

Gross FDI Privatisation revenues

Most FDI linked to privatisationMost FDI linked to privatisation

Annual percentage change

Source : UNCTAD, EBRD

Remittances play a crucial roleRemittances play a crucial role

18.6916.85

15.1213.26

9.2

4.43 3.59 2.71 1.99 1.84

02468

101214161820

Bo

snia

&H

erz.

Alb

ania

Mo

ldo

va

Ser

bia

&M

on

t.

Geo

rgia

Arm

enia

Cro

atia

Lat

via

FY

R M

ac.

Aze

rbai

jan

Remittances/GDP: Top 10 transition countries, 2001

Source : EBRD & IMF

Customs and trade regulations remain Customs and trade regulations remain significant obstacles to tradesignificant obstacles to trade

0

1

2

3Albania

Bosnia &Herzegovina

Bulgaria

Croatia

FYR Macedonia

Moldova

Romania

Serbia &Montenegro

1999 2002Source : BEEPS (2002)

Policy implicationsPolicy implications

Encourage remittance flows through official channels

Strengthen banking competition and access to alternative sources of domestic finance

Target meaningful investment climate measures (including fair treatment for foreign investors)

Facilitate cross-border trade

Tackle the informal sector

EBRD Commitments to SEE:EBRD Commitments to SEE:>EUR 1 billion / yr – Private share up>EUR 1 billion / yr – Private share up

0

200

400

600

800

1000

1200

1999 2000 2001 2002 2003

Total

Private

85%

73%

51%

71% 74%

EUR million Annual business volume

Spotlight on SEE: Spotlight on SEE: an overview of private sector an overview of private sector

activity and investment activity and investment

Peter Sanfey, Elisabetta Falcetti, Peter Sanfey, Elisabetta Falcetti,

Anita Taci and Sladjana TepicAnita Taci and Sladjana Tepic

16 April 200416 April 2004