RCI HC

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OECD EURASIA COMPETITIVENESS PROGRAMME Enhancing
Investment, Competitiveness and Private Sector
Development in Central Asia, South Caucasus and
Ukraine
Fadi Farra Head OECD Eurasia Program
June 2008
OECD Private Sector Development Division OECD
Eurasia Competitiveness Programme
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Promotion job creation in BSEC and CA
countries What role for the private sector?

• The OECD Eurasia Competitiveness Programme
• Promotion job creation in Eurasia A sector
  specific approach

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Eurasia The need to improve the business climate

• Strong economic performance in both Central Asia
  and South Caucasus/Ukraine
• Regions
• However strong economic growth disparities and
  fluctuations across countries
• FDI levels and growth still relatively low
• Average FDI per capita up to 6 times lower than
  South East Europe or CEE
• Average FDI growth a third lower than regions
  like South East Europe
• Limited FDI diversification in most countries
• Need to improve business climate to attract
  investment and develop the private
• sector and employment further

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OECD Eurasia Competitiveness ProgrammeNew OECD
Mandate (2008) covering two regions and 11
countries
Central Asia
The South Caucasus and Ukraine
Afghanistan Kazakhstan Kyrgyztan Mongolia Tadjiski
stan Turkmenistan Uzbeskistan

• Armenia
• Azerbaijan
• Georgia
• Ukraine
• Observers Moldova and Belarus

Partnership with OSCE and EC
Partnership with BSEC and EC
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Focus on results and implementation to improve
investment and competitiveness

• Identification and prioritisation of regional
  barriers to investment and how to remove them
• Creation of policy networks in specific policy
  areas like investment policy, trade, enterprise
  development, financial sector development
• Development of how to guidelines at the
  regional level to implement specific policy
  reforms

Enhancing Regional Business Climate

• Surveys of investors and private sector
  perception to assess and measure impact
• Evaluation of policy reforms to improve the
  business environment
• Time-bound and measurable priorities for reforms
• Country-specific assistance in implementing
  reforms

Improving National Competitiveness
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Four pillars to improve the business climate
Improving the business climate and
Competitiveness in Eurasia
A. Enterprise and SME Development
B. Policy and Promotion Specific to FDI
Investment Reform Index (IRI) SME Policy Index
1. Monitoring and Evaluation
Sector Specific Sources of Competitiveness
Thematic Working Groups Sector Specific Regional
Investment Promotion
Enterprise Forum
2. Implemen-tation Support
4 Areas
Structured Public/Private Debate
Sector Specific Studies
Regional Foreign Investors Council, White Book
and Investor Forum
3. Private Sector Support
Annual Ministerial meetings for South Caucasus,
Ukraine and Central Asia Regions
4. Political Support
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An example Monitoring policies at the regional
level and addressing reforms through working
groups
Example for South East Europe
The OECD Investment Reform Index
Policy Working Group
Chaired by a country of the region and OECD
country Strong involvement of regional policy
makers, private sector and OECD experts Focused
on delivering a How To guidelines on
implementation of skills development programmes
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Promotion job creation in BSEC and CA
countries What role for the private sector?

• The OECD Eurasia Competitiveness Programme
• Promotion job creation in Eurasia A sector
  specific approach

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The cost competitiveness trap

• Key sectors in the Eurasia regions are able to
  compete based on low cost
• Labour cost in services e.g. Business Process
  Outsourcing (BPO), Information and Communication
  Technology (ICT) is up to 5 times lower than in
  Eastern Europe.
• Manufacturing cost up to 5 times lower than
  Western Europe
• However cost competitiveness is not sustainable
• Markets like India and China are clear low-cost
  alternatives.
• Cost levels in some sectors are increasing by
  up to 15 annually, impacting negatively on
  margins and potentially eroding market share
  levels.
• Limited access to finance and strategies to
  reinvest capital in technology and human capital
  is a risk.
• To sustain competitiveness, the countries in of
  the Central Asia region and Black Sea regions
  need to start moving up the value-chain and
  diversify their sources of FDI

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Three challenges need to be addressed to sustain
competitiveness at the regional level

• Significant gaps in human capital and the need
  for human capital reform linking education and
  market needs
• Skills gaps in high growth industries such as
  ICT reach 60.
• Coordination between ministries of education and
  economy and dialogue with civil society are
  limited.
• Limited focus on value-added services and
  innovation and the need to further link research
  and businesses
• Lack of longer term sector-specific reforms and
  the need for institutional methods to
  continuously identify and remove sector specific
  policy barriers

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Example for a sector Business Process
Outsourcing (BPO) Example for the Republic of
Moldova
Leveraging their competitive labour costs in
services
Note Monthly wages have been calculated on
2003-05 or 2003-06 average using the LABORSTA
Labour Statistics Database and covering, unless
specified only the category J (financial
intermediation) and K (business activities, real
estate and renting). For Albania overall figures
are based on category I (transport, storage and
communications) due to the absence of statistics
on J/K in the ILO databases (1) average monthly
wages in all services
Source International Labour Organization
zdnetasia Wall Street Journal, OECD interviews
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The human capital gap
50 of BPO firms have difficulties finding
skilled and educated workers
70 of BPO firms find education and training to
be key policy issues
Skills and education of available workers
Key issues within human capital policy
50
Source OECD 2008
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Engaging the private sector for short term results
How to address the lack of skilled resources in
the short term?
Short term actions Engaging the private sector

• During Pre-employment through offering of
  internships, intervention in university courses,
  exchange programs with foreign vendors and
  universities
• During employment through linkage programs,
  company training including sector/technical-specif
  ic training like CAD, ERP, Vendor Managed
  Inventory for textile or Design for
  Manufacturability Software and Computer Aided
  Engineering for automotive
• Post employment through the usage of e-courses in
  particular on new applications and processes like
  PHP/MYSQL, Ajax, PHP-.Net , XML, Flash Animation
  Action Script

• Review government practices and private sector
  practices to upgrade skills e.g. government
  sponsored coaching programmes tax relief for
  training, company sponsored trainings exchange
  programmes
• Implementation of policies through a sector
  specific approach e.g. internships, coaching,
  vocational training, digital learning)
• Development of linkage programs

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Policy reforms to move up the value chain and
diversify FDI The Republic of Kazakhstan example
How to improve sector competitiveness for the
Republic of Kazakhstan

• Match supply and demand
• Align ministries
• Develop tools to analyse skills gaps and
• shortages
• Review the labour market regime
• Develop a mechanism for dialogue with
• civil society

Sustained Competitiveness

• Remove sector specific policy barriers on a
  continuous basis
• Set-up sector specific
• working groups
• Develop sector
• specific monitoring tools

• Channel innovation efforts
• Assess the success levels of current cluster
  initiatives
• Develop an organisational structure and
  governance model at the national level
• Map out the objectives and scope of competitive
  clusters to channel innovation efforts

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Key Success factors
Clear links with the National Development Plan
and priorities to ensure sustainability Close
partnership with the private sector to accelerate
reforms at the sector level Inclusion of all
relevant donors efforts to avoid any
overlap Practical approach with a gradual
implementation based on pilots and championing
stakeholders to deliver tangible results A focus
on policy priorities, execution and
communication
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Appendix
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Governance Strong collaboration with regional
bodiesSouth Caucasus and Ukraine
Co-chairs OECD Country SCU Country OECD
OECD donor countries
SCU Competitiveness Committee
Eurasia- SCU country economic teams
Regional Working Groups Human
Capital Investment Promotion Transportation Trade
SCU Competitiveness Programme
International organisations
Private sector
Partners Black Sea Economic Cooperation (BSEC)
and EC
Note Tentative groups being discussed with
countries of the region
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Governance Strong collaboration with regional
bodies (II)Central Asia
Co-chairs OECD Country CA Country OECD
OECD donor countries
CA Competitiveness Committee
Eurasia- CA country economic teams
Regional Working Groups Human
Capital Investment Promotion Infrastructure Trade
Financial Markets
CA Competitiveness Programme
International organisations
Private sector
Partners OSCE and EC
Note Tentative groups being discussed with
countries of the region
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1. How to find relevant local and foreign
companies Sector database
Building a database with company profiles and
offering

• DATA CREATION AND STORAGE
• Creation and maintenance of the reference company
  databases
• Automatic update of Moldova statistical databases
• Automatic update of registered information by
  company (in coordination with the National
  Statistical Bureau)
• Automatic feedback between MIEPO and company
  included in the database

• DATA ANALYSIS AND
• MINING
• Search by company offering and segments
• Group/ Community management together with
  international companies
• Possibility to leverage the database for lead
  generation identification of company having
  representatives in Moldova active and those
  that are prospect

• COMPANY PROFILES
• Includes
• General information
• Financial information
• Key contacts
• History
• Subsidiaries
• Activities
• Actions in Moldova and abraod
• Organisation changes
• Founders
• Actions with international players

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2. How to identify and prioritise skills
improvement efforts Skill gap analysis Example
for call centers - languages
Excluding salary expectations, major discrepancy
between supply and demand
Qualitative performance Language students and
company demand
Evolution of demand and supply Italian language
Quality of curricula (1)
of people
Demand
Awareness
Supply/Demand Equilibrium
Supply
Quality of graduates
Notes (1) Ranking (1) Poor (5)
outstanding Source OECD field survey