Convergency goal

1

• Convergency goal
• is the must
• for CEE/CIS economies
• Michael Dymácek
• BIP Group a.s., Chairman of the Board
• UN/ECE PPP Alliance, EF Group, President
• prepared for 6th CEI Summit Economic Forum
• Warsaw, 19-21 November 2003

2
One of the main UN goals to remove the gap!At
the same time the most urgent must of the to be
or not to be category!in numbers

• Top economy
• GDP/head gt 20 000 in current dollars
• average of existing top economies almost 30 000
  GDP/head
• if they grow for 2, the absolute growth is 600
• Relatively rich economy in transition
• 5 000 GDP/head
• if it grows for 6, the absolute growth is 300
• the absolute gap is growing!!!

3
convergency needs in numerical form(4.5
GDP/head growth in current dollars is a
conservative expectation - it is 2 to 3 growth
in fixed prices 2 to 3 inflation currency
rates turbulations other influences)
4
(No Transcript)
5
qualitative aspects of convergencyit has to be
achieved

• roughly the same structure of economic activities
  as in those at the top
• roughly the same productivity (requires the same
  equipment and the workforce of the same quality)
• roughly the same infrastructure

6
only two economies in the world have been
successful Singapur, Hong Kongand only two
other countries are on the (irreversible) road to
success Taiwan, South Korea (GDP/head in 1960
160 as Zair, resp.110 as Sudan)other
successful convergency stories so far only in
transforming troubled regions inside rich
economies Lorraine, Strathclyde, now former
DDR?before unification officially evaluated as
the world 10th economy - by purchasing power
parity(old joke a Trabant equals a
Mercedes)based on that the costs of unification
were expected to be DM 10bn (economy) 110bn
(social mattersunification of currencies)
instead of that (up to end of 2001) economy DM
1 700 to 1 800 bn (170 to 180 times mistake) (85
financed by private business) social and similar
expenses about DM 1 400 bn results GDP/head
in 1999 DM 48 653 versus DM 32 401 yearly
average income DM 5 537 versus DM
4 447 monthlyin (roughly) last 4 years the gap
grows again (infrastructure development and
similar activities are much lower than before)
7
Note usually Finland and Ireland are given as
another examples of convergency success - if the
results achieved there have to be highly
evaluated, there is an essential difference in
the initial position if compared with CEE/CIS
countries (not to speak about initial position of
Taiwan and South Korea) Finland, Ireland in
1980 (in 1985 prices) compared with UK, Italy and
GermanyFinland 9799 Ireland 4878United
Kingdom 7348 Italy 6968 Germany 9535
8
To succeed, the main requirement is to create the
jobs better as best as possible jobs with as
high as possible high-added value in other
words it is the requirement for the excellent,
top structure of economic activities (at the
same time) the requirement for a top
workforcethe cost of such a requirement to
invest (at least!) 100 000 into an average
workplace in 10 to 15 years (development
constant) USA are doing
that in the time interval of about 8 years,
former East Germany costed so far about DM 270
000 per a workplace (160 000 or so)
9
Convergency goal for a 10 million of inhabitants
country with, say, 5 million of economically
active people investment needs by development
constant are 500 bn in 10 to 15 years, thus 33
to 50 bn yearly - theoretically feasible and more
than that made in transforming the former East
Germany (in some years DM 200 bn for workforce of
about 6.5 million), but unfeasible in practice
for countries not enjoying rich uncle behind of
them.Realistic, but an extremely difficult task
yet to project such a massive economic
development in a (well prepared then!) region of
about, say, 2 million of inhabitants, which
requires investments of 100 bn, yearly 6.7 to
10 bn which may be practically feasible if
ingeniously prepared
10
The time schedule would be then

• about 3 to 7 years of project preparations
• 10 to 15 years of massive growth with 6.7 to 10
  bn yearly, resulting to 13 to 15 GDP/head yearly
  growth
• another 7 to 12 years of the same growth
  convergency goal would be achieved (other parts
  of the country should be intentionally influenced
  by that economic growth pioneer)

11
under one umbrella PPPs much broader and
deeper concessions made, on the other hand
private business partner will be fully (or, at
worst, almost fully) responsible for investment
return, the role of public sector should be
non-monetary mainly but the support and
involvement needs to be much more intensive
compared to traditional PPPs. A large
infrastructure deal will be usually used as a
catalyst there.
12
Examples of existing under one umbrella PPP
projects

• Brno Hub Airport Complex
• a 5 to 7 bn development with potential of 300
  to 400000 of new jobs, able to minimally double
  the GDP of the Czech Republic (feasibilty study
  ready)
• Completing the Highway Network of the Czech
  Republic
• a 15 to 25 bn project,pre-feasibility
  study ready
• Development of the Katowice - Ostrava region
• pre-pre-feasibility study done

13
Final remark

• one of the dangerous myths asserts that
  infrastructure has to be done, economic growth
  will follow almost automatically then - not, it
  does not hold!!!
• infrastructure development costs, whatever large,
  are only roughly 1/10 of the giant costs of the
  massive economic growth by development constant
• It should be definitely concluded that even the
  weak task of completing the infrastructure
  cannot be done by internal resources of CEE/CIS
  countries (unless the goal of convergency is met)
  
• Czech Republic urgent infrastructure needs are
  evaluated in 50 to 70 bn which is roughly the
  level of the yearly GDP of the country
• thumb evaluation for some other countries
• Poland 2 to 4 times the GDP
• Ukraine 5 to 8 times the GDP

14
Compare a top economy with 10 million
inhabitants and 300 bn yearly GDP will have
urgent infrastructure development needs of 15bn
only - 5 of its GDP!!!Traditional PPPs are not
applicable in UK with its 1 770 bn GDP
expected for 2003 (by EIU evaluation), PPP
projects of integrated value of about 25 bn have
been done in the course of the PPP (PFI)
existence, which is 1.41 of its yearly GDP - far
from the demands of the CEE/CIS countries
needs!!! Under one umbrella PPP technologies
are therefore the only (at least known) existing
tool how to produce required success!!!