PROGRESS IN INVESTMENT REFORM INVESTMENT REFORM INDEX

1
Preliminary Results
PROGRESS IN INVESTMENT REFORMINVESTMENT REFORM
INDEX
12 April 2006 Investment Compact Country Mission
to Macedonia
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Agenda

• Context and Objectives
• Approach, Process, Organisation and
  Differentiating Factors
• Results of Measurement
• Dimension-Specific Results
• Next Steps and Key Events

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Context and Objectives
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Context
The Investment Reform Index and the Investment
Compact
Focus of Investment Compact Program
A. Enterprise and SME Development
B. Policy and Promotion Specific to FDI
Investment Reform Index Enterprise Policy
Performance Assessment (EPPA) Peer Review
1. Monitoring and Evaluation
Country Investment Policy Analysis and
Implementation
Investor Forum Sector Specific Regional
Investment Promotion
Enterprise Forum
2. Implemen-tation Support
4 Areas
Structured Public/Private Debate
Regional Foreign Investors Council, White Book
and Reality Checks
Enterprise Policy Performance Assessment
3. Private Sector Support
Annual Ministerial for SEE Region Programme for
Parliamentary Support
4. Political Support
5
Objectives
The IRI is guided by four key objectives
Regional Collab-oration and Peer Review
Targeted Support in Imple-mentation
Public and Private Sector Involvement
Structured Evaluation
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Approach, Process, Organisation and
Differentiating Factors
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Approach
The IRI measures implementation of reform in 10
key dimensions
Main focus of evaluation in 2006
Part of a separate process conducted in
cooperation with the EC in the framework of the
European Charter for Small Enterprises
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Approach
Each dimension is broken down into main
sub-dimensions Example Tax Policy
9
Approach
Each sub-dimension is broken down into core
indicators Example Tax Policy ? Tax
Administration
10
Approach
Each indicator is broken down into levels of
reform Example Tax Policy ? Tax Administration
Note This table has been simplified for
presentation purposes each level of reform is
fully detailed in the actual IRI.
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Process
Gathering information for scores will follow a
specific process Example Anti-Corruption
CET
Investment Compact
Private Sector
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Organisation
The Investment Reform Index is organised to
involve all levels in the evaluation and input
process

• IC Core Team collects data and interviews OECD
  Experts to establish a preliminary level of
  progress for each country in each policy
  dimension
• Local consultants build from the first
  measurement by collecting primary data in the
  countries and conducting interviews with local
  experts. The results analysed by the IC Core Team
  and incorporated into the level of progress
• The Private Sector and the Country Economic Team
  evaluate the latest measure. This provides an
  opportunity to step back and analyse the
  measurements in a broader context. After
  consultation mechanisms are complete, all parties
  confirm a final measurement, which is published

Local Consultants Country Economic Team
IC Core Team
Private Sector
OECD Experts Local Experts
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Differentiating Factors
How the IRI is different from other indices
The OECD Investment Compact IRI relative to other
indices from international organisations

• Main Differentiating factors of the IRI
• Focus on a very specific region where history,
  culture and geography allow for more relevant
  benchmarking between countries.
• Tripartite participatory approach to evaluation
  and measurement including government, private
  sector, and the OECD.
• Comprehensive evaluation of the investment
  environment structured along ten key dimensions
  in line with OECD standards.
• Does not only measure but also provides guidance
  on how to improve through good practices.
• Meta Index which incorporates existing work
  already conducted by other organisations (e.g.,
  World Banks Doing Business report).

Process
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Preliminary IRI Results for Macedonia
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Preliminary IRI Results for Macedonia
Preliminary IRI results for Macedonia

• Dimensions where policy reform is more advanced
  are
• Tax Policy
• Anti-corruption
• Investment Policy
• Competition Policy
• Trade Policy
• Dimensions where reforms have been slower are
• Investment Promotion
• Human Capital
• Regulatory Reform

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Preliminary Findings
Dimension-Specific Results
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1. Investment Policy and Investment Promotion
Dimension-specific results
Preliminary Findings

• Investment policy
• National Treatment of foreign investment is
  guaranteed by the Constitution and
  internationally accepted mechanisms for
  state-investor dispute settlement are generally
  in place.
• Guarantees against unfair expropriation of
  property are also set in the Constitution.
• There are no limitations for foreign investors
  regarding transfer of funds (profits and
  dividends).
• Although intellectual property rights legislation
  is generally in line with international
  standards, enforcement of IPR legislation needs
  to be further improved.
• Locally incorporated foreign-owned companies are
  not subject to restrictions with respect to the
  ownership of land and real estate. Foreign
  natural and legal persons are subject to
  restrictions. Furthermore, there are linkages to
  reciprocity conditions.
• Investment promotion
• While Macedonia has set up an investment
  promotion agency Macinvest in 2005, it still
  needs to adopt an investment strategy that
  reflects government and private sector consensus
  on the countrys investment promotion priorities.
  
• Macinvest will need to consolidate its marketing
  tools, develop concrete on-the-ground support to
  potential and existing investors, and specific
  programs to link foreign investment with SMEs.
• Finally, as the execution arm of the investment
  promotion strategy, Macinvest needs to reinforce
  its institutional capacity (human and financial
  resources) and build investment promotion
  expertise.

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Investment Policy
Preliminary Findings
Dimension-specific results
Preliminary IRI evaluation
Solid law or institution passed but little or
no evidence of effective implementation
Law or institution in line with good practices
and significant evidence of implementation
No law or institution
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Investment Promotion
Preliminary Findings
Dimension-specific results
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2. Tax Policy
Preliminary Findings
Dimension-specific results

• Macedonia has a competitive corporate income tax
  rate of 15, in line with the average SEE rate.
• The World Banks measurement for the time to
  comply to tax requirements is 96 hours,
  considerably lower than the SEE average of 236
  hours.
• Tax legislation is generally well drafted,
  however business entities and tax advisors have
  complained about the frequent changes to
  secondary legislation and procedures
• Sunset clauses are occasionally included with
  Macedonian tax incentive legislation. However
  online tax information is not systematically
  available in English nor is it regularly updated.
• Some tax incentives discriminate between foreign
  and domestic investors and losses can be carried
  forward for only 3 years.
• Corruption within the tax revenue sector is still
  relatively high, and private sector
  representatives complain about the delay in VAT
  reimbursement.

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Tax Policy
Preliminary Findings
Dimension-specific results
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Tax Policy
Preliminary Findings
Dimension-specific results
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3. Anti-Corruption Policy
Dimension-specific results

• Like most SEE countries, Macedonia has signed and
  ratified key international conventions related to
  corruption and has adopted laws which criminalise
  corrupt acts such as active and passive bribery,
  money laundering, and trading in influence.
• A national programme to fight corruption has been
  in place since 2003 and an action plan has been
  developed. There is strong evidence of
  implementation.
• Concerning the Promotion of Good Governance and
  Reliable Public Administration, Macedonia has
  taken steps to create a professional civil
  service in line with European standards.
• However, a comprehensive Conflict of Interest
  Policy is still needed.
• Public Procurement procedures are generally in
  line with international standards, although the
  appeals procedure could be improved.
• Finally, as is the case in most SEE countries,
  public- private consultation is in the very early
  stages of development.
• Other areas of policy transparency, such as
  monitoring and evaluation, are more positive.

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Anti-Corruption Policy
Dimension-specific results
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4. Competition Policy
Preliminary Findings
Dimension-specific results

• The competition law of Macedonia and the existing
  bylaws for implementation follow international
  competition standards. However, some further
  development of the legal framework is still
  needed.
• The execution authority the Commission for
  Protection of Competition - needs to consolidate
  its independent status and its administrative
  capacity through budget reinforcement and
  continuous training of personnel in order to
  efficiently administer the competition law.
• Enforcement of competition law should be
  strengthened, especially through the application
  of a deterrent sanctioning policy against
  anti-competitive behaviour.
• While there is no single competition strategy,
  competition is specifically addressed in the
  Government Economic Strategy.
• In parallel, state aid control should also be
  consolidated through robust implementation of
  state aid law and active monitoring and reporting
  of state aid.
• Finally, the Commission for the Protection of
  Competition needs to strengthen public awareness
  on competition policy and the co-ordination with
  other ministries, agencies, sectoral regulators
  and judiciary.

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Competition Policy
Preliminary Findings
Dimension-specific results
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Competition Policy
Preliminary Findings
Dimension-specific results
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5. Trade Policy
Preliminary Findings
Dimension-specific results

• Macedonia has signed FTAs with all SEE countries
  and EFTA, Ukraine, Turkey, SAA and UNMIK Kosovo.
  The Republic of Macedonia received candidate
  country received in December 2005.
• Macedonias trade openness is generally good, but
  is hindered by important non-tariff barriers
• Technical standards not in line with EU /
  international standards
• Restrictive sanitary and phytosanitary standards
• Macedonia does not have a functioning
  certification system, laboratory facilities are
  obsolete and are unable to meet the industry's
  demands.
• Trade related to capital goods, on the other
  hand, seems to be two edged. (e.g. no customs
  duty but no VAT reimbursement).
• Finally, customs procedures appear to be
  relatively efficient but corruption with customs
  officials continues to be an issue according to
  feedback from the private sector.

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Trade Policy
Preliminary Findings
Dimension-specific results
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6. Regulatory Reform
Preliminary Findings
Dimension-specific results

• Macedonia has made significant progress in the
  area of Regulatory Reform, and has committed to
  further reform of the regulatory environment.
• Macedonia has established a Regulatory Oversight
  Body, the Sector for Economic Reform. It will be
  responsible for monitoring and evaluating the
  pace and quality of regulatory reform, although
  it is not yet fully operational.
• Several programmes exist that address sectoral
  regulatory improvement, although the Government
  has not yet created a comprehensive regulatory
  reform policy and strategy.
• Although a regulatory impact analysis programme
  is not yet officially implemented, each ministry
  is obligated to submit a preliminary analysis for
  all draft legislation.
• Regarding transparency, ad hoc public/private
  consultations exist and a formal forward planning
  mechanism is in place, however access to
  information on regulatory requirements is
  limited.
• According to the World Bank Governance Indicators
  and the FIAS report, regulatory quality is
  generally poor.

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Regulatory Reform
Preliminary Findings
Dimension-specific results
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Regulatory Reform
Preliminary Findings
Dimension-specific results
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7. Human Capital
Preliminary Findings
Dimension-specific results

• As is the case in most SEE countries, literacy
  and enrolment rates in Macedonia are generally
  high, but improvements are needed with respect to
  quality of education.
• Macedonia has developed a comprehensive education
  reform strategy which foresees a functional
  connection with the labour market.
• There is no specific workforce skills development
  strategy, however, an Action Plan for Employment
  has been drafted and many programmes developing
  workforce skills are being implemented.
• The Adult Learning Educational system is not well
  developed (e.g. only one adult education unit is
  currently operating as part of the Faculty of
  Philosophy).
• On the other hand, the vocational education has a
  long tradition in the educational system of
  Macedonia.
• Finally, important rigidities in the labour
  market still need to be addressed to help
  increase employment (e.g. in terms of
  restrictions on firing workers, overtime, use of
  short-term contracts, high social costs and
  labour taxes).

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Human Capital
Preliminary Findings
Dimension-specific results
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Next Steps and Key Events
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2005-2006 Key Events for the Investment Reform
Index
Key Events
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Preliminary Results

• All of the results are preliminary.
• Macedonia results will be finalised in June/July
  2006.
• For any comments or questions please contact
  Jennifer Brett at Jennifer.brett_at_oecd.org