OECD Private Sector Development 1 OECD Private Sector Development Division OECD Eurasia Competitiveness Programme June 2008 Fadi Farra Head OECD Eurasia

OECD Private Sector Development 1

OECD Private Sector Development DivisionOECD Eurasia Competitiveness Programme

June 2008

Fadi FarraHead

OECD Eurasia Program

OECD EURASIA COMPETITIVENESS PROGRAMMEEnhancing Investment, Competitiveness and Private Sector Development in Central Asia,

South Caucasus and Ukraine


1. The OECD Eurasia Competitiveness Programme

2. Promotion job creation in Eurasia – A sector specific approach

Promotion job creation in BSEC and CA countriesWhat role for the private sector?


Eurasia: The need to improve the business climate

Strong economic performance in both Central Asia and South Caucasus/UkraineRegions

• 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


OECD Eurasia Competitiveness ProgrammeNew OECD Mandate (2008) covering two regions and 11 countries

Partnership withBSEC and EC

Partnership withOSCE and EC

Armenia

Azerbaijan

Georgia

Ukraine

Observers: Moldova and Belarus

The South Caucasus and Ukraine

Afghanistan

Kazakhstan

Kyrgyztan

Mongolia

Tadjiskistan

Turkmenistan

Uzbeskistan

Central Asia


Focus on results and implementation to improve investment and competitiveness

Improving NationalCompetitiveness

Enhancing RegionalBusiness Climate

Identification and prioritisation of regional barriers to investment and how to remove themCreation 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

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


Four pillars to improve the business climate

Annual Ministerial meetings for South Caucasus, Ukraine and Central Asia Regions

Sector Specific Sources of Competitiveness

A. Enterprise and SME Development

4. Political Support

1. Monitoring and Evaluation

2. Implemen-tation Support

3. Private Sector Support

B. Policy and Promotion Specific to FDI

Investment Reform Index (IRI)

SME Policy Index

Thematic Working Groups

Sector Specific Regional Investment Promotion

Sector Specific Studies

Enterprise Forum

Structured Public/Private Debate

Improving the business climate and Competitiveness in Eurasia

4 A

reas

Regional Foreign Investors Council, White Book and

Investor Forum


An example: Monitoring policies at the regional level… and addressing reforms through working groups

DRAFT NOT FOR DISTRIBUTION

The OECD Investment Reform Index

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

Policy Working Group

Example for South

East Europe


1. The OECD Eurasia Competitiveness Programme

2. Promotion job creation in Eurasia – A sector specific approach

Promotion job creation in BSEC and CA countriesWhat role for the private sector?


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


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


Example for a sector: Business Process Outsourcing (BPO)Example for the Republic of Moldova

Source: International Labour Organization; zdnetasia; Wall Street Journal, OECD interviews

Leveraging their competitive labour costs in services

100

88

104

40 37 3431

21.9 21.515

4.4

Relative comparison of average monthly labor cost in services (2005)

HungaryHungary PolandPoland CroatiaCroatia Bosnia&H

Bosnia&H

MontenegroMontenegroSerbiaSerbia Republic

of Moldova

Republic

of Moldova

IndiaIndia

Index(100:

Hungary)

Index(100:

Hungary)

(1)(1)

Sample of CEE countries

FYR Macedonia

FYR Macedonia

AlbaniaAlbania UNMIKUNMIK

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


The human capital gap

Source: OECD 2008

50% of BPO firms have difficulties finding skilled and educated workers

70% of BPO firms find education and training to be key policy issues

50%

Skills and education of available workersSkills and education of available workers Key issues within human capital policyKey issues within human capital policy

OECD Private Sector Development 13DRAFT NOT FOR DISTRIBUTION

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-specific 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

How to address the lack of skilled resources in the short term?

Short term actions: Engaging the private sector

• 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

Engaging the private sector for short term results


Policy reforms to move up the value chain and diversify FDIThe Republic of Kazakhstan example

SustainedCompetitiveness

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

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

How to improve sector competitiveness for the Republic of Kazakhstan


15

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


Appendix


Governance: Strong collaboration with regional bodiesSouth Caucasus and Ukraine

Regional Offices and presence:

-Istanbul-Moldova

SCU

Competitiveness Programme

SCU


SCU Competitiveness Committee

SCU Competitiveness Committee

OECD donor countries

Eurasia- SCU country

economic teams

Internationalorganisations

Private sector

Co-chairs: OECD Country + SCU Country + OECD

Regional Working Groups*:Human Capital

Investment PromotionTransportation

Trade

* Note: Tentative groups being discussed with countries of the region

Partners: Black Sea Economic Cooperation (BSEC) and EC Partners: Black Sea Economic Cooperation (BSEC) and EC


Governance: Strong collaboration with regional bodies (II)Central Asia

Regional Offices and presence:

-Istanbul

CA


CA


CA Competitiveness Committee

CA Competitiveness Committee

OECD donor countries

Eurasia- CA country

economic teams

Internationalorganisations

Private sector

Co-chairs: OECD Country + CA Country + OECD

Regional Working Groups*:Human Capital

Investment PromotionInfrastructure

TradeFinancial Markets

* Note: Tentative groups being discussed with countries of the region

Partners: OSCE and EC Partners: OSCE and EC


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

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

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’


61

0

100

200

230

13 2335 26

43

150

250

2003 2004 2005 2006 2007 F2008

0

5

Entreprises

Students

Qualitative performanceLanguage students and company demand

Evolution of demand and supplyItalian language

Excluding salary expectations, major discrepancy between supply and demand

Su

pp

ly/Dem

and

Eq

uilib

rium

Su

pp

ly/Dem

and

Eq

uilib

rium

Aw

aren

ess

Aw

aren

ess

Quality of graduatesQuality of graduates

DemandDemand

SupplySupply

# of people# of people

Quality of curricula (1)Quality of curricula (1)

Notes (1): Ranking: (1) Poor; (5) outstandingSource: OECD field surveyNotes (1): Ranking: (1) Poor; (5) outstandingSource: OECD field survey

2. How to identify and prioritise skills improvement efforts: Skill gap analysis Example for call centers - languages

Documents

OECD Private Sector Development 1 OECD Private Sector Development Division OECD Eurasia Competitiveness Programme June 2008 Fadi Farra Head OECD Eurasia