Promoting Job Creation in BSEC and CA Countries:

What Role for the Private Sector?

Karin C. Millett, Head FIAS Investment Generation-Vienna

Bucharest, June 23, 2008

Economic Growth

• ‘It is absolutely crucial to recognize that all economic growth takes place at the level of the productive enterprise – otherwise it is impossible to have a clear understanding of the growth process.’ (Arnold Harberger, December 2005)

• Not all productive enterprises are private, but the majority will be.

Private Sector as the Engine

• Significant structural changes have taken place since the transition to market economies, though the pace of job destruction has often outpaced that of job creation. In a market economy, it is clear that the private sector is the primary creator of jobs.

• However, job creation by private sector highly dependent on whether the policy environment obstructs or enables private enterprises to form, operate and exit business.

• While important reforms enacted by countries represented here, evidence suggests much still to be done in many countries to create a conducive environment for private sector development.

Doing Business Indicators (1)

World Bank - Doing Business Report

 2008 rank

2007rank

Change inrank

Albania 136 135 -1

Armenia 39 46 + 7

Azerbaijan 96 97 + 1

Bulgaria 46 54 + 8

Georgia 18 35 + 17

Greece 100 95 -5

Kazakhstan 71 71 0

Kyrgyz Republic 94 99 - 6

Moldova 92 90 - 6

Doing Business Indicators (2)

World Bank - Doing Business Report

 2008 rank

2007rank

Change inrank

Romania 48 55 + 7

Russia 106 112 + 6

Serbia 86 84 - 2

Tajikistan 153 153 0

Turkey 57 65 + 8

Turkmenistan na na na

Ukraine 139 139 0

Uzbekistan 138 145 + 7

A key question is productivity

• Two general approaches to increasing productivity, ‘yeast’ and ‘mushrooms’ (Arnold Harberger)– Yeast makes everything rise uniformly, e.g.,

knowledge, education, ICT– Mushrooms which ‘pop up’ in unpredictable

places and happen in an industry at the level of the firm, which is the locus of growth, leading to real cost reduction (TFP)

• A third approach is to reduce the ‘friction’ in the economic machine: working on the institutional milieu.– This offers opportunity for a public-private dialogue to

improve that milieu, through identifying ‘where the shoe pinches’ for the private sector.

Towards a more competitive private sector

Red TapePoor Productivity

Costly and

unreliable

Utilities

Logistics.

Competitiveness

Labor Cost

Corruption

7

Capacity building Reform management

Learning about good practice

Good policies and regulations matter

Source: WDR05. 8

Builds momentum for business environment reforms

Helps prioritize binding constraints

Ensure that reform design fits local needs and capacity

Smoothen/accelerate implementation of policy reforms

Promotes accountability, transparency, good governance

Builds trust and restore confidence in post conflict/crisis env.

Public Private Dialogue as a Tool

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PPD reforms Workable reforms Reforms that work

The Key Stakeholders and Processes in PPDDefine project brief

Investment climate constraints(Existing benchmarks and surveys)

Stakeholder investigation(Field interviews and focus groups)

Private sector Intermediaries Public authorities Civil Society

Most significant reforms(Field interviews and focus groups)

Stakeholder analysis

Design decision

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Examples of reforms resulting from PPD

• Turkey— Coordination Council for Improvement of Investment Climate led to new framework of laws to facilitate FDI and dramatically simplify procedure of registering a new company.

• Bosnia— Bulldozer initiative yielded many reforms, incl. slashing statutory capital requirements when registering a LLC.

Example of long-term successful PPD

• Ireland’s Social Partnership (started in early 1970s, became a real force in 1980s, as economy hit a crisis)

- Government, private sector, labor unions, farmers, and NGOs—chaired by Prime Minister’s Office

– Identifying key competitiveness issues and addressing social equity.

- Important factor in transition from a high- inflation, volatile economy to a low inflation, stable and competitive economy

• Expert Group on Future Skills Needs

Benefits and Outputs from PPD

Focusing on this will bring the others

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Embarking on a PPD Process

• FIAS/WBG can provide advice and assistance, drawing on experiences of over 40 countries around the globe.

• Manuals, guidelines and success stories are featured on line for those who want to learn more.

www.publicprivatedialogue.org

Charter of Good Practice

Lessons learned

Tools for practitioners

Case studies

Online partnerships

PPD Workshop

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THANK YOU!

Karin Millett

kmillett@worldbank.org

www.fias.net