Mr. Sven Smit, Director, McKinsey&Company - What will it take to double Serbia’s economic growth in the next decade?

Quantum Leap- what will it take to
double Serbia‟s economic growth
in the next decade?
Quantum Leap Conference

Belgrade, Serbia
October 3rd, 2013
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Bank), leading global foundations (Bill and Melinda
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… across 5 continents in almost 1,000
engagements

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Our topic today – what can the Serbian government do to achieve a
DATA FOR THE 1990'S SHOULD
quantum leap in growth over the next 10 years?
BE CONSIDERED ILLUSTRATIVE

Real GDP growth, USD (base 2010)

Countries that experienced single
year economic declines above 35%
grew by an average of ~10% in the
decade that followed the decline1

Is sustained >5% growth
possible for the first time
since Serbia became a
market society?
6-8%
5%

~0

2x

3-4%

3%
~0

-48%

1980s

1990

1991-2000 2000-2008 2008-2012 Forecast2

Illustrative (low data quality)3

Aspiration

The next decade

NB: ~Two thirds of Serbia‟s economy is managed by the government
1The countries included are: Rwanda (1994), Lebanon (1989), Iraq (1991), Kuwait (1991), Georgia (1992), Armenia (1992); Only other major exception is Georgia whose economic decline lasted for 3 years, after which it grew at 6%
2 EIU projects growth at 3.3% from 2014 to 2023, while WMM Global Insight projects growth of 4.2% for the same period
3 Other data sources: -5.5% (1991-2000) from WMM, 2.2% (1995-2000) from EIU

SOURCE: McKinsey Global Growth Model

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The government may choose to launch one of five types
of pragmatic Transformation Programmes
Program
typology

Main objectives

Most likely to meet
Quantum Leap objectives

Main interventions associated
to typologies

1 “Hands on”1

Actively support
private sector growth

▪ Sector support/subsidies
▪ Infrastructure investments
▪ Investing in private companies

2 “Hands off"

Reduce governmentcontrolled constraints
for economic activity

▪ Privatization
▪ Liberalization/sector reform
▪ Remove administrative burden

“Streamlining
3 government
costs”

Keep the same quality
of government services at lower costs

▪ FTE & OPEX reductions
▪ Reducing government scope
▪ Optimizing support functions

“Enhancing
4 government
output”

Enhance quality of
government services
at similar cost levels

▪ Organizational changes
▪ Operations changes
▪ IT solutions

“Achieving
5 more for
less”

Enhance quality of
government services
at lower cost levels

Boosting
economic
growth

Enhancing
government
efficiency

▪ Mix of the two types of
programmes above

1 Smaller economies trying to boost economic growth have historically tended to choose a “hands on” approach to Transformation

SOURCE: McKinsey

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Recent, high and sustained economic growth is possible …

Lower income3

All countries with over 5% average growth for at least a decade1 plus benchmarks <5%; Since 1980

Middle income

Economic growth

High income (76 countries)

%; Real GDP growth (USD, base 2010); Highest average growth 10 year period selected

11

Botswana (1980)

▪ Although no country

China
(1980-2010)
Korea (1980)
Kazakhstan (2000)

10
9

Singapore (1980)

Estonia (1996)

8

(except China and
Botswana) has grown
at a rate >10% for
longer than a
decade1, 41 countries
have grown in the 510% range2

Ireland (1994)

Serbia
(2013)

7

▪ Growth rates over 45% subjectively “feel
like growth” (e.g.
companies start
aggressively
employing)

6
Russia (1999)

5
4

Cyprus (1981)

Romania (2000)
Bulgaria (2000)

Serbia
(2000) Montenegro (2000)

US (1992)

▪ With a growth rate of

Germany (1983)

3

Croatia (2000)2

Italy (1983)

7%, roughly double of
the forecast
rate, Serbia could
almost reach high
income status in a
decade from now

Austria (1990)

2
1
Slovenia (1987)

0
0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

45,000

50,000

Real GDP per capita
USD (Base 2010)
1 Excluding countries that have rebounded from major economic declines, which include Rwanda, Bosnia, Kuwait, Iraq, Azerbaijan and Turkmenistan; From a list of 115 major world countries, including Serbia, tracked by
McKinsey's Global Growth Model
2 Croatia‟s highest growth was in the 10 y. from 1994, however 2000 was used here for regional comparability
3 Based on 2012 thresholds; Includes low income

SOURCE: McKinsey Global Growth Model; Global Insight, World Bank

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… which, data suggest, more than half of the high growth countries (>5%)
Before
have achieved through a Quantum Leap in growth since 1980
All countries with over 5% average growth for at least a decade1 since 1980; n=41

After

9.3%

7.3%
Estonia
-3.3%

Continued
34.1%
high growth2

Achieved a
Quantum
65.9%
Leap since
19801

5.9%
Malta3

2.4%

6.1%
UAE
Average
size of
Quantum
Leap

-2.6%

1 Defined ac countries that have achieved an increase in economic growth between the period of the highest 10 year average economic growth since 1980 and the 10 years prior to the first year of that period (in 9
cases between 5 and 10 years were considered due to data availability, however no less than 5 years were included in the data set)
2 Highest post 1980 10 year economic growth phase started in the 1980-1985 period, suggesting that high economic growth started prior to 1980-1985
3 Uganda, Tanzania, Israel, Ireland, Dominican Republic, Costa Rica and Belize have a similar growth profile

SOURCE: McKinsey Global Growth Model; Global Insight, World Bank

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Ideas others have leveraged to achieve a quantum leap
growth strategy
1Sectorwe all need to do?
What do

institutions
2 Policies &could the
What actions

3 Deliveryactually get it done?
How do we

government take?

▪

Set a compelling vision of
what Serbia will be the
best at …

▪

… that will be achieved by
a prioritized sectorspecific growth strategy ...

▪

▪

▪

... supported by a change
in mindsets and behaviors

▪

SOURCE: McKinsey

Enable local and foreign
(incl. FDI) enterprises to
deliver the vision through
private investment and
entrepreneurship...
... by orchestrating policies
and institutions to increase
sector and economy wide
competitiveness …
... and making it easier to
do business

▪

Committed and visible
high level political
leadership...

▪

… focusing on delivering
big outcomes in few
priority areas fast ...

▪

... supported by Delivery
Labs, a Delivery Unit and
transparent performance
management

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| 7

SECTOR GROWTH STRATEGY

1 For growth, sector performance matters more than sector mix in both
developing and developed countries
Contribution to total value added, 1995–2005
Compound annual growth rate, %

Growth

Growth momentum
(growth predicted by
initial sector mix)1

Total growth

High

9.1

China

United
States

3.3

United
Kingdom
Low

2.6
0.4

3.4

5.2

3.9

Mexico

Japan

5.7

5.5

India

Differences in
performance
of sectors2

6.0

0.3
-2.1

2.3

0.9

2.2
2.1

0.4
-1.7

1 Country growth rate calculated as if all sectors would have grown with the sector-specific growth rate average across all benchmark countries.
2 Actual country growth minus growth momentum of initial sector mix.

SOURCE: Global Insight; McKinsey Global Institute analysis

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1 Example of a Sector strategy overview, similar to what many other
ILLUSTRATIVE
countries have developed
Value generated per person

Bubble size: additional
growth in the next 10
years

Labor productivity; EUR per employee

300,000

Primary/growth sectors
Enabling sectors

280,000
260,000

Energy

240,000

Manufacturing
Electricity, gas
and water supply

220,000

Health and
social work

200,000
180,000

Financial
intermediation
Other
activities

160,000
140,000

Transport, storage
and communication

120,000
Public administration
and defense

100,000

Agriculture

80,000
60,000

Retail and
wholesale trade

40,000

Construction
Education

Hotels
and restaurants

20,000
0
0

20,000

40,000

60,000

80,000

100,000

Number of people employed
Source: McKinsey

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1 Middle income benchmarks suggest that most growth is likely to come
from productivity improvements, rather than increased employment…
Sector contribution to growth of value added, labor productivity, and employment for middle-income countries1
Contribution to compound annual growth rate 1985–2005

BASED ON PEER COUNTRY BENCHMARKS

Growth of labor productivity, %
2.1

1.5

Growth of value added, %
Goods
Services
Total

3.6

2.3

2.7

Growth of employment, %
5.0

0.2

1.2
1.4
1 World Bank defines middle-income countries as those with 2008 per capita GNI from $976 to $11,905. Value-added and employment data available in
Argentina, Bolivia, Brazil, Bulgaria, China, Colombia, Costa Rica, Egypt, Hungary, Jordan, Malaysia, Peru, Philippines, Poland, Romania, Slovakia, Sri Lanka, Thailand, Turkey, and
Uruguay

SOURCE: Global Insight; International Labor Organization; National Statistics;
McKinsey Global Institute analysis

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1 … while some sectors are much more likely to generate employment
than others
Share of US employment, August 2009 (percent of nonfarm employment)
100% = 130 million

New innovative sectors

Existing large employment sectors

11.3

4.9

0.2

0.3

0.6

Biotech

Semiconductor

Cleantech

5.9

Construction

SOURCE: The Clean Energy Economy, PEW, 2009; Bureau of Labor Statistics; Haver analytics

Financial
activities

Retail
trade

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1 FDI data suggest that Serbia’s rate of return on Foreign Direct
Investment (FDI) is low compared to benchmarks
BASED ON IMF AND EIU DATA
Inward FDI rates of return1, 2009-2011 average, %

62.4%

5.5%
4.0%

3.3%
2.4%

Serbia
(105/117)

CEE

EU-27

World average Angola

1 Calculated as FDI income/FDI stock based on UNCTAD methodology as presented in the World Investment Report

SOURCE: IMF; EIU; UNCTAD; team analysis

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1 Export data suggest that Serbia has export strengths in ammunition
and agricultural products
Serbia’s top 10: Revealed comparative advantage – exports; 2012
1 Arms and ammunition

Difference to 2007
9.26

2 Cereals

8.28

+5.05
+4.57

3 Products of the milling industry

6.60

-3.97

4 Edible fruit and nuts

6.48

-1.67

5.36

5 Sugars and sugar confectionery

4.71

6 Copper and articles thereof

+5.53
-0.11

7 Aluminum and articles thereof

4.07

+0.18

8 Live animals; animal products

4.06

+2.46

9 Footwear, gaiters and the like

3.60

-0.28

10 Explosives; pyrotechnic products

3.51

+0.45

EU-271 = 2.0%
1 Top 10 average for EU-27 countries

SOURCE: Comtrade; MGI Economics Research Team

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1 A country sector growth strategy should be squarely
positioned to take advantage of major global trends

Detailed next

Global trends that influence country growth programs through 2050

1. Economic center of
gravity shifts to
developing world

6. Trade increases and new
flows emerge

2. Urbanization rates
increase rapidly – mostly
in the developing world

7. Global energy demands
rise, but supply sources
remain uncertain

3. Global consumer class
expands rapidly in
emerging economies

8. Transition toward
sustainable practices

4. Labor force growth
decreases globally, but
mostly developed
countries

9. Increasing demand
for food

5. Race to increase
productivity through
technology and the
knowledge economy

10. Change in social values

SOURCE: Working group

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1 Increasing demand for food – the global food and agriculture sector is
facing severe pressure from demand-supply gap
World demand will grow around
70% between 2000 and 2050

Growth on the supply side is
constrained

▪ Water – 40% deficit expected

▪ Population growth – 7 billion
today to 9.2 billion by 2050

▪ Urbanization – 50% today to
70% of population by 2050

▪ Higher calorie consumption and
diet shifts: more wealth = more
protein
Global annual food consumption1
Kcal consumption, quadrillions
10.2
+70%

6.0

▪ Need to produce
„more with less‟

▪ Increased
pressure on food
price volatility

▪ Opportunity for
discontinuities
and investment

▪ Quality in
addition to
quantity

by 2030

▪ Land – over 20% of arable
land already degraded; require
additional 175-220 million ha
of crop land to meet the 2030
demand (11-14% increase)

▪ Climate change – lead to 316% lower productivity by
2080

▪ Productivity gain – steadily
declined since the 1960s
(2.2% average annual yield
increase) to today (1.2%)

▪ Energy – over 50% of cash
2000

2050

costs are fertilizers and fuels
(63% for U.S. corn production)

1 On a per-day basis, global food consumption is ~17 trillion Kcal in 2000, ~18 trillion Kcal in 2005, and ~28 trillion Kcal in 2050
SOURCE: FAO World Food and Agriculture to 2030/2050; FAO Expert Meeting on How to Feed the World in 2050; Sage;
PEAT; USDA; UNEP; World Bank; Resource Revolution, McKinsey

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1 Serbia is well positioned to play a significantly larger role in food
production in the next decades…
Agriculture labor costs in Serbia
are significantly lower than in
Western Europe
Agriculture labor costs
(EUR per hour, gross)1

Serbia has a high percentage of
arable land, almost 50% of which
is considered higher quality soils
Share of total land which is arable

47%
=~5 m ha

6.8

Serbia’s central location means
access to almost a billion people
within two days truck drive (2k km)
Population by distance band
Distance in KM; Millions of people
xx

# of cities with >1M ppl

37%

900
710

23%

3.4
1.9

280
67

Serbia2

Croatia

Serbia

WE

CEE

500

1000

2000

3000

5

WE

21

72

94

Smart investors (e.g. UAE based Al-Dahra, EBRD, IFC) have already
invested over 2bn EUR in the Serbian agriculture sector
1 Last available comparable year used (2007); Serbia‟s wage calculated based on monthly wage, assuming 20 day work week and 8 hours per day
2 Only about 6% of arable land remains unused; while only 1.5% is irrigated (which is low)

SOURCE: Republicki Zavod za Statistiku RS; Agri-info.eu; The Government of the Republic of Serbia; IAMO; Agripolicy

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1 … as well as in food processing
Food processing labor costs in
the region are significantly lower
than in Western Europe
Indexed food processing costs, 2012
Labor costs
All other costs

Building on the existing research
institutions, Serbia can build it’s
position as an agro R&D hub
Quality of scientific research
institutions, rank out of 148 countries

Serbia has significant potential to
add more value by exporting more
processed agricultural products
Share of total agricultural product exports by
degree of processing; 2012
Processed products

-9%

Commodities

Semiprocessed products

66

44

44

26

29

56

21
30

WE

CEE

Serbia

27

23

Serbia

World

CEE

“The greatest opportunity for Serbian agriculture is in fruit processing and in meat production.
Those are areas where you can advance significantly”
– Laurent Stokvis, Ambassador of Holland to Serbia, at the 2013 Agricultural Fair in Novi Sad
SOURCE: Eurostat, McKinsey analysis; WEF, Comtrade, MGI Economic Research

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1 However, Serbia has increased it’s exports of commodities, while other
countries in the region have moved up the productivity ladder
Revealed comparative advantage index1

2007

1.11

1.09

2012

1.04

Threshold 1

0.99
0.92

Serbia

▪

0.81

1.25

▪

1.16

CEE

0.84 0.85

Commodities Processed
products

0.80

0.75

Semiprocessed
products

Serbia agriculture sector
has been increasingly
relying on exporting
commodities (e.g.
corn, fruit, sugar
beet, tobacco)…
…while countries in the
Central and Eastern
Europe1 have significantly
increased exports of
processed agricultural
products (e.g. processed
fruit/vegetables, prepared
meat, dairy products)

1 or Balassa index is the ratios of the industry‟s share in the country‟s exports relative to the share in world trade. If the index takes a value of more (less
) than 1, the country is (not) specialized in exporting selected industry products

SOURCE: Comtrade; Team analysis

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1 Benchmarks suggest a number of measures are needed to grow
agricultural productivity, especially investment in automation and
developing scale economies
EU-15

Agriculture value added per
worker (thousands of US$
per year, constant 2005)

CEE

344

33
10

Share of arable land
Percent of total land

24

Share of irrigated land
Percent of arable land

17

Agricultural machinery
Tractors per 100 sq km
of arable land

172

Scalability
Average plot
size, hectare2

34

47

1,125

Fertilizer consumption
Kg per hectare of arable
land

43

37

28

8

13

344

1

155

18
141

138
78

28
7

1 Growing of perennial (cereals and vegetables) and non-perennial (fruits) crops, plant propagation and animal production
4 Data point for 2010 according to the World Bank methodology

2.5

▪ Higher share of arable
land vs. EU-15, gives
Serbia a good starting
position to further build
on its agricultural base
▪ Significant investments
and incentives needed
in irrigation and to push
machinery driven
production
▪ Consolidation of plots
highly desirable to allow
for economics of scale
▪ The Economics Institute
recently estimated the
potential of the Serbian
agriculture sector to 12
billion, almost three
times the current 4.5
billion agricultural
production gross value

2 CEE average plot size figure excludes Czech and Slovakia

SOURCE: World Bank; World Development Indicators database; Eurostat; team analysis; European Commission

3 Data point for 2009

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1 Agriculture Transformation example: “Green Morocco” has achieved a
jump of almost 50% in agro GDP and production in under 5 years
Agriculture as the main engine
for economic growth
and social development
Pillar II

Pillar I

Social Agriculture:

Commercial
Agriculture:

Social investment
and fight against
rural poverty

Private sector
investment on high
productivity/ high
value
Focus on aggregation
and contract farming

Reform of key transversal areas
Integrated
Water
management
(Supply &
Demand)

Land reform
& industry
structure

Market
access and
trade policy
(FTAs)

Access to
inputs &
services (incl.
distribution
networks)

Doing
business &
access to
financing
(incl. taxation
& subsidies)

Institutional
reform &
public
services (incl.
extension /
R&D)

Integrated
rural
development

McKinsey & Company
Source: Green Morocco Plan

| 20

growth strategy
What do

institutions
What actions

How do we

government take?

▪

best at …

▪


▪

▪

▪


▪

SOURCE: McKinsey

entrepreneurship...
competitiveness …
do business

▪

leadership...

▪

big outcomes in few

▪

management

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POLICIES AND INSTITUTIONS

2 The overall findings of the latest 2013-2014 Global Competitiveness
Report mirrors the public perception that change in Serbia is required…
Global Competitiveness Index 2013-2014; Ranking of countries in Europe (out of a total of 148 countries worldwide)
Top 3

Bottom 3

3rd place: Finland

4th place: Germany

1st place: Switzerland

101st place: Serbia

Serbia’s competitiveness
has fallen by 14 positions
in the past 7 years to the
lowest position in Europe

95th: place: Albania
91st place: Greece

1 A measure of the degree of sophistication of business practices and strategies of companies in Serbia

SOURCE: World Economic Forum Global Competitiveness Report 2013-2014

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2 … while suggesting that productively channeling the great talent
available in the country is key to Serbia’s path forward
Detailed set of indicators (total of 114) that together make up the overall country rank

What are Serbia’s …
…Greatest competitive
strength?

▪ Tertiary education

▪
▪
▪
▪
▪

enrollment
Quality of math and
science education
Quality of scientific
research institutions
Number of
Serbia is a source
international patent
of great talent …
applications1
Mobile broadband
subscriptions
Flexibility of wage
determination

…Greatest competitive
weaknesses?

…Most significant barriers blocking the
further development of the strengths

▪ Ability to attract

Professionalize management
▪ Willingness to delegate authority
▪ Reliance on professional management
▪ Nature of competitive advantage2 Extent
of staff training
▪ Firm level technology absorption
…mainly because managers are
▪ Quality of management schools not
inspiring, financing is hard to come by
Improve access to financing
and
the government is not
▪ Easeit feels likehelping
of access to loans
▪ Financing through local equity market
▪ Venture capital availability
Improving government effectiveness
▪ Burden of government regulation
▪ Efficiency of legal framework
▪ Quality of overall infrastructure
▪ Intensity of local competition

(2nd

▪

talent
lowest
place globally)
Ability to retain talent
(3rd lowest place
.. .however we do
globally)
not seem to be
providing adequate
opportunities for
our talent to
develop…

NB: ~Two thirds of Serbia‟s economy is managed by the government
1 PCT patents, applications/million population 2 Busines sophistication/ competitiveness of company strategies/production process sophistication

SOURCE: World Economic Forum Global Competitiveness Report 2013-2014

McKinsey & Company

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2 However, countries should not implement policies blindly – following a
reform agenda focusing only on macro enablers is not the whole answer
Countries in Latin America implemented
"Washington Consensus" economic
reforms…
Structural Reform Index1

0.58

… but these reforms were not associated
with strong economic growth in most
countries
GDP per capita, constant 2000 USD
1985
+1%
p.a.
1999

1.7x

4,019

0.34

Latin America Average

3,533

Latin America Average

▪ Similar evidence in Eastern Europe and Subsaharan Africa
▪ At the same time, evidence that
– "Growth champions" (Asian Tigers, India, China) had employed policies that were contrary the
Washington consensus ("planned growth 2.0")
– Rise of contemporary economic super-powers similarly been associated with heavy interventionism
1 1 = most "reformed"; 0 = least "reformed". Includes measures of trade, financial, tax, privatization, and labor policies. From Lora (2001)

SOURCE: Lora (2001); World Bank; Rodrick (2004); EconDev KIP team

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2 The priority and supporting sectors can be grouped
by degree of differentiation and tradability of products…

Size of circle = relative
amount of sector value
added in 2005

Differentiation index
0 = average
High 1.6
Pharma

Differentiation of products

R&D

Business
services

1.2
0.8
Real-estate
activities

0.4

Local
services

Other

Wholesale and
retail trade

Post and
telecommunication

Radio, TV, and
communication
equipment
Chemicals

Computer and
related activities

Finance and
insurance

Other

Resourceintensive
industries

Aircraft and spacecraft
Medical
instruments

R&D-intensive
manufacturing

Pulp, paper, printing,
and publishing
Fabricated metals
Rubber and plastics

0
Electricity

Infrastructure

-0.4

Construction
Hotels and restaurants

Land
transport

Basic
metals
Agriculture,
forestry, an
d fishing

Low -0.8
1
Low

Wood
products

Motor vehicles
Machinery and
equipment

Manufacturing

10
100
Imports plus exports divided by sector gross output, %
Tradability of products

High

Sectors can be grouped into clusters based on two key sector
competitiveness drivers, tradability & differentiation
SOURCE: EU KLEMS growth and productivity accounts; OECD input-output tables; McKinsey Global Institute analysis

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2 … which allows governments to tailor policy based on the sector group
needs which both targets and simplifies policy formulation
Degree of intervention
Low

High

Setting ground
rules/direction

Building enablers

Tilting the
playing field

R&D-intensive
manufacturing

Business services

Local services

Government as
principal actor

Manufacturing

Infrastructure

Resource-intensive
industries

Infrastructure

Grouping of sectors into clusters enables a tailoring of government policies
by cluster to simplify policy development and increase its effectiveness
SOURCE: McKinsey Global Institute/Public Sector Office Competitiveness Project

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2 Example of a best practice proactive investment attraction approach
Design
Customized pitch books
▪ Prioritising and
segmenting investor
target list
▪ Tailoring pitch book (and
proactive proposals) for
priority investors in each
segment

Investment
excellence

▪

Supporting
enablers

Execute

Tailored value proposition to
prioritized investors in key
sectors

Army of investment officers
to source and pitch deals

▪

▪

▪

Delivering a targeted
number of deals each p.a.
through 20-401 dedicated
officers
Conducting fact-based
performance dialogues to
review progress, resolve
issues and problem-solve
concrete action

Attract enough investors to
meet the required level of
investment levels p.a.

Plug-and-play industry ecosystem

▪
▪

Providing large scale infrastructure for investors to come in
Developing plug-and-play facilities with well connected logistics and supporting
infrastructure

Business friendly environment and a cosmopolitan society

▪
▪

Enforce

Providing clear and transparent investment rules and governance
Ensuring ease of establishing and operating business

▪
▪

Investment and
Enforcement agency to
ensure quality of committed
and deployed investment
▪ Overseeing commitment of
investment
▪ Reviewing on an on-going
basis the quality of
investment, investments
gaps against stated
targets, performance
management of investment
officers
Committed investments
timely and fully deployed
Committed investments
reached targeted outcome

▪

Quick ramp-up times and
assured supply
Proximity to efficient ports
and logistic providers

▪

▪
▪

Top position in Ease of Doing
Business
Top position in Most Liveable
Countries

1 Number of investment officers varies across countries and investment needs

SOURCE: McKinsey

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2 A relatively low level of financial depth in Serbia suggest that
availability of capital is a key precondition for growth
Financial depth, stock of financial assets (debt + equity) as a % of GDP, 2012
GDP growth is strongly correlated to growth in the stock
(household and corporate) stock of financial assets with a
World correlation of 0.83 and 0.81 for Emerging Markets

417%

217%
127%
93%

Serbia

100%

Bosnia

Croatia

Eastern
Europe

Western
Europe

1 Calculated as FDI income/FDI stock based on UNCTAD methodology as presented in the World Investment Report

SOURCE: McKinsey Global Institute Financial Assets Database; McKinsey Global Institute analysis

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2 Infrastructure example: benchmarks suggest a major rise in
infrastructure spend may be needed to support a Quantum Leap
BASED ON BENCHMARKS

Serbia; Infrastructure investment gap analysis3

Historical

Quantum Leap scenario

% of GDP, 5% growth, 2000-2008

% of GDP, assuming 7% growth, 2013-2023

6.7%
5.3%

4.7%1

3.3-4.3%

3.4x
2.0%
1-2%

Actual
historical
spend4

Target
spend

Gap

Recent
spend2

Target
spend

Gap

Implies total investment of up to
30-40 billion USD over ten years

▪ Current infrastructure is strained due to decades of underinvestment1, further increasing the importance
of adequate infrastructure investment to support sustainable growth in the next decade
▪ However, the situation may not be as critical as suggested by benchmarks due to major economic
decline in the 1990s and solid infrastructural base in the 1980s
1 The gap in the 1990's is at least 1%, on top of the gap generated in 2000-2008

2 2007-2010

3 Benchmark is: 1.8% of GDP + 70% of growth 4 Illustrative due to data quality issues

SOURCE:ITF, Buildecon Reports and GWI, OECD 1998 report on the perpetual inventory method, Farewell to Cheap Capital
(McKinsey report, 779371, p. 65), Various IFIs (e.g. World Bank) and data providers (e.g. Global Insight)

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growth strategy
What do

institutions
What actions

How do we

government take?

▪

best at …

▪


▪

▪

▪


▪

SOURCE: McKinsey

entrepreneurship...
competitiveness …
do business

▪

leadership...

▪

big outcomes in few

▪

management

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DELIVERY

3 Achieving a transformation is hard, but it is not harder in the public
sector than in the private sector
How successful was the transformation in
reaching the targets your organization set?

Percent (Public=974, Private=4,572)

Extremely successful

100
5

Very successful

30

Somewhat successful

51

Not successful at all
Don‟t know

5
9
Private

100

9
40 percent of government
transformations succeed

30

41

10
10
Public

SOURCE: Public Sector Transformational Change (TC) survey 2012 to U.S. Government Leaders GS15-SES (n=974);
Private Sector TC survey ‟06, ‟08, ‟10 to a panel of business leaders (n=4,572)

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DELIVERY

3 Why transformation is hard – a few thoughts from former
transformation leaders
―The difficult thing is not to see what to do, the
difficult thing is to do it… If I had to do it all again, I
would perhaps set up some centralized unit just to
monitor progress and to spread ideas and best
practices.‖
– Göran Persson, former Prime Minister, Sweden

―How many times in administration we had super
perfect strategies that stay on the shelves, were
not implemented and thus produced no results.‖
– Ahmed Chami, former Minister for Industry, Morocco

―Don’t think you can simply have a good idea
and not manage and build stakeholders who will
support it and who will argue for it.‖
– Tony Blair, former Prime Minister, United Kingdom

―I didn’t expect to encounter inertia of such
magnitude—inertia that is due to the scope of the
program, the number of workers involved, and the
strength of habits anchored for decades or more in the
public sector.‖
– F.D. Migeon, Head of Department
for Modernization, France

―You cannot transform anything until you
change what is in the minds of people.‖
– Roel Bekker, former Secretary General for
Government Reform, the Netherlands

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DELIVERY

3 Lessons a government can leverage to increase chances of success (1/3)
10 key learnings from an analysis of 40 government led Transformation Programs across the world

1 Shoot for the sky
Around the world, governments have
achieved remarkable transformations – resulting in improvements that
many believed beforehand to be
impossible
2 Set a clear and compelling target
Be very clear about what it is that you
wish to achieve (growth, efficiency or
quality)
3 You have only one shot at the goal
Successful transformations build the
foundations for impact: the usual focus
is the mandate term, but simultaneously they also ensure quick wins and
plan for persistent, long-term impact

▪ Past Transformation Programmes (TPs) aimed at boosting
growth were able to create additional annual GDP growth
of ~1.5% (range from 0 to 4%)

▪ Successful transformations usually focus on two goals
▪

simultaneously (but not three)
Smaller countries are more likely to take a hands on
approach in growth programmes

▪ The average duration in power of national leaders since
▪

1945 has been 7 years, which is ~ as long the average TP
Not a single TP was implemented in less than 3 years

4 Be persistent and consistent, but flexible
Changing targets half way will
undermine confidence in the
program, but shifts in circumstances
demand flexibility

▪ Once you have set a target, stick to it. Clarity in the
▪

ambition is one of your most powerful tools
Be open to modifying your approach when and where
necessary – as when new opportunities arise

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DELIVERY


5 Capture the right moment
Successful leaders require a mandate
for change and take full advantage of
the opportune moment – the kairos –
as well as of an aspiration for change
in the public opinion

▪ The two most common reasons for starting a TP are:
– The election of new leaders (in 70% of cases)
– A crisis (in 50% of cases)
▪ The most powerful mandate for change was based on
both a crisis and a change in leadership

6 Agree on what you want to change and the program will follow
“What you want to do” (the portfolio of
interventions) significantly shapes the
options for “how you do it” (the
program design)

▪ A hands-on growth TP is most likely to be successful if
driven top down by a centralized, highly skilled administrative team through a delivery unit1

7 Do not neglect the basics
Ensure you give due regard to the key
success factors that apply to all
transformation programs

▪ E.g. develop a clear change story linked to a national
vision, establish a central team, set targets centrally, link
targets to budgets, harness the energy of transparency by
communicating targets and results, assign the best public
servants to the job2, assign accountabilities and manage
performance, leverage change agents, etc

1 Unless existing structures with sufficient experience in terms of transformation already exist
2 Often with an infusion of the private sector, however depending on existing capabilities

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DELIVERY


8 No one expects to travel into space in a propeller plane
Transformation in the public sector are ▪ TPs are very complex (average of ~250 interventions
extremely complex, and demand
grouped in 22 categories), large (Serbia‟s gov‟t manages
significant investment and high-quality
~2/3 of the economy and is the biggest employer), require
resources over the long term, requira large central team (average of 1,300 FTEs involved over
ing a major effort on capability building
7 years) and a scale-up in capabilities (e.g. through
academies for civil servants building leadership, functional
and operational capabilities)
9 Personal commitment matters 100%

Transformations leaders lead from the
front, investing significant time and
reputational capital

▪ Almost all TPs had at least one person at the helm whom
▪

have given their name, face and reputation (and political
career) to achieving the goals of the program
These TP leaders invested as much as 10-50% of their
time to driving the TP over the whole programme duration1

10 Rewards will follow (through sometimes posthumously)
Some criticism is inevitable, but the
record shows transformations leave a
long-lasting legacy

▪ Successful TP leaders find ways to push beyond the
initial criticism to achieve their aims. Looking back, these
leaders often point to their leadership of the TP as one of
their greatest achievements in office. Once the program has
reached many of its goals, their achievements are also
frequently acknowledged internationally

1 Including succession planning after they are gone

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DELIVERY

3 Malaysia case example: The Prime Minister outlined 4 elements to
Malaysia’s transformation Programme

1 People First

Performance Now
3

2

“Then Government
is set to begin the
transformation
process in
strengthening the
efficiency of its
delivery system”

“Our real work will
begin as we make
the transformation
of government
services happen”
4
10th & 11th Malaysia Plan
McKinsey & Company

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DELIVERY

3 Malaysia case study – cross functional full time delivery labs were used
to detail out the concrete reform plan for each priority initiative
What is the
purpose of a
lab?

Who
participates in
a lab?

▪ An intense 6-8 week, “locked in together in a

room until the work is finished” approach in
taking a high level reform programme and
translating into an actionable (who does what
when) initiative by initiative implementation plan

▪ The lab includes key stakeholders (20-30

▪
What happens
in a lab?

How is
commitment
secured?

▪

people) relevant to solve the defined
problem, and are selected from the
government, state owned enterprises, private
and social sectors
The invited cross-organizational team works fulltime in one location
The lab involves an intense closely
facilitated/managed problem solving process

▪ The key political leaders are engaged early

▪

and continuously (~every 1-2 weeks)
Initiative level owners sign off on programmes
and are accountable for implementation

▪ A “3-feet“ level implementation
What are the
end products?

programme, including agreed
solutions, detailed execution plans with
responsible owners (across
organizations), timelines and targets
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DELIVERY

3 Malaysia case example: 500 people, primarily from the private
sector, worked across 12 labs for 8 weeks to develop a program
with ambitious targets through the Delivery Labs
ENTRY
POINT
PROJECTS

Gross National
Income (GNI)

USD

PER CAPITA GNI IN 2020

Transformational
Actions

Jobs

USD
ADDITIONAL JOBS
Investment

INVESTMENT

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DELIVERY

3 Malaysia case example: 12 National Key Economic Areas (NKEAs) were
selected
Financial
Services

Oil, Gas &
Energy
Education

Greater
KL

Business
Svcs

Tourism

NKEA Labs:
11 Economic Sectors
+
Greater KL

Agriculture

W’sale
& Retail

E&E

Within the first 8 months,
the ETP was able to a
major jump in FDI to reach
55 billiion USD (for a
country of 27 million
people) within 8 months,
which compares to
Serbia‟s total FDI stock to
date of 26 billion USD

Health
Services

Telco
Palm Oil

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HIGHLY ILLUSTRATIVE EXAMPLES

DELIVERY

3 Some transformations specifically drive concrete changes in
behaviors by tackling change in the most obstructive mindsets
Detailed further

To …
From ...

• Hard work does not pay off… no one can
pay me as little as I can work…
employment through connections

• It will not get better for me until it gets
worse for someone else

• Hard work pays off and the more I work the
work the better off I will be

• We can achieve more working together
(moving from a win/lose to a win/win
mindset)

• I can only change and effect my own

• It is always someone else‟s fault
(government, system, corruption, external
powers, etc)

• With the people and institutions that we

behavior to make things better- I am
responsible for what happens to me

• Things were once better, and they will be
better in the future

have here, things will never get better

• I know what I don‟t know
• I know the best

SOURCE: Team analysis

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DELIVERY

3 “I know the best” mindset example: moving from unconsciously
unskilled to consciously unskilled is the necessary first step for further
growth
Personal realization

Requires
no conscious
thought

Personal experiences

▪ Owned as

▪ Pleasure
▪ Ease
▪ Satisfaction

normal, natural and
effortless

Unconsciously
skilled

▪ I can do it but I need
Requires practice

to think about it
Consciously
skilled

Requires
a point
of choice

Requires incident leading
to insight

▪ Aware of what I have
to learn,
but don‟t know how to
do it

Consciously
unskilled

▪ Don‟t know what I
don‟t know/have to
learn

SOURCE: © Gita Bellin and Associates, 1999

▪ Choose to change
▪ Skill building
▪ Nurturing by others
▪ Courage and humility
▪ Persistence
▪ Confusion
▪ Go in „learning‟
▪ „Aha!‟ moment
▪ Realization
▪ Upsetting situation or

Unconsciously
unskilled

relationship

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DELIVERY

3 While growth is a critical outcome, over time the Transformation
Program could also address other drivers of happiness
United Nations World Happiness Report 2013; Score out of 10

xx

Difference:
Happiest to Serbia

Explained by
Perceptions of corruption
Generosity

+0.3
+0.4
+0.4

7,50

Freedom to
make life choices
Healthy life expectancy
Social support

4,81

GDP per capita
Base country + residual

2,93

+0.4

Average of top
10 happiest
countries1

Serbia
(106/156)

Least happy
country2

1 Denmark, Norway, Switzerland, Netherlands, Sweden, Canada, Finland, Austria, Iceland, Australia

SOURCE: UN

According to the UN World
Happiness Report, an increase
in income to highly developed
country levels1 would increase
Serbia‟s happiness by
+0.4, the same as an increase
in generosity and slightly more
than a decrease in perceptions
of corruption (+0.3)

2 Togo

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| 42

THANK YOU

McKinsey & Company

| 43

BACKUP

McKinsey & Company

| 44

Looking forward, time is of the essence

A karios may be approaching –
Serbia can capture the opportunity
Achieving a Quantum Leap is possible…
with the right prioritization,
including many already existing ideas
The implementation of the Transformation/
Reform agenda is likely to be a key challenge…
and it can be done

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| 45

Day zero hypothesis
growth strategy
What do

PRELIMINARY DRAFT

institutions
What actions

How do we

government take?

▪

A vision does not exist today and
one is desperately needed.
Potential messages include:

▪

– Best human capital in the region
– Primary sectors: agriculture, food

▪ As talent is infused, a result

processing, automotive cluster, It
sector, mining (tbc), outsourcing
& offshoring
(tbc), semiconductors (tbc)

oriented government effectiveness
transformation should be pushed
within the government to fix the
basics (e.g. tax collection)

▪

▪

SOURCE: McKinsey

▪

The next 6-12 months will be a
highly opportune moment for the
government to launch a
Transformation

▪

The Transformation should follow
the hand-on growth model with a
strong central Delivery Unit

Sector based policy enablers
should be defined in implemented
across time horizons (incl. policy
guillotine)
Global Competitiveness “quick
fixes” (including perception drivers)
should be launched

– Secondary sectors:
education, infrastructure, retail, e
nergy

A culture of meritocracy should
continue to be transitioned to in 2-3
years (in both SOE and the gov‟t)

McKinsey & Company

| 46

growth strategy
What do

institutions
What actions

BACKUP

How do we

government take?

▪

best at …

▪


▪

▪

▪


▪

SOURCE: McKinsey

entrepreneurship...
competitiveness …
do business

▪

leadership...

▪

big outcomes in few

▪

management

McKinsey & Company

| 47


1 100 largest companies in Serbia (1/2)

Source: APR

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| 48


1 100 largest companies in Serbia (2/2)

Source: APR

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| 49


1 Manufacturing, professional services and mining sectors pay the
highest salary in Serbia
Top 10 industries by highest income, RSD, 2011

Industry

Sub-industry

Mining and quarrying

Extraction of crude
petroleum and natural gas

89,167

Activities of head offices;
management consultancy activities

86,682

Professional, scientific and technical
activities

Average net salary

Manufacturing

Manufacture of tobacco products

Manufacturing

Manufacture of coke and
refined petroleum products

79,349

Financial service activities,
except insurance and pension funding

77,611

Transportation and storage

Air transport

75,616

Other service activities

Activities of membership organizations

74,136

Manufacturing

Mining support service activities

Financial and insurance activities

Warehousing and support
activities for transportation

64,969

n/a

64,837

Professional, scientific and
technical activities

Electricity, gas, steam and air conditioning
supply
SOURCE: RZS

84,239

71,367

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1 Number of people employed in Serbia by Sector (1/2)
Top 10 industries by growth in employment, 2011
Industry

Sub-industry

Arts, entertainment and recreation

Gambling and betting activities

Real estate activities

Real estate services

Financial and insurance activities

Insurance, reinsurance and pension
funding, except compulsory social security

Administrative and support service activities

Services to buildings and landscape
activities

Information and communication

Information service activities


Office administrative, office support and
other business support activities

Professional, scientific and technical activities

Activities of head offices; management
consultancy activities

Professional, scientific and technical activities

Legal and accounting activities


Employment activities

Arts, entertainment and recreation

Sports activities and amusement and
recreation activities

Number of employees, 2011

SOURCE: RZS

4,688

Growth,
2008-2011, %
14.89

3,125

11.41

7,843

11.08

10,205

10.42

1,532

7.04

3,024

6.99
15,821

5,766

6.18
5.68
4.73

1,991

6,421

4.12

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1 Number of people employed in Serbia by Sector (2/2)
Top 10 activities by decrease in employment, 2011
Industry

Sub-industry

Number of employees, 2011

Manufacturing

Manufacture of other transport equipment

Manufacturing

Manufacture of basic metals

Manufacturing

Manufacture of computer, electronic
and optical products

8,835

-8.67

Manufacturing

Manufacture of beverages

9,537

-8.54

Mining and quarrying

Extraction of crude petroleum
and natural gas

Manufacturing

Manufacture of machinery and
equipment n.e.c.

Manufacturing

Manufacture of other non-metallic
mineral products

Accommodation and food service activities

Food and beverage service activities

Agriculture, forestry and fishing

Crop and animal production, hunting
and related service activities

Transportation and storage

Air transport

SOURCE: RZS

3,777

Growth,
2008-2011, %
-12.19

14,425

-9.11

1,415

-8.38
15,518

-8.18

13,505

-8.06

10,740

-8.00
29,142

1,499

-7.96
-7.63

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1 National vision example: Singapore 21 vision- key messages
Our vision for Singapore is not houses of brick and mortar, but
homes with hearts and dreams. People who feel confident and
secure. People who believe in Singapore and its future. Let‟s work
together to make Ours the Best Home, for ourselves and our
children.
In a global, knowledge-based economy, countries which attract
and mobilise human talent will thrive. We have to continue to
draw in talent but we must also continue to invest heavily in
education and training of our own people.

In future, the competitive advantage of nations will lie in their
people - how a society is organised to maximise and mobilise the
potential of its people.
We need to go beyond economic and material needs, and reorient
society to meet the intellectual, emotional, spiritual, cultural and
social needs of our people. In Sony Corporation, they call this
"heartware"
NB: The Economic Development Board, established in 1961 and active since, has been a key factor in driving Singapore‟s growth by
formulating and implementing national economic strategies, at first focusing on promoting Singapore's manufacturing and logistics sectors
Source: Excerpt from a speech delivered in Singapore‟s Parliament, June 5th, 1997

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1 National vision example: Malaysia’s Wawasan 2020 vision established
and maintained since 1991- key messages
Hopefully the Malaysian who is born today and in the years to come
will be the last generation of our citizens who will be living in a
country that is called 'developing'. The ultimate objective that we
should aim for is a Malaysia that is a fully developed country by
the year 2020.
Each [developed country], out of a world community of more than 160
states, has its strengths. But each also has its fair share of
weaknesses. Without being a duplicate of any of them we can still be
developed. We should be a developed country in our own mould.
Malaysia should not be developed only in the economic sense. It must
be a nation that is fully developed along all the dimensions:
economically, politically, socially, spiritually, psychologically & culturally.
The vision includes 9 key challenges, including developing a
society that is: united, psychologically liberated and
secure, democratic, moral, liberal and tolerant, scientific and
progressive, caring, economically just, prosperous and competitive
A number of creative approaches were used to bring the vision to life, including the Wawasan 2020 patriotic song in Malay and English
Source: www.wawasan2020.com

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1 National vision example: Malaysia’s Wawasan 2020 vision established
and maintained since 1991- recent update

Source: Malaysia Investment Development Authority

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| 55


1 On a total economy level, productivity and employment drive growth

Economy level

Myth
1 Productivity
growth doesn‟t
matter

Productivity
growth
GDP
growth

Employment
growth

Source: MGI

Reality
Productivity growth is closely
correlated with competitiveness, and it is the key driver
of rising living standards

2 Productivity is a Productivity growth and
job killer
employment growth are often
positively related
3 Productivity is
only about
cutting costs
and labor

Productivity growth in many
sectors comes from increased
top-line revenue and higher
value goods

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PRELIMINARY

1 Serbia should target sectors according to four criteria
Description

▪

A
“Countercyclical sectors”
(traditional and high-tech/
high-productivity)

Priority sectors

Sectors not effected (or slightly effected)
by crises
Biggest potential in the next couple of
years in terms of investing (FDI potential
for Serbia)
Larger growth and GDP enhancement
potential in the current crises

▪ Chocolate production
▪ Water and soft drink production
▪ Generic pharma
▪ Bio-molecule pharma
▪ Specialty chemicals
▪ Household chemicals

Good base for further growth, especially
for exports
Existing infrastructure and labor supply
Shorten time needed until beginning of
production and achievement desired
quality levels

▪
▪
▪
▪
▪
▪

▪

▪
B

▪

▪

Development of clusters centered
around existing "champions"
or revamp of past clusters

C

▪
▪

▪
Infrastructure developments

▪
▪

D
Targeted ad hoc efforts with
relevant
multinationals, Serbia-friendly
companies and efficiencyseeking FDI

SOURCE: McKinsey; team analysis

▪
▪
▪

Office machinery
Electronic photo cells, transistors
Wire, Cable, Patterns Lighting
Medical equipment (basic)
Automobile parts
Software research and maint.
(focus on mobile and gaming)
Wood processing

Serbia‟s substantial infrastructure lag
(especially in transport) compared to
developed countries
Growth opportunity in telecom services
(especially mobile)
Growth opportunity in energy production

▪
▪
▪
▪
▪
▪

Power generation
Mobile/diversified operators
Shipping
Road construction
Railway construction
Air carrier

Large FDI inflow by multinationals
Utilizing Serbian Diaspora to attract FDI
Efficiency-seeking FDI amidst costcutting crisis initiatives

▪

Food
Pharma
Chemicals

n/a

Electronics

Automotive
Software
Wood

Infrastructure

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1 Most growth is likely to come from productivity improvements, rather
than increased employment
GDP per capita, 2011, PPP, $ thousand

CEE1

19.0

Productivity
contribution

Labor utilization
contribution

EU15

20.4

4.5

34.9

1 CEE excluding Croatia

SOURCE: The Conference Board; Eurostat; Global Insight; International Monetary Fund; team analysis

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1 Given Serbia’s middle income status, more than half of Serbia’s future
growth can be expected to be in service related sectors

Services1

% of GDP, 1970–2001

Industry2
Agriculture

Low-income countries

Middle-income countries
(incl. Serbia)

High-income countries

80

80

80

70

70

70

60

60

60

50

50

50

40

40

40

30

30

30

20

20

20

10

10

10

0
1970

1980

1990

2000

0
1970

1980

1990

2000

0
1970

1980

1990

2000

1 Industry: manufacturing, mining, and construction; services: personal, professional, and public-sector services and utilities.
2 The World Bank defines middle-income economies as those with per capita GNI in 2003 between $766 and $9,385 measured with average exchange rate over past two years.

SOURCE: World Development Indicators, World Bank; McKinsey Global Institute analysis

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1 GDP per capita has been increasing with time, mostly driven by
productivity increase, with simultaneous growth in employment
Productivity

Hours per capita

GDP per capita

Employment
per capita

EU-15 economic growth
Indexed numbers1, 1970 = 100

U.S. economic growth
Indexed numbers1, 1970 = 100

250

250

200

200

150

150

100

100

50
1970

1980

1990

50
1970

2000
Year

1980

1990

2000
Year

1 The trends are based on real growth

Sources: The Conference Board; MGI

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| 60


1 Both higher efficiency and higher output value lead
to productivity growth

Reduce
input for a
given output

Consolidate to
better leverage
scale

Improve operational performance

Drivers for
productivity
performance

Find innovative
processes to improve
operations
Create innovative high
value added products
and services

Sell highervalue goods
Increase
output with
a given input

Source: MGI analysis

Close gap to bestpractice operations

Sell more goods
to increase capacity utilization

Shift to higher-value
goods within existing
product portfolio

▪ Productivity driven by:
– Efficiency, which
can lead to
(temporary) job
losses on firm and
sector level
– Increases in
value/volume, often
enabled by higher
efficiency and lower
prices, potentially
leading to job
creation
▪ Productivity crucial for
economic development
and without negative
implications on
employment

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1 Driving service sector growth is critical, particularly in terms
of jobs growth
Sector contribution to a country's net growth of employment, 1985–2005
%, million employees
Low-income
countries
100% = 324

Medium-income
countries
100% = 50

High-income
countries
100% = 74

29

100%
Goods

9
32

129

91

Services

68

SOURCE: International Labor Organization; National Statistics; McKinsey Global Institute analysis

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1 Within a 3000km radius, Serbia has access to ~900 million people, >650
airports and ~100 cities with >1M population
Population by distance band
Distance in KM; Millions

900
710

280
67
500

1000

2000

3000

500

2000

3000

# airports

42

170

513

671

# of cities with
> 100k ppl

65

202

618

819

# of cities with
>1M ppl

SOURCE: ESRI World data

1000

5

21

72

94

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1 Serbia’s sector growth strategy should be squarely positioned to take
advantage of the major global trends (1/2)

Trends
Economic center of gravity
1
shifts to developing world
Urbanization rates increase
2 rapidly – mostly in the
developing world
Global consumer class expands
3
rapidly in emerging economies
Labor force growth decreases
4 globally, but mostly developed
countries
Race to increase productivity
5 through technology and the
knowledge economy

Description

▪

Most growth through 2050 will be in emerging markets across Asia, Africa, Middle
East, and Latin America, which will drive 80% of GDP growth through 2050

▪

By 2050, urban areas will add about 2.6 billion people – absorbing almost all
population growth globally
Over 80% of the developed world population will be urban and over 60%
of the developing world population will be urban

▪
▪
▪
▪
▪
▪
▪
▪
▪

6
Trade increases and new flows
emerge


▪

An extra 3 billion people will join the middle class by 2050 – mostly from emerging
markets
By this time, the share of global consumers in emerging markets will be 2/3, up from
1/3 today
Many developed economies will see almost no labor force growth due to aging
populations and decreasing labor force participation in some population segments
Over 70% of global labor force growth through 2030 will come from China, India and
Young Developing economies
Largely driven by decreasing labour force, most GDP growth will need to come from
productivity advances as discussed in trend 4
This will depend on new and disruptive technologies like mobile internet, 3D
printing, robotics, etc.
The rise of knowledge economy and innovation – particularly in the developing world
– will also play a major role
Global trade volume will be about 8 times larger by 2050, as trade within emerging
markets increases from ~10% of global share to ~40%.
Worldwide demand for transport infrastructure will grow rapidly, as supply struggles to
keep pace
McKinsey & Company

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1 Serbia’s sector growth strategy should be squarely positioned to take
advantage of the major global trends (2/2)

Trends
Global energy demands rise, but
7 the source of supply remains
uncertain

Transition toward sustainable
8
practices

Description

▪
▪
▪
▪

9 Increasing demand for food

10 Change in social values


Detailed
on next slide

▪
▪
▪
▪

Exploding demand from emerging markets will lead to ~1% p.a. rise in final energy
demand – an over 50% increase in total energy demand by 2050
However, future sources of energy are uncertain, since the rise of new technologies
could enable major improvements for natural gas or renewables - and the various
scenarios would have differing impacts on oil prices
Largely due to resource and cost constraints, governments will need to improve
resource productivity and implement more sustainable practices in waste
management, recycling, manufacturing and water conservation
Global demand for food is projected to double in the next 2-3 decades as world
population increases and agricultural land becomes more scarce and less arable
Much of this demand will be in emerging markets like China, which will begin eating
higher calorie diets rich in meat – as developed countries currently do
Increasing demand for political and economic freedom
Declining focus on family unit and values
Less focus on religion globally

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growth strategy
What do

institutions
What actions

BACKUP

How do we

government take?

▪

best at …

▪


▪

▪

▪


▪

SOURCE: McKinsey

entrepreneurship...
competitiveness …
do business

▪

leadership...

▪

big outcomes in few

▪

management

McKinsey & Company

| 66


2 The overarching goal of policy is to increase country competitiveness
by making it easier for businesses to do business…
2013 global rank
(148 countries)
Top 50%

Global Competitiveness IndexEconomy wide score for Serbia
Rank out of 148 countries

Innovation and
sophistication
factors

Fall of 14 positions in 7 years to
the lowest position in Europe

Business sophistication

137

Innovation

112

Higher education and training

83

101
87

93

95

Bottom 20%

Top 5 most
problematic factors
for doing business

Goods market efficiency
Efficiency
enhancers

132

1 Corruption
▪

Labor market efficiency

119

Financial market development

115

2 Inefficient
▪
government
bureaucracy

Technologies readiness

60

Market size

69

3 Access to
▪
financing
4 Government
▪
instability

Institutions

2006

2009

2012

2013

Basic
requirements

Infrastructure

126
90

Macroeconomic environment

136

Health and primary education

5 Inadequate
▪
infrastructure

69

SOURCE: World Economic Forum Global Competitiveness Index

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2 GCI detail: Serbia (1/2)

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2 GCI detail: Serbia (2/2)

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2 FDI attraction activities should be aligned with the
sector strategy

ILLUSTRATIVE

Criteria

I
Define pool of
investors in
priority investors

Shortlist players
who optimally
match local
value chain

▪
▪
II

SOURCE: McKinsey analysis

▪
▪

III
Select the
best
investors to
pursue

▪
▪

▪
▪

▪
▪
▪
▪

Fit with priority sectors
Value added to the GDP (e.g.
through DIA)
Environmental/social image
Fit with other development goals
(e.g. job creation)
Value chain fit where investors
optimally positioned to compete
Synergies with current local
industry ecosystem
Management team
Breadth, depth and quality of
product offering
Financial standing
Strength of supporting network
Branding
Appetite for investment
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2 Governments should differentiate their interventions and sectorlevel policies by the degree and target of intervention
Low
Setting ground
rules/direction

Governments can limit
sector policies to
▪ Setting the
regulation covering
labor, capital and
land markets;
▪ Establishing the
general business
environment,
▪ Setting broad
national priorities
and road maps

High
Building enablers

Without interfering with
market
mechanisms, governm
ents can support
private-sector activities
by
▪ Expanding hard and
soft infrastructure;
▪ Helping to ensure
adequate skills
through education
and training,
▪ Supporting R&D
activities

SOURCE: MGI/PSO Sector Competitiveness Project

Tilting the playing
field

Government as
principal actor

Governments can
Governments can play
choose to create
a direct role by
favorable conditions for ▪ Establishing statelocal production
owned or subsidized
through
companies;
▪ Trade protection
▪ Funding existing
from global
businesses to
competition
ensure their survival
▪ Providing financial
▪ Imposing
incentives for local
restructuring on
operations
certain industries
▪ Shaping local
demand growth
through public
purchasing or
regulation
McKinsey & Company

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2 Governments have a broad array of options available to them
across this spectrum of interventions
Low

High

A Setting ground rules/direction

B Building enablers

C Tilting the playing field

D Government as principal actor

Set regulatory environment

Develop infrastructure

Establish companies

1 Define labor and unionization
laws, rights, and taxes
2 Streamline bureaucracy to
reduce transaction costs and
time frames of doing business
3 Manage exchange rates

1 Expand and develop the
national road network
2 Allocate specialized
infrastructure (e.g., lanes for
efficient vehicles)

Define market environment
4 Negotiate free-trade
agreements with foreign
governments on sector exports
5 Enact vehicle operating
restrictions (e.g., speed
limits, driver qualification, and
vehicle inspections)
6 Regulate vehicle
safety, environmental, and
other performance standards
7 Control fuel prices (via tax
and subsidy levels)
8 Set vehicle acquisition costs
(e.g., VAT, registration fees)
9 Define vehicle approval
process before market entry

Build skilled labor pool

Incentivize domestic
production
1 Impose import restrictions
▪ Tariffs
▪ Quotas
▪ Domestic content
requirements
2 Subsidize investments
(e.g., financial incentives
such as tax breaks for
Greenfield projects)
3 Regulate capital flows
(e.g., limits on FDI and profit
repatriation)
4 Incentivize exports

Set sector direction
10 Create a vision and define a
strategy for the development
of the domestic sector

6 Subsidize sector research
and development
7 Support technology transfer
(JVs with global leaders)

3 Fund sector-specific
education programs
(e.g., automotive engineering
degrees)
Facilitate sector processes
4 Facilitate discussion among
domestic sector stakeholders
5 Simplify interaction with
authorities (e.g., one-stopshop regulation interaction
partner)
Support innovation

SOURCE: MGI/PSO sector competitiveness project

Stimulate demand
5 Create vehicle purchase
incentives (e.g., scrap
schemes, technology
rebates)
6 Provide liquidity support
along the automotive value
chain (e.g., credit for auto
loans)
7 Leverage government as an
automotive consumer to
guarantee minimum demand

1 Establish state-owned
enterprises (SOE) to build
up sector from scratch

Support ongoing operations
2 Infuse cash into automotive
producers
▪ Governmental loans
during crises (with/without
expected repayment)
▪ By acquiring an equity
stake
Restructure industry
3 Control number of producers
and level of competition
(e.g., via monopoly restrictions
or antitrust legislation) to
moderate overcapacity and
competitive levels

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2 1980-1990s: Washington consensus (1/2)

▪

"Unified" position of required reform measures
to stimulate and sustain economic growth in
developing countries of World Bank, IMF, US
Treasury, several academics (espc. Chicago)

▪

Focus on fixing (macro) enablers, e.g.,
– Fiscal discipline
– Tax reform
– Financial/interest rate liberalization
– Unified/competitive exchange rates
– Fostering trade and FDI
– Privatization
– De-regulation
– Secure property rights

▪

Later complemented by strong push for good
governance and strong institutions

▪

Otherwise "hands-off" government role

SOURCE: Literature review, McKinsey

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2 Best-practice example of "go to market" country strategy:
Singapore
1 Targeting and proactive
approach to preferred
investors
▪

All industries are open to foreign
investment in Singapore‟s free-enterprise
economy

▪

2 World-class country
sales approach
Why Singapore?

3 Streamlined governance
and fast implementation

▪

▪

Ranks no.1 on World Bank‟s Doing
Business Ranking;
– just takes 4 days and 4
procedures to start a business
– 3 days to register property

▪

The Economic Development Board
and the EnterpriseOne Portal serve as
one-stop shops for those looking to
invest in Singapore
– Cater to all needs right from
registering a business, obtaining
licesnes and permits, finding
business premises
– Complete information on govt.
laws, regulations, funding
options, etc all available through
them
– All services are available online
24*7

The top three core sectors that attract
maximum investment are:
chemicals, electronics and biomedicals
(including pharmaceuticals)

▪

The Economic Development Board
(EDB) has unveiled a new International
Headquarters Award programme in 2003
to attract more company operations to
Singapore. The award is open to all
organizations incorporated in
Singapore, and it offers customized
incentive packages with lower
concessionary taxes

▪

Incentives are also given if companies
chose Singapore as their regional or
global headquarters

▪

Other secotrs it is now promoting for
investment: Logistics and supply-chain
management, healthcare, education and
IT

▪

Promotes itself as a „dynamic global
city‟ and cites its competitive factors as
follows:
– Trust :
integrity, quality, reliability, product
ivity, a strong legal system
– Knowledge: knowledge-based
manufacturing and services, a
thought and information
hub, commitment to education
and skills
– Connected: physical connectivity
as well as people and business
networks
– Life: an excellent place to
live, work, learn and play
Financial and Other incentives
– Schemes range from assistance
in manpower
development, technological/equip
ment upgrading, to
R&D, intellectual property and
industry development
– Offers a competitive tax regime:
no capital gains tax, corporate tax
rate of only 17%)

SOURCE: Economic Development Board, Singapore; Country Commerce Report (Economist), WB

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France
investors
▪

▪

▪

France targets innovative companies
and adopts a targeting and proactive
approach offering, for example, the best
research tax credit in Europe
In France, the research tax credit (Crédit
Impôt Recherche – CIR) represents a
reliable element of an innovative
company‟s financial plan, and is
particularly well adapted to the needs of
SMEs. This tax incentive enables
companies to increase their
competitiveness by supporting their
Research & Development efforts
The French Government has
undertaken a major reform of the
research tax credit by means of the
Financial Law of 2008, which is in line
with the "Lisbon strategy" (knowledgebased economy) and the "Barcelona
objective" (3% of total GDP dedicated to
R&D)

sales approach
▪

Launching the project
–
Presentation of the advantages offered by
–

–

▪

–

–

SOURCE: Invest in France Agency

▪

France
Support and assistance in defining business
project, and link to a network of regional
partners in order to determine the best site
proposals to satisfy business requirements
and constraints.
Assistance with the project: presentation of
the legal framework best adapted to the
project, interface with local authorities and
presentation of public funding available for
the business.
Services to assist the expatriate personnel

–
Long-term support (after-care service)
–
Businesses receive two visits per year: one
–


visit to their development site in France and
the second in their home country.
Maintaining collective links with foreign
business networks set up in France:
collaboration with international chambers of
commerce and foreign business clubs set
up in France, such as the IFA “Japan Club”
Intervening rapidly at the request of
businesses to assist them in the event of a
specific challenge, particularly concerning
contact with French administration
Facilitating the integration of foreign
businesses into the fabric of the local
economy, particularly through the
mobilization of potential partners, subcontractors and suppliers.

▪

Invest in France Agency was
established under the New Economic
Measures Law of 15 May 2001. IFA is a
public industrial and commercial body
(EPIC), placed under the responsibility
of the Minister for Economy, Finance
and Industry, and the Minister for
Regional Development. The Agency is
responsible for promoting, prospecting
and facilitating international investment
in France. IFA works closely with local
authorities to achieve this objective.
Invest in France Agency has 154
members of staff in 2007, 72 of which
are based in 21 offices around the world

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France
investors
▪

▪

▪

sales approach

Foreign investment permitted in most
industries, especially when it creates
jobs, contributes new technology or
increases exports; but sensitive to
takeovers in defence or public services

▪

EU Member states have a lot of incentives
available to them as part of the EU
framework such as:
– Assistance for R&D activities
– Assistance for professional training of
employees
– Environmental subsidies for SMEs
– Employment subsidies etc

▪

At an overall level other benefits available
are:
– financial grants upto 15% of the total
investment for large companies and a
quarter of the total investment for midsized companies
– Subsidies for business premises
– Tax incentives
– Employment and research activities
grants etc

1 Competitive Alternatives:
SOURCE: IFA Website, WB

France promotes itself as “a land of
innovation and creativity centrally located
in the heart of Europe that offers a skilled
workforce, a high quality of living and
competitive business advantages”
Major attractions include:
– World‟s 5th largest economy; has
20,000 subsidiaries of international
companies
– According to KPMG1, France has the
lowest cost structure among the
European countries. Business set-up
costs: including
payroll, location, transport, utilities
and tax
– Offers 71 competitive clusters that
offer partnership
environment, research
labs, universities etc at one place
– High quality transport and ICT sector
– Highly developed financial services
sector
– Productive workforce
– Spends ~2.2% of GDP on R&D

▪

Invest in France Agency (IFA) has been set
up that provides assistance at every stage
of the investment process. It provides:

–
–
–
–

▪

Provides complete information to
enhance decision making for foreign
investors
Information on the economic and
regulatory environment
Act as an intermediary for contact
with French administration
Provides after-care services as well
such as visas for family
members, work permits, information
on education for children, health
insurance etc

Ranks 31/181 economies on World Bank‟s
Doing Business Rankings 2009;
– Takes just 7days and 5 procedures to
start a business

KPMG‟s Guide to International Business Location, 2008
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| 76


Ireland
investors
▪

sales approach
▪

Almost 1,000 overseas companies have
chosen to invest in Ireland as their
European base and are involved in a wide
range of activities in sectors as diverse as
engineering, information communications
technologies, pharmaceuticals, medical
technologies, financial and international
services.

▪

Financial Incentives
– The main criteria applied to determine
the availability of incentives include
the quality of employment created
and location chosen within Ireland
– Grants that are available include:
Employment Grants, R&D
Grants, Training Grants, Capital
Grants

▪

▪

IDA Ireland Services
– Provides information on key business
sectors and locations within Ireland
– Assist in setting up a business in
Ireland
– Introduce potential investors to local
industry, government, service
providers and research institutions.
– Offer advice on property solutions

Ireland has one of the most advanced and
competitive telecommunications
infrastructures in Europe. The
telecommunications sector has state-ofthe-art optical networks with world class
national and international connectivity


SOURCE: IDA Ireland Website, WB

Ireland Offers:
– The lowest corporation tax rate in
Europe at 12.5%
– A young skilled well educated
English-speaking workforce
– A competitive economy
– Strong legal framework and
Intellectual Property (IP) protection
– R&D Environment

▪

IDA Ireland (Industrial Development
Agency) is responsible for the attraction
and development of foreign investment in
Ireland

▪

The IDA meets its objective by:
– focusing on business sectors that are
closely matched with the emerging
needs of the economy and that can
operate competitively in global
markets from an Irish base
– Building links between international
businesses and third level education
and research centres to ensure the
necessary skills and research and
capabilities are in place
– Building world-leading clusters of
knowledge-based activities
– Strongly active in the development of
infrastructure and business support
services, telecoms, education, regulat
ory issues especially in relation to EU
policy.

▪

– Takes just 13 days and 4

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| 77


United Kingdom
investors
▪

No limits as such on any sectors

▪

Limits exist in some privatized companies
on the amount of voting shares an
individual or group may own. The
government has in the past imposed limits
on foreign holdings in a few strategically
important, privatized companies, like Rolls
Royce (aircraft engines) and BAE Systems
(aircraft and defence), through clauses in
their articles of association.

sales approach
Why UK?
An internationally competitive tax
environment for foreign investors

▪

Flexible labour market

▪

Least barriers to entrepreneurship in the
world

▪

World leader in innovation: The UK ranks

▪

second only to the USA for the quality of its
research base

▪

Stable political and regulatory environment

▪

Progressive transport and communications
network

▪

Home to Europe‟s number one city for
business: London is the world's leading
financial services centre

▪

SOURCE: UK Trade and Investment, WB

▪

▪

Other Opportunities: London will host the
Olympic Games in 2012. Procurement
started in 2007. Contracts will be available
for firms of all sizes and the total budget
will run into billions

▪

▪

UK Trade & Investment‟sis the government
agency that help overseas
companies/investors in growing their UKbased operations
UK Trade & Investment helps with:
– New UK business opportunities
– Choosing a new UK location
– Growing your industry networks
– Having your say in Government
– Trading overseas
– Setting up a European headquarters
etc
– Other services and information is
available at
http://www.ukinvest.gov.uk/How-WeHelp/en-GB-list.html?nav
– Takes just 13 days and 6

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Georgia
investors
▪

There are no restrictions on the foreign
ownership of companies in Georgia.

▪

As a result of changes to the Tax Code and Law
on Entrepreneurs in 2005 and 2006, business
registration is simple, cheap and efficient, taking
only three days for legal entities and one day for
individuals

sales approach
Why Georgia?
–

World‟s Leading Reformer: On World Bank‟s
Doing Business Rankings, it has moved from rank
112 in 2005 to rank 15 in 2009; just four years

–

Strategic geographic location; at crossroads of
Europe and Central Asia with excellent
infrastructure

–

Low corporate (15%) and personal income tax
(12-25%) levels

–

Dynamic banking sector; share of banking assets
expected to reach 60% of GDP by end-2009
High degree of labor freedom and labor force
literacy
Simplified licensing and permitting procedures
Aggressive privatization policy

–

▪

Liberal trade regimes with low tariffs, preferential
agreements and streamlined border clearance
procedures

–

▪

–

▪

Stable macroeconomic environment

–

▪

Georgia has dramatically simplified licensing
and permitting requirements to ease constraints
on business. Only 86 licenses and 50 permits
now exist.
- Reduced statutory time limits for government
action: 30 days for issuing licenses and 20 days
for issuing permits.
"Silence is consent" - a permit or license is
automatically granted if no government action is
taken within statutory time limits

–

–

▪

Georgian National Investment Agency (GNIA)
under the Ministry of Economic Development of
Georgia is designed to act as a "one-stop-shop"
for comprehensive information about investment
opportunities in Georgia
Primary functions of GNIA include:
Providing up-to-date information about
setting-up business operations in Georgia
–
Researching investment opportunities and
informing potential investors about
investment advantages in Georgia
–
Arranging site visits for potential investors
leading to the increase of investment
opportunities
–
Facilitation of communication with
government agencies
–
Besides these, also performs export
promotion functions and helps local
businesses find foreign partners

–

Diverse investment sectors: Economy has been
highly resilient to oil and commodity price
shocks, Russian embargo and the sub-prime
meltdown

SOURCE: Invest in Georgia, website-National Investment Agency, WB

▪

Ranks 7/181 economies on World Bank‟s Doing
Business Rankings 2009;
–
Takes just 3 days and 3 procedures to
start a business
–
3 days to register property

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| 79

growth strategy
What do

institutions
What actions

BACKUP

How do we

government take?

▪

best at …

▪


▪

▪

▪


▪

SOURCE: McKinsey

entrepreneurship...
competitiveness …
do business

▪

leadership...

▪

big outcomes in few

▪

management

McKinsey & Company

| 80

DELIVERY

McKinsey & Company

| 81

DELIVERY

3 A multi-year culture change journey can be tailored based on the
transformational change toolkit
Performance
1

2

3

4

5

Aspire
Where do we
want to go?

Assess
How ready
are we to go
there?
Architect
What do we
need to do to
get there?

Vision

Capability
platform

Portfolio of
initiatives

Act
How do we
manage
the journey?

Delivery
model

Advance
How do we
keep moving
forward?

Continuous
Improvement

Health
Health
essentials

Develop a vision around performance and health; understand the
current performance and health of the country and develop first
hypothesis of the target sectors that will then iteratively be
updated later in the journey

Discovery
process

Take the time to deepen your understanding of the journey the
country has been on to where it is today; discover the changes in
mindsets required to achieve the desired shift in working
practices and behaviours. Generate alignment, momentum and
ownership among leaders

Influence
model

Identify a set of initiatives – existing and new – that will deliver the
specified changes in mindsets and behaviours, along with an
understanding of how to organize (people, structure, processes) to
deliver on them

Change
engine

Group, prioritize and sequence change initiatives; create a change
architecture that is capable of delivering the programme while
sustaining energy; start the learning process by piloting and
experimenting

Capability
building

Ensure continuous learning and improvement of all leaders
along existing and new initiatives

▪ Such a journey would typically be agreed in a facilitated workshop with the top
leaders in the country, taking a “we don‟t leave until it‟s finished” approach

▪ Managing the communication and the expectations of the citizens would be a
critical part of the process
SOURCE: Scott Keller and Colin Price, 'Performance and Health: An evidence-based approach to transforming
your organisation', 2010.

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DELIVERY

3 Depending on complexity, a typical transformation program
can take up to a year to become established
Frame

Month

Aspire – Where
do you want to
go?

1

2

3

4

5

7

8

9

10

11

EXAMPLE
12

Define clear
organizational aspirations
tied to the mission;

understand public
sector factors at play
Assess
capabilities, mindset
s, and implications
of the public

Assess – How
ready are we to
go there?

sector factors

Architect – What
do we need to
get there?

Develop initiatives to transform
organization, and properly

address the public sector
factors
Design and execute approach to rolling out initiatives across the
organization; build broad ownership and adjust and refine the program
based on on-going monitoring and review. In particular draw upon the

Act – How do we
manage the
journey?
Advance – How
do we keep
moving forward?

6

Objective

five critical public sector change actions, while avoiding the
major pitfall
Begin to
develop
change
leaders
Top team

Begin to
develop
change
leaders
Top 100

Begin to
develop
change
leaders
Top 500

Leadership alignment workshop

SOURCE: McKinsey Organization Practice

Set up mechanisms for continuous improvement,
knowledge and best practices sharing and governance.
Develop leaders. Monitor factors and leverage change

actions



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| 83

DELIVERY

3 There are a number of ways to bring the vision of having the top talent
to life
Transition to a culture where the best
for the job are chosen with few upfront
defined exceptions. This is likely to be
the hardest and the most impactful
change, and should therefore be
planned and implemented gradually
over the next decade (starting with
quick wins, strong signals of intent and
building on the strengths over time)

Diaspora

Set the education of the
next generation as the
national priority which we
can all work towards. Build
on the strengths of the
current education system
in a targeted way (e.g.
math and science) and
linking to the sector
specific talent needs

Meritocracy

Education

Develop a world class knowledge collaboration platform between professionals
in Serbia and their expert counterparts around the world, including a knowledge
repository (documents, access to experts, etc),, online real time presentations
(e.g. Webex), structured mentorship scheme, etc, all supported by a world class
IT backbone and signature processes (e.g. diaspora expert certification)
McKinsey & Company

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DELIVERY

3 How to get it Done – Setting in Motion the Virtuous Cycle: the Six
Elements of Agriculture Transformation

▪

▪

▪

Developed as part of the World
Economic Forum’s New Vision
for Agriculture initiative in
collaboration with McKinsey &
Company
Based on an examination of
large-scale agriculture
transformations around the
world
The most successful
agricultural transformations
are founded on multistakeholder partnerships and
have six elements in common

McKinsey & Company

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DELIVERY

3 The sector growth strategy should be framed as part of a change story
that will rally the nation behind a single vision over the next 10 years…
1. Develop the story structure

2. Write the story

3. Deliver the story

▪ Set the stage – where we are

▪ Start with the political leader‟s

▪ To be consistently delivered by

today and why do we need to
change

▪
▪

▪ Introduce the dramatic conflict
“burning platform” or “shining
beacon”

personal vision
Crystallize the key messages
(e.g. changes in mindsets such
as )
Back them up by facts/proof
points

▪

the political leadership and
cascaded throughout the
government institutions as well
as society at large
Multiple creative formats can
be used, e.g.
Videos, Webcasts, Cartoons, et
c.

▪ Reach resolution – description
of our plan and why we can
achieve it

McKinsey & Company

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DELIVERY

3 There are many examples of effective delivery units set up by
governments to implement their growth agendas across the world
US (Los Angeles’ Performance
Management Unit)

▪
▪

▪

Set up: 2006
Focus areas: 7 focus areas including public
safety and homeland security, fiscal
responsibility and management, education and
housing
Example of impact: 500+ new police
officers, cut more than $200 million without
raising taxes

UK Prime Minister’s Delivery Unit

▪
▪
▪

Set-up: 2001, closed in 2010
Focus areas: 10-20 national priorities across 4
ministries: Health; Education and skills; Home
office; Transport
Example of impact: 50% reduction in education
gap between targeted boroughs and national
average

France’s President and Ministry of
Budget’s RGPP1
▪ Set up: 2008
▪ Focus areas: State and central
administration‟s operating expenditures;
improving quality of public service
▪ Example of impact: ~EUR15 billion savings
between 2009-2013, 28% reduction in average
waiting time in emergency room
Government of Chile’s Delivery Unit
▪ Set up: 2010
▪ Focus areas: Economic growth; Employment;
Urban safety; Education; Healthcare;
Poverty, Quality of democracy
▪ Example of impact: 563k+ new jobs
created, 50% increase in number of top
students choosing teaching as a profession

Thailand Delivery Unit

▪
▪
▪

Set up: 2010
Focus areas: social security, fuel
prices, crime and affordable access to
electricity
Example of impact: 24 million workers
eligible for affordable social security; up to
THB 7.3 billion savings from reduction in
LPG subsidies

Bhutan’s Performance Facilitation Unit

▪
▪

▪

Set up: 2010
Focus areas: Job creation in 5 economic
sectors (e.g. agriculture and tourism);
improvements across 5 key public sector
services (e.g. healthcare and education)
Example of impact: 13,000 new jobs
created, 120+ government services
streamlined

Malaysia’s PEMANDU

▪
▪

▪

Set up: 2009
Focus areas: 7 National Key Results Areas
(Education, Corruption, Crime, Rural basic
infrastructure, Low income
households, Public transport and Cost of
living) and 12 National Key Economic Areas
Example of impact: 35% reduction in street
crime; 60,000 additional pre-school seats
l

1 RGPP stands for Révision générale des politiques publiques or General Review of Public Policies

SOURCE: McKinsey

McKinsey & Company

| 87

DELIVERY

3 An effective delivery unit needs to establish routines, solve problems
early and build momentum and sustain progress
Cycle of effective delivery

A
Routines are
the formal
mechanisms
to identify and
solve
problems …

C

SOURCE: McKinsey

Use routines
to monitor
performance

B

Identify, classify, a
nd solve
… and the delivery unit
problems
constantly monitors and
confronts problems

Build momentum and sustain progress
Routines and problem-solving are the mechanisms to
drive delivery, but they must be supported by delivery
mindsets and behaviors. The delivery unit must model
and cultivate the right mindsets

At the same time, the
delivery unit must always
respond to cultural or
behavioral challenges
that may hinder the
progress of delivery

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DELIVERY

3 Three main roles must be clearly defined when setting up a delivery
unit
Description of roles and responsibilities
System leader
Text

Delivery unit

Department leaders and staff
members

▪ Head of a specific

▪ Composed of senior Delivery

▪ Provide data and other key

organization within the state
system (e.g. Head of
secondary education)

▪ Owns and is ultimately
accountable for the delivery
agenda in his/her area

▪ Steers the delivery unit
towards priorities

▪ Takes action when delivery
plan is off track

Leader and talented and
motivated Delivery Staff

▪ Relentlessly orchestrates the
day to day delivery process
by establishing the routines
and master calendar

▪ Tracks progress and

information required by the
Delivery Unit to track
progress

▪ Participate in routines
(e.g., meetings) at the
request of delivery unit
leader

conducts root cause analysis

▪ Detect “red flags” and report

▪ Proactively communicates to

issues to department leader
and the delivery unit

all relevant parties (plays the
“spider in the web” role)

▪ Proactively identifies

▪ Work with delivery unit to
analyze leading indicators
and performance data

potential
bottlenecks, escalates and
suggests solutions
SOURCE: McKinsey

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DELIVERY

3 Once the routines are planned, create and publish a master calendar
that should be followed in a draconian fashion
Meeting or report

Routine
Delivery
reports

Stock-takes
with system
leader

Monthly notes
submitted

Month 1

2

3

4

5

6

7

8

9

10

11

12

Semiannual delivery reports submitted to system leader

Quarterly progress
review
▪ Data trends
▪ Issues
▪ Recommendations

Quarterly
progress
review

Quarterly
progress
review

Quarterly
progress
review

Monthly updates sent to system leader

System actors
System actors submit performance data to delivery unit for monthly notes and quarterly
progress reviews

SOURCE: McKinsey

McKinsey & Company

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Mr. Sven Smit, Director, McKinsey&Company - What will it take to double Serbia’s economic growth in the next decade?

Mr. Sven Smit, Director, McKinsey&Company - What will it take to double Serbia’s economic growth in the next decade?

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