1. The OECD and the Black Sea Region
Promoting private sector development and job creation
Federico Bonaglia
Head of Policy Dialogue Division
OECD Development Centre
Black Sea Forum – 07 October 2011

2. 1 The OECD and the Black Sea Region
2 Key Messages
3 The short term economic outlook
4 Priority actions and “how to”?
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3. BSEC-CA 2008: Transition, Globalisation and Labour
in the Black Sea and Central Asia Regions
Focus on the BSEC-CA Regions
• A cross-country comparative analysis of
macroeconomic and policy developments of the
BSEC-CA region, involving 12 BSEC and 5 CA
countries
Black Sea and Central Asia: Promoting Work
and Well-being
• Recent economic developments in the BSEC-CA
regions (Part I)
• Work and well-being: policy challenges in the
global environment (Part II)
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4. EESC 2010-11: Meet a Twin Challenge -
Improving social services and supporting private
sector development
Focus on 5 EESC Countries
• Armenia
• Azerbaijan
• Georgia
• Republic of Moldova
• Ukraine
Target Issues
• Recent Economic and Policy Review
• Regional Trade and Co-operation
• Social Development (MDG)
• Private Sector Development (PSD)
 Access to Finance
 Foreign Direct Investment
 Human Capital Formation
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5. EESC 2011: Competitiveness Outlook
Target Issues
• The Competitiveness Potential of Eastern Europe
and South Caucasus
• Strengthening the Pillars of Competitiveness
• Developing Human Capital
• Improving Access to Financing for Smaller
Enterprises
• Maximising the Potential of Foreign Direct
Investment
• Diversifying FDI and Developing Competitiveness
Strategies: The Case of Ukraine
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6. 1 The OECD and the Black Sea Region
2 Key Messages
3 The short term economic outlook
4 Priority actions and “how to”?
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7. Key messages
• Persisting structural vulnerabilities accentuated the impact
of the crisis.
• The social and employment dimensions
• Private sector development
• Scope for improving the effectiveness of public policies
and unleashing economic potential of the region
• Go structural, go green, go social.
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8. 1 The OECD and the Black Sea Region
2 Key Messages
3 The short term economic outlook
4 Priority actions and “how to”?
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9. Growth Regional GDP growth has been impacted
Trend by the financial crisis
Growth in Real GDP (%)
15,0
10,0
5,0
0,0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-5,0
-10,0
Average Black Sea Average EESC countries Average non EESC countries
Source: IMF, World Economic Outlook
V-shaped recovery, but high exposure to trade shocks:
• Over 2001-07 the EESC countries’ average growth rate was very high (10 %).
• Regional economic growth fell from +6 % in 2008 to -6 % in 2009. Ukraine and Armenia acknowledged
large falls of GDP (-14.8 % and -14.2 % respectively).
• The EESC countries are highly exposed to international trade shocks as their economies rely heavily on
energy, food and raw materials.
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10. External The Crisis and its Impact on External Funds
Financing in the EESC Region
50 25%
45
40 20%
External financing / GDP (%)
35
30 15%
USD billion
25
20 10%
15
10 5%
5
0 0%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
External financing/GDP (right-hand axis) External financing Source: IMF Balance of payments
Capital inflows (including loans and portfolio investment) FDI Inflows database, OECD Analysis
Workers' remittances Capital inflows Ukraine
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11. The external environment (OECD Eco. Outlook – September 2011)
11

12. 1 The OECD and the Black Sea Region
2 Key Messages
3 The short term economic outlook
4 Priority actions and “how to”?
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13. Social “Quality of life” issues should be given more
indicators attention
MDGs to be reached by 2015 Armenia Azerbaijan Georgia Moldova Ukraine
Far On At Far On At Far On At Far On At Far On At
Goal 1:Eradicate extreme poverty and hunger x x x x x
Goal 2: Achieve universal primary education x x x x x
Goal 3: Gender equality and empower women x x x x x
Goal 4: Reduce child mortality x x x x x
Goal 5: Improve maternal health x x x x x
Goal 6: Reduce and slow down the spread of
x x x x x
HIV/AIDS and Tuberculosis, and initiate a trend to
decrease their scale
Goal 7: Ensure environmental sustainability and x x x x x
access to clean water
Goal 8: A global partnership for development Not included in the studies
Source: authors’ assessment based on country studies
• Regional problems of quality of education, despite high enrolment rates, inherited
from the Soviet Union; Worsened health conditions
• Crude death rate is alarmingly high in the 5 countries with an average of 11.4‰ for
2000-10 – Ukraine (16‰) and Moldova (12.7‰)
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14. Exports Need to diversify trade
Export specialisation (Balassa Index): 2007-2008
SITC group
REV 3 0 1 2 3 4 5 6 7 8 9
Commodities
Machinery
Food and crude animal & chemicals Miscellaneous and
beverages mineral manufactured and
live materials vegetable and related Manufactured transactions not
& tobacco fuels goods transport
animals (ex. fuel) oils products articles classified
equipment
elsewhere
Armenia 1.3 33.4 7.9 0.1 0.0 0.2 7.0 0.2 1.3 0.0
Azerbaijan 1.4 0.6 0.2 13.9 2.7 0.3 0.3 0.1 0.0 0.6
Georgia 3.7 27.3 12.0 0.6 0.6 1.9 3.3 0.7 0.4 0.9
Republic
Moldova 6.2 30.4 5.2 0.0 15.0 0.4 2.1 0.5 4.7 13.1
Ukraine 2.9 3.0 4.0 0.9 11.8 1.4 6.0 0.9 0.5 2.2
Source: WITS - World Bank
• The EESC countries have similarities in exports (mostly in beverage and tobacco).
• They need to move up to higher quality food and processed agro-products as part of product and market
diversification.
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15. PSD High labour productivity growth, yet strong room
for improvement
Labour productivity performance in CA and EESC compared to the world (1993-2008)
15%
growth above world
average
Labour productivity growth relative to the world**
1999
10%
2001 2003 2004
2001 2006
2007
5% 2005
2002 2002 2007 2008
2000 2004 2006
1998 2003 2005
2000 1999 2008
0%
1997
1997
1998 1996 growth below world
-5% average
1996 1995
Central Asia*
-10%
1995 1993
-15% 1994
1993
-20%
Eastern Europe and South Caucasus
1994
-25%
-89% -88% -87% -86% -85% -84% -83% -82% -81% -80% -79% -78% -77% -76% -75%
Labour productivity value relative to the world average
Note: GDP per employee is calculated as GDP in constant 2000 USD divided by employment over 15 years old; GDP per employee is not adjusted for cyclical fluctuations, number of
work-hours and other factors that have an impact on GDP per employee but are non-related to productivity; *Central Asia region does not include Afghanistan; **labour productivity
growth relative to the world is calculated as the difference between GDP per employee growth rate in the region and GDP per employee growth rate in the world.
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Source: OECD analysis based on World Development Indicators database (World Bank).

16. PSD Need to support the development of
a vibrant private sector and SMEs
Despite their large number, SMEs contribute very The informal economy remains relatively large
little to GDP and employment between 41% and 62% (of GDP).
80% 100 %
High 80
60%
Share in employment (%)
Income
R. of Moldova 62
60
Ukraine 52
Georgia 47
40% 44
Armenia 41 43
40
Azerbaijan
20% 18
Belarus 20
Low Income
0% 0
0% 20% 40% 60% 80%
Share in GDP (%)
Sources: Armenia: SME DNC (2010), Republic of Armenia Ministry of Justice Legal Entities State
Registry Agency; Azerbaijan: World Bank International Finance Corporation – Study of Small Source: Schneider, Friedrich , Andreas Buehn, and Claudio E.
and Medium Enterprises in Azerbaijan; Belarus: Ministry of Economy of the Republic of Belarus; Montenegro (2010), “New Estimates for the shadow Economies all over
Georgia: geostat.ge, Business Statistics; Republic of Moldova: National Bureau of Statistics of
16 the World”, International Economic Journal, 24: 4, pp. 443-461
the Republic of Moldova; Ukraine: State Statistics Committee of Ukraine; World Bank Policy
Research Working Paper 3127

17. Human Need to close the skills gap
Capital especially in technology sectors
Policies for Competitiveness Assessment Framework results for Eastern Europe and the South
Caucasus across the Human Capital Development dimension
Best practice level
High
Level of reform
Low
Development of the The inclusiveness of Consultative Teacher recruitment Development of the Workforce skills Development of a
VET system strategy formulation processes in the VET and retention teacher workforce strategy work-related system
system of CET
Vocational Education and Training Underdeveloped or non-existent Lack of a system of Continuing
systems do not fulfil the needs of workforce skills strategy to close Education and Training
industry and employers are not the gap between available skills synchronized with the needs of
sufficiently involved in and the skills required on the the labour market
educational decision making labour market
Note: No survey data available for Belarus. “Best practice” represents the benchmark used in the PfC surveys which corresponds to the OECD and non-OECD best
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practice. High represents a level of reform that meets best practice, low - lack of reform.
Source: Policies for Competitiveness Assessment Framework 2010 results (OECD).

18. Finance Need to improve access to finance
especially for SMEs
Policies for Competitiveness Assessment Framework results for Eastern Europe and the South
Caucasus across the Access to finance dimension
Best practice level
High
Level of reform
Low
Effective regulatory Access to bank finance Guarantee schemes Early-stage finance Improving skills (quality Access to capital market
framework of demand)
Lack of guarantee schemes (export and mutual Need for further develop early-stage
guarantee schemes) that would create an financing (micro-financing, business
incentive for banks to increase lending to SMEs is angels, venture capital) to improve access
a key barrier to business development to (risk) financing for SMEs
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Source: Policies for Competitiveness Assessment Framework 2010 results (OECD).

19. FDI Need to attract „quality‟ FDI to support
policies economic diversification and employment
Policies for Competitiveness Assessment Framework results for Eastern Europe and the South
Caucasus across the Investment Promotion dimension
Best practice level
High
Level of reform
Low
(Sub-)National Client rel. Free economic Aftercare Institutional Strategy One-stop shop Policy advocacy FDI-SME Monitoring and
co-ordination managagement zones services support linkages evaluation
Lack of coherent investment promotion Need to improve policy Further developing FDI-SME
strategies to attract quality investment advocacy and public-private linkage programmes would
that support economic diversification dialogue to strengthen links help to boost local
and boost local employment (FDI-SME between investment employment and create
linkage programmes) promotion and investment business opportunities for
policy reform domestic companies
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Source: Policies for Competitiveness Assessment Framework 2010 results (OECD).

20. Priority Areas for Action
• Policy Focus:
Facilitating access to finance
Addressing skill gaps
Promoting Greenfield investments
• Sector-wide approach:
 Green energy
 IT sector
 Food and agriculture
 Transport infrastructure
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21. How to do it?
• Policy reviews and peer learning
– Education and skills
– OECD strategies and toolkits for Green
Growth and Innovation
• Regional approaches and enhanced co-
operation
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22. To know more
• www.oecd.org/dev
• www.oecd.org/daf/psd/eurasia
Thank you!
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