Transcript 7th PERC Summer School Bratislava, 6

7th PERC Summer School
Bratislava, 6-7 October 2014
Investment and employment perspectives.
FDI and EU accession of SEE countries and NIS
Bruno S. Sergi
University of Messina
EU accession vs. Eurasian Project
SEE and NIS
European Union vs. Eurasian visions
Russia/China
Key points on labour markets and growth From global to regional facts
Global unemployment rose by nearly 4 million in 2013, over 30 million higher
than before the onset of the global crisis, reaching 200 million, with the global
unemployment rate unchanged at 6%.
With few exceptions, labour productivity growth rates in developing regions
have been higher than those in the advanced economies; this trend is projected to
persist over the medium term.
Productivity growth and faster growth are key ingredients for sustainable
improvements in living standards and poverty reduction (however, note Brazil
….. and Russia …..).
The US economy has created 248 thousand jobs in September 2014 and the
unemployment rate fell to 5.9%. The manufacturing sector has been one of the
drivers of this recent growth in employment.
Several Australia’s job boards connecting age-friendly employers looking for
older workers (45+ and sometimes 40+ !!!).
SEE GDP Growth
Growth in SEE Region - 2013
A good agricultural year and growth in industry supported the
region’s economic activity in 2013.
Increased demand for regional exports (NB: exports can contribute to
growth and to reinforce shared linkages between productivity and export
performance). Exports grew by ca 17%, led by particularly rapid growth
of Serbian exports: export of machinery and transport equipment (e.g.,
Serbia and Macedonia). Mineral fuels exports (Albania and Montenegro).
The region’s domestic demand contracted, due to declining remittances
to the region too, reflecting a sluggish economic recovery and prevailing
high unemployment in EU countries.
Although the region experienced limited growth of 2.2% in 2013 (growth at or
exceeding 3% in Kosovo, Macedonia and Montenegro), such an economic
recovery did not translate into job creation
unemployment, falling
remittances and limited credit to the economy were unable to boost
domestic consumption or investment in the region.
Unemployment
While in the Developed Economies and the EU labour market
conditions showed no signs of improvement during 2013, in
Central and South-Eastern Europe (non-EU) and CIS
countries, the fall in unemployment recorded since the crisis peak
of 2009 was reversed in 2013.
Youth Unemployment in South East Europe: Averting a Lost Generation
Unemployment was at an average rate of over 24% in 2013,
particularly prevalent among vulnerable groups, such as youth, women
and the low-skilled. Youth unemployment has the potential to
permanently hamper the region’s first generation to grow up after the
transition away from communism and unemployment early in one’s
career can permanently reduce future earnings and delay the
acquisition of valuable on-the-job skills (NB: youth themselves are an
extremely heterogeneous group). This means that countries could miss
out on their most productive generation to date.
Some 50% of the working population is now outside of the
workforce: unemployment among youth averaged over 49% (as high
as 55.3% in Kosovo and 62.8% in Bosnia and Herzegovina).
FDI
Manufacturing sector
Oil-related industries
Export and services
About FDI and Russia …. The past?
FDI inflows
FDI inflows
FDI outflows
FDI flows, top 5 host and home economies
Major EU investors
Today’s Russia: a special case
(source: Bruegel)
Russia as a special case
(source: Bruegel)
Russia as a special case
FDI flows from Europe have been shrinking recently, also in anticipation of escalating
tensions over Eastern Ukraine, and speeded up during the first quarter of 2014, when the
first wave of sanctions was agreed.
FDI flows from Asia (mostly China) picked up during the same period. During the first
three months of 2014, European net FDI inflows to Russia amounted to $2.9bn (2bn of
which coming from the euro area), i.e. down 63% year on year. Asian net FDI flows to
Russia were instead $1.2bn (1bn of which coming from China), i.e. up 560% year on
year, but capital flight is expected to reach $120bn (2014-end)and the value of the ruble
is plummeting.
The amount of loans to Russia non-financial corporations and households from foreign
lenders, over the period 2007-2014Q1: these are net loans and show the expected
negative net new lending by European lenders and the positive and net new lending by
Chinese lenders.
For now, Russia’s growth is almost zero, inflation ca 8%, and sanctions have limited
Russia’s access to international capital markets and much needed technology. The
government will not stimulate the faltering economy by increasing spending, but
injections of state capital will support major companies and infrastructure development
(……. vs. compare with Brazil).
FDI: The “Country of Origin” preferences
The population of Moldova, Ukraine and Russia prefer investment from the
EU (52%, 57% and 43% respectively).
Uzbekistan and Azerbaijan are orientated towards investment from “other
countries beyond the CIS and the EU” (NB: for Uzbekistan, the most preferred
“other countries” are Japan and China; for Azerbaijan Turkey).
Georgia has approximately an evenly high level of investment preferences for
the EU countries (52%) and “other countries” (59%), where the most preferred
“other country” is the U.S. (48% of respondents).
Investment from CIS countries is predominantly preferred in Tajikistan (74%
of respondents) and Kyrgyzstan (65%). Among post-Soviet countries, the
most attractive source of investment is Russia (39%).
NB: In 2014 over 13,000 people from ten CIS countries and Georgia (between 1,000 and 2,000 people in each country)
took part in the EDB’s annual poll on the topic of integration priorities of population.
Source: The Centre for Integration Studies of the Eurasian Development Bank, “EDB Integration Barometer – 2014”. Eurasian Development
Bank’s Centre for Integration Studies and the Eurasian Monitor International Research Agency.
Special cases: Oil-related industry
The strong correlation between economic performance
and oil-related industry underscores the continued
reliance of countries such as Russia, Kazakhstan and
Azerbaijan on their energy exports.
Oil-related exports resulted in a high exports-to-GDP
ratio and an increase in the realization of much-needed
investment in the energy sector helped the economy to
grow rapidly.
e.g., oil-related revenues have allowed the Azerbaijani
government to invest in social protection.
Sources: UNCTAD and WTO
Export and Services
Services are increasingly being traded internationally, recording
a 5% annual growth (7% in 2014/Q1 and 6% 2013/Q3).
The most dynamic services sectors between 2008 and 2013 were
computer and information services (9.1 % annual average
growth), followed by personal, cultural and recreational services
(8.9 %), then by other business and professional services
(6.8%).
It is in computer and information services sector that developing
economies record highest growth rates: 13 % on average
annually since 2008, compared with 7.5 % for developed
countries. Other fast growing services sector for developing
nations are financial and insurance services, with average yearly
rise of almost 11%.
Sources: UNCTAD and WTO
Competitiveness
SEE
NIS’ CU and SES
Balkan Economic Competitiveness Makes Uneven Progress
The World Economic Forum’s annual survey measured 12 factors, including infrastructure, education and
training, labour market efficiency, technological readiness and innovation in 144 countries worldwide. The
latest Global Competitiveness Report 2014-2015 shows that Bulgaria, Romania, Macedonia and Serbia
had moved up in the world competitive rankings. Croatia and Albania dropped a few positions. (Note
that Bosnia and Kosovo were not included in the survey).
Bulgaria is the leader in SEE, ranked 54th overall in the world; Albania as the worst
(97th overall), just behind Serbia; Romania ranked 59th overall in the world and showed the biggest
progress compared to last year’s report, in which it was ranked 76th.
Bulgaria scored worst when it comes to “favouritism in decisions of government officials” where it was
ranked 134th. Romania ranked 116th for the “wastefulness of government spending” and for its capacity
to retain talent ranked 128th.
Macedonia (63rd) moved up per ten places. The country scored worst, in 108th place, for its market size,
GDP and exports, while it scored best and was ranked 38th for its goods market efficiency.
Montenegro remained in 67th place, the same as last year. The country was awarded its lowest rank, 134th,
for its market size, and got its best ranking for health and primary education, 29th.
Serbia on the other hand, moved five places up, reaching 94th place on the list. The country was ranked
140th for “cooperation in labour-employer relations”, was also given a lowly ranking for government
efficiency, 135th .
The best ranking for Serbia was 49th place for technology.
Source: Whiteshield Partners Capability and Innovation Potential Index 2013; UN Comtrade database, Whiteshield Partners.
Legend – Tier 1: Strong capabilities – Tier 4: Limited capabilities.
Central Asia/Eurasia
Lack of trust: in the light of the Soviet Union heritage, policy-makers may
find it difficult to go beyond the national focus paradigm to embrace
collaboration. A new mindsets of policy-makers is a must with a common and
shared vision.
Limited national capabilities: maximizing the potential of energy resources,
creating diversified economies and integrating into regional value chains.
Most countries of the region are far behind the curve in terms of capability,
innovation and knowledge building.
Some countries have vast lands to manage, others with complex sub-national
regional issues or governance challenges.
To unlock their competitiveness potential, most countries also have an
imperative to align their efforts to interconnect transport and logistics routes
allowing them to compete regionally and internationally.
Spending on social protection
Productivity
Last but not least!!
Conclusions
The long-term success of these economies is still dependent on imported productivity
gains. However, as these countries approach the technological standards of more advanced
economies, they require to unlock new sources of long-term growth and a renewed focus
on improving competitiveness:
- strengthened governance and anti-corruption,
- better social protection as it seems that economic performance is stronger in
countries that devote growing amount of resources to social protection, although
causation can go in both ways,
- improve higher per capita incomes that lead to better health and education,
which in turn boost productivity as well as improves job quality,
- active labour market policies,
- shifting the focus of education systems towards science, technology and
engineering to seize the large benefits from education and innovation,
- greater integration in European/Asian and global markets,
- creating an investment climate conducive to export-led growth.
Thank you!