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Promoting work and well being:

an OECD Development Centre Economic

Outlook

Javier Santiso

Director & Chief Development Economist, OECD Development Centre

23 June 2008

Bucharest

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DEVDEV A platform for OECD & developing country dialogue

Non-OECD members

OECD members

2008 - 23 members

Chile

South Africa

India

Thailand

Egypt

Israel

Brazil

Romania

Vietnam

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BSEC-CABSEC-CA An OECD Development Centre Economic Outlook

The OECD BSEC-CA Economic Outlook• A cross-country comparative analysis of

macroeconomic and policy developments of the BSEC-CA region, involving 12 BSEC and 5 CA countries

• The first such report dedicated to a cross-cutting policy issue: Work and Well-Being

Further OECD work on Romania:• Reform Effort Support – Sigma – 2001-2008

• Education Policies for Students at Risk and those with

Disabilities in South Eastern Europe- EDU - 2006

• Investment Policy Review for Romania – DAF – 2005

• Enterprise Policy Performance Assessment Romania – DAF -

2005

• Reviews of National Policies for Education Romania - EDU -

2003

• Romania -- Economic Assessment – ECO - 2002

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GrowthGrowth Strong & sustained overall growth

GROWTH:• Over 2001-06, average growth rate

for the 11 CIS countries was around 8 per cent, comparing favourably with Asian economies.

• Substantial improvements in productivity have been the driving force behind this strong growth.

TRADE:• The European Union is the main

trade partner for the region, accounting for over half of all trade for the six non-CIS countries.

• Russia is the main intra-regional trading partner,

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L-LML-LM Low & Lower-middle income countries

Key macroeconomic variables, 1995-2007

GDP (current prices,

USD billion)GDP per capita, PPP

(USD)Population

(million) 1995 2007e 1995 2007e 2007

Albania 2.7 10.8 2 636 6 197 3.2Armenia 1.3 7.8 1 418 5 769 3.5

Azerbaijan 2.4 31.1 1 764 8 521 8.6Georgia 1.9 9.6 1 287 4 176 4.4Moldova 1.4 4 1 650 3 090 3.4Ukraine 37 131.2 3 999 8 624 46.4Note: e data for 2007 are estimates.

Source: IMF, 2008

Source: OECD Development Centre / IMF

• Inflationary pressures are increasing in a number of Low- and Lower-middle-income BSEC countries. The main drivers are high import prices, particularly energy, and increasing consumer demand boosted by remittances.

• Growth is projected to slow somewhat from 10.6 per cent to 9.2 per cent in 2008.

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UM-HUM-H Upper Middle & High-income countries

Key Macroeconomic Variables, 1995-2007

GDP (current prices, USD billion)

GDP per capita, PPP (USD)

Population (million)

1995 2007e 1995 2007e 2007eBulgaria 13.1 39 5 494 10 973 7.6Greece 148 356 1 4156 35 167 11.1Romania 35.5 159 5 717 11 079 21.6Russia 313.5 1 224 5 947 13 432 142.1Serbia .. 41 .. 7 265 7.5Turkey 166.4 482 5 494 9 816 73.6Note: e denotes data for 2007 are estimates.Source: IMF, 2008

Source: OECD Development Centre / IMF

•Widening current account deficits across these countries underline an increasing exposure to international shocks.

• Strong currency appreciation and import growth led to larger trade deficits. Import prices, particularly tied to energy and import demand, are also rising.

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Central AsiaCentral Asia Boom times for oil exporters

Key macroeconomic variables, 1995-2007

GDP GDP per capita, PPP (USD)

Population (million)(current prices,

USD billion)1995 2007 1995 2007 2007

Kazakhstan 16.6 95.5 3556 10658 15.1Kyrgyz Rep. 1.5 3.5 1171 2315 5.3Tajikistan 0.6 3.4 668 1637 6.4Turkmenistan 5.9 26.2 3098 9483 5.2Uzbekistan 10.2 20.2 1277 2541 26.8Source: IMF, 2008

• Regional growth slowed slightly in 2007 to 8.6 per cent, with 7.7 per cent forecast for 2008, mainly because of decelerating Kazakh growth.

• Inflation is on the rise, mainly due to high energy prices, booming domestic demand and rapid accumulation of forex reserves.

Source: OECD Development Centre / IMF

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InvestmentInvestment Growing fast, yet still oil-focused

• FDI in the countries of the south Caucasus and Central Asia has been driven by the availability of oil and gas.

• Privatizations in South East Europe have boosted FDI figures in those countries.

• Efficiency-seeking and market- seeking FDI (mainly in telecommunication and banking) has been important in non-oil producing countries.

• The entry of Romania and Bulgaria into EU have been strong drivers of investment for those countries.

• Outward FDI from the region has also increased, thanks to dynamic MNCs mainly from Russia (78% of total).

Source: OECD Development Centre / UNCTAD WIR

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Pub. Pub. financefinance

Increasing access to funding

Source: OECD Development Centre / IMF

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Social indic.Social indic. A heavy social cost: death rates in BSEC-CA countries

Source: OECD Development Centre / IMF

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ExportsExports Specialisation in BSEC-CA countries

Export specialisation (Balassa) Index average 2001-06

SITC group 1 2 3 4 6

beverages & tobacco

crude materials (ex.

fuel)

mineral fuels

animal & vegetable oils

manufactured goods

Albania 1.9 3.4 0.3 0.1 1Armenia 10.7 3.5 0.3 0.3 3.9Azerbaijan 0.8 0.9 8.8 2.3 0.2Bulgaria 2.5 1.9 0.9 0.7 1.8Georgia 18.8 7.4 0.4 0.1 0.8Greece 4.6 1.8 1 6.4 1.5Kazakhstan 0.2 2.1 6.9 0.1 1.4Kyrgyz Rep. 3.5 3.6 1.4 0 0.7Moldova 33.3 2.8 0.1 8.7 0.6Romania 0.2 1.8 0.9 0.6 1.4Russia 0.2 1.4 5.3 0.2 1.1Serbia 1.5 1.5 0.3 2.3 2.6Tajikistan* 0.2 7.6 0.1 0 4.4Turkey 1.1 0.5 0.2 1.2 1.8

Turkmenistan* 0 0.9 9.3 0 0.2Ukraine 1.2 2.4 1 5.2 3.1Uzbekistan* 0.6 10 1.5 0.2 1.4

Source: OECD Development Centre / Comtrade, 2008

• No BSEC-CA countries have any form of specialisation in exports of food and animals (SITC 0), chemical products (SITC 5) or machinery and transport products (SITC 7)

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FocusFocus Romania in perspectiveRomania

• Romania was the second largest FDI recipient in both South Europe and the CIS. This is essentially the result of privatization.

• Very low labour costs coupled with proximity to the EU market contribute to the strong attraction of Romania for FDI. Nevertheless, higher value-added sectors are also attracting strong investment.

• Romania needs to comply with E.C rules and regulations on judicial independence, and structural transparency and accountability reforms

BSEC-CA

• 2006 saw a dramatic surge in FDI to the BSEC-CA reegion, raching USD 90 billion

• Inflows rose in almost all countries, driven by several factors. FDI to UMH-BSEC countries more than doubled in 2006 when it reached USD 76 billion.

• Inflows rose in almost all countries, driven by several factors. FDI to UMH-BSEC countries more than doubled in 2006 when it reached USD 76 billion.

• The principle drivers were the forthcoming accession of Bulgaria and Romania to the European Union, the continuation of the privatization process and new opportunities in extractive industries, especially in Russia.

• Greece and Turkey recorded their highest-ever FDI inflows, owing to large takeover deals in the financial sector and telecommunication sector (OECD, 2007a).

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OutlookOutlook Looming inflation risks on the horizon

• The entire BSEC-CA region faces slower growth as a result of the U.S. and Western European downturn.

• Inflationary pressures are increasing with high import prices, particularly energy, and increasing consumer demand boosted by remittances.

• The poor are particularly vulnerable people to the effects of higher food and energy prices.

• BSEC-CA economies will continue to prosper, but challenges are rising

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Promoting work and well being:

an OECD Development Centre Economic

Outlook

Javier Santiso

Director & Chief Development Economist, OECD Development Centre

23 June 2008

Bucharest