Promoting work and well being: an OECD Development Centre Economic Outlook

1. Promoting work and well being: an OECD Development Centre Economic Outlook 23 June 2008 Bucharest Javier Santiso Director & Chief Development Economist, OECD Development Centre

2. A platform for OECD & developing country dialogue DEV OECD members 2008 - 23 members Non-OECD members Israel Brazil Romania Vietnam Colombia Chile South Africa India Thailand Egypt

3. An OECD Development Centre Economic Outlook BSEC-CA • 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

4. Strong & sustained overall growth 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: • TheEuropean 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,

5. Low & Lower-middle income countries L-LM • 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. Source: OECD Development Centre / IMF

6. Upper Middle & High-income countries UM-H • 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. Source: OECD Development Centre / IMF

7. Boom times for oil exporters Central Asia • 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

8. Growing fast, yet still oil-focused Investment • 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

9. Increasing access to funding Pub. finance Source: OECD Development Centre / IMF

10. A heavy social cost: death rates in BSEC-CA countries Social indic. Source: OECD Development Centre / IMF

11. Specialisation in BSEC-CA countries Exports • 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) Source: OECD Development Centre / Comtrade, 2008

12. Romania in perspective Focus • Romania • 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 USD76billion. • 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).

13. Looming inflation risks on the horizon Outlook • 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

14. Promoting work and well being: an OECD Development Centre Economic Outlook 23 June 2008 Bucharest Javier Santiso Director & Chief Development Economist, OECD Development Centre