South-East Europe economies pursue cooperation on investment policy

21 November 2017

UNCTAD’s first regional investment policy review develops recommendations to assist the economies of South-East Europe to cooperate on development objectives and diversify investment opportunities

Business climate reforms and cooperation are needed to attract increasing levels of foreign investment (FDI) across South-East Europe (SEE), says UNCTAD’s investment policy review (IPR) of the region, presented on Tuesday.

The Investment Policy Review of South-East Europe, the first ever regional IPR undertaken by UNCTAD, looked at investment policies in Albania, Bosnia and Herzegovina, Montenegro, the Republic of Moldova,§ Serbia and the former Yugoslav Republic of Macedonia, as well as Kosovo*. It was initiated at the request of the Regional Cooperation Council and aims at assisting the beneficiary economies achieve the development objectives set in the SEE Strategy 2020 and the Sustainable Development Goals.

Attracting and benefiting from FDI is viewed as a key pillar of that strategy and UNCTAD Director of the Investment and Enterprise Division, James Zhan, said when launching the report that “the IPR reminds us that economic cooperation and integration offer a route to raise the economic well-being of all economies”.

Global flows of FDI declined by 2% in 2016 to US$1.75 trillion, but in South-East Europe they fell by 5%. Also, FDI into the region remains concentrated in the financial services sector. In line with their joint development strategy, the region’s economies now want to diversify their investment attractiveness, more than double annual FDI inflows, and ensure investment addresses the region’s high unemployment rate by creating jobs and training opportunities.

Significant progress in investment policy reform across the region and the end of a harmful fiscal race are among the report’s key findings. However, much more can be done to consolidate recent policy efforts. The report proposes several recommendations to improve the region’s business climate and increase cooperation in investment policy, including in the areas of FDI-specific laws and international investment agreements, labour, fiscal policy, competition and business and trade facilitation.

“Enhanced regional cooperation is of crucial importance to enhance FDI in South-East Europe as we aim to guide the region to meet the strategic needs of investors and avoid the race to the bottom,” said Goran Svilanović, Secretary General of the Regional Cooperation Council (RCC). He added “this review, a blueprint for South-East Europe, emphasizes regional cooperation for investment policies and promotion, in line with the Sustainable Development Goals, and it has already brought the economies together in the context of international investment agreements”.

Easing restrictions on trade, such as simplifying customs procedures and granting market access, remains another area which could help attract investors – especially those firms seeking to export.

Emir Djikic, Director of the Central European Free Trade Agreement, also speaking at the launch via video link from the CEFTA Week in Belgrade, Serbia, underlined the importance of this goal, as well as the need to align the region’s regime with European Union (EU) standards. Several of the economies are candidate or potential candidate for EU accession. He also highlighted the need to develop intra-regional investment and attract high-value added sectors.

Another key proposal in the report is the creation of a regional investment promotion platform.

“Taking a regional approach to investment attraction makes sense,” said Mr. Zhan. “Multinational firms and investors operate and invest regionally, based on strategic decisions about market size, regional production networks and infrastructure links.”

Rather than see FDI attraction as a zero-sum game, he said, economies can benefit by pooling resources and offering a joint value proposition to investors.

Through the efforts of the RCC Secretariat, the CEFTA Secretariat and UNCTAD, the IPR has already brought the economies of the region into closer collaboration with each other, and its implementation is already underway. With the Regional Investment Policy and Promotion Programme, supported by the European Commission and the World Bank, the review’s recommendations will inform the regional investment reform agenda.

UNCTAD has supported developing countries and economies in transition with a total of 45 investment policy reviews, and provided technical support with implementing recommendations. Studies show the reviews have helped countries to attract and benefit from FDI and improve the business climate.

§ As a participant in the SEE Investment Committee’s Working Group on Investments and a Central European Free Trade Agreement (CEFTA) signatory, and at the request of the CEFTA and Regional Cooperation Council Secretariats, the Republic of Moldova is also included in the regional study even though it is not directly encompassed by the SEE 2020 Strategy.

* United Nations Administrative Region, Security Council resolution 1244 (1999).