“South East Europe in an Environment of VolatileCapital Flows”

Slavica Penev, IEN, Belgrade

Sarajevo, June 5 and 6, 2014Central Bank of Bosnia and Herzegovina

St Antony’s College Central Bank ofUniversity Of Oxford Bosnia and Herzegovina

Figure 1. FDI inflows in SEE-6 and NMS-10 , 2005-2012

0

10000

20000

30000

40000

50000

60000

70000

80000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

SEE-6 NMS-10

Figure 2. FDI inflows in SEE-6, 2005-2012

Figure 3: Inward FDI stock in SEE-6 and NMS-10 as a share of GDP (in %)

0

10

20

30

40

50

60

1995-1997 1998-2000 2001-2003 2004 2005-2007 2008-2010 2011-2012

NMS-10 SEE-6

Figure 4. FDI inward stock as a share of GDP, 2005-2012 (in %)

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Albania BiH Croatia Macedonia Montenegro Serbia SEE-6 NMS-10

2005 2006 2007 2008 2009 2010 2011 2012

Figure 5: FDI inflows as a share of Gross Fixed Capital Formation (in %)

0

5

10

15

20

25

30

35

40

1995-1997 1998-2000 2001-2003 2004 2005-2007 2008-2010 2011-2012

NMS-10 SEE-6

Figure 6. FDI inflows as a share of gross fixed capital formation, 2007-2012 (in %)

-

20.0

40.0

60.0

80.0

100.0

120.0

140.0

Albania BiH Croatia Macedonia Montenegro Serbia SEE-6 NMS-10

2007 2008 2009 2010 2011 2012

Figure 7: Gross fixed capital formation, 2000-2012, in % of GDP

18.520.9

27.8

23.521.4 21.3 20.5

0

5

10

15

20

25

30

35

40

45

2000 2005 2008 2009 2010 2011 2012

Albania BiH Croatia Macedonia Montenegro Serbia SEE-6

Figure 8: Inward FDI stock by economic activity, SEE, 2010

4.8

24.6

69.8

0.8

Primary

Manufacturing

Services

Other

Inward FDI stock in services (banking, telecommunications, real estate and retail trade) in Serbia and Croatia was over 75%, while in BiH and Macedonia around 60%; FDI stock in manufacturing sector in BiH was 31%, in Macedonia 31%.

LEGAL AND REGULATORY ENVIRONMENT IN SEE-6 COUNTRIES

Figure 9: World Bank Worldwide Governance Indicators*, 2012

-0.4-0.2

00.20.40.60.8

1

Voice and Accountability

Political Stability

Government Effectiveness

Regulatory quality

Rule of law Control of corruption

SEE-6 NMS-10

TABLE 1: World Bank Worldwide Governance Indicators*, 2012

 

Voice and Accountability

Political Stability

Government Effectiveness

Regulatory quality

Rule of law Control of corruption

Albania 0.01 -0.16 -0.28 0.17 -0.57 -0.72

BiH -0.14 -0.54 -0.47 -0.06 -0.23 -0.3

Croatia 0.48 0.56 0.7 0.44 0.21 -0.04

Macedonia 0 -0.44 -0.07 0.35 -0.24 0.02

Montenegro 0.23 0.56 0.13 0.01 -0.01 -0.1

Serbia 0.17 -0.22 -0.11 -0.08 -0.39 -0.31

SEE-6 0.13 -0.04 -0.02 0.14 -0.2 -0.24

NMS-10 0.81 0.69 0.65 0.92 0.64 0.29

Figure 10: World Bank Ease of Doing Business Rankings, 2009-2013

0

20

40

60

80

100

120

140

Albania BiH Croatia Macedonia Montenegro Serbia SEE-6 NMS-10

89

119110

6977

90 92

44

85

126

84

23

51

8676

43

2009 2010 2011 2012 2013

Figure 11: World Bank Doing Business Rankings per dimension, 2013

Due to a decreasing access to foreign loans, FDI will be even more important potential source of capital

Attractiveness of SEE-6 for FDI depend on the speed and scope of their: (i) transition process and (ii) EU accession process

The largest gap in all the countries of the region is the rule of law,

In terms of the quality of regulatory environment, the most considerable lags are in dealing with construction permits, enforcing contracts and registering property, which are linked to regulatory quality and rule of law.

Progress in narrowing down these gaps would mean a step forward in the transition process as well as in their EU accession process.

Concluding remarks