Business Advisory Council

Summary Record of the Stability Pact Business Advisory Council Meeting in Vienna, 16 March 2000

1. Introduction by the Co-chairs Mr Monod and Mr Nussbaumer; Approval of the agenda; Approval of summary record Berlin meeting.

The agenda of the present meeting and the summary record of the previous meeting were approved. The Co-chairs delivered introductory remarks on the agenda-items listed, indicating how the BAC's activities and involvement might contribute to furthering the economic development of South Eastern Europe.

2. Intervention by Mr Hombach, Special Co-ordinator of the Stability Pact and report on the Skopje Working Table II meeting by its Chairman Fabrizio Saccomanni.

The Special Co-ordinator briefed the BAC on recent Stability Pact initiatives in support of private sector development. The Investment Compact has been formally adopted by the countries in the region and country-specific road maps were being worked out. The countries also subscribed to the Anti-corruption initiative. On trade issues, a working group on trade liberalization and facilitation was looking at ways and means to improve the intra-regional trade flows.

The next important landmark would be the Regional Funding Conference which should secure support for all SP-related projects including those for private sector development and infrastructure.

Following the conference, the Special Coordinator would like to give priority to developing ways and means to attract more private capital for investments in SEE and to mobilize foreign banks in this respect. Part of this will involve discussions about political risk coverage and instruments that could be used to facilitate both exports and investments.

The Chairman of Working Table II, Mr Fabrizio Saccomanni reported on the outcome of the working table meeting in Skopje on 10-11 February. In addition to the Investment Compact already mentioned by the SC, he referred to the preparatory work which had been presented by the EIB, WB and EBRD in view of the Regional Funding Conference. With regard to trade issues, it was explained that the main objective of the working group will be the reduction and elimination of tariff and non-tariff barriers in the region. Reference was made to the signing in Skopje of a memorandum of understanding on Trade and Transport Facilities in SEE by Albania, Bosnia Herzegovina, Bulgaria, Croatia, the former Yugoslav Republic of Macedonia and Romania. The project is supported by a WB/IDA credit of $68 million and EU/US grant money.

3. Presentations and discussion

Under this agenda-item presentations were given by representatives from the EIB (Mr Gennimatas, vice-president), the WB (Mr O'Sullivan, Head of WB/EC Office for SEE) and the EBRD (Mr Descamps, Business Group Director SEE) on the preparations for the Regional Funding Conference.

In addition thereto the EC-representative (Mr Sabathil, Head of Unit) briefed the BAC on the development of the trade relations of the EU with the region of SEE and the OECD-representative (Mr Alter, Directorate for Financial, Fiscal and Enterprise Affairs) informed the BAC about the implementation of the Investment Compact.

Mr Gennimatas explained that the EIB will submit at the Funding Conference the list of infrastructure projects IFIs are willing to support in the next few years in the SEE. Projects fall into three categories :

• a "quick start package" of projects, for which implementation is likely to start or a tender will be awarded during the next 12 months; this package includes some 35 projects that are worth approximately 1.1 Billion Euros;

• a near-term package, which includes projects which are economically justified and do not present major obstacles. This package of 50 projects totals approximately 2.7 billion Euros and finally,

• a medium-term package. This category covers projects that require further analysis.

He outlined the EIB's four-prong strategy: improving transport, communication, and energy corridors to foster regional cooperation; increasing financing, especially for SMEs; and promoting the development of efficient capital markets. He added that we need better and fairer risk distribution between private and public sector and pointed to the lack of well-developed capital markets.

Mr O'Sullivan briefly introduced the WB's report called "The Road to Stability and Prosperity in SEE", a regional strategy paper outlining a comprehensive approach to regional development and integration in SEE. He highlighted the four basic areas for action to be followed in order to achieve peace, stability and prosperity in the region:

• moving rapidly towards trade integration with the EU and within the South East European region itself, and creating a stable, transparent and non-discriminatory environment for private sector development;

• fostering social inclusion and social change within the region to reduce tensions and create the conditions for peace and stability;

• improving institutional capacity and governance structures, and strengthening anti-corruption efforts in the region; and,

• investing in regional infrastructure to integrate the region physically with the rest of Europe and within itself, which must include initiatives that safeguard the environment.

He notably stressed the importance of improving intro-regional and regional trade, also with the EU and indicated what might be done to provide even better access for the countries in the region.

Mr Descamps explained that, within the Stability Pact, the EBRD has taken the lead on private sector development issues. The EBRD, which has approximately 2.9 billion Euros-worth of projects for SEE in the coming years, has a vested interest in the success of the Investment Compact. About half of the projects relate to infrastructure, about 16 % to SMEs and 31 % to corporate business. The EBRD is focusing on increasing cross-border trade and SME job-creation. It is developing new services, including loans with longer maturity periods and providing capital for local suppliers and contractors. He stressed that the EBRD would like to see an increase in the number of SEE countries covered by political risk insurance. The document to be submitted to the Regional Funding Conference will provide a strategic framework for private sector development, provide an outline of specific programmes and projects and contain initiatives which have been agreed among the IFI's.

Donor funding requirements will concentrate on trade facilitation programmes, trade insurance programmes (political risk, export credit support), the so-called Balkans Enterprise Facility, small equity funds, micro-enterprise banks, contractor credit support, credit guarantee pilot and bank restructuring.

Mr Sabathil gave a comprehensive overview of EU-trade with the region and elaborated on the issues that have to be dealt with in order to improve the trade flows. The countries already have important access to the EU, but they could increase their exports if the competitiveness of their products would be improved, administrative procedures would be streamlined and adequate financial and legal frameworks would be set up.

He informed the participants about the state of play with regard to the so-called Stability and Association Agreements which are on the table to the countries in the region. Negotiations on such an agreement, aiming at a free trade area after some 10 years, will start soon with the former Yugoslav Republic of Macedonia and the feasibility of starting similar negotiations with other countries is being looked into.

Mr Alter explained that the Investment Compact lays out an ambitious and tailored policy reform program for each country; a team leader had been identified in each country. He pointed out that OECD-led teams are starting to meet with SEE's national economic teams. Mr Alter invited the BAC to send two members, on a rotation basis, to participate in OECD-meetings in individual countries to provide a private sector perspective to investment discussions. He also invited BAC members to part-take in the OECD's private governance projects. Both Co-Chairmen accepted the invitations and agreed to work with the OECD to develop a schedule.

4. The Regional Funding Conference

Mr O'Sullivan, in his capacity as one of the co-organizers of the Regional Funding Conference, informed the BAC about the purpose and organization of the conference. The event, co-chaired by President Wolfensohn of the WB and Commissioner Patten, will take place on 29 and 30 March in Brussels. The first day has a more political character as the countries of the region will be expected to indicate what their commitments will be with regard to political and economic reform issues.

The donor countries/organizations will indicate in overall terms what their support to the region will be in the coming years. The second day will be dedicated to the funding of the Quick Start Package, containing project proposals of regional importance in all areas covered by the SP, worth some 1.8 billion Euros.

5. Exchange of views

In a general "tour de table" each BAC-member was given the opportunity to comment on the various presentations or to draw the attention to specific issues.

• With regard to contacts with governments/private business in the region it was agreed that a coherent "message" should be established to be used by individual BAC-members. A brief paper containing the main messages and also outlining origin/purpose of the BAC will be drawn up.

• With regard to specific experiences in the region, either by BAC members or other business people, it was agreed that information should be provided to the Co-chairs who in turn could share it with the Stability Pact Office in order to see if (remedial) action could/should be taken and by whom.

• Great interest was shown in involving the BAC in the implementation of the Investment Compact. The Co-chairs will establish, in close co-operation with Mr Alter (OECD), the way in which this should be realized.

• As a concrete example of an impediment to developing trade relations with countries outside the SEE-region the visa-issue was mentioned. For business people of certain countries in the region of SEE it is often quite difficult if not impossible to obtain (timely) visa for establishing/maintaining business contacts in the EU. It was generally felt that the BAC should draw the attention of the EU to this pressing problem.

• Another point for discussion was the way in which information about business opportunities in the region could be shared with the rest of the business community in the SP-countries. The BAC will have to agree on how this can best be organized with the assistance of national federations of business and industry.

• The attention was drawn to the need to take into account the interest, of the SME's. They are the backbone of the region and have potentially the best opportunities for job creation.

6. Rules and Procedures, Working Methods

The BAC agreed on the rules and procedures as contained in a document submitted by the Co-chairs.

7. Calendar for year 2000

The BAC noted that a Regional Table of the SP might take place in Thessaloniki on 12 May next, requiring the presence of a BAC-delegation.

The next meeting of working Table II will be in October in Turkey.

8. A.O.B.

None

9. Date and venue of next meeting

The Co-chairs would like to organize the next meeting of the BAC in Zagreb on 31 May next. More details will follow.