Bucharest , October 14-15, 2003

Address by Dr. Erhard Busek

Special Co-ordinator of the Stability Pact for South Eastern Europe  

and of the South Eastern Co-operation Initiative (SECI)

and Business Advisory Council Associate Member

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Excellencies, Ladies and Gentlemen,

It is a privilege for me to address the participants of this Eastern Europe Investment Summit.  I would like to congratulate the IHT and the sponsors of this conference for focusing our minds to a European investment frontier that is expanding to the East and more specifically to the South East of Europe.

Indeed, with the current round of enlargement coming to a successful conclusion, the view opens up to the wider horizon of European integration.   This is clearly where South Eastern Europe belongs - it cannot remain an enclave within an enlarged European Union.  And while much still remains to be done, we have to acknowledge that the governments of the region have taken significant steps to move ahead.  

Bulgaria and Romania , already well advanced in their accession negotiations, have been provided with a clear roadmap in view of the indicative date of 2007 for their entry into the EU.  At the end of June, the EU-Western Balkans Summit in Thessaloniki was an important milestone because it provided proof of the EU commitment to the European perspective of the countries of the Western Balkans.  The hard reforms that South Eastern Europe needs do not happen by themselves.  They must be driven by a shared vision of the governments and peoples in the region to emerge from a difficult past in order to join the European family.  

While European integration is clearly the endgame, conditions have to be met on the way, and we - both the countries of the region and those supporting them - need to do everything we can to make sure that these conditions are spelled out clearly and fulfilled step by step.   Under the tireless leadership of the Greek and now of the Italian EU Presidency, we are witnessing an intensification in the consultations between the European Union, the South Eastern European countries and all the players involved in supporting the region in its efforts - among them the Stability Pact.  I am particularly satisfied about the way in which the Stabilisation and Association Process (SAP) has been enriched further by the decisions of the Thessaloniki Summit and boosted in its credibility as the path towards European integration for the Western Balkans countries.  

A crucial component both of this path and of the road map followed by Bulgaria and Romania is regional co-operation, which has been strongly reaffirmed as a precondition for European integration.  The Stability Pact will continue to support the region in meeting this condition.  

In this respect I am pleased to convey to you a joint message of the various regional co-operation initiatives, which met in Ljubljana last week: I have in mind the Adriatic Ionian Initiative, the Black Sea Economic Co-operation, the Central European Initiative, the Danube Co-operation Process, the Southeast Europe Co-operation Initiative, the South East Europe Co-operation Process (SEECP) as well as the Stability Pact.  By enhanced co-operation efforts, we have reached a stage where we try to avoid overlap and apply division of labour and joint activities as our guiding principle, allowing each initiative to concentrate on areas where effective added value is ensured.  We are convinced that increased regional co-operation is an important element in securing progress towards European integration.

But while regional co-operation has been firmly established as a central feature of dealing with open questions in the region, we should not overlook potential new obstacles to closer co-operation.   With Bulgaria and Romania as candidate countries, the five Western Balkan countries in the SAP and Moldova with its Partnership and Co-operation Agreement, and with the EU external border moving ever closer to the region with the accession of Slovenia and Hungary, the Stability Pact is one of the few fora to bridge gaps resulting from these categorisations and where potential conflicts of priority can be sorted out.  

I fully support the expansion of some accession instruments to the SAP countries.   The experience gained from the current round of enlargement should be made use of to support the potential candidates in South Eastern Europe .  In this respect, the Stability Pact has been engaging with the future EU member states of Central Europe - we had a meeting in Vienna in May and a second meeting in Bratislava two weeks ago  - to make use of their "transformation experience" for the countries of South Eastern Europe .  I am pleased to note that the response has been outstanding and the Central European engagement is already well underway.  

As reaffirmed at the Thessaloniki Summit, the Stability Pact has a key role in further developing the regional co-operation element of the SAP and other processes of the countries of the region are engaged in, both in general as well as in specific areas along the lines of our core objectives.

Infrastructure 

There are many internationally and locally funded infrastructure activities in SEE.   As mentioned, the Stability Pact is meant to stimulate regional co-operation and hence our focus is on those projects that contribute to this aim.  Following pledging conferences in 2000 and 2001 the current list of approved regional infrastructure projects comprises some 51 projects, with a total cost of €3.81 billion.  These projects have financing secured or under preparation with the involvement of bilateral donors or international financial institutions.  They were selected according to agreed criteria, namely technical feasibility, economic and environmental viability, submission by one or more countries and a marked regional character.  Work has already started on 33 of these projects.  

While the day-to-day implementation of these projects is a matter for the individual country and international financial institution, the overall implementation of the projects is monitored by the Infrastructure Steering Group (ISG).   This Group consists of representatives of the international financial institutions (IFIs) and the Stability Pact.  It is chaired by the European Commission and provides the IFIs with a framework within which they can agree on a policy towards infrastructure development in South Eastern Europe and avoid duplication of effort or worse.  Please note that South Eastern Europe is the only region in the world where such a coordinating body amongst IFIs exists.  The ISG is now moving towards the implementation of agreed regional strategies in the main infrastructure sectors. 

The electricity sector is an excellent example of this move to a strategic approach.   The support of the International Community to South Eastern Europe in the energy sector has gradually shifted from emergency support and addressing reconstruction needs to a more coordinated and long-term approach from a regional perspective.  Improving the stability of electricity supply for the countries of the region is fundamental for economic development and political stability and the European Commission and the Stability Pact have worked together over the last year to develop a strategic framework to achieve this.

In Athens , Energy Minister of the Southeast European Governments committed themselves in a Memorandum of Understanding, signed in November 2002, to the establishment of a regional electricity market and to its integration into the internal electricity market of the European Union based on the adoption of the rules included in the EU Electricity Directive.

The European Commission and the Stability Pact are now working towards expanding this MOU to gas in view of creating a broader Regional Energy Market.  Furthermore, it is already proposed to convert this revised MoU into legally binding multilateral treaty, which would create more legal certainty and facilitate foreign direct investment in the energy sector.

Trade

This is currently one of the most active and valuable initiatives under the Stability Pact.  The Stability Pact Working Group on Trade Liberalisation and Facilitation, currently chaired by Albania, provides a neutral forum under which the countries of SEE and the international community can determine a road map for trade liberalisation that is tailored to the specific circumstances of the region and is in line with the countries' obligations to the European Union and the multilateral trading system.

To date the initiative has made impressive progress in terms of securing political agreement among the countries of the region on the need to improve the trade environment and in obtaining and co-ordinating political and technical support from the international community to facilitate this process.   The key step in this process was the signing of the MoU on Trade by seven countries of SEE (Moldova unilaterally associated itself with the process through a statement of intent). 

This Memorandum is an ambitious document.   It commits the Signatory Countries to take concrete trade liberalisation and facilitation measures, including the completion of a network of bilateral Free Trade agreements (FTAs) between all countries of the region by 31 December 2002 , in accordance with specified provisions. 

This network of 21 signed bilateral agreements was in fact completed in February 2003.   The agreements are now in the process of ratification.   Problems raised in this connection by the change in the constitutional situation of Serbia and Montenegro are in the process of being resolved.

The delivery of this first commitment of the MoU combined with the fact that analysis shows that the FTAs meet the ambitious criteria set out in the MoU sends a positive signal to the international political community regarding the determination of the governments of the region to deliver on their commitments and to the international business community about the expanding economic potential of the region 

We are at a crucial juncture in the trade liberalisation process where the statements of political willingness (i.e. the network of bilateral free trade agreements - FTAs) must be translated into concrete actions on the ground.   The SP Trade Group’s current future priorities, which will be reaffirmed at a forthcoming Ministerial Meeting in Rome on November 13 are: 

(ii)         to implement the FTAs, (e.g. ensure conformity of FTAs with MoU, progress abolition of non-tariff barriers, implementation of common system of rules of origin, simplification of customs procedures) 

(iii)       Deepen integration (assess prospects for liberalisation of trade in services, harmonisation of standards, competition policy)

(iv)        Move in the direction of a Free Trade Area and promote the opportunities stemming from the progressive liberalisation of trade in SEE to the domestic and international business community.

Investment Compact and Business Advisory Council 

To seize the opportunities created by trade liberalisation among the SEE countries as well as their expanded trade access to the Single European Market, an increase in domestic and foreign private sector investment is necessary. 

Creating a favourable regulatory and institutional framework for increased investment is the purpose for another Stability Pact Initiative, namely the “SEE Compact for Reform, Investment, integrity and Growth”, better known under the name of “Investment Compact”.   This initiative is currently chaired by Romania , Austria and the OECD, with this last institution providing institutional support to monitor the achievements of “Time-Bound Critical Targets”, i.e. reforms which the countries themselves have identified as essential to attract more investment.  

Under the auspices of this Investment Compact, the Ministers of the Economy of SEE adopted on 18 July 2002 a Ministerial Declaration, spelling out the principles they intended to follow to attract foreign direct investment (FDI).  They also acknowledged a collective responsibility in enhancing the investment climate and the image of the region.  On 11 July 2003 , they went a step further, committing themselves to a set of concrete measures, including the elimination of all measures discriminating against foreign investors. 

It is true that FDI remains unevenly spread over Eastern Europe , with most of the flows concentrated in the Central European Countries.  The reasons behind the low level of FDI in the SEE countries are structural and institutional in nature.  Some research shows that there is a positive association between institutional development and the cumulative inflow of FDI per capita in SEE.  Countries where restructuring was delayed have not been able to attract foreign capital.  Also, those countries with institutionally weaker business frameworks have been less attractive to foreign investors due to insecure property rights and contracts, poor governance incentives, underdeveloped infrastructure and utilities and last but not least corruption.  Recent improvements in legislation and strengthening of market institutions have started to produce results by increasing the flow of FDI to SEE.  Some countries have received more foreign investment in comparison with the rest of SEE because of their recent progress in restructuring and privatisation of the enterprise sector and improvements in the institutional environment.  These results should encourage both the policymakers to continue to pursue more vigorously reform agendas for strengthening the institutional aspect of the business environment and the investors to recognise the improvements and to come to the region. 

The activities of the Business Advisory Council for South Eastern Europe , which held an important meeting in Bucharest yesterday, complement those of the Investment Compact.  Composed over 40 leading European and American business executives, its main aim is to improve the business climate in South Eastern Europe , to attract investment and to advise Governments and the various partners brought together by the Stability Pact on practical problems investors face in South Eastern Europe . 

Investors missions to South Eastern European countries are an important tool of information sharing and awareness raising.   The Bucharest BAC mission gathered more than 100 local and international business people.   Its main topics were dealt with at three sectoral round tables, focusing on Infrastructure and Telecommunications, Public Private Partnerships in Communal Services and agriculture, food and tourism.  

Other Initiatives 

European experience has shown the necessity to complement free movement of goods with that of people, requiring close co-operation in the broad area of visa liberalisation, border control and migration in general.   I would like to commend the countries of the region that have already taken important steps in this direction.  Others need to follow suit in order to allow full freedom of movement within the region. 

Waiving visa requirements does not mean dismantling borders.   To the contrary, it would have to be accompanied by efforts to enhance effective border management.   The Ohrid Conference on Border Management last May developed an agenda to support the countries of the region to take effective control of their borders.  Efforts in this direction are a clear sign of European maturity and support interaction within the region.  

Effective border management of course also requires close co-operation among local authorities in border regions.   Strengthening the capacity of municipal authorities in border regions can foster economic growth and social development as well as co-operation between border regions.   In an area where borders still have a greater importance than in the EU, much work is still necessary at grass roots level to enhance contacts across borders.  

The crucial area of fighting organised crime and corruption is the last point I would like to mention.   The London Conference of November 2002 highlighted the need for concerted action in this field.   Because organised crime is an international phenomenon, national remedies are obsolete.  Regional co-operation is a prerequisite for success.  The Meeting of the SEECP Ministers of Interior last June, organised together with the Stability Pact Organised Crime (SPOC) Initiative, has been an important step in moving ahead concerning data and witness protection - crucial in any fight against organised crime.  As you know, the SPOC Secretariat is located in the premises of the SECI's Regional Centre for Combating the Trans-border Crime in Bucharest .  

To conclude, let me reiterate that the Stability Pact’s raison d'être is to stabilise South Eastern Europe   - we have had considerable success in this respect - and to support the region on its path towards integration into European, Atlantic and international institutions.  The Stability Pact will make every effort to support the region in moving towards its goals as fast as possible.