Keynote Address -  Erhard Busek, Special Co-ordinator

Excellencies, Ladies and Gentlemen

I am grateful for this opportunity to meet Canadian companies and to encourage you to explore business and investmentopportunities in South Eastern Europe (SEE).  Of course, doing business in this dynamic part of Europe is not easy but opportunities certainly exist and for those of you willing to take calculated risks the returns can be substantial.

Today, I would like to give you a brief overview of some of the current political and economic issues in the region as well as some of the ways in which the Stability Pact is trying to stimulate economic development. As Mr Alin mentioned, facilitating sustainable economic growth in SEE is one of the main objectives of the Stability Pact. 

The situation in South Eastern Europe today is obviously a very different one to that of five years ago when the Stability Pact was established. The process of democratisation is clearly irreversible with successful democratic elections repeatedly held in all countries.  Formerly warring ethnic groups are today working more closely together to address common problems. While the rate of economic development remains an issue, important foundations have been laid. Furthermore, the focus in the security area has clearly moved from military to justice and home affairs issues; an obvious indication of stabilisation.

Last year was an important year for South Eastern Europe regarding its relationship with the European Union.  EU enlargement on May 1 means that several EU member states now border South Eastern Europe .  The EU has given Croatia candidate status with accession negotiations to start later this year. Croatia ’s candidate status was an important message to all Western Balkan countries, since it clearly shows that, as emphasised by the Thessaloniki EU Western Balkans Summit in June 2003, the Stabilisation and Association Process does indeed lead to future EU membership.

It is important that this “end goal” of the Stabilisation and Association process is reiterated to the countries of SEE.    At the moment the discussion inside the EU is more focused on the question of Turkey 's relationship with the Union . It is vital that we make it crystal clear to all and sundry that the EU perspective for South Eastern Europe is important for Europe. Our ability to promote the further stabilisation and economic prosperity of the region is hugely dependent on this perspective being upheld.

We face a testing year in 2005 in South Eastern Europe  , as discussions are due on a number of crucial political processes. Obviously the question of Kosovo's future status is the most prominent one. But due to the inter-related nature of the problems in the region, close attention will have to be paid to effects on other parts of the region. The political development in Serbia and Montenegro as well as Bosnia and Herzegovina in the run-up to important referenda and elections at the latest in early 2006 will have implications for the region as a whole. As you may be aware, the opening of EU accession negotiations with Croatia could be delayed if the EU Member States judge that Croatia is not co-operating sufficiently with the International Criminal Tribunal in The Hague . The question of Macedonia ’s application for EU membership and the expected avis of the European Commission is of relevance not just to the country itself, but also for the whole region, since it will give further indications on how the European integration process of South Eastern Europe will proceed.

I know that these political developments are important for potential investors – both foreign and domestic. As businesspeople, I expect you and your counterparts in other countries to monitor these developments and weigh up their impact on potential investments and this is why I spend a lot of my time with SEE and international politicians emphasising the need to consider carefully the effect of political decisions on the investment climate.

On the strength of the economic progress achieved to date – for example annual growth rates of 4 or 5 percent and € 5 billion of FDI in 2003, SEE is now on the radar screens of foreign investors and international capital markets.   Your presence here today is a good indicator of this interest.  IN addition, private sector perception of the business climate in SEE has improved across all main indicators – access to finance, infrastructure, taxes, regulations, judiciary, crime and corruption.But improved perceptions and being on the radar screens of investors does not guarantee actual investment  - much work must be done to translate interest into actual investments.

Given the immense competition for investment worldwide, the willingness of the SEE countries to co-operate on a regional basis to improve the business environment and promote investment is critical.    In the context of the globalisation of trade and investment flows, the creditworthiness and attractiveness of the region is regarded as more important than the standing of individual countries. International investors respect and can operate within existing political and institutional realities, but they increasingly require integrated markets, free from trade and foreign exchange restrictions, with reasonable regulatory frameworks and reliable legal systems.

Indeed one of the key determinants of attracting FDI anywhere in the world is market size and this is one of the reasons why the Stability Pact has worked so hard to liberalise the trade regime in SEE so that the countries can offer a market of 55 million consumers to potential investors rather than a series of fragmented small markets.

Investment flows to date demonstrate clearly that those countries who are further along in implementing the necessary economic reforms attract the biggest flows of foreign investment –Bulgaria   , Croatia and Romania top the list in this respect in SEE.  We would like to see the other countries benefiting more fully from the inflows of capital as well as the managerial and technical know-how that FDI can bring. All SEE countries have made a number of political commitments on economic reform in fact many of these commitments have been made under the auspices of Stability Pact initiatives such as the Investment Compact or the MoU on Trade Liberalisation

Progress on implementation is underway and some success is evident.    However implementation is a tedious task, it is always easier to sign political declarations than to follow-up on them and take the necessary legal and practical steps. Lack of implementation can stem from a number of factors: lack of political commitment, lack of administrative capacities, and also lack of continuity of institutions and personnel in crucial areas. 

The SEE countries know that they cannot afford to be seen to fail in this area and the Stability Pact is working hard to assist the region to demonstrate the political will, determination and dedication to follow-up on the political commitments made. 

Our methodology is based on bringing together key actors from SEE and the international community, securing political commitment and providing technical guidance. The initiatives we have launched make significant use of peer pressure and transparency and complement political processes such as EU Accession and the SAP. 

I would like to mention some of our key initiatives:

• The Infrastructure Steering Group (ISG) created under the auspices of the Stability Pact brings together representatives of the European Commission and of the International Financial Institutions (IFIs, i.e. the World Bank, the European Bank for Reconstruction and Development, the European Investment Bank, the Development Bank of the Council of Europe). The ISG has been the promoter of regional sectoral strategies, streamlining the approach and prioritising investments in transport and energy.   The programme of regional infrastructure projects that have secured funding under the auspices of the ISG now stands at 51 projects with a total value of € 4.1 billion.  This is in addition to projects funded on national basis.
  
• SEE is the only region in the world where IFIs come together like this.  The ISG members have now decided to extend its mandate to environmental investments, particularly in the areas of water and wastewater treatment.
  
• We are also trying to improve the environment for public private partnerships in the region, as it is clear that the level of investment required in the infrastructure sector is well beyond the means of the public sector.  The EC has estimated a potential investment requirement of Euro 16 billion between now and 2015 for road and rail requirements alone.Over the next year we hope to progress a small number of PPP projects that can have a good demonstration effect for both the public and private sector entities involved in this complex area.
  
• One of the most ambitious initiatives launched by the European Commission, together with the Stability Pact, is the creation of a regional energy market in SEE, which could be integrated into the EU single energy market. This initiative, which led to the signing of two MoUs, now to be transformed into a legally binding multilateral treaty among the SEE countries, involving also the European Union and Turkey, aims at opening the markets of these countries for trades in electricity and gas and at introducing into these countries the principles of the EU Directives on electricity and gas. In terms of political significance, the prospective ECSEE Treaty, which we hope will be signed this summer, could be compared to the European Coal and Steel Community Treaty of 1951, which opened the way for the Treaty of Rome in 1957.    I would like to take this opportunity to thank the Canadian Government for their significant support for this important initiative and I hope Canada will remain involved.
  
• Another important initiative under the auspices of the Stability Pact is the SEE Compact for Reform, Investment, Integrity and Growth (the Investment Compact), which aims at improving the business climate in the countries of the region, identifying concrete measures, removing administrative obstacles particularly for FDI and SME development and supporting investment promotion agencies and fostering a structured dialogue between the public and the private sectors.
  
• The Stability Pact’s Trade Working Group, comprising senior trade policy officials from the SEE countries, the European Commission, the World Trade Organisation, the World Bank and several bilateral donors has been instrumental in getting the countries of the region to sign a network of 28 bilateral Free Trade Agreements (FTAs). The group is currently reviewing the possibility of further progress in areas such as removing non-tariff barriers to trade, trade in services and ultimately something closer to a multilateral free trade area.

All of these initiatives have been instructed to focus on implementation of commitments.   For example the Investment Compact will introduce more regular and systematic monitoring of implementation of agreed reforms.  It will also work closely with governments to develop and refine implementation plans that can translate policies and legislation in areas such as FDI policy and SME development into practical actions on the ground.  The Trade Working Group is preparing a programme to reduce and eliminate key non-tariff barriers to trade in the region as well as to provide assistance to improve the regulatory environment for trade in services.  On the energy initiative we have started a process to ensure that parliamentarians are fully informed about the implications of the energy treaty – they will after all be the people responsible for ratifying it in their respective countries.

I hope that this list of initiatives encourages you to look more closely at South Eastern Europe  as a source of, or location for business.  In addition, I would also like to mention the role of the business community in providing support and guidance on economic reform. The quality, scope and structure of dialogue between governments and the business community – both domestic and international  - are essential components in improving the business environment.  While the main responsibility for the business climate lies with the SEE governments themselves, having mechanisms whereby business people and politicians can exchange views on the investment climate, benefit both sides.  Under the Stability Pact we have created a number of such fora - the network of Foreign Investors Councils and the Business Advisory Council for SEE for example and we fully intend to continue, strengthen and intensify this dialogue.  For those of you contemplating investments in the region I think you would find these bodies a very helpful first port of call.

So ladies and gentlemen, in summary the business climate in South Eastern Europe continues to improve and political and economic stability are being consolidated.  The perspective of EU membership continues to be critical for the future development of the region and the region faces substantial political challenges in the next year.  It must also strive to translate the many political commitments it has made into practical actions that genuinely facilitate investment, enterprise development and employment generation.  While the ultimate responsibility lies with the governments of South Eastern Europe , the international donor community and the business community have an important role to play.  Opportunities for business exist and should be explored.  We would be delighted to facilitate your interest on such opportunities.

Thank you