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What are the latest economic developments in Europe and Central Asia? What challenges lie ahead in the context of a weaker global economy and slowdown in China? How can the region strengthen education quality, dramatically improve the business environment, and boost economic growth? The World Bank Europe and Central Asia Economic Update provides the economic outlook for the emerging market and developing economies in the region and focuses on the role of business dynamism and innovation in boosting prosperity and productivity.

During a panel discussion moderated by Jasmin Chakeri, our three speakers—World Bank Chief Economist for Europe and Central Asia Ivailo Izvorski, Albania’s Minister of Finance Ervin Mete, and President of the Governing Board and Chief Economist of the Center for Advanced Economic Studies Kori Udovički—discussed the macroeconomic challenges facing the region and ways to use the private sector to speed up growth.

Join the conversation with #ECAUpdate

[Jasmin Chakeri] Good morning, good afternoon, good evening, everyone. I would like to welcome you to this event, including audiences watching on World Bank Live, on Facebook, and on X. My name is Jasmin Chakeri, and I'm the Practice Manager of the Macroeconomics Trade and Investment Global Practice in the Europe and Central Asia region at the World Bank. Thank you for joining us today to discuss the key findings of the World Bank's latest Europe and Central Asia Economic Update, this time entitled “Unleashing the Power of the Private Sector.” The Europe and Central Asia Economic Update, as many of you know, is the semi-annual report that analyzes the latest economic developments and also assesses growth forecasts for the region. As you will hear from my colleague, Ivailo [Izvorski], the lead author of the report, economic activity in the Europe and Central Asia region is expected to remain resilient but slow this year. On the one hand, inflation has fallen sharply and much faster than earlier expected. But on the other hand, the outlook faces multiple headwinds. For example, a slower than expected recovery in key trading partners, the restrictive monetary policies that we're seeing around the world, and an exacerbation of geopolitical developments could further dampen growth across the region. But there are also structural issues and long-standing structural issues to worry about, and we'll talk a little bit about that today. Weak productivity growth, in particular in this region in the recent decade, has resulted in a sharp slowdown in income convergence with advanced economies. We know some of the things that drive productivity growth, and those include progress in advancing institutional and market reforms, technology adoption and innovation. For countries in this region, in the Europe and Central Asia region, key challenges are related to the upgrading of the competitive environment, a reduction of the state involvement in the economy, a boost to the quality of education, and in general, ensuring the availability of finance throughout the economy. We have an exciting panel to discuss all these issues today. Ivailo Izvorski, the World Bank's Chief Economist for the Europe and Central Asia region, and the lead author of the report, will present the main the findings of the report. Then we have two esteemed guests joining us for the panel, Mr. Ervin Mete, the Minister of Finance of Albania, and Kori Udovički, the President of the Governing Board and Chief Economist for the Center for Advanced Economic Studies in Belgrade. We also have the experts and authors of the report, Dorothe Singer and Sergiy Kasyanenko, who will be answering your questions in the live chat. So, please feel free to post your questions in the chat at any time during the event. With this, let me give the floor to my colleague, Ivailo, who will present the main findings of the report. Over to you, Ivailo.

[Ivailo Izvorski] Thank you, Jasmin. It's a pleasure to be with all of you here, virtually and in person. Very briefly, I'm going to go through the main points of the report, and then we can follow up on some of these in the questions and answers. As Jasmin said, growth in Europe and Central Asia in 2023 was much better than earlier feared, largely because of developments in Russia, Ukraine, Central Asia. Growth for last year was 3.3% rather than 1.5% we expected only six months earlier, but even at 3.3%, growth is well below the ambitions of the countries in the region to converge to high income, or growth is below what we observed during the first decade of this century when economic expansion averaged about 5% a year. So, this is obviously substantially worse. Inflation, which was the scourge after Russia's war on Ukraine began, has now declined quite dramatically. It's down to nearly 4% on average, but in half of the countries in our region, despite this rapid decline, it's still above the central bank targets. Even with much lower inflation, price levels have not come down. Prices are on average 40% higher for the countries in our region than they were in 2019. So, these much high prices, obviously, are a deterrent to a much more buoyant growth in private consumption. An interesting finding is that poverty for all of the countries, except two, where poverty increased only in a particular year, 2021, 2022; but for Europe and Central Asia as a whole, poverty has declined despite these overlapping crises. Just a remarkable development. That obviously speaks much to what the governments did. They went full force to combat the various crises, whether it was COVID or the cost-of-living crisis. Now, fiscal consolidation, because there was such a large increase in government spending for many countries, also increasing government debt, there were expectations and there were government plans that these governments would adjust their fiscal deficits a bit more ambitiously. This did not happen because some of the things that were expected to happen did not happen. Therefore, we talk about fiscal consolidation that is still desired but is deferred in most of the countries to prepare, actually, prepare fiscal buffers for an unfortunate future emergence of a new crisis, as it is likely will come for sure. Now, let me talk very briefly about the second part of the report, which actually is quite important, and it is this private sector dynamism, which for Europe and Central Asia, during the first decade of this century, following the first decade of transition, resulted in a very vigorous structure of reforms that brought the private sector to the fore of development, brought a lot of foreign direct investment into these countries. But these reforms have largely slowed over the last decade or so. As a result of this, productivity growth, even though it has slowed globally, but in ECA, it has slowed more than in many other regions. For sure, it has slowed more, as I mentioned earlier, relative to the desire to converge to high income with low productivity growth, that convergence is going to be very difficult. Now, we talk in this part of the report about what are the things that are happening besides that ultimately this low productivity growth. In many countries, not in all, in many countries, private investment has slowed. Overall investments relative to GDP for the whole region, despite very large increases in some countries in Central Asia, some in the Balkans, we have investment that's below 25% of GDP. It's not a very high percentage for countries that need to bring a lot of investments so they can upgrade their technology through this process of bringing foreign technology, diffusing it in the economy, leading ultimately to a process of innovation. That process has also slowed. The creation of companies, the business entry has also slowed. More importantly, I think, the exit of companies, meaning when companies are not profitable, when they cannot bear the market competition, they should exit. In our region, they're not exiting as much as they should or as they're exiting in other regions. Some of the issues have to do with the fact that in many countries, as I mentioned, this connection with global markets has also not progressed besides exports of commodities for some countries in the Caucasus and Central Asia. For those countries that are in the western part of our region, the Balkans, those that are members of the EU, this EU perspective, this EU integration is providing a strong stimulus, and they have to further focus on that. But for the others, I think that the challenges are multiple. The competitive environment in the countries where the competition is the weakest, where it gives the weakest incentives to private sector to come in, where the role of the government in the economy is the strongest. These economies have actually seen the smallest increases improvements in the competition regime. The quality of education in Europe and Central Asia, by and large, is not particularly good. During the last five, six years, not helped, of course, by the learning crisis during COVID when many kids stayed at home. The quality of education has declined. Obviously, the issue with skills and quality of education are very much there at the frontline as what needs to be done. Let me end here with a word on the projections that while we expect growth rates of about 2.8%, 3.5% on average for the region. Again, these are not very substantial growth rates, [they] are not going to be helping a lot with convergence. They're barely above growth rates, for example, in the United States. And so, when you look at convergence relative to US income levels, this is not proceeding very fast. Thank you so much.

[Jasmin Chakeri] Thank you very much, Ivailo, for this excellent presentation. I think it provides us a good picture of what's happening in the Europe and Central Asia region in terms of growth, the resilience, but also the relatively weak outlook, the hidden potential for boosting business dynamism in the region and the role this could play for growth going forward. Now, let me turn to Minister Mete. Mr. Mete was appointed Minister of Finance and Economy of Albania as of September 2023 and is currently serving as Minister of Finance after some structural changes in the Ministry. He had the position of General Executive Director of the Albanian Financial Supervisory Authority since 2020 and served as the Board Chairman of the Authority in 2019. He also served as Deputy Minister of Finance and Deputy Minister of Economy in the Albanian government from 2013 to 2017. He was extensively involved in the public financial management reform and the modernization of the fiscal and financial legal framework. Mr. Mete holds a Master's degrees from Harvard University and the London School of Economics. Minister Mete, welcome and thank you for being with us today. You just heard Ivailo’s introduction and the key findings from the report, and we have asked you to start with some short high-level remarks presenting the country perspective from Albania. So, let me turn over the floor to you. Thank you.

[Ervin Mete] Thank you very much. And thank you for the invitation and for having me here, and for the very interesting and useful presentation of the report. We find that the key challenge that is highlighted in the report, which is this middle-income trap for our countries, is one that is present and that requires proactive measures to navigate effectively. Yes, it is true that our economies have proven resilient in a number of consecutive shocks. Albania, different from other countries, had three consecutive shocks because we had a deadly earthquake in 2019. But as I said, the economy proved resilient. And practically, we are now, in terms of macro indicators, in better or, let's say, pre-crisis parameters but in some aspects also better. One of the points that is highlighted in the report, which is how EU integration has propelled the countries that joined in the early 2000 to move to high income economies is very relevant for us because the Western Balkans generally are now in this momentum, also with the growth plan that is being discussed with the European Union. While we finalize the set of measures and reforms part of the growth plan, our expectation is that they will impact also in terms of productivity and convergence. We see that the main challenge is highlighted in the second part of the report, of competitiveness, state-owned enterprises, skills, and access to finance are present in our economy and in the economies of the Western Balkans. However, there are some nuances, let's call like that, across the country. So, for example, in terms of SOEs, as your report highlights, there's only 5% contribution from state owned enterprises in GDP and only 2% when it comes to labor participation. That calls for… also, while they are very important to be in our purview and attention because they are generally in energy and water. It also calls for a tailored approach when it comes from one country to another in terms of tackling the challenges that are perceived as challenges for the whole region. I'll stop there for the moment and look forward to continuing this conversation.

[Jasmin Chakeri] Thank you very much, Minister Mete. Let me now turn to Kori Udovički. She's a founder and Head of the Center for Advanced Economic Studies, an independent, Belgrade-based think tank devoted to advancing Serbia's economic recovery, democratic consolidation, and convergence with the European Union. She's also a current member of the United Nations High-Level Advisory Board on Economic and Social Affairs. Kori was previously Deputy Prime Minister and Minister of Public Administration and Local Self Government in the government of Serbia. She also served as Minister of Energy and Mines and as the first woman governor of the National Bank of Serbia. Kori also served as Assistant Secretary General of the UN, Assistant Administrator and Director of the Bureau for Europe and CIS of UNDP, founded the Foundation for the Advancement of Economics in Serbia, and worked as an economist at the International Monetary Fund. Kori, thank you for joining us today. You have a very good view of the state.

[Kori Udovički] Hello. Thank you very much.

[Jasmin Chakeri] Welcome. You have a very good view of the state of business dynamism in Serbia and neighboring countries, given your experience. Let me also ask you to provide some high-level remarks before we delve deeper into some of the topics. Over to you, Kori.

[Kori Udovički] Thank you. Thank you very much. I'm sorry. I have made an effort to also join by phone because I am afraid that the Internet connection is a bit unstable. I hope that it will be all right, but if it gets really bad, we can try over the phone. Anyway, let me say I will speak in the reverse order from Mr. Mete in the sense that I want to first address the question of the longer-term challenges, the medium-term challenges, and the structure of the growth that we enjoyed in the early decade of this century or millennium, and the difference from now. And then, zero in a bit on Serbia's situation, which I know best. But often when I speak of Serbia, I'm quite confident that many things are similar in all of the former Yugoslav states. I don't dare to quite say Western because Albania sometimes is so much more dynamic, and it does not share some of the unusual characteristics, the legacy of Yugoslavia. However, what I want to emphasize is that when we talk about the first decade, it absolutely fits the idea, the model of the countries that have liberalized, that have opened up, and foreign capital comes in, and growth happens. What we should have in mind; however, is that this is different in the transition economies, in my opinion, from this picture book model, in the sense that these were economies that had know-how and capacity that in many ways imploded, and the foreign capital came into an economy that had a shape, had a structure in all of our cases. It needed to rebuild and reweave resources and knowledge and capacity that was there for a different economic model for a much more demanding global market, mostly the European market. So, it did that, but in a way, it did not need to answer many questions that now that these gaps in capacity have been basically refilled. Let me give just an illustration of what I mean by refilling. Even in Central Asia, in the years when I was visiting those countries, very often we were opening facilities that had gotten refurbished, but that had been there. Many factories or enterprises in all of Eastern Europe were privatized, but some know-how had already been built there and it needed to be reweaved. Or if they were not privatized, if they had imploded, there was a pool of a certain capacity and memory of know-how to rebuild. But once you fill in these molds that have been set up, you are facing an economy, you're driving an economy that needs to figure out what's next. This is where, obviously, innovation should come in and firm dynamism should come in; but to understand how the two interact, we need to understand better the structures of these economies and how the FDI and the local economies and the SME sector, which in the case of our countries in the Western Balkans, with the exception of commerce, there are almost no large companies, and commerce and very large agricultural trading firms, there’re almost no large companies that are really in the hands of domestic capital. Actually, we are even seeing that domestic companies that get to a certain size and level of capacity become acquired often instead of continuing to grow. The R&D is being done somewhere else in the headquarters of the foreign companies. Even when we are getting more and more sophisticated portions of the value chain, even some of them, parts of the R&D. I'm not really even sure how that is exactly being recorded. I doubt that most of the innovation that happens in large companies gets accounted for domestically in our countries. But more importantly, they're not driven through internal processes. The small and medium companies that we see in the Western Balkans, I cannot talk about maybe the Visegrad countries, mostly have developed in parallel and not together with the FDIs. Let me just mention that actually, at first, in the first years, when large companies came in, average productivity would sometimes in the economy even decline or grew very, very slowly because they entered in labor segments where it was for cheap labor and not necessarily the most sophisticated things that the country knew how to make. They've soon discovered that this does bring... There is room for more sophistication and it's being developed; but that is still, again, not quite a homegrown process of research and development and movement across different sectors of the economy, from less to more sophisticated and more productive ones. In the case of Serbia, where we're coming now, Serbia, as we all know, is actually very much on an evident effort to, in fact, let's call it, maybe with a euphemism, diversify its sources of foreign direct investment. Many of us worry that it is actually in a policy effort to make sure that it depends less and less on the European economy and capital. Lately, we see some decline of foreign direct investment from EU and Western countries, and it is being replaced by investment from China, part of which is, in fact, probably capital that's coming in due to lending to the country for the sectors where there is a lot of construction being done. So, some of it could not necessarily be ultimately real foreign direct investment. But it is still the same process of a focused policy effort of bringing in something from outside, instead of raising the productivity and the level of investment that could happen from the domestic economy and that the potential is there, but the political economy is not there. This is a huge challenge that I think we can maybe continue discussing later on, and that might be a threat, or I think in the case of Serbia, this is probably the most extreme example in the region, but I'm sure there are others or that there are lessons to be seen for the Western Balkans and for other countries from our observations.

[Jasmin Chakeri] Thank you very much, Kori. Very important insights, and we'll maybe revisit some of them later. Let me turn now to the panel discussion part of the event. We will do two rounds for questions if we have time, and I would like to ask the panelists to give their answers in about three minutes so that we can cover a number of topics. Let's start with Ivailo. Ivailo, you have already provided a detailed outlook discussing the story of the economic transition of countries in Europe and Central Asia, to market economy and the productivity growth issues. Can you elaborate more on the biggest challenges or obstacles facing private sector growth in the region?

[Ivailo Izvorski] Thank you, Jasmin. I think an overwhelming challenge, obviously, is the slow growth of the global economy. No matter what happens to domestic policies, the fact that we face during 2020, 2024, the weakest growth, the weakest five-year growth since the early 1990s globally and weaker growth in China, a very weak expansion in the European Union, obviously has a big impact on the amount of foreign direct investment that can come to our countries, regardless of domestic policies. Some of our countries have done fabulously well. Minister Mete from Albania. Albania has FDI that averages about 7% of GDP a year. In Serbia, FDI has slowed, but it's still fairly large. Other countries are not as fortunate. I think this much slower growth in the global economy has a profound impact on growth in our countries. But the rest is related to policies. Some policies obviously depend on the state of the economy, the income that the income that the economy is earning per capita. Richer countries have firms that are focusing more on innovation. Countries with lower income per capita have companies that are focusing more on bringing foreign knowledge into their economies, and that foreign knowledge comes largely from foreign direct investment. And so, this integration with global markets has proceeded at pace. Countries in the Western Balkans, because of their alignment with the EU policy, and likely negotiations soon to join the EU, those of our clients that are members of the EU; but in the others, this connection has been rather more problematic. Countries in Caucasus in Central Asia, for example, are linked to global markets, largely through exports of commodities rather than manufacturing goods or services. That's important. The other thing is that competition policy in our countries, instead of strengthening happening substantially in the countries with the weakest competition policy, and we have a lot of this in the report, it has remained weak. And so, therefore, a level playing field between the public sector and the private sector has remained actually tilted in favor of the public sector. The state is still very present across ECA. When we look at the share of sectors in the economy where the state is present, ECA is among the world's champions. I think this is something that could easily be improved by the government. Last but not least, let me not forget to emphasize, again, the need for a better quality of education because it takes a long time to educate kids and bring them into the labor force. These efforts should have started yesterday, but if they didn't start yesterday, they should start today, improving the quality of education, especially for countries that are pushing against this middle-income, high-income ceiling and are trapped in middle income, I think is absolutely essential. Thank you.

[Jasmin Chakeri] Thank you very much, Ivailo. Maybe we'll turn to back to Kory now. Kori, as Ivailo has just mentioned, the common challenges to private sector development in the region on the competitive environment, reducing the state involvement in the economy, improving the quality of education. Many of these challenges are not new. So, let me ask you, what do you think it will take for countries to make progress in the areas?

[Kori Udovički] Well, it is. What I said a few minutes ago is even more important; of course, when we want to try to understand how to get these processes going. Ultimately, it is the policy process, obviously. I mean, not even ultimately, but ultimately, it is the political-economic process that should make the policy process happen, bring it about. There, we have a very complicated interplay between the position of our countries as EU candidate members for membership in the EU. The process has lasted long and in overall, in the popular mind, and I do think it's, again, maybe more extreme in Serbia, but it's probably true in most, maybe not in Albania and in Montenegro, of the Western Balkan countries, people don't believe anymore that the prospect is anywhere close. We have the memory, or when I say we, I imagine most of the people in the audience and all of us in the panel of what the EU membership beacon could do to actually truly force, in a way, sometimes changes that could actually bring countries and policymakers under such pressure from their populations to, in fact, do things that are not necessarily in their short-term political interest. Now it's much harder. So again, the question is, what are the internal processes that will help us create the alliances necessary to bring about policy change that is not in the interest of what might increasingly be, in fact, a clientelist state? In my opinion, there's no time to go now through each one of the items that needs to change, but I think the education aspect is, in fact, maturing more than others. One can see that there is more and more movement in Serbia, even at the local level and at different groups of companies. Again, the foreign companies always got the training things that they needed, but they were not necessarily at the forefront of the technology and capacities that the country could be pushing, and when they are, they do definitely affect, for example, higher education places. But we need to be able to create these alliances also with the local economy, and then, the local economy [to] put more pressure and [to] develop a more homegrown engagement for actually real change. And I think, just to stop there, that for that, we need a more granular process of understanding what are the policy changes needed than what we are used to following and doing with the European Union in the lead position so far. We do need our international partners to, in fact, maybe delve a little deeper to help support the political-economic alliances that can bring about the change that we want to see and show that that change is possible. I don't think I think that privatization of the electrical utility in Serbia is in the cards, for example, and that would be a huge boost to productivity, but the political economy of doing that change is a huge challenge that I don't think we will start from there.

[Jasmin Chakeri] Thank you very much, Kori. Let's hear from Minister Mete now. Some of the obstacles we have just discussed are common for Albania, too, including on the productivity growth. Let me ask you, what do you see as the largest challenge for productivity growth in Albania?

[Ervin Mete] Thank you. This three-minutes limit seems a bit hard to respect, but I'll pick it up a bit where Kori left off. With regard to our connection as a region with the European integration process. Now we are small economies, and both our regional integration and the further enhancement of trade and integration with the EU, I believe, would play a major boost if it is combined with the necessary domestic reforms. As it was mentioned, we are as a country now in a good moment, also with tourism expanding exponentially. We are below 60% of debt. FDI is historically high and unemployment, historically low. But much more needs to be done in terms of speeding up productivity. From moving away, let's say, from low value-added sectors like agriculture, which is about 18.5% of GDP in Albania, or manual labor or light manufacturing to higher value sectors, and at the same time closing the infrastructure gap and the skills mismatching gap. But always with the attention to, as I said, regional integration and European integration. To be a bit more practical, we were involved in a project with the World Bank on trade and transport facilitation, tackling border crossing points and simplifying procedures. The first stage is nearly completed. Now we're moving to a second stage. And practically, it is estimated that if, as a region, and then also as a region where our border crossing points touch with the EU, we reduce [the] waiting time of tracks by three hours, we would have a boost of 2% of GDP. On the other hand, we are now under the growth plan discussions. Practically all the countries of the region are applying to be SEPA members, so a Single Euro Payment Area. And it is estimated that if we manage to bring down [the] cost of transactions, because also we are countries that are heavily reliant on remittances, from an estimated 8.4% in Albania to about 3%, that would be the standard, also in other countries of the region, the whole region might benefit nearly half a billion dollars from reduced transaction costs. It might also help increase digitalization and digital payments, and practically with an estimated 10% of digital payments, we might also reduce nearly 2% of the informal economy. So, there is a plethora of measures that could be taken both domestically and in the regional and then European integration context that especially for the Western Balkans at this point in time, and we believe for Albania, certainly could boost productivity. I'll stop there.

[Jasmin Chakeri] Thank you very much, Minister Mete. Let me go back to Ivailo with another question. With heightened geopolitical risks and substantial policy uncertainty, how can institutions like the World Bank support the emerging market and developing economies in Europe and Central Asia in advancing structural reform, such as those that we've just been discussing?

[Ivailo Izvorski] Thank you, Jasmin. I mean, of course, the most important thing when the World Bank is supporting countries is for these countries' elites, and not just the political elites, the overall elite of the country, to have a common unified vision to which they adhere, what their plans are. When you have this clear vision, how are you going to proceed forward? How are you going to improve the lives of your citizens? How are you going to make it easier for your companies to do business? How are you going to integrate with global markets? What is the pace of all of this? Once you have that, then the World Bank can actually come in with force and support this country. For example, what we have been doing now over the last several years with these global crises that hit our countries very hard, on COVID, we came with force across all kinds of clients, including in Europe and Central Asia, and supported their health programs, the battle against COVID. During the transition over the last three decades, we supported the initial, the first stages of transition, and now we support the second and third generation reforms, as we call them. What is it needed for these countries to connect better to global markets? In the case of the countries of the Western Balkans, Ukraine, Moldova, it would be further integration with the European Union. For others in Central Asia, it would be an opportunity to make their economies much more diverse in terms of talent, in terms of the business environment. That's where we come in, whether it is with lending operations that typically support education, support infrastructure building, or with budget support operations that really are in favor of what the authorities are already doing in terms of creating markets, as for example, the program in Uzbekistan is heavy on how do we create markets, how do we advance the transition from a plant to a market economy, how do we proceed with deregulating in a way that actually creates incentives for the private sector. I think through these a plethora of instruments that are, at the end of the day, supported, I think, by what you have been leading our economies in the Western Balkans and the other countries and the member countries of the EU is on the knowledge agenda. What is it that these countries have to learn in order to do a much more thoughtful, much more targeted, much more relevant policy? And how do they actually strive to get to a better consensus on what needs to be done on policy so they take their countries forward? Thank you.

[Jasmin Chakeri] Thank you, Ivailo. Let me go back to Minister Mete now and talk a little bit more about an issue that was mentioned in several of the interventions, and that's the one on education and skills. The skills gap is a huge challenge also for Albania, as it is for other countries in the region. Can you tell us a bit about what the government is doing to address the skills gap? And what do you think the role of the private sector can be in or should be in addressing this gap? Over to you.

[Ervin Mete] Thank you. Just to follow up a bit on the answer that Ivailo gave, we've been working closely with the Bank on several areas, mostly infrastructure, but now what we are discussing is exactly education and human capital. So, we are discussing two programmatic approaches on education and then human capital in a larger sense. Education, we see need to address both a challenge of revamping curriculas to also moving to a more digital type of education. So, as it was mentioned, while COVID brought challenges, in our case, we also had, let's say, some successful experience with digital practices in terms of education, and we're moving also with the Bank towards smart labs and other initiatives. But one of the areas in terms of education that we want to is vocational education training. We see that vocational education training is more effective in our case in terms of jobs. So practically, we see nearly 60% of those finishing vocational education find a job within the first year, and generally, they are employed in their area of expertise. Certainly, there is more need for the private sector to be part of these dual processes and of the curriculas. We're mostly thinking of incentives to enhance on the job training because especially sectors like tourism, for example, or other sectors like ICT, we see that through vocational education and lifelong learning are better tackled than through general education. In terms of the combination of the two, vocational education is where we're putting more emphasis right now, together certainly with larger reforms in terms of also PISA Results and the like when it comes to general education. I'll stop there.

[Jasmin Chakeri] Thank you very much, Minister Mete. Let me go back to Kori. You already started talking a bit about the EU accession process and what it means for the region. You talked a bit about the fact that the Western Balkans, in particular, have been in the waiting room for quite a long time; but can you talk a little bit more maybe about what the importance or maybe the neck thereof is of the EU accession process for private sector development, specifically? And then also, I would like to hear your views on how you see institutions like the World Bank play a role in this process in supporting countries on this agenda. Over to you.

[Kori Udovički] Thank you. Yes, I didn't want to sound too discouraging. I think, for example, that the EU's movement towards developing reform agendas focused really on growth and integration. As probably a successor to the structural part of the ERP, it is not yet 100% clear, but I think that's how it's going, this is a huge opportunity. And it's something where I actually see also a very big potential for a role for the World Bank in the sense that the European Union as well, as there might be an acceleration in the accession process, at least for some countries that are sufficiently responsive and continuing to make efforts forward. But whether there is or there isn't, in all of the Western Balkan countries, at least, there is a real need to continue not only strengthening the economy for the sake of stronger competitiveness and withstanding the open market. But again, I'm going back to there is a need to strengthen the economy, to strengthen the political economic foundation for the democratic systems and the institutions that are needed to, in fact, then propel and promote and perpetuate a growth and a positive cycle of development out of the middle-income country trap. In this context, the European Union might still have an overly simplified idea of what is the institutional... What their expectations are, or what is needed for each country to actually make that change. As I say, unless the beacon is there and you can do a big push, and most of the changes in paper have already, in fact, happened in many of our countries, certainly in Serbia, the real change needs to be promoted through finer interventions. The growth agendas should actually strive to deepen a bit the understanding of the real challenges in each one of the countries. And it's an opportunity to help stakeholders in the country see where their interests can be directly supported. For example, if you want to increase competitiveness, there will be many allies to hear about the lack of competitiveness in certain markets and to, in fact, then help and work with the EU on increasing the probability of such measures to find themselves in the growth plan. As it is, the discussions on the reform agendas and the growth plan are still too close to the very high-level institutional changes or relatively small economic reform efforts that the countries are ready to do based on the economic reform programs. What I'm saying is there is an opportunity, with funding and with a deeper engagement, [to] support a deeper push for growth and for creating alliances with the political-economic actors that have a really interesting competitive market and in further development and integration with the European Union. But right now, the European Union depends too much on the policymakers' views at the moment. There isn't enough of a dialog, or it's almost an inertia. I'm not necessarily saying that there wouldn't be room for a deeper dialog and a more open look at what all could be different. Let me, time is flying just mention that, for example, the World Bank's role in establishing the Innovation Fund in Serbia has been precious because it has shown that an institution that supports and works with [the] development of local stakeholders can, in fact, maintain integrity with the right governance structure, opening it further, including more public participation there, and doing similar things in other interventions could be showing how the rule of law can be directly implemented in economic change on the ground, in policies, that are felt by, as I say, the stakeholders of the political economy that we want to help and encourage to grow on, and who are actually the natural allies for European integration.

[Jasmin Chakeri] Thank you very much, Kori. And I think the point on political economy is extremely important that we sometimes forget when we talk about policy issues. Let me just, looking at the clock, we only have a few minutes left. So, we have one final round where I would ask you, all three of you, to just give a very quick set of final comments. Anything that you think we haven't discussed that you really want to put out there that is important in this agenda or a summary or outlook for your particular country. About 60 seconds each. Let me maybe go back to Ivailo for that final set of remarks.

[Ivailo Izvorski] Okay. Thank you, Jasmin. You know, ECA, Europe and Central Asia, has done very well over the last three decades. Twelve countries that were part of our region, that were part of our clients, have joined the EU. Of those, almost all of them have become high-income economies. So, this convergence to high income has happened. Of the about 30 countries that in the world have become high income since 1990, I mean, pretty much half are in our part of the world. I think this bodes very well for those countries that are likely to join the EU in the near future. I feel a lot of sympathy for what Kori said. It's not very clear when this would happen, hopefully it would be sooner because the EU has been an engine of growth and convergence for everybody who has joined, but for those ECA countries that may not be joining the EU, I think that the prospects are going to depend a lot on how these countries integrate better in global markets, opening up more their economies to foreign direct investment because it's through this foreign direct investment that foreign knowledge comes into these economies and allows them to grow, without that, I think prospects for growth are going to be very skimpy. Finally, I think education spending has been decent. However, education quality has not been good and has been declining, both at the test that assesses reading skills among fourth graders and those that are a bit older, eighth and ninth graders. Unless you fix education together with the business environment, I think growth prospects are going to be very mediocre and convergence to high income is going to be delayed by a generation of war. Thank you.

[Jasmin Chakeri] Thank you, Ivailo. Let's go to Kori next.

[Kori Udovički] Well, I feel I have been almost repeating myself, but I will try to just summarize that again. As Ivailo said, when country leaderships and elites know what they want, it's easy to help us. When we don't or when we are divided or it's not totally clear who is working in the interest of the nation and who, in the interest of a narrower group, then I think it is very important that our international partners make an effort to distinguish and find ways to reach more directly those that have an interest in building the economy and political environment that we all want and that will sustain growth in the future. And that, by and large, is in the small and medium enterprises, exporters that are already linked to the European Union and the Western markets, and that are, in the case of Serbia, I should emphasize, extremely neglected. An appeal for help there.

[Jasmin Chakeri] Thank you very much, Kori. And Mr. Mete, you have the final word.

[Ervin Mete] Thank you. In terms of the Western Balkans, I think we are at a crucial moment now, especially with the growth plan and the attention of the EU, because this plan is not just a reform plan, it's a political action. And also, for geopolitical reasons, we are now more at the front of the agenda. I think we should make the best of it in terms of pushing forward measures and reforms that would then turn into higher growth and speedier convergence. I think also in terms of directing efforts and energy, not only internally, but also in cooperation with our development partners like the Bank, to expedite these reforms and complete them as soon as possible would be the anchor to move in a speedier manner towards this productivity increase, and growth, and convergence. Thank you.

[Jasmin Chakeri] Thank you very much, Minister Mete, Kori, and Ivailo. Thank you so much for this insightful conversation and for sharing your views with us today. Thank you also to the organizers, the online experts that answered questions, and everyone for joining the sessions from different parts of the world today. You can download the report using the link on the event page and also join the ongoing discussion with the hashtag #ECAUpdate. With that, let me thank everyone again and say goodbye and wish you a nice rest of the day. [Music]

00:00 Welcome

03:13 Main findings of the report

10:20 Albania: Country perspective

15:00 State of business dynamism in Serbia and neighboring countries

24:54 Biggest challenges facing private sector growth in Europe and Central Asia

28:42 What it will take for countries to make progress

33:22 The largest challenge for productivity growth in Albania

37:50 The support of the World Bank to advance structural reforms

41:10 Addressing the skills gap in Albania

44:42 EU accession process and private sector development

50:57 Closing remarks



  • Jasmin Chakeri

    Jasmin Chakeri

    Practice Manager in the Macroeconomics, Trade and Investment Global Practice – Europe and Central Asia, World Bank