In the aftermath of the global financial and economic crisis, all countries are confronted with the need to address structural reform challenges to boost competitiveness. Recovery has been sluggish in developed and emerging economies alike. In this challenging setting, the way forward – particularly for small, open economies – is to implement reforms to improve the conditions for investment and private sector development, so the economy can grow, more jobs can be created and all citizens can enjoy greater opportunities and well-being.

This first edition of Competitiveness in South East Europe: A Policy Outlook offers quantitative and qualitative assessments of key policy dimensions related to competitiveness in six economies from South East Europe – Albania, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia, Kosovo, Montenegro, and Serbia. It provides assessment frameworks for evaluating current policy and institutional performance, and for regional benchmarking and comparison with EU and OECD good practices.

Future economic development and the well-being of citizens in South East Europe (SEE) increasingly depend on greater economic competitiveness. To underpin the drive to improve competitiveness and foster private investment an integrated policy approach is needed. This first edition of Competitiveness in South East Europe: A Policy Outlook (hereafter referred to as the “Competitiveness Outlook 2016”) seeks to help policy makers in Albania, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia, Kosovo, Montenegro and Serbia assess their progress towards their growth goals and benchmark them against i) the good practices adopted by OECD countries and ii) the performance of their regional peers.

This Competitiveness Outlook 2016 is a tool the economies in South East Europe may use to monitor and evaluate progress in policies that support competitiveness. It enables them to benchmark their policy frameworks regionally and assess gaps with respect to international best practice.

Investment policy refers to a government’s foreign or domestic investment framework, while investment promotion denotes activities designed to attract investment to an economy. This chapter on the Investment Policy and Promotion Dimension focuses on three sub-dimensions in its assessment of investment performance and policy development. The Transparency and Treatment of Investors Sub-Dimension examines to what degree foreign and domestic investors have equal rights through a reliable and transparent investment environment. The Investment Promotion and Facilitation Sub-Dimension assesses government policies and activities to promote the economy to investors through measures such as aftercare services, client relationship management and foreign direct investment incentives. The Intellectual Property Rights (IPR) Sub-Dimension gauges IPR protection legislation and enforcement.

Open, predictable and transparent trade policies facilitate cross-border economic activities and idea flows. This chapter on the Trade Policy and Facilitation Dimension focuses on three sub-dimensions in its assessment of trade performance and policy development. The Trade Policy Development Sub-Dimension analyses government capacities for designing, implementing and evaluating trade policy that incorporates institutional co-ordination and public-private consultations. The Trade Liberalisation Sub-Dimension examines international agreements and domestic laws to determine how open an economy is to trade in goods and services. The Trade Facilitation Sub-Dimension describes the extent to which non-tariff barriers – technical barriers, sanitary and phytosanitary measures, administrative barriers, and non-automatic import licences – hinder trade.

To improve education and competencies is to build the knowledge, skills and capacities of everyone in society. This chapter on the Education and Competences Dimension analyses performance and policy development through five sub-dimensions. The High-Quality Education Sub-Dimension examines quality and equity in early childhood, primary, secondary, initial vocational and higher education as well as teacher recruitment, retention and development. The Early-School Leaving Prevention Sub-Dimension evaluates strategies to prevent early leaving from primary to higher education. The Qualification Recognition Sub-Dimension assesses quality assurance agencies and the implementation of national qualifications frameworks. The Labour Market Alignment Sub-Dimension considers to what degree education is aligned with labour market needs, career guidance services and lifelong learning programmes. The Entrepreneurial Learning Sub-Dimension describes the extent to which SEE economies promote entrepreneurial learning and enterprise skills at all levels of education and training through policy development and evaluation and university-enterprise co-operation.

Research and development is systematically undertaken in creative work to increase the sphere of knowledge or invent new ways of applying existing knowledge. Innovation is the introduction of a new or improved product, service or process. This chapter on the Research, Development and Innovation (RDI) Dimension considers four sub-dimensions in its assessment of RDI performance and policy development. The RDI Policy Governance Sub-Dimension assesses co-ordinated strategy development and implementation as well as public research organisations. The Research Base Sub-Dimension measures research organisation funding. The Private Sector RDI Activities Sub-Dimension examines government activities to facilitate private sector RDI through business grants, fiscal support, promotion and public procurement practices. The Business-Academia Collaboration Sub-Dimension evaluates government initiatives to bring the two communities together to foster innovation such as business-academia mobility, researcher evaluation and IPR legislation.

A digital society is one that seeks to exploit the full potential of information and communication technology (ICT) to spur innovation, economic growth and regional competitiveness, and to improve the quality of life. This chapter on the Digital Society Dimension focuses on three sub-dimensions in its assessment of digital society performance and policy development. The ICT Readiness and Intensity Sub-Dimension examines legal and institutional frameworks for developing a secure and accessible information society. The ICT in Education Sub-Dimension assesses the provision of ICT skills in curricula and how well graduates’ ICT skills are matched to the labour market and information society as a whole. The E-Business and E-Commerce Sub-Dimension evaluates regulation and legislation in place to facilitate safe e-commerce.

Cultural industries produce a good or service with a characteristic, use or purpose that incorporates culture. Creative industries use culture as an input, but where products and services are primarily functional. This chapter on the Cultural and Creative Sectors Dimension focuses on three sub-dimensions in its assessment of performance and policy development. The Cultural Heritage Sub-Dimension examines progress in building heritage management models, implementing cultural tourism action plans and adopting a common regional approach advocated by the Ljubljana Process II. The Audiovisual Sector Sub-Dimension gauges the development level of audiovisual strategies, film co-production and co-distribution policy, and film heritage protection strategies. The Design and Creative Industries Sub-Dimension assesses government activities and strategies to promote the industries as key components of local economic development.

Transport moves people and goods and links regions and countries, thereby integrating them into the global economy. The recently adopted Connectivity Agenda for the Western Balkans further commits SEE economies to prioritising regional transport projects to link them to EU markets. This chapter on the Transport Dimension begins with an analysis of overall performance and usage in road, railway, air, inland waterway and maritime transport. Three sub-dimensions investigate policy development. The Infrastructure Sub-Dimension examines: the scope of transport infrastructure strategies; the use of cost-benefit analysis and project prioritisation; strategies to reduce bottlenecks and non-physical trade barriers; transport telematics strategies. The Governance and Regulation Sub-Dimension assesses road safety strategies, railway sector liberalisation and alignment with the Single European Sky policy. The Sustainability Sub-Dimension describes co-modal transport optimisation strategies and policies to measure and monitor the environmental footprint of transport.

Environmental policies seek to meet sustainability objectives by ensuring that critical input factors, such as human and natural resources, remain available over time. This chapter on the Environmental Policy Dimension considers three sub-dimensions in its assessment of environmental performance and policy development. The Capacity for Climate Change Adaptation Sub-Dimension assesses how economic and social systems adapt to changes in the environment attributable to climate change. The Environmental Protection Sub-Dimension examines the efficiency, consistency and enforceability of environmental legislation, institutions and policy. The Natural Resource Management Sub-Dimension investigates policies to balance the use of natural resources as an economic asset while safeguarding their long-term sustainability.

Governments can help facilitate enterprises’ access to the external financing that they need to expand their operations or invest in new capacities and capital goods. This chapter analyses policy development and implementation in five sub-dimensions that make up the Access to Finance Dimension. The Regulatory and Institutional Framework Sub-Dimension examines credit information services, movable asset registration systems, cadastres, collateral requirements, and personal and corporate banking procedures. The second sub-dimension, Access to Bank Finance, assesses banking sector competition and consumer protection and credit guarantee schemes. The Access to Equity Finance Sub-Dimension evaluates enterprises’ use of stock markets, venture capital and business angel networks. The Alternative Sources of Financing Sub-Dimension evaluates if enterprises have access to leasing, factoring, crowd-funding and micro-finance financing options. Finally, the Financial Readiness Sub-Dimension examines the strategies that are in place to help the general population and entrepreneurs better understand the role of financial markets and how to use them.

Effective tax policy aims to strike a balance between the tax burden on enterprises and individuals, while still allowing the government to raise the revenue required to deliver public services and finance public policy objectives. Three sub-dimensions make up the overall Tax Policy Dimension. The Corporate Tax Policy Sub-Dimension analyses to what extent tax legislation fosters an environment conducive to business and effective tax revenue collection, in the form of tax incentives, transfer pricing rules, tax treaties and regional co-operation. The Tax Administration Sub-Dimension investigates the functions of tax administrators and their ability to ensure tax compliance. The Tax Analysis Sub-Dimension evaluates the ability of tax authorities to collect tax statistics and analyse tax policy effectiveness and their impact on government budgets.

Competition policy supports competitive economic environments that allow new firms to challenge incumbents, efficient ones to grow and inefficient ones to exit, and give all incentive to improve the quality of their products. In the Competition Policy Dimension, four policy areas broadly measure the scope and strength of competition policy regimes. The Scope of Action Policy Area assesses to what degree the competition authority is invested by law with the power to investigate and sanction anti-competitive practices. The Anti-Competitive Behaviour Policy Area describes the development of policy to prevent and prosecute exclusionary vertical and horizontal agreements and anti-competitive mergers. The Probity of Investigation Policy Area examines the independence and accountability of institutions which enforce competition law and how fair their procedures are. The Advocacy Policy Area looks at further action to promote a competitive environment.

Employment policy seeks to provide a framework of institutions, laws and practices that improve labour market functions, inclusiveness, and the ability to address post-crisis and demographic challenges. This chapter on the Employment Policy Dimension considers three sub-dimensions in its assessment of employment performance and policy development. The Labour Mobility Sub-Dimension examines to what extent economies regulate the labour and occupational mobility of workers. The Labour Market Governance Sub-Dimension analyses the capacity of public employment services, strategies to facilitate employment among young people and vulnerable groups, and policies that address informal employment. It also describes employment protection legislation analysed with OECD indicators and methodology. The Social Economy Sub-Dimension describes the development of government action to promote the social economy and an environment conducive to social enterprises.

Health policy aims to improve the state of physical, mental and social well-being of a person. Four sub-dimensions analyse the Health Policy Dimension. The Universal Health Coverage Sub-Dimension examines whether universal, high-quality health systems have been adopted and the extent to which they address services at all levels of care and health in low-income and vulnerable groups. The Health Governance and Resources Sub-Dimension assesses intergovernmental mechanisms for co-ordinated policy action and health intelligence systems. The Health Promotion and Disease Prevention Sub-Dimension evaluates health literacy and empowerment initiatives and instruments for curbing tobacco and alcohol consumption. The Regional Co-operation Sub-Dimension describes cross-border harmonisation activities.

Transparency, effective rule of law, low corruption and high civil society participation characterise high-quality public governance, which is made up of political, institutional and legal arrangements. This chapter on the Effective Public Services Dimension considers four sub-dimensions in its assessment of public services performance and policy development. The Regulation and Legislation Sub-Dimension gauges the development of tools to improve existing and future legislation such as the regulatory guillotine, regulatory impact analysis, forward-planning mechanisms and public consultations. The Civil Service Sub-Dimension describes human resource management and performance appraisal systems that seek to match public servant skills with policy goals. The Government Accountability Sub-Dimension analyses access to public information, e-government services and commitment to the Open Government Partnership. The Multi-Level Governance Sub-Dimension investigates local government autonomy by measuring tax decentralisation and alignment with the European Charter of Local Self-Government.

Corruption is the abuse of entrusted authority for personal benefit. This chapter on the Anti-corruption Policy Dimension analyses five sub-dimensions of anti-corruption policy development and implementation. The Transparent Rules Sub-Dimension describes such corruption-preventive instruments as corruption risk assessment and corruption proofing of legislation. The Competitive Procedures Sub-Dimension examines measures to curb corruption in public procurement. The Revision and Control Sub-Dimension assesses the frequency and quality of investigations as a result of public control and auditing. The Public Awareness Sub-Dimension analyses government efforts to inform the public on negative effects of corruption on society and ways to avoid getting involved in bribery. The Implementing Institutions and Regional Co-operation Sub-Dimension measures the development of implementing institutions, inter-agency co-operation and information exchange, regional co-operation and mutual legal assistance.