In an increasingly interconnected world where competition for markets is more intense than ever before, countries around the globe need to address structural reform challenges to boost their economic competitiveness. By designing, adopting and implementing the right economic reforms and building functional institutions, governments can shape their citizens’ future and contribute to their countries’ productivity, prosperity and resilience.

For the better part of the last decade, the economies of the South East Europe (SEE) region have committed themselves to a comprehensive reform programme driven by the need for increased competitiveness, regional co-operation and more effective economic governance. Despite some progress in implementing reforms, the SEE region still grapples with high levels of unemployment, slow growth rates and a raft of infrastructure problems, particularly in the transport and energy sectors.

The publication series Competitiveness in South East Europe: A Policy Outlook (hereafter, the Competitiveness Outlook) provides a comprehensive assessment of competitiveness reforms in six economies of South East Europe (SEE): Albania, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia, Kosovo, Montenegro and Serbia. It provides policy makers with actionable policy recommendations, informed by international and OECD good practice, to define a sustainable economic reform agenda and to achieve greater economic competitiveness through productivity gains.

The 2018 Competitiveness Outlook for South East Europe provides an economic overview of six economies in South East Europe (SEE): Albania, Bosnia and Herzegovina, the Former Yugoslav Republic of Macedonia, Kosovo, Montenegro, and Serbia. With a combined population of nearly 18 million people, a landmass roughly the size of the United Kingdom and its strategic location at the crossroads of Central Europe, the Adriatic and Black Sea regions, this region has for centuries played an integral role in European business and commerce. Today, the six SEE economies participating in the Competitiveness Outlook have a joint gross domestic product (GDP) of USD 89.1 billion (current USD; World Bank, 2017), the equivalent of roughly half of Portugal’s GDP. Serbia is the largest of the six economies, accounting for 43% of the region’s total GDP, followed by Bosnia and Herzegovina with 19% and Albania with 13% (World Bank, 2017).

This chapter on investment policy and promotion assesses the policy settings, strategies, processes, and institutions in six South East European economies. After a brief overview of trends and performance in foreign direct investment in South East Europe (SEE), this chapter then focuses on two essential sub-dimensions. The first sub-dimension, investment policy, covers market access and exceptions to national treatment, investor protection, and intellectual property rights in the assessed economies. The second – investment promotion and facilitation – examines their strategies and institutional framework, investment promotion activities, investment facilitation services, and measures to promote linkages between foreign and domestic firms. It includes suggestions for enhancing the policies in each of these sub-dimensions in order to improve overall investment policy and promotion, which in turn would foster the competitiveness of these economies.

This chapter on trade policy and facilitation assesses the policy settings, strategies, processes and institutions in six South East European economies. After a brief overview of trade performance in South East Europe (SEE), including exports of goods and services, trading partners, and the evolution of regional and international trade, the chapter focuses on four key sub-dimensions. The first sub-dimension, trade policy formulation and evaluation, analyses government capacities for designing, implementing and evaluating trade policy, including institutional co-ordination, public-private consultations, and monitoring and evaluation mechanisms. The second, trade liberalisation, examines international agreements and domestic laws liberalising trade. The third, trade facilitation, considers whether non-tariff barriers (technical barriers, sanitary and phytosanitary measures) are hindering trade, and how far trade facilitation measures are being implemented. Finally, the export promotion sub-dimension analyses how efficiency and effectiveness of the institutional and operational settings for export promotion. The chapter includes suggestions for policy enhancements for each of these sub-dimensions in order to improve trade performance and in turn increase the economies’ competitiveness.

This chapter on access to finance assesses the policy settings, strategies, process and institutions in six South East European economies. After a brief overview of access to finance performance, including non-performing loans and the share of credit going to small and medium-sized enterprises (SMEs), the chapter then focuses on three essential sub-dimensions. The first sub-dimension — the policy, regulatory and institutional framework — considers the strategic foundations that support SMEs in accessing finance. The second, access to bank finance, considers the economies’ banking systems and the policy measures in place to address market failures in credit lending to small businesses. The third sub-dimension —alternative financing tools — looks at the framework supporting non-bank financing tools, from factoring and leasing to venture capital and access to stock markets. The chapter includes suggestions for policy enhancements in each of these sub-dimensions in order to widen access to finance and in turn help to foster greater competitiveness.

This chapter assesses tax policy in six South East European economies. It begins with a brief overview of the general features of the tax system including tax revenues and the balance of the tax mix. It also discusses tax policy assessment tools such as models to forecast future tax revenues, micro-simulation models and tax expenditure reporting. It then focuses on three key sub-dimensions. The first, tax policy, explores whether tax policy fosters an environment conducive to inclusive economic growth and how its design affects revenues raised, investment and competitiveness. The second sub-dimension, tax administration, assesses the efficiency of the tax administration. The third, international tax and tax co-operation, explores the extent to which the six SEE economies co-operate on tax matters with other economies and whether their international tax rules are aligned with international best practice. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions, which in turn would foster the competitiveness of these economies.

This chapter on competition policy assesses the policy settings, processes and institutions in six South East European economies. After a brief overview of competition performance in South East Europe, the chapter then focuses on four essential policy areas. The first policy area, scope of action, assesses to what degree the competition authority is invested by law with the power to investigate and sanction anti-competitive practices. The second, anti-competitive behaviour, describes the development of policy to prevent and prosecute exclusionary vertical and horizontal agreements and anti-competitive mergers. The third, probity of investigation, examines the independence and accountability of institutions which enforce competition law and the fairness of their procedures. The final policy area — advocacy — looks at further actions to promote a competitive environment. The chapter includes suggestions for enhancing the policies in each of these areas in order to foster the competitiveness of these economies.

This chapter on state-owned enterprises assesses the policy settings, strategies, processes and institutions in six South East European economies. After a brief overview of the state-owned enterprise (SOE) landscape in South East Europe, the chapter then focuses on three essential sub-dimensions. The first sub-dimension, efficiency and governance, examines the degree to which the state acts as an active and informed enterprise owner, and whether boards of directors in SOEs are sufficiently professional and autonomous to oversee the enterprises according to good corporate governance standards. The second, accountability and transparency, assesses whether SOEs and their government owners disclose information according to internationally accepted standards, and whether SOEs are accountable to minority shareholders. The third, ensuring a level playing field, examines the extent to which SOEs may be subject to unfair advantages, or disadvantages, in the marketplace due to their ownership. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions in order to improve SOE governance, which in turn would foster the competitiveness of these economies.

This chapter on education and competencies assesses the policy settings, strategies, processes and institutions in six South East European economies. After a brief overview of education and competencies performance in South East Europe (SEE), including educational attainment, achievement in the Programme for International Student Assessment (PISA) and spending on education, the chapter then focuses on three essential sub-dimensions. The first sub-dimension, access to and participation in high-quality education, examines how early childhood education participation, teacher quality and equity in education shape education outcomes, and the extent to which SEE economies’ policies improve equity, participation and the quality of education. The second, vocational education and training, analyses how the SEE economies are developing continuing education and training, fostering work-based learning and assuring the quality of vocational education and training. The third sub-dimension, higher education, assesses the implementation of national qualification frameworks, quality assurance, work-based learning (internship) and efforts to widen participation, as well as the development of career services and links with the private sector. The chapter includes suggestions for policy enhancements in each of these sub-dimensions in order to improve performance in education and competencies and to foster greater labour productivity, a long-term driver of competitiveness.

This chapter on employment assesses the policy settings, strategies, processes and institutions in six South East European economies. After a brief overview of employment trends and performance in South East Europe, the chapter then focuses on four essential sub-dimensions. The first sub-dimension, labour market governance, analyses the capacity of key labour market institutions and strategies to ensure high-quality jobs and develop flexible, inclusive and proactive labour markets. The second, activation policy, assesses activation measures and institutions and their ability to bring jobseekers and disadvantaged groups into the labour force and into jobs. The third, job quality, analyses policy measures that contribute to the well-being of workers by looking at earnings quality, labour market security and quality of the working environment. The final sub-dimension, social economy, explores government efforts to promote the social economy and an environment conducive to social enterprises. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions in order to improve employment policy, which in turn would foster the competitiveness of these economies.

This chapter on science, technology and innovation (STI) assesses the policy settings, strategies, processes and institutions in six South East European economies. After a brief overview of innovation trends and performance in South East Europe, the chapter then focuses on five essential sub-dimensions. The first sub-dimension, governance of STI policies, assesses whether governments take an overarching strategic view and co-ordinate policies across all relevant ministries. The second, public research system, looks at how they are funded and managed in order to foster research excellence. The third, innovation in firms, measures the degree to which business innovation is promoted and supported financially and institutionally. The fourth, public-private knowledge transfers and linkages, examines policies to facilitate science-industry collaboration and technology transfer to overcome barriers between academia and business. The final sub-dimension, human resources for innovation, focuses on specific measures aimed at creating appropriate incentives and mobility for researchers to foster research excellence and co-operation with industry. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions in order to spread the diffusion of innovation and new technology more widely, which in turn would foster the competitiveness of these economies.

This chapter on the digital society assesses the policy settings, strategies, processes and institutions in six South East European economies. It begins with a brief overview of trends and performance in developing the inclusive use of information and communications technology (ICT), including the importance of digital ICT imports and exports of goods and services, Internet access, broadband penetration and the use of e-commerce. It then focuses on four key sub-dimensions. The first sub-dimension, ICT access and use, examines the legislative and institutional framework to foster ICT access. The second, digital empowerment, gauges the establishment of policy and institutional frameworks to maximise the benefits of digitalisation for the economy and society. The third, e-business and e-commerce, assesses the promotion of ICT adoption by small and medium-sized enterprises, e-commerce legislation, and the safeguarding of e-commerce consumers. Finally, the digital security and privacy sub-dimension examines the legal framework for and implementation of personal data protection, digital risk management and e-authentication. The chapter includes suggestions for enhancing policies in each of these sub-dimensions in order to improve access to and use of digital technology and participation in Europe’s envisaged Digital Single Market, which in turn would foster the competitiveness of these economies.

This chapter on transport policy and performance assesses the policy settings, strategies, processes and institutions in six South East European economies. After a brief overview of transport competitiveness outcomes in South East Europe (SEE), including the economies’ performance against various global indicators, this chapter then focuses on three essential sub-dimensions that contribute to overall transport performance. The first sub-dimension, planning, measures the extent to which an orderly, coherent, consistent and transparent process is in place for developing transport policy and infrastructure. The second, governance and regulation, determines how well transport infrastructure and networks are regulated and operated, with a focus on rail, aviation and roads. The final sub-dimension, sustainability, measures progress towards resource efficiency, environmental protection, reduction of health impacts and increased road safety. The chapter includes suggestions for enhancing policies in each of these sub-dimensions, in order to improve transport performance and in turn foster the competitiveness of these economies.

This chapter on energy policy assesses the policy settings, strategies, processes, and institutions in six South East European economies. After a brief overview of energy trends and performance in South East Europe, including the reliability of energy supplies, energy intensity and trends in prices, the chapter then focuses on four essential sub-dimensions. The first, governance and regulation, examines the extent to which overarching energy policy is comprehensive and has clear objectives, and the ability of the national regulatory agency to carry out its critical role. The second sub-dimension, sustainable development, evaluates policies on renewable energy and energy efficiency. The third, energy security, considers policy frameworks for electricity and gas, and emergency and crisis management. Finally the fourth sub-dimension, energy markets, analyses progress towards the formation of a single regional market. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions in order to manage energy well, which in turn would foster the competitiveness of these economies.

This chapter on environmental policy assesses the quality of legal and policy frameworks and the extent of their implementation in six South East Europe (SEE) economies. It uses four sub-dimensions based on the OECD Green Growth measurement framework to assess progress towards environmentally sustainable development within the socio-economic context of the SEE economies. The first sub-dimension, resource productivity, describes the efficiency with which economic activities use natural resources. The second sub-dimension, natural asset base, examines the accessibility and ability of natural stocks to provide environmental inputs for development, and highlights potential risks to growth from a declining natural asset base. The third sub-dimension, environmental quality of life, assesses the interactions of environmental conditions and risks to people’s quality of life and well-being. The final sub-dimension, policies for green growth, gauges whether policies foster green business opportunities while addressing concerns on income distribution. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions to strengthen green growth, which in turn would foster the competitiveness of these economies.

This chapter assesses the extent to which policies in six South East European (SEE) economies support competitiveness, innovation and structural change in agriculture. After an overview of the economic, social and environmental context of the agriculture sector, the chapter then focuses on four sub-dimensions. The first sub-dimension, agricultural policy, examines key policies and instruments focused on the agriculture sector – including domestic producer support, trade and tax. The second sub-dimension, agro-food system capacity, assesses rural infrastructure capacity, highlighting irrigation, labour mobility, skills and education. The third sub-dimension, agro-food system regulation, describes how well regulations for inputs and natural resources safeguard public safety and how burdensome it is for farmers to comply with them. The final sub-dimension, the agricultural innovation system, assesses the research and development frameworks to create new technologies and the extension services to support farmers in adopting them. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions to enhance productivity and sustainability in their agriculture sectors, which in turn would foster the competitiveness of these economies.

This chapter on tourism assesses the policy settings, strategies, processes, and institutions in six South East European economies. After a brief overview of trends and performance in developing tourism in South East Europe, including visitor numbers and growth, the chapter then focuses on five essential sub-dimensions. The first sub-dimension, cultural and natural resources, explores the existence of tourism strategies that draw upon the rich and varied natural assets and cultural characteristics of the area. The second, destination accessibility and tourism infrastructure, looks at efforts made to improve visa regimes, promote connectivity and infrastructure, provide relevant information, and improve the capacity and quality of visitor accommodation. The third sub-dimension, availability of a suitably qualified workforce, asks whether the economies have the capacity to balance tourism development with labour supply and demand. The fourth sub-dimension – safety and health – assesses visitors’ security and healthcare provision. Finally, the tourism prioritisation and promotion sub-dimension asks whether government action in these fields is guided by a strategy backed up by adequate data collection. The chapter includes suggestions for enhancing the policies in each of these sub-dimensions in order to allow tourism to become a vibrant and sustainable sector, which in turn would foster the competitiveness of these economies.

This chapter on public services assesses the policy settings, strategies, processes and institutions in six South East European (SEE) economies. Drawing on the SIGMA (Support for Improvement in Governance and Management) Principles of Public Administration, this chapter uses five sub-dimensions to assess progress in public administration reform in the six SEE economies. The first sub-dimension, policy development and co-ordination, examines the policy-making system, policy planning, and transparency of government decisions and legislation. The second, human resources, assesses the merit-based recruitment and integrity of civil servants. The third, accountability, considers administrative judicial dispute mechanisms and public liability regimes, including the appropriate legislative frameworks. The fourth, service delivery, examines citizens’ and businesses’ experience of public services. Finally, the public procurement sub-dimension examines the legal and institutional public procurement framework and operations as well as the system for handling complaints. The chapter includes suggestions for enhancing key elements of public administration from across these areas which are critical to economic competitiveness.

This chapter on anti-corruption policy assesses the policy settings, strategies, processes and institutions in six South East European economies. After a brief overview of trends and performance in the fight against corruption in South East Europe, including the economies’ performance against international anti-corruption indicators, the chapter then focuses on five essential sub-dimensions. The first sub-dimension, anti-corruption reforms, policy and implementation, examines anti-corruption policies: how they were developed, including civil society involvement, and how their implementation is monitored. The second, anti-corruption public awareness and education, assesses the extent of government activities in this area. The third, corruption prevention and co-ordination institutions, covers how anti-corruption bodies are organised and their powers and independence guaranteed. The fourth, preventing and managing conflicts of interest and whistleblower protection, considers the frameworks in use and the challenges faced in this area. Finally, the anti-corruption enforcement bodies and regional co-ordination sub-dimension considers whether there are independent and effective enforcement bodies and the frameworks for cross-border action. The chapter includes policy suggestions for enhancing policies in each of these sub-dimensions in order to tackle corruption, which in turn would help to foster greater competitiveness.