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Competitiveness and Private Sector Development: Eastern Europe and South Caucasus 2011

Competitiveness Outlook

image of Competitiveness and Private Sector Development: Eastern Europe and South Caucasus 2011

With a total population of over 75 million people and a strategic location between wealthy trading partners, with Russia to the east and a vast market of EU citizens to the west, the Eastern Europe and South Caucasus (EESC) region is attractive as a destination for investment and trade. It is endowed with significant human and resources ranging from the black soil in Ukraine that produces some of the best wheat in the world, to energy reserves in Azerbaijan and unexplored water resources in several countries. However, in spite of recent growth – an average of almost 8% of GDP during 1998-2008 – the region’s productivity levels remain 77% below the world average. The OECD Eastern Europe and South Caucasus Competitiveness Outlook examines the key policies that would increase competitiveness in the countries of the region through developing human capital, improving access to finance for SMEs and creating more and better investment opportunities.

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Maximising the Potential of Foreign Direct Investment

Foreign direct investment (FDI) flows are increasingly important as a source of finance for the economies of Eastern Europe and the South Caucasus (EESC). To unlock the region’s full potential, further reforms are needed to improve the investment environment following the proclamation of new investment laws in the 1990s. Key areas to address include better law enforcement mechanisms which include ensuring transparent and non-discriminatory legal proceedings. Policy makers in Eastern Europe and the South Caucasus also need to focus on diversifying the sectors receiving FDI and strengthen investment promotion and facilitation capabilities. Investment promotion activities should be more closely linked to investment policy reform and industrial policy objectives, as well as supporting regional development.

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