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Number 5

Autumn 2011

INSIDE THIS ISSUE: Exchange interviews H.E. Otabek Akbarov, Ambassador of Uzbekistan to the United Kingdom and Norway Martin Davidson, CEO British council

EBRD Examines Business Opportunities in South East Europe Exclusive interview with Jean-Marc Peterschmitt Managing Director Central and South Eastern Europe European Bank for Reconstruction and Development


E x c h a n g e : The Magazine for International Business and Diplomacy

Editorial Prosperity through synergies: the new spirit of regionalization South East Europe Doing business in South East Europe: a summary of the World’s Bank doing business in South East Europe 2011 report

Autumn 2011



On the cover: Jean-Marc Peterschmitt sets out EBRD’s strategy and business opportunities in the South Eastern Europe. Photograph: Besim Gerguri

EBRD examines business opportunities in South East Europe


Malta: a stable investment destination


Britain A global stimulus package: the potential economic returns of the British Council's international cultural activities Asia Uzbekistan: 20 years of political stability and economic growth

His Excellency Mr. Otabek Akbarov, Ambassador of Uzbekistan to the UK and Norway discusses the economic success of his country during the 20 years of independence.

Martin Davidson, British Council Chief Executive discusses the potential economic returns of the British Council's international cultural activities.




A trade agenda for the ‘Arab Spring’: Global integration and the dangers of neoliberalism!


Foreign direct investment in Egypt after the revolution: Prospects and policy recommendations


IBDE Events Financial Markets: A Gateway to Balkans Prosperity


Project Finance considerations for infrastructure financing in South Eastern Europe


The Culture Exchange The Culture Exchange 2011-12 London Arts Season




Sponsorship Opportunities Western Balkans Investment Forum 2012


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Middle East and North Africa Policy responses to the Arab Spring in the Gulf

Advertising and sponsorship enquiries: Alan Camilleri, Executive Chairman, Malta Enterprise sets out business opportunities in Malta.


International Business and Diplomatic Exchange

Associate Editors: Penelope Bridgers Jacques N. Couvas

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Who receives it? Exchange is sent to thousands of embassies worldwide including the London Diplomatic Corps as well as multinational businesses, investment agencies and universities/institutes. Readership profile Ambassadors worldwide, ambassadors and other diplomats posted to London, members of the WTOs, staff from investment agencies and chambers of commerce, politicians, business executives, international business managers, academic researchers worldwide What is in it? Exchange issues include topics covering the relationship between international business and diplomacy, International trade agreements their impact and implementation, analysis of various international financial/ economic institutions and other international organisations as well as research articles which contribute towards the understanding of the role of international business in areas such as conflict, crisis management, regional security and regional economic cooperation. In addition to our research and analysis papers we interview regularly senior diplomats and corporate executives to share their experiences and insights on business and diplomacy. Exchange also includes country reports ensuring that investment needs and opportunities in various regions are rigorously examined and promoted to the wider international business and diplomatic community. When is it published? Exchange is published four times a year, in March, June, September and December. Cost-effective As a not-for-profit organisation IBDE is able to offer our advertisers and sponsors extensive access to the International business and diplomatic market for very competitive rates.

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Exchange: The Magazine for International Business and Diplomacy - published by IBDE - is the only magazine in the world dedicated to the fastest-growing community of diplomats, business professionals and academics interested in international business diplomacy, commercial diplomacy and international trade policies. Our mission is to provide our readers with easy access to the whole range of international political and economic issues, political risk, legislation and regulatory as well as trade policies in emerging markets with particular focus on providing useful links for the smaller unrepresented countries. Through Exchange we aim to support international businesses in identifying key investment opportunities and investment strategies within the wider economic and political context in the UK as well as countries represented in London. Our free quarterly online magazine keeps our readers fully up-to-date with key international business and diplomatic developments, such as events, legislation, business opportunities, regulatory issues and political risk analysis that are likely to effect business investment strategies.

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Rudi Guraziu is Founder and CEO of the International Business and Diplomatic Exchange (IBDE) and Editor of Exchange magazine. Mr Guraziu has worked for a decade in the Balkans. Whilst in Kosovo he was one of the principals in the running of a large pharmaceutical business until the 1999 war. Since the Kosovo war, he has been actively engaged with many members of parliament, business leaders and diplomats in the UK and the Balkans as a consultant on Southeast European Affairs. His particular expertise covers EU Foreign Policy as well as Western Balkans issues. For much of that time he has worked with different parliaments particularly in the relationship between legislative bodies and economic operators. Prior to establishing IBDE, he initiated the establishment of the Centre for Business and Parliamentary Dialogue (CBPD) and serves as its Founding Director. Mr Guraziu holds an MA in Inter-national Relations (with distinction) from Middlesex University - UK. Jacques N. Couvas is Associate Editor of Exchange Magazine, Adjunct Professor of Strategy, Globalization and Entrepreneurship at Koç University, Istanbul and Senior Lecturer of Management at Bilkent University, Ankara. He has also been a visiting professor at Ozyegin University, Istanbul and the University of Santa Clara School of Law, Ca. He began his career as a journalist, before serving for 30 years as CEO, executive officer and board director with multinational and global corporations in Europe, the U.S. and Asia. His teaching and research interests are in strategy, leadership, international negotiations, and EU constitutional law. He is President Emeritus of the European Mobile Messaging Association, a member of the European Corporate Governance Institute and of the academic CEMS Strategy Group.

Otabek Akbarov is Ambassador of the Republic of Uzbekistan to the United Kingdom of Great Britain and Northern Ireland, and the Kingdom of Norway. Previously, he helped establish his country’s embassy in Brussels and was part of the team that put together the Partnership and Co-operation Agreement between the EU and Uzbekistan. Jean-Marc Peterschmitt is a Managing Director, Central and South Eastern Europe of the European Bank for Reconstruction and Development (EBRD). Mr Peterschmitt is a seasoned banker with extensive sector and country experience who joined the Bank in London HQ in 1992. He was made an Associate Banker in the Municipal team in 1994, promoted to Principal Banker when he joined the then Balkans country team in 1996. As Senior Banker, he took up the role of Head of Office, Bulgaria, in 1998, later rising to Director. Jean-Marc returned to HQ in 2001 as Director, Western Balkans, before joining the Financial Institutions business group in 2004, initially as Director for Bank Relationships and then as Director, EU and Ukraine, where he has worked since 2009. Prior to joining the EBRD he was at the Ministry of Agriculture and Rural Development in France.

Martin Davidson is the Chief Executive of British Council. Mr Davidson commitment to international relationships has been a constant feature of his career, since as a young English graduate he went to Hong Kong as Administrative Officer, taking the high-level decisions on the running of a town of a million people. He joined the British Council as Assistant Representative in Beijing in 1984 when in those days it was illegal for a Chinese national to speak to a foreigner. He has also held various posts in the British Council’s Geographical Directorate with responsibilities that have included South East Europe, in a particularly troubled time in the region’s history, the Middle East, East Asia and the Americas. He is a Governor of Goodenough College and Board Member of the Great Britain China Council. Alan Camilleri is the Executive Chairman of Malta Enterprise, the agency responsible for the promotion of foreign investment and industrial development in Malta. The Agency works closely with Malta Industrial Parks Ltd, responsible for the administration and maintenance of various industrial estates and the factories located within. Kristian Coates Ulrichsen is Research Fellow and Deputy Director Kuwait Programme on Development, Governance and Globalisation in the Gulf States Department of Government London School of Economics and Political Science. His latest book, Insecure Gulf: The End of Certainty and the Transition to the Post-Oil Era (Hurst & Co.) was published in May 2011. Nasos Mihalakas is an Assistant Professor of International Trade Law, University of New York, Tirana. He has over ten years of experience with the U.S. government as a trade policy analyst, with extensive experience in Transatlantic and U.S.-China trade relations. He has worked for both a Congressional Commission, advising Congress on the impact of trade with China and for the U.S. Department of Commerce, investigating unfair trade practices. He holds a LLM in Law and Development, University College London, UK, a JD in International Law, University of Pittsburgh School of Law, USA and a B.A. in Economics and Finance, University of Illinois, Urbana, USA. Email: Guoyong Liang is an Economic Affairs Officer at the Investment and Enterprise Division of United Nations Conference on Trade and Development (UNCTAD). He has been one of main authors of the annual World Investment Report since 2005. He holds a Ph.D. in international business from Rotterdam School of Management, Erasmus University. He taught at Shanghai University of Finance and Economics during 1998-2001, and had managerial experience in China’s financial and ICT sectors. Dr. Liang has published more than 20 academic papers. He is the author of New Competition: Foreign Direct Investment and Industrial Development in China (published in 2004) and the co-author of a number of other books. 5

E X C H A N G E: The Magazine for International Business and Diplomacy


Prosperity through synergies: the new spirit of regionalization


or its Autumn issue, Exchange Magazine heads South and East, examining diplomatic developments and looking for new opportunities for businesses and investors in the emerging economies of these regions. World Bank’s recent report “Doing Business in South East Europe 2011” has caught the attention of our editorial staff because it reveals an unprecedented phenomenon: the transition of the Balkans from the status of Balkanization, a term that implies fragmentation of states into smaller states as a consequence of conflicting ethnic groups, to a spirit of regionalization and synergies towards creating a better economic environment and serious prospects for collective prosperity. The shift seems, at first look, improbable, considering regional history and the economic crisis that has been consuming Europe’s competitiveness since 2008. World Bank’s facts and figures are, however, quite explicit about the direction and trends that drive the smaller nations in the region towards becoming a model of determination to succeed in spite of all odds. Certainly, the perseverance and resolution of the European Commission and the European Bank for Reconstruction and Development (EBRD) have provided the platform for stability and change of focus from culture and religion-driven disputes to consideration of common challenges and opportunities among the regional constituents. Greece and Turkey have also played an important role in the development of their smaller neighbours through investment in these post-Communist era start-up states. But the successful implementation of such policies and productive use of foreign direct investment (FDI) can, without doubt, be credited to local political will and citizen maturity. Today, it takes three working days and three administrative procedures only to register and run a business in Skopje, the capital of the former Yugoslav republic (FYR) of Macedonia. This is the third best performance in this criterion among the cities measured by the World Bank in 183 countries around the globe! Albania, Bosnia and Herzegovina, Macedonia, and Serbia rank high in this survey, including 6

in contract enforcement, a criterion which has in the past deterred foreign companies interested to invest and start commercial activities in the Balkans. The attractiveness of the Western Balkans to FDI is further explained and argued by Jean-Marc Peterschmitt, Managing Director, Central and South Eastern Europe of EBRD. The Bank, formed in 1991 following the end of the Cold War, has been helping former communist states in Europe and Central Asia to rebuild themselves. In spite of risk of contagion from the crises of the European economy and the Euro, South Eastern European (SEE) perspectives are rather optimistic, according to Mr. Peterschmitt, mainly because of the ongoing implementation of large infrastructure projects in national and regional motorways, airports, sea ports, electricity grids, and telecommunications. Rapid development of higher quality tourism through hotel and real estate developpment also provide growth drivers. With a cumulative injection of cash of more than EUR 8 billion, augmented annually by another EUR 1.4 billion, the Bank is one of the most important institutional investors in the Western Balkans. Governments in the region have begun reforming their respective business legislations and fiscal policies to attract European industrial groups and investment funds. Region-wide networks and Public-Private Partnerships (“PPP”) are also on the agenda, as they can lead to larger-scale projects. “ We see huge potential for regional cooperation in the energy sector for example, where work has taken place on the establishment of a regional electricity market and current developments are aiming at implementing a regionally coordinated procedure for electricity capacity allocateion and congestion management”, says Mr. Peterschmitt, who expects the Western Balkans to become one of the most robust and competitive economies in Europe, with potentially high returns to those who will invest early. Moving further to the South, Malta emerges as a little-known, but highly efficient, paradise for foreign investors. Malta, a full member of the European

Union and its smallest state, with 400,000 inhabitants, has had a tradition of attracting strong players from the maritime, telecommunications and leisure industries, as well as wealthy individuals from around the world, thanks to friendly fiscal packages and its equitable legal system, which derives from English law. As the world changes, the country’s activities also take new shape. In his article to Exchange, Mr. Allan Camilleri, Executive Chairman of Malta Enterprise defines the vision of his organization for Malta to become a centre of excellence and a regional hub in strategically important industries that can tap to the island-state’s resources and competences. Financial services, ICT and its niche sectors, such as call-centres and back office support, as well as digital gaming and software development, have been flourishing in the past years with considerable growth rates, according to Mr. Camilleri. Life science technologies is another sector targeted by the development authorities. In spite of the morosity in Europe and the impending economic crisis in neighboring Italy, Malta attracted last year US$ 1 billion in FDI, an impressive amount for a small state as this. Investment from the Arab Gulf states has been flowing regularly in, and the transformation of Northern African countries, particularly Libya, into liberal economies is likely to benefit Malta in the coming years. “Smart City Malta”, a US$ 300 million investment by Tecom Investments, Dubai is a case-in-point. Money matters, but Culture is not at its antipode, believes Mr. Martin Davidson, Chief Executive of the British Council. The Council’s work focuses on building bridges between different cultures, which, in a globalized world, lead to shaping attitudes and spirit of collaboration and shared interests among people and companies. “The economic value of cultural relations mustn’t be underestimated”, warns Mr. Martin. “For example, our work in the arts not only broadens cultural horizons, but helps emerging and established artists from the UK to find lucrative new markets for their work overseas. Our work supports the UK’s international Higher Education sector which generates


Exchange: Autumn 2011

an estimated £8 billion a year for the economy, through the foreign students who come here to study”, he says in his interview to Exchange. A good example of soft diplomacy and business at work. Twenty years is, by all means, a drop in the ocean of History, but Uzbekistan, which celebrates the 20th anniversary of breaking away from the former Soviet Union, has succeeded in such a short time to prove its independence and emancipation in politics, economics and diplomacy. H.E. Mr. Otabek Akbarov, Ambassador of the Republic of Uzbekistan to London and Oslo, explains to Exchange how his country has become a responsible partner to the EU, the U.S. Russia, and to its other neighbours. Drastic reforms in many state governance areas have been necessary, but it seems they have been worthwhile: the country’s GDP grew during the past two decades 3.5 times, while per capita ratio increased 2.5 times and real income of population 3.8 times, according to official data. World-class companies in gas, automotive and telecommunications industries were early movers to the young state and now control large projects and revenues. Commercial, cultural and scientific relations with the UK and Norway have also impacted positively on the country’s development. “Cultural diplomacy is one of the most effective ways to promote friendship among nations”, believes Ambassador Akbarov. We certainly concur! The effects of the Arab Spring are still under academic review and examination. Prof. Christian Coates Ulrichsen of the London School of Economics evaluates the impact of the rapid succession of the world economic crisis of 2008-2009 and the current instability in the Middle East and Northern Africa (MENA) on the monarchies and their treasuries in the Gulf, particularly Bahrain. The political tsunami that swept longlasting regimes in MENA has not had equal effects throughout the region. In his analysis of Egypt, Mr. Guoyong Liang, of UNCTAD expresses optimism about the country’s long-term growth perspectives. Following massive fleeing of capital at the beginning of this year, Egypt has registered negative FDI in 2011. Disenchantment of foreign investors had already begun in the past couple of years, as the Mubarak regime was proving increasingly ineffective. Mr. Liang proposes a long-term strategy for Egypt’s recovery and points to Asia for inspiration.


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E X C H A N G E: The Magazine for International Business and Diplomacy

Doing Business Report

Doing business in South East Europe

A Summary of the World’s Bank ‘Doing Business in South East Europe 2011’ Report


t is a matter of conjecture whether the economies of South East Europe constitute a unique region. Certainly, it is a place which has historically been shaped more by politics and the interests of foreign powers than economic forces. Yet it is economic forces, particularly those associated with transition and integration, and the deep reforms needed to move from a planned to a market economy, which have imposed themselves as the most formative influences on the direction of the region’s public policies. While the region was once the inspiration for the term “balkanization”— describing the disintergration of a state into smaller antagonistic parts — the recent past, global economic crisis notwithstanding, speaks of increasing cooperation, economic growth, and foreign direct investment. Over the last decade, the region has gradually become a more settled and economically advanced area on the immediate periphery of the European Union (EU). Despite perceptions, the region is quite diverse and the changes since the 2008 Doing Business in South East Europe report reflect that fact. Some of the countries have progressed further in transition while others have a distance to go. Some are on the cusp of the European Union while others have yet to attain “candidate” status. Croatia, in the final stages of accession discussions with the European Union, is no longer included in this regional report. In turn, Moldova, a newly emerged reformer, has been added. Some economies face ongoing political conundrums which remain open challenges. Overall, however, the political legitimacy which comes from economic progress has been a lesson learned by governments across the region. There is an abiding drive for competitiveness amongst and between all of them. Competitive economies cannot survive as islands of growth but must build interdependency with their neighbours and 10

Note: The ranking on each topic is based on the simple average of the percentile rankings on its component indicators. See Data notes for details. *City not benchmarked in Doing Business in South East Europe 2008 report. Source: Doing Business database.

further afield. As a consequence, economic forces are asserting their pre-eminence in the region. Where there was once political disintegration, markets are encouraging investment and trading linkages across state borders. There is no blueprint for how to grow and prosper but one factor is creating an investment climate conducive to starting and running a business, where complying with regulations brings more benefits than costs. In an era of tight budgets and high unemployment, reforms making it easier to do business make more sense than ever. They help create jobs and

boost growth without costing governments much. This report shows that the economies of South East Europe have continued to implement micro-economic reforms in spite of challenges presented by the global financial crisis. The report also shows that the results of recent reforms can be seen at the municipal level across the region. Coupled with other factors — such as the availability of a skilled workforce — improving the business environment in the region’s secondary cities will continue to have a positive impact. Doing Business studies business regulations from the

Doing Business Report

perspective of a small to medium-size domestic firm. Capital cities represent the economies of South East Europe in the annual Doing Business report, which compares regulatory practices in 183 economies around the world. Yet, within each economy, entrepreneurs face local regulations and practices that vary from city to city. Doing Business in South East Europe 2008 was the first report to go beyond the capital cities for 7 economies in the region to capture these differences in 15 other cities from Albania, Bosnia and Herzegovina, Croatia, Kosovo, FYR Macedonia, Montenegro, and Serbia. This report updates the information presented in 2008 for 6 economies (all but Croatia) and tracks their progress in implementation of business reforms. It also expands the analysis to 1 more country (Moldova) and 4 new cities: Balti (Moldova), Chisinau (Moldova), Durres (Albania), and Tetovo (FYR Macedonia). The results of this new 22-city, 7-economy comparison for 4 Doing Business topics are presented here (table 1.1). Across the region, it is easiest to start a business in Skopje (FYR Macedonia), deal with construction permits in Niksic (Montenegro), register property in Balti and Chisinau (Moldova), and enforce a contract in Zrenjanin (Serbia). It is most difficult to start a business in Pristina (Kosovo), register property in Mostar (Bosnia and Herzegovina), and enforce a contract in Prizren (Kosovo). Dealing with construction permits is most burdensome in Belgrade (Serbia), while in Tirana (Albania) no permit has been issued since 2009. Two observations stand out. First, no single city does well in all 4 areas. For example, Chisinau (Moldova) ranks at or near the top on the ease of registering property and enforcing contracts but lags

Exchange: Autumn 2011

behind on the 2 other topics. And while Skopje (FYR Macedonia) is a top performer on the ease of starting a business and dealing with construction permits, it can look to Bitola (FYR Macedonia) or to Moldova’s cities to improve its performance on property registration. Second, there is a rich variation in performance by indicator even among cities within the same economy—with the exception of starting a business, where all 3 Macedonian cities take the lead. For example, within Montenegro, Podgorica and Pljevlja could look to Niksic to learn to deal with construction permits more efficiently. In addition, Zrenjanin could provide a positive example to other Serbian cities in the area of contract enforcement. When comparing cities’ 2011 performance with the results from 2008, some trends emerge. First, consistent performers stay at the top. For example, Bitola (FYR Macedonia) maintained its position among the best performers in most of the areas measured. Other cities, like Krusevac (Serbia), dropped relative to their peers. Some ranking changes can be attributed to the addition of 4 new cities, some of which have competitive regulatory frameworks. For example, Balti (Moldova) ranks at the top on the ease of property registration. Tetovo (FYR Macedonia) is one of the most efficient cities for enforcing a contract. On the other hand, the cities that improved their business regulations the most during the past 3 years—such as Skopje (FYR Macedonia) and Banja Luka (Bosnia and Herzegovina)—surpassed their peers. South East Europe setting a strong pace of reform Much has changed in recent years. The region has been very active in improving

business regulations, often in response to circumstances—such as the prospect of joining the EU or facing the global financial crisis. Some of the regions’ economies, represented by their respective capital cities, have been recognized as top 10 Doing Business reformers over the past 5 years: FYR Macedonia in 2006/2007, Albania in 2007/2008, and (again) FYR Macedonia as well as Moldova in 2008/ 2009. Most notably, FYR Macedonia has implemented 17 Doing Business reforms. In the most recent Doing Business in 2011 report, FYR Macedonia ranks 38th out of 183 economies—an improvement of 37 positions over 5 years (figure 1.1). Doing Business in South East Europe 2008 identified good practices, pointed out bottlenecks, and provided recommendations for business reforms beyond the region’s capital cities. Three years later, this report tracks progress over time. The results are impressive. All 19 cities measured for the second time show improvements in at least 1 of the 4 areas measured (table 1.2). Most cities benefited from the roll-out of nationwide business reforms summarized below — although implementation results on the ground vary. Within the region’s economies, 2 cities stand out: Skopje (FYR Macedonia) and Banja Luka (Bosnia and Herzegovina) improved the most since 2008. Business reforms were implemented in all 4 areas measured, resulting in significant benefits in terms of time and cost savings for entrepreneurs. The one-stop shop in Skopje (FYR Macedonia) decreased the time to start a business from 12 days in 2008 to just 3 days now by eliminating 5 procedures. The one-stop shop offers entrepreneurs a range of services—including registering a new business with tax and statistical authorities, obtaining a trading license, publishing an incorporation notice, and registering employees for health and pension insurance.1 Meanwhile, FYR Macedonia’s new Law on Construction shifted responsibility for building supervision and review from public enforcement agencies to licensed professionals. As a result, the time to deal with construction permits in Skopje dropped by more than 2 months while 6 procedures were eliminated. Furthermore, after the cadastre staff was increased in Skopje, the time needed to register a property title fell by over 1 month—from 98 days in 2008 to just 58 days in 2011. Finally, the commercial court in Skopje, equipped with an electronic case management system, became operational in 2008, facilitating contract enforcement in commercial matters. 11

E X C H A N G E: The Magazine for International Business and Diplomacy

In Banja Luka (Bosnia and Herzegovina), a utilization permit is no longer necessary for all businesses and a specialized commercial court took over business registration in 2010. As a result, the time to start a business decreased by more than one month. Meanwhile, Republika Srpska’s 2010 Law on Construction and Urban Planning allowed private companies to prepare certain construction documentation, rendering the process of obtaining urban planning consent more efficient. Moreover, more than 80% of cadastre and 90% of land registry records are now available in digital form. As a result, the total time to deal with construction permits decreased from 1 year in 2008 to 8 months today. At the same time, the time to register property dropped by 3 months because 4 procedures—including the requirement for signatory authorization, tax clearance, and the on-site evaluation of property—were abolished. Finally, the Law on Changes of the Law on Courts, enacted in May 2010, gave a specialized court in Banja Luka jurisdiction over commercial claims, cutting the time required to file a claim before the court from 6 months in 2008 to 46 days in 2011. At the same time, the time to enforce the judicial decision decreased by more than 200 days. All 19 cities measured for the second time made it easier to start a business. The most 12

popular start-up reform since 2008 was the establishment or improvement of one-stop shops—as seen in 10 cities. For example, in Belgrade (Serbia), the registration with various agencies has been consolidated under one roof. Obtaining a business registration certificate, tax identification number, pension fund certificate, and health fund certificate are now all done with a single visit to the Business Registers Agency (SBRA). Meanwhile, the other Serbian cities measured by this report are still working on the full implementation of their one-stop shops—specifically, pension fund and health fund registrations still have to be obtained separately. Nevertheless, the time to start a business in all Serbian cities has fallen significantly—most notably in Zrenjanin, where the time was cut from 37 days in 2008 to 17 days in 2011. In Chisinau and Balti (Moldova), unifying business registration with other procedures is still underway. Nevertheless, positive steps have been taken to reduce the overall start-up time—including setting statutory time limits and expedited options for business registration. As a result, the time to obtain a registration certificate was reduced from 15 days in 2008 to just 1 day now. Other popular start-up reforms were reductions in local licensing requirements and fees. For example, Albanian cities eliminated the requirement to register with

Doing Business Report

the local chambers of commerce. Cities in Montenegro did away with the municipal business license. Both Pristina and Prizren in Kosovo cut their municipal permit fees in half—from EUR 1,000 to EUR 525 and to EUR 400, respectively. In the construction permits area, 9 out of the 19 cities measured in both 2008 and 2011 have benefited from reforms such as the digitization of cadastre records, enactment of new construction laws, and streamlined inspections. For example, Montenegro introduced risk based construction approvals, where low risk, small scale projects are reviewed and approved by municipalities rather than the central government. In Serbia, the 2009 Planning and Construction Law simplified procedures for the issuance of construction permits and made them transferable between investors during construction. The impact of the new law varies across cities. In Vranje, the building permit can now be obtained in 6 months—3 months faster than in 2008. On the other hand, in Belgrade, the same process takes almost a year—5 months longer than in 2008. The greatest challenge in the implementation of this law is the application of provisions regarding the conversion of “rights of use” to ownership rights. Meanwhile, in Albania, the parliament adopted the Law on Territorial Planning in 2009. Once implemented, this new law is expected to professionalize the structure of the Territorial Adjustment Council (TAC) — the authority in charge of issuing building permits in Tirana. However, as of January 2011, no construction permit had been issued here since 2009, mainly because rivalling political parties represented in the council make consensus decision making unattainable. The new Law for Authorizing the Execution of Construction Works, adopted by the Moldovan parliament in July 2010, sets statutory time limits for project approvals and consolidates project clearances. The subsequent implementation process is expected to make dealing with construction permits more efficient. Property registration reforms resulted in time and cost savings for entrepreneurs in 12 out of the 19 cities measured in both 2008 and 2011. Governments across the region are digitizing land books and making land registries more efficient through legislative and administrative reforms. As a result, the average time to register property across cities in South East Europe decreased by more than a month since 2008. For example, in Sarajevo (Bosnia and Herzegovina), where all land registry and

Doing Business Report

cadastre books are now available in digital format, the time to register property is just a tenth of what it used to be. Specifically, it fell from 331 days in 2008 to just 33 days in 2011. In Mostar (Bosnia and Herzegovina), where 95% of cadastre records are now in digital format, the time to register a property fell by 1 month—from 145 days in 2008 to 117 days in 2011. Meanwhile, Moldova and FYR Macedonia are in the process of digitizing the land registry records and cadastre maps, respectively. Other business reform efforts undertaken by governments in the past three years include introducing statutory time limits, eliminating pre-sale certificates and clearances, and cutting fees. For example, Moldova no longer requires the submission of a cadastral sketch for properties already registered with the cadastre—decreasing the total time to register property from 48 days in 2008 to 5 days in 2011. In Albania, a newly introduced statutory time limit shortened the delay to register with the Immovable Property Registration Office by 9 days in Tirana and by 12 days in Vlora over the same period. In FYR Macedonia, the information on land encumbrances was transferred from first instance courts to the cadastre, so now both the title deed and non-encumbrance certificate can be obtained from the same institution. Similar efforts are underway in Serbia. Along with digitization of cadastre maps, these reform efforts have cut the time to register property by 30 days in Zrenjanin, 25 days in Vranje, 20 days in Belgrade, and 17 days in Uzice. Enforcing a contract became faster, cheaper, and/or less cumbersome in 8 out of the 19 cities measured in both 2008 and 2011. Courts in these cities implemented administrative or legal reforms to reduce the time or cost to resolve a commercial dispute. In Vranje (Serbia), manually-kept court records and paper files were replaced by electronic files that can be accessed online. Moreover, a computerized system randomly assigns court cases to judges, thereby eliminating opportunities for neglect or corruption. As a result, the judgment period in Vranje fell from 495 days in 2008 to 135 days in 2011. In Albania, a presidential decree added to the numbers of judges in courts. With more staff at work, filing and judgment times fell by 40 or more days in Shkodra and Vlora. Courts here now issue a ruling in a little over 4 months. Moreover, bailiff tariffs were reduced from 7% of claim value to 2%. Meanwhile, FYR Macedonia made enforcing contracts easier by setting deadlines for the payment of court fees,

Exchange: Autumn 2011

adjusting monetary thresholds for assigning case jurisdiction, and introducing a small claims tribunal. Comparing business regulations across 22 cities in South East Europe starting a business Skopje (FYR Macedonia) is the world’s 5th top performer in this area. All an entrepreneur needs to do to set up a business here is spend 3 days and a little over US$ 100. In cities like Skopje, where one-stop shops have been set up and are fully operational, starting a business can be done quickly and efficiently. However, the process is considerably slower in cities where the entrepreneur needs to register separately for tax, social contributions, health insurance, and municipal permits. This is the case in Pristina (Kosovo), where it takes almost 2 months to start a business. In Mostar (Bosnia and Herzegovina), where the courts are in charge of business registration and where 8 postincorporation requirements are necessary, it can take as long as 50 days to set up a business. The cost differences within the region are also significant. The cost to open a business varies from 1.5% of income per capita in Niksic and Plevlja (Montenegro) — similar to Finland — to 31.4% in Tirana (Albania) — which is 5 times more than the EU average. Variations stem from different fees levied by the municipal governments. Some, such as Pristina and Prizren (Kosovo), charge EUR 525 and EUR 400, respectively, just for the municipal permit. In 12 out of the 22 cities measured, entrepreneurs are also required to set aside a minimum amount of capital before they start operating. FYR Macedonia is the only economy to have abolished the minimum capital requirement all together, while Albania and Montenegro charge only nominal amounts (equivalent to US$ 1). Dealing with construction permits Dealing with construction permits can be difficult and expensive in South East Europe. On average, a construction company would spend 223 days and more than 1,100% of the income per capita to comply with all requirements to build a warehouse. Compare this to the EU, where a construction company spends one month less and only 77% of income per capita. While the overall policy setting authority lies with the national governments, implementtation of regulations at the local level

varies significantly. Local governments have the authority to administer several procedures and levy the associated taxes and fees. The number of procedures to deal with construction permits varies from 15 in Skopje (FYR Macedonia) and Pljevlja (Montenegro) to 30 in Chisinau (Moldova). In Chisinau, an entrepreneur has to go through no less than 18 pre-construction requirements—such as location clearances and technical evaluations. As also observed in the 2008 report, dealing with construction permits is fastest in Bitola (FYR Macedonia)—just 3 months. It is slowest in Mostar (Bosnia and Herzegovina)—a year and a half. The cost varies from 110% of income per capita (US$ 1,752) in Balti (Moldova) to a prohibitive 2,132% of income per capita (US$ 139,650) in Podgorica (Montenegro). In most economies, the largest portion of the overall cost is spent on building permit fees and associated costs. In the Serbian cities, obtaining a building permit constitutes, on average, 76% of the overall cost (the equivalent of US$ 83,278). The same permit costs significantly less in Balti (Moldova), where it constitutes 28% of the overall cost (the equivalent of US$ 439). In Podgorica (Montenegro), investors must pay an urban development fee, which accounts for almost three quarters of the overall cost (the equivalent of US$ 100,221). Registering property Across the 22 cities, an entrepreneur would have to go, on average, through 6 procedures, wait 48 days, and pay 2.85% of the property value to transfer a property title. Within the region, the time, cost, and requirements vary significantly. Registering property is easiest in Balti and Chisinau (Moldova), where it takes 5 procedures, 5 days and 0.9% of the property value to transfer a title. By contrast, the same process takes 8 procedures in Pristina (Kosovo) and almost 4 months in Mostar (Bosnia and Herzegovina). Differences appear mainly during the pre-registration phase. For example, in Mostar and Sarajevo (Bosnia and Herzegovina), both parties have to obtain a court extract authorizing the signatory to act on behalf of the company. In Pristina (Kosovo), in addition to the title deed, parties have to obtain and submit certified copies of their companies’ business registrations and letters from the tax authority certifying that all property taxes have been paid before the lawyer can draft the sale and purchase agreement. Variations in time 13

E X C H A N G E: The Magazine for International Business and Diplomacy

among cities stem mainly from the efficiency of the land registry in registering the new owner of the property. This ranges from 1 day in the Moldovan cities, if using the expedited option, to 85 days in Belgrade (Serbia). The amount of property transfer taxes entrepreneurs have to pay varies greatly among the 22 cities measured—from a fixed fee of EUR 150 (US$ 220) in Pristina (Kosovo) to 5% of the property value in Mostar and Sarajevo (Bosnia and Herzegovina). Enforcing contracts The most efficient court to resolve a commercial dispute in the region is in Zrenjanin (Serbia). At just 10 months from filing through enforcement, the process is as fast as in the United States. In Zrenjanin, information technology is used to assist judges with case registration and court management. Entrepreneurs can also choose to go through an alternative dispute resolution (ADR) system, which has lowered the number of pending cases in the commercial courts across Serbia. Meanwhile, in Mostar (Bosnia and Herzegovina), an entrepreneur has to wait more than 4 years to enforce a contract in court—similar to Kabul (Afghanistan), one of the slowest courts in the world. Delays are due to case backlog and an insufficient number of judges. As for expenses, the average litigation in South East Europe costs 32% of the claim value—one third more expensive than the EU average. Across the region, most litigation costs are regulated by law and fee schedules. The cost of enforcing a contract ranges from 21% of the value of the claim in Chisinau


(Moldova)—similar to Australia—to 61% in Pristina and Prizren (Kosovo). Learning from each other While cooperation and the sharing of reform experiences may not have been a priority for the region’s economies a decade ago, now it is the norm. Undoubtedly, the initial driver was the prospect of accession to the EU. While this is still the case, market realities are increasingly bringing cooperation to new levels. For example, as data was being collected for this study in late 2010, the railway companies of Croatia, Slovenia, and Serbia formed a new joint-stock company to service the European Corridor 10 cargo route to Istanbul which, following the opening of the Bosphorus tunnel, will link Europe across Asia to China. Opportunities to strengthen the position of national economies by improved regional competitiveness lie in many other sectors as well. This type of economic cooperation may not attract the same level of media interest as the events of the 1990s but it bodes well for a more prosperous and stable future in South East Europe. An improving business environment is central to this perspective. Benchmarking exercises like Doing Business inspire governments to reform commercial regulations. They point out potential challenges and identify where policy makers can look for good practices. Comparisons between cities within a single economy or region are even stronger drivers, as governments have a hard time explaining why doing business in their city may be more burdensome than in neighboring locations. The good news is that

Doing Business Report

sharing a similar legal framework facilitates the implementation of existing good practices within a region. National governments can also use Doing Business data to monitor how changes in national regulations are implemented by local authorities. In a world where locations compete against each other to attract investment, subnational Doing Business data allow local governments to review the conditions entrepreneurs face in their cities from a comparative perspective. Subnational data are now available for more than 300 cities in 38 economies around the world. Reform-minded governments can use Doing Business indicators to motivate and sustain business reform efforts. There is no need to reinvent the wheel: it is sufficient to start by introducing business reforms successfully implemented in other places. In fact, cities in South East Europe have a lot to gain from adopting the best regulations and practices that are working elsewhere in the region. A hypothetical city adopting all the best practices identified in this report would rank 6th among 183 economies globally—similar to Denmark or Canada (table 1.3). If the region’s best practices were adopted, starting a business would take only 3 days, as it does in Skopje (FYR Macedonia) and Sweden. The region’s best practices would mean that transferring a property title would require just 5 procedures over 5 days, as seen in Moldova and Australia. Meanwhile, the region’s best practices for dealing with construction permits would require only 96 days—as seen in Bitola (FYR Macedonia) and the United Kingdom. Finally, resolving a commercial dispute in this hypothetical “best practice”

Doing Business Report

city in South East Europe would cost the same as the EU average, while its duration would be 100 days faster than it is in Germany. Payoffs from business reforms can be large. Saving time and money are often the immediate benefits for firms. For example, in Georgia, a 2009 survey found that its new start-up service centre helped businesses save an average of 3.25% of profits—and this is just for registration services. For all businesses served, the direct and indirect savings amounted to US$ 7.2 million.2 In Mexico, local one stop shops (SARE) cut the time to start a business from 58 to 13 days. A recent study reports the payoffs: the number of registered Mexican businesses rose by 5%,

Exchange: Autumn 2011

employment increased by 2.8%, and prices fell by nearly 1% because of the competition from new entrants. 3 Consistent reformers follow a long-term agenda and continually push forward. The top-ranked economy on the ease of doing business, Singapore, introduces business reforms every year. Cumulative business reforms across a range of topics produce the best results. Cooperation across different parts of the bureaucracy, at both local and national level, is necessary for wideranging reforms. Political will and vision coming from a reform champion—whether the prime minister, minister, or mayor—is central to success. Moreover, consistent reformers are inclusive—involving all

relevant actors and institutionalizing the reform effort. They also stay focused by setting specific goals and regularly monitoring progress. 1. The one-stop shop project in FYR Macedonia is going through a second stage that aims to unify business registration and employee registration for social contributions. The second phase is already being implemented through a pilot project in Skopje and is expected to cover the entire country by the end of 2011. 2. World Bank 2010. Doing Business 2011: Making a Difference for Entrepreneurs. Washington, D.C: World Bank Group. 3. Bruhn, Miriam. 2008. “License to Sell: The Effect of Business Registration Reform on Entrepreneurial Activity in Mexico.” Policy Research Working Paper 4538. Washington, D.C.: World Bank


E X C H A N G E: The Magazine for International Business and Diplomacy


EBRD examines business opportunities in South East Europe Exclusive interview with Jean-Marc Peterschmitt, Managing Director, Central and South Eastern Europe, European Bank for Reconstruction and Development

Photo by Besim Gerguri

Exchange: South Eastern Europe (SEE) is steadily transforming itself from a statecontrolled economy into an emerging market with strong growth potential. But, as was the case with many other regions across the globe, the Western Balkans was also hit by the financial crisis, although the impact wasn’t as bad as many feared. This resilience is largely attributed to the considered reaction of the region itself. According to your Bank’s (EBRD) Transition Report 2010, the recovery in most SEE countries is progressing slowly, with growth projections in most countries between 1 and 3 per cent. However, the expansion of the recent debt crisis from Greece to Italy, Europe’s fourth-largest economy, could potentially stall the re16

gion’s recovery. To what extent could this debt crisis affect the recovery in SEE in general, and the Western Balkans in particular? Did the financial crisis have an impact on the banking sector in SEE? J-M.P. We expect positive growth rates for all SEE countries in 2011, between 1.1 and 3.3 per cent, mostly in light of a strong performance in the external sector. However, it is important to emphasise up front that these forecasts are subject to a lot of uncertainty, with some clear downside risks. The EBRD’s Office of Chief Economist will issue revised forecasts for 2011 and 2012 in mid-October. So far the feared spill over effects have been largely contained. However, as the debt crisis con-

tinues to unfold and economic performance of the Euro zone weakens, negative contagion effects are likely. The SEE region enjoys close links to the EU, mostly in the form of trade. Indeed, investments and remittances, but also through financial intermediation, as many banks in the region are part of larger European groups. Concerning trade, the EU remains the main trading partner of the SEE, with an average of above 60 per cent of exports from the region going to the EU internal market. In particular Albania is heavily dependent on trading with neighbouring Greece and Italy, whilst much of the remaining SEE countries are mostly dependent on trade with the core Euro zone members.


Despite having remained relatively constant throughout the global economic crisis, flows of remittances – a vital channel for income in some countries – may also be negatively effected as unemployment in the EU rises and migrant workers are forced to return home. This in turn, might weaken the already only slowly resuming domestic demand in many SEE countries. On the investment front, the region has seen a sharp drop in foreign direct investment during the global financial and economic crisis, and FDI continues to deteriorate in most countries. This is concerning. It means, we at the EBRD, are deploying even more efforts towards local enterprises. Finally, growth in the banking sector has remained subdued as banks are adjusting their risk appetite and consolidating their balance sheets. Subsidiaries of Greek banks are particularly present in Albania, Bulgaria, FYR Macedonia, Romania and Serbia, with market shares of above 15 per cent. Contagion effects are possible in the form of higher funding costs for subsidiaries, which could be passed on to endconsumers. However, the region has not experienced a deposit run on any bank, parent banking groups have remained very committed to their subsidiaries, both with funding and capital in the region and the situation seems to remain stable and under

Exchange: Autumn 2011

control. Exchange: Regional transport corridors, sea routes and overall transportation policy rank alongside economic integration as fundamental to the development of SEE. Further, the exchange of goods and the expansion of tourism create a need for better infrastructure such as roads, railways and air travel. Given the focus of the EBRD’s lending portfolio in the region, what are the opportunities for financing regional infrastructure projects in the Western Balkans? Could you highlight some of the projects that are being financed or co-financed by the EBRD? What opportunities lie in this sector for foreign investors? J-M.P. The Bank is one of the most important institutional investors in the Western Balkans (defined here as all countries of the former Yugoslav Republic less Slovenia plus Albania), with a cumulative business of about EUR 8 billion and an annual flow of new investments of around EUR 1.4 billion. Given the state of infrastructure that critically needs modernisation, the strong priority of regional integration and the need to link the region as a whole to the rest of Europe, it is not surprising to see that investment in roads, transport logistics, airports, power and transmission

projects, represent a very high share of the Bank's activities. About 50% of our annual business is devoted to support countries in the region to improve regional intercomnections with large, multi-annual investments plans. The financing of the projects such as Corridor X in Serbia and FYR Macedonia, Corridor Vc in Bosnia and Herzegovina and Croatia, Corridor VIII in Albania, FYR Macedonia and Bulgaria, the transmission lines connecting Albania, FYR Macedonia and Bulgaria are all examples of our engagement. All these projects are large, thus requiring a systemic integration of co-financing among international financial institutions, as well as considerable grant resources. This is the reason why, together with the European Union and the European Investment Bank, we have created the Western Balkans Investment Framework: this is a way to coordinate and consolidate financial resources, whether debt or grants at the European level and to capitalise on our respective strengths to provide a better and faster financing service to the countries of the region. Foreign investors may of course play a role in the provision of infrastructure services on the basis of concessions or public-private partnerships. These possibilities are real, the airport in Tirana is a good example of a recent success. The EBRD is keen to promote such approaches

Photo credit: Tirana International Airport


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but also recognises that they are challenging: it requires a well-developed regulatory framework, very careful project preparation and the ability to mobilise large financing packages; these are all areas in which we can assist. Exchange: How can investment in public goods, such as telecommunications infrastructure, foster private sector development in the Western Balkans? How should concessions for the privatization of natural monopolies (such as broadband networks) be managed? What is the optimal format of public-private partnerships in the development or restructuring of telecommunications networks? J-M.P. Investments in information and communications technologies (ICT) and infrastructure are critical in generating operating efficiencies for many sectors of an economy. By allowing knowledge to be disseminated, markets to connect, or processses to become more efficient, ICT is at the root of private sector development. In many other regions and countries, for example Taiwan, Korea, Singapore or Finland, such investment in telecom infrastructure has been labelled as the single largest cause for economic growth and allows the development of the digital economy. As noted in the declaration of the recent Deauville G8 summit, the Internet is “a driver of innovation, improves efficiency and thus contributes to growth and employment.” The EU has been very active in pushing an ambitious digital agenda recognizing that it is lagging behind other regions of the world. Fast broadband coverage for all by 2020 is such a goal. This is key for the next phase of economic growth and transformation in the EBRD’s countries of operation where such technologies are still in their infancy. There remain massive challenges to the creation of adequate telecoms infrastructure in the Western Balkans. These challenges stem from a lack of privatisation of telecoms operators, a lack of investment in such networks and also a lack of liberalisation. Concessions for the privatisation of natural monopolies such as broadband networks have to be managed carefully. In many cases, existing networks are outdated and unable to support the massive data flow requirements from the emergence of new technologies such as smartphones. This means selling such networks will depend on the addition of other components such as the use of frequencies. Broadband wireless networks today can 18

carry large data streams which one day will come close to what terrestrial networks do via regular fibre optic. This means one has to pay attention to technology much more than before and a major rethink needs to occur in trying to understand how to best design the network of the future. Large capital outlays may be necessary (e.g. 4G GSM networks). Certain countries like Singapore have chosen to build a single so called “Next Generation Network” which is then leased out to private operators, rather than encourage the multiplication of expensive networks by private operators. So while Public-private partnerships (“PPPs”) are definitely on the agenda, with the usual issues of required regulatory frameworks, proper contractual arrangements in terms of risk allocation and profit sharing, there is a question of whether the state could still play a bigger role in the set-up of the basic digital infrastructure itself. The EBRD is certainly very interested in supporting such investments, which will be crucial for the development of a knowledge economy capable of stimulating growth. Exchange: Given the recent surge of interest in free economic zones as drivers of employment and industrialization, do you think that export processing zones (EPZs) could be effective drivers of sustainable economic development? And if so, how can governments maximize the positive impact of EPZs? How can foreign investors maximize the potential of EPZs while contributing to local development? J-M.P. The establishment of Economic Free Zones or Export Processing Zones (EPZs) aims to attract foreign investors to the region, based principally on tax breaks or the elimination of various tariffs. For instance, in the case of the FYR Macedonia, this has had some success. Four foreign companies are currently operating at the EPZ of Bunardzik, and three more have recently started investments there. The attraction of foreign investors to EPZs can bring wider benefits to the local economy by bringing new skills, processes and standards of governance that can be replicated elsewhere. This kind of positive impact on the economy is at the heart of many EBRD investments in the region. However, governments also have to be mindful of the possible loss of revenue that may result from the provision of overly generous incentives to foreign investors. Equal treatment of local and foreign investors is an important principle that should be observed. Therefore, the


establishments of EPZs alone cannot be a sustainable long-term solution. Policies supporting investment and business have to be aimed at the economy at large. Despite good progress in recent years, an unfavourable business climate and lack of competitiveness continue to negatively affect the region’s image as an attractive investment destination, as suggested by the business surveys such as the EBRD / World Bank Business Environment and Enterprise Performance Survey, the World Bank’s Doing Business reports or the World Economic Forum Competitiveness Report. Administrative bottlenecks, a high level of corruption, a weak judiciary system, the lack of high quality infrastructure and unqualified labour continue to remain major obstacles for businesses, and authorities across the region should prioritise reforms in these areas to attract foreign investors. Exchange: What further reforms are necessary to strengthen the regional cooperation in the areas we have discussed, that is, infrastructure, telecommunications and the financial sector? J-P.M. Regional cooperation is of course a must, resulting in more impact of investments, in technical and financial efficiencies that benefit all in the region. Much of the efforts of the international community over the years have been geared at promoting such cooperation, through political dialogue and specific institutions. Some obstacles remain: the regulatory framework in many countries in the SEE region hinders comprehensive cooperation amongst countries. However, as legislation across the region is gradually aligned to the EU acquis, new possibilities for cooperation are expected to emerge. We see huge potential for regional cooperation in the energy sector for example, where work has taken place on the establishment of a regional electricity market and current developments are aiming at implementing a regionally coordinated procedure for electricity capacity allocation and congestion management. Similar coordination is needed in the transport sector, in order to complete the panEuropean corridors. The recent financial crisis has prompted a major increase in cross-border cooperation in the financial sector. The “Vienna Initiative” has played a major role in the SEE countries in staving off a systemic banking crisis and ensuring parent banks remain committed to their subsidiaries both with funding and capital.


This has worked very well. It was achieved through the close dialogue and coordination among the key banks present in the region (mostly part of international networks), the supervisors of the home countries (where groups have their headquarters) and host countries (the countries of SEE where the banks are present), the EC, the ECB and the international financial institutions. This has been a unique opportunity to bring together all relevant parties to work together on issues related to the financial sector in the region, a process that continues. Exchange: The EBRD has played an important role in fostering the establishment of market-based, competitive and sound economies in SEE. What would be the future role of the EBRD in the Western Balkans? Would it be more of a lending institution or an equity investor? The EBRD has been and intends to remain a long term investor in the region. This is what makes us “additional” compared to other sources of financing (when at all available). Of course a large part of the projects of the EBRD consist in long-term debt, sometimes specifically with the aim

Exchange: Autumn 2011

to mobilise other commercial lenders along side us in the context of syndicated loans, thus having a catalytic role in bring to the region lenders that may otherwise not have considered it. This is very important as it allows us to leverage our own role. But in line with its mandate, the Bank does also provide long-term capital to companies in the region to support their expansion plans. This includes taking equity risk, for which the Bank is fully equipped. The EBRD has been providing equity to companies in the region for a number of years and, despite the economic crisis, is still very much engaged in expanding its portfolio of equity positions, particularly with local companies. This is a priority of the Bank. We believe that a number of underdeveloped sectors, especially in manufacturing, have a strong growth potential mainly in view of the EU accession process. There is the possibility to create value and we believe we can contribute to such process, not just with our money but also through our participation as a shareholder in the governance of the investee companies or our support in the form of technical advice.

that European investment funds invest in Western Balkans firms? The Western Balkans constitute a group of fairly complex countries, with some remaining inter-ethnic issues, some legacies of the wars of the past decade and certain pockets of political instability. Yet, the direction towards greater stability and prosperity is clear and the prospect of EU accession is a strong catalyst for change. The catch up potential is large and there is a lot of value to be created as the markets grow, local companies become more competitive and new market needs are being fulfilled. Using emerging market terminology, one could say that the Western Balkans are a “frontier” investment area. It is for those with patient capital and a long term view, with a very good knowledge of the situation on the ground and a readiness to take a hands-on role in managing investments, a strategy that will pay-off. This is what we do every day at the EBRD and we would be more than happy to share our knowledge and work together with other investors interested in the region.

Exchange: Why would you recommend

EBRD at 20 Photo by Mike Ellis


E X C H A N G E: The Magazine for International Business and Diplomacy

Country Report

Malta: a stable investment destination Alan Camilleri, Executive Chairman, Malta Enterprise


nspired by the vision of becoming a centre of excellence and a regional hub, the small but ambitious island of Malta is focusing its strategy on a number of sectors which the Government has identified as key pillars of the economy and which have not only been performing well but also present numerous opportunities for further growth. Through such strategy, Malta was able to withstand the difficulties it faced during the international economic crisis and eventually also the challenges brought about by the uncertainty in North Africa. Indeed, according to the latest report published by the UNCTAD, investment in the past year has exceeded $1 billion – a significant amount considering that Malta is the smallest member in the European Union and only has a population of around 400,000 people. As the conflicts in North Africa and particularly in Libya approach their resolution, the renewed staibility in the region will give rise to numerous opportunities. Strategically located in the middle of the Mediterranean Sea, Malta - which maintained its economic, political and social stability even throughout these challenging times - is the ideal gateway for entering the European Union and other neighbouring markets in North Africa and the Middle East. Investors have the opportunity to set up in Malta to reach nearby markets from an English-speaking and business-friendly environment, where a highly-skilled and flexible workforce is also available. Thanks to the skills and abilities of its people, Malta has shifted up the value chain and moved from a low-cost manufacturing base to a knowledge-based economy, with an emphasis on higher added value as per the Government’s strategy. 20

Sectors such as the financial services industry and ICT, with the latter including niche sectors such as call-centres and back office support as well as digital gaming and software development, have been flourishing in the past years with considerable growth rates. Projects such as Smart City Malta, with a $300 million investment from Dubai’s Tecom Investments, and Corporate Village Malta – which is envisaged to carry an investment exceeding €150 million – are expected to give a further boost to these growing industries with state-of-the-art infrastructure. Further opportunities will be avialable in the budding life sciences industry, which is building up on the success of the pharmaceutical industry, particularly with the construction of a new life sciences centre that will provide a research nexus in collaboration with the University of Malta and the country’s main Hospital. The capacity building however does not stop at improving the infrastructure, but also with a heavy investment in eduacation and training to ensure that trained workers

are always available to take up the opportunities being generated. Other sectors which are also central to the Government’s strategy - such as international education and training services, healthcare, advanced manufacturing, tourism, the aviation and maritime industries, as well as eco-sustainability and the environment - shall also benefit from this capacity building and consequently are expected to keep growing as well. Assistance is also available to investors to encouarge them to do business in Malta, including tax credits on the amounts invested, access to finance, industrial space at competitive rates, and other schemes to encourage R&D, innovation and competitiveness. Moreover, Malta’s tax system, coupled with the extensive network of double taxation treaties, offers significant fiscal efficiency to Maltese companies, whilst Malta remains among the most attractive countries within the EU in terms of taxes and social contributions paid out by companies.

Aviation sector has been identified as one of the key pillars of the economy in Maltese’s Government strategy

VIP Ambassadorial Luncheons IBDE's VIP Ambassadorial Luncheons are an excellent opportunity for your clients to identify key investment opportunities and understand investment strategies in the UK as well as the countries represented in London within the wider economic and political context

Forthcoming Luncheons: EU-Balkans informal Ambassadorial Luncheon - Exclusive Event •

10 December 2011

Attendance at events in this series is by invitation only. Invitations are being extended to CEOs, CFOs, COOs, senior board members, decision makers and strategists from blue-chip companies interested in, or already investing in South Eastern Europe. Additional senior applicants will be considered for invitation subject to availability of places and meeting the above criteria.

For more information on our regional and country-specific Ambassadorial Luncheons contact us on

E X C H A N G E: The Magazine for International Business and Diplomacy


A global stimulus package: the potential economic returns of the British Council's international cultural activities Exchange talks to Martin Davidson Chief Executive, British Council ,

Martin Davidson, British Council Chief Executive Photo Credit: © British Council

Exchange: Culture, with a capital “C” can be derided by some interest groups as an “elitist” activity, in its own ivory tower separated from the cut and thrust of business and the politics of diplomacy. In an era of globalism is it short-sighted to ignore the intrinsic and multi-facetted value attached to “Culture” as promoted by British Council activities in the world at large? M.D. It’s definitely short-sighted to do so because everyone in the world is part of a culture - and interacts with Culture all the time. Reading, listening to music, watching TV or noticing the different types of architecture around us are all cultural experiences which are universal parts of everyday life. In an increasingly globalised world, learning about other cultures builds vital trust and understanding, and forges valuable links that transcend politics. That’s what the British Council’s international cultural relations work does. The economic value of cultural relations mustn’t be underestimated. For example, our work in the arts not only broadens cultural horizons, but helps emerging and established artists from the UK to find lucrative new markets for their work overseas. Our work supports the UK’s international Higher Education sector which generates an estimated £8 billion a year for the economy, through the foreign students who come here to study. Exchange: Does the British Council, with its programs tailored to the many areas of cultural relations in which it operates, represent the best value for public funding, offering expertise in the key cultural values of the diverse locales in which business and diplomacy must operate? M.D. Absolutely. We’ve been working for more than 75 years and we operate in more than 100 countries. Our networks and legacy of trust in the places where we


operate is essential in order to reach all levels of society. For example, we’ve been in Egypt since the 1930s, and the trust we’ve built up has proved invaluable during the Arab Spring. Only around a quarter of our income comes from a government grant, and this will decrease between now and 2015. The money we earn from our fee-earning activities such as English teaching and exams is used to fund our charitable work, which means even better value for money for the UK taxpayer. Exchange: How would you envisage an effective administrative structure within which the FCO, DIFID and the British Council could work together? M.D. We already work closely with the Foreign and Commonwealth Office and the Department for International Development, both in London and overseas, and our work complements what they do on behalf of the UK. We each bring different benefits to Britain; in our case a focus on building trust and understanding with the people of other countries. We operate at arm’s length from government which is important in building trust and allows us to operate in situations where a government department could not. But we also serve the UK’s long term international interests. This was recognised in the government’s review of bodies like ours after the 2010 election. Exchange: Science, media and sport are all areas of interest in furthering international business and diplomacy. What British Council activities in these three areas would you like to highlight for their potential to enhance both business and diplomatic links worldwide? M.D. Science is an integral part of culture and a key driver of future economic prosperity in both the UK and overseas.


Exchange: Autumn 2011

Children in Kenya learning English through the British Council. Photograph: © Mat Wright

We have a very successful science communication initiative, FameLab - run in partnership with the Cheltenham Science Festival - which helps to make science an exciting and attractive career choice. This builds up the transferable skills of young scientists, many of whom have gone on to be influential characters in their own countries, often in the national media or science policy areas. Famelab has been run in more than 15 countries across Europe, North Africa and Asia, and the International Final in the UK brings together participants from countries as geographically and politically diverse as Hong Kong Libya, Israel and Egypt. Last year we worked together with the Royal Society to widen the impact and reach of the Frontiers of Science event in Sao Paulo - which brought together 80 of the most talented young scientists from Brazil, Chile and the UK to discuss the new frontiers of research in areas as diverse as biofuels and quantum entanglement. The unveiling of a statue of Yuri Gagarin outside our central London offices in July celebrated the contribution of science to the world. It generated a real sense of goodwill and created a great opportunity for the UK and Russia space industries to work together.

Our work also harnesses the power of sport as a global language. We’re involved in International Inspiration, London 2012’s international sporting legacy programme – which, among other things, uses sport to develop young people’s leadership skills, particularly in developing countries. We also work with the Premier League on a programme called Premier Skills, which uses the global appeal of British football to develop communities and improve English skills worldwide. There’s a clear long-term economic benefit in all of this. Exchange: In Africa’s newest country, South Sudan, the British Council is involved in the Rift Valley Institute’s course on Sudan: “an intense introduction to the economics, ethnicities, politics, cultures, histories, petroleum and hydrology, border disputes and secession, civil wars and peace agreements of this huge, fascinating and deeply troubled country”, to quote Tony Calderbank, British Council Director for South Sudan. Given the efficacy of such broad-spectrum cultural work in generating opportunities for globalized business activity down the line, underpinned by the dual goals of the British Council to undertake cultural work in Africa and support development object-

tives across the continent, might a convergence be found - in effect an income earning partnership potential - in working with African nations to reduce the negative impact of tribalism on overall cultural and economic progress? M.D. Our cultural relations work in Africa contributes to development objectives and, in the longer term, can support the global business agenda. Let me give you a few examples of what we’ve already achieved in South Sudan. The legal system there is staffed with Arabic speaking lawyers and officials, so we’ve provided English language training for the Judiciary and the Ministry of Legal Affairs and Constitutional Development to assist the transition to-wards an East African legal model that uses English. We are currently training police in South Sudan as part of a DFID Safety and Access to Justice project. Our hope is that this will make a contribution to stability in South Sudan and stronger ties with the rest of East Africa, the UK and, perhaps in due course, the Commonwealth. All this is good for business and security. Some African countries do indeed see tribalism as a challenge to development, and it was probably one of the factors that contributed to the adoption of English as 23

E X C H A N G E: The Magazine for International Business and Diplomacy

the official language of South Sudan. Cultural relations can enable people to reach across wide cultural or political divides. In places like the Rift Valley of Kenya and in former IDP camps in Khartoum we are providing training and support to help communities live and work in greater harmony. In the same way that English, education or sport can often provide a unifying challenge or opportunity, so work through the arts can cross political and cultural boundaries. In Sudan we’ve used our work in developing business skills for young people in the creative industries as a vehicle for bringing together arts communities from Juba and Khartoum. Cultural Relations is invariably a longterm business, because building trust takes time – and, because it involves people, it is rarely linear. For this reason local knowledge and judgement are invaluable in ensuring we always work with the cultural grain rather than across or against it. That’s why we’ve strengthened our presence in Juba. Exchange: The dissolution of the “former Yugoslavia” into its culturally divergent national interests could be considered a classic opportunity for the crucial partner-

ship of diplomacy with the cultural specializations of the British Council in moving the region towards a more cooperative economic and political future. The London-based non-profit International Business and Diplomatic Exchange runs an EU-Balkans Discussion Group the ultimate goal of which is to strengthen regional cooperation as well as contribute towards greater stability and prosperity in South East Europe, leading eventually to the region's integration within the European Union. To what extent is the British Council engaged in this part of the world, and what are its core activities in the region? M.D. The fall of Yugoslavia [in comparison to some other emerging democracies] was not brought about by civil society calling for an open society, but by ethnonationalist wars, launched by post Tito-era leaders in a bid to hold on to power. The push for more open societies remains a live issue, along with championing the healing and reconnecting communities divided by war. A new generation of citizens seeking a future in the EU - driven by a desire for a better life - are now demanding a faster track to EU accession. Many younger people, impatient with the slow pace of


change, the quality of education, the skills training available and the shortage of jobs, are increasingly disconnected with the leaders and the accession process. The British Council’s work in the region across English, Education and the Arts – in areas including skills and citizenship - represents a range of responses tailored to the specific needs of local communities and institutions. Our network of offices is a locally-based but globallylinked source of UK expertise. Our cultural relations work brings government, employers and educators together to address the wide range of needs – and this gives us a strong understanding of local priorities and ensures that we can respond in the best possible way. And if I may add a final comment, I am certain that cultural relations work gradually builds trust and therefore contributes to a safer and more prosperous world. We would be delighted to see more countries focussing on international cultural and educational cooperation. Business has a huge role to play too. Many of the best cultural relations programmes already involve partnership with international businesses and there are opportunities for much more of this.

English National Ballet in front of the UK Pavilion at Shanghai Expo. The British Council led on the design and development of the UK’s Programme of Events at the Expo and programmed entertainment 7 days a week for its duration. Photograph: British Council


EU current members Candidate countries Potential candidate countries

EU-Balkans Discussion Group Series I

The IBDE’s ‘EU-Balkans Discussion Group’ is designed to support and promote regional cooperation and the socio-economic development of the Western Balkans with the support of EU and Balkans Embassies in the UK for the benefit, in particular, of the countries of the Western Balkans and the EU. This goes in line with the EU’s and its member states’ policies towards the region. In this regard the project aims to focus on regional cooperation, providing a regional approach for trade and/or investment, in order to maximize its common regional appeal to the wider multinational business community. The meetings are open to Heads of Mission of EU-Western Balkans countries plus Turkey, senior UK/EU officials and business leaders. For more information contact us on + 44 (0) 20 7193 1485 or

E X C H A N G E: The Magazine for International Business and Diplomacy


Uzbekistan: 20 Years of Political Stability and Economic Growth Exchange talks to His Excellency Mr. Otabek Akbarov, Ambassador of the Republic of Uzbekistan to the United Kingdom of Great Britain and Northern Ireland, and the Kingdom of Norway


Exchange: Your Excellency, Uzbekistan celebrates 20th Anniversary of its Independence this year, congratulations. Having worked within the Uzbek Foreign Ministry since Independence, what are your observations of Uzbekistan’s achievements in political sphere during this period? Ambassador Akbarov: First of all, I would like to note that this is a very special event for Uzbekistan. Twenty years can be a short time for history, however Uzbekistan managed to make significant progress during this period. This was a long and not easy way, when we had to prove our Independence in every field: politics, economy and international relations. Today Uzbekistan has finished the transition period from the soviet commandadministrative system to a democratic 26

country with market economy. We have created the solid foundations of statehood, established legislative, executive and judicial branches of power, developed various institutions of civil society, raised our unique historical heritage and national identity. In his program speech on 12 November 2010, HE Mr. Islam Karimov, the President of Uzbekistan, outlined the Concept of further development of the country, which prioritized such directions as – democratization of state power, reforming the legal system, developing the electoral legislation, ensuring freedom of speech, strengthening civil society institutions, deepening market reforms and liberalization of economy. On the international arena our country has gained a reputation as a responsible partner adhering to peace and stability in

the region. Uzbekistan has put forward a range of important foreign policy initiatives which influenced multilateral dynamics in the region and internationally. Among them – initiative on establishing of the International Counter-Terrorism Centre within the UN Security Council (1999) which led to formation of the UN CounterTerrorism Committee (2001). Others include creation of the Central Asian Regional Information and Coordination Centre on Combating against Drug Trafficking (2002) and the Nuclear-Weapon-Free Zone in Central Asia (2006). The assistance in normalization of the situation in neighbouring Afghanistan is one of Uzbekistan’s foreign policy priorities. Established on our initiative under the aegis of the UN in the late 1990s, the “6+2” Contact Group on Afghanistan (included six bordering countries, Russia


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E X C H A N G E: The Magazine for International Business and Diplomacy


and the US) has proved its effectiveness. Now, we propose to resume this group in an enlarged format “6+3” involving NATO. Exchange: What are your thoughts on economic development of Uzbekistan, particular in transition to a market economy? How did Uzbekistan address the consequences of the global economic crisis? Ambassador Akbarov: Uzbekistan’s model

of economic development was based on five principles: (1) de-ideologization of economy and its priority over politics, (2) the state – main reformer, (3) rule of law, (4) strong social policy and (5) gradual reforms. This approach resulted in considerable achievements, recognized by all major international financial institutions. During 20 years, the country’s GDP grew by 3.5 times, while per capita ratio by 2.5 times, real incomes of population by 3.8 times, state expenses for social security - 5 times, child and maternal mortality rates fell three and two times respectively, life expectancy of men climbed to 73 from 67 years and for women to 75. The structure of our trade has radically changed transforming Uzbekistan from a country which previously exported raw materials and imported finished products, to a country with growing export of value added products and importing mainly hightech equipment. Today Uzbekistan is a leading industrial country in Central Asia with modern automobile, airplane and machine building, textiles, food processing, metallurgy, natural oil and gas processing, chemical and other industries. In 2008-2009 when a number of other countries were suffering from the global economic crisis, Uzbekistan recorded GDP growth at 8.5-9 percent, in 2010 – 8.1 percent, while in 2011 it is estimated to be 8.5 percent. Uzbekistan is a member of the IMF, World Bank, Asian Development Bank, Islamic Development Bank and Economic Cooperation Organization. It has observer status at the World Trade Organization. Exchange: What is the current investment climate in your country? Can you provide some examples of the biggest investment projects in Uzbekistan? Ambassador Akbarov: The Government has created favourable conditions for foreign investors. The country has gained a reputation of a reliable business partner with a qualified workforce, rich mineral resource base and developed transport infrastructure. 28

Official logo of Uzbekistan’s 20th Anniversary of Independence

Nowadays, Uzbekistan enjoys economic cooperation with 180 countries. Our traditional trade partners are the CIS countries, notably Russia, Ukraine and Kazakhstan, which in aggregate account for over 40% of all exports and imports. Non-CIS partners have been increasing in importance in recent years, with China, US, EU, South Korea, and Japan being the most active. The value of foreign trade turnover grew from 805,6 million in 1990 to 21,8 billion USD in 2010. The volume of investments into our economy reached 100 billion USD, and number of enterprises with foreign capital – 4200. Our main partners in implementation of investment projects are General Motors, Texaco, MAN, Daimler Benz, Isuzu Motors, Sumitomo, Korean Air, Korea Telecom, Gazprom, Lukoil, Petronas, CNPC and other world class companies. Established in Navoi region of Uzbekistan, the Free Industrial and Economic Zone allowed formation of a modern, welldiversified industrial base by attracting advanced technologies and resource efficient equipment. Business entities registered in the FIEZ are exempt from practically all types of taxes, customs duties for imported equipment and raw materials depending on the volume of direct investments made. There are 21 ongoing projects in FIEZ now. Exchange: Uzbekistan is a member of a number of regional organizations, including the Commonwealth of Independent States and Shanghai Cooperation Organization. How important is regional and international economic cooperation to Uzbekistan at this stage? Ambassador Akbarov: Along with the aforementioned organizations I would point out that Uzbekistan is also a member of UN, OSCE, Collective Security Treaty Organization, Organization of Islamic Conference. We take an active part in the activities of UNESCO, WHO and ILO. Today, the Commonwealth of Independent States (CIS) is on the brink of its 20year anniversary. During this period we

have heard different statements, sometimes diametrically opposite, opinions and forecasts regarding the effectiveness of the CIS activity. However, time has demonstrated that the CIS still remains the only structure which promotes development of multilateral cooperation among the majority of post-soviet countries. Meanwhile, modern realities demand an improvement of the CIS activity. One of the most important issues on the CIS agenda is intensification of economic cooperation on the basis of the free trade regime between member-states and further development of transport communications. These priorities are secured by the CIS Concept of further development, signed by Heads of States on 5 October 2007. When we talk about the Shanghai Cooperation Organization (SCO), it is important to mention that Uzbekistan, which signed the Shanghai Declaration in June 2001, was one of the founders of this Organization. On the basis of the principles of equality, we together with other members formulated and introduced the SCO’s strategy. Our priorities include ensuring security and stability in the region, strengthening investment cooperation, development of transport networks and telecommunications, creation of jobs and solving social problems. Welcoming the SCO Charter goals on security and regional stability, Uzbekistan attaches a great importance to the activity of the Regional Anti-Terrorist Structure (RATS) in Tashkent. We also support the establishment of links between the SCO and other international structures. The organization has contacts with ASEAN, as well as observer status in the United Nations. The declaration on collaboration between the secretariats of the UN and SCO, signed in April 2010 in Tashkent, also facilitates the establishment of constructive relations between the UN Counterterrorism Committee and the Executive Committee of RATS. Uzbekistan chaired the SCO in 2010 and hosted its summit in Tashkent in June of that year, when the Head of our State put forward several important proposals


related to development of the decisionmaking mechanism within the SCO and activity of its structures. The summit resulted in signing of the Declaration of the Heads of States, the Provision on regulations for admission of new members in SCO, as well as Agreements on collaboration in the field of agriculture and fight against crime and number of other important documents. Exchange: The United Kingdom is one of the main financial centres of the world. How do you evaluate the level and prospects of cooperation between Uzbekistan and UK? Ambassador Akbarov: The diplomatic relations between Uzbekistan and the United Kingdom were established in January 1992. However the historic ties between European countries and Uzbekistan have a long history, when Amir Temur and King Henry IV exchanged letters (XV century), Marco Polo and Ruy Gonzales de Clavijo visited the region with trade and diplomatic missions (XIII and XV centuries). The transit stop of President Islam Karimov at the London Stansted Airport on 19 September 2010 (on the way to the United Nations MDG Summit in New York) was a symbolic step forward in the bilateral political dialogue. During the meeting with British officials, President Islam Karimov expressed satisfaction with the development of the Uzbek-British relations in a number of areas and noted that our country is open to expanding this cooperation further. In his welcoming letter addressed to the Head of our State the British Prime Minister Rt. Hon. Mr. David Cameron showed interest in developing further constructive links in business, education, parliamentary and regional security areas. The United Kingdom is one of the major trade partners of Uzbekistan in Europe. About 200 joint ventures with British investors operate and over 50 British companies have their representative offices in Uzbekistan. Moreover, there is a growing interest from British business towards Uzbekistan. In particular, it became obvious during the 17th Session of the Uzbek-British Trade and Industry Council in December 2010 in Tashkent, which was attended by the biggest British business delegation consisting of 78 representatives from 40 companies. As result of their direct contacts with Uzbek partners a multi-million-pound investment package is being implemented

Exchange: Autumn 2011

between two countries. The next UBTIC forum is planned to be held in late autumn 2011 in London. Education and science are actively advancing fields in our relations. The Westminster International University in Tashkent delivers a high quality education for citizens of Uzbekistan. Nowadays, there are several British universities interested in establishing such kind of partnership with Uzbekistan. The Cambridge Central Asia Forum headed by Professor S. Saxena implements a number of projects jointly with Uzbek researchers and scientists. One of the outstanding examples of this cooperation will be the Centre of High Technologies in Tashkent aimed at boosting innovations in pharmacy, geology, geophysics, biotechnology, sustainable energy, nanotechnology, software development and other areas. In the framework of the British Council’s INSPIRE Program, five universities of Uzbekistan are implementing international strategic partnership in research and education with five universities in Britain. Cultural diplomacy is one of the most effective ways to promote friendship among nations. British designers and artists annually visit world-famous historical cities of Uzbekistan – Tashkent, Samarkand, Bukhara, Khiva and others during the Style.UZ Art Week, Asrlar Sadosi (“Echo of Centuries”) Traditional Cultural Festival as well as other events, exhibiting their arts and carrying out joint projects. Together with the Forum of Culture and Arts of Uzbekistan large scale of cultural activities have been carried out in the UK

as well: Suzani embroidery exhibition in Burrell’s Collection Museum in Glasgow, photo exhibition “Tashkent: the History of one City” in London, Cambridge and Bath are to mention but few. Exchange: What are the current development and prospects of Uzbekistan’s relations with the Kingdom of Norway? Ambassador Akbarov: As Ambassador of Uzbekistan to Norway with residence in London since May 2010, I am glad to contribute to the intensification of our relations with this country. Now, there is a regular dialogue between our Foreign Ministries, and similar exchange is planned in the parliamentary sphere. There have been several visits of Norwegian business community to Uzbekistan last years. Particularly, the delegation led by the State agency Innovation Norway visited our country in 2009 and held meetings in number of state departments, as well as a trip to the Navoi Free Industrial Economic Zone. Nowadays Norwegian companies such as International Development Norway and the Energy Saving International implement their projects in Uzbekistan. The next visit of a delegation from the business community of Norway to Uzbekistan and a joint business-forum are scheduled for November 2011. High tech companies like Statoil, Aker Solutions, Numerical Rocks, SINTEF multiphase flow laboratory, as well as representatives of the Norwegian University of Natural Science and Technology are expected to attend this forum and contribute by their presentations for local business community.

Tashkent: the capital of Uzbekistan


EU-BALKANS AMBASSADORIAL ROUNDTABLE 24 November 2011, 09:30 -15:30 Followed by a drinks reception

Venue: Europe House, London SW1P Organised in conjunction with the UCL European Institute European integration stands alongside comprehensive and sustainable growth as the overarching goals for the Balkans. As all Western Balkan countries plus Turkey aspire to full EU membership, the domestic challenges they face and the membership criteria they are expected to fulfil make the pursuance of political reforms as well as sound economic policies essential to ensure the region’s progress. Further to a closer cooperation among the Balkan states themselves, necessary in order to overcome the legacy of the Yugoslav wars, the key regional priorities thus include socio-economic development, sound public finance, external assistance management, enhanced consultation among all stakeholders and anti-corruption measures. The European Union supports governments in addressing these challenges through the so-called Stabilization and Association Process. It offers key instruments for political stabilisation, transition to a market economy and regional cooperation, and thus represents a prime motivational force for reform in the region. However, the EU also faces challenges of its own with regard to future enlargement, not least the onset of an “enlargement fatigue” among existing member states. The “EU-Balkans Ambassadorial Roundtable” aims to create an opportunity to address these challenges by way of a constructive dialogue of relevant stakeholders - diplomats, EU officials, business people – with academics specialising in research in this field from UCL and elsewhere. To view the full agenda and the list of speakers please go to www.ibde.irg or to register your interest please email us at


Exchange: Autumn 2011

Policy responses to the Arab Spring in the Gulf Kristian Coates Ulrichsen


he Arab Spring breathed new life into demands for political reform in the Gulf Cooperation Council (GCC) states. Since the beginning of the popular uprisings in North Africa, a series of petitions and calls for meaningful change rattled the conservative Gulf monarchies. Significant unrest in Bahrain briefly threatened the ruling Al-Khalifa family before it was quelled by the intervention of military forces from Saudi Arabia and the United Arab Emirates (UAE). Oman, Kuwait and parts of eastern Saudi Arabia also saw significant protests, while the UAE responded to oppositional activity with a repressive clampdown on advocates of reform. Although the measures restored a degree of stability to the Arabian Peninsula, they indicated that the oil states, too, were vulnerable to the fusion of political pressure with socioeconomic discontent that proved so potent in North Africa. Policy responses in the GCC states focused overwhelmingly on short-term measures as officials acknowledged the social and economic roots of the political tensions. These included hand-outs of cash (Kuwait, Bahrain and the UAE), creating jobs in already bloated public sectors (Saudi Arabia, Bahrain, Oman), and raising workers‟ wages and benefits (Saudi Arabia, Oman). Together, they represented „tried and tested‟ measures designed to pre-empt unrest and secure short-term stability by throwing money at the problem. The scale of the spending is enormous. Saudi Arabia announced two emergency welfare packages collectively worth $130

billion. This figure exceeded every annual government budget until 2007 and included a provision to employ 60,000 additional Saudis in the Ministry of Interior alone. It also contained stipulations for increasing the minimum wage of public sector employees (but not private sector workers), offering a one-time bonus of a month‟s pay to all public officials, and constructing 500,000 new homes to combat a crippling shortage of social housing. In Bahrain, the Ministry of Interior promised to create an additional 20,000 new jobs in an already-bloated public sector, while in Oman, Sultan Qaboos announced 35,000 new public sector jobs as well as a pay increase, while leaving the private sector largely untouched. Yet the decision to intensify the politics of patronage by increasing the flow of unproductive payoffs to key sectors of society deliver damaging blows to the programmes of economic diversification launched in recent years in every GCC state. These intended to scale back the role of the state in the economy and boost the role of the private sector. Instead of strengthening the private sector and weaning citizens off public sector employment, the new packages expand government spending and widen an already-large discrepancy between the public and private sectors. In addition, they create hostages to fortune as they lock in government spending at very high levels that depend on the price of oil remaining high. Indeed the packages are fiscally unsustainable in the longer-term. Over the past decade, the break-even price of oil that Gulf economies require to balance their budgets has risen inexorably. In Saudi Arabia the increase has been from $20 to nearly $90 per barrel, with the Institute for International Finance forecasting a breakeven price of $115 by 2015. Bahrain already faces a break-even price exceeding $100 per barrel while even oil-rich Kuwait is approaching $80, well-up on previous

years. These high prices reflect in part the massive spending commitments made this year, but political sensitivities mean it is unlikely that governments will easily be able (or willing) to roll back the financial inducements at a later date. In distributive states that lack a participatory dimension it is far easier to give something than it is to take it away. Reinforcing the political status quo at best delays meeting the calls for change and leaves untouched the underlying challenges of resource depletion and the transition toward post-oil economies. All GCC states will face this transition sooner or later, with greatest urgency in Oman and Bahrain, which already obtains the majority of its oil (and resulting revenues) from an agreement to share Saudi Arabia‟s Abu Safah field. Preparing for the post-oil era was the purpose of the ambitious economic diversification programmes and national „visions.‟ However, buying support in the short-term only increases the challenges of transition in the long-term, with immediate needs of ensuring regime survival trumping those of genuine political and economic reformulation. This is most evident in Bahrain, where the government had invested heavily in diversifying into a regional tourism and financial hub based on the slogan of Business-Friendly Bahrain. In turn, it formed the cornerstone of the Bahrain Economic Vision 2030 drawn up by the Economic Development Board, headed by the reforming Crown Prince, Salman bin Hamad Al-Khalifa. However, these efforts were shredded as the regime fought violently for its political survival in the face of mass social opposition from February to June 2011. Political influence also shifted away from the Crown Prince toward his hard-line great uncle, Prime Minister Khalifa bin Salman Al-Khalifa. As with the wider Gulf region, businesses in Bahrain were only jus recovering from the effects of the global financial crisis in 2008-9. This had impacted its core real estate, construction, financial and 31

E X C H A N G E: The Magazine for International Business and Diplomacy

high-end tourism sectors. Following a year of recovery in 2010, businesses were expecting an upturn of growth in 2011. Yet the simmering tensions and continuing absence of a comprehensive political settlement are inflicting greater damage than the initial shock of the uprising itself. They signal to foreign investors and institutional partners that governmental claims of a return to normality rest on a fragile and transient veneer of stability.

August announcements by Volvo of the cancellation of its 2012 Golf Champions Tournament and by Credit Agricole of its plan to close its Bahrain office and relocate to Dubai are significant. Contrary to expectation, the majority of regional and international banks and businesses did not abandon Bahrain in March. Most investors adopted a „wait and see‟ approach that now appears to be wearing thin. An inconclusive national dialogue held in July and a


faltering Independent Commission do not hold out to investors the hope of any speedy resolution to the roots of unrest. Thus, the fallout from the impact of the Arab Spring is both political and economic, as contradictory internal pressures complicate and undermine policy responses to conflicting short - and longer-term goals of stability and reform.

A trade agenda for the ‘Arab Spring’ Global integration and the dangers of neoliberalism! Nasos Mihalakas

higher employment, and equal opportunities for all (a major demand of the people in the streets)? Three levels of economic activity, where trade plays a role


s developments unfolded in the Middle East and North Africa (MENA) during the past eight months, one thing has become abundantly clear: the political transformation will not survive without an economic transformation. Many analysts have pointed out that an overwhelming motivation of the people who took to the streets with the Arab Spring was the dismal economic and employ-ment condition on the ground; high unemployment among the young, crony capitalism, inefficient welfare state, and even food shortages. Therefore, the new regimes emerging from the Arab Spring will have to tackle the many economic problems that are plaguing the region. How do you promote economic growth in politically transitioning nations, like the ones of MENA? Which economic model should be implemented in pursuit of economic growth, 2

Any strategy for instituting political reform in MENA will have to include a strong consideration for economic reform, and in particular integrating the region into the global economy. The nations emerging from the Arab Spring need to reenergize entrepreneurial activities at the local level, strengthen the regulation of national markets, and facilitate exports through regional trade integration. At the local level, commerce always existed, especially in the Arab world with its strong cultural affinity for exchange and bargaining. What small and medium size local merchants need to grow and flourish is the freedom from government regulation /intervention, and the existence of an infrastructure system that only the government can create and maintain. In order to jump-start local markets and promote economic activity at the lowest level, the central government should transfer the administration and regulation of local markets to local authorities. This will allow for the more efficient operation of these local markets, and free the central government to tackle bigger issues. Thus, the collection of taxes and promulgation of licenses and local regulations should be performed at the local level, with respect to

these local markets and small/medium size companies. For its part, the central government should concentrate its efforts in providing the necessary infrastructure (roads and transportation systems, power grids, telephone, internet), and venues/methods for adjudication and dispute resolution (courts and other legal services) – all very necessary for the proper functioning of a local economy. It is imperative that small entrepreneurs have the necessary access to adequate transportation, consistent energy and upgraded for the 21st century communication systems – something only the central government can guarantee. At the national level, what applies for small companies and local markets should also apply nationally. However, it will be very challenging for a young democracy to both regulate and control large companies. After all, corruption at the top and exploittation of the public trust by the regimes of Tunisia and Egypt was in part what broke the proverbial camel‟s back and sent the people to the streets. In order for neoliberalism to succeed, it will have to apply to the large national companies and the national market as well, subjecting them to the same free market economic rules that the middle class had to live by during the past 20 years. Therefore it is imperative that any liberalization at the national level or any privatization of national companies be done slowly, methodically and very carefully. Shock therapy like the one used in


soviet Eastern Europe, and WB/IMF „one size fits all‟ economic policies which advocate for complete and unconditional liberalization of the market, will lead to the perpetuation of cronyism and the further enrichment of the current elite. For example, the government should scrutinize not only the selling/privatization of large and inefficient government companies, but also operation/management of large companies transitioning from national monopolies to market economies. At the international level, there are two trade-related strategies for growth; first, regional integration that focuses on movement of workers, goods, and capital; and second, preferential access to western markets through financial assistance from the WB and the IMF. Free movement of workers is imperative for a region that has a lot of jobs to offer in the oil and gas industry, but relies heavily on migrant workers from subSaharan Africa and Asia. The region needs a common regulatory system that allows for preferential working permits of Arab citizens wishing to move from non-oil producing countries (like Egypt, Syria, Tunisia, Morocco, Yemen, Jordan) to oilproducing countries, but does not extend citizenship rights. Such movement of workers could alleviate unemployment in

Exchange: Autumn 2011

some countries, grow production in others, and foster better understanding and cooperation among the otherwise culturally and religiously similar people of the MENA. Although many analyst hope that the Arab Spring will usher a new era of peace and democratic values for the region, some like Leon Hadar doubt that and argue that the Middle East should follow the ASEAN model of regional integration. (see: “The Middle East Needs an ASEAN”). Mr. Hadar argues that ASEAN is a mosaic of various political systems and old and new civilizations in various stages of economic development, which were brought together not by a common ideology, religion, or culture, but rather by their mutual economic and political interests. A free-trade zone for the MENA region (like ASEAN), based on the large and educated middle class of the region, could further grow the regional economy and provide many new employment opportunities. A role for the West

The best thing the west can do for the people of MENA right now is help them integrate into the global market… quickly but sustainably! Western nations should link democratic development with access

to western markets, and promise to deliver the benefits of preferential trade access to the people of those nations that embrace democratic values and democratic forms of governance. The promotion and facilitation of a regional trade agreement should be at the forefront of any western economic initiative about the Arab Spring. The question of how can the Bretton Woods institutions (WTO, IMF, WB) help the „Arab Spring‟ is hard to answer, considering that it was IMF and WB policies in the first place that led to imbalanced liberalization of the Tunisian and Egyptian economies, and the inevitable crony capitalism that has followed the application of neoliberalism in the Middle East. On the other hand, only the IMF and the WB can guarantee large-scale economic assistance. During the most recent G-8 summit (this past May) the G-8 countries pledged $20 billion of their own money to go along with $20 billion offered by the IMF and the WB, to support the Arab Spring. Although it is unclear whether that represents new money, or the re-branding of existing aid commitments, the amounts are quite significant. Debt forgiveness or renegotiation of past debts by the post Arab Spring governments should also be part of any IMF/WB strategy to help the region.

Closed shops from Arab Spring. Photo credit: Allvoices


E X C H A N G E: The Magazine for International Business and Diplomacy


Foreign direct investment in Egypt after the revolution: Prospects and policy recommendations Guoyong Liang


lobal flows of Foreign Direct Investment (FDI) rose 5% to $1.2 trillion in 2010. For the first time, developing and transition economies as a whole absorbed more than half of the world’s FDI. However, various developing regions showed divergent performance: East Asia, South-East Asia and Latin America experienced strong growth in inflows, while those to Africa, South Asia and West Asia continued to decline. As one of the leading FDI recipients in its region, Egypt saw FDI inflows slumped during and after the revolution. Nevertheless, the long-term prospects remain positive, and considerable opportunities exist both internally in the post-Mubarak Egypt and externally in the post-financial crisis global economy. To seize these opportunities, substantial policy reforms are needed. FDI to Egypt: before and after the revolution

Despite a slight decrease in FDI inflows, Egypt ranked No.3 among all host countries in Middle East and North Africa in 2010 (figure 1). The country emerged as an important FDI recipient in the mid-2000s: inflows boomed during 2004-2006; and its share in total inflows to Africa rose from the annual average of 3% during 20012003 to 22% in 2006 (figure 2). However, FDI inflows have gradually declined since then, in both absolute and relative terms. A sudden shock is inevitable in 2011. During the revolution, political turmoil significantly affected foreign investors’ confidence and their motivation to invest in Egypt; afterwards, instability continued to deter investment. The high level of perceived risks had a strong impact on corporate strategies and practices – new investments halted and divestments occurred. As a result, FDI inflows to Egypt turned negative in early 2011. According 34

to the Central Bank of Egypt, a total of US $1.97 billion FDI fled out of Egypt during the first quarter of 2011, leading to negative net inflows of US$163 million. This is in sharp contrast to positive inflows of US$656 million in the last quarter of 2010. Medium-term prospects in FDI inflows to Egypt are uncertain, depending on how long the ongoing political transition will last and when a functional democratic institution will be established. Nevertheless, long-term prospects are still positive, as economic fundamentals remain and the general direction of political changes is encouraging. More importantly, the revolution has provided an opportunity for reshaping the Egyptian economies system and establishing a market-based, developpment-oriented policy framework. As long as the country regains its political stability, reforms its economic system, and puts an enabling investment climate in place, FDI will come back in a big way. A new approach to FDI is called for

Mubarak regime’s inability to provide basic services and indifference to widespread unemployment and persistent poverty have led to the revolution. Today, the old regime has been thrown away by Egyptian people, but the economic, social and political challenges remain intact; some even become worse due to the shortterm shocks, such as that on the tourism industry. Currently, there are diverging views and hot debates on the economic strategies that a new Egypt should adopt. What is neglected, but I believe is important above all is that Egypt needs a developmental State, which can design and implement a development strategy suitable for the country. For decades, there were too many internal and external constraints for Egyptian people to choose such a strategy. Now it is the time to do so.


Concerning FDI, the new generation of Egyptian policy makers should take the opportunity to make changes happen. First, they need to emphasize quality rather than quantity in their future investment promotion efforts, thinking about how to attract “quality FDI”, leverage resources of multinationals, and make their investments create more jobs and contribute to income growth and poverty reduction. Second, they need to consider how to invest in human resources and infrastructure, and therefore enhance the location advantages of Egypt to match the ownership advantages of multinationals. Last but not least, they need to devise a long-term strategy on FDI in line with the country’s overall approach to development. This long-term strategy should be supplemented by shortterm tactics on how to target leading investors, kick off pilot projects, enter niche markets and upgrade afterwards. Some lessons from Asia can be learnt. Studies on the so-called “East-Asian Miracle” demonstrates that, despite the diversities, the economic success of Asian tigers was largely driven by a developpmental State that put development at the centre of its policy agenda, collaborated with the private sector, and supported its expansion. The Asian experience also shows that manufacturing is the key and domestic productive capacities are crucial for entering into a sustainable path of inclusive growth and poverty alleviation. FDI can play an important role in this regard, as highlighted by the experience of China and a number of South-East Asian countries, such as Malaysia and Thailand. Rebranding Egypt to seize new opportunities

Against the backdrop of the financial crisis, global economic landscape is being reshaped. Massive off-shoring of manufacturing to East Asia slows down. Meanwhile, emerging economies have become important international investors. Asian countries like China now face rising production costs and over-capacities in a range of industries, and are in a process of rapid industrial upgrading. As a result, the relocation of productive capacities takes place both within East Asia and beyond. This provides opportunities for Egypt. For example, a contract manufacturing project run by such Asian companies as Foxconn and Flextronics may employ tens of thousands of workers. By attracting such kind of investments, Egypt will be able to relieve its pain of youth unemployment. Large infrastructure projects can play the

Exchange: Autumn 2011

same role, and foreign investment can also be mobilized through various public-private-partnership arrangements. For such useful investments to gain momentum, rebranding Egypt as an attractive location and regional hub for FDI is a first step. As young men on the streets move to factories and construction fields, a major demographic challenge to the Egyptian economy, namely a surge in young unemployed population, will be turned into an advantage. Here, what makes difference

between an asset and a liability is a visionary and effective policy. It is my sincere hope that such a policy will be put in place and help foster a democratic and prosperous Egypt in the not too distant future. (The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, UNCTAD.)

Figure 1.Top five FDI recipients in Middle East and North Africa, 2010 (Billions of dollars)

2010 2009

Saudi Arabia Turkey Egypt Qatar Israel -








Source: UNCTAD.

Figure 2. FDI inflows to Egypt, 2001-2010 (Billions of dollars and per cent)


14 12


10 15%



6 4




2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 FDI inflows to Egypt

Share of Egypt in Africa

Source: UNCTAD.


E X C H A N G E: The Magazine for International Business and Diplomacy

IBDE Events

Financial Markets: A Gateway to Balkans Prosperity EU-Balkans Discussion Group – 5th Luncheon Polish Embassy, London, 20 July 2011

to be the most attractive opportunities from the London Stock Exchange perspective. Particularly, at a time of turbulent financial crisis, equity, according to Dr Hayes is more resilient than debt. Dr Hayes noted that given the strategic location of the region, its richness in natural resources including the energy potentials in hydro-power, wind power and solo-power as well as potentials in investing in infrastructure and tourism, the finance to further develop such important sectors for the region has to come from equity investors. According to him international financial markets could also provide equity to enhance the economic development in the region considering that there are numerous companies, some in the public sector that will need to be modernised in order to strengthen their activities in an ever-increasing competitive environment. Therefore the London Stock Exchange perspective is that the opportunities of using equity as a part of the privatisation model – which can still allow some degree of control of the national identity – could be the way forward.

The fifth working luncheon of the EU-Balkans Discussion Group was hosted and chaired by Her Excellency Barbara Tuge – Erecińska Ambassador of the Republic of Poland at the Polish Embassy, London, on 20 July 2011, as a follow up of the fourth meeting of 21 March 2011 hosted and chaired by the Hungarian Embassy. Regional economic and political cooperation and sustained foreign direct investment, as noted by Ambassador Tuge-Erecińska, and further elaborated by the IBDE Chief Executive, are necessary for further integration of the local economies of the Western Balkans into the European economic and political structures. In light of this, Mr Peter Hayes, Head of Public Affairs of the London Stock Exchange and Advisory Board member of IBDE was invited to talk about how financial sector can promote public/private sector development in South Eastern Europe and the role of Stock Exchanges in facilitating the process. The meeting noted that the Polish Presidency has put EU Integration and the economic growth at the top of their agenda and in this context Poland - with its vast experience on the subject of EU integration – could be of great support and benefit to the countries of the region in their path towards European integration. The meeting took the opportunity to congratulate Croatia and Hungary for concluding negotiations on the Accession Treaty for Croatia. Dr Peter Hayes, Head of Public Affairs of London Stock Exchange and IBDE Advisory Board Member, noted that talking about financial markets in the Balkans is particularly relevant because the Balkans is a crossroad of cultures, civilizations, and it seems that after years of struggle now is a time of opportunity for the Balkans. In terms of foreign investment, equity investment seems 36

The meeting also noted that some of the companies in the region might have difficulties with listings on various exchanges. It was also suggested that smaller family businesses and medium sized companies from the UK/EU should be encouraged to explore the opportunities in the region. The potential for investment in pension funds, inward investment and the high quality of the labour markets in the Balkans were raised too. The meeting concluded that the raising of awareness of business opportunities, visibility and points of perception (one of the objectives of the EU-Balkans DG) together with the governmental support in the region in providing a friendly and well regulated business environment and the highest standards of corporate behaviour, should allow the Western Balkans in partnership with the international markets to unlock the potential and enhance the economic development of the region. The luncheon was attended by the Ambassadors and other senior diplomats of EU-Balkans including Turkey, as well as directors from FCO, UKTI, London Stock Exchange, HSBC, EBRD, DMA ... The “EU-Balkans Discussion Group” meetings, as an initiative of the IBDE - an NGO based in London, are designed to support and promote regional cooperation and the socio-economic developpment of South East Europe with the support of EU and Balkans Embassies in the UK for the benefit, in particular, of the countries of the Western Balkans and the EU. In this regard the project aims to focus on regional cooperation, providing a regional approach for trade and/or investment, in order to maximize its common regional appeal to the wider multinational business community. To register your interest please send your email, name, position and affiliation at

IBDE Events

Exchange: Autumn 2011

EU-Balkans Discussion Group – 5th Luncheon - Polish Embassy – 20 July 2011


E X C H A N G E: The Magazine for International Business and Diplomacy

IBDE Events

Project Finance considerations for infrastructure financing in South Eastern Europe EU-Balkans Discussion Group – 6th Luncheon German Embassy, London, 20 September 2011

Group luncheons which aim to strengthen regional cooperation as well as to explore and evaluate the potential for public/private sector investment in South East Europe, are also useful in providing potential investors an opportunity to network with likeminded business leaders from the region who are seeking foreign capital. In this context, he expressed delight that one of the speakers was already operating in the region and the meeting was an excellent opportunity for the speaker to present his project before participants.

Ambassador of the Federal Republic of Germany, His Excellency Mr Georg Boomgaarden and the Chief Executive of IBDE, Mr Rudi Guraziu, hosted a luncheon for the EU-Balkans Discussion Group at the German Embassy on 20 September. Forty participants from the diplomatic and business communities listened to presentations by Ms Lin O'Grady from the European Bank of Reconstruction and Development, Mr Carsten Conrad from Tirana Business Park, and Mr Pierre Kahn from Deutsche Bank, and engaged in a lively discussion about opportunities for infrastructure development in South Eastern Europe. The event was the sixth in a series organised by IBDE in cooperation with the European Embassies. The German Ambassador emphasised the strong support for the European prospects of the region stating that after the horrors of war witnessed in the Balkans during the 1990s it is encouraging to see that today’s Balkans is viewed as a region of business opportunities and investment potentials. Following the welcoming remarks by the Ambassador, Rudi Guraziu briefed participants on the working of the Group noting that the EU-Balkans Discussion

Lin O’Grady - from the Municipal and Transport Team at EBRD - outlined EBRD goals in supporting the development of the market economies and democracies. Ms O’Grady noted that most of the work of EBRD in the Balkans has tended to go to public sector companies rather than the private sector, although the main objectives of the bank are to support the growth of the private sector. She outlined the criteria that the projects need to meet to qualify for EBRD financing; i.e. a project must support sound market economies and democracies; it inherently needs to support the development of private sector (something very important to EBRD) and it has to strengthen sustainability, because of the banks environmental mandate. According to her since 1991 EBRD has financed over 3100 projects - a total volume of 170 billion Euros. In the transport sector typical projects are road rehabilitation/ reconstruction and railway renewal/refurbishment (bringing railway companies within European norms). The bank on this date of the meeting (20 September 2011) signed a loan of 100 million for Macedonia to finance a key section of corridor 10 from Serbia, Macedonia into Greece. In financing ports, rehabilitation is ongoing in Croatia and Montenegro, as well as the port of Durres in Albania. Financing is also ongoing at airports in Montenegro and Zagreb (Croatia). In the municipal sector EBRD works with the European Union on co-financing, including the rehabilitation of water and waste water systems. Public-Private-Partnerships come into bank’s financing of urban transport systems, including rehabilitation of roads. We also do financing of district heating systems. In terms of the fund allocation, EBRD commits around 500 million Euros to this region each year, amounting to at least about 5 significant projects. Finally, Ms O’Grady added that a small amount of EBRD’s portfolio is channelled into financing waste fields, including one in Croatia. Carsten Conrad - Tirana Business Park General Manager - spoke about “Bridges between Infrastructure Development and Private Foreign Direct Investment [PFDI]" and focused on: a) Infrastructure essentials/necessities in order to attract PFDI (i.e. road networks, airports, railways, public transport etc) b) Infrastructure components (or the lack of it) which could be subject to the PFDI in liaison with authorities (i.e. water treatment plants, power distribution, IT supply etc) and c) Monetary impacts on the PFDI and approaches to funding.


IBDE Events

Mr Conrad noted that the Lindner Group - a family-owned Bavarian company that he represents had gained substantial experience in the region through their completed projects in Sofia when Bulgaria was in the process of EU accession 15 years ago and their current involvement in Albania. As a serious investment group, he noted that they are particularly focused in South Eastern Europe, developing projects related to long term investments, a belief by the Lindner Group in the positive prospects of the region. Two years ago Lindner Group acquired 20000 square meters of land very close to the airport in Tirana where there is an increasing demand for office space, and where the company plans to deliver the Tirana Business Park. This, he noted, covers a concept of work-life balance to deliver office space of western European standards at stable and competitive prices. As the General Manager of Tirana Business Park, he emphasised that Albania offers a young, vibrant and very educated population - a country eager to attract foreign direct investments. Therefore, according to him, despite some problems, it is very possible to see great business possibilities in Albania and the region as a whole. Pierre Khan - Deutsche Bank - added a keynote on the financing of infrastructure, covering various sectors and the issues they share in common: these assets tend to be very important to stabilise key elements of the economy; money has to come up-front and over a period of many years, be repaid and pay a dividend to investors. He stated that heavy infrastructure investments are fundamental to national economies and often tend to be regulated industries. As such, they are very important to governments which have a significant role in creating a supporting framework for those assets. According to Mr Khan corporate finance is one way to finance infrastructure projects, but often good assets have the attractiveness to be financed on the public finance basis. They also tend to be relatively complex, particularly in the case of large projects and that means that they require the support structures. There is also an element of evolving risk over the life of the project, starting from the construction period, including design, and technical risks. Once built, a different type of risk emerges: operating the asset, maintaining that asset, effecting the revenues you projected to get and the actual amount you get. Mr Khan further noted that in project finance it is very important to identify the risks and mitigate them. In terms of general requirements for project finance, it is crucial to have transparency in the system with a stable legal framework, contracts and tax environment. And in the case of taxes, if they change, it normally has an effect on the cash flow. One also needs functioning and supportive institutions. These projects tend to take a long time, sometimes over election cycles, and often political priorities change. Therefore it is important that governments provide a stable economic environment to get the long term confidence of investors.

Exchange: Autumn 2011

The luncheon was attended by the Ambassadors and other senior diplomats of the EU-Balkans (including Turkey) Embassies plus, FCO, EC Representation, City of London Corporation, HSBC, London Stock Exchange, Visa Europe, EBRD, Ernst & Young, ICC, BBC, Thomson Reuters, The Economist amongst others. Attendance at events in this series is by invitation only. VIP Luncheons are open to the Ambassadors of EU-Balkans (including Turkey), EC, FCO, UKTI Directors and business leaders. Invitations are extended to CEOs, CFOs, COOs, EDs, MDs, DGs, senior board members, decision makers and strategists from blue-chip companies interested in, or already investing in South Eastern Europe. To register your interest please send your name, position and affiliation to

One of the issues raised at the meeting (by James Robin diplomatic correspondent of BBC News) was the unfolding events in the Arab Spring and whether this new environment could put the South Eastern Europe at risk, considering that banks such as EBRD are looking to explore the new business opportunities in these new emerging democracies. Oleg Levitin from EBRD noted that while it is true that EBRD is looking for ways to engage in the Middle East and North Africa, because the bank feels they can play a positive role in stabilising such important regions, the bank’s main attention and focus nonetheless will remain Eastern Europe, Caucasus and the Balkans. The meeting also noted that other actors than EBRD play a major role in the overall development of the region such as European Commission and European Investment Bank. In this regard, the Western Balkans European perspective is seen as the only serious incentive for the necessary political and economic reforms in the region, and this is also the strongest tool in making investment in the Western Balkans more attractive to foreign investors with long-term investment strategy. Finally the meeting discussed the ways that would make the upcoming Western Balkans Investment Forum a success!

Mr Carsten Conrad 39

E X C H A N G E: The Magazine for International Business and Diplomacy

The Culture Exchange

The Culture Exchange sees in the 2011-12 London arts season a bill of fare to please the most discerning international palette

Opening on November 4th at the Theatre Royal Haymarket Robert Lindsay and Joanna Lumley will set the audiences roaring as Trevor Nunn directs “The Lion in Winter”.

Old Vic Theatre presents one of Ireland’s greatest playwrights, J.M. Synge, in his masterpiece, “Playboy of the Western World”, until the end of November.

A family Christmas becomes a family at war. Henry II, not so young as he was, invites his estranged wife Eleanor of Aquitane, and his three sons, Richard, Geoffrey and John, to spend the festive season with him, his mistress Princess Alais, and her brother, the young King Philip of France. Will Henry name who is to be his successor as King of England? Their yuletide celebration turns into a combat zone of deceit, betrayal, bitter power games and scabrous wit.

This savagely funny Irish classic was first produced in 1907 and was met with rioting and controversy when it premiered, sending shock waves across the dramatic world.

"I am excited to be directing the London premiere of a famous play about a power struggle full of sexual politics and political sex, with two such brilliant actors as Robert Lindsay and Joanna Lumley." - Trevor Nunn (

National Theatre will be staging a unique event at its Lyttelton Theatre starting in November - dramatic readings of the King James Version of the Bible: the New Testament. While the National Theatre’s production of “War Horse” (New London Theatre) continues to be one of the best shows season after season, this season’s massive hit “One Man, Two Guv’nors” (based on the Goldoni commedia classic) will transfer to the Adelphi. (www.nationaltheatre.

One Man, Two Guvnors, Photo credit: Johan Persson 40

Set in a small village in the west coast

of County Mayo, The Playboy of the Western World is a lyrical comedy which tells the story of lonely dreamer Christy Mahon who wanders into a pub, claiming that he has killed his father. Captivating the locals with his tale of bravery he becomes an instant hero but it turns out that there's an unexpected twist in his tale. ( In December Donmar Warehouse brings a Shakespearean blockbuster to its intimate space: “Richard II”, starring Eddie Redmayne, the young Tony Award winner (Donmar’s Broadway transfer of “Red”). Anyone who was lucky enough to have seen Sir Derek Jacobi’s “King Lear” last season will know just what amazing things the Donmar can do with the immortal bard. ( The Royal Opera House will wrap up the year with the uplifting Wagnerian masterpiece, “Die Meister Singer von Nurnburg” in November and December at the opera. For those who want a change from the “Nutcracker” the Royal Ballet will present a beautifully balanced triple bill with Ashton’s “Enigma Variations, Kenneth Macmillan’s wartime setting of Poulenc’s “Gloria” and “Asphodel Meadows” which won rising choreographic star Liam Scarlett the Classical Choreography award 2010 from the Critic’s Circle national Dance awards. (

Exchange: Autumn 2011

The Culture Exchange

At the Coliseum the English National Opera will bring “Der Rosenkavalier” to the festive table with a giant of British opera, John Tomlinson, as Baron Ochs. You can brush up your English as all ENO productions are sung in translation. (

Back at the Royal Opera House make a note in the diary for March - a treasure from Eastern Europe - Dvorak’s “Rusalka”. And to lift the February gloom, another icon of the British vocal tradition, Thomas Allen, will take up one of his signature roles, Don Alfonso, in Mozart’s “Cosi fan Tutte”. Get set for lots of fun with those handsome “Albanians” in this delicious comedy masterpiece featuring some of Mozart’s most luscious music. Up at Sadler’s Wells Theatre the major venue for cutting edge dance, November 6-12 will feature the Cloud Gate Dance Theatre of Taiwan - a company which builds on the greatest strengths of traditional Chinese aesthetics in bringing their own unique vision of contemporary dance to the stage. (

Elizabeth harrod in TheNutCracker Photo ROH, Johan Persson

On the classical music scene, the Wigmore Hall, one of London’s architectural treasures, launches a year-long celebration of Ravel’s creative life in music beginning with the Artemis Quartet on the 3rd of December. February 11th the doyenne of British sopranos, Felicity Lott, is joined by the Nash ensemble for a program of Wagner, Mozart and R Strauss. On 26th February the Chilingirian Quartet presents Hayden, Ravel and Brahms in their 40th anniversary concert while April brings the Tokyo String Quartet. Mark your calendars for May 8th: the internationally renowned pianist, Mitsuko Uchida will join forces with mezzo-soprano Magdalena Kozena for Debussy and Messiaen. (

Photo credit: Liu Chen-Hsiang


E X C H A N G E: The Magazine for International Business and Diplomacy


The Beravales’ garden party Diplomats from various continents attended the Beravales’ annual summer champagne garden party at their residence in Woking. Photographs by Roland Kemp


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the balkans poised for investment in the energy sector



Exchange Autumn isuue 2011  

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