Date: 5 December 2005
 
Speaker: Steven Fries, Acting Chief Economist, European Bank for Reconstruction and Development
 
 
Steven Fries, Acting Chief Economist at the European Bank for Reconstruction and Development (EBRD), presented the latest issue of the Bank’s Transition Report during a CEPS lunchtime meeting on Monday 5 December.
Fries first explained the methodology of the study, pointing out that the analysis of the macroeconomic indicators had been complemented by interviews with nearly 10000 businesspeople across the region, who were asked about their perception of the business environment in the respective countries.
The overall picture that came out form the survey is one where the situation is improving, but where significant obstacles remain.
For the purpose of the study, the transition region was divided into three main groups of countries, the Central European and Baltic countries (CEB), that is, the 8 countries that joined the EU on May 2004; the southern east European (SEE) ones, and the ones in the community of independent states (CIS). The countries in the first group were, after the break that coincided with their accession to the EU, moving forward again on the path to structural reforms. The drive for such reforms has however changed: it no longer is the goal of qualifying for accession, but rather market considerations about the competitiveness of the economy. On the contrary, during the last year a marked slow down of the pace of reform could be noticed in the countries in south east Europe, with the exception of Serbia and Montenegro. In the CIS region the picture was more mixed, with progress in reform more widely and evenly distributed across the spectrum, but with different factors driving the reforms, and with some countries performing remarkably worse than others. This was the case with Russia, where the achievements in reforming the banking sector have been offset by the backward steps taken with regard to large privatizations. Generally speaking, Fries drew on the examples of the Rose and Orange revolutions to argue that political contestability, i.e. the possibility of changing the decision-makers through regular elections, was one of the main determinants of reform. Looking specifically at the macroeconomic aspects, 2005 could be considered as a good year for the region as a whole (although not as good as 2004), characterized by a slowdown of investment growth, but with booming consumption and a record level of foreign direct investment.
These indicators were by and large reflected in the opinions of the interviewed businesspeople, who perceived an improvement of the business environment, with fewer obstacles on most scores (corruption, regulatory framework, progress towards the market economy benchmark inter alia) and a deterioration only in the field of labour regulation (with much of the disappointment concentrating in the EU8 group).
Two other relevant findings were that foreign and private firms were generally more productive than state-owned firms, since they were continuously prompted by competition to increase their efficiency. For the same reason, exporting firms were on average 16% more productive than non-exporting ones. Therefore, Steven Fries concluded by indicating the removal of barriers to trade, and, generally speaking, economic openness, as two of the key factors for the development of countries in the region.
 
See the slides of Dr. Fries’ presentation.