Pocketbook: Competitiveness in South East Europe 2018

Competitiveness
in South East Europe
A POLICY OUTLOOK 2018
Pocketbook
Competitiveness and Private Sector
Development

“This pocketbook presents a salient summary of the
OECD flagship publication Competitiveness in South
East Europe: A Policy Outlook 2018, which analyses
economic governance, regulation and investment in
South East Europe and forms a critical body of work
to support structural reforms that can foster inclusive
growth and improve people’s lives. While the region
is still beset with slow annual growth rates and an
average GDP per capita at only one-third of the EU’s,
there has been a noted increase in intergovernmental
co-operation. Conclusions from the Outlook emphasise
that reform progress, though somewhat asymmetrical,
can be clearly observed across the 17 assessed policy
dimensions. These results are encouraging and I
recommend the Competitiveness in South East
Europe: A Policy Outlook as a resource to be shared
for all those interested in forging more inclusive,
prosperous, sustainable and resilient economies for the
people of South East Europe.”
Angel Gurría, OECD Secretary-General

‘’Economic development in South East Europe is
fundamental for a common European future and is
the basis for the wellbeing of all its citizens. This
publication offers a comprehensive analysis of the
economic governance and performance of the region.
It clearly highlights the progress achieved and its
potential for further improvements. For the region to
reach its full economic potential, a growth-oriented
policy approach is needed, with an emphasis on
structural reforms. The European Commission
supports its partners in this endeavour through the
annual Economic Reform Programme exercise. The
Competitiveness Outlook is a useful tool for them
as they identify their own needs and priorities going
forward.”
Christian Danielsson, European Commission Director-General
COMPETITIVENESS IN SOUTH EAST EUROPE: A Policy Outlook . 1

SOUTH EAST EUROPE
South East Europe Trends6
OECD South East Europe Regional
Programme8
Methodology 10
Development Milestones12
Participatory Assessment13
POLICY DIMENSIONS
2 . COMPETITIVENESS IN SOUTH EAST EUROPE: A Policy Outlook
Investment Policy
and Promotion 16
Trade Policy
and Facilitation20
Access to Finance24
Tax Policy28
Competition Policy32
State-Owned Enterprises 36

CONTENTS . 3
Education
and Competencies 40 Environmental Policy64
Employment Policy44 Agriculture68
Science, Technology
and Innovation 48
Tourism72
Digital Society52 Public Services76
Transport Policy
and Performance 56
Anti-Corruption Policy80
Energy Policy 60

SOUTH EAST EUROPE . 5
SOUTH EAST
EUROPE

can be achieved by implementing strategic
reforms across a variety of areas key to
competitiveness, such as transport, education
or trade.
2018 therefore presents an important window of
opportunity for South East Europe. Surrounded
by EU member states and linked through a
common heritage and history, the region’s
prospect for integration into the European Union
and its shared goals of peace, prosperity and
stability become fused.
In recognition of the region’s strategic
importance, the European Commission has
adopted a new enlargement perspective which
emphasises structural reforms as the driving
force towards European Union accession.
Building on this new momentum, the economies
of South East Europe are committed to an
accelerated reform process aimed squarely
at reinvigorating competitiveness for a more
dynamic and innovative economy.
In the wake of Yugoslavia’s disintegration and
the transition towards a free market economy,
the SEE region faced a decade of conflict and
economic stagnation.
At the turn of the new millennium, the return of
peace laid the foundations for regional stability
and economic growth. However, the 2008 financial
crisis hit the region hard: GDP fell in 2009 and
growth remained sluggish for years afterwards.
A decade after the crisis, a return to economic
growth brought with it new investment
opportunities. Despite progress, the region’s
economic development today is less positive
than in neighbouring transition economies.
Weak implementation and inadequate
monitoring continue to hamper structural
reforms, while human capital and labour market
deficits limit the capacity for economic growth.
South East Europe needs to improve its
competitiveness in the institutions and policies
that most affect economic development. This
SOUTH EAST EUROPE TRENDS
A common European future

Through their pledge of further economic
reforms and in view of European Union
accession, the SEE region today stands poised
CHALLENGES AND OPPORTUNITIES
to embrace a common European future built on
the promise of shared prosperity and inclusive
economic growth.
Building a new growth model: Competitiveness in South East Europe
Building a new growth model for the region hinges on raising the competitiveness
of SEE economies. Enhancing competitiveness is essential for the region to move
up the economic value chain, connect with regional and global markets and escape
the“middle-income trap”which will generate strong and sustainable prosperity.
In order to support this transition, SEE governments will need to tackle some
common cross-cutting challenges such as:
l weak policy design co-ordination and implementation
l human capital and labour market deficiencies
l inadequate transition towards a knowledge-based economy
l barriers to business financing and misalignments in the tax system
l an uneven playing field for economic actors
l insufficiently integrated regional trade, transport and energy networks
l a lack of environmental considerations in economic and sectoral policies.
In view of these challenges the report offers key findings and recommendations,
including how current policies can be improved to support economic
governance reform and how policy makers can draw on regional experience to
tailor solutions that better serve local communities.
Towards EU accession:
a window of opportunity
Renewed momentum towards EU
accession presents an important
window of opportunity for SEE
economies to jointly address
challenges within the framework of
a regional growth strategy.
SEE economies can leverage important
resources along the way including:
l access to EU structural funds to
support the integration process
l proximity to the world’s largest
single market, i.e. nearly 500
million consumers
l EU research funds and network,
such as Horizon 2020
l a political environment conducive
to the resolution of bilateral issues
and good neighbourly relations.

OECD SOUTH EAST EUROPE REGIONAL PROGRAMME
A partnership for prosperity and stability
The OECD SEE regional programme is part of the Global Relations Secretariat which
supports the Secretary-General in advancing the Organisation’s global reach.
The OECD has been working with South East
Europe since 2000 to develop and successfully
implement policies for private sector
development and investment in order to unleash
economic growth and promote competitiveness.
The co-operation between the OECD and key
regional stakeholders is based on a strong
dialogue at the technical and political level, and
on its capacity to produce impartial, high quality
analyses.
As a result of the joint work with regional
counterparts, the programme has
produced actionable policy reports with
recommendations for future policy actions
and helped design and implement reforms
to strengthen private sector development,
competitiveness and to raise living standards.
www.oecd.org/south-east-europe

A TOOL FOR MONITORING PROGRESS IN BUILDING COMPETITIVE ECONOMIES
The second edition of the Competitiveness in South East Europe:
A Policy Outlook offers the most wide-ranging assessment of
economic policy performance in theWestern Balkans to date.
SpanningsixSEEeconomies: Albania, Bosnia and Herzegovina,
the FormerYugoslav Republic of Macedonia, Kosovo,*
Montenegro and Serbia, the publication forms a critical body of
work to support structural reforms in the region.
l composed of 17 policy dimensions key to economic
competitiveness
l draws on in-depth evidence-based analysis resulting in
concrete and implementable policy recommendations
l builds on a highly participatory evaluation process
*This designation is without prejudice to positions on status, and is in line with United Nations Security Council Resolution 1244/99 and the Advisory Opinion of the
International Court of Justice on Kosovo’s declaration of independence.
l offers a road map for regional economic policy reforms
l acts as an important reference for the European Commission
to support the EU enlargement process
l is a catalyst for inter-ministerial co-operation and intra-
regional integration
l offers guidance for investors to make educated
investment decisions
l establishes a toolkit for donors and international
development agencies to prioritise funding choices
l amasses a complete body of knowledge contributing to
academic scholarship, research and debate.

METHODOLOGY
Scope
In order to boost an economy’s competitiveness,
policy reforms need to build on each other and be
co-ordinated across different areas, rather than
be conducted in isolation. Acknowledging this
holistic imperative and seeking to provide policy
makers with a single window through which
Methodology
The Competitiveness Outlook’s methodology
was created to provide an evidence-based
assessment of progress in the design and
implementation of policies that enhance an
A holistic view of competitiveness
to assess and, if necessary, re-adjust policies
favouring competitiveness, the Competitiveness
Outlook 2018 encompasses 17 policy dimensions,
grouped into four key pillars (Business
environment, Skills and capacity, Economic
structure and Governance) which are crucial for
strengthening competitiveness.
economy’s competitiveness. It is based on a list
of indicators which have been tailored to each
of the 17 policy dimensions, and implemented
through a highly participatory process involving
more than 1 000 local stakeholders.
BUSINESS
ENVIRONMENT
Investment policy
and promotion
Trade policy and
facilitation
Access to finance
Tax policy
Competition policy
State-owned enterprises
SKILLS
AND CAPACITY
Education and
competencies
Employment policy
Science, technology and
innovation
Digital society
ECONOMIC
SECTOR
Transport policy and
performance
Energy policy
Environmental policy
Agriculture
Tourism
GOVERNANCE
Public services
Anti-corruption policy

on critical areas and integrate additional OECD
tools. The set of indicators used for each of the
policy dimensions can be found in the assessment
framework included at the start of each chapter.
Policy dimension and sub-dimension average
scores are attributed by calculating the simple
average across the relevant qualitative indicator
scores. Indicators are not weighted because the
importance of each indicator will be different
for different stakeholders. Average scores should
therefore be interpreted with caution and taken
only as a rough indicator of policy development.
The overall assessment approach
Each policy dimension has two to five sub-
dimensions that highlight the key elements
of that policy area. The sub-dimensions are,
in turn, made up of a total of more than 600
individual indicators, both quantitative and
qualitative, which capture in detail the design,
implementation and performance of policy
settings, processes and institutions.
This publication has taken the indicators from
the Competitiveness Outlook’s 2016 edition and
refined them further in order to increase the focus
17 policy dimensions
Policy dimension
Sub-dimension 1
Qualitative indicators
Quantitative indicators
Sub-dimension 2
60+ sub-dimensions 600+ indicators

DEVELOPMENT MILESTONES
The OECD South East Europe regional programme, in consultation with
regional organisations and networks, and OECD experts from specialised
directorates, develop an assessment framework composed of
qualitative and quantitative indicators.
The OECD analyses information and drafts the Competitiveness in
SEE Policy Outlook with input from regional organisations and OECD
experts.
Governments conduct self-assessments and the OECD carries out
independent assessments in parallel.
The OECD organises meetings in each SEE economy to reconcile discrepancies
between the draft government self-assessments and the draft OECD independent
assessments and to fill any remaining information gaps. Participants include regional
organisations, government representatives, the private sector, academia
and independent experts. These meetings are followed by the SEE
Competitiveness Outlook Week, which brings stakeholders from across
the region to the OECD in Paris to discuss findings at the regional level.
Final analysis
and drafting
Reconciliation
Assessment
Assessment
framework
development
Competitiveness in South East Europe
A Policy Outlook
1
2
3
4
5

PARTICIPATORY ASSESSMENT
Assessment process for the qualitative indicators
The scores of qualitative indicators are determined through two parallel but
complementary assessments.
The government self-assessment are completed
by different agencies and ministries involved in
policy development and implementation of each
dimension.
The independent assessment (carried out by
country consultants) serves as a framework of
checks and balances against the government
assessment.
The report ensures inclusiveness by taking
into account the views of a multiplicity of
stakeholders, especially the private sector, civil
society, academia and expert observers, as well
as other relevant stakeholders.
Taken together, the Competitiveness in South
East Europe: A Policy Outlook 2018 is a singular
resource to be shared widely for all those
interested in building a more inclusive and
prosperous SEE region. It is our sincere belief
that through fact driven analysis and evidence-
based reforms, South East Europe will emerge
stronger, more resilient and ready to compete in
the global economy of tomorrow.
A methodology combining quantative data to measure
impactwithqualitativescorestoanalysepolicysettings
Measure policy settings, processes and institutions, asking
whether these exist and whether they have been adopted,
implemented, monitored and regularly updated.
Assess input factors into policies, processes of policy making,
institutional conditions, and policy outputs.
Level 0 No framework
Level 1 Draft or pilot framework
Level 2 Framework is in place or operational
Level 3 Implementation of policy framework is advanced
Level 4 Evidenceofframeworkmonitoringandreadjustment
Level 5 Independent impact evaluation; good practices

POLICY DIMENSIONS . 15
POLICY
DIMENSIONS

Investment is central to
economic growth and sustainable
development. It expands an
economy’s productive capacity,
drives job creation and secures
overall competitiveness. To these
ends, the investment policy and
promotion dimension examines
the existence of policies for market access
and exceptions to national treatment, investor
protection and intellectual property rights. With
regard to investment promotion, the dimension
assesses strategies and institutional frameworks,
investment promotion activities,
investment facilitation services
and measures to promote linkages
between foreign and domestic
firms. Across the assessed SEE
economies, flows of foreign direct
investment (FDI) have increased in
the last decade, indicating a more
favourable business environment for foreign firms.
Moreover, procedures for setting up companies
have been streamlined. Despite progress, more
could be done to further strengthen the linkages
between foreign and domestic firms.
KEY STATISTICS
FDI inflows as a percentage of GDP, 2000-2016
Note: Data for Kosovo are available from 2007 to 2015; data for Montenegro and Serbia are available from 2008.
Source: UNCTAD (2017), World Investment Report 2017: Investment and the Digital Economy, http://unctad.org/en/pages/PublicationWebflyer.aspx?publicationid=1782;
for Kosovo:World Bank (2017), World Development Indicators 2017, https://openknowledge.worldbank.org/handle/10986/26447.
INVESTMENT
POLICY PROMOTION
0%
5%
10%
15%
20%
25%
30%
35%
40%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
ALB BIH KOS
MKD MNE SRB

INVESTMENT POLICY PROMOTION . 17
OECD FDI Regulatory Restrictiveness Index
The six assessed SEE economies are among the
most open to FDI as measured by the OECD
FDI Regulatory Restrictiveness Index. All six
SEE economies maintain only a handful of
restrictions, making their FDI regimes less
restrictive than that of the average OECD
economy. They also compare favourably
against the average of the 22 EU Member
States covered by the index. As such, the rules
concerning foreign investors on their own are
unlikely to constitute a major impediment
to attracting investments in most of the SEE
economies.
OECD FDI Regulatory Restrictiveness Index
Note: The OECD FDI Regulatory Restrictiveness Index only covers statutory measures discriminating against foreign investors (e.g. foreign equity limits, screening and approval
procedures, restriction on key foreign personnel, and other operational measures). Other important aspects of an investment climate (e.g. the implementation of regulations
and state monopolies, preferential treatment for export-oriented investors and SEZ regimes) are not considered. Data reflect regulatory restrictions as of December each year.
Source: OECD (2017), FDI Regulatory Restrictiveness Index (database), www.oecd.org/investment/fdiindex.htm.
OECD average
SEE economies average
0
0.05
0.1
0.15
0.2
0.25
NZL
MEX
ISL
CAN
AUS
KOR
ISR
AUT
USA
NOR
CHE
POL
TUR
SWE
CHL
JPN
ITA
SVK
ALB
FRA
IRL
SRB
BEL
GBR
DNKÍ
GRC
HUN
BIH
MNE
LVA
DEU
MKD
ESP
FIN
EST
NLD
CZE
ROU
SVN
PRT
LUX
KOS
OECDFDIRegulatoryRestrictivenessIndex(open=0;closed=1)

ACHIEVEMENTS
l SEE economies have taken a clear pro-investment stance and provide open and non-discriminatory
environments for foreign investors. Remaining restrictions on FDI are below the OECD average; they
are not unusual and do not constitute a major impediment to foreign investment.
l Sound legal frameworks for investment are provided, including for property and intellectual
property (IP) rights protection. Investor protection standards are high and expropriations of
companies are rare and subject to sound and predictable rules. IP laws and regulations follow
international practice and are becoming aligned with the European Union’s standards.
l All SEE economies have well-established investment promotion agencies (IPAs) that conduct the
core functions of investment promotion and facilitation. Sound investment promotion strategies
with well-delineated priorities and targets have been designed and most economies are putting
increasing efforts in proactive promotion and investor outreach.
l Setting up a company is, in most cases, easy and predictable. Procedures to start a business
have been streamlined and are generally transparent and straightforward. The authorities also
maintain a constructive dialogue with the private sector to inform it of pending reforms, collect
feedback on legislative proposals and discuss challenges faced by investors. Some economies
provide focused aftercare services to identify and support business expansion.

INVESTMENT POLICY PROMOTION . 19
REMAINING CHALLENGES AND RECOMMENDATIONS
l SEE economies should further improve the clarity, transparency and predictability of the
regulatory framework for investment. For example, no economy in the region has established
a foreign investment negative list to delimit clearly the sectors where foreign investment is
prohibited or conditioned, and which discriminatory conditions apply.
l Prompt procedures and consistent interpretation of the law need to be more systematically
ensured, especially when it comes to enforcing commercial contracts. There is an important
backlog of court cases and reported regular political interference. Judges would benefit from
additional training to deal with commercial and IP cases.
l Co-ordination among IP related institutions should be strengthened and further efforts
are needed to sensitise businesses and the public, and provide them with better access to
information on IP rights. IP-related institutions currently lack capacity to fully enforce IP rights
and conduct awareness raising activities.
l IPAs need adequate resources and capacity to conduct key investment promotion and
facilitation functions, such as investor targeting and aftercare. Sectoral competences need to be
reinforced and institutional co-ordination enhanced to avoid overlaps of activities and to ensure
that obstacles faced by investors are promptly removed. Incentive regimes are often complex and
incentives are granted mostly without (at least publicly disclosed) cost-benefit analyses.
l Further measures are needed to enhance the impact of FDI through the creation of linkages
between foreign investors and domestic firms. Authorities in SEE should further support small
businesses and develop comprehensive business linkages programmes. IPAs should increasingly
integrate matchmaking in their activities and align their FDI promotion strategy with local
linkages opportunities.

Fair, reciprocal and predictable
cross-border trade arrange
ments are important pillars of
a healthy regional economy.
Consequently, the trade policy
and facilitation dimension
assesses the implementation,
evaluation and co-ordination
of cross-border trade, including the monitoring
of domestic law to meet OECD good practice.
Throughout the SEE region, the economies
perform best on non-tariff measures and export
promotion, including the
removal of technical barriers
to trade. However, the ex-
post monitoring of free trade
agreements, as well as the
transparency and effectiveness
of public-private consultation
mechanisms, could be improved.
The region would also benefit from limiting
undue regulatory restrictions on services, such
as easing barriers on the free movement of
people.
KEY STATISTICS
Key trends in external SEE trade in goods and services (2007-15)
Note: External trade is calculated as the sum of total imports and exports of all SEE economies. Bosnia and Herzegovina data for 2015 have been estimated and will be
updated when new data are available.
Source: World Bank (2017), World Development Indicators (database), http://data.worldbank.org/data-catalog/world-development-indicators.
40
50
60
70
80
90
100
80
90
100
110
120
130
140
150
160
170
2007 2008 2009 2010 2011 2012 2013 2014 2015
Indexed trade of goods and services (primary axis)
Indexed exports of goods and services (primary axis)
Trade of goods and services (% of GDP, secondary axis)
TRADE POLICY
FACILITATION

TRADE POLICY FACILITATION . 21
The six SEE economies’ total external trade in
goods and services has been steadily increasing
since the economic crisis, driven largely by the
strong recovery of exports. In the period from
2007 to 2015, total trade increased by about 30%,
while exports rose by almost 60%. Trade as a
share of gross domestic product (GDP) has also
been increasing, rising from 88% in 2008 to
95% in 2015.
For the majority of the SEE economies, the
European Union (EU) is the main trading
partner, accounting for 70% or more of all
trade.
South East Europe’s main trading partners and export destinations (2015)
Note: Data for Kosovo are not available.
Source: UN (2017), UN Comtrade Database, http://comtrade.un.org/data.
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
ALB BIH MKD MNE SRB
Rest of the world SEE EU

ACHIEVEMENTS
l Trade policy institutional frameworks are functioning well. The inter-institutional co-ordination
of trade policy formulation is solid in most economies, usually through official committees
or working groups led by the ministry in charge of trade policy (either the trade or economy
ministries). There are formal instruments for consultation with the private sector and civil society,
and the majority of the economies have recently established trade facilitation committees.
l The six SEE economies have made progress in removing technical barriers to trade. The
institutional frameworks for standardisation and accreditation have been strengthened and the
rules, procedures and operations of the standardisation and accreditation bodies are aligned
overall with international and European Union (EU) practices. Most of the economies have adopted
more than 80% of European Standards. However, many economies still have room to improve their
conformity assessment infrastructure.
l The SEE economies are relatively well integrated into the world trading system. All are
signatories of the Central European Free Trade Agreement (CEFTA), through which they have
achieved full tariff liberalisation on trade in manufactured products and agricultural goods.
Albania, the Former Yugoslav Republic of Macedonia and Montenegro are also World Trade
Organization (WTO) members.
l Export promotion agencies/bodies have
been established in all SEE economies.
Their work is focused on promoting
overall exports, while support services
are primarily provided to small and
medium-sized enterprises (SMEs) and
established exporters.

TRADE POLICY FACILITATION . 23
CHALLENGES AND RECOMMENDATIONS
l Further remove non-tariff barriers to trade. Economies in the region have been less successful
in reducing non-tariff barriers related to the implementation of sanitary and phytosanitary (SPS)
measures than they have been at implementing technical standards and regulations and trade
facilitation measures. Capacities for risk-based control, both for inland and for border inspection,
are still being developed. The majority of economies need to develop a variety of risk assessment
tools and to connect up the information systems of the various SPS agencies.
l Strengthen mechanisms for evaluating the impact of trade measures and free trade agreements
(FTAs). The units in place for trade analysis are usually understaffed and often lack adequate
resources for conducting systematic impact assessments. Ex-post monitoring of the impact of FTAs
is rarely conducted in the majority of the economies and often no agency has been appointed to
lead the monitoring exercise. Furthermore, high-quality statistical trade data are scarce.
l Improve the transparency and effectiveness of public-private consultation mechanisms. The
SEE economies do not monitor how open and transparent these consultation mechanisms are
and most of them do not make summaries of consultations on draft laws publicly available. More
active involvement of the private sector in the trade policy implementation and evaluation phase
is also needed.
l Address regulatory restrictions to services trade. Economy-wide regulations on corporations
and barriers to the movement of people affect firms’ ability to operate in the SEE economies.
While the conclusion of Additional Protocol 6 to the CEFTA agreement has eased the conditions
for the movement of people among CEFTA economies, the requirements for people from outside
the CEFTA economies remain restrictive. Easing conditions on the temporary movement of
people would help to encourage innovation and knowledge transfer, and contribute to economic
growth. Governments should also focus on improving regulatory transparency, as this affects all
industries.

Facilitating access to finance
is important for small and
medium-sized enterprises
(SMEs) and entrepreneurship
promotion, and ultimately for
an economy’s competitiveness,
growth and employment
creation. External finance, whether acquired
through bank loans, grants or investments
from private individuals or investment firms,
enables enterprises to meet their working
capital requirements. This dimension focuses
on policies and instruments which facilitate
access to finance for SMEs in the
assessed SEE economies. Across
the six economies, the role of
SMEs in economic activity is
greater than in the European
Union, and all economies
have taken steps to establish
better regulatory frameworks and financing
support programmes. Notwithstanding these
efforts, the implementation phase of these
developments remains weak and there is a
shortage of alternative financing instruments
and mechanisms across the region.
KEY STATISTICS
Domestic credit to the private sector (2001-16)
Note: World Bank data for 2006 are not available for KOS; data for 2016 are not available for KOS, MKD and MNE, so data from 2015 are used instead.
0%
20%
40%
60%
80%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
ALB BIH KOS
MKD MNE SRB
ACCESS TO FINANCE

ACCESS TO FINANCE . 25
While domestic credit to the private sector,
a proxy indicator for the depth of financial
intermediation, grew strongly in the period 2001-
08 – on average by a total of 18% – it then on
average contracted slightly, by approximately 1%
total between 2009 and 2016. Montenegro saw
the most pronounced boom and contraction of
domestic credit of the six assessed SEE economies:
domestic credit to the private sector represented
87% of gross domestic product (GDP) in 2008, but
had contracted to 51% in 2016.
Credit contraction after the financial crisis
has translated into a significant increase in
non-performing loans (NPLs) in the six SEE
economies. Between 2007 and 2013 the average
share of NPLs in the economies more than
tripled from 5.1% of total loans to 17.6%.
Bank non-performing loans (2007, 2010, 2013, 2016)
% of total gross loans
Note: World Bank data for 2006 are not available for KOS; data for 2016 are not available for KOS, MKD and MNE, so data from 2015 are used instead. For OECD members, data
from 2008 replace unavailable data for 2007.
0
5
10
15
20
25
ALB BIH KOS MKD MNE SRB OECD
members
SEE
average
2016 200720102013

ACHIEVEMENTS
l All of the SEE economies have taken steps to establish institutional and regulatory frameworks
for access to finance. They have developed frameworks for timely payments and insolvency and
also made progress in developing asset registers and credit information systems.
l Efforts have been made to improve insolvency frameworks to tackle lengthy bankruptcy
procedures and reduce administrative backlogs. Progress has also been made in delineating
between liquidation and restructuring, and introducing clear priority schemes.
l All of the SEE economies have implemented SME financing support programmes. These are
primarily credit guarantee schemes and grants or loans at reduced interest rates.

ACCESS TO FINANCE . 27
l Complete the implementation of legal frameworks for ensuring timely payments and managing
insolvency. Despite various efforts to reduce them, lengthy processes and legal backlogs make
restructuring and liquidation burdensome for bankrupt SMEs and increase the risk of bankruptcy
among cash-constrained SMEs facing late payments.
l Reduce the high collateral requirements in most of the SEE economies. More efforts are needed
to create security rights over movable assets.
l Support alternative financing instruments across all of the SEE economies. While factoring and
leasing are technically developed, the markets have shrunk since the financial crisis and uptake
by SMEs remains small. Government support for venture capital and business angel networks is
limited in the region and access to stock markets for SMEs constrained.

Tax policy refers to the design
of domestic and international
tax rules which allow
economies to raise revenues to
finance public services in ways
which are the least distortive
for economic growth and share
the tax burden across different agents in a fair
manner. Throughout the six SEE economies
assessed, corporate and personal income (CIT
and PIT) tax rates are low and social security
contributions (SSCs) are high.
The six SEE economies would
benefit from broadening the
tax base – particularly for
value-added tax (VAT) and
CIT – as well as strengthening
their tax policy assessment
tools. The region should also revisit its wide
range of corporate tax incentives and take steps
to prevent falling into the trap of a “race to the
bottom” type of tax competition.
TAX POLICY

TAX POLICY . 29
Tax revenues increased as a share of GDP between
2005 and 2015 in most of the six SEE economies.
The revenues raised vary widely across
economies, however. Revenues are particularly
low in the Former Yugoslav Republic of Macedonia
(16.7% of GDP) and the Federation of Bosnia and
Herzegovina (21.5% of GDP). On the other hand,
in Serbia (36.2% of GDP), the Republika Srpska
(37.1% of GDP) and Montenegro (37.6% of GDP)
they are above the OECD average (34.3% of GDP).
KEY STATISTICS
Tax revenues as a percentage of GDP in SEE economies (2005 and 2015)
Note: FBiH – the Federation of Bosnia and Herzegovina; RS – the Republika Srpska. For both entities in Bosnia and Herzegovina the data are for 2010 and 2015; for Kosovo and
Montenegro, the data are for 2006 and 2015.
Source: Government statistical offices and ministries in the region provided economy-specific data as part of the Competitiveness Outlook assessment conducted in 2016-17.
0%
5%
10%
15%
20%
25%
30%
40%
35%
ALB FBiH RS KOS MKD MNE SRB OECD average
2005 2015

l Evaluate the design of corporate tax incentives. Corporate tax incentives are generous across the
six SEE economies. As the economies already have low CIT rates – intended to create an attractive
investment climate – there is little need for profit-based tax incentives to stimulate investment,
such as tax holidays or targeted preferential rates. Profit-based tax incentives lower revenues from
CIT without necessarily increasing investment significantly, and they also create negative spill
over effects and tax avoidance opportunities. Existing profit-based tax incentives should either
be turned into expenditure-based ones, such as accelerated or enhanced tax depreciation or
investment tax credits, or be phased out altogether.
l Analyse the combined impact of PITs and SSCs on labour market outcomes. Despite relatively low
PIT rates across the region, the economies levy high SSCs in order to finance their benefit systems.
This results in a high tax burden on labour income, which may have particularly strong negative
impacts on low-skilled and low-income workers who might be priced out of the formal labour market.
ACHIEVEMENTS
l Tax revenues as a share of gross domestic product (GDP) have been increasing, although in
most of the six SEE economies they remain below the OECD average.
l The six SEE economies have made significant efforts to strengthen their tax administration,
particularly in the areas of function and organisation, compliance assessment and risk
management, and taxpayer services.
l The implementation of a VAT registration threshold in the six SEE economies means that VAT
administration can concentrate resources on larger businesses. VAT registration thresholds
lower compliance costs for small businesses and ensure a more effective use of administrative
resources and audit capacity.
l The six SEE economies are working together to strengthen the functioning of their tax
administrations. Tax administrations across the region are sharing experiences and exchanging
information on best tax practices.

TAX POLICY . 31
The economies should evaluate whether they could lower SSCs by increasing PITs and making it more
progressive, introducing an earned income tax credit, and/or reducing SSCs for low-income earners.
l Consider reducing the gap between taxes on labour and capital income. This gap provides a strong
incentive for entrepreneurs to incorporate their business and to earn capital instead of labour income.
l Broaden the VAT base. VAT in all the six SEE economies is levied on a narrow tax base as a result
of the widespread use of reduced rates and exemptions.
l Develop tax policy tools to assess tax systems and their economic impacts. Better tax revenue data,
tools that assess the effective tax burdens on labour and capital, the implementation of micro-simulation
models, and more systematic tax expenditure reporting are priorities for all six SEE economies.
l Continue to strengthen tax administrations to improve tax collection and compliance.
Further efforts in guaranteeing independence and transparency of the tax administration and
strengthening taxpayer services should be a priority.
l Bring informal workers and businesses into the tax base. Strengthening the design of CIT and
PIT must be an integral part of a strategy to encourage informal businesses to operate in the
formal economy. Strengthening the tax administration will result in a broader tax base overall.
l Bring international taxation rules in line with international best practice. The six SEE economies
have transfer pricing and thin capitalisation rules in place but they are not aligned with
international best practice.
l Evaluate the use of a worldwide tax system and implement measures to protect the domestic
tax base. The SEE economies might want to weigh the advantages and disadvantages of moving
from a worldwide to a territorial tax system.
l Strengthen co-ordination and co-operation among the economies in the region. By working
together, the six SEE economies would benefit from more effective tax enforcement and lower
overall tax avoidance and evasion. Enhanced tax policy dialogue on CIT incentives, for instance,
could help to create a more attractive investment climate across the region.

An effective competition
policy allows for new firms to
challenge incumbents, while also
encouraging efficient ones to
grow and inefficient ones to exit
the market. As such, competition
regimes ensure that markets
operate at their optimal level by taking remedial
action against anti-competitive behaviour. In
general, a competitive environ
ment drives economic growth,
increases living standards and
reduces inequality. While the six
SEE economies have the basic legal
structures in place for a functioning
competition regime, efforts should
be made to implement them and to allocate
additional resources to the relevant authorities.
COMPETITION POLICY

COMPETITION POLICY . 33
The six economies of South East Europe appear
to have in place most of the basic building
blocks of a functional competition policy regime,
although some gaps persist and enforcement
records appear limited.
KEY STATISTICS
Competition policy: number of adopted criteria
Note: The assessment in this chapter is based on the answers to the questionnaires, with each“yes”counting as an adopted criterion.The maximum number of adopted
criteria is 68. See the methodology chapter for information on the Competitiveness Outlook assessment and scoring process.
Source: OECD (2018), Competitiveness in South East Europe: A Policy Outlook 2018, http://dx.doi.org/10.1787/9789264298576-en.
21 18 17 20 21 20
17
16
10
17 17 19
20
14
13
19 14
16
7
4
3
6
6
6
65
52
43
62
58
61
0
10
20
30
40
50
60
70
ALB BIH KOS MKD MNE SRB
Scope of action Anti-competitive behaviour Probity of investigation Advocacy
AllsixSEEeconomieshavethenecessarypowerstoinvestigate
possibleantitrustinfringementsandmergers,however,onlythe
competitionauthoritiesinAlbania,MontenegroandSerbiahave
madeuseofdawnraidsinthelastfiveyears,whichisconsidered
themostrobustandvaluablewayofdetectinghard-corecartels.
All assessed SEE economies, except Kosovo, scrutinise
new public policies that may affect competition, although
they have insufficient resources to carry out thorough,
effective assessments of laws and regulations at the central
government level.

ACHIEVEMENTS
l The six SEE economies have put all of the necessary major legal provisions in place for a
competition law regime that works. The provisions for anti-competitive agreements and abuse of
market dominance are closely aligned with those in the Treaty on the Functioning of the European
Union. The provisions on mergers also follow international standards.
l Most authorities can and actually do conduct market studies and comment on the competitive
effects of laws and regulations. The legal framework enables the SEE competition authorities to
act as competition advocates in their economies.
l Competition authorities are formally independent. Governments do not formally intervene in the
decision-making process or give directions.

COMPETITION POLICY . 35
l Further improve the competition law enforcement record. Despite the established legal
foundations of competition policy in the region, challenges remain in their implementation. As
the enforcement track record is one of the most important indicators of an effective competition
regime, strengthening it should be a priority for the competition authorities.
l Put in place guidance for stakeholders on the competition authorities’ enforcement practices.
Publishing explanatory documents that help businesses, their legal advisers and the public to
understand how competition law is applied is an important aspect of enforcement practice.
However, only half of the SEE competition authorities have published comprehensive sets of
guidelines to that effect.
l Ensure that competition authorities have sufficient resources. In most of the SEE economies,
financial and human resource constraints may limit the scope of action and the quality of work
that can be expected.
l Give more weight to the competition authorities’ recommendations. When the competition
authorities comment on barriers to competition in laws, regulations or industry sectors, these
recommendations are not always taken into consideration.

State-owned enterprises (SOEs)
represent the most direct way
for a government to intervene in
the commercial economy.
Historically, SOEs have been
concentrated in critical sectors
of the economy such as energy,
infrastructure and finance.
Throughout the SEE region, financial
disclosure and audit practices
have improved. Nevertheless,
SOEs would benefit from
further professionalising the
ownership function, including
ensuring that SOEs are free
from potential conflicts of
interest, as well as prioritising
oversight mechanisms.
STATE-OWNED
ENTERPRISES

STATE-OWNED ENTERPRISES . 37
In most of the assessed SEE economies, state
ownership policies and rationales have not been
developed. Although in many cases a degree of
“ownership policy” can be gleaned from laws,
cabinet decisions and other secondary legislation,
these are rarely consolidated into one concise
document. In general, the overall objectives
for state enterprise ownership put forward by
OECD and non-OECD governments fall into
the following categories: 1) supporting national
economic and strategic interests; 2) ensuring
continued national ownership of enterprises;
3) supplying specific public goods or services
(after deeming that the market cannot supply
the same goods or services); 4) performing
business operations in a “natural” monopoly
situation; and 5) other operations such
as creating or maintaining a state-owned
monopoly (or oligopoly) where market
regulation is deemed infeasible or inefficient.
KEY STATISTICS
Rationales for state ownership of enterprises
Note: FBiH – the Federation of Bosnia and Herzegovina; RS – the Republika Srpska.
Source: Submissions from authorities and independent consultants.
Supporting economic
and strategic interests
Ensuring continued
national ownership of
enterprises
Supplying specific
public goods or services
(in the absence of
private suppliers)
Performing business
operations in a
“natural”monopoly
situation
Other
Albania ✓ ✓
Bosnia and
Herzegovina
✓
(FBiH RS)
✓
(RS)
✓
(FBiH RS)
Kosovo ✓ ✓ ✓
FormerYugoslav
Republic of
Macedonia
✓ ✓
Montenegro ✓
Serbia ✓ ✓ ✓

ACHIEVEMENTS
l Financial disclosure and audit practices have improved in a number of jurisdictions. Large and
economically important SOEs are increasingly expected to file financial reports consistent with
International Financial Reporting Standards (IFRS), as laid down in corporate laws or in specific
SOE legislation.
l The assessed SEE economies have raised their auditing standards. Some of the economies in
the region apply high standards of external audit to their SOEs, consistent with private-sector
practices, whereas others continue to rely mostly on their state audit functions.
l The economies have taken the first steps towards improving co-ordination of state ownership.
A couple of economies have taken steps to ensure that the ownership of at least part of their SOE
portfolios is exercised on a whole-of-government basis rather than by individual ministers or
political communities.
l The economies have introduced measures to ensure a healthier competitive landscape between
SOEs and other firms. Partly as a consequence of their efforts to align themselves with European
Union (EU) legislation, the economies have made changes likely to contribute to levelling the
playing field. These include measures to ring fence, or unbundle, monopoly elements of SOEs’
value chains.

STATE-OWNED ENTERPRISES . 39
l Professionalise the state ownership function as a priority in all six SEE economies. Most SOEs
continue to be run by individual line ministries as extensions of the political powers of these
ministries, which arguably lead to inefficiencies and conflicts of interest. The ownership of SOEs
should be entrusted to state units with specific knowledge of corporate economy and law, and
shielded from conflicts of interest with other government functions.
l Foster clarity in financial and non-financial objectives for individual SOEs. State-owned
enterprises’ financial objectives are not fully outlined in the assessed economies; at best they
are often basic (e.g. “not to lose any money”) and they do not ensure that the state obtains a
reasonable return on its invested capital. Non-financial objectives are in most cases opaque
or weakly defined. This needs to be addressed if SOE managers and those exercising the state
ownership function are to be held properly to account for SOE performance.
l Ensure governments engage in aggregate reporting on their SOEs. An essential first step will be
a recurrent mapping exercise, making it clear to governments, parliamentarians and the public
which enterprises are in public ownership and why and how they are performing. In the absence
of such information, at best only an ad hoc and piecemeal approach to reform can be realised.
l Strengthen protection of non-state investors further. The protection of minority shareholders
is also of concern in the private sector in a number of the assessed economies. The state needs
to go beyond the requirements established by ordinary company law in this respect: there is a
temptation to use the state’s shares to vote in shareholder meetings in pursuit of public policy
objectives rather than in the interest of all investors. Whether and under what circumstances this
may occur should be made clear to non-state investors at the time of their investment.

Ensuring inclusive and high-
quality education is central
to creating a competitive
environment. Investing in
education is necessary to increase
human capital and further
improve labour productivity. Across
the region, the SEE economies have
adopted national strategies to improve the overall
standard of education and/or address specific
aspects of education, such as equity, vocational
education and training, and adult education.
However, the latest results from
the Programme for International
Student Assessment (PISA) for
participating SEE economies are
well below those for peers from
Central and Eastern Europe and
the OECD average. Encouraging
participation in early childhood
education and increasing spending on primary
and secondary education could help to ensure
that all students reach the PISA baseline level
needed for full socio-economic participation.
KEY STATISTICS
2015 PISA performance in science, reading and mathematics
Mean scores
Note: Results for Serbia are from 2012. Data for Bosnia and Herzegovina are not available. CZE- Czech Republic; POL – Poland; SVN – Slovenia.
Source: OECD (2016), PISA2015Results(VolumeI):ExcellenceandEquityinEducation, http://dx.doi.org/10.1787/978926426649; OECD (2014), PISA2012Results:WhatStudents
Know and Can Do (Volume I, Revised edition, February 2014): Student Performance in Mathematics, Reading and Science, http://dx.doi.org/10.1787/9789264208780-en
0
50
100
150
200
250
300
350
400
450
500
550
600
MKD MNE SRB CZE POL SVN ALB KOS MKD MNE SRB CZE POL SVN ALB KOS MKD MNE SRB CZE POL SVN
Science Reading Mathematics
EU average OECD average
ALB KOS
EDUCATION
COMPETENCIES

EDUCATION COMPETENCIES . 41
The 2015 PISA results found that all the
participating SEE economies have room to
improve the quality of their science, reading and
mathematics education. They scored well below
the EU and OECD averages and those of selected
OECD peers from Central and Eastern Europe.
The PISA assessment has established a scale of
proficiency levels for the different domains. All
students should be expected to attain Level 2 –
the baseline level of skills required for full socio-
economic participation – by the time they leave
compulsory education. Among the partici
pating SEE economies, in 2015 at least 40% of
students were low achievers in science, ranging
from 42% in Albania to 68% in Kosovo. Low
achievers in reading range from 42% in
Montenegro to 77% in Kosovo, and in math
ematics from 52% in Montenegro to 78% in
Kosovo. These figures are high, particularly in
comparison to the OECD and EU averages of
about 20%.
PISA low achievers in science, reading and mathematics (2015)
% of students scoring below Level 2
Note: Results for Serbia are from 2012. Data for Bosnia and Herzegovina are not available. CZE – Czech Republic; POL – Poland; SVN – Slovenia.
Source: OECD (2016), PISA2015Results(VolumeI):ExcellenceandEquityinEducation, http://dx.doi.org/10.1787/978926426649; OECD (2014), PISA2012Results:WhatStudents
KnowandCanDo (Volume I, Revised edition, February 2014): StudentPerformanceinMathematics,ReadingandScience, http://dx.doi.org/10.1787/9789264208780-en
0
10
20
30
40
50
60
70
80
90
100
ALB KOS MKD MNE SRB CZE POL SVN ALB KOS MKD MNE SRB CZE POL SVN ALB KOS MKD MNE SRB CZE POL SVN
Science Reading Mathematics
%
EU average OECD average

ACHIEVEMENTS
l All six reviewed SEE economies have recently adopted (or are about to adopt) updated national
strategies to improve the quality of education and increase the competencies of the labour
force. These new strategies are based on an assessment of the impact of previous strategies. These
updated national strategies seek to improve the overall standard of education and/or address
specific aspects of education, such as equity, vocational education and training (VET), and adult
education.
l All the economies have made progress in implementing their national qualifications
frameworks and aligning them with the European Qualifications Framework (EQF). Over the
period of this assessment, this is particularly the case for the Former Yugoslav Republic of
Macedonia and Kosovo.
l The economies have made efforts to draw up policy frameworks that support equity in
education. All six economies have recognised the importance of ensuring equitable access to, and
participation in, education.

EDUCATION COMPETENCIES . 43
l Increase expenditure on primary and secondary education; the latter is considerably lower than in
economies such as the Czech Republic, Poland and Slovenia, as well as OECD and EU-22 averages. The
latest 2015 Programme for International Student Assessment (PISA) results for the participating SEE
economies are well below those for peers from Central and Eastern Europe and the OECD average. One
factor that explains this is the high percentage of secondary students who do not reach the baseline
level of skills required for full socio-economic participation (PISA proficiency Level 2). Prioritising
spending on primary and secondary education could help to ensure that all students reach this level.
l Stimulate participation in early childhood education (ECE), for example by improving ECE
provision and affordability. Only 36.8% of children were enrolled in ECE on average in 2015, 58
percentage points below the EU average.
l Invest more in increasing the attractiveness of the teaching profession and the participation
of teachers in professional development programmes. Teacher quality is one of the in-school
factors that most determines students’ learning outcomes. Yet the best candidates are not
choosing the teaching profession and teachers in the SEE economies participate less often in
professional development programmes than their peers in OECD countries.
l Promote and strengthen work-based learning schemes like apprenticeships or internships.
PISA data show that vocational education is attracting disadvantaged students who have fallen
behind at school. Increasing the share of students in work-based (in-company) learning remains
a challenge. Co-operation between VET providers and higher education institutions, as well as
businesses and social partners, needs to be reinforced.
l Make efforts to reduce skills mismatches, for example by fostering career guidance to direct
students towards science, technology, engineering and mathematics (STEM) subjects, which have
greater prospects for stimulating innovation. The economies have an over-supply of graduates
from the fields of business, administration and law, and an under-supply of STEM graduates.

Unemployment rates in the six SEE economies,
measured as the proportion of people in the labour
force who do not have a job and are actively looking
for work, are relatively high compared to the EU
and OECD averages. Evidence suggests that labour
market challenges in the SEE economies are
structural and that growth alone will not be enough
to create the number and types of jobs needed.
With the exception of Montenegro, the share of
young people not in employment, education or
training (NEET) in the SEE economies is almost
double the EU and OECD averages.Young NEETs
are considered “at risk”: being jobless, inactive
and with no access to learning.
Employment policy can provide
a framework of strategies, action
plans, laws, measures and
institutions that improves the
functioning of labour markets,
makes them more inclusive, and
enhances their ability to address
post-crisis and demographic challenges. The
participating SEE economies have a number of
common structural labour market challenges,
including high rates of youth unemployment and
long-term unemployment, as well as a significant
share of the population working
outside the formal sector. While
most SEE economies have made
efforts to design comprehensive
employment frameworks
through consultative processes,
and have relevant institutions
in place, more efforts are required to address
the structural challenges in the labour market.
Specifically, labour market institutions should be
strengthened and broadly co-ordinated to ensure
effective delivery of services to job seekers.
KEY STATISTICS
EMPLOYMENT POLICY

EMPLOYMENT POLICY . 45
Not in employment, education or training at age 15-24 (2015) – % of total population aged 15-24
Note: EU-28 – all 28 EU Member States; EU-10 – Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic and Slovenia. OECD
average does not include Republic of Korea.The EU and OECD averages have been calculated as simple averages.
Source: ILO (2017), Key Indicators of the Labour Market (database), www.ilo.org/global/statistics-and-databases/research-and-databases/kilm/lang--en/index.htm.
Unemployment rates at age 15 and above – % of labour force
Note: Data not available for Kosovo for 2010 and 2011. EU-28 – all 28 EU Member States; EU-10 – Cyprus1
, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta,
Poland, the Slovak Republic and Slovenia.The EU and OECD averages have been calculated as simple averages.
Source: EC (2017), Employment and Unemployment (Labour Force Survey) (Eurostat database), http://ec.europa.eu/eurostat/web/lfs/data/database;
World Bank/WIIW (2017), SEE Jobs Gateway (database), www.seejobsgateway.net/charts; OECD (2017), OECD Data (database), https://data.oecd.org/.
0
5
10
15
20
25
30
35
40
2010 2011 2012 2013 2014 2015
%
ALB BIH KOS MKD MNE SRB EU-28 EU-10 OECD
0
5
10
15
20
25
30
35
ALB BIH KOS MKD MNE SRB EU-28 EU-10 OECD
%

ACHIEVEMENTS
l Most of the assessed SEE economies have made efforts to design comprehensive employment
frameworks through consultative processes.
l Most of the economies have relevant institutions, such as public employment services and
labour inspectorates, in place, aiming to address their specific labour market challenges.
l All the SEE economies are attempting to address structural unemployment through activation policies.
l The SEE economies have started to consider developing social enterprises as a way of
strengthening the development of the social economy so as to stimulate innovation and
encourage the inclusion of vulnerable groups in labour markets.
l Implement fully the measures set out in strategies and action plans. Effective implementation
is often hampered by a lack of funding and human resources, as well as weak co-ordination with
other policies (e.g. education policies, tax policies).
l Strengthen the capacities of social partners, in particular worker organisations, which often lack
the capacity to undertake analysis and to engage actively and constructively in a social dialogue
with government.

EMPLOYMENT POLICY . 47
l Continue to tackle informal employment. Although estimates put informal employment as high
as 30% in some of the economies, measures to gradually coax informal workers into formal work
are often lacking. Labour inspectorates do not have enough capacity, which further hampers
detection and enforcement.
l Improve activation policies to increase the motivation and employability of the unemployed
and to facilitate additional employment opportunities; and create an effective institutional
setup able to co-ordinate delivery of a complex array of services. Activation policies are still
insufficiently developed in most of the six economies and have limited impact. This is often due
to poor targeting, disincentives for unemployed people to participate in activation measures, and
ineffective policy design.
l Strengthen the capacity and infrastructure of public employment services (PES), the key
institutions implementing activation policies, to provide quality support. Staff workloads are
high (on average about 400 jobseekers for a single PES officer), which can seriously limit the
implementation of active labour market policies.
l Improve skills matching, and ensure that training measures are effective. Current skills gaps
analyses are limited in their coverage and data provided, and are seldom institutionalised or
integrated into educational and employment systems.
l Improve job quality by targeting the factors that affect earning, job security and the quality of
the working environment. Overall job quality is lower compared to the EU and OECD averages,
reflected in low earnings, high labour market insecurity and poor working environments.
l Further support social enterprise development. Most of the assessed economies are currently
either drafting legislation on social enterprises or have recently adopted it. Nevertheless, social
enterprises generally do not play a role in their strategic frameworks, and in the implementation
of support measures.

Science, technology and
innovation (STI) provide the
means for the transition to
high value-added products and
services.This dimension assesses
the governance of STI policy,
the performance of the public
research system, the support
to business innovation, as well as the linkages
between the public and private sectors.Throughout
the region STI outcomes remain modest.
A lack of funding for research
and development (RD) limits
the potential for innovation,
while the wider diffusion of
technology does not receive
sufficient policy attention. In the
future, a more structured link
between business and academia
would help facilitate the spread of cutting-
edge research,while an emphasis on individual
innovation could help foster new creative sectors.
KEY STATISTICS
High-tech exports as a share of manufactured exports (2005-15)
Note: HRV – Croatia; BGR – Bulgaria; ROU – Romania; CEB – Central Europe and the Baltics (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland,
Romania, the Slovak Republic and Slovenia); LMC – lower middle-income countries; UMC – upper middle-income countries.
Source: World Bank (2017),World Development Indicators (database), http://data.worldbank.org/data-catalog/world-development-indicators.
For Kosovo and Montenegro, data from national statistical offices.
0
5
10
15
20
25
%
ALB BIH KOS MKD MNE SRB HRV BGR ROU CEB LMC UMC
2005 2010 2015 EU average 2005 EU average 2010 EU average 2015
SCIENCE,TECHNOLOGY
INNOVATION

SCIENCE, TECHNOLOGY INNOVATION . 49
High technology exports as a percent of manu
factured exports remain at extremely low levels
compared to EU and Central Europe and Baltics
averages.
The volume and quality of scientific production
offers a measure of basic research outcomes,
and research outcomes are improving. The
number of scientific articles per million
population is used as a measure of volume;
quality measures use citations per article,
normalised relative to the average for the 28
EU Member States (EU-28). The performance of
the SEE economies is very low, both in volume
and quality, but the trend between 2010 and
2015 is clearly positive for the Former Yugoslav
Republic of Macedonia, Montenegro and
Serbia.
Scientific production in SEE and comparator countries
Note: WEU –Western Europe; EU-28 – the 28 EU Member States.
Source: Scimago (2017), Country Rankings (dataset), www.scimagojr.com/countryrank.php;World Bank (2017),World Development Indicators (database),
http://databank.worldbank.org/data/reports.aspx?source=world-development-indicatorspreview=on#.
POL
CZE
ROM
HUN
UKR
SRB
SVK
HRV
SVN
BGR LTU
EST
LVA
MKD
BIHALB
MNE
GBR
DEU
FRA
ITA
ESP
NLD
CHE
SWE
BEL DNK
AUT
PRT
NOR
FIN
GRE
IRL
CYP
LUX
ISL
MLT
20
40
60
80
100
120
140
160
180
50 100 150 200 250 300
CitationsperdocumentnormalisedtoEU-28(EU28=100)
Citable documents per million population normalised to EU-28 (EU28=100)
SEE 2010
SEE 2015
CEB 2015
WEU 2015
EU-28
0
0

ACHIEVEMENTS
l The six assessed SEE economies have taken positive steps towards establishing strategic
approaches to STI policy. The Former Yugoslav Republic of Macedonia, Montenegro and Serbia
have adopted holistic innovation strategies, while Albania, Bosnia and Herzegovina, and Kosovo
have prepared drafts for adoption.
l The Former Yugoslav Republic of Macedonia and Serbia have strengthened horizontal
co‑ordination with ministerial-level councils to co‑ordinate STI policy in both economies.
l Independent and professional innovation funds have been established in Serbia and the Former
Yugoslav Republic of Macedonia to implement competitive innovation grant instruments.
l Start-ups benefit from an infrastructure of incubators and accelerators, and the first venture
capital funding. All six economies have established incubator infrastructure offering events
such as hackathons, start-up weekends, mentoring and training. The venture fund South Central
Ventures has started operations in all six economies.
l The first science and technology parks have been established in Bosnia and Herzegovina,
Montenegro and Serbia. However, these parks have yet to develop strong ties to academia.
l Serbia has established rules governing the intellectual property split between individuals
and institutions; at least 50% of profits from an invention go to the researcher, which should
encourage researchers to patent their discoveries.
l Increase and consolidate financial support for research and development. Overall financial support
is a small fraction of that offered in comparable transition countries, particularly for business
innovation. Introducing performance-based contracts for institutions would increase the efficiency
of government spending in this area. Financial support for business innovation (and in some
cases, public-sector research) largely depends on donor financing or loans, threatening sustainable
development of the innovation ecosystem over time. Funding instruments are fragmented across
ministries for education, science and economy, and various agencies.

SCIENCE, TECHNOLOGY INNOVATION . 51
l Place more emphasis on technology diffusion and absorption policies. In the absence of
government support for technology extension services, a donor programme has effectively enhanced
SMEs’ technological development. However, the SEE governments have not implemented such
instruments, which are crucial for technology absorption in middle-income economies, enabling the
SEE economies to catch up with more advanced ones. Cross-border technology transfer to SMEs is yet
to be developed, for example, through collaboration with international networks such as Fraunhofer.
l Use procurement to encourage innovation. Existing procurement can be adapted to encourage
innovative solutions by using functional requirements rather than technical specifications, as they
can spur innovative solutions while enhancing competition and preventing bid rigging.
l Develop a structured approach to creating links between business and academia. In particular,
they could consider: 1) introducing the “third mission” of co-operation with industry in higher
education institutions (HEIs); 2) introduce private-sector representation on the governance boards
of HEIs and public research organisations (PROs); 3) develop “triple helix” type events to create
opportunities for business and academia to meet; 4) use innovation vouchers to initiate small-
scale collaboration; and 5) develop collaborative grants for more mature projects.
l Provide incentives for individuals to unleash their creative potential. Except in Serbia, there are
no clear rules on splitting intellectual property rights between an individual researcher and their
institution. Researchers are not evaluated on their co-operation with business, and there are no
schemes to promote mobility between the public and private sectors, such as industrial master’s
or PhDs, entrepreneurial leave of absence, or subsidies for employment transfer.
l Make better use of the SEE economies’ highly educated diaspora and tackle brain drain. More
than 30% of highly educated people have left the region. While bringing them back may be
difficult in the short term, programmes could improve connections and knowledge flows.
l Improve the creation of STI-related statistics to enable the development of evidence-based
policies. The economies collect very few statistical indicators relevant to STI, and only Serbia and
the Former Yugoslav Republic of Macedonia are covered by the European Innovation Scoreboard
(EIS).

The digitisation of society has
emerged as an important driver
of socioeconomic benefits. A
solid policy framework for digital
society ensures the availability
and uptake of digital technologies
for a well-connected digital
economy. Participation in the envisioned Digital
Single Market in Europe promises to boost the
SEE economies’ growth. Throughout the region,
positive steps have been taken to expand
broadband and increase access
to e-business and e-commerce. In
light of certain weaknesses in the
digital society framework in South
East Europe, e-business uptake
remains low, e-inclusion is not a
priority and users’ perception of
trust and security in digital technologies is not
yet established. Improving these frameworks has
therefore become a key priority in the region’s
economic reform agenda.
KEY STATISTICS
Fixed broadband subscriptions (2010-15) – per 100 inhabitants
Note: Data for Kosovo not available. CEB – Central Europe and the Baltics (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the
Slovak Republic and Slovenia).
Source: ITU (2017),WorldTelecommunication/ICT Indicators Database, www.itu.int/en/ITU-D/Statistics/Pages/publications/wtid.aspx.
0
5
10
15
20
25
30
35
2010 2011 2012 2013 2014 2015
EU CEB ALB BIH MKD MNE SRB
DIGITAL SOCIETY

DIGITAL SOCIETY . 53
Fixed (wired) broadband subscriptions remain
lower than the EU and CEB averages and the SEE
economies are not catching up. However, they
are gradually closing the gap to the EU average
in active mobile subscriptions.
Charges for a standard fixed-broadband monthly
subscription in the SEE economies are falling,
but are still less affordable than in the EU or in
the CEB, since the GDP per capita in purchasing
power standards in the six economies is at 28%
of the EU and about 30% lower than CEB.
Trends in fixed-broadband monthly subscription charges (2008-15) – in USD
Note: Data for Kosovo not available. CEB – Central Europe and the Baltics (Bulgaria, Croatia, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania, the
Slovak Republic and Slovenia).
Source: ITU (2017),WorldTelecommunication/ICT Indicators Database, www.itu.int/en/ITU-D/Statistics/Pages/publications/wtid.aspx.
0
5
10
15
20
25
30
USdollars
35
ALB BIH MKD MNE SRB EU CEB
2008 2015
The six SEE economies rank closely alongside the
CEB in the Networked Readiness Index of the World
Economic Forum, which measures how economies
use information and communication technology
(ICT) for increased competitiveness and well-being.
The SEE economies’share of ICT goods and
services in total exports is lower than the EU and
CEB averages with two exceptions: for ICT services
exports, Serbia has reached the EU average and the
Former Yugoslav Republic of Macedonia, the CEB
average.

ACHIEVEMENTS
l The six SEE economies have taken positive steps to facilitate broadband development and
to align their regulatory frameworks with the European Union (EU) acquis. Most of the SEE
economies have adopted European broadband policies and regulatory frameworks that allow for
palpable improvements in the coverage and speed across communications infrastructures. Most
have also set targets such as providing basic broadband to all citizens, using satellite broadband to
extend coverage to 100% of the population and enabling investments in next generation networks
to deliver 30 Mbps (megabits per second) by 2020.
l Most of the SEE economies have adopted cross-cutting digital strategies to support the
development of ICT across all sectors. Most of the SEE economies have also recognised the
important role of the ICT sector and have adopted strategies to support its development in
co-operation with the information technology (IT) industry.
l The six economies have taken steps to strengthen their e-business and e-commerce legal
frameworks. They have aligned their sectoral legislation and regulations with the European
E-Commerce Directive (2000/31/EC) and have made efforts to address non-legal bottlenecks to
e-business take-up, such as building awareness and capacity among small and medium-sized
enterprises (SMEs).
l Most of the SEE economies have established national Computer Emergency Response Teams
(CERTs) and made progress in adopting cybercrime strategies and legislation. Most of them
have defined critical information infrastructure (CII), and CERTs or similar teams are in place in a
variety of government institutions. The SEE economies, apart from Bosnia and Herzegovina, and
the Former Yugoslav Republic of Macedonia, have already adopted policies and legislation relating
to digital security matters.
l Most of the SEE economies have adopted e-authentication frameworks and improved their
e-authentication schemes. Most have adopted updated e-signature legislation, and in some cases
they have revised their technology selection to promote the wider use of e-authentication. They
are gradually aligning their e-government services with their national interoperability frameworks.

DIGITAL SOCIETY . 55
l Enhance the use of ICT for teaching and learning, as well as for developing e-skills for students
and professionals. All six economies have included relevant strategic objectives in their ICT or
education sector policies, but none have managed to really transform education by using ICT to
take learning to the student and worker, adapt teaching to the learner’s needs or adopt multi-
device and 24/7 learning approaches. Their competency frameworks are largely outdated, the
ICT industry suffers from skills gaps, and schools often lack IT equipment, connectivity and
e-curricula. The SEE economies should therefore co-ordinate their education and digital strategies
and inject more resources to fund equipment purchases and connection upgrading.
l Prioritise the inclusion of underprivileged groups in digital strategies. Policies for e-inclusion
are scarce and incomplete. While progress has been made in adopting e-accessibility regulations,
there is little enforcement of them for public-sector websites and e-services, and in some
cases they are optional. The SEE economies could make the implementation of e-accessibility
mandatory and strengthen the relevant capacities in the public sector.
l Take steps to systematically respect privacy and data protection, especially in social media.
While all six SEE economies have legal frameworks and authorities for personal data protection,
online privacy and data abuse issues are still not clearly understood by data controllers in the
public and private sector. The SEE economies should increase their public awareness campaigns
and enforce mandatory training for professionals in the private and public sector, following OECD
recommendations on privacy and personal data (OECD, 2013c).
l Promote the adoption of digital technology by SMEs. Although all of the SEE economies have
included some relevant measures in their digital strategies, their activities and programmes have
not had any substantial impact on SMEs and should be revised and allocated specific resources.
The SEE economies could consider wider campaigns to promote the adoption of e-business and
e-commerce and look at the legal and non-legal barriers to increased take-up.

Transportation networks are
necessary to facilitate the flow
of people moving between rural
and urban areas. There is a
positive correlation between
efficient transportation logistics
and overall competitiveness
as it lowers access costs to
regions and cities, as well as to international
markets. An efficient transportation grid is also
critical for securing foreign investment. Across
the SEE region, development
strategies ensure the alignment
of transport investment
and maintenance spending
with long-term goals. Strides
have also been made in the
governance sphere, owing to
wide-ranging legislative and
regulatory efforts. However, progress has been
slow on the operational front, including on
procurement and asset management.
KEY STATISTICS
Evolution of road freight transport volumes (2005-15)
Note: Reference year for Bosnia and Herzegovina is 2007. SEE statistical offices and ministries provided economy-specific data as part of the Competitiveness Outlook
assessment conducted in 2016-17.
Source: OECD (2017),“Transport measurement: Freight transport”,Transport (database)
http://stats.oecd.org/Index.aspx?DataSetCode=ITF_GOODS_TRANSPORT; Kosovo Ministry of Infrastructure.
0
50
100
150
200
250
300
350
400
450
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
ALB BIH
MKD MNE
SRB
KOS
TRANSPORT POLICY
PERFORMANCE

TRANSPORT POLICY PERFORMANCE . 57
In light of growing transport volumes, especially
on roads, removing bottlenecks will be critical to
enhancing competitiveness.
In 2015, the numbers of road fatalities per
million inhabitants were higher in the SEE
economies than the EU and OECD averages.
Kosovo and the Former Yugoslav Republic of
Macedonia performed better than the other
economies, while Albania continues to have
the highest fatality rate. However, all of the SEE
economies except the Former Yugoslav
Republic of Macedonia recorded improvements
over the period 2005-15, with Kosovo and
Montenegro achieving the largest reductions in
fatalities.
Road fatalities (2015) and percentage change over 2005-15
Note: Data for Kosovo refer to the period 2005-14. SEE statistical offices and ministries provided economy-specific data as part of the Competitiveness Outlook assessment
conducted in 2016-17.
Source: SEE statistical offices; Ministry of Infrastructure of Kosovo (2015), Sectorial Strategy and MultimodalTransport 2015-2025 and the Action Plan for 5Years,
www.kryeministri-ks.net/repository/docs/SECTORIAL_STRATEGY_AND_MULTIMODAL_TRANSPORT_2015-2025_AND_ACTION_PLAN_FOR_5_YEARS.pdf;
OECD (2017c),“Transport safety: Road injury accidents”, http://stats.oecd.org/Index.aspx?DataSetCode=ITF_ROAD_ACCIDENTS.
0.0
10.0
-10.0
-20.0
-30.0
-50.0
-40.0
-60.00
10
20
30
40
50
60
70
80
90
100
No. of deaths per million inhabitants (left axis) EU average OECD average % change (right axis)

ACHIEVEMENTS
l The six SEE economies have developed long-term transport strategies and established high-
level project selection processes. The latter apply mainly to investment funded by the European
Union (EU), and enable decision makers to have an overview of the infrastructure projects pipeline
over time.
l Regulatory reforms of transport sectors have continued. There has been substantial progress
in introducing and updating legislation to improve the efficiency of the rail, aviation and road
sectors, further promoting harmonisation with the EU acquis.
l Growing interest from private investors is leading to more transport projects considering
alternative procurement methods. There are examples of successful public-private partnerships
(PPPs) in the aviation and maritime sectors and international consortia are increasingly involved
in road and rail projects.
l Institutional mechanisms for road safety measures and their implementation have improved.
Co-ordinated efforts through national road safety councils and the implementation of stricter
policies have led to road deaths falling across the SEE economies.

TRANSPORT POLICY PERFORMANCE . 59
l Strengthen the effectiveness of both the new transport strategies and the project selection
processes. Many of the economies’ strategies currently lack monitoring and implementation
plans. A number of large-scale projects fall outside the scrutiny of formal prioritisation processes
and have gone ahead despite the lack of public evidence on costs and benefits.
l Complete transport market reforms. Although progress has been made, the assessed economies
still need to make final yet important harmonisation efforts, such as reforms to open rail markets
and airspace management plans. Implementing the large body of legislation and regulations
will also be a significant challenge for newly formed and at times understaffed authorities and
government departments.
l Address the drivers of logistics performance, a key enabler of trade competitiveness, in a
co-ordinated way. The SEE economies need to enhance their public policy efforts to reduce
logistics costs and makes freight movements faster and smoother across the region, at both
national and international levels.
l Make the resilience of key transport infrastructure assets a policy priority. The lack of
systematic asset management plans and related maintenance budgets could lead to key assets
deteriorating over time. This risk is heightened by growing pressure on existing infrastructure
from economic growth and from the impact of climate change.
l Integrate key aspects of sustainability, such as environmental quality, into transport strategies.
Existing strategies often fail to encompass key aspects of sustainability. The lack of co-ordination
between infrastructure investment, regulatory regimes and sustainability goals results in high
environmental costs.

Energy policy seeks to achieve
energy security and long-term
sustainability based on effective
governance and regulation;
where possible energy should
be delivered through market-
based mechanisms. Although
the six economies have taken steps to improve
the competitiveness of their energy sectors,
significant hurdles remain. Energy strategies
and action plans must set out measurable
objectives and outcomes, including on renewable
energy and energy efficiency. Similarly, energy
policy should be more closely
aligned with international
and EU good practice, and in
particular should aim to meet
each economy’s commitments
under the Paris Climate
Accord. Taken as a whole, this
dimension reflects how the assessed economies
have improved the delivery of reliable and
affordable energy to consumers. However, room
for improvement exists in several areas, notably
in modernising infrastructure and meeting
sustainability goals.
KEY STATISTICS
Energy intensity (2008-15) – Gross inland consumption of energy divided by GDP
Note: Data for Bosnia and Herzegovina not available. Data for Montenegro from 2011.
Source: Eurostat (2017), Energy Intensity of the Economy (database),
http://ec.europa.eu/eurostat/tgm/table.do?tab=tableinit=1plugin=1language=enpcode=tsdec360.
0
100
200
300
400
500
600
700
Kilograms of oil equivalent per 1000 EUR
2008 2009 2010 2011 2012 2013 2014 2015
ALB KOS
MKD MNE SRB
EU
ENERGY POLICY

ENERGY POLICY . 61
The energy required to produce one unit of GDP, or
the energy intensity, of the six SEE economies is
higher than the EU average. The energy intensity
of an economy is effected by various factors
including their economic structure – the relative
importance of different economic sectors and
their level of energy use, e.g. the industry sector is
more energy-intensive than the service sector.
While industry contributes a greater share to most
of the six SEE economies’ GDPs than the EU
average, their energy intensities are still
substantially higher than the EU average.
This suggests that a growing service sector will
reduce the energy intensity of the SEE economies,
but greater impacts will come from energy
efficiency programmes and technological progress.
While there are many factors which explain the
prevalence of outages across the region, one
important factor is the weak energy infra
structure, which is in dire need of investment.
Data on electric power transmission and
distribution losses in the assessed SEE economies
are consistently well above the OECD average.
Transmission and distribution losses (2007-14) – % of output
Note: The figure shows the share of electric power transmission and distribution losses in electricity production. No data available for Kosovo.
Source: World Bank (2017),“Electric power transmission and distribution losses (% of output)”,
http://databank.worldbank.org/data/reports.aspx?source=2series=EG.ELC.LOSS.ZScountry=ALB,BIH,KSV,MKD,MNE,SRB.
2007
80
% of output
70
60
50
40
30
20
10
0
2014201320122011201020092008
ALB BIH
OECDMKD MNE
SRB

ACHIEVEMENTS
l All six assessed SEE economies have taken steps to improve the competitiveness of their energy
sectors. They have either developed policy frameworks that set objectives across sub-dimensions,
or are actively developing comprehensive policy frameworks. Kosovo and Serbia have the highest
average scores across the entire energy policy dimension, due in large measure to their relatively
strong performance in establishing Third Energy Package-compliant legislative and regulatory
frameworks, and their progress in implementing their policy frameworks.
l All six economies recognise the positive competitiveness effect of regional energy market
formation, and have committed to the Western Balkans Connectivity Agenda, which is a high-level
driver of reform.
l The six SEE economies have identified gaps in their energy infrastructure. Working together
and with the Energy Community Secretariat, they have established a priority list of ten Projects
of Energy Community Interest (PECI): six projects on electricity transmission, three projects on
gas transmission and one on oil transmission. The ten selected projects will benefit from the
streamlined issuing of permits and the possibility of regulatory incentives, cross-border cost
allocation, and funding under the European Union’s (EU) Instrument for Pre-Accession Assistance
and the Neighbourhood Investment Facility. In addition, two electricity and eight gas projects have
been approved as Projects of Mutual Interest with the EU.

ENERGY POLICY . 63
l Remain committed to reforming national and regional energy markets. Energy sector reform
is an ongoing and intense challenge. It will require sustained political and institutional will if the
economies are to achieve both national and regionally shared objectives by implementing the
adopted legislative and regulatory frameworks.
l Adopt and implement urgently the EU Third Energy Package-compliant primary and secondary
legislation. At present compliance with the EU Third Energy Package is patchy at best, but remains
an essential prerequisite for the interoperability of the SEE and EU energy systems, as well as for
improving the productivity and competitiveness of the sector at regional and national levels.
l Ensure that energy policy strategies and action plans set out measurable objectives and
outcomes. Current strategies and policies do not always include well-defined objectives and
outcomes and therefore lack focus. As a consequence reform may be slow, and the evaluation and
monitoring of progress is problematic.
l Implement energy policy fully, including action plans and strategies. Key aspects of several
sub-dimensions have not been implemented. In particular, the strategies and action plans in the
sustainable development sub-dimension have not been fully implemented, which is disappointing
given the considerable potential for renewable energy sources (RES) and energy efficiency to give
the SEE region and economies a significant competitiveness boost. The sustainability of the energy
sector and the competitiveness of the region’s economies are further threatened by plans for
substantial new investments in coal-fired power plants.
l Strengthen administrative and institutional capacity and provide additional resources. Adequate
institutional and administrative capacity is a prerequisite for effective energy sector reform. However
in assessing almost every sub-dimension concerns were raised about insufficient human and/or
financial resources within some national and municipal administrative authorities and regulatory
agencies. Pressure on skills and financial resources is likely to increase due to the dynamic nature of
EU energy policy, and as administrative and regulatory institutions expand their competence across
the whole range of energy sector functions.

Long-term economic
competitiveness in the six SEE
economies depends on fostering
growth while also safeguarding
natural assets. Despite progress
in adopting overarching legal
and policy frameworks, as
well as land-use management
frameworks, significant challenges remain
in the assessed economies. Crucially, they
should further integrate environmental
considerations into their main economic and
sectoral policies, emphasising
the transition to a low-carbon
economy. A key sector is
energy, where their current
energy mix and future plans to
build coal-fired power plants
contradict their climate change
objectives and ultimately, will
exacerbate already high levels of air pollution.
Furthermore, economic instruments including
taxes and user fees should better reflect
environmental costs.
KEY STATISTICS
Production-based CO2
productivity
Note: Production-based CO2
productivity reflects the economic value generated (in terms of real GDP) per unit of CO2
emitted. Production-based emissions refer to gross
direct CO2
emissions from fossil-fuel combustion, emitted within the territory.
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
ALB
GDP/Mt of CO
BIH KOS MKD MNE SRB OECD
2013 2009
ENVIRONMENTAL
POLICY

ENVIRONMENTAL POLICY . 65
Carbon productivity (economic output per unit
of CO2
emitted) has not seen significant
improvement in any of the six SEE economies
over the last few years. It still falls short of the
OECD average, even in the relatively more
carbon productive economies of Albania and
Montenegro thanks to their reliance on
hydropower.
Outdoor air pollution remains high and is a
serious threat to public health, especially in
urban areas.
Mean population exposure to PM2.5
air pollution
Note: μg/M3
– micrograms per cubic metre; PM2.5
– fine particulate matter. All data points are moving five-year averages. Kosovo data points are the population-weighted
averages of macro-regional data for Kosovo, Kosovska Mitrovica, Kosovsko Pomoravlje, Peć and Prizren macro-regions. Serbia data are the population-weighted averages of
macro-regional data concerning the remaining 25 macro-regions.
Source: OECD (2017),“Exposure to air pollution”, OECD Environment Statistics (database), http://dx.doi.org/10.1787/env-data-en.
10
15
20
2000 2013201220112010200920082007200620052004200320022001
OECD
WHO guideline

ACHIEVEMENTS
l All six SEE economies are starting to enact environmental legal and policy frameworks.
Overarching environmental strategies and legislation on core environmental topics are in place.
Strategies to adopt environmental legislation aligned with the EU acquis have also been developed.
l Overall, the populations in the six SEE economies have good connections to improved water
supply and sanitation facilities. Albania and Montenegro have made considerable progress in
expanding access to improved sanitation facilities in the last decade and Kosovo has increased
access to water supply with support from donors and the EU. However, access to public
wastewater treatment in urban areas remains below the OECD average.
l The six SEE economies have adopted legislation and developed a general policy vision for land-
use management, but policies differ in their coverage of local and regional spatial plans, as well
as the level of the capacity and financial resources secured to support policy implementation.
l Integrate environmental considerations and international commitments into the main economic
and sectoral policies. The implementation of the Sustainable Development Goals and selected
multilateral environmental agreements (MEAs) should be enhanced by integrating them into the
relevant sectoral policies and legal frameworks.

ENVIRONMENTAL POLICY . 67
l Accelerate the transition to a low-carbon and circular economy. The current energy mix is highly
dependent on fossil fuels, resulting in high carbon dioxide (CO2
) emissions and poor outdoor air
quality. Hence, energy policy frameworks need to be fully aligned with climate change objectives, and
policies supporting energy efficiency and renewable energy sources with high potential, such as wind
and solar photovoltaics (PV), need to be implemented. Measures to reduce illegal dumping, minimise
landfill waste, expand recycling programmes and execute extended producer responsibility schemes
should be fully defined and implemented.
l Increase the use of economic instruments to incorporate environmental costs and benefits into
budgets. The tax burden should be shifted away from labour towards environmentally harmful
consumption and production patterns. Although the polluter pays principle is legislated, it is not
effectively applied. User fees (e.g. for water and waste) should be fully collected and should be higher
to promote efficient resource use or deter pollution. Widespread environmentally harmful subsidies,
especially in the energy sector (e.g. subsidised coal and transport fuels), should be phased out.
l Define clear roles and responsibilities in the institutional frameworks for environmentally
sustainable development to strengthen policy implementation, enforcement and compliance.
l Improve framework conditions for green investment and innovation. Measures which provide
incentives for businesses to adopt greener technologies – e.g. to use materials and energy more
efficiently – should be put in place and promoted effectively.
l Strengthen natural asset management. Although limited policy frameworks for the management
of land, biodiversity, forestry and water (including some river basin management strategies) are
generally in place, they are not implemented adequately due to a lack of capacity at local levels and
insufficient budgets. Uncoordinated, uncontrolled use of water and land increases the risk of losing
valuable river ecosystems.
l Institutionalise the collection of key environmental statistics and policy monitoring and evaluation
activities. Despite increasing numbers of environmental quality monitoring stations, data are not
systematically collected or published. Accordingly, timely and accurate data should be collected to
enable the government to design and monitor progress in implementing environmental policies and to
better inform the public, decision makers and the authorities on environmental conditions and issues.

Increasing the productivity and
sustainability of agriculture
in the six SEE economies is
critical for achieving their full
economic potential. Regulations
for agricultural inputs safeguard
the economies’ rich natural
resources, while also enabling more
productive agricultural activities. However,
further policy measures and regulations are
required to ensure greater efficiency and
to protect local populations
from harmful pollutants. For
example, agricultural producer
support schemes should be
oriented towards productivity
and sustainability objectives.
Additionally, farmland
consolidation plans should be implemented.
Policy analysis, including evaluation and data
collection, should be strengthened to better
inform policy development.
Budgetary support to agricultural producers in
the six SEE economies ranged from less than 1%
of gross farm receipts in Albania to 6% in the
Former Yugoslav Republic of Macedonia in 2013-
15. This level of support is substantially lower
than the EU (18%) and OECD (14%) averages.
Budgetary support to agricultural producers in
all the assessed SEE economies except Bosnia
and Herzegovina is mostly generated by
measures that are less market distorting. Total
budgetary support to agriculture is dominated
by transfers to individual producers in all the
assessed SEE economies except Albania where it
focuses on general services.
KEY STATISTICS
AGRICULTURE

AGRICULTURE . 69
Composition of budgetary support to producers and total budgetary support to agriculture (2013-15)
% of gross farm receipts % of GDP
Note: Data on market price support in the six SEE economies are currently unavailable so support indicators only include budgetary support. As a result, assuming that market
price support is positive in the six SEE economies, support values are probably lower than they otherwise would be. Data for agricultural output for Albania is 2009-11, for the
FormerYugoslav Republic of Macedonia 2012-14 and for Montenegro 2012-13.
Source: Adapted from APM Database (2016), Agricultural Policy Measures Database, http://app.seerural.org/agricultural-statistics; ASK (2016),“Economic Accounts for
Agriculture”, http://ask.rks-gov.net; BHAS (2016),“Competitiveness in South East Europe: A Policy Outlook 2018: Agriculture Questionnaire”, Responses to the OECD received
from the Bosnia and Herzegovina Agency for Statistics; INSTAT (2012),“Statistical yearbooks through 2011”, www.instat.gov.al; MAKSTAT (2015),“Economic Accounts
for Agriculture”, www.stat.gov.mk; MARD (2015),“Strategy for the Development of Agriculture and Rural Areas 2015-2020”, www.minpolj.gov.me/ResourceManager/
FileDownload.aspx?rid=253749rType=2file=Strategija%20razvoja%20poljoprivrede%20i%20ruralnih%20podrucja%202015-2020.pdf; OECD (2017),“Producer
and consumer support estimates”, OECD Agriculture Statistics (database), http://dx.doi.org/10.1787/agr-pcse-data-en; SORS (2016),“Economic accounts for agriculture
in the Republic of Serbia 2007-2015”, www.stat.gov.rs;World Bank (2017),World Development Indicators (database), http://data.worldbank.org/data-catalog/world-
development-indicators.
0 5 10 15 20
OECD
ALB
BIH
KOS
MKD
MNE
SRB
EU
%
Most distorting support
Other support
0 0.40.2 0.6 1.00.8 1.2
OECD
ALB
BIH
KOS
MKD
MNE
SRB
EU
%
Budgetary support
to producers
General services
support estimate
Transfers to
consumers
from taxpayers

ACHIEVEMENTS
l The six SEE economies have agricultural strategies in place with accompanying annual
programmes and budgets. However, they are at varying levels of readiness for the EU’s Instrument
for Pre-Accession Assistance in Rural Development II (IPARD II); a few of them have already used
IPARD I or similar programmes.
l The assessed economies have reasonably well-developed rural infrastructure. Most rural areas
have functioning roads, electricity, and information and communications technology (ICT), which
enables rural producers to connect to markets for inputs and their crops, and to access critical
information including on weather and technology.
l Agricultural education, research and extension systems are in place in all six SEE economies.
All the economies provide agricultural vocational education and training and university
education, and have agricultural research institutes and functioning extension services.
l The six SEE economies have regulations in place for key agricultural inputs. Regulations for
seeds, fertiliser and tractors protect public health and compliance is not overly burdensome.
.

AGRICULTURE . 71
l Strengthen inter-sectoral co-operation. Low levels of co-operation, co-ordination and synergies
between agriculture and other sectors hold back the performance of rural infrastructure for
agriculture, irrigation systems and agricultural education and research.
l Re-orient agricultural producer support towards better productivity and sustainability objectives.
The current composition of producer support has a large share of payments for commodity output
and input use and is unlikely to facilitate long-term productivity gains and competitiveness. Income
support does not facilitate structural adjustment. Public resources which provide general services for
the sector are better positioned to support productivity and sustainability objectives.
l Fully implement farmland consolidation plans. Small, fragmented farms limit productivity
by hindering economies of scale and do not optimise natural resource use. While land transfer
regulations in general do not pose a barrier, some economies need to make significant efforts to
reform cadastres and clarify property rights.
l Enhance the quality and impacts of the agricultural innovation system. Increase investment in
research and development, both public and private. Enhance the resources and human capacities of
extension services and encourage private consultants to supply them.
l Enhance environmental objectives across agricultural policy frameworks. The economies’ current
agricultural legislation, producer support, rural development measures, education, research and
extension do not provide sufficient incentives for the efficient use of natural resources nor safeguard
them from pollution. Economies should continue to transpose the EU Nitrates Directive and prepare
to implement the associated agri-environmental measures associated with the IPARD programme.
l Strengthen policy analysis to better inform policy development. Build the necessary databases to
inform policy analysis, including data on agricultural economic accounts, employment and output.
Monitoring and evaluation practices for the EU and other donor-funded programmes such as IPARD
are well established, but monitoring and evaluation activities should be expanded to cover government
programmes. Use basic data and evaluation findings to inform new policies more consistently.

A robust tourism sector can
support economic development
and offer employment growth,
particularly in seasonal labour
markets. This dimension
considers how tourism policy
can be leveraged to meet the
highest industry standards and
support regional economies in destination
branding and promotion. Considering
the importance of tourism to regional
economies, the private sector
is slowly embracing strategy
development. Nonetheless,
the tourism workforce in the
six SEE economies still lacks
professionalism, and tourism is
not yet seen as an attractive and
profitable career choice. Hence,
stronger links between the business sector,
academia and tourism are needed to achieve
the sector’s full potential.
KEY STATISTICS
Key tourism statistics by economy
Note: No information available for Kosovo.
Source: Estimates of theWTTC (2017), Travel Tourism: Economic Impact Country Reports,
www.wttc.org/-/media/files/reports/economic-impact-research/regions-2017/world2017.pdf.
Economy Tourism contribution
to GDP, 2016
Tourism employment
contribution, 2016
Tourism receipts as %
of total exports, 2016
Albania 8.4% direct
26.0% total
7.7% direct
23.9% total
56.1%
Bosnia and Herzegovina 2.5% direct
9.2% total
3.0% direct
10.6% total
12.3%
Former Yugoslav Republic
of Macedonia
1.8% direct
6.7% total
1.6% direct
6.1% total
5.4%
Montenegro 11.0% direct
22.1% total
6.5% direct
14.6% total
49.3%
Serbia 2.3% direct
6.7% total
1.9% direct
5.0% total
7.7%
TOURISM

TOURISM . 73
Tourism is an important economic sector for SEE.
Industries that deal directly with visitors (e.g.
hotels, travel agents and airlines) in the region
generated over 5% of regional GDP and 4% of total
regional employment in 2016. As travel and
tourism continue to expand globally, the region
can position itself to benefit further from tourists’
increased interest in the new experiences and
authentic history and culture it offers.
The six assessed SEE economies – Albania, Bosnia
and Herzegovina, the Former Yugoslav Republic
of Macedonia, Kosovo, Montenegro and Serbia –
all have tourism frameworks and institutions in
place. The qualitative assessment of tourism
policies in the region found that tourism
prioritisation and promotion is the strongest area
for many of the economies, while providing a
qualified workforce is the area with the most
scope for improvement. The scores also suggest
that there is significant room to strengthen
policies across all the tourism sub-dimensions.
Therefore, in time, their short-term advantages
based on price competitiveness and novelties are
likely to become less significant. It will take
effective, whole-of-government policies, across all
five tourism sub-dimensions, to bring lasting
progress in improving competitiveness and
supporting sustainable and inclusive tourism
growth in the region.
The growth in international tourism (1995-2016)
Note: No information available for Kosovo.
Source: World Bank (2017) World Development Indicators (database), https://data.worldbank.org/products/wdi.
0
1
2
3
4
5
million arrivals
95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
ALB BIH
MKD MNE
SRB

ACHIEVEMENTS
l All six SEE economies have adopted strategies for tourism development and promotion and
have taken initial steps to support a more sustainable tourism industry. Strategic documents
on the natural and cultural heritage do occasionally focus on tourism, as well as environmental
protection. Some of the economies also aim to ensure that their new tourism strategies build on
previous lessons, recent market research and capacity-building plans.
l Destination branding and product development have improved the tourist offer, targeting
specific tourism market segments, including mountain and adventure tourism. The six economies
have also taken specific measures to strengthen their offer in culture and adventure tourism.
This reflects their aspiration to realise the full potential of the sector for job creation, growth and
enhanced well-being of SEE citizens.
l Private-sector involvement in policy design and implementation is slowly increasing through
dialogue on relevant legislative changes and strategy development. The six SEE economies are
beginning to introduce targeted incentives to encourage investment and higher-quality standards
for tourism-related services.
l The economies have taken steps to attract more
international visitors from emerging markets and
neighbouring countries by improving accessibility,
branding and perceptions. This reflects a growing
appreciation of the importance of marketing
tourism in a highly competitive global environment
with over 200 countries as destinations. Each
economy has taken steps to liberalise visa
arrangements among many countries, including
those in the European Union (EU), the People’s
Republic of China and India. They are also
establishing regional hub airports attracting low-
cost as well as some domestic carriers.

TOURISM . 75
l Systematically implement a whole-of-government approach to tourism, engaging relevant public-
sector institutions, with support from the industry. Most economies need to increase the financial and
human resources allocated to tourism development.
l Forge stronger links between natural and cultural resource strategies and tourism and increase
transparency on the respective budget allocations.This would be key for implementation and
sustainability.
l Bring tourism infrastructure into line with internationally recognised standards. The accessibility of
the region by air, land and sea needs significant improvement to attract greater numbers of tourists.
l Further professionalise the tourism workforce and address the significant skills gaps in the sector.
All six economies need to review their existing frameworks for vocational education and training,
higher education, and lifelong learning to strengthen their links to tourism.They also need to make
tourism a more attractive career choice and strengthen the links with businesses and academia to
address skills gaps.
l Develop tourism data and statistics in line with international standards and good practice,
address gaps in the evidence base and the lack of satellite accounts. Existing data need to be more
comprehensive to inform strategic planning and decision making, and to facilitate monitoring of
implementation.
l Improve co-ordination among institutions promoting tourism at central, regional and local levels.
The six SEE economies need to foster regular interaction among bodies and services at all levels.This
interaction should also track progress of reforms.
l Put in place independent monitoring and evaluation of tourism-related action plans and strategies
to learn from experience and support policy adjustments. Particular emphasis is needed on synergies
between sectors, i.e. transport, environment, investment promotion and education.

High-quality public services
– including all aspects of their
design and delivery – are critical
to competitiveness and growth
in the six SEE economies.
Legal frameworks for public
procurement, merit-based
recruitment and government
session procedures are generally well
developed, but full implementation remains a
challenge. In public procurement, procedural
compliance is the focus rather
than good outcomes. The
legislated principle of merit-
based access to civil service
positions is not fully reflected in
practice. The assessed economies
should strengthen the use of
evidence-based approaches and
public consultations in policy making. They
should also continue their efforts to modernise
and digitalise public services.
KEY STATISTICS
Backlog of administrative cases and clearance rates of administrative courts
Note: Data for Bosnia and Herzegovina are for the court at the state level.The 2014 clearance rate for Bosnia and Herzegovina is unavailable.The clearance rate is defined as
the number of resolved cases divided by number of incoming cases.
Source: OECD (2017), Monitoring Report: Albania, www.sigmaweb.org/publications/Monitoring-Report-2017-Albania.pdf; OECD (2017), Monitoring Report: Bosnia and
Herzegovina, www.sigmaweb.org/publications/Monitoring-Report-2017-Bosnia-and-Herzegovina.pdf; OECD (2017), Monitoring Report: Kosovo, www.sigmaweb.org/
publications/Monitoring-Report-2017-Kosovo.pdf; OECD (2017), Monitoring Report: The Former Yugoslav Republic of Macedonia, www.sigmaweb.org/publications/
Monitoring-Report-2017-the-former-Yugoslav-Republic-of-Macedonia.pdf; OECD (2017), Monitoring Report: Montenegro, www.sigmaweb.org/publications/Monitoring-
Report-2017-Montenegro.pdf; OECD (2017), Monitoring Report: Serbia, www.sigmaweb.org/publications/Monitoring-Report-2017-Serbia.pdf.
0
5000
10000
15000
20000
25000
30000 180
160
140
120
100
80
60
40
20
0
ALB
2014 2016 2014 2016 2014 2016 2014 2016 2014 2016 2014 2016
BIH KOS MKD MNE SRB
Backlog (administrative cases) Backlog at the end of the year Clearance rate Clearance rate (%)
PUBLIC SERVICES

PUBLIC SERVICES . 77
Clearing the backlogs of administrative cases in
Albania, Bosnia and Herzegovina, Kosovo, and
Serbia is unlikely in the foreseeable future
unless extraordinary measures are taken. While
the clearance rates in Albania and Kosovo are
over 100%, the number of new cases is even
greater resulting in a growing backlog. In Bosnia
and Herzegovina, the efficiency of courts dealing
with administrative cases varies across the
economy. In Serbia, the clearance rate dropped
below 90% resulting in a growing backlog.
Across all six SEE economies, businesses
reported that their reasons for not taking part in
public procurement related to the quality of the
tender and fairness of the procedure.
Reasons businesses did not take part in public procurement (2017)
Note: Full question: In the past three years, has your company decided not to take part in a public tender or a public procurement procedure? If yes, why?
Source: Regional Cooperation Council (2017), Balkan Barometer 2017: Business Opinion Survey, www.rcc.int/seeds/files/RCC_BalkanBarometer_BusinessOpinion_2017.pdf.
0
10
20
30
40
50
60
70
%
The criteria seemed to be tailor-made for certain participants
Unclear selection or evaluation criteria
The procedure seemed too bureaucratic or burdensome
The deadlines for submitting the bid was too tight and impossible to meet
The deal seemed to have been sealed before the tender was published

ACHIEVEMENTS
l The six SEE economies are showing an increased commitment to improving their standards
of economic governance. In recent years, the SEE economies have strengthened their efforts
to improve their economic governance, supported by initiatives such as Economic Reform
Programmes (ERPs) and the Competitiveness Outlook assessment.
l The SEE economies have well-developed legislative frameworks for public procurement,
including systems to handle complaints. The frameworks are largely aligned with the European
Union acquis, though some inconsistencies remain. The scope of their review and remedy systems
are also to a large extent in line with the requirements of the acquis. However, one challenge to
their implementation is the focus on procedural compliance rather than good outcomes.
l Most of the SEE economies have established legislative frameworks for merit-based recruitment of civil
servants. Key elements in place include the principle of merit, defined professional categories for civil
service staff and legislated competition for positions. However, they are not fully reflected in practice.
l The six SEE economies have legal frameworks to guide procedures for government sessions
– i.e. formal, regular meetings of ministers. The legal frameworks set out procedures to prepare
for, follow-up and communicate on government sessions. They also define the roles and
responsibilities of the centre-of-government institutions which ensure legal compliance and
conformity with procedures, and policy coherence.
l Strengthen the use of evidence in policy making. Regulatory
impact assessments (RIAs) should be conducted for all draft
legislation and policies which require them, and should include
basic elements such as a problem analysis and a comparison of
the options, grounded in evidence. Furthermore, the RIA process
and the financial impact assessment should be linked.Additional
capacity building for line ministries should support this.

PUBLIC SERVICES . 79
l Further develop the public consultation legal framework and its implementation. Requirements for
public consultation should be more systematically enforced. Central portals for public consultation
should be used more systematically.
l Strengthen recruitment procedures for the civil service. Objective selection methods should be
reinforced by developing and using common standards to design written exams and structured inter
views. The SEE economies should also enhance the capacity and professionalism of selection panels.
l Reduce the backlogs in administrative courts of appeals. Albania, Bosnia and Herzegovina, Kosovo
and Serbia should develop and implement a corresponding action plan, including measures to increase
the number of judges and legal assistants in the administrative courts and to establish a mechanism
to regularly monitor the courts’ workload.Albania and Kosovo should establish case-management
systems, and Serbia should enhance its existing one.
l Continue to modernise and digitalise public services. The SEE economies should continue to
implement their strategies and build political support for these reforms.They should provide digital
skills training and awareness rising for the general public.
l Further develop laws and implementing regulations on public procurement by harmonising them
with recent EU procurement directives.This includes abolishing preferences for domestic bidders and
goods of domestic origin, and reducing the use of the lowest price as the only criterion for awarding
contracts. Secondary legislation should be reoriented away from formal procedures to focus on
transparency and value for money.
l Enhance e-procurement systems and expand their use. Montenegro should start implementing
e-procurement, while the remaining economies should increase its use.Their e-procurement systems
should be expanded to include monitoring functions and modern purchasing tools such as e-auctions,
e-catalogues and dynamic purchasing systems.
l Improve the procedures of public procurement review bodies. Review procedures should be clarified
and simplified to improve the quality of complaint processing. Electronic case-management systems
should be made fully operational and mechanisms put in place to ensure the consistency of review
bodies’ decisions, especially by making past decisions fully searchable.
.

Corruption imposes a variety
of costs on society and can
diminish the competitiveness
of an economy. It wastes public
resources, widens economic
and social inequalities, breeds
discontent and political
polarisation, and reduces trust in
institutions. Corruption perpetuates inequality
and poverty, affecting well-being and the
distribution of income. Moreover, it undermines
opportunities to participate equally in social,
economic and political life. Corruption can
hamper growth, lower the productivity of
capital, reduce incentives for innovation and
productive labour, and discourage foreign direct
investment. As such, fighting
corruption is essential to foster
long-term economic growth and
competitiveness. This dimension
assesses the state of current
anti-corruption policies across the
region. All of the SEE economies
have begun to effectively collect
detailed information on the implementation
progress of their anti-corruption strategies and
action plans. They have adopted new laws and
established anti-corruption institutions. While
public awareness has been raised across the
region, there remains scope for governments
to co-operate more effectively with civil society
groups on anti-corruption issues.
All six SEE economies are making efforts to
tackle conflicts of interest and have adopted
laws to regulate them. However, the public
officials that are covered by dedicated conflict-
of-interest laws vary. In several of the economies
(for example, Bosnia and Herzegovina at the
state and entity level, Kosovo, Montenegro, and
Serbia), civil service laws govern the conflicts of
interest of civil servants. Generally, the conflict-
of-interest frameworks cover public-sector office
holders comprehensively.
KEY STATISTICS
ANTI-CORRUPTION
POLICY

ANTI-CORRUPTION POLICY . 81
The SEE economies all provide guidance to
officials on how to manage conflicts of interest.
This guidance includes publications and/or
opportunities to ask questions. For example,
Albania has published the Explanatory and
Training Manual for Preventing Conflict of
Interest; the Guideline on the Declaration of
Assets and Prevention of Conflict of Interest,
which covers all public servants; as well as
guides on preventing conflict of interest in
particular sectors such as tax administration,
customs administration, public procurement
and local governments. The Former Yugoslav
Republic of Macedonia has also published a
variety of guidance notes on managing conflicts
of interest. Serbia has published guidance notes
which look more broadly at integrity, and
Montenegro has published rulebooks.
Preventing and managing conflicts of interest
Number of sanctions (including warnings) applied for conflict-of-interest related violations (2016)
Note: Data for the FormerYugoslav Republic of Macedonia from 2015. Data for Bosnia and Herzegovina were not available. In Kosovo, the seemingly low number of sanctions
(just 9) is mostly explained by the large number of cases where no sanctions were applied: of 210 cases of reported conflicts of interest, in 90 of them the conflict of interest
was averted and in 54 opinions (advice) were issued.
Source: Data provided by the governments. Kosovo: ACA (2017), Annual Report January – December 2016,
http://akk-ks.org/repository/docs/ANG-9._Raporti_Vjetor_2016_versioni_final_shqip_477475.pdf; Serbia: Anti-corruption Agency (2017),“Izveštaj o Radu za 2016.
Godinu”[Work report 2016], www.acas.rs/wp-content/uploads/2017/03/Izvestaj-o-radu-2016-za-net.pdf?pismo=lat.
0
100
200
300
400
500
ALB KOS MNEMNE SRB

ACHIEVEMENTS
l Most economies have adopted comprehensive anti-corruption policy documents and
taken steps to involve civil society in their preparation and monitoring. These documents
typically contain clear objectives, concrete tasks and deadlines. They assign responsibilities to
implementing bodies and define follow-up mechanisms.
l All six SEE economies have made efforts to raise public awareness of anti-corruption issues and to
train public officials. Several economies have run extensive campaigns targeting the general public.
l All of the economies have assigned clear responsibilities for co-ordinating the implementation
of anti-corruption policy documents. They often have sophisticated procedures for appointing
the leadership of their corruption prevention and co-ordination institutions in order to ensure
transparency and limit the risk of undue political interference.
l The economies generally have comprehensive legal frameworks for managing conflicts of interest.
All relevant public officials and civil servants are generally covered by conflict-of-interest rules.

ANTI-CORRUPTION POLICY . 83
l Improve the involvement of civil society in policy development and the preparation of draft
legislation by outlining the terms of co-operation more clearly, for example for how participating
organisations will be selected and for providing feedback on their responses.
l Ensure more systematic and comprehensive corruption proofing of legislation. The six SEE
economies are still not widely corruption proofing new legislative proposals.
l Make public awareness-raising activities more sustainable in those economies where there is
insufficient funding from government budgets.
l Some multi-stakeholder co-ordination institutions should do more to demonstrate their
effectiveness. In several of the economies, stakeholders have indicated that the relevant councils or
similar bodies are not proactive and stakeholders generally feel insufficiently involved.
l Implement the whistleblower protection laws enacted by all of the SEE economies. The particular
challenges vary from economy to economy, but include a lack of public awareness about the options
for protection, as well as the need to improve the effectiveness of protective measures.
l Provide better safeguards to protect anti-corruption investigation units from undue interference.
For instance, they are usually not separated from the regular police hierarchy and several of the anti-
corruption investigation or prosecution bodies suffer from staff shortages.

Endnote from page 45:
1. Endnote byTurkey:The information in this
document with reference to“Cyprus”relates to the
southern part of the Island.There is no single authority
representing bothTurkish and Greek Cypriot people
on the Island.Turkey recognises theTurkish Republic
of Northern Cyprus. Until a lasting and equitable
solution is found within the context of United Nations,
Turkey shall preserve its position concerning the
“Cyprus”issue; 2. Endnote by all the European Union
Member States of the OECD and the European Union:
The Republic of Cyprus is recognised by all members
of the United Nations with the exception ofTurkey.
The information in this document relates to the area
under the effective control of the Government of the
Republic of Cyprus.
Ms Marzena KISIELEWSKA
Head of the OECD South East Europe Division
Marzena.KISIELEWSKA@oecd.org
Mr Jakob FEXER
Project Manager of the SEE Competitiveness Outlook
Jakob.FEXER@oecd.org
Mr Hendrik BOSSHAMMER
Project Manager of the SEE Competitiveness Outlook
Hendrik.BOSSHAMMER@oecd.org

The Organisation for Economic Co-operation and Development (OECD) is a unique forum where 35
member governments work together to address the economic, social and environmental challenges of
globalisation.The OECD is also at the forefront of efforts to understand and help governments address
emerging policy issues such as finding new sources of growth, building skills, and restoring public trust in
government and business.The OECD provides a setting where governments can compare policy experiences,
seek answers to common problems, identify good practice and work to co-ordinate domestic and
international policies. It increasingly engages with a number of non-members who have become important
actors in today’s global economy.
www.oecd.org
The OECD Global Relations Secretariat works to enhance the Organisation’s impact and relevance by
strengthening relations with partner countries. It promotes and facilitates partner country participation in
OECD activities in support of the Secretary-General’s Strategic Orientations and according to member
countries’vision of the OECD as a global policy network. Ultimately, the OECD’s Global Relation strategy seeks
to create a global community of economies committed to finding joint solutions for common challenges,
guided by evidence-based policy advice and standards.
www.oecd.org/global-relations

Competitiveness and Private Sector Development
Competitiveness in South East Europe
A POLICY OUTLOOK 2018
Future economic development and the well-being of citizens in South East Europe (SEE) increasingly
depend on greater economic competitiveness. Realising the region’s economic potential requires
a holistic, growth-oriented policy approach. Against the backdrop of enhanced European Union
(EU) accession prospects and a drive towards deeper regional co-operation, SEE governments have
demonstrated a renewed commitment to enacting policy reforms.
ThesecondeditionofCompetitivenessinSouthEastEurope:APolicyOutlookseekstohelpSEEpolicy
makers assess progress made towards their growth goals and benchmark them against regional
peers and OECD good practices. The 17 policy dimensions addressed in this report encompass a
wide range of areas key to economic competitiveness including the business environment, skills
and capacity, the region’s economic structure and its governance. The report leveraged a highly
participatory assessment process which brought together more than 1,500 individual stakeholders
including OECD experts, SEE policy makers, private sector representatives and regional policy
networks and organisations to create a balanced view of performance.
Since the last edition of the Competitiveness Outlook, there have been areas of noteworthy
progress. The six assessed SEE economies have adopted strategies to improve the overall standard
of education, acted to remove technical barriers to trade and taken steps to establish better
financing mechanisms for small and medium-sized enterprises. Further efforts are underway to
expand broadband services and close the digital divide, tackle inefficiencies in the energy and
agriculture sectors, and address demographic challenges posed by long-term unemployment.
Notwithstanding these important gains, there remain considerable challenges for these economies
as they continue their journey towards structural reform.
www.oecd.org/south-east-europe

Pocketbook: Competitiveness in South East Europe 2018

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