Friday, July 01, 2005
Private Sector Development in the CIS7 Countries
By: The Enterprise Research Institute
For: The World Bank, 2002
The CIS7 countries are among the new sovereign states, formerly part of the Soviet Union, that are attempting to formulate and implement policies to encourage growth and prosperity under a system far removed from the central planning that characterized their former existence. With the coming of peace and macroeconomic stability being restored in most of the countries, hopes initially were high for substantial rates of economic growth. It was thought that if prices were liberalized, if the foreign trade regimes were reformed and if there was widespread privatization, the high levels of human capital that exist in most of this group of countries, plus the natural resources that several possess would lead quickly to prosperity. Many of the countries passed legislation that was thought to be friendly to foreign investors and made progress in other areas such as legal reform. These hopes, however, were not realized. For various reasons, the results of the privatizations were disappointing and the high levels of human capital and natural resource endowments did not lead to economic success. Trade reform has occurred but exports are disappointing. Collectively, the CIS7 group continues to be challenged by the small size of their economies, the geographical isolation and high costs of transport and very unfavorable business environments and underdeveloped or virtually non-existent financial markets. In spite of widespread donor assistance and substantial amounts of aid, both in the form of grants as well as loans, growth rates are much lower than had been expected and on the basis of per capita income, this group of countries is among the poorest in the world. This paper reviews the most important topics and policy issues for developing the private sector in the CIS7 countries. It identifies themes that affect private economic activity, which appear to be common to most of the countries in the group. It looks at financial sector development and discusses reasons for the continued financial repression. It identifies the most important institutions that underpin private sector development and examines how they function. It also looks at the cost of transacting in these countries in order to ascertain the effect that transaction costs have on the structure and nature of the private sector. The approach is based on an overview of the common issues across the countries in the CIS7 group, which are illustrated by examples in the individual countries. The paper concludes by identifying issues that are amenable to policy interventions and point out areas where knowledge needs to be augmented by further investigation in order to make clear policy recommendations.
For: The World Bank, 2002
The CIS7 countries are among the new sovereign states, formerly part of the Soviet Union, that are attempting to formulate and implement policies to encourage growth and prosperity under a system far removed from the central planning that characterized their former existence. With the coming of peace and macroeconomic stability being restored in most of the countries, hopes initially were high for substantial rates of economic growth. It was thought that if prices were liberalized, if the foreign trade regimes were reformed and if there was widespread privatization, the high levels of human capital that exist in most of this group of countries, plus the natural resources that several possess would lead quickly to prosperity. Many of the countries passed legislation that was thought to be friendly to foreign investors and made progress in other areas such as legal reform. These hopes, however, were not realized. For various reasons, the results of the privatizations were disappointing and the high levels of human capital and natural resource endowments did not lead to economic success. Trade reform has occurred but exports are disappointing. Collectively, the CIS7 group continues to be challenged by the small size of their economies, the geographical isolation and high costs of transport and very unfavorable business environments and underdeveloped or virtually non-existent financial markets. In spite of widespread donor assistance and substantial amounts of aid, both in the form of grants as well as loans, growth rates are much lower than had been expected and on the basis of per capita income, this group of countries is among the poorest in the world. This paper reviews the most important topics and policy issues for developing the private sector in the CIS7 countries. It identifies themes that affect private economic activity, which appear to be common to most of the countries in the group. It looks at financial sector development and discusses reasons for the continued financial repression. It identifies the most important institutions that underpin private sector development and examines how they function. It also looks at the cost of transacting in these countries in order to ascertain the effect that transaction costs have on the structure and nature of the private sector. The approach is based on an overview of the common issues across the countries in the CIS7 group, which are illustrated by examples in the individual countries. The paper concludes by identifying issues that are amenable to policy interventions and point out areas where knowledge needs to be augmented by further investigation in order to make clear policy recommendations.