OECD Eurasia Week 2017: "Openness for Shared Prosperity"
Remarks by Angel Gurría
Almaty, Kazakhstan, 24 October 2017
(As prepared for delivery)
Prime Minister, Deputy Prime Ministers, Ministers, Ambassadors, ladies and gentlemen,
It is an honour to welcome you to the fourth annual OECD Eurasia Week. We are grateful to the Government of Kazakhstan and the City of Almaty for the chance to bring Eurasia Week to Eurasia for the first time.
This is a further sign of the region’s deepening engagement with the OECD and, in particular, of our extensive and fruitful collaboration with Kazakhstan under the OECD Country Programme, which we renewed this summer. Your presence here today reflects the importance that OECD members and partners attach to our co-operation with the Eurasia region.
Eurasia and the OECD – a deepening partnership
Increasingly, this co-operation extends beyond existing initiatives that focus on the region, such as the Eurasia Competitiveness Programme or the Green Action Programme. We see growing interest in OECD instruments and multilateral co-operation. Kazakhstan and Ukraine recently adhered to our Declaration on International Investment and Multinational Enterprises. Three Eurasia countries have joined the Inclusive Framework of the Base Erosion and Profit Shifting initiative, which brings together over 100 jurisdictions to combat cross-border tax avoidance, and six are part of our Global Forum on Transparency and Exchange of Information for Tax Purposes.
In addition, Eurasia countries are increasingly active in OECD committees, working parties and global fora, reflecting their interest in peer learning and global standard setting. We will be presenting the fruits of some of this co-operation today and tomorrow.
Challenges to Sustained and Balanced Growth in Eurasia persist
Although growth in the region has strengthened over the last year or so, Eurasia countries are far from regaining the momentum they enjoyed in the decade before the global financial crisis, when the region’s aggregate GDP grew by around 8% per year. Since 2010, it averaged at just 3.3% and the trend is downwards. Getting back onto a growth trajectory that will support long-term convergence with OECD productivity levels and living standards will require a sustained effort to implement the structural reforms needed to foster investment, innovation, entrepreneurship and productivity growth, as well as the strengthening of governance and greater inclusiveness.
For instance, in the OECD FDI Restrictiveness Index, countries of the region score higher than OECD levels; and their border procedures are exceptionally onerous. On average, Eurasia countries’ scores on the OECD Trade Facilitation Indicators are below the levels typical of middle income countries and all but three Eurasia countries fall below the average score for all economies. Reforms here could lead to more – and more profitable – trade.
There is also a need to improve hard and soft connective infrastructure. Transport networks need repair and upgrading, while ICT infrastructure – though rapidly expanding – lags far behind the levels found in the dynamic middle-income economies of Southeast Asia. I am pleased to tell you that, with the support of Kazakhstan, we will this year begin a multidisciplinary project on trade and transport connectivity in the region, looking at the ways Eurasia countries make the most of the opportunities offered by investment projects to improve connectivity, such as China’s Silk Road Economic Belt.
Eurasia countries also need policies to foster a more inclusive growth. During the 2000s, relatively strong growth helped raise the living standards of the least well off: the incomes of the bottom 40% of the population rose faster than the average in almost all Eurasia countries. However, this was driven largely by social assistance and other transfers, and it has proved hard to sustain as growth has slowed. Countries still need policies that do more than redistribute; they need to invest in skills and in policies to broaden access to economic opportunity, so that inclusion is supported by factor accumulation and productivity growth.
Finally better governance will be critical here, not least to address pervasive corruption. On average, according to Transparency International, close to a third of all households pay a bribe to access basic services in any given year. Assessments of regulatory quality, the rule of law and government effectiveness likewise point to the need for improvement, though there has been some impressive progress in these areas over the last decade. Better governance is also critical to inclusion. For example, corruption works against inclusion by favouring the better-off and the better connected, while regulatory quality and government effectiveness are critical to implementing policies to widen access to opportunity.
Eurasia’s future growth depends on further openness
In order to help tackle these challenges, this year we are focusing the theme of the OECD Eurasia Week 2017 on “Openness for Shared Prosperity”. Openness contributes to diversification. This is a central objective for many Eurasia countries which depend heavily on primary resources. Internal openness is critical to the emergence of new firms, activities and sectors. That is why so much of our work with both OECD and Eurasia countries focuses on entrepreneurship, innovation and SMEs, which are key for job creation and prosperity. Diversification policies must allow countries to benefit from enhanced specialisation and larger-scale production, and to seize the opportunities offered by integration into global value chains. Connectivity is critical, because countries with better logistics performance tend to integrate more successfully into manufacturing GVCs.
Openness is critical to environmental sustainability. We cannot address climate change without working together. That requires openness to international environmental instruments and standards, and a readiness to embrace the new technologies and behavioural changes needed to assure a sustainable future. Since the turn of the century, carbon emissions per dollar of GDP have fallen by roughly half across Eurasia. Nevertheless, most Eurasia economies are still fairly carbon-intensive, so sustaining this progress will be critical. Later this week, the OECD’s GREEN Action Programme will bring OECD and Eurasia countries together here at the Rixos to work towards such solutions.
And openness provides opportunities for SME development. OECD work on GVCs shows that, with the right trade, investment and domestic policies, we can better integrate SMEs in global value chains. This is something Eurasia countries increasingly recognise. In recent years, Moldova, Georgia and Kyrgyzstan, in particular, have scaled up efforts to help SMEs to internationalise, both by exporting and building linkages with foreign investors.
Policies to support inclusive openness
But openness is not a goal in its own right and needs to be accompanied with the right structural and social flanking policies to promote better opportunities and enhanced well-being for all. Governments need to work at becoming empowering states.
At the OECD, we have identified policies in three key areas in order to help foster openness for shared prosperity.
First, we need policies to help those hurt by the sometimes disruptive effects of globalisation. We need to replace the “growth first-distribute later” mentality with a more integrated approach in which low income groups are better prepared to profit from globalisation. As such, we need to improve social protection and safety nets. It is surely no coincidence that countries with strong healthcare and social protection systems also seem to manage the challenges of openness rather successfully; I am thinking especially – but not only – of some Nordic OECD members, who perform well in terms of growth, employment and equity.
Second, protecting people is not enough. We also need policies to empower them by boosting skills, encouraging lifelong learning and developing more effective active labour market policies. Better policies for entrepreneurship, competition and SME development are also needed, not least to make it easier for smaller firms to trade and to integrate into GVCs. Our work on export promotion and SME-FDI linkages in Eurasia addresses these issues, which we will be discussing in depth this week.
And third, we need to improve public and private governance and level the playing field by making international business genuinely rules-based. The OECD’s Guidelines for Responsible Business Conduct, for example, oblige investors to maintain high labour, tax, anti-corruption and environmental standards as they invest abroad. They have already been the focus of reviews in two Eurasia countries, and their value is increasingly recognised in the region. The OECD is actively working with a number of Eurasia countries on governance and integrity, at times with some striking results. In Ukraine, in particular, we have been directly involved in the creation of the National Anti-corruption Bureau and the Business Ombudsman, and here in Kazakhstan we have completed an integrity scan that is already contributing to policy changes. Nine Eurasia countries also participate in the Istanbul Anti-corruption Action Plan.
Prime Minister, Ladies and Gentlemen:
As we strengthen our partnership with Eurasia, openness is worth preserving and promoting. It can bring greater prosperity, innovation, diversity and inclusion. The OECD is committed to working with you to design, develop and deliver better policies for better lives in Eurasia. Thank you.