WESTERN BALKANS Potential for investing in developing reliable
WESTERN BALKANS Potential for investing in developing reliable fresh produce supplier Goran Damovski Agribusiness Team Leader, USAID Regional Economic Growth (REG) Project Fruitnet Forum, 29 th November 2016, Belgrade Ag. Biz. MK
Just for context: Project Name: E&E Regional Economic Growth (REG) USAID REG Project promotes broad based, inclusive and sustainable economic growth in the E&E region through greater intraregional economic integration and harmonization in the E&E region and other markets. Strategic Objectives: • Increase capacity of AG service providers to understand market requirements and create new market linkages particularly with EU customers, such as supermarket chains moving into the region. • Improve competitiveness of regional AG value chains and capacity to export to key markets. • Increase capacity of AG service providers to meet international food safety/product handling and other key standards. Ag. Biz. MK
The 2016 edition of the OECD-FAO Agricultural Outlook highlights that for the sector to meet the expanding demand for food, feed and raw products for industrial uses, significant production growth is needed. This expansion will have to take place in the face of declining land water availability for many areas in the world, compounded by the effects of climate change. It is clear that the majority of growth will have to come from more efficiency in agricultural production, but also from improvements throughout the wider value chain. The international community has recognized the key role of agriculture in addressing society’s goals. Agriculture is a key sector for the achievement of many goals in the 2030 Agenda for Sustainable Development, which aims to end poverty and hunger and promote prosperity and people’s wellbeing, while protecting the environment. Ag. Biz. MK
Western Balkans Progress in the EU enlargement process. • • • Albania, Bosnia and Herzegovina, Macedonia, Kosovo, Montenegro and Serbia Exciting growth prospects and promising opportunities but also challenges Ag. Biz. MK
Comparison in living standards vis-à-vis western, southern and eastern European EU countries. GDP per capita in the Western Balkans 1/2 of East EU 1/3 of South EU 1/4 of West EU Source: World Economic Outlook, IMF, October 2015. Ag. Biz. MK
Current WB countries outlook • Principal progress towards eventual EU membership resulting in market-oriented reforms and European standards. • Growing regional cooperation in recent years • High degree of macroeconomic stability with fixed or controlled exchange rates and very low inflation. • Western Balkans improved in performance over the past decade • The region is well-placed geographically • WB region lags behind Western European countries in terms of competitiveness, governance and ease of doing business, • However, clear indicators for optimistic future trends: institutions and governance standards are being slowly but steadily improved, especially in the EU candidate countries. Ag. Biz. MK
Significant progress in reforming their tax systems Low tax rates (and often favorable tax breaks for large investors), competitive unit labor costs, and relatively high levels of education and language skills, especially among young people. During the past decade, tax rates in the region relatively stable Source: The World Bank’s Doing Business database. Ag. Biz. MK
An important advantage for the Western Balkans region is its easy and free access to EU markets. This has been enabled by its geographic proximity to major European markets and the free trade agreements that the countries of the region have signed with the European Union. The region is linked with the rest of Europe through the Pan-European corridors Ag. Biz. MK
Western Balkans features Overall: • Gateway to Europe • All of Europe in 1 -3 days via truck or rail • International airports and proximity to international ports • No trade barriers, free trade agreements • Near to Middle East and North Africa Ag. Biz. MK
Attracting foreign investment - vital for achieving growth. The region has significant advantages as an investment destination, but still indecisive image due to long transition period. Significant potential for Agribusiness development • Countries can consolidate agricultural holdings, • Improve the quality of collection, • Storage and marketing, and • Develop agricultural support services including extension, insurance etc. Ag. Biz. MK
Financial incentives • With a goal of attracting foreign investments, a special financial subsidies package introduced for companies that invest in the Balkan countries. • The state grants are intended to be used for Greenfield and Brownfield projects Incentive is granted for: - Eligible costs of expenditures for fixed and intangible assets - Gross salary costs for new jobs created (additional incentive is granted for labor intensive projects) • Free zones where business activities are performed with a preferential customs treatment, tax relief and simplified export procedures Ag. Biz. MK
Agriculture plays a vital role in the Western Balkans, both socially and in terms of employment. Agriculture (together with forestry and fishing) accounts for 12 per cent of value added on average, ranging from only 7 per cent in Bosnia and Herzegovina to 23 per cent in Albania. This contrasts significantly with the EU-11 where on average the sector accounts for only 4 per cent of economies. Structure of economy, per cent of gross value added, 2014 ALB BIH* MKD KOS MNE SRB Agriculture, forestry and fishing (%) 23 7 14 10 10 9 Trade, transport and food service (%) 18 23 21 21 27 18 Ag. Biz. MK
Assistance to Western Balkans countries towards full EU membership through Instrument for Pre-Accession Assistance (IPA) funds for the period 2014 -20 Supporting reforms in democracy and governance, rule of law, environment, transport and energy, competitiveness, social policies and agriculture and rural development. Pre-Accession Assistance for Rural Development – IPARD (2014 -2020) ALB BIH* MKD KOS MNE SRB Agriculture and rural development 92 106 80 52 210 Total, € million 649 166 664 646 271 1, 508 Source: EC, http: //ec. europa. eu/enlargement/instruments/overview/index_en. htm. Ag. Biz. MK
However, there are challenges to be considered: • Lack of business sophistication and quality transport infrastructure • Agricultural sector, mainly consisting of small-scale and inefficient subsistence farming. • Scattered strategy of companies, wide range of products to diverse risk • Insufficient market analysis and targeted marketing efforts • Lack of proficiency of agribusinesses to clearly define exact constrains, needs and opportunities. • Still heavily relying on regional markets that are less restrictive in terms of quality and food safety standards • Some companies export efforts still driven by Government support programs Ag. Biz. MK
USAID REG Survey with the objective: Better understanding export trade circumstances and key constraints in standards and certifications that impede export growth Enable the REG Project to make optimal decisions in designing technical assistance to maximize impact The Survey identified key constraints and needs across the region Ag. Biz. MK
Main Fresh Fruit and Vegetables exported from REG • Source: USAID REG Survey Ag. Biz. MK
Prioritized main constraints /needs: • Lack of capacity for post-harvest operations according highest wholesale/supermarket standards • Adoption of Food Standards and certifications needed to expand export growth opportunities • Lack of market analysis, proficiency in marketing strategy and target marketing of key export markets • Unstable backward linkages and unreliable raw materials supply • Improving the quality of products and production technologies • Producer organizations, lack of horizontal coordination of primary producers • More efficient use of funds from the IPARD / EU funds 0 Ag. Biz. MK 20 40 60 80 100
Other factors limiting export growth Ag. Biz. MK
o Greenfield and brownfield investments: • Direct investments of big foreign companies which have access to EU and other markets and to capital, as well as the know-how on how to organize and improve market chains. • Investments by local companies which have experience in organizing market chains in agriculture. o Increase of existing capacity and improvement of product standards of existing F&V industry business. o Investments in production / processing capacities of local processing companies / groups, regardless of whether they are organized as cooperatives, associations of cooperatives or consumer associations. Ag. Biz. MK
Investment trends: The Gulf, one of the world’s biggest food importing regions, have stepped up efforts to buy and lease farmland in developing nations to secure food supplies. • Abu Dhabi-based firm Al-Dahra agreed to invest $ 400 million to establish a joint venture investment with the Serbian Government to develop 9, 000 hectares of farmland to produce a range of crops, meat and dairy products. The investment included buying of eight Serbian farm companies and develop them to grow and process food and fodder for export, in the biggest investment in Serbian agriculture • Middle East investors entered project like ESOF (Bi. H); Apple land (MK) Ag. Biz. MK
Potential for developing WB into reliable fresh produce supplier - Strengthening of Regional Value Chains Improved linkages with intraregional and/or international markets/buyers Increase knowledge on the target market specific requirements and standards compliance Improved capacity to adopt advanced technology, improve product offer and adding value Ag. Biz. MK
USAID REG Project is looking forward to cooperate with leading AG companies, regional associations, Government institutions, other donor projects, business service organizations to optimize the results from interventions and enhance export growth http: //www. regproject. net Thank you ! Ag. Biz. MK
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