Introduction

The last year has been another challenging one for reformers across the transition region. Many of the factors identified in the Transition Report 2013 that keep countries “stuck” in transition and deter market-oriented reforms – such as weak or negative growth, global and regional turbulence and instability, and weak states and public administrations – continue to be observed. At the same time, however, encouraging signs of progress have been seen in selected cases. While there have been isolated instances of the reversal of reforms, the overall direction has been positive, which bodes well for longer-term growth prospects. In particular, significant progress has been made with the enhancement of infrastructure, as cash-strapped governments increasingly realise the value of fostering private-sector involvement in the building and maintenance of transport links and municipal services.

The EBRD has been systematically tracking the progress of transition and structural reforms since the first Transition Report was published in 1994. However, the way these assessments are carried out has evolved over the years.1 A major advance in 2010 was the introduction of sector-level indicators. These now cover 18 sectors in each country, assessing the size of the remaining transition challenges in terms of creating market structures and building market-supporting institutions. The methodology underlying these sector-level scores is currently the subject of a thorough review and may be altered in the coming years. As a result, this year’s Transition Report adopts a “light-touch” approach. Rather than carrying out a full update, this section reviews developments over the last year and flags major changes that could potentially – but will not necessarily – warrant an upgrade or downgrade of these sector-level scores in the future. As discussed below, the watch list that has been compiled this year is, on balance, overwhelmingly positive. The horizontal country-level indicators measuring liberalisation, privatisation and enterprise reform have been discontinued this year, mainly because the measurement of transition progress has moved beyond the point where it can be adequately captured by these scores. However, developments in the area of competition policy, which is an area that still lags behind, are still being tracked carefully across the region using (among other things) a unique annual EBRD survey of competition authorities.

This year’s Transition Report contains an important innovation, namely the introduction of two new sustainability indicators reflecting the EBRD’s priorities under its Sustainable Resource Initiative (SRI). The existing sustainable energy indicator has been complemented by new indicators measuring the efficient use of water and materials. These two new components assess the extent to which the structures and institutions in the EBRD’s countries of operations promote the reuse and recycling of natural resources. The results suggest that approaches to the efficient use of water and materials are even less developed than in the case of energy efficiency, with cost structures not taking account of the cost of water or environmental degradation.

Lastly, this section updates the EBRD’s youth and gender inclusion scores. The problem of young people being excluded from economic opportunities has attracted attention at a global level in recent years, as it is believed to be one of the main sources of regional instability. The results show that high unemployment among youth populations is a common feature of many parts of the transition region and is exacerbated by large skill mismatches, especially in the southern and eastern Mediterranean (SEMED).

Sector-level transition indicators

Table S.1 presents the current transition scores – which range, as usual, from 1 (denoting little or no progress with market-oriented reforms) to 4+ (denoting the standards of an advanced industrialised economy) – for 15 sectors in 35 countries in the EBRD region.2 As explained above, these scores are the same as those published in last year’s Transition Report, since a full update has not yet been carried out. However, major reforms and other developments have taken place over the last year that may potentially entail changes to scores when the full assessment is conducted. Consequently, a number of scores in the table are shaded in green, indicating that they are on “positive watch”, while others are shaded in orange, signalling that they are on “negative watch”. The former outnumber the latter by a significant margin – by 30 to 8. At a broad sectoral level, the largest number of positive developments is in the area of infrastructure, with 14 scores on positive watch and just two on negative watch. However, positive developments also outnumber negative developments in the corporate sectors (by four to one), the financial sectors (by seven to four) and even the energy sector (by five to one), reflecting a more positive outlook than in recent years.

Table S.1

Sector-level transition indicators in 2015: overall scores and countries on positive/negative watch
Corporate sectors Energy Infrastructure Financial sectors

Agribusiness

General industry

Real estate

ICT

Natural resources

Electric power

Water and wastewater

Urban transport

Roads

Railways

Banking

Insurance and other financial services

MSME finance

Private equity

Capital markets

Central Europe and the Baltic states

Croatia

3

3+

3+

4

4-

3

3+

3+

3+

3-

3+

3+

3-

2+

3+

Estonia

3+

4+

4+

4

4

4+

4

3+

3

4

4-

3+

3+

3-

3

Hungary

4

4-

4-

4-

4-

3

3+

3+

4-

3+

3

3

3

3

3+

Latvia

3

4-

4-

3+

4-

3+

3+

4-

3

4-

3+

3+

3

2+

3+

Lithuania

3+

4

4-

4-

4-

3+

3+

4-

3

3

3+

3+

3

2+

3

Poland

3+

4-

4-

4

3

3+

4-

4-

4-

4-

4-

3+

3

3+

4-

Slovak Republic

3+

4+

4

4-

4-

4

3+

3+

3+

3+

4-

3+

4-

2+

3

Slovenia

4-

3+

4

3+

3+

3

3+

3+

3

3

3

3+

3-

3-

3+

South-eastern Europe

Albania

3-

2+

3-

3+

3-

2+

2+

3-

3-

2

3-

2

3-

1

2-

Bosnia and Herzegovina

3-

2

2-

2+

2

2+

2

2+

3

3+

3-

2+

2+

2-

2

Bulgaria

3

3+

3+

4-

3+

3

3

3+

3-

3+

3

3+

3

3-

3-

Cyprus

3-

4+

3

4-

3-

3

3+

3+

3

Not applicable

3-

Not available

Not available

Not available

3+

FYR Macedonia

3-

3

3-

4-

2+

3

2+

3-

3-

3-

3-

3-

3

1

2-

Kosovo

2+

2-

2-

2+

2

2+

2+

2+

2+

3-

2+

2

3-

1

1

Montenegro

2+

2+

2+

3+

3+

2+

2

3

2+

2+

3-

2+

3

1

2

Romania

3

3+

3+

3+

4-

3+

4-

3+

3

3+

3

3+

3

3-

3-

Serbia

3-

3-

3-

3

2

2+

2+

3-

3-

3

3-

3

3

2

2

Turkey

3-

3

3+

3+

3+

3+

3-

3

3-

3-

3+

3

3

3-

4

Eastern Europe and the Caucasus

Armenia

3-

3

3-

3

2+

3+

3-

2+

3-

2+

2+

2

2+

1

2

Azerbaijan

2+

2

2

2-

2+

2+

2-

2

2+

2+

2

2

2

1

2-

Belarus

2+

2

2

2

1

1

2-

2

2

1

2

2

2

1

2-

Georgia

3-

3-

3-

3-

2

3+

2

2+

2+

3

3-

2

3-

1

2-

Moldova

3-

2-

2+

3

3

3

2

3

3

2

2+

2+

2

2-

2

Ukraine

3-

2+

3-

3-

2-

3

2+

3-

3-

2+

3-

2+

2+

2

2

Russia

3-

3-

3-

3+

2

3+

3

3

3-

4-

3-

3-

2

2+

4-

Central Asia

Kazakhstan

3-

2

3

3

2-

3

2+

2+

3-

3

2+

2+

2

2-

2

Kyrgyz Republic

2+

2

2+

3

2-

2+

2

2

2-

1

2

2-

2-

1

2-

Mongolia

3-

2+

2

3

2

2+

2

2

2-

3-

2+

2

2+

2-

2-

Tajikistan

2

2-

2-

2+

1

2

2

2

2-

1

2

2-

2-

1

1

Turkmenistan

1

1

1

2-

1

1

1

1

1

1

1

2-

1

1

1

Uzbekistan

2

1

2

2

1

2+

2-

2

1

3-

1

2

1

1

1

Southern and eastern Mediterranean

Egypt

2

2

2+

3

1

2+

1

2

2+

2-

2+

2+

2-

2

2+

Jordan

2

2+

3-

3+

2+

3

2-

2+

3-

2

3

2+

2+

2

2

Morocco

2+

3-

3-

3+

2-

2

2+

3

3-

2

3

3-

2+

2+

3

Tunisia

3-

3+

3-

3

2

2

2

2+

2+

2+

2+

2+

2

2-

2+

Green shading denotes country/sector on positive watch
Orange shading denotes country/sector on negative watch

SOURCE: EBRD.

NOTE: The transition indicators range from 1 to 4+, with 1 representing little or no change relative to a rigid centrally planned economy and 4+ representing the standards of an industrialised market economy. For a detailed breakdown of each of the areas of reform, see the methodological notes in this section. A country/sector being placed on positive or negative watch is indicated by a colour code: green indicates positive developments over the past year and orange indicates negative developments. The sustainable energy indicator has also undergone an assessment of positive and negative developments, but is presented in Table S.2 alongside the other two components of the sustainable resource index.

Infrastructure

The largest number of positive developments is in the road sector. In the majority of cases, this reflects an increasing interest in fostering private-sector involvement in the building of new roads or in the maintenance of existing networks. In Poland, for instance, the maintenance and reconstruction of regional roads is continuing to be tendered out on the basis of public-private partnerships (PPPs). In April 2015, for example, the Lower Silesian Road and Railway Service in Wroclaw issued a contract notice for an availability payments-based PPP involving the reconstruction and maintenance of between 90 and 315 kilometres of provincial roads in the Dolnoslaski region.

However, important developments on the PPP front are also occurring in less advanced countries. In Kazakhstan, the Almaty Ring Road PPP was tendered out in the summer of 2015. This was Kazakhstan’s first PPP project, after the government amended legislation in June 2014 to facilitate PPPs. The project involves building a road of 66 kilometres around Kazakhstan’s largest city under a 20-year availability payments-based concession. In Albania the government has relaunched the procurement process for the €40 million Milot-Morine Highway PPP, while preparations are under way for a first PPP road project in Belarus. Other positive developments in the road sector include the introduction of new tolling methods in Russia and Serbia, as well as ongoing discussions regarding the restructuring of a state-owned road construction and maintenance company in Croatia.

Several EU member states and candidate country Serbia have also made important progress in the area of railway-sector reform. Major restructuring of Serbia’s state-owned railway company Železnice Srbije began in July 2015, while the Slovak Republic’s wagon fleet is being privatised and Poland’s freight operator PKP Cargo has conducted successful initial and secondary public offerings. In Croatia, meanwhile, there are several new entrants in the cargo market, including operators from Germany, Hungary and the Slovak Republic. Reforms are also under way in the urban transport sector, which has seen increases in the numbers of private bus operators and maintenance providers in Hungary, as well as a new system for collecting tolls from heavy goods vehicles to be introduced in Russia by the end of 2015.

The picture is more mixed in the water and wastewater sector. In Egypt, a new tariff adjustment schedule for water and wastewater has been endorsed by the government with the aim of achieving full cost recovery for commercial users and improving cost-recovery rates for household users within the next five years. The first tariff increases took place in July 2015. In Armenia there has been a reversal of decentralisation over the last year, with the government announcing its intention to consolidate all water assets in the country under a single operator. Generally, decentralised structures tend to be more conducive to efficiency gains, as local operators have a clear responsibility for running their operations in a cost-effective manner. In the case of Armenia, however, the government is more concerned in the short term about imposing greater discipline and curbing corruption. Once these objectives have been achieved, the authorities should consider reinstating a more decentralised structure. In Tajikistan, meanwhile, the holding company responsible for most of the country’s regional water supplies has become insolvent, partly as a result of inadequate management. However, this development could also represent an opportunity to restructure the management and governance of the majority of the country’s water utilities, which has the potential (if good practices are implemented) to result in a much-improved structure for the provision of water services.

Corporate sectors

In recent years it has been difficult to detect tangible progress in the region’s corporate sectors. By their very nature, corporate-sector reforms tend to be more incremental and take longer to have a visible impact on the economy. However, several countries have taken steps to improve the business environment and attract investment in the last year. One notable example is Albania, where concrete reforms have been implemented in order to make it easier to start a business and transfer property, and where a concerted effort is under way to reduce the size of the informal sector. In Egypt, meanwhile, major amendments to the country’s investment law have been approved and ratified, strengthening the protection afforded to investors and streamlining procedures by setting up a one-stop shop. The resolution of disputes between investors has also been improved.

There have been mixed developments in privatisation of the telecommunications sector. The incumbent in the Slovak Republic, Slovak Telekom, was fully privatised by selling all remaining shares held by the government to Deutsche Telekom but in Slovenia the attempted sale of Telekom Slovenije failed, which had a negative impact on investor appetite in the sector.

Financial sectors

Many countries’ financial sectors are still feeling the impact of the various crises that have hit the region in recent years and are struggling to deal with legacy and new non-performing loan portfolios. However, the last year has seen visible progress in this area, with efforts to clean up banking systems and strengthen their resistance to further shocks.

The country that has made the most progress is Ukraine which, since 2014, has seen the closure of more than 50 banks that were characterised by non-transparent ownership, excessive related party lending and weak management and corporate governance. However, banking-sector balance sheets in Ukraine remain under pressure owing to the strong depreciation of the hryvnia and increased credit risks in the context of the country’s deep recession. Bank recapitalisation is ongoing and important regulations, including rules on related party lending, have been adopted in order to make the banking sector more resilient.

Elsewhere, major reforms are under way in both Cyprus, where new legislation on insolvency and foreclosure should help to address the country’s serious non-performing loan problem, and Slovenia, where steps are being taken to consolidate the banking sector and prepare for privatisation. Tajikistan’s banking sector is also under pressure from increasing levels of non-performing loans. Georgia, meanwhile, has been criticised by international financial institutions for proposing a banking supervision bill that would shift the supervisory responsibility for the financial sector away from the central bank to a new agency. Despite a presidential veto, the bill was approved by the Georgian parliament in September 2015, creating uncertainty about the future independence and quality of banking supervision in Georgia. The most negative development in the region’s banking sectors was observed in Moldova, where a massive fraud in three large banks resulted in up to US$ 1 billion (around 13 per cent of the country’s GDP) disappearing from the system. This highlighted the severe problems faced by the Moldovan banking system in terms of weak corporate governance and limited transparency.

Certain developments in Egypt could help improve the institutional environment for MSME finance. I-Score, an Egyptian private credit bureau that focuses on SME and consumer information, has developed a separate entity that will provide SME credit ratings from 2016. The Egyptian government in collaboration with local banks is also working towards the establishment of one-stop shops where registration services and loan access are provided hand-in-hand. This could prove particularly helpful in the light of a large informal sector. In addition, a microfinance law was passed in the country in 2014, which should provide more clarity and certainty for operations in the sector.

In the non-bank financial sector, the past year has seen the adoption of a new commercial law in FYR Macedonia which provides better legal conditions for international financial institutions and private equity funds to invest in equity. FYR Macedonia is also hosting SEE Link, a new regional trading platform which brings the Macedonian, Bulgarian and Croatian stock exchanges together on a single trading platform. In Romania, the development of capital markets should be facilitated by a number of important legislative and regulatory changes that have taken place in 2014 and 2015. One negative development in the insurance sector is the backward step seen in Slovenia where the state has classified several insurance companies and pension funds as “strategic” with the intention of playing a major role in those companies. This means that the prospects for privatisation in that sector are even more remote than they were before.

Energy

Last year’s Transition Report noted that 2014 could prove to be a turning point for reforms in the energy sector after several difficult years during which a number of countries reversed previous reforms. On the evidence of developments so far in 2015, that optimism appears to be justified. The governments of both Egypt and Ukraine have introduced measures to reduce state subsidies related to energy prices, as a result of which there has been a sharp rise in prices for consumers. While such measures are often unpopular with the general public, they can help to remedy large deficits, allow state resources to be used for other, more pressing matters and can help to attract investment in the sector. In Serbia the first phase of the corporate restructuring of state-owned energy company EPS has begun, and the retail electricity market for households was fully opened up in January 2015. However, there have been further negative developments in the Hungarian energy sector, following a succession of reductions in administered prices in recent years. Indeed, the price that Hungarian households pay for electricity is now significantly below the EU average.

In the natural resource sector, the most notable developments in the last year have also been observed in Egypt and Ukraine. In the former, a number of measures have been introduced to create a more stable and attractive operating environment for private investors: a fuel subsidy reform programme to align oil and gas prices with international levels by 2020 and the diversification of gas imports via competitive global liquefied natural gas markets. In Ukraine, a major reform of the gas sector is under way as part of the country’s negotiations with international creditors. The Ukrainian authorities have made a decisive start in this regard, embarking on a tough reform programme designed to help the sector deal with corruption scandals. These initial steps include measures to tackle inefficiencies in the governance of state-owned company Naftogaz and reduce subsidies for end users.

Sustainable resources – a new approach to measurement

The sustainable use of resources lies at the heart of successful transition. In 2013 the EBRD launched its Sustainable Resource Initiative (SRI) with the aim of promoting the efficient use of energy, water and materials. This year’s Transition Report presents two new indicators – measuring sustainable water and sustainable use of materials – as well as updating the existing transition scores for sustainable energy (positive/negative watch). While there are differences in the way these three indices are constructed, their key principles and main features are the same in the interests of consistency (see the methodological notes in the online version of this Transition Report for more details). All three are based on the familiar 1 to 4+ scale.

Table S.2 presents the scores for these indicators. Two general points immediately emerge from the table. The first is that the scores are fairly low on average, mostly clustered between 1 and 2+ (with the exception of central Europe and the Baltic states [CEB] where 3- is the lowest score). This suggests that, apart from the CEB countries, the region’s sustainable resource gaps are generally large, particularly in the fields of water efficiency and materials efficiency. In fact, the water and materials indices are fairly similar to each other, with only a small number of countries recording differences of more than a couple of notches. The largest gaps can be found in eastern Europe and the Caucasus (EEC), Central Asia and the SEMED region, echoing the pattern observed for the other transition scores discussed above.

Second, there are significant market failures in all three SRI areas, implying that the adoption of legislation is the main driver of improvements. This is particularly true of sustainable water and recycling projects where the cost of water and environmental degradation is not factored in, which often leads to neglect on the part of companies and public bodies.

A further examination of the three indices yields a number of other interesting conclusions.

Table S.2

Sustainable Resource Initiative (SRI) transition gaps in 2015: overall scores
SRI
Water efficiency Materials efficiency Sustainable energy

Central Europe and the Baltic states

Croatia

3

3

3-

Estonia

3

3+

3-

Hungary

3+

3+

3

Latvia

3+

3

3+

Lithuania

3

3+

3+

Poland

3

3

3

Slovak Republic

3+

3+

3

Slovenia

3

3

3+

South-eastern Europe

Albania

2

2

3+

Bosnia and Herzegovina

2+

2

2

Bulgaria

3-

3-

3-

Cyprus

3-

2+

3-

FYR Macedonia

2

2

2+

Greece

3-

3-

4-

Kosovo

2-

2

2-

Montenegro

2+

2+

2

Romania

3-

3-

3+

Serbia

2

2+

2+

Turkey

2+

3-

3

Eastern Europe and the Caucasus

Armenia

2

2-

3-

Azerbaijan

2-

2

2+

Belarus

2

2+

2

Georgia

2-

2-

3-

Moldova

2

2

2+

Ukraine

2

2

2+

Russia

3-

3-

2

Central Asia

Kazakhstan

2

1

2-

Kyrgyz Republic

2-

1

2

Mongolia

2+

1

2

Tajikistan

1

1

2+

Turkmenistan

1

1

1

Uzbekistan

2-

1

2-

Southern and eastern Mediterranean

Egypt

2-

2-

2+

Jordan

2

2

2+

Morocco

2+

2

3

Tunisia

2+

2+

3-

SOURCE: EBRD.

NOTE: The sustainable water and materials indicators are new this year, whereas a watch list approach similar to the one for the other sector assessments has been applied to the sustainable energy indicator. There have been seven instances of positive developments and one negative development, which are denoted by green and orange shading, respectively – Latvia and Lithuania are making good progress towards their renewable energy targets, possibly before the deadline in 2020. Poland is also progressing with the transposition and implementation of EU directives. In FYR Macedonia, tendering procedures for hydro-power plants have been improved and the penetration of renewable energy technology has increased. Serbia has also seen positive developments by passing a new Energy Law with the potential of unlocking sustainable energy investments. By adopting its “Green Economy Concept” in 2013, Kazakhstan has committed to making sustainability an important policy objective and Egypt has created stronger incentives for sustainable energy investments by creating a feed-in tariff system and increasing electricity tariffs. The negative outlook for Albania reflects the government’s hesitation in approving and transposing key sustainable energy legislation and a deteriorating business environment for owners of hydro-power plants.

Sustainable energy gaps

As previous scores are available for this indicator, it is possible to see how the situation has evolved over time in different parts of the transition region. Although progress with renewable energy, a sub-component of the sustainable energy index, is most advanced in the CEB region and parts of south-eastern Europe (SEE), one notable feature of these results is that progress has slowed – and even been reversed in some cases – in EU member states and accession countries. This may be due to the financial pressures faced by governments, which have rushed to modify (as in the case of Romania) or cancel (as in the case of Bulgaria) their schemes supporting renewable energy. This has often had a negative impact on installations already in operation due to the retroactive nature of the measures taken.

Elsewhere in the region, some governments are turning to renewable energy as a solution to their energy shortages. Interestingly, in some SEMED countries (such as Jordan) competitive tender procedures for wind and solar photovoltaic power have led to prices that are lower than those paid to conventional fossil fuel installations. However, the overall picture in most non-EU countries shows some success with the adoption of primary legislation but little progress with designing and implementing all the required secondary rules and regulations. The result, therefore, is a relatively poor level of performance.

In the area of energy efficiency, energy tariffs in the residential sector rarely reflect costs. In some transition countries, energy is either provided virtually free of charge or collection rates are low. Even when prices reflect (or come close to reflecting) costs and collection rates are good, capital markets are not sufficiently well-developed to provide the funding required for further efficiencies. However, some progress is being made thanks to improved regulatory structures (such as minimum standards for buildings and industrial processes) and market incentives (such as cost-recovery tariffs, and reduced grid and commercial losses). There have also been some advances in the creation of national/regional carbon markets but pilot projects launched in this area (such as those in Kazakhstan and Ukraine, which the EBRD has supported with policy advice and technical assistance) have set the CO2 price/carbon tax too low to act as a meaningful signal to markets.

Water efficiency gaps

A number of countries (and regions within individual countries) are suffering from water shortages. Detecting this phenomenon is not straightforward. When analysis is conducted using river basins as a baseline instead of national borders, a complex picture emerges with a number of regions being affected by water stress and/or vulnerability.3 One finding from this index is that there is little correlation between the water efficiency transition score and water stress/vulnerability. In other words, problems with the supply or availability of water have not been enough to trigger appropriate changes to regulations and market incentives. This is probably a reflection of several factors, such as (i) the need for international coordination in the case of some river basins; (ii) the substantial investment that is required, coupled with the difficulty of charging water and wastewater prices that would allow such investment to be financed; and (iii) the existence of deep externalities – not only environmental factors but also externalities relating to split incentives, asymmetric information and “early-mover costs”.

The main driver of progress in this area is the adoption and enforcement of rigorous legislation, which in the EU finds expression in the Water Framework Directive. This is used as a benchmark for methodology and all related legislation (such as the Wastewater Directive, the Drinking Water Directive, and the Integrated Pollution Prevention and Control Directive). In non-EU countries in the region, there is only very limited regulation of water issues and priority is given to the quality and availability of drinking water and irrigation, which is typically responsible for up to 80 per cent of global water consumption. As regards market structures, much remains to be done in setting water supply, wastewater and water abstraction (extraction) tariffs at cost-recovery levels. Other challenges are cross-subsidisation (for agriculture and, to a lesser extent, households) and non-payment, which often exceeds 60 per cent in Central Asia and the EEC region. Sewerage infrastructure generally covers a good proportion of the urban population but a significant percentage of rural residents and businesses tend not to be covered.

Materials efficiency gaps

When assessing materials efficiency gaps, the principle of waste hierarchy should be used to guide policy design and implementation, as is the case in EU member states under the Waste Framework Directive. It is common in Central Asian, EEC and certain SEMED countries to dump most – if not all (in the case of Armenia, for example) – waste in uncontrolled areas. Recycling rates are often close to zero.

The EU member states and most accession countries have enacted the framework law and the by-laws (regarding packaging, end-of-life vehicles, electronic equipment and batteries) required by the EU and in some cases they are doing well in terms of achieving certain targets. Difficulties normally arise at the implementation stage, with one typical example being the persistence of dumping sites and illegal landfills. Bulgaria, for instance, still sends 100 per cent of its municipal solid waste to landfill sites, despite 50 per cent recycling being the agreed EU target for 2020. In other countries enforcement is skewed to protect nationally important industries. For example, there is no scheme for oil in Estonia, where the shale oil mining industry produces around 73 per cent of total non-hazardous waste.

In SEMED countries, waste is typically a lower priority than water or energy, so they either lag behind in terms of formulating comprehensive framework legislation on waste (as in the case of Egypt and Jordan) or they devote insufficient resources to its effective implementation (as in the case of Tunisia and Morocco). The informal sector plays an important role in reusing and recycling a variety of materials, typically in very unsafe and insanitary conditions. At the same time, the lack of a suitable supply chain providing a reliable flow of waste acts as a barrier to the adoption of commercial reuse/recycling strategies, with companies sometimes preferring to import waste rather than using the waste produced locally.

Youth and gender inclusion gaps

The EBRD’s youth and gender inclusion gaps have been updated for 2015, with Greece being included in the assessment for the first time. Meanwhile, the analysis of youth inclusion has been expanded this year to incorporate new information. Indicators have been added to explore the extent to which labour market structures affect youth employment, specifically with reference to labour market regulations and business constraints, the ease of starting a business and the level of labour taxes and contributions as a percentage of profit (with that information being taken from the World Bank Enterprise Survey 2014 and the World Bank Doing Business Report 2015). Youth employment gaps have also been expanded to include long-term unemployment, informal and vulnerable employment and school leaver/graduate unemployment rates (using International Labour Organization [ILO] and World Bank data for 2014).

The resulting gaps are shown in Table S.3. They paint a stark picture of the challenges that young labour market entrants face in many parts of the transition region. More than half of the young labour force (age 15-24) is unemployed in Bosnia and Herzegovina, FYR Macedonia and Greece, with youth unemployment rates also exceeding 40 per cent in Montenegro and Serbia. Youth unemployment rates remain at 30 per cent across the SEMED region with the majority of unemployed young people still searching for their first jobs after completing their education. More than 80 per cent of unemployed young people in Egypt have been unemployed for more than 12 months. In parallel, the SEMED countries experience some of the highest rates of inactivity, with a third of young people “not in employment, education or training” (NEET).

Paradoxically, high unemployment rates often co-exist with a widespread shortage of skilled workers for available entry-level jobs, suggesting a skills mismatch (that is to say, a misalignment between the relative compositions of labour demand and labour supply). In order to examine this issue, a new skills mismatch dimension has been added to the assessment of youth inclusion gaps. These gaps are based on the ILO’s Key Indicators of Labour Markets (KILM; 2012 data and latest figures) and measure two types of skills mismatch (using levels of educational attainment as a proxy for skills). The first type concerns mismatches between the supply of and demand for skills and is based on a comparison of the educational attainments of employed and unemployed people. The second concerns the mismatches between the skills that young people possess and those required by their jobs. In addition, the gap assessment also includes an indicator measuring firms’ perception of the extent to which the skills mismatch constitutes an obstacle to their operations (with these data taken from the fifth round of the Business Environment and Enterprise Performance Survey [BEEPS V]).

The largest skills mismatch gaps can be observed in the SEMED countries, Turkey, Romania and the Kyrgyz Republic, where large percentages of undereducated young people co-exist with rising graduate unemployment, highlighting the complexity of the challenge that these countries face (see column 5 of Table S.3). Skills mismatches are a particular concern in Egypt and Jordan where almost 50 per cent of employers consider an inadequately educated workforce to be a “major” constraint on their firms. Skills mismatch gaps are medium-sized in almost all other countries for which data are available (with the exception of Estonia where the gap is small). These results are broadly in line with the gaps observed in relation to the quality of education, which are large in most SEMED countries (as well as Azerbaijan, the Kyrgyz Republic, Romania and Ukraine) and medium-sized in most other countries (with the exception of Estonia, Georgia and Slovenia, where they are small), highlighting the need to realign curriculums and teaching methods, as well as the need for more effective work-based learning opportunities that are in line with the needs of the private sector.

Lastly, financial inclusion gaps for young people show signs of narrowing in Serbia and Turkey. These developments aside, financial inclusion has generally been downgraded since last year owing to the addition of a new indicator measuring the percentage of young people saving money with a formal financial institution. The youth inclusion gaps for labour market structure remain largely unchanged, with the exception of upgrades for Bulgaria and Jordan and a downgrade for the Kyrgyz Republic due to lower scores for the ease of starting a business (as shown by the World Bank Doing Business Report 2015).

The gender inclusion gaps have also been revisited and updated in 2015, with indicators added for most dimensions to strengthen the focus on social norms and women’s agency, female decision-making in employment, business and administrations, and female graduates in STEM (science, technology, engineering and mathematics) subjects. The resulting gender gap assessment (see Table S.4) shows medium to large gaps in relation to legal regulations and social norms in the SEMED region and increases from small to medium-sized gaps across parts of eastern Europe and the Caucasus and Central Asia. Gaps in relation to education and training have risen to medium-sized in central Europe and some Central Asian countries (namely the Kyrgyz Republic, Mongolia and Uzbekistan) whereas gaps regarding access to finance, labour policies and labour practices have remained broadly unchanged across all regions.

Table S.3

Youth inclusion gaps in 2015

Labour market structure

Youth employment

Quantity of education

Quality of education

Skills mismatch

Financial inclusion

Central Europe and the Baltic states

Croatia

Medium

Large

Small

Medium

Medium

Medium

Estonia

Small

Medium

Small

Small

Small

Small

Hungary

Medium

Medium

Small

Medium

Medium

Medium

Latvia

Small

Medium

Small

Medium

Medium

Small

Lithuania

Medium

Medium

Negligible

Medium

Medium

Large

Poland

Medium

Large

Small

Medium

Medium

Medium

Slovak Republic

Medium

Large

Small

Medium

Medium

Large

Slovenia

Medium

Medium

Small

Small

Medium

Small

South-eastern Europe

Albania

Medium

Large

Small

Medium

Not available

Small

Bosnia and Herzegovina

Medium

Large

Medium

Medium

Not available

Medium

Bulgaria

Medium

Medium

Medium

Medium

Medium

Medium

Cyprus

Small

Large

Small

Medium

Medium

Medium

FYR Macedonia

Small

Large

Medium

Medium

Medium

Medium

Greece

Medium

Large

Small

Medium

Medium

Medium

Kosovo

Small

Large

Not available

Not available

Medium

Small

Montenegro

Small

Large

Negligible

Medium

Not available

Medium

Romania

Medium

Large

Small

Large

Large

Small

Serbia

Medium

Large

Medium

Medium

Not available

Medium

Turkey

Medium

Large

Medium

Medium

Large

Medium

Eastern Europe and the Caucasus

Armenia

Small

Large

Small

Medium

Medium

Small

Azerbaijan

Medium

Large

Medium

Large

Not available

Medium

Belarus

Medium

Small

Small

Medium

Not available

Medium

Georgia

Small

Large

Medium

Small

Not available

Medium

Moldova

Medium

Medium

Small

Medium

Medium

Small

Ukraine

Medium

Medium

Small

Large

Medium

Small

Russia

Medium

Medium

Small

Medium

Medium

Medium

Central Asia

Kazakhstan

Small

Medium

Small

Medium

Not available

Medium

Kyrgyz Republic

Small

Large

Small

Large

Large

Medium

Mongolia

Small

Large

Medium

Medium

Not available

Small

Tajikistan

Medium

Large

Medium

Not available

Not available

Medium

Turkmenistan

Not available

Not available

Negligible

Not available

Not available

Small

Uzbekistan

Medium

Not available

Medium

Not available

Not available

Large

Southern and eastern Mediterranean

Egypt

Medium

Large

Large

Large

Large

Medium

Jordan

Medium

Large

Small

Medium

Large

Medium

Morocco

Medium

Large

Large

Large

Not available

Large

Tunisia

Medium

Large

Medium

Large

Large

Small

Comparator countries

France

Medium

Medium

Small

Medium

Medium

Medium

Germany

Medium

Small

Medium

Medium

Small

Small

Italy

Medium

Large

Small

Medium

Medium

Large

Sweden

Medium

Medium

Medium

Small

Small

Small

UK

Small

Medium

Small

Small

Medium

Small

SOURCE: EBRD.

NOTE: Methodological changes have been made in the following areas: labour market structure, quantity and quality of education, financial inclusion and youth employment (previously called “opportunities for youth”). Please refer to the methodological notes in this section for more details.

Table S.4

Gender inclusion gaps in 2015

Legal regulations and social norms

Access to
health services

Education and training

Labour policy

Labour practices

Employment and business

Access to finance

Central Europe and the Baltic states

Croatia

Small

Small

Medium

Medium

Medium

Medium

Small

Estonia

Small

Small

Medium

Small

Large

Medium

Medium

Hungary

Small

Small

Medium

Small

Medium

Medium

Medium

Latvia

Small

Small

Medium

Small

Large

Medium

Medium

Lithuania

Small

Small

Medium

Negligible

Medium

Medium

Medium

Poland

Small

Small

Small

Small

Medium

Medium

Medium

Slovak Republic

Small

Small

Medium

Small

Medium

Medium

Medium

Slovenia

Small

Negligible

Medium

Small

Medium

Medium

Medium

South-eastern Europe

Albania

Medium

Small

Small

Small

Medium

Large

Medium

Bosnia and Herzegovina

Medium

Medium

Medium

Small

Medium

Large

Medium

Bulgaria

Small

Small

Medium

Small

Medium

Medium

Small

Cyprus

Small

Not available

Negligible

Not available

Not available

Medium

Small

FYR Macedonia

Medium

Medium

Medium

Small

Large

Medium

Large

Greece

Large

Not available

Small

Medium

Large

Large

Medium

Kosovo

Not available

Not available

Not available

Not available

Not available

Not available

Large

Montenegro

Small

Medium

Negligible

Medium

Large

Large

Medium

Romania

Small

Medium

Small

Small

Large

Medium

Medium

Serbia

Small

Small

Small

Small

Large

Medium

Medium

Turkey

Small

Small

Medium

Small

Large

Large

Large

Eastern Europe and the Caucasus

Armenia

Medium

Medium

Small

Negligible

Large

Medium

Medium

Azerbaijan

Small

Medium

Medium

Medium

Large

Large

Large

Belarus

Small

Small

Medium

Medium

Large

Small

Medium

Georgia

Medium

Medium

Medium

Small

Large

Medium

Small

Moldova

Medium

Medium

Medium

Small

Large

Small

Small

Ukraine

Small

Small

Medium

Small

Large

Medium

Medium

Russia

Small

Small

Negligible

Medium

Large

Medium

Medium

Central Asia

Kazakhstan

Medium

Medium

Negligible

Medium

Medium

Medium

Medium

Kyrgyz Republic

Medium

Medium

Medium

Medium

Large

Medium

Small

Mongolia

Small

Medium

Small

Medium

Large

Small

Small

Tajikistan

Medium

Medium

Medium

Small

Large

Large

Large

Turkmenistan

Medium

Medium

Not available

Medium

Large

Medium

Large

Uzbekistan

Medium

Medium

Medium

Medium

Large

Large

Large

Southern and eastern Mediterranean

Egypt

Large

Medium

Medium

Medium

Large

Large

Large

Jordan

Large

Medium

Medium

Medium

Large

Large

Large

Morocco

Medium

Large

Large

Medium

Large

Large

Large

Tunisia

Medium

Small

Medium

Small

Medium

Large

Large

Comparator countries

France

Small

Small

Medium

Medium

Medium

Medium

Medium

Germany

Negligible

Small

Medium

Negligible

Medium

Medium

Small

Italy

Small

Negligible

Small

Small

Medium

Medium

Large

Sweden

Negligible

Negligible

Medium

Negligible

Small

Small

Small

UK

Medium

Small

Medium

Small

Medium

Medium

Small

SOURCE: EBRD.

NOTE: Methodological changes have been made in the following areas: Legal regulations and social norms, access to health services, education and training, labour practices, employment and business, and access to finance. Please refer to the methodological notes in this section for more details.

References

F. Gassert, P. Reig, T. Luo and A. Maddocks (2013)
“A weighted aggregation of spatially distinct hydrological indicators”, World Resources Institute working paper.

Methodological notes

Sector-level transition indicators

(See Table S.1)
The sector-level transition indicators reflect the judgement of the EBRD’s Office of the Chief Economist about progress in transition by sector and the size of the remaining transition “gap” or challenges ahead. The scores range from 1 to 4+ and are based on an assessment of the size of the challenges in two components: market structure and market-supporting institutions and policies. The scoring for the components is based on either publicly available data or observable characteristics of market structure and institutions. Based on the results of this scoring exercise, remaining transition gaps for market structure and institutions were classified as either “negligible”, “small”, “medium” or “large”. The final numerical score is based on these gap ratings as well as the underlying information. Table N.1.1.1 serves as a guide, defining the ranges for those cases where the two component assessments are the same, however exceptions can be made to this rule.

Table N.1.1.1

Transition cut-off points
Cut-off points
Transition gaps (MS/MI) Potential scores
Large/Large from 1 to 2+
Medium/Medium from 2+ to 3+
Small/Small from 3+ to 4
Negligible/Negligible 4+

The following tables show, for each sector, the weighting attached to the two components (market structure and market-supporting institutions and policies), the criteria used in each case (and the associated weights), and the indicators and data sources that fed into the final assessments. For the corporate and financial sectors as well as the inclusion assessment, the exact sources are listed in the tables. The assessment of remaining transition challenges in the energy sectors is based on cross-country factual data and information on the energy sector (oil, gas, mining, electric power), including from external agencies (International Energy Agency, European Commission progress reports on accession countries, Business Monitor International sector reports, Energy Regulators Regional Association, and so on). The assessment for the natural resources sector has been done by subcomponent (oil and gas and mining), which were then aggregated with a weight reflecting the importance of subcomponents for a country’s economy. For infrastructure sectors, the assessment relied both on quantitative indicators (for example, cost recovery tariffs based on information from EBRD projects) and qualitative assessments of the less quantifiable measures, such as the relations between municipalities and their utilities. Sources encompassed in-house information from investment projects and cross-country data and assessments from several external agencies (including the World Bank, the European Commission and the OECD).

Corporates

Table N.1.2.1

Rating transition challenges in the agribusiness sector
Components Criteria Indicators
Market structure [50%] Liberalisation of prices and trade [15%] Wheat: producer price to world price ratio (FAO GIEWS and PriceSTAT, latest available)
Simple average MFN applied tariff for agricultural products (WTO, 2013)
NRA to agriculture, average 2009-11 (World Bank Distortions to Agricultural Incentives, 2013)
WTO membership (WTO)
Development of private and competitive agribusiness [40%] Wheat: yields per ha, average 2010-12 (FAO ProdSTAT, 2014)
Wheat: average change in yields per ha in the period 2007-12 (FAO ProdSTAT, 2014)
Mass grocery retail sales in per cent of total grocery retail (BMI, latest available data)
Processing mark-up in agriculture (EBRD calculation based on UNIDO, 2013)
Development of related infrastructure [25%] EBRD railways infrastructure (EBRD Transition Report, 2013)
EBRD road infrastructure (EBRD Transition Report, 2013)
Tractors per 100 ha arable land (World Bank World Development Indicators (WDI), 2014)
Pump price for gasoline (World Bank WDI, 2014)
Development of skills [20%] Ratio of a percentage of tertiary graduates in agriculture over a percentage of agricultural share in GDP (EBRD calculations based on UNESCO and CEIC, 2014)
Value-added per worker in agriculture (World Bank WDI, 2014)
Market-supporting institutions and policies [50%] Legal framework for land ownership, exchanges and pledges [40%] Tradeability of land (EBRD Transition Report, 2009, updated in 2014)
Warehouse Receipt Programmes (FAO Investment Centre Working Paper, 2009)
Building a warehouse: dealing with construction permits (World Bank Doing Business, 2014)
Registering property (World Bank Doing Business, 2014)
Enforcement of traceability of produce [40%] Quality control and hygiene standards [40%] Overall TC 34 (ISO, 2014)
Hygiene standard implementation (EBRD assessment, latest available)
Creation of functioning rural financing systems [20%] Ratio of percentage of lending to agriculture relative to percentage of agricultural share in GDP (EBRD calculations, latest available)

Table N.1.2.2

Rating transition challenges in the general industry sector
Components Criteria Indicators
Market structure [60%] Market determined prices [20%] Subsidies in % of GDP (CEIC, latest available data)
Energy intensity (World Bank WDI, 2013)
Competitive business environment [40%] MFN applied tariff, simple average, non-agricultural products (WTO, 2014)
Lerner index (EBRD calculation based on UNIDO, 2010)
Large-scale privatisation (EBRD Transition Report, 2013)
Productivity and efficiency [40%] Expenditures on R&D in % of GDP (UNESCO, 2014)
R&D effectiveness (EBRD calculation based on WIPO and UNESCO, 2014)
Value-added, manufacturing, per employee (UNIDO, 2010)
Knowledge Index (World Bank, 2012)
Market-supporting institutions and policies [40%] Facilitation of market entry and exit [40%] Starting a business (World Bank Doing Business, 2014)
Resolving insolvency (World Bank Doing Business, 2014)
Per cent of firms identifying business licensing and permits and as a major constraint (EBRD and World Bank, 2013)
Enforcement of competition policy [30%] Competition policy indicator (EBRD Transition Report, 2013)
Corporate governance and business standards [30%] Composite country law index (EBRD Legal Transition Team, 2014)
ISO certification (EBRD calculation based on ISO and World Bank data, 2014)
Protecting investors (World Bank Doing Business, 2013)
Corruption Perceptions Index (Transparency International, 2013)

Table N.1.2.3

Rating transition challenges in the real estate sector
Components Criteria Indicators
Market structure [40%] Sufficient supply of quality assets in all subsegments (warehouse/office/retail/hotels) [60%] Class A industry supply per capita (Colliers, DTZ, King Sturge, CB Richard Ellis, Jones Lang LaSalle)
Modern office space per capita (Colliers, DTZ, King Sturge, CB Richard Ellis, Jones Lang LaSalle)
Prime retail space per capita (Colliers, DTZ, King Sturge, CB Richard Ellis, Jones Lang LaSalle)
Hotel room supply per capita (WEF Travel & Tourism Competitiveness Index, 2013)
Market saturation and penetration of innovative construction technologies [40%] Market saturation index (EBRD, 2012)
Index on penetration of innovative construction technologies (EBRD, 2012)
Market-supporting institutions and policies [60%] Tradeability and accessibility of land [20%] Accessing industrial land: lease rights (World Bank, 2010)
Accessing industrial land: ownership rights (World Bank, 2010)
Access to land (BEEPS V, 2012)
Development of an adequate legal framework for property development [30%] Quality of primary legislation in the property sector (EBRD, 2012)
Quality of secondary legislation in the property sector (EBRD, 2012)
Mortgage market legal efficiency indicators (EBRD, 2014)
Presence and effectiveness of energy efficiency support mechanisms [10%] Sustainability of government support mechanisms (EBRD, 2012)
Adequacy of property-related business environment [40%] Registering property (World Bank Doing Business, 2014)
Dealing with construction permits (World Bank Doing Business, 2014)
Property rights (WEF Travel & Tourism Competitiveness Index, 2013)
Level of corruption for construction-related permits (BEEPS V, 2012)

Table N.1.2.4

Rating transition challenges in the telecommunications sector
Components Criteria Indicators
Market structure [50%] Competition and private sector involvement: mobile telephony [40%] Expansion of services to rural areas, proxied by % of population covered by mobile signal (World Bank, 2014)
Mobile penetration rate (International Telecommunication Union, 2014)
Percentage of private ownership in the incumbent mobile operator (Global Insight, BuddeComm)
Market share of the largest mobile operator (Business Monitor International, Global Insight, BuddeComm)
Mobile number portability (Business Monitor International, Global Insight, BuddeComm)
Level of competition for mobile telephone services (World Bank, 2014)
Competition and private sector involvement: fixed telephony [20%] Fixed-line teledensity (International Telecommunication Union, 2014)
Percentage of private ownership in fixed telephony incumbent (Business Monitor International, Global Insight)
Market share of the largest fixed telephony provider (Global Insight, BuddeComm)
Fixed number portability (Business Monitor International, Global Insight)
Level of competition for international long-distance services (World Bank, 2014)
Mobile and fixed-line subscribers per employee (World Bank, 2009)
IT and high-tech markets [40%] Internet users penetration rate (International Telecommunication Union, 2014)
Broadband subscribers penetration rate (International Telecommunication Union, 2014)
International internet bandwidth (World Bank, 2014)
Level of competition for internet services (World Bank, 2014)
Piracy rates (Business Software Alliance, 2011)
Market-supporting institutions and policies [50%] Regulatory framework assessment [70%] Market liberalisation (EBRD, 2012)
Sector organisation and governance (EBRD, 2012)
Market entry for wired networks and services (EBRD, 2012)
Market entry for wireless networks and services (EBRD, 2012)
Fees and taxation on electronic communication services (EBRD, 2012)
Progress towards implementation of information society (EBRD, 2012)
Preparedness of the country to develop a knowledge economy [25%] Knowledge Economy Index: Economic Incentives (World Bank, 2012)
Knowledge Economy Index: Innovation (World Bank, 2012)
Knowledge Economy Index: Education (World Bank, 2012)
Freedom of media [5%] Freedom of press (Reporters Without Borders and Freedom House, 2014)

Energy

Table N.1.3.1

Rating transition challenges in the electric power sector
Components Criteria Indicators
Market structure [40%] Restructuring through institutional separation, unbundling and corporatisation [33%] Extent of corporatisation (setting up of joint-stock companies, improved operational and financial performance)
Extent of legal unbundling of generation, transmission, distribution and supply/retail
Extent of financial unbundling of generation, transmission, distribution and supply/retail
Extent of operational unbundling of generation, transmission, distribution and supply/retail
Private sector participation [33%] Degree of private sector participation in generation and/or distribution
Competition and liberalisation [33%] Degree of liberalisation of the sector (third-party access to network on transparent and non-discriminatory grounds)
Ability of end-consumers to freely choose their provider
Degree of effective competition in generation and distribution
Market-supporting institutions and policies [60%] Tariff reform [40%] Presence of cost-reflective domestic tariffs
Existence of cross-subsidisation among consumers
Degree of payment discipline as measured by collection rates and payment arrears
Development of an adequate legal framework [20%] Energy law in place to support full-scale restructuring of the sector and setting up of a regulator
Quality of taxation and licensing regime
Existence and relative strength of the regulatory framework for renewables
Establishment of an independent energy regulator [40%] Degree of financial and operational independence of the regulator
Level of standards of accountability and transparency

Table N.1.3.2.1

Natural resources subcomponent: oil and gas sector
Components Criteria Indicators
Market structure [40%] Restructuring through institutional separation and corporatisation [40%] Degree of unbundling of different business lines into separate legal entities (joint-stock companies)
Existence of separate financial accounts for different lines of businesses
Extent of unbundling of different business lines into separate legal entities
Extent of measures adopted to improve operational and financial performance
Private sector participation [20%] Degree of private sector participation in upstream and downstream/supply
Competition and liberalisation [40%] Degree of liberalisation of the sector (third-party access to network)
Ability of end-consumers to freely choose their provider
Degree of effective competition in upstream/extraction, supply and retail
Market-supporting institutions and policies [60%] Tariff reform and price liberalisation [40%] Presence of cost-reflective tariffs
Existence of cross-subsidisation among consumers
Degree of payment discipline as measured by collection rates and payment arrears
Development of an adequate legal framework [40%] Energy law in place to support full-scale restructuring of the sector and setting up of a regulator
Quality of taxation and licensing regime
Extent of transparency and accountability on revenues from extractive industries (e.g. EITI/PWYP compliance)
Regulatory structure [20%] Degree of financial and operational independence of the regulator
Level of standards of accountability and transparency

Table N.1.3.2.2

Natural resources sub-component: mining sector
Components Criteria Indicators
Market structure [50%] Private sector participation [40%] Degree of private sector participation in direct mining and processing activities
Diversification of supply chain
Price liberalisation, market access and competition [20%] Extent of commodities price liberalisation
Extent of free market access and free trade
Degree of effective competition in the sector
Development of related infrastructure [20%] Availability and quality of rail/road/port infrastructure
Development of processing facilities
Knowledge and technology [20%] Distance from the technology frontier
Availability of skilled labour
Extent of foreign participation (technology transfer)
Level of EHS&S technology in use in the sector relative to Best Available Technologies
Relative carbon intensity of the sector
Market-supporting institutions and policies [50%] Institutional framework [40%] Independent mining regulation agency
Independence of judicial bodies
Clarity and stability of licensing and tax regimes including royalties
Independent environmental/social regulatory agency
Development of adequate legal and regulatory framework [40%] Mining law/code: adequacy/quality of legislation/regulation
Adequacy/quality of licensing and tax regimes
Adequacy of corporate governance and reporting requirements and implementation
Status of disclosure/reporting transparency and of accountability on revenues (e.g. EITI/PWYP compliance)
Corruption index
EHS&S legislative and regulatory framework [20%] Extent and quality of specific EHS&S legislation for mining sector
Adequacy of environmental legislation/regulations (including tailings/rock management, water management, emissions controls) and effectiveness of enforcement
Adequacy of public information and public participation requirements and effectiveness of enforcement
Adequacy of public health and safety standards and effectiveness of enforcement
Voluntary market incentives: presence and adoption of international standards and market-based mechanisms for EHS&S, cyanide and so on

Sustainable resources

Table N.1.4.1

Rating transition challenges in the sustainable energy sector: energy efficiency (EE), renewable energy (RE) and climate change (CC)
Components Criteria Indicators
Market structure [67%] Market determined prices [50%] Quality of energy pricing: end-user cost-reflective electricity tariffs
Level of enforcement of pricing policies: collection rates and electricity bills
Amount of wastage: transmission and distribution losses
Quality of tariff support mechanisms for renewables (tradeable green certificate schemes/feed-in tariffs/no support)
Presence of carbon taxes or emissions trading mechanisms
Outcomes [50%] Level of energy intensity
Level of carbon intensity
Share of electricity generated from renewable sources
Market-supporting institutions and policies [33%] Laws [25%] Index on laws on the books related to EE and RE (such as those that support renewable technologies, compel minimum standards in various areas of energy use, provide guidance for sectoral targets in terms of energy savings and provide incentives and penalties for achieving desirable targets)
Stage of institutional development in implementing the Kyoto Protocol
Agencies [25%] Existence of EE agencies or RE associations (autonomous/departments within government)
Index on employment, budget and project implementation capacity of agencies
Index on functions of agencies: adviser to government, policy drafting, policy implementation and funding for projects
Policies [25%] Sustainable energy (SE) index: existence, comprehensiveness and specific targets of policies on SE
Renewable energy index: existence of specific sectoral regulations for RE (renewables obligation, licensing for green generators, priority access to the grid)
Climate change index: existence of policies (emissions targets and allocation plans)
Projects [25%] Index on project implementation capacity in EE, RE and CC
Number of projects in EE, RE and CC
Expenditure data on projects in EE, RE and CC

Table N.1.4.2

Rating transition challenges in the sustainable material resources sector
Components Indicators
Market structure [35%] Landfilling fees and taxes [50%]
Extended producer responsibility (EPR) [50%]
Market-supporting institutions and policies [50%] Legal and policy framework [33%]
Responsible institutions [33%]
Sector targets [33%]
Market performance [15%] Material productivity of the industrial and agricultural sector [75%]
Material productivity trend [25%]

Table N.1.4.3

Rating transition challenges in the sustainable water resources sector
Components Indicators
Market structure [35%] Pricing and metering of supplied water and directly abstracted water [50%]
Pricing and monitoring of sewerage and effluent discharges [50%]
Market-supporting institutions and policies [50%] Legal and policy framework [33%]
Responsible institutions [33%]
Targets and standards [33%]
Market performance [15%] Water productivity [75%]
Water productivity trend [25%]

Infrastructure

Table N.1.5.1

Rating transition challenges in the railways sector
Components Criteria Indicators
Market structure [60%] Restructuring through institutional separation and unbundling [33%] Extent of corporatisation of railways
Extent of unbundling of different business lines (freight and passenger operations)
Extent of divestment of ancillary activities
Private sector participation [33%] Number of new private operators
Extent of privatisation of freight operations and ancillary services
Competition and liberalisation of network access [17%] Extent of liberalisation of network access according to non-discriminatory principles
Number of awards of licences to the private sector to operate services
Institutional development [17%] Extent of introducing good corporate conducts (for example, business plans, IFRS, MIS and so on)
Extent of introducing good corporate governance standards
Extent of introducing best practice energy and/or energy efficiency accounting and management
Market-supporting institutions and policies [40%] Tariff reform [50%] Extent of freight tariff liberalisation
Extent of introduction of public service obligations (PSOs)
Extent of cost recovery tariffs
Extent of elimination of cross-subsidies
Development of an adequate legal framework [25%] Presence of railways strategy and railways act
Development of the regulatory framework [25%] Establishment of a railway regulator to regulate the network access according to non-discriminatory principles
Degree of independence of the regulator and level of accountability and transparency standards
Level of technical capacity of the regulator to set retail tariffs and regulate access to the track

Table N.1.5.2

Rating transition challenges in the roads sector
Components Criteria Indicators
Market structure [60%] Restructuring through institutional separation and unbundling [33%] Degree of independence of road management entities
Extent of divestment of construction from road maintenance, engineering and design activities
Private sector participation [33%] Extent of private sector companies in construction and maintenance (BOT-type concessions, management or service contracts, other types of PPPs)
Degree of decentralisation of local roads responsibility
Competition [17%] Index on rules for open tendering of construction and maintenance contracts
Index on practices for open tendering of construction and maintenance contracts
Degree of privatisation of road construction and maintenance units
Institutional development [17%] Extent of introducing good corporate conducts (for example, business plans, IFRS, MIS and so on)
Extent of introducing good corporate governance standards
Extent of introducing best practice energy and/or energy efficiency accounting and management
Market-supporting institutions and policies [40%] Tariff reform [50%] Level of road maintenance expenditures (that is, it should be sufficient to maintain the quality of state roads and motorways)
Introduction of road user charges based on vehicles and fuel taxes
Level of road user charges (that is, it should be sufficient to cover both operational and capital costs in full)
Comprehensiveness index of road user charges (extent of accordance with road use, extent of incorporation of negative externalities and so on)
Development of an adequate legal framework [25%] Existence and quality of road act and other road-related legislation
Extent and quality of PPP legislation
Development of the regulatory framework [25%] Extent to which the regulatory and policy-making functions are separate from the road administration functions
Degree of regulatory capacity on road safety, environmental aspects, pricing and competition for road construction and maintenance, and so on

Table N.1.5.3

Rating transition challenges in the urban transport sector
Components Criteria Indicators
Market structure [50%] Decentralisation and corporatisation [33%] Extent of decentralisation (that is, transfer of control from the national to the municipal or regional level)
Degree of corporatisation of local utilities to ensure financial discipline and improve service levels, including in smaller municipalities
Commercialisation [33%] Level of financial performance (no concern for financials/a few financially sound utilities in the country/solid financial performance is widespread)
Level of commercial investment financing (only through grants/selective access to commercial finance/widespread access to commercial finance)
Level of operational performance: progress in tackling cost control (labour restructuring, energy cost control, reduction of network losses), demand-side measures (metering and meter-based billing, e-ticketing), focus on quality of service
Private sector participation and competition [33%] Extent of legal framework and institutional capacity for PPPs and competition
Extent and form of private sector participation
Market-supporting institutions and policies [50%] Tariff reform [50%] Degree of tariff levels and setting (cost recovery, tariff methodologies)
Existence of cross-subsidisation among consumers
Contractual, institutional and regulatory development [50%] Quality of the contractual relations between municipalities and utility operators
Degree of regulatory authority capacity and risks of political interference in tariff setting

Table N.1.5.4

Rating transition challenges in the water and wastewater sector
Components Criteria Indicators
Market structure [50%] Decentralisation and corporatisation [33%] Extent of decentralisation (that is, transfer of control from the national to the municipal or regional level)
Degree of corporatisation of local utilities to ensure financial discipline and improve service levels, including in smaller municipalities
Commercialisation [33%] Level of financial performance (no concern for financials/a few financially sound utilities in the country/solid financial performance is widespread)
Level of commercial investment financing (only through grants/selective access to commercial finance/widespread access to commercial finance)
Level of operational performance: progress in tackling cost control (labour restructuring, energy cost control, reduction of network losses), demand-side measures (metering and meter-based billing, e-ticketing), focus on quality of service
Private sector participation and competition [33%] Extent of legal framework and institutional capacity for PPPs and competition
Extent and form of private sector participation
Market-supporting institutions and policies [50%] Tariff reform [50%] Degree of tariff levels and setting (cost recovery, tariff methodologies)
Existence of cross-subsidisation among consumers
Contractual, institutional and regulatory development [50%] Quality of the contractual relations between municipalities and utility operators
Degree of regulatory authority capacity and risks of political interference in tariff setting

Financial institutions

Table N.1.6.1

Rating transition challenges in the banking sector
Components Criteria Indicators
Market structure [35%] Degree of competition [43%] Asset share of five largest banks (EBRD Banking Survey, 2014; Raiffeisen Research and Bankscope, latest available)
Net interest margin (EBRD Banking Survey, 2014; Bankscope and official statistical sources, latest available)
Overhead cost to assets (EBRD Banking Survey, 2014; Bankscope and official statistical sources, latest available)
Ownership [29%] Asset share of private banks (EBRD Banking Survey, 2014; Raiffeisen Research, Bankscope and official statistical sources, latest available)
Asset share of foreign banks (subjective discount relative to home/host coordination) (EBRD Banking Survey, 2014; EBRD assessment, latest available)
Market penetration [14%] Assets/GDP (EBRD Banking Survey, 2014; Raiffeisen Research, Bankscope and official statistical sources, latest available)
Resource mobilisation [14%] Domestic credit to private sector/total banking system’s assets ( EBRD Banking Survey, 2014; national statistical sources, latest available)
Market-supporting institutions and policies [65%] Development of adequate legal and regulatory framework [40%] Existence of entry and exit restrictions (EBRD assessment, latest estimates)
Adequate liquidity requirements (EBRD assessment, latest estimates)
Other macroprudential measures (EBRD assessment, latest estimates)
Supervisory coordination (home/host country) (EBRD assessment, latest estimates)
Dynamic counter-cyclical provisioning (EBRD assessment, latest estimates)
Deposit insurance scheme with elements of private funding (EBRD assessment based on official sources, latest estimates)
Enforcement of regulatory measures [50%] Compliance with Basel Core principles (EBRD assessment, latest estimates)
Unhedged foreign exchange lending to the private sector/total lending to the private sector (EBRD Banking Survey, 2014; national statistical sources, latest available)
Banking strength: total regulatory capital to risk-weighted assets (IMF and national statistical sources, latest available)
Sophistication of banking activities and instruments (EBRD assessment, latest estimates)
Private sector deposits to GDP (EBRD Banking Survey, 2014; IMF and national statistical sources, latest available)
Non-performing loans (EBRD Banking Survey, 2014; IMF and national statistical sources, latest available)
Corporate governance and business standards [10%] Proportion of banks which have good corporate governance practices (EBRD assessment, latest estimates)

Table N.1.6.2

Rating transition challenges in the insurance and other financial services sector
Components Criteria Indicators
Market structure [45%] Market penetration [60%] Insurance premia (% of GDP) (UBS, World Bank, EBRD, AXCO and national insurance associations, latest available)
Life insurance premia (% of GDP) (UBS, World Bank, EBRD, AXCO and national insurance associations, latest available)
Non-life insurance premia (% of GDP) (UBS, World Bank, EBRD, AXCO and national insurance associations, latest available)
Leasing portfolio (% of GDP) (Leaseurope and national statistical sources, latest available)
Availability of insurance products (AXCO and EBRD assessments, latest estimates)
Mortgage debt/GDP (EBRD Banking Survey, 2014)
Type of pension system (Pillar I, II, III) (AXCO)
Pension fund assets/GDP (AXCO, Renaissance Capital and other official sources, latest available)
Competition [10%] Market share of top three insurance companies (AXCO and EBRD, latest available)
Private sector involvement [10%] Share of private insurance funds in total insurance premia (UBS, EBRD and national authorities, latest available)
Development of skills [20%] Skills in the insurance industry (UBS and EBRD assessments, latest estimates)
Market-supporting institutions and policies [55%] Development of adequate legal and regulatory framework [88%] Existence of private pension funds (ISSA)
Pillar II legislation OECD, World Bank, EBRD and national official sources, latest available)
Quality of insurance supervision assessment (UBS and EBRD, latest estimates)
Legislation leasing (IFC, EBRD and national authorities, latest available)
Business standards [12%] IAIS member (IAIS)

Table N.1.6.3

Rating transition challenges in the capital markets sector
Components Criteria Indicators
Market structure [60%] Market penetration [50%] Stock market capitalisation/GDP (World Bank, FESE, FEAS and national stock exchanges, 2013)
Number of listed companies (World Bank, FESE, FEAS and official statistical sources, 2013)
Securities (bonds and stocks) traded as % of GDP (World Bank, FEAS, ASEA and official statistical sources, 2013)
Market infrastructure and liquidity [50%] Money Market Index (EBRD assessment, 2014)
Government Bond Index (EBRD assessment, 2014)
Corporate Bond Index (EBRD assessment, 2014)
Turnover ratio (World Bank, FEAS and FESE, 2014)
Market-supporting institutions and policies [40%] Development of adequate legal and regulatory framework [100%] Quality of securities market legislation (EBRD Legal Transition Survey, 2007; EBRD assessment, 2014)
Effectiveness of securities market legislation (EBRD Legal Transition Survey, 2007; EBRD assessment, 2014)

Table N.1.6.4

Rating transition challenges in the private equity (PE) sector
Components Criteria Indicators
Market structure [50%] Competition [35%] Effective number of fund managers per thousand companies (Preqin, EMPEA and company websites, latest available)
Market penetration [65%] Scope of fund type/strategy (EMPEA, Preqin, Zawya, S&P Capital IQ, Thomson Reuters, Mergermarket, EVCA and EBRD estimates, latest available)
Active PE capital as % of GDP (EMPEA, Preqin, Zawya, S&P Capital IQ, Thomson Reuters, World Bank, Mergermarket, EVCA, EBRD estimates, latest available)
PE capital available for investment as % of GDP (EMPEA, Preqin, Zawya, S&P Capital IQ, Thomson Reuters, World Bank, Mergermarket, EVCA and EBRD estimates, latest available)
Market-supporting institutions and policies [50%] Development of adequate legal and regulatory framework [70%] Barriers to institutional investor participation (EBRD, latest estimates)
Quality of securities market legislation (EBRD Legal Transition Survey, 2007)
Effectiveness of securities market legislation (EBRD Legal Transition Survey, 2007)
Corporate governance [30%] Effective framework (EBRD Corporate Governance Legislation Assessment, 2007)
Rights and roles of shareholders (EBRD Corporate Governance Legislation Assessment, 2007)
Equitable treatment of shareholders (EBRD Corporate Governance Legislation Assessment, 2007)
Responsibilities of board (EBRD Corporate Governance Legislation Assessment, 2007)
Disclosure and transparency (EBRD Corporate Governance Legislation Assessment, 2007)

Table N.1.6.5

Rating transition challenges in the MSME finance sector
Components Criteria Indicators
Market structure [50%] Non-banking financing [10%] Leasing (respective ATC score)
Private equity (respective ATC score)
Capital markets (respective ATC score)
Banking financing [90%] Competition Competition in banking (respective ATC score)
Interest margin between bank lending to SMEs and large corporates (short-term and long-term) (EBRD assessment, 2014)
Access to finance Share of SME lending to total lending weighted by distance of domestic credit to GDP to that in EU area (EBRD assessment, 2014)
Outreach of commercial banks (branches per 100,000 adults) (IMF, 2012)
Skills Existence of specialised SME department in banks (EBRD assessment, 2014)
Extent of use of SME lending methodologies (EBRD assessment, 2014)
Presence of trained loan officers in SME lending (EBRD assessment, 2014)
Market-supporting institutions and policies [50%] Development of adequate legal framework [100%] Ability to offer and take security over immovable property (cadastre) (EBRD assessment, 2014)
Credit information services (EBRD assessment, 2014)
Registration system for movable assets: ability to offer and take non-possessory security over movable property (EBRD assessment, 2014)
Collateral and provisioning regulatory requirements (EBRD assessment, 2014)
Enforcing secured creditor rights (EBRD assessment, 2014)

Inclusion

Table N.1.7.1

Inclusion gaps for gender
Components Indicators Sources
Legal regulations and social norms Addressing violence against women The Economist Intelligence Unit – Women’s Economic Opportunity (EIU-WEO), 2012
Property CEDAW ratification
Sex at birth: f/m ratio CIA, 2013
Early marriage UN World Marriage, 2012
Women’s political rights CRI, 2011
Secure access to land Social Institutions and Gender Index, 2014
Secure access to non-land assets
Inheritance laws in favour of male heirs OECD Social Institutions and Gender Index, 2009
Access to health services Maternal mortality ratio (maternal deaths per 100,000 live births) World Bank WDI, 2013
Contraceptive prevalence (percentage of women aged 15-49)
Adolescent birth rate
Births attended by skilled health staff (percentage of total) World Bank WDI, 2005
Education and training Literacy rate: f/m ratio UN Social Indicators, latest available
Primary school completion rate: f/m ratio World Bank WDI, 2013
Gender parity index (GPI) for net enrolment rate in secondary education EPDC and World Bank Education Statistics, 2013
GPI for gross enrolment in tertiary education
Female graduates in engineering UNESCO, 2012
Female graduates in technology
Labour policy Equal pay policy EIU-WEO, 2012
Non-discrimination policy
Policy on maternity and paternity leave and its provision
Policy on legal restrictions on job types for women
Differential retirement age policy
CEDAW ratification
Labour practices

 

Equal pay practice EIU-WEO, 2012
Non-discrimination practice
Access to childcare
Gender pay gap UNECE, 2013
Employment and business Female ownership BEEPS V, 2012
Share of women in non-agricultural employment World Bank WDI, latest available
Labour force participation rate: f/m ratio (age 15+)
Unemployment rate: f/m ratio
Employers: f/m ratio
Female legislators, senior officials and managers
Employment rate of tertiary educated individuals: f/m ratio International Labour Organization, 2013
Access to finance Account at a formal financial institution: f/m ratio (age 15+) Global Financial Inclusion (Global Findex) Database, 2014 or latest available
Credit card: f/m ratio (age 15+)
Mobile phone used to receive money: f/m ratio (age 15+)
Mobile phone used to send money: f/m ratio (age 15+)
The percentage borrowing from formal financial institutions, out of total borrowers: f/m ratio (age 15+)
The percentage saving at formal financial institution, out of total savers: f/m ratio (age 15+)
Borrowed to start, operate, or expand a farm or business, as a share of borrowings: f/m ratio (age 15+)
Loans rejected for firms with female versus male top management BEEPS V, 2012
Percentage of firms identifying access to finance as a major constraint: f/m top management ratio

Table N.1.7.2

Inclusion gaps for youth
Components Indicators Sources
Labour market structure

 

 

 

 

 

Hiring and firing flexibility Global Competitiveness Index, WEF, 2013-14

 

 

Redundancy costs
Wage-setting flexibility
Labour regulations as a major constraint BEEPS and World Bank Enterprise Survey, 2012
Labour tax and contributions World Bank Doing Business, 2014-15

 

Ease of starting a business
Youth employment

 

 

 

 

Difference in unemployment rate from youth (age 15-24) to adult (age 25-65) World Bank and ILO, 2013 or latest available
The share of youth not in education, employment or training (NEET) Eurostat, 2013; World Bank WDI and ILO, 2013
Vulnerable employment rate World Bank WDI, 2013
Youth (15-24) in long-term unemployment: more than 12 months International Labour Organization, 2013

 

The percentage of unemployed persons seeking their first job
Quantity of education

 

 

Average years of education for people aged 25-29 Barro-Lee, 2010 (updated 2015 version); Human Development Index, 2014

 

Percentage of youth (age 15-24) with no schooling
Gross graduation ratio tertiary education UNESCO, 2013
Quality of education

 

 

 

PISA test score performance PISA, 2012; supplemented by TIMSS, 2011
Employers’ perception of the quality of the education system WEF, 2013-14
Households’ perception of the quality of the education system LITS, 2010
Top university ranking ARWU QS Top University Ranking, 2014
Skills mismatch

 

 

 

 

Skills gap between labour supply and demand (age 15-29) ILO-KILM, 2012

 

 

Percentage of over-educated youth (15-29)
Percentage of under-educated youth (15-29)
Academic unemployment (age 15-29 by “advanced” educational level) ILOSTAT, 2014
Employers’ perception of skills shortage BEEPS V and World Bank Enterprise Surveys, 2012-14
Financial inclusion

 

 

 

Difference between youth (age 15-24) with bank account compared with adults (age 25+) Global Findex Database, 2011 (updated 2014 version)

 

 

 

Difference between youth (age 15-24) with debit card compared with adults (age 25+)
Difference between youth (age 15-24) with bank account used for business purposes compared with adults (age 25+)
Percentage of youth saving in a formal financial institution, out of the total number of youth saving

Table N.1.7.3

Inclusion gaps for regions
Components Indicators Sources
Institutions Corruption in administrative, health and education systems LITS, 2010

 

 

 

Quality of administrative, health and education systems
Trust in local government
Satisfaction with the local government
Access to services Access to water LITS, 2010

 

 

Access to heating
Perception of the quality of the health care system
Labour markets Unemployment LITS, 2010

 

Formal or informal job?
Education

 

Years of education Gennaioli et al. data set, Quarterly Journal of Economics, 2013
Households’ perception of the quality of the education system LITS, 2010