TRANSITION REPORT 2014 Innovation in Transition

STRUCTURAL REFORM

STRUCTURAL REFORM


IN 11 COUNTRIES MATERNAL MORTALITY RATES HAVE IMPROVED

3 THE NEGATIVE BALANCE OF SECTOR-LEVEL TRANSITION INDICATOR UPGRADES VERSUS DOWNGRADES

APPROXIMATELY 170 KM THE LENGTH OF ESTLINK 2, THE NEW INTERCONNECTION BETWEEN THE BALTIC AND NORDIC ELECTRICITY MARKETS

THE ONLY 2 COUNTRY-LEVEL TRANSITION INDICATOR UPGRADES IN 2014 ARE RELATED TO IMPROVED COMPETITION POLICY

Introduction

Amid new and continuing political and economic challenges, the readiness of countries to implement reforms seems to have waned. The Transition Report 2013 noted that the difficult environment was limiting the ability of governments – and, in certain cases, their willingness – to implement much-needed structural reforms and return their countries to a path of sustainable growth. As noted in 2013, it appears that, despite the difficult circumstances, there has been no wholesale reversal of previous reforms. However, there has been an increase in the number of downgrades relating to either the reversal of reforms or a lack of much-needed action to lift countries out of the crisis. As a result, there have been more downgrades than upgrades this year.

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The EBRD continues to measure the progress of reforms in two ways. The first is a review of country-level reforms in areas such as privatisation, competition policy and trade. This review has been conducted since 1994 and has been extended to cover all years since 1989. While by no means comprehensive, it can be a useful tool to illustrate the progress that countries have made in allowing the private sector to develop and thrive as an important pillar of a functioning market economy. The second is a more disaggregated assessment at sector level which captures the distance relative to an industrialised market economy in terms of market structure and market-supporting institutions.

At sector level, the number of downgrades has continued to increase, surpassing the number of upgrades for the first time since the assessment began in 2010. Similar to last year, downgrades are driven mainly by EU countries (albeit there have also been a number of downgrades in Central Asia). The country-level indicators continue the trend witnessed in previous years of fewer changes being observed. Indeed, there have been only two upgrades and one downgrade this year.

With Cyprus becoming an EBRD recipient country in May 2014, sector and country-level assessments have been conducted for the country for the first time.

Sector-level transition indicators

Table S.1 shows the transition scores for 16 sectors in all of the countries where the EBRD works. The methodology is broadly unchanged from previous years (see Chapter 1 of the Transition Report 2010 for a detailed explanation), but some adjustments have been made in the capital markets sector.1

TABLE S.1

Sector-level transition indicators 2014: overall scores

  •   Agribusiness General industry Real estate ICT
    Central Europe and the Baltic states
    Croatia 3 3+ 3+ 4
    Estonia 3+ 4+ 4+ 4
    Hungary 4 4- 4- 4-
    Latvia 3 4- 4- 3+
    Lithuania 3+ 4 4- 4-
    Poland 3+ 4- 4- 4
    Slovak Republic 3+ 4+ 4 4-
    Slovenia 4- 3+ 4 3+
    South-eastern Europe
    Albania 3- 2+ 3- 3+
    Bosnia and Herzegovina 3- 2 2- 2+
    Bulgaria 3 3+ 3+ 4-
    Cyprus 3- 4+ 3 4-
    FYR Macedonia 3- 3 3- 4-
    Kosovo 2+ 2- 2- 2+
    Montenegro 2+ 2+ 2+ 3+
    Romania 3 3+ 3+ 3+
    Serbia 3- 3- 3- 3
    Turkey 3- 3 3+ 3+
    Eastern Europe and the Caucasus
    Armenia 3- 3 3- 3
    Azerbaijan 2+ 2 2 2-
    Belarus 2+ 2 2 2
    Georgia 3- 3- 3- 3-
    Moldova 3- 2- 2+ 3
    Ukraine 3- 2+ 3- 3-
    Russia 3- 3- 3- 3+
    Central Asia
    Kazakhstan 3- 2 3 3
    Kyrgyz Republic 2+ 2 2+ 3
    Mongolia 3- 2+ 2 3
    Tajikistan 2 2- 2- 2+
    Turkmenistan 1 1 1 2-
    Uzbekistan 2 1 2 2
    Southern and eastern Mediterranean
    Egypt 2 2 2+ 3
    Jordan 2 2+ 3- 3+
    Morocco 2+ 3- 3- 3+
    Tunisia 3- 3+ 3- 3

  •   Natural resources Sustainable energy Electric power
    Central Europe and the Baltic states
    Croatia 4- 3- 3
    Estonia 4 3- 4+↑
    Hungary 4- 3 3↓
    Latvia 4- 3+ 3+
    Lithuania 4- 3+ 3+
    Poland 3 3 3+
    Slovak Republic 4- 3 4
    Slovenia 3+ 3+ 3
    South-eastern Europe
    Albania 3- 3+ 2+
    Bosnia and Herzegovina 2 2 2+
    Bulgaria 3+ 3- 3
    Cyprus 3- 3- 3
    FYR Macedonia 2+ 2+ 3
    Kosovo 2 2- 2+
    Montenegro 3+ 2 2+
    Romania 4- 3+ 3+
    Serbia 2 2+ 2+
    Turkey 3+ 3 3+
    Eastern Europe and the Caucasus
    Armenia 2+ 3- 3+
    Azerbaijan 2+ 2+ 2+
    Belarus 1 2 1
    Georgia 2 3- 3+
    Moldova 3 2+ 3
    Ukraine 2- 2+ 3
    Russia 2 2 3+
    Central Asia
    Kazakhstan 2- 2- 3
    Kyrgyz Republic 2- 2 2+
    Mongolia 2 2 2+
    Tajikistan 1 2+ 2
    Turkmenistan 1 1 1
    Uzbekistan 1 2- 2+
    Southern and eastern Mediterranean
    Egypt 1 2+ 2+
    Jordan 2+ 2+ 3
    Morocco 2- 3 2
    Tunisia 2 3- 2

  •   Water and wastewater Urban transport Roads Railways
    Central Europe and the Baltic states
    Croatia 3+ 3+ 3+ 3-
    Estonia 4 3+ 3 4
    Hungary 3+↓ 3+ 4- 3+
    Latvia 3+ 4- 3 4-
    Lithuania 3+ 4- 3 3
    Poland 4- 4- 4- 4-
    Slovak Republic 3+ 3+ 3+↑ 3+
    Slovenia 3+ 3+ 3 3
    South-eastern Europe
    Albania 2+ 3- 3- 2
    Bosnia and Herzegovina 2 2+ 3 3+
    Bulgaria 3 3+ 3- 3+
    Cyprus 3+ 3+ 3 Not applicable
    FYR Macedonia 2+ 3- 3- 3-
    Kosovo 2+ 2+ 2+ 3-
    Montenegro 2 3 2+ 2+
    Romania 4- 3+ 3 3+
    Serbia 2+ 3- 3- 3
    Turkey 3- 3 3- 3-
    Eastern Europe and the Caucasus
    Armenia 3- 2+ 3- 2+
    Azerbaijan 2- 2 2+ 2+
    Belarus 2- 2 2 1
    Georgia 2 2+ 2+ 3
    Moldova 2 3↑ 3↑ 2
    Ukraine 2+ 3- 3- 2+
    Russia 3 3 3- 4-
    Central Asia
    Kazakhstan 2+ 2+ 3- 3
    Kyrgyz Republic 2 2 2- 1
    Mongolia 2 2 2- 3-
    Tajikistan 2 2 2- 1
    Turkmenistan 1 1 1 1
    Uzbekistan 2- 2 1 3-
    Southern and eastern Mediterranean
    Egypt 1 2 2+ 2-
    Jordan 2- 2+ 3- 2
    Morocco 2+ 3 3- 2
    Tunisia 2 2+ 2+ 2+

  •   Banking Insurance and other financial services MSME finance Private equity Capital markets
    Central Europe and the Baltic states
    Croatia 3+ 3+ 3- 2+↓ 3+
    Estonia 4- 3+ 3+ 3-↓ 3
    Hungary 3↓ 3 3 3 3+
    Latvia 3+ 3+ 3 2+↓ 3+
    Lithuania 3+ 3+ 3 2+ 3
    Poland 4- 3+ 3 3+ 4-↓
    Slovak Republic 4- 3+ 4- 2+ 3
    Slovenia 3 3+ 3- 3- 3+
    South-eastern Europe
    Albania 3- 2 3-↑ 1 2-
    Bosnia and Herzegovina 3- 2+ 2+ 2- 2
    Bulgaria 3 3+ 3 3- 3-
    Cyprus 3- Not available Not available Not available 3+
    FYR Macedonia 3- 3- 3 1 2-
    Kosovo 2+ 2 3-↑ 1 1
    Montenegro 3- 2+ 3↑ 1 2
    Romania 3 3+ 3 3- 3-
    Serbia 3- 3 3 2↑ 2
    Turkey 3+ 3 3↑ 3- 4
    Eastern Europe and the Caucasus
    Armenia 2+ 2 2+ 1 2
    Azerbaijan 2 2 2 1 2-
    Belarus 2 2 2 1 2-
    Georgia 3- 2 3- 1 2-
    Moldova 2+ 2+ 2 2- 2
    Ukraine 3- 2+ 2+ 2 2↓
    Russia 3- 3- 2 2+ 4-
    Central Asia
    Kazakhstan 2+↓ 2+ 2 2- 2↓
    Kyrgyz Republic 2 2- 2- 1 2-
    Mongolia 2+ 2 2+ 2- 2-↓
    Tajikistan 2 2- 2- 1 1
    Turkmenistan 1 2- 1 1 1
    Uzbekistan 1 2 1 1 1
    Southern and eastern Mediterranean
    Egypt 2+ 2+ 2- 2 2+
    Jordan 3 2+ 2+ 2 2
    Morocco 3 3- 2+ 2+ 3
    Tunisia 2+ 2+ 2 2- 2+

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 the online version of this Transition Report (tr.ebrd.com). Upgrades and downgrades are marked by upward and downward arrows respectively. A colour code is used for ease of recognition: green indicates a sector that is at a fairly advanced stage of transition, scoring 3+ or higher. Conversely, dark red denotes sectors where transition has barely advanced and the score is 2 or lower.

There were nine one-notch upgrades this year: electric power (Estonia), urban transport (Moldova), roads (Moldova and the Slovak Republic), MSME finance (Albania, Kosovo, Montenegro and Turkey) and private equity (Serbia). There were 12 downgrades: ICT (Hungary), electric power (Hungary), water and wastewater (Hungary), banking (Hungary and Kazakhstan), private equity (Croatia, Estonia and Latvia) and capital markets (Kazakhstan, Mongolia, Poland and Ukraine). A methodological adjustment in the capital market sector has also led to a number of changes (affecting Bulgaria, Croatia, Jordan, Latvia, Moldova, Montenegro, Morocco, Romania, Serbia and Slovenia), which are not marked as upgrades or downgrades as they do not represent improvements in or the reversal of capital market reforms. Scores for sustainable energy are currently undergoing revision. Please note that not all scores for Cyprus were available at the time of printing, but will be added to the online version of this Transition Report.

Tables S.2 and S.3 show the component ratings for market structure and market-supporting institutions and policies respectively, which together make up the overall sector-level assessment. There have been nine upgrades and 12 downgrades2 – indicated by upward and downward arrows respectively – the reasons for which are outlined in the following sections (see also the “Countries” section of the online Transition Report, at tr.ebrd.com). Changes to inclusion assessments, which have also undergone some methodological adjustments, are presented in Tables S.4 to S.6, as well as being explained in detail in the “Inclusion” section.

TABLE S.2
Sector-level transition indicators 2014: market structure
  •   Agribusiness General industry Real estate ICT
    Central Europe and the Baltic states    
    Croatia Small Small Medium Small
    Estonia Small Negligible Negligible Small
    Hungary Small Small Small Small
    Latvia Small Negligible Small Small
    Lithuania Small Negligible Small Small
    Poland Small Small Small Small
    Slovak Republic Small Negligible Small Small
    Slovenia Small Small Negligible Small
    South-eastern Europe    
    Albania Medium Medium Large Medium
    Bosnia and Herzegovina Medium Large Large Medium
    Bulgaria Small Small Medium Small
    Cyprus Medium Negligble Medium Small
    FYR Macedonia Medium Medium Large Small
    Kosovo Medium Medium Large Medium
    Montenegro Medium Medium Medium Small
    Romania Small Small Medium Small
    Serbia Medium Medium Large Medium
    Turkey Medium Small Small Medium
    Eastern Europe and the Caucasus    
    Armenia Medium Medium Large Medium
    Azerbaijan Medium Large Large Large
    Belarus Large Large Large Medium
    Georgia Medium Medium Large Medium
    Moldova Medium Medium Large Medium
    Ukraine Medium Medium Large Medium
    Russia Medium Medium Medium Medium
    Central Asia    
    Kazakhstan Medium Large Medium Medium
    Kyrgyz Republic Medium Large Large Large
    Mongolia Medium Large Large Large
    Tajikistan Medium Large Large Large
    Turkmenistan Large Large Large Large
    Uzbekistan Large Large Large Large
    Southern and eastern Mediterranean    
    Egypt Large Large Medium Medium
    Jordan Medium Medium Medium Small
    Morocco Medium Medium Medium Small
    Tunisia Medium Medium Medium Medium

  •   Natural resources Sustainable energy Electric power
    Central Europe and the Baltic states
    Croatia Small Medium Large
    Estonia Small Medium Negligible
    Hungary Small Medium Medium
    Latvia Medium Medium Medium
    Lithuania Medium Medium Medium
    Poland Medium Medium Medium
    Slovak Republic Small Medium Small
    Slovenia Small Small Medium
    South-eastern Europe
    Albania Medium Small Large
    Bosnia and Herzegovina Large Large Large
    Bulgaria Small Large Large
    Cyprus Medium Medium Large
    FYR Macedonia Medium Large Medium
    Kosovo Medium Large Large
    Montenegro Small Large Large
    Romania Small Medium Medium
    Serbia Medium Large Large
    Turkey Medium Medium Medium
    Eastern Europe and the Caucasus
    Armenia Medium Medium Medium
    Azerbaijan Large Large Large
    Belarus Large Large Large
    Georgia Large Medium Medium
    Moldova Medium Large Medium
    Ukraine Large Large Large
    Russia Large Large Medium
    Central Asia
    Kazakhstan Large Large Large
    Kyrgyz Republic Large Large Medium
    Mongolia Medium Large Large
    Tajikistan Large Large Large
    Turkmenistan Large Large Large
    Uzbekistan Large Large Large
    Southern and eastern Mediterranean
    Egypt Large Large Large
    Jordan Medium Large Medium
    Morocco Large Medium Large
    Tunisia Large Large Large

  •   Water and wastewater Urban transport Roads Railways
    Central Europe and the Baltic states
    Croatia Medium Medium Small Medium
    Estonia Negligible Small Medium Small
    Hungary Small Medium Small Medium
    Latvia Small Small Medium Small
    Lithuania Medium Small Medium Medium
    Poland Small Small Small Small
    Slovak Republic Medium Medium Small Small
    Slovenia Small Small Medium Medium
    South-eastern Europe
    Albania Large Medium Medium Large
    Bosnia and Herzegovina Large Medium Medium Medium
    Bulgaria Medium Medium Medium Small
    Cyprus Medium Medium Medium Not applicable
    FYR Macedonia Large Medium Medium Medium
    Kosovo Large Medium Medium Medium
    Montenegro Large Small Medium Medium
    Romania Small Small Small Small
    Serbia Large Medium Medium Medium
    Turkey Large Medium Medium Medium
    Eastern Europe and the Caucasus
    Armenia Medium Large Medium Medium
    Azerbaijan Large Large Medium Medium
    Belarus Large Large Large Large
    Georgia Large Large Large Medium
    Moldova Large Medium Medium Large
    Ukraine Large Medium Medium Medium
    Russia Medium Small Medium Small
    Central Asia
    Kazakhstan Large Medium Medium Medium
    Kyrgyz Republic Large Medium Large Large
    Mongolia Large Large Large Medium
    Tajikistan Large Large Large Large
    Turkmenistan Large Large Large Large
    Uzbekistan Large Large Large Medium
    Southern and eastern Mediterranean
    Egypt Large Large Large Large
    Jordan Large Medium Medium Large
    Morocco Medium Medium Medium Large
    Tunisia Large Large Medium Large

  •   Banking Insurance and other financial services MSME finance Private equity Capital markets
    Central Europe and the Baltic states
    Croatia Small Small Medium Medium Medium
    Estonia Small Small Small Medium Medium
    Hungary Small Small Medium Medium Medium
    Latvia Small Small Medium Medium Medium
    Lithuania Small Small Medium Medium Medium
    Poland Small Small Medium Small Small
    Slovak Republic Small Small Medium Medium Medium
    Slovenia Medium Small Medium Medium Medium
    South-eastern Europe
    Albania Medium Large Medium Large Large
    Bosnia and Herzegovina Medium Medium Medium Large Large
    Bulgaria Small Small Small Medium Medium
    Cyprus Medium Small Not available Not available Medium
    FYR Macedonia Medium Medium Medium Large Large
    Kosovo Medium Large Medium Large Large
    Montenegro Medium Medium Medium Large Large
    Romania Small Small Medium Medium Medium
    Serbia Medium Medium Medium Medium Large
    Turkey Medium Medium Small Medium Negligible
    Eastern Europe and the Caucasus
    Armenia Large Large Medium Large Large
    Azerbaijan Large Large Large Large Large
    Belarus Large Large Large Large Large
    Georgia Medium Large Medium Large Large
    Moldova Large Large Large Large Large
    Ukraine Medium Medium Large Medium Large
    Russia Medium Medium Large Medium Small
    Central Asia
    Kazakhstan Medium Medium Large Large Large
    Kyrgyz Republic Large Large Large Large Large
    Mongolia Large Large Medium Large Large
    Tajikistan Large Large Large Large Large
    Turkmenistan Large Large Large Large Large
    Uzbekistan Large Large Large Large Large
    Southern and eastern Mediterranean
    Egypt Medium Large Large Large Medium
    Jordan Small Medium Medium Medium Large
    Morocco Medium Medium Medium Medium Medium
    Tunisia Medium Medium Large Medium Medium

Source: EBRD.
Note: “Large” indicates a major transition gap. “Negligible” indicates standards and performance that are typical of advanced industrialised economies. A historical revision taking into account the availability of new data has been conducted for Jordan’s capital market sector. Please also note the correction for Hungary’s railway sector which was previously misreported. In addition, not all gaps for Cyprus were available at the time of printing, but will be added to the online version of this Transition Report.

TABLE S.3

Sector-level transition indicators 2014: market-supporting institutions
  •   Agribusiness General industry Real estate ICT
    Central Europe and the Baltic states
    Croatia Medium Small Small Small
    Estonia Medium Negligible Negligible Negligible
    Hungary Small Small Negligible Small
    Latvia Medium Small Negligible Negligible
    Lithuania Medium Small Negligible Negligible
    Poland Small Small Small Negligible
    Slovak Republic Small Negligible Negligible Small
    Slovenia Medium Small Negligible Negligible
    South-eastern Europe
    Albania Medium Medium Medium Medium
    Bosnia and Herzegovina Medium Medium Large Medium
    Bulgaria Medium Medium Small Small
    Cyprus Medium Negligble Small Small
    FYR Macedonia Medium Medium Medium Small
    Kosovo Large Large Large Medium
    Montenegro Medium Medium Medium Medium
    Romania Medium Small Small Small
    Serbia Medium Medium Medium Medium
    Turkey Small Medium Medium Small
    Eastern Europe and the Caucasus
    Armenia Medium Small Medium Medium
    Azerbaijan Medium Large Large Large
    Belarus Medium Large Large Large
    Georgia Medium Medium Small Small
    Moldova Medium Large Medium Medium
    Ukraine Medium Large Medium Medium
    Russia Medium Medium Medium Medium
    Central Asia
    Kazakhstan Medium Large Small Medium
    Kyrgyz Republic Medium Medium Medium Medium
    Mongolia Medium Medium Large Medium
    Tajikistan Large Large Large Large
    Turkmenistan Large Large Large Large
    Uzbekistan Large Large Large Large
    Southern and eastern Mediterranean
    Egypt Large Medium Large Medium
    Jordan Large Large Medium Medium
    Morocco Medium Medium Medium Medium
    Tunisia Medium Small Medium Medium

  •   Natural resources Sustainable energy Electric power
    Central Europe and the Baltic states
    Croatia Small Medium Medium
    Estonia Negligible Medium Negligible
    Hungary Small Small Large
    Latvia Negligible Small Negligible
    Lithuania Negligible Small Small
    Poland Medium Small Negligible
    Slovak Republic Small Small Small
    Slovenia Small Small Small
    South-eastern Europe
    Albania Medium Medium Medium
    Bosnia and Herzegovina Large Large Large
    Bulgaria Medium Small Medium
    Cyprus Medium Medium Medium
    FYR Macedonia Medium Medium Medium
    Kosovo Large Large Large
    Montenegro Small Medium Medium
    Romania Small Small Medium
    Serbia Large Medium Large
    Turkey Small Medium Medium
    Eastern Europe and the Caucasus
    Armenia Medium Medium Medium
    Azerbaijan Medium Large Large
    Belarus Large Medium Large
    Georgia Large Large Medium
    Moldova Medium Small Large
    Ukraine Large Small Large
    Russia Large Medium Medium
    Central Asia
    Kazakhstan Large Large Medium
    Kyrgyz Republic Large Large Large
    Mongolia Large Medium Large
    Tajikistan Large Large Large
    Turkmenistan Large Large Large
    Uzbekistan Large Large Large
    Southern and eastern Mediterranean
    Egypt Large Medium Large
    Jordan Medium Medium Medium
    Morocco Large Medium Large
    Tunisia Large Medium Large

  •   Water and wastewater Urban transport Roads Railways
    Central Europe and the Baltic states
    Croatia Small Small Medium Medium
    Estonia Small Medium Medium Negligible
    Hungary Medium Small Negligible Small
    Latvia Small Small Medium Negligible
    Lithuania Small Small Medium Small
    Poland Small Small Small Small
    Slovak Republic Small Small Medium Medium
    Slovenia Small Small Medium Small
    South-eastern Europe
    Albania Large Large Medium Large
    Bosnia and Herzegovina Large Large Medium Small
    Bulgaria Small Small Medium Medium
    Cyprus Small Small Medium Not applicable
    FYR Macedonia Large Large Medium Medium
    Kosovo Medium Large Large Medium
    Montenegro Large Large Large Medium
    Romania Small Small Medium Small
    Serbia Large Large Medium Small
    Turkey Medium Medium Medium Medium
    Eastern Europe and the Caucasus
    Armenia Medium Medium Medium Large
    Azerbaijan Large Large Medium Large
    Belarus Large Large Large Large
    Georgia Large Large Medium Medium
    Moldova Large Medium Medium Large
    Ukraine Large Large Medium Large
    Russia Medium Medium Medium Small
    Central Asia
    Kazakhstan Large Large Medium Medium
    Kyrgyz Republic Large Large Large Large
    Mongolia Large Large Large Medium
    Tajikistan Large Large Large Large
    Turkmenistan Large Large Large Large
    Uzbekistan Large Large Large Medium
    Southern and eastern Mediterranean
    Egypt Large Large Medium Large
    Jordan Large Large Medium Large
    Morocco Large Large Medium Medium
    Tunisia Large Large Large Medium

  •   Banking Insurance and other financial services MSME finance Private equity Capital markets
    Central Europe and the Baltic states
    Croatia Small Small Medium Medium Small
    Estonia Small Small Small Medium Small
    Hungary Medium Small Small Small Small
    Latvia Small Small Small Medium Small
    Lithuania Small Small Small Medium Small
    Poland Small Small Small Small Small
    Slovak Republic Small Small Negligible Small Small
    Slovenia Medium Small Small Medium Small
    South-eastern Europe
    Albania Medium Medium Medium Large Large
    Bosnia and Herzegovina Medium Medium Medium Large Large
    Bulgaria Medium Small Medium Small Small
    Cyprus Medium Not available Medium Not available Small
    FYR Macedonia Medium Medium Medium Large Large
    Kosovo Medium Large Large Large Large
    Montenegro Medium Medium Medium Large Medium
    Romania Small Small Small Small Small
    Serbia Medium Small Medium Medium Medium
    Turkey Small Small Medium Small Small
    Eastern Europe and the Caucasus
    Armenia Medium Large Medium Large Medium
    Azerbaijan Large Medium Large Large Large
    Belarus Large Large Large Large Large
    Georgia Medium Medium Medium Large Large
    Moldova Medium Medium Medium Medium Large
    Ukraine Medium Medium Medium Large Medium
    Russia Medium Medium Large Medium Medium
    Central Asia
    Kazakhstan Medium Medium Large Medium Medium
    Kyrgyz Republic Large Large Large Large Large
    Mongolia Medium Large Large Medium Medium
    Tajikistan Large Large Large Large Large
    Turkmenistan Large Large Large Large Large
    Uzbekistan Large Large Large Large Large
    Southern and eastern Mediterranean
    Egypt Medium Medium Large Medium Medium
    Jordan Medium Medium Large Medium Large
    Morocco Medium Medium Large Medium Medium
    Tunisia Large Medium Large Large Medium

Source: EBRD.
Note: “Large” indicates a major transition gap. “Negligible” indicates standards and performance that are typical of advanced industrialised economies. A historical revision taking into account the availability of new data has been conducted for Jordan’s capital market sector. Please also note the correction for Poland’s capital markets sector which was previously misreported. The missing gaps for Cyprus will be added at a later date.

APPROXIMATELY 170 km THE LENGTH OF ESTLINK 2, THE NEW INTERCONNECTION BETWEEN THE BALTIC AND NORDIC ELECTRICITY MARKETS

Energy

The last few years have been difficult for energy markets in the EBRD region. While some countries have announced reforms, progress with implementation has been slow. In some cases, reforms have even been reversed, leading to six downgrades in the electric power sector in the past two years. With only one downgrade and one upgrade, 2014 may mark a turning point for this sector. However, it is too early to say with certainty, particularly given the increase in energy-related challenges in the region, not least because of the crisis in Ukraine.

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Hungary has been downgraded for the third year in a row, this time from 3+ to 3, owing to a further deterioration in market-supporting institutions. Government interference in this sector has continued, especially with regard to tariff setting, reversing earlier tariff liberalisation efforts. The government has announced further price reductions and is continuing unequal treatment among users, with businesses having to pay higher electricity prices than households and public institutions. In addition, the presence of private utilities in the market is actively being reduced as a result of acquisitions by the state-owned incumbent.

In contrast, progress has been made in Estonia, leading to an upgrade from 4 to 4+. This upgrade is mainly driven by the full opening-up of Estonia’s electricity market in 2013, in line with the country’s EU accession agreement. All customers can now choose their electricity supplier. This was the only major challenge remaining in the area of market structure, meaning that the country has now reached the maximum score in terms of aligning its structures and institutions with those of an energy sector within a well-functioning market economy. This achievement is underpinned by the positive outlook for cross-border trade, especially with the undersea power cable EstLink 2 beginning to operate in 2014. The cable will enhance interconnection and help to increase the flow of electricity between the Baltic states and the Nordic countries.

Infrastructure

There have been a number of positive developments in the area of infrastructure, leading to three upgrades in the Slovak Republic and Moldova. However, Hungary’s increasingly state-oriented and non-commercial approach to economic policy has had a negative effect on the water and wastewater sector, leading to a downgrade. In addition, Bulgaria has been downgraded in regard to urban transport, mainly owing to a number of municipalities returning to providing bus services without private sector involvement.

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The downgrade for Hungary in the water and wastewater sector, from 4 to 3+, is related to changes in market-supporting institutions. Legal changes have been adopted which turn for-profit operators into not-for-profit entities, and the country’s newly established water regulator is limiting commercial pricing. In addition, private sector participation has fallen from its previously high level. Thus, this sector is moving further away from commercially based mechanisms, effectively jeopardising its long-term financial sustainability.

However, there have been upgrades in the road sector. The score for the Slovak Republic, for example, has increased from 3 to 3+. The public-private partnership (PPP) relating to the R1 motorway has been refinanced via the issuance of bonds – a landmark transaction indicating that this sector is approaching maturity. While this is the only road-related PPP project in the Slovak Republic, its completion and capital refinancing have demonstrated the viability of the PPP mechanism in the country. Moldova has also been upgraded (from 3- to 3), reflecting reforms relating to the funding of road maintenance. These reforms include moves towards formula-based allocation, as well as a substantial increase in allocated funds – resulting in a total of some MDL 1.2 billion (approximately €65 million) for 2014. In addition, more than 30 state-owned maintenance companies have been merged to form 11 larger entities, resulting in much-needed consolidation in the sector.

Similarly, Moldova has seen another important development in the urban transport sector. Public service contracts (PSCs) have been introduced in major cities such as Chisinau and Balti. Early evidence of more regular payments under these contracts reinforces the positive demonstration effect that these may have on other cities. In contrast, while the PSC framework in Bulgaria has also been improved, the city of Sofia’s failure to honour contractual obligations in recent years has dampened their demonstration effect. In addition, the return to municipal management of urban bus services in several Bulgarian cities in order to obtain larger EU grants has led to Bulgaria’s market structure gap widening from small to medium.

Financial sectors

While last year’s observation that financial sector reforms had proven resilient still holds true, there are some notable exceptions, with three downgrades in the banking sector this year compared with none last year. The difficult economic and socio-political environment has also revealed a number of structural challenges in the micro, small and medium-sized enterprise (MSME), private equity and capital market sectors. However, some improvements have also been observed – particularly in the MSME sector, where improved access to finance for SMEs has triggered a number of upgrades.

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In the banking sector, Hungary has been downgraded from 3+ to 3 owing to a number of tax measures that led to cost-cutting and rapid deleveraging among banks. Restitution of certain loan charges made on foreign-currency-denominated retail loans, and uncertainty over the announced future conversion of such loans into domestic currency, have further eroded banks’ appetite for lending. The government has announced targets to reduce the role of foreign banks within the sector and to expand the role of state-owned institutions. Non-performing loans (NPLs) stand at about 18 per cent in both corporate and retail loans. While this represents a small reduction, incentives for banks to clean up portfolios remain weak, and there is a need to develop more effective out-of-court restructuring mechanisms. The downgrading of Kazakhstan can be explained by the failure to reduce the high level of NPLs (about 30 per cent), despite the Central Bank directing its efforts towards solving the problem. In addition, there has been a decline in the percentage of total banking assets that are foreign-owned, driven partly by sales of bank subsidiaries to local competitors. In contrast, Romania’s gap for market-supporting institutions has narrowed from medium to small, as banking regulation has been improved (including compulsory stress testing for foreign currency lending).

In the area of MSME lending, the market structure gap has widened from medium to large in Ukraine. This is driven by the fact that there is currently scant MSME lending available, owing to the poor situation of many banks, which are suffering from very high NPL ratios. As a result, the current priority is to clean up banks’ balance sheets. This is having a disproportionate effect on MSMEs, not least because they represent the segment with the highest level of NPLs. On the other hand, Turkey has seen its market structure gap narrow from medium to small. This reflects positive developments in terms of increased lending to SMEs, more favourable interest rates and greater availability of alternative financing options in the market. Three other upgrades in Albania, Kosovo and Montenegro have been driven by better access to finance for SMEs, in addition to improvements in the skills of loan officers and lending departments dealing with credit applications by SMEs.

Changes in the private equity sector have been driven mainly by the presence of fund managers in the market, or a lack thereof, particularly in central and eastern Europe. However, they also reflect the availability of private equity more generally. Downgrades in Croatia (from 3- to 2+), Estonia (market structure gap from small to medium) and Latvia (from 3- to 2+) can be explained by unfavourable changes in the number of fund managers – and the types of fund manager – that are investing in these countries. However, there have also been upgrades in both the Slovak Republic and Serbia, where market structure gaps have narrowed from large to medium, as the amount of private equity capital invested has more than doubled in both countries. In addition, in the Slovak Republic the permitted scope of investment for funds has been widened to include assets designated as being distressed or in need of restructuring.

In the capital market sector, a number of changes have been driven by a methodological adjustment that has led to the recalibration of overall scores in order to reflect differences between countries more accurately. The downgrades in Kazakhstan and Poland are linked to pension reforms, which have marginalised the role of private pension funds and had a significant negative effect on the institutional investor base in both countries. In addition, the endemic problems in Kazakhstan’s banking sector – see above – have brought a halt to the capital market development observed prior to the financial crisis. In Ukraine, the market structure gap has widened owing to a deterioration of liquidity indicators – in particular, government and corporate bond market indices. In Tunisia, by contrast, a comprehensive development plan for capital markets has been put in place, supporting further progress and leading to a narrowing of the market institutions gap from large to medium.

Corporate sectors

Progress in the corporate sector continues to be mixed, with both positive and negative developments in the transition region. This year there have been two downgrades and one upgrade.

In general industry, the market institutions gap in Bulgaria has widened from small to medium, reflecting the ongoing deterioration in the business environment. Although foreign firms – manufacturers of automotive parts, for example – continue to show interest in Bulgaria, the weak economic growth in recent years, combined with political turbulence, has led to low levels of both foreign direct investment and domestic investment. The political interference seen in the electric power sector (which was downgraded last year), combined with low feed-in tariffs, is having a significant effect on the corporate sector by discouraging investments in resource efficiency.

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Hungary has also suffered a downgrade in the ICT sector, with the market institutions gap widening from negligible – the highest rating – to small. A new special tax on advertising and media services was introduced recently. Even though the special tax on telecommunications operators introduced in 2010 as a temporary measure was phased out as of 2013, it was replaced by a new tax on telecommunications services (telephone calls and text messages). The uncertainties related to frequent changes in sector-specific taxation may affect operators’ willingness to invest in network infrastructure and may make the sector less attractive for new investors.

The sole upgrade is observed in the real estate sector, with Montenegro’s market institutions gap narrowing from large to medium. This is due mainly to progress in reducing bureaucratic obstacles to obtain building permits. Processes have been significantly streamlined, including the introduction of a one-stop shop, as well as strict time limits for the provision of approval.

Although they have not led to any rating changes this year, significant developments have also been observed in the agribusiness sector across the EBRD region. Examples include plans to move away from highly subsidised food schemes in Egypt, which will, however, be challenging to implement. In addition, efforts to reform land markets have begun in Croatia and Turkey, which may help to prevent the further fragmentation of farm land and facilitate productivity gains. In Russia, a number of ad hoc trade barriers have been introduced. In addition, temporary import bans have been put in place in response to sanctions imposed by the United States and the EU. The potential structural effects of these measures have yet to be assessed.

Cyprus

Cyprus became an EBRD recipient country in May 2014, so this is the first time that it has been included in this annual assessment of structural reform progress. Despite being an EU member state and relatively advanced in certain sectors, the country faces major challenges in a few very specific areas – particularly in the financial and infrastructure sectors. In these two sectors, its scores range from 3- to 3+. The key challenges in the financial sector span most of the banking industry, with a very high NPL ratio of around 50 per cent, low levels of funding and a need to push through further restructuring. These problems are restricting companies’ access to finance, particularly in the case of SMEs, while alternative financial products are not readily available in the market. In the infrastructure sector, wider private-sector participation – for example via PPPs and the introduction of performance-based contracts – remain a challenge. In the corporate sector, market structures and institutions appear to be more robust, particularly in the general industry and the ICT sectors, which have scores of at least 4-. However, specific challenges relating to privatisation and corporate restructuring remain.

IN 11 COUNTRIES MATERNAL MORTALITY RATES HAVE IMPROVED

Inclusion

Given the importance of economic inclusion for the development of sustainable economic systems, the EBRD assesses the level of inclusion across a range of market sectors in the countries where it works. This assessment was carried out for the first time last year, and Chapter 5 of the Transition Report 2013 provides a detailed explanation of the rationale behind it, as well as the methodology used. Of the three existing measures of inclusion, only the gender gaps and youth gaps have been updated this year. The regional gaps will be updated once the results of the next Life in Transition Survey – which is scheduled for 2015 – are available.

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Most of the changes in the assessment of gender gaps relate to health services and education. In the area of health services, they result from slight improvements in maternal mortality, particularly in the majority of southern and eastern Mediterranean (SEMED) countries (namely Egypt, Jordan and Morocco), as well as in Georgia, Kazakhstan, Moldova, Mongolia, Russia, Serbia, Turkmenistan and Ukraine. However, Lithuania has been downgraded from small to medium owing to a slight increase in maternal mortality. Meanwhile, three countries (Azerbaijan, Belarus and Uzbekistan) have made some progress in education by closing the gender gap in terms of enrolment in and completion of secondary and tertiary education, leading to upgrades. At the same time, completion rates for primary education have decreased among the female population of Bulgaria, Jordan and Romania, leading to downgrades. In the areas of labour practices, access to finance, and employment and firm ownership, gender gaps remain medium to large overall (particularly in the SEMED countries, where gaps are large across all three dimensions).

As regards youth gaps, most upgrades and downgrades are concentrated in the fields of education, financial inclusion and labour market structure. There have been a few upgrades in terms of the quality and quantity of education, driven by better PISA scores (Albania and Montenegro) or increases in the number of years of schooling (Bulgaria, Jordan, Latvia and Romania). Changes to the flexibility of hiring, firing and wage determination in the labour market have led to three downgrades (Bosnia and Herzegovina, Georgia and Romania) and two upgrades (Estonia and Hungary). In terms of financial inclusion, changes generally reflect improvements in the area of access to financial services, resulting in just one downgrade (Georgia) and four upgrades (Jordan, Latvia, FYR Macedonia and the Kyrgyz Republic). Opportunities for young people have not changed much in the past year, so gaps remain large in a number of countries, particularly in the SEMED region, as well as south-eastern Europe.

TABLE S.4
Inclusion gaps for gender
  Legal regulations Health services Education Labour policy Labour practices Employment and firm ownership Access to finance
Central Europe and the Baltic states  
Croatia Negligible Small Negligible Medium Large Small Small
Estonia Negligible Small Negligible Small Large Medium Medium
Hungary Negligible Small Negligible Negligible Medium Medium Medium
Latvia Small Medium Negligible Small Large Medium Small
Lithuania Negligible Medium Negligible Small Medium Medium Medium
Poland Small Small Negligible Small Medium Medium Medium
Slovak Republic Small Small Negligible Small Medium Medium Medium
Slovenia Negligible Small Negligible Small Medium Medium Small
South-eastern Europe  
Albania Negligible Medium Small Small Large Large Large
Bosnia and Herzegovina Negligible Medium Negligible Medium Large Large Medium
Bulgaria Negligible Small Small Small Large Medium Medium
Cyprus Not available Medium Negligible Not available Not available Small Large
FYR Macedonia Small Medium Small Small Large Medium Medium
Kosovo Not available Not available Not available Not available Not available Not available Large
Montenegro Small Medium Negligible Medium Large Medium Medium
Romania Negligible Medium Small Small Large Medium Medium
Serbia Small Small Negligible Medium Large Large Small
Turkey Small Small Medium Small Large Large Large
Eastern Europe and the Caucasus
Armenia Medium Medium Negligible Small Large Large Medium
Azerbaijan Negligible Medium Negligible Medium Large Medium Large
Belarus Small Small Negligible Medium Large Small Medium
Georgia Small Medium Negligible Small Large Medium Small
Moldova Small Small Negligible Small Large Small Medium
Ukraine Small Small Negligible Small Large Medium Medium
Russia Small Small Negligible Medium Large Medium Medium
Central Asia
Kazakhstan Small Medium Negligible Medium Large Large Medium
Kyrgyz Republic Medium Large Negligible Medium Large Medium Small
Mongolia Small Medium Negligible Medium Large Medium Small
Tajikistan Medium Large Medium Small Large Medium Large
Turkmenistan Large Medium Small Medium Large Large Not available
Uzbekistan Medium Medium Small Medium Large Large Large
Southern and eastern Mediterranean
Egypt Medium Medium Medium Medium Large Large Large
Jordan Medium Medium Small Medium Large Large Large
Morocco Medium Medium Medium Medium Large Large Large
Tunisia Small Medium Small Small Large Large Large
Comparator countries
France Negligible Small Negligible Small Medium Medium Medium
Germany Negligible Small Negligible Negligible Medium Small Medium
Italy Negligible Small Negligible Small Medium Large Large
Sweden Negligible Small Negligible Negligible Medium Small Medium
United Kingdom Negligible Small Negligible Small Medium Medium Medium

Source: EBRD.
Note: Methodological changes have been made in the following areas: employment and firm ownership, access to finance and labour practices. These are driven mainly by amendments to the BEEPS questionnaire. Please refer to the methodological notes in the online version of this Transition Report (tr.ebrd.com) for further details.

TABLE S.5

Inclusion gaps for youth
  Labour market structure Opportunities for youth Quantity of education Quality of education Financial inclusion
Central Europe and the Baltic states
Croatia Medium Large Small Medium Medium
Estonia Small Medium Negligible Medium Small
Hungary Medium Medium Negligible Small Medium
Latvia Small Medium Negligible Medium Small
Lithuania Medium Medium Small Medium Large
Poland Medium Medium Small Medium Medium
Slovak Republic Medium Large Small Large Medium
Slovenia Medium Small Small Small Negligible
South-eastern Europe
Albania Medium Large Small Medium Negligible
Bosnia and Herzegovina Medium Large Medium Not available Small
Bulgaria Small Large Negligible Medium Small
Cyprus Small Large Small Medium Medium
FYR Macedonia Medium Large Medium Large Small
Kosovo Not available Not available Not available Not available Not available
Montenegro Medium Large Small Medium Medium
Romania Small Large Negligible Medium Small
Serbia Small Large Large Medium Large
Turkey Medium Large Large Medium Large
Eastern Europe and the Caucasus
Armenia Small Large Small Medium Negligible
Azerbaijan Medium Large Small Large Small
Belarus Not available Medium Negligible Not available Medium
Georgia Small Large Negligible Medium Medium
Moldova Medium Large Small Large Negligible
Ukraine Medium Small Small Large Negligible
Russia Medium Medium Negligible Medium Medium
Central Asia
Kazakhstan Small Medium Small Large Medium
Kyrgyz Republic Medium Large Medium Large Negligible
Mongolia Small Medium Large Not available Small
Tajikistan Medium Medium Small Not available Negligible
Turkmenistan Not available Not available Small Not available Negligible
Uzbekistan Not available Not available Small Not available Small
Southern and eastern Mediterranean
Egypt Medium Large Large Not available Negligible
Jordan Small Large Medium Medium Medium
Morocco Medium Large Large Large Medium
Tunisia Medium Large Large Large Small
Comparator countries
France Medium Medium Negligible Small Medium
Germany Medium Negligible Small Small Negligible
Italy Medium Large Negligible Medium Large
Sweden Medium Medium Small Small Small
United Kingdom Small Medium Small Small Negligible

Source: EBRD.
Note: Methodological changes have been made in the following areas: opportunities for youth and financial inclusion. These are driven mainly by the availability of new data. Please refer to the methodological notes in the online version of this Transition Report (tr.ebrd.com) for further details.

TABLE S.6

Inclusion gaps for regions
  Institutions Access to services Labour markets Education
Central Europe and the Baltic states
Croatia Medium Medium Small Medium
Estonia Small Medium Negligible Small
Hungary Medium Small Large Small
Latvia Small Medium Small Medium
Lithuania Medium Large Small Small
Poland Medium Medium Medium Small
Slovak Republic Medium Small Medium Small
Slovenia Small Negligible Small Small
South-eastern Europe
Albania Medium Medium Large Small
Bosnia and Herzegovina Large Large Large Small
Bulgaria Medium Medium Medium Medium
Cyprus Not available Not available Not available Not available
FYR Macedonia Small Medium Large Large
Kosovo Medium Large Large Small
Montenegro Medium Medium Large Small
Romania Medium Large Medium Medium
Serbia Large Medium Large Large
Turkey Medium Large Medium Large
Eastern Europe and the Caucasus
Armenia Medium Medium Large Medium
Azerbaijan Medium Small Large Small
Belarus Medium Negligible Small Negligible
Georgia Negligible Large Large Medium
Moldova Medium Large Large Large
Ukraine Medium Medium Medium Small
Russia Medium Small Small Medium
Central Asia
Kazakhstan Small Small Medium Medium
Kyrgyz Republic Medium Large Medium Small
Mongolia Negligible Medium Medium Medium
Tajikistan Medium Large Large Small
Turkmenistan Not available Not available Not available Not available
Uzbekistan Large Medium Large Large
Southern and eastern Mediterranean
Egypt Not available Not available Not available Large
Jordan Not available Not available Not available Small
Morocco Not available Not available Not available Large
Tunisia Not available Not available Not available Not available
Comparator countries
France Negligible Medium Medium Medium
Germany Negligible Large Negligible Medium
Italy Large Medium Negligible Small
Sweden Medium Small Small Small
United Kingdom Medium Small Small Large

Source: EBRD.
Note: Please note that the regional gaps have not been updated this year, as they are largely based on the results of the EBRD-World Bank Life in Transition Survey, the next round of which is scheduled for 2015.

Country-level transition indicators

Alongside the sector-level transition scores discussed above, the traditional country-level transition indicators – which cover cross-cutting issues such as privatisation, liberalisation and governance – have been retained (see Table S.7). However, only a few developments in the past year have warranted changes to those scores, either up or down. There have been just three changes: a downgrade for Russia in the area of trade and foreign exchange, and upgrades for Croatia and Montenegro in the area of competition policy.

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Russia’s downgrade comes against the backdrop of Western sanctions resulting from the crisis in Ukraine and the countermeasures adopted by Russia in response. The Russian authorities have introduced a one-year import ban with effect from August 2014 targeting EU food products. Separate measures include a ban on imports of Ukrainian food products, including dairy and confectionery. In addition, a number of temporary measures have been adopted over the past year that affect agricultural and manufacturing imports. As a result, Russia’s score has been reduced from 4 to 4-.

Meanwhile, Croatia has been upgraded from 3 to 3+ in the area of competition in light of the country’s accession to the EU and the important amendments to the country’s Competition Act that entered into force in mid-2013. These amendments include the provision of greater clarity regarding the separation of powers and responsibilities between the competition authority and the courts. Croatia has also strengthened the procedures governing raids conducted by the competition authority, which may be associated with firmer and more frequent enforcement of antitrust rules. In Montenegro, the establishment of a fully independent competition authority has led to an upgrade of the competition policy indicator from 2 to 2+. This upgrade is underpinned by signs of increasing prosecution of cartels, despite deficiencies in terms of resources and the resulting enforcement levels.

TABLE S.7

Country-level transition indicators 2014

  •   Large-scale privatisation Small-scale privatisation Governance and enterprise restructuring
    Central Europe and the Baltic states
    Croatia 4- 4+ 3+
    Estonia 4 4+ 4-
    Hungary 4 4+ 4-
    Latvia 4- 4+ 3+
    Lithuania 4 4+ 3
    Poland 4- 4+ 4-
    Slovak Republic 4 4+ 4-
    Slovenia 3 4+ 3
    South-eastern Europe
    Albania 4- 4 2+
    Bosnia and Herzegovina 3 3 2
    Bulgaria 4 4 3-
    Cyprus 4- 4+ 3
    FYR Macedonia 3+ 4 3-
    Kosovo 2- 3+ 2
    Montenegro 3+ 4- 2+
    Romania 4- 4- 3-
    Serbia 3- 4- 2+
    Turkey 3+ 4 3-
    Eastern Europe and the Caucasus
    Armenia 4- 4 2+
    Azerbaijan 2 4- 2
    Belarus 2- 2+ 2-
    Georgia 4 4 2+
    Moldova 3 4 2
    Ukraine 3 4 2+
    Russia 3 4 2+
    Central Asia
    Kazakhstan 3 4 2
    Kyrgyz Republic 4- 4 2
    Mongolia 3+ 4 2
    Tajikistan 2+ 4 2
    Turkmenistan 1 2+ 1
    Uzbekistan 3- 3+ 2-
    Southern and eastern Mediterranean
    Egypt 3 4- 2
    Jordan 3 4- 2+
    Morocco 3+ 4- 2+
    Tunisia 3 4- 2

  •   Price liberalisation Trade and foreign exchange system Competition policy
    Central Europe and the Baltic states
    Croatia 4 4+ 3+ ↑
    Estonia 4+ 4+ 4-
    Hungary 4 4 3+
    Latvia 4+ 4+ 4-
    Lithuania 4+ 4+ 4-
    Poland 4+ 4+ 4-
    Slovak Republic 4+ 4 3+
    Slovenia 4 4+ 3-
    South-eastern Europe
    Albania 4+ 4+ 2+
    Bosnia and Herzegovina 4 4 2+
    Bulgaria 4+ 4+ 3
    Cyprus 4+ 4+ 4-
    FYR Macedonia 4+ 4+ 3-
    Kosovo 4 4 2+
    Montenegro 4 4+ 2+ ↑
    Romania 4+ 4+ 3+
    Serbia 4 4 2+
    Turkey 4 4+ 3
    Eastern Europe and the Caucasus
    Armenia 4 4+ 2+
    Azerbaijan 4 4 2-
    Belarus 3 2+ 2
    Georgia 4+ 4+ 2
    Moldova 4 4+ 2+
    Ukraine 4 4 2+
    Russia 4 4- ↓ 3-
    Central Asia
    Kazakhstan 4- 4- 2
    Kyrgyz Republic 4+ 4+ 2
    Mongolia 4+ 4+ 3-
    Tajikistan 4 4- 2-
    Turkmenistan 3 2+ 1
    Uzbekistan 3- 2- 2-
    Southern and eastern Mediterranean
    Egypt 3+ 4 2-
    Jordan 4- 4+ 2
    Morocco 4 4- 2
    Tunisia 4 4 3-

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 the online version of this Transition Report (tr.ebrd.com). Upward and downward arrows indicate one-notch upgrades and downgrades relative to the previous year.

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 subcomponent: 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

TABLE N.1.3.3

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

 

Infrastructure

TABLE N.1.4.1

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.1.4.2

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.1.4.3

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.1.4.4

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.1.5.1

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.1.5.2

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)

Internationally accredited actuarial body (official sources)

TABLE N.1.5.3

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.1.5.4

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.1.5.5

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.1.6.1

Inclusion gaps for gender

Components Indicators Sources

Legal and social regulations

  

Addressing violence against women

The Economist Intelligence Unit – Women’s Economic Opportunity (EIU-WEO), 2012

 

Property ownership rights

Inheritance laws in favour of male heirs

OECD Social Institutions and Gender Index, 2009

Access to health services

  

Sex at birth: f/m ratio

World Bank WDI, 2013

 

Maternal mortality ratio (maternal deaths per 100,000 live births)

Contraceptive prevalence (percentage of women aged 15-49)

Education and training

    

Literacy rate: f/m ratio

UN Social Indicators, latest available

Primary school completion rate: f/m ratio

World Bank Education Statistics, latest available

 

Gender parity index (GPI) for net enrolment rate in secondary education

Percentage of female graduates in tertiary education

GPI for gross enrolment in tertiary education

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

Assessment of labour practices

    

Equal pay practice

EIU-WEO, 2012

 

Non-discrimination practice

Access to child care

Female top manager

BEEPS V, 2012

Gender pay gap

UNECE, latest available

Employment and firm ownership

    

Female ownership (equal or more than 50 per cent)

BEEPS V, 2012

Share of women in non-agricultural employment

World Bank WDI, latest available

Labour force participation rate: f/m ratio (age 15+)

World Bank Gender Indicators, latest available

 

Unemployment with tertiary education: f/m ratio

Unemployment rate: f/m ratio

Access to finance

 

Account at a formal financial institution: f/m ratio (age 15+)

Global Financial Inclusion (Global Findex) Database, 2011 (updated 2014 version)

 

Account used for business purposes: f/m ratio (age 15+)

Credit card: f/m ratio (age 15+)

Debit 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+)

Saved at a financial institution in the past year: f/m ratio (age 15+)

Loans rejected for firms with female versus male top management

BEEPS V, 2012

 

Women’s access to finance/seen as an obstacle or not/for firms with female versus male top management

Women’s access to finance programmes

EIU-WEO, 2012

TABLE N.1.6.2

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

Opportunities for youth

Difference in unemployment rate from youth (age 15-24) to adult (age 25-65)

World Bank and ILO, 2013 or latest available

Difference between youth not in education, employment or training (NEET)

Eurostat, 2013; Silatech, 2009

Quantity of education

Average years of education for people aged 25-29

Barro-Lee, 2010 (updated 2014 version); Human Development Index, 2012

 

Percentage of youth (age 15-24) with no schooling

Quality of education

 

 

 

 

 

Test performance relative to highest possible score

PISA, 2012; supplemented by TIMSS, 2011

 

Schools’ accountability (achievement data tracked over time)

Teacher/instruction material shortage

Employers’ perception of the quality of the education system

WEF, 2013-14

Households’ perception of the quality of the education system

LITS, 2010

Universities in top 500 (cumulatively)

ARWU, 2003-14

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+)

TABLE N.1.6.3

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

Country-level transition indicators

(See Table S.7)

The country-level transition indicators discussed above reflect the judgement of the EBRD’s Office of the Chief Economist about country-specific progress in transition.

The scores range from 1 to 4+ and are based on a classification system that was originally developed in the 1994 Transition Report, but has been refined and amended in subsequent reports.


Large-scale privatisation

1 Little private ownership.

2 Comprehensive scheme almost ready for implementation; some sales completed.

3 More than 25 per cent of large-scale enterprise assets in private hands or in the process of being privatised (with the process having reached a stage at which the state has effectively ceded its ownership rights), but possibly with major unresolved issues regarding corporate governance.

4 More than 50 per cent of state-owned enterprise and farm assets in private ownership and significant progress with corporate governance of these enterprises.

4+ Standards and performance typical of advanced industrial economies: more than 75 per cent of enterprise assets in private ownership with effective corporate governance.


Small-scale privatisation

1 Little progress.

2 Substantial share privatised.

3 Comprehensive programme almost completed.

4 Complete privatisation of small companies with tradeable ownership rights.

4+ Standards and performance typical of advanced industrial economies: no state ownership of small enterprises; effective tradeability of land.


Governance and enterprise restructuring

1 Soft budget constraints (lax credit and subsidy policies weakening financial discipline at the enterprise level); few other reforms to promote corporate governance.

2 Moderately tight credit and subsidy policy, but weak enforcement of bankruptcy legislation and little action taken to strengthen competition and corporate governance.

3 Significant and sustained actions to harden budget constraints and to promote corporate governance effectively (for example, privatisation combined with tight credit and subsidy policies and/or enforcement of bankruptcy legislation).

4 Substantial improvement in corporate governance and significant new investment at the enterprise level, including minority holdings by financial investors.

4+ Standards and performance typical of advanced industrial economies: effective corporate control exercised through domestic financial institutions and markets, fostering market-driven restructuring.


Price liberalisation

1 Most prices formally controlled by the government.

2 Some lifting of price administration; state procurement at non-market prices for the majority of product categories.

3 Significant progress on price liberalisation, but state procurement at non-market prices remains substantial.

4 Comprehensive price liberalisation; state procurement at non-market prices largely phased out; only a small number of administered prices remain.

4+ Standards and performance typical of advanced industrial economies: complete price liberalisation with no price control outside housing, transport and natural monopolies.


Trade and foreign exchange system

1 Widespread import and/or export controls or very limited legitimate access to foreign exchange.

2 Some liberalisation of import and/or export controls; almost full current account convertibility in principle, but with a foreign exchange regime that is not fully transparent (possibly with multiple exchange rates).

3 Removal of almost all quantitative and administrative import and export restrictions; almost full current account convertibility.

4 Removal of all quantitative and administrative import and export restrictions (apart from agriculture) and all significant export tariffs; insignificant direct involvement in exports and imports by ministries and state-owned trading companies; no major non-uniformity of customs duties for non-agricultural goods and services; full and current account convertibility.

4+ Standards and performance norms of advanced industrial economies: removal of most tariff barriers; membership in WTO.


Competition policy

1 No competition legislation and institutions.

2 Competition policy legislation and institutions set up; some reduction of entry restrictions or enforcement action on dominant firms.

3 Some enforcement actions to reduce abuse of market power and to promote a competitive environment, including break-ups of dominant conglomerates; substantial reduction of entry restrictions.

4 Significant enforcement actions to reduce abuse of market power and to promote a competitive environment.

4+ Standards and performance typical of advanced industrial economies: effective enforcement of competition policy; unrestricted entry to most markets.