Challenges to Enterprise Performance in the Face of the Financial Crisis

A WORLD BANK STUDY
Challenges to Enterprise
Performance in the Face
of the Financial Crisis
EASTERN EUROPE AND CENTRAL ASIAWORLD BANK STUDY
Challenges to Enterprise
Performance in the Face
of the Financial Crisis
Eastern Europe and Central AsiaCopyright © 2011
The International Bank for Reconstruction and Development/The World Bank
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ISBN: 978-0-8213-8800-6
eISBN: 978-0-8213-8801-3
DOI: 10.1596/978-0-8213-8800-6
Library of Congress Cataloging-in-Publication Data
Challenges to enterprise performance in the face of the fi nancial crisis : Eastern Europe and Central Asia.
p. cm.
Includes bibliographical references.
ISBN 978-0-8213-8800-6 -- ISBN 978-0-8213-8801-3
1. Industries--Europe, Eastern. 2. Industries--Asia, Central. 3. Business enterprises--Europe, Eastern. 4.
Business enterprises--Asia, Central. 5. Global Financial Crisis, 2008-2009. 6. Europe, Eastern--Economic
conditions--21st century. 7. Asia, Central--Economic conditions--21st century. I. World Bank.
HC244.C42 2011
338.50947--dc23
2011018824
4Contents
Acknowledgments ....................................................................................................................ix
Acronyms and Abbreviations .................................................................................................xi
Executive Summary ............................................................................................................... xiii
1. Overview .................................................................................................................................. 1
Introduction .......................................................................................................................... 1
Main Issues Refl ected in the Report ................................................................................. 2
Data and Methodology ....................................................................................................... 5
The Structure of This Report .............................................................................................. 5
2. Access to Finance .................................................................................................................... 7
Financial Sector Developments in the Eastern Europe and Central Asia Region ...... 8
Data and Methodology ..................................................................................................... 14
Financial Constraints ........................................................................................................ 15
Firm Survival ...................................................................................................................... 22
Understanding Foreign Bank Presence .......................................................................... 24
Conclusions ........................................................................................................................ 25
3. Infrastructure Bo lenecks ..................................................................................................29
Infrastructure in the Eastern Europe and Central Asia Region .................................. 30
Data and Methodology 31
Electricity: A Growing Concern ..................................................................................... 32
Telecommunications Usage on the Rise, but Access and Reliability
Remain Issues ............................................................................................................. 39
The Role of Regulation and Governance ....................................................................... 42
Conclusion .......................................................................................................................... 47
4. Labor: Challenges Ahead of the Crisis ............................................................................ 50
Recent Labor Market Developments in the Eastern Europe and
Central Asia Region ................................................................................................... 51
Data and Methodology ..................................................................................................... 52
Labor Constraints in ECA ................................................................................................ 53
Responding to the Rising Skills Constraints ................................................................. 65
Eff ects of the Crisis on Labor ........................................................................................... 69
Conclusion .......................................................................................................................... 69
References .................................................................................................................................. 73
iii
4iv Contents
Appendixes ................................................................................................................................ 81
Appendix 1. Technical Notes and Data Tables .............................................................. 83
Appendix 2. Notes on Sampling and the Survey Methodology ............................... 120
Appendix 3. Summary of Obstacles Doing Business ................................................. 123
Boxes
Box 2.1. Eff ects of Easy Money ................................................................................................12
Box 2.2. Fixed vs. Floating—Example of Bulgaria and Poland ..........................................22
Box 3.1. Cost of Power Outages in Kosovo ...........................................................................37
Box 3.2. Progress in Armenia’s Telecom Sector ....................................................................41
Box 3.3. Weak Governance and Infrastructure Services: Ge ing Electricity
in Ukraine ...........................................................................................................................43
Box 3.4. Transport Constraints Tighten Across ECA ...........................................................46
Box 4.1. Strides in Labor Regulations .....................................................................................54
Box 4.2. Are the Trends Emerging from the BEEPS Data Consistent with Other
Sources? ..............................................................................................................................57
Box 4.3. Wages and Productivity Increases: Do They Refl ect Rising Skills and
Labor Shortages? ..............................................................................................................60
Box 4.4. Emigration and Brain Drain in ECA ........................................................................61
Box 4.5. Information Technology Use and Skills ..................................................................65
Box 4.6. Early Eff ects of the Financial Crisis .........................................................................68
Figures
Figure 2.1. Liquid Liabilities as a Share of GDP .....................................................................9
Figure 2.2. Foreign Controlled Banking Sector Assets ........................................................10
Figure 2.3. Access to Credit .....................................................................................................11
Figure 2.4. Foreign Claims as a S