Lithuania. Poland. Belarus. Georgia. Azerbaijan. Macedonia

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Lithuania Poland Belarus Georgia Azerbaijan Macedonia 14

The development challenge in the Central and Eastern European region remains one of transforming previously authoritarian, centrally planned societies into participating democracies with strong market economies that are privately owned and managed. Economic performance among the EU and countries in Eastern Europe generally held up well, compared with other regions, during the 22 global slowdown. Not surprisingly, exports which are largely directed to countries within the EU weakened significantly over the past year as external demand slowed. But this trend was largely offset by relatively robust domestic demand, generally underpinned by lower inflation and interest rates, strong investment spending, and fiscal stimulus in several countries. ICDF work in 22 included projects in Azerbaijan, Belarus, Georgia, Lithuania, Macedonia and Poland. In Azerbaijan, Georgia and Lithuania, the ICDF is working with the EBRD through the Financial Intermediary Investment Special Fund. This includes a privatization project for a wool company in Lithuania, a tourism project in Azerbaijan, and providing microcredit for SMEs in Georgia to enhance private sector development in Central and Eastern Europe. In Belarus and Poland, the ICDF is involved in a SME Relending Project that is helping to develop entrepreneurship, create and expand small and medium industries, increase the income of the local people, and stimulate local economic activities in both countries. The project aims to provide credit through participating banks to beneficiaries who undertake an eligible subproject in order to promote the establishment, improvement and expansion of competitive and private sector activity in Belarus and Poland. Lastly, the ICDF is involved in the Skopje Export Processing Zone Development Project in Macedonia. The project s aim is to develop in the Republic of Macedonia an export processing zone known as the Skopje Free Economic Zone or FEZ, which will permit investors from any country and of any nationality to engage in manufacturing and other business activities. 141

ICDF Annual Report 22 Georgia Armenia Azerbaijan Russia Iran Fast Facts Capital: Baku Azerbaijan Languages: Azeri, Russian, Armenian Population: 8.1 million Area: 86,6 sq km Religions: Islam, Christianity Caspian Sea Economic Overview and Outlook Azerbaijan is an economy in transition in which the state continues to play a dominant role. The country has important oil reserves and, based on a wide variety of climatic zones, significant agronomic potential. Since 1995, in cooperation with the IMF, Azerbaijan has pursued a highly successful economic stabilization program, which brought inflation down from 1,8 percent in 1994 to 1.5 percent in 21. GDP in 2 grew by 11.1 percent, the sixth consecutive increase. Increasingly, the energy sector dominates Azerbaijan s economy. Oil and oil products accounted for 85 percent of Azerbaijan s exports in 2, and increased to account for more than 9 percent of exports in the first half of 21. Significant oil revenues, coupled with the government s conservative approach to debt, have enabled Azerbaijan to achieve an impressive measure of macroeconomic stability. However, its dependence on oil revenues leaves the country vulnerable to price fluctuations. Agriculture is Azerbaijan s third largest sector, and further development of agribusiness is essential to creating employment opportunities and increasing family income. According to the World Bank, Azerbaijan had an external debt of US$1.219 billion in 21. It received US$226 million in foreign assistance from the IDA, Japan, the EU and other donors. Life expectancy is 72 years. Currency: Manat 142

Country Operations ICDF Operations The ICDF is conducting one investment project in Azerbaijan, together with the EBRD. Investment and Lending Project Structure of the Economy 21 (%GDP) Service 38% Agriculture 17% Industry 45% EBRD Financial Intermediary Investment Special Fund Silk Road Motel Project With a contribution of US$12.5 million into the Financial Intermediary Investment Special Fund, the ICDF is engaging in various investment ventures with the EBRD within Eastern Central Asia. The main focus is on private enterprise, but funding can be extended to successful privatized public enterprises. The objective of this joint venture project, currently under EBRD supervision, is to help foster tourism development in Azerbaijan by establishing a new motel (Silk Road Motel). The total project cost is US$5.1 million, of which the ICDF invested US$4, and the EBRD invested US$1.6 million. GDP US$ Billions 5.7 5.6 5.5 5.4 5.3 5.2 5.1 5.7 5.3 No Data 1991 2 21 GNI Per Capita 21 Year US$ 2 196 15 1 5 66 43 Azerbaijan Low Life Expectancy 21 Years 8 6 72 69 59 4 2 Azerbaijan Low Azerbaijan at a Glance 143

ICDF Annual Report 22 Belarus Fast Facts Capital: Minsk Languages: Belarusian, Russian Population: 1.3 million Area: 27,6 sq km Religion: Christianity Currency: Belarusian Ruble Economic Overview and Outlook The Republic of Belarus is located in the eastern part of Europe. In the early 199s, after gaining independence from the former Soviet Union, Belarus launched economic liberalization and structural reforms. It has recently passed through several stages in its political and economic development. Belarus managed to unify its currency exchange rates, tighten its monetary policy, and partially liberalize the foreign currency market. These developments led to price and wage liberalization, a widening of privatization, fiscal reform, the adoption of international accounting standards in the banking sector, and the repeal of several laws and decrees to improve the investment climate. In 2, industrial production amounted to 39 percent of GDP, agriculture to 11 percent, and services contributed 5 percent. Belarus exports large quantities of machinery, transport vehicles, chemical and petrochemical products, fibers, fertilizers and transport services. The number of SMEs in Belarus has increased by 1.5 times since the early 199s. Restructuring of large industrial enterprises has brought positive results including higher productivity and new product creation and development. According to the World Bank, Belarus had an external debt in 21 of US$763 million and received US$4 million in assistance. The United States, Germany and the EU were the largest donors. 144

Country Operations ICDF Operations Structure of the Economy 21 (%GDP) The ICDF has one investment and lending project in Belarus. Service 5% Agriculture 11% Investment and Lending Project SME Relending Project GDP Industry 39% The objectives of this project are to help solve problems of capital shortages for SMEs in Belarus, improve industry competitiveness, and boost the Belorusian economy. The project aims to provide credit through participating banks to beneficiaries who undertake an eligible subproject designed to promote the establishment, improvement and expansion of competitive and private sector activity in Belarus and help foster a market oriented economy in the country. The ICDF provided US$7.5 million and the EBRD provided US$15 million. The National Bank of Belarus is responsible for channeling the loan to commercial banks that disburse the money to eligible SMEs. US$ Billions 12 11.5 11 1.5 1 12 No Data 1.4 1991 2 21 GNI Per Capita 21 Year US$ 2 196 15 1 119 124 5 Belarus Lower Middle Life Expectancy 21 Years 69 69 69 68.5 68 68 67.5 Belarus Lower Middle Belarus at a Glance 145

ICDF Annual Report 22 Black Sea Georgia Turkey Russia Fast Facts Capital: Tbilisi Georgia Armenia Languages: Georgian, Russian, Armenian, Azeri Population: 5.5 million Area: 69,7 sq km Religions: Christianity, Islam Currency: Lari Azerbaijan Economic Overview and Outlook Bounded by the Black Sea, the Russian Federation, Azerbaijan, Armenia and Turkey, Georgia is located in a key trade and transit corridor in the Caucasus between Asia. Georgia was absorbed into the Russian Empire in the nineteenth century. Independent for three years (1918-1921) following the Russian revolution, it was incorporated into the Soviet Union until its dissolution in 1991. Georgia has adhered to fiscal and monetary policies that promote balanced and sustainable economic growth and facilitate the functioning of markets. The private sector s share of the economy continues to increase, both from internal growth within private enterprise and from the government s continuing privatization program. Agriculture is one of the sectors that have thrived from the introduction of a free market economic system. Rebuilding the long neglected infrastructure and improving the quality of housing have created opportunities for SME development. Georgia s role as a trade corridor also creates growth opportunities in trading, transport and transportation infrastructure. Since 1995, Georgia has made significant strides in introducing economic and social reforms in areas such as the restructuring of banking, judicial reform and health care. Social services and health indicators in Georgia are improving after declining at the time of the breakup of the Soviet Union, and life expectancy is 73 years. New health facilities, cultural centers, water systems, irrigation systems, roads and bridges have benefited approximately one million people. According to the World Bank, Georgia had an external debt of US$1.71 billion in 21. The same year it received US$29 million in assistance, to which the United States, the IDA and the IMF were the three largest contributors. 146

Country Operations ICDF Operations Structure of the Economy 21 (%GDP) The ICDF is currently conducting one investment and lending project in Georgia with the EBRD. Service 56% Agriculture 22% Investment and Lending Project Industry 22% EBRD Financial Intermediary Investment Special Fund Microcredit Bank of Georgia The ICDF cooperated with the EBRD to provide a US$3 million loan to the Microcredit Bank of Georgia (MBG). The bank was established in February 1999 to offer financial services to SMEs in Georgia. The ICDF is providing the funds to the MBG through its Taipei EBRD Financial Intermediary Investment Special Fund. GDP US$ Billions 1 8 6 4 2 8.8 3. 3.2 1991 2 21 Year GNI Per Capita 21 US$ 2 196 15 1 5 62 43 Georgia Low Life Expectancy 21 Years 75 7 73 69 65 6 59 55 Georgia Low Georgia at a Glance 147

ICDF Annual Report 22 Baltic Sea Russia Lithuania Poland Fast Facts Capital: Vilnius Latvia Lithuania Languages: Lithuanian, Polish, Russian Population: 3.7 million Area: 65,2 sq km Religion: Christianity Currency: Litas Belarus Economic Overview and Outlook The modern Lithuanian state was established in 1918 and regained independence in 199 after 5 years of Soviet rule. The Soviet era brought Lithuania intensive industrialization and economic integration into the U.S.S.R. Soon after reestablishing its independence, Lithuania launched a program of market based economic reform that has achieved notable progress. In 1992, assisted by the IMF and other international institutions, Lithuania adopted a program to restrain inflation, reduce price controls, lower the budget deficit and privatize the economy. Lithuania has a modern highway system, several international airports and a major ice free seaport of Klaipeda. The country is relatively lacking in natural resources. However, in its human social development index, the United Nations rates Lithuania 52 nd among 174 world nations. The major branches of Lithuania s rapidly modernizing economy are services, industry and agriculture. The countries of the EU are Lithuania s major trade partners and investors. Negotiations to accede to the EU were completed in October 22 and Lithuania will become a member in 24. Lithuania has achieved a remarkable economic recovery following a recession in the aftermath of Russian crisis. Real GDP growth accelerated to 5.9 percent in 21 and six percent in the first half of 22. With exports driving the recovery, the current account deficit declined to 4.8 percent of GDP in 21, with foreign direct investment a major source of financing. Industry is Lithuania s largest economic sector, and most small firms are now under private ownership. About 86 percent of all enterprises and about 83 percent of state property included in the initial privatization program have been privatized. In 1999, US$85 million in capital went to privatization of formerly state owned property (approximately 3 percent of all the state owned property). The Lithuanian government established the State Property Fund in 1998 to manage and privatize the remaining state assets, including the energy, telecommunications and transportation sectors. According to the World Bank, Lithuania had an external debt of US$2.57 billion and received US$131 million in foreign assistance in 21. The EU, Denmark and Sweden were the largest contributors. 148

Country Operations ICDF Operations The ICDF is working with the EBRD and the IFC to provide equity investment and loans to the Drobe Wool Company in Lithuania. Investment and Lending Project Structure of the Economy 21 (%GDP) Service 58% Agriculture 7% Industry 35% EBRD Financial Intermediary Investment Special Fund Drobe Privatization Project The project aims to speed up the privatization of the Drobe Wool Company as well as improve its productivity and increase high margin sales. Cooperating with the EBRD and the IFC, the ICDF is investing US$39, in equity capital in, as well as providing a US$1.89 million loan to, Drobe Wool Company, through its Taipei EBRD Financial Intermediary Investment Special Fund. The project is being implemented and managed by EBRD. GDP US$ Billions 16 14 12 1 8 6 4 2 14.8 12 11.3 1991 2 21 Year GNI Per Capita 21 US$ 6 446 4 329 2 196 Lithuania Upper Middle Life Expectancy 21 Years 74 72 73 7 71 68 69 66 Lithuania Upper Middle Lithuania at a Glance 149

ICDF Annual Report 22 Macedonia Fast Facts Capital: Skopje Languages: Macedonian, Albanian, Turkish, Serbo-Croatian Population: 2 million Area: 25,333 sq km Religions: Christianity, Islam Currency: Denar Economic Overview and Outlook FYR Macedonia gained its independence under exceptionally difficult circumstances. The breakup of the Yugoslav Federation in 1991, and the ensuing regional conflict, meant the loss of a large and protected market, key transport routes, large net transfers and more than US$1.2 billion in foreign currency savings. In a region where the reverse is more usually true, FYR Macedonia has remained a peaceful, democratic and multiethnic society, and made substantial progress on structural transformation. The Macedonian government has adopted an ambitious program to boost the economy, reform legislation and the public administration, reduce unemployment, increase foreign direct investment and improve interethnic relations as well as relations with neighboring countries. A central plank of the government s policy was the integration of the country into Euro-Atlantic structures. Successful privatization in 2 boosted the country s reserves to over $7 million. According to the Institute for Payment Operations, there are 31,682 SMEs operating in the Republic of Macedonia, which represents 98.5 percent of the total number of active enterprises. The process of privatization of the Macedonian economy, started in 1989, has transformed over 6 companies in Macedonia into joint stock and limited liability companies and has brought great benefit to the country. According to the World Bank, Macedonia had an external debt of US$ 776 million and received US$248 million in assistance in 21. The largest donors were the EU, the IDA and the United States. 15

Country Operations ICDF Operations The ICDF has one investment and lending project in Macedonia. Structure of the Economy 21 (%GDP) Service 58% Agriculture 11% Investment and Lending Project Industry 31% Skopje Export Processing Zone Development Project The project aims to develop in the Republic of Macedonia an export processing zone known as the Skopje Free Economic Zone or FEZ, which will permit investors from any country and of any nationality to engage in manufacturing and other business activities. The project includes all the preliminary work undertaken for the acquisition of the interest in the land, the preparation for the development, the development itself, the completion of the development and the management, and the operation and maintenance of the developed FEZ. The total cost of development is about US$12 million. The ICDF will provide a loan of up to US$11.5 million. The Skopje Development and Management Company, Ltd. (SDMC) is in charge of detailed design, promotion and management of the park. GDP US$ Billions 5 4.7 4 3.6 3.4 3 2 1 1991 2 21 GNI Per Capita 21 Year US$ 2 15 169 196 1 124 5 FYR Macedonia Lower Middle Life Expectancy 21 Years 74 72 73 A clothing manufacturing factory in Macedonia 7 68 69 69 66 FYR Macedonia Lower Middle Macedonia at a Glance 151

ICDF Annual Report 22 Sweden Germany Baltic Sea Czech Republic Poland Fast Facts Capital: Warsaw Language: Polish Population: 38.7 million Area: 312,685 sq km Religion: Christianity Currency: Zloty Poland Slovakia Russia Lithuania Belarus Ukraine Economic Overview and Outlook Poland gained its independence in 1918, only to be overrun by Germany and the Soviet Union during World War II. Following the war, it became a Soviet satellite country, but one that was comparatively tolerant and progressive. Labor turmoil in 198 led to the formation of the independent trade union Solidarity that over time became a political force and by 199 had swept parliamentary elections and the presidency. A shock therapy program during the early 199s enabled the country to transform its economy into one of the most robust in Central Europe. Negotiations to accede to the EU were completed in October 22 and Poland will become a member in 24. Poland joined the NATO alliance in 1999. The Polish economy grew rapidly in the mid 199s, but growth has slowed considerably in recent years. The GDP grew by four percent in 2, and one percent in 21. Slowing growth has boosted unemployment, which stood at 17.4 percent at the end of 21. All of Poland s post 1989 governments have pursued economic reforms and generally sound fiscal and debt policies. Poland continues to liberalize its trade, foreign exchange and investment policies in accordance with its obligations to the EU, the WTO, and the Organization for Economic Cooperation and Development (OECD). Agriculture employs 28.4 percent of the work force but contributes only four percent to GDP, reflecting low productivity. The best performers are oil products and derivatives, the automobile industry, and the wood and wood products sector. As a result of Poland s growth and healthy investment climate, the country has received over $5 billion in direct foreign investment since 199. Although over the past decade Poland has transformed itself into a market economy led by the private sector, the government continues to play a large role. Opportunities for trade and investment continue to exist across virtually all sectors. Strong economic growth potential, a large domestic market, prospective EU membership, and a high level of political stability are the top reasons why foreign companies do business in Poland. 152

Country Operations According to the World Bank, Poland had an external debt of US$33.7 billion and received US$ 966 million in assistance in 21. The EU, France and Canada were the largest contributors. ICDF Operations The ICDF has one investment and lending project in Poland. Structure of the Economy 21 (%GDP) Service 59% GDP Agriculture 4% Industry 37% Investment and Lending Project SME Relending Project In the short term, the primary goal of this project is to increase the supply of investment financing credit in Poland for qualified industries of small and medium scale. Its secondary goals are to foster a professional consulting service for local manufacturing enterprises, and to enhance local banking capability in evaluating and managing investment financing. To support the project, the International Commercial Bank of China will extend a loan not exceeding US$2 million with funds to be obtained entirely from the ICDF, to the IDA with a full guarantee from the Government of Poland. The project consists of two parts: the Investment Credit Component (ICC) and the Technical Assistance Component (TAC). US$ Billions US$ 2 15 1 5 6 176.3 157.6 76.5 1991 2 21 GNI Per Capita 21 Year 4 423 446 2 196 Poland Upper Middle Life Expectancy 21 Years 74 72 73 7 71 68 69 66 Poland Upper Middle Poland at a Glance 153