Private Sector Development During Transition · the Visegrad Countries

As the immediate aftershocks of the transition to market economies wane, the Visegrad countries face the key challenge of achieving sustainable economic growth. The economies of the Visegrad countries are showing an increasing percentage of output, employment, investment and trade from the private sector, which will contribute to sustainable growth. On the other hand, the industrial sectors of these countries have significant state ownership, with loss-making enterprises responsible for significant fiscal and quasi-fiscal losses that undermine competitive advantages. Structural weaknesses, perpetuated by government resistance to needed privatizations and, in some cases, to foreign direct investment, undermine competitiveness and development of a viable fiscal base. After five years of transition, privatization of the state sector and private sector development remain incomplete. Despite indisputable progress, particularly from the nascent private sector, Visegrad countries still lag global standards of output, investment and efficiency. Legal and regulatory frameworks are still inadequate, largely due to the lack of trained personnel and institutional capacity to implement. Privatization remains incomplete, with thousands of industrial companies partly or wholly owned by governments. Private sector development is constrained by firm-specific weaknesses concerning modern management practices, and larger problems associated with banking, capital markets, and general financial sector infrastructure. For Visegrad countries to achieve globally competitive standards, these obstacles will have to be overcome. The objective of this paper is to analyze the conditions needed to achievesustainable private sector growth in the Visegrad countries. The analysis focuses on: 1) the "enabling" environment (legal and regulatory framework, institutional capacity); 2) privatization of state enterprises; and 3) private sector development (new companies, privatized companies).