 Good afternoon. I always hate to interrupt lively conversations that have been instilled by what I thought was a very inspiring lunch. I also understand that you've had a very inspiring morning, so now it is upon me, but much more on my distinguished panelists here and keynote speaker to make sure that the afternoon session doesn't make you forget the morning session, but does stand in and on itself in its own right. So I have here, and I will not go through all the CVs, you can see them or you know them, and if you don't, I'm sure there is material that helps. So I'll just mention the names next to me, Beata Javocic of the EBRD, who will be giving in a minute a keynote. Then we have Avalo Isforsky of the World Bank, Anita Angelowska Bezhovska of the National Bank of the Republic of North Macedonia. We have Boris Fujis of the Croatian Central Bank and Denseko of the Bank of Albania. So this session will try to take a little bit of a longer term view. So I'll just throw some questions at you that might one way or the other be addressed this afternoon or might inspire you later to ask questions. And now that I'm there, there will be a Q&A session. This is off the record. And also those who are sitting in the back without their own microphone, there are microphones available. So don't be shy and participate later in the Q&A. So in the medium to long term, just some questions that we might reflect on. To what extent will the changing geopolitical landscape impact economic convergence? What are the implications for energy and the green transition? What are the risks of economic fragmentation potentially affecting trade and foreign direct investment flows as well as global and regional value change? Could the region benefit from near shoring? What are the economic implications of refugee flows from Ukraine? How may the changing geopolitical environment affect EU governance and the prospect of EU enlargement? I have many more questions. I will not go through all of them now. It was just come like as a very short appetizer. And Beata, I would kindly invite you to take the floor and you have 20 or so minutes. Thank you very much. Thank you very much for having me here. It's a pleasure to be joining you today. And to talk about globalization in turbulence and what it means for the Sisi region as we affectionately call it. This morning we talked about fragmentation, making the lives of central bankers more difficult and in some ways the tone of the morning session was not particularly optimistic. So I would like to take my 20 minutes and spend the first half of them talking about the opportunities. The changes we see in international trade patterns may bring to the Sisi region. And then I want to take a step back and come back to some of the themes that appeared this morning and ask, what are the constraints that may prevent countries in the region from taking advantage of these opportunities and how they could potentially, and I hope that the discussion that will follow will address the solutions, how these constraints could potentially be addressed. So what we've already heard this morning is a co-tier supply chain disruptions have become a key concern for global firms. Here you see what firms talk about when they announce their quarterly earnings calls, when they announce their quarterly earnings in calls with analysts, what kind of factors they mentioned as a source of risk, so not surprisingly COVID was the major factor then, war and prices of natural gas mattered very much, environment continues to be a big source of risk in perceptions of firms and supply chains are still there. So even though they declined in relative importance, it is still something that is a source of risk. Now, this is not surprising because over the last few years we've seen a series of disruptions. You may still recall the Fukushima earthquake that cut off Japanese companies all over the world from their suppliers in Japan, then of course the US-China trade war started and those tariffs are still in place and the war continues. COVID of course, blockage of Suez Canal for about a week that caused a lot of disruption to international trade flows. China zero COVID policy further exacerbate disruptions and then the war. And I'm going to argue that the war has changed the mindset of firms. We have been talking about reshaping of global value chains ever since the beginning of the COVID pandemic, but the war I believe was a trigger that started off the process of reshaping of supply chains and that's because firms suddenly realized that geopolitical risks are not going away anytime soon and they realized that the cost of inaction is greater than the cost of doing something until the war started nobody wanted to do much simply because supply chains have been optimized from the cost perspective and doing something meant higher cost. Now how do I know that something is happening? Well in our transition, in our latest transition report we looked at, we asked firms. So on the right hand side you see a survey of 3,000 manufacturing firms from Germany. This is a survey we did together with the IFOA Institute from Munich. This is a representative survey of German manufacturing firms where they were asked about concrete steps they have taken to address resilience of their supply chains and you see that two thirds of German firms reported having added new suppliers. That contrast very much with what they were reporting two years ago where they only reported having vague plans to do something. Now what you also see, this is the top chart, is two thirds of German firms increase their inventories. So essentially we see a movement from just in time to just in case, not surprisingly larger firms tend to adjust by adding new suppliers, smaller firms adjust more on the inventory side. I've looked at data from the US firms, from the US sourcing from China. We also see some movement there, firms sourcing from more countries. Now on the left hand side you see the results of the survey of the same survey or similar survey done in emerging Europe among almost 900 firms that export and import and the picture is very much similar, firms are adjusting. Now what you don't see is what politicians were hoping for, reshoring. So basically you don't see much evidence of firms bringing production back into in-house. You don't see very much firms bringing production to their country dropping foreign suppliers replacing them with domestic supplier. Rather what seems to be happening is this China plus one policy. And if it's China plus one then the question is who will become the plus one? And here what's quite revealing is the perceptions of German firms vis-à-vis suppliers located in broadly defined European neighborhood. And this is what actually makes me optimistic about the process from the perspective of the CZ region. You see that firms in Germany consider as the most reliable German suppliers followed by suppliers from Western Europe, other Western European countries followed by a century NAFTA, so US, Canada, Mexico. But then very closely after that you see Poland, Hungary, Czech Republic and Slovakia. Followed by Romania, Bulgaria, Croatia and then Western Balkans and Turkey and then North Africa. And all of these group of countries, they are viewed much more favorably than Southeast Asia and way more favorably than China. And if you look at what German firms import from China to a large extent it matches comparative advantage of countries in these broadly defined European neighborhoods. So there is actually a real possibility of firms in the CZ region replacing some of the imports from China. And I hope that during the discussion we can talk about what would it take to seize these opportunities. One of the themes is certainly attracting more foreign direct investment. Because what we know from international experience is that if you want to not only export products you are already exporting but you want to start exporting new products, products that you were not selling before or bringing a large multinational producer tends to be the most effective way of doing that and we know globally that these multinationals tend to be responsible for majority of what we call export discoveries. And emerging Europe is very well integrated in global value chains. We've seen some charts this morning. Many countries are actually more integrated in global supply chains than the average level of integration found in advanced economies. So this is the first opportunity for the region. Now the title of this conference involves the word geopolitics. So let me bring more politics here. The war. The war has led to big changes in international trade patterns and I'm going to highlight just one as we are focusing on a particular region. Now if you look at the left hand side chart you see that exports from Europe so this is EU plus the UK, exports to Russia drop dramatically. And because you want to, it matters what has been happening with exports in general with global demand as we go through turbulent times, here what you see is exports to Russia relative to European export to the world. So essentially very large decline not only in absolute terms but also sort of relative to European exports to the world. At the same time you see exports from Turkey to Russia going up relative to Turkish exports to the world. And the red line here is the beginning of the war and beginning of the sanctions. So essentially what we see is as the West stops supplying Russia this created an opportunity for other countries to step in. And Turkey is one of the countries that took advantage of this opportunity. If you look at for instance Chinese exports you also see that Chinese exports are replacing some of the flows that are not happening, that are not coming from Europe. Now early during the beginning of the war we heard concerns about reshipping of products taking place via Turkey. Actually there were some reasons to believe that but actually a lot of this trade seems to be Turkish-owned production. So a lot of it seems to be plain old trade diversion. The third issue I want to highlight is business services. So we tend to obsess with trade in goods but actually services create a great export of services is a great not yet fully explored opportunity in the region. Now when you talk to people who are involved in what they call managed services so a lot of it is back office services they claim that there are about 5 million workplaces in Central Europe in that branch. I think we are going to see more. Once we crossed the psychological threshold of moving to remote work or hybrid work which is where we are why would a firm from Munich or from Frankfurt limit itself to workers in their own city or even in their own country. Once we are working in a hybrid mode you can equally well hire somebody from Poland or from Romania. There is actually the differential in pay is large. There is no or little time differential. Within the EU we have common data protection regime. That is incredibly important when data crosses the borders particularly especially in actually financial industry. Schengen offers the opportunity to seamlessly commute to your workplace and there are two other factors that I think are quite underappreciated. One is very many firms are dependent on back office services coming from India and that also poses some risk of concentration so you may want to diversify by tapping into the emerging Europe and sourcing some services there just in case should there be some shock that affects Bangalore or Pune. And second the CO2 footprint. I think if your institution does a serious assessment with CO2 footprint often being in an efficient well isolated building and having zero waste as we have at EBRD we are in a very green new building. The place where you will see your CO2 footprint being larger is the services you buy, goods and services you buy. If you are flying your IT consultants and your systems support people from India that's a high CO2 footprint while you can get somebody from Slovakia commuting by train and I think that's something firms are going to increasingly pay attention to. Now what are the potential constraints to this somewhat optimistic scenario I outlined? Well one of course is adverse demography and we already discussed this a bit this morning countries in the CZ region are getting old before becoming rich. So they are experiencing demographic transition at the income level that is much lower than the income level at which advanced economies experience demographic transition. And this has many implications but one of them is that it's going to be harder to export manufacturing goods because you need to have people to produce them it's going to be harder to export services business services, managed services essentially you're exporting people. But of course the somewhat positive byproduct of the very difficult war, very negative shock has been for the recipient countries the inflows of refugees right? We heard about the other side this morning about the negative impact it has on Ukraine about the horrific impact it has on the lives of people but in the short term the presence of refugees eases some of the constraints of the hot labor markets in the recipient countries and what we've discussed this morning how well Europe managed to integrate refugees into the labor market. You see here that there is a lot of differences in terms of the number of refugees who have been received by various countries. The international experience tells us that some percentage of refugees will stay some will go hopefully with additional experience with additional education they received in the countries that are hosting them and I think they will become a bridge between Ukraine and the host countries promoting trade and investment that's what academic literature tells us that foreign born individuals tend to help create commercial links between countries but some of them are bound to stay. Now what's different about this wave of refugees that these are primarily women and children so we are going to see flows in both directions probably as families will be reunited. So this was the number of people we're talking demographic trends maybe some easing of constraints through refugees so you see green and red as in green lights and red lights. Now what is positive is if you look at the new EU member states if you think about what kind of workforce these countries have actually this workforce seems to be pretty healthy. These are the data from surveys where people are asked to assess their own health and so on the left hand side you see self-assessed health by men on the right hand side by women and they are ordered by age cohort and the picture is actually very optimistic because people in the new EU member states both men and women tend to be at least in their own perceptions as healthy as their counterparts in G7 countries. Actually if you look at older data you see that the picture was actually less rosy particularly among older people self-assessed health was left but where we see red light flashing is EU candidate countries. So if you look at the results of the same polls Gallup World poll looking at the EU candidate countries you see that people in those places perceive themselves as much less healthy and what's particularly worrisome is this drop-off in quality of health as you age. So among older cohorts. Young people, young men and women more or less are as healthy as people in G7 countries or the new EU member states but the older cohorts view themselves as being in a much worse condition and this drop-off is particularly pronounced for women. Older women perceive themselves as much as healthy and if you compare these figures to emerging markets essentially you see that EU candidate countries are on par with emerging markets. Here emerging markets being defined as having income level of slightly above $1,000 per capita in PPE terms. Now the next thing I want to look at is the labor force participation. So if there are these great opportunities to export goods and services and we don't have that many people how well are we utilizing the endowment we have and again very optimistic picture from the new EU member states fairly very high labor force participation for both men on the left-hand side women very comparable to G7 countries but now look at the EU candidate countries not huge differences for men on the right-hand side you see much lower labor force participation among women. Now the final point I want to make as well we have these people they are healthy or not they participate in labor force or not well what about their skills and we heard skills mentioned this morning on average IT skills in emerging Europe are lower and here you see a very simple statistic based on surveys people are asked have you purchased anything online and on the horizontal axis you see the share of people between ages of 15 and 6 and 670 who purchased something online in 2019 and on the vertical axis you see the same figure for 2020 so we are talking about COVID time people buying more online most of these dots lie above the 45 degree line not surprisingly but the ranking of countries is preserved so basically countries where there was very little online shopping they continue to do little of this now I'm not taking a stand whether online shopping is a good or a bad thing but it's a good proxy for IT skills you see the red dots at the top of the scale this is Great Britain, Netherlands, Sweden, Germany basically 90% of people buy online and then at the bottom here you see Bulgaria, Bosnia and Herzegovina and Montenegro about less than a third of people bought something online now we were interested in understanding why people are not buying online at first we thought it's payment it's about payment terms that people are worried about giving their credit card number or they don't have a credit card number actually that constraint can be elevated because you can pay on delivery so when we started digging on this for a lot of people it was about skills they say I don't know how to do it and what's particularly worrisome and this is my last slide for the check is the lack of IT skills among older workers so people between the ages of 55 and 74 the top dot you see in that little square is the share of people in that age group between 55 and 74 who bought something online in advanced Europe that's about 70% then the next dot is pertains to the Eastern European member states that's about 30 and then at the very bottom you see Western Balkans and Turkey and that's actually about 15% so if we want people to work longer we need to train them we talked about training this morning when we think about training we shouldn't only think about young people but we need to think about how to keep older people working longer and in particular how to equip them with the IT skills that will allow them to cope with the changing environment so thank you very much