Supported by strategic location, natural resources and policy reforms, the economic performance of Eastern Europe and South Caucasus has been improving during the last ten years, reaching high GDP and productivity growth rates. Nevertheless, much remains to be done to unlock the full potential of the region. This chapter highlights the challenges that the region is facing, including low productivity, undiversified trade, reliance on external financing and a difficult business environment. Apart from this, three key areas supporting competitiveness – human capital development, access to finance for small and medium enterprises (SMEs) and investment policy – need to be further addressed. Measures should be taken to improve the quality of education and bridge the skills gap in the labour market by improving the quality of vocational and continuing education and training systems, to improve the access to finance for SMEs by addressing the issue of asymmetric information and better credit information, and promote investments by reducing restrictions to national treatment. The chapter notes that these challenges should be tackled through enhanced public-private dialogue, with the active participation of the private sector in the policy process.