PRIVATE SECTOR DEVELOPMENT

Mr. Dragan Vrankić, Deputy Prime Minister of Federation of BiH

International conference on development of Bosnia and HerzegovinaCG Meeting on Bosnia and Herzegovina

Sarajevo, September 22 and 23, 2004

REALISING BOSNIA AND HERZEGOVINA’S EUROPEAN POTENTIAL: FROM WAR ECONOMY TO CREDITWORTHINESS AND SUSTAINABILITY

Along with preserving macro-economic stability, growth of private sector is important priority of Mid-Term Development Strategy

Mid-Term Development Strategy has defined measures to provide faster private sector growth:

To improve business environment

To accelerate privatization

To implement reform of labor market

To strengthen stability of financial, especially banking sector

To reduce level of corruption

To implement fiscal reform

To liberalize telecom and electricity markets

2

PARTICIPATION OF PUBLIC SECTOR EMPLOYMENT IN TOTAL EMPLOYMENT

27%

24%

21%

21%

17%

15%

15%

15%

15%

15%

12%

9%

4%

0% 5% 10% 15% 20% 25% 30%

BiH

Finland

France

Hungary

Canada

Czech Republic

Ireland

Portugal

Spain

USA

Germany

Turkey

Korea

Source: OECD Public Administration Service, 2001 3

NUMBER OF ENTERPRIZES IN SE EUROPE PER 1,000 INHABITANTS

18

7

28

14

85 86

0

20

40

60

80

100

Albanija BiH Bulgaria Croatia CzechRepublic

Hungary

Nu

mb

er

of

en

tre

pri

ze

s in

SE

E p

er

1,0

00

inh

ab

ita

nts

Source: Transition Report 2003, EBRD 4

COST OF STARTING COMPANY

0,00 0,60

7,0011,00 11,70

18,2020,30

23,60

51,80

0

20

40

60D

en

ma

rk

US

A

Ru

ss

ian

Fe

de

rati

on

OE

CD

Co

un

trie

s

Cze

ch

Re

pu

blic

Cro

ati

a

Po

lan

d

EC

AC

ou

ntr

ies

BiH

in %

of

inc

om

e p

er

ca

pit

a

Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile 5

NUMBER OF DAYS NEEDED FOR PROPRETY REGISTRATION IN BIH

331

133

34

0

50

100

150

200

250

300

BiH Regional average OECD average

Source: Doing Business in BiH in 2004, Country Profile, World Bank, 2004, BAC Survey World Bank 2004 6

REDUCTION OF TIME REQUIRED TOSET UP A COMPANY IN BIH

120

98

5950

0

20

40

60

80

100

120

140

2000 2001 2002 2003

in d

ay

s

Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile, WB BAC Survey 2004 7

TIME REQUIRED TO SET UP COMPANY IN COMPARISON TO OTHER COUNTRIES

2,00 4,00

32,00

50,00 50,00 51,0058,20

74,00

89,00

0

20

40

60

80

100A

us

tra

lia

US

A

OE

CD

co

un

trie

s

Cro

ati

a

BiH

EC

Ac

ou

ntr

ies

Po

lan

d

Ru

ss

ian

Fe

de

rati

on

Cze

ch

Re

pu

blic

Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile, WB BAC Survey 2004 8

PLANS FOR FURTHER REDUCTION OF DAYS REQUIRED FOR COMPANY REGISTRATION

50

41

32

10

0

10

20

30

40

50

60

70

2003 2004 2005 2006

nu

mb

er

of

da

ys

Source: Mid-Term Development Strategy BiH 9

TIME REQUIRED TO ENFORCE CONTRACT AND CLOSE COMPANY

7

160233

330 365414

630

1000 1003

330

0

200

400

600

800

1000

1200T

un

isia

Ru

ss

ian

Fe

de

rati

on

OE

CD

co

un

trie

s

Cro

ati

a

US

A

EC

Ac

ou

ntr

ies

BiH

Po

lan

d

Slo

ve

nia

BiH

20

04

*

nu

mb

er

of

da

ys

Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile 10

CHANGE IN CREDIT GROWTH TO HOUSEHOLDS AND CORPORATES (2003.*)

102

30

3945

20

40

60

80

100

120

140

2001 2002 2003 2001 2002 2003

in %

Source: PRSP survey (*first nine months of the year)

Households Corporate

11

CORPORATE TAXES IN SE EUROPEAN COUNTRIES

10%

14% 15%

20%22%

24%25% 25% 25%

30% 30%

35%

0%

5%

10%

15%

20%

25%

30%

35%

40%R

ep

ub

lika

Srp

sk

a

S&

M

Ma

ce

do

nia

Cro

ati

a

Mo

ldo

va

Bu

lga

ria

Alb

an

ia

Ro

ma

nia

Slo

ve

nia

Tu

rke

y

BiH

Fe

de

rati

on

Gre

ec

e

Source: Investment Guide for Southeast Europe 2004 12

PRICE OF ELECTRICITY FOR INDUSTRY

COMMERCIAL TARIFF IN €/kWh

0

0,02

0,04

0,06

0,08

0,1

0,12

CzechRepublic

Croatia Romania Estonia Bulgaria Albania BiH

in €

Source: Fact Sheet on Utilities Services in BiH (OHR, 2003) 13

PRICE OF 10-MINUTE PHONE CALL FOR CORPORATES

0

2

4

6

8

10

12

14

EU

av

era

ge

Po

lan

d

Lit

hu

an

ia

Hu

ng

ary

Bu

lga

ria

Cze

ch

Re

pu

blic

Ro

ma

nia

Slo

ve

nia

BiH

in €

Source: Fact Sheet on Utilities Services in BiH (OHR, 2003) 14

COMPARISON OF NUMBER OF INTERNET USERS (%)

0%

5%

10%

15%

20%

25%

30%

35%

40%

BiH

Cro

ati

a

Ro

ma

nia

Tu

rke

y

Bu

lga

ria

Lit

hu

an

ia

Hu

ng

ary

La

tvia

Ma

lta

Slo

ve

ak

ia

Po

lan

d

Cze

ch

Re

pu

blic

Cy

pru

s

Es

ton

ia

Slo

ve

nia

Sources: European Commission / Eurostat / Polish Foreign Ministry / PAP / Europa World / Eurobarometer / CIA World Factbook / Jutarnji List / CIT/LSMS

EU CANDIDATES NEW EU MEMBERS

15

REDUCTION OF GRAY ECONOMY AND CORRUPTION

LOSSES DUE TO CRIME 2003

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

Esto

nia

Hu

ng

ary

BiH

Slo

vakia

Alb

an

ia

Cro

ati

a

Slo

ven

ia

Latv

ia

Bu

lgari

a

Lit

hu

an

ia

Ru

ssia

Po

lan

d

Czech

Rep

ub

lic

Bela

rus

Tajikis

tan

Ro

man

ia

Kazakh

sta

n

Mo

ldo

va

S&

M

Maced

on

ia

Azarb

aijan

Ukra

ine

Uzb

ekis

tan

Arm

en

ia

Geo

rgia

Kyrg

izsta

n

Source: Transition report 2003, EBRDNote: Companies were asked to report losses in comparison to total revenues that were consequence of theft, robbery, vandalism, or torching. Average monthly loss for each country was calculated as unweighted average of responses of certain companies. Data for Turkmenistan were not available. 16

REFORM OF LABOR MARKET

Regular economy

64%

Gray economy

36%

Sources: PRSP, LSMS 17

Surveillance of single market and establishment of the competition council and consumer protection council at the state level

Establishing of BiH institute for standardization and intellectual property and measurement

Establishing of single country framework for public procurement and single custom administration (through establishment of Indirect Taxation Administration)

Establishing of a single country Banking Supervision Agency (within the Central Bank of BiH)

STRENGTHENING OF SINGLE ECONOMIC SPACE IS IMPORTANT PRECONDITION FOR PRIVATE SECTOR DEVELOPMENT

18

PROGRESS IN PRIVATIZATION

2617

5617

1725 1841

0

1000

2000

3000

4000

5000

Privatized Not privatized yet

in €

mil

lio

n

FBiH

RS

Source: RS Agency for Privatization, FBiH Agency for Privatization19

OBSTACLES TO PRIVATIZATION

Business environment in BiH is being improved. However, the biggest obstacles to privatization are the following:

a) Accumulated arrears of the companies towards the governments, workers and creditors

b) Negative image of privatization in public

20

• the Plan is being defined in cooperation with the World Bank, which was given the mandate to lead the effort on the international community side

• the time framework for realisation of the Plan is four years (2005 – 2008)

• goals:

a) to remove obstacles to privatisation

b) to improve business environment

THE PLAN FOR CORPORATE RESTRUCTURING

21

THE PLAN FOR CORPORATE RESTRUCTURING CONTAINS:

• the plan for financial restructuring and speeding-up the process of privatisation

• the plan for strengthening of capital markets

• the plan for speeding-up the process of bankruptcy procedures

• the plan for improving the business environment

• social program

22

THE PUBLIC – PRIVATE SECTOR GUARANTEE FUND FOR SMS COMPANIES: DONOR FUNDS NEEDED

• the banking sector is liquid with much more potentials to lend

• however, lack of creditworthy companies presents the obstacle for the banks

• establishment of the public – public sector (government – commercial

banks) guarantee fund would encourage the banks to lend more to corporate

• the total amount needed to establish the Guarantee Fund is estimated

at €30 mil

• the governments are ready to put €10 mil

• the gap is €20 mil 23

SOCIAL PROGRAM:REMAINING GAP NEEDED TO BE EXTERNALY FINANCED

( in € million )

31

15

15

8

31FBiH Govt

RS Govt

WB Credit toFBIHWB Credit to RS

GAP

24