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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