Document of The World Bank Report No: ICR00003802 IMPLEMENTATION COMPLETION AND RESULTS REPORT (IBRD-84360) ON A LOAN IN THE AMOUNT OF EUR 37.4 MILLION (US$ 50 MILLION EQUIVALENT) TO BOSNIA AND HERZEGOVINA FOR THE BUSINESS ENVIRONMENT DEVELOPMENT POLICY LOAN February 28, 2017 Trade and Competitiveness Global Practice (GTCDR) South East Europe Country Unit (ECCU4) Europe and Central Asia (ECA) Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
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Document of The World Bank
Report No: ICR00003802
IMPLEMENTATION COMPLETION AND RESULTS REPORT
(IBRD-84360)
ON A LOAN
IN THE AMOUNT OF EUR 37.4 MILLION
(US$ 50 MILLION EQUIVALENT)
TO
BOSNIA AND HERZEGOVINA
FOR THE
BUSINESS ENVIRONMENT DEVELOPMENT POLICY LOAN
February 28, 2017
Trade and Competitiveness Global Practice (GTCDR)
South East Europe Country Unit (ECCU4)
Europe and Central Asia (ECA)
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BOSNIA AND HERZEGOVINA
FISCAL YEAR
January 1 – December 31
CURRENCY EQUIVALENTS
(Exchange Rate Effective as of February 28, 2017)
Currency Unit = Convertible Mark (BAM)
BAM 1.84 = US$1.00
US$ 0.54 = BAM 1.00
ABBREVIATIONS AND ACRONYMS
BiH Bosnia and Herzegovina
BAC Business Environment Adjustment Credit
BAM Convertible Mark
BEEPS Business Environment and Enterprise Performance Survey
CAD Current Account Deficit
CCS Compliance Cost Savings
CPS Country Partnership Strategy
DB Doing Business
EC European Commission
ESW Economic Sector Work
EU European Union
EUD Delegation of the European Union
FBH Federation of Bosnia and Herzegovina
FDI Foreign Direct Investment
GDP Gross Domestic Product
HBS Household Budget Survey
IBRD International Bank for Reconstruction and Development
IDA International Development Association
IFC International Finance Corporation
IFI International Financial Institutions
IMF International Monetary Fund
INTOSAI International Organization of Supreme Audit Institutions
IPA Instrument for Pre-Accession
LLC Limited Liability Company
MDGs Millennium Development Goals
MoAFW Ministry of Agriculture, Forestry and Water Management in Republika Srpska
MoAWF Ministry of Agriculture, Water Management and Forestry in Federation BiH
MoEMI Ministry of Energy, Mining and Industry in Federation BiH
MoERC Ministry of Economic Relations and Regional Cooperation in Republika Srpska
MoF Ministry of Finance at the entity level
MoFT BiH Ministry of Finance and Treasury
MoJ Ministry of Justice
MoSPCEE Ministry of Trade and Tourism, and Ministry of Spatial Planning, Civic
Engineering and Ecology in Republika Srpska
MoT Ministry of Trade in Federation BiH
MoTT Ministry of Trade and Tourism in Republika Srpska
MoU Memorandum of Understanding
MTEF Medium-Term Expenditure Framework
NPL Non Performing Loans
OSS One-Stop Shop
PFM Public Financial Management
REER Real Effective Exchange Rate
RS Republika Srpska
SDR Special Drawing Rights
SEA Strategic Environmental Assessment
SECO Swiss State Secretariat for Economic Affairs
SEE South East Europe
Sida Swedish International Development Cooperation Agency
SOE State-Owned Enterprise
TA Technical Assistance
TSA Treasury Single Account
USAID United States Agency for International Development
VAT Value-Added Tax
WBG World Bank Group
Regional Vice President: Cyril E. Muller
Senior Global Practice Director: Anabel Gonzalez
Country Director: Ellen Goldstein
Practice Manager: Paulo Guilherme Correa
DPL Team Leader: Ruvejda Aliefendic
ICR Team Leader: Dusko Vasiljevic
BOSNIA AND HERZEGOVINA
Business Environment Development Policy Loan
CONTENTS
Data Sheet
A. Basic Information
B. Key Dates
C. Ratings Summary
D. Sector and Theme Codes
E. Bank Staff
F. Results Framework Analysis
G. Ratings of Program Performance in ISRs
H. Restructuring
1. Program Context, Development Objectives and Design ............................................ 1
2. Key Factors Affecting Implementation and Outcomes .............................................. 4
3. Assessment of Outcomes .......................................................................................... 10
4. Assessment of Risk to Development Outcome ......................................................... 18
5. Assessment of Bank and Borrower Performance ..................................................... 19
C.2 Detailed Ratings of Bank and Borrower Performance (by ICR)
Bank Ratings Borrower Ratings
Quality at Entry: Satisfactory Government: Not Applicable
Quality of Supervision: Satisfactory Implementing
Agency/Agencies: Not Applicable
Overall Bank
Performance: Satisfactory
Overall Borrower
Performance: Satisfactory
C.3 Quality at Entry and Implementation Performance Indicators
Implementation
Performance Indicators
QAG Assessments
(if any) Rating:
Potential Problem
Program at any time
(Yes/No):
No Quality at Entry
(QEA): None
Problem Program at any
time (Yes/No): No
Quality of
Supervision (QSA): None
DO rating before
Closing/Inactive status:
D. Sector and Theme Codes
Original Actual
Sector Code (as % of total Bank financing)
Other Industry, Trade and Services 72 72
Other industry 14 14
Agricultural markets, commercialization and agri-
business 14 14
Theme Code (as % of total Bank financing)
Other Private Sector Development 29 29
Regulation and competition policy 43 43
Trade facilitation and market access 28 28
E. Bank Staff
Positions At ICR At Approval
Vice President: Cyril E. Muller Laura Tuck
Country Director: Ellen A. Goldstein Ellen A. Goldstein
Practice
Manager/Manager: Paulo Guilherme Correa Paloma Anos Casero
Program Team Leader: Ruvejda Aliefendic Wolfgang Fengler
ICR Team Leader: Dusko Vasiljevic
ICR Primary Author: Dusko Vasiljevic
F. Results Framework Analysis
Program Development Objectives (from Project Appraisal Document) The development objective is to improve BiH's business environment through facilitating
business start-up, streamlining investment procedures in inspections and construction,
and simplifying processes of cross-border trading.
Revised Program Development Objectives (if any, as approved by original approving
authority)
Not applicable
PDO Indicator(s)
Indicator Baseline Value
Original Target
Values (from
approval
documents)
Formally
Revised
Target
Values
Actual Value
Achieved at
Completion or
Target Years
Indicator 1 : FBH: Business registration cost and time reduced by up to 20 percent
Value
(quantitative or
Qualitative)
BAM 3.7 million
registration cost;
BAM 1.3 million
time equivalent cost
Start up cost and
time equivalent
cost reduced by
up to 20 percent
Start up cost
savings of 1.016
million (27.5% of
savings compared
to baseline) and
time
equivalent costs
of BAM 0.62
million (47.7% of
savings compared
to baseline)
Date achieved 12/31/2012 03/31/2015 11/01/2016
Comments
(incl. %
achievement)
Fully achieved, exceeded the target. Verified based on data collected
with all 10 registration courts in Federation BiH and compared with the
established baseline values. There have been significant savings for the
825 new companies that have been registered since December 2015.
Indicator 2 :
FBH: Specific notary tariffs for start-up businesses reduced by 15
percent
Value
(quantitative or
Qualitative)
Specific start-up
notary tariffs in FBH
for businesses in the
range from 175 to
1000 BAM
Reduction in
notary tariffs on
aggregate up to
15 percent
Notary not
mandatory
anymore for
registration, and
notary tariff
reduced
Date achieved 12/31/2012 03/31/2015 12/31/2015
Comments
(incl. %
achievement)
Fully achieved, exceeded the target. Verified based on comparative
analysis of notary tariffs prior and after the reform as well as with data
collected with all 10 registration courts in Federation BIH, and reports
based on the decree of Constitutional Court of Federation BIH.
Indicator 3 :
RS: Incorporation capital for newly established Limited Liability
Company is 1 BAM
Value
(quantitative or
Qualitative) 2,000 BAM
1 BAM
1 BAM
Date achieved 12/31/2012 03/31/2015 12/31/2015
Comments
(incl. %
achievement)
Fully achieved. Total cost of new single registration for LLC (incl. cost
of business registration, Official Gazette Publication, Court certificate,
statistics number and tax registration receipt, receipt on VAT
registration) down from avg. BAM3500 in 2012 to 250 in 2015
Indicator 4 : RS: Tariffs on notary reward reduced by 30 percent.
Value
(quantitative or
Qualitative)
BAM 351
reduced by 30
percent
No notary
required, tariff
fully eliminated
Date achieved 12/31/2012 03/31/2015 12/31/2015
Comments
(incl. %
achievement)
Fully achieved, exceeded the target. Tariff eliminated through
amendments to Notaries Law
Indicator 5 : RS: Business registration procedures reduced to 5 steps (from 11)
Value
(quantitative or
Qualitative)
11 steps
5 steps
5 steps
Date achieved 12/31/2012 03/31/2015 12/31/2015
Comments
(incl. %
achievement)
Fully achieved. The number of procedures has been confirmed by
interviews during preparation of ICR in October 2016 (details also
Exports of goods and services (EUR mn) 2587 2905 2983 3122
Imports of goods and services (EUR mn) 5730 5693 6146 5892
Current account balance (% GDP) -8.7 -5.3 -7.5 -5.6
Foreign direct investment (inflow, EUR mn) 259 196 367 206
Foreign direct investment (inflow, % GDP) 1.9 1.4 2.6 1.4 Source: IMF Country Report CR16291
8. To stimulate growth over the medium term, the country faced two main challenges. The first was a weak business environment that was hampering investment and growth, and thus
required substantial reforms. The second was a fiscal policy that remained focused on income
redistribution (though not necessarily to the poorest) rather than growth. To unleash the
economy’s growth potential, both improvements to the business environment and re-orientation
of public spending towards growth-enhancing investment were needed.
9. The country faced the challenge of political fragmentation and stalemate, which
undermined reform processes. The political system in BiH was and continues to be complex,
reflecting the provisions of the country’s constitution established as part of the Dayton Accords at
the end of the war in 1995. The general government consists of four levels: the BiH (or central)
level, two entities—Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS)—
and Brcko District (BD). The BiH level is governed by a Council of Ministers; each entity has its
own government and local government units. In the FBiH, 10 cantons, each with its own
government, represent an additional layer between the Government of the FBiH and local
government units.
10. As recognized in the World Bank Group’s Country Partnership Strategy (CPS)
FY12-15, the risk of weak political commitment to reform and of policy reversal was
significant. This risk has materialized as the authorities did not advance sensitive reforms related
to social and veteran benefits that would have improved the quality of public spending. As
support for these reforms waned, the Bank cancelled its planned programmatic Public
Expenditure DPO series.
11. There was a much stronger political commitment around business environment
reforms, as these were seen both by the authorities and the Bank as an important
opportunity to enhance the medium term growth prospects. Governments in both entities as
3
well as the Council of Ministers expressed support for strong business environment and
investment climate reforms to enhance growth and create jobs. At the same time, the WBG was
already deeply engaged in this area. Based on the importance of the reforms and the strong
ongoing engagement, the governments and the WBG decided to use the space freed up by the
cancellation of the public expenditure series to prepare the Business Environment DPL and
leverage the existing efforts. The operation was prepared building on analytical work done by the
authorities in BiH and TA provided by WBG1 to support the adoption of some key policy reforms
identified by this work. The operation complemented the existing IMF Stand-By Arrangement,
and was also part of a broader engagement of WBG to improve BiH’s competitiveness and create
jobs. The strategic importance of competitiveness was reflected in the CPS Progress Report of
June 2014, as well as in the latest Country Partnership Framework (CPF) for FY16–20. Although
the public expenditures series was cancelled, the Bank remained engaged in the dialogue with the
authorities on the support to strengthening capacity to manage public resources. Under the current
CPF, the main immediate vehicle for WBG engagement in this area is the Fiscal Resources for
Growth DPL, which was negotiated in February 2017 and is scheduled for Board presentation in
March 2017.
1.2 Original Program Development Objectives (PDO) and Key Indicators (as approved)
12. The development objective was to improve BiH’s business environment through
facilitating business start-up, streamlining investment procedures in inspections and construction,
and simplifying processes of cross-border trading. The Operation was designed around three
pillars: 1) Facilitating Business Start-up, 2) Streamlining Investment Procedures in Inspections
and Construction; and 3) Simplifying Processes of Cross-Border Trading.
The key indicators, as stated in the Program Document, were:2
1. Facilitating Business Start-up
FBIH
Business registration cost and time reduced by up to 20 percent
Specific notary tariffs for start-up reduced by 15 percent
RS:
Incorporation capital for newly established Limited Liability Company is 1 Bam
Tariffs on notary reward reduced by 30 percent
Business registration procedures reduced to 5 steps (from 11)
Business registration time reduced to 3 days (from 23)
2. Streamlining Investment Procedures in Inspection and Constriction
FBIH:
Increased effectiveness of inspection by 15 percent
Reduced cost for business by at least 10 percent following introduction of risk
based inspections
RS:
Time required to obtain individual permits reduced to a maximum 15 days
1 Section 2.2 provides more details on both
2 List below is from the summary table on page 5 of the PD (the results matrix provides a more detailed
definition of key PDO indicators).
4
Direct and indirect cost savings resulting from the new law est. at 17 mln Bam
annually
3. Simplifying processes of cross-border trading
Reduction of direct and indirect costs to obtain licenses, permits and approvals,
related to import/export procedures for seven key exports (wood; fruits and
vegetables; meat; basic materials; dairy; electrical appliances and metal), by a
one-off 5 percent (2 mln BAM) over both entities.
1.3 Revised PDO (as approved by original approving authority) and Key Indicators, and
Reasons/Justification
The PDO and Key Indicators were not revised (this was a single operation DPO).
1.4 Original Policy Areas Supported by the Program (as approved)
Pillar I. Facilitating Business Start-up
Pillar I supported reforms to simplify procedures and reduce costs related to business startups,
including by reducing procedures and cost for business registration, and reducing notary tariffs.
Pillar II. Streamlining Investment Procedures in Inspections and Construction
Pillar II facilitated simplifying of the existing inspections regime and streamlining the process to
obtain construction permits.
Pillar III. Simplifying processes of cross-border trading:
Pillar III supported simplification of cross-border trading, including through reducing the number
of documents, time and costs for licensing, permits, and approvals related to import/export
procedures in selected sectors in both entities.
1.5 Revised Policy Areas (if applicable)
Not applicable.
1.6 Other significant changes
Not applicable.
2. Key Factors Affecting Implementation and Outcomes
2.1 Program Performance
13. The Business Environment (BE) DPL provided a platform for creating opportunities for
job creation and economic growth amidst the fragile economic recovery, the devastating floods of
May 2014 and the burden of the recovery effort. The DPL did so by focusing on improving the
business environment and thus conditions for private sector competitiveness. In addition to being
highly relevant for the BiH economy and benefitting from strong ownership, the operation built
on an extensive program of technical assistance (TA) from the WBG, including: (i) TA from IFC
that covered key areas including trade facilitation, construction sector regulations, and
5
preparations for the new company law and decree on notaries’ fees; and (ii) TA from the World
Bank that supported the improvements in the inspections law and the business registration law.
14. The BE DPL was a single tranche stand-alone operation. It was approved on October 5,
2014, on the basis of prior actions (shown in the Table below) that were implemented during
2013 and 2014. The Loan Agreement with the World Bank was signed on January 15, 2015.
15. There were significant delays in declaring project effectiveness. These were not related to
commitment to reforms supported by the BE DPL, but other institutional and political factors.
Effectiveness was declared on September 30, 2015.
Business Environnent DPO: Prior Actions
Pillar 1: Facilitating Business Start-up
Prior action #1:
Enactment of the Business Registration Reform legislative package and adoption of notary fees
regulation in RS
Prior action #2:
Government adoption and submission to Parliament of the final draft of the new Company Law in
Federation BiH
Prior action #3:
Enactment of the Law on Changes and Amendments to the Business Registration Law and adoption of
regulation to reduce notary tariffs in Federation BiH.
Pillar 2: Streamlining Investment Procedures in Inspections and Construction
Prior action #4:
Enactment of the new Inspections Law in FBH
Prior action #5
Enactment of the Spatial Development and Construction Law and adoption of three accompanying
rulebooks in RS
Pillar 3: Simplifying Processes of Cross-Border Trading
Prior action #6
Adoption of regulations (rulebooks) to streamline export/import procedures in FBH
Prior action #7
Adoption of regulations (rulebooks) to streamline export/import procedures in RS
2.2 Major Factors Affecting Implementation
16. The BE DPL was implemented in a challenging environment, including political and
institutional complexities of BiH, limited government absorption capacity, and the fact that the
operation was prepared in a period leading up to general elections. Still, the implementation
generally went as planned, due to authorities’ broad-based ownership of the reforms supported by
the operation and to strong analytical underpinnings and TA support already in place. The ICR
team has identified the factors listed and described below as the most relevant to the operation.
Adequacy of government’s commitment
17. The BE DPL was closely aligned with BiH’s development strategy and priorities,
including those related to the EU accession process. The reforms supported by the BE DPL and
related TA directly contributed to priorities outlined in a number of different strategic documents,
6
including the draft BiH Strategy for Development 2010-2020 and BiH Social Inclusion Strategy3;
entities’ Strategic Work plans; and economic policy documents. All of these emphasized the
importance of enhancing the business environment and improving competitiveness to facilitate
strengthening of private sector and job creation. The importance of urgently improving the
business environment was further emphasized in key EU documents, e.g., the European
Commission’s “Enlargement Strategy and Main Challenges 2013-2014” report. Consequently,
FBiH and RS governments coordinated their approaches and prepared complementary sets of
reforms, aligning their scope and creating a more uniform business environment throughout the
BiH. Although the timing of this operation was challenging given that general elections took
place in October 2014, authorities had proven to be accountable and have the ownership over this
specific reform process, as evidenced by dedicated implementation of the various TA supported
activities. Overall coordination of the reform efforts was performed by the two entities’ Ministries
of Finance. Eleven different institutions from both entities led the reform efforts supported by this
operation, and contributed directly to its design and implementation.
Strong analytical and TA underpinnings of the program
18. The structure of the BE DPL and the content of its three pillars significantly benefited
from extensive analytical and TA work, including regulatory assessments, studies, data collection
and analysis. Some of the main analytical activities which supported the preparation of the
operation include the following (further details are provided in Annex 7):
- Regulatory Impact Assessment Report on Business Registration process in Republika
Srpska (completed in September 2012), informed the design of Prior Action #1 and was
used in developing the results framework.
- Regulatory Impact Assessment Report on Federation BiH Company Law (completed in
March 2013), informed the design of Prior Action #2 and #3 and was used in developing
the results framework.
- Competitiveness Study for Three Value Chains in the Agribusiness Sector (completed in
December 2012), informed the design of Prior Action #6 and #7 and was used in
developing the results framework.
- Firm-level data collection and analysis of the crisis effect in inspection supervision
(completed in March 2013), informed the design of Prior Action #4 and was used in
developing the results framework.
- EU Final Report of Food and Veterinary Audit carried out in BIH (completed in February
2012), informed the design of Prior Action #4, #6 and #7.
- Compliance Cost Savings Assessment in construction permitting (completed in 2013),
informed the design of Prior Action #5 and was used in developing the results framework.
- Compliance Cost Savings Assessment of export-import procedures in key export sectors
(completed in 2013), informed the design of Prior Action #6 and #7 and was used in
developing the results framework.
The table below summarizes WB and IFC TA provided to authorities during the preparation and
implementation of the operation.
3 These two strategic documents, though prepared in a consultative ‘bottom up’ approach have only been
endorsed by the Federation BiH and Brcko District.
7
DPO Pillar Prior Action Relation to WBG TA Activity
Facilitating
Business Start-Up
Prior action #1 - Enactment of the
Business Registration Reform legislative
package and adoption of notary fees
regulation in Republika Srpska
WB provided technical assistance to RS Government, for
assessment of the registration system and preparation of
the amended legal framework;
Prior action #2 – Government adoption
and submission to Parliament of the final
draft of the Company Law in Federation
BiH
IFC provided technical assistance to FBIH Ministry of
Energy, Mining and Industry to conduct regulatory
impact assessment of legal framework and initiate the
drafting of new law;
Prior action #3 - Enactment of Law on
Changes and Amendments to the Business
Registration Law and adoption of
regulation to reduce notary tariffs in
Federation BiH
IFC provided technical assistance to FBIH Ministry of
Energy, Mining and Industry to conduct regulatory
impact assessment of company law identifying business
registration as one of key segments that require change;
subsequently, IFC provided technical assistance to FBIH
ministry of Justice to amend the business registration
legal framework streamlining the process and abolishing
discrepancies in the general framework;
Streamlining
Investment
Procedures in
Inspections and
Construction
Prior action #4 - Enactment of the new
Inspection Law in Federation BiH
WB provided technical assistance to FBIH Inspectorate
in reviewing and drafting the new Law on Inspection as
part of multi-annual TA project focusing on inspection
supervision and interoperability;
Prior action #5 - Enactment of the Spatial
Development and Construction Law and
adoption of three accompanying
rulebooks in Republika Srpska,
IFC provided technical assistance to RS Government as
per their individual request to review the RS Law on
Spatial Planning and Construction focusing on permitting
processes and initiate the drafting of the new law;
Simplifying
Processes of cross-
border trading
Prior action #6 - Adoption of regulations
(rulebooks) to streamline export/import
procedures in Federation BiH
IFC provided technical assistance to both entities’
governments and respective ministries to assess
procedures and respective legal framework related to
export import activities in 7 identified key export sectors,
including wood processing; fruits and vegetables; meat
and meat processing; basic materials; dairy; and electrical
appliances and metal processing.
Prior action #7 - Adoption of regulations
(rulebooks) to streamline export/import
procedures in Republika Srpska
19. The above mentioned analytical and TA activities, as well as other WBG reports
(including Doing Business, Southeast Europe Regular Economic Report, etc.) and regular EU
Progress Reports were instrumental in defining the content and scope of this operation. They
provided inputs and guidelines for regulatory and legislative reforms supported by BE DPL.
Some of these activities also directly contributed to developing the Results Framework for the
operation.
8
Relevance of the risks identified
20. The overall risk for this operation was substantial and mitigation measures were
incorporated into the operation design. Political tensions and frequent shifts in governments4, as
well as preparation for the general elections in October 2014, created a challenging environment
for the reform effort. The risk assessment also identified the governments’ poor track record
implementing structural reforms, social unrest in February 2014, and devastating floods in May
2014 as key elements that could jeopardize the operation.
21. Thus, the operation incorporated mechanisms to mitigate the overall risk by: choosing a
stand-alone DPL instead of a programmatic series; defining prior actions around reforms that
were ongoing and benefitted from strong ownership; and structuring prior actions around reforms
for which a comprehensive TA program was already in place to support their design and
implementation. Building on dialogue with respective counterparts and their readiness to have
ownership over the reform process helped mitigate the risks and ensure successful
implementation of the operation. That said, due to the complex governance structure in the
country, and in the environment of forthcoming general elections, political and institutional risks
posed serious challenges throughout implementation. Overall, this was mitigated by strong and
broad-based political support to the program itself, but also through concerted coordination
efforts by respective ministries of finance who were relentlessly advocating for the
implementation emphasizing the benefits of the reforms.
Operation’s design
22. The operation was designed around three complementary and mutually reinforcing pillars
focusing on some of the key constraints in the business environment, including business
registration and operation, as well as cross-border trading. The selection of reforms to be
supported was based on their relevance, as well as the capacity to implement, taking into account
both the governments’ capacity and the available technical assistance. The scope of this operation
was ambitious (eleven different institutions implementing the supported reforms, and more than
20 laws and regulations to be adopted and implemented). Yet it was realistic, due to: (i) broad
support for the reforms as they were closely aligned with the governments’ priorities; (ii)
inclusiveness in the design; and (iii) comprehensive TA support to address capacity gaps. Thus,
the choice of the instrument – DPL supplemented with strong TA – is deemed appropriate for the
types of reforms supported. As discussed above, the choice of a stand-alone operation over
programmatic series was prudent having in mind challenging environment and timing of the
operation.
2.3 Monitoring and Evaluation (M&E) Design, Implementation and Utilization:
23. M&E Design: The operation’s results framework was agreed upon with counterparts
who were responsible for data collection and reporting. The indicators met the SMART Criteria
(specific, measurable, attributable, realistic and time-bound) and were directly linked to the
policies supported. Baseline data was included in the Project Document. Reporting relied on
official sources including government agencies, as well as figures calculated using internationally
accepted methodologies like the Compliance Cost Savings methodology (CCS). Furthermore,
4 Shifts in government refer to political coalition changes at the BiH level throughout 2012 and 2013,
which resulted in a difficult political environment within FBiH during the time in which the reform
program was enacted.
9
indicators of this operation potentially allow for measuring the broader impact, such as
streamlined procedures leading to increased number of registered companies and to job creation.
The indicators in the results framework also reflect the complementarity of the pillars and spill-
over effects from the policies supported. For example: streamlined and simplified export-import
procedures enhance cross-border trading and also increase the efficiency of inspectorates with
mandates related to cross-border trade.
24. There was only one change in the Results Framework as presented in the Program
Document. The Program Document indicated Q1 of 2015 for target values of indicators at the end
of the operation. In this ICR, values for full 2015 have been used. This is justified as it was
assessed that annual figures would provide better indication of the progress rather than the figures
for a single quarter only.
25. M&E Implementation: The BE DPL was monitored by the Bank team through
continuous dialogue with the governments to assess progress and address bottlenecks, including
through preparation of regular progress reports. The involvement of several team members in the
field was instrumental to this dialogue. Monitoring was further supported by complimentary TA.
26. The BE DPL has contributed to strengthening the M&E capacities of government
institutions. For instance, indicators related to construction permitting incorporated data that was
collected and analyzed for the first time ever: the number of individual permits issued by every
municipal authority in RS, including individual prices and time required. This comprehensive
data collection exercise was undertaken by the RS Ministry of Spatial Planning and Construction
by surveying municipal departments and assessing the data collected. Also, during the operation,
government counterparts benefited from technical assistance provided by WBG that supported
the development and application of Compliance Cost Savings model. Further, while
implementing this operation, and with the support of TA provided, some of the government
counterparts indicated that they would use similar M&E models for other activities under their
mandate. Although all M&E data was generally delivered in a timely manner and in an adequate
format, government counterparts still have further room for strengthening their M&E capacities.
27. M&E Utilization: The BiH Ministry of Finance and Treasury, as well as entities’
Ministries of Finance were responsible for the overall coordination of data collection on M&E
indicators. The WBG team continuously monitored progress towards the DPL’s objectives
through regular communication and meetings with the relevant authorities. Achievement of
milestones set in this operation were captured by progress reports provided by governments. The
M&E framework used for this operation was directly utilized in developing parts of the Activities
Framework for the new Country Partnership Framework (CPF) for FY16-20. It was also utilized
as a baseline for a number of reform activities planned under the Reform Agenda 5. For instance,
to help manage and track reform implementation, the Reform Agenda is accompanied by a
detailed Action Plan. The Action Plan identifies specific activities for each of priority areas of the
Reform Agenda, institutions that are to lead the work on specific activities, milestones, and goals
and progress indicators for each activity.
5 Council of Ministers of Bosnia and Herzegovina, the Government of Republika Srpska, the Government
of the Federation of Bosnia and Herzegovina (FBiH), and all ten cantonal governments have agreed to a
Reform Agenda in July 2015, committing to a set of major structural reforms, and outlining mid-term
reform priorities.
10
2.4 Expected Next Phase/Follow-up Operation (if any):
28. Following the completion of the BE DPL, the Bank team has continued a very active
dialogue with government counterparts on the policy areas supported by operation. The current
CPF envisages support to a set of business environment reforms that directly build on the BE
DPL through a new Business Environment Strengthening Project (BESP) currently under
preparation for FY18. In its current design it is envisaged that the project will consist of: (i) a
component that will put emphasis on expanding access to markets, facilitating cross-border trade
and aligning segments of the quality infrastructure to EU requirements; and (ii) a component that
will foster enterprise development by removing and reducing specific barriers to enterprise
operation and (re)investment. Finally, the project will seek to catalyze business environment
reforms by promoting innovative business ideas as a demonstration effect of how businesses can
be assisted to start and grow. The proposed project is well aligned with the priorities that the BiH
governments have set out in their Reform Agenda. The design of this project is being informed by
the ongoing analytic and advisory work on trade and competitiveness as well as by the lessons of
prior engagement on business environment and SME support by both WB and IFC. It should be
noted that the authorities have limited previous experience with use of results based lending.
Possible impact on preparation and implementation of using the instrument will need to be
carefully considered.
29. WBG also continues to have a robust portfolio of analytical and advisory activities on
investment climate, business environment, and trade. The Local Investment-friendly Environment
(LIFE) Project6 is aiming to strengthen local competitiveness and create more stable and dynamic
economy. The Investment Climate and Access to Markets (ICAM) Project7 is supporting entity
and national level governments to improve the business environment and national quality
infrastructure, enable access to markets, and increase competitiveness with special focus on agri-
business value chains. The Investment Climate and Institutional Strengthening Trust Fund
(ICIS)8 is responding to the constraints in the transparency and accountability needed to align
business inspections to EU requirements.
3. Assessment of Outcomes
3.1 Relevance of Objectives, Design and Implementation
Relevance of Objectives Rating: High
30. The objectives and policy areas of the BE DPL are highly relevant to BiH development
priorities. This was the case both at the time of approval of the operation and at the time of this
ICR.
6 Advisory project implemented by the WBG in partnership with the British Embassy in Bosnia and
Herzegovina 7 Advisory project implemented by the WBG in partnership with the British Embassy in Bosnia and
Herzegovina, the Council of Ministers of Bosnia and Herzegovina (BiH), the Federation BiH Government,
and the Republika Srpska Government.
8 Advisory project implemented by the WBG in partnership with the Swedish International Development
Cooperation Agency
11
31. The objectives of the BE DPL are fully aligned with several key strategies, including
draft BiH Strategy for Development and Social Inclusion 2010-20209, entities’ Strategic Work
Plans (FBiH Government’s Work Plan 2011–201410
; RS Strategic Plan for Investment Climate
Improvement) and economic policy documents (e.g. Economic Policy Document 201411
), which
all highlight economic growth and improved competitiveness underpinned by improved business
environment as one of the priorities, and outline a roadmap for reforming it. The operation
supported a number of critical laws and regulations to enhance BiH’s business environment.
32. The continued relevance of the objectives supported by the BE DPL is clearly reflected in
the fact that the Reform Agenda, a key strategic document issued in 2015 by governments in BiH,
is building on the reforms supported by the operation. Addressing some of the difficult challenges
that the country faces with respect to the business environment will require efforts over the long-
term by successive governments, and this commitment is highlighted in the Reform Agenda. For
example, the Reform Agenda section on improving business environment explicitly
acknowledges the importance of and continued relevance of measures to streamline business
registration, simplify issuance of construction permits, improve work of inspections and simplify
procedures for cross-border training. These priorities address long-standing institutional
challenges in BiH. The DPL contributed to making progress on addressing these challenges; for
example, the DPL’s support to facilitating business start-up through establishing a One-Stop-
Shop in RS.
33. The operation also supported BiH EU accession aspirations, by focusing on reforms that
will foster productivity convergence with the EU countries and strengthening institutions through
capacity building activities.
34. The preparation and implementation of BE DPL overlapped with Country Partnership
Strategy for FY12–1512
. At the time of the CPS Progress Report13
, the BE DPL was seen as a key
instrument to support the Bank’s strategic shift away from deeper fiscal reform (Pillar II of the
CPS) where political will was insufficient, toward improvement of the business environment and
investment climate (Pillar I), where ownership of reforms was sufficient across all levels of
government and results would stimulate growth and job creation.
35. The agenda supported by BE DPL remains highly relevant in the current Country
Partnership Framework (CPF) for FY16–2014
. Improvements to the business environment,
including those building on the results already achieved in the BE DPL, are among the main
objectives of the CPF under Focus Area 2: Creating Conditions for Accelerated Private Sector
Growth. The CPF envisages the Business Environment Results-Based Lending operation that is
discussed in section 2.4. The CPF also proposes WBG advisory programs to focus on sub-
national investment climate, improving the business environment, competitiveness and regional
integration in selected value chains and exports in general, and will complement the proposed
36. The design of the BE DPL was highly relevant to achieve the operation’s objectives. The
selection of prior actions in the three complementary and mutually reinforcing pillars was based
on their relevance to achieve the objectives. The choice of pillars and prior actions was based on:
(i) the significance of reforms undertaken by the government; (ii) the degree of reform ownership;
and (iii) the available WBG technical assistance. The reforms supported by the operation
substantially contributed to the broader governments’ reform program. The reform program was
subsequently reaffirmed in the governments’ Reform Agenda (and with continued support by the
WBG, discussed in more detail in paragraphs 28 and 29).
37. The choice of instrument (stand-alone DPL with broad complementary TA) and the types
of reforms supported was relevant based on lessons learned from previous lending operations and
institutional capacity in BiH. Given capacity constraints and the novelty of this intervention for
some of counterparts, the design significantly relied on leveraging technical assistance that was
ongoing or could be mobilized quickly, mitigating implementation risks. Also, as discussed in
paragraphs 20 and 21, the choice of stand-alone DPL over programmatic series, supplemented
with strong TA support, was prudent having in mind challenging environment and timing of the
operation.
3.2 Achievement of Program Development Objectives
38. The objective of the BE DPL was to improve BiH’s business environment through
facilitating business start-up, streamlining investment procedures in inspections and construction,
and simplifying processes of cross-border trading. The Operation was designed around three
pillars: 1) Facilitating Business Start-up, 2) Streamlining Investment Procedures in Inspections
and Construction; and 3) Simplifying Processes of Cross-Border Trading. As discussed below,
the results anticipated in the BE DPL program document were largely met.15
15 The performance of BiH on Doing Business indicators gradually improved over the previous five years
(as measured by the Distance to Frontier score), both overall, and by individual sub-indicators. This
includes three sub-indicators which track reforms in the areas supported by the operation. However, Doing
Business scores were not directly used in evaluating the achievement of objectives for the operation. The
main reason is that the Doing Business scores for BiH are based on a hypothetical firm in FBiH, and thus
by definition do not capture the improvements in RS (which was the focus of several prior actions). For
example, important reforms around introducing One-Stop-Shop, or the major overhaul of the construction
permitting process were by definition and methodology used not captured by Doing Business indicators.
The assessment of the objectives was thus primarily based on the results framework developed during
operation preparation, which has more granularity and more closely tracks the effects of the reforms
supported by the operation. Additionally, Doing Business indicators underwent a major methodological
update in the previous couple of years. Tracking the progress of indicators over previous five years and
directly linking those with the effects of reforms supported by the operation would have to account for
those methodological changes and would be difficult in terms of proper attribution
13
Pillar 1: Facilitating Business Start-up
Rating: Substantial
39. Globally, studies have repeatedly confirmed that heavier regulation of entry is generally
associated with greater corruption and a larger unofficial economy, but not with better quality of
private or public goods.16
Easier entry also typically leads to more firms and jobs created in the
short-term. Compared internationally, market entry in BiH is not easy. For example, in Doing
Business (DB) 2013 report, on the Starting a Business indicator BiH was among the lowest
ranked countries in the region, with the Distance to Frontier (DTF) score of 63.36.
40. Pillar 1 of the BE DPL supported government interventions to simplify procedures and
reduce costs related to starting a business. It included the following prior actions: (PA1)
Enactment of the Business Registration Reform legislative package and adoption of notary fees
regulation in RS; (PA2) Government adoption and submission to Parliament of the final draft of
the new Company Law in Federation BiH; (PA3) Enactment of the Law on Changes and
Amendments to the Business Registration Law and adoption of regulation to reduce notary tariffs
in Federation BiH.
41. At the time of DPL preparation, detailed analysis of the existing process revealed that to
register a business in RS would take 23 days, 10 or 11 procedures and between 1,100 BAM to
1,500 BAM in registration cost. To simplify the procedures and reduce costs, the authorities in
RS decided to adopt a One-Stop-Shop (OSS) approach. This decision was based on a regulatory
impact assessment that the authorities performed, and on a comprehensive public consultation
process, which included setting up a working group in 2012 with representatives both from the
government and the private sector. The regulatory impact assessment also served to provide
inputs for a sectoral regulatory guillotine
42. To facilitate the creation of OSS, a unique registry of business entities was created, and
housed within the Intermediary Agency for IT and Financial Services (APIF). Previously, there
were different registries kept by courts, Tax Office and Statistical Office. The registration of
business remained with the courts, and a unified information system was developed to link APIF
and courts. The DPL supported adoption of a regulatory package which included amendments to
13 laws and several by-laws needed to implement the OSS. The amendments from the package
were adopted during the second half of 2013.
43. Introduction of OSS significantly simplified the business registration procedure in RS. As
per the results matrix, it now takes only 3 days and 5 procedures to register a business in RS, and
the related costs have been markedly reduced. About 30 percent more new businesses compared
to baseline are being registered annually since the introduction of OSS.
44. With the creation of the OSS, the first phase of business registration simplification has
been completed. The RS authorities are now implementing the second stage of the reform, which
aims to introduce on-line registration. Currently, key prerequisite of digitalizing court archives is
being implemented. This process is progressing well, with the biggest challenge to digitalize the
largest archive, in the Banja Luka court, as this would require physically dislocating the large
archive for a period of time.
16 Such studies include The Regulation of Entry in 2002 and many others since then.
14
45. Reforms in the FBiH were primarily aiming to reduce costs of business registration but
also to simplify procedures. The DPL supported amendments to the FBiH Company Law (these
included reducing the minimum required capital for a limited liability company from BAM 2,000
to BAM 1,000) and amendments to the FBiH Business Registration Law, as well as adoption of
regulation to reduce notary tariffs. The amendments to the regulation supported by the DPL have
been adopted during 2013 and 2014 and have become fully effective since December 2015.
46. As a result of amendments to laws and regulations supported by the operation, costs
associated with business registration in FBiH have been reduced (in particular through decreasing
by half the required incorporation capital, and by eliminating many of the requirements related to
notary fees). As per the results matrix of the operation, this has led to estimated savings in start-
up costs of approximately 1 million BAM since the changes become effective, or approximately
27 percent annually of the baseline cost. The reforms also resulted in an estimated 48 percent
reduction in time cost (baseline value for the time cost was BAM 1.3 million).
Pillar 2: Streamlining Investment Procedures in Inspections and Construction
Rating: Substantial
47. Pillar 2 focused on the reforms to streamline the procedures related to issuance of
construction permits and improve the functioning of inspections. It included the following prior
actions: (PA4) Enactment of the new Inspections Law in FBH; (PA5) Enactment of the Spatial
Development and Construction Law and adoption of three accompanying rulebooks in RS.
48. In FBiH, inspection reform was viewed as a systemic public sector reform that has
significant impact on private sector development. Reforming the inspections system and
strengthening vertical coordination in official controls was one of the main aims of the reforms,
as well as modernizing the work of inspections and improving their organizational setup.
49. Supported by the BE DPL, a new Inspection Law was adopted by FBiH Parliament in
June 2014, and it became effective in September 2014. The new law further overhauled the
inspection system in FBiH, building on the previous Inspections Law from 2006. The
organizational setup of Federal Department for Inspection Affairs (FUZIP) was strengthened.
FUZIP was established in 2006 (it started operating in 2007) and all of the FBiH level inspections
have been consolidated within FUZIP, facilitating improved coordination. In total, there are 11
inspectorates in FUZIP. With the new law, the new Federal Food Inspectorate was established to
meet EU accession requirements. Importantly, based on the new law a Sector for Internal Control
has been established in FUZIP. In addition, a new Sector for Border Inspections has also been
established. Predictability and transparency of the work of inspections is being improved both by
consolidating them within FUZIP, and by introducing mandatory check-lists that inspectors have
to follow when performing inspections. A strong effort is being made to improve technical
capacity of inspectors, with the new law envisioning introduction of training and certification for
inspectors.
50. As per the results matrix, the efficiency of inspections improved as a result of
overhauling the system. In 2015 number of issued certificates increased by about 13 percent over
the baseline (broadly in line with the target of 15 percent), and estimated savings for businesses
are about BAM 1 million in 2015, or about 12 percent of the baseline (better than the target of 10
percent).
15
51. In RS, the reforms supported under Pillar 2 focused on streamlining the process of
issuing construction permits. As noted in the BE DPL program document, insufficient permit-
related legislation due to lack of transparency and consistency is a challenge for SMEs with
limited connections. The Doing Business 2014 report ranked BiH at 175th place (out of 189
economies) on obtaining construction permits, with 17 procedures, 170 days, and at a cost of
1,100 percent of income per capita.
52. Supported by the operation, a new Law on Spatial Development and Construction was
adopted by RS Parliament in April 2013 and supporting regulations, including three rulebooks,
have been adopted subsequently. The new law was adopted after a broad public consultation
process across many different municipalities in RS. The new Construction Law introduces a risk-
based approach and streamlined and cost efficient procedures. The Law provides for faster and
more efficient administrative processing of infrastructure projects. For instance, under the new
provisions, for buildings of up to 400 m2 the requirement to obtain a site/urban permit is
abolished when a spatial/zoning plan has been adopted in the locality. The law also streamlined
the types of various planning documents. Further, the law replaced obsolete references to building
standards, some dating back to 1960s, with new and up to date rule books.
53. The process for issuing construction and usage permits has been streamlined, and as per
the results matrix businesses can obtain both in 15 days, as compared to 45 days before the new
law was adopted. Further, there are important savings on direct and indirect costs related to
obtaining all construction related permits: against the baseline of BAM 180 million, estimated
savings of BAM 18.1 million have been achieved in 2015 (better than the target of BAM 17
million). Improvements in the regulatory framework supported by the operation have contributed
to a 7 percent increase in number of construction permits issued in 2015 over the previous year.
According to the RS Statistical Office, the value of construction works in RS increased from
around BAM 620mn in 2012 and BAM 690mn in 2013 to approximately BAM 755mn on
average in 2014 and 2015. Further, the number of hours worked on construction sites increased
from about 12.7 million in 2012 and 2013 to about 14.3 million in 2014 and 15 million in 2015,
also suggesting a recent increase in construction activity.
Pillar 3: Simplifying Processes of Cross-Border Trading
Rating: Substantial
54. Pillar 3 supported efforts to simplify targeted cross-border trading procedures in
important sectors. It included the following prior actions: (PA6) Adoption of regulations
(rulebooks) to streamline export/import procedures in FBH; (PA7) Adoption of regulations
(rulebooks) to streamline export/import procedures in RS.
55. According to estimates calculated during project preparation, businesses spend around
US$135 million annually to comply with complex export/import procedures. Reforms under this
pillar were aiming to reduce costs in seven key exporting sectors (wood processing, machinery,
electronic appliances, metal processing, dairy, meat and meat processing, and fruits and
vegetables). The reforms targeted 154 procedures in FBH and RS, with associated cost reductions
of up to BAM 2 million from the identified baseline of close to BAM 50 million.17
17 Baseline and costs are defined in order to calculate the impact indicator by applying the Compliance Cost
Savings (CCS) methodology of the Investment Climate Department of the World Bank Group. This
methodology is not a comprehensive cost-benefit analysis. It is a one-sided view of the reforms’ benefits to
16
56. In FBiH a package of export/import regulations was adopted in March - August 2013. In
RS, Ministry of Agriculture, Forestry and Water Management adopted in July 2013 a decree to
streamline export/import procedures in RS. All of the regulations adopted under this pillar
benefited from comprehensive TA support by the WBG.
57. Adoption of these regulations resulted in savings which were largely in line with project
targets of up to BAM 2 million or 5 percent savings. Actual savings are estimated at
approximately BAM 1.9 million (approximately BAM 1.1 mn in FBiH and BAM 0.8 million in
RS).
58. The reforms contributed to overall positive export trends in these sectors18
. Overall BiH
exports of goods increased from BAM 7.86 billion in 2012 to BAM 8.99 billion in 201519
, a total
growth of 14.4 percent over the period. Against this overall trend, agricultural and food products
(dairy, meat and meat processing are bulk of this sector) exports grew from BAM 488 million in
2012 to BAM 619 million in 2015, a total increase of 27 percent over the period. Their share in
total exports has increased from 6.2 percent in 2012 to 6.9 percent in 2015. Exports of wood,
wood products and cork grew from BAM 503 million in 2012 to BAM to BAM 664 million in
2015, a growth of 32 percent over the period. Their share in total exports has increased from 6.4
percent in 2012 to 7.4 percent in 2015. Exports of machinery and electrical appliances20
grew
from BAM 779 million in 2012 to BAM to BAM 1,003 million in 2015, a growth of 29 percent
over the period. Their share in total exports has increased from 9.9 percent in 2012 to 11.2
percent in 2015. On the other hand, metal and metal processing exports have dropped from BAM
1.64 billion in 2012 to BAM 1.50 million in 2015, and their share in total exports has decreased
from 20.8 percent in 2012 to 16.7 percent in 2015.
3.3 Justification of Overall Outcome Rating
Rating: Satisfactory
59. The overall outcome of the operation is satisfactory. This rating reflects the high degree
of relevance of the operation’s design and development objectives, and the successful
implementation and results achieved during implementation of the BE DPL. The operation’s
design and objectives are highly relevant both to the strategic priorities of the country and to the
current and past Bank assistance strategies. Of the reforms implemented, there is no reversal in
any of the areas, and in fact, the authorities are building on most of them with additional reform
efforts (outlined in the Reform Agenda). The operation supported an ambitious yet realistic set of
reforms. Further, the satisfactory outcome also reflects the fact that the three sub-objectives or
the private sector and it provides an indication of the resulting extra resources that private businesses may
use, at least in part, to expand their businesses or make new investments. The baseline and calculated
savings are based on official 2012 data (frequencies, time, fees, taxes, average labor costs, number of
operating businesses and other support statistics data) and verified by CCS specialists.
18 The only exception is negative trend in metals sectors, which is to a large extent linked with global
commodity price dynamics 19
Source: Annual bulletins on external trade, BiH Statistical Office 20
Data for this category were calculated using the exports of the category Machinery and Transport
Equipment minus exports of sub-categories road vehicles and other transport equipment.
17
pillar areas were fully achieved, as nine out of eleven indicators were fully achieved (in most
cases exceeding expectations) and the other two were partially and largely achieved. In addition
to direct positive effects of the supported reforms, they also had important demonstration effects.
For example, positive experiences with OSS in RS are being used by the authorities in FBiH in
developing their business registration reforms. Similarly, the streamlined process of issuing
construction permits supported by the operation is now being used to guide the reforms in
construction permitting in the Sarajevo Canton, and several other cantonal governments are
contemplating a similar approach.
3.5 Overarching Themes, Other Outcomes and Impacts
(a) Poverty Impacts, Gender Aspects, and Social Development
60. The policies supported under the DPL were expected to have positive impacts on poverty,
social and gender, primarily as a better business environment was expected to contribute to an
overall increase in economic activity and improved employment outcomes,. Although no recent
statistics on poverty are available21
, Labor Force Survey statistics show modest improvements
both in the employment rate, which went from 31.7 percent in 2012 to 32.2 percent in 2016, and a
gradual decrease in unemployment rate from 28.0 percent in 2012 to 25.4 percent in 201622
.
Overall, after contracting by -0.9 percent in 2012, real GDP grew in all of the years from 2013 to
2015, at an average annual rate of 2.2 percent. It was not possible to link these economic
outcomes directly to the project; however, as noted above, the results chain of the project explains
how a better business environment would contribute to improved macroeconomic outcomes.
(b) Institutional Change/Strengthening
61. The operation had an important impact on institutional strengthening, including through
increasing capacity of the institutions participating in the operation. The operation built on
previous technical assistance, reinforcing the capacities and efficiency of selected institutions and
improving legal predictability and enforcement. For example, building on previous technical
assistance that resulted in establishing of FUZIP in 2006, within this operation further technical
assistance was provided to FUZIP in order to strengthen their institutional capacities, efficiency
and building a strong basis for risk-based assessment in inspection supervision. The new FBIH
Law on Inspections in 2014 supported qualitative changes in the internal organization of the
institution itself, with the introduction of Food Inspectorate and Sectors for Internal Audit and for
Border Controls. This addressed important institutional shortcomings that had been ongoing since
FUZIP’s establishment. Further, supporting FBIH ministries in amending notary regulation,
business registration regulation and the Company Law created a solid basis for activities aiming
to introduce OSS for business registration in FBIH. Also, introducing regulatory impact
mechanisms in both entities put in place the tools to improve the quality of new legislation.
Targeting the trade procedures related to key export sectors of BIH and support to the respective
institution, including in agriculture, led to streamlining and simplification of these procedures.
This also contributed to the initiation of development of strategies for improving quality
infrastructure. Implementing this operation accelerated the progress in these specific reform areas
21 According to latest (2011) Extended Household Budget Survey (EHBS) data, 15 percent of the
population in BiH were below the poverty threshold. This is based on the WB poverty methodology and
LSMS poverty threshold of 205KM per person per month in 2007 prices. 22
However, most of the improvements in the unemployment rate are due to a drop in unemployment rate
for men, from 26.4 percent in 2012 to 22.5 percent in 2016, while for women it mostly remained high, at
30.7 percent in 2012, peaking at 31.2 percent in 2014, and then going back 30.0 percent in 2016
18
and triggered further engagement by authorities to address the challenging institutional
environment and the need for continued capacity development.
62. Having in mind the challenging environment in the country, there remains a need for
continued capacity upgrading. After the completion of this operation, WBG has continued
supporting these efforts, primarily through technical assistance in key segments, including
inspection interoperability and increased efficiency, introduction of OSS for business registration
in FBIH and improvement in RS, as well as strengthening the strategic framework for quality
infrastructure mechanisms in BIH. The results and lessons of this operation are being used in
follow up reforms in BiH. For example, the authorities in FBiH are adopting the OSS for business
registration approach based on its successful implementation in RS, which was supported by the
operation. Similarly, as noted in paragraph 59, streamlined process of issuing construction
permits supported by the operation is now being used to guide the reforms in construction
permitting in the Sarajevo Canton.
(c) Other Unintended Outcomes and Impacts (positive or negative, if any)
Not applicable.
3.6 Summary of Findings of Beneficiary Survey and/or Stakeholder Workshops
Not applicable.
4. Assessment of Risk to Development Outcome
Rating: Moderate
63. The operation was largely successful in achieving the expected outcomes, thus
contributing to improvements in the business environment in the areas of business start-up,
streamlining investment procedures in inspections and construction, and simplifying processes of
cross-border trading. The risk of policy reversal in the supported areas is low. In fact, the
authorities have committed in the Reform Agenda to further build on the reforms supported by
the operation. Further, the authorities in different entities, as well as some sub-entity level
governments, are planning to introduce some of the reforms implemented in the other entity. For
example, as noted in section 3.5 above, FBiH government is looking into options of
implementing One-Stop-Shop based on the successful implementation in the RS; and Sarajevo
Canton government is considering adopting new construction permitting legislation based on the
positive experiences of the reforms supported by the BE DPL.
64. Ensuring long-term sustainability of reforms will require continuous capacity building.
Although the risk of reversal is low, the risk of underperformance in fully implementing and
further advancing the reforms is not negligible. Although institutional capacity of government
agencies has improved, it may not be adequate to continue advancing the agenda. For example,
FUZIP is facing challenges in staffing some of the key positions and in implementing training
and certification program. If this situation continues over a prolonged period, the capacity built
during the preparation and implementation of the operation could be eroded. Further risks stem
from the institutional complexity of the country. For the benefits of the supported reform program
19
to fully materialize, much more work on institutional harmonization and creation of single
economic space will be needed.
65. Both WBG and authorities are aware of these risks. On the authorities’ side, there is a
clear commitment, including in the Reform Agenda, to continue implementing the reforms,
continue building institutional capacity, and work on advancing single economic space. On the
WBG side, the reform efforts continue to be supported both by the ongoing TA and by
preparation of a new business environment results based operation.
5. Assessment of Bank and Borrower Performance
5.1 Bank Performance
(a) Bank Performance in Ensuring Quality at Entry
Rating: Satisfactory
66. The Bank responded in a timely and pragmatic manner to shifting country development
priorities and the request of the BiH governments to support business environment reforms. As
noted at the decision meeting, in the initial discussions about a possible operation, it originally
included a fiscal component, which was excluded due to lack of political consensus (as a result
the proposed loan amount was reduced by half to $50 million). At the same time, there was clear
political commitment around business environment reforms, and these were seen as crucial in
putting in place the conditions for improved medium term growth prospects. To leverage the
political commitment, already ongoing efforts in this area, and the existing deep technical
engagement, the team focused on developing an operation to support business environment
reforms. Due to the uncertain political situation the prudent choice was made to apply a stand-
alone operation and not a programmatic series. The operation had high relevance to national
development priorities and the Bank’s Country Partnership Strategies. The operation also
benefited from strong linkages with IFC activities in the country.
67. The design of the BE DPL had strong analytical underpinnings, including through very
close collaboration with IFC. The objectives were realistic within a reasonable timeline and
focused on leveraging existing reforms efforts. The results framework broadly struck a good
balance between seeking ambitious outcomes and proper attribution to program actions. The
objectives of the operation and relevance of supported reforms were clearly explained in the
Program Document.
(b) Quality of Supervision
Rating: Satisfactory
68. The operation was well supervised, through frequent missions and through the fact that
some of key team members were based in the country. Supervision by the Bank took place on a
regular basis and was combined with intensive implementation of the complimentary technical
assistance. The Bank team also contributed to coordination efforts between different institutions
and agencies preparing and implementing the operation.
20
69. The team closely monitored the preparation and implementation of the measures around
prior actions. In discussions with the ICR team, the authorities were clear that although most of
the reforms supported were generally uncontroversial, there were still significant difficulties in
introducing the reforms, and the fact the World Bank operation supported them greatly
contributed to their adoption.
(c) Justification of Rating for Overall Bank Performance
Rating: Satisfactory
70. The Bank’s performance is rated as satisfactory to reflect the satisfactory quality at entry
and satisfactory rating of quality of supervision.
5.2 Borrower Performance
Rating: Satisfactory 71. As the Government and Implementing Agency cannot be distinguished separately for the
BE DPL, the rating in this section should be considered as the overall rating for the borrower.
72. The borrower’s performance is rated as satisfactory. The borrower had overall high
ownership of the implementation of the objectives as the operation objectives were in line with
the national development and EU accession framework priorities. Even though the
implementation, particularly the process of legislation adoption, was affected by the complex
political circumstances, the Borrower stayed persistent in achieving the goals supported by the
operation. In particular, the Ministries of Finance, both at the BiH level and at entity levels,
played a key role in coordinating the reform efforts of other participating institutions. That said,
the operation still experienced some delays, in particular with regards to achieving the
effectiveness. These were caused by political dynamics between different factions which resulting
in a stalled parliamentary approval process, and not related to commitment to reforms supported
by the operation. The staff, in numbers and knowledge, was adequate in most of the institutions
implementing the operation, with some capacity gaps addressed by the technical assistance from
the WBG.
6. Lessons Learned
73. Government ownership and alignment with national priorities are crucial for
reform success and make such success possible in even highly complex political and
institutional environments. The BE DPL demonstrated that even in highly complex political and
institutional circumstances a targeted set of reforms, aligned with country priorities, can move the
needle and result in measurable improvements in the business environment. Government
ownership and alignment with national priorities are crucial for DPL success. The operation was
designed around existing reform initiatives, and it provided an additional impetus for their
adoption and implementation. Keys to success include:
a. The underlying policy program should be selective. The DPL focused on a well-
defined set of reforms in relatively narrow areas
b. It is important to work on clearly defining targets from the outset. In discussions
with authorities, this was emphasized on several occasions.
c. Aligning the PDO and policy actions of the DPL with priorities being supported
through other high-level processes can significantly contribute to catalyzing the
21
reforms. In the case of BiH, these were the priorities defined in the EU accession
process, including EU’s increasing focus on economic governance.
74. The BE DPL also demonstrated importance of flexibility and pragmatism in
addressing country needs. When the political support for further fiscal consolidation efforts
sharply waned, the Bank worked with the authorities to design a more politically palatable, yet
substantive, program of reforms supported by the operation. In its design and implementation, the
operation successfully blended support for legislative and regulatory reforms with actions to
promote institutional strengthening. Going forward, the focus in improving business environment
is expected to shift from addressing policy and regulatory gaps, supported by the BE DPL, to
support for reform implementation. Other types of instruments, including results based lending or
PforR, are well suited for deepening policy reforms and supporting reform implementation over
the medium term.
75. Having appropriate analytical, TA, and supervision resources available before and
during the operation was essential for successful implementation of the operation. The BE
DPL was developed on the basis of rich analytical and advisory work, provided both by the WB
and IFC, over several years prior to start of preparation of the operation and during
implementation of the operation. A number of different TA programs provided support to
authorities in areas where capacity gaps were identified. Strong implementation support,
including through presence of key team members in the country, was a major factor that
contributed to timely adoption and sustained implementation of the reforms. The Bank is
generally seen by various institutions as an honest broker, and this helped it to act as convener
when reforms got stalled and needed concerted efforts of multiple stakeholders to move them
forward.
76. More significant benefits from the supported reforms were suppressed by various
difficulties related both to institutional setup, as well as capacity gaps. For example, major
improvements in the inspection system at FBiH level did not fully translate to better operating
environment for many of the firms, as they largely fall under the jurisdiction of cantonal
inspections. Similarly, improvements brought about by new streamlined process of issuing
construction permits in RS can be offset by lack of supporting planning documents and by limited
capacity of some municipal governments. Careful and comprehensive analysis of institutional,
political economy and implementation capacity constraints is necessary to reduce these indirect
risks to development outcomes.
7. Comments on Issues Raised by Borrower/Implementing Agencies/Partners (a) Borrower/Implementing agencies 77. The authorities overall endorsed the ICR. The Borrower did not prepare a completion
report for this operation. The draft ICR was shared with Ministry of Finance and Treasury BiH,
Ministry of Finance of Republika Srpska, Ministry of Finance of Federation BiH on December 29,
2016. Comments were received from the RS Ministry of Finance, relating mostly to terminology
used in the ICR and names of various institutions and documents. These comments were reflected
in the final version of the ICR. The FBiH had no comments to the proposed draft ICR.
(b) Cofinanciers Not applicable.
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(c) Other partners and stakeholders Not applicable.
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Annex 1 Bank Lending and Implementation Support/Supervision Processes
(a) Task Team members
Names Title Unit Responsibility/
Specialty
Lending
Wolfgang Fengler Lead Economist GTCDR Task Team Leader
