Minister of Economy and Entrepreneurship of Republic of Srpska, Mr Vjekoslav Petričević, in an interview for our portal speaks about the business environemnt in the Republic of Srpska, about the problems in the economy, growth of wages and a reducing the unemployment rate.
TST: What is the business environment in the Republic of Srpska?
PETRIČEVIĆ: Business environment in the Republic of Srpska has a tendency of rehabilitation, however there is plenty of room for enhancement and improvement. After the economic crisis in 2009, we first experienced the decline, then the economic stagnation; however we have achieved growth and recovery in the last three years. Our business ambience largely depends on the situation in BiH and at our biggest economic partners, but there is ample space where we can act alone and significantly improve the situation.
Positive elements of the business climate in the Republic of Srpska, among else, includes macroeconomic stability, stimulative tax policy and favorable treatment of foreign investors. Although the business environment is not fully satisfactory, in 2018, the Republic of Srpska achieved positive indicators in foreign trade exchange, with a record export import coverage in the amount of 72%, as well as the surplus with the EU countries: Croatia, Slovenia, Austria, Slovakia, Great Britain and the Netherlands. It is important to note that 2018 registered the largest number of employees in the Republic of Srpska. The number of employees increased from 242,624 to 266,309 persons, and in particular, I emphasize an increase of employees in the manufacturing industry by 3.7%, or by 3,3% of the total industry, in comparison with the previous year. The Republic of Srpska has been declared by the Financial Times magazine as one of the 10 small regions of the future in Europe for the strategy of attracting foreign investments. Several of our municipalities and cities have received regional certificates on favorable business climates, the BFC SEE certificate.
“Srpska has been declared by the Financial Times magazine as one of the 10 small regions of the future in Europe”
We continue to work hard to improve the business climate in the Republic of Srpska. We have adopted the Proposal of measures to improve the business environment and some of them have already been implemented. The Law on Incentives in Economy was adopted, the employment incentives of the Public Employment Service were increased, the Law on Amendments to the Law on Profit Tax was adopted with the aim of stimulating investment in equipment, we are working on the creation of the Incentive Registry, we are intensively working on the introduction of e-registration with the aim of supporting the economy. Our ministry coordinates the process of establishing e-registration, three draft laws have already been adopted this year and proposals will soon be submitted to the Government for their consideration.
In terms of e-government, we have our portal www.pscsrpska.net which is unique to the region and contains all permits, licenses and certificates classified according to the activities.
TST: What are the main problems of our economy?
PETRIČEVIĆ: Different economic branches have different problems. Moreover, the answer to this question depends on the size of the company. Companies with a 1000 or more workers and independent entrepreneurs don’t share the same problems. Small businesses face many administrative barriers and fiscal and parafiscal charges. Larger companies have problems finding trained and motivated workforce. However, there are issues that are common and most pronounced. I have found these are the following problems: high worker contributions and withholdings, lack and high price of capital in the money market and banks’ unwillingness to invest more in the economy, a reduction in the workforce that has been very pronounced lately and becoming an even bigger problem, a mismatch between education and the curriculum with the labor market, technological underdevelopment, poor productivity, fiscal and parafiscal charges and an unpreparedness to enter the international market. In addition, I have noted other issues that many countries in transition are facing, such as the lack of quality and professional management, brain drain, underdeveloped capital market, insufficient investment in research and development, and a lack of entrepreneurial ambition.
TST: You have stated that the priority in 2019 will be to increase the wages in the real sector. Will this increase be a „dead letter on paper“ or will it still be realised, and will it prevent the departure of young people from the Republic of Srpska?
PETRIČEVIĆ: I am convinced that in 2019 there will be a significant increase in salaries and the economy. The action plan we are currently implementing is leading us in that direction. In the first months, some growth has already been achieved, and we are expecting a substantial increase in the second half of the year.
At the recently held session of the National Assembly of the Republic of Srpska, the Draft Law on Incentives in the Economy was adopted. This Law determines the requirements, the users and the procedures for exercising the incentive right to increase wages in the real sector, as well as the basic elements for stimulating direct investment in the economy. Businesses are entitled to incentives to increase salaries in two accounting periods, one of which is from January 1 until June 30, and the second period from July 1 to December 31 in a calendar year starting on July 1, 2019. The users of the incentives shall be companies and independent businessmen based in the Republic of Srpska, as well as business units of companies with their head offices outside the Republic of Srpska. Besides this measure, we also have incentives awarded by the Public Employment Service of Republic of Srpska, which have also been significantly improved, already proving their usefulness.
“The Government and the Ministry do not have the possibility to increase salaries by their decision; it is the employers who must do so”
Our intention is to create favorable conditions and real opportunities for increasing salaries in the real sector in accordance with the proposal of the economic community. However, the Government and the Ministry do not have the possibility to increase salaries by their decision; it is the employers who must do so. We provide them with enough space to do it and in the easiest way possible. We are confident that many employers will recognize this opportunity and decide to increase salaries for their workers, and we expect this measure to affect the reduction of the emigration of the working age population. We cannot prevent anyone from their intention to leave, but we will do everything in our power to create better conditions for the development of the economy and salary growth.
TST: In the Republic of Srpska, a positive growth of gross domestic product was recorded, which is an indicator of economic development. In fact, the economy of the Republic of Srpska has been growing gross domestic product for years, but on the other side, the citizens say they don’t feel any improvement. Why is it like that?
PETRIČEVIĆ: Republic of Srpska recorded GDP growth, growth of employees, and more importantly, growth of wages. In May this year, for the first time, the average net wage in the Republic of Srpska exceeded 900 KM, and with this new Incentive Law that entered into force on July 1, we can expect even more intensity of salary growth. However, these positive economic indicators are not entirely satisfactory for us. We are aware that citizens are looking for better results and faster alignment with developed European countries. We want the Republic of Srpska to have a continuous growth rate of at least 6% of GDP and we want the average net salary to exceed 1000 KM in the next 12 months. We also want the unemployment rate to drop below 15%, and in the next few years below 10%. Only then can we say that we have achieved significant economic successes. All our development strategies, plans and concrete activities lead in this direction. In order for the majority of citizens to feel concrete economic progress, we need the strong growth continuity for several years. I sincerely believe that the Republic of Srpska has enough capacity to achieve such results and become a regional leader in favorable and attractive conditions for doing business and starting a business.
Author: Danka Savic