„We are aware of the fact that the governments of Bosnia and Herzegovina’s entities have been additionally burdened by the challenges created by the pandemic, our focus in 2021 will be on boosting cooperation with local communities, especially those from which our member companies come,“ says the President of the Foreign Investors Council in Bosnia and Herzegovina, Branimir Muidža, with whom we talked about the business climate in the country, its potential and the pandemic’s impact on foreign investments.
You have been the President of the Foreign Investors Council in Bosnia and Herzegovina since 2011. What has changed in the country in the last ten years in terms of the business environment?
Since its establishment in 2006, the Foreign Investors Councils (FIC) has launched an initiative to establish a normative and institutional framework with the view of improving the investment climate in the country. We have also established dialogue and cooperation with Bosnia and Herzegovina’s authorities, in all areas of common interest, through the process of drafting and adopting the recommendations contained in our White Book. The value of the White Book lies in the fact that it provides very specific recommendations and answers to the questions of how, who, when and what should be done to have a much more favourable business environment. About 100 experts from our member companies have been working on the White Book, who have a cumulative age of 3,000 years and cumulative work experience of 1,500 years, both in Bosnia and Herzegovina and abroad, and who have worked and are working in domestic and foreign companies.
In terms of the business environment, the past period was marked by the Reform Agenda, as well as its inconsistent implementation. Unburdening businesses, increasing efficiency in the public sector, conducting structural reforms in labour legislation, improving the fiscal system, public administration reform, public sector employment policies, improving the business climate and boosting competitiveness, social benefits reforms, public enterprise restructuring, health sector reforms and the rule of law were the goals stated in the Reform Agenda, which coincide with the platform and concept of development that our Council has been representing for many years. Some important decisions were made during this process, but unfortunately, they were not fully implemented. We believe that the implementation of these policies has no alternative and that decision-makers should start applying them as soon as possible, with the aim of achieving higher competitiveness and economic growth in the country.
The skilled workforce, proximity to the European Union and low labour costs are the most important competitive advantages of Bosnia and Herzegovina
To what extent and how did the COVID-19-induced crisis 19 affect the decline in foreign investment in Bosnia and Herzegovina?
The onset of the pandemic coincided with a time when the global economy was already facing difficult times. Therefore, in a given situation, business people had to take prudent financial actions, both preventive and corrective, to ensure overall financial liquidity. It also means that many potential investors will align their investment decisions with the changed reality.
In order to keep their business liquid, many companies will focus on short-term goals and will realize long-term ones more boldly once greater stability and certainty of economic opportunities and other circumstances affecting the business are in place. As fears grow that the global economy will move toward recession, there will be a drop in liquidity, along with high inflationary pressures. In this situation, setting short-term financial goals becomes very important. This means that investments in sectors directly affected by the pandemic will be delayed for some time until financial stability is established. Unfortunately, the COVID-19 pandemic will affect investments worldwide and expectations related to the trend of foreign direct investments in Bosnia and Herzegovina too.
According to the data collated by Bosnia and Herzegovina’s Central Bank referring to the first half of 2020, investments dropped by 46.7% compared to the same period in 2019. Foreign direct investments in less developed countries such as Bosnia and Herzegovina have been further hit both 2020 and 2021, due to the impact of the COVID-19 pandemic. The decline in global foreign investments in 2020 was estimated at 30-40%, also as a result of the pandemic.
How do you assess the general economic situation in the country and what should and what could be changed?
Looking at a cross-section of the current situation, we can say that the challenges have remained more or less the same as in previous years. The biggest challenge in companies’ operations is still the excessive red tape which is also complex and expensive, which leads to its inefficiency and failure to provide adequate quality of service. Therefore, the complex organization and the way the state functions are the biggest obstacles. Due to its constitutional organization, Bosnia and Herzegovina also has a complex business environment, in addition to the already known challenges. The country’s economy is currently facing the coronavirus pandemic, which requires the government to be agile and to take appropriate economic measures to minimize the negative effects of the pandemic on the economy.
On the other hand, can Serbia be a good external trade partner when it comes to relations between the two countries?
Apart from the European Union, the Republic of Serbia remains the most important external trade partner of Bosnia and Herzegovina. Given that our country and Serbia are geographically and historically naturally dependent on each other, these two countries have great interest in economic cooperation, because according to the Foreign Trade Chamber of Bosnia and Herzegovina, Serbia is the most important partner of Bosnia and Herzegovina in terms of external trade. Last year, Bosnia and Herzegovina exported goods worth just over 450 million euros to Serbia and imported just under 970 million-euro-worth of goods from Serbia.
Very good cooperation between the two countries is also reflected in investments. Serbia occupies third place on the list of the biggest foreign investors in Bosnia and Herzegovina. Also, the two countries have concluded a number of interstate agreements related to the economy.
The decline in global foreign investments in 2020 was estimated at 30-40%, also as a result of the pandemic
In your opinion, is the key to Bosnia and Herzegovina’s further development?
Stability and predictability are some of the key criteria for investors. The more stable the political situation, the greater the predictability, the greater the chance of attracting investors and creation of new jobs, both in the country and everywhere in the world. Bosnia and Herzegovina has a complex business environment, so investors are more cautious. Billions of euros are circulating every day in the world’s financial bloodstream, looking for a favourable place to fertilize. There are certainly opportunities and we will use them only if economic issues are an unquestionable political priority.
First of all, there is an urgent need to increase the competitiveness of the private sector, starting with the much-needed reduction of the payroll tax.
Furthermore, there is a need to improve the quality of public services and reform the cumbersome and inefficient public sector, which is a constant burden on the private sector.
Then, the country has to ensure a level playing field, increase transparency and eliminate the system of favouritism. Bosnia and Herzegovina needs to become more determined in supporting the private sector and must reap the benefits of technologies that are now readily available, including digitization, automation and greater use of e-government and e-services.
What will the Foreign Investors Council work on in the coming period and what challenges do you expect to face given the ongoing pandemic?
The Council will continue to work and insist on the implementation of regulatory reforms that are necessary to create an optimal investment climate in Bosnia and Herzegovina this year too. First of all, I am referring to the implementation of our recommendations contained in the new White Book, which we will publish this year, and launching new activities together with the relevant government institutions.
Also, at the beginning of next year, we plan to publish and present to the public the results of our Business Barometer survey, which we periodically conduct among our members. The survey results will be consolidated and presented to the relevant authorities in Bosnia and Herzegovina and will be used to improve our position and requirements towards the state institutions, with the aim of improving the regulatory framework, increasing the efficiency of public administration and policy decisions in order to improve the position of existing investors and encourage new investments. The new survey covers the 2019/2020 period. In addition to the standard chapters, it also contains a new one that deals with business conditions during the COVID-19 pandemic. We hope that the survey results will show governments what challenges companies have been facing in this difficult period and what are some of our recommendations to remedy them.
We are aware of the fact that the governments of Bosnia and Herzegovina’s entities have been additionally burdened by the challenges created by the pandemic, our focus in 2021 will be on boosting cooperation with local communities, especially those from which our member companies come
What are Bosnia and Herzegovina’s greatest values – its natural resources, geographical position or people?
According to the results of the Business Barometer, our members said that skilled workforce, proximity to the European Union and low labour costs are the most important competitive advantages of Bosnia and Herzegovina in terms of attracting investors. The next most important advantage, compared to other countries, is the low profit tax rate and VAT and low prices of electricity and energy, followed by good suppliers and local business support services, solid transport connections and reliable energy supply. Local incentives for foreign investors, as a competitive advantage for investing in Bosnia and Herzegovina, are an issue where, according to our survey participants, a lot of progress has been made. In addition to the aforementioned, investors believe that natural resources, the potential for business expansion and the availability of raw materials are additional competitive advantages of Bosnia and Herzegovina in attracting foreign investments.