The Economy: B&H Federation in 2000

Unwarranted Government's Optimism

AIM Sarajevo, December 25, 2000

Cafes and their owners in the Balkans have the role the stock exchange index has in developed countries, i.e. they are a rather reliable indicator of the overall economic situation. Full cafes and satisfied owners generally mean that people have both work and money. When cafe keepers with anxiety state that the number of guests has started decreasing and that the turnover started falling down, that is the best indicator that money shortage and economic crisis are knocking at the door.

Not only caterers, but also national and foreign economic experts have come to the conclusion that hard days lie ahead of B&H, both in the Federation of B&H as well as in the other entity - the Republic of Srpska. The only ones who disagree with such a conclusion are the current authorities which, despite optimistic announcements from the beginning of this year, do not have many arguments with which they could document the success of their way of running the economic recovery.

Instead of 16 thousand new job openings in the Federation of B&H by the end of 2000, as Federal Prime Minister Edhem Bicakcic optimistically announced, according to the latest data of the Federal Statistical Office, the number of work places increased by only 2,684 in the first ten months of this year, while in that same period the number of unemployed rose by 2,426. It is therefore quite certain that in the remaining two months the number of unemployed will increase by several hundred in relation to the official number of 412,788 employed persons on October 1.

Of some comfort is the fact that the number of unemployed did not reach the projected figure of 299 thousand having stopped at 264,219 unemployed workers after first ten months. However, this was not the result of a successful Government's policy, but simply of the fact that the official number of employed also includes 45 thousand "waiting workers" who should have officially become unemployed by virtue of law. If this number is added to that of the currently unemployed, we get a disquieting figure of 367 thousand of actually employed and almost 310 thousand of unemployed persons in B&H Federation.

Simple mathematics shows that if employment continues at this pace, it will take at least a decade for all currently unemployed persons to get a job. The finalisation of privatisation, which is in progress, will certainly mean, at least at the beginning, additional laying-off of workers, especially those in large state enterprises, whose destiny at the labour market, without state support, is rather uncertain. Anyway, the data that currently the number of employed in F B&H has reached two thirds of 1991 figures speaks for itself, while present industrial production is something over one third of its pre-war level.

In all likelihood, facing the problem of growing unemployment will be the "present" of the current authorities to its successors. Although negotiations are still underway on the formation of a coalition which will be in power in the Federal Parliament, despite the fact that the elections were over on November 11, no matter who gets the office of the Prime Minister of B&H, he will certainly inherit a disastrous economic situation. With the unemployment rate of 39 percent, which places B&H among world champions in this "event", the job of the Federal Prime Minister will be more like mine clearing than a comfortable function in the coming year.

The lack of economic progress in F B&H is also illustrated by indicators of the growth of industrial production. After registering an impressive rate of growth of industrial production of 87 percent in 1996, followed by 35 percent in 1997 and 23 percent in 1998, B&H achieved only 10 percent in the past 1999. According to the data obtained thus far, no more than 10 percent will be registered in 2000 either.

Although the still ruling apparatus gladly boasts of these percentages claiming that growth rates registered here are among the highest in the world and presenting them as its success, this is only partially true. There is a simple explanation for a more than impressive rate registered in the first three post-war years. After the war the national economy practically started at zero, so that every activity, turned into percentages, looked splendid. Also, in this period several billion dollars of foreign donations for the reconstruction of B&H, were spent. However, a true picture can be obtained only in comparison with 1991. Five years after the war F B&H reached only 38.5 percent of its 1991 level of industrial production.

The only bright spot in this bleak picture of economy of B&H Federation are exports, of which the Federal Government proved to be a good forecaster, predicting USD 625 million worth profit from the sale of goods and service to foreign countries, which is by one fourth more than in 1999. Since exports amounted to USD 524 million in the first ten months of 2000, it can be expected that the plan will be achieved by the end of the year.

However, the growth of exports will not be sufficient for F B&H to balance its foreign exchange deficit. Imports of all sorts of things also grew, and reached USD 1.7 billion in the first ten months of 2000. That means that two billion dollars worth imports can be expected by the end of the year, which is last year's level. That would represent a failure since a 10 percent reduction of imports was expected. With the simultaneous growth of exports and imports, the total picture did not change much. The Federation of B&H still covers only 29 percent of its imports by its own exports, so that it is questionable for how long and from which sources will it be possible to cover this difference.

In the last couple of years the inflow of foreign donations and credits, as well as funds which numerous foreign representatives and organisations in B&H used for their own needs, represented the main source of foreign currency here. Since the times of donations to B&H are nearly over, and there are less and less foreigners, the only remaining source of fresh money the national economy has is still questionable here - direct foreign investments without which there can be no bare survival, let alone economic recovery.

And, while for several months now panic-stricken representatives of the international community have been warning that without urgent arrival of foreign investors an economic collapse is awaiting B&H in imminent future, the only ones who ignored these warnings were the current authorities. True, verbally everyone is for reforms and attracting foreign investors - the authorities, the opposition, businessmen. But, the only ones who really have the power to make the existing environment in B&H attractive for investments, domestic or foreign alike, are the people who are now in Governments and Parliaments. Unfortunately, neither citizens nor investors could see concrete moves which would prove the readiness of B&H to offer foreign capital at least the same terms and privileges offered by other neighbouring countries.

The fact that the F B&H Government failed to keep the promises it gave in the document on economic policy measures for 2000, primarily those on new job openings and growth of production, unquestioningly qualifies the present authorities to join the opposition ranks for a long time to come. All the more so as the Federal Parliament never adopted the proposed Government economic policy measures, which did not prevent the proposer, i.e. the Prime Minister and his Ministers, from continuing to work (laze) as they please.

Naturally, the results of the absence of a serious economic policy of the outgoing Government are obvious and visible to everyone, to the unemployed, pensioners, ordinary people, local or foreign businessmen, economic experts alike. Ones feel it on their own family budgets and others came to that conclusion on the basis of economic analyses and indicators. If it became obvious even to the majority of local cafe owners - until recently packed at any hour - that the economic situation was drastic, then the fear of what the new year of 2001 can bring is quite justified. In this a mere list of Government's wishes, in the form of "projected future growth of employment and production", will be of no help this time without a valid plan and clear measures for their realisation.

Drazen SIMIC

(AIM-Sarajevo)