Economic Trends

Economic Reform Failed

AIM Sarajevo, 26 June, 1998

In the assessment of the situation in the economy of the Federation of Bosnia & Herzegovina, about fifty entrepreneurs at the session of the Management Board of the Chamber of the Economy of B&H stated that the situation was difficult, dramatic and catastrophic, stressing that it is further deteriorating. Sounding the alarm more because of inertia of the government and other administrative agencies and their lack of interest for faster solving of this problem, and less because of their own incapability, the entrepreneurs corroborated their allegations with merciless statistical indicators. While last year industrial production increased by 35 per cent in relation to 1996, in the first month of 1997, its growth has deccelerated and amounts to about 18 per cent of the volume from the same period last year. The drama of business operation is not illustrated only by these elements, but also by increase of unemployment, salaries which are paid with several months' delay, and more and more frequent social revolt of the employees.

Low level of business operation for a prolonged period of time led to financial exhaustion of enterprises, which is most acutely manifested in the long chain of mutual debts and claims, but also in a chronic lack of capital, especially for working assets. Due to indebtedness, the accounts are often in the red, so it is like a noose around the neck of enterprises, because it paralyses their operation. Results of such a situation are enormous losses which only last year exceeded one billion 280 million German marks, 88 per cent of which are registered in state enterprises.

What are the causes of such a difficult situation in the economy? According to the opinion of majority of entrepreneurs, in the course of last and this year, the established measures of economic policy failed to yield the expected effects. The reform of the economic system failed, changes of ownership structure are slow, integration of the market in B&H is proceeding with difficulties, production and external trade are lagging behind plans, there has been no accelerated employment rate, and making of profit and investment potential is at the minimum.

Two and a half years after signing of the Dayton peace agreement, instead of passing from the phase of reconstruction into the phase of development, B&H and its economy are still in the initial phase. Does not statistics confirm this best when it claims that industrial production amounts to just 15 odd per cent of the level it reached in 1991?

When speaking of the current situation, entrepreneurs tend to say that there are three types of enterprises in the Federation of B&H: those which have not even started working after the end of the war, those which are working but which may be forced to interrupt the production at any moment, and there are those which should be developed. Since the administrative agencies and their management have not found adequate solutions to start up production, iron and steel industry, metal processing are not working at all, as well as production of transportation means and basic chemical industries. The second group of enterprises - those which work but there is a possibility that many of them will be forced to interrupt work because due to unoperational railway, they have no raw material and intermediate goods necessary for their work. The example of the chemical factory from Lukavica in which production started after enormous efforts of three Sarajevo and two Tuzla banks to provide capital for its start-up, and a few days ago it has stopped again because the railway is not running. This is threatens the export contracts. In the third group are enterprises (which deserve to be developed) exporters which - despite difficulties - successfully compete in the world market and bring foreign currency to the state.

The opportunity of the economy of B&H is in export. The internal market is small and insufficient for the increase of production, especially of some of its segments. After all, capacity of most of the pre-war factories was programmed for a bigger market, so that after the split of the former Yugoslav market, the only solution is in penetration into the market outside B&H. It is a completely different question to what extent our enterprises are ready for the race in the world market?

It is impossible to make an optimistic estimate about efficiency of business operation in B&H. The very fact that last year expenses increased at a quicker rate than the receipts by almost nine per cent, illustrates the (in)efficiency. The result of that are losses of about one billion 288 million German marks, and the profit of only 257 million marks. But, it is not only these facts that illustrate inefficiency in work. There are other parametres too. There is almost one pensioner per employed person, while in the world this ratio is much more favourable: four workers work for each pensioner. How is it possible even for enterprises which work well to meet all these and other social obligations?

Lack of systematic solutions for improvement of the situation in the economy, but other spheres as well, according to the opinion of entrepreneurs, it is impossible for the enterprises to work better and increase their efficiency. How can they be more profitable when they lack working capital, and the capital offered by banks at a high interest rate is not accessible for them? How can they be competative at the market at current prices, when state borders are porous and all kinds of things are imported, without any control and protection of domestic production? How will enterprises bring in raw materials and semiproducts, and then export goods when the railway does not operate, and goods transported by other means go by ferries? How can anyone be efficient when obligations for taxes, contributions and customs dues are so high that not even world famous enterprises would be able to meet them (for example, Lijanovici enterprise from Siroki Brijeg allocates two and a half million German marks into the state cashbox).

For all these reasons, majority of entrepreneurs see no way out from this vicious circle. They simply feel helpless in the current situation. It seems that Dr Anto Domazet, vice-president of the Chamber of the Economy of B&H made quite a realistic forecast when he stated that entrepreneurs could do nothing to solve the problems because economic reform had not taken place, and the state could not be transformed into a modern and efficient one, which resulted in the bad position of the enterprises.

Seeking a solution, the entrepreneurs nevertheless believe that it would be necessary in B&H - along with elimination of the mentioned problems - to take measures in order to establish the common market on the territory of the whole state, to abolish regulations which limit inter-entity circulation of people, goods and capital, but also to standardize conditions of business operation, especially when taxes, contributions and customs dues are concerned.

Samuel SKOPLJAK

(AIM, Sarajevo)