SUN, 22 APR 2001 22:10:28 GMT
Why Foreign Investors Ignore Bosnia-Herzegovina
AIM Banja Luka, April 11, 2001
The recent arrival of a number of foreign delegations has created an
impression that Republika Srpska is becoming a focus of interest for
foreign investors. In only a couple of days, business delegations from
Germany, Austria and Russia visited Banja Luka.
The Austrians delivered a memorandum on conditions for economic
cooperation to the Bosnia-Herzegovina Council of Ministers. In it, they
listed all Austrian companies willing to cooperate with the country.
"For Austrian entrepreneurs, Bosnia is a stable country, but in order to
upgrade economic cooperation and for our investments to start coming in,
it is necessary for Bosnia to meet certain conditions," the chairman of
the Austrian Chamber of Commerce and Industry, Christopher Leitl, said.
Austrian Ambassador to Bosnia Gerhardt Jandl stresses that
Bosnia-Herzegovina has to become a functional state if it wishes to
attract foreign capital. During a visit to Banjaluka, after his meeting
with the speaker and the deputy speaker of the Republika Srpska
Assembly, Dragan Kalinic and Sulejman Tihic, respectively, he pointed
out that the chief obstacles when economic cooperation with the world is
in question are different regulations in Bosnia's two entities and the
unstable tax system.
The Austrian diplomat had good reasons to warn the local politicians of
problems stemming from Bosnia's disfunctionality. Namely, a branch
office of the Austrian Chamber of Commerce opened in Bosnia in 1998, and
a year later, the Austrian Marketing Bureau in Banja Luka. Last year,
Austria exported to Bosnia KM483 million in goods and imported KM70
million. Two years were a period long enough for the Austrians to learn
what is wrong and issue the warning.
Frequent visits by European economic delegations are obviously aimed at
informing local politicians that participation in the world market
necessitates radical changes in legislation, especially in the field of
taxation and customs duties. For economic experts the problem is much
more complex than for diplomats and politicians. This could be heard at
a recent gathering of economists in Sarajevo, where foreign investment
in Bosnia and Herzegovina was discussed. A UN expert in foreign
investment, Miroslav Jovanovic, recommended that the sectors to be
opened to foreign investors be determined as soon as possible. "From my
point of view, this sector is people -- educated and experienced
workers, who are productive and whose labor, compared to Western Europe,
is quite cheap," said Professor Jovanovic.
One of the key reasons for the lack of interest to invest in
Bosnia-Herzegovina is the region's political instability. For the time
being, Volkswagen and Coca-Cola were the only major companies willing to
take the risk. There are indications, however, that they could withdraw,
because of an unprofitable business environment.
We found an encouraging example in Kozarska Dubica. The INTEST holding
company, formed through the merger of two well-known Italian textile
companies, ITA and OLCESE SPA, is the first official investor in
Republika Srpska. After buying a 30 percent stake in the state-owned
Dubicanka textiles factory, INTEST became the majority owner.
During the past decade Dubicanka ran at only 10-15 percent of capacity.
Before privatization, a number of its workers were laid off. Regardless
of political and economic conditions and the consequences of the war,
the Italian investors, according to deputy director Drazen Vidovic,
embarked on the adventure of investing in Republika Srpska's textiles
industry. "We are satisfied because in only several months we have gone
from running at 10-15 percent of capacity to 57 percent," said Vidovic.
Currently, Dubicanka employs 400 workers, and in the past three months
it opened 66 new jobs. There was no noticeable increase in salaries, but
they are paid more regularly, as are dues to the state.
Expectations that privatization will be accompanied by a greater inflow
of foreign capital turned out to be unrealistic. The director of
Transparency International for Bosnia-Herzegovina, Boris Divjak, says
that no major foreign investment should be expected to arrive through
privatization because it was about a decade late. In that period, says
Divjak, the entire business infrastructure was destroyed, dropping to a
level where it was no longer of interest to foreign investors. "This is
why today new investment is the only hope and support," he explains.
What is needed for new investment, however, is a proper business climate
and a harmonized legal system. Unfortunately, foreign businesspeople
find existing laws in Bosnia and Herzegovina unacceptable. The process
of founding a company is excessively long. When it is finally completed,
the owners face high fiscal obligations. According to the existing
regulations, up to 80 percent of profits have to be set aside for
various taxes and fees. "Without a radical reform of the fiscal system
and simplification of the foreign investment procedure there will be no
progress," Divjak warns.
According to a professor of the Banja Luka Faculty of Economics, Rajko
Tomas, foreign investors prefer to do business in the countries which
are politically stable. "It is a fact that this region is not only
politically unstable, but is technologically backward as well. This
requires greater investment, and foreign businesspeople are not ready
for that at the moment," said Tomas. According to him, the basic
condition for the inflow of foreign capital is the political and
economic stabilization of the country, which should increase the safety
of foreign capital.
There is an additional discouraging circumstance: according to a World
Bank study, Bosnia and Herzegovina is high up on the list of the world's
most corrupt countries. As a rule, foreign investors avoid such
countries because a corrupt state apparatus does not offer guarantees to
their capital. This could be the best answer to the question of why
there are no foreign investors in Bosnia-Herzegovina.