USAID is the United States Agency for International Development. It is the US government's foreign assistance agency. We are a part of U .S. government and in close coordination with the Department of State and the US Embassy in each country where we are located. Our program in Bosnia and Herzegovina has been launched in late 1995 when we started running our activities shortly after the war. The total assistance that the US government has provided (non-military assistance), is over 1 billion $US. Initially, we have been focusing on various reconstruction and emergency programs aimed at repairing infrastructure in BiH such as large power plants, water distribution systems, water plants, electrical generation plants as well as roads and bridges. During the first year we made significant investments that helped keeping the lights on the country and providing basic services. Since then, our work in the reconstruction area has been targeted at the community level in order to support minority returns. In conjunction with the other donors who work here, we have been working on building at the community level infrastructure, water distribution systems, streets, health clinics and schools. These tasks are carried out in collaboration with other donors who are reconstructing the housing infrastructure in order to bring a complete reconstruction "package" to the communities. USAID deals with the financing of the infrastructure and other donors finance housing. There are also economic development activities that are on the run in order to create good conditions within a community so that people can return, live and stay.
We also work on democracy and therefore, strengthening and supporting the development of civil society groups, providing support for the elections of this year as well as seeing to it that the elections are well carried out. This will be the first year that the Bosnian government is directly responsible for the elections and it is particularly important that the support we provide helps them to carry out the elections as previously under international supervision. We are also working along with other donors on reforms regarding the Justice sector. Moreover, we set up programs that strengthen the independent and private media development. The largest area we will probably focus on now and during the next few years will be the one of economic reforms. We will continue to provide assistance concerning reforms of the financial sector. In the past there used to be the so called "payment bureaus" system which was the communist payment system in the country. We have also provided a significant support to the Central Bank BiH. We have helped establishing the Banking Supervision Agency in both, the Federation and the RS. We have set up a deposit insurance scheme in the Federation and we are working on setting up a state level deposit insurance scheme, which will cover both, the RS and the Federation. When taking a closer look to the deposit insurance issue, it is interesting to know that the banks that participated in this deposit insurance scheme last year provided a very important stimulant for savings mobilization. Moreover, we have concentrated considerable efforts on the privatization process. USAID was, among the international donors providing assistance to both governments, the first one to foster the privatization process and to establish the registrations' share and procedures to fulfill the privatization; this is now being carried on by the World Bank and the European Union as additional assistance. We are also dealing with various projects starting this year to help improving the business climate here; projects, which will help focusing on reform regarding regulations, and making the economy more business-friendly, i.e. setting up systems which will contribute to the development of the private sector. One of them is a project concerning the accounting reform for the public sector and the development of more transparent procedures adjusted to the requested standards. In the private sector, we are working in collaboration with public universities in order to provide accounting teaching procedures in the university system, specifically in the School of Economics. That will include the training for professors, as well as the translation into the local language of accounting texts. That is the general view of the areas that we are covering.
Could you elaborate on some of your programs such as the training programs for the managerial level?
Probably the most important measure that government is going to take here is making the transition from a planned economy to a market economy. It is going to be in the area of fostering the private sector development: how do they deregulate the economy? How do they simplify the regulatory mechanisms that have to be implemented? How do they make the climate here friendly for private investments? One of our programs is a Business Development program, which provides Bosnian businesses with commercial loans. We have granted 582 loans at this point and we lent out over 271 million KM. It has been very successful in the sense that it has really brought a Bosnian entrepreneurial spirit, which is now, I think, very strong. It is something that may not be apparent to the visitor but it is very characteristic to the society nowadays and it is actually quite impressive. Particularly when you consider the unfriendly nature of the regulatory framework, which is an inherited framework from former Yugoslavia. The current government is now reforming. In spite of that, we see some very successful entrepreneurs taking advantage of the assistance we provide (the loan systems) and create some new, viable and very dynamic businesses. I think that is very encouraging and it shows what the benefits of further reforms of the economy will be, because, even with the impediments that exist now it seems that a very good business trend is here on the run. The business climate has thus improved. The World Bank and the government have recently mentioned the foreign investment promotion study FIAS. That study is pointing out the problems that hinder private businesses to establish here. The government is taking on now. This World Bank project will be implemented over the next year and will have its focus on reform of the regulatory framework for business investments.
Many strategic companies are going to be privatized with the help of USAID. What can you tell us about your contribution?
When the privatization process had been identified as a priority for the Bosnian government and the International Community (IC), the IC decided that we would try to carry out the work in a coordinated way. What we did was to bring together all the international donors who were providing assistance in privatization. That includes principally USAID, the World Bank, GTZ, the European, Union, DFID and the European Bank for Development and Reconstruction (EBRD). Of course, the IMF and the OHR also had an interest in participating in the process although they were not providing financial or technical assistance. We worked with the governments in both entities to identify a group of companies out of the pool of strategic enterprises to be privatized. Those were the ones that the IC was focused on. So, out of 400 strategic enterprises, 138 were identified as being important for the IC. These included larger companies such as electrical power companies that exist here in two entities and the telecommunication companies. But, it also included a lot of other enterprises, which, for one reason or another, were important, either because of the products they produced or because of the size of the market, or the location in the country. Then, the donors in collaboration with the Government have agreed on how many of these companies would be assisted and by whom in order to provide the government with assistance in developing privatization plans for each of these companies. There are other large companies, which have been and are being privatized by the government. On its own, the government has already carried out some small- and large-scale privatizations. There are 27 out of 128 companies that we, USAID in particular, are focusing on. We provided each company with an advisor to help them developing their privatization plans and identifying the relevant information which the potential buyer might be interested in. Then we proceeded to advertisement and promotion campaigns on each one of the companies in the international press in order to attract the attention of foreign investors. In some companies there were investors who came and negotiations took place. Other companies had serious financial problems, either accumulated debts or other problems. That process is not yet finished. There has been a number of sales already completed and a number that is still pending which is being worked through. Our assistance to the privatization process is being reduced and the World Bank as well as the European Union are carrying on and picking up a large group of companies. GTZ also, which was there at the beginning with us, has worked on the privatization of several companies. A lot of the initial work involved assistance to the government in getting organized, creating a share registry and helping them identify the companies, begin a process of cataloging in keeping track of what is going on. We helped them establish the rules that will be used and train the people who will be carrying out the privatization process. A lot of our initial work was done even before the sale process took place. We can look back and say that it has been going slowly and I think that both the government and the International Community will agree. Unfortunately, governments in the past -and I am not talking about the current government but previous governments- in both, RS and Federation have not been fulfilling their responsibilities and that seriously delayed the program. In fact, in the case of the Federation we suspended our assistance for almost a year because the previous Federation government was not doing the things they needed to do in order to push the privatization process forward. So, we suspended our technical assistance and held it up for almost a year as long as they did not create necessary conditions for the privatization process to take place. So, delay was most of the time due to obstructions in previous governments. The current governments, in both Federation and RS are very interested in privatizing and are pushing it forward. Therefore, I think we have a good partnership with them now. But unfortunately many of the companies have been weakened because of this delay in privatization. However, I am confident that those companies can be privatized in one or another other way, either sold or in some cases be broken up and some of the assets being privatized.
If you have a look at the Yugoslav period and to the type of industrial activity that was characteristic of it, you will see many large industries: Zenica steel mill, the Mostar plant, the coal mine in Tuzla and a number of very large companies that were functioning here and seemed to be very successful in the Yugoslav system. They were dependent on subsidies that were part of the economic system so that they could be able to function. However, with the destruction and damages due to the war and the collapse of the market, they were really not able to recover. Bosnia had always had very strong entrepreneurial base and even under the Yugoslav system it was a very big exporter of an important number of products which, I think, could be produced an exported again very quickly with a little bit of foreign investment. |
One very strong sector used to be fruit and vegetables. Bosnia is a real "organic" garden as there is a lot of potential, a good climate, good soils, and good water, as they do not use pesticides or other additives cultures. So, we can truly say that this area has a great potential. It used to be a major fruit exporter: traditional sorts of fruits such as plums, peaches, apples, pears; but they also have special fruit varieties which have a very strong value such as berries for example, which can be produced in a very profitable way. There is also a strong presence of foot wear, leather products, clothing manufacture and there are some very successful companies in the medium size level in the area of pharmaceuticals and production of all kinds which I think could very easily come back on line and play an important role in the economy. So, these are the areas where Bosnia can take an important position in the market of South-East Europe - and also because of its geographical location. After the privatization of the power sector it will play a fairly important role in the electricity generation and export. Generally, the population is well educated, they understand how the rest of Europe and the rest of the world work and I think that it is an advantage for investment because people here are ready to work. There are many advantages in this country and with appropriate government policies it could really take off.
What is your assessment of the present economical situation?
I would say that BiH is now at the crossroads. The financial sector has been significantly reformed with some foreign banks that are functioning here. That is an indication that the financial sector has a reasonable degree of openness. The security for banking is a key factor as foreign banks will not come and invest here if they do not feel confident. So, the financial sector is generally viewed as being an area where foreign investments will work. The challenge is to get the rest of regulatory framework improved so that we can encourage the investors to come here. One of the big problems now is that the bank sector has mobilized the large amount of money through deposit. There have been many discussions about the fact that interest rates are too high and that there is not enough lending capacity. The government has to take some measures in order to improve the interest rates and to make more funds available for business. But the problem is the opposite, it is not because there is no money available or because the interest rates are too high, the problem is that there are not business opportunities. If the business opportunities improve, the interest rates will go down because there will also be an improvement in security for investments. So, that is the critical issue. We are also having elections this fall and they are really important because they demonstrate the progress. Moderate parties continue to demonstrate their program and the voters have confidence and continue to move towards moderation and away from the hard line parties.
How would you rate the investment climate?
I think the climate has much improved in comparison to last year's situation. Next year will be even better. From a business point of view businessmen have always to be looking at the best time to jump with the investments. They should jump neither too early nor too late, but the time when they get a maximum leverage out of the investment. I think that it is the right moment for Bosnia. I mean it is still a little risky but that is why you can get a maximum leverage. Of course next year the conditions will be even better, but I think this is the time to start. Being a pioneer is always a risk but it can bring a lot of benefit.
The other element that I see as very important in the business is that we are really creating a single economic space for the whole country. At the beginning there was a big problem between the Federation and the RS but now both governments agree that there has to be a single economic space and that they have to knock down the few barriers that are still there. As the banking sector has improved more in the Federation then in the RS there are many banks from Federation operating in the RS and that is an additional stimulants for the RS to accelerate the privatization process in the banking sector. The Free trade agreement that Bosnia signed with Croatia and Slovenia and former Yugoslavia is also very important because they begin to kick in and expand the market. So, the investors who are interested in production in one of these countries may find much better alternatives here in Bosnia.
What is your economic forecast?
Certainly, the most important factor is reducing the dependence on donors' assistance. Governments here have to gradually take responsibility for their own future. The international assistance was to help them to bridge the damages of the war to reach a normal situation. But the international assistance is declining and that trend will continue. It is very important for the economy to pick up because the international flows go down, so they will have to pick up from the private sector. A single economic space which I just mentioned is also very important; this is a small market, they need to take maximum of the advantage in the internal market first, and then the trade agreements with the other countries. They also need to increase employment. There is a range of unemployment figures up there; some are high up to 40%. We think that the numbers are closer to 20%, maybe even less. It is still too high, but it is a much more manageable figure. The reduction of the size in the informal sector is very important. The informal sector to me demonstrates that there is no entrepreneurial spirit and that there are too many regulations. So, entrepreneurs without capacity to deal with the other regulated economy move into the gray sector. The informal economy is both, something good and something bad. It is good in a sense that it demonstrates a lot of vitality in the private sector here, and it is bad because it demonstrates that the government still hasn't done enough to deregulate the economy. And, of course, full transformation of state ownership into private ownership is going to be of tremendous importance. That process of privatization has to continue and it has to move into telecommunications and power, which is very important over the next year. Finally, reducing taxes is also something that they have to focus on. The tax burden here, particularly the social taxes, really make it very difficult for business to lower those rates and at the same time maintain a lot of services that the society needs in the social area. It is a big challenge.
The whole country is going through a transition process, but do you think that the mentality of the people is also following this process?
I think that the leadership here recognizes what is necessary to be done and they are developing a political program, which addresses those issues. I think the moderate political leadership realizes that they have to change. In Bosnia it is not different as in any other country that is going through the transition process. Maybe a little different in the sense that they suffered a war and other countries did not necessarily suffer a war. Results of the war were that the economic system collapsed. So, there was never a real recognition that what really happened was that the socialists' model all over Eastern Europe collapsed. Other countries such as the Czech Republic, Slovakia, Hungary, Poland also had to reform their economic systems. They understood what they had to do in order to begin the transition towards the Western market. That did not happen in Bosnia; what happened here was a war, and that did not allow people to see that their economic system itself had failed. In the immediate postwar period, many people thought that if simply there is enough international assistance the factories would start functioning again, markets would be there, everything would be back to normal. And in fact, that was never possible because during the period of war the world changed. I think that idea is still filtering down through general population. Many people still think that these large state-owned companies are real jewels, which will, with a little bit of investment, again be very productive enterprises. And that is something that has to be worked out by a political leadership. These are good assets but they have to be put to work differently. I believe that the moderate parties have the will to do that.
What are USAID's future projects?
I did mention briefly that international assistance would be declining. It has happened and it will continue declining. That doesn't mean that the IC is going away from Bosnia; they will still be here. USAID will be focusing on three main areas; it will continue providing some additional support for minority returns, much less than what we were doing in the past but we expect this return process to be over in a year or two. It will be almost ten years that we are present here since the end of the war and that is the reason for me to expect that the people will be returning in the next year or two or they will have made other decisions about their lives. It will still be important to provide assistance to communities for people who have come back to help them to create jobs. Our two other focuses will be economic restructuring and democratic reforms. Democratic reform in continuing to work with civil society groups at the local community level which give voice to the citizens which means that both, the minority and majority citizens have an influence on the political process and a control over their future. We will be working on strengthening municipal governments, but also to help facilitating the business climate. Municipalities have many functions that they carry out in the process of business development. We will also be working with private sector media because this is a very important sector within a democracy in giving voice to the citizens. We will continue providing assistance to the private media sector. In the area of economic restructuring, we are going to continue to support the modernization of the tax administration in order to help municipalities to make tax collections easier and more efficient. Increasing tax collections should allow reducing tax rates. We are also going to focus on the improvement of the legal and regulatory environment for business.
May be on a more personal level,
Before coming to Bosnia I was working in the Dominican Republic. It is a very interesting economy. Of course, they have an advantage of being close to the United States. I worked there for a year and a half. Last year, there was a hurricane and we were involved in the reconstruction process that took place afterwards and we prepared the presidential elections. Before Dominican Republic, I worked in Brazil for four years, also with USAID. I spent a lot of time in Latin America; before Brazil I was in Colombia, Bolivia, Peru, and also in Nicaragua. I am originally from Cleveland, Ohio. I should be leaving BiH this summer and I will probably go back to Washington to attend senior management seminars, which will last one year. That is a program designed for senior government managers. I will spend about one year in Washington getting involved in different governmental and private sector programs.
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