Investing in Bosnia opens up access to wider markets
Welcome to Sarajevo, the capital of Bosnia and Herzegovina. I want to use this opportunity to point out immediately that Bosnia and Herzegovina represents much more than “post-war”, “complex structure”, “standstill in the process of government setup” and “programme with the IFI institutions”, which are the images which are sometimes used in the foreign media. Please allow me to explain why I have a different point of view which allows me to look at my country through the lens of accelerated and better progress in the future.
The Currency Board Arrangement, which the Central Bank of Bosnia and Herzegovina (CBBH) has consistently implemented since its establishment, guarantees full convertibility of the national currency — the convertible mark — against the euro, which has two significant implications. The first is that investors and the business community can count on the absence of inflationary shocks due to excessively expansionary monetary policy. The second is that, due to the fixed exchange rate with our main trading partner, foreign exchange risk is significantly lower than with the currencies of other emerging market economies.
Over the years, significant progress has been made in the prevention of money laundering and financing of terrorism. The domestic regulatory framework clearly stipulates that the national currency is the only legal tender in the country and sets out under which conditions and in which way financial transactions are carried out with foreign countries.
In our financial system, banks are the most important financial intermediaries, and the banking sector, which is in majority foreign owned, is adequate capitalised, has high liquidity and is profitable. Although banking supervision is organised at the level of Bosnia and Herzegovina entities, the coordination is carried out by the CBBH. The last set of amendments to the laws regulating the work of financial intermediaries ensured a significantly higher level of harmonisation of domestic regulations with the Basel Principles and the regulations applied in the European Monetary Union. It also ensured that all banks, regardless of the entity in which they were registered, operated under equal conditions in the entire country.
Despite the fragmented system of institutional competence, which is a consequence of constitutional setup, systemic risks in the financial system are monitored at an aggregate level. Regular interaction and exchange of information between monetary and fiscal authorities, as well as agencies in the field of supervision and deposit insurance, ensure the authorities understand of the causes of systemic risks and how they are transmitted across macroeconomic segments. There is a room for strengthening of macro-prudential policies, as there is in other countries of the region and beyond, which I must stress are especially important given the Currency Board Arrangement.
Despite the complex structure, fiscal discipline is satisfactory. The existence of a coordination mechanism among fiscal authorities at different levels ensures medium-term planning of the consolidated budget and the management of public debt in a sustainable manner. Arrangements with international financial institutions are not a necessary precondition for servicing our debts to international creditors for two reasons. The first is that the legal framework provides a mechanism in which servicing of international obligations is a priority in relation to any other expenditure, even under conditions of temporary budget financing. The second is our low level of public debt, mainly under concession terms, and the fact that the planned servicing of external debt does not exceed one fifth of the planned revenues from indirect taxes, which provide funding for financing.
The fiscal consolidation which took place in recent years, the reduction of unregistered economy, economic growth, as well as excise duties policies resulted in continuation of activities in the field of road infrastructure construction in Bosnia and Herzegovina, and a stronger momentum in the field of energy sector reforms. The Framework Energy Strategy was adopted in September last year, and by the end of 2020, harmonisation is planned of domestic regulations with the requirements of the Energy Community, including those related to renewable energy sources and energy efficiency. Through bilateral programmes of international cooperation, a significant number of projects are already being implemented to strengthen the use of renewable energy sources, including wind farms. Funds for the continuation of road infrastructure construction have been largely secured for the medium term, mostly under concession terms. Establishment of a sustainable system of financing of railway infrastructure is ongoing, among other things, through cooperation with international supranational institutions in the field of development of restructuring plans for railways.
In the field of agricultural development, activities are carried out in accordance with the Strategic Rural Development Plan 2018 2021, with the aim of enabling the use of IPARD funds for the sustainability and competitiveness of farms. Establishment of efficient food safety and quality control systems resulted in the opening of the EU market for dairy and chicken meat products from Bosnia and Herzegovina, all the levels of processing included. In addition, there are strong trade links in the field of agricultural products, not only within the CEFTA but also with other countries. In the process of accession to the WTO, negotiations with Russia are the only ones that are currently still open.
Intensifying the development of business infrastructure is also one of the objectives in the short and medium term, and it includes the creation of a favourable business environment with a focus on reducing administrative and financial barriers for growth and development of small enterprises and projects supporting small and medium enterprises in order to strengthen competitiveness and increase employment in this sector. In 2018, the Registry of para-fiscal levies has been established, with the aim to reduce and harmonise them in the single economic space. Labour market reforms are currently being implemented to increase labour market flexibility and reduce tax burden. The goal is to reduce the size of the black market economies, improve working conditions, and strengthen the competitiveness of domestic producers.
Finally, a long-awaited step in the field of digitisation has been made recently, when operators have been granted permissions to introduce a 4G mobile network.
My message to investors is that Bosnia and Herzegovina is a dynamic environment, where sometimes, due to political rhetoric, which is not unique to the countries of the region, we lose sight of the enormous potential that we have available, and that investing in Bosnia and Herzegovina provides access to much bigger markets. Therefore, I welcome all those who will visit Sarajevo and Bosnia and Herzegovina and have a chance to see for themselves the enormous possibilities for the development of this country. It is important to keep in mind that our values are not only our natural beauties and resources, but also our human potential that we are particularly proud of.