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Charge d’Affaires of US Embassy in B&H: Get Politics out of the Business of Doing Business

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Guest Blogger Charge d’Affaires Nicholas M. Hill on US Embassy to Sarajevo Blog:

The economic picture in Bosnia-Herzegovina remains dismal.  Economic growth has been negligible, job creation is non-existent, unemployment figures are appalling, and corruption is rampant.  There are many measures that can be taken that will boost the economy, such as making it more attractive to foreign investors by implementing EU standards and cutting corruption.  The experience in the region has shown that NATO membership, by enhancing political stability, contributes strongly to economic growth and job creation.  Another key tool is privatization, as highlighted in the recent European Union report on Bosnia and Herzegovina.

A robust private sector is the key to economic growth and job creation.  Yet, here in BiH public-sector companies get the attention of political leaders, not because they create jobs.  In fact, they often do the opposite; they siphon off resources and help suffocate private sector job creation.  Politicians like public-sector companies because they can put their friends in high-paying sinecure positions, and reward their voters with non-productive jobs that drain scarce resources away from other public priorities and take money out of taxpayers’ wallets.
BiH citizens are suffering from high unemployment and sub-par public services in large part due to mismanagement and graft in publicly-held companies.  Other publicly-held companies have literally rusted away over the last decade, ignored by their political owners, while racking up more debts day by day.  The politicians argue that retaining public ownership of these companies will protect jobs.  And they are right—but only for those lucky enough to have the right political connections.
The Federation Agency for Privatization estimates that the total value of the 340 companies yet to be privatized has plunged 50 percent – nearly KM 5 billion – since 1999 due to business losses, lack of investment, and mismanagement.  Public-sector companies sit dormant, equipment unmaintained and unusable, employees idle and unpaid–while debts continue to pile up and which may never be recovered.  These companies are a burden to cash-strapped governments and a waste of taxpayers’ money.
Successful privatization is possible here in Bosnia and Herzegovina.  More than ten years ago, several flagship companies were privatized in BiH and they continue to prosper and add employment opportunities to this day.  Looking at past successes there are five important lessons that can be learned:
First, there needs to be an open and transparent tender process.  Open competition is the only way to attract solid and reputable investors who have the skills and resources necessary to make needed investments and fulfill commitments to workers.  Enlisting the assistance of the international community to provide experts and conduct the tender in accordance with international standards has worked in BiH in the past and could do so again.

Second, company assets and liabilities must be clearly defined.  No one will invest if there are doubts about what they are buying or the ability of the company to do business after privatization.

Third, privatization proceeds should be strictly walled off from the budgets.  Too often funds from privatization are squandered on plugging short term budget gaps.  Privatization proceeds must be used solely for long-term job creation, such as training the next generation of workers and making employment-generating investments.

Fourth, the plight of workers must be taken into account.  Debts to workers must be addressed in the privatization process, as well as severance benefits.  Proceeds from successful privatizations could help to move other companies closer to privatization and unlock their potential, and funds could be set aside to retrain workers who lose their jobs.

Lastly, if the privatized company still fails, governments should not resume ownership.  This just restarts the problem, often adding additional burdens to cash-strapped governments – and to the citizens who rely on these governments to provide basic services.

Bosnia and Herzegovina cannot afford to wait any longer to address these issues.  If an improved bankruptcy law is needed to address the failures of previous privatizations, then implement it. Clear laws and market-driven processes are essential to resolving these problems and allowing potentially-profitable parts of these companies to be salvaged and grow — to the benefit of workers and consumers alike.

Without a more energized approach to privatization, Bosnia and Herzegovina will continue to lose out as investors flock to neighboring countries that are making progress on economic reforms.  Privatization is one important way the country can begin to catch up.  And to do it, we need to get  politics out of the business of doing business.

(Source: US Embassy Sarajevo)

 

 

 

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