1. PRIVATE SECTOR DEVELOPMENT Mr. Dragan Vrankić, Deputy Prime Minister of Federation of BiH International conference on development of Bosnia and Herzegovina CG Meeting on Bosnia and Herzegovina Sarajevo, September 22 and 23, 2004 REALISING BOSNIA AND HERZEGOVINAS EUROPEAN POTENTIAL: FROM WAR ECONOMY TO CREDITWORTHINESS AND SUSTAINABILITY

2. 2 Along with preserving macro-economic stability, growth of private sector is important priority of Mid-Term Development Strategy Mid-Term Development Strategy has defined measures to provide faster private sector growth: To improve business environment To accelerate privatization To implement reform of labor market To strengthen stability of financial, especially banking sector To reduce level of corruption To implement fiscal reform To liberalize telecom and electricity markets 2

3. 3 PARTICIPATION OF PUBLIC SECTOR EMPLOYMENT IN TOTAL EMPLOYMENT Source: OECD Public Administration Service, 2001 3

4. 4 NUMBER OF ENTERPRIZES IN SE EUROPE PER 1,000 INHABITANTS Source: Transition Report 2003, EBRD 4

5. 5 COST OF STARTING COMPANY Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile 5

6. 6 NUMBER OF DAYS NEEDED FOR PROPRETY REGISTRATION IN BIH Source: Doing Business in BiH in 2004, Country Profile, World Bank, 2004, BAC Survey World Bank 2004 6

7. 7 REDUCTION OF TIME REQUIRED TO SET UP A COMPANY IN BIH Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile, WB BAC Survey 2004 7

8. 8 TIME REQUIRED TO SET UP COMPANY IN COMPARISON TO OTHER COUNTRIES Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile, WB BAC Survey 2004 8

9. 9 PLANS FOR FURTHER REDUCTION OF DAYS REQUIRED FOR COMPANY REGISTRATION Source: Mid-Term Development Strategy BiH 9

10. 10 TIME REQUIRED TO ENFORCE CONTRACT AND CLOSE COMPANY Source: Doing Business in 2004 Bosnia and Herzegovina, Country Profile 10

11. 11 CHANGE IN CREDIT GROWTH TO HOUSEHOLDS AND CORPORATES (2003.*) Source: PRSP survey (*first nine months of the year) Households Corporate 11

12. 12 CORPORATE TAXES IN SE EUROPEAN COUNTRIES Source: Investment Guide for Southeast Europe 2004 12

13. 13 PRICE OF ELECTRICITY FOR INDUSTRY COMMERCIAL TARIFF IN /kWh Source: Fact Sheet on Utilities Services in BiH (OHR, 2003) 13

14. 14 PRICE OF 10-MINUTE PHONE CALL FOR CORPORATES Source: Fact Sheet on Utilities Services in BiH (OHR, 2003) 14

15. 15 COMPARISON OF NUMBER OF INTERNET USERS (%) Sources: European Commission / Eurostat / Polish Foreign Ministry / PAP / Europa World / Eurobarometer / CIA World Factbook / Jutarnji List / CIT/LSMS EU CANDIDATES NEW EU MEMBERS 15

16. 16 REDUCTION OF GRAY ECONOMY AND CORRUPTION LOSSES DUE TO CRIME 2003 Source: Transition report 2003, EBRD Note: Companies were asked to report losses in comparison to total revenues that were consequence of theft, robbery, vandalism, or torching. Average monthly loss for each country was calculated as unweighted average of responses of certain companies. Data for Turkmenistan were not available. 16

17. 17 REFORM OF LABOR MARKET Sources: PRSP, LSMS 17

18. 18 Surveillance of single market and establishment of the competition council and consumer protection council at the state level Establishing of BiH institute for standardization and intellectual property and measurement Establishing of single country framework for public procurement and single custom administration (through establishment of Indirect Taxation Administration) Establishing of a single country Banking Supervision Agency (within the Central Bank of BiH) STRENGTHENING OF SINGLE ECONOMIC SPACE IS IMPORTANT PRECONDITION FOR PRIVATE SECTOR DEVELOPMENT 18

19. 19 PROGRESS IN PRIVATIZATION Source: RS Agency for Privatization, FBiH Agency for Privatization 19

20. 20 OBSTACLES TO PRIVATIZATION Business environment in BiH is being improved. However, the biggest obstacles to privatization are the following: a) Accumulated arrears of the companies towards the governments, workers and creditors b) Negative image of privatization in public 20

21. 21 the Plan is being defined in cooperation with the World Bank, which was given the mandate to lead the effort on the international community side the time framework for realisation of the Plan is four years (2005 – 2008) goals: a) to remove obstacles to privatisation b) to improve business environment THE PLAN FOR CORPORATE RESTRUCTURING 21

22. 22 THE PLAN FOR CORPORATE RESTRUCTURING CONTAINS: the plan for financial restructuring and speeding-up the process of privatisation the plan for strengthening of capital markets the plan for speeding-up the process of bankruptcy procedures the plan for improving the business environment social program 22

23. 23 THE PUBLIC – PRIVATE SECTOR GUARANTEE FUND FOR SMS COMPANIES: DONOR FUNDS NEEDED the banking sector is liquid with much more potentials to lend however, lack of creditworthy companies presents the obstacle for the banks establishment of the public – public sector (government – commercial banks) guarantee fund would encourage the banks to lend more to corporate the total amount needed to establish the Guarantee Fund is estimated at 30 mil the governments are ready to put 10 mil the gap is 20 mil 23

24. 24 SOCIAL PROGRAM: REMAINING GAP NEEDED TO BE EXTERNALY FINANCED 24