Good afternoon and thank you for inviting me to the American Chamber of Commerce’s first luncheon of 2015. I am very pleased to have this opportunity to engage directly with all of the members of the American Chamber of Commerce and other business leaders on what I believe is one of the most important issues here in Bosnia and Herzegovina – building an open, successful economy that can provide jobs and well-being for the people of Bosnia-Herzegovina, especially young people.
It is my pleasure to have arrived as the U.S. Ambassador at the same moment that AmCham BiH has revitalized its efforts to spur economic reforms that are clearly required in order to help private businesses struggling to survive. In my first meeting with the new Board of Directors, I was impressed by their understanding not only of the problems here, but of the solutions – and this is where we all need to focus our efforts.
Too often here in Bosnia and Herzegovina, people are eloquent at laying out problems, but unable to articulate solutions. The business world should be and can be one of the leaders in pulling this wonderful country toward a better future, generating solutions that create jobs, build a new climate of transparency and cooperation, and inspire young people to take on new challenges by offering them the chance to be rewarded for innovation.
On my first trips outside of Sarajevo, I have had the chance to meet business people who are fulfilling that goal. I visited several agricultural and tourism entrepreneurs in Trebinje, who impressed me with their can-do attitudes that have led to successful, home-grown businesses. In Mostar, I visited one of BiH’s sophisticated IT hubs, Intera Technology Park, and saw firsthand that there are hard-working individuals in the private sector striving to create opportunities and jobs for BiH’s next generation. Three young entrepreneurs gave short presentations of their work there — creating databases to help businesses track employee benefits, teaching math to high school students, and developing E-commerce web solutions. Clearly, there are people here in BiH with the skills, focus and commitment to create solutions – so what are the challenges, and how can the solutions be spread to those who need them?
Challenges
In this country, which is one of the hardest places in which to do business in this region, one of the first challenges is to build an environment for businesses to flourish so they are able to create desperately-needed jobs. Such reforms are not easy, but in the long-run, they are the only option. Right now, Bosnia and Herzegovina stands at 107 out of 189 countries on the World Bank ease of doing business rankings. One key reason for that poor rating is corruption, and BiH ranks 80th out of 175 countries in the world on Transparency International’s Corruption Perception Index.
Clearly, new laws and improved procedures are important to improve the business climate, but we need one thing above all else: Bosnia and Herzegovina’s democratically-elected leaders must finally form the governments at the State and Federation level and all BiH authorities must acknowledge the necessity of economic reforms — and then demonstrate the courage and vision needed to implement reforms that will improve the lives of Bosnia and Herzegovina citizens and put this wonderful country on the path to the European Union.
Politicians then need to focus on improving the lives of Bosnian citizens and their children and grandchildren, instead of improving their own bank accounts. The time for empty talk from politicians is over. Improving the lives of citizens in BiH demands more jobs, more successful businesses, and more investments, both domestic, where there are resouces, and foreign. It also means putting an end to the political patronage system operated through huge public expenditures that allow politicians to control jobs for so many people, and then use that control to force people to vote in ways that are counter-productive for the future of their country. For example, BiH citizens and businesses give large amounts of their hard-earned money to their government through taxes, and in return, they receive inadequate and unacceptable social services. Public administration reform is needed to improve the effectiveness of government services and reduce the cost to citizens.
In addition to public administration reform, BiH needs to embark on a substantive discussion about the future of its government-owned companies. Political interference and company mismanagement have contributed to financial difficulties for a number of public companies that are now essentially bankrupt. On the other hand, there are several profitable public companies that could be even more successful if political interference was reduced. It is time for politics to get out of the business of mismanaging business.
Above all else, BiH politicians need to stop harassing the brave, non-corrupt investors who are already here. The single best way to increase investments is for investors who are working here now to report back to their company headquarters and business colleagues about their positive experience and opportunities in BiH. That is not happening. Far too often, the opposite happens – investors are reporting back about the high levels of corruption and political interference they encounter and how difficult these are to fight.
When a company enters the BiH market, they typically face two unpleasant choices:
One, they can decide to “swim with the sharks” – paying bribes and relying on corrupt business practices. These businesses trade short-term profits in exchange for inflicting long-term damage as they support shady “business as usual” practices.
Or, they can choose a second choice. A company can refuse to play these unethical games. Instead, they develop a strategy based on hard work and excellent service. They implement the business plan through transparent, non-corrupt business practices. Choosing this path can invite attacks from political-crony interests, but it is the ethical path and in the long-run, this approach will succeed. We need to reward these transparent firms by helping to ensure that their approach succeeds. So how do we do this?
Solutions
How do we encourage this second type of investment – the transparent businesses that BiH needs in order to spur private sector job creation and support government budgets by generating a larger tax base from flourishing businesses?
First, BiH needs a more flexible job market. Restrictive labor practices are a disincentive for businesses to expand hiring. With a 60 percent youth unemployment rate, BiH needs to update its outdated labor laws and collective bargaining agreements immediately. This is not easy – in fact it may be one of the hardest steps to take, because it directly impacts people’s lives. All advanced market economies have gone through this process, and it has been challenging for all of us.
But the only way to create the type of modern jobs that will provide a strong, vibrant economy for the children and grandchildren of BiH citizens is to create a flexible labor market for new businesses. This month’s Fortune magazine cover highlights the fact that over 80 tech start-ups around the world are now each worth over one billion dollars – this is the economy that Bosnia-Herzegovina is missing out on because of your inflexible market. New businesses have to be allowed to try new things – and fail. And start over. Each time, releasing their staff and then hiring new people. It’s not how we grew up, but it is how the world works now.
Second, rule of law. Laws are meaningless if they only exist on paper. Legal protections must be enforced by competent authorities. And when issues are escalated to a court of law, resolutions must be timely and fair.
In many areas, BiH already has the legal framework to protect businesses, workers, and consumers. However, government agencies are often unpredictable and intermittent in their enforcement of commercial market violations. In the rare instances that cases reach a court of law, prosecutors and judges too often put commercial cases on the back burner, leading to excessively long court procedures.
If a company cannot transparently enforce its contracts, businesspeople will find another country that can protect their rights. We need to prioritize commercial cases, such as contract disputes, company restructuring procedures, and intellectual property protection, in order to protect Bosnian companies and entice additional investors to Bosnia and Herzegovina. And we need courts to fully implement the laws that are on the books to protect businesses.
I will mention a third area that needs significant improvement. Oversight and regulatory bodies, including the Public Procurement Agency, Communications Regulatory Agency, and the Competition Council, must be strengthened in order to ensure a fair playing field.
I understand that members of oversight bodies face enormous pressure. Oversight members, who are appointed by politicians, often need to rule on cases that involve political party-controlled companies. If a case – based on a thorough review of existing law and procedures – negatively impacts a politically-affiliated company, oversight body members must push back against powerful individuals. Oversight bodies need to apply consistent evaluation criteria for everyone and minimize unnecessary delays. It is a very hard job, but so important for the future of this country.
It is important for BiH leaders to publicly and privately champion well-functioning, transparent oversight bodies. First and foremost, the BiH Council of Ministers needs to support the Competition Council. The Council of Ministers should immediately confirm the rotation of the Competition Council president and support the efficient work of this very important regulatory body. It is time to finally end months of investor uncertainty.
These examples highlight that BiH does indeed have a poor investment climate, but there are some easy, practical ways to fix these problems today. There are several other economic reforms where the solutions are often easier than we believe – if the political will exists to make positive changes. The final priority I will mention for now is the harmonization of commercial laws and regulations across the country. Bosnia-Herzegovina is a beautiful country, but not a large one. Unless a business has the option of expanding its operations across both entities and in full accord with the laws of the State, for most foreign investors, a country of 3.8 million people isn’t an economically viable market.
Despite the numerous business challenges, BiH has hard-working business leaders, who daily seek to transform BiH’s economy and create jobs and new opportunities. Many of those leaders are in the room right now. It also has young people with the intelligence and drive to support an innovation economy.
But you know better than I, it is not easy to conduct business in Bosnia and Herzegovina. For U.S. companies, who must uphold a high level of business ethics, it can be even harder to survive here.
I applaud all of you for persevering despite the challenges. The Embassy is working hard to encourage steps towards an improved business climate. But it is not the role of just the international community to advocate for economic and commercial reforms.
The companies assembled here represent some of the key economic sectors for this country’s future growth. As business leaders, I ask you today to demand that your voices be heard.
When I look at the future of Bosnia and Herzegovina – I see opportunities. There are major sectors with untapped potential here – software development, energy – Bosnia-Herzegovina is one of only three electricity exporters in Southeast Europe – manufacturing, and agriculture – to name just a few. The speech I would have liked to give today would have focused on innovation, intellectual property rights, the value of women in the business world, how to attract new investment – and very importantly, updating the educational system to give students skills in information technology to qualify them for the modern workforce. But none of those issues can rise to the fore until the most basic elements of a modern market economy are established and reinforced.
I welcome the BiH Presidency’s leadership in drafting the statement committing BiH to reforms necessary for continued EU integration, and Parliament’s timely adoption of the statement. It is important that the obstacles and solutions discussed today are prioritized when BiH leaders take the next step to draft and approve the reform agenda to be agreed with the EU. All of you have an important role in pushing for a meaningful reform agenda that will put this country back on track. Pressure your government to start working for its citizens. Democratic leaders must stop harassing transparent businesses, prioritize commercial protections, and ensure oversight agencies are doing their jobs fairly and in a timely way. Allow private businesses to give back to this country by creating desperately needed jobs and speeding BiH’s economic growth. AmCham is an important voice to push these demands. We cannot correct what we do not confront – and so truth must be an essential element of our efforts.
Thank you again for inviting me to speak to you this afternoon and I wish you continued success.
