republic of srpska foreign investment
TRANSCRIPT
REPUBLIC OF SRPSKA
GOVERNMENT
E
REPUBLIC OF SRPSKA
FOREIGN INVESTMENT ENCOURAGEMENT STRATEGY
2016-2020
Banja Luka, May 2016
ACRONYMS AND TERMS
UNCTAD – United Nations Conference on Trade and Development was established in 1964 as a
permanent intergovernmental body. It is the principal organ of the United Nations General Assembly
dealing with trade, investment and development. The organisation’s goals are to maximise the
trade, investment and development opportunities of developing countries and assist them in their
efforts to integrate into the world economy on an equitable basis.
OECD – Organisation for Economic Co-operation and Development was established on 14 December
1960. It originated as the Organisation for European Economic Cooperation – OEES, established in
1948 to help realise and administer the Marshall Plan on Reconstruction of Europe after the World
War II. Later, its membership was extended to non-European countries, and in 1961 it was reformed
into the Organisation for Economic Co-operation and Development. Aims: achieve the highest
economic growth and employment; raise standard of living in member countries while maintaining
financial balance; contribute to the development of the world economy; contribute to sound
economic expansion in members and non-members in the process of their economic development;
contribute to the expansion of world trade on a multilateral non-discriminatory basis, in accordance
with international obligations.
WB – The World Bank is an international organisation, established in December 1945, responsible
for providing finance and advice to countries in order to increase economic development and reduce
poverty, and to protect international investments. The headquarters are located in Washington, and
local offices exist in 124 countries.
IFC – International Finance Corporation, member of the World Bank Group.
MIGA – Multilateral Investment Guarantee Agency.
WTO – World Trade Organization is an international multilateral organisation conceived to supervise
and liberalise international trade. The Organisation originated on 1 January 1995 as a successor to
the General Agreement on Tariffs and Trade – GATT, signed in 1947 and still in force almost five
decades as a de facto international organisation.
CEFTA – Central European Free Trade Agreement is a trade agreement between Albania, Bosnia and
Herzegovina, Macedonia, Moldova, Serbia and Montenegro. Its former members are Poland, Czech
Republic, Slovakia, Slovenia, Hungary and Croatia which have become members of the European
Union.
EFTA – European Free Trade Association, comprising Iceland, Liechtenstein, Norway and Switzerland.
USAID – United States Agency for International Development is an international development
agency established in 1961 to provide assistance to international humanitarian organisations and
coordinate economic and social development of other nations.
GIZ – German Society for International Cooperation (German: Deutsche Gesellschaft für
Internationale Zusammenarbeit).
EPEC – European Expertise Centre.
SEE – South East Europe is a geographical and geopolitical part of Europe located in the eastern part
of the Balkans Peninsula and on the coast of the Black Sea. This term is sometimes identified with
the Balkans which is only a geographical term. The following seven states are most commonly
included in South East Europe: Albania, Bosnia and Herzegovina, Bulgaria, Macedonia, Romania,
Serbia and Montenegro.
NALED – National Alliance for Local Economic Development – Serbia.
World Investment Report, UNCTAD – Report by the United Nations Conference on Trade and
Development about investments in the world (published once a year).
APIF Banja Luka – Agency for Intermediary, IT and Financial Services.
PKRS – Republic of Srpska Chamber of Commerce.
IRB RS – Republic of Srpska Investment Development Bank.
GDP – gross domestic product. Gross domestic product is a result of production of goods and
services by residents of the Republic of Srpska territory. The main categories in determining the
gross domestic product are: gross value of output, intermediate consumption and gross value
added, which includes compensation for employees, net taxes on production and gross operating
surplus / mixed income. Gross domestic product at market prices represents a sum of values added
by activity, adjusted by financial intermediation services (FISIM), less subsidies and plus tax on
products. Real gross domestic product is an indicator of the level and dynamics of economic
development which illustrates economic growth between different periods, eliminating the impact
of change in prices, and it is presented in previous year’s prices.
GCI – Global Competitiveness Index is an index of competitiveness of countries. The index is
published once a year in the World Economic Forum’s publication The Global Competitiveness
Report.
GII – Global Innovation Index.
p/c – per capita.
PPP – public-private partnership, a form of cooperation between the public and private sector,
implemented by pooling resources, capital, and professional knowledge, in order to meet public
needs.
SME – small- and medium-sized enterprises or companies, other legal entities and entrepreneurs,
which employ fewer than 250 workers on average per year, are independent in their operation and
generate total annual revenue lower than BAM 8,000,000 or have the value of business assets of up
to BAM 4,000,000.
PURS – Republic of Srpska Tax Administration
SWOT – is an acronym made up of four English words: Strengths; Weaknesses; Opportunities;
Threats. SWOT analysis identifies strengths, weaknesses, opportunities and threats for the purpose
of maximizing strengths, minimizing weaknesses, taking advantage of opportunities, and avoiding
threats or reducing their impact.
Foreign investment – is an investment by a non-resident in a new or existing company in money
kind and rights.
Greenfield investments – investments from the ground up creating a brand new industrial company
Brownfield investments – investments in an existing company.
TABLE OF CONTENTS
1. INTRODUCTION .............................................................................................................................. 1
2. GLOBAL, REGIONAL AND REPUBLIC OF SRPSKA FOREIGN INVESTMENTS ................................... 3
2.1. Global Foreign Investments ..................................................................................................... 3
2.2. Regional Foreign Investments – South East Europe .................................................................. 9
2.3. Republic of Srpska Foreign Investments ............................................................................. 12
2.3.1. Sectoral Structure of Foreign Investments in the Republic of Srpska .............................. 13
2.3.2. Geographical Origin of Foreign Investments in the Republic of Srpska ........................... 17
2.3.3. Regional Distribution of Foreign Investments within the Republic of Srpska .................. 18
3. FACTORS ATTRACTING FOREIGN INVESTMENTS TO THE REPUBLIC OF SRPSKA ........................ 20
3.1. Competitiveness of the Republic of Srpska............................................................................. 20
3.1.1. Global Competitiveness Index ........................................................................................ 22
3.1.2. Ease of Doing Business Index ......................................................................................... 24
3.1.3. Investment Reform Index ............................................................................................... 27
3.2. Competitiveness of Local Self-Government Units ................................................................... 33
3.3. Competitiveness of Small- and Medium-Sized Enterprises and Involvement in Global Value
Chains .............................................................................................................................................. 35
3.4. Innovation as a Factor of Attracting Foreign Investments ...................................................... 37
3.5. EU Membership as a Factor of Attracting Foreign Investments .............................................. 42
3.6. Clusters .................................................................................................................................. 45
3.7. Business and Free Zones ........................................................................................................ 48
3.8. Public-Private Partnership ...................................................................................................... 50
3.9. Branding as a Factor of Competitiveness of the Republic of Srpska ........................................ 51
4. REPUBLIC OF SRPSKA INVESTMENT POLICY AND INSTITUTIONAL FRAMEWORK FOR
ATTRACTING FOREIGN INVESTMENTS ................................................................................................. 52
4.1. Investment Policy ................................................................................................................... 52
4.1.1. Activities on Implementing Previously Valid Foreign Investment Strategic Documents .. 53
4.2. Institutional Framework for Attracting Foreign Investments .................................................. 56
5. OBJECTIVES OF ATTRACTING FOREIGN INVESTMENTS IN THE REPUBLIC OF SRPSKA ............... 60
5.1. Goal of Attracting Foreign Investments in the Republic of Srpska .......................................... 60
5.2. Objectives in Attracting Foreign Investments in the Republic of Srpska ................................. 61
5.2.1. Competitiveness Upgrading and Business Environment Improvement .......................... 61
5.2.2. RS and Local Level Institutional Capacity Strengthening and Partner Relations
Development ................................................................................................................................. 64
5.2.3. Target Sectors and Target Markets Promotional and Outreach Activities....................... 65
5.3. Republic of Srpska Sector Objectives in Attracting Foreign Investments ................................ 66
5.3.1. Agriculture ..................................................................................................................... 66
5.3.2. Industry .......................................................................................................................... 68
5.3.3. Renewable Energy ......................................................................................................... 81
5.3.4. Tourism .......................................................................................................................... 83
5.3.5. Information-Communication Technologies .................................................................... 90
6. SWOT ANALYSIS ........................................................................................................................... 91
7. CONCLUSIONS AND RECOMMENDATIONS ................................................................................. 93
8. PROPOSAL ACTION PLAN FOR FDI STRATEGY 2016-2020 IMPLEMENTATION ........................... 96
9. REFERENCES ................................................................................................................................ 133
LIST OF TABLES
Table 1: Foreign direct investment flows in the world 2012–2014 (in US$ billion) ............................... 3
Table 2: Greenfield investments value by sector in the world, 2009–2014, in US$ million ................... 4
Table 3: Company motives when selecting foreign investment site ...................................................... 6
Table 4: Site selection matrix and sector competitiveness policy checklist ........................................... 7
Table 5: South East Europe foreign investment flows from 2008 to 2014 (in US$ million) ................... 9
Table 6: Sectors with the highest demand dynamics from the aspect of direct foreign investments in
South East Europe 2011 - 2015* ........................................................................................................... 10
Table 7: Republic of Srpska foreign investments 2006–2014, in BAM million ..................................... 12
Table 8: Republic of Srpska registered foreign investments from 2006 to June 2010 by sector (old
activity classification) – in BAM thousand ............................................................................................ 13
Table 9: Republic of Srpska registered foreign investments by sector/activity 2011–2015 (new
activity classification) – in BAM thousand. ........................................................................................... 14
Table 10: Geographical origin of Republic of Srpska foreign investments 2007–2015 – in BAM
thousand ............................................................................................................................................... 17
Table 11: Number of newly registered companies with a foreign investment element in the Republic
of Srpska 2010–2015 ............................................................................................................................. 18
Table 12: Republic of Srpska 2011-2014 macroeconomic indicators, 2015 estimates and 2016
projections ............................................................................................................................................ 21
Table 13: Global Competitiveness Index for South East Europe countries 2015-2016 ........................ 22
Table 14: Twelve pillars of competitiveness in South East Europe countries ...................................... 23
Table 15: Ease of doing business in South East Europe countries 2015 ............................................... 25
Table 16: Starting a business in South East Europe countries (2015)................................................... 26
Table 17: Index of economic freedom for BiH and South East Europe countries 2015 ....................... 31
Table 18: Gross domestic expenditures on research and development (in BAM thousand) ............... 37
Table 19: Global Innovation Index, innovation input, innovation output and innovation efficiency
2015 ...................................................................................................................................................... 39
Table 20: Structure of the innovation input sub-index of the Global Innovation Index/ranking 2015 41
Table 21: Structure of the innovation output sub-index of the Global Innovation Index/ranking 2015
.............................................................................................................................................................. 42
Table 22: Foreign investments in countries that joined the EU in 2004, 2003–2007 (in US$ million) . 43
Table 23: Foreign investments in countries that joined the EU in 2007, 2007–2011 (in US$ million) . 43
Table 24: Industry share in Republic of Srpska GDP from 2009 to 2014 (, %) ...................................... 68
Table 25: Export, import and import export ratio of Republic of Srpska industry 2009–2015 – in BAM
thousand ............................................................................................................................................... 69
Table 26: Export, import and import export ratio of Republic of Srpska manufacturing industry from
2009 to 2015 – in BAM thousand ......................................................................................................... 71
Table 27: Foreign investments in the most important sectors of the manufacturing industry, 2011–
2015 in BAM .......................................................................................................................................... 72
Table 28: Foreign investments in the manufacturing industry by country of investor origin in BAM . 72
Table 29: Export, import and import export ratio of Republic of Srpska metal industry 2009–2015 .. 73
Table 30: Export, import and import export ratio of Republic of Srpska wood industry 2009-2015 ... 74
Table 31: Export, import and import export ratio of Republic of Srpska textile, leather and footwear
industry 2009–2015 .............................................................................................................................. 76
Table 32: Export, import and import export ratio of Republic of Srpska food and tobacco industry
2009–2015 ........................................................................................................................................... 78
Table 33 including charts: Overview of tourist arrivals and nights in the Republic of Srpska at annual
level (2013–2015) ................................................................................................................................. 84
Table 34: Tabular overview of the ten countries with the largest share in arrivals and nights in the
Republic of Srpska 2015 ........................................................................................................................ 86
Table 35: Overview of foreign tourist arrivals by type of tourist resort 2015 ...................................... 87
Table 36: Overview of foreign tourist nights by type of tourist resort 2015 ........................................ 87
LIST OF CHARTS
Chart 1: Sectors with the highest demand dynamics from the aspect of foreign investments in the
world by number of projects .................................................................................................................. 5
Chart 2: Foreign investments in the world by job creation by sector .................................................... 5
Chart 3: Sectors with the largest capital investments (in US$ million) ................................................... 6
Chart 4: Annual foreign investment inflow in South East Europe countries (in US$ million, in current
prices and at current exchange rate) .................................................................................................... 10
Chart 5: Foreign investment flows in South East Europe 2011-2015 by job creation .......................... 11
Chart 6: Total number of foreign investment projects by country of South East Europe 2012- 2015 . 11
Chart 7: Sectoral overview of foreign investments in South East Europe countries by number of
projects ................................................................................................................................................. 12
Chart 8: Ease of doing business in BiH 2015 ......................................................................................... 26
Chart 9: Capacities of local self-government units to attract investments .......................................... 34
Chart 10: Institutional framework for attracting foreign investments in the RS .................................. 59
Chart 11: Average technology age in manufacturing industry ............................................................. 70
Chart 12: Structure of domestic and foreign tourist arrivals 2015 ....................................................... 85
Chart 13: Structure of domestic and foreign tourist nights 2015 ......................................................... 86
Chart 14: Structure of foreign tourist arrivals by type of tourist resort 2015 ...................................... 87
Chart 15: Structure of foreign tourist nights by type of tourist resort 2015 ........................................ 88
1
1. INTRODUCTION
Foreign investments play a significant role in the economic development of developing and
transition countries, since they enable an additional source of capital under the conditions of
insufficient domestic accumulation. They also enable the transfer of technologies and
entrepreneurial skills, and thus affect the growth of competitiveness of the overall economy. Under
the conditions of insufficient domestic investments, foreign investments increase employment of all
available resources, their more efficient use, and growth of productivity, as well as more efficient
involvement of the economy into global flows of the world economy.
Changes at the global and regional scales (oil price decline, problems related to Ukraine, sanctions
against Russia, problems related to the construction of the Southern Stream, volatility of exchange
rates, floods that happened in the region, refugee crisis, and more complicated situations at
geopolitical level) have caused uncertainty at the global level, which is reflected also in constant
changes in the estimates of GDP growth rate trends and foreign investment trends by the most
relevant world financial organisations. Such trends caused caution with foreign investors, which has
resulted in a declining volume of foreign investments. With confidence restoration, foreign
investments will also gradually grow.
According to the World Investment Report 2015, total foreign investments in the world in 2014
amounted to US$ 1,230 billion, down by 16% from 2013. Developed countries registered a decline of
28%, while transition countries saw a decline in the amount of 52%, which indicates that negative
trends in the global economy have reflected the most on transition countries. Such tendencies are
expected, since transition countries are mostly small and open economies, and therefore most
sensitive to the trends in the global economy. UNCTAD's Investment Trends Monitor of 20 January
2016 states that further decline in foreign investments is expected in 2016 due to fragility of the
global economy, volatility of global financial markets, weak aggregate demand, growth deceleration
at some very large new markets, and elevated geopolitical risks and regional tensions.
In sectoral terms, foreign investments in the global services sector are growing faster than
investments in manufacturing. The largest amount of foreign investments are those in the extractive
industry and communications. Renewable energy is the sector of fastest growth of demand for
foreign investments in Europe.
According to the data of the Central Bank of BiH, foreign investments in the Republic of Srpska
amount to BAM 379.1 million in 2014, up from 2013 when BAM 152.6 million were generated in
foreign investments.
If we analyse the results of foreign investments in the Republic of Srpska by sector, we can ascertain
that efficiency-seeking investments are present to a limited extent, particularly relative to the
region. New efficiency-seeking greenfield investments and quality brownfield investments, which
represent the fastest and cheapest way of investment implementation because they are
implemented in the already existing available production capacities (with all necessary
infrastructure), most commonly have the largest effect on the economic policy goals and relate
primarily to the economic recovery and new economic growth and employment. The Republic of
Srpska should increase competitiveness in attracting the above forms of foreign investments, since
such investments bring about job creation, strengthen export performances, enable manufacturing
of products of higher processing level, and therefore higher new value added, strengthen value
chains and involvement of small- and medium-sized enterprises in the global value chains, bring
2
about the transfer of technology, entrepreneurship and innovation which increase productivity, and
therefore have a significant impact on GDP growth, economic development and competitiveness.
The Republic of Srpska has an advantage in three sectors which coincide with the regional demand
dynamics, and those are: food processing (agribusiness), textile sector, and wood processing sector –
particularly furniture manufacturing. Attracting foreign investments to these sectors encourages
manufacturing, which consequently increases the development of the overall society.
The importance of reviving investments in the real sector and their impact on the economic
development are particularly emphasised by the European Commission’s call for industrial
renaissance in the EU after the financial crisis1.
However, in spite of the importance of foreign investments in manufacturing, the Republic of Srpska
should also strengthen attracting foreign investments to services and information-communication
technologies, because the Republic of Srpska’s involvement in the global economic flows is almost
impossible without a developed information-communication technology sector. The Republic of
Srpska should pay particular attention to building quality knowledge and innovation, because
knowledge and innovation represent a basic factor of economic development. Considering that
these activities require a longer period, foreign investments in this sector would shorten that period
significantly and at the same time enable transferring entrepreneurial skills which are insufficiently
developed. The process of clusterisation with the presence of foreign investments, in segments that
are lacking for an efficient involvement of small- and medium-sized enterprises in the global value
chains, in a joint action with the scientific research centres, would enable higher employment of
young experts, which would reduce their outflow and make the companies in the Republic of Srpska
more competitive at the global market.
The Republic of Srpska should pay particular attention to the established investors, especially under
the conditions of volatility and uncertainty in the global economy when foreign investors are
decreasing their activities, because reinvesting is also an important factor of foreign investments and
an important source for long-term investing. The global reinvestment rate is 7%, in developing
countries 8%, in transition countries 13%, and it is much higher than in developed countries where it
amounts to 5%. The established investors also represent an important factor in attracting foreign
investments, because they are the promotors of the countries where they invested.
By creating a stimulative investment ambiance, economic reforms, increasing knowledge and
innovation, clustering the economy, and increasing the volume of public-private partnership, the
Republic of Srpska can become an attractive destination for foreign investments, while at the same
time stimulating domestic investments.
1 Communication from the Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions – For a European Industrial Renaissance, Brussels, 2014.
3
2. GLOBAL, REGIONAL AND REPUBLIC OF SRPSKA FOREIGN INVESTMENTS
2.1. Global Foreign Investments Total global foreign investments in 20142 amounted to US$ 1,228 billion, down by 16% from 2013.
According to UNCTAD estimates, 2015 saw an increase in foreign investments at the global level by
36% (about US$ 1,700 billion) relative to 2014, which is the highest level since the global economic
and financial crisis of 2008-2009.3 The largest contribution to such foreign investment trends in the
world was given by the developed countries (about 55%) through a hike in mergers and acquisitions,
which recorded an increase of 61% year on year. During the same period, greenfield investments
achieved a modest increase of 0.9%.
Table 1: Foreign direct investment flows in the world 2012–2014 (in US$ billion)
Region/Economy 2012 2013 2014 Growth rate 2013–2014
(%)
World 1403 1467 1228 -16
Developed economies 679 697 499 -28
Europe 401 326 289 -11
European Union 365 333 258 -23
North America 209 301 146 -51
Developing economies 639 671 681 1
Africa 56 54 54 0
Latin America and the Caribbean 178 186 159 -15
South America 144 126 121 -4
Central America 28 55 33 -40
Caribbean 6 5 5 0
Asian developing economies 401 428 465 9
Western Asia 48 45 43 -4
East Asia 212 221 248 12
South Asia 32 36 41 14
Southeast Asia 108 126 133 6
Transition economies 85 100 48 -52
Source: UNCTAD, World Investment Report 2015
It is evident from the above table that the largest decline in foreign investments in 2014 happened in
North America, transition economies and Central America.
Concerning transition countries, according to the available projections4, further decline in foreign
investments is expected in 2015. However, although a decline is expected at the global level,
estimates show that a mild increase in foreign investments should happen in transition countries in
2016 and 2017.
2 Considering that data from the Global Investment Trends Monitor are based on estimates, we shall stick to the analysis of the latest official data, published in the World Investment Report – in 2015 3 UNCTAD, Global Investment Trends Monitor no 22 of 20 January 2016 4 UNCTAD, World Investment Report 2015, New York and Geneva, 2015 4 UNCTAD, World Investment Report 2015, New York and Geneva, 2015
4
According to the latest UNCTAD survey of investment promotion agencies, the main objectives of
investment initiatives are job creation, followed by technology transfer and export promotion, while
the most important target sectors are information technologies and services, followed by agriculture
and tourism.5
According to the above survey, developing and transition economies constitute half of the 14 most
interesting economies for foreign investments during the period from 2014 to 2016.
In analysing the global investment climate and factors with positive and negative impacts on foreign
investment flows in a medium-term, the largest number of the surveyed transnational corporations
and investment promotion agencies deem that foreign investment flows will be affected negatively
by the situation in the economies of the European Union, as well as by the adoption of austerity
policy measures, rising trade protectionism and sovereign debt issues. Global foreign investment
flows will suffer negative impact also from terrorist threats or investing restrictions and adoption of
the appropriate measures, although investment liberalisation and promotion are still dominating
national investment policies.
Foreign investors’ uncertainty concerning global investment climate has led to a large number of
investors planning to maintain the volume of foreign investments at the same level, looking from the
aspect of short and medium term. Such expected trends have also led to a change in the way
investors enter foreign markets. The largest number of foreign investors deem that a special role in
the forthcoming period, concerning foreign investments, will be played by greenfield and brownfield
investments as opposed to mergers and acquisitions which dominated in 2014. About 45% of the
surveyed companies said that brownfield investments would be of particular importance in 2015.6
If we look at the sectoral structure of foreign investments in the world, we can state that at the global level in 2014 relative to 2013, investments in the primary sector grew by 41.8%, investments in manufacturing by 13.7%, and investments in services dropped by 15.4%. Those trends are presented in the following table:
Table 2: Greenfield investments value by sector in the world, 2009–2014, in US$ million
Sector 2009 2010 2011 2012 2013 2014
Primary 121839 60584 75636 27110 29889 42390
Manufacturing 377578 432589 448285 285629 274874 312414
Services 474318 331654 355508 318019 402615 340773
Total 973735 824827 879429 630757 707378 695577
Source: UNCTAD, World Investment Report 2015
5 World Investment Report 2014, UNCTAD, New York and Geneva, 2014 6 UNCTAD, World Investment Prospects Survey 2013–2015, UN, New York and Geneva, 2013
5
Chart 1: Sectors with the highest demand dynamics from the aspect of foreign investments in the world by number of projects
3593
2550 2489
2051
1538 15031285 1252
1128
Source: fDI Markets 2015
Chart 2: Foreign investments in the world by job creation by sector
437.280
396.061
288.641
251.705233.423 230.927 223.602
160.894 149.879
Source: fDI Markets, 2015
6
Chart 3: Sectors with the largest capital investments (in US$ million)
156,704
139,756
103,36994,254
76,216
62,504 62,398
51,903
Source: fDI Markets, 2015
From an analysis of the motives of foreign investors when selecting the site it can be concluded
that more than 45% of foreign investments are motivated by access to domestic market, and one
third by the proximity to markets or customers. Another important motive for foreign investment
site selection is regulations, i.e. business ambiance (20.6%) and skilled workforce availability (17.7%)
Table 3: Company motives when selecting foreign investment site
Motive Number of
projects % of projects
Domestic market growth potential 840 45.4
Proximity to markets or customers 611 33
Regulations/business climate 380 20.6
Skilled workforce availability 328 17.7
Infrastructure and logistics 158 8.5
Industry cluster/critical mass 119 6.4
Attractiveness/quality of life 89 4.8
Investment promotion agency or government support 75 4
Technology and innovation 57 3.1
Lower costs 47 2.5
Other motive 194 10.5
Source: fDI Report 2014, fDI Markets
7
The Republic of Srpska has a small market, and therefore also small domestic market growth
potentials, however a large advantage of the Republic of Srpska is its geographical position, because
it is located at the intersection of west-east roads and it borders with EU countries.
The process of site selection, seen through investor’s eyes, facilitates priority setting for policy
measures that need to be undertaken. MIGA (Multilateral Investment Guarantee Agency) has
elaborated a matrix for site selection and a checklist of sector competitiveness policies which cover
groups of motives and individual motives, and their importance for business services sector and
manufacturing industry sector. Each factor marked critically important necessarily requires
conducting a policy adequacy test and based on the results, identifying where changes need to be
made.
Table 4: Site selection matrix and sector competitiveness policy checklist
Factor Business services Manufacturing
industry
Market access
Access to customers Limited Critical
Access to suppliers Important Very important
Duration and costs of shipping Important Very important
Trade agreements Very important Very important
Labour market
availability
Labour force – general Limited Critical
Skilled labour force Limited Critical
Technical aspect Important Very important
Management Critical Very important
Costs Important Very important
Fringe benefits (social welfare etc.)
Important Very important
Productivity/growth rate Critical Critical
Labour relations/unionisation Limited Very important
Regulations (employment/termination)
Important Important
Demography Limited Important
Number of university graduates Very important Very important
Technical/vocational training Important Very important
Language skills Critical Important
8
Real estate
Availability of land Limited Critical
Availability of buildings/spaces Critical Very important
Real estate costs and taxes Important Important
Spatial planning and permits Important Very important
Ownership rights Limited Important
Infrastructure
Reliable supply with electricity, fuel, gas, industrial water
Very important (electricity)
Critical
Reliability of telecommunications
Critical Very important
Costs of utilities Limited Very important
Costs of telecommunications Very important Limited
Integrity of data transfer Very important Important
Quality of roads Very important Critical
Railway and air cargo connections
Limited Very important
Commercial air connections Critical Very important
General business
conditions
Stable social and political environment
Very important Critical
Investor protection Very important Critical
Ease of doing business Very important Very important
Level of corruption Very important Very important
Intellectual property protection Critical Important
Grants and incentives Important Important
Taxes and regime predictability Critical Very important
Local availability of funding Important Limited
Expertise of investment promotion agency
Very important Very important
Living conditions Costs of living Very important Very important
Crime and safety Critical Very important
9
Health care Critical Important
Expatriate housing Critical Important
International schools Critical Important
Culture, sport and recreation Very important Important
When analysing the motives for investment in manufacturing industry, it is obvious from the above
table that the following factors are the most important for foreign investors: access to customers,
labour force – general, skilled labour force, productivity – growth rate, availability of land, reliable
supply with electricity, fuel, gas and industrial water, quality of roads, stable social and political
environment and investor protection.
When analysing foreign investors’ motives for investing in business services sector, the following
factors are the most important: management, productivity – growth rate, language skills, availability
of buildings (spaces), reliability of telecommunications, commercial air connections, intellectual
property protection, taxes, crime and safety, health care, expatriate housing and international
schools.
According to a survey of foreign investment promotion agencies, it is estimated that the largest
volume of foreign investments came from China from 2013 to 2015. Among the developed
countries, the largest foreign investments are from the USA, Germany, United Kingdom, Northern
Ireland, Japan and France, and among the developing countries from India, Republic of Korea, Russia
and United Arab Emirates.
2.2. Regional Foreign Investments – South East Europe
Foreign investments in transition countries in South East Europe in 2014 amounted to US$ 4,698
million, a mild decline compared to 2013 when the volume of foreign investment flows amounted to
US$ 4,740 million.
Foreign investment flows in South East Europe during the period from 2008 to 2014 are given in the
following table:
Table 5: South East Europe foreign investment flows from 2008 to 2014 (in US$ million)
Country 2008 2009 2010 2011 2012 2013 2014
Bosnia and Herzegovina
1,002 250 406 496 351 283 564
Serbia 2,955 2,896 1,686 4,932 1,299 2,053 1,996
Montenegro 960 1,527 760 558 620 447 497
Macedonia 586 201 213 479 143 335 348
Albania 974 996 1,051 876 855 1,266 1,093
Slovenia 1,947 -476 105 1,087 339 -144 1,564
Croatia 5,938 3,077 1,133 1,682 1,451 955 3,451
Romania 13,909 4,665 3,041 2,363 3,199 3,602 3,234
Bulgaria 9,855 3,385 1,525 1,849 1,467 1,920 1,710
Source: UNCTAD, World Investment Report 2015
10
From the above table it is obvious that almost no country reached the level of foreign investments of
before the outbreak of the global financial crisis in 2008. A significant increase in the volume of
foreign investments in 2014 compared to 2013 was achieved by: Bosnia and Herzegovina, Croatia
and Slovenia. Montenegro and Macedonia achieved mild increases, while Serbia, Albania, Romania
and Bulgaria dropped.
Chart 4: Annual foreign investment inflow in South East Europe countries (in US$ million, in current prices and at current exchange rate)
-1000
0
1000
2000
3000
4000
5000
6000
2011 2012 2013 2014
Source: UNCTAD, 11 April 2016
Table 6: Sectors with the highest demand dynamics from the aspect of direct foreign investments in South East Europe 2011 - 2015*
Sector No of projects
New jobs average Capital investments-average (USD m)
Textiles 195 134 8.70
Food and tobacco 120 212 22.40
Consumer products 60 158 38.00
Automotive parts 54 506 26.20
Alternative/renewable energy 52 102 168.30
Financial services 51 48 28.20
Transportation 46 63 28.80
Industrial machinery, equipment and tools
45 114 12.50
Business services 43 45 7.30
Pharmaceutical sector 43 48 6.00
Other sectors 369 243 56.70
Total 1,078 183 38.70
Source: fDi Intelligence - The Financial Times Ltd
*data concern Albania, BiH, Croatia, Macedonia, Montenegro and Serbia
11
Chart 5: Foreign investment flows in South East Europe 2011-2015 by job creation
Source: fDi Intelligence - The Financial Times Ltd
Considering that the strategic objective of the Republic of Srpska is to increase employment, and
that from the chart above it is obvious that new jobs are created the most in the auto-parts sector, it
would be needed to analyse this sector in particular, to find the models of its development and to
promote it in order to attract foreign investments, because the Republic of Srpska has a technical
culture, which developed through arms manufacturing since the pre-war 80s of the last century.
If we look at foreign investments in South East Europe by number of projects in the 2012-2015
period, we can state that the largest number of projects was implemented in Serbia (402) and
Croatia (170), and the lowest in Albania (26) and Montenegro (27). During the same period, 105
projects were implemented in BiH.
Chart 6: Total number of foreign investment projects by country of South East Europe 2012- 2015
402
170
109 105
58 270
50
100
150
200
250
300
350
400
450
Source: FDI Markets, April 2016
In sectoral terms, the sectors of textiles and food and tobacco received the most foreign
investments, looking from the aspect of number of projects.
New jobs (average)
Textiles
Food and tobacco
Other sectors
Consumer products
Financial services
Alternative/renewable energy
Pharmaceutical sector
Business services
Industrial machinery, equipment and tools
Auto-parts
12
Chart 7: Sectoral overview of foreign investments in South East Europe countries by number of projects
0 50 100 150 200 250 300 350
Serbia
Croatia
Macedonia
Bosnia and Herzegovina
Slovenia
Montenegro
Albania
Textiles Food and tobaccoSource: FDI markets, April 2016
The largest capital investments were implemented in the sector of alternative/renewable energy, in
the amount of US$ 168.3 million - average.
2.3. Republic of Srpska Foreign Investments According to the data of the Central Bank of BiH, total foreign investments in the Republic of Srpska
as of 31 December 2014, amount to BAM 4,158.1 million7.
Table 7: Republic of Srpska foreign investments 2006–2014, in BAM million
Year Amount Structure (%)
2006 133.1 3.27
2007 1,952.5 47.96
2008 302.1 7.42
2009 170.4 4.19
2010 205.1 5.04
2011 372.5 9.15
2012 403.6 9.91
2013 152.6 3.75
2014 379.1 9.31
Source: BiH Ministry of Foreign Trade and Economic Relations and Central Bank of BiH
7 Data about direct foreign investments in the Republic of Srpska are monitored by means of several instruments, each of them different in its nature and calendar of publication. Data of the Central Bank of BiH relate to the flows and stock of foreign capital during given period, all in line with the methodological standards and instructions of the International Monetary Fund (IMF) and Organisation for Economic Co-operation and Development (OECD). Data of commercial courts and APIF are based on formal registration of foreign companies and their initial capital with relevant courts, where it is estimated that they indicate the levels lower than the real amounts of investment. 8 Data of commercial courts of the Republic of Srpska
13
From 2006 to 2014, foreign investments were the largest in 2007 in total amount of BAM 1.95 billion
and included investments in:
- Telekomunikacije Republike Srpske Banja Luka – BAM 1.27 billion (Serbia),
- Brod Oil Refinery – BAM 328.9 million (Russia),
- Modriča Oil Refinery – BAM 153. 9 million (Russia),
- EFT Group Stanari Mine and Thermal Power Plant BAM 208.5 million (United Kingdom)8.
Official data of the Central Bank of BiH about foreign investments in the Republic of Srpska for the
entire 2015 will be available in September 2016.
2.3.1. Sectoral Structure of Foreign Investments in the Republic of Srpska
Analysis of sectoral structure of foreign investments is of exceptional importance, because it not
only gives a layout of investments by sector, but also enables economic policy makers to conceive a
policy to attract foreign investments to the sectors important for the fulfilment of economic
development objectives based on those data.
The following table gives an overview of registered foreign investments in the Republic of Srpska by
sector/activity (in accordance with the old activity classification) from 1 January 2006 to 30 June
2010.
Table 8: Republic of Srpska registered foreign investments from 2006 to June 2010 by sector (old activity classification) – in BAM thousand
SECTORS / ACTIVITY VALUE OF INVESTMENT
January 2006 – June 2010 Share %
Telecommunications 1,279,507 50.34
Manufacturing 807,015 31.75
Trade 222,929 8.77
Banking 176,703 6.95
Services 16,439 0.65
Insurance 14,057 0.55
Transport 6,105 0.24
Tourism 4,171 0.16
Finance 2,523 0.10
Other investments (up to BAM 100,000) 14,081 0.55
Decrease in capital -1,956 -0.08
TOTAL 2,541,574 100
Source: Republic of Srpska Ministry of Economic Relations and Regional Cooperation using the data of BiH Ministry of Foreign Trade and Economic Relations From the table it is obvious that the largest portion of foreign investments are those in
telecommunications, in the amount of BAM 1.27 billion or 50.34%, mainly related to privatisation.
14
Industry sector takes the next share in investments by size with BAM 807 million or 31.75%, while
investments in trade sector are ranked third with 222.9 million or 8.77%, the fourth largest share is
in the banking sector with BAM 176.7 million or 6.95% (mostly related to privatisation), and services
are ranked at the fifth position with 16.4 million or 0.65%. Foreign investments in privatisation
usually come due to the type of company being privatised (demand for resources, markets, strategic
assets) regardless of the quality of business environment. This is not about a competitive foreign
investment, but rather about market-seeking foreign investments which do not bring significant
spillovers.
Considering that a new activity classification was adopted, sectoral data since 2011 were processed
separately (in accordance with the new activity classification). Commercial courts are used as a
source of data for this analysis, since they are the sole source which enables monitoring sectoral
structure of foreign investments (although it is estimated that real investments are much higher, as
supported also by Central Bank data for the Republic of Srpska (BAM 205 million in 2010, BAM 372.5
million in 2011, BAM 403.6 million in 2012, and BAM 152.6 million in 2013, and BAM 379.1 million in
2014).
Table 9: Republic of Srpska registered foreign investments by sector/activity 2011–2015 (new activity classification) – in BAM thousand.
Sector/activity
Value of investment
2011
2012
2013
2014
2015
Total
2011–
2015
%
share
Mining and quarrying 906 68,060 88,317 106,278 8,971 272,532 51.34
Trade 41,730 19,603 535 42,156 203 104,227 19.63
Manufacturing
industry 17,278 905 26,238 -1,958 24,105 66,568 12.54
Construction 17,230 2,546 2,690 1,090 3,210 26,766 5.04
Electricity, gas, steam
and air conditioning
generation and
supply
5,342 3,379 9,809 1
-255
18,276 3.44
Information and
communication 613 1,783 11,076 398 36 13,906 2.62
Financial and 15,198 -1,777 31,380 -34,161 10,640 2.00
15
Source: commercial courts of the Republic of Srpska and APIF
Looking generally, after exclusion of trade, mining and construction, it is evident that there is a very
low level of investment by establishing new companies (greenfield) aimed at achieving efficiency.
Investments in the Republic of Srpska were implemented for the most part for the purpose of access
to market and resources. Market-seeking foreign investments were implemented in the sectors of
insurance activities
Agriculture, forestry
and fishing 2,120 614 756 8 4,984 8,482 1.60
Arts, entertainment
and recreation 1,030 1,525 258 2,813 0.53
Water supply,
sewerage, waste
management and
environment
remediation
18 872 1,057 1 199 2,147 0.40
Professional,
scientific and
technical activities
965 52 175 221 149 1,562 0.29
Accommodation and food preparing and serving activities, hotel, restaurant and catering services
63 6 15 1 1,009 1,094 0.21
Real estate activities 6,072 -4,995 1 3 1,081 0.20
Transportation and
storage 3 678 2 -135
89 637 0.12
Administrative
support and service
activities
206 30 4 4 3 247 0.05
Education 2 1 0,2 3 0.00
Health care and social work activities
1
1 0.00
Other service activities
2 -100
-98 -0.01
TOTAL 101,675 102,826 136,609 180,971 8,803 530,884 100.00
16
telecommunications, trade and construction, while resource-seeking investments were
implemented in mining and mineral exploitation, and real estate.
In a time of need for foreign investments as drivers of private sector development, a policy to attract
foreign investments becomes the main challenge. Considering that employment growth is one of the
priority objectives of the economic policy and that investments by establishing a new company –
greenfield investments, as well as brownfield investments most commonly have the largest effect on
employment, it is necessary to continuously work on the measures to attract such forms of foreign
investments. In addition to the direct impact on employment, there are also indirect effects such as
growth of demand for domestic input materials for production process. In this case, the quality of
benefits for domestic economy will be determined, among other factors, by the policy of the
investment host country, the capacity of domestic suppliers to produce input materials of required
quality, as well as the type of foreign investment. In order to increase the effect of growth of
demand caused by foreign investments at the domestic market, it would be necessary to analyse
export and import by individual product.
The Republic of Srpska should strengthen its efforts to attract efficiency-seeking foreign
investments. Efficiency-seeking foreign investments will maximise the effects of innovation, which
can trigger a significant net economic benefit. The Republic of Srpska should focus on regional
dynamics of demand for foreign investments in the way to better emphasise attracting efficiency-
seeking foreign investments in order to maximise value added, balance of payments share, and
employment.
Also, in the short-term and medium-term period, options and policy measures should be considered
to maximise the advantages of those types of foreign investments that the Republic of Srpska is
already attracting. In that context, removal of limitations in the regional value chain in several
sectors can be a significant opportunity for the Republic of Srpska, and that means strengthening
the components and links between value chains, where priority should be assigned to creating
conditions for domestic companies to remove weaknesses and overcome shortcomings. In cases
where that is difficult to achieve, specific types of foreign investments should be targeted in order to
strengthen value chain and increase value added. Regarding resource-seeking investments in the
Republic of Srpska, the key policy challenges that need to be removed are distribution of mining
and mineral exploitation revenues and increase of links and transferred effects on local economy.
17
2.3.2. Geographical Origin of Foreign Investments in the Republic of Srpska Table 10: Geographical origin of Republic of Srpska foreign investments 2007–2015 – in BAM thousand
No COUNTRY 2007 2008 2009 2010 2011 2012 2013 2014 2015 TOTAL
2007–2015
1. Serbia 1,284,740 59,803 51,551 19,399 66,019 18,748 15,058 -38,084 5,619 1,482,853
2. Russia 517,985 445 32 16 7,847 1 12 526,338
3. United Kingdom
760 2,069 2 2,005 125,334 103,641 1,602 235,413
4. Netherlands 7,272 16,371 1,017 6,265 360 761 103,771 4,914 140,731
5. Slovenia 13,206 78,486 26,524 1,295 -12,499 2,638 21,908 3,077 -335 134,300
6. Austria 23,359 58,382 5,076 7,826 6,066 2,449 165 29,901 -15,337 117,887
7. Cyprus 2,562 9,961 4,866 306 2,858 2 61,646 423 7,743 90,367
8. Italy 12,747 35,830 12,867 150 2,389 114 572 5,000 1,923 71,592
9. Croatia 15,072 17,467 6,794 1,642 278 319 109 941 1,130 43,752
10. Cayman Islands
43,163 43,163
11. Switzerland 9,248 2,169 1,303 3 4,191 100 3 69 17,086
12. USA 4,417 1,397 990 3,054 281 2 - 6 169 1 10,305
13. Liechtenstein 6,496 1,966 8,462
14. Virgin Islands 1,990 1,959 1,862 1,051 1 6,863
15. Montenegro 845 3,945 1,533 2 -165 0,001 625 52 6,837
16. Czech Republic
107 20 3,384 798 936 0,1 -255 4,990
17. Germany 572 50 38 581 84 1,008 412 1,448 4,193
18. Slovakia 1,757 1,647 20 2 2 -0,4 65 3,492
19. Lithuania 3,002 1 235 3,238
20. Israel 1,288 1,302 2 2 -0,5 2,593
21. Panama 1,990 240 21 2,251
22. UAE 694 694 0,001 300 1,688
23. Turkey 100 2 4 2 1,530 1,638
24. Ukraine 1,333 4 1,337
25. Luxembourg 118 631 2 29,338 568 2 -29,341 1,318
26. France 379 121 512 4 9 4 33 1,062
27. Ireland 2 862 18 0,7 883
28. Dominica 700 700
29. Norway 100 319 25 8 1 126 579
30. Portugal 500 500
31. Spain 300 4 304
32. Australia 2 2 263 15 282
33. Poland 98 -59 0,5 176 50 265
34. China 73 28 48 33 7 33 222
35. Denmark 8,865 6,947 3 -16 67,357 -99,886 -16,730
36. Iceland 2 166 -2,082 -1,914
37. Other 8,006 2,110 2,415 62 64 63 -333 7 143 12,537
38. TOTAL 1,952,485 302,075 122,309 53,624 101,675 102,826 136,609 180,971 8,803 2,961,377
18
Source: BiH Ministry of Foreign Trade and Economic Relations (2007–2009) companies with capital
exceeding BAM 100,000 and commercial courts of the Republic of Srpska and APIF (2010–2015) 9
Serbian investments account for almost one half of total investments (50.07%) and are dominated
by investments in telecommunications. The second place is occupied by investments from Russia
(17.77%), where these in Brod Oil Refinery and Modriča Oil Refinery can be noted as the most
important. The United Kingdom is ranked third (7.94%), where investments in the EFT- Stanari Mine
and Thermal Power Plant can be singled out as the largest investment, the Netherlands occupies the
fourth place (4.75%), trade sector, and Slovenia the fifth (4.53%) with several investment projects
(metal industry, banking and trade).
2.3.3. Regional Distribution of Foreign Investments within the Republic of Srpska
Foreign investments have a significant impact on the economic development of individual areas of
the Republic of Srpska, which is why it is necessary, where possible, to guide foreign investments by
various measures in order to achieve balanced regional development and reduce disproportions in
the development of individual areas of the Republic of Srpska.
Table 11: Number of newly registered companies with a foreign investment element in the Republic of Srpska 2010–2015
No Municipality/City Number of newly
registered companies
Share of the number of newly registered companies in given
municipality/city relative to the total number of newly registered
companies (%)
1 City of Banja Luka 294 37.12
2 City of Bijelјina 88 11.11
3 Laktaši 46 5.80
4 Gradiška 42 5.30
5 City of Trebinje 25 3.15
6 City of Istočno Sarajevo 22 2.77
7 City of Prijedor 19 2.39
8 City of Doboj 19 2.39
9 City of Zvornik 19 2.39
10 Derventa 18 2.27
11 Brod 14 1.76
12 Prnjavor 14 1.76
13 Novi Grad 14 1.76
14 Teslić 12 1.51
15 Višegrad 10 1.26
16 Modriča 10 1.26
17 Šipovo 10 1.26
18 Kozarska Dubica 9 1.13
19 Pale 9 1.13
20 Bileća 9 1.13
21 Šamac 7 0.88
22 Srbac 6 0.75
9 Note: total amounts of investments are higher according to other sources (Central Bank), but commercial courts and APIF are the only sources of data that provide investment overview by country of investor.
19
23 Čelinac 6 0.75
24 Petrovo 5 0.63
25 Sokolac 5 0.63
26 Kostajnica 5 0.63
27 Foča 5 0.63
28 Nevesinje 5 0.63
29 Uglјevik 4 0.50
30 Lopare 4 0.50
31 Mrkonjić Grad 4 0.50
32 Srebrenica 4 0.50
33 Kotor Varoš 4 0.50
34 Ljubinje 3 0.37
35 Berkovići 3 0.37
36 Rudo 3 0.37
37 Vlasenica 2 0.25
38 Bratunac 2 0.25
39 Milići 1 0.12
40 Vukosavlјe 1 0.12
41 Oštra Luka 1 0.12
42 Gacko 1 0.12
43 Žabar 1 0.12
44 Čajniče 1 0.12
45 Osmaci 1 0.12
46 Drinić 1 0.12
47 Kneževo 1 0.12
48 Krupa na Uni 1 0.12
49 Rogatica 1 0.12
50 Stanari 1 0.12
TOTAL 792 100.00
Source: commercial courts of the Republic of Srpska and APIF
Three local self-government units in the Republic of Srpska registered 428 new companies (54.04%):
294 companies (37.12%) in the city of Banja Luka, 88 companies (11.11%) in the city of Bijelјina and
46 companies (5.80%) in the municipality of Laktaši. The number of newly registered companies with
a foreign investment element in the remaining 47 municipalities and cities10 of the Republic of
Srpska is 364 (45.95%). This indicates the need to diversify the distribution of foreign investments in
the Republic of Srpska which would result in a reduction of differences in the economic growth
among regions.
Considering that Banja Luka represents the economic and financial centre of the Republic of Srpska,
the largest number of the newly registered companies with a foreign investment element was
related precisely to this city.
10 Total number of local self-government units in the Republic of Srpska is 64 (57 municipalities and seven cities).
20
3. FACTORS ATTRACTING FOREIGN INVESTMENTS TO THE REPUBLIC OF SRPSKA
3.1. Competitiveness of the Republic of Srpska
One of the key reform fields in the Republic of Srpska Economic Policy 2016 is stable economic
growth, which will be achieved through recovery of the economy and improvement of business
climate and competitiveness.
Competitiveness of a country represents the ability of the country to employ its available resources
in order to achieve long-term sustainable and stable growth, i.e. to achieve the highest possible GDP
growth rate and provide better standard for its citizens. Competitiveness represents a set of policies,
institutions and factors which affect the productivity of a country, where productivity represents the
level of progress that a country can achieve.
Increasing competitiveness of a country depends on a large number of factors, where, under the
conditions of globalisation, country’s competitiveness increase is closely connected with the
country’s competitiveness improvement in attracting foreign investments.
There are numerous analyses of factors that affect the competitiveness of a country. We will single
out only some. E.g. an analysis of factors11 that affect the competitiveness of a country and impact of
change in these factors on the level of foreign investments in that country12 showed that, concerning
macroeconomic variables, importance lies with the four as follows: unit labour costs, tax rate,
membership in the European Union, and technological superiority. Unit labour costs are very
important, because a country that has 60% higher unit labour costs will have lower foreign
investments by 25%. If a country lowers its overall corporate income tax rate by 10%, that will lead
to a foreign investments growth by 30%. Tax rate lowering is a direct measure that a government
can undertake to attract foreign investments. In the last decade, almost all countries of Eastern
Europe have done so, and Macedonian corporate income tax rate is being constantly lowered since
2008. The Republic of Srpska has done a lot in this respect, because the corporate income tax rate
amounts to 10% and it is one of the lowest, not only in the region, but also in the whole of Europe.
Membership in the European Union has the strongest effect on attracting foreign investments,
because a mere announcement that a country will obtain membership in the European Union leads
to foreign investment growth by 70%.
In addition to that, also other factors are important. When it comes to starting business, the most
important factor are the costs of starting a business. If a country lowers the costs of starting business
by 11% of the per capita income, that will lead to foreign investment growth by 40%.
Also in obtaining construction permits, the most important factor are the costs of obtaining
construction permits.
Lowering the costs of property registration by 3% of the property value will lead to 30 times higher
investments.
In paying taxes, the most important factor is the number of payments. Foreign investors are
discouraged by bureaucracy, so a country with 15 payments per year (Lithuania) will have 30%
higher foreign investments than a country with 68 payments (Montenegro).
11 B. Jovanović – B. Jovanović, Ease of Doing Business and Investment in Eastern Europe and Central Asia, 2014. 12 The analysis covered 28 countries of Eastern Europe and Central Asia and foreign investments from OECD countries.
21
In trading across borders, the most important factors are the number of documents to export, so a
country with 9 documents to export (Uzbekistan) will have about 37% lower foreign investments
than a country with 7 documents (Lithuania).
In resolving insolvency indicators, the recovery rate is important. A country with a recovery rate of
10% will have 46% more foreign investments.
Infrastructure also represents an important factor in attracting foreign investments. If a country
increases the percentage of paved roads by 10%, this will lead to foreign investment growth by 10%
of the GDP (Macedonia).
The analysis also showed that existence of an investment promotion agency is not as important as
expected, because investors are most commonly well acquainted with the situation in the country.
The level of education, according to the analysis, is also an irrelevant factor, because all the
observed countries have relatively well educated populations, but knowledge quality represents an
important factor in attracting foreign investments.
According to OECD experts, general conditions for attracting foreign investments, i.e.
competitiveness of a country in attracting foreign investments, are:
1. Creating a stable macroeconomic ambiance with a clearly defined investment policy for presentation at foreign markets
2. Providing a safe, flexible and non-discriminatory legal framework while simplifying administrative procedures for company establishment and operation
3. Available resources including developed infrastructure and human potential.
Table 12: Republic of Srpska 2011-2014 macroeconomic indicators, 2015 estimates and 2016 projections13
PRODUCTION METHOD 2011 2012 2013 2014 2015 2016
GDP in BAM million – nominal 8,682 8,585 8,761 8,847 8,873 9,135
Population – in million 1.43 1.43 1.43 1.42 1.42 1.42
GDP per capita in BAM 6,073 6,006 6,146 6,225 6,256 6,454
GDP % growth, nominal 4.4% -1.1% 2.1% 1.0% 0.3% 2.9%
GDP % growth, real 0.8% -1.1% 1.9% 0.2% 1.4% 2.4%
Inflation – annual rate 3.9% 2.1% 0.0% -1.2% -1% 0.5%
Average net wages in BAM 809 818 808 825 833 842
Import in BAM million 4,578 4,488 4,558 4,946 4,575 4,777
Import growth, % 13.0% -2% 1.6% 8.5% -7.5% 4.4%
Export in BAM million 2,561 2,375 2,604 2,692 2,613 2,744
Export growth, % 17.6% -7.3% 9.7% 3.4% -2.9% 5.0%
Import export ratio, % 55.9% 52.9% 57.1% 54.4% 57.1% 57.4%
Unemployment rate % 24.5% 25.6% 27.0% 25.7% 25.2% 24.7%
Source: Republic of Srpska Statistics Institute (2011-2014), Republic of Srpska Ministry of Finance’s
estimate (2015) and projection (2016)
The World Economic Forum deems that for a sustainable economic growth it is necessary to achieve
sustainable competitiveness, because policy makers, businessmen and citizens are increasingly
aware of the need for the economic growth to be balanced by creating opportunities and benefits
for all segments of population, while observing environmental principles. The social and
environmental dimensions of economy must be examined in full in every growth and development
13 Republic of Srpska Economic Policy 2016
22
plan. Although links between productivity, social development and environmental requirements are
complex, the Forum is continuously exploring how sustainability relates to competitiveness and
economic performances.14
Indicators of a country’s competitiveness in attracting foreign investments are important not only
for foreign investors, but also for the makers of policy to attract foreign investments, because their
comparison with those of the other countries in the region enables analysing own achievements, as
well as identifying shortcomings and finding measures to remove them.
The competitiveness of the Republic of Srpska can be best examined through the following
indicators: Global Competitiveness Index, ease of doing business index, investment reform index and
business risk (index of economic freedom and credit rating).
3.1.1. Global Competitiveness Index
The Global Competitiveness Index is published by the World Economic Forum within the Global
Competitiveness Report.15
The Global Competitiveness Index for the Republic of Srpska can only be analysed through the
Global Competitiveness Index for BiH, considering that there are no specific reports prepared for
the entities. It is possible that individual indices are more favourable in case of the Republic of
Srpska, both in this report and in the others where the Republic of Srpska is not presented
separately.
Table 13: Global Competitiveness Index for South East Europe countries 2015-2016
Country Rank 2015–2016 (total 140
countries) Total score
Albania 93 3.9
Bosnia and Herzegovina
111 3.7
Bulgaria 54 4.3
Montenegro 70 4.2
Croatia 77 4.1
Macedonia 60 4.3
Romania 53 4.3
Serbia 94 3.9
Source: Global Competitiveness Report 2015-2016
In the 2015–2016 report, BiH is ranked 111th, with the total score of 3.7. Considering that Bosnia and
Herzegovina was not ranked in the previous report, it is not possible to determine or compare the
change in position of Bosnia and Herzegovina in the Global Competitiveness Index ranking list.
14 World Economic Forum, The Global Competitiveness Report 2015–2016 Geneva. 15 The Global Competitiveness Index comprises 12 pillars of competitiveness categorized in three groups: 1)
basic factors, 2) efficiency enhancing factors and 3) innovation and sophistication factors. The World Economic Forum defines the Global Competitiveness Index as an index determined by a set of institutions, policy being conducted and factors that define the level of productivity in a country. The Index can be also interpreted as an indicator of probability of a country's ability to have a sustainable economic growth. The value of the Global Competitiveness Index ranges from 1 to 7.
23
In the 2015–2016 report, year on year progress was achieved by Romania (up six places), Albania (up
four places) and Macedonia (up three places). Serbia and Bulgaria kept the last years’ positions, and
year on year deterioration in position was achieved by Montenegro (down three places).
An analysis of the twelve pillars of competitiveness, i.e. observing them as three groups of factors
(basic factors, efficiency factors and innovation and sophistication factors), can identify the levels of
development of individual countries, i.e. whether they are factor-driven economies, efficiency-
driven economies or innovation-driven economies.
Table 14: Twelve pillars of competitiveness in South East Europe countries
Co
un
try
Basic factors Efficiency factors
Innovation
and
sophisticat
ion factors Glo
bal
Co
mp
etit
iv
enes
s In
dex
Inst
itu
tio
ns
Infr
astr
uct
ure
Mac
roec
on
om
ic s
tab
ility
Hea
lth
an
d p
rim
ary
edu
cati
on
Hig
her
ed
uca
tio
n a
nd
tra
inin
g
Go
od
s m
arke
t ef
fici
ency
Lab
ou
r m
arke
t ef
fici
ency
Fin
anci
al m
arke
t d
evel
op
men
t
Tech
no
logi
cal r
ead
ine
ss
Mar
ket
size
Bu
sin
ess
so
ph
isti
cati
on
Inn
ova
tio
n
Albania 3.7 3.6 4.0 6.0 4.7 4.3 4.0 3.2 3.4 3.0 3.7 2.8 3.9
BiH 3.2 3.1 4.3 6.0 3.8 3.7 3.4 3.3 3.6 3.1 3.3 2.8 3.7
Bulgaria 3.4 4.0 4.9 6.0 4.5 4.4 4.2 4.0 4.9 3.9 3.6 3.1 4.3
Montenegro 3.9 4.0 4.6 6.2 4.6 4.3 4.2 4.3 4.3 2.2 3.6 3.3 4.2
Croatia 3.6 4.6 4.2 5.8 4.6 4.0 3.8 3.6 4.6 3.6 3.7 3.1 4.1
Macedonia 4.1 3.8 5.1 5.6 4.8 4.6 4.1 4.1 4.2 2.9 3.9 3.4 4.3
Romania 3.7 3.6 5.4 5.5 4.5 4.3 4.1 4.0 4.6 4.6 3.7 3.2 4.3
Serbia 3.2 3.9 3.6 5.9 4.3 3.7 3.7 3.2 4.5 3.7 3.1 2.9 3.9
Source: Global Competitiveness Report 2015–2016
From the analysis of data given in the table it is obvious that Bosnia and Herzegovina has the most
favourable indicators concerning basic factors (rank 95 and score 4.2) which are key for factor
(resource) driven economies. By efficiency factors, BiH is ranked 112th (score 3.5). The most
unfavourable impact on competitiveness is that of the innovation and sophistication factors (rank
120 and score 3.0) which are key for innovation-driven economies, i.e. the factors which affect
significantly the increase of competitiveness of an economy under modern conditions. The indicator
of higher education and training is relatively high and a comparison with the innovation factors
implies that knowledge quality is insufficient. The impact of those two elements affects also
technological readiness, and financial market development.
An analysis of individual factors within the pillars of competitiveness indicates the areas in which
changes are necessary in order for them to contribute more significantly to the improvement of
24
competitiveness of BiH, and thereby also of the Republic of Srpska. Considering that the application
of new technologies and innovations is the most important factor of improvement of
competitiveness, and that foreign investments are an important factor of technology transfer, it is
evident that BiH is ranked 135th when it comes to foreign investment and technology transfer, and
103rd by availability of latest technologies. This situation would improve significantly if individual
factors of business sophistication pillar would be enhanced. The problem of innovation and its
stronger impact on competitiveness increase would improve if educational system quality were
better, since BiH is at the 136th place by educational system quality. By capacity for innovation, BiH is
at the 134th place, and closely connected with that is also the country’s capacity to retain talent
(136th place) and to attract talent (137th place). By improving the above factors, BiH and thereby also
the Republic of Srpska would gradually move away from a factor-driven economy, become an
efficiency-driven economy, and then an innovation-driven economy.
The Global Sustainable Competitiveness Index is the Global Competitiveness Index adjusted for
social and environmental sustainability indicators. The Global Competitiveness Index shows
competitiveness in a short and medium term, while the Global Sustainable Competitiveness Index
shows competitiveness in a long term.
The Global Competitiveness Index is adjusted by means of two groups of indicators:
1. social sustainability indicators:
- access to basic needs (sanitation, drinking water and healthcare),
- sensitivity to shocks (employment, informal economy and social safety net protection),
- social cohesion (Gini coefficient16, social mobility and youth unemployment).
2. environmental sustainability indicators:
- environmental protection policy (environmental protection regulations, number of
ratified international agreements on environmental protection and biosphere
protection),
- use of renewable sources (agricultural water intensity, forest cover change and fish
stock overexploitation),
- environmental degradation (level of particulate matter concentration, CO2 intensity and
quality of the natural environment).
3.1.2. Ease of Doing Business Index
The ease of doing business index is published by the World Bank within the report on the ease of
doing business (Doing Business Report). It represents an important indicator to foreign investors
when selecting the site, because a country’s ranking affects significantly foreign investor’s decision.
The latest published report monitors conditions for doing business in the total of 189 countries. The
ease of doing business index for the Republic of Srpska is not monitored specifically within this
report, rather, indicators are monitored for Bosnia and Herzegovina (where conditions for doing
16 The Gini coefficient is the most commonly used measure of dispersion, and it is used as a measure of
inequality in income, inequality in wealth dispersion or distribution among individual social groups. Its value ranges between 0 and 1, where a low Gini coefficient represents equal distribution of income or wealth, and a high Gini coefficient represents unequal distribution.
25
business in Sarajevo are taken as reference indicators). In the 2015 report, BiH is ranked 79th by the
overall score.
Considering that the Report shows data for 189 countries, a comparison of data with those for the
countries in the vicinity enables examining the competitive position of the country, i.e. segments can
be examined in which the country is better, and in which it is worse than the vicinity, and thus
identifying the areas in which changes need to be made in order for the country to obtain a
competitive advantage against the vicinity, and therefore become more attractive for foreign
investments.
Table 15: Ease of doing business in South East Europe countries 201517
Co
un
try
Tota
l ran
k
(18
9 c
ou
ntr
ies)
Star
tin
g a
bu
sin
ess
De
alin
g w
ith
con
stru
ctio
n p
erm
its
Ge
ttin
g e
lect
rici
ty
Re
gist
eri
ng
pro
pe
rty
Ge
ttin
g cr
ed
it
Inve
sto
r p
rote
ctio
n
Taxe
s
Trad
ing
acro
ss b
ord
ers
Enfo
rcin
g co
ntr
acts
Clo
sin
g a
bu
sin
ess
BiH 79 175 171 119 97 42 66 154 28 66 38
Serbia 59 65 139 63 73 59 81 143 23 73 50
Bulgaria 38 52 51 100 63 28 14 88 20 52 48
Montenegro 46 59 91 163 79 7 36 64 42 43 36
Croatia 40 83 129 66 60 70 29 38 1 10 59
Macedonia 12 2 10 45 50 42 14 7 26 26 37
Romania 37 45 105 133 64 7 57 55 1 34 46
Albania 97 58 189 162 107 42 8 142 37 96 42
Source: Doing Business Report 2016
BiH, Serbia, Montenegro and Macedonia are the countries that registered improvement in their
positions in the overall ranking list relative to the previous report, as follows, BiH up three
places, Serbia up 9, Montenegro up one and Macedonia up two places. Deterioration in
positions was achieved by Bulgaria by two places, Croatia by one and Albania by 35 places.
In addition to the global Doing Business report, the World Bank Group also prepared Doing
Business reports for other levels for 2009 and 2011, which covered also Banja Luka compared to
Sarajevo. During 2011, in addition to Skopje, Banja Luka was declared a reformer city among 22
cities in South East Europe, which was contributed to by reform processes in the fields of dealing
with construction permits and starting a business.
The report monitors and measures reforms that affect doing business by small- and medium-
sized enterprises (SME) through ten fields: starting a business, obtaining construction permits,
getting electricity, registering property, getting credit, protection of minority investors, paying
taxes, trading across borders, enforcing contracts, resolving insolvency – closing a business. The
17 The latest DB2016 report revised the data and methodology used in the previous DB report, so there are
discrepancies in rankings.
26
report also monitors labour market regulation in those segments that are not included in the
aggregate indicators.
BiH registered a year on year decline in almost all fields, except the fields of getting electricity,
where it moved up 12 places (from the 131st to the 119th place) and enforcing contracts where it
moved up one place (from the 67th to the 66th place), while the position of trading across
borders remained unchanged. Such a position indicates the changes that need to be made in
almost all covered fields, in order to improve the competitiveness of BiH, and by that also that of
the Republic of Srpska.
Analysis of indicators by field is very important for decision-makers, because it enables
examination of progress or deterioration not only by year, but also in comparison with the
countries in the vicinity, and by that provides guidelines as to the segments in which it is
necessary to make changes in order to improve the competitive position of the country, and by
that also to increase the country’s attractiveness for foreign investments.
The following chart gives BiH indicators for 2015:
Chart 8: Ease of doing business in BiH 2015
Source: Doing Business Report 2016
If we analyse the field of starting a business we can state that BiH position in the ranking list
deteriorated by ten places (from the 165th place in 2014 to the 175th place in 2015).
The following table gives four segments of starting a business for BiH, countries in the vicinity,
Europe and Central Asia, and OECD countries:
Table 16: Starting a business in South East Europe countries (2015)
Country
Rank
Number of procedures
Number of
days
Costs (% of income)
Minimum capital (as GDP % per
capita
BiH 175 12.0 67.0 14.8 28.0
Serbia 65 6.0 12.0 6.6 0.0
Bulgaria 52 4.0 18.0 0.7 0.0
Montenegro 59 6.0 10.0 1.4 0.0
Croatia 83 7.0 12.0 3.3 26.6
Macedonia 2 1.0 1.0 0.1 0.0
27
Romania 45 5.0 8.0 2.0 0.6
Albania 58 6.0 5.5 10.4 0.0
Europe and Central Asia
4.7 10.0 4.8 3.8
OECD 4.7 8.3 3.2 9.6
Source: Doing Business Report 2016
This BiH indicator was singled out in order to present also the fact that not all reports monitor the
situation in entire BiH. In case of the Doing Business Report, the situation is monitored only in one
city in the country, in the case of BiH that is Sarajevo. The reality of investments in the Republic of
Srpska in this area is more favourable. Starting a business in BiH requires 12 procedures and 67 days,
and the costs amount to 14.8% of income p/c. In the Republic of Srpska, upon completion of the
business registration reform, starting a business requires a significantly lower number of days, and
costs and time required to start a business have also been reduced (minimum capital costs are BAM
1). The above indicates the importance of reforms in the area of starting business that have been
implemented by the Republic of Srpska. If only its own data were shown, the Republic of Srpska
would be much better ranked, i.e. results of the reforms would show the real situation of improved
business environment for foreign investors, than when data are shown for the entire BiH.
Out of the total of 189 countries, by dealing with construction permits, BiH is ranked 171st.
Obtaining a construction permit in BiH requires 15 procedures and 179 days, and the costs amount
to 19.3% of the value of the building. The best ranked is Macedonia, where obtaining a construction
permit requires 10 procedures and 74 days, and the costs amount to 5.4% of building value. Out of
all the countries in the vicinity, the worst ranked is Albania (189th place). Concerning construction
permits, an evident improvement in ranking was achieved by Serbia (up 39 places). Serbia adopted a
new Law on Planning and Construction, whose implementation started on 1 March 2014. The Law
enables a joint procedure of issue of a construction permit in no more than 28 days.
On 25 April 2013, the National Assembly of the Republic of Srpska adopted the new Law on Spatial
Planning and Construction, which simplified the actions and procedures for permit obtaining,
reduced the times, the number of steps and documents required to obtain a construction permit.
The new law has significantly changed or abolished eight formalities.
Talking about getting electricity, BiH is ranked 119th. The number of procedures for electricity
connection is 8, and it takes 125 days. The waiting and final acceptance for external connection take
31 days.
The best ranked is Macedonia (88), where electricity connection takes 3 procedures and 97 days.
Paying taxes, i.e. tax policy in BiH is ranked 154th, where companies in BiH on average spend 420
hours on paying taxes. On average, 45 tax payments are made at annual level.
3.1.3. Investment Reform Index
Creating a favourable investment ambiance is of large importance for attracting foreign investments.
The investment reform index for the countries of South East Europe was published in 2006 for the
first time, in an OECD publication. Since the publication of the issue, a significant progress has been
achieved in reforming policies and institutions which constitute a favourable ambiance for investing.
The investment reform index also shows the reforms that need to be implemented in various fields,
28
and which are of fundamental importance for encouragement of investments. The conclusions and
recommendations obtained through an analysis of the investment reform index 2016 are18:
1. Investment policy and promotion - Newly adopted legislation provides for improved treatment of
foreign and domestic investors, improved access to industrial land for foreign investors, decreased
barriers to foreign personnel movement and investment related capital transfers; strengthened
intellectual property rights legislation and enforcement. Recommendations: further advance the
implementation of investment promotion strategies and investment promotion agency services;
further develop the design and promotion of foreign investment incentive schemes; strengthen
practices for linking foreign investors with local suppliers; enhance communication with potential
and established investors through a CRM mechanism and one-stop shops; ease foreign investors’
access to land, especially agricultural, by clearly defining land ownership; intensify intellectual
property rights awareness-raising activities.
2. Trade policy and facilitation – Improved integration into the world trading system through
increased number of trade agreements and tariff reduction; strengthened institutional frameworks
through establishment of a single body to co-ordinate trade policy. Recommendations: further
reduce non-tariff barriers to trade - especially in sanitary and phytosanitary measures; address
regulatory barriers to trade in services; strengthen trade policy formulation based on analysis and
impact evaluations.
3. Education and competences – Improved strategies on education quality and labour force
competencies; advanced implementation of national qualifications frameworks; increased efforts to
draw up policy frameworks that support equity in education. Recommendations: Prioritise the
teaching profession through continued professional development; make vocational education and
training more attractive and relevant through increased co-operation and work-based learning
schemes; further address drop-out and early school leaving in policy measures; further develop
career guidance services; increase participation in lifelong learning
4. Research, development and innovations – Increased research and development expenditure
efficiency; improved research and development policy frameworks; recognised international
research and development co-operation as a priority. Recommendations: improve research and
development policy governance through adopting dedicated innovation strategies, establishing
national level co-ordination bodies, establishing national level bodies of co-ordination, setting up
independent implementing agencies and increasing policy monitoring and evaluation; increase
overall research and development expenditure and the number of researchers; increase private
sector participation in research and development through indirect instruments (i.e. tax, credits) and
direct measures (i.e. grants, matching grants, loans); encourage excellence through research and
development grant schemes; facilitate business-academia collaboration in research and
development.
5. Digital society - Improved information society institutional and regulatory framework
establishment; introduced cybercrime legislation in national penal codes increased mandatory
information-communication technology standards for education; established e-commerce laws.
6. Infrastructure - Improved physical infrastructure and reduced bottlenecks, increased number of
infrastructure projects; improved infrastructure regulation and governance; introduced road safety
strategies.
18 OECD, Competitiveness in South East Europe: A Policy Outlook 2016
29
7. Access to finance – Developed institutional and regulatory frameworks underpinning access to
finance; reformed banking finance frameworks facilitate access to finance; improved insolvency
laws. Recommendations: Further develop credit and collateral systems; ensure regular updating of
credit register systems, moveable assets registers and cadastres; further develop venture capital to
provide new financing opportunities for innovative enterprises and clarify venture capital activity in
regulatory legislation; establish investment-readiness and financial literacy programmes targeting a
wide range of enterprises; improve financial consumer protection.
8. Tax policy - Signed double taxation avoidance treaties between the countries of South East Europe
and EU countries; streamlined and modernised filing and payment procedures; introduced transfer
pricing rules; improved tax analysis capacities.
9. Competition policy – Established policies that prohibit anticompetitive behaviour; formed
independent competition authorities. Recommendations: Develop guidelines for stakeholders on the
competition authorities’ enforcement practices; expand the use of market bodies in co-operation
with government bodies; reinforce intra-regional co-operation on competition policy; strengthen the
enforcement record of competition law.
10. Employment policy - Developed comprehensive employment strategies through consultative
processes; addressed structural unemployment, particularly youth unemployment in strategies.
Recommendations: further promote active labour market policies (e.g. youth employment
programmes, self-employment programmes, additional training opportunities for long-term
unemployed etc.); increase and improve the infrastructure of public employment services; align
labour statistics with Eurostat norms; improve detection and enforcement measures in addressing
informal employment; develop a legislative framework for social businesses.
Business Risks and Protection from Business Risks
Business risks are risks that foreign investors take into account when making the investment-
decision. Reduction of business risks leads to improved competitiveness of the Republic of Srpska,
and thus also to increased attractiveness of the Republic of Srpska for foreign investments19.
Business risks are most commonly analysed by means of the index of economic freedom and
country’s credit rating.
The index of economic freedom20 is published by The Heritage Foundation and The Wall Street
Journal. The high reputation enjoyed by The Heritage Foundation has a significant influence on
investment decision-making by foreign investors. For 2015, the value of BiH index of economic
freedom amounts to 59, up 0.6 points year on year. Among the 178 ranked countries, BiH is at the
97th place.
The improvement of the index of economic freedom was affected the most by improvements in half
of the total of ten factors, as follows: government spending, labour freedom, monetary and trade
freedom and freedom from corruption. Freedom from corruption was awarded additional 12 points,
19 According to the Forbes’ best countries for business list, among the 144 ranked countries Bosnia and
Herzegovina is at the 78th place. 20 The index of economic freedom covers indicators for ten indicators: business freedom, trade freedom, fiscal
freedom, government spending, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom. The highest value of the index of economic freedom is 100 – index value 0 means that there is no economic freedom at all, and 100 means that there is total economic freedom.
30
which is very significant. Reforms that were implemented led to the improvement of the index of
economic freedom during the last five years by 1.5, which is the best advancement thus far.
The index of economic freedom for Bosnia and Herzegovina was published for the first time in 1998,
and until 2015 the value of this index had moved up by 29.6 points, which is the second largest
increase taking into account all countries covered by this index. Throughout the period from the
beginning of economic freedom monitoring, BiH has achieved an improvement in the index for all 10
economic freedom indicators, which is a signal of significant progress. The average value of the index
of economic freedom for all countries in 2015 is 60.4, and for countries in the region 67.0.
An overview of the index of economic freedom for BiH and countries in the vicinity is given in the
following table:
31
Table 17: Index of economic freedom for BiH and South East Europe countries 2015
Co
un
try
Ran
k
Sco
re
Pro
pe
rty
righ
ts
Fre
edo
m f
rom
co
rru
pti
on
Bu
sin
ess
fr
ee
do
m
Lab
ou
r fr
ee
do
m
Mo
ne
tary
fr
ee
do
m
Go
vern
me
nt
spe
nd
ing
Fisc
al f
ree
do
m
Trad
e f
ree
do
m
Inve
stm
en
t
fre
ed
om
Fin
anci
al
fre
ed
om
BiH 97 59.0 20.0 42.0 53.5 63.4 84.0 27.3 82.9 87.2 70.0 60.0
Serbia 90 60.0 45.0 42.0 57.8 70.4 72.2 27.1 82.4 78.2 75.0 50.0
Bulgaria 55 66.8 30.0 41.0 68.5 76.6 83.2 64.5 91.1 88.0 65.0 60.0
Montenegro 66 64.7 40.0 44.0 77.1 77.5 79.7 36.7 92.6 84.8 65.0 50.0
Croatia 81 61.5 40.0 48.0 55.8 42.8 80.0 46.5 74.9 87.2 80.0 60.0
Macedonia 53 67.1 35.0 44.0 79.2 70.7 79.0 65.6 91.4 86.2 60.0 60.0
Romania 57 66.6 40.0 43.0 69.8 68.6 77.3 62.3 86.9 88.0 80.0 50.0
Albania 63 65.7 30.0 31.0 70.6 52.9 80.8 76.1 87.2 87.8 70.0 90.0
Hong Kong 1 89.6 90.0 75.0 100.0 95.9 81.8 89.7 93.2 90.0 90.0 90.0
Source: Index of Economic Freedom 2015, Heritage Foundation and The Wall Street Journal
32
If we analyse the data from the above table, we can state that BiH is still in the group of mostly
economically unfree economies21, although it has moved up four places in the ranking list since the last
year (101). Property rights are ranked the worst (20 points) – the average for all countries of the region
is 35 points. Investing freedom is at the level of group average (70.6). Considering that main objections
within this indicator in the Report relate to starting business, the Republic of Srpska would undoubtedly
have better indicators for this indicator, considering that a one-stop shop has been introduced and a
series of reforms has been implemented in this area.
Country’s credit rating defines the country’s general creditworthiness to provide a safe investment
environment and covers the following indicators: country’s economic status, transparency in the capital
market, levels of foreign and domestic investments, level of foreign currency reserves and country’s
ability to remain stable despite political change. The credit rating of Bosnia and Herzegovina is
monitored by two agencies: Moody's Investors Service and Standard & Poor's. As a result of their
analyses, on 11 March 2016, agency Standard & Poor's confirmed Bosnia and Herzegovina’s sovereign
credit rating of B with a stable outlook. On 26 February 2016, agency Moody's Investors Service
confirmed that Bosnia and Herzegovina’s sovereign credit rating was B3/stable outlook.
Upon request of the Republic of Srpska Government, agency Moody's Investors Service assigned a credit
rating to the Republic of Srpska for the first time in January 2015, and graded it B3 with a stable outlook.
On 10 February 2016, Moody's Investors Service confirmed the credit rating of the Republic of Srpska as
B3 with a stable outlook.
Foreign Investor Protection from Business Risks
Rights of foreign investors are defined and protected by the Constitution of the Republic of Srpska:
Ownership rights and other rights of a foreign investor acquired through an investment of capital may
not be lessened or denied by law nor by any other legal act. A foreign person is guaranteed the right to
conduct commercial or other business activities, as well as the rights arising from such business, under
conditions which cannot be changed to his detriment. Foreign investors are guaranteed the freedom to
take the profit and the invested capital out of the Republic. The Law on Foreign Investments of the
Republic of Srpska and the Law on the Policy of Direct Foreign Investment in BiH guarantee national
treatment to foreign investors, i.e. foreign investors have the same rights and obligations as residents,
foreign investors cannot be discriminated against in any form, including but not limited to foreign
investor’s citizenship, seat/residency, religion or the state of origin of investment.
Foreign investor’s property cannot be nationalised, expropriated. If, however, existence of a public
interest is established, the property of a foreign investor can be nationalised or expropriated, and
foreign investors are guaranteed the right to an appropriate compensation. The compensation shall be
deemed appropriate if it is apposite, effective and prompt.
As a protection from investment risks, foreign investors concerned about profit transfer restrictions,
expropriation, war and civil disturbances and denial of justice can take insurance against such risks with
the Multilateral Investment Guarantee Agency (MIGA – part of the World Bank Group).
21 Countries with less than 50 points are economically repressed, from 50 to 60 points mostly economically unfree,
from 60 to 70 points moderately economically free, from 70 to 80 points mostly economically free, and above 80 points economically free countries.
33
When investing in the Republic of Srpska, investors are offered protection from risks also by the political
risk insurance of the US Overseas Private Investment (OPIC).
Bosnia and Herzegovina has signed investment promotion and protection agreements with 41 countries.
3.2. Competitiveness of Local Self-Government Units Local self-government units are an important factor in attracting foreign investments. Strengthening the
competitiveness of local self-government units directly affects strengthening of the competitiveness of
the Republic of Srpska. Increase of competitiveness of local self-government units is one of the
preconditions to attract investments.
Based on the available empirical data, a set of investment climate factors at the local self-government
level can be defined which determine the capacity of cities and municipalities to attract new (but also to
keep the established) investors, regardless of their size and country of origin.
For the needs of analysis of conditionality of the real investment inflow by the degree of strength of
these factors, a wider set of indicators should be divided in two subsets which comprise:
1. exogenous factors (economic ambiance elements which are completely defined by the decisions
at the central level of government or by given external circumstances),
2. endogenous factors (business environment components to a larger or smaller extent dependent
on the activities of the local administrative bodies).22
Local self-government capacities to attract investments are presented in the following chart:
22 Dragan Pejčić, Ekonomski kapacitet lokalnih samouprava za privlačenje investicija (Projekat Institucionalna
podrška SKGO), Savez gradova i opština Srbije i Švajcarska agencija za razvoj i saradnju, Beograd, 2011
34
Chart 9: Capacities of local self-government units to attract investments
Source: D. Pejčić, Ekonomski kapacitet lokalnih samouprava za privlačenje investicija, Beograd, 2011
In order to improve the competitiveness of the local self-government units, the Republic of Srpska
joined the Business-Friendly Certification Project (BFC)23. The certification of municipalities with
business-friendly environment is an assessment of investment climate in local self-government units.
The project covers BiH, Serbia, Macedonia and Croatia. In 2013, the Republic of Srpska established a
national coordination network which consists of the Ministry of Economic Relations and Regional
Cooperation, Ministry of Administration and Local Self-Government, Republic of Srpska Chamber of
Commerce, Association of Local Authorities and EDA Development Agency. The Republic of Srpska
Chamber of Commerce is a technical secretariat of the Network. The Network is a member of the
Regional Business-Friendly Council of South East Europe.
23 BFC (Business Friendly Certificate) started as a pilot project in Serbia in 2007, launched by the National Alliance
for Local Economic Development (NALED) and supported by the US Agency for International Development (USAID). In 2011, the project was expanded to South East Europe. The main donors of this project are: German Agency for International Cooperation GIZ, Swiss Agency for Cooperation and Development and USAID Gold Project.
Geographical position
Distance from motorway and airport (in km),
Distance from state border (in km)
Raw material availability
Existence of natural resources
Economic development
Gross domestic product per capita (in EUR)
Local suppliers
Number of active companies per 1000
inhabitants, total and by sector
Labour force availability
(Un)employment rate (in %)
Labour force quality
Structure of the (un)employed by SSS,
Labour force productivity
Labour costs
Average monthly net earnings, total and by
sector (in EUR)
Local fees
Average fees for construction land use and development (in EUR/m)
Construction land availability
Available land area (in ha)
Investment incentives
State grants (in EUR),
Land fee reduction (%)
Infrastructure development
Length of road and railway network (in km)
Administration quality
Rate of resolved requests for issue of construction
approval (in %)
35
To investors wishing to invest in South East Europe, a business-friendly certificate serves as a
standardised mechanism for assessing local conditions for doing business and indicates which local self-
government units in the region have the most favourable investment climate. The certification of
municipalities represents a reform process whereby procedures are adjusted to the investor in order to
make starting business as simple as possible. Local self-government units must meet about 80 criteria
grouped in 12 categories24 in order to obtain the certificate.
In the Republic of Srpska, BFC certificates were awarded to Prijedor (re-certificate), Banja Luka, Bijelјina,
Teslić and Mrkonjić Grad. Another 10 municipalities are in various stages of certification: Gradiška,
Trebinje, Laktaši, Uglјevik, Doboj, Brod, Bileća, Kozarska Dubica, Novi Grad and Kotor Varoš.
In March 2015, the Ministry of Economic Relations and Regional Cooperation, Ministry of Administration
and Local Self-Government, and RS Chamber of Commerce organised an international conference
entitled Competitiveness of Local Governments – How to Draw Investments?. The conference answered
the questions about what certified municipalities were best at and what made them more favourable
for investment than other municipalities, and also considered opportunities for cooperation among local
self-government units aimed at creating a favourable investment climate, promoting investments and
attracting investments.
3.3. Competitiveness of Small- and Medium-Sized Enterprises and Involvement in
Global Value Chains Observing and analysing the competitiveness of the Republic of Srpska is inseparable from observing
and analysing the competitiveness at a micro level, where under the conditions of globalisation of the
world economy, not only the competitiveness at the local level or within the economy as a whole is
important, but also international competitiveness of companies of the Republic of Srpska. Increasing the
competitiveness of the Republic of Srpska at the global market can only be achieved by increasing
international competitiveness of companies of the Republic of Srpska. Strengthening international
competitiveness of companies of the Republic of Srpska strengthens also its competitiveness in
attracting foreign investments.
Considering that the structure of economic entities in the Republic of Srpska is dominated by small- and
medium-sized enterprises and entrepreneurs, which constitute the total of 99.59%25 of all economic
entities, the need is evident to increase the competitiveness of these economic entities, so that they
become competitive at the global market and involved in the global value chains, where involvement in
the global value chains does not imply only involvement by domestic companies, but also by foreign
companies with their investments in the Republic of Srpska.
24 Strategic approach to local economic development; administrative capacity to support businesses; cooperation
and direct communication with local businesses; efficient system for issuing construction permits; databases of available locations, labour force, economy; applying marketing to promote investments; creditworthiness and financial stability; promotion of employment and development of human resources; promotion of public-private partnerships; appropriate infrastructure and reliable utility services; transparent and stimulating policy of local fees, taxes and incentives, and use of information technologies. 25 Republic of Srpska strategy for the development of small- and medium-sized enterprises 2016-2020 – draft
36
Foreign investments in SME would play a large role not only in horizontal linking of companies, but also
in the vertical, especially if need is taken into account to export products of higher processing level with
higher new value added to the global markets. Strengthening SME competitiveness and increasing
foreign investments in SME would also lead to increasing employment, upgrading product quality,
increasing productivity and innovation, transferring modern technology, and improving
entrepreneurship.
Looking at the employment in the SME sector, it is obvious that this sector has an important share in the
employment in the Republic of Srpska, because 75% of all the employed persons are working in this
sector. SME generate: 77.13% of business revenue of all companies, 73.12% of sales revenue at foreign
market, and 75.54% of total net profit of all companies.26
In order to improve SME competitiveness, the Republic of Srpska established the SME Development
Agency27, and in 2013 adopted the Law on SME Development28 which is harmonized with the principles
of the EU SME act29.
A special importance for strengthening SME competitiveness lies with strengthening entrepreneurship
and developing entrepreneurial infrastructure.
Entrepreneurship is an innovative process of creating and developing business enterprises or activities
and creating business success at the market, while entrepreneurial infrastructure are spatial and
technical forms of support to entrepreneurship development with a particular emphasis on SME
establishment and development30.
Entrepreneurial infrastructure can be organised in the form of a business zone, a technology park, an
entrepreneurial incubator or a cluster.
According to the Global Entrepreneurship Monitor for BiH,31 the largest group of entrepreneurs in the
Republic of Srpska is aged between 23 and 34, while in the Federation of BiH they are between 45 and
54, which is an exceptionally favourable indicator for the Republic of Srpska. The largest percentage
among early entrepreneurs are persons with a higher level of education.
Foreign investments undoubtedly contribute to the development of SME competitiveness, because they
enhance SME innovation, which represents the basis for SME development. BiH has unfavourable
innovation indicators within the Global Competitiveness Index, because it is at the 108th place among
148 countries. Strengthening entrepreneurial infrastructure would significantly improve foreign
investments, especially in the area of business zones, technology parks and clusters, because BiH, and
the Republic of Srpska as its part, is at the 148th place by cluster development.
Foreign investments have an important role also in the involvement of companies from the Republic of
Srpska in the global value chains, especially taking into account that BiH, and also the Republic of Srpska
as its part, is at the 136th place in the Global Competitiveness Index by value chain breadth.
26 Republic of Srpska strategy for the development of small- and medium-sized enterprises 2016-2020 – draft 27 Based on the Law on Encouragement of SME Development, Official Gazette of the Republic of Srpska, 23/09. 28 Law on SME Development, Official Gazette of the Republic of Srpska, 50/13. 29 Small Business Act for Europe, European Commission. 30 Law on SME Development, Official Gazette of the Republic of Srpska, 50/13. 31 Global Entrepreneurship Monitor BiH, 2012.
37
3.4. Innovation as a Factor of Attracting Foreign Investments
Increase of competitiveness is closely connected with increase of productivity, and increase of
productivity is significantly influenced by innovation. Analyses show that economies which have higher
investments in research and development and which are developing information-communication
technologies are developing faster (innovation-driven economies) and becoming more competitive at
the global market. Under modern conditions of globalisation, knowledge and innovation are becoming a
leading factor in the development of each economy. Application of new scientific and technological
achievements leads to the development of companies, local self-government units, and therefore also
of the economy as a whole. Considering that the Republic of Srpska does not have sufficient funds for
larger investments in scientific research, an increase in the volume of foreign investments leads also to a
transfer of scientific and technological achievements from the countries of origin of foreign investors.
That way, possibility is created for the economy of the Republic of Srpska to gradually move from the
efficiency-driven economy to an innovation-driven economy, i.e. to transit from the comparative to the
competitive advantages. Naturally, such a development requires increasing investments in scientific
research and based on that universities to become active participants in creating development policies.
Allocations for scientific research work in the Republic of Srpska are given in the following table:
Table 18: Gross domestic expenditures on research and development (in BAM thousand)
Total Business
sector Public sector
Higher education
Non-profit
2009 24,566 10,017 1,670 12,879 -
2010 20,779 8,520 2,019 10,091 142
2011 26,191 15,526 3,592 7,031 42
2012 34,297 27,430 1,946 4,875 46
2013 49,035 43,541 924 4,464 106
2014 17,839 10,614 1,598 4,845 782
Source: Statistical Yearbook 2015, Republic of Srpska Statistics Institute
Research and development expenditures were sharply reduced in 2014, by 63.6% year on year. Out of
the total 2014 amount, the largest gross domestic research and development expenditures were those
for land and buildings.
The total number of companies during the 2012-2014 period was 1765. Out of those, 379 companies or
21.5% were innovation active and 1385 or 78.5% were non-innovative companies. Out of the total
number of companies, 259 or 14.7% were technological innovation-active (those are the companies that
introduced only technological innovations or technological and non-technological innovations at the
same time), and 302 or 17.1% were non-technological innovation-active companies. Among the 379
technological innovation-active companies there were 230 small, 120 medium and 29 large companies.
Incorporating innovation into production process increases productivity, ease of involvement of
domestic companies in the global value chains of higher processing level products, competitiveness to
attract foreign investments, employment and competitiveness of the economy as a whole.
Although during the observed period, with the exception of 2010 and 2014, there was a constant
increase in investments in research and development, that is still insufficient, especially taking into
38
account that developed countries are investing much more (e.g. the Netherlands 2.16% of GDP, France
2.26%, United Kingdom 1.72%, Germany 2.92%, Canada 1.73%, USA 2.79% and Finland 3.55%32 and that
a minimum of 1% of GDP needs to be invested for the results of research and development to have a
significant influence on investments and lead to accelerated economic development.
Tendencies at the global level are aimed at increasing business sector allocations for innovations, and
reducing the share of the state.
By increasing innovation and applying scientific and technological achievements, and developing
information-communication technologies, the Republic of Srpska will not only increase its
competitiveness in attracting foreign investments, but also increase domestic investments.
The innovation of BiH, and of the Republic of Srpska as its part, is best illustrated by the Global
Innovation Index (GII)33. The GII consists of two sub-indices – the innovation input sub-index and the
innovation output sub-index, while their ratio shows innovation efficiency.
The GII, innovation inputs, innovation outputs and innovation efficiency are given in the following table:
32 http://data.worldbank.org/indicator/GB.XPD.RSDV.GD.ZS 33The Global Innovation Index is a composite indicator, which ranks countries by the ratio between innovation
opportunities (input) and innovation application (output). Innovation efficiency represents the ratio between the two sub-indices: innovation input and innovation output.
39
Table 19: Global Innovation Index, innovation input, innovation output and innovation efficiency 2015
Country
GII (score) 2014
GII (ranking)
2014
Innovation output (score)
Innovation output
(ranking)
Innovation input (score)
Innovation input (ranking)
Innovation efficiency
(score)
Innovation efficiency (ranking)
GII (score) 2015
GII (ranking)
2015
BiH 32.4 81 18.2 122 46.4 47 0.4 135 32.3 79
Serbia 35.9 67 31.2 59 41.8 70 0.7 55 36.5 63
Montenegro 37.0 59 36.5 40 45.9 50 0.8 29 41.2 41
Croatia 40.7 42 35.7 41 47.7 43 0.8 50 41.7 40
Macedonia 36.9 60 32.1 55 44.0 56 0.7 64 38.0 56
Bulgaria 40.7 44 38.2 35 46.1 49 0.8 21 42.2 39
Romania 38.1 55 32.4 52 44.0 57 0.7 58 38.2 54
Albania 30.5 94 20.3 112 41.2 73 0.5 129 30.7 87
Switzerland 64.8 1 68.6 1 68.0 2 1.0 2 68.3 1
Source: Global Innovation Index 2015, Cornell University, INSEAD and the World Intellectual Property Organization
40
From the above table, it is obvious that BiH is ranked 79th out of 141 in the Global Innovation Index.
Compared to 2014, BiH has moved up two places in the ranking list.
A comparison of innovation outputs and innovation inputs shows innovation efficiency which indicates
the ratio between innovation potentials and innovation potentials use. The value of this indicator for BiH
is 0.4 and by this indicators, BiH is at the 135th place. The discrepancy between innovation inputs, where
BiH is ranked 47th, and innovation outputs, where BiH is ranked 122nd, indicates that BiH did not use its
available innovation inputs, i.e. that universities with their research capacities were not fully involved in
the business and industrial sector.
All this indicates that the Republic of Srpska has an increased need for foreign investments, because
foreign investments increase spillover of research and development results from other countries, as well
as technology transfer, and enable faster and more efficient involvement in the global value chains.
We can find the reasons for such a ranking of BiH if we analyse the pillars in the output and input sub-
indices.34
The sub-indices and pillars of the GII are given in the following table
34Both sub-indices consist of 79 indicators, grouped into seven pillars, where each pillar is composed of three
indicators. The innovation input covers the following pillars: institutions (political environment, regulatory environment and business environment), human capital and research (education, tertiary education and research and development), infrastructure (information and communication technologies, general infrastructure and ecological sustainability), market sophistication (credit, investment and trade and competition) and business sophistication (labour force education, innovation linkages and knowledge absorption). The innovation output covers the following pillars: knowledge and technology outputs (knowledge creation, knowledge impact and knowledge diffusion) and creative outputs (intangible assets, creative goods and services and online creativity).
41
Table 20: Structure of the innovation input sub-index of the Global Innovation Index/ranking 2015
Country Institutions Human capital and research Infrastructure Market sophistication Business sophistication
R
anki
ng
Po
litic
al
envi
ron
men
t R
egu
lato
ry
envi
ron
men
t B
usi
ne
ss
envi
ron
men
t
Ran
kin
g
Edu
cati
on
Tert
iary
ed
uca
tio
n
Res
earc
h a
nd
dev
elo
pm
ent
Ran
kin
g
IC t
ech
no
logi
es
Gen
eral
infr
astr
uct
ure
Eco
logi
cal
sust
ain
abili
ty
Ran
kin
g
Cre
dit
Inve
stm
ent
Trad
e an
d
com
pet
itio
n
Ran
kin
g
Lab
ou
r fo
rce
edu
cati
on
Inn
ova
tio
n
linka
ges
Kn
ow
led
ge
abso
rpti
on
BiH 71 92 50 81 38 135 81 99 96 92 100 92 18 54 17 1 41 84 3 119
Serbia 64 70 49 83 64 99 42 58 56 60 71 34 90 67 72 111 95 92 119 45
Montenegro 47 51 48 38 49 33 23 77 70 51 84 73 50 47 40 97 71 80 85 47
Croatia 41 39 47 52 47 15 51 54 50 53 92 16 68 84 69 53 50 36 94 49
Macedonia 55 77 55 15 55 5 78 93 94 88 126 60 46 46 75 35 62 64 66 59
Bulgaria 45 54 39 40 58 74 50 57 53 81 50 26 61 52 101 45 60 50 48 102
Romania 46 61 32 37 73 88 67 63 58 61 96 20 81 58 114 70 67 81 81 42
Albania 70 72 91 56 101 91 85 108 71 74 88 40 24 53 3 99 118 113 126 58
Switzerland 10 5 11 28 6 28 19 7 15 41 26 2 5 15 4 14 3 4 7 14
Source: Global Innovation Index 2015, Cornell University, INSEAD and the World Intellectual Property Organization
35 The indicator was calculated based on only one indicator- ratio between students and teachers in secondary schools. For other indicators (education costs as GDP %, ratio between government expenditure per student in secondary schools as a percentage of GDP, school life expectancy in years and ranking in PISA scales in reading, maths and science) data are not available.
42
Out of the five pillars of the innovation input sub-index, BiH’s worst ranking is in the infrastructure
segment (96).
When analysing market sophistication (47), the worst ranking is that of credit indicator, i.e. access to
finance (54), although by this indicator, BiH is ahead of all countries of the region. This pillar includes
tariff rates, access to non-agricultural export market and intensity of local competition. The local
competition intensity data are not included because they were not available.
The business sophistication segment (41) shows that by % of companies offering training, BiH is at the
21st place. However, according to knowledge absorption, BiH is at the 119th place, which is significantly
worse than other countries in the vicinity. This indicator includes also the indicator of net foreign
investment flows as a % of GDP and by that indicator, BiH is at the 91st place.
An analysis of structure of the innovation output sub-index shows the level of use of innovation
potentials. This index consists of two pillars: knowledge and technology outputs and creative outputs.
Table 21: Structure of the innovation output sub-index of the Global Innovation Index/ranking 2015
Country Knowledge and technology
outputs Creative outputs
Ran
kin
g
Kn
ow
led
ge
crea
tio
n
Kn
ow
led
ge
imp
act
Kn
ow
led
ge
dif
fusi
on
Ran
kin
g
Inta
ngi
ble
ass
ets
Cre
ativ
e go
od
s an
d s
ervi
ces
On
line
crea
tivi
ty
BiH 89 105 63 86 135 137 112 49
Serbia 59 47 105 50 60 99 34 44
Montenegro 54 63 23 97 26 59 41 20
Croatia 44 48 34 78 39 61 29 43
Macedonia 69 73 54 63 46 52 47 50
Bulgaria 37 37 18 62 34 33 59 38
Romania 43 66 11 48 72 93 61 47
Albania 110 126 117 74 114 129 69 81
Switzerland 1 3 5 1 3 6 3 5
Source: Global Innovation Index 2015, Cornell University, INSEAD and the World Intellectual Property
Organization
3.5. EU Membership as a Factor of Attracting Foreign Investments
The Republic of Srpska is a small and open economy and precisely because of the small market, there is
a need to enter regional integrations.
43
BiH, and therefore also the Republic of Srpska, is a member of CEFTA36. One of the objectives of CEFTA is
to improve the conditions for promoting investments, and thereby also foreign investments, by such
integration. CEFTA membership improves countries’ readiness for EU membership.
The EU membership has two important implications concerning foreign investments:
1. allows countries that have small markets to expand them. Firms located in the EU have access to
the entire EU market (500 million people),
2. EU membership is contingent upon political, economic and legal stability37.
The impact of joining the EU on foreign investments can be best examined by analysing foreign
investments in countries before and after the EU accession.
Table 22: Foreign investments in countries that joined the EU in 2004, 2003–2007 (in US$ million)
Country 2003 2004 2005 2006 2007
Czech Republic
3,915 6,520 4,567 7,667 7,491
Hungary 5,670 5,146 7,850 8,784 9,550
Poland 10,501 14,786 14,265 15,669 18,776
Slovakia 2,969 4,720 9,108 9,032 5,485
Slovenia 561 1,966 476 657 1,037
Source: UNCTAD, World Investment Report 2014
Table 23: Foreign investments in countries that joined the EU in 2007, 2007–2011 (in US$ million)
Country 2007 2008 2009 2010 2011
Romania 21,006 30,474 15,019 7,764 16,156
Bulgaria 7,695 11,231 4,780 3,680 5,300
Source: UNCTAD, World Investment Report 2014
From the above tables, it is obvious that after accession to the EU, most countries saw a sharp increase
in foreign investments and that such trend continued in forthcoming years. The exception are Romania
and Bulgaria which joined the EU in 2007, but the positive trend of foreign investment increase was
disrupted due to the global financial crisis of 2008. Under the influence of the global financial crisis,
there was a sharp reduction in foreign investments in almost all countries, and this period was followed
by a sharp increase in the competition in attracting foreign investments.
Membership in the EU requires large investments in infrastructure, and such investments enable better
business environment, which increases country’s competitiveness in attracting foreign investments.
36 CEFTA – Central European Free Trade Agreement was signed in 1992. Considering that the Czech Republic,
Hungary, Poland, Slovenia and Slovakia joined the EU in 2004, the Agreement on Amendment of and Accession to CEFTA was signed in 2006 by: Albania, BiH, Bulgaria, Montenegro, Croatia, Macedonia, Moldova, Romania and Serbia. Bulgaria and Romania joined the EU in 2007, and Croatia in 2013. 37 Rajneesh Narula and Christian Bellak, EU Enlargement and Consequences for FDI Assisted Industrial Development, United Nations University – Maastricht Economic and Social Research and Training Centre on Innovation and Technology, 2008.
44
Impact of the EU membership on attracting foreign investments is seen also in the improved quality of
institutions, which together with the implementation of necessary economic reforms and availability of
funding from the EU funds, leads to an increase not only of the foreign, but also of the domestic
investments, and therefore also to employment growth.
When defining the directions of development in the field of attracting foreign investments, we deem
important to take into consideration also the strategic directions defined at the EU and regional levels,
as well as recommendations by international organisations which form the basis for EU policies,
particularly those by UNCTAD, OECD38 and World Bank.
Talking about the EU policy in this field, it is important to note the Europe 2020 strategy
(Communication from the Commission Europe 2020, a strategy for smart, sustainable and inclusive
growth).
The goals and obligations arising from the Europe 2020 strategy do not represent additional criteria or
economic objectives for candidate countries or potential candidates for EU membership, rather the
strategy itself represents a potential for EU membership candidates and potential candidates, primarily
in guiding their reform processes. The document emphasises the importance of this programme for
candidate countries and neighbouring countries, which in a way serves as a roadmap for acceleration
and compatibility of reform processes in the future member states.
The relevance of the strategy for other countries can be seen in various fields, innovation, employment and skills, education, competitiveness, digital society etc. As a result of aspirations towards most successful and simple integration of the countries of South East Europe in the EU and increasing competitiveness of South East Europe, OECD initiated in 2010 the preparation of a South East Europe Development Strategy until 202039 (SEE Strategy 2020), whose main objectives were derived from the Europe 2020 development strategy. The Strategy was adopted on 21 November 2013 at a ministerial conference of the South East Europe Investment Committee, and it covers a group of mutually connected development pillars, as follows:
Integrated growth – through the promotion of regional and investment linkages and policies that are non-discriminatory, transparent and predictable
Smart growth – by committing to innovate and compete on value-added rather than labour costs
Sustainable growth – by raising the level of competitiveness in the private sector, development of infrastructure and encouraging greener and more energy-efficient growth
Inclusive growth – by placing greater emphasis on developing skills, creating employment, inclusive participation in the labour market
Governance for growth – by enhancing the capacity of public administration to strengthen the rule of law and reduce corruption in order to create a business-friendly environment and delivery of public
38 E.g. OECD; Policy Framework for Investment 2015. 39 Overall targets of the SEE 2020 Strategy are: increase SEE countries GDP per capita relative to EU average from
36.4% (2010) to 44% (2020); boost total trade in goods and services from EUR 94.4 billion in 2010 to EUR 209.5 billion in 2020; reduce SEE countries trade deficit from -15.7% (the average in 2008–2010 period) to -12.3% of GDP in 2020; creation of one million new jobs in SEE countries by 2020. Key development pillars of the SEE Strategy are: integrated growth, sustainable growth, inclusive growth and governance for growth.
45
services necessary for economic development.
Fulfilment of the objectives of the SEE Strategy is aimed at increasing competitiveness of the entire SEE
region, where foreign investments should have an important role in achieving the target of one million
new jobs.
In May 2015, the Republic of Srpska Government adopted its action plan for the implementation of the
South East Europe 2020 Strategy which asserts the commitment of the Republic of Srpska to regional
cooperation and regional initiatives within the context of the Euro-integration process of Western
Balkan countries, which will further strengthen and support economic management in the Republic of
Srpska.
In the directions of future activities of the Republic of Srpska in the field of attracting foreign
investments, it will be important to bear in mind the trends in the EU and acts defining EU investment
policy.40
3.6. Clusters
In recent years, clusters represent an important factor of economic development, because they enable
vertical and horizontal linking of economic entities, increasing competitiveness of economic entities, and
therefore also increasing competitiveness of the overall economy.
In the Republic of Srpska, the term cluster is defined by the Law on the Development of Small- and
Medium-Sized Enterprises41:
‘A cluster is a form of entrepreneurial infrastructure gathering in one geographical area, interconnected
economic entities operating in the same, akin or different activities and their specialised suppliers,
service providers, educational and scientific research institutions, agencies and others’.
According to Porter, clusters represent ‘geographic concentrations of interconnected companies,
specialised suppliers, services providers, firms from akin industries and linked institutions (e.g.
universities, agencies, tourism and trade associations), which compete but also cooperate’.42
Considering that under the conditions of global competitiveness, the competitiveness of an individual
country is closely connected with the competitiveness of individual companies, because competitiveness
increase at micro level increases also the competitiveness at macro level, i.e. at the level of the economy
as a whole, under the conditions of insufficient capital for the development of small- and medium-sized
enterprises which are the drivers of development of an economy, particular importance lies with foreign
investments because they enable more efficient SME linking, both in horizontal and in vertical value
chains, and therefore also an easier involvement in the international value chains. Foreign investments
can represent a catalyst in interconnecting domestic companies into a cluster form of entrepreneurial
infrastructure, by increasing efficiency and productivity, both for the cluster as a whole and for
40 E.g. COM (2014) 903 Investment Plan for Europe. 41 Law on the Development of Small- and Medium-Sized Enterprises, Article 9, paragraph 4, Official Gazette of the
Republic of Srpska, 50/13. 42 M. Porter, Clusters and the New Economics of Competition, Harvard Business Review, November–December, 1998, p. 78.
46
individual companies within the cluster. For that very reason, it is necessary, in addition to the
traditional way of cluster forming, i.e. creating links between local consumers, suppliers, specialised
institutions and competitors and promotional activities, to encourage the creation also of transnational
clusters, i.e. to enable the participation of foreign companies in cluster forming, which would
significantly increase the level of competitiveness of the overall economy.
The presence of foreign investments, especially through internationally renowned companies, raises
awareness of the region globally and affects technological development of a country, while transforming
the knowledge and developing the skills of the local labour force for special fields and enabling easier
access to foreign markets, especially in view of the proximity of the European Union market. The
example of Ireland best illustrates the advantages brought about by such a way of cluster forming. By
building regional clusters with world class research and development, Ireland has managed, from an
undeveloped country dominated by agricultural production, to encourage foreign investors to engage in
the activities of higher value added, by promoting interdependence between industry, institutes,
government, financing agencies and regulatory authorities at regional level, to create a business-friendly
ambiance and attract investors who invested in high-technology companies. The inflow of foreign
investments was a consequence of the strategic objective of Irish development – to develop high
technologies, which was implemented through the Irish Industrial Development and Foreign Investment
Agency.
In order for clusters to be economic development drivers, it is necessary to conceive cluster formation
well through detailed preparations. Cluster initiative includes three segments:
1. attracting foreign investments,
2. regional development and development of small- and medium-sized enterprises and
3. science and innovation.43
The Republic of Srpska Government has recognised the importance of clusters for the economic
development of the Republic of Srpska by adopting the Republic of Srpska Cluster Promotion and
Development Programme, prepared by the Ministry of Industry, Energy and Mining. The document
states the following:
- the Republic of Srpska has legal presumptions for cluster establishment,
- relevant government strategies recognise cluster benefits and need to support their
establishment,
- owing to the assistance from the budget through the RS Agency for Development of Small- and
Medium-Sized Enterprises, six clusters were established during 2007, and several other clusters were
established and operational. Experiences from cluster practise are very positive and encouraging,
- in addition to the officially established (registered) clusters, there are several associations
operating in the Republic of Srpska which have preconditions to become clusters.
43 Örjan Sölvell, Christian Ketels and Göran Lindqvist, The Cluster Initiative, Greenbook The Competitiveness Institute, TCI, Gothenburg, 2003, p. 17
47
The reason for adoption of this Programme lies in the fact that stimulating cluster development is one of
the ways to improve the efficiency of small- and medium-sized enterprises’ development and operation,
i.e. to strengthen their competitiveness through their interconnections and cooperation. Particular
importance lies with creating innovative clusters, which represent linking education, science and
production aimed at acquiring new technologies, creating jobs and entering new markets. In connection
with this, the European Union and countries in the vicinity are encouraging creation of innovative
clusters through their programmes and support instruments. The above support is one of the most
common measures for competitiveness strengthening of this sector.
Bearing in mind the above cluster importance, the Programme covers basic terms related to clusters, an
analysis of situation of cluster development policy in the European Union, countries in the vicinity and in
the Republic of Srpska. Support measures and their implementation plan were proposed based on the
above.
The measures in the Programme cover cluster mapping (detailed analysis of cluster potentials),
strengthening clusters and support institutions, financial support from available sources, promoting
clusters and networking clusters in the Republic of Srpska, and cooperating with clusters in the vicinity.
In accordance with the above Programme, implementation of the Veneto RS project started during the
2013–2014 period, supported by the Republic of Srpska Government with BAM 600,000, and the project
is being implemented by the RS SME Development Agency. The strategic goal of the project is to
establish a transnational cluster which includes partner wood processing companies from the Veneto
region and Republic of Srpska, and possibly companies from the vicinity. As of 31 December 2014, 38
companies were joined in the cluster. The development-research office of wood clusters network RIKUD
was established on 12 September 2014, which enabled introducing higher processing level in a
significant number of companies with various activities.
Within the Veneto project, a possibility is being considered to create clusters in metal and textile
industries. Specific project objectives relate to concluding multiannual export agreements and cluster
accession agreements, manufacturing trial quantity in accordance with the defined technical and
technological requirements of the market and a complete delivery cycle, securing stable financing for
future operation, and expanding to new markets under the adopted model.
The following clusters exist in the Republic of Srpska: Drvo cluster Prijedor, Drvo Klaster Banja Luka, Drvo
G Gradiška, Koža leather processing industry cluster Banja Luka, SD Energetski Klaster Srbac, Klaster
Metal Banja Luka, automobile repair shop cluster Banja Luka, Health RTD Cluster Prijedor, and Žalfija
beekeepers’ cooperative Trebinje which has all presumptions to grow into a cluster.
The Health RTD Cluster Prijedor represents a cluster for strengthening research and technological
development in the field of medicine, and it comprises: Faculty of Medicine Banja Luka, Faculty of
Medicine Istočno Sarajevo, Faculty of Electrical Engineering, Clinical Centre Banja Luka, General Hospital
Prijedor, Euro project centre Banja Luka, PREDA economic development agency Prijedor, Paroco B Banja
Luka.
However, in spite of the positive experiences from cluster practise, it is necessary to develop clusters
further and to form clusters in other sectors of the economy (e.g. manufacturing industry) in order to
maximise the synergy effect of action by all participants (SME, both domestic and foreign, local
48
authorities and government) and to enable clusters to become a factor in attracting foreign
investments, where it is necessary for cluster forming and development to include research and
development, i.e. educational institutions (faculties, institutes, etc.), because knowledge, innovation and
entrepreneurship represent basic elements of competitiveness under modern conditions of market
globalisation.44
Regional access to cluster building would have an important influence on a more balanced regional
development of the Republic of Srpska, and it would be based on comparative advantages of individual
areas.
BiH, and the Republic of Srpska as its part, are participating in a Triple Helix model project45, whose
purpose - clusterisation in change management represents a partnership for innovation between
research, economy and administration. Project goal is to create the foundation for sustainable
investments in innovation, and in doing so to preserve the competitive position and employment in the
existing or newly formed companies.
3.7. Business and Free Zones
‘A business zone is a form of entrepreneurial infrastructure which represents a developed area fitted
with utilities, intended for a coordinated and planned use by a large number of economic entities
engaged in economic activity’.46
There are 65 locations in the Republic of Srpska intended for business zones. Partially built
infrastructure (road, electricity, water supply and sewerage system up to and within the zone) exists in
10 zones or 26%, and five business zones have complete infrastructure up to the zone. The types,
conditions, manners, responsible parties and necessary activities for the establishment of business
zones are regulated by the Rulebook on conditions and manners of business zone establishment.47
Establishment of business zones in the Republic of Srpska is within the competence of local self-
government units. This process is lengthy and requires significant funds for the preparation of required
documentation, construction of infrastructure and promotion of the zones, and this way of organising
business linking between economic entities has not had a significant impact on attracting foreign
44 The first ICT cluster academy was established in Novi Sad on 28 March 2014, as a result of joint efforts of the
University, local community and international institutions (USAID). The Academy’s curricula are adjusted to the needs of IT companies. 45 Implementation of the pilot project started on 1 January 2011 within the Regional Competitiveness Initiative –
RCI, with the financial support of the European Commission and the Flemish Government. Project team comprises
representatives of BiH Ministry of Civil Affairs, representatives of OECD, with the support of the Republic of
Srpska Ministry of Science and Technology, Republic of Srpska Chamber of Commerce, FBiH Ministry of Education and Science, FBiH Chamber of Commerce, and with advisor role of the representatives of the University of Banja Luka and University of Mostar. The cooperation was established with the representatives of research institutes and institutions and existing companies in the field of food. 46 Law on the Development of Small- and Medium-Sized Enterprises, Official Gazette of the Republic of Srpska,
Article 9, paragraph 1, 50/13. 47 Official Gazette of the Republic of Srpska, 23/14.
49
investments thus far. However, in the forthcoming period it is necessary to categorise the zones and to
support the development of the zones that prove to be prospective.
Many countries have recognised the importance of free economic zones for their economic
development. Free economic zones in the Czech Republic, Hungary and Slovakia attract more than 80%
of foreign investment inflow. China has achieved its sharp economic development precisely owing to
free economic zones.48 Ireland has become the fastest growing economy in Europe precisely because it
based its economic development on the development of free economic zones.49 From 1987 until 2013,
Ireland attracted 13 billion euros in investments. Irish free economic zones were design built as export
and production zones in the least developed regions with highest unemployment. One of the most
successful free economic zones in the world is the Dubai DMCC Free Zone, which has attracted more
than 10000 investors, mainly foreign, and which employs more than 85,000 people. Small- and medium-
sized enterprises account for 70% of all companies in this zone.50
The basic concept of free economic zones includes several specific characteristics:
1. it is a geographically delimited area, usually physically secured,
2. it has a single management or administration,
3. it offers benefits based on physical location within the zone,
4. it has a separate customs area and streamlined procedures.
5. It operates under more liberal laws than those prevailing in the country.
Free economic zones confer two main types of benefits: employment generation and foreign exchange
earnings. In addition to the direct benefits, free economic zones confer also indirect benefits. The direct
benefits are: foreign exchange earnings, foreign direct investments, employment generation,
government revenue and export growth. The indirect benefits are: skills upgrading, tested field for wider
economic reforms, technology transfer, export diversification, enhancing trade efficiency of domestic
firms.51
OECD guidelines for economic zone development provide important recommendations to governments
supporting economic zones, and cover zone type selection, policies, incentives, legal and institutional
frameworks and physical development and management.
Opening and developing free economic zones should be one of the measures for the Republic of Srpska,
in view of the positive experiences of a large number of countries. By following the examples of other
countries, the Republic of Srpska should consider establishing one free economic zone (for example
Banja Luka airport), analyse its impact on increasing employment and competitiveness of the country,
attracting foreign investments and overall economic development, and based on those experiences
conceive future approach to increasing the number of free economic zones. The selection of location
and type of the free economic zone should be based on a carefully prepared economic justifiability
analysis.
48 The first Chinese free economic zones were established in the coastal area as experimental laboratories. 49 The first Irish free economic zone is Shannon airport. With time, this free economic zone has grown into a large
complex of 240 ha accommodating 130 companies and employing 8000 people. 50 fDI Intelligence, Global Free Zones of the Year 2015 - Winners 51 How do Special Economic Zones and Industrial Clusters Drive China Rapid Development, Douglas Zhiua Zeng, The World Bank, 2011.
50
3.8. Public-Private Partnership
Public-private partnership (PPP) has an increasingly important role in attracting foreign investments,
especially in developing countries and transition countries, because only a joint action by public and
private sector can provide needed funding and appropriate technical and managerial conditions for
projects in the fields of infrastructure, health and education. OECD estimates that 7% of GDP should be
allocated to investments in infrastructure projects in developing countries, and that current allocations
amount to 3%. The discrepancy between the available and the necessary funding for capital investments
can be successfully resolved by means of PPP, rather than by taking loans at high interest rate.
Large importance was assigned to PPP not only by developing and transition countries, but also by
developed countries, particularly after the global economic crisis of 2008.
PPP in the Republic of Srpska is regulated by the Law on Public-Private Partnership52, which is defined as
a form of cooperation between the public and the private sector, established by pooling resources,
capital and expert knowledge, for the purpose of fulfilment of public needs. Specific objectives to be
achieved through a public-private partnership are: contracting and implementing a number of projects
whose implementation will allow the public partner to better fulfil their obligations and to use public
revenues more effectively; creating new revenue sources, new infrastructure and new services; natural
market allocation of risks between the public and the private sector; creating value added by allocating
resources, knowledge and skills of the private and public sectors; increasing productivity, competition
and rational use of economic capacities of private and public entities and transparency in selecting and
contracting. PPP can be in the following fields: air, road, river and railway transport, educational,
cultural, sport, health, utility, information-communication and innovation-entrepreneurial
infrastructure, ecological and solid waste management, and in other fields of interest for the Republic of
Srpska and local self-government units.
Increase in the quality of fulfilling public needs increases also the competitiveness of the Republic of
Srpska, not only at the RS level, but also at the local level, and as part of it also the competitiveness of
the Republic of Srpska and local self-government units in attracting foreign investments. Therefore, PPP
has a double impact on increasing foreign investment volume, on the one hand through partnership in
PPP and on the other through impact on improving investment ambiance.
A good infrastructure represents a very important factor of investment ambiance and a precondition for
attracting foreign investments. During the previous period, PPP in the Republic of Srpska was mainly
implemented through concessions53 related to the use of natural resources of the Republic of Srpska.
The previous PPP have significantly improved the services in tourism and health and such PPP
undoubtedly represent an important factor of tourism and health sector development. Health sector
PPP and achieving competitiveness in this segment can significantly improve health tourism
development by increasing the number of foreign nationals coming to use these services in the Republic
of Srpska.
52 Law on Public-Private Partnership of the Republic of Srpska, Official Gazette of the Republic of Srpska, 59 of 2
July 2009, Article 2. 53 Law on Concessions of the Republic of Srpska (Official Gazette of the Republic of Srpska, 59/13).
51
Based on all this, we can conclude that it is of particular importance for the Republic of Srpska to
develop PPP, especially taking into account that the Republic of Srpska lacks sufficient funds for large
infrastructure projects, which can increase employment, improve business ambiance and increase
competitiveness. PPP reduces the need for taking loans to finance capital investments, which, if foreign
investments are included in PPP, has a double advantage- public debt reduction and foreign investment
funds inflow, with further public revenue increase. PPP leads to job creation and employment growth.
PPP should have a more important role in developing new health services, developing river, railway, air
and road transport and in the education sector, because they enable knowledge transfer and new
generations’ knowledge building in line with the requirements at the global market. PPP should also
have an important role in waste management, because those processes create new energy sources
while meeting environmental requirements.
It is of particular importance for the Republic of Srpska to develop PPP also in other sectors of the
economy such as agriculture (building agro centres), in addition to infrastructure, health and education.
A joint initiative by the European Investment Bank, European Commission, European Union members
and EU accession candidate countries resulted in the creation of the European PPP Expertise Centre
(EPEC). The Centre has prepared a PPP manual. The South East European PPP network for infrastructure
development was established in South East Europe, and as part of it the PPP Institutional Strengthening
in the Western Balkan project was implemented, through which good experiences and knowledge were
exchanged and good practise was promoted among the countries of the region. The project was
implemented from January 2013 until June 2014 and provided technical support to countries in
harmonising institutional frameworks and progressing in PPP project programming.
3.9. Branding as a Factor of Competitiveness of the Republic of Srpska Branding of products and services, local self-government units, regions and states is becoming
increasingly important under modern conditions, because the intent of branding is to arouse awareness
in the heads of consumers and investors about the recognisability of a product or service, region, local
self-government unit or state. Recognisability of a product or service, local self-government unit or
region undoubtedly affects competitiveness growth and also represents a good promotion.
Considering that the Republic of Srpska is a small and open country, its recognisability by individual
product or service would in any case increase interest of foreign investors, because recognisability by
quality or geographical origin undoubtedly leads to increasing confidence of both foreign and domestic
investors.
The Republic of Srpska has sufficient potential for recognisability of individual products, especially in
food and wood industry and tourism. Considering that the Republic of Srpska falls within the countries
with a preserved traditional way of manufacturing of individual goods and its preserved and unpolluted
natural environment, the Republic of Srpska has large opportunities in producing organic food which is
in high demand in developed countries. Also, the high number of forests, of better quality than most
forests in Europe, offers large opportunities for recognisability not only of products, but also of the
entire regions and local self-government units. Undoubtedly, the Olympic mountain Jahorina is
recognisable throughout the world due to the holding of the Olympic Games. Due to existence of a large
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quantity of geothermal waters, clean air and untouched nature, the Republic of Srpska has a possibility
to create recognisability also in health tourism.
Precisely due to the above, the Ministry of Trade and Tourism has prepared an analysis of branding
opportunities in the Republic of Srpska in the document Republic of Srpska Branding Policy, which
provides detailed guidelines about the importance and manner of brand creation, including examples of
successful world brands. In accordance with the objectives of the document, the Ministry has held seven
conferences, initiated two campaigns, ‘Ours is Better’ and ‘Best of Srpska’, in cooperation with the
Republic of Srpska Chamber of Commerce, which are implemented continuously in order to promote
domestic products and domestic production potentials.
Recognisability of local self-government units, concerning service providing, is largely affected also by
obtaining a business-friendly certificate (BFC), which essentially represents local self-government unit
branding, because both domestic and foreign investors are guaranteed quality of service. Having a BFC
certificate increases competitiveness of local self-government units and undoubtedly enables attracting
a higher number of foreign investors than in the uncertified local self-government units. Precisely for
that reason, the number of local self-government units which are taking part in this programme in the
Republic of Srpska is constantly increasing. The city of Prijedor is ranked fourth in the list of micro cities
of the future 2016/201754. There is also room for a group of local self-government units to recognise and
link their capacities and present them as a special investment product and make it recognisable.
For the Republic of Srpska it is also important to attract world brands because this enables more
successful involvement of small- and medium-sized enterprises in the global value chains, and also
creates the possibility to build own brand and recognisability at a global scale in manufacturing
individual parts of a product for the globally renowned brands. Closely connected with this is also
forming and developing clusters, which can be a brand by both recognisability and geographical origin.
4. REPUBLIC OF SRPSKA INVESTMENT POLICY AND INSTITUTIONAL FRAMEWORK FOR ATTRACTING FOREIGN INVESTMENTS
4.1. Investment Policy Investment policy represents an important factor in attracting foreign investments, because a foreign
investor’s decision to direct their investments to the Republic of Srpska is also contingent upon the
investment policy quality. Precisely for that reason, investment policy-makers should focus their
activities on making the Republic of Srpska an attractive destination for foreign investments, especially
under the conditions when the competition in this segment of economic action is sharply increasing in
the entire world.
The policy of foreign investment treatment in the Republic of Srpska is defined by the Law on Foreign
Investment55, RS Government Economic Policy, Foreign Investment Encouragement Study 2014-2017,
and a series of other legal acts and bylaws. Great importance in forming a foreign investment treatment
policy lies also with sectoral strategies such as:
54 FDI Magazine, Financial Times Group, European Cities and Regions of the Future 2016/2017 55 Law on Foreign Investment (Official Gazette of the Republic of Srpska, 25/02, 24/04, 52/11 and 68/13).
53
- Republic of Srpska industrial development strategy and policy 2016–2020 (draft),
- Republic of Srpska Agriculture and Rural Development Strategic Plan 2016–2020,
- Republic of Srpska Energy Development Strategy until 2030,
- Republic of Srpska Tourism Development Strategy 2011–2020,
- BiH Solar Energy Use and Development Opportunities Study, 2008,
- Report on competitiveness assessment of three agribusiness value chains of the Republic of
Srpska, IFC, 2012,
- Republic of Srpska small- and medium-sized enterprises development strategy 2016–2020
(draft),
- Republic of Srpska education development strategy 2016–2021 (proposal).
In the past period, the foreign investment treatment policy framework was defined by the Foreign
Investment Encouragement and Development Strategy 2009–2012 and the accompanying action plans.
During 2014, after a series of consultations with line ministries, local self-government units, and
Chamber of Commerce, the Foreign Investment Encouragement Study 2014-2017 was finalised together
with the accompanying action plan, as a document to serve for the preparation of more detailed
strategic documents in this field in the future.
The Republic of Srpska Government’s foreign investment treatment policy will take into account also the
trends at international and regional level and be determined by the strategic directions set by other
strategic documents, such as the South East Europe development strategy until 2020.
4.1.1. Activities on Implementing Previously Valid Foreign Investment Strategic
Documents
On 1 June 2009, the National Assembly of the Republic of Srpska adopted the Republic of Srpska Foreign
Investment Encouragement and Development Strategy 2009–2012. In October 2009, the Republic of
Srpska Government, upon proposal of the Ministry of Economic Relations and Regional Cooperation,
and after inter-sectoral consultations, adopted the Action Plan for its implementation.
The Action Plan was elaborated through measures and activities of four priority objectives, as follows:
Strategic objective 1: Improve investments and business climate
Strategic objective 2: Create an effective institutional framework for attracting foreign direct
investments
Strategic objective 3: Focus on priority sectors
Strategic objective 4: Focus on selected countries while attracting all types of foreign direct
investments.
Implementation of the measures and activities was analysed annually and Republic of Srpska
Government was informed about it. In view of the form of some proposed measures (some of the
measures are of general nature), the fulfilment of the Action Plan cannot be assessed in percentage
terms. However, from a detailed analysis of the above mentioned reports, it is possible to ascertain that
the largest portion of the measures has been implemented.
54
The section of the Action Plan about improving the investment and business climate noted significant
changes during the past years which had a positive effect on business environment. Here are some of
them:
- Business registration reform which significantly reduced the costs, procedures and time required to start a business. As of 1 December 2013, a business registration one-stop shop started operation, which has enabled filing application for registration with one institution, the Agency for Intermediary, IT and Financial Services (APIF), in its eleven regional offices. Within this reform, formation is ongoing of a unified electronic register of all business entities (legal entities and natural persons). During the first two years of operation of the one-stop shop, the number of newly registered entities had grown by about 30%.
- Reduced costs, procedures and time of registration of craft and entrepreneurial activities. - New Law on Construction of the Republic of Srpska reduced the times and costs of obtaining
construction-related permits.
- Regarding regulatory reform, the Republic of Srpska Strategy of Regulatory Reform and
Introduction of Regulatory Impact Assessment (RIA) Process 2012–2015 was adopted, and its
implementation has integrated the process of regulatory impact assessment permanently into
the legal system of the Republic of Srpska, and the Republic of Srpska is among the leaders in
the region by its implementation.
- A regulatory guillotine of local nature was implemented in several local communities (e.g. Banja
Luka, Bijelјina, Doboj, Višegrad, Modriča, Novi Grad, Zvornik).
- Law on Foreign Investment was amended in order to further liberalise investment opportunities
(military industry sector), and improve cooperation with foreign investors and local
communities.
- Republic of Srpska Foreign Investors Council comprising representatives of the RS and local
institutions and foreign investors was established in order to facilitate doing business.
- Impact assessment on the Law on Small- and Medium-Sized Enterprises of the Republic of
Srpska was prepared as well as a detailed analysis of financial burden for small- and medium-
sized enterprises and entrepreneurs. Activities are being conducted on its reduction; costs of
starting business have been reduced, costs have also been reduced by introducing a non-taxable
portion of income of BAM 200 etc.
- Some benefits were also introduced through the Law on Amendments to the Law on Corporate
Income Tax, which decreased tax base by the value of investments made in equipment intended
for own production activities, as well as in case of employment of at least 30 workers during a
year
- Some financial incentives were also introduced for employment, training and investment
through the Employment Support Programme, which is implemented by the Republic of Srpska
PI Employment Bureau. The funds are allocated on various grounds, individually for each budget
year, based on an action plan and public call. Investment and employment support was
implemented also through the Decree on requirements and manner of implementation of the
Investment and Employment Support Programme (Official Gazette of the Republic of Srpska
70/12, 38/13) and Decree on requirements and manner of implementation of the Employment
Programme (Official Gazette of the Republic of Srpska 88/14, 24/15.
- In the field of public-private partnership, the Decree on procedure of the implementation of PPP
projects in the Republic of Srpska and manual etc. were adopted
55
- During the previous period, it was concluded that there was a strong need to strengthen
cooperation between the RS and local level and to strengthen local self-government units’
capacities to receive and attract foreign (domestic) investors. An investment aftercare system
was established with the intent to encourage investors to increase and expand their activities in
the Republic of Srpska, and to identify problems in investors’ work. Supported by the IFC/World
Bank Group, the Republic of Srpska Government started the process with 21 local self-
government units in the Republic of Srpska: the programme was joined by ten municipalities
(Bileća, Brod, Derventa, Čelinac, Foča, Istočno Novo Sarajevo, Novi Grad, Šipovo and Šamac) in
2013, five municipalities (Kotor Varoš, Modriča, Mrkonjić Grad, Laktaši, Prnjavor) in 2014, three
cities (Banja Luka, Bijelјina, Prijedor) in 2015, and three municipalities (Teslić, Pale and Sokolac)
in 2016. The competent ministry on behalf of the Republic of Srpska is the Ministry of Economic
Relations and Regional Cooperation. Within the investor aftercare programme during the period
from 2013 until October 2015, joint teams (composed of representatives of the Ministry of
Economic Relations and Regional Cooperation and appointed municipality coordinators for
investor support) visited the total of 56 companies, of which 30 companies were domestic
investors, and 26 companies were foreign investors. The intent is to expand the programme also
to other local self-government units and to continue in the forthcoming period. The purpose of
this cooperation is to improve the cooperation between competent institutions and private
sector, in order to facilitate doing business by the established investors (domestic and foreign)
and to encourage them to reinvest.
- Republic of Srpska Government started a series of trainings for local communities (in
cooperation with GIZ, IFC/WB, UNDP) aimed at creating capacities to attract foreign
investments. E.g. through a business environment improvement project implemented in
cooperation with the International Finance Corporation IFC/WB, which covers the fields of
regulatory reform, agriculture and investment promotion policy, a series of activities was
implemented in the Republic of Srpska, including trainings and preparation of promotional
materials of local self-government units intended for foreign investors
- Collected and collated investment offer of local communities of the Republic of Srpska
- Started and expanded regional project of business-friendly certification (BFC SEE), through
establishment of a unified service quality standard and information that municipalities and cities
provide to potential investors and businessmen operating at the local level. The Republic of
Srpska certification programme currently covers fifteen local self-government units: Prijedor
(recertified), Banja Luka, Bijelјina, Teslić and Mrkonjić Grad (secured certificates), as well as
Bileća, Laktaši, Novi Grad, Gradiška, Kozarska Dubica, Uglјevik, Doboj, Brod, Trebinje and Kotor
Varoš which are in different stages of programme implementation.
- Public-private dialogue is unfolding on a daily basis through the register of approvals in the
economy www.regodobrenja.net, and about 300 questions of business community were
answered only during 2014 and 2015.
- Intensified promotional activities on attracting foreign investors in the Republic of Srpska and beyond. Several business forums and conferences organised and several fairs visited in order to promote domestic economy and investment potential of the Republic of Srpska. In September 2011, the Ministry of Economic Relations and Regional Cooperation organised a two-day investment conference on investment opportunities in metal processing sector, tourism sector, energy and food processing with more than 420 participants from 20 countries; investment potentials of the Republic of Srpska were presented at the international Munich fair EXPO REAL
56
in 2012, 2013, 2014, and 2015; Several important business forums were held, such as those with the economic delegations of Azerbaijan, Sankt Petersburg, Business forums in Vienna, Budapest, Stuttgart, London, in the USA etc.
- Launched portal www.investsrpska.net which improves the quality of information for foreign investors by presenting a detailed business guide, listing accompanying costs of doing business, describing legal framework, and referring to the institutions that can assist investors, as well as other data sets that investors may need
- New promotional materials were prepared, Invest in Srpska brochure; promotional film was
recorded covering investment opportunities in food, metal processing sector as well as in
tourism sector; investment potentials of the Republic of Srpska municipalities were presented
through electronic media.
4.2. Institutional Framework for Attracting Foreign Investments A sound institutional framework for attracting foreign investments represents a basic presumption for
country’s attractiveness as investment destination. An efficient and clearly arranged institutional
framework is very important, not only in investment decision-making, but also during the entire
investment.
The Law on Amendments to the Law on Republic Administration (Official Gazette of the Republic of
Srpska, 24/12), stipulates, among other things, that the Ministry of Economic Relations and Regional
Cooperation performs administrative and other expert tasks related to attracting foreign investments in
the Republic of Srpska, creating more favourable conditions for foreign investments and assisting
potential investors; promoting economic potentials of the Republic of Srpska abroad; establishing a
regulatory impact assessment system and regulating it by norms, assessing justifiability of introduction
of new formalities, keeping and improving the register of approvals in the economy; cooperating with
business associations, organisations and institutions in the country and abroad aimed at improving
business environment, cooperating with international organisations.
Line ministries define sectoral policies, identify and develop projects within their line responsibilities,
implement measures and activities that contribute to improving business climate, promote investment
opportunities in sectors within their competence, negotiate directly with the interested investors etc.
Republic of Srpska Investment Development Bank (IRBRS). The activities of the IRBRS are primarily
focused on financing development projects of importance for the economy of the Republic of Srpska
related to: employment growth, building infrastructure facilities in the Republic of Srpska, export
oriented production, boosting corporate governance and capital market, small and medium
entrepreneurship, environmental protection, balanced regional development, improving agricultural
production, housing and business construction, efficient privatisation implementation, restructuring
enterprises in privatisation context, encouraging import dependence reducing production, promoting
Republic of Srpska investment opportunities internationally. IRBRS places the funds intended for
development projects through commercial banks and microcredit companies, as well as directly through
loans and through capital market. It also receives support in certain projects from international financial
institutions, such as the World Bank and European Investment Bank.
57
Republic of Srpska representative offices abroad were formed in order to strengthen economic,
scientific and technical, cultural, social, information, educational, sport and other cooperation with
foreign entities. The seats of the representative offices are located in the centres of economic, financial
and political happenings such as Belgrade, Brussels, Vienna, Washington, Moscow, Jerusalem, Stuttgart
and Thessaloniki.
Republic of Srpska Chamber of Commerce (PKRS) including regional chambers, which constitute a
unified chamber system, work on creating a more favourable economic ambiance, represent interests of
its members and economy as a whole in relations with the bodies of legislative and executive power,
contribute to promoting and connecting the economy of the Republic of Srpska with the global
economy, provide appropriate services to its members, establish and improve business relations in the
country and abroad (economic missions, fairs, access to contacts through global chamber network etc.),
enable acquiring certain rights arising from public authority – international assignments, contingents,
certificates, permits, standings etc., resolving international commercial disputes by means of foreign
trade arbitration at the PKRS etc.
RS Agency for Development of Small- and Medium-Sized Enterprises is a generator of the overall
system of support to the development of small- and medium-sized enterprises. Through numerous
projects and programmes of support to local economic development, development of small- and
medium-sized enterprises and entrepreneurship, its purpose is to increase participation of small- and
medium-sized enterprises in the overall economy of the Republic of Srpska, increase technological
development, competitiveness and open new markets for small- and medium-sized enterprises, increase
the number of business entities and newly employed workers in these companies, establish regional
cooperation with neighbouring countries in order to exchange experiences etc. The Agency takes part in
the preparation of strategic documents on development of small- and medium-sized enterprises and
entrepreneurship of the Republic of Srpska, operationally implements incentive policies, encourages
employment, vocational training, retraining and additional training of workers, promotes
entrepreneurship and provides support to innovation activities, participates in international projects etc.
Republic of Srpska local development agencies are institutions formed with the aim to support the
development of their communities. They are established in order to support the development of small-
and medium-sized enterprises, to promote entrepreneurship and create conditions for job creation, and
improve overall economic situation in the territory of their local communities. Main activities of the
agencies are focused on preparing development projects, obtaining funds for project implementation
through cooperation with international and domestic institutions and organisations, project
management, and networking economic entities and establishing partnership between private and
public sector. In addition to the main activities, development agencies are fulfilling their mission also
through out-of-project support activities to entrepreneurs and small- and medium-sized enterprises
such as: counselling, organising professional seminars, preparing promotional materials and organising
visits to fairs.
Republic of Srpska Association of Local Authorities is an association of local self-government units
composed of municipalities allied for mutual cooperation, experience exchange and joint presentation
and action aimed at strengthening competitiveness of the local self-government units. The Republic of
Srpska Association of Local Authorities cooperates with international associations of local authorities
and with foreign cities and municipalities. International cooperation of the Association is achieved
58
through the Congress of Local and Regional Authorities of the Council of Europe and Council of
European Municipalities and Cities. The Association is one of the founders of NALAS – Network of
Associations of Local Authorities of South East Europe positioned as a knowledge exchange centre for
the purpose of strengthening and further developing local self-government in South East Europe.
59
Chart 10: Institutional framework for attracting foreign investments in the RS
FIPA - BiH Foreign Investment Promotion Agency
Provides information to potential investors about the legislation, directs investors to potential
investment projects in the entities and individual sectors, presents advantages and characteristics
concerning projects, organizes and/or participates in seminars, exhibitions and conferences, monitors
and analyses investment environment at the state and international level, proposes legislation and
legal measures aimed at improving investment conditions.
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5. OBJECTIVES OF ATTRACTING FOREIGN INVESTMENTS IN THE REPUBLIC OF SRPSKA
5.1. Goal of Attracting Foreign Investments in the Republic of Srpska The goals of attracting foreign investments in the Republic of Srpska are closely connected with key
development goals of the Republic of Srpska, defined by the Republic of Srpska Economic Policy, as well
as sectoral policies, and they relate primarily to creating jobs, increasing competitiveness of the
country, creating value added, contributing to balance of payments and developing small- and
medium-sized enterprises. There is a direct and proven correlation between the above goals and the
advantages brought by most, although not all forms of, foreign investments.
The largest effect on the above goals is that of the new (greenfield) investments and brownfield
efficiency-seeking investments. For that reason, it is necessary to increase efforts to attract these forms
of foreign investments.
Target investments are:
- investments in fixed capital – to reduce technology gap
- export oriented investments - to improve balance of payments standing
- labour - intensive investments – to increase employment
- investments leading to encouraging productivity growth
- investments leading to strengthening value chains- for easier involvement of small- and
medium-sized enterprises into global flows
- investments increasing the level of processing - i.e. leading to a higher level of processing and
leading to increased value added
- investments leading to maximisation of spillover of technology, entrepreneurship and
innovation
- investments in information-communication technologies.
In addition to new employment opportunities, balance of payments contribution and new management
techniques, the efficiency-seeking investors bring with them the advantages for domestic economy
which domestic investors can rarely offer. Efficiency-seeking foreign investments will maximise the
spillover of innovation and lead to significant net economic benefits.
Considering the results of foreign investments in the Republic of Srpska thus far by sector, the efficiency-
seeking investments are present only to a limited extent, particularly relative to the region. However, at
least two sectors in which the Republic of Srpska has own advantages coincide with regional demand
dynamics – these are food processing/agribusiness and textile sector.
The goal of attracting foreign investments determines the types of foreign investments the Republic of
Srpska wishes to attract in the forthcoming period.
61
The goal of attracting foreign investments in the Republic of Srpska is aligned also with key targets of
the South East Europe 2020 Strategy, where it is planned for the foreign investments volume in the
region to increase on average at least 160% annually.56
In order to attain the goal, it is necessary to achieve horizontal (common to all sectors) and sectoral
objectives, which are dealt with in the next two sections.
Detailed measures and activities for the horizontal and sectoral objectives are elaborated through the
action plan. The action plan primarily includes the activities for the period until 2018, while changes at
the global and regional level will guide the adjustments for the period until 2020.
5.2. Objectives in Attracting Foreign Investments in the Republic of Srpska
5.2.1. Competitiveness Upgrading and Business Environment Improvement
As mentioned above, the elements of competitiveness and business environment are complex and imply
improving a number of factors (ranging from regulatory framework, educational system, labour market
efficiency, financial sector, infrastructure etc.).
The Republic of Srpska has invested significant efforts in reforming its regulatory framework for
investments. At the same time, efforts to improve the regulatory environment must be continuous
together with the improvements in other aspects of importance for investors (ranging from
infrastructure, educational staff, general promotion etc.) and strengthening investment opportunities.
Reduction or removal of barriers to investment entry are very important. Barriers to market entry are
not only in the field of legal framework, they include also procedural barriers present both at the
horizontal (general) and vertical (sectoral) level. Such obstacles lead to a possible loss of potential
investments, which will relocate somewhere else. Business entity registration reform implemented in
the past period influenced significant shortening of time and reduction of costs of starting business and
contributed to the growth of number of newly registered entities. The following stage of the reform is
related to introducing online registration. It is also necessary to streamline the procedures, costs and
overall field of real estate registration.
Business ambiance improvement, among other things, is seen in the indicators aimed at a fast, simple
and efficient initiation of performance of an economic activity, but also a fast, transparent and simple
way of performing the economic activity. Some of the fields which require continuation of reforms are:
simplifying RS Tax Administration procedures, simplifying the procedure of obtaining construction
permits, at the RS and in particular at the local level, forming a register of parafiscal charges both at the
RS and at the local level, and reducing overall burden for business community.
Market exit is also an important item when assessing business climate. Therefore it is necessary to
simplify bankruptcy and liquidation procedures and to ensure the conditions for better monitoring of
56 South East Europe 2020 Strategy, Jobs and Prosperity in a European Perspective, Regional Cooperation Council
62
solvency of economic entities in order to enable timely reaction by amending the regulations governing
the subject field. In that sense, the new Law on Bankruptcy (Official Gazette of the Republic of Srpska
16/16) should contribute to improving this field.
It is necessary to accelerate the activities on establishing quality infrastructure as basis for export of
products from the Republic of Srpska to the EU countries.
Considering that the competition in attracting foreign investments keeps intensifying, a large number of
countries is introducing incentives as the main factor in attracting foreign investments, so the
competition in attracting foreign investments most often turns into a competition in incentives.
However, analyses show that incentives are not the main parameter based on which foreign investors
decide to invest. Incentives can play a decisive role if a foreign investor is deciding between two sites
with similar other parameters. However, incentives can help the governments not only in attracting
foreign investments, but also in directing foreign investments to strategically important sectors, i.e.
sectors which will lead to employment growth, technology transfer and productivity growth, and thus
also to increase of competitiveness of the economy of the Republic of Srpska.
Incentives to stimulate investments can be of tax or financial nature - direct. The Republic of Srpska
enables incentive funds for domestic and foreign investors, both at the RS and at the local level.
At the RS level, the most important are the incentives awarded by the Republic of Srpska Employment
Bureau through various programmes and based on the Decree on requirements and manner of
implementation of the employment support programme.
The new Law on Income Tax57 defines taxation of income from a foreign source, and investors are
enabled to obtain a qualified investor status based on which they acquire significant tax reliefs. Income
from dividend and share in profits of a company are exempt from the obligation to pay income tax.
At the local level, there are various forms of incentives, both concerning local charges and concerning
services.
Although there are big dilemmas about offering incentives, because a large part of the academic
community deems that incentives distort competition, we still deem that under the conditions of high
unemployment and insufficient investments and a strong competition in attracting foreign investments
by means of incentives, it is needed to keep the incentives as a factor in attracting foreign investments,
but also that it is necessary to prepare an analysis of incentive effects and based on that formulate an
incentive policy. Also, it would be needed to make a register of incentives, which would provide an
overview of the awarded incentives, their sectoral and regional structure and based on that to assess
their impact on employment, investments and economic development. An incentive policy should have
a selective and at the same time transparent approach in the way to stimulate larger investments in
priority sectors and a more balanced regional development. There should be a special treatment of large
investments, which would lead to a significant growth of employment, export and domestic
investments.58
57 Official Gazette of the Republic of Srpska, 60/15. 58 The best example are incentives in the amount of US$ 130 million, awarded to BMW for an investment worth
US$ 2.2 billion in Greenville (South Carolina). This investment led to a creation of 5000 jobs while creating further
63
A significant amount of foreign investments comes from reinvesting by the established investors. This
means that the established investors should be provided the protection they need in order to stay in the
area.
Care for the potential and established investors is a very important segment of investment policy. An
active approach to foreign investors includes not only contacts and providing required information to
potential investors during the period of investment decision-making, but also providing investment
support to investors during and after the investment. An investor aftercare programme is particularly
important under modern conditions, because due to large distortions in the global economy, foreign
investors have become more cautious when investing, thus it is necessary to build a special relation
towards the established investors aimed at reinvesting and expanding production with the existing
investments. The established investors are also good promotors for potential investors.
The investor aftercare programme, which was established in the Republic of Srpska in 2013 by the
Republic of Srpska Government assisted by the International Finance Corporation, member of the World
Bank Group, needs to be continued and expanded.
Starting from the effective investor aftercare programme and the investor aftercare collaboration
network, it is needed to strengthen the launched mechanism in order to identify and resolve potential
investor problems before they grow into disputes that can create significant costs and discourage other
investors.
In order to upgrade competitiveness of the Republic of Srpska, measures for improvement of the
business and general infrastructure are also necessary, such as:
- capacity building of business zones whose existence is justified
- general infrastructure improvement (roads, telecommunications, air transport)
- technical and entrepreneurial infrastructure improvement (innovation centres, techno-parks)
- social infrastructure improvement (kindergartens, schools, hospitals).
A stronger link is also needed between the economy and educational system (educational programmes
directly upgrade the competitive position of a location, because they mean long-term investment
sustainability), i.e. it is needed to adjust the structure of education to the needs of investors, both
foreign and domestic.
Development of entrepreneurship represents an important factor of competitiveness increase, i.e.
represents the driving force of the development of economy and society. Bearing in mind the above, the
process was started within the vocational secondary education reform in the RS, through EU VET –
Vocational education and training projects, in which special emphasis was placed on developing
entrepreneurship and acquiring practical experiences and skills, and strengthening links between the
education and the labour market.59 Scientific research-oriented higher education and linking higher
several thousand jobs for suppliers of auto-parts and research and development centres that invested in that area. (Uri Dadush, Incentives to Attract FDI, 2013). 59 Republic of Srpska education development strategy 2016–2021 (proposal), Republic of Srpska Ministry of
Education and Culture.
64
education and labour market is set as a separate strategic objective of the Republic of Srpska Education
Development Strategy 2016–2021.
An overview of measures and policies is also needed to support and absorb the spillover of foreign
investments. A contribution to foreign investments which leads to innovation and benefits local
companies requires interventions in the form of policies to maximise additional benefits and to
encourage needed links with the local economy.
It is also necessary to develop a monitoring and evaluation framework to monitor the effects of the
measures and policies and make adjustments as market dynamics and local needs change.
5.2.2. RS and Local Level Institutional Capacity Strengthening and Partner Relations
Development
Development of an effective institutional mechanism for investor support is very important because it
enables direct support to investors from the point of contact to the investment and assistance in
overcoming various administrative bottlenecks and finding way in procedures.
Most often this does not require any institutional changes, but rather a decision to work with investors
in a transparent and efficient manner.
Chart 10 identifies key institutions important for attracting and receiving foreign investments. It is
necessary to increase the capacities of RS institutions, Chamber of Commerce and local self-government
units for sound promotion, and investor acceptance and keeping. Although during the past period a
series of trainings was held on this topic and activities were undertaken to set a contact point in each
institution, the fact is that there is a need for further institutional and systemic strengthening, and
awareness raising about the importance of institutional capacity in attracting investments. In this field, it
is needed to use domestic resources, in particular of the Ministry of Economic Relations and Regional
Cooperation, but also of international donors (such as German Society for International Cooperation –
GIZ, International Finance Corporation – IFC/WB, regional support projects etc.). As a positive example
of a programme which systemically affects the capacity of institutions to accept investors, we would like
to mention the standards of the regional business-friendly municipality certification programme.
In addition to strengthening the capacities of institutions, it is very important for attracting investments,
as well as for their acceptance, to strengthen internal coordination between the RS, local institutions
and the economy, primarily represented by the Republic of Srpska Chamber of Commerce. In systemic
terms, it is necessary to define contact points/workplace or organisational unit to represent the link with
other institutions for this field.
Assessment by investors, domestic as well as foreign, about the conditions for investments is not only
related to the institutions directly competent for these topics, but very often also to others they
encounter during their operation. Thus it is necessary to improve organisational, technical knowledge
and efficiency of staff in other institutions (such as commercial courts, property and geodetic service
etc.).
65
Local communities and economy should use more intensively the role of the Republic of Srpska Foreign
Investors Council, as a body legally established in order to resolve specific obstacles in operation, as well
as to propose measures for their improvement. It is of systemic importance to ensure care about the
established investors through cooperation between the RS and the local level (‘aftercare programme’).
One of the key roles of the Republic of Srpska representative offices abroad is to promote investment
opportunities in the Republic of Srpska. In their operation thus far there have been very positive
examples of their action in this field, but also in the forthcoming period it is necessary to further
strengthen their capacity, as well as to launch specific initiatives (local communities, economy) where
representative offices can play an important role.
A coordination system development, in line with constitutional competences, is important also in
relations with BiH joint institutions, particularly concerning VAT, customs tariffs, import/export
procedures and obligations arising from international agreements which are under their competence.
Coordination of activities on promoting and attracting foreign investments in the Republic of Srpska
concerning cooperation with BiH joint institutions (such as BiH Foreign Investments Promotion Agency)
should be based on constitutional competences and through competent institutions defined by the Law
on Republic Administration of the Republic of Srpska, which assigned the competence to the Ministry of
Economic Relations and Regional Cooperation.
5.2.3. Target Sectors and Target Markets Promotional and Outreach Activities
A Republic of Srpska promotion programme for attracting foreign investments should be strengthened
through three main activities:
- promotion of advantages of the Republic of Srpska as a foreign investment site (Image
Building)
The main promotional messages must take into account the overall specific/sectoral
competitive advantages of the Republic of Srpska
- activities on attracting foreign investors by direct promotion (Investment Generation)
Direct promotion to a potentially larger target group of investors (companies from the
neighbouring developed countries which need to expand production, industrial fairs,
multinational companies which are the leading foreign trade partners etc.) is a good way to
attract foreign investments, because it is a direct approach adjusted to the investor.
- foreign investor services
This concerns services during the pre-investment period (providing information, supporting
investor visits and establishing links with other institutions), services during the process of
investment (providing assistance in obtaining work permits, securing appropriate sites etc.) and
services during the post-investment period (maintaining business relations with the established
investors aimed at maintaining the existing activities and expanding investments, assisting in
66
formation of a supplier network between domestic companies and foreign investors, analysing
and improving business environment).
5.3. Republic of Srpska Sector Objectives in Attracting Foreign Investments
In order to maximise the potential of foreign investments, it is of key importance to establish a sound
investment policy by individual sector which will increase integration of the private sector of the
Republic of Srpska in the global value chains by individual sector.
A well-conceived policy can maximise also the potential added benefits for local economy. These
conditions precede efficient freeing of sector potential and competitiveness improvement in general.
It is also important to recognise mutually dependant elements. In several sectoral value chains it was
recognised that some of the key components were missing and that the links were critically weak –
particularly in sectors such as agribusiness and textile, where value chains used to be stronger and
tighter than they are today. For that reason, foreign investments need to be synchronised with the
development of local companies and permanent improvements of investment climate.
An overview of sectors with the potential for investments on the one hand and regional demand on the
other is given below, together with a summary of some of the key sectoral policies that should
contribute to the inflow of efficient investments.
5.3.1. Agriculture
Agriculture of the Republic of Srpska represents a strategic sector of the economy where the Republic of
Srpska has special comparative advantages primarily related to:
1. existence of three climate belts (humid continental, Alpine and mountain valley and a belt of a
modified variant of Adriatic climate), which enable growing a wide spectrum of agricultural crops,
2. preserved land, air and water from pollution, which enable development of organic food,
3. agricultural land per capita 0.9 ha, which is significantly above the average of most European
countries,
4. significant areas of unused agricultural land, as well as existence of opportunities to apply more
modern technological achievements and accordingly increase productivity on the already cultivated
agricultural areas,
5. existence of market for placement of agricultural products, both domestic (most of the demand for
agricultural crops is not met at the domestic market), and foreign. Proximity of the European Union
market is a particular facility,
6. existence of geothermal waters on over 50% of the agricultural land, which enables investments in
greenhouse or glasshouse production,
7. long tradition of agriculture and sufficient labour force.
67
Out of the total area of the Republic of Srpska (24,468 km2), agricultural land occupies 982,000 ha, i.e.
51.2%, of which 819,000 ha are arable areas60. There is 0.9 ha of agricultural area per inhabitant of the
Republic of Srpska which is significantly more than in most countries of the world. This indicates large
potentials that the Republic of Srpska has and a possibility for even higher impact of agriculture on the
economic development of the Republic of Srpska.
The importance of agriculture for the economic development of the Republic of Srpska is seen also in
the high share of this sector in the national product (9.5%), although the agrarian sector is at a low level
of development.
Although it keeps shrinking, the share of agriculture in the GDP of the Republic of Srpska is still relatively
high in comparison with the developed and highly developed countries. In 2014, the share of
agriculture’s gross value added in the formation of gross domestic product was 0.9% lower than the
share in 2013.
Agricultural products do not have significant shares in the structure of foreign trade of the Republic of
Srpska. This is supported by the data that the generated volume of foreign trade in agricultural products
in 2015, worth BAM 353.2 million, accounts for only 5.2% of the value of total trade in goods.
In 2015, like in previous years, the agriculture of the Republic of Srpska generated a negative foreign
trade balance. In 2015, the Republic of Srpska exported agricultural products worth BAM 117 million,
generating at the same time import of agricultural products worth BAM 236.1 million. The import export
ratio is 49.6%. Compared to the previous 2014, foreign trade deficit in trade in agricultural products
generated in 2015 grew by BAM 3.75 million or 3.25%. The share of export of agricultural products from
the Republic of Srpska in the overall generated export in 2015 is 4.7%, while the share of import of
agricultural products in the overall generated import during the same year is 5.5%.
In order for agriculture to become more competitive in attracting foreign investments it is necessary to:
1. work towards amalgamation of agricultural farms, i.e. reduction of number of rural farms, and at the
same time increase the area of arable land available to one rural farm (under the present
conditions, one rural farm covers 3.6 ha of arable land), which would increase the production
volume at one farm and reduce production costs per product unit;
2. develop cooperatives on the bases of international cooperative movement, which enables
cooperatives to become efficient associations of cooperative members and an actual production
and market partner and thus benefit from all advantages of a joint presentation at the market. In
countries with developed cooperatives, the volume of contracting, taking and purchasing
agricultural products is at a significantly higher level than with us (83% in the Netherlands, 79% in
Finland 55% in Italy and 50% in France);
3. apply new scientific and technological achievements in agricultural production, which would achieve
productivity growth, and therefore also improve competitiveness;
4. ensure permanent education of agricultural staff;
5. develop processing capacities, which would generate growth of export of products of higher
processing level, and thus also increase the share of agricultural production in the new value added
in the national product in each stage of agricultural product processing;
60 RS Agriculture and Rural Development Strategic Plan 2016-2020
68
6. further develop certification system, which would significantly affect product quality improvement
and increase competitiveness at foreign markets;
7. change agricultural production structure bearing in mind meeting domestic market needs while at
the same time adjusting agricultural production structure towards deficient agricultural crops and
demand at the global market;
8. develop greenhouse production, build cold storages which enable agricultural product freshness to
be preserved longer, build an efficient irrigation and flood protection system;
9. develop organic agriculture, considering that the Republic of Srpska has unpolluted land, water and
air and because at foreign markets there is increased demand for such products.
Foreign investments in agriculture might have an important role in the development of this sector of the
Republic of Srpska, especially if needs of the agriculture are taken into account, those being: lack of
dryer for dry fruit, cold storages for raspberries and cucumbers which are in high demand in the EU,
inexistence of infrastructure for freezing certain sorts of fruit and vegetables. There are large
development opportunities also in medicinal herbs. The Republic of Srpska is uncompetitive in cereal
production, but there are significant opportunities for organic cereals growth for baby-food (assuming
providing of a certificate). An important contribution to the development of agriculture of the Republic
of Srpska would represent agriculture clusterisation, as well as construction of wholesale markets, which
would gather the supply of agricultural products, and foreign investments would have an important role
in packaging, cooling and freezing agricultural crops in accordance with the demands of buyers at
foreign markets.
5.3.2. Industry
Industry is one of the most important sectors of any economy, because industry development increases
also the competitiveness of domestic economy and employment. Foreign investments in industry
significantly contribute to increasing competitiveness of industry through transfer of modern
technologies, knowledge, innovation, entrepreneurial abilities, and thus also to increasing productivity.
Negative effects of the global economic crisis and deindustrialisation process have resulted in a decline
in industry share in the gross domestic product of the Republic of Srpska. The share of industry in the
GDP of the Republic of Srpska during the period from 2009 until 2014 is given in the following table:
Table 24: Industry share in Republic of Srpska GDP from 2009 to 2014 (, %) Industry branch 2009 2010 2011 2012 2013 2014
Mining and quarrying 1.7 1.9 2.1 2.2 2.3 2.2
Manufacturing industry 9.3 8.6 8.9 7.8 8.7 8.7
Electricity, gas, steam and air conditioning generation and supply
4.4
4.6
4.3
4.2
4.6
4.4
Total 15.4 15.1 15.3 14.2 15.6 15.3
Source: Republic of Srpska Statistics Institute
An overview of export, import and import export ratio for industry during the period from 2009 to 2014
is given in the following table:
69
Table 25: Export, import and import export ratio of Republic of Srpska industry 2009–2015 – in BAM thousand
Industry 2009 2010 2011 2012 2013 2014 2015
Export 1,566,745 2,006,518 2,355,439 2,177,329 2,373,815 2,488,795 2,327,495
Import 3,357,875 3,823,847 4,325,886 4,247,046 4,313,846 4,701,598 4,093,287
Import export ratio 46.7% 52.5% 54.4% 51.3% 55.0% 52.9% 57.6%
Share of overall industry export in RS
export 93.65% 92.13% 91.98% 91.69% 91.16% 92.45%
92.6%
Source: Republic of Srpska Statistics Institute; Source of data for 2015 Ministry of Industry, Energy and
Mining
State of Technology in Industry61
Competitiveness of a country is significantly affected by the state of technology. The speed of technological change, both in production and information-communication, represents an increasing problem in developing countries which must develop more technological abilities and higher flexibility in order to succeed in the ever more demanding global environment.
One of the direct indicators of technological development is technological complexity of products and
technological development of technology. According to Eurostat classification, manufacturing industry is
divided by technological level into four groups:
- High technology group, which includes manufacturing medical and pharmaceutical products, manufacturing office machinery and computers, manufacturing radio, TV and communications equipment, manufacturing medical, precision, optical instruments and watches;
- Medium high technology group, which includes manufacturing chemicals and chemical products, manufacturing machinery and apparatus, manufacturing electrical machinery, apparatus, manufacturing motor vehicles, trailers and semitrailers and other transport equipment and building and repairing ships and aircrafts;
- Medium low technology group, which includes manufacturing coke, refined petroleum products, nuclear fuels, manufacturing rubber and plastic products, manufacturing other non-metallic mineral products, manufacturing metals, manufacturing metal products, except machinery and equipment;
- Low technology group, which includes manufacturing food and beverages, manufacturing textiles, manufacturing wearing apparel, dressing and dyeing fur, manufacturing leather, manufacturing luggage handbags, saddlery, harness and footwear, manufacturing wood and products of wood, manufacturing pulp, paper, paper products, printing and reproduction activity, furniture manufacturing.
The following products comprised the structure of industrial products that were exported the most62
from the Republic of Srpska:
61 Republic of Srpska industry development draft strategy and policy 2016–2020, Ministry of Industry, Energy and
Mining
70
- low technology level 49% (footwear, wearing apparel, products of wood, paper, food products and beverages, furniture);
- medium low technology level 36% (refined petroleum products, base metals, fabricated metal products, except machinery and equipment);
- medium high technology level 14% (chemicals and chemical products, machinery and equipment, electrical apparatus);
- high technology level 1% (computers, electronic and optical products).
Such export structure indicates the state of technique and technology in industry, and it can be stated
that:
- equipment in the existing technique and technology mainly originates from the western industrial countries, while very little installed equipment is of domestic make,
- machinery, processes and production systems are lacking sufficient share of information technology,
- technology gap is visible also from increased consumption of materials in manufacturing and - highly qualified staff is lacking for work with modern technologies and equipment.
Chart 11: Average technology age in manufacturing industry
36%
17%
19%
28%
up to 5 years (36%)
from 5 to 10 years (17%)
from 10 to 20 years (19%)
more than 20 years (28%)
Source: Survey of RS Ministry of Industry, Energy and Mining
Based on the results of a survey conducted among manufacturing industry companies, it can be concluded that about 47% of the total number of companies have obsolete technology (average age of more than ten years), that universal machinery is prevailing, while the level of presence of CNC machinery is below the needed.
The companies are mainly using equipment of varied origin, varied level of age and utilization, and
lagging behind the European and world firms in terms of use of modern production technologies, which
significantly reduces their competitive ability.
Special importance for the development of manufacturing industry and improvement of
competitiveness of an economy lies with development of information-communication technologies
(ICT). The most important segment of the ICT sector for companies in the field of manufacturing industry
is production and development of software and supporting services. ICT support the fulfilment of
62 Source: Republic of Srpska Statistics Institute
71
business goals of improving productivity, reducing costs, improving decision-making, improving client
relations and developing new strategic applications.
Since 2014, the Statistics Institute has been conducting a survey of use of the information-
communication technologies in the Republic of Srpska. During 2014, 100.0% companies in the Republic
of Srpska were using a computer in their operation, of which 98.7% had internet access, while 25.3%
were paying for advertising on the internet by means of announcements, social networks, and on other
web sites.
Out of the total number of companies, 19.4% were employing ICT experts. Most of them were employed
in finance and insurance activities (95.0%), and least in manufacturing industry (15.5%). Most ICT
experts were employed in large companies (68.2%).
In the Republic of Srpska, 61.0% of companies had a web site during the above period. A web site was
present in 100.0% companies in the field of finance, information and communications, while it was the
least present with companies engaged in transport, storage and communications (36.5%). Out of the
total number of companies having a web site, its contents were adjusted to regular visitors with 93.7%
companies, visitors had a possibility to become acquainted with the description of goods, services and
price list of the company with 89.8% companies, and visitors had a possibility to file a complaint by
electronic means with 65.4% companies.63
The importance of manufacturing industry for the economic development of the Republic of Srpska can
be best seen through the rate of growth of the manufacturing industry volume relative to the growth of
the total manufacturing volume in Republic of Srpska industry. In 2015, the industry of the Republic of
Srpska generated growth of 3.0% relative to 2014, while the manufacturing industry grew by 3.2%.
Export of the manufacturing industry had an average annual share of 83% in the total export of the
Republic of Srpska during the 2009–2015 period. The largest manufacturing industry export was
achieved in 2014, in the amount of BAM 2.31 billion, up 75.79% relative to 2009. An overview of the
export, import and import export ratio of the manufacturing industry is given in the following table:
Table 26: Export, import and import export ratio of Republic of Srpska manufacturing industry from 2009 to 2015 – in BAM thousand
Manufacturing industry
2009 2010 2011 2012 2013 2014 2015
Export 1,311,573 1,699,792 2,111,891 2,033,375 2,130,882 2,303,461 2,211,611
Import 2,647,234 2,749,315 2,968,159 2,996,290 3,074,468 3,599,918 3,338,194
Import export ratio 49.54% 61.83% 71.15% 67.86% 69.31% 63.97% 66.25%
Share of manufacturing industry export in total RS export
78.40% 78.05% 82.46% 85.63% 81.83% 85.57% 88.00%
Source: Republic of Srpska Statistics Institute; Source of data for 2015 Ministry of Industry, Energy and
Mining
63 Statistics Institute, Use of Information-Communication Technologies in the Republic of Srpska, 2014 - press
release
72
Manufacturing industry development is of large importance for the Republic of Srpska, because this
sector creates new value added, and growth of foreign investments in this field would have a multiple
positive effect on the overall economic development, because it would enable a significant employment
growth, transfer of new technologies and productivity growth.
According to the data of commercial courts, total foreign investments in the manufacturing industry of
the Republic of Srpska amounted to BAM 66,576,427 during the period from 2011 to 201564. The largest
volume of investments was achieved in 2013 in the amount of BAM 26 million.
Table 27: Foreign investments in the most important sectors of the manufacturing industry, 2011–2015 in BAM
Manufacturing industry sectors
2011 2012 2013 2014 2015 Total
Metal industry 1,090,266 12,025 9,767,313 5,246,615 3,648,335 19,764,554
Food industry 3,322 4,180 15,107,083 761,419 1,528,456 17,404,460
Wood industry 5,961,996
805,300
84,338 22,484 1,140,315 8,014,433
Textile, leather and footwear industry
391,666 9,000 513,708 2,501 42,931 959,806
Source: Commercial courts of the Republic of Srpska and Ministry of Economic Relations and Regional
Cooperation
From the table above it is obvious that from 2011 to 2015, the largest foreign investments went to
metal industry, and the smallest to textile, leather and footwear industry.
An overview of foreign investments in the manufacturing industry by country of investor origin is given
in the following table:
Table 28: Foreign investments in the manufacturing industry by country of investor origin in BAM Country of investor Amount in cash Amount in
fixed assets Amount in
rights Total
Serbia 20,557,513.70 0.00 1,240,543.00 21,798,056.70
Russia 7,847,055.98 0.00 0.00 7,847,055.98
Italy 5,950,998.72 0.00 0.00 5,950,998.72
Slovenia 5,131,764.64 0.00 0.00 5,131,764.64
Czech Republic 1,334,771.50 0.00 0.00 1,334,771.50
Croatia 906,134.26 0.00 0.00 906,134.26
Netherlands 760,851.00 0.00 0.00 760,851.00
Luxembourg 567,792.00 0.00 0.00 567,792.00
Austria 389,685.36 0.00 0.00 389,685.36
Iceland 165,634.00 0.00 0.00 165,634.00
64 It is estimated that FDI in the manufacturing industry were higher, since data are based on the information received from
commercial courts, which exclusively record increases in the formally registered amount of investments through increase of founding capital.
73
USA 160,226.10 0.00 0.00 160,226.10
Poland 117,349.80 0.00 0.00 117,349.80
Germany 71,500.00 0.00 0.00 71,500.00
Source: Commercial courts of the Republic of Srpska and Ministry of Economic Relations and Regional
Cooperation
From the above table it is obvious that the largest volume of foreign investments in the manufacturing
sector came from Serbia (51%,) followed by Russia (18%) and Italy (14%). The most important sectors of
the manufacturing industry are metal industry, wood industry, textile, leather and footwear industry
and food industry.
5.3.2.1. Metal Industry
The metal industry has a long tradition of manufacturing, and production capacities distributed
throughout the territory of the Republic of Srpska. The metal industry has a share of 16.8% in the GVA of
the overall industry of the Republic of Srpska, employs 11,697 workers or 25.0% of the total employed in
the manufacturing industry and exports 29.9% of the total export of the manufacturing industry.
The export, import and import export ratio are given in the following table:
Table 29: Export, import and import export ratio of Republic of Srpska metal industry 2009–2015
Metal industry 2009 2010 2011 2012 2013 2014 2015
Export (000 BAM) 415,014 613,004 706,860 618,443 624,201 648,407 661,953
Import (000 BAM) 975,083 1,012,328 1,084,526 1,050,810 1,088,848 1,518,620 1,141,708
Import export ratio (%)
42.56% 60.55% 65.18% 58.85% 57.33% 42.70% 57.98%
Source: Statistics Institute; Source of data for 2015 Ministry of Industry, Energy and Mining
Total foreign investments in the metal industry from 2011 to 2015 amounted to BAM 19,764,554, which
represents 38% of the total foreign investments in the manufacturing industry.
Foreign investments in this sector are mainly brownfield, while greenfield investments are rarer,
because they were most often made during the privatisation process in companies with the majority
state-owned capital. Several foreign-owned companies are active in the sector, and successfully
supplying their global buyers from their production base in the Republic of Srpska, such as: Jelšingrad
Livar (from Slovenia), Mechanizmi B (from Slovenia) and Letrika Laktaši (from Slovenia), Iskra (from
Slovenia), Končar (from Croatia).
The sector of metal and electric industry has attracted prospective global and regional companies. The
reasons for that are:
1. long industrial tradition,
2. Republic of Srpska has significant basic materials, raw materials and favourable electricity prices,
3. availability of labour force, at competitive labour costs,
4. favourable geographical position and low transport costs,
5. free trade zone,
74
6. free capacities available to be put into operation,
7. significant number of companies operating in this sector in the Republic of Srpska, which can be
good partners in production value chain,
8. largest exporters of the Republic of Srpska come from the metal and electric sector.
However, this sector’s opportunities for foreign investments are much wider, because in addition to
those for greenfield investments, significant potentials exist also for brownfield investments, since this
sector has a significant number of non-privatised operating companies which are majority owned by the
Republic of Srpska, and whose free capacities can be put into operation fast, as follows: Kosmos Banja
Luka, Orao Bijelјina, Fabrika motora specijalne namjene [Special-Purpose Engines Factory] Pale, Nova
tvornica prečistača [New Filter Factory] Rogatica and Novi autodijelovi [New Auto-Parts] Rudo.
Looking at subsectors, the largest potential lies in manufacturing parts and components for energy
facilities, automotive industry and arms industry.
5.3.2.2. Wood Industry
The wood industry has a particular strategic importance for the Republic of Srpska and a tradition in
wood processing longer than 150 years. The wood industry is a branch of industry which covers two
industrial activities: manufacture and products of wood and cork and manufacture of furniture and
similar products. The wood industry uses domestic natural resources as raw materials, which are self-
renewable. The production capacities are distributed throughout the territory of the Republic of Srpska.
The wood industry has a share of 9.67% in the GVA of the overall industry, employs 9,161 workers or
19.6% of the total employed in the manufacturing industry and exports 19% of the total export of the
manufacturing industry. The wood industry generates the largest export surplus in industry sector.
The export, import and import export ratio for the wood industry during the 2009–2015 period are
given in the following table:
Table 30: Export, import and import export ratio of Republic of Srpska wood industry 2009-2015
Wood industry 2009 2010 2011 2012 2013 2014 2015
Export (000 BAM) 196,826 218,984 272,865 302,019 340,469 392,082 420,287
Import (000 BAM) 73,227 81,659 77,483 79,785 86,808 92,604 96,826
Import export ratio (%) 268.79% 268.17% 352.16% 378.54% 392.21% 423.40% 434.00%
Source: Republic of Srpska Statistics Institute; Source of data for 2015 Ministry of Industry, Energy and Mining
Total foreign investments in the wood industry from 2011 to 2014 amounted to BAM 8,014,433, which
represents 12% of the total foreign investments in the manufacturing industry.
The wood industry of the Republic of Srpska mainly comprises smaller capacities for primary wood
processing, which leads to a fragmentation of raw material supply, and obsolete production technology,
without steaming or drying capacities, which increases the operating costs. Wood processing plants are
mainly located in the areas with raw material resources.
75
The above implies that foreign investments can have an important influence on wood industry
development, because foreign investments would also bring application of new technological
achievements in furniture manufacturing, which would increase the share of this industry branch in new
value added, i.e. growth of foreign investments in furniture manufacturing, residential facilities, joinery
(windows, doors and floors), toys and products of waste, would significantly increase the
competitiveness of the wood industry, and thus also the possibility of placing products of higher
processing level at foreign markets. The Republic of Srpska has a series of advantages compared to other
economies due to:
1. existence of significant and quality raw material – total stock in forests owned by the Republic of
Srpska is estimated at about 184,545,000 m³ or 81.2% of the total stock of forests of the
Republic of Srpska, and in privately owned forests at about 44,846,300 m³ or 18.8% of the total
stock of forests of the Republic of Srpska65, of which 35% are conifers and 65% deciduous trees.
The allowed/planned cutting volume in forests owned by the Republic of Srpska amounts to
about 2,000,000 m³ of wood assortments, and in privately owned forests about 300,000 m³,
2. excellent forest growth potential,
3. tradition in wood processing longer than 150 years,
4. investment opportunities in companies that have not completed the privatisation process, as
well as in companies under bankruptcy,
5. permanent export orientation,
6. long-term growing tendency in products of all stages of wood processing,
7. available quality labour force, particularly in smaller communities where that is almost the only
source of revenue,
8. possible cooperation with a large number of companies from the Republic of Srpska (556
companies),
9. geographical position of the Republic of Srpska and liberalised trade (CEFTA),
10. support to wood processors through conclusion of agreements on raw material procurement
during a longer period, deferred payment for raw materials, and offering discounts in case of
advance payment for raw materials.
Important investors from Italy, Netherlands, Switzerland, Luxembourg etc. have already invested in the
wood industry. Three non-privatised companies which are majority owned by the RS are operating
within the wood industry, and their free capacities can be put into operation fast, and these are: Nova
Romanija Sokolac, Drvna industrija Vlasenica Vlasenica and Nova Borja Teslić.
The wood industry also includes the clusters Drvo Prijedor and Drvoklaster Banja Luka.
The cluster Drvo Prijedor is of regional nature because it comprises 40 companies with head offices in
five neighbouring municipalities and cities (Banja Luka, Kostajnica, Kozarska Dubica, Novi Grad and
Prijedor). The companies within the cluster are engaged in primary wood processing, manufacturing of
65 Republic of Srpska Forestry Development Strategy 2011–2021, Ministry of Agriculture, Forestry and Water
Management.
76
products of wood and furniture. The goals of the cluster are business linking, education, exchange of
information and improvement of operation of companies and entrepreneurs within the wood industry,
as well as increasing competitiveness of the wood industry. The cluster Drvo Prijedor is recognisable in
the territory of the entire South East Europe, because it has established a cluster network together with
the wood industry clusters from Serbia, Austria, Slovenia, Croatia and Macedonia, with the aim of
developing wood industry through cluster cooperation at the level of the entire Balkan.
5.3.2.3. Textile, Leather and Footwear Industry
The textile, leather and footwear industry is traditionally a very important branch in the industry of the
Republic of Srpska, considering that it is a labour-intensive branch. The capacities of the textile, leather
and footwear industry are distributed throughout the territory of the Republic of Srpska in a balanced
manner. The textile, leather and footwear industry has a long manufacturing tradition, qualified and
educated labour force and significant potentials for raw hide and wool processing.
The textile, leather and footwear industry has a share of 9.1% in the GVA of the overall industry of the
Republic of Srpska, employs 11,067 workers or 23.7% of the total employed in the manufacturing
industry. In 2015, the export of the textile, leather and footwear industry accounted for 20.1% of the
export of the manufacturing industry.
The export, import and import export ratio of the textile, leather and footwear industry during the
period 2009–2015 is given in the following table:
Table 31: Export, import and import export ratio of Republic of Srpska textile, leather and footwear industry 2009–2015
Textile, leather and footwear industry
2009 2010 2011 2012 2013 2014 2015
Export (000 BAM) 286,888 292,932 335,123 354,378 401,285 476,623 445,957
Import (000 BAM) 289,901 281,327 335,185 321,753 335,701 400,172 410,256
Import export ratio (%) 98.93% 104.13% 99.98% 110.14% 119.54% 119.10% 108.7%
Source: Republic of Srpska Statistics Institute, Source of data for 2015 Ministry of Industry, Energy and
Mining
During the 2011–2015 period, foreign investments in the textile, leather and footwear industry
amounted to BAM 959,806 and accounted for 2% of the total foreign investments in the manufacturing
industry.
Considering that there are unused capacities in this branch of industry, the industry of textile, leather
and footwear might be attractive for foreign investments, especially taking into account that it was the
sector with the strongest foreign investment demand dynamics in South East Europe during the period
from January 2008 to March 2013. Increasing foreign investments would not only improve capacity
utilization, but also increase employment, which is one of the strategic objectives of the Republic of
Srpska Economic Policy.
77
Companies from Slovenia, Italy and Croatia (in companies Sportek Kotor Varoš, Amika d.o.o. Derventa,
Bema d.o.o. Banja Luka, Dubikoton Kozarska Dubica, Dević tekstil Teslić, Sanino Derventa) have already
invested in this sector.
Advantages of investing in this branch of industry are:
1. long industrial tradition,
2. lower transport costs, easier and safer transport,
3. competitive labour costs,
4. large unused existing capacities,
5. possibility of delivery within a short term,
6. considering that livestock is important in the Republic of Srpska and that it has a growing trend,
there are real domestic resources of raw wool and raw hide on the one hand and demand for
final products on the other, which leaves room for new investments in this field.
Foreign investments in this branch of industry might be implemented through:
1. establishment of partner relations between textile companies where domestic companies would
provide materials for manufacturing, while foreign companies would design the models for
manufacture of products, determine the quantity, colour and wrapping materials, all in
accordance with foreign market needs, i.e. establish designer and development centres in the
Republic of Srpska,
2. joint venture, where foreign companies would modernise and expand the production capacities
of the existing textile companies, through new machinery procurement and new workers
employment and training,
3. greenfield investment in lacking capacities, where foreign companies would build factories for
fabric finishing, leather processing, wool processing, and plants for manufacture of fashion
clothes of famous world brands.
5.3.2.4. Food Industry
Strategic objectives of the food industry are to increase the degree of raw material use, revitalise the
capacities by modernising the existing capacities, introduce quality standards, new equipment and new
technologies. Considering that all these changes require enormous finances, greenfield investments
would have an important role.
The food industry has a share of 11.7% in the GVA of the overall industry of the Republic of Srpska,
employs 8,135 workers or 17.4% of the total employed in the manufacturing industry. In 2015, the
export of the food industry accounted for 9% of the export of the manufacturing industry.
The export, import and import export ratio of the food and tobacco industry are given in the following
table:
78
Table 32: Export, import and import export ratio of Republic of Srpska food and tobacco industry 2009–2015
Food and tobacco industry
2009 2010 2011 2012 2013 2014 2015
Export (000 BAM) 122,794 136,347 160,948 192,005 211,338 199,843 198,887
Import (000 BAM) 551,528 542,554 561,351 584,166 599,212 597,506 588,649
Import export ratio (%) 22.26% 25.13% 28.67% 32.87% 35.27% 33.45% 33.78%
Source: Republic of Srpska Statistics Institute; Source of data for 2015 Ministry of Industry, Energy and
Mining
Considering that only 33.8% of import is covered by export, it is necessary to increase the volume of
manufacturing in the food industry, because the Republic of Srpska has potentials in this field of
economic action. Increase in foreign investments volume in this sector would lead to import reduction,
export growth and employment growth.
Total foreign investments in the food industry during the period 2011–2015 amount to BAM 17,404,460,
i.e. 26.1% of the total foreign investments in the manufacturing industry.
The Agribusiness Competitiveness Study, prepared as part of IFC assistance to the Republic of Srpska
Ministry of Agriculture, Forestry and Water Management, evaluated current competitiveness of value
chains in the sectors of manufacturing milk, meat, fruit and vegetables, wine and fish. The results
showed that the sectors of manufacturing milk, and fruit and vegetables are the most competitive in the
Republic of Srpska. The sector of milk manufacturing is the best ranked due to its export performances,
while smaller, but faster growing sectors, such as fish and wine were ranked the lowest.
In the Republic of Srpska there are also several associations which represent potential agribusiness
clusters, such as the Association of Milk Producers of the Republic of Srpska, Association of Fruit
Growers of the Republic of Srpska, Association of Vegetable Growers of the Republic of Srpska. At the
Republic of Srpska Chamber of Commerce there is the Association of Agriculture, Water Management,
Food and Tobacco Industry, whose organisational structure includes groupings formed under the ‘from
the field to the table’ principle which can serve as good basis for cluster formation.
One of the ways to improve the efficiency of SME development and operation is to stimulate organic
cluster development, i.e. to strengthen their competitiveness through mutual linking and cooperation.
This is particularly important when it comes to linking education, science and manufacturing aimed at
adopting new technologies, creating jobs and penetrating new markets. In that sense, it is necessary to
consider the contribution that targeted foreign investments can provide in creating innovation clusters
composed of companies manufacturing products of a high level of value added, universities, institutes,
research institutions and others.
The above sectors are available for export, but product quality, fast emergence of new producers and
fast pace of change in client needs represent barriers to their success. A comprehensive and systemic
79
approach to mitigating the recognised barriers, including also much faster responses to market trends
and better quality infrastructure, may improve competitiveness of these sectors and enable increasing
foreign investments in the food industry sector.
Investment potentials and subsectors attractive for foreign investors:
1. Wholesale markets, modern purchase logistic centres located in the manufacturing regions:
- Lijevče Field region – Nova Topola, agro-industrial zone (apples, pears, strawberries,
vegetables, pigs fattening, bull calves fattening), the location is ready – developed land for sale
or lease, 8 km from the Banja Luka – Gradiška motorway, 22 km from the Zagreb- Belgrade
motorway.
- Semberija region - Agro-Market Centre - Bijelјina (vegetables – cucumbers, tomatoes, peppers,
cabbage, plums, pigs fattening, bull calves fattening), 30 km from the Zagreb - Belgrade
motorway, expansion and modernisation of the existing wholesale market.
2. manufacturing and processing fruit and vegetables: greenhouses and glasshouses for vegetables
and berries for consumption and processing (processing capacities exist and significant
quantities are imported); growing raspberries and blackberries and building cold storages and
drying chambers for fruit (favourable climatic conditions, existence of sales market in the
country and abroad), plantation growing: walnuts, hazelnuts, pears, sour cherries and apples
(favourable climatic conditions, large quantities for consumption and processing are imported),
3. viticulture and winemaking: growing vineyards and producing grapes and wines of recognisable
geographical origin,
4. cattle raising, meat manufacturing and processing: building farms, reproduction centres, and
manufacturing meat and milk products of higher processing levels: hard and semi-hard cheeses,
durable and semi-durable meat products (sausages, meat cans), possibility of duty-free export
of bull calf meat to Turkey (fattening imported bull calves in BiH).
5. fishery: raising quality fish for export and building processing capacities,
6. beekeeping: manufacturing bee products of recognisable geographical origin for export,
introducing new products primarily for the needs of tourism and hospitality industry,
7. manufacturing and processing medicinal herbs, mushrooms and collecting forest fruits, primarily
mushrooms and snails and
8. industrial plants growing and processing: sugar beet and oil crops (soybean and rapeseed).
5.3.2.5. Non-Metallic Mineral Raw Materials Processing Industry
The Republic of Srpska has vast mineral resources and that is why more than 50% of the total volume of
foreign investments from 2011 to 2014 was related to the investments in this branch of economy.
However, considering that the Republic of Srpska is endeavouring to attract efficiency-seeking foreign
investments, and has significant non-metallic mineral raw materials, foreign investments in this sector
would have an important role when it comes to building processing capacities, because they would
enable processing the non-metallic mineral raw materials, which would secure higher processing level
and export of products with a higher new value added. By applying modern technical and technological
methods, the non-metallic mineral raw materials processing industry might become an important
economic branch.
80
The Republic of Srpska has the following non-metallic mineral raw materials:
- crushed stone (limestones, dolomites, igneous rocks) – in almost every municipality there is one
or more potentially prospective locations,
- brick clay – there are large potentials in the areas of Prijedor, Banja Luka, Mrkonjić Grad,
Bijelјina, Gacko, Berkovići etc. However, very few have been activated (brick plants in Banja
Luka, Bijelјina and Zvornik),
- dimension stone (decorative stone) – this mineral raw material is currently being exploited only
in a deposit in the area of Han Pijesak, and processed in Šekovići, however, the areas with the
potential for finding dimension stone deposits are: Trebinje, Bileća, Berkovići, Srebrenica, Teslić,
Ozren, Prijedor etc.,
- pottery and fire clay – area of Prijedor, Crna Dolina deposit. Complete production is placed
abroad, because there are no processors or producers of ceramic products in the Republic of
Srpska,
- quartz sand – there are significant proven deposits of this raw material in the areas of: Milići,
Banja Luka, Prijedor.
In addition to the above, there are prospective areas for finding also the following mineral raw
materials:
- cement marls (Neogene basins Lješlјani, Gacko and other Neogene basins);
- sodium chloride, areas of Lopare and Majkić Japra – Oštra Luka;
- quartz raw materials, areas of Motajica and Mrkonjić Grad;
- magnesites, areas of Rudo and Teslić;
- tuffs (pozzolana additions for cement manufacturing), areas of Čelinac and Prnjavor;
- zeolite (used for purification of various liquids and oils, removal of various smells etc.), areas of
Čelinac and Milići.
However, in spite of significant results, for the entire manufacturing industry sector to have a role in
the economic development of the country consistent with its potential opportunities, it is necessary
to influence change in the following factors:
1. Skills – The metal industry sector has a strong tradition in the Republic of Srpska and that is why
the availability of labour force in general is not a large problem. However, there is a lack of
modern skills and knowledge required by the market. This is particularly marked in the field of
welding, where companies particularly lack trained labour force.
2. Innovation capacities: lack of sufficient funds and investments in modernising manufacturing
equipment and technology, combined with the lack of modern skills, have led to a decline in the
capacities for innovation in this sector. That is why companies are focusing mainly on simpler,
basic products and activities.
3. Cluster operation: cluster operation is limited. That is why companies in this sector are not
afforded the opportunity to fully benefit from potential synergies and positive effects of cluster
creation.
81
4. Market access: considering that investing in this sector is oriented towards efficiency-seeking, a
safe access to large export markets is key for foreign investors. Quality standards and
certificates are a presumption for access to the EU markets.
5. International promotion: particularly to attract new foreign investments in the sector.
To reduce the above shortcomings, it would be desirable to implement the following measures:
1. Consider the possibilities to establish a metal industry development support centre – which
would solve the problems of the lacking skills and capacities for innovation. The centre might be
part of the existing institutions dealing with development, e.g. Innovation Centre Banja Luka,
University of Banja Luka or University of Istočno Sarajevo.
2. Analyse incentives in this sector, which would solve the problems of shortage of skills, lacking
innovation capacities and limited cluster development. It would include a detailed analysis of
the programme of incentives currently available to companies in this sector from all sources,
with a particular focus on assessing their effectiveness in attaining the above objectives, and
finding a way for incentives to be applied most effectively to attain the objectives set in the field
of skills modernisation (training and education incentives), innovation support (research and
development incentives) and cluster formation (relations and spillover effect strengthening
incentives). Particular attention should be paid at the issue of sustainability and the way in
which these programmes can be gradually abolished once the set objectives are attained.
3. Develop industrial/economic zones which would solve the problem of insufficient cluster
development, which would result in a better use of the zones as central points for cluster
development.
4. Improve quality infrastructure system which would enable easier access to relevant export
markets. This includes strengthening the existing quality infrastructure systems in the Republic
of Srpska in order to provide better support to companies in this sector in complying
with/applying internationally accepted standards and quality certificates, such as ISO and CE
mark.
5. Strengthen promotional activities: which would enable easier and better access by foreign
investors, which implies strengthening institutional framework for investment promotion and
better promotion of the existing success stories of companies in this sector.
The companies in the manufacturing industry sector in the Republic of Srpska are mainly focused on
basic products and activities with little value added. The key goal of sector development is to
manufacture products with more value added and to increase product complexity and sophistication,
which will significantly affect the growth of export value and creation of new and higher quality
workplaces in this sector.
5.3.3. Renewable Energy
Investments in renewable energy sources, or ‘green energy’ grew by 17% at the global level and reached
record investments in the amount of $ 270 billion in 201466. By the number of foreign investment
decisions, this is the fastest developing sector throughout Europe. Germany has a higher number of
workplaces in the renewable energy sector than in the automotive industry. The Republic of Srpska
66 Global Trends in Renewable Energy Investment 2015
82
Energy Strategy states clear goals until 2030 in terms of energy security insurance, electricity generation
efficiency increase, energy deficit reduction, gradual market liberalisation, renewable energy source
maximisation, greenhouse gas emission limitation and harmonisation with the EU acquis.
Although feed-in tariffs for electricity generated from renewable sources represent a burden or addition
on electricity tariff for final buyers, the advantages brought about by renewable energy might be much
higher, particularly in case of initiation of renewable energy-related equipment manufacturing which
would create opportunities for job and value added creation.
The Law on Renewable Energy Sources and Efficient Cogeneration regulates this field further and partly
transposes the provisions of the Directive 2009/28/EC on renewable energy sources. The Republic of
Srpska Renewable Energy Sources Action Plan (RS RES AP) defines legally binding target levels and
measures for attainment of the objectives, i.e. the share of RES relative to the total energy consumption
in the Republic of Srpska by year and by sector until 2020.
The Republic of Srpska has significant potential when it comes to renewable energy sources. This field is
in its initial stages of development and precisely because of that it offers large opportunities for foreign
investments.
Advantages of the Republic of Srpska concerning renewable energy sources are:
1. Small hydro power plants
The most important renewable sources in use in the Republic of Srpska are watercourse energy (in
large hydro power plants) and wood (for household heating). The potential for hydro power plants
development is significant and largely unused, and in terms of renewable energy sources the focus
here is on smaller watercourses, i.e. on building small hydro power plants.
Total hydropower potential in power range from 0.5 to 10 MW is estimated at 1500 GWh/year.
Energy potential in small hydro power plants recognised as candidates for building amounts to
about 212 MW, i.e. about 650 GWh/year. Energy potential of small hydro power plants of installed
power below 0.5 MW (micro and mini hydro power plants) has not been explored in the territory of
the Republic of Srpska.
2. Biomass
The Republic of Srpska has a significant biomass potential which can be used to produce electric and
heat energy.
Total theoretical biomass potential in the Republic of Srpska is estimated at 31.08 – 46.24 PJ. The
largest portion (59%) is biomass suitable for combustion. With 39%, follows biomass suitable for
biogas production from municipal waste, stock farming and energy crops. Present consumption of
biomass for combustion amounts to 16.96 PJ, which represents 92% of the potential from the
sources at the territory of the Republic of Srpska.
83
3. Geothermal sources
Conducted explorations show that a large portion of the Republic of Srpska is prospective in terms
of presence of geothermal waters, the most so in the areas of Posavina, Semberija, Banja Luka Basin
and Lijevče Field. Energy potential is estimated at 1260 PJ. The largest potential for use of this
energy source is in aquaculture, agriculture, and settlements heating.
4. Wind energy
A wind atlas for the area of the Republic of Srpska has been prepared and needs to be verified by
wind measurements. Theoretically usable potential for wind energy use is estimated at 640 MW and
1200 GWh/year.
According to the available wind potential, 13 sites can be identified for wind farms. Based on the
economic justifiability, priority for wind farm building should be given to medium-sized sites. All
sites except one are in the southeast part of the Republic of Srpska. Bearing in mind various
limitations, wind farm implementation is possible by 2020, of maximum power up to 100 or 200
MW.
5. Solar energy
The mean annual solar irradiance of the horizontal area in the Republic of Srpska ranges from 1.25
MWh/m2 in the northern parts to 1.55 MWh/m2 in the southern parts. Using solar energy in the
Republic of Srpska is possible in two directions: solar collectors for hot water and heat preparation
and photovoltaic systems for electricity generation. Studies prepared by the Republic of Srpska
about solar energy use and development promotion clearly indicate that the Republic of Srpska is
one of the more favourable European locations for its use.
5.3.4. Tourism
Tourism is a complex economic and social activity. Tourism as development generator instigates
intensified development of also all other branches of economy and has a multiplier consumption effect,
so the unmeasurable effects are significantly higher than those directly shown. This fact implies that
tourism requires social incentives if its faster development is to be achieved.
Tourism is the branch registering the fastest development throughout the world and generating the
largest revenues through export:
- it is developing 1.5 times faster than other industries,
- creates opportunities for job creation, since it is a labour-intensive branch,
- encourages development throughout the country both in rural and urban communities equally,
- investments in tourism as an indicator of country’s safety encourage foreign investments also in
other sectors,
- provides economic benefit both to individuals and entire society,
- enables cultural and spiritual superstructure of population.
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Assigning strategic importance to tourism and a considered organisation of tourism economy of the
Republic of Srpska would create preconditions for its becoming one of the leading branches of the
economy of the Republic of Srpska, together with agriculture.
Therefore, strategic orientation of the Republic of Srpska in the field of tourism is revenue and
employment growth, improvement of tourism position of the Republic of Srpska relative to regional
environment, improvement of tourism offer quality and volume, growing domestic and foreign demand.
This sector is mainly attracting tourists from the region. The tourists are coming from Serbia, Croatia and
Slovenia and gravitating towards natural spa and mountain resorts (such as Jahorina) and bigger cities
(Banja Luka, Trebinje, Višegrad).
The official data published by the Republic of Srpska Statistics Institute67 for tourism sector in 2015 are
as follows:
Number of visits by foreign guests is deemed the exporting side of tourism. Tourism as such does not
export goods, but does export services through package deals. There were the total of 294 781 arrivals
and 686 944 nights in the Republic of Srpska in 2015.
Regarding the number of arrivals, growth was registered year on year, i.e. number of arrivals grew by 13.3%. Tourism activity measured by the number of nights in 2015 also registered growth, i.e. higher number of nights by 14.7% relative to the previous 2014.
Table 33 including charts: Overview of tourist arrivals and nights in the Republic of Srpska at annual level (2013–2015)
TOURIST ARRIVALS IN THE REPUBLIC OF SRPSKA
total rate, %(T) domestic rate, %(D) foreign rate, %(F)
2013 256277 6.24% 140886 1.18% 112767 10.58%
2014 260160 1.52% 141898 0.72% 118262 4.87%
2015 294781 13.31% 158571 11.75% 136210 15.18%
50000
100000
150000
200000
250000
300000
350000
67 Republic of Srpska Statistical Yearbook 2015, Republic of Srpska Statistics Institute.
85
0
50000
100000
150000
200000
domestic foreign
TOURIST NIGHTS IN THE REPUBLIC OF SRPSKA
total rate, %(T) domestic rate, %(D) foreign index(F)
2013 629663 0.00% 355727 -7.57% 273936 11.91%
2014 598668 -4.92% 323002 -9.20% 275666 0.63%
2015 686944 14.75% 366761 13.55% 320183 16.15%
100000
200000
300000
400000
In total arrivals, the share of foreign tourist arrivals amounts to 46%, i.e. foreign tourist nights account
for 47% of total nights in the RS.
Chart 12: Structure of domestic and foreign tourist arrivals 2015
54%
46%
Tourist arrivals 2015
86
Chart 13: Structure of domestic and foreign tourist nights 2015
53%
47%
Tourist nights 2015
domestic
foreign
The largest number of foreign tourists who visited and stayed in the Republic of Srpska in 2015 came
from neighbouring countries, led by the Republic of Serbia with 32.87% share in total foreign arrivals,
and 31.36% in total foreign nights, followed by Croatia with 12.86% share in arrivals, and 22.56% share in
nights, Slovenia with 10.73% share in arrivals, and 8.22% share in nights, then Montenegro, Turkey,
Austria, Italy and Germany.
Table 34: Tabular overview of the ten countries with the largest share in arrivals and nights in the Republic of Srpska 2015
Tourist arrivals 2015
Share, % Tourist nights 2015
Share, %
FOREIGN TOURISTS
136210 320183
Serbia 44779 32.87 100400 31.36
Croatia 17513 12.86 72220 22.56
Slovenia 14617 10.73 26311 8.22
Montenegro 4942 3.63 13752 4.30
Turkey 8928 6.55 12496 3.90
Austria 4921 3.61 9817 3.07
Italy 4947 3.63 9532 2.98
Germany 4400 3.23 9367 2.93
Switzerland (including
Liechtenstein)
1937 1.42 4217 1.32
Netherlands 1938 1.42 4186 1.31
87
Table 35: Overview of foreign tourist arrivals by type of tourist resort 2015 resort type foreign tourist
arrivals 2015 Share, %
spa resorts 16411 12.05
mountain resorts 19174 14.08
other tourist resorts 93057 68.32
other resorts 7568 5.56
Chart 14: Structure of foreign tourist arrivals by type of tourist resort 2015
12%
14%
68%
6%
Foreign tourist arrivals 2015
Analysing the number of foreign tourist arrivals by type of tourist resort, it is noted that the largest
share in total foreign tourist arrivals in 2015 is taken by the number of arrivals to other tourist resorts
with 68.32% share, followed by spa and mountain resorts, while arrivals to other resorts have the lowest
percentage share.
Table 36: Overview of foreign tourist nights by type of tourist resort 2015 resort type foreign tourist
nights 2015 Share, %
spa resorts 88106 27.52
mountain resorts 61656 19.26
other tourist resorts 155199 48.47
other resorts 15222 4.75
88
Chart 15: Structure of foreign tourist nights by type of tourist resort 201568
28%
19%48%
5%
Foreign tourist nights 2015
spa resorts
mountain resorts
other tourist resorts
other resorts
Source of data: Republic of Srpska Statistics Institute
Analysing the number of foreign tourist nights by type of tourist resort, it is noted that the largest share
in total foreign tourist nights in 2015 is taken by the number of nights in other tourist resorts with
48.47% share, followed by spa resorts with 27.52% share, mountain resorts with 19.26% share, while
nights in other resorts have the lowest percentage share of 4.75%.
Turnover in hotel, restaurant and catering services (accommodation and food and drink preparing and
serving activities) in the fourth quarter of 2015 relative to the same period of the previous year is higher
by 1.5%, and relative to the 2014 average it is higher by 4.9%. The types of services currently offered by
this sector represent a classical service based on accommodation, food and beverages.
The Republic of Srpska, as an unexplored and new destination at tourism market represents a potential
both for tourists and investors.
The Republic of Srpska, a land of mountains and rivers abounding in water, thermal springs, ecological
and clean landscapes, offers varied facilities for tourists. Best opportunities for the development of a
recognisable tourism offer lie in potentials for the development of spa, mountain and sport and
adventure tourism. Through investments in infrastructure and superstructure, tourist information
points, thematic maps, tourist signalisation and enriched tourism offer, not only a higher number of
transit tourists can be expected but also their extended stay on the way through the Republic of Srpska.
Rural households demonstrate tradition, country life and hosts’ hospitality, and Srpska’s hunting
reserves offer a possibility of trophy hunting.
The Republic of Srpska should focus on spa or health tourism and on mountain tourism, because these
two types of tourism, taking into account their attractiveness, can significantly influence also
employment growth, funds inflow into the budget and the overall state of the economy.
68 The Statistics Institute defined: Other tourist resorts are other places which possess attractive factors (e.g. climate, cultural and historical monuments etc.), river and lake centres etc., which cannot be classified into any of the above mentioned resorts (spa, mountain). Other resorts are all other resorts which cannot be classified into any of the previous groups (spa, mountain, other tourist resorts), which possess accommodation facilities.
89
The Olympic mountain Jahorina is attractive for winter tourism lovers because of the proximity of
international airport, ideal relief and mountain configuration, quality and variety of tourism and
gastronomic offer throughout the year. These are only some of the important advantages of this
mountain. To improve capacity utilisation, especially under the conditions when winters with insufficient
precipitation are yielding poor results and reduced capacity utilisation, it would be necessary to focus
and profile as a congress tourism destination during spring and autumn, and as an attractive sport and
adventure tourism destination during summer. Adventure tourism is particularly important, and
represented in all the world ski-centres, and Jahorina has large opportunities in terms of development of
this type of offer, and additionally it is exceptionally rich in autochthonous medicinal herbs. Additional
facilities for extension of season and reduction of negative effects of seasonality of the existing offer,
concerning Jahorina, can be avoided by implementing the still current Jahorina Master Plan, adopted as
far back as 2008, which suggests numerous facilities for attracting tourists throughout the year.
Thermal and mineral springs are distributed throughout the territory of the Republic of Srpska and
represent a mixture of beneficial effects of nature and health. Spa centres led by expert knowledge and
staff provide quality services in spa and health tourism. However, realisation of the competitive
advantages necessitates quality accommodation capacities which would provide service beneficiaries
with an offer corresponding to modern needs and tendencies, with the added wellness and fitness
facilities and offer of healthy food menus.
Jahorina, i.e. Pale and Trnovo municipalities, as well as spa areas suitable for investing, can represent
potential free economic zones. Building new motels or redecorating the old and unused hotels, by
means of foreign investments, would contribute significantly to the development of this sector of
economy of the Republic of Srpska.
Also, the level of nature preservation provides large opportunities for the development of hunting, eco-
and adventure tourism. Natural basis for the development of these forms of tourism are national parks
(Kozara and Sutjeska) and nature reserves (Perućica, Janj and Bardača). Sutjeska national park is deemed
one of the richest ecosystems and one of the most beautiful national parks in Europe. Our two national
parks Sutjeska and Kozara can be attractive tourist destinations for all forms of tourism in nature if
appropriate accommodation capacities and facilities would be provided, and promotion done more
properly.
Natural potentials have created conditions also for investments in tourism economy.
In view of the forecast that tourism will maintain a growth rate in the world in the forthcoming period,
as anticipated also by the WTO, the RS tourism development potentials are evident. Certainly, the
growth index will condition significant investments in tourism infrastructure and superstructure, and a
more intensive promotion at the global market.
The Republic of Srpska has all conditions equal to those of other destinations, to develop its tourism
industry and benefit from the advantages of global development. The advantages of investing in tourism
economy of the Republic of Srpska are seen in the proximity of emitting markets, favourable
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geographical position, unexplored new destination, favourable labour market, and other investment
opportunities.
5.3.5. Information-Communication Technologies
Information-communication technologies represent a sector with the potentials that are insufficiently
utilised. Although this sector is not ranked among the labour-intensive branches and does not lead to a
significant employment growth, developing this sector should however be one of the priorities, because
it has an important role in the economic development of a country. Integration of the Republic of Srpska
into the EU and global flows is almost unimaginable without the development of this sector. Application
of the information-communication technology achievements leads to productivity growth, and
increased productivity leads to competitiveness growth.
The Republic of Srpska has a large potential for the development of this sector, especially taking into
account the availability of engineers and science staff in this field, availability of basic information
infrastructure and existence of a large number of small companies in this field. All the above advantages
make the Republic of Srpska attractive for foreign investments in this sector.
Information-communication technologies and their presence in the economic activities also increase the
attractiveness of all other sectors in attracting foreign investments, so under modern conditions they
represent one of the most important determinants of foreign investments.
Information-communication technologies have an important role also in promoting the country and its
potentials for attracting foreign investments.
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6. SWOT ANALYSIS
STRENGTHS
Abundant natural resources
Favourable geostrategic position and proximity of
European market
Liberalised trade: CEFTA, EFTA, Stabilisation and
Association Agreement, BiH Free Trade
Agreement with Turkey
Convertible mark stability and low inflation
Liberalised foreign investment regulations
Equal treatment of domestic and foreign
investors
Free profit expatriation
Reliable system of risk protection for foreign
investors: MIGA, bilateral agreements on
investment promotion and protection
Establishment of aftercare programme for
foreign investors
Business registration one-stop shop
Favourable tax rates
Competitive electricity price
Stable banking system
Tradition and experience in industrial production
Favourable labour cost-quality ratio
WEAKNESSES
Significant trade deficit
Market size
Insufficiently developed infrastructure
Insufficient technological development
Insufficient economy competitiveness
Insufficiently fast adjustment of educational system to
reform process
Insufficient conditions for accreditation, quality control,
certificate issue (certification) and access to other
international standards
Partial reform completion in the field of land policy
Insufficient networking between public, private and
scientific research sectors
Insufficiently developed value chains
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OPPORTUNITIES
Further financial market development
Further development and strengthening of
institutions for attracting foreign investments
Legislation alignment with EU standards
Cluster development
Construction of large infrastructure projects
Recommendations of the established investors
Adjustment of employee knowledge structure
and level to the needs of foreign investors
Diaspora potential
Republic of Srpska commercial representative
offices abroad
Increase of gross domestic expenses on research
and development and innovation
THREATS
Unfavourable trends at global level
Foreign investor inclination towards easy and fast earning
without desire for long-term operation development in the
host country
Domestic resources exploitation to derive extra profit to
foreign investor’s home country.
Moving of dirty technologies which lead to environmental
pollution
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7. CONCLUSIONS AND RECOMMENDATIONS
A long-term sustainable and stable growth is a priority of each society. Meeting this objective implies an
optimum possible combination of domestic and foreign investments. The first strategic objective of the
Republic of Srpska, defined by the Economic Policy 2016 is a stable economic growth to be based on the
following reform fields: economy recovery and business climate and competitiveness improvement.
Under the conditions when domestic economy lacks sufficient accumulation to increase the volume of
investments required to achieve strategic objectives, foreign investments have a large importance.
Precisely for that reason, approach to attracting foreign investments is one of the very important
segments of the economic activity, which requires a systematic approach, especially under the
conditions of uncertainty and negative trends both at the global and regional level.
During the past period, foreign investments in the Republic of Srpska were motivated by privatisation
process and demand for resources for the most part. Although in recent years the Republic of Srpska has
achieved significant results in implementing legal and institutional reforms and improving business
ambiance for foreign investments, foreign investments have not reached a satisfactory level. This was
caused more by an accumulation of various factors than by one key limitation with a negative impact on
foreign investments. Such trends were significantly affected by the unfavourable trends at the global
and regional level.
Attracting new investors requires detailed analysing of the potentials of domestic factors of production,
demand at foreign markets, foreign investment trends in the world and in the vicinity, and formulating
accordingly business environment and promotion of the country as a location attractive for foreign
investments, and in particular analysing strategically important investors, and building a special relation
towards them.
Improving business ambiance should be a continuous process which should provide free market entry,
normal operation, as well as free market exit to both foreign and domestic investors. That is why it is
necessary to keep working on improving business environment in terms of reduction of administrative
barriers in various fields, in their numbers, time of duration and costs. Considering that costs concern
foreign investors the most, operating costs should also be analysed in detail. In accordance with that, it
is necessary to make a register of parafiscal charges at the RS and local level. Also, foreign investors
need to be enabled a fast market entry but also a fast and cheap market exit. For that reason, it is
necessary to adopt a higher quality legal framework for bankruptcy. Foreign investors need a clear and
predictable legal framework, in order to be able to plan their investment activities.
Almost all countries in the region are undertaking reforms and that is a continuous process which is
particularly marked due to investment uncertainty caused by increased investment risks brought about
by big changes in the global economy. Precisely for these reasons, as well as due to decreasing
investment activities in the EU, the competition in attracting foreign investments in SEE region has
increased sharply.
94
Considering that innovation and knowledge are basic preconditions for growth of competitiveness of
SME, local self-government units and economy as a whole, it is necessary to improve knowledge quality
and harmonise it with the demands of a modern market. Therefore it is necessary to increase allocations
to research and development. Science and technology, together with the business community, should
represent an active participant in increasing country’s competitiveness, and by that also in increasing
the competitiveness in attracting foreign investments.
Establishing the new and developing the existing clusters and strategically located business and free
zones represent a challenge for country’s competitiveness increase and offer a possibility of directing
foreign investments to strategically important sectors, easier SME involvement in the global value
chains, as well as a possibility of foreign investments’ participation in economy restructuring.
It is also necessary to strengthen the capacities for foreign investor acceptance and promotion, both at
the local and the RS level, and their mutual cooperation. A new concept of approach to foreign
investment policy implies a much more active participation by all levels of government, concerning both
the established and potential investors, because it is not enough to only attract investors, they should
be stimulated to increase the volume of their operation, i.e. to increase their investments and to
reinvest. In that sense, foreign investors should be provided pre-investment support, support for
investment duration and investor aftercare.
For investor aftercare success, it is of large importance to strengthen the partnership between the RS
and local level of government, which implies constant expansion of the number of local self-government
units involved in the investor aftercare programme.
Furthermore, attracting only one large and famous investor has multiple benefits for domestic economy.
In addition to such investor’s usual investment of a significant amount of money, their arrival to
domestic market indicates their confidence in the host country and thus encourages and stimulates also
other investors to invest, i.e. promotes the country as a desirable investment destination. The activities
of a big foreign investor have a positive effect also on domestic investments, increasing them and
leading to a revival of the overall economic activity. This indicates the need to work on targeted
marketing and attracting foreign investments. In order to build such an approach to foreign investors, it
is necessary to ensure constant education and training of the staff working on attracting foreign
investments.
Foreign investment promotion implies being more present at fairs, in foreign magazines and other
media, organising and presenting investment conferences at sectoral, regional and international level, as
well as preparing modern promotional materials.
In order to be able to fully examine the effect of foreign investments, it is necessary to continuously
work on quantifying these effects, because the obtained results can represent a good basis for further
attracting foreign investments.
An appropriate investment policy must take into account horizontal issues (common to all sectors), such
as the above general legal and regulatory framework for investments, as well as vertical (sectoral)
specificities. In order to maximise the potential of foreign investments, it is of key importance to
95
establish a sound investment policy which will increase integration of the private sector of the Republic
of Srpska in the global value chains by means of removal of legal, regulatory and red-tape barriers to
attracting and keeping foreign investments. A well-conceived policy can maximise also the potential
added benefits for local economy. These conditions precede efficient freeing of sector potential and
competitiveness improvement in general.
Value chains in several sectors have weak components and links which need to be strengthened. That is
why also foreign investments and development of small- and medium-sized enterprises are needed –
not only for workplaces, investments or technology, but also to assist local companies in strengthening
their competitiveness.
There is significant room for the improvement of horizontal investment policies which will further
improve investment climate and which represent a necessary previous element for the sectoral, vertical
measures of investment policy to complement reform manoeuvres at the level of the overall economy.
It can be summarized that the goal is to attract foreign investments which will contribute to further
employment, export, knowledge and technology transfer, local economy strengthening, i.e. efficiency-
seeking foreign investments, while the objectives can be grouped in the following groups:
1. competitiveness increase and business environment improvement
2. institutional capacities strengthening and partner relations development
3. target sectors and target markets promotional activities.
Each of the priority objectives was elaborated through the action plan which is an integral part of the
draft strategy. The action plan primarily includes the activities for the period until 2018, while changes at
the global and regional level will guide the adjustments for the period until 2020.
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8. PROPOSAL ACTION PLAN FOR FDI STRATEGY 2016-2020 IMPLEMENTATION
97
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
I Competitiveness increase and business environment improvement
1 Competitiveness increase
Competitiveness increase in accordance with the internationally accepted competitiveness indicators (Doing Business – ease of doing business index, Global Competitiveness Index)
Shorter and streamlined operating procedures, Better and faster implementation of bankruptcy and liquidation proceedings, Simpler obtaining of work and residence permits, better, cheaper and faster resolution of property ownership and labour relations, improvement of the business and general infrastructure, etc., Harmonising educational programmes with needs of the economy
Improved ranking in the World Bank’s report Ease of Doing Business, Improved ranking in the World Economic Forum’s report – Global Competitiveness Index, Improved economic freedom index (Heritage Foundation),
Line ministries and other administrative organisations, courts, etc.
continuous
1.1. Starting business
Further improvement of conditions for starting business
Fully operationalise the RS register of business entities, introduce the possibility of e-registration, fully network local communities with the unified RS register of business entities, consider further possibilities to reduce time, procedures and involved institutions required for business registration, and further insist on reducing the number of required days and costs for obtaining VAT number
Number of days, costs and procedures required to start business
Republic of Srpska Government, Ministry of Justice, Ministry of Industry, Energy and Mining, commercial courts, APIF, RS Agency for Information Society
continuous
1.2. Construction permits
98
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Further improvement in the field of obtaining construction permits
Analyse and implement necessary amendments to the regulations governing the operation and competence of public enterprises which manage utility and public infrastructure, whose approvals are to be obtained in the procedure of construction permit issue, in order to shorten time, reduce number and types of formalities and procedures which precede construction permit issuance and are conducted under special regulations governing the operation of public enterprises, and to reduce or completely abolish taxes and other fees prescribed by those regulations which represent parafiscal charges
Procedure streamlining, lower costs and time shortening for obtaining of construction permit
Ministry of Spatial Planning, Civil Engineering and Ecology, public enterprises managing public and utility infrastructure
continuous
1.3. Land
99
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Further improvement in the field (registration, market, etc.)
Preparation of a strategic document on new medium-term activity programme of survey and real estate cadastre establishment 2016-2020
Set strategic objectives: -Mass establishment of unified records of real estate cadastre in the urban parts of cities and municipalities, aimed at providing preconditions for efficient real estate market. - Plan precisely and realistically for a five-year period of real estate cadastre establishment, and form an accurate and up-to-date records of real estate and related rights. - Programme goal in terms of property affairs of the Administration should achieve a high level of resolved cases in implementing strategic investment projects of general interest for the Republic of Srpska, local communities and citizens.
RS Administration for Geodetic and Property Affairs -RUGIPP
2016 - 2020
1.4. Labour relations and employment
Further improvement of legal framework and conditions for employment
Adopting a new RS employment strategy 2016-2020 and supporting action plan
Established employment targets and measures and employment growth in the RS for the new strategic period
Ministry of Labour and Protection of War Veterans and Disabled Persons, social partners, PI RS Employment Bureau
2016
100
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Streamlining procedures for obtaining work permits
Reduce the number of required days and costs
RS Ministry of Labour and Protection of War Veterans and Disabled Persons, RS Employment Bureau
2016
Strengthening control function of the institutions related to compliance with regulations in the field of labour relations, employment and occupational safety
Consistent enforcement of legal regulations in the field of labour relations, employment and occupational safety
RS Administration for Inspection Affairs, RS Ministry of Labour and Protection of War Veterans and Disabled Persons
continuous
Incentive measures for employment in the economy
Adopted regulations, programmes and measures of encouragement of employment in the economy and higher number of the employed
Ministry of Finance, Ministry of Labour and Protection of War Veterans and Disabled Persons, Ministry of Industry, Energy and Mining, RS Employment Bureau, RARS RS, RS Chamber of Commerce
2016
Improvement of level of information with economic entities about the available support to employment
Available information at all public portals of the institutions
RS Ministry of Labour and Protection of War Veterans and Disabled Persons, RS Employment Bureau
2016
1.5. Taxes and contributions
101
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Reduction of tax burden on labour, freeing of additional funds for achievement of further investments and unburdening of economic entities
Adoption of the Law on Contributions Adopted laws, freed additional funds for investments
Ministry of Finance, RS Tax Administration
2016
Further improvement of situation in the field of taxes, further incorporation of the latest profit taxation principles used in developed countries and European Union countries
Implementation of the Law on Corporate Income Tax and upgrading in accordance with new trends
further improved profit taxation field in accordance with modern principles
Ministry of Finance, RS Tax Administration
continuous
Creation of legal grounds for the establishment of a register of parafiscal charges in the Republic of Srpska, their analysis and abolishment or reduction of unjustified parafiscal charges
Adoption of the Law on Tax System
Adopted Law, established procedure of introducing new parafiscal charges and increasing, reducing or abolishing unjustified parafiscal charges in the Republic of Srpska
Ministry of Finance, RS Tax Administration, line ministries
2016
1.6. Access to finance
Improve access to finance
Adjustment of the existing credit lines (IRB, as well as others) and improvement of conditions and criteria for crediting
More favourable access to finance
Banks, RS Government
continuous
Increase the level of information about credit lines
Better access to information IRBRS, banks 2016
102
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Introduction of new guarantee and credit lines for support to agriculture, industry and service sector, for support to innovative companies development, support to innovation and introduction of technologies, and support to export-oriented companies
More favourable access to finance
GFRS, MST, MIEM, MTT, Innovation Centre BL
2016
Preparation and adoption of a RS venture capital market development study
Better support to investors RARS RS, Ministry of Industry, Energy and Mining
2016
1.7. Education and economy
Improve skilled labour force structure in accordance with market needs
Adjustment of enrolment policy to labour market needs and education continuance at secondary schools and higher education institutions
Educational system improvement and enrolment policy adjusted to labour market needs and higher education institutions
Ministry of Education and Culture; Ministry of Industry, Energy and Mining; Ministry of Agriculture, Forestry and Water Management; Ministry of Spatial Planning, Civil Engineering and Ecology; RARS RS; RS Chamber of Commerce; RS Union of Employers’ Associations, RS Confederation of Trade Unions
2016, 2017
103
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Increase of share and quality of practical training in the RS educational system by harmonising the curriculum and equipping school laboratories for practice and workshops with modern teaching aids in accordance with the achievements in science and technology
Improved RS educational system with increased number of practical training in vocational schools in accordance with labour market needs Improved quality of practical training
Ministry of Education and Culture; Ministry of Industry, Energy and Mining; Ministry of Agriculture, Forestry and Water Management; Ministry of Spatial Planning, Civil Engineering and Ecology; RARS RS; RS Chamber of Commerce; RS Union of Employers’ Associations; RS Confederation of Trade Unions
2016, 2017
Adoption and implementation of programmes of further education and retraining, training and additional training for professions in demand at labour market and industry
Adopted programmes of further education and retraining, training and additional training Implemented programmes of further education and retraining, training and additional training
Ministry of Education and Culture, RS Ministry of Labour and Protection of War Veterans and Disabled Persons, Ministry of Industry, Energy and Mining
2016, 2017
104
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Establishment and strengthening of cooperation between RS educational institutions and economy aimed at adjusting the educational system to employers’ needs
Establishment of a systemic relation between the needs of the economy for labour force and educational system at all levels in the sense of preparation of appropriate strategic documents
Ministry of Education and Culture, Ministry of Industry, Energy and Mining, RARS RS , RS Chamber of Commerce, RS Union of Employers’ Associations
2016, 2017
1.8. Intellectual property
Improvement of the field and protection of intellectual property rights
Implementation of regular and extraordinary market inspections in terms of protection of intellectual property rights
Efficient intellectual property protection in practice
MoIA, RS Inspectorate, RS courts
continuous
Further improvement and promotion of the educational site IP Panorama with contents of the World Intellectual Property Organisation
Improvement of availability of materials in the Serbian language in the field of intellectual property rights (http://ippanorama.aidrs.org/)
RS Agency for Information Society
continuous
1.9. Competition
Strengthening of rules of competition
Preparation of a regular annual report on the allocated state aid in the RS
Transparent allocation of aid programme in the RS and overview of state aid programmes
Ministry of Finance, competent ministries, RS cities and municipalities
annual
Strengthening of transparency of state aid allocation in the RS
Enforced regulations in the field of state aid and transparent allocation of aid programmes in the RS
Ministry of Finance, competent ministries, RS cities and municipalities
continuous
1.10. Quality infrastructure
105
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Improve metrology and metrological supervision system in the RS
Adoption and implementation of a Republic of Srpska metrology strategy
Ensuring safety and accuracy of measurement results in accordance with the requirements established at international level for all participants in goods and services turnover and ensuring international traceability of measurements in the RS
RS Standardisation and Metrology Institute, Ministry of Industry, Energy and Mining
2016, 2017
Improve standardisation system in the RS
Adoption and implementation of a RS standardisation development strategy
Defined further directions of standardisation development and basis for creation of preconditions for using standards in achieving economic development based on competitiveness of goods and services, and closely connected to that are: incentives for innovation activities development, technology transfer, market relations establishment and free movement of goods and services
RS Standardisation and Metrology Institute, Ministry of Industry, Energy and Mining
2016, 2017
Improve information level with economic entities about necessary conditions for operation and product placement at the market
Improvement of operation of the RS information point for technical regulations at the RS Standardisation and Metrology Institute
Providing clear and complete information about the regulations in force in the RS and necessary conditions for operation and product placement at domestic market, as well as providing data about future technical regulations which include provisions concerning foreign
RS Standardisation and Metrology Institute, competent ministries
continuous
106
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
trade action
Improve cooperation in the field of quality infrastructure
Improvement of cooperation with competent institutions in the field of quality infrastructure in FBiH, at BiH and regional level
Harmonisation of technical regulations, conformity assessment procedures and product testing, measuring instrument calibration and verification, exchange of translated standards, improvement of market surveillance, resolution of contentious matters with BiH Institute of Metrology concerning competence in the field of legal metrology
RS Standardisation and Metrology Institute, RS Metrology Commission
2016, 2017
1.11. Technical legislation and product conformity assessment system of the Republic of Srpska
Harmonisation of technical legislation with EU legislation
Adoption of laws and bylaws planned by the Action plan for transposition of EU regulations in the field of free movement of goods into the legal system of the Republic of Srpska
Increase of domestic products’ competitiveness, increase of product safety, consumer protection, providing of preconditions for better operation of laboratories for measuring instrument verification testing, as well as RS market surveillance, protection of producers and importers of measuring instruments and measuring equipment, creation of preconditions for creation of new economic entities and jobs
Ministry of Industry, Energy and Mining, Ministry of Spatial Planning, Civil Engineering and Ecology, Ministry of Transport and Communications, Ministry of Health and Social Welfare, MoIA, RS Standardisation and Metrology Institute, Ministry of Economic Relations and Regional Cooperation
continuous
107
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Improve the system of product conformity assessment, testing laboratories and control bodies
Appointment of bodies for product conformity assessment, testing laboratories and control bodies
Established RS system for product conformity assessment acceptable for countries in the vicinity and in the EU and creation of preconditions for BiH product conformity document recognition
competent ministries
continuous
Improve the level of information about the technical regulations in force in the RS
Formation and maintenance of a database of technical regulations in force in the RS
Comprehensive overview of the regulations in force and competences for their adoption and enforcement monitoring in the RS and definition of the entirety of regulations in force taken over from the SFRY and SRBiH
RS Standardisation and Metrology Institute, Ministry of Economic Relations and Regional Cooperation, competent ministries, RS Chamber of Commerce
continuous
Improve technical legislation
Determination of competences, adoption of an action plan for repealing inapplicable technical regulations taken over from the SFRY and SRBiH and JUS standards with binding application, and repealing inapplicable technical regulations and binding JUS standards, taken over from the SFRY and SRBiH
Identified inapplicable and obsolete regulations taken over from the SFRY and SRBiH, established competent administrative bodies for those regulations, established legal norm for their repealing and adopted regulations repealing them in the RS
RS Government, competent ministries, RS Legislation Secretariat
2016
1.12. Environmental protection
Creation of conditions for environmental protection in accordance with international principles
Preparation and adoption of a Republic of Srpska waste management strategy
Definition of strategic directions and improvement of the field
RS Government, Ministry of Spatial Planning, Civil Engineering and Ecology,
2016
108
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Preparation of an action programme of establishment of geospatial data infrastructure of the Republic of Srpska – IGPRS 2016-2020
The IGPRS will be established in accordance with the principles defined in the INSPIRE directive (Infrastructure for Spatial Information in Europe. INSPIRE is a directive of the European Commission aimed at creation of geo-data infrastructure in Europe with the emphasis on environmental issues). The aim of establishment of the IGPRS is to establish infrastructure which will provide support to a quality and stable environmental development
In accordance with the Law on Survey and Cadastre of the Republic of Srpska, institutions responsible for the establishment of geospatial data infrastructure of the Republic of Srpska: the Administration as holder of the activities are: - Ministry of Spatial Planning, Civil Engineering and Ecology, - Ministry of Administration and Local Self-Government, - Ministry of Science and Technology, - Ministry of Transport and Communications, - Ministry of Internal Affairs, - Ministry of Industry, Energy and Mining - Ministry of Agriculture, Forestry and Water Management, - Ministry of Finance - Statistics Institute
2016 -2020
109
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
1.13. Energy efficiency and renewable energy sources
Reduction of final energy consumption by 9% until 2018 relative to the 2006-2010 average
Implementation of the RS Energy Efficiency Action Plan until 2018
Achieved savings in energy consumption
Ministry of Spatial Planning, Civil Engineering and Ecology; Ministry of Industry, Energy and Mining; Environmental Protection and Energy Efficiency Fund; Ministry of Transport and Communications
2016-2018
Increase of share of energy from renewable sources in a percentage of 48% relative to final energy consumption
Implementation of the RS Renewable Energy Sources Use Action Plan
Reduction of final energy consumption and increase of share of renewable source energy relative to final energy consumption in the RS, share
Ministry of Spatial Planning, Civil Engineering and Ecology; Ministry of Industry, Energy and Mining; Ministry of Agriculture, Forestry and Water Management; Environmental Protection and Energy Efficiency Fund; Ministry of Transport and Communications
2016-2020
1.14. Digital society
110
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Development of information society
Implementation of information security measures and standards
Adopted Law on Information Security, adopted bylaws, established Information Security Department (OIB), Republic of Srpska part of the international cyber-security association
RS Agency for Information Society - OIB
2016, 2017
Implementation of the Open Government project in the Republic of Srpska
Increased transparency of operation of institutions through a wide cooperation with the civil sector and establishment of a functional portal with machine readable data from government sources, supported development and competitiveness of micro and mini companies in the IT sector engaged in service providing connected with data processing and electronic service development
RS Agency for Information Society
2016
Implementation of the Improving Investment Climate and Institutional Strengthening - ICIS project
Established basic components of data exchange infrastructure, based on the concept of interoperability between institutions, established contact points within the context of data exchange between inspection services
RS Agency for Information Society
2016, 2017
111
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Creation of conditions and application of electronic operation and development of information society
Increase of competitiveness
RS Agency for Information Society, other competent institutions
continuous
1.15. Innovation
Support to science and innovation development
Adoption of a Republic of Srpska scientific and technological development strategy 2017-2021
Increased number of innovations in the Republic of Srpska
Ministry of Science and Technology, RS Science and Technology Council
2016
Providing support to research projects and technology development projects which create preconditions for cooperation with business sector
Increased support to innovation through newly established educational, promotional and financial instruments
Ministry of Science and Technology, RARS, Ministry of Industry, Energy and Mining, other ministries, RARS RS
2016
Strengthened activities on the establishment and development of the innovation system of the Republic of Srpska
Increased number of innovators and percentage of supported innovators
Ministry of Science and Technology and other ministries
continuous
Capacity building for support to new products and services development
Consider the needs and opportunities for the establishment of a product design and development centre
Improvement of competitiveness
Ministry of Industry, Energy and Mining, other ministries, RS Chamber of Commerce
2016
1.16. Concessions
112
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Adjustment of multiple fees for use of natural assets and resources which are currently charged on the same grounds
Analyse the regulations governing fees for natural resources use for electricity generation and their impact on the operation of economic entities in the field of electricity generation, and initiate the procedure of amendments to the Law on Fees for Use of Natural Resources for Electricity Generation and Law on Concessions
In a unified manner, resolve the issue of fees for natural resources use for electricity generation, in order to ensure a better business ambiance for economic entities, as well as for potential investors in this field, considering that according to the regulations in force economic entities are paying a fee on the same grounds two or more times
Ministry of Industry, Energy and Mining
2016
1.17. Business zones
Establishment and development of business zones
Preparation of a business zones development programme including zone classification and zone database updating using GIS application
Systemic regulation of the field
Ministry of Industry, Energy and Mining, RARS, authorised institution with licensed GIS software
2016
Initiation of amendments to the legal framework concerning zone development and ownership transfer from the RS to LSGU for prospective zones
Increase of competitiveness and export
Ministry of Industry, Energy and Mining, other ministries, RUGIP
2016
Providing of funds for the preparation of spatial planning documentation for a business zone, project documentation for infrastructure and co-financing of infrastructure building in business zones
Increase of competitiveness and export
Ministry of Industry, Energy and Mining, donors, local self-government units
2016, onwards
1.18. Free zones
113
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Creation of conditions for development of economically justified free zones
Analysis of the existing regulations in this field and proposals for improvement, and establishment of minimum one free zone in the Republic of Srpska
Improvement of competitiveness and increase of export
Republic of Srpska Government, Ministry of Industry, Energy and Mining, Ministry of Economic Relations and Regional Cooperation
2016, 2017, 2018
1.19. Clusters
Support to cluster development
Identification of potential cluster initiatives and support to their emergence and functioning
Increase of export and competitiveness
Ministry of Industry, Energy and Mining, RARS, others
2016
Linking clusters and cluster initiatives with scientific education organisations and other institutions and clusters in the vicinity
Increase of export and competitiveness
RARS, clusters 2016
Improvement of operation of Banja Luka IT cluster aimed at supporting SME competitiveness in the field of information technologies
Increase of number of active IT teams and SME contributing to sector development
cluster, Banja Luka city development agency, Agency for Information Society of the Republic of Srpska - AIDRS
2016
Support to company export growth to new markets and product and service development through new transnational clusters
Increase of export and competitiveness
Ministry of Industry, Energy and Mining, RARS, donors
2016
114
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Promotion of cluster development through organisation of meetings, workshops and forums, in particular in the field of industry and tourism. Initiate association of local tourism organisations into regional clusters of horizontal type, the ‘ITO’ (inter-municipal tourism organisation according to the Law on Tourism), followed by their association with the private sector, the ‘public - private partnership’, and also through vertical tourism clusters into business clusters.
Increase of export and competitiveness, increase of tourism revenues as a specific form of invisible export
Ministry of Industry, Energy and Mining, Ministry of Trade and Tourism, RARS, donors
2016 continuous
1.20. Public-private partnership
Improve conditions for project implementation based on public-private partnership
Start negotiations concerning amendments to the Law on PPP through a public hearing on proposals for PPP law improvement
Analyse the existing legal framework and potential improvements
MF in cooperation with the PKRS, Employers’ Union, Association of Local Authorities and other stakeholders
2016
1.21. Transport infrastructure
Improve transport infrastructure
Adoption of strategic documents in the field of public roads
Systemic approach to the affairs of road network maintenance, protection, construction and reconstruction
PE RS Motorways 2016
Works on the preparation of master design and construction of the Banja Luka-Doboj motorway, 37km long Prnjavor-Doboj section
Modernisation of road network
PE RS Motorways 2016
115
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Works on the preparation of master design and construction of the Banja Luka-Doboj motorway, 35km long Banja Luka -Prnjavor section
Modernisation of road network
PE RS Motorways 2018
Activities related to contract signing with potential investor (Chinese partners) on motorway construction on the Glamočani-Banja Luka-Mrkonjić Grad-Mlinište section
Modernisation of road network
PE RS Motorways continuous
Activities on the preparation for designing and seeking potential investors for motorway or speedway construction on the Banja Luka - Prijedor section
Modernisation of road network
PE RS Motorways continuous
Preparation of study documentation for the construction of the Sarajevo – Podromanija – Rogatica – Međeđa – Donje Vardište speedway, on the route 3 of the SEETO comprehensive network
Modernisation of road network and increase of level of regional connection
Ministry of Transport and Communications
2016 - 2018
Preparation of project documentation for construction of the trunk road Brod na Drini – Hum – border with the Republic of Montenegro (Šćepan Polјe) about 21 km long, on the route 2b of the SEETO comprehensive network
Modernisation of road network and connections with the region
Ministry of Transport and Communications
2016 - 2017
Preparation of study documentation for the improvement of the Sarajevo - Brod na Drini road, on the route 2b of the SEETO comprehensive network
Modernisation of road network and increase of level of regional connection
Ministry of Transport and Communications
2016 - 2017
Preparation of preliminary studies and design for the improvement of the M-16 trunk road from the border with FBiH to Banja Luka including construction of a
Modernisation of road network
Ministry of Transport and Communications
2016 - 2018
116
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
bypass around the city of Banja Luka, on the route 2a of the SEETO comprehensive network
Activities related to the construction of the interstate bridge over the river Sava near Gradiška
Modernisation of road network
Ministry of Transport and Communications, PE RS Motorways
continuous
Activities related to finding the source of funding for the construction of the Doboj-Vukosavlјe motorway on corridor Vc, 46.6 km long
Modernisation of road network
PE RS Motorways continuous
Activities on the construction of a bridge over the river Drina at Bratunac-Ljubovija location and access roads in the territory of the Republic of Srpska, as well as a joint border crossing
Modernisation of road network
Ministry of Transport and Communications, PE RS Motorways
2017
Overhaul/reconstruction of line, line facilities and electric power plants, contact network and SS equipment on railway corridor Vc: Šamac-Doboj
Modernisation of railway network with increase of transport service quality and regional connection
Ministry of Transport and Communications
2017 - 2018
Overhaul/reconstruction of line, line facilities and electric power plants, SS and telecommunication equipment, and line electrification on the Doboj-Petrovo section
Modernisation of railway network with increase of transport service quality and regional connection
Ministry of Transport and Communications
2017 - 2018
Support to traffic development at Banja Luka airport, construction of a cargo terminal, expansion of airport terminal, procurement of goods loading machinery.
Increased number of passengers, development of cargo transport and company self-sustainability
Ministry of Transport and Communications and Republic of Srpska Airports
continuous
1.22. Foreign and domestic trade, export ambiance improvement, export growth
117
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Adoption of a Republic of Srpska trade development strategy 2016-2020 and supporting action plan
Improvement of the field of trade
Ministry of Trade and Tourism
2016
Adoption of a rulebook on shipping activities in the RS
Simplification of registration procedures for entities and persons to be authorised to engage in shipping activities
Ministry of Trade and Tourism
2016
Enable entrepreneurs in the Republic of Srpska to engage in foreign trade
Pursue the initiatives for amendments to the Law on Foreign Trade Policy of BiH
Removal of limitations faced by economic entities in performing foreign trade, and improvement of export ambiance
Ministry of Trade and Tourism, RS Ministry of Industry, Energy and Mining
2016
Improve the system of VAT declaration and payment
Tabling of initiative for amendments to the Law on VAT.
Removal of limitations faced by economic entities in performing foreign trade, and improvement of export ambiance Extension of deadline for VAT declaration and payment, shortening of deadline for VAT refund
Ministry of Finance (in cooperation with the Ministry of Industry, Energy and Mining and RS Chamber of Commerce)
2016
Reduce administrative fees at BiH level
Tabling of initiative for amendments to the BiH Law on Administrative Fees
Removal of limitations faced by economic entities in performing foreign trade, and improvement of export ambiance Reduction of BiH administrative fee for files and actions in indirect taxation procedures
Ministry of Finance (in cooperation with the Ministry of Industry, Energy and Mining and RS Chamber of Commerce)
2016
118
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Abolish/reduce duty rates on import of certain goods
Tabling of initiative for the extension of validity period and scope of the Decision on economic suspension and temporary reduction of duty rates at import of certain goods
Improvement of business ambiance and competitiveness of manufacturing industry Abolished/reduced duty rates at import of certain goods
Ministry of Finance (in cooperation with the Ministry of Industry, Energy and Mining and RS Chamber of Commerce)
annual
Support to launching of production of products and services lacking at domestic market
Ensure systemic support to economic entities in the field of production or services which substitute import* or support development of domestic product
Improvement of business ambiance and competitiveness Enabled support to launching of production and services lacking at domestic market
Ministry of Agriculture, Water Management and Forestry, Ministry of Industry, Energy and Mining
continuous
1.23. Dispute resolution
Improvement of conditions for safer operation
Strengthen court capacities for faster resolution of commercial disputes
Faster resolved commercial disputes
Ministry of Justice 2016
Apply SOKOP system in all basic courts for faster resolution of utility cases
Faster resolved utility cases Ministry of Justice 2016
1.24. Reduction of corruption and crime
Improvement of the field of fight against corruption and crime
Initiation and implementation of the Open Government of the Republic of Srpska programme
Established Committee for the implementation of the Open Government programme, adopted strategic directions of the project, defined data sets for publication, published data sets at Open Government portal
Committee for the implementation of the Open Government programme, Agency for Information Society of the Republic of Srpska – AIDRS
2016, 2017
119
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
Implementation of the RS Anticorruption Strategy 2013-2017
- established functional mechanism of anticorruption activities coordination in the Republic of Srpska, - software for reporting on the implementation of the anticorruption strategy and action plan is operational, - prepared integrity plans according to the prepared list of obligors made and operational software for reporting on the adopted integrity plans, - adopted law on protection of persons who report corruption, created internet site of the Strategy Implementation Commission, - regular reporting on the implementation of the Action plan and Strategy, - increase of efficiency of prosecuting authorities in cases with corruption elements, more efficient execution of court verdicts, trainings, promotion and encouragement of corruption reporting etc.
Ministry of Justice, MoIA, other institutions
2016, 2017
2 Further business environment improvement
120
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
2.1
Improvement of quality of regulations through application of regulatory impact on business assessment - RIA
RIA on a higher number of laws which concern business environment and attracting foreign investors, such as e.g. regulations governing bankruptcy and liquidation, public-private partnership, free zones, etc.
Completed RIA on a higher number of regulations
Ministry of Economic Relations and Regional Cooperation, in cooperation with line ministries
continuous
2.2. Analysis and reduction of burden on the economy
Introduction of the Register of parafiscal charges Adoption of action plans for streamlining administrative procedures
Quality relation between burden on the economy and filling of the budget of the Republic of Srpska
Ministry of Finance, Ministry of Economic Relations and Regional Cooperation in cooperation with all sector competent institutions
continuous
2.3.
Further building of the appropriate normative and legal framework for accounting and audit. improvement of mechanism of public oversight and quality control in accountancy and audit profession and increase of financial statement data transparency.
Analysis of the existing regulations in this field and proposals for improvement, further harmonization of domestic legislation with that of the European Union, further development of public oversight system and quality control in accountancy and audit profession, and strengthening of public accountability of accountancy and audit professionals, strengthening of functionalities of the Unified register of financial statements.
Better harmonization of regulations in the field of accountancy and audit with European Union legislation, higher confidence in accountancy and audit profession, enabled access to published data from financial statements and other documents by the interested third parties
Ministry of Finance, APIF, professional association,
continuous
II Institutional capacities strengthening and partner relations development
1 RS level institutional capacities strengthening
121
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
1.1. Strengthening MEORS capacities
Knowledge strengthening of MEORS staff at trainings, seminars in order to acquire higher quality knowledge in the field of foreign investments, reallocation of certain funds or activation of donors for the application of higher quality instruments of supporting and attracting foreign investments
Number of people who completed trainings and took part in seminars, and applicability of the acquired knowledge in attracting foreign investments
Ministry of Economic Relations and Regional Cooperation
continuous
1.2.
Capacity building/strengthening of all participants in FDI attracting process
Knowledge strengthening of staff of the involved institutions in trainings, seminars in order to acquire higher quality knowledge in the field of foreign investments, reallocation of certain funds or activation of donors for those activities
Number of people who completed trainings and took part in seminars, and applicability of the acquired knowledge in attracting foreign investments
Line ministries, RARS, IRBRS, Chamber of Commerce, Republic of Srpska representative offices abroad
continuous
1.3.
Strengthening cooperation between MEORS, line ministries, Chamber of Commerce, RS Statistics Institute, APIF, RARS, etc.
Identify/or update contact points in each institution. Regular contacts in order to achieve joint presentation in the promotion of the Republic of Srpska and its potentials, exchange of information on foreign investment
Established contacts and joint presentations in promoting investment potential of the Republic of Srpska
MEORS, in cooperation with line ministries, Chamber of Commerce, Statistics Institute, APIF, RARS, etc.
continuous
1.4.
Strengthening cooperation with international institutions (WB, UNCTAD, GIZ)
Contacts with international institutions aimed at obtaining information about the state at the global and regional level and acquiring information and advice about the improvement of competitiveness and directing foreign investments in the Republic of Srpska, support in the implementation of reform projects and their promotion
Established contacts with international institutions, number of joint projects aligned with the needs of the Republic of Srpska
Ministry of Economic Relations and Regional Cooperation, line ministries, relevant international organisations
continuous
122
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
1.5. Strengthening of cooperation with Republic of Srpska representative offices abroad
Intensification of activities on involving Republic of Srpska representative offices abroad in the promotion of investment potential of the Republic of Srpska, strengthening capacities of the representative offices for RS promotion and support to interested investors
Established contacts with Republic of Srpska representative offices and joint preparation of Republic of Srpska investment potentials promotion
Ministry of Economic Relations and Regional Cooperation
continuous
2 Local level institutional capacity strengthening
2.1.
Capacity building/strengthening of local development agencies and local self-government units for attracting and accepting foreign investments
Regular contacts and trainings with local self-government units aimed at preparing and promoting investment projects presentation, implementation of regional business-friendly certification project, joint aftercare activities
Established contacts with local self-government units and prepared promotional materials for investment projects, introduced business-friendly municipality standards
Local self-government units, RS Chamber of Commerce, Association of Local Authorities, Ministry of Economic Relations and Regional Cooperation, Ministry of Administration and Local Self-Government, Ministry of Industry, Energy and Mining and RS Agency for Development of Small- and Medium-Sized Enterprises
continuous
123
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
2.2.
Implementation of the Republic of Srpska Strategy of Local Self-Government Unit Employees Training 2016-2020
Improvement of the existing knowledge, skills and stances and adoption of the new by the employed and elected officials of local self-government units in the Republic of Srpska, necessary for effective fulfilling of competence and overcoming of reform challenges faced by the local self-government
Ministry of Administration and Local Self-Government
2016-2020
2.3. Fulfilment of business-friendly (BFC SEE) criteria by local self-government units
LSGU development strategy adopted, together with the implementation plan and priority projects; public and private sector took part in document preparation, established body to monitor document implementation, etc.
cities/municipalities recognised as business-
friendly local self-government units
Local self-government units, business community
continuous
LSGU have offices/units in charge of local economic development, they participate in development planning process, prepare and supervise development projects and maintain contacts and provide support to business community, monitor business community and represent support to interested investors, possess relevant databases and deal with preparing promotional materials, participate and cooperate with regional level institutions
Local self-government units
continuous
124
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
LSGU have Economic Council which offers advice to city/municipal officials concerning business community issues, suggestions are taken into account when making relevant decisions, meetings are held regularly
Local self-government units, business community
continuous
System of services for construction permit obtaining: municipality/city has a valid spatial planning documentation which enables issue of construction permits, possesses a database of construction plots that can be offered to potential investors, provides written description of procedures of issue of construction permits, provides information about the status of specific applications, etc.
Local self-government units
continuous
Municipality/city has analytical bases to support local business community and attract investments: possesses own information, analyses and uses them in the process of decision-making, provides information about the procedure and total costs of establishment and operation of economic entities, local incentives, etc.
Local self-government units
continuous
125
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
LSGU monitor local labour market dynamics and have an active relation towards the identified state and needs (cooperate with responsible employment services, with businessmen, provide information and support for training programmes, have data about labour force, demonstrate initiative for changes in secondary school educational programmes on their territories in accordance with the needs of economic entities, etc.
Local self-government units
continuous
LSGU develop cooperation between public and private sector through regular meetings of business community representatives and municipal officials aimed at resolving important issues, municipalities support business infrastructure development, etc.
Local self-government units, business community
continuous
LSGU develop appropriate infrastructure and reliable utility services (have medium-term and long-term plans of infrastructure development, implement annual plans which take into account the positions and opinion of the private sector, etc.)
Local self-government units, RS bodies
continuous
LSGU implement a transparent policy of collection of taxes and fees which stimulate economic development (decisions about the fee for construction land use, fee for construction land development, utility fees available in internet presentation), private sector is consulted in defining local taxes and
Local self-government units
continuous
126
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
fees, etc.
LSGU have a system for investment and quality business ambiance promotion in the city/municipality, in the way that they have up-to-date promotional materials, internet pages, translated into English, participate in fairs, and have other instruments for investment promotion
Local self-government units
continuous
Information and communication technologies in accordance with technical possibilities and degree of local self-government unit development (there is internet and e-mail communication introduced in daily operation, internet presentation offers a portal for sending enquiries that LSGU must respond to in a transparent manner, there is a form of e-governance, etc.
Local self-government units
continuous
LSGU monitor and document their creditworthiness and justifiability in accordance with the adopted development documents
Local self-government units
continuous
3 Partner relations development between RS and local level, and with business community
3.1. Partner relations development between the RS and local level
Cooperation with local self-government units in preparation for foreign investor acceptance, investor aftercare and monitoring of operation and resolution of problems faced by foreign investors
Established contacts with local self-government units, number of prepared projects and meetings with local self-government units and foreign investors in project preparation and aftercare visits
Ministry of Economic Relations and Regional Cooperation, in cooperation with other participants
continuous
127
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
3.2. Republic of Srpska aftercare programme
Expansion and affirmation of the aftercare programme in the Republic of Srpska
increased number of involved local self-government units from the Republic of Srpska, established systemic contact programmes with the established investors and exchange of information between the RS and local level
Ministry of Economic Relations and Regional Cooperation
continuous
3.3. Active operation of the Republic of Srpska Foreign Investors Council
Continuous cooperation on resolving specific foreign investor problems and proposals for ambiance improvement
Number of held meetings and implemented measures
Ministry of Economic Relations and Regional Cooperation
continuous
III Target sectors and target markets promotional activities
1 Activities of Republic of Srpska promotion as an attractive foreign investment site
1.1. Strategic and targeted relations with the media
Planning of activities of information providing to the media (particularly foreign) about the investment opportunities in the Republic of Srpska
Number of interviews, articles and information published in the domestic and foreign media
Ministry of Economic Relations and Regional Cooperation, in cooperation with line ministries, local self-government units, Chamber of Commerce and RS representative offices abroad
continuous
128
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
1.2. Preparation and distribution of promotional material for foreign investors
Preparation of promotional materials (brochures, videos, etc.) of investment potentials and projects, investor guide.
Number of printed and distributed promotional materials in the English and German language
Ministry of Economic Relations and Regional Cooperation, in cooperation with line ministries, local self-government units, Chamber of Commerce and RS representative offices abroad
continuous
1.3. Promotion by means of the Invest in Srpska web site www.investsrpska.net
Regular maintenance and adjustment of the Invest in Srpska web site www.investsrpska.net
Up-to-date web site Invest in Srpska in Serbian, English
Ministry of Economic Relations and Regional Cooperation, in cooperation with line ministries, local self-government units, Chamber of Commerce and RS representative offices abroad
continuous
129
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
1.4. Visits to key fairs and investment conferences
Plan of fairs and conferences where the Republic of Srpska will be presented as a foreign investment site, presented sectoral and individual projects, and link with domestic economy
Number of visited fairs, negotiations and agreements with foreign investors
Ministry of Economic Relations and Regional Cooperation, in cooperation with line ministries, local self-government units, Chamber of Commerce and RS representative offices abroad
continuous
1.5.
Active participation of Republic of Srpska representative offices in Republic of Srpska investment potential promotion
Presentation of investment potentials and specific projects on web sites of the Republic of Srpska representative offices abroad
Number of organised promotional events at the representative offices, number of promotional articles and interviews in foreign media
Republic of Srpska representative offices abroad
continuous
1.6.
Promotion of local investment potentials (specific projects, business zones, clusters, etc.)
Identification and promotion of local investment capacities, and their regional linking aimed at competitiveness upgrading
Number of involved local communities, number of promotional events, number of prepared promotional materials, etc.
Local self-government units, in cooperation with the Ministry of Economic Relations and Regional Cooperation
continuous
2 Target sectors and target markets promotional activities
2.1. Selection of priority target sectors for investment promotion
Selection of priority sectors for foreign investments in accordance with the appropriate Republic of Srpska strategies and Economic Policy
Selected priority (strategic) sectors for foreign investment promotion
Republic of Srpska Government
2016, 2017, 2018
130
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
2.2. Selection of priority target countries for investment promotion
Selection of priority countries in accordance with foreign trade volume and priority (strategic) sectors. Intensify the presence of tourism sector at fairs abroad. Tourism fairs and exchanges are an important way of country presentation. Increased number of tourists is an indicator of safety of a country and leads to an increase in incoming investments. Investments in tourism activity, in turn, bring about investments in other branches of the economy.
Increased volume of promotional activities towards selected priority (target) countries
Republic of Srpska Government, Ministry of Economic Relations and Regional Cooperation, Ministry of Trade and Tourism, Republic of Srpska representative offices abroad
2016, 2017, 2018
2.3. Application of direct marketing, outreach campaign
Selection of priority (target) foreign investors and direct approach to them aimed at attracting investments in the Republic of Srpska in accordance with the goals of the Economic Policy –employment growth and technology transfer
Plan of promotional activities for priority (target) foreign investors
Ministry of Economic Relations and Regional Cooperation, in cooperation with line ministries and local self-government units
2016, 2017, 2018
2.4.
Intensification of the role of Republic of Srpska representative offices in promoting the Republic of Srpska as an attractive foreign investment site in priority target countries and with priority (target) investors
Regular consultations with Republic of Srpska representative offices aimed at examining the demand at markets where the representative offices are located, and adjustment of target investor selection
Selected target (priority) investor and completed preliminary discussions with them by Republic of Srpska representative offices
Republic of Srpska representative offices abroad, in cooperation with the Ministry of Economic Relations and Regional Cooperation, line ministries and local self-government units, and RS Chamber of Commerce
continuous
131
OBJECTIVE MEASURES MEASURE PERFORMANCE
INDICATORS
INSTITUTION RESPONSIBLE FOR
MEASURE IMPLEMENTATION
MEASURE IMPLEMENTATION
DEADLINE –PERIOD
2.5.
Visit and promotion, and constant contacts with priority (target) countries and priority (target) investors
Stronger promotional activities on key locations and sectors
Agreed visit to priority (target) countries and investors aimed at starting foreign investment negotiations.
Republic of Srpska representative offices abroad, in cooperation with the Ministry of Economic Relations and Regional Cooperation, line ministries and local self-government units, and RS Chamber of Commerce
continuous
2.6.
Establishment of a stronger link with the diaspora aimed at activating their investment potential, as well as RS promotion in the countries of their significant presence
Establish a system of cooperation, regular contacts, information exchange, promotional activities, direct discussions
Established system of cooperation, number of contacts and exchanged information, number of established contacts with businessmen from the countries where the diaspora is important
Republic of Srpska representative offices abroad, in cooperation with the Ministry of Economic Relations and Regional Cooperation, line ministries and local self-government units, and RS Chamber of Commerce
continuous
2.7. Branding
Implementation of a domestic production branding policy Branding individual destinations and tourism products keeping in mind regional representation of branded tourism products, etc.
....A more recognisable tourism product which will increase the number of nights, arrivals and spending by tourists, i.e. enlarge total tourism revenues
Ministry of Trade and Tourism
continuous
132
Source of data:
Action Plan for the Implementation of the South East Europe 2020 Strategy in the Republic of Srpska 2015–2016, Republic of Srpska Government, May 2015
Action plan for the implementation of the Republic of Srpska SME Development Strategy 2015–2020, draft, August 2015
Economic Policy 2016
Action Plan for the Implementation of the Republic of Srpska Economic Policy 2016
Business community proposal measures for the Republic of Srpska Economic Policy 2015 document aimed at creating a more favourable business ambiance in the Republic of Srpska
BiH Reform Agenda 2015–2018
Action plan for the implementation of the Republic of Srpska Industry Development Strategy and Policy 2015–2020, draft, August 2015
133
9. REFERENCES
1. White Book, BiH Foreign Investors Council, 2012/2013
2. Competitiveness in South East Europe: A Policy Outlook 2016, OECD
3. Global Entrepreneurship Monitor BiH, 2012
4. Global Innovation Index 2015, Cornell University, INSEAD and the World Intellectual Property
Organization
5. Global Investment Trends Monitor, No 22, 20 January 2016, UNCTAD
6. Annual report for the field of small- and medium-sized enterprises and craft and entrepreneurial
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