Study Of The Challenges That Hinder MSME Development In Bosnia Herzegovina : Country Report for the British Council and Swedish Institute

Abstract

Bosnia and Herzegovina (to be referred to as BiH from herein) is a country whose neighbours include, Croatia, Serbia and Montenegro. BiH is a region that traces permenant human settlement back to the Neolithic age. Culturally, politically and socially, the country has a rich history. Today, BiH maintains high literacy, life expectancy and education levels. It is also one of the most frequent visited countries in the Western Balkans. The country was hit hard by the 2009 global economic crisis. The subsequent fall in Fross Domestic Prooduction (GDP) and a budget deficit resulted in the need for a stand-by Arrangement (SBA) with the International Monetary Fund (IMF). A second loan was agreed in April 2016. It continues to suffer from a weak fiscal position and large current account deficit, which threatens the government’s fiscal sustainability. Three key reasons for the economic imbalance are: - • A large public sector and limited private wealth creation: • An economy based on consumption rather than production. . • An under-performing export sector. Unemployment in BiH is high, at 25.4% of the working population (2016). This is, however, declining from 27.5% in 2014. It has made sizable progress since 2000 and the end of the Balkan Wars, but would still greatly benefit from raising its rate of economic growth. It is administratively divided into 2 entities. There is the Federation of Bosnia and Herzegovina and Republika Srpska and one self-governing unit, Brcko District. There is limited economic integration between the 2 entities. Despite this, BiH had a GDP of US$ 18.9 billion in 2016 (constant 2010 value), up from US$ 17 billion in 2010. It is the second biggest economy in the Western Balkans, behind Serbia. Increased economic growth needs to be achieved against a background of modest inflows of foreign direct investment. However, total inflows of foreign investment were, in 2016, the second highest value in the region, behind Serbia. We undertook a survey of aspiring entrepreneurs across BiH. The sample was largely self-selected based on previous telephone surveys where respondents had expressed an interest in entrepreneurship, plus a review of the commercial register and referrals from respondents. The age distribution of aspiring entrepreneurs was under represented in younger age groups but higher in the 25–34 year old group compared with the population. Entrepreneurship aspirations are positive. There are problems with structural issues such as ease of forming a company, although important regulatory simplifications (for example in property registration) are still needed. Establishing a business in BiH can be a time-consuming process. According to the World Bank (2018), registering a business can take around 65 days to complete. Given the complex administrative set-up, it is not surprising the legal and regulatory framework of BiH reflects this situation. Results from our survey, indicate five key issues stand out: 1. Access to finance is very challenging and acts as a significant barrier to both innovation and entrepreneurship. There is a particular need for access to affordable seed capital. This is a similar to the challenge being addressed by some of the rural micro-finance programs in Asia. 2. Connection to markets outside BiH and the Western Balkans region is challenging for new entrepreneurs. 3. There is a considerable amount of energy and effort already being injected, but significant scope for improving the skills of entrepreneurial teams. 4. The trading channels and payment methods accepted suggest our entrepreneurs are using basic business models, almost entirely face-to-face and strongly cash-based. 5. Three quarters of all businesses in the survey supplied larger organisations, which may be accounted by the very large public-sector base.