Bosnia’s private sector wants help to put the country back on its feet

GRUDE – Half of the diapers, tissues and toilet paper sold in Bosnia are made by a local firm that has become a rare homegrown success story. Experts say Violeta, and a handful of companies like it, offer the best prospects for boosting economic growth but warn that the private sector will be hamstrung until authorities, more focused on attracting foreign investors, change their approach. «These middle-tier companies are the future of this country,» said Alex Paine of the International Finance Corporation (IFC), the private equity arm of the World Bank. But only a few firms, like Violeta and the food-and-juice firm Vegafruit, have made the leap from small-time start-ups to sector leaders. Some analysts say many people and politicians still nourish a deep suspicion of Bosnian business, fueled by memories of large, sometimes corrupt state-owned firms that flourished during socialist years. «It is important that the authorities recognize (private companies) not as thieves but as people who (can) enrich and empower the nation because these firms can be created in three years, take over the market and develop the ability to export,» Paine said. Rich in mineral deposits, forests and rivers, Bosnia was the heavy-industry base of Yugoslavia before the 1992-95 war. Billions of aid dollars have poured in to rebuild the country since the end of the conflict, but only a handful of foreign investors have come in. Industry now accounts for only 25 percent of gross domestic product (GDP). Officials say memories of the war are the main obstacle to attracting foreign funds, but a recent World Bank study blamed red tape, ranking Bosnia 87th out of 155 countries for ease of doing business. It was one of the 10 worst for the time and cost involved in obtaining a business license. Foreign investment over a decade of peace has only come to around $1.7 billion. Critics say that the state should now give up its losing fight to lure foreign investors and put in place incentives to help locals, like Violeta. Charged double Founded by Bosnians and using mostly local raw materials, Violeta is the country’s only widely recognized local brand. Backed by three foreign-owned banks, it employs 300 people, generates over 60 million Bosnian marka ($39.3 million) in revenues and exports half its output. Petar Corluka, one of Violeta’s owners, said the firm launched production of tissues and toilet paper three years ago, with lower prices as its main selling point thanks to lower transport costs and the use of cheaper domestic raw materials. Customers found the quality matched imported brands and appreciated the savings. Violeta expanded its hold on the market by adding new products to its range, this year with diapers. But Corluka said the firm was struggling to sell diapers at competitive prices because of high customs duties on the two dozen components they have to import to make them. Private companies want incentives, like cheaper electricity, but Corluka said his firm had to pay double household electricity rates, while bigger industrial consumers could negotiate cheaper contracts. «That’s why there are so few positive examples here, because regulations are not made to benefit producers. If we moved across the border to Croatia, our products would be 8-10 percent cheaper,» Corluka, a lawyer by training, said at Violeta’s plant in the small town of Grude in the rugged Herzegovina region. Other successful companies, such as the Lijanovici meat packer, also complain about unfavorable treatment when it comes to taxes and inspections. They say tax-paying procedures are very complicated. Foreign investors and big state companies use their clout to get better treatment, but the rest are seen as fair game by the authorities, businesspeople say. «If you are a small company, you are going to get blown out of the water,» Paine said. Tomislav Grizelj, the head of Bosnia’s employers’ association and owner of an engineering firm, said promising projects were often bogged down by the complex government structure with two autonomous regions, cantons and municipalities. «We have four levels of government as well as powerful trading lobbies connected with the government and this explains why there is no interest in domestic production,» Grizelj said. He said the complicated structure also made it difficult to gauge the direction of future fiscal policy. With the public sector making up 50 percent of GDP, the government financed its needs by squeezing the life out of the private sector through various charges and taxes, he added. «We are not looking for help, we are only looking for them not to make it more difficult for us,» he said. Treasury Minister Ljerka Maric, however, said Bosnia’s main problem was not the system, but perceptions. «The main problem is more transparency. Investors need to perceive us as being friendly and open to help them, and even if you don’t know how to solve the problem, trying to help find someone who can,» she told Reuters last month.