AT A GLANCE – Bosnia Moves Closer To EU In 2008, But Held Back By Feuding And Memories Of War

One of the most discussed issues of the last few years – whether Bosnia is ready to take over its own affairs free of international monitoring – was on the agenda again, but maybe at the end of 2008 the answer was slanted towards the negative.

The signing of the Stabilisation and Association Agreement (SAA) with the EU in June was a ray of light for the Balkan country of 3.8 million people, still scarred by the heritage of the 1992-95 war that killed 100,000 and displaced some two million from their homes. It was the last country in the Balkans to establish closer ties with the bloc, and it did so after enormous efforts by the central authorities.

But then came local elections in October, seemingly not important enough to trigger the kind of nationalist rhetoric that had previously stalled Bosnian progress in the eyes of its European partners. However, unlike other countries, in Bosnia elections are the time to look back and remember the war, not the time to look ahead. 

This year, the two main protagonists were the Prime Minister of Bosnia’s Serb Republic, Milorad Dodik, and one of the members of the country’s tripartite presidency, Bosnian Muslim Haris Silajdzic. Post-war Bosnia has a very complicated administrative structure, consisting of a Serb Republic, a Muslim-Croat Federation and a weak central state. 

Dodik and Silajdzic engaged in sharp pre-election squabbling, in which Dodik called for the right of his region to secede, whereas Silajdic said both autonomous parts should be abolished in the name of a unitary state. This belligerent attitudes of both men alarmed the international community and the European Commission, which said in its annual report that little progress had been made since June and that the leaders should concentrate on reforms and cut the unproductive talk.

Indeed, the leaders of the three biggest Muslim, Serb and Croat political parties gathered in November and agreed important steps towards EU-required reforms, including amending the country’s constitution. The good will has now to be translated into concrete action.

Following is a summary of the main political and economic events in Bosnia in 2008.

POLITICS

* Closer ties with the EU

Bosnia signed the SAA with the EU on June 16, its first pact with the bloc. The SAA will, among other things, gradually phase out tariffs on EU-originating goods that are imported into Bosnia, resulting in healthier competition and a wider choice for individual consumers. It will also help producers, who currently pay duties on raw material and equipment imports.

Bosnia also launched talks in May on visa-free travel for its citizens within the EU. The outcome of the talks is seen as key to young people and professionals who now face problems with travel.

* Local elections

The local elections of October 5 reactivated the nation's latent nationalism. It was mainly fuelled from above, by the rhetoric of political leaders hungry for votes. The situation even compelled former international peace envoys Paddy Ashdown and Richard Holbrooke to warn the EU and the United States that they should become more involved in Bosnia because the country was threatened by collapse. The EU has since stated it would seek deeper engagement in Bosnia, and the future presidency holder from January 1, the Czech Republic, said the Western Balkans would be one of its priorities.

The local elections reaffirmed the three main ethnic parties in their leading positions – the Serb Alliance for Independent Social Democrats (SNSD), the Muslim Party for Democratic Action (SDA) and the Croat Democratic Community Bosnia (HDZ-BiH).

* The November reform agreement

The SNSD, SDA and HDZ-BiH leaders met in November and agreed to take action toward implementing key EU-required reforms, including amending the country’s constitution. The meeting was hailed by EU officials and by the international peace envoy in Bosnia, Miroslav Lajcak. Yet the main countries and international agencies monitoring Bosnia’s post-war progress, in the Peace Implementation Council (PIC), decided later in November it would continue overseeing the country via Lajcak’s Office of the High Representative until all reform conditions and objectives are met.

ECONOMY

* Main economic indicators

The real growth of Bosnia’s gross domestic product (GDP) is expected to slow down this year to 5.5% from 5.8% in 2007, according to estimates of the International Monetary Fund (IMF) in September. According to Bosnia’s central bank, GDP grew by a real 6.8% in 2007, accelerating from 6.7% in 2006. The nominal GDP value in 2007 was 21.641 billion marka ($15.460 billion/11.065 billion euro). No bank estimates for 2008 were available.

Average inflation this year is projected to leap to 7.4% from 1.5% in 2007, the IMF has said. The current account deficit will increase to 16% of GDP in 2008 from 13% in 2007, it added.

Bosnia’s trade deficit widened by 22.7% on the year to 8.843 billion marka through November, the Bosnian Statistics Agency said.

In September, the central bank published its 2007 foreign direct investment (FDI) figures for Bosnia. FDI rose to 9.012 billion marka last year from 6.027 billion marka in 2006. No 2008 estimate was available.

* The global financial and economic crisis

Generally, the global turmoil had a limited effect on Bosnia’s financial system. The central bank was quick to boost liquidity by cutting reserve requirements to 14% from 18% as well as removing requirements on longer-term deposits and on local banks’ credit lines from foreign lenders. Yet risks exist for a small, open economy such as the Bosnian. The bulk of the country’s banks are foreign-owned, and they may tighten lending conditions in response to the global troubles, which in turn will contribute to slowing down growth.

Output is expected to shrink in several sectors, notably construction, auto parts production and metal production. Bosnia’s biggest exporter, aluminium smelter Aluminij, has said it will cut output by 25% in 2009, although it expected record high production of 140,000 tonnes this year after upgrading some of its facilities.

* Privatisation

Privatisation has been much slower in the Muslim-Croat Federation than in the Serb Republic.

The privatisation of 88% of Aluminij has been dragging on for years. The Federation government, ranked a consortium led by Swiss-registered metals trader Glencore as best bidder to buy the 88% of the company, valued at 150.3 million marka, at an international tender in December 2007. However, the sale has been delayed mainly over Glencore's requests for regular supplies of cheap electricity.

In the spring, the Federation government devised a plan to sell its stakes in its two telecoms operators, BH Telecom and HT Mostar. It sent to parliament the draft under which 51% of BH Telecom, Bosnia's biggest telecoms carrier, will be sold to a strategic investor, 10% will be floated on an international bourse and a further 4.0% will be offered to Bosnian citizens on the Sarajevo bourse. The state will keep a 25% stake plus a golden share in the telco, which already trades 10% of its shares on the Sarajevo Stock Exchange (SASE). The government currently owns 90% of BH Telecom.

The plan also calls for the sale of 11% of the smaller telco HT Mostar to a strategic investor. A stake of 10% will be listed on an international bourse and a further 4.0% stake will be offered to Bosnian citizens on the SASE. The government holds 50.1% of the company.

The Federation Prime Minister Nedzad Brankovic told SeeNews in October he expected an international tender for the telco privatisation to be published in the first half of 2009. But parliament has not yet given any signs it would discuss the telecoms plan before the end of the year. It will be most probably preoccupied with adopting the Federation’s 2009 budget.

The Federation, however, was more successful in selling a minority 49% stake in its air carrier, BH Airlines, to Turkish Airlines in December. The Turkish company will invest 5.0 million euro ($7.0 million) in leasing a Boeing 737 aircraft and another aircraft later, and a further 5.0 million marka in the company’s reserves.

In the Serb Republic, the government and Austrian builder Strabag signed in November a concession deal for the construction of a network of roads worth some 3.0 billion euro. Under the contract, whose signing was long delayed by problems with land expropriation, the Republic's government granted Strabag a 30-year concession to build some 430 kilometres of motorways and high-speed roads.

Bosnia’s sole oil refinery Rafinerija Nafte Bosanski Brod, sold by the Serb Republic government to Russian state oil firm Zarubezhneft last year, restarted operations also in November. The refinery’s initial capacity will be 1.2 million tonnes of crude oil per year and it plans to raise this amount to 4.2 million tonnes by 2010.

In February, London-based energy group Energy Financing Team (EFT) signed with the Serb Republic government a 30-year concession deal to build and operate a 410-megawatt coal-fired power plant in a total estimated investment of 1.35 billion marka. The plant is expected to become operational by 2012, the government has said. The European Bank for Reconstruction and Development (EBRD) mulls supporting the project with a 200 million euro loan.

* Infrastructure

In 2008 Bosnia signed loan agreements with the EBRD and the European Investment Bank (EIB) to build sections of a north-to-south motorway across the country – its biggest infrastructure project since the end of the war. The 340-kilometre motorway will be part of European Union-defined Corridor Vc which connects the Hungarian capital Budapest with the Croatian Adriatic port of Ploce via Bosnia.

In October, the EBRD lent Bosnia 180 million euro for building stretches of the motorway, and the EIB lent 75 million euro to the country in December. The overall EIB and EBRD investment in priority motorway sections will be 480 million euro.

A Bosnian government-commissioned feasibility study has shown the motorway will cost 7.39 billion marka and will need to be financed through the state budget, public-private partnerships, commercial lending and the international financial institutions.

(1 euro = 1.95583 Bosnian marka)