August 29 (SeeNews) - The European Bank for Reconstruction and Development (EBRD) expects to invest a record-high 200 million euro ($223.7 million) in Bosnia and Herzegovina in 2016 and a similar amount next year in a bid to unlock the country’s growth potential, the lender’s president Suma Chakrabarti told SeeNews.
“We are supporting the construction of Corridor Vc, a key project for the country’s development. The corridor will provide Bosnia with a much-needed modern north-south connection, which will facilitate internal transport and link the country to regional and wider external markets in the European Union,” Chakrabarti told SeeNews in a interview ahead of a visit to Sarajevo. “At the same time we are continuing our support for the local private sector, small and medium-sized enterprises and women-led businesses, and for municipal infrastructure.”
During his visit, which is part of a regional tour, Chakrabarti will sign a loan agreement to finance a water network extension in the municipality of Visoko, in the central part of the country, that will provide thousands of people with potable water.
The EBRD has to date invested 1.9 billion euro in Bosnia in 133 projects.
“In our work we have always followed a two-pronged approach: to strengthen areas where there is potential and to help develop areas where there is need. In concrete terms this means support for Bosnia’s potential in the private sector or in renewables, while at the same time funding large infrastructure projects, especially in construction of roads,” the official noted.
The EBRD’s current strategy for Bosnia, adopted in April 2014, prioritises support for the local private sector, forging closer links with regional markets and promoting a more efficient and sustainable use of resources.
DIFFICULT BUSINESS CLIMATE A MAJOR DETERRENT TO INVESTORS
Despite the volatility on European markets, Bosnia’s economy performed quite well in the recent years. In 2015, it expanded by some 3%, its highest growth rate since 2008, underpinned by a strong performance of manufacturing and a recovery of agriculture.
However, while the country’s potential for catching-up remains strong with GDP per capita being only 30% of the EU average, its economy remains vulnerable, partly because of the difficult investment climate, Chakrabarti said.
Bosnia’s GDP per capita stood at $4,198 in 2015, according to World Bank data.
In the latest Doing Business report published by the World Bank, Bosnia ranked 79th among 189 economies. The report measures regulations affecting the life of a business, such as starting a business, dealing with construction permits, acquiring electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency.
“Improving the business climate is indeed a key prerequisite to support economic growth. Local and international investors need stability, transparency, rule of law and a level playing field,” Chakrabarti stressed, adding that the EBRD could support the efforts of Bosnia’s authorities and business in this area.
This could help unlock Bosnia’s significant potential in industry, the EBRD president said, pointing to mining, manufacturing and power production, especially hydro power, wood processing and tourism as sectors that could drive the country’s economic growth. Bosnia also has a number of strong export-oriented companies which are successfully competing on international markets, for instance as suppliers to the German car industry, he added.
CONNECTIVITY IN WESTERN BALKANS IN FOCUS, REFORMS KEY TO GROWTH
Bosnia also stands to benefit from EBRD cross-border infrastructure projects for the next few years, which, apart from the construction of Corridor Vc, include the motorway from Nis in Serbia to Durres in Albania, via Pristina, as well as regional electricity power interconnectors including a strengthened interconnection between Croatia and Bosnia, and the key ‘electricity corridor’ from Romania, through Serbia to Bosnia and Montenegro, and on to Italy through an under-sea cable, which is now under construction.
The lender expects to maintain its level of investment for the Western Balkans at between 800 million and 1 billion euro per year, as actual investment and disbursement figures will be driven by the opportunities that open up and will depend on the reform progress in the countries and the level of private sector investment interest in the region.
The EBRD’s total investment in the Western Balkans to date is 9.5 billion euro.
“The Western Balkans region has witnessed considerable progress in recent years, yet the catch-up gap remains high. The region lags significantly behind the EU in terms of FDI stock per capita received, average FDI stock per capita in the Western Balkans is around 2,600 euro while in the EU it is around 14,300 euro, more than five times higher,” Chakrabarti noted.
In 2015, FDI in Bosnia amounted to 244 million euro, down 38.9% from the previous year, according to central bank data quoted by the country’s foreign investment agency, FIPA.
The Western Balkan countries can realise their potential through reform, cooperation and investment, the EBRD president noted. “We have seen remarkable progress on the political level, both in the readiness to adopt difficult, but necessary measures, but also in the willingness to engage in dialogue with neighbouring countries. What is needed now is a comparable economic boost which delivers concrete and tangible results to the people of the region.”
Improvements in the business environment are key to attract funding under conditions of intense competition, Chakrabarti also said. Other areas, in his view, would be a reduction of the administrative burden.
In his view, the EU accession process will lead to a streamlining and harmonisation of regulations and provide an important anchor for the reforms, which strengthen the institutional framework.
Bosnia officially submitted an EU membership application in February. Serbia opened the first two of the 35 chapters in its negotiations to join the bloc in December. Montenegro opened EU accession talks in 2012. Macedonia was granted an EU candidate status in December 2005, but is still waiting for a date to start membership negotiations.
($=0.8942 euro)