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FEDRA Interview: The Republic of Srpska paves the way for foreign investors - Minister of Economic

The Republic of Srpska (Republika Sprska) is one of the two constitutional, legal, and autonomous entities of Bosnia and Herzegovina. In the past years significant reforms were initiated in the economic sector, especially impacting the fields of taxation and duties, as the government of the region wishes to turn it into a profitable market for foreign investors. The Minister of Economic Relations and Regional Cooperation of the Republic of Srpska, Mr Zlatan Klokić, is currently dedicating his work to boosting the image of the Republic, to draw new investments from abroad, and to bring the region closer to the funding opportunities presented by the EU. Another one of his goals is to secure the position of the Republic in the Adriatic-Ionian macro region, by bringing into focus its resources, and its legal, and economic systems.

FEDRA had the chance to interview the Minister during his three-day visit to Brussels where he met with DG GROW and DG REGIO officials, to discuss about EU funds and other programme opportunities available for the Republic of Srpska. We invite you to find out more about the economic situation in the Republic, following the answers of the most suitable person to reveal this kind of information.

Minister Klokić, could you make a brief overview of the economic situation in the Republic of Srpska? The economy of the RS, as well as other economies of the world, is significantly influenced by the global and regional economic and political events (oil prices, sanctions against Russia, volatility of foreign exchange rates and financial markets, floods that happened in the region in 2014, global political situation). However, in spite of that, macroeconomic indicators are showing positive trends. GDP growth rate was 2.2% in the first quarter of 2016, industrial production growth rate was 5.8% in the first 6 months of this year (in 2015 it was 2.7%), export import ratio was constantly improving during the first 6 months of 2016 and amounted to 64%). During the first six months of 2016, compared to the same period of 2015, the RS has achieved foreign trade turnover growth by 2.10%, export growth by 8.65%, and overall foreign trade deficit reduction. Also, the unemployment rate has dropped in the past 4 years. Starting 2013 when 27.0% of the population was unemployed, there was a significant drop to 25,7% in 2014. Currently, according to the latest survey, in July 2016 only 24.8% of the people had no work place.

Speaking about the unemployment rate, something must have happened in the last years that influenced its going down, something connected to the working opportunities in the region. So, what can you tell us about the economic sectors that offer at the moment the most opportunities for investors who, in the end, create working positions? The National Assembly of the RS has recently adopted the Republic of Srpska Foreign Investment Encouragement Strategy 2016-2020. The Strategy recognized the following sectors as competitive: The first is the agriculture and food industry because the area has a lot of geographical assets to offer, unpolluted land, water, and air, which offer possibilities for organic food production. The agricultural land area per capita is 0.9 ha, which is above the average of most European countries. There are also favourable climatic conditions that allows a wide spectrum of agricultural crops to be cultivated, good conditions for irrigation, and, last but not least, the presence of geothermal waters on more than 50% of the agricultural land which sustains greenhouse production. The dairy, and the fruit and vegetable sectors are the most competitive. Secondly, there are the wood processing, and the metal sectors. We have the resources to sustain these areas, and the workforce, and low electricity and transportation costs. Consequently, investors in the furniture industry, and the ones from the automotive area could come to our region to initiate businesses. As only 30-40% of total hydro potential is being exploited, the energy potential of our area can be used by the entities active in the energy sector. There are also other renewable energy sources which are underused: geothermal sources, biomass etc. Last but not least, the RS has great touristic potential, breath taking sceneries, and again, the natural resources which are favourable to the creation and development of spa facilities, and leisure centres (dedicated to winter activities).

It looks like investors from abroad have what to grasp from the Republic. However, there must be smaller entrepreneurial initiatives stemming from the region. Are there challenges the local SMEs encounter, and if so, of what kind? The situation in the RS is very similar to that in the region. Small- and medium-sized enterprises are facing the issue of transition in terms of entrepreneurial skills. That is why it is very important to establish cooperation with foreign partners, because it enables knowledge and technology transfer as well as to establish contacts for potential export. There are still some administrative barriers that are being addressed, in particular the recommendations from the World Bank’s Doing Business report.

And how is the administration helping, thus encouraging, local businesses, especially the small ones? We are working intensively on cooperating with local communities, which is why we are part of the regional project of certification of business-friendly municipalities, BFC, together with our colleagues from Serbia, Croatia, Montenegro and Macedonia. Five of our municipalities have fulfilled the required standards and became holders of such certificates. In addition to the local level, the Ministry is maintaining a permanent contact with the established investors. Supported by the World Bank, we have introduced into our system the so-called aftercare programme, i.e. care for the established investors, where regular visits to firms (with obligatory participation of the local community) enable analysing the current state, monitoring the trends, and in particular the conditions and barriers in doing business. This year, we have 21 local communities and more than 50 companies within the system. The objective after those visits is to prepare an action plan including proposing specific measures (arising from those visits) which would, in the opinion of investors, facilitate their operation. We established a special body – the Republic of Srpska Foreign Investors Council – which gathers line ministers who are with you today, representatives of 5 local communities, 5 large foreign investors and representatives of the Republic of Srpska Chamber of Commerce. This body is operational and enables foreign investors to turn to competent institutions with their proposals or problems faced in the operation. Another purpose of this body is to provide guidelines concerning strategic directions in the field of attracting foreign investments.

Instead of drawing a conclusion for the investors in the audience, could you maybe give them some piece of advice, or, why not, some tips about launching themselves on the market in the RS? What is to be remembered is that our region offers a competitive electricity price, and also a wide range of natural resources. The tax policy is among the most favourable in the region and in Europe (income tax 10%, corporate tax 10%, VAT 17%, non-taxable part of income about 100 euros), and the labour force cost/quality ratio is very attractive (average salary is about 400 euros). Moreover, we boast liberalized legal regulations concerning foreign investment opportunities, supported by a foreign trade regime which enables a free trade system for almost 600 million potential buyers (CEFTA, EFTA, Turkey, EU).

---- Thanks to the efforts of the RS Government, to its natural resources, and the opportunities of the EU, the Republic of Sprska is getting closer to the objective of becoming the most suitable destination for foreign investors. However, there are efforts being made for helping local small- and medium-sized businesses to grow and to support the regional economy. FEDRA was glad to discover the economic potential of the Republic of Srpska and thanks its Minister of Economic Relations and Regional Cooperation, Mr Zlatan Klokić, for leading the discovery mission.

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