Failed Privatisation is to Blame for Bosnians’ Exodus

Over the last year, more than 18 000 people have left Bosnia and Herzegovina, citing a difficult political, social and economic situation and – they often say – an uncertain future. Conservative estimates show the unemployment rate in the country ranges between 18 and 21 per cent.  

 

One of the key motives of this continuing exodus is the economic performance of the country, which has been marked by a high level of economic politicization, clientelism and nepotism.
 

A popular slogan of the large anti-government demonstrations in 2014: “We are not Bosniaks, nor Serbs nor Croats – we are Unemployed”, expressed this frustration. There was real hope for change in 2014, but five years on, the structural problems of the economy and its transformation remain unsolved.

 

The largest companies, which once formed the economic pillars of the pre-war Bosnia, have not succeeded in the market economy. The ironworks in Zenica, which once employed around 24 000 people, has slightly over 2,000 workers today. The Birac aluminium company, which was privatized, had to be re-nationalized after the Lithuanian investor decided to leave Bosnia.

 

Looking back at the politics of economic transformation, and especially at the privatization of state-owned enterprises, the process was highly politicized and non-transparent. It was accompanied by corruption scandals, clientelism and ethnic-political struggles, characterized by the distribution of power according to the ethnic divisions in the country.

 

Such an economy has been unable to attract foreign investors and those who came often had political rather than economic goals.

 

Rapid privatization was the wrong idea:

 

The original causes of the unsuccessful privatization of state-owned enterprises can be traced back to the reconstruction of Bosnia in the second half of the 1990s.

 

After the 1995 Dayton Peace Agreement, the neoliberal approach of the international community supposed that fast and transparent privatization of state-owned property would stimulate a dying economy.

 

Based on the UN High Secretary for B&H’s decision, the United States Agency for International Development, USAID, was chosen as the so-called “leading donor” for privatization.

 

USAID supposed that privatization would bring foreign investment, employment, efficiency, export and innovations.

 

But this approach suffered from an excessive belief in market mechanisms, and underestimated the fact that the privatization process took place in a post-war environment whose significant specifics shaped the outcome.

 

In hindsight, USAID and the international community insisted too much on the speed of privatization, and put significant confidence into the invisible hand of the market.

 

Unfortunately, privatization took place without an appropriate institutional and legislative framework, when the banking system, legislation [such as Insolvency Acts] and judicial mechanisms were still in the making.

 

This created a window of opportunity for ulterior motives. The poor rule of law deterred expected foreign investments, and so the only owners of the much-needed financial capital were the enriched elites, consisting of war profiteers, nationalist-oriented politicians, mafias and remains of the communist nomenclature.

 

Local politicians, for the most part, did not support privatization because they saw it as a threat to their political-economic power, given that state-owned enterprises were essentially political party-owned enterprises.

 

Their aim was, therefore, to delay and postpone privatization, and the international community remained the only driving force behind it. When privatization was to take place, the political parties tried to ensure the companies ended up in their hands, or in the hands of their sympathizers.

 

Taking into account the absence of the institutional framework and the ethnic-political struggle that pervaded the economy, the result of privatization was very unfortunate.

 

Three major issues shaped the privatization process: (1) political obstruction – political parties tried to slow down the process, while corporate leadership tied to political elites did what they could to reduce the companys’ book values, because they could then be more easily privatized by members of the relevant ethnic group. (2) Non-transparency – non-transparent processes accompanied by corruption scandals and clientelism. (3) Ethnicization of the process – privatized enterprises ended up in the hands of members of the “right” nationality and continued to support political parties and their activities financially.

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Continue reading about foreign investors' role in the failed privatization.