Bosnia and Herzegovina : Investment Climate Assessment
2008
World Bank
The private enterprise sector in Bosnia and Herzegovina (BiH) has been expanding steadily, and estimates are that it presently contributes close to 50 percent of Gross Domestic Product (GDP). The BiH private enterprise sector initially developed following the privatization program starting in 1999. Under that program, the majority of state owned enterprises (SOEs) that were privatized were done so using the voucher privatization process. Under this procedure, vouchers were issued to all citizens over 18 years of age, these vouchers could be used to buy state owned properties or shares in SOEs. To promote an orderly process, privatization investment funds were created to help purchase such vouchers in exchange for citizens' shareholdings in the investment funds themselves. This process was also meant to develop the capital markets via the eventual trading of such shares. However, the process of voucher-to-share conversion, resulted in the new owners seldom having to invest their own capital in these voucher privatized enterprises. This was because the 'ownership transfer' was provided on a grant basis from the government to citizens. Because of this, new ownership became automatic, without incentives to put up additional capital to improve the businesses, leaving these enterprises performing below potential capacity. The government should consider implementing a pilot program of restructurings to attract new investor capital within a well organized framework using a methodology defined in advance. Finally, economic research shows that increased firm competitiveness, innovation, technological capability, and export potential have a strong correlation with foreign ownership.
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