Vjekoslav Domljan CRES Mostar, BiH

   

Introduction Escaping income trap Mass unemployment Policy recomendation

internal

• Bad legacy • War damages • Wrong privatization • Wild liberalization

Key causes of economic problems

• •

external

Regional non-cooperation Global crisis

  

Middle income trap Low to middle income country industrialisation Middle to high income country? -

HIGH INCOME (> 12,196 US$) Country

Greece Slovenia Croatia

GNI pc

28,630 23,520 13,810

MIDDLE INCOME (996-12,195 US$) Country

Moldova Kosovo Albania Macedonia BiH Bulgaria Serbia Romania Turkey

GNI pc

1,590 3,240 3,950 4,400 4,700 5,770 5,990 8,330 8,730



For moving up the value chain with knowledge and innovative-based products and services:

 investment rates >25-32 % of GDP  innovation-conducive policy framework  business environment

World Bank (2011) Doing Business 2011-12 130 120 70 60 50 110 100 90 80 56 56 57 59 65 72 79 80 99 81 77 82 88 92 101 100 117 117 127 125 2011 2012



transition countries share the same 3 top business obstacles (EBRD, 2010):

 skills availability  corruption  tax administration.

0,80 0,60 0,40 0,20 0,00 -0,20 -0,40 -0,60 infrastrucutre skills courts telecom tax administration corrupton electricity labour regulations crime transport customs land access licencing

BiH Albania Belarus Bulgaria Croatia Maced Hungary Moldova Mont.

Romania Serbia Slovakia Slovenia infrastruc utre telecom -0.11

-0.21

0.16

0.06

0.09

0.03

0.01

-0.05

-0.17

-0.26

-0.07

-0.17

-0.11

-0.18

0.07

-0.05

0.09

-0.13

-0.12

-0.22

0 -0.06

0.03

-0.12

0.08

-0.01

electricity transport land access skills tax administr ation labour regulatio ns customs licencing courts corrupton crime 0.02

-0.10

-0.19

0.04

0.22

-0.10

-0.12

-0.03

0.04

0.22

-0.06

0.73

-0.08

0.01

0.13

0.11

-0.16

0.12

-0.16

-0.02

0.31

-0.15

0.13

-0.04

-0.02

0.3

0.04

-0.24

-0.1

0.08

-0.22

-0.06

0.14

0.16

-0.04

-0.16

0.01

0.12

-0.02

-0.24

-0.04

0.06

0.16

0.06

-0.15

-0.13

-0.2

0.11

0.25

0.01

-0.17

-0.1

0.2

0.08

-0.11

0.14

-0.07

0.02

-0.06

0.02

-0.11

-0.11

-0.1

0.22

0.12

0.01

0.11

-0.17

-0.36

-0.17

0.61

0.09

-0.29

0.14

-0.14

0.32

-0.2

0.15

0.01

0.14

0.25

0 -0.19

-0.1

-0.14

-0.05

0.02

0.02

0.36

0.07

-0.06

0.1

0.18

-0.03

0 0.04

-0.08

-0.03

-0.16

-0.07

-0.15

-0.14

0.15

0.22

0.22

-0.03

-0.08

0.04

0.03

0 -0.25

0.01

0.01

0.13

-0.16

-0.03

-0.13

-0.11

0.03

0.26

-0.03

0.26

0 -0.12

0.16

-0.02

-0.05

-0.29

-0.08

0.08

0.15

0.13

0.19

0.08

0.04

0.11

-0.04

0.22

-0.2

-0.09

0.02

-0.12

0.01



enterprises in transition countries with

 small private sector and  higher unemployment rate ▪ …complain less about skills.

R&D (% GDP) High income High income: OECD Upper middle income World

BiH

Bulgaria Croatia Greece Montenegro Romania Serbia Slovenia Turkey 2007 2.37

2.41

0.79

2.07

0.03

0.48

0.81

0.57

1.10

0.53

0.35

1.45

0.72

2008 2.29

2.29

0.49

0.90

0.59

1.66

2,50 2,00 1,50 1,00 0,50 0,00 1996 2003 1997 2004 1998 2005 1999 2006 2000 2007 2001 2008 2002

Researchers /1 mln people

High income OECD members Upper middle income World

BiH

Bulgaria Croatia Greece Macedonia Moldova Romania Serbia Slovenia Turkey 2003 3726 3217 1032

61

1223 1315 1418 551 759 960 1893 471 2004 3761 3257 1025

63

1262 1605 526 757 978 2018 482 2005 3840 3354 1037 1281

67

1299 1289 1771 547 720 1061 2625 550 2006 3945 3442 1029

177

1344 1303 1796 521 700 952 2921 592 2007 3012 1112

197

1466 1384 1873 726 877 1196 3109 680 2008 1499 1514 908 3490

4000 3500 3000 2500 2000 1500 1000 500 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Patents High income OECD members Upper middle income World Albania BiH Bulgaria Croatia Greece Kosovo Macedonia Moldova Romania Serbia Slovenia Turkey 2006 808819 809402 44574 994324 55 243 317 532 303 814 432 287 1072 2007 826192 827681 36842 211 344 575 333 827 395 331 1810 2008 813996 816102 2009 764583 766793 59 249 330 628 34 273 995 386 301 2221 242 250 698 134 1054 319 373 2555

1000 500 0 3000 2500 2000 1500 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

High-technology exports (% of exports of manufactured products)

High income OECD members Upper middle income World Albania BiH Bulgaria Croatia Greece Kosovo Macedonia Moldova Montenegro Romania Serbia Turkey 2003 1.3

3.0

3.6

2.1

21.3

20.4

17.5

20.9

1.0

3.2

4.3

12.3

12.2

2004 21.2

20.1

15.5

20.8

1.1

3.2

4.0

13.0

11.4

1.3

2.6

3.4

2.0

2005 21.1

20.2

13.9

20.5

5.0

3.6

4.7

11.5

10.2

2006 21.3

20.3

13.9

20.6

12.6

2.9

6.0

10.2

10.5

1.1

3.9

3.4

1.5

1.1

4.7

4.4

1.9

2007 18.7

17.8

13.6

18.7

1.7

2.9

6.0

9.1

8.0

0.8

5.1

3.7

2.0

2008 18.6

17.3

11.7

18.2

3.7

3.9

6.6

9.1

10.0

2009 19.4

19.0

14.3

19.6

1.3

3.1

8.2

10.9

11.3

4.2

7.2

1.7

3.0

5.4

10.1

1.9

30,0 25,0 20,0 15,0 10,0 5,0 0,0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

 the labour market in BiH face many challenges:  Activity rates are low  Unemployment rates are long-term, largely structural  Very few new jobs are created  Underemployment is significant  Employment services have a very limited role  Education programmes are not in line with labour demand  Young people are poorly prepared for labour market  Young people do not consider entrepreneurship as an option for them.

90 80 30 20 10 0 70 60 50 40 32,5 43,5 54

Employment rate

58,8 64,1 66,2 59,6 65,6 71,7 78,6

4 2 0 8 6 12 10 2006 2007 2008 2009 2010

10 7 6 9 8 5 4 1 0 3 2 Long-term unemployment rate, 2010

25 20 15 10 22,4 5 9,2 8,4 7,7 7,4 7,3 6,7 6,7 6,3 5,7 5,5 3,9 0 BiH Slovakia Latvia Estonia Lithuania Spain Ireland Croatia Portugal Greece Hungary EU-27 BiH Slovakia Latvia Estonia Lithuania Spain Ireland Croatia Portugal Greece Hungary EU-27

  Issue of human capital development is a priority for faster, export-oriented and sustaining growth Improved skills will upgrading the skill content of exports (and reducing vulnerability to low-wage competition) lead to increased  productivity and  employability  ... will also endogenize the creation of new enterprises through the creation of more entrepreneurs.



mismatch between demand and supply of skills is a result of



A) supply side failure

▪ undeveloped private market for skills provision, and a small number of the (un)employed are willing to participate in ▪ lack of adequate government policies and strategies addressing the problem 

B) demand side failure

▪ Very few new jobs are created



wages are high relative to

 the product composition of exports  productivity in a regional comparison

 The policy recommendation 

Follow the export and competitiveness strategy (agro food, metal, wood, construction materials and tourism)



Introduce the private and develop public institutions mathing demand and supply



Create a tertiary education strategy



Review the secondary school curricula



Create an adult education strategy frameworks/regulation



Create cluster training centres

Policy recomendations 1. Increase talent base       Review the primary and secondary education system – shift approach from ‘rote learning’ to ‘creative and critical thinking’ Increase emphasis on reintroducing technical and vocational training schools Identify and nurture talent through a demand-driven process Improve autonomy and accountability of educational institutions Encourage R&D collaboration between terciary education and firms Enhance English language proficiency

Policy recommendations 2. Re-skill the existing the labour force     Upgrade skills of the bottom segment of the labor force through continuing education and training Develop tranining centres at employment agencies Formalise international quality standards and certification of skills Allow wage levels to be reflective of the skill level

Policy recomendations 3. Remove labour market distortions constraining wage growth   

Protect workers, not jobs, through a stronger safety net, while encouraging labour market flexibility Revise legal and institutional framework to facilitate hiring and firing Raise pay through productivity gains, not regulation of wages

Policy recomendations 4. Increase reliance on diaspora       Create a strategy for tapping into the country’s diaspora Review existing programmes to attract highly skilled Bosnians-Herezgovinians overseas to return home Offer permanent residence for ex-Bosnian and Herzegovinians and their families Centralise oversight of foreign labour and expatriates to enable coherent practice Build up critical mass of skilled professionals through simpler work permit and immigration procedures Liberalise professional services through mutual recognition arrangements