Vjekoslav Domljan CRES Mostar, BiH

IntroductionEscaping income trapMass unemploymentPolicy recomendation

Key causes of economic problems

internal external

•Bad legacy •Regional non-cooperation

•War damages •Global crisis

•Wrong privatization

•Wild liberalization

Middle income trapLow to middle income country -

industrialisationMiddle to high income country? -

HIGH INCOME(> 12,196 US$)

Country GNI pc

Greece 28,630

Slovenia 23,520

Croatia 13,810

MIDDLE INCOME (996-12,195 US$)

Country GNI pc

Moldova 1,590

Kosovo 3,240

Albania 3,950

Macedonia 4,400

BiH 4,700

Bulgaria 5,770

Serbia 5,990

Romania 8,330

Turkey 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

transition countries share the same 3 top business obstacles (EBRD, 2010): skills availability corruption tax administration.

BiH Albania Belarus Bulgaria Croatia Maced Hungary Moldova Mont. Romania Serbia Slovakia Slovenia

infrastrucutre -0.11 0.16 0.09 0.01 -0.17 -0.07 -0.11 0.07 0.09 -0.12 0 0.03 0.08

telecom -0.21 0.06 0.03 -0.05 -0.26 -0.17 -0.18 -0.05 -0.13 -0.22 -0.06 -0.12 -0.01

electricity 0.02 0.73 0.13 0.16 -0.15 0.14 0.11 0.15 0.36 -0.07 0.22 0.26 0.19

transport -0.10 -0.08 -0.04 -0.04 -0.13 -0.07 -0.17 0.01 0.07 -0.15 -0.03 0 0.08

land access -0.19 0.01 -0.02 -0.16 -0.2 0.02 -0.36 0.14 -0.06 -0.14 -0.08 -0.12 0.04

skills 0.04 0.13 0.3 0.01 0.11 -0.06 -0.17 0.25 0.1 0.15 0.04 0.16 0.11

tax administration 0.22 0.11 0.04 0.12 0.25 0.02 0.61 0 0.18 0.22 0.03 -0.02 -0.04labour regulations -0.10 -0.16 -0.24 -0.02 0.01 -0.11 0.09 -0.19 -0.03 0 -0.03 -0.05 0.22

customs -0.12 0.12 -0.1 -0.24 -0.17 -0.11 -0.29 -0.1 0 -0.25 -0.13 -0.29 -0.2

licencing -0.03 -0.16 0.08 -0.04 -0.1 -0.1 0.14 -0.14 0.04 0.01 -0.11 -0.08 -0.09

courts 0.04 -0.02 -0.22 0.06 0.2 0.22 -0.14 -0.05 -0.08 0.01 0.03 0.08 0.02corrupton 0.22 0.31 -0.06 0.16 0.08 0.12 0.32 0.02 -0.03 0.13 0.26 0.15 -0.12

crime -0.06 -0.15 0.14 0.06 -0.11 0.01 -0.2 0.02 -0.16 -0.16 -0.03 0.13 0.01

enterprises in transition countries with small private sector and higher unemployment rate▪ …complain less about skills.

R&D (% GDP) 2007 2008

High income 2.37 2.29

High income: OECD 2.41 2.29

Upper middle income 0.79

World 2.07

BiH 0.03

Bulgaria 0.48 0.49

Croatia 0.81 0.90

Greece 0.57

Montenegro 1.10

Romania 0.53 0.59

Serbia 0.35

Slovenia 1.45 1.66

Turkey 0.72

Researchers /1 mln people 2003 2004 2005 2006 2007 2008

High income 3726 3761 3840 3945

OECD members 3217 3257 3354 3442 3012

Upper middle income 1032 1025 1037 1029 1112

World 1281

BiH 61 63 67 177 197

Bulgaria 1223 1262 1299 1344 1466 1499

Croatia 1315 1605 1289 1303 1384 1514

Greece 1418 1771 1796 1873

Macedonia 551 526 547 521

Moldova 759 757 720 700 726

Romania 960 978 1061 952 877 908

Serbia 1196

Slovenia 1893 2018 2625 2921 3109 3490

Turkey 471 482 550 592 680

Patents 2006 2007 2008 2009

High income 808819 826192 813996 764583

OECD members 809402 827681 816102 766793

Upper middle income 44574 36842

World 994324

Albania

BiH 55 59

Bulgaria 243 211 249 242

Croatia 317 344 330 250

Greece 532 575 628 698

Kosovo

Macedonia 34

Moldova 303 333 273 134

Romania 814 827 995 1054

Serbia 432 395 386 319

Slovenia 287 331 301 373

Turkey 1072 1810 2221 2555

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.

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

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

1. Increase talent base

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

2. Re-skill the existingthe labour force

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

3. Remove labourmarket distortionsconstraining wagegrowth

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

4. Increase reliance on diaspora