Е THE REPUBLIC OF SRPSKA GOVERNMENT

STRATEGY AND POLICY OF INDUSTRIAL DEVELOPMENT OF THE REPUBLIC OF SRPSKA FOR THE PERIOD 2016 - 2020

Banja Luka, October 2016

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Acronyms and terms

ACCA ...... Agreement on Conformity Assessment and Acceptance of Industrial Products JSC ...... Joint - Stock Company АIIF ...... Agency for Intermediary, IT and Financial Services of the Republic of Srpska BATA ...... Accreditation Institute of Bosnia and Herzegovina GDP ...... Gross Domestic Product, the value of all goods and services produced in some economy during a certain period of time at market prices GVA ...... Gross Value Added, the value of all goods and services produced in some economy during a certain period, expressed in basic prices (with subsidies, excluding taxes) CBBH ...... Central Bank of Bosnia and Herzegovina CE mark ...... Product bearing the CE mark can be freely distributed within the EU Member States. The mark indicates that the product meets all of the basic requirements under each individual directive, and confirms that the conformity assessment procedure has been followed. CEFTA ...... Central European Free Trade Agreement COSME ...... Programme for the Competitiveness of Enterprises and Small and Medium-Sized Enterprises CREDO ...... Competitive Regional Economic Development FDI ...... Foreign Direct Investment LLC ...... Limited liability company EBRD ...... European Bank for Reconstruction and Development EDIF ...... Enterprise Development and Innovation Facility EPRD ...... Office for Economic Policy and Regional Development, Poland ECRAN ...... Environment and Climate Regional Accession Network ERDF ...... European Regional Development Fund ЕУ ...... European Union ЕUROSTAT ...... Statistical Office of the European Union Horizon 2020...... EU Framework Programme for Research and Innovation Secs ...... Securities ICT………………….. Information and communications technology IPA ...... Instrument for Pre-Accession Assistance IDBRS ...... Investment - Deveopment Bank of the Republic of Srpska ISO ...... International Organization for Standardization PE ...... Public Enterprise CA ...... Classification Activity SMEs ...... Small and Medium – Sized Enterprises VAT ...... Value Added Tax RIA ...... Regulatory Impact Assessment RS ...... Republic of Srpska

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SIRS ...... Statistics Institute of the Republic of Srpska SEE ...... South East Europe SDC ...... Swiss Agency for Development and Cooperation SIDA ...... Swedish International Development Cooperation Agency SWOT ...... Strenghts, Weaknesses, Opportunities and Threats ITABH ...... Indirect Taxation Authority of Bosnia and Herzegovina WB EDIF ...... Western Balkans Enterprise Development & Innovation Facility WMTA...... Wood Metal Technical Academy WTO...... World Trade Organization EBRS ...... Employment Bureau of the Republic of Srpska

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List of literature used 1. Strategy and Policy of Industrial Development of the Republic of Serbia 2011 - 2020, Ministry of Economy and Regional Development, Belgrade, February 2011 2. Europe 2020, A European Strategy for Smart, Sustainable and Inclusive Growth, European Commission, Bruxelles, March 2009 3. South East Europe 2020 Strategy, Regional Cooperation Council, November 2013 4. Foreign Investments Encouragement Strategy of the Republic of Srpska 2016 - 2020, Ministry of Economic Relations and Regional Cooperation, Banja Luka, May 2016 5. Export Promotion Strategy of the Republic of Srpska 2009 – 2012, Faculty of Economics Banja Luka, Banja Luka, June 2009 6. Scientific and Technological Development Strategy of the Republic of Srpska 2012 – 2016, Working Group for Coordination of Strategy Development, Banja Luka, July 2012 7. Regulatory Reform Strategy and Introduction of the Regulatory Impact Assessment Process (RIA) in the Republic of Srpska 2012 - 2015, Banja Luka, February 2012 8. Trade Development Strategy of the Republic of Srpska up to 2015, Ministry of Trade and Tourism, Banja Luka, 2009 9. Employment Strategy of the Republic of Srpska 2011-2015, Ministry of Labor, War Veterans and Disabled Persons' Protection, Banja Luka, February 2011 10. Nature Protection Strategy of the Republic of Srpska, Ministry of Spatial Planning, Construction and Ecology of the Republic of Srpska, Banja Luka, January 2008 11. Air Protection Strategy of the Republic of Srpska, Ministry of Spatial Planning, Construction and Ecology of the Republic of Srpska, Banja Luka, March 2011 12. Study on Foreign Investments Encouragement in the Republika Srpska 2014-2017, Ministry of Economic Relations and Regional Cooperation, Banja Luka 2014 13. Economic Policy of the Republic of Srpska for 2015, Government of the Republic of Srpska, Banja Luka, December 2014 14. The 2015 Employment Action Plan, PI Employment Bureau of the Republic of Srpska, Banja Luka 2015 15. Action Plan for Transposition of New Approach Directives into legal system of the Republic Srpska 2013–2015, the Republic of Srpska Government, February 2013 16. Analysis of imported products and possibilities for production of the same in the Republic of Srpska, Development Agency EDA Banja Luka, Banja Luka, 2010 17. Branding Policy in the Republic of Srpska, Ministry of Trade and Tourism, Banja Luka 2012 18. Industrial Policy Development in the Federation of Bosnia and Herzegovina, Faculty of Mechanical Engineering Sarajevo, Faculty of Mechanical Engineering and Computing Mostar, Sarajevo 2009 19. Ease of Doing Business in Bosnia and Herzegovina 2015, Federal Institute for Development Programming of BiH, Sarajevo, November 2014 20. Competitiveness Bosnia and Herzegovina 2014-2015, Federal Institute for Development Programming, Sarajevo, September 2014

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21. DOING BUSINESS 2015, FIPA, Sarajevo, October 2014 22. Analysis of the burden to the economy of Bosnia and Herzegovina - chapter Analysis of the burden to the economy of the Republic of Srpska, Predrag Duduković, MSc, Saša Grabovac, Bachelor of Economics, Sarajevo 2011 23. Energy Development Strategy of the Republic of Srpska up to 2030, the Republic of Srpska Government, 2012 24. Forestry Development Strategy of the Republic of Srpska 2011-2021, the Republic of Srpska Government, 2012 25. Draft Transport Strategy of the Republic of Srpska 2016-2030, Ministry of Transport and Communications of the Republic of Srpska, 2016 26. Spatial Plan of the Republic of Srpska up to 2025, the Republic of Srpska Government, 2015 27. Statistical Yearbook of the Republic of Srpska 2015, Statistics Institute of the Republic of Srpska

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Table of contents 1. INTRODUCTION ...... 7 2. VISION AND MISSION OF INDUSTRIAL DEVELOPMENT ...... 8 3. OVERVIEW OF BASIC MACROECONOMIC INDICATORS IN THE REPUBLIC OF SRPSKA/STARTING POINTS AND DETERMINANTS FOR THE STRATEGY DEVELOPMENT ...... 10 3.1 Economic overview of the Republic of Srpska ...... 11 3.2 Industrial overview of the Republic of Srpska…...... 12 4. ANALYSIS OF COMPETITIVENESS AND KEY FACTORS FOR INDUSTRIAL DEVELOPMENT ...... 28 4.1 General indicators of competitiveness ...... 28 4.2 State of resources necessary for industrial development ...... 31 4.3 State of technology in industry ...... 36 4.4 State of workforce in industry ...... 37 4.5 State of quality infrastructure for industrial needs ...... 40 4.6 State of privatization, restructuring and bankruptcy in industry ...... 42 4.7 Environmental impact of industrial development ...... 44 4.8 Financial support to industrial development ...... 46 4.9 SWOT analysis of industry ...... 56 5. EVALUATION OF THE SURVEY CONDUCTED WITH COMPANIES IN ORDER TO IDENTIFY CONSTRAINTS AND PROBLEMS IN BUSINESS OPERATIONS ...... 599 5.1 General business environement ...... 59 5.2 State as a constraint ...... 60 5.3 Labor as a constraint ...... 60 5.4 Business support system ...... 61 5.5 Other constraints ...... 61 6. PRIORITIES AND STRATEGIC GOALS OF THE REPUBLIC OF SRPSKA INDUSTRIAL DEVELOPMENT 2016 - 2020 ...... 63 STRATEGIC GOAL 1 – Implementation of industrial revitalization process (reindustrialization) ...... 655 STRATEGIC GOAL 2 – Мonitoring, follow-up of industrial development and implementation of adequate measures to improve competitiveness ...... 699 STRATEGIC GOAL 3 – Increasing employment in industry and improving labor supply ...... 81 STRATEGIC GOAL 4 – Improving business environment and attracting investments in the industry ...... 855

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STRATEGIC GOAL 5 - Application of environmental standards in industry and more efficient use of resources ...... 91 7. EXPECTED OUTCOME OF IMPLEMENTATION OF THE INDUSTRIAL DEVELOPMENT STRATEGY FOR THE PERIOD 2016-2020 ...... Error! Bookma 8. FINANCING THE IMPLEMENTATION OF THE STRATEGY OF INDUSTRIAL DEVELOPMENT FOR THE PERIOD 2016-2020 ...... Error! Bookma 9. IMPLEMENTATION OF THE STRATEGY OF INDUSTRIAL DEVELOPMENT FOR THE PERIOD 2016- 2020 ...... Error! Bookma 10. KEY CONCLUSIONS OF THE STRATEGY ...... Error! Bookma ACTION PLAN FOR THE IMPLEMENTATION OF STRATEGY AND POLICY OF INDUSTRIAL DEVELOPMENT OF THE REPUBLIC OF SRPSKA FOR THE PERIOD 2016 - 2020 ...... 102

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Introduction

1 INTRODUCTION Strategy and Policy of Industrial Development of the Republic of Srpska for the period 2016–2020 (hereinafter referred to as: the Strategy) is a new strategic document that defines the priorities and strategic goals of the industrial development, as well as the ways of their implementation in the period from 2016 to 2020. The strategy is in line with the EU industrial policies, the goals of the Europe 2020 Strategy and the South East Europe 2020 Strategy, and various other documents and recommendations of international organizations and projects related to industry. The purpose of the Strategy development is to define, based on the analysis and realistic assessment of the available capacities, development advantages and limiting factors of the Republic of Srpska industrial development:

 main priorities of industrial develoment,  development goals and programs,  instruments and institutions to support industrial development.

The Strategy was developed by the Ministry of Industry, Energy and Mining based on available data, conducted analyzes and research. The research in the Strategy development encompassed a systematic analysis of existing literature, primarily strategic development documents of neighboring countries, which deal with industrial development and industrial policies of the European Union, as well as analysis of existing and implementation of new statistical and expert researches.

To identify the industrial development limitations, 180 companies operating in the field of industry were surveyed, which are significant in terms of their income and number of employees, as well as for the local community they operate in, taking into account their presence on the territory of the entire Republic of Srpska.

In addition, a survey of the local communities of the Republic of Srpska was conducted with a view to identifying the biggest problems encountered by companies operating in the field of industry on their territory, as well as to identifying measures that the local community has so far undertaken and those that it intends to undertake in the future.

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Vision and mission of industrial development

2 VISION AND MISSION OF INDUSTRIAL DEVELOPMENT

The vision of industrial development is attitude towards the desired future of the industry and is based on the belief that its future can be influenced. A clear vision motivates and directs towards action that will enable a quality change.

However, in the conditions of negative effects of the global economic crisis, it was difficult to predict trends and define the vision of further industrial development. In the previous period, we had witnessed two waves of the global economic crisis, which have affected the state and trends in the industry of the Republic of Srpska.

All countries reassess their economic trends and there is no single model that guarantees prosperity. In this regard, the European Union has adopted the Europe 2020 Strategy, which puts forward three interrelated priorities:

‒ Developing an economy based on knowlegde and innovation; ‒ More competitive economy and efficient environmental protection and ‒ Increasing employment with social and territorial cohesion.

To realize the set priorities, the Europe 2020 Strategy is putting forward seven flagship initiatives to catalyse progress under each priority theme: Innovation Union, Youth on the move, A digital agenda for Europe, Resource efficient Europe, Industrial policy for the globalisation era, An agenda for new skills and Jobs, and European platform against poverty.

The flagship initiative ”Industrial policy for the globalization era” shall be conducted with the aim of improving the business environment, notably for SMEs, and supporting the development of a strong and sustainable industrial base able to compete globally.

The South East Europe 2020 Strategy represents a response to the European Union development strategy Europe 2020, and including specific priorities of seven countries in the Southeast Europe region. The main objective of the strategy is to achieve greater and sustainable economic development, and thus to stimulate greater economic growth and competitiveness in the region, greater prosperity and job creation, by strengthening regional cooperation and linkages with the European Union. The South East Europe 2020 Strategy is centred on a set of interlinked development pillars: 1. Pillar Integrated Growth –the promotion of regional trade and investment linkages and policies that are non-discriminatory, transparent and predictable. 2. Pillar Smart Growth –innovations and competitiveness based on value-added rather than labour costs. 3. Pillar Sustainable Growth – raising the level of competitiveness in the private sector, development of infrastructure and more energy-efficient growth. 4. Pillar Inclusive Growth – placing greater emphasis on developing skills, creating employment, inclusive participation in the labour market and health and wellbeing 5. Pillar Governance for Growth – enhancing the capacity of public administration to strengthen the rule of law and reduce corruption, and to create a business-friendly environment and deliver public services necessary for economic development.

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Vision and mission of industrial development

Having in mind the achieved level of industrial development of the Republic of Srpska, the vision of the industrial development of the Republic of Srpska in the forthcoming period is defined, worded as follows:

”A strong and competitive industry based on knowledge, innovations and research with the rational use of resources and the application of environmental standards, which will be a successful segment of the economy of the Republic of Srpska in the forthcoming period, with significant employment and participation in GDV, and as such shall represent the backbone of the Republic of Srpska's development.” The mission of the industrial development mission is defined as the purpose of existence, that is, the role that is to be achieved by the industrial development of the Republic of Srpska. To define the mission, it is necessary to look at the advantages and disadvantages, assess the available potentials, the character of the market and the changes in the environment.

The mission is a common factor that coordinates different partial interests and brings them into line, to ensure the achievement of a common goal. To this end, the mission of the industrial development of the Republic of Srpska is defined, worded as follows:

”The industry of the Republic of Srpska, using modern technologies and in an efficient way, produces competitive high value added products based on knowledge, innovations and researches, providing stable jobs and a better living standard for the population, and with the optimal use of available resources, protects the environment and contributes to the overall development and progress of the Republic of Srpska.“

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development

3 OVERVIEW OF BASIC MACROECONOMIC INDICATORS IN THE REPUBLIC OF SRPSKA/STARTING POINTS AND DETERMINANTS FOR THE STRATEGY DEVELOPMENT The industry, as the most important part of manufacturing, has a large manufacturing multiplier. Regardless of the degree of development of a country, the industry is the most important branch of the economy, which carries technical progress and ensures the existence and standard of living for most people. The manufacturing industry represents one of the most important sectors of the economy of the Republic of Srpska, in terms of its share in total industry of the Republic of Srpska and share in the exports of the Republic of Srpska, and the number of employees. The economic growth and macroeconomic stability of the Republic of Srpska are unsustainable without steady growth in the manufacturing industry, its dominant influence on exports, and thus on the balance of payments. Taking into account the importance of the manufacturing industry and its development in the state and development of the total industry of the Republic of Srpska, the Strategy notably focuses on the area of manufacturing industry, which includes 24 industrial areas according to the current classification of activities1, namely:

Sector Code MANUFACTURING INDUSTRY SECTOR 10 Manufacture of food products 11 Manufcture of beverages 12 Manufacture of tobacco products 13 Manufacture of textile 14 Manufacture of wearing apparel 15 Manufacture of leather and related products Manufacture of wood and of products of wood and cork, except furniture; 16 Manufacture of articles of straw and plaiting materials 17 Manufacture of paper and paper products 18 Printing and reproduction of recorded media 19 Manufacture of coke and refined petroleum products 20 Manufacture of chemivcals and chemical products 21 Manufacture of basic pharmaceutical products and pharmaceutical preparations 22 Manufacture of rubber and plastic products 23 Manufacture of other non-metallic mineral products 24 Manufacture of basic metals 25 Manufacture of fabricated metal products, except machinery and equipment 26 Manufacture of computer, electronic and optical products 27 Manufacture of electricl equipment 28 Manufacture of machinery and equipment n.e.c. 29 Manufacture of motor vehicles, trailers and semi-trailers 30 Manufacture of other transport equipment 31 Manufacture of furniture 32 Other manufacturing 33 Repair and installation of machinery and equipment

1 Regulation on Classification of Activities of the Republic of Srpske (“Official Gazette of the Republic of Srpska“, No. 08/14) 10

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development It should be noted that the statistics include the following areas under the term “industry”: area B - mining and quarrying, area C - manufacturing and D - Electricity, gas, steam and air conditioning supply. 3.1 Economic overview of the Republic of Srpska The period which the Republic of Srpska gas gone through from post-war to transitional is marked by the implementation of numerous reforms aimed at establishing macroeconomic stability, sustainable and steady economic development, completion of privatization of enterprises and preparations for accession to the European Union. All these processes are very complicated and require a number of adjustments in all areas of economy and society. Although, in recent years, some visible results have been achieved in terms of establishment of a more favorable macroeconomic environment and in terms of restructuring and reconstruction of the Republic of Srpska economy, there are still some difficulties and limitations for its development. The largest restrictions relate to the low level of total economic activity, unsatisfactory level of investments, insufficient compliance of the education system with the needs of the economy, high foreign trade deficit and low level of competitiveness of the economy. The escalation of the debt crisis in the Eurozone, which affected a large number of its member states, has largely resulted in deterioration of the general economic situation in the Republic of Srpska. The general macroeconomic environment in the Republic of Srpska was found to be under the influence of unfavorable global economic trends in a wider environment. After the recovery of the economy in 2010 and 2011, as a consequence of the second wave of the crisis in 2012, there is a slowdown in economic activities, which was further affected by unfavorable weather conditions in 2012. In 2013 and 2014, the economic activity is again rising, but the achievement of better economic results in 2014 was adversely affected by catastrophic flooding that affected some regions of the Republic of Srpska in May and August 2014, causing enormous damage to business entities. A significant increase in economic activity is recorded in 2015.

Тable 1: Gross Domestic Product in the Republic of Srpska, 2009 to 2015

2009 2010 2011 2012 2013 2014 2015

Nominal GDP (current prices, expressed in million BAM) 8,236 8,318 8,682 8,585 8,761 8,847 9,150 Real GDP growth rate (%) -3 0.8 0.8 -1.1 1.9 0.2 2.6 Population (estimate in 1,435 1,433 1,430 1,429 1,426 1,421 1,415 thousands) GDP per capita (in BAM) 5,739 5,805 6,073 6,006 6,146 6,225 6,463 Source: Statistics Institute of the Republic of Srpska

A decline in domestic and international demand, as well as a decline in lending activity and foreign direct investment, affected the decline in the real GDP rate in 2009 compared to 2008 (-3%), while in 2010 the GDP recovery was recorded (+0.8). The GDP growth trend continued in 2011 (+ 0.8%), but then again, the real GDP growth rate declined in 2012 (-1.1%). After a significant increase in GDP in 2013 (+ 1.9%) compared to 2012, in 2014 GDP growth of + 0.2% compared to 2013 was recorded. In 2015, significant GDP growth of 2.6% was recorded compared to 2014. In the first quarter of 2016, GDP had a positive real growth rate of 2.2% compared to the same period of 2015. The economic development rate, expressed in GDP per capita amounted to BAM 6,463, which is BAM 238 higher compared to 2014, or BAM 724 higher compared to 2009.

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development Gross domestic product in BH, which in nominal terms amounted to BAM 28,540 million in 2015, registered real growth (+ 4.53%) compared to 2014, and growth (+ 17.41%) compared to 2009.

Table 2: The entities' share in total GDP of BH, 2009 to 2015 2009 2010 2011 2012 2013 2014 2015 Nominal GDP for BH (in million 24,307 24,879 25,772 25,734 26,282 27,304 28,540 BAM) GDP for BH (%) 100 100 100 100 100 100 100 GDP for BH Federation (%) 63.83 64.28 63.98 64.33 64.36 64.97 65.51 GDP for the Republic of Srpska 33.88 33.44 33.69 33.36 33.33 32.76 32.06 (%) GDP for Brčko District (%) 2.28 2.28 2.33 2.31 2.31 2.27 2.43 Source: BH Agency for Statistics and Federal Statistics Institute

From 2009 to 2015 the share of Republic of Srpska in BH GDP had no major oscillations and amounted by up to a third of total BH GDP.

3.2 Industrial overview of the Republic of Srpska In order to examine the state of the industry, below are analyzed basic macroeconomic indicators, financial business indicators, indicators of foreign trade, investment data, state of competitiveness, technology, labor and labor market, quality infrastructure, and state of privatization, restructuring and bankruptcy.

3.2.1 The share of industry in total gross domestic product (GDP) in the Republic of Srpska The following table gives an overview of the share of GDP in the field of industry in total GDP of the Republic of Srpska for the period 2009 to 2015.

Тable 3: The share of GDP by sectors in total GDP of the Republic of Srpska, 2009 to 2015 Share in GDP (%) 2009 2010 2011 2012 2013 2014 2015 TOTAL INDUSTRY (B +C +D) 15.4 15.1 15.3 14.2 15.6 15.3 16.3 MINING AND QUARRYING (B) 1.7 1.9 2.1 2.2 2.3 2.2 2.3 ELECTRICITY, GAS, STEAM AND 4.4 4.6 4.3 4.2 4.6 4.4 4.3 AIR CONDITIONING SUPPLY (D) MANUFACTURING (C): 9.3 8.6 8.9 7.8 8.7 8.7 9.7 10 Manufacture of food products 2.1 2.2 1.9 1.9 2 2.4 2.2 11 Manufacture of beverages 0.3 0.2 0.2 0.3 0.3 0.4 0.4 12 Manufacture of tobacco products 0 0 0 0 0 0 0 13 Manufacture of textile 0.2 0.2 0.2 0.2 0.2 0.2 0.2 14 Manufacture of wearing apparel 0.3 0.3 0.3 0.3 0.3 0.3 0.3 15 Manufacture of leather and related products 0.5 0.7 0.7 0.7 0.8 1 1 Manufacture od wood and of products of wood and cork, except furniture; 16 0.9 1 1.1 1.1 1.3 1.2 1.2 manufacture of articles of straw and plaiting materials 17 Manufacture of paper and paper products 0.3 0.2 0.2 0.2 0.2 0.2 0.2 18 Printing and reproduction of recorded 0.1 0.1 0.2 0.2 0.2 0.4 0.3 media 19 Manufacture of coke and refined 1.1 -0.5 0.3 -1.2 -0.7 -1.1 -0.2 12

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development petroleumm products 20 Manufacture of chemicals and chemical 0.1 0.1 0.1 0.1 0.1 0.2 0.2 products Manufacture of basic pharmaceutical 21 0 0 0 0.1 0.1 0.2 0.2 products and pharmaceutical preparations 22 Mnaufacture of rubber and plastic products 0.3 0.3 0.3 0.4 0.3 0.4 0.4 23 Manufacture of other non-metallic mineral 0.5 0.5 0.4 0.4 0.3 0.4 0.3 products 24 Manufacture of basic metals 0.4 0.7 0.5 0.3 0.5 -0.2 0.5 Manufacture of fabricated metal products, 25 0.9 1 0.9 1.1 1 1 0.9 except machinery and equipment Manufacture of computer, electronic and 26 0.1 0.1 0.2 0.1 0.1 0.1 0.1 optical products 27 Manufacture of electrical equipment 0.2 0.3 0.2 0.2 0.3 0.2 0.2 28 Manufacture of machinery and equipment 0.1 0.1 0.1 0.2 0.2 0.1 0.1 n.e.c. Manufacture of motor vehicles, trailers and 29 0.1 0.2 0.2 0.2 0.2 0.2 0.1 semi-trailers 30 Manufacture of other transport equipment 0 0 0 0 0 0 0 31 Manufacture of furniture 0.4 0.5 0.5 0.6 0.6 0.6 0.6 32 Other manufacturing 0 0 0 0 0 0.1 0.1 33 Repair and instalation of machinery and 0.4 0.4 0.4 0.4 0.4 0.4 0.4 equipment Source: Statistics Institute of the Republic of Srpska

In the observed period 2009-2015 the share of the realized GDP of the industry in the GDP of the Republic of Srpska ranged from 14.2% to 16.3%. The lowest share was recorded in 2012 (14.2%), while the highest share was recorded in 2015 (16.3%). The share of the realized GDP of the manufacturing industry in the total GDP of the Republic of Srpska in the observed period 2009-2015 ranged from 7.8% to 9.7%. In 2015, the share of the manufacturing industry in the Republic of Srpska's GDP amounted to 9.7%, which is the highest percentage of share in the observed period 2009-2015.

3.2.2 The share in the total industrial production by sectors Out of three areas of industry, the manufacturing industry has the most significant share in the total industry in terms of realized production.

Table 4: The share in the total industrial production by sectors, 2012 to 2015 Share in total industry2 (%)

2012 2013 2014 2015 TOTAL INDUSTRY (B +C +D) 100 100 100 100 MINING AND QUARRYING (B) 16.56 13.30 12.83 14.24 ELECTRICITY, GAS, STEAM AND AIR 24.45 23.18 25.77 23.21 CONDITIONING SUPPLY (D) MANUFACTURING (C): 58.99 63.52 61.40 62.55 10 Manufacture of food products 9.60 10.89 10.86 9.80

2 Up to 2012, the share of individual industrial areas in the structure of the total industry was calculated on the basis of the total production of the area, and since 2012 it has been calculated based on the realized GVA of each area. Due to the incomparability of data, the period from 2012 to 2015 has been analyzed. (Source: Statistics Institute of the Republic of Srpska). 13

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development 11 Manufacture of beverages 1.44 2.12 1.66 1.85 12 Manufacture of tobacco products 0.10 0.05 0.15 0.61 13 Manufacture of textile 1.34 1.18 1.34 0.86 14 Manufacture of wearing apparel 1.88 1.76 1.88 1.89 15 Manufacture of leather and related products 4.60 4.39 5.60 6.36 Manufacture od wood and of products of wood and 16 cork, except furniture; manufacture of articles of straw 5.23 7.40 6.78 6.35 and plaiting materials 17 Manufacture of paper and paper products 1.51 1.26 1.23 1.35 18 Printing and reproduction of recorded media 0.76 0.58 0.69 0.85 19 Manufacture of coke and refined petroleumm products 3.43 4.61 4.29 5.66 20 Manufacture of chemicals and chemical products 2.06 1.20 1.03 0.88 Manufacture of basic pharmaceutical products and 21 0.40 0.85 0.72 0.95 pharmaceutical preparations 22 Manufacture of rubber and plastic products 1.85 4.28 2.28 2.33 23 Manufacture of other non-metallic mineral products 4.15 2.15 2.46 2.06 24 Manufacture of basic metals 4.24 2.97 3.87 4.36 Manufacture of fabricated metal products, except 25 6.23 6.24 6.82 6.84 machinery 26 Manufacture of computers, electronic and optical 0.20 0.36 0.54 0.20 products 27 Manufacture of electrical equipment 1.81 2.01 1.93 2.19 28 Manufacture of machinery and equipment n.e.c. 0.72 1.28 0.97 0.91 Manufacture of motor vehicles, trailers and semi- 29 0.72 1.20 0.50 0.57 trailers 30 Manufacture of other transport equipment 0.03 0.03 0.76 0.33 31 Manufacture of furniture 2.66 3.08 3.07 3.32 32 Other manufacturing 0.28 1.32 0.41 0.59 33 Repair and installation of machinery and equipment 3.75 2.31 1.56 1.44 Source: Statistics Institute of the Republic of Srpska The share of manufacturing in the total industry in 2013 was 63.52% and it is by 4.53 percent higher than in 2012. Due to catastrophic floods, the share of manufacturing in 2014 decreased by 2.12 percent compared to 2013, and increased by 2.41 percent compared to 2012. In 2015, the share of manufacturing in the total industry increased by 1.15 percent compared to 2014, i.e. by 3.56 percent compared to 2009.

Table 5 The share of the most important sectors of the manufacturing industry in the total industrial production, 2012 to 2015 Share in the total industry (%) Manufacturing sector 2012 2013 2014 2015 Metal industry 17.70 16.40 16.95 16.84 Wood industry 7.89 10.48 9.85 9.67 Textile, lether and footwear industry 7.82 7.33 8.82 9.11 Food and tobacco industry 11.14 13.06 12.67 12.26 TOTAL: 44.55 47.27 48.29 47.88 Source: Statistics Institute of the Republic of Srpska

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development When it comes to the most important manufacturing sectors, the largest share in the total industry in terms of realized production in 2015 goes to: metal industry3 (16.84%), wood industry4 (9.67%), textile, leather and footwear industry5 (9, 11%) and food and tobacco industry6 (11.65%). In 2015, these four sectors participated with 47.88% in the total industrial production of the Republic of Srpska. 3.2.3 Volume of industrial production In the period from 2009 to 2015, the annual growth in physical volume of industrial production was recorded, except in 2012. The growth in physical volume of industrial production was recorded in 2010 and 2011, which was 5.4% in 2010 compared to 2009, and 4.8% in 2011 compared to 2010. The negative effects of the second wave of the global economic crisis, on the one hand, and bad weather conditions, on the other hand, resulted in a slowdown in economic activity in the Republic of Srpska in 2012, as well as in decline in industrial production of 4% compared to 2011. Industrial production recorded a recovery in 2013 and grew at a rate of 4.1% compared to 2012. In 2014, there was a slight increase of 0.6% compared to 2013, which is largely a consequence of weather conditions (floods) that hit the Republic of Srpska in May and August 2014. A significant increase in industrial production was recorded in 2015, when industrial production grew at a rate of 3% compared to 2014.

Table 6: Annual growth rate of the physical volume of industrial production in the Republic of Srpska, 2010 to 2015 (%) Annual growth rate in the physical volume of industrial production (%) Industry sector 2010 2011 2012 2013 2014 2015 2009 2010 2011 2012 2013 2014 TOTAL INDUSTRY (B + C + D): 5.4 4.8 -4 4.1 0.6 3 MANUFACTURING INDUSTRY (C): 5.5 4.3 -4.4 4.2 4.9 3.2 10 Manufacture of food products 6.5 -5.4 -0.3 14.8 6.2 5.3 11 Manufacture of beverages -8.1 -1.3 23.4 13.8 -2.7 10.2 12 Manufacture of tobacco products -22.9 -25.7 -39.3 -24.8 -17.1 300 13 Manufacture of textiles -43.3 22.9 -58.7 20.7 -18.2 -9.2 14 Manufacture of wearing apparel -28.6 2.4 -15.9 31.2 15.4 2.9 15 Manufacture of leather and related products 24 17.9 -11.3 12.8 11.1 3.2 Manufacture of wood and of products of wood 16 and cork, except furniture; manufacture of 1.1 14 1.1 14.2 1 -2.6 articles of straw and plaiting materials 17 Manufacture of paper and paper products -4.7 -3.5 -4 4.4 -0.4 -1 18 Printing and reproduction of recorded media 23.9 -10.6 14.9 -29.7 4.8 -16 Manufacture of coke and refined petroleum 19 12.5 15.5 -14.3 6 -8.3 -2.4 products

3 According to the classification of activities, the metal industry includes eight industrial sectors: 24- Manufacture of basic metals, 25 - Manufacture of fabricated metal products, except machinery, 26- Manufacture of computers, electronic and optical products, 27 - Manufacture of electrical equipment, 28- Manufacture of machinery and equipment n.e.c., 29 - Manufacture of motor vehicles, trailers and semi-trailers, 30 - Manufacture of other transport equipment and 33 - Repair and installation of machinery and equipment. 4 According to the classification of activities, the wood industry includes two industrial sectors: 16 - Manufacture od wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials and 31 - Manufacture of furniture 5 According to the classification of activities, the textile, leather and footwear industry includes three industrial sectors: 13- Manufacture of textiles, 14 - Manufacture of wearing apparel and 15 - Manufacture of leather and related products. 6 According to the classification of activities, the food and tobacco industry includes three industrial sectors: 10 - Manufacture of food products, 11 - Manufacture of beverages and 12 - Manufacture of tobacco products. 15

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development Manufacture of chemicals and chemical 20 5.7 2.4 3.7 9.5 14.5 3.8 products Manufacture of basic pharmaceutical products 21 -17.2 30.7 47.1 11 2.1 -7.1 and pharmaceutical preparations 22 Manufacture of rubber and plastic products -6.1 -0.6 -19 34.5 35.6 12.3 Manufacture of other non-metallic mineral 23 5.7 3.2 -18.2 -30.9 16.7 4.6 products 24 Manufacture of basic metals 35.3 -28.4 7.2 -29.2 -25.8 5 Manufacture of fabricated metal products, 25 3.1 2.7 4.3 3.5 10.9 6 except machinery and equipment Manufacture of computer, electronic and 26 39.5 33.4 24.9 59.2 -21 -27.1 optical products 27 Manufacture of electrical equipment -6.2 -15 -2.3 37.9 -9.1 19.2 28 Manufacture of machinery and equipment n.e.c. -48.4 1.7 -11.2 75.5 -9.3 -16.6 Manufacture of motor vehicles, trailers and 29 23.7 11.5 -28.6 14 0.5 3.5 semi-trailers 30 Manufacture of other transport equipment -28.3 -21.7 48.6 28.2 1.7 -30.1 31 Manufacture of furniture -4.9 25.9 -7.6 20.7 14.4 2.9 32 Other manufacturing 25.3 -26.2 27.7 160.5 8.1 -1.9 Repair and installaton of machinery and 33 150.6 20.8 10.7 -22.7 4.7 -6.6 equipment Source: Statistics Institute of the Republic of Srpska The growth in the industrial production continues in 2016, and in the first six months of 2016, there was a growth of 5.6%, compared to the same period of 2015. In addition, the physical volume of industrial production in the manufacturing industry from 2009 to 2015 recorded a similar movement trend to that at the level of the total industry, except in 2014, when there was a significant increase in the production volume inn the field of manufacturing. Namely, the manufacturing recorded growth in the physical volume of industrial production of 5.5% in 2010 compared to 2009, and a growth of 4.3% in 2011 compared to 2010, whereas in 2012 recorded a decrease in the physical volume of -4.4% compared to 2011. In 2013, the manufacturing recorded a growth in the physical volume of industrial production of 4.2% compared to 2012, in 2014 a growth of 4.9% compared to 2013, and in 2015 a growth of 3,2% compared to 2014. Also, in the first six months of 2016, the manufacturing industry recorded a growth of 4.7% in the physical volume of industrial production compared to the same period of the previous year.

3.2.4 Foreign trade in the field the industry From 2009 to 2015, the largest volume of foreign trade in the Republic of Srpska was realized in 2014 (BAM 7.64 billion), while the smallest volume of foreign trade was realized in 2009 (BAM 5.24 billion). Exports from the Republic of Srpska recorded a significant growth in the period 2009-2011. Following a slight decline in 2012, exports rose again in 2013 and 2014. The largest exports from the Republic of Srpska in the observed period were achieved in 2014, amounting to BAM 2.69 billion, which is 61.04% higher than in 2009. In 2015, exports from the Republic of Srpska recorded a slight decrease amounting to BAM 2.51 billion. The export-import coverage ratio in the Republic of Srpska was the highest in 2015 amounting to 58.5%.

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development Тable 7: Foreign trade from 2009 to 2015

2009 2010 2011 2012 2013 2014 2015

Republic of Srpska 1,672,915 2,177,809 2,560,808 2,374,737 2,604,090 2,692,013 2,513,206 (exports in BAM 000) Republic of Srpska 3,567,879 4,053,084 4,577,526 4,487,548 4,557,635 4,946,061 4,296,086 (imports in BAM 000) Foreign trade in the 5,240,794 6,203,893 7,138,334 6,862,285 7,161,725 7,638,074 6,809,292 Republic of Srpska Export-import coverage ratio in the Republic of 46.9% 53.7% 55.9% 52.9% 57.1% 54.4% 58.5% Srpska Industry 1,566,745 2,006,518 2,355,439 2,176,930 2,373,815 2,490,835 2,327,495 (exports in BAM 000) Industry (imports in BAM 000) 3,357,875 3,823,847 4,325,886 4,247,046 4,313,846 4,701,717 4,039,287 Export-import coverage ratio in the field of 46.7% 52.5% 54.4% 51.3% 55% 53% 57.6% industry Share of industry exports in total exports from the Republic of 93.65% 92.13% 91.98% 91.67% 91.16% 92.46% 92.60% Srpska Manufacturing 1,311,573 1,699,792 2,111,891 2,032,976 2,130,882 2,305,657 2,211,611 (exports in BAM 000) Manufacturing (imports in BAM 000) 2,647,234 2,749,315 2,968,159 2,996,286 3,074,468 3,600,037 3,338,194 Export-import coverage ratio in the field of 49.54% 61.83% 71.15% 67.85% 69.31% 64.05% 66.25% manufacturing industry Share of manufacturing industry exports in 78.40% 78.05% 82.46% 85.62% 81.83% 85.58% 88.00% total exports from the Republic of Srpska Source: Statistics Institute of the Republic of Srpska

However, in the first six months of 2016, the exports from the Republic of Srpska increased by 8.3% when compared to the same period of 2015, while at the same time imports declined by 2%, hence the export-import coverage rate amounted to 65.5% . During the period 2009-2015, business entities operating in the field of industry participated with an average of 92% in total exports from the Republic of Srpska. In 2015, the industry recorded an increase in exports by 48.6% when compared to 2009, and this trend continues in the first six months of 2016, with exports growth of 8.29% compared to the same period of 2015. In addition, the volume of foreign trade in industry in 2015 is 29.3% higher than in 2009. From 2009 to 2015, the manufacturing industry participated with an average of 83% in total exports from the Republic of Srpska. In 2015, the manufacturing industry had the largest share in total realized exports of the Republic of Srpska, amounting to 88%. In 2015, the volume of foreign trade in the manufacturing industry was 29.9% higher than in 2009. The manufacturing industry exports recorded a significant growth during the period 2009-2011. Following a slight decline in 2012, exports rose again in 2013 and 2014. The largest manufacturing industry exports were achieved in 2014, amounting to BAM 2.31 billion, which is by 75.79%

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development higher than in 2009. In 2015, the manufacturing industry exports were lower than in 2014, amounting to BAM 2.21 billion.

Chart 1:Manufacturing industry exports, 2009 - 2015, in BAM thousands

Source: Statistics Institute of the Republic of Srpska

Imports of manufacturing industry grew in the period 2009-2014, but at a slower pace than exports, and in 2014 the value of imports increased by 35.99% when compared to 2009. The growth trend of imports of manufacturing industry was interrupted in 2015, and the import of manufacturing industry decreased by 7.3% compared to 2014. In the first six months of 2016, the exports of manufacturing industry increased by 11.6% compared to the same period of 2015, while at the same time the imports of manufacturing industry grow at a rate of 0.8%. In foreign trade in the manufacturing industry in the observed period, a higher value of imports than exports was recorded, which resulted in a negative foreign trade balance. The lowest export-import coverage was recorded in 2009, amounting to 49.54%, while the highest one was recorded in 2011, amounting to 71.15%. In 2015, the export-import coverage was 66.25%, which is by 16.71% higher than in 2009.

Chart 2: Foreign trade in manufacturing industry, 2009 to 2015, in BAM billion

Source: Statistics Institute of the Republic of Srpska

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development In the first six months of 2016, the foreign trade deficit of the manufacturing industry was reduced by 19.63% compared to the same period of 2015. The export-import coverage in the processing industry in the first six months of 2016 amounted to 72.4%, i.e. by 7.17% higher when comapred to the same period of 2015. Table No.8 gives an overview of the foreign trade in four sectors of the manufacturing industry, which realized the highest exports, accounting for about 74% of the total exports of the manufacturing industry in the period from 2009 to 2015.

Таble 8: Foreign trade of the manufacturing industry sectors in the period from 2009 to 2015 Manufacturing industry 2009 2010 2011 2012 2013 2014 2015 sectors Metal industry 415,014 613,004 706,860 618,403 607,446 645,041 661,953 (exports BAM 000) Metal industry 975,086 1,012,328 1,084,526 1,050,704 1,042,421 1,428,932 1,141,708 (imports BAM 000) Export-import coverage 42.56% 60.55% 65.18% 58.86% 58.30% 45.14% 57.98% (%) Textile, leather and footwear 286,888 292,932 335,123 396,232 401,288 476,572 445,957 (exports BAM 000) Textile, leather and footwear 289,980 281,327 335,186 321,750 334,448 400,185 410,256 (imports BAM 000) Export-import coverage 98.93% 104.12% 99.98% 123.15% 120% 119.09% 108.70% rate (%) Wood industry 196,825 218,984 272,865 302,047 336,100 391,767 420,287 (exports BAM 000) Wood industry 73,227 81,659 77,482 79,783 85,582 92,616 96,826 (imports BAM 000) Export-import coverage 268.79% 268.17% 352.16% 378.58% 392.7% 423% 434.07% (%) Food and tobacco industry 122,794 136,348 160,948 192,004 211,339 200,103 198,887 (exports BAM 000) Food and tobacco industry 551,529 542,554 561,351 584,166 600,001 597,288 588,649 (imports BAM 000) Export-import coverage 22.26% 25.13% 28.67% 32.87% 35.22% 33.50% 33.78% (%) Source: Statistics Institute of the Republic of Srpska, Foreign Trade, Bulletin No.9

Out of four sectors of manufacturing industry, the highest exports are realized by metal industry (about 30% of total exports of the manufacturing industry). In 2015, the metal industry exports increased by 59.50% when compared to 2009. Out of eight metal industry sectors, the highest exports are realized by: Manufacture of basic metals and Manufacture of fabricated metal products, except machinery and equipment, together accounting for about 59% of the total exports of metal industry. The most significant export growth in the metal industry in 2015 compared to 2009 was in manufacture of electrical equipment, whose exports increased by 168.13% and share in the total exports of metal industry by 7.41%. In addition, in the manufacture of basic metals there was a significant export growth of 72.83% in 2015 compared to 2009. The largest surplus in merchandise trade of manufacturing industry is realized by wood industry sector. The export-import coverage in the sector in 2015 amounted to 434.1%. Wood industry accounted for about 19% of total exports of manufacturing industry in 2015, and in the period 2009- 19

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development 2015, exports increased by 113.5%. In the observed period, the exports of manufacture of furniture increased by 152.6%. In 2009, the share of exports of manufacture of furniture in the total exports of wood industry amounted to 35.7%, while in 2015 it increased by 42.3%, which is significant in terms of transition of woodworkers to the higher-level processing. The textile, leather and footwear industry accounted for around 20% of total exports of manufacturing industry in 2015. The export-import coverage in textile, leather and footwear industry amounted to 108.7% in 2012. The exports of textile, leather and footwear industry increased by 55.4% from 2009 to 2015. The manufacture of leather and leather products had the largest share in exports of textile, leather and footwear industry, which amounted to 70.3%. The food and tobacco industry recorded the largest foreign trade deficit of the four observed sectors of the manufacturing industry. Export-import coverage of the sector amounted to only 33.8% in 2015. The food and tobacco industry accounted for around 9% of total exports of manufacturing industry in 2015. Out of the three sectors of the food industry, the highest exports are realized by manufacture of food products (over 89%). There was a steady growth in exports of food products in the period from 2009 to 2013, while exports declined in 2014 and 2015. Table No. 9 fives an overview of the foreign trade of products that were imported / exported in the largest quantities in the period 2009 - 2015, that is, that had the largest influence on the foreign trade balance of the manufacturing industry of the Republic of Srpska. In the period 2009 - 2015, the total imports of manufacturing industry amounted to BAM 15.12 billion, while the total exports amounted to BAM 11.14 billion, and these products participated in the total imports of manufacturing industry with 33.85%, and in the total exports of manufacturing industry with 64.36%.

Таble 9: The value of imports/exports of dominant industrial products in manufacturing industry foreign trade in the period 2009-2015, in BAM Number Export- No. of the Tariff title Import Export Trade volume import title coverage (%) Machinery and mechanical appliances; electrical equipment; parts thereof, sound recorders and reproducers, 1 85 753,863,355 537,072,669 1,290,936,024 71.24% television image and sound recorders and reproducers, and parts and accessories of such articles Vehicles other than railway or 2 87 tramway rolling stock, and 575,672,885 0 575,672,885 0% parts and accessories thereof Footwear, gaiters and the like; 3 64 539,241,293 1,651,372,899 2,190,614,192 306.24% parts of such articles Raw hides and skins (other 4 41 528,956,531 168,875,577 697,832,108 31.93% than furskins) and leather 5 72 Iron and steel 503,047,914 524,684,879 1,027,732,793 104.30% 6 73 Articles of iron and steel 376,572,454 1,016,561,095 1,393,133,549 269.95% 7 39 Plastics and articles thereof 368,573,313 232,947,959 601,521,272 63.20% Нуклеарни реактори, котлови, машине и 8 84 246,737,360 44,440,513 291,177,873 18.01% механички уређаји; њихови дијелови 9 47 Pulp of wood or of other 231,510,844 0 231,510,844 0% 20

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development fibrous cellulosic material; recovered (waste and scrap) paper or paperboard Paper and paperboard; articles 10 48 of paper pulp, of paper or of 190,051,451 429,607,036 619,658,487 226.05% paperboard 11 40 Rubber and articles thereof 163,609,241 0 163,609,241 0% Wood and articles of wood; 12 44 143,587,871 1,515,969,063 1,659,556,934 1055.78% wood charcoal 13 52 Cotton 142,497,467 211,769,416 354,266,883 148.61% Miscellaneous chemical 14 38 108,166,297 57,949,995 166,116,292 53.57% products Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings; lamps and lighting fittings, not 15 94 98,433,062 776,328,870 874,761,932 788.69% elsewhere specified or included; illuminated signs, illuminated nameplates and the like; prefabricated buildings Essential oils and resinoids; 16 33 perfumery, cosmetic or toilet 73,725,656 0 73,725,656 0% preparations Printed books, newspapers, pictures and other products of 17 49 the printing industry; 72,046,306 0 72,046,306 0% manuscripts, typescripts and plans Total: 5,116,293,300 7,167,579,971 12,283,873,271 140.09% Source: Indirect Taxation Authority of Bosnia and Herzegovina

The analysis of the exports of products classified under the tariff titles referred to in Table No. 9 showed that the most exported products in the period 2009-2015 were the products of lower level of processing. The highest export was achieved under the tariff title 64 - Footwear, gaiters and the like; parts of such articles, and was mainly related to the turnover of services based on the performance of lohn jobs (finishing, processing, etc.), of very low added value. In addition, the large exports were achieved under the tariff title 44 - Wood and articles of wood; wood charcoal, namely sawdust, fuelwood and wood charcoal. The exports of these three groups of products amounted to BAM 1,280,819,474 or 84.5% of the total exports of tariff title 44. These are products with the lowest and low processing level in the wood industry. On the contrary, the analysis of the imports of products classified under the tariff titles referred to in Table No. 9 showed that the most imported products in the period 2009-2015 were the products of the higher level of processing and complex technical and technological products. For instance, under the tariff title 85 - Machinery and mechanical appliances; electrical equipment; parts thereof, sound recorders and reproducers, television image and sound recorders and reproducers, and parts and accessories of such articles, the total value of imported goods amounted to BAM 753,863,355. The most imported goods were telephone apparatus, including mobile

21

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development phones; other apparatus for sending and receiving voice, images or other data, including apparatus for communication in the wired and wireless network, etc. However, the significant quantities of products that can be produced in the Republic of Srpska, whose output would contribute to the reduction of the foreign trade deficit, were imported in the observed period. In this regard, the imports of products under tariff titles 72 - Iron and steel and 73 – Articles of iron and steel, in the amount of BAM 879,620,368, the imports of products under the tariff title 41 - Raw hides and skins (other than furskins) and leather, in the amount of BAM 528,956,531, and imports of products under the tarif title 39 - Plastics and articles thereof, which are imported in the amount of BAM 368,573,313 in the period 2009-2015.

3.2.5 Foreign direct investment in industry In the period from 2006-2014 the total foreign investment in the Republic of Srpska amounted to BAM 4.07 billion7. This amount of investment undoubtedly influenced economic growth and development, as investments in this volume led to an increase in employment, an increase in exports, the strengthening of small and medium-sized enterprises, the transfer of technologies and an increase in the competitiveness of the entire economy. From 2006 to 2014, the share of foreign direct investments (FDI) in the Republic of Srpska's GDP was 5.51%, and 29.83%8 in the total realized investments. The largest foreign direct investments inflow was in the fields of telecommunications, manufacturing, mining and quarrying, trade and banking. According to data received from commercial courts, foreign direct investments in manufacturing of the Republic of Srpska amounted to a total of BAM 66,576,427.39 in the period from 2011 to 2015. According to the type of investment, the largest portion of foreign investments in manufacturing were investments in cash, in the amount of BAM 65,335,884 or 98%. The remaining investments in the amount of BAM 1,240,543 or 2% related to investments in rights, while investments in fixed assets were not recorded in the observed period. From 2011 to 2015, foreign investments in manufacturing were the largest in 2013 in total amount of BAM 26.238.693 or 39.4%. In the observed period, the largest inflows of investments in manufacturing, by investors' country of origin, were from Serbia (BAM 21,843,589 or 31%), Austria (BAM 17,992,155 or 26%), and Italy (BAM 7,901,345 or 11%).

Table 10: FDI in manufacturing of the Republic of Srpska by investors' country of origin, 2011-2015, in BAM Investors' country Amount in Amount in Amoun in cash Total of origin fixed assets rights Serbia 20,603,045.70 0 1,240,543 21,843,588.70 Austia 17,992,155.36 0 0 17,992,155.36 Italy 7,901,345.22 0 0 7,901,345.22 Russia 7,847,056.98 0 0 7,847,056.98 Slovenia 5,630,589.82 0 0 5,630,589.82 Germany 2,508,671 0 0 2,508,671 Turkey 1,523,935.14 0 0 1,523,935.14 Czech Republic 1,334,771.50 0 0 1,334,771.50

7 Source: Republic of Srpska Foreign Investment Encouragement Strategy 2016-2020 8 Source of data on GDP and realized investments: Statistics Institute of the Republic of Srpska, Statistical Yearbook 2015 22

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development Croatia 908,284.25 0 0 908,284.25 Netherlands 763,872 0 0 763,872 Luxembourg 567,792 0 0 567,792 Iceland 165,634 0 0 165,634 USA 161,426.10 0 0 161,426.10 Poland 117,349.80 0 0 117,349.80 Source: Ministry of Economic Relations and Regional Cooperation of the Republic of Srpska

From 2011 to 2015 there were significant investments in the following sectors of the manufacturing industry: metal industry (BAM 19,764,554 or 43%), food and tobacco industry (BAM 17,404,460 KM or 38%) and wood industry (BAM 8,014,433 or 17%).

Таble 11: FDI by manufacturing sectors in the Republic of Srpska, 2011–2015, in BAM Manufacturing sectors 2011 2012 2013 2014 2015 Total Metal industry 1,090,266 12,025 9,767,313 5,246,615 3,648,335 19,764,554

Food and tobacco industry 3,322 4,180 15,107,083 761,419 1,528,456 17,404,460 Wood industry 5,961,996 805,300 84,338 22,484 1,140,315 8,014,433 Textile, leather and 391,666 9,000 513,708 2,501 42,931 959.806 footwear industry Source: Ministry of Economic Relations and Regional Cooperation of the Republic of Srpska

3.2.6 Number of companies in industry There were 4,290 registered companies in industry in 2015, 6.50% higher when compared to 2013, when there were 4,028 companies registered. There were 3,941 registered companies in manufacturing industry in 2015, 6.48% higher when compared to 2013, when there were 3,701 companies registered. Table 12: Number of companies in industry, 2013-2015

Registered companies on December 31st 2013 2014 2015

Industry 4,028 4,184 4,290

Manufacturing 3,701 3,840 3,941 Source: AIIF for 2013, 2014 and 20159

3.2.7 Number of employees in industry There were 62,977 employees in industry in 2015, 8.13% higher when compared to 2011.

Тable 13: Number of employees in industry, 2011–2015 Number of employees 2011 2012 2013 2014 2015 INDUSTRY TOTAL (B + C + D) 58,242 58,014 57,876 61,655 62,977 MINING AND QUARRYING (B) 4,918 4,932 4,866 5,155 5,288 MANUFACTURING (C) 46,372 45,968 45,844 48,935 49,857 ELECTRICITY, GAS, STEAM AND AIR 6,952 7,114 7,166 7,565 7,832 CONDITIONING SUPPLY (D) Source: Statistics Institute of the Republic of Srpska

9 Since 2013, AIIF has been in charge of the registration and keeping the register of bussines entities 23

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development There were 49,857 employees in the manufacturing industry in 2015, 7.5% higher when compared to 2011, when there were 46,372 employees. In March 2016, there were 50,926 employees in the manufacturing industry, compared to March 2015, a rise of 4.03%10. When it comes to the number of employees, particularly important sectors are metal industry, textile, leather and footwear industry, wood industry and food and tobacco industry. These four manufacturing sectors employed a total of 40,057 workers in 2014 or 85.8% of the total number of employees in companies, compared to 2013, a rise of 16.3%.

Тable 14: Number and share of employees in companies in the Republic of Srpska by sectors of manufacturing industry, 2013-2015 Share in the total number of Employees in companies 2014/2013 2015/2014 2013 2014 2015 employees in (excluding entrepreneur) (in %) (in%) companies in 2015 (in %) Total number of employess 201,890 204,714 207,709 1.40 1.46 100 in companies in RS Manufacturing 40,742 43,209 46,707 6.06 8.10 22.49 Metal industry 11,247 11,458 9,160 1.88 -20.06 4.41 Textile, leather and footwear 9,363 10,296 11,697 9.96 13.61 5.63 industry Wood industry 7,858 8,821 11,066 12.26 25.45 5.32 Food and tobacco industry 5,906 6,516 8,134 10.33 24.83 3.92 Source: Statistics Institute of the Republic of Srpska

Of the total number of employees in the manufacturing industry in 2015, 38.55% were women. The largest share of employed women was in the textile, leather and footwear industry (9,234 women or 76%), then in the food and tobacco industry (3,202 women or 45%) and manufacture of furniture (1,020 women or 35%). The share of women employed in other sectors of manufacturing is smaller, which is understandable, since these sectors are based on difficult production jobs for which the engagement of male labour is required.

3.2.8 Wages of the employees in industry The average gross and net wages in the industry were constantly increasing in the period 2011- 2015. In 2015, the average gross wage in industry was 6.42% higher when compared to 2011. In the same period, the average net wage in industry was 7.68% higher.

The average gross wage in manufacturing in 2015 was 5.04% higher than in 2011, while the net average wage was 8.32% higher.

10 Data from the Statistics Institute of the Republic of Srpska, obtained on the basis of the Semi-annual Report on Employees and Salaries of Employees (Forms RAD-1 and RAD-15).

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development

Тable 15: Growth index of average net wages in industry, 2011–2015 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014

MINING AND QUARRYING (B) 100.6 100.4 102.9 103.9 103.8

MANUFACTURING (C) 100 100.4 101.4 103.8 103.2

ELECTRICITY, GAS, STEAM AND AIR 97.6 97.5 102.1 103.3 102.1 CONDITIONING SUPPLY (D) Source: Statistics Institute of the Republic of Srpska, Wages, employment and unemployment, Bulletin No. 8

3.2.9 Industry financial indicators For the analysis of the financial situation in the industry, data from the financial statements of industrial companies for 2015 were used, which had been obtained from the Agency for Intermediary, Information and Financial Services of the Republic of Srpska (AIIF). The analysis was carried out on the basis of a sample of 1,772 business entities, which had submitted to AIIF their balance sheets on December 31, 2015. By observing the structure by sectors, we can see thar a largest number of companies was engaged in wood industry (454 or 25.6%), followed by metal industry (395 or 22.3%), food and tobacco industry (271 or 15.3%), and textile, leather and footwear industry (146 or 8.2%). In 2015, industrial companies in generated total income in the amount of BAM 5,304,504,533, compared to 2014, a rise of 4.5%. Total expenditures amounted to BAM 5,195,895,028, compared to 2014, a rise of 2.3%. Income from sales of own goods and services on foreign market in 2015 amounted to BAM 1,106,412,324, a rise of 4.9% compared to 2014. About two-thirds of industrial companies (1,146 or 65%) operated with a positive financial result. 568 companies or 32% operated with a negative financial result, while 58 companies or 3% have not shown the result ("positive zero"). In 2015,11 manufacturing companies generated total income in the amount of BAM 3,463,134,416, compared to 204, a rise of 6.8%. Total expenditures amounted to BAM 3,342,297,754, compared to 2014, a rise of 2.1%. Revenues generated from the performance of business activities in the amount of BAM 3,342,430,169 dominantly generate total revenues, with a share of operating revenues in total revenues that amounted to 96.5% in 2015. The largest share of operating income in the amount of BAM 2,685,528,310 or 80.3% is income from sales of own goods and services, which is 4.4% higher than in 2014. Income from sales of own goods and services on foreign market in 2015 amounted to BAM 1,083,125,986, a rise of 7% compared to 2014. About two-thirds of manufacturing companies (1,061 or 66%) operated with a positive financial result. 487 companies or 31% operated with a negative financial result, while some of them did not show the result (48 or 3%). As for expenditures, the largest share belongs to operating expenditure that amounted to BAM 3,149,816,857 and represented 94,2% of total expenditures.

11 Sample of 1,596 business entities that submitted to AIIF their final accounts as of December 31, 2015. 25

Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development At the end of 2015, manufacturing companies disposed of total assets in the amount of BAM 8,904,997,003 out of which 76.3% were fixed assets in the amount of BAM 6,792,020,365, while current assets amounted to BAM 2,112,976,638 or 23.7%. In 2015, total gross value of plant and equipment in the manufacturing amounted to BAM 3,023,108,499, while net value amounted to BAM 1,096,132,802. By analysing these indicators, we can see a high depreciation rate of 63.7%, indicating the obsolescence and degradation of plant and equipment. Total liabilities of the manufacturing in 2015 amounted to BAM 3,624,336,032, which is 0.61% less compared to 2014. Short-term liabilities amounted to BAM 2,154,749,137 or 59.5%, while long-term liabilities amounted to BAM 1,469,586,895 or 40.5%. Short-term receivables, placements and cash in manufacturing industry in 2015 amounted to BAM 1,120,518,713, which is 1.2% less when compared to 2014.

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Overview of basic macroeconomic indicators in the Republic of Srpska Starting points and determinants for the Strategy development

CONCLUDING REMARKS OF THE CONDUCTED ANALYSIS: . The global economic crisis has negatively affected industrial companies' business performance, particularly the results achieved in 2012, when their operations were further affected by extremely unfavorable weather conditions. . The industry recorded significant growth in the physical volume of industrial production in the period from 2009 to 2015, except in 2012. The trend of growth in the physical volume of industrial production continues in the first six months of 2016. The most significant contribution to the growth in the physical volume of industrial production in the observed period was provided by the manufacturing industry. . The industry recorded export growth of 48.6% in 2015 compared to 2009 and the same trend continued in the first six months of 2016. The manufacturing is an export-oriented industry sector, which generates about 88% of total exports of the Republic of Srpska. However, the structure of the foreign trade in the manufacturing is unfavorable, i.e. the products of lower processing stages are exported and the products of higher processing stages and complex technical and technological products are imported. . From 2006 to 2014, the foreign direct investments undoubtedly affected the economic growth and development of the Republic of Srpska. However, foreign direct investments in the manufacturing in the observed period were insufficient, which is largely due to lack of investors' interest in investing during the global economic crisis. . The number of registered industrial companies has been constantly increasing in the observed period, and is 6,50% higher in 2015 compared to 2013. . Although industry sector employs approximately 63,000 workers, it managed to maintain the number of emloyees and even to increase it during the global economic crisis and natural disasters In 2015, the number of employees in industry increased by 8.13% compared to 2011, and the employment growth trend continued in 2016. . The average gross and net wages in the industry were constantly increasing in the period 2011-2015. The average gross salary in 2015 increased by 6.42% compared to 2011, while the average net salary increased by 7.68% in the same period. . Macroeconomic indicators in the last three years point to the recovery of manufacturing following the negative effects of the global economic crisis on the business of industrial companies, which is evident through the increase in the real GDP growth rate and the growth in the physical volume of industrial production, indicating that some positive trends can be expected in the forthcoming period.

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Аnalysis of competitiveness and key factors for industrial development

4 ANALYSIS OF COMPETITIVENESS AND KEY FACTORS FOR INDUSTRIAL DEVELOPMENT

4.1 General indicators of competitiveness Competitiveness is defined as a set of institutions, policies and factors that determine the level of productivity of an economy. Since 2005, the World Economic Forum has based its analysis of competitiveness on the Global Competitiveness Index (GCI), which includes the micro and macroeconomic foundations of national competitiveness12. Global Competitiveness Index. By observing the previous editions of the Global Competitiveness Report, it is noted that Bosnia and Herzegovina is far from the competitiveness of most of developed European economies.

Chart 3: Competitiveness ranking of Bosnia and Herzegovina in the period 2004–2015

Source: The Global Competitiveness Report 2015–2016, World Economic Forum, Geneva, Switzerland

In the Global Competitiveness Report 2015-2016 Bosnia and Herzegovina ranked 111th when it comes to the competitiveness of its economy, which has been the worst rank since 2004. In comparison with the last ranking stated in the 2013-2014 Report, Bosnia and Herzegovina fell 24 places. Bosnia and Herzegovina is the worst rated in the field of labor market efficiency (ranked 131st), goods market efficiency (ranked 129th) and institutions (ranked 127th). In the field of labor market efficiency, Bosnia and Herzegovina is ranked poorly primarily due to inefficiency in talent use (135th place) and inflexibility (101th place). In the field of goods market efficiency, Bosnia and Herzegovina is ranked poorly primarily due to poor quality of demand conditions (ranked 135th) and competition (ranked 124th). In the field of institutions in Bosnia and Herzegovina, private institutions (ranked 124th) and public institutions (ranked 112th) are ranked poorly.

12 The composite index consists of a total of 111 indicators, grouped into 12 categories or pillars, that is, three key groups or three stages of development:  basic prerequisites, which comprise the first four pillars of competitiveness: institutions, infrastructure, macroeconomic environment, health and primary education,  efficiency-improving factors, which include the following six pillars of competitiveness: higher education and vocational training, the efficiency of the commodity market, labor market efficiency, financial market development, technological readiness and market size,  innovation and sophistication factors, which include two pillars: sophistication / business development and innovation.

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Аnalysis of competitiveness and key factors for industrial development

Table 16: Ranking of neighbouring countries and countries that have been or are in transition Напредак/ GCI 2015– GCI 2014– GCI 2013– Trend пад 2016 2015 2014 2014–2015 Economy 2015–2016 у compared to односу на Rank Value Rank Value Rank Value 2013–2014 2014–2015 Estonia 30 4.70 29 4.71 32 4.65 +3 -1 Poland 41 4.50 43 4.48 42 4.46 -1 +2 Slovenia 59 4.30 70 4.22 62 4.40 -8 +11 Lithuania 36 4.50 41 4.51 48 4.10 +7 +5 Montenegro 70 4.20 67 4.23 67 4.20 0 -3 Hungary 63 4.20 60 4.28 63 4.25 +3 -3 Slovakia 67 4.20 75 4.15 78 4.10 +3 +8 Turkey 51 4.40 45 4.46 44 4.45 -1 -6 Russia 45 4.40 53 4.37 64 4.25 +11 +8 Romania 53 4.30 59 4.3 76 4.13 +17 +6 Latvia 44 4.50 42 4.5 52 4.40 +10 -2 Bulgaria 54 4.30 54 4.37 57 4.31 +3 0 Croatia 77 4.10 77 4.13 75 4.13 -2 0 FYR Macedonia 60 4.30 63 4.26 73 4.14 +10 +3 Albania 93 3.90 97 3.84 95 3.85 -2 +4 Ukraine 79 4.00 76 4.14 84 4.05 +8 -3 Serbia 94 3.90 94 3.9 101 3.77 +7 0 Armenia 82 4.00 85 4.01 79 4.10 -6 +3 Bosnia and 111 3.70 - - 87 4.02 - - Herzegovina Source: The Global Competitiveness Report 2015–2016, World Economic Forum, Geneva, Switzerland

By looking at neighbouring countries that have been or are in transition, it can be seen that Bosnia and Herzegovina, according to the Global Competitiveness Report 2015-2016, worst ranked out of 140 countries covered by the above-mentioned report. The Global Competitiveness Report 2014-2015 covered 144 countries, but due to inadequacy of data, Bosnia and Herzegovina was omitted from the said report. From the previous table, it is evident that in 2015 compared to 2013, Bosnia and Herzegovina fell 24 places. 'Doing Business'. The World Bank report on doing business monitors quantitative indicators of business regulation and the protection of property rights. The basic assumption of Doing Business is that economic activity requires stimulative legal regulation on the establishment of ownership, reduction of the costs of resolving disputes, predictability of economic interactions and the implementation of contractual obligations. The aim is to make legislation effective, accessible and easy to implement. According to the Doing Business Report 2016, Bosnia and Herzegovina ranked 79th out of 189 countries, which is three places better than in 2015, and of the countries in the region, it has a better ranking than Albania alone.

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Аnalysis of competitiveness and key factors for industrial development

Chart 4: Ranking of Bosnia and Herzegovina and neighbouring countries in Doing Business 2016

Source: Doing Business 2016, The World Bank

The worst grade of Bosnia and Herzegovina is recorded in the area of ease of starting a business (ranked 175th place), ease of obtaining building permits (ranked 171st), ease of getting electricity (ranked 119th) and tax policy (ranked 154th). Positive changes in the ranking compared to the previous year relate only to getting electricity (for 12 places) and enforcing contracts (for one place). The largest fall in the ranking was recorded in the ease of starting business (ten places), getting credit (six places) and tax policy and resolving insolvency (for three places). According to the analyzed World Bank data, in Bosnia and Herzegovina, 67 days and 12 procedures are required to start a business, and the cost of business registration expressed in gross domestic income per capita is 14.8%.

However, all the above indicators refer to Bosnia and Herzegovina, and there are no official data on competitiveness of the Republic of Srpska. The indicators that are taken into account when determining competitiveness are different in the Republic of Srpska compared to Bosnia and Herzegovina, and there are differences in terms of competitiveness at city level. In the category "building permits", among 189 countries Bosnia and Herzegovina occupies 175th place. By contrast, in Doing Business 2011, Banja Luka is ranking third among 22 cities in Southeastern Europe, and, apart from Skopje, is proclaimed a reformer in which significant progress has been made.13 As an illustration of the differences in the economic environment in the Republic of Srpska and Bosnia and Herzegovina, it is useful to look at two categories ("building permits" and "starting a business") in which, according to Doing Business 2011, Bosnia and Herzegovina has the worst ranking. In the category "starting a business", Bosnia and Herzegovina is ranked 174th. In Bosnia and Herzegovina Investment Climate Statement14, it is noted that in the city of Sarajevo an average of 37 days and 11 separate procedures for business registration is required, which is far worse than the average for the region. On the contrary, the same document states that the reform of business registration, introduced by the Republic of Srpska in 2013, "drastically reduced the number of procedures" and thus the time required for the business registration in the Republic of Srpska.

13 The Twelfth Report of the Republic of Srpska to the United Nations Security Council, October 2014, p. 6. 14 Source: U.S. Department of State. 30

Аnalysis of competitiveness and key factors for industrial development

Namely, as a result of the implementation of the Business Registration Reform in the Republic of Srpska, in past two years, significant results have been achieved, of which the most significant are: ‒ time required for business registration has been reduced from 23 to 3 days; ‒ number of procedures has been reduced from 11 to 5, ‒ costs of business start-up have seen multiple reduction, depending on the legal form of the registered entity, ‒ minimum initial capital for limited liability companies has been reduced from BAM 2,000 to 1, ‒ number of formalities has been reduced and the costs of the construction permitting process are lower, ‒ one-stop shop business registration system has been established, at the Agency for Intermediary, IT and Financial Services of the Republic of Srpska, ‒ the single Registry of Business Entities has been established, consisting of data from the current registers that were previously separately conducted by the commercial courts, the Tax Administration and the Statistics Institute of the Republic of Srpska, ‒ in the field of crafts and entrepreneurial activity, preparatory activities were undertaken for the establishment of a single Registry of Entrepreneurs. Bearing in mind the above, the results of the implementation of the Business Registration Reform will significantly contribute to a better ranking of the Republic of Srpska when assessing its business environment or competitiveness indicators.

4.2 State of resources necessary for industrial development Long-term research, studies, strategies and statistical data have shown that the Republic of Srpska dispose of significant resources necessary for industrial development. Below are mentioned significant resources that are being used, as well as resources whose usage would contribute to the industrial development.

4.2.1 Natural resources Natural resources are common good and common wealth, and their use in the economy and economic valorization should be planned, targeted and controlled purposefully. Regardless of the type, structure and individual quantities, they are the basis for the economic development of the Republic of Srpska. Of course, there is a part that must remain outside economic flows and which should be preserved for present and future generations. This is especially true for non-renewable natural resources. The general approach to the Republic of Srpska's natural resources is defined by the policies and strategies for their sustainable use, as well as the legal framework for their effective enforcement. The Republic of Srpska is very rich in natural resources, among which the agricultural land, forests and high electricity potential are especially distinct. Agricultural potential. The total area of agricultural land in the Republic of Srpska is 983,000 ha, which is about 0.70 ha per capita, which is above the world average (0.24 ha per capita) and the European average (0.40 ha per capita). Clean air, soil and water provide favorable conditions for the production of organic food. Good conditions for growing wheat, corn and vegetables, and industrial plants, such as flax and hemp. The soil is not contaminated with chemical fertilizers and pesticides. Great potential is in cattle breeding and meat processing, hens breeding and egg production, and fruit and vegetable production. The development of agriculture is based on natural resources, primarily consisting of soil structure, watercourses, climatic conditions, biological diversity, etc. The most important advantage of this sector is the potential for an excellent raw material base, because best part of the territory is covered by fertile agricultural land, and good climatic conditions are favorable for its development. Ijnn 31

Аnalysis of competitiveness and key factors for industrial development addition, there are appropriate production capacities in the food industry, which produce milk and dairy products, fruit and vegetables and products of fruits and vegetables, fresh meat and meat products, and flour and mill-bakery and confectionery products. Water quality and rich water potential in the Republic of Srpska are a prerequisite for intensive production of fish and its processing. Fish farms develop in clean, unpolluted rivers that run through the soil. Potentials in forestry and hunting. According to the data of the Forests and Forest Land Cadastre, the total forest area and forest land of the Republic of Srpska is 1,282,412 hectares, or 51.7% of the total teritorry of the Republic of Srpska, and about 0.7ha of forested land per capita. The total annual volume increase in forests owned by the Republic of Srpska is around 5,134,000 m3. The production potential of the forests is not only used through the wood volume, but the potentials for the production of various fruits, mushrooms, medicinal herbs, charcoal, hunting and fishing then in the use of peat, etc.15 are of increasing importance. Wood volume in the forests of the Republic of Srpska. The total available wood volume in forests owned by the Republic of Srpska is 184,500,000 m3, and in private forests it is 42,850,000 m3. The ratio of coniferous and deciduous trees in the forests owned by the Republic of Srpska is 39% of coniferous and 61% of deciduous trees, while in private forests there is 33% of coniferous and 67% of deciduous trees. The average annual wood logging volume in forests owned by the Republic of Srpska amounts to 3,200,000 m3 of total wood volume or 1,970,000 m3 of net wood volume (forest wood assortments), while in private forests the average annual wood logging amounts to 830,000 m3 of total wood volume or 580,000 m3 of net wood volume (forest wood assortments). Wood is the basic raw material for the development of the wood processing sector and is at the beginning of its value chain. Availability and quality of wood assortiment as raw material is necessary if further development of the sector is desired, improvement of the production process and maximum use of resources in accordance with the needs of production of higher added value. Capacities for final wood processing, chemical wood processing and cellulose wood processing should be developed in that way in order to maximize the use of wood resources. Raw wool and leather. As the livestock fund in the Republic of Srpska is significant and has a growth trend, there are real domestic resources of raw wool and raw leather. According to statistical data from 2015, the Republic of Srpska has a livestock fund of 228,000 cattle, 451,000 pigs and 486,000 sheep. Based on these data, raw material resources (beef, cow, calf) are estimated at about 1,383 tons and about 800 tons of fine leather (lamb, goatling and pork). The amount of raw skin is estimated at about 50 tons annually. The annual value of the exports of raw leather from the Republic of Srpska is about BAM 34 million, and if finished or finished leather is exported, the value of exports would be ten times higher. Manufacture of wool16 (purchase of raw wool) in 2015 was realized in the amount of 632 tons. Given that the Republic of Srpska does not have the capacity to process raw leather and wool, it is necessary to develop it. Power potential17. From the hydrologic point of view, the territory of the Republic of Srpska can be characterized as rich in surface and underground hydrologic network. The most important rivers are Sava, Neretva, Una with Sana, Vrbas, Ukrina, Bosna, Drina and Trebišnjica. All of them have significant hydro power potential.

15 Forestry Development Strategy of the Republic of Srpska 2011-2021 16 Statistics Institute of the Republic of Srpska, Agricultural bulletin No.6 17 Energy Development Strategy of the Republic of Srpska up to 2030 32

Аnalysis of competitiveness and key factors for industrial development

The totally technically exploitable hydropower potential of the Republic of Srpska amounts to about 3,200 MW of installed power and 10,000 GWh of average annual electricity production. About 30% of this hydro potential with an annual production of about 2,500 GWh/year is used. The current exploitation of the total potential for electricity production in the Republic of Srpska is about 30%, which speaks about the possibilities of investing and development of this sector. The installed capacity of the currently available power capacities in the Republic of Srpska is about 1,600 MW, which could significantly increase after the implementation of several capital projects. In addition, the Republic of Srpska has great potentials for the use of renewable energy sources, such as wind energy, solar energy, biomass and geothermal energy. Coal. The Republic of Srpska has significant reserves of brown coal, lignite and peat, whose estimated amounts exceed million tons. Two main coal reserves are located in Krajina and Gacko basin. Total exploitation coal reserves amount 578 million tons, of which 353 million tons of lignite and 225 million tons of brown coal. Coal is mainly used for electricity production in thermal power plants (over 90%).

Oil. Estimated crude oil reserves at four locations in the explored area of Northern Bosnia amount to about 355 million barrels, or about 50 million tons. Results of researches conducted so far indicate the prospects in terms of existence of oil and gas reserves and justify further researches and point the realistic possibilities of finding commercial deposits.

Based on long-term oil and geological research, the most perspective areas in terms of further research in the Republic of Srpska are: Posavina – 1, the territory south of Šamac, the surface area of 22 km2 with estimated reserves of 65,000,000 t, Posavina – 2, the territory southwest of Orašje on the surface area of 14.5 km2 with estimated reserves from 6,000,000 t to 15.000.000 t and Lopar basin on the surface area of 21 km2 with estimated reserves of 11,900,000 t. Biomass. The Republic of Srpska dispose of significant biomass potential that can be used for electricity and heat production. The total theoretical biomass potential in the Republic of Srpska is estimated at 31.08-46.24 PJ. The largest part (59%) is biomass suitable for the combustion. Then follows biomass suitable for production of biogas from municipal waste, cattle breeding and energy crops (39%). The current consumption of biomass for combustion is 16.9 PJ or about 92% of the potential of that sort of biomass recorded from sources in area of Republic of Srpska. Biomass is particularly important as it is a renewable source of energy. Power potential of geothermal waters is estimated at 1,260 RJ. Geothermal waters mostly extend in the area of Posavina, Semberija, Banja Luka basin and Lijevče field. The occurence of warm water is recorded at these three locations: Saltina (44⁰C), Srpske Toplice (about 30°C) and Laktaši (about 30°C). The greatest potential for the use of this energy source is in aquaculture, agro-culture, and heating of settlements. Wind energy. For the Republic of Srpska the model wind atlas was made which is necessary to verify by measurements of wind. The theoretically usable potential of wind energy is estimated at 640 MW and 1200 GWh/year. The Republic of Srpska, especially its southern part, has been recognized as an excellent area for the construction of wind farms. Having in mind various technical and economic limitations related to the construction of wind farms, by 2020, it is possible to construct wind farms with a maximum installed capacity of up to 100 MW. Solar energy in the Republic of Srpska range from 1.25 MWh/m2 of annual solar radiation for the northern parts to 1.55 MWh/m2 for the southern parts of the Republic of Srpska. The solar energy can be used in two directions: solar collectors for heating and hot water preparation and photovoltaic systems for electricity production.

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Аnalysis of competitiveness and key factors for industrial development

Mineral resources. The Republic of Srpska has significant mineral resource complex (over 50 mineral resources), many of which have been explored and partially exploited. There are real geological, mineral and genetic preconditions to find new deposits and qualitatively increase the existing reserves, and create conditions for the significant increase in the production. In the Republic of Srpska there are significant deposits of mineral resources where no exploitation takes place or the exploitation takes place to a small extent. First of all, it refers to energy mineral resources (coal), metallic mineral resources, non-metallic mineral resources, as well as thermal and thermo-mineral water. Iron ore. The estimated reserves of iron ore are about 350 million tons. Based on the analysis of the ore formations, the potential of the metallogenetic region of Ljubija is estimated at 800 million tons of new iron ore reserves. Mining reserves are concentrated in the Tomašica, Omarska and Ljubija ore firlds. Bauxite. Bauxite is the basic mineral resource for the production of alumina, i.e. aluminum. Because of its characteristics, this metal has a wide application, especially in the aviation industry, and is considered a strategic metal. Bauxites in the Republic of Srpska appear in four ore formations: on Viduša and Srnetica mountains, in eastern Herzegovina, overloaded bauxites of Barać and the most important deposits of bauxite in the vicinity of Vlasenica. The alumina factory in Zvornik process about 500,000 tons of bauxite ore, which represents the current possible exploitation of the mines in the Republic of Srpska. Therefore, there is a need for systematic planning of geological explorations on prospective terrain to find new reserves of bauxite ore and, to expand the mining capacities accordingly. Other metals. Copper, mercury, antimony, pyrite, gold and arsenic deposits on the territory of the Republic of Srpska are not registered as major mineralization. Lead and zinc ores can be found in Brdo deposits near Ljubija with an average content of 4-7% of lead and zinc, as well as in some smaller deposits on the territory of municipalities of Foča and Srebrenica. Exploitation takes place in the Sase mine, which is the only active mine in the Republic of Srpska. Antimony higher quality ore in our areas is formed in three types: quartz-antimonite, barite- antimonite and antimony-polymetallic ore. This third group could be divided into ore where the antimony is related to zinc and lead and ore where the antimony is related to copper and mercury (tetrahedritic type). The content of antimony in these complex ores ranges from 0.5% to over 10%. Their further research has not been performed because the antimony technology of such ores has not been solved. Pottery and fire clay. Most known deposits of pottery and refractory clays in the Republic of Srpska are grouped within the Prijedor neogene basin and bound to the clastic Pliocene quaternary ore formation. Total categorized explored reserves are about 56,000,000 tons. Bentonite. The most massive phenomena of this resource and deposits that were in pit exploitation in the vicinity of Šipovo: Babići, Babina Greda and Greda. Exploitation of bentonite takes place in the deposits in Šipovo where is produced alaky-activated bentonite that is completely exported. The annual capacity of the factory is 47 thousand tons of processed bentonite, which has great application in petrochemical industry as well as in artificial fertilizer production. Gypsum and anhydrite. The most important deposit of this raw material, which is in exploitation, is Petkovac deposit, in the vicinity of Novi Grad, with established balance reserves of 6,500,000 t of plaster and potential reserves of about 2,000,000 t. The active exploitation of this resource takes place in the vicinity of Šipovo, in the Volari, Dočići and Orlovača deposits. The Volari deposit is about 400 t long and 30 t to 40 t thick. It is about a white and gray plaster of higher quality. The

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Аnalysis of competitiveness and key factors for industrial development

Dočići deposit is 200 t long and 40 t thick. The total geological reserves of high-quality plaster in this deposit are about 3,000,000 t.

4.2.2 Transport resources18 Transport of persons and goods in the Republic of Srpska is done by road, railway, water and air. Road traffic. The total length of road network in the Republic of Srpska is 4,164.2 km (motorway, main and regional roads) and over 6,000 km of local roads. The motorway network is 32 km long, and it is the E661 Gradiška - Banja Luka motorway. The main and regional roads make up 4.132,2 km of road networks, 87.35% of which with asphalt cover, while the remaining 522.6 km are macadam roads (12.65%). About 26% of roads have roadways to 5 m wide, while 41% have a longitudinal gradient of over 6%, and even 14% of roads have a gradient greater than 10%. According to the Spatial Plan of the Republic of Srpska19 the following motorways are planned to be built: Banja Luka - Doboj (under construction), Banja Luka - Mliništa, Doboj - Vukosavlje (corridor VC), Banja Luka - Prijedor - Novi Grad - border with the Republic of Croatia and Vukosavlje - Bijeljina - border with the Republic of Serbia. The planned motorway network consists of the following sections: Lukavica - Pale - Sokolac - Rogatica - Ustiprača - Višegrad - border with the Republic of Serbia, Bijeljina - Zvornik - Sokolac, Trebinje - Gacko - Foča - Ustiprača - Višegrad, Prijedor - Kozarska Dubica - Donja Gradina and Banja Luka - Čelinac - Kotor Varoš - Obodnik. According to the Spatial Plan of the Republic of Srpska and road management plans, the transformation of road transport will continue in the future development period with a view to increasing reliability, availability and efficiency. In addition to continuous programmed maintenance, rehabilitation and modernization by defined priorities, the main and regional road network in the Republic of Srpska should be built and modernized in the forthcoming period. Railway traffic. Railway network of the Republic of Srpska has a total of 425 km of railroads. The North-South direction as a segment of Corridor VC connects the Republic of Srpska with Croatia and the countries of northern Europe in the North, and in the South with the Federation of BiH and the port of Ploče on the Adriatic Sea. The main East-West railroad, through so-called parallel corridor X, connects the Republic of Srpska with the Federation of Bosnia and Herzegovina and Croatia in the West, and in the East with Serbia, the Middle East and South-East Europe. Approximately 80% of railroads is electrified by a single-phase system of 25 kV, 50 Hz, of which more than 95% is used, and 80% of the railroads is built for axle load of 22.5 t/axle, i.e. 8 t/m. Air traffic. There is one international airport in the Republic of Srpska, in the city of Banjaluka. It is located in the settlement Mahovljani, about 20 km from the center of Banja Luka and about 18 km northeast of the railway station Banjaluka. The airport is well connected to the road network. It is located about 1 km from the main road Banjaluka-Gradiska, about 3 km from the Mahovljani loop on the Banja Luka-Gradiska motorway and about 35 km from the Okučani loop on the Belgrade-Zagreb motorway. Water transport. The Sava River, as a border river, deserves special attention because it represents a valuable economic potential, especially in terms of navigation and providing conditions for the economical transport of goods. The Sava River flows through the territory of the Republic of Srpska in a length of 205 km. In addition to the Sava River, navigable rivers are the Drina River and the Una River in the length of 15 km from the confluence of the Sava River.

18Draft Transport Strategy of the Republic of Srpska 2016-2030 19Amendments to the Spatial Plan of the Republic of Srpska up to 2025, 'Official Gazette of the Republic of Srpska', No. 15/15 35

Аnalysis of competitiveness and key factors for industrial development

On the territory of the Republic of Srpska there is one port and one dock: Šamac port and Brod dock (dock of the oil refinery).

4.3 State of technology in industry Competitiveness of a country is significantly affected by the state of technology. The speed of technological change, both in production and information-communication, represents an increasing problem in developing countries, which must develop more technological abilities and higher flexibility in order to succeed in the ever more demanding global environment. One of the direct indicators of technological development is technological complexity of products and technological development of technology. According to Eurostat classification, manufacturing industry is divided by technological level into four groups: ‒ High technology group, which includes manufacturing medical and pharmaceutical products, manufacturing office machinery and computers, manufacturing radio, TV and communications equipment, manufacturing medical, precision, optical instruments and watches; ‒ Medium high technology group, which includes manufacturing chemicals and chemical products, manufacturing machinery and apparatus, manufacturing electrical machinery, apparatus, manufacturing motor vehicles, trailers and semitrailers and other transport equipment and building and repairing ships and aircrafts; ‒ Medium low technology group, which includes manufacturing coke, refined petroleum products, nuclear fuels, manufacturing rubber and plastic products, manufacturing other non- metallic mineral products, manufacturing metals, manufacturing metal products, except machinery and equipment; ‒ Low technology group, which includes manufacturing food and beverages, manufacturing textiles, manufacturing wearing apparel, dressing and dyeing fur, manufacturing leather, manufacturing luggage handbags, saddlery, harness and footwear, manufacturing wood and products of wood, manufacturing pulp, paper, paper products, printing and reproduction activity, furniture manufacturing.

The following products comprised the structure of industrial products that were exported the most20 from the Republic of Srpska:

‒ low technology level 49% (footwear, wearing apparel, products of wood, paper, food products and beverages, furniture); ‒ medium low technology level 36% (refined petroleum products, base metals, fabricated metal products, except machinery and equipment); ‒ medium high technology level 14% (chemicals and chemical products, machinery and equipment, electrical apparatus); ‒ high technology level 1% (computers, electronic and optical products).

Such export structure indicates the bad state of technique and technology in industry, and it can be stated that:  equipment in the existing technique and technology mainly originates from the western industrial countries, while very little installed equipment is of domestic make,  machinery, processes and production systems are lacking sufficient share of information technology,  technology gap is visible also from increased consumption of materials in manufacturing and

20 Source: Statistics Institute of the Republic of Srpska 36

Аnalysis of competitiveness and key factors for industrial development

 highly qualified staff is lacking for work with modern technologies and equipment.

Chart 5: Average technology age in manufacturing industry

Source: Survey of RS Ministry of Industry, Energy and Mining

Based on the results of a survey conducted among manufacturing industry companies, it can be concluded that about 47% of the total number of companies have obsolete technology (average age of more than ten years), that universal machinery is prevailing, while the level of presence of CNC machinery is below the needed.

The companies are mainly using equipment of varied origin, varied level of age and utilization, and are lagging behind the European and world firms in terms of use of modern production technologies, which significantly reduces their competitive ability. Special importance for the development of manufacturing industry and improvement of competitiveness of an economy lies with development of information-communication technologies (ICT). The most important segment of the ICT sector for companies in the field of manufacturing industry is production and development of software and supporting services. ICT support the fulfilment of business goals of improving productivity, reducing costs, improving decision-making, improving client relations and developing new strategic applications. However, there are no official statistical indicators in the Republic of Srpska that deal with the ICT sector as a separate sector of the economy, and there is no possibility of serious insight into the situation in this sector.

4.4 State of workforce in industry

An important factor for development and improvement of the competitiveness of the industry is the existence of a highly educated workforce in line with the needs of the labor market. University qualification is an important resource for producing high value, higher productivity, as well as attracting quality foreign capital.

Workforce supply. The workforce is the sum of all employed and unemployed persons. Total labor supply in the Republic of Srpska on December 31, 2015 was 381,560 persons, out of which 245,975 were employed persons (108,521 women) and 135,585 unemployed persons (65,732 women). Highly educated workforce participates with 22% (77,242 persons) in the total labor supply in the Republic of Srpska.

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Аnalysis of competitiveness and key factors for industrial development

Workforce status. On the basis of the calculated annual average for 2015, there was a total of 44,461 employees21 in manufacturing companies, of which 18,007 were women. The largest number of employees has secondary education (42%) and are skilled workers (30%).

Table17: Employees in manufacturing companies by level of profesional education and gender, 2010- 2015 2010 2011 2012 2013 2014 2015 TOTAL 43,050 40,915 40,900 40,742 43,209 44,461 University total 3,372 3,289 3,610 3,581 3,698 4,039 qualification women 1,257 1,230 1,455 1,449 1,521 1,753 and two-year college Highly total 2,227 2,065 2,043 1,773 1,725 1,461 skilled women 250 235 193 165 179 124 total 15,595 14,976 15,312 15,795 17,659 18,830 Secondary women 7,040 6,551 6,510 6,683 7,628 8,237 school total 1,366 1,437 1,130 1,167 1,246 1,314 Lower level women 621 658 552 497 485 509 total 13,524 13,137 13,070 13,028 13,336 13,292 Skilled women 4,177 4,080 4,262 4,488 4,698 4,671 total 1,790 1,642 1,424 1,300 1,304 1,080 Semi-skilled women 624 728 592 527 532 458 total 5,176 4,369 4,311 4,098 4,241 4,445 Unskilled women 2,557 1,983 2,028 1,979 2,133 2,255 Source: Statistics Institute of the Republic of Srpska

The total labor market of the manufacturing industry of the Republic of Srpska amounts to 86,879 persons, and it represents the sum of the total number of employees in the manufacturing industry (49,85822 employeed) and the number of unemployed persons at the Employment Bureau with qualifications needed for manufacturing industry (37,021). Status of job hunters. Out of the total number of job hunters, the largest part goes to skilled (35%), secondary school (29%), unskilled (21%) and University qualification (11%). The largest number of job hunters is between 30 and 55 years old23 and compared to the previous four-year period, all age groups had a decrease in the number of job hunters, except for the age group 18 to 20 and 55 to 65 who had growth in that number. Women account for 48% of the total number of job hunters. However, women participate in three qualifications with a higher percentage then men, that is, 63.4% of them is with University qualification, 56.9% two-year college and 58.5% secondary education. The largest share of labor supply of men goes to skilled (62%) and unskilled (55%). If we observe job hunters with qulifications needed for manufacturing industry, it can be noted that the largest share goes to skilled (66%), then secondary education (30%), in most of the professions and in all regions of the Republic of Srpska. From the point of view of the qualifications required, the largest number of persons are qualified for metal industry, wood industry, textile, leather and

21 Source: Statistics Institute of the Republic of Srpska (September 30, 2015, the number of employees refers to employees in companies, without the number of employees with entrepreneurs). 22 Source: Statistics Institute of the Republic of Srpska (September 30, 2015, the number of employees refers to employees in companies, with the number of employees with entrepreneurs). 23 Source: Employment Bureau of the Republic of Srpska, age structure of workforce supply as of December 31, 2015 38

Аnalysis of competitiveness and key factors for industrial development footwear industry and food and tobacco industry, therefore, for manufacturing sectors that have the largest number of employees. Compared to the current number of employees, fewer job hunters with qualifications needed for manufacture of leather, related products and footwear and manufacture of food and beverages are recorded.

Table 18: Job hunters by level of professional education needed for manufacturing industry sectors that employed the largest number of employees on December 31, 2015

Level of Banja Istočno Vocation professional TOTAL Bijeljina Doboj Prijedor Trebinje Luka Sarajevo education

Skilled 8,343 1,573 2,186 1,503 715 1,068 1,298 Metalworkers Highly 273 69 52 59 10 30 53 skilled Skilled 5,610 1,239 1,455 1,015 811 469 621 Mechanics Secondary 5,273 971 1,397 542 394 1015 954 and education Machinists Highly 177 47 54 27 13 9 27 skilled Two-year 129 23 35 26 9 20 16 Mechanical college Engineers University 188 38 46 25 8 32 39 qualification Skilled 3,829 996 977 741 505 314 296 Secondary 3,420 768 912 620 609 179 332 education Electricians Highly 124 36 38 22 6 4 18 and Electrical skilled Engineers Two-year 26 4 7 5 4 4 2 college University 131 37 11 15 4 25 39 qualification Skilled 1,801 198 718 267 121 89 408 Secondary 1,063 119 343 188 113 47 253 education Highly Wood 9 0 2 2 2 0 3 processors skilled Two-year 4 0 1 0 0 2 1 college University 14 3 3 1 3 1 3 qualification Skilled 2,909 402 1,197 330 276 534 170 Secondary 727 103 313 63 102 91 55 education Highly Textile 25 1 16 2 2 0 4 skilled workers Two-year 51 5 19 5 6 12 4 college University 21 1 16 1 2 1 0 qualification Skilled 728 187 371 138 20 2 10 Secondary Leather 150 36 87 12 9 0 6 education workers and Highly related 8 1 5 1 1 0 0 professions skilled Two-year 9 0 6 3 0 0 0 college Food Skilled 1,349 267 546 52 401 22 61 39

Аnalysis of competitiveness and key factors for industrial development

processors and Secondary 511 126 185 13 165 5 17 related education professions Highly 7 1 1 0 2 1 2 skilled Two-year 9 0 6 3 0 0 0 college University 103 11 63 12 5 7 5 qualification TOTAL 37,021 7,262 11,068 5,693 4,318 3,983 4,697 Source: Employment Bureau of the Republic of Srpska

4.5 State of quality infrastructure for industrial needs

Established quality infrastructure is a prerequisite to improve products, processes and services to be more secure, quality, and more competitive on the market. The process of engaging in world economic trends requires from the industry of the Republic of Srpska to operate according to the principles of developed countries, which implies acceptance of the new system defined by the World Trade Organization (WTO).

According to the World Trade Organization definition, the quality infrastructure is 'a set of state and/or private organizations, governed by appropriate regulations, whose activities relate to the preparation and adoption of standards and technical regulations and the issuance of evidence of compliance with these standards in order to improve products/services, processes and systems for their intended purpose, the prevention of barriers to trade and the facilitation of technological cooperation'. The basic elements of the quality infrastructure are standardization, metrology, accreditation, conformity assessment and market surveillance.

Obligations that must be fulfilled by business entities so that they could export to the EU. There are numerous conditions that business entities should fulfill in order to export their product to EU countries, which are related to: functionality, appearance, price, delivery time, quality, marketing, etc. These conditions are not binding, but most companies have to fulfill them in order to secure their share in the market.

In addition, there are legal, binding conditions for the placement of products on the EU internal market that refer to health protection and safety of citizens. Although it is a free market game, the state passes laws and regulations that protect health and lives of people, animals, environment and interests of consumers. Prior to placing on the market, compliance with the relevant applicable technical regulations in the domain of safety is required for certain groups of products.

EU legislation on safety of industrial products is roughly divided into two areas:  'New Approach' covering technical industrial products and  'Old Approach' covering motor vehicles, agricultural and food products, pharmaceutical products, chemical products, petroleum products, etc.

The old approach in European technical legislation implies that the technical requirements are defined in detail in the regulation itself and very often require for the compliance with the prescribed requirements to be confirmed by the competent authority (e.g, the Ministry, the Agency, etc.).

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Аnalysis of competitiveness and key factors for industrial development

Unlike the old approach, the philosophy of the new approach24 implies that European directives define only essential requirements for product safety, and that the detailed technical content, i.e. the elaboration of these essential requirements is contained in so-called harmonized European standards. The application of harmonized standards is voluntary. This means that the manufacturer, if appropriate, may also apply some other technical specifications. For products manufactured in accordance with harmonized standards, there is an assumption of conformity with the relevant essential requirements of the applied directives. Another important element of the new approach is the way of confirming conformity to essential requirements of the applied directives. Conformity assessment is based on so-called Global approach, i.e. modules for conformity assessment25, as follows: internal production control (Module A), type examination (Module B), conformity to type (Module C), production quality assurance (Module D), product quality assurance (Module E), product verification (Module F), unit verification (Module G), full quality assurance (Module H). In order to standardize the conformity assessment process and to make it as effective as possible, European standards relating to quality assurance are introduced. In order to be able to export the product, the product must be aligned with the relevant directive at the stage of its development. Compliance is proven in the conformity assessment process carried out by the manufacturer independently (module A and C) or with the participation of the notified body that has been notified to the European Commission. At the end of the conformity assessment procedure, the manufacturer is allowed to place the CE mark, which is a mark of European conformity. The CE mark indicates that the product complies with the essential requirements and had been the subject of an appropriate conformity assessment procedure. It can be said that the CE mark is a passport for the product - it must be placed before the product is placed on the market and put into use26. However, the manufacturer's responsibility does not end with the CE marking. When a product is placed on the EU's internal market, it is under market surveillance system that will detect any form of product non-compliance. In the past few years, the Republic of Srpska has been undertaking intensive activities to improve the quality infrastructure system, and significant progress has been made in this field. The adoption of the Law on Technical Regulations of the Republic of Srpska27 created the legal framework for the transposition of the EU acquis in the area of the New and Global Approach in the Republic of Srpska, as well as the legal framework for so-called 'unregulated area' of technical regulations covered by the General Product Safety Directive and Directive on liability for defective products, or sectoral directives of the old approach (textiles, footwear, glass, furniture, non-food products, wood, plastic, rubber products etc.) and international or European standards in these areas. In addition, the adoption of the Regulation on Conformity Assessment Procedure and the manner of designation of the conformity assessment bodies28prescribes the manner of adopting technical regulations, assessment of conformity of products with the prescribed technical requirements, the responsibility of manufacturers and other companies that place products on the market and/or authorization of the conformity assessment bodies, validity of foreign documents of compliance and conformity marks, keeping registries, notification on technical regulations and conformity

24 www.newapproach.org. 25' 'Guide – questions and answers about CE marking' (Institute for Standardization and Metrology of the Republic of Srpska, December 2012). 26 Products that must be marked with CE mark are products under New Approach directives, as follows: low voltage equipment, toys, construction products, machines, elevators, personal protective equipment, non-automatic scales, medical devices, gas appliances, hot water boilers, explosives for civilian use, potentially explosive atmospheres, recreational vessels, cooling devices, pressure equipment, and telecommunication equipment. 27 'Official Gazette of the Republic of Srpska', No. 98/13. 28 'Official Gazette of the Republic of Srpska', No. 117/13. 41

Аnalysis of competitiveness and key factors for industrial development assessment procedures and other issues of importance for defining technical requirements and product conformity assessment. The Law on Technical Regulations and the accompanying Regulation prescribes the Republic of Srpska 'C' conformity mark, which is put by the manufacturer on a product that is complied with the provisions of the EU New Approach. The Government of the Republic of Srpska has adopted the 'Action Plan for the Transposition of New Approach Directives into the Legal System of the Republic of Srpska for the period 2013- 2015'. The Action Plan contains 27 currently applicable EU regulations of the New Approach and three framework acts from so-called 'New Package of Trade Measures'29 to be transposed into 34 regulations of the Republic of Srpska (five laws and 29 bylaws) within three years. In accordance with the Action Plan, three laws, one Regulation and 16 regulations were passed in the period 2013- 2015, i.e. 58.8% of planned activities were realized, and in the forthcoming period, another 14 regulations should be adopted.

Status of certification and accreditation bodies. In Bosnia and Herzegovina, 91 bodies have been accredited, 60 of which are laboratories, 1 medical laboratory, 9 calibration laboratories, 1 certification body and 20 inspection bodies30.

Of the total accredited bodies in BiH, 14 testing laboratories, 1 medical laboratory, 1 calibration laboratory and 7 inspection bodies from the Republic of Srpska are accredited. No economic entity from the Republic of Srpska is accredited as certification body. Based on the above data, it can be concluded that the number of certification and accreditation bodies in the Republic of Srpska is insufficient.

4.6 State of privatization, restructuring and bankruptcy in industry Privatization. According to the data of the Investment – Development Bank of the Republic of Srpska, in the period from the beginning of the privatization to the end of 2015, 722 companies were privatized, of which 231 are manufacturing companies, or 92.4% of the total number of state- owned companies from this sector of industry. The largest number of the companies were privatized in 2002 (54), then in 2003 (45), in 2004 (40) and in 2005 (25). In the period from 2006 to 2015 a total of 29 companies have been privatized. The Investment - Development Bank of the Republic of Srpska regularly monitors the fulfillment of contractual obligations of companies under the state-owned capital privatization process. In the period from 2008 to 2012, 41 inspections of contractual obligations fulfillment were carried out. The inspections found that the buyers of state capital generally fulfill their contractual obligations in an acceptable manner, with the exception of three companies in 2009 and one company in 2011, where it was concluded that the buyers of state capital had not fulfilled the contractual obligations in full. In the period from 2013 to 2015, there was no inspections of contractual obligations fulfillment under the contract on the purchase of state capital in manufacturing companies, since the period of control over all previously concluded privatization contracts had already expired.

Table 19: Overview of non-privatized companies in the manufacturing sector31 Number of non-privatized companies Sector state-owned majority state- 100% state- Total capital up to owned capital owned

29 The table is not final because the European Union's legislation is amended / changed continuously, and in that sense it is necessary to regularly monitor the Eur-Lex database (http://eur-lex.europa.eu). 30 Source: Institute for Accreditation of BiH as of June 14, 2016 31 Companies that are bankrupt are not included. 42

Аnalysis of competitiveness and key factors for industrial development

30% capital Metal industry 4 3 3 10 Wood industry 2 - 3 5 Food and tobacco 1 - 1 2 Textile, leather and footwear 2 - - 2 TOTAL 9 3 7 19 Source: Investment-Development bank of the Republic of Srpska

It remains to privatize 19 other manufacturing companies, of which ten are companies with 100% and majority state – owned capital. Restructuring. Non-privatized companies in the Republic of Srpska have been given the opportunity to perform financial debt restructuring in the process of privatization of state – owned capital.32 This has risen from the need of financial relief of companies and consolidation of their business in order to carry out successful privatization. The financial debt restructuring of a company is done by conversion of debt into shares of a company. The debt refers to the total debt of the company (principal and interest) arising from taxes and other liabilities towards the Budget of the Republic of Srpska and loans and other debts to the PE 'Commodity Reserves of the Republic of Srpska'. In the period from 2008 to 2015 the process of financial debt restructuring was carried out in six manufacturing companies. Bankruptcy. According to the data of the District Commercial Courts of the Republic of Srpska, in the period from 2009 to 2015, a total of 147 bankruptcy proceedings were initiated over the manufacturing companies. In the same period, a total of 200 bankruptcy proceedings were concluded, including bankruptcy proceedings that were open prior to the observed period, i.e. before 2009.

Таble 20: Overview of initiated bankruptcy proceedings in the manufacturing industry in the period from 2009 to 2015 District Number of initiated bancruptcy proceedings Commercial 2009 2010 2011 2012 2013 2014 2015 Total Court Banja Luka 12 10 15 12 4 6 3 62 Istočno Sarajevo 2 2 2 6 0 1 0 13 Bijeljina 1 4 4 2 8 0 4 23 Doboj 2 0 1 6 2 3 7 21 Trebinje 1 14 4 1 3 1 4 28 Total 18 30 26 27 17 11 18 147 Source: District commercial courts

Based on the data obtained from the District Commercial Courts of the Republic of Srpska, it can be concluded that bankruptcy proceedings with manufacturing companies last from several months up to seven years, and on average they last 3.2 years. More than a half of bankruptcy proceedings last for more than a year. Bankruptcy proceedings last for the longest time in companies that are organized as joint stock companies, on average more than three years, and the shortest of limited liability companies, on average for about a year.

32 Law on Privatization of State Capital in Enterprises ('Official Gazette of the Republic of Srpska', No. 51/06, 1/07, 53/07, 41/08, 58/09, 79/11 и 28/13). 43

Аnalysis of competitiveness and key factors for industrial development

4.7 Environmental impact of industrial development

Industrial development inevitably has an environmental impact, so planning must therefore be taken into account in order to minimize side effects.

The adoption of the Law on Environmental Protection in the Republic of Srpska differently approached the problem of endagering the environment, and thus the construction of new and control of the operation of existing industrial plants. The aforementioned law introduced a mechanism for the protection of all segments of the environment and promoted reduced use of the environment, and preventing its pollution. The law also defines the obligations of improving and restoring the damaged environment, preserving and protecting natural resources, their rational use, but also the way of functioning of the economy that enables the renewal of natural resources.

The obligation arising from the accession process is the complete harmonization of the environmental protection legislation with the legislation of the European Union and this is done continuously. The Law on Environmental Protection33 is harmonized with the provisions of the Environmental Impact Assessment Directive on the basis of which the necessary by-laws were adopted stipulating the obligation to hold an environmental permit for all plants that can be built and/or put into operation, as well as plants which have been significantly changed. The results of the implementation of the 'environmental legislation' of the Republic of Srpska are satisfactory thanks to which a significant number of industrial plants have an environmental permit.

Emissions of industrial pollutants. According to the data on production or consumption of certain industrial processes taken from the annual reports of the Statistical Office of FR BH for 1990, the largest percentage of emissions of green gases in the atmosphere belonged to the energy sector (74%), then agriculture (12%), industrial processes (11%) and the waste sector (3%)34.

Bearing in mind that a large number of industrial plants were devastated and destroyed during the war period and that some of them stopped working in the post-war period as a result of poorly implemented privatization and that plants that were in operation have not reached the pre-war level of production, the assumption is that emissions of industral pollutants are nowadays much lower compared to 1990. In order to be able to regularly monitor the state of the environment through the prism of industry impact, concrete measurements and monitoring of emissions from the plant are necessary. As the most important indicators, atmospheric emissions, energy consumption, and the number of industrial plants in the environmental management system and progress in the management and rehabilitation of contaminated sites should be taken into account. The main mechanisms for controlling the emissions of hazardous substances from large industrial plants have been introduced through the application of the EU Directive on Industrial Emissions 2010/75/EU (IED Directive)35, which should cover all large industrial plants in the Republic of Srpska, primarily refineries, chemical plants, thermal power plants, food and beverage industry, and larger capacities for breeding pigs and poultry. In order to legally integrate air quality objectives with sets of laws and norms of the European Union and achieve a common approach with companies, it is necessary to use BAT36 technical

33'Official Gazette of the Republic of Srpska', No. 71/12 and 79/ 15. 34 Data published in the First National Report of BiH in accordance with the UN Framework Convention on Climate Change, 2009. 35 In addition to the IPPC Directive, this directive also consolidates six other directives that the Republic of Srpska gradually takes over in accordance with the plan. 36 BAT-Best Available Techniques are the most effective and most advanced degree of activity development and their way of working, which indicates the practical convenience of applying certain technologies (to ensure the emission limit values) in order to prevent and, where it is not feasible, reducie emissions into the environment as a whole. 44

Аnalysis of competitiveness and key factors for industrial development regulations adopted by the Ministry of Spatial Planning, Construction and Ecology of the Republic of Srpska37. In the environmental permit the Ministry prescribes the deadlines for adapting to the best available techniques and equipping existing plants and facilities, taking into account the actual possibilities of application. The impact of industry on water quality. In 2014, a total of 6,163,000 m3 of wastewater38, was discharged from the manufacturing industry, which is 35,7% of the total amount of wastewater from industry. Out of this amount, 4,090,000 m3 is treated waste water, and 2,073,000 m3 is untreated wastewater. The largest amount of wastewater is discharged into surface water (81%), then in public sewage (16%), and the rest into the ground. The quality and status of the waters in the Republic of Srpska are monitored through the Pollutant Release and Transfer Register (PRTR)39 conducted by the Ministry of Spatial Planning, Construction and Ecology. The Register serves as a database of the status of all watercourses where water quality measurements are made. Integrated watercourse protection is conducted by applying technological, water management and organizational-economic measures. Technological measures imply the elimination of effluent influences at sites where water pollution sources are concentrated. These measures imply the application of wastewater treatment plants (WWTP) that must be installed at the end of the sewage system in the settlements prior to discharge of wastewater into surface watercourses40. In addition, manufacturing and/or industrial companies are obliged to install wastewater pre- treatment plants in order to bring them to a level of quality on the basis of which they are allowed to be discharged into the sewage network in settlements, after which they are again 'purified' together with the rest sewage water before discharge into the water stream41. Those industrial entities that discharge wastewater directly into the watercourse must first clean them up to the level related to industrial wastewater, which is prescribed by the Rule Book on the Conditions for the Discharge of Wastewaters into Surface Waters. Waste management. One of the most important factors of environmental protection is proper waste management. Uncontrolled, inadequate and illegal disposal of waste presents a permanent threat to water, soil and air pollution, and hence the risk to human and animal health, especially due to direct and/or indirect contact with contaminated matters. For the performance of waste management activities, it is necessary to obtain a permit issued by the Ministry of Spatial Planning, Construction and Ecology. Waste producers and responsible persons in the waste management facility shall carry out a program of control, monitoring and keep records of the conditions given in the permit, and annually submit a report to the competent environmental authority. In 2014, 459,915 tons of production waste was collected from the manufacturing industry, which is 0.77% of the total quantity of industrial waste. Of this amount, 1,819 tons or 0.40% refers to hazardous waste. Manufacturing of base metals and manufacture of metal products, except machinery and equipment, accounted for the largest amount of waste from the manufacturing industry (72.1%). After that there is manufacture of wood and products of wood and cork, except furniture, manufacture of furniture, other manufacturing and repair and installation of machines and equipment.

37 Rule Book on the Best AvailableTtechniques for Achieving Environmental Quality Standards, 'Official Gazette of the Republic of Srpska', No. 22/08 38 Source: Statistics Institute of the Republic of Srpska. 39 PRTR - Pollutant Release and Transfer Register. 40 Rule Book on the Conditions for Discharging Wastewaters into Surface Waters ('Official Gazette of the Republic of Srpska', No. 44/01). 41 Rule Book on the Conditions for Discharging Wastewaters into Public Sewerage ('Official Gazette of the Republic of Srpska', No. 44/01). 45

Аnalysis of competitiveness and key factors for industrial development

4.8 Financial support to industrial development In the previous period, the Government of the Republic of Srpska approved funds on a non- refundable and loan basis to companies operating in the manufacturing industry, thus contributing to mitigating and overcoming the negative effects of the global economic crisis, retaining existing and creating new jobs, and supported the manufacturing industry growth and development. Due to its relevance, this topic has been addressed separately for the purpose of giving an overview of the previous forms of support that have contributed to the industrial development.

4.8.1 Financial support of the Republic of Srpska's institutions From 2006 to 2014, manufacturing companies were provided with the financial support in the region of BAM 665 million, of which 154.5 million was given from the institutions of the Republic of Srpska on a non-refundable basis. Incentives for export promotion and economic development. According to the amount of funds, the largest support to the development and increase of competitiveness of industry was provided by the Ministry of Industry, Energy and Mining through the allocation of incentives for export promotion and economic development. From 2006 to 2013, under the above incentives, funds were allocated in the total amount of BAM 91.62 million.

Chart 6: Overview of allocated incentives for export promotion and economic development from 2006 to 2013

Source: Ministry of Industry, Energy and Mining - Logarithmic overview

Total amount of incentives allocated for export promotion and economic development, as well as the number of beneficiaries of incentives, has been increasing year by year. The largest amount of incentives under the public call was allocated in 2012 (BAM 20 million), and the largest number of beneficiaries of incentives was in 2013 (285).

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Аnalysis of competitiveness and key factors for industrial development

Chart 7: Overview of allocated incentives for export promotion and economic development by activity of beneficiary from 2006 to 2013, in BAM

Source: Ministry of Industry, Energy and Mining

By observing the structure of allocated incentives by activities of the manufacturing industry, the largest amount of incentives was allocated to companies operating in the metal industry (33%), wood industry (30%), textile, leather and footwear industries (15%) and food industry (11%). In 2011, the procedure of allocating incentives based on the principle of project financing was introduced, and, from that point onwards, the incentives are allocated exclusively in support of the implementation of development projects of companies, which relate to the introduction of modern technology, modern equipment and know-how, construction of manufacturing facilities, development and innovations, strengthening human resources, promotion, and establishment of quality infrastructure. In 2012, development projects of companies were supported in the amount of BAM 112.80 million, and in 2013, in the amount of BAM 149.85 million. The companies invested mainly in projects of construction of manufacturing facilities with infrastructure and equipment and projects of introduction of modern technology, modern equipment and know-how, for which about 99% of the total value of funds was allocated, while investments for other purposes were insignificant. Through the allocation of incentives for export promotion and economic development, incentives for encouraging employment have also been partially implemented, as companies that employ new employees were further stimulated. In addition, projects that are being implemented in the area of underdeveloped and extremely underdeveloped municipalities, as well as projects of importance for the preservation and protection of the environment were further stimulated. The most significant effects of allocating incentives for export promotion and economic development were related to: increase in beneficiaries' revenue (by 3.98% in 2013, by 5.78% in 2012), export increase (by 12.39% in 2013, by 1.27% in 2012) and increase in the number of employees (by 2,164 workers or 12.49% in 2013, by 1,093 workers or 6.53% in 2012). Funds for improving business efficiency. In 2014, the Ministry of Industry, Energy and Mining allocated funds in the amount of BAM 1.5 million to improve efficiency of 98 companies operating in the metal, wood and textile industries. Financial support to technology development projects, procurement of equipment and participation in expert meetings on technology development. From 2009 to 2014, the Ministry of Science and Technology allocated BAM 1,803,653, whereby support given to manufacturing companies amounted to BAM 386,460, as follows: 47

Аnalysis of competitiveness and key factors for industrial development

 for technology development the amount of BAM 164,560,  for procurement of modern equipment that introduces new technology or significantly improves existing one the amount of BAM 216,800,  for participation in expert meetings on technology development the amount of BAM 5,100.

Support to organizations for infrastructure support of technology development allocated by the Ministry of Science and Technology from 2009 to 2015 amounted to BAM 1,567,425. Support to innovation allocated by the Ministry of Science and Technology from 2009 to 2015 amounted to BAM 636,900, out of which the support to organizations or associations involved in innovation amounted to a total of BAM 310,430, and the support to innovators or groups of innovators amounted to a total of BAM 326,470 KM. Incentives for establishment of quality infrastructure. From 2005 to 2010, the Ministry of Industry, Energy and Mining allocated incentives for establishment of quality infrastructure and obtaining a CE mark in 353 small-sized companies, in the total amount of BAM 2,425,190. The effects of allocating incentives for establishment of quality infrastructure are: establishment of quality infrastructure in more than 50% of companies of the total number of companies that have established quality infrastructure in the Republic of Srpska, reduction of total costs of the company in the process of establishing quality infrastructure, improvement of the organization of business and competitiveness of the company, as well as the possibility of companies to enter the European market. In addition to the aforementioned effects that directly influenced the improvement of the business of beneficiaries of incentives, the implementation of this project has also enabled an increase in the number of consultants involved in the establishment of quality infrastructure, which directly contributed to the development and improvement of services in this field. Since 2011, the support to the establishment of quality infrastructure has been provided through the allocation of incentives for export promotion and economic development. Incentive for the employment of unemployed persons in the Republic of Srpska. In 2011, the Ministry of Industry, Energy and Mining supported the implementation of employment projects in companies through the allocation of incentives for the employment of unemployed persons in the Republic of Srpska. The project is aimed at employment of unemployed persons with the employer, in order to reduce unemployment in the territory of the Republic of Srpska. The incentives amounted to BAM 2,500 per one newly employed worker, and BAM 3,000 for the employment of a child of a deceased or missing soldier of the Republic of Srpska Army. In 2011, on the above basis, incentives were paid in the total amount of BAM 2,003,500, thus supporting the recruitment of 871 employees. Investment and Employment Support Program was being implemented in order to stimulate investment in the manufacturing sector. Following a public call announced by the Ministry of Finance in 2012, the Government of the Republic of Srpska in April 2013 approved a total of BAM 14,308,000 to manufacturing companies and thus supported investments worth BAM 147 million. The implementation of investment projects is in progress, and the approved funds are paid in installments, according to established criteria and contractual obligations. Employment projects. In the period from 2009 to 2015, the Ministry of Labor, War Veterans and Disabled People's Protection of the Republic of Srpska implemented employment projects, which supported the employment of a total of 12,162 workers, of which 3,428 workers were employed in the manufacturing industry.

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Аnalysis of competitiveness and key factors for industrial development

Table 21: Overview of employment projects of the Ministry of Labor, War Veterans and Disabled People's Protection of the Republic of Srpska in the period from 2009 to 2015 Total funds Total Number Number of Funds Funds for the number of employees No allocated to allocated to Project name project of employees in . economy manufactur implementa employe in manufactur (BAM) ing (BAM) tion (BAM) es ecomony ing Employment and support project for the acquisition 1 13,452,952 2,038 8,046,844 1,381 2,222,164 463 of working experience of young trainees 2 Social Security and Employment Support Network Project (SSESNP) was implemented in the period from 2012 to 2014 through four components, and two components were also implemented in the manufacturing industry: 2.1 Employment with the 1,797,500 1,293 738,500 496 employer 4,662,961 2,719 2.2 Self-employment 1,293 720 64,500 30 3 Employment and self-employment support project for war veterans, children of killed soldiers of the Republic of Srpska Army and unemployed demobilized soldiers of the Republic of Srpska Army 'Together to work' was implemented through three components: 3.1 Co-financing employment 1,664,600 668 528,800 91 with the employer 3.2 Self-employment of demobilized soldiers and war 10,556,800 2,374 3,779,300 802 407,000 88 veterans 3.3 Co-financing employment of 2,986,750 431 1,285,250 211 children of killed soldiers Employment Support Project in the Republic of Srpska economy was implemented through two components 4 in the period from 2013 to 2015: 4.1 Co-financing employment 7,435,600 3,217 4,128,486 1,794 with the employer 11,582,100 4,488 4.2 Co-financing self- 3,300,500 890 352,800 97 employment 5 Employment Support Project for persons over the age of 45 was implemented through two components in 2015: 5.1 Co-financing employment 768,000 265 447,000 149 with the employer 1,731,000 543 5.2 Co-financing self- 480,000 120 36,000 9 employment TOTAL 41,985,813 12,162 30,260,387 9,787 10,210,500 3,428 Source: Ministry of Labor, War Veterans and Disabled People's Protection of the Republic of Srpska

Incentives to companies in the field of textiles, leather and footwear. In 2009 and 2010, the Ministry of Industry, Energy and Mining provided support to companies in the field of textiles, leather and footwear in the amount of BAM 50 per employee on a monthly basis. The goal of this project was to retain the existing number of employees and to overcome the problems caused by the negative impact of the global economic crisis.

The total amount of incentives allocated to companies in the field of textiles, leather and footwear amounted to BAM 8,229,150, while in 2009 funds were allocated in the total amount of BAM 4,559,40 to 79 companies, and in 2010 in the total amount of BAM 3,669,750 to 84 companies. The most significant effects of incentives allocated in 2010 compared to 2009 were: increase in the number of employees (by 6.2%), increase in the average net salary (by 5%), growth of exports (by

49

Аnalysis of competitiveness and key factors for industrial development

5%), increase in the total income (by 4.6%). The incentives have fully achieved their primary goal - retaining the number of employees, i.e. there was no dismissal of employees despite the extremely negative impact of the global economic crisis on the companies' business operations. Since 2011, instead of incentives, this sector is provided with system support through the application of a lesser base for calculating contributions for employees, which is 25% of the average monthly gross salary in the Republic of Srpska, according to the latest data of the Statistics Institute of the Republic of Srpska. The most significant positive effects of the implementation of this measure are the increase in the volume of production, the increase in the number of companies, the growth of exports, the higher total revenues, the increase in the number of employees, and the increase in the average net salary in this sector. Loan funds of the Investment - Development Bank. In the period from the establishment until the end of 2015, funds were allocated through the Investment - Development Bank (IDB RS) in the amount of BAM 1,942.9 million, of which BAM 1,557.8 million or 80.2% were allocated through loan facilities, and BAM 383.6 million or 19.7% through placements to Sec issuers from the territory of the Republic of Srpska. At the end of 2015, 47 loan applications in the total amount of BAM 33.9 million were in the process of processing. The largest part of the loan funds were placed in the economy (75%). Most of the funds were placed on the basis of the loan facility for entrepreneurs and enterprises (37%). Funds of the Investment - Development Bank placed in industry amounted to about BAM 510 million. Most funds were placed in the manufacturing industry (BAM 432 million or 42.9%), agriculture, hunting and forestry (BAM 177 million or 16.8%) and construction (BAM 85.6 million or 7.1%).

Таble 22: Overview of approved loans IDB RS, by sector of manufacturing industry, for the period from 2008 to 2015 Approved loans, in BAM 000 Sector 2008 2009 2010 2011 2012 2013 2014 2015 total Manufacture of 10 food products 18,067 32,372 24,297 9,878 26,075 1,945 9,988 13,317 135,939 Manufacture of 11 beverages Manufacture of 13 0 505 1,300 0 880 4,600 0 0 7,285 textiles Manufacture of 14 460 2,080 0 0 0 0 0 250 2,790 wearing apparel Manufacture of 15 leather and related 850 40 4,500 100 -100 1,400 1,460 0 8,250 products Manufacture of wood and of products of wood and cork, except 16 furniture; 15,047 18,932 12,383 7,220 21,746 10,511 4,900 2,900 93,639 manufacture of articles of straw and plaiting materials Manufacture of 17 paper and paper 757 1,495 358 1,140 79 0 150 130 4,109 products Printing and 18 reproduction of 8,795 2,863 1,146 2,275 1,041 500 210 50 16,880 recorded media Manufacture of 20 1,250 7,970 650 550 0 4,880 360 50 15,660 coke and refined 50

Аnalysis of competitiveness and key factors for industrial development

petroleum products Manufacture of 22 rubber and plastic 4,739 4,672 540 317 3,700 0 1,000 200 15,710 products Manufacture of 23 other non-metallic 5,900 2,519 1,460 4,890 5,572 0 400 0 20,741 mineral products Manufacture of 24 2,400 1,360 0 2,490 0 0 8,500 0 14,750 basic metals Manufacture of fabricated metal 25 products, except 7,474 7,843 3,009 9,350 5,180 786 3,100 1,845 38,587 machinery and equipment Manufacture of computer, 26 0 2,958 90 4,050 1,022 4,400 0 0 12,520 electronic and optical products Manufacture of 27 electrical 500 250 1,720 0 220 0 0 500 3,190 equipment Manufacture of 28 machinery and 1,503 1,258 0 1,000 -40 0 1,627 0 5,348 equipment Manufacture of motor vehicles, 29 0 600 0 0 3,000 0 0 0 3,600 trailers and semi- trailers Manufacture of 30 other transport 0 60 0 0 0 0 0 0 60 equipment Manufacture of 31 10,190 1,576 5,490 3,950 500 3,950 500 7,338 33,494 furniture

TOTAL 77,932 89,353 56,943 47,210 68,875 32,972 32,195 26,580 432,060 Source: Investment-Development Bank of the Republic of Srpska

The largest part of funds was placed in the food and tobacco industry (BAM 135.9 million), followed by the wood industry (BAM 127.1 million) and metal industry (BAM 78.1 million).

Loan refinancing. From 2009 to 2014 Investment - Development Bank approved loans for refinancing existing loan indebtedness in the total amount of BAM 125,205,801.

Тable 23: Overview of approved loans to manufacturing companies for refinancing existing loan indebtedness Total refinancing Refinancing in manufacturing Year Number of Amount (in Number of Amount (in BAM) applications BAM) applications 2009 31,806,614 60 15,412,311 36 2010 16,886,030 41 10,203,632 22 2011 9,964,721 21 2,023,777 8 2012 31,525,570 39 12,023,583 18 2013 19,803,909 24 4,120,870 10 2014 15,218,957 20 2,130,951 8 TOTAL 125,205,801 205 45,915,124 102 Source: Investment – Development Bank of the Republic of Srpska

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Аnalysis of competitiveness and key factors for industrial development

Of the total amount approved for refinancing existing loan indebtedness, a total of BAM 45,915,124 (or 37%) was approved for 102 manufacturing companies. Loan restructure. Pursuant to the Decision of the Banking Agency of the Republic of Srpska on temporary measures for restructuring loans of natural and legal persons in banks42, which stipulate detailed conditions for restructuring liabilities of the economy, in the period from 2010 to 2015, legal entities were granted funds for loan restructuring in the amount of BAM 716.7 million43. Through loan restructure, it was possible to extend the deadline for loan repayment, to reduce the amount of installement and interest rate, which had made it easier for companies who had difficulty in servicing their obligations. The Decision on Provisional Measures for Loan Liabilities of Clients Affected by Natural Disasters44 prescribes special measures related to loan liabilities of clients of banks (legal and natural persons) who are endangered by natural disasters occured in May 2014. Under special measures, a restructuring and a moratorium on loan liabilities has been defined. Pursuant to the aforementioned Decision, loan liabilities of legal persons up to and including September 30, 2015 in the total amount of BAM 55 million were restructured, and a moratorium on loan liabilities of legal persons in the total amount of BAM 15.3 million was approved. Securities trading (Sec). By the end of 2015, a total of BAM 383.6 million was placed in the Sec of issuers from the territory of the Republic of Srpska, through the Investment - Development Bank, out of which BAM 112.9 million or 30% was placed in the economy. The largest amount of funds in securities was issued in 2011, i.e. BAM 69 million, out of which BAM 51 million was placed in the economy. Out of the total amount of funds placed in the economy through Sec, about 21.7% was placed through the purchase of securities of manufacturing companies. Guarantees. From 2011 to 2015, based on guarantees of the Guarantee Fund for loan indebtedness financing purchase of basic and working capital for the purpose of launching, modernizing and expanding business, 92 guarantees were issued ijn the amount of BAM 25.2 million, based on which companies were enabled to raise loans in the total amount of about BAM 70 million. In the same period, 32 guarantees in the total amount of BAM 8.3 million were issued for manufacturing industry.

Support to wood processors. Since 2011, the Government of the Republic of Srpska has been supporting woodprocessors through procurement contracting and deferred payment of raw materials, and a discount in case of advance payment of raw materials.

Таble 24: Support to wood processors in procurement of raw materials, 2011- 2015 Number of companies that received Category of wood support Type of support processor 2011 2012 2013 2014 2015 Possibility to contract raw materials for the period of five years, with deferred Manufacturers of furniture 8 10 14 20 20 payment of raw materials to 90 days and a 5% discount for advance payment. Manufacturers of carpentry Possibility to contract raw materials for of parquet, panels and euro 51 48 57 62 62 the period of one year, with deferred blocks payment of raw materials to 60 days. Manufacturers dealing with 395 383 400 437 372 Possibility to contract raw materials for

42 'Official Gazette of the Republic of Srpska', No. 9/10, 126/10, 127/11, 123/12, 01/14 and 57/14. 43 Source: Reports on the situation in the banking system of the Republic of Srpska by years for the period 2010-2015. 44 'Official Gazette of the Republic of Srpska', No. 57/14. 52

Аnalysis of competitiveness and key factors for industrial development sawmill processing of the period of 6 months, with deferred wood payment of raw materials to 30 days. TOTAL 454 441 471 519 454 Source: Ministry of Industry, Energy and Mining

Tax liabilities restructuring. From 2009 to 2015 Ministry of Finance and Tax Administration restructured overdue, outstanding tax liabilities for 204 industrial companies in the total amount of BAM 123.7 million.

Таble 25: Restructuring tax liabilities of industrial companies, 2009-2015 2009 2010 2011 2012 2013 2014 2015 TOTAL

Number of companies 27 20 7 47 28 42 33 204 Amount of restructured tax liabilities 44.35 9.65 1.77 20.37 18.36 14.85 14.35 123.7 (in BAM million) Source: Ministry of Finance

Support to initiation of bankruptcy proceedings. From 2009 to 2015, the funds in the total amount of BAM 65,300 were approved in the name of costs of conducting the prior bankruptcy proceedings were approved for 24 companies in the budget of the Republic of Srpska, within the Ministry of Industry, Energy and Mining. Financial support to companies in the field of industry at the local level. It is important to note that, apart from the institutions of the Government of the Republic of Srpska, the industrial development was supported by local self-government units by providing various types of support, most importantly: support to employment and self-employment, support to establishment and development of industrial zones, support to introduction of quality standards (certification), scholarships to pupils and students who are studying occupations in demand, support to participation in fairs, reduction of communal and administrative fees, subsidizing the costs of transporting workers, subsidizing the creation of new and expansion of existing manufacturing facilities, etc. Total financial support at the local level in 2015 amounted to BAM 2,760,461, out of which the grants amounted to BAM 2,094,235 and loan BAM 666,226. The largest financial support in 2015 was given by four local communities: TesliĆ, Mrkonjić Grad, Srbac and Prijedor. The funds were provided for various purposes: self-employment, new employment, procurement of new equipment, introduction of quality standards, development of entrepreneurial infrastructure, etc.

4.8.2 European Union funds The European Union allocates funds from the joint budget to implement the reforms necessary for progress in the EU accession. Below is an overview of European Union funds that were available to Bosnia and Herzegovina in the past period. Instrument for Pre-Accession Assistance (IPA). The objective of the pre-accession funds is to support countries potential candidates and candidates in meeting the membership criteria. In the period from 2007 to 2013 the first two components of the Instrument for Pre-Accession Assistance (IPA) were at disposal of Bosnia and Herzegovina, a country with a status 'Potential candidate for membership': 'Transition Assistance and Institution Building" and 'Cross-Border Cooperation', while the remaining three components: 'Regional Development', 'Human Resources Development' and 'Rural Development' were reserved exclusively for countries with the status of 'candidate' for EU membership. 53

Аnalysis of competitiveness and key factors for industrial development

Table 26: Instrument for Pre-Accession Assistance (IPA) Number of IPA componenet Overall objective of Pre-Accession Assistance component Transition Assistance and I Institution building Institution Building Supports border cooperation between candidate/potential II Cross-Border Cooperation candidate countries and EU member states Support to infrastructure projects in the fields of environmental III Regional Development protection and transport, as well as encouraging competitiveness and regional development Human Resources Measures aimed at encouraging employment, education and IV Development training, and social inclusion. Preparation for the common agricultural policy implementation V Rural Development and management Given that IPA component I 'Transition Assistance and Institution Building' is intended to develop the capacity of institutions, there was no use of funds for the needs of ecomony under this component. IPA Component II 'Cross-Border Cooperation' is an integral part of the regional policy of the European Union aimed at promoting economic and social unity and reducing the differences in the level of development of the European regions and establishing full partnership among border regions of different countries. The cross-border cooperation programs in which Bosnia and Herzegovina participates are: 'IPA Adriatic Program', 'Croatia-BH', 'Serbia-BH', 'BH-Montenegro', 'SEE Program' and 'MED Mediterranean Program'. Bosnia and Herzegovina, and thus the Republic of Srpska, very little participate in cross-border cooperation programs, and especially in economy or industry development projects. Out of the total value of IPA funds allocated to Bosnia and Herzegovina within the IPA 2007-2013 state programs (EUR 513.25 million), more than 83% or EUR 427.63 million were contracted by February 25, 2015. IPA 2014 funds were not operational because the Framework Agreement for IPA II did not come into force, that is, the Financial Program for the IPA 2014 State Program was not signed. In addition, 63% of the total allocated funds from the state annual IPA 2007-2013 packages, by that date, were paid to companies that were selected through the tender to implement IPA projects.45. The European Commission has reallocated EUR 42.24 million to the Flood Recovery Program that affected BH in May 2014 from IPA allocations 2011, 2012, 2013, from projects that were not contracted or whose implementation could not have been continued, as well as from savings generated after the procurement procedure46. European Union programs, such as special programs and funds financed from the single budget of the European Union, are primarily aimed at supporting EU internal policies, and thus, improving cooperation among EU member states and their citizens in different areas. The EU programs which were intended for the ecomnomy development in the past period are set out below. The Seventh Framework Program for Research and Technological Development (FP7). The aim of the program was to strengthen the scientific and technological base of the European industry and its global competitiveness. FP7 program beneficiaries were universities, research institutes and centers, industry (including small and medium-sized enterprises), public administration and individuals.

45 Source: Directorate for European Integration of Bosnia and Herzegovina. 46 Source: Directorate for European Integration of Bosnia and Herzegovina. 54

Аnalysis of competitiveness and key factors for industrial development

The priorities of the program were cooperation - the establishment of a European leadership by financing scientific research in ten priority thematic areas (food, agriculture and fisheries, biotechnology, information and communication technologies, materials and new production technologies, environmental protection, etc.). Bosnia and Herzegovina has been provided with about EUR 3.5 million from this program. Institutions/organizations from the Republic of Srpska47, in the capacity of a coordinator or partner, participated in 17 out of 45 approved projects. FP7 was formally completed on December 31, 2013, when the new program Horizon 2020 started, which gathered all EU funding for research and innovation (a total budget of EUR 80 billion). Out of the total of 11 approved projects in Bosnia and Herzegovina, four are from the Republic of Srpska48. Competitiveness and Innovation Framework Program (CIP). This program was intended to strengthen the competitiveness of enterprises, primarily small and medium-sized enterprises, through innovation support, easier access to capital and services for business support, faster development of the information society, and greater use of renewable energy sources and improvement of energy efficiency. Program beneficiaries, among others, were companies in different phases of establishment, expansion or in business transformation, innovative companies and other participants in innovative processes. However, Bosnia and Herzegovina did not fulfill the conditions for participation in this program, and was not a beneficiary of the program in the past period.

4.8.3 Other support programs

Support to the development of the industry and the improvement of its competitiveness is also provided through programs implemented by various international organizations and agencies.

CREDO Krajina project is being implemented in order to improve the competitiveness of small and medium-sized enterprises, in order to create and retain jobs, reduce poverty and improve economic status in the Krajina area.49 The project is funded by the Swedish International Development Cooperation Agency (SIDA), the project budget is EUR 1,000,000, and the duration of the project is 2013-2016. In addition to the development fund of the project, SIDA also provided additional funds in the amount of BAM 993,000 for the floods recovery.

As of September 14, 2016, the companies from the Republic of Srpska used the project funds for: ‐ co-financing technology development projects in the amount of BAM 1,335,167.56 (50 companies); ‐ co-financing consulting services in the amount of BAM 115,691.95 (21 companies); ‐ assisstance in the amount of BAM 637,470 to companies that suffered damage in the floods occured in 2014 (33 companies). The 'Skills for Jobs' program called 'Opportunity Plus' is being implemented in order to build capacity and strengthen relations between training providers and employers in order to improve the

47 University of Banja Luka (7 projects), Economic Development Agency of Prijedor Municipality (2 projects), TIDEA d.o.o. Banja Luka (two projects), EUROPROJECT CENTERS Banja Luka (one project), Citizens' Association EXIT Center - IT Business Support Center Banja Luka (one project) and Health institution Prijedor General Hospital (one project). 48 University of Banja Luka (two projects), University of East Sarajevo (one project) and TIDEA d.o.o. Banja Luka (one project). 49 CREDO Krajina project includes the following units of local self-government: Banja Luka, Bihać, Bosanska Krupa, Bosanski Petrovac, Bosansko Grahovo, Bužim, Cazin, Čelinac, Derventa, Doboj, Dobretići, Drvar, Gradiška, Glamoč, Istočni Drvar, Jajce, Jezero Kneževo, Kostajnica, Kotor Varos, Kozarska Dubica, Krupa na Uni, Kupres (RS), Laktaši, Mrkonjić Grad, Novi Grad, Oštra Luka, Petrovac, Prijedor, Prnjavor, Ribnik, Sanski Most, Srbac, Šipovo, Teslić, Velika Kladuša.

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Аnalysis of competitiveness and key factors for industrial development employability of active labor force in BH. The program is funded by the Government of Switzerland and implemented by the Republic Agency for Small and Medium-Sized Enterprises Development. In the framework of the implementation of the first phase of the Program, a training model was developed that, in an organized and methodical manner, in real time, responds to the specific needs of employers for the missing skills in the six selected sectors of the BH economy (light metal industry, wood processing and manufcture of furniture, manufacture of textile, leather and footwear, and manufacture of carpentry and finishing works in the construction industry, manufacture of fruit and vegetable, cooking and catering). In these six sectors, over 50 occupations in demand were identified in BH enterprises, 21 training programs with test instruments were created, 8 training centers were established, 3 of them in the Republic of Srpska (shoe industry in Prnjavor - Sanino, metalworking and wood industry in Srbac - Center for Vocational Education WMTA and manufacture and processing of food in Banja Luka - Agricultural School), and more than 800 candidates have been trained, out of which more than 300 in the Republic of Srpska. Having completed the training, about 80% of the candidates found employment. The funds in the amount BAM 3.305.641 were spent on realization of the first phase of the program. Implementation of the project called Entrepreneurial Learning in BH Education Systems - Phase II (ELES). The overall objective of the project is to contribute to increasing the employability of the workforce by reducing the gap between the education and work system. The project is funded by the European Union from the IPA 11 funds and is implemented by the Economic Policy and Regional Development Office (EPRD). Within the framework of the implementation of the project, priority sectors were identified and analysis of needs for training of companies performed. The total budget of the project amounts to EUR 940,180.

4.9 SWOT analysis of industry SWOT analysis is a key tool for determining the comparative advantages of the Republic of Srpska industry, which points to development goals and priorities. Every company, within a particular industry sector, must take into account the internal organization and the external environment. The effects of the external environment to the business performance of companies can be positive, from the point of view of creating opportunities for improving competitiveness, finding new markets and business partners. On the other hand, the effects of the external environment on the business performance of companies can be negative, with the effects of creating threats. SWOT analysis gives an objective estimate of the companies' compliance with external conditions. In this context, SWOT analysis can be understood as an overview of internal strengths and weaknesses and external opportunities and threats that industry is facing with. SWOT analysis will serve to identify the strategy that will best use the strengths and minimize weaknesses, capitalize opportunities and minimize industrial threats. SWOT analysis can be conducted at the level of the whole industry, at the level of its sectors as well as at the level of companies themselves. The focus of this analysis is at the industry level, noting that estimates at this level can significantly deviate from estimates at the company level, given that in one sector of industry there are companies with different strategic positioning in relation to external factors (opportunities and threats) and internal factors (strengths and weaknesses). The data from primary and secondary sources is used in conducting this SWOT analysis. Primary data is collected through surveys of companies, and secondary data is collected from institutions that are officially engaged in data collection and processing.

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Аnalysis of competitiveness and key factors for industrial development

Table 27 SWOT analysis of the Republic of Srpska industry STRENGTHS WEAKNESSES . Relatively favorable geographical position and . Unfinished privatization process; proximity to key markets; . Insufficient use of manufacturing capacities; . Relatively developed infrastructure (energy, . Obsolete technology and equipment; transport, telecommunications); . Low level of investment in equipment modernization . Long-standing tradition in manufacturing and and technology; industrial culture; . Insufficiently efficient liquidation and bankruptcy . Large number of younger educated population; proceedings; . Available relatively cheap labor; . Low level of product competitiveness; . Enough quantities of electricity and its competitive . Failure to meet the appropriate quality standards; price; . Lack of accredited institutions for quality control; . Natural resources (wood, wool, leather ...); . Lack of qualified workforce, required by the labor . National treatment of foreign investments; market; . Legal regulation of the financial market; . Insufficient modern knowledge and skills of the workforce; . Poor marketing performance; . Insufficient connection between companies, universities and research and development institutions; . High level of gray economy; . Unfavorable requirements for obtaining funds; . Low level of awareness of the importance of environmental protection;

OPPORTUNITIES THREATS

. Significant regional market without linguistic . Political instability in BH; barriers and with traditional business connections; . Slow recovery of the world and European economy; . Relatively good communication with Europe and the . Fierce competition from all over the world rest of the world Релативно добра комуникацијска (globalization); повезаност са Европом и свијетом; . Lack of motivation to invest in the industry; . Access to trade and other integrations (CEFTA, EU . Interest of foreign investors in purchasing the zone, WTO, EFTA);Приступ трговинским и Republic of Srpska market, rather than manufacturing другим интеграцијама (CEFTA, ЕУ зона, WTO, capacities; EFTA); . Difficulties in adopting international technical . Companies' restructuring; standards; . Market expansion; . Social benefits that burden business; . Programs and funds to support industrial . Inefficient judiciary; development (EU funds, World Bank, European . Climate change and endangering the environment. Bank for Reconstruction and Development, WTO); . Development of business incubators, clusters, science-technology parks, technology transfer centers and design centers; . Development of industrial zones; . Use of experiences and good practices; . Establishing cooperation with institutions that support development; . Strengthening the transfer of scientific research results into the industry sector; . Promotion of the Republic of Srpska industry and investor attraction programs; . Cooperation with EU companies and the acquisition of knowledge and technology; . Use of domestic resources.

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Аnalysis of competitiveness and key factors for industrial development

CONCLUSIONS OF THE CONDUCTED SWOT ANALYSIS:

. The most significant strengths of the industry are long-standing tradition, relatively developed infrastructure, cheap labor, natural resources, favorable geographical position and proximity to key markets.

. The most significant weaknesses of the industry are low level of competitiveness as a result of insufficient use of manufacturing capacities, obsolete technology, lack of skilled labor, underdeveloped quality infrastructure system, and poor results of the privatization.

. The most significant opportunities for further industrial development are improvement of business environment, programs for attracting investors, market expansion and access to trade and other integrations, cooperation with institutions in charge of providing support to development, and programs and funds to support industrial development.

. The most significant threats to further industrial development are slow recovery of the world and European economy, fierce competition from all parts of the world (globalization), and difficulties in adopting international quality standards.

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Evaluation of the survey conducted with companies in order to identify constraints and problems in business operations

5 EVALUATION OF THE SURVEY CONDUCTED WITH COMPANIES IN ORDER TO IDENTIFY CONSTRAINTS AND PROBLEMS IN BUSINESS OPERATIONS In order to identify internal and external constraints for the sustainable growth and industrial development in the Republic of Srpska, the results obtained by surveying companies were analyzed. The analysis covered five groups of business constraints: general business environment, state as a constraint, labor as a constraint, business support system and other constraints. The surveyed companies were given three possibilities for assessing the impact of each constraint on the business. The first answer is 'an important constraint' that indicates a very complex negative impact on the business, so urgent action is needed to solve the problem. The second answer is 'less important constraint' that identifies the phenomenon as a business problem, but its intensity is tolerable to a company and it does not require an urgent action. Thirdly, the answer is 'not a constraint' that treats that phenomenon as neutral in business or as a phenomenon without major influence.

5.1 General business environment

The major problem in the companies' business operations under 'General business environment' is the political instability of Bosnia and Herzegovina, that is, the problems in the functioning of the authorities at the level of Bosnia and Herzegovina, which creates a negative image.

The big problem is also the unstable financial market, high interest rates on loans, as well as the unavailability of long-term loans, especially during global economic crisis.

Chart 9: Business constraints under the 'General business environment'

Source: Survey of the Ministry of Industry, Energy and Mining

In addition to the aforementioned constraints, the problems in the business performance of companies are also due to insufficient foreign investments, unfinished business infrastructure and slow adjustment of regulations to EU standards.

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Evaluation of the survey conducted with companies in order to identify constraints and problems in business operations

5.2 State as a constraint

The biggest problem in the companies' business performance under 'State as a constraint' are measures and policies under the jurisdiction of the institutions of Bosnia and Herzegovina related to customs policies, procedures in foreign trade, border crossing issues and the like, which directly affect the competitiveness of the companies.

In addition, complex and long procedures for obtaining various work permits represent a significant constraint for the companies' business performance, with a large number of permits referring to those issued by local self-government authorities.

Chart 10: State as a constraint

Source: Survey of the Ministry of Industry, Energy and Mining

The lack of understanding of local authorities for the problems faced by business entities and transfer of responsibility for resolving the problems they face on the republic level, as well as slow resolution of disputes before competent commercial courts, also represent a serious constraint to a large number of companies.

The business entities' position on tax and fiscal burdens are divided. Most of the surveyed businessmen consider that these benefits do not represent a significant constraint for the business performance if they are regarded in the light of the level of tax and fiscal burden in the neighbouring countries and the European Union, while a smaller number of business entities consider these benefits a constraint for their business performance.

5.3 Labor as a constraint The biggest problem in the companies' business performance under 'Labor as a constraint' is the imbalance between the supply and demand of the workforce in terms of its expertise and qualifications.

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Evaluation of the survey conducted with companies in order to identify constraints and problems in business operations

Chart 11: Labor as a constraint

Source: Survey of the Ministry of Industry, Energy and Mining

In addition, the significant constraint for further development of business entities is low labor productivity, lack of motivation and self-initiative of workers, and workers' unwillingness to adapt to changes.

5.4 Business support system The biggest problems in the companies' business performance under 'Business as a constraint' are high interest rates on loans, high fees of banks, unavailability of long-term loans due to the inability to meet the requirements of banks, insufficient incentives, and insufficient support for export promotion.

Chart 12: Business support system as a constraint

Source: Survey of the Ministry of Industry, Energy and Mining

5.5 Other constraints

The biggest problems in the companies' business performance under 'Other constraints' relate to financial indiscipline of business partners, obsolete technologies, lack of funds for the procurement of modern technologies and high customs to their imports, and the problem of finding market for product placement.

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Evaluation of the survey conducted with companies in order to identify constraints and problems in business operations

In addition, with a number of business entities there is a problem of inadequate and irrational use of inputs and resources in production, which results in higher production costs, and consequently lower competitiveness of products in terms of sales price.

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Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

6 PRIORITIES AND STRATEGIC GOALS OF THE REPUBLIC OF SRPSKA INDUSTRIAL DEVELOPMENT 2016 - 2020 The Strategy analyzes the macroeconomic indicators and trends in the industry related to the previous five-year period (2009-2015). In order to get a complete picture of the situation, the current trends and levels of industrial development, and in order to define the priorities and goals of its further development, we will point out some of the facts from the past. The pre-war industry was at the enviable technological level and won numerous, technologically very complex products, with which it competed with the most industrialized countries in the world. The war prevented more serious production, especially one that is technologically more complex and based on import components. Many manufacturing capacities had been completely destroyed, and production programs and technologies were lost forever. In the initial concept of transition, the emphasis was on the privatization of social capital and the restructuring of industrial enterprises. However, the privatization process was slow and did not yield the expected results. The enterprises that used to be holders of programs and broader- range technologies have disappeared from industrial structure, and in many cases there has been a change, not only in programs and purpose of the facilities, but also the purpose of the entire location, from industrial to non-industrial purposes.

The trends in the industry were additionally influenced by the negative effects of the global economic crisis and bad weather, which caused a decrease in sales, and thus a decrease in the production volume, exports and employment. However, the macroeconomic indicators in the observed period point to the recovery of industrial production, which is evident from an increase in the real GDP growth rate and industrial production volume, and a significant increase in the number of employees.

In the forthcoming period, the Republic of Srpska will continue to implement reforms that primarily aim at overcoming the obstacles to growth, which is intended to be achieved by measures of revival of economic activity, by incentives allocated to the real sector and employment, by creating a better business environment and increasing the competitiveness of domestic economy, as well as through fiscal stability while at the same time retaining social security. Economy is one of the key reform areas for the Republic of Srpska. Stable economic growth will be based on the recovery of the economy and the improvement of the business climate and competitiveness50. Starting from the fact that there is no successful society without equally successful economy or a successful economy without equally successful industry, and that the industry is a vital element of every society, it is essential for the Republic of Srpska that industrial development obtains the status of a long-term social priority of the highest importance. Bearing in mind the results of the analyses and research conducted in development of this Strategy, as well as the vision and priorities of the industrial development, the strategic goals of the industrial development of the Republic of Srpska for the period 2016-2020 are defined as follows:

50 Economic Policy of the Republic of Srpska 2016 ('Oficial Gazette of the Republic of Srpska', No. 110/15).

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Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

1. IMPLEMENTATION OF INDUSTRIAL REVITALIZATION PROCESS (REINDUSTRIALIZATION)

2. МONITORING, FOLLOW-UP OF INDUSTRIAL DEVELOPMENT AND IMPLEMENTATION OF ADEQUATE MEASURES TO IMPROVE COMPETITIVENESS

3. INCREASING EMPLOYMENT IN INDUSTRY AND IMPROVING LABOR SUPPLY

4. IMPROVING BUSINESS ENVIRONMENT AND ATTRACTING INVESTMENTS IN THE INDUSTRY

5. APPLICATION OF ENVIRONMENTAL STANDARDS IN INDUSTRY AND MORE EFFICIENT USE OF RESOURCES

Please note that strategic development documents of the neighboring countries, Europe 2020 Strategy, South East Europe 2020 Strategy and numerous documents and recommendations of international organizations and projects related to the industry sector have been considered during the development of this Strategy. Analysis have shown that none of the considered models of development is universal and can not be applied as such in the Republic of Srpska. The Republic of Srpska has to build up its own industrial policy model, based on analysis and realistic assessment of available capacities, development advantages and limiting factors in the light of global trends in the European and world markets. However, what is common in all considered strategic documents can also be applied in the Republic of Srpska, and is incorporated into the Strategy. Below is a review of the strategic and operational goals of industrial development, expected results and measurable indicators for their implementation. Moreover, the most significant measures and activities that will be implemented in the period 2016-2020 are listed, while specific activities, carriers of activities, deadlines and necessary funds for their implementation have been elaborated in detail in the Action Plan, which is enclosed with the Strategy. We emphasize that some measures and activities have been implemented in the previous strategic period and continue to be implemented in the period of implementation of the Strategy, while some of them are completely new.

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Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

STRATEGIC GOAL 1 – Implementation of industrial revitalization process (industrialization)

Bearing in mind that the manufacturing industry is a significant sector of the Republic of Srpska industry, priority should be given to the process of reindustrialization in all sectors of the industry, which aims at initiating production and increasing the volume of industrial production and employment. This process also implies 'general cleaning and storage' in companies with the majority state-owned capital, some of which do not operate or operate with a minimum capacity, and are thus ineffective and illiquid. The implementation of the concept of reindustrialization implies: . Completion of the privatization process. In the manufacturing industry there are 19 companies with non-privatized state capital, of which ten are companies with majority state-owned and 100% state-owned capital, whose status must be solved urgently. . Restructuring. Restructuring shall be implemented in non-privatized companies in order to successfully implement their privatization. In addition, restructuring shall be carried out in other companies that have faced problems, but that have a market and a further perspective, and in which positive effects of the implementation of this process are expected. . Initiating and completing bankruptcy proceedings and liquidation. In companies where privatization and/or restructuring would not produce positive effects, bankruptcy and liquidation proceedings should be initiated. These are difficult socio-economic processes, which do not have the alternative and are necessary to prevent the further generation of losses and the collapse of these companies. However, the bankruptcy proceedings shall be carried out in order to retain production and employment, if there are appropriate assumptions for that. In addition, the implementation of the industry revitalization process shall be implemented through the realization of projects of reviving existing technological resources, since they have huge potential for accelerated industrial development, and they can be revived in the short term with smaller financial resources. The expected outcome of the implementation of this goal is an increase in the efficiency and productivity of the industry, and increase in the production volume and employment.

OPERATIONAL EXPECTED OUTCOME: INDICATOR: GOALS: 1.1 Complete the - Completion of privatization of - Number of privatized privatization process of state capital companies state capital in industry - Fulfilling obligations - Value of investment and undertaken in the privatization number of employees in 1.2 Restructure companies process (investments, privatized companies in industry employment, activity) - Number of restructured - Effective and efficient companies implementation of bankruptcy - Number of bankruptcy 1.3 Conducting bankruptcy proceedings proceedings opened and liquidation - Companies restructured - Number of companies proceedings in the industry - Reorganized companies in the reorganized through bankruptcy proceedings bankruptcy proceedings

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1.4 Support the - Revitalized industry sectors - The duration of the implementation of bankruptcy proceedings revitalization projects in - Percentage of settlement of industry creditors in bankruptcy proceedings - Number of new open facilities and number of employees in revitalized companies

6.1.1 Complete the privatization process of state capital in industry Given the duration of the privatization process in the industry, the modest inflow of foreign direct investments, new programs and technologies, the low competitiveness of companies, and the number of companies in bankruptcy, we can conclude that the privatization process so far has not yielded the expected results.

The results as well as the duration of the privatization process were influenced by numerous factors, particularly the very bad situation in most companies. This primarily relates to high indebtedness, surplus of labor, obsolete technology, unsettled property relations, market loss, the departure of qualified staff, lack of capital to start more serious production, etc.

Positive examples of privatization of companies are where they found a qualified and reliable partner, who, besides capital, introduced new management methods and market appearance to the broader global market.

Bearing in mind that private property is the most efficient form of ownership, the activities regarding the completion the state capital privatization in the remaining non-privatized companies should be implemented in the forthcoming period.

6.1.2 Restructure companies in industry Due to negative impact of the global economic crisis, which manifested itself through market losses, cancellation of orders, deferred payment of products, as well as a reduction in prices on the world market, many companies have been doing business negatively and were forced to reduce the volume of work. As a consequence, there was a problem of the technological surplus of labor, inadequate micro and macro organizations, technical and technological backwardness, as well as large debts to the budget, workers, suppliers and others. In order to continue production and retain employment, restructuring should be implemented in companies that have faced problems, but have a market and a longer perspective. Particular attention should be paid to the implementation of restructuring in non-privatized companies, which are significant from the point of view of the achieved results and the number of engaged workers, whose privatization attempts, due to accumulated liabilities, were not successful in the previous period. By conducting a financial restructuring, the company shall 'clean' its obligations and become more attractive for privatization to interested strategic partners. In addition to financial restructuring, organizational-human resources and production- technological restructuring need to be carried out in most companies.

6.1.3 Conduct bankruptcy and liquidation proceedings in the industry Bankruptcy proceedings shall be initiated within 60 days from the date of occurrence of the insolvency. However, in practice there were cases when companies had been insolvent for several years, and the bankruptcy proceedings were not initiated. 66

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

Untimely reactions to the timely initiation of bankruptcy proceedings lead to the accumulation of obligations and the reduction of the value of the company. Thus, bankruptcy proceedings against companies with the longest possible insolvency were concluded due to the insufficiency of the bankruptcy estate. The practice so far has shown that tax liabilities in bankruptcy proceedings are collected only in the amount of 10% of the value of the claim, and the part that is not collected after the conclusion of the bankruptcy proceedings is written off on the basis of a court decision. Bankruptcy proceedings are urgent according to legal regulations, in order to preserve the value of assets and protect the interests of creditors charged from those funds. Practice has shown that bankruptcy proceedings take much longer than the legally prescribed duration. Based on the data obtained from the District Commercial Courts of the Republic of Srpska, it can be concluded that bankruptcy proceedings in the industrial commercial companies last from few months up to seven years, and on average they last 3.2 years. The duration of bankruptcy proceedings significantly increases the costs of the procedure, which negatively affects the level of creditors' satisfaction. Bearing in mind the above, it is necessary to initiate bankruptcy proceedings in a timely manner and speed up their implementation in order to prevent companies' downturn and enable collection from creditors in the highest percentage. In order to maintain the business of the bankruptcy debtor in the bankruptcy procedure, the possibility of conducting the reorganization process should be considered. In this regard, priority should be given to the implementation of the new legal framework in the field of bankruptcy proceedings51, which created preconditions for better and faster implementation of bankruptcy proceedings.

Liquidation procedures should be initiated in companies that have not harmonized the organizational form with the Law on Companies, or the Law on Public Enterprises, and that have not been operating for many years.

6.1.4 Support the implementation of revitalization projects in industry The situation and trends in the industry were negatively affected by numerous events in the previous period (war, failed privatizations, the world economic crisis), which in some companies caused a decrease in sales, production volumes and employment, a loss of market, and in some cases a complete cessation of production process. In these companies there is a huge potential for accelerated industrial development, and in a short period of time, with smaller financial resources, it is possible to revive them again. Revitalization should be carried out quickly, by activating the existing technological resources of the industry in the short term, towards revival or increase in the volume of production and job creation, as well as the construction of new, sophisticated and innovative companies, which shall become significant exporters of products of medium and high technological level.

The key activities to be realized in order to revitalize the industry in the forthcoming period are: . Support to the implementation of revitalization projects, which anticipate significant investments in the revitalization of existing production capacities and new employment, with special emphasis on the implementation of projects in the marginalized and undeveloped municipalities of the Republic of Srpska.

51 Law on Bankruptcy Proceedings ('Official Gazette of the Republic of Srpska', No. 16/16).

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Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

. Improving and building business zones. The development of business zones shall enable a better level of supply to investors, job creation, faster transfer of knowledge and technologies, and ensure the competitiveness of the economy of the Republic of Srpska in relation to the economy of the countries in the region. Businesses within the business zones have the opportunity to use the effects of integrating related businesses within the zone, which shall result in the creation of competitive advantages through access to cheaper inputs in raw materials, components, packaging and services, and the application of new technologies in the partnership of companies in the zone and partnerships with related industries in cases where they can service several companies. In addition, the zones offer for their members less investment expenditures for production and business facilities, and less operational costs of transportation, maintenance and security of facilities. The business zones shall be planned in accordance with the principles and recommendations of the Spatial Plan of the Republic of Srpska, taking into account their balanced positioning on the territory of the Republic of Srpska.

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STRATEGIC GOAL 2 – Мonitoring, follow-up of industrial development and implementation of adequate measures to improve competitiveness

The performance of companies in the field of the Republic of Srpska industry has been under the influence of the negative effects of the global economic crisis and the weather conditions that have affected the Republic of Srpska in 2012 and 2014, which resulted in oscillations of certain macroeconomic indicators, which were stabilized in the past three years and have a growth trend. The negative impacts of the external environment on performance of industrial companies will be present in the coming period, and therefore certain measures should be taken to minimize them. The state of and movement of macroeconomic indicators in the industry needs to be monitored on a daily basis in order to take concrete measures that contribute to its development and improvement of competitiveness. In addition, it is necessary to monitor the situation and trends in companies, especially those that have a significant impact on the achieved results in the industry, and employ a greater number of workers. Measures implemented by different institutions in the Government of the Republic of Srpska should be coordinated and directed towards achieving a common goal, which is the industrial development and improvement of its competitiveness. The industry has little participation in the GVA of the Republic of Srpska, external trade deficit and unfavorable structure of imports and exports. Therefore, the change in the structure of domestic production must be influenced by encouraging production of higher added value, development of products lacking in the domestic market, the introduction of modern technologies and crafts, strengthening of information and communication technologies, business networking, promotion of marketing activities and the branding of domestic products. In order to achieve better effects for achieving this goal it is necessary to provide greater financial support than so far. Inclusion in world economic trends implies that the domestic economy operates according to the principles of developed countries, which requires the improvement of quality system of the Republic of Srpska. The administrative bodies in BiH, and thus the Republic of Srpska, are obliged in the future to undertake the necessary measures in order to gradually achieve compliance with the technical regulations of the Community and European standardization, metrology, accreditation and conformity assessment procedures. Bearing in mind that the harmonization of technical legislation with EU legislation is one of the prerequisites for achieving free flow of products, and that the conformity assessment bodies are the weakest link of the quality system of the Republic of Srpska, in the forthcoming period it is urgent to improve technical regulations and quality infrastructure. The ultimate goal of these activities is to establish the process of conformity assessment of products with technical requirements, in accordance with the EU legislation. The expected outcome of the realization of activities under this goal is development, raising competitiveness and improving the external trade balance of the industry.

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OPERATIONAL EXPECTED OUTCOME: INDICATOR: GOALS: 2.1 Monitor the ‐ Increased participation in GDV of ‐ Participation of industry in situation and propose the Republic of Srpska GDV of the Republic of measures to develop ‐ Increased revenues and exports Srpska and improve the ‐ Increased export of higher added ‐ Decrease in the foreign trade competitiveness of the value deficit industry ‐ Increased investment in research ‐ Export growth rate and development ‐ Value of exports of higher 2.2 Increase export of ‐ Increased investment in the added value industry acquisition of modern technology ‐ Number and value of and equipment supported development 2.3 Support to the ‐ More innovations projects development of ‐ Greater cooperation between the ‐ Number of innovations domestic products in the economy and scientific research ‐ Number of branded products industry (import institutions ‐ Technological level substitution) ‐ Reduced imports ‐ Number of adopted laws and 2.4 Financial support to ‐ More domestic products by-laws More branded products Number of technical development projects in ‐ ‐ - Improved marketing activities regulations harmonized with industry ‐ Technical regulations harmonized the acquis 2.5 Improve technical with the acquis ‐ Number of appointed regulations in industry ‐ Application and monitoring of the conformity assessment 2.6 Improve capacity of regulatory impact assessment of bodies quality infrastructure technical regulations improved ‐ Number of companies that for industry needs ‐ Improved quality infrastructure have introduced a quality system 2.7 Establish efficient system Construction of the missing ‐ Number of inspections market surveillance ‐ quality infrastructure capacities carried out by the inspection ‐ Standardization and metrology bodies system improved ‐ Quality system introduced into companies - Effective market surveillance

6.2.1 Monitor the situation and propose measures to develop and enhance the competitiveness of the industry In recent years, companies in the field of the Republic of Srpska industry have been operating in difficulty due to the world economic crisis and weather conditions, which has resulted in oscillations in the values of the realized industrial production, exports, investments and other macroeconomic indicators. Bearing in mind the above, this state of competitiveness, foreign trade deficit, as well as the current level of industrial development, there is a need for taking more effective measures that will contribute to its development. It should be taken into account that, in the forthcoming period, the negative impacts of the external environment will have an impact on the business performance of companies in the field of industry. In this regard, it is necessary to continuously monitor and analyze the trends of relevant macroeconomic indicators in the Republic of Srpska industry as well as in the environment, and to initiate concrete measures to eliminate the observed disorders. Due to the importance of information and communication technologies (ICT) for the industrial development, it is necessary to further develop the methodology of collecting and processing statistical data, and to establish a quality system for monitoring the state of the ICT sector, as a

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Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020 basis for making quality analyzes and proposing measures for its development and improvement. In addition to monitoring and analyzing the situation at the level of the industry and its sectors, special attention should be paid to monitoring the work of individual companies, especially those that have greater importance and participation in terms of engagement of the workforce and achieved results (income generated, exports, etc.), and propose concrete measures to solve the problems they face with in business operations. In addition, cooperation with social partners should be raised to a higher level, with the aim of better and more efficient resolution of problems in the industry.

It is particularly important that the effects monitoring system is established for all measures undertaken by the institutions of the Republic of Srpska, in order to determine whether the goals of the Economic Policy and other strategic documents of the Republic of Srpska are fulfilled by implementing these measures.

6.2.2 Increase industry export The analysis of the export of the industry showed that a very narrow assortment of products was exported, mainly raw materials and semi-finished products, that is, the products of lower value added. On the global market, the industry of the Republic of Srpska can not achieve much by cheap raw materials and semi-finished products, but only by quality, technologically highly developed products. In some cases, product quality is not a problem, but its image, distribution channels and access, because the companies are not financially strong enough to spend enough on their products and services advertising. In addition, most industrial companies are placing their products on the international market with a direct presence, without conecting with other companies in the production or sales chain. In this way, exporters bear great risks when placing their products, since the smallest changes in the market negatively affect their business. In the previous period, activities were conducted on the implementation of the Republic of Srpska Foreign Investment Encouragement Strategy 2009-2012, i.e. the realization of its strategic goals related to increasing the number of exporters and export value, changing the structure of exports, increasing competitiveness, import substitution, connnecting export companies and establishing an institutional framework for encouraging and promoting exports. In order to further increase exports, it is necessary to increase the number of companies capable of proactive exports in the forthcoming period, and to improve the ability of exporters to be competitive on the international market. In addition to increasing exports, it is necessary to change the structure of the export of the industry towards the export of products with higher added value. Several key activities and measures to be implemented in the forhcoming period are as follows: . Provide financial support for the implementation of companies' development projects, in order to improve their development, improve competitiveness, establish a quality system, and increase employment. The result will also be an increase in exports and a change in the structure of exports, i.e. exports of products with higher added value and products based on innovation and their own development. . Activities to improve the export environment by resolving, or launching initiatives to resolve the limitations faced by exporting companies in the performance of foreign trade activities, which prevent the achievement of better export results. Within these

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activities, measures will be initiated to resolve the problem of exporters in the field of foreign trade policy, customs and tariff policy and foreign affairs, the implementation of which is under the jurisdiction of the institutions of Bosnia and Herzegovina.

. Activities of the Foreign Investors Council of the Republic of Srpska, which represents the interests of the export economy of the Republic of Srpska and proposes to the Government of the Republic of Srpska new measures to support exports. . Informing and educating exporters about opportunities for export and presence in foreign markets, incentive measures, international fairs and conferences, as well as other relevant information related to foreign trade operations. . Support to marketing activities and promotion of exporters on the foreign market in order to increase exports of companies, establish cooperation with new buyers and conquer new markets. . Initiatives for connecting export companies into clusters or other associations at the sectoral level, so as to encourage export activities, within individual sectors, groups, as well as at the general level. By joining clusters, companies benefit from a number of benefits such as lower operating costs, lower purchase prices, cheaper transportation, engaging agencies and companies in charge of provision of specialized and other services (marketing, bookkeeping, consulting, professional and other services), lower costs of new products and services development, exchange of technical and technological knowledge and information, access to foreign markets, market expansion and opportunities for new business connections, the possibility of carrying out major investment and development projects, access to funds, more favorable loans, etc.

6.2.3 Support the development of domestic products in the industry (import substitution) In the process of EU accession and obtaining the candidate status, Bosnia and Herzegovina has liberalized its economic space to a large extent, i.e. it has accepted most of the rules and norms of the World Trade Organization in the foreign trade. In this regard, imports of a wide range of products are allowed, even those which are potentially harmful to consumer health and are often not used in the exporting countries. Analysis of products in the field of manufacturing industry, which were imported in the largest quantities in the Republic of Srpska form 2010 to 2015 influencing the level of the foreign trade deficit in the manufacturing industry52, has shown that technically and technologically complex products and products of a higher level of processing are mainly imported. However, imported are also products that are not too complex and are relatively easy to produce in the Republic of Srpska, taking into account the necessary knowledge, manufacturing technologies and inputs, the tradition of individual industrial branches, and the current and future demand for a certain product category. If a part of these products were produced in the Republic of Srpska, their imports would be reduced, which would affect the reduction in the foreign trade deficit of the industry. Having in mind the above, the following activities shall be carried out in the forthcoming period: . Information, administrative and professional support from the Ministry of Industry, Energy and Mining to potential producers of products lacking in the domestic market. For the purpose of realization of this activity, the Register of import materials, components and finished products shall be regularly updated, and shall be available on

52 Chapter 3.2.1 Foreign trade of the industry. 72

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

the website of the Ministry in order to better inform domestic investors/businessmen about the quantities and values of imported goods in the market of the Republic of Srpska, the possibilities of starting up cost-effective production of products that are lacking in the domestic market. In performing these activities, it is necessary to provide certain incentives for supporting new products development. . Analysis of the needs and possibilities for the establishment of a Design and Technical Support Center for the industry, which would provide technical support (advisory and consulting services) to companies when developing new products and introducing new technologies. Through the Center, the cooperation among companies and experts, innovators, designers, institutes and scientific research institutions will be closer. In addition, in order to support domestic production, the following activities shall be carried out: . Carrying out campaigns aimed at stimulating consumption of products of domestic origin, indirectly protecting domestic production, retaining jobs and creating conditions for new employment, and affecting the reduction of foreign trade deficit. . Implementing Branding Policy in the Republic of Srpska in order to create new and improve existing brands. In performing these activities awareness will be raised about the importance of branding products and the implementation of advertising, launching initiatives to connect and establish cooperation between individual companies in the process of branding and joint advertising, promote domestic companies and their products in domestic and foreign markets, giving awards for the best brand from the Republic of Srpska, etc. . Strengthen customs and inspection controls to prevent the entry of hazardous products from abroad in order to protect consumers and domestic production from unfair competition.

6.2.4 Financial support to development projects in the field of industry From 2006 to 2015, manufacturing companies were provided with the financial support in the region of BAM 665 million, on a non-refundable and loan basis, which contributed to mitigation of negative effects of the global economic crisis, retaining existing and creating new jobs, and further development of the manufacturing industry. The largest amount of financial support given to the manufacturing industry goes to loans of the Investment - Development Bank of the Republic of Srpska (76.7%), through which development projects of companies were supported, new investments encouraged and the existing number of employees i.e. new employment retained. The goals of the Strategy on Scientific and Technological Development of the Republic of Srpska for the period 2012-2016 relate, inter alia, to strengthening cooperation and transferring research results from the scientific and research sector to the economic sector, and increasing financial investment in research and development. The Strategy envisages a gradual increase in the investment in research and development (GERD) to the level of 0.5% of GDP in 2016. Creating conditions for investing larger budget funds in research and development shall trigger a positive reaction in the economic, academic and research sectors in terms of further increase of their investment in research and development, which shall ultimately result in the increase of production, i.e. GDP value, as in positive examples of neighbouring countries and other countries of the world.

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In order to encourage further development of the manufacturing industry, the following activities shall be carried out in the forthcoming period: . Loan support for the purchase of fixed and current assets, and refinancing of existing loans through credit facilities and loans of the Investment - Development Bank. The largest part of the loan will be placed in the economy, that is, manufacturing industry, which will support further growth and development of the activities that represent the backbone of domestic real sector. . Financial support to technology development will be allocated for the implementation of technology development projects, the provision of modern equipment that introduces new technology or significantly improves the existing one and participation in expert meetings on technology development. . Financial support to innovation development will be allocated in the form of financal assistance to the Innovators' Council, innovators' associations and other organizations involved in innovation, and to stimulate an individual work of an innovator or a group of innovators. The allocation of this kind of financial support will stimulate the development and testing of prototypes, the presentation of innovative work at specialized exhibitions, the introduction of innovation in manufacturing, the preparation of technical documentation and the protection of intellectual property in the country and abroad. . Financial support to local manufacturing companies will be given by local development agencies and municipal economy departments through non-refundable and loan funds. Funds will be given for various purposes: new employment, introduction of quality standards, development of entrepreneurial infrastructure, and more.

. Support to information and communication technology (ICT) development through the allocation of financial support to development projects of ICT companies, and promotion of ICT sector and its application in the manufacturing industry. The aim of this support is to develop ICT sector in the Republic of Srpska as a generator of economic development. As the smallest investment in production is required when it comes to the ICT industry, the results achieved are significant and represent the shortest way to achieve the production. The ICT sector is a service to all other sectors of the economy, and its development raises the competitiveness of the entire economy to a higher level.

. Improving the system of 'Investment Services to Enterprises' through the established mechanism for systematic action on the identification and improvement of the investment capacity of companies in the Republic of Srpska. On one hand, market- oriented companies which have significant growth potential will develop by improving their internal management (cost reduction, efficiency improvement, increasing sales) and training companies to access external sources of financing (creating real investment opportunities in the long run). On the other hand, there will be activities to establish stronger ties with the financial sector, especially with banks, different funds and financial institutions.

. Continuation of implementation of the project 'CREDO Krajina', which aims to improve the competitiveness of companies in the Krajina area. Within this project, it is planned to allocate funds for co-financing projects for technological improvement of production in the total amount of about BAM 826,499, organizing economic forums for 74

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

improving competitiveness, organizing seminars for export management of companies, continuing voucher scheme in companies, and educational support to companies. . Improving the 'Voucher System' program. The voucher system is a support program for SMEs, aimed at improving competitiveness and enabling growth and development of companies, through the allocation of vouchers to companies as a stimulative tool for facilitating access to consultancy services and training. Consultancy services relate to different types of interventions and improvements in company performance, such as: improving management and organization of companies; development of existing and introduction of new processes and systems; marketing, communication, product positioning and branding; increasing export capacity and meeting specific standards in EU countries and other export markets; improving the investment readiness of the company; financial, technical and technological consulting; technology development and transfer; design and product development; innovation management and introduction; introduction of ICT technologies; training and human resources development, human resources management; improving supply and distribution channels; business networking and partnerships, etc. . Implementation of the 'Consultant Network' project related to consulting support to small and medium-sized enterprises in the growth and development phase and other target groups. Realization of this project will improve the market of consulting services in the Republic of Srpska and sustainability of entrepreneurs, and increase the competitiveness of existing small and medium enterprises and other target groups. . Implementation of the project entitled 'Establishment and Promotion of Mentoring Services for Small and Medium -Sized Enterprises in the Western Balkan Countries - Serbia, Bosnia and Herzegovina and Montenegro' - Phase 2, implemented by the Japan International Cooperation Agency - JICA. The aim of the project is to establish a system of mentoring services for small and medium-sized enterprises with practical experience from Japan. Mentoring is a comprehensive and relatively long process of supporting companies at a crucial moment for development or survival, and involve the joint work of mentors and entrepreneurs in order to overcome the current situation and find the most favorable solutions for future business. . Implementation of the 'Challenge 2.0' project, which is intended for small and medium-sized enterprises and entrepreneurs who have innovative ideas for development. The project is financed by the Swedish International Development Cooperation Agency (SIDA) and will be implemented through financial support (grants) for the implementation of innovative projects that will enable new employment and increase the competitiveness of the company. In addition to financial assistance in the form of grants, companies will be provided with parallel technical support through mentoring and consulting by certified consultants according to JICA's methodology. Bearing in mind that in the past period a very small number of EU funds were available to Bosnia and Herzegovina, and thus to the Republic of Srpska, and even those that were available were insufficiently used, in the following period it is necessary to increase the engagement in applying projects for EU funds. This refers in particular to programs that allow our companies to improve capacity and competitive ability, and to connect, both with companies from the Republic of Srpska and foreign companies. In the new medium-term budgetary framework of the European Union, covering the period from 2014 to 2020, a new Instrument for Pre-Accession Assistance (IPA 2) will be available 75

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020 in the following areas/policy areas: Process of transition towards membership and capacity building, Regional Development, Employment, Social Policy and Human Resources Development, Agriculture and Rural Development and Regional and Territorial Cooperation. In the following period, Bosnia and Herzegovina will be able to be a beneficiary of two new programs for Southeast Europe, namely: . The Danube Transnational Program 2014-2020, financed by the European Regional Development Fund (ERDF) in the amount of EUR 202.3 billion and from IPA 2 funds in the amount of EUR 19.8 billion. The program encompassed 14 countries, and the priorities of the program are: innovation, environment, responsible and more efficient use of resources and energy, and support to institutional capacity building. . The Adriatic-Ionian program 2014-2020, financed by the funds of the European Regional Development Fund (ERDF) in the amount of EUR 83.5 billion and from IPA 2 funds in the amount of EUR 15.7 billion. The program encompassed eight countries, and the priorities of the program are: innovative and smart development, sustainable growth, connecting regions and support to the implementation of the Union Strategy for the Adriatic and Ionian region. Programs that are especially interesting to companies in the new cycle of EU programs 2014- 2020 are: . Horizon 2020 is a financial instrument for global improvement of the competitiveness of small and medium-sized enterprises. The program gathers all the European Union funds for research and innovation in the total amount of EUR 80 billion, and the same will focus on: ‐ Strengthening the position of the EU in the field of science (EUR 24.6 billion); ‐ Strengthening the industrial position in innovation (EUR 17.9 billion); ‐ Combating climate change, developing sustainable transport and mobility, resource and raw resource efficiency, comprehensive and secure societies, providing easier access to renewable energy sources, and other vital issues (EUR 31.7 billion).

. The EU Program for Competitiveness of Enterprises and SMEs (COSME) is a program for small and medium-sized enterprises and will focus on: ‒ Facilitating access to finance for small and medium-sized enterprises (SMEs), ‒ Creating a favorable environment for business cooperation and growth, ‒ Encouraging entrepreneurial culture in Europe, ‒ Increasing the competitiveness and sustainability of enterprises in the EU and helping small enterprises operating outside their countries, and improving their access to markets.

The planned funds under this program amount to EUR 2.2 billion. Bosnia and Herzegovina expressed interest in participating in the COSME program, but it needs to conclude the Memorandum of Understanding and pay part of the funds for the entry ticket, which would be partly financed from IPA 2 funds. A mechanism that allows companies to benefit from this program is the Enterprise Europe Network (EEN), comprised of more than 600 partner organizations and institutions (associations, national agencies, scientific institutes, universities) which engage more than 4,000 experts in the field of entrepreneurship, innovation and technology transfer, with the aim of promoting competitiveness and innovation at the local and European level. This network facilitates access to a wide variety of information and enables the establishment of contacts and networking of companies in over 50 countries. 76

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In this regard, the Enterprise Europe Network of the Republic of Srpska (EUNORS),which has been admitted to the Enterprise Europe Network, has been established, and in the forthcoming period activities are planned to establish support mechanisms for small and medium-sized enterprises in the Republic of Srpska and adopt the necessary normative acts for its functioning. Through the Enterprise Europe Network of the Republic of Srpska, SMEs will be able to obtain information on the conditions for entering the European Union market, new export opportunities, access to new markets, potential partners, opportunities for transfer of new technologies, as well as other mechanisms for supporting the development of enterprises and entrepreneurship developed through the Enterprise Europe Network. In addition, it is expected for Bosnia and Herzegovina to use the funds under the project 'Western Balkans Enterprise and Innovation Facility' (WB EDIF) in the upcoming period. The aim of the project is to improve the access of small and medium-sized enterprises from the Western Balkan countries to finance, as well as to stimulate economic development in the region through the creation of preconditions for the establishment and growth of innovative enterprises and companies with high potential. The planned value of the project is over EUR 145 million.

Table 28: Subprograms of the EDIF project "The Western Balkans Enterprise Development and Innovation Facility" (WB EDIF) No. Name of the subprogram Beneficiaries Enterprise Innovation Fund Start-up innovative companies. The amount of co-financing for BiH 1 (ENIF) is about half a million euros. Already established companies that have high potential for Enterprise Expansion Fund 2 development and growth (average annual growth is higher than 20% (ЕNEF) over a three-year period, with ten or more employees). 3 Guarantee Funds (GF) Small and Medium- Sized Enterprises 4 Technical Assisstance (ТА) Countries in the region - help to improve the regulatory framework Source: European Investment Fund53

6.2.5 Improve technical regulations in industry

Harmonization of technical legislation with EU legislation is one of the prerequisites for achieving the free flow of products that are safe to use and that do not endanger human health and environment. Since international rules on external trade are not met, only a small number of industrial products can be exported from BiH, while on the other hand, due to the lack of adequate regulations and product conformity assessment, almost all products can be imported in BiH. Therefore, the Government of the Republic of Srpska has instructed all ministries and administrative authorities to adopt as soon as possible the regulations of the Republic of Srpska, which are in compliance with the regulations of the European Union and which put the SFRY and SR BiH regulations out of force, and to revise the applicable technical regulations under their jurisdiction and make them available to interested users through the website. In the previous period, a legal framework was created for the transposition of technical regulations of the European Union and the implementation of procedure and the appointment of competent conformity assessment bodies. Key activities to be carried out in the following period are:

53 http://www.eif.org/what_we_do/resources/wbedif/index.htm 77

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. The transposition of the New (Global) and Old Approach Directives into the legal system of the Republic of Srpska. New technical regulations will, inter alia, define the specific product safety requirements, the responsibility of the manufacturer, the dealer or distributor, the conformity assessment modules, the requirements for the conformity assessment bodies, and references to the relevant standards or technical specifications. . Update of the list of valid technical regulations of the Republic of Srpska. This activity involves the continuation of the identification of the valid technical regulations (new and adopted SFRY/SRBiH regulations) and valid JUS standards with binding application, establishing the final list of the adopted and valid technical regulations of the Republic of Srpska with the list of competent institutions, and determining a list of regulations that must be put out of use. . Establishment of the Information / Notification Point for the technical regulations of the Republic of Srpska. For the purpose of faster and better availability of data on the applicable technical regulations of the Republic of Srpska, with the accompanying list of standards, a single Registry of technical regulations in the Republic of Srpska will be established, which will be regularly updated and available to all interested users on the website of the Institute for Standardization and Metrology of the Republic of Srpska.

6.2.6 Improve capacity of quality infrastructure for industry needs Previous studies have shown that the Republic of Srpska does not have a sufficient number of certification and accreditation bodies, which is why there is no appropriate quality control of products placed on the market, both imported and domestic goods, which gives the possibility for goods of suspicious and poor quality to be sold on the market. This threatens the health and life of consumers, as well as domestic producers facing unfair competition. Bearing in mind that the conformity assessment bodies (test and calibration laboratories, certification and inspection bodies) are the weakest link of the quality infrastructure of the Republic of Srpska, the priority activities under this goal are those that will be implemented in order to create the lacking capacities, as follows: . Analysis of the existing and identification of necessary capacities of product conformity assessment bodies in the Republic of Srpska, from the standpoint of the requirement to export domestic products to the European Union market and the application of regulations to transpose the New Approach Directives. . Issuing decisions on the authorization of the product conformity assessment bodies, which will clearly define the provisions on the type and scope of the authorization of the competent minister, authorization procedures, conditions for obtaining authorization, the competencies for performing supervision over the fulfillment of the requirements of authorized bodies and the adoption of a bylaw to specify and regulate them more precisely. It is particularly important to define the validity of the authority of the competent minister and the competence for periodic supervision of the fulfillment of the conditions of the appointed bodies. . Establishment of a single Registry of appointed/authorized product conformity assessment bodies in the Republic of Srpska on the website of the Institute for Standardization and Metrology of the Republic of Srpska, so that the data on the conformity assessment bodies are available to interested users in one place, and the regular updating of the Registry in the forthcoming period.

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Considering that accreditation is a way of demonstrating the competence of the conformity assessment bodies in the countries in the region and the European Union (TBT/WTO and CEFTA agreements), it is recommended that companies start the process of obtaining an accreditation act. In this regard, it is necessary to promote accreditation and provide appropriate support to companies that want to be accredited. . Staffing of the Institute for Standardization and Metrology of the Republic of Srpska as an institution in charge of two pillars of quality infrastructure in the Republic of Srpska, standardization and metrology, and, partially, product conformity assessment. In the following period, the adoption of strategic documents in the field of quality infrastructure is planned, as follows: . Standardization Development Strategy in the Republic of Srpska, which will define further standardization development paths and the basis for creating preconditions for the use of standards in achieving economic development based on the competitiveness of goods and services, and closely related to this are development of innovation activities, transfer of technologies, establishment of market relations and free movement of goods and services. . Strategy on Metrology of the Republic of Srpska, which will define the construction of metrological infrastructure, which meets the needs of the economy and the requirements established at the international level for all participants in the trade in goods and services, as well as ensuring the international traceability of measurements in the Republic of Srpska. Bearing in mind that the quality of products is a crucial factor of competitiveness, which depends on the survival and development of each company, the industrial area, that is, the industry as an economic activity, will continue to provide support to companies for establishing a quality system and obtaining a CE mark. The introduction of a quality system is a means to achieve a competitive advantage, and continuous improvement of quality is the most powerful concept to be followed by any company. Less than 5%54 of the total number of SMEs in the Republic of Srpska has introduced a quality system, which means that it is necessary to continue to point to the importance of its introduction, and to encourage companies to comply with international standards.

6.2.7 Establish efficient market surveillance The market inspection carries out market surveillance over compliance with regulations related to trade, catering, tourism, services, consumer protection, measuring units and mesuring instruments, intellectual property, quality of liquid petroleum fuels during import, the safety of non-food products and other areas defined by separate regulations. The main strategic objectives of the market inspection activity in the following period are: suppression of illegal work, higher level of consumers' protection, trade of safe products and protection of the holder of intellectual property rights. The achievement of these objectives will be carried out in the following ways: . Proactively or control in areas and objects at higher risk and in entities where the risk of violation of consumer rights, violation of the rights of the holder of intellectual property rights, trade of safe products and illegal work is higher,

54 Source: Chamber of Commerce of the Republic of Srpska, assessment 79

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

. Reactively or control over receipt of consumer complaints in accordance with the provisions of the Consumer Protection Law in the Republic of Srpska, as well as over applications submitted by institutions, entities and citizens in accordance with regulations whose application is controlled by market inspection. The insection authorities will monitor the compliance of products placed on the market with the prescribed requirements and take appropriate measures and actions to ensure compliance with these requirements in order to ensure a high level of protection of the health and safety of people, animals, plants, property and environment.

In order to establish effective market surveillance, the following activities will be carried out:

. Staffing of the Inspectorate. The insufficient number of inspectors is particularly present in technical, agricultural, educational and health inspectorates. . Upgrading the Inspection Information System, as follows: а) establishment of foreign trade supervision modules in order to improve inspection supervision in foreign trade; b) improvement of the planning modules in order to improve the operational planning of the inspection based on the analysis and risk assessment; c) electronic connection with other public administration institutions of the Republic of Srpska in order to provide access to data necessary for more efficient work of inspectors.

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STRATEGIC GOAL 3 – Increasing employment in industry and improving labor supply

Increasing employment in industry directly reflects on the employment in the Republic of Srpska, given that the industry employs a significant number of workers. However, labor is a limiting factor for the industrial development. The labor market lacks certain profiles of professional workforce, which is a consequence of insufficient adaptation of the education system to the needs of the industry, as well as the lack of motivation of young people to enroll vocational schools. In addition, the existing workforce to a large extent does not have the knowledge required by employers. Therefore, in the forthcoming period it is necessary to work on improving labor supply, as well as the education system, in order to be able to meet the needs of the industry. In the realization of this goal, institutions responsible for education, scientific institutions and employers should work together. On the basis of identified needs and priorities, the institutions of the Republic of Srpska will continue to implement the active employment policy program and provide financial support for employment in the industry. The expected outcome of this goal is to improve competitiveness, increase investment, and increase employment in industry OPERATIONAL EXPECTED INDICATOR: GOALS: OUTCOME: 3.1 Improve the supply of ‐ Increasing employment ‐ Employment rate skilled labor for the needs ‐ Improved education ‐ Increased enrollment in of the industry system in line with secondary vocational schools industry needs ‐ Supply of skilled labor in line ‐ Better supply of skilled with industry needs

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3.2 Support employment labor, ‐ Number of active employment in industry ‐ Labor legislation is policy programs stimulating to create new ‐ The amount of incentives for jobs employment ‐ Better application of legal ‐ Number of additional education regulations in the field of programs, retraining and labor relations, training employment and ‐ Number of persons involved in occupational safety active employment policy ‐ Reducing gray economy programs, additional education, and informal employment retraining and training ‐ Number of laws and by-laws in the field of labor harmonized with EU legislation ‐ Number of employees who are registered in accordance with the law

6.3.1 Improve the supply of skilled labor for the needs of the industry By observing the system of global business and the experience of successful countries, it can be noted that good quality foreign capital, that is, in the production of higher added value, goes to those geographic areas where there is a concentration of resources that is needed, which is primarily a qualified workforce.

In the survey conducted by the Ministry of Industry, Energy, and Mining, the biggest problem in the business of companies in the domain 'Labor Force as a Limiting Factor' are the insufficient skills of the workforce, and this problem is present in almost all sectors of industry. In addition, workers from certain manufacturing professions, as well as workers with a high degree of technical expertise, are lacking.

The survey also required identifying employers' needs for training of workers. In this regard, manufacturing companies, which in 2012 employed a total of 8,252 workers, reported the need for training of a total of 3,727 workers in the period from 2013 to 2018.

Chart 13: Projection of the needs for training of workers in the manufacturing industry (conducted on the basis of data from companies that participated in the survey)

Source: Ministry of Industry, Energy and Mining (survey) 82

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

In order to increase employment in industry, it is necessary to improve the supply of skilled workforce, which will be realized through the following activities: . Continue the on-going reform of education at all levels in order to improve the education system in line with the needs of the labor market. Since there are many professions, while at the same time there are no educated personnel for many jobs in the industry, it is necessary to adjust the enrollment policy to the needs of the industry. The share and quality of practical teaching should be increased in the curriculum, in order to acquire certain practical experiences during regular schooling necessary in the manufacturing process. In order to realize this measure, it is necessary to establish strong links between employers, institutions in charge of education, scientific institutions in relevant fields and labor market. . Presentation and promotion of manufactring vocations, in order to improve general picture of occupations, students, parents and overall public opinion, and motivate young people to become qualified for certain occupations. Primarily, we need to work on familiarizing the elementary school with the benefits of certain occupations, and to provide scholarships to pupils and students who are educated for certain occupations. Schools, employers, local community and relevant ministries should be involved in the implementation of this measure. . Implement additional education and retraining programs, training and education in the occupations in demand. Within this measure, we especially emphasize the activities related to the adoption of training programs for the occupations in demand, which are determined by the competent ministries at the proposal of the Institute for Adult Education, based on the expressed needs of employers55. It is also important that financial support for the next period will be provided for the implementation of the training program for a known employer, as well as the retraining and further qualification program in accordance with the needs of the known employer. . Implementation of the second phase of the 'Opportunity Plus' program, funded by the Government of Switzerland. The aim of the second phase of the program is to establish the training model tested in the first phase of the project56 as being generally accepted in BiH in at least eight selected sectors of the economy. In addition, the elements of the model that relate to practical teaching will be included in the curriculum in at least 20 secondary vocational schools in BiH. This will contribute to the reform of the existing system of secondary vocational education in terms of orientation towards the labor market and the requirements of employers, and at the same time a critical mass of employers, enterprises and educational institutions will be created that will establish a functional relationship between the sector of the economy and the sector of formal and informal education. The program will be implemented by November 2018, and the total budget of the second phase of the program is BAM 9,815,808..

55 By the end of 2015, 12 training programs for workers were under the responsibility of the Ministry of Industry, Energy and Mining, including: Training program for sewing, Training program for welders with TIG procedure, Training program for welders with MIG-MAG procedure, Training program for the production of upper footwear, Training program for furniture carpenters, Training program for operators on CNC woodworking machines, Lacquer training program, Tapet trainer training program, Training program for metalworkers, Training program for cable network confectioners, Training program for footwear modelers and Program for training locksmiths. 56 Page 53, Competitiveness analysis and key development factors - Other support programs. 83

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6.3.2 Support employment in industry Business entities from the industrial sector employed 62,977 workers in 2015, of which 49,858 were employed in the manufacturing industry or 20.27% of the total number of employees in the Republic of Srpska, therefore this sector of industry is significant in terms of employment and the possibility of additional employment. In order to provide support to employment, activities were conducted regarding the implementation of the Employment Strategy of the Republic of Srpska for the period 2011- 2015. The overall goals of the Strategy were focused on implementing employment policies with the aim of achieving full employment, improving the quality of work and increasing productivity in the workplace, and strengthening social and territorial cohesion. In the forthcoming period, implementation of the measures and activities foreseen in the Employment Strategy of the Republic of Srpska for the period 2016-2020 is expected. The strategy objectively examines the situation in the labor market in the Republic of Srpska and defines the directions of action in a given period. Through the implementation of the envisaged measures and concrete programs, the strategic goals of this strategy will be realized, which are related to the maintenance of existing and creation of new jobs in the economy of the Republic of Srpska, as well as the increase in the overall employment and economic activity of the population in the Republic of Srpska. The Government of Republika Srpska enacts the Employment Action Plan in the Republic of Srpska for each year of the implementation of the Strategy, which gives an overview of the measures and activities that will be implemented in order to realize the strategic goals, as well as the necessary financial resources. The Employment Action Plan is prepared by the Ministry of Labor and Veterans in cooperation with social partners and relevant ministries. The Employment Action Plan in the Republic of Srpska for 2016 foresees measures of financial support to employment, such as: measures whose implementation was started in the previous period (Project for supporting the acquisition of working experience of young people in the status of trainees; The Employment Support Project for unemployed persons over 45 years of age; The project of support to employment and self-employment of unemployed war invalids, unemployed fighters and children of fallen soldiers, as well as measures of active employment policy in the labor market in 2016 (Project for support to employment in the economy and self-employment of unemployed persons in the Republic of Srpska, Additional education and adult training in line with the needs of the labor market). It is important to note that it was initiated that more support to employment in the economy is given under the employment projects in the forthcoming period. In addition, it is necessary for the companies to be better informed on available support to employment. In addition to those measures that are solely intended for supporting employment, other measures will be implemented through which employment support is provided. Thus, through the granting of loan funds from the Investment - Development Bank of the Republic of Srpska, the development projects will be supported, which, among other things, foresee opening of new jobs.

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STRATEGIC GOAL 4 – Improving business environment and attracting investments in the industry

Since, as a consequence of the negative effects of the global economic crisis, the inflow of direct foreign investments in the industry has been insufficient in the past period, in the following period priority will be given to activities for securing capital by attracting investments through all forms of investment activity (greenfield and brownfield investments, public-private partnership), whereby the stimulating business environment is a prerequisite for the successful accomplishment of this task. In this regard, activities will be continued to promote investment opportunities through presentations, direct contacts, etc. In addition to attracting new investments, it is necessary to motivate investors who have already invested in the industry to reinvest. Although in recent years a lot has been done to improve the business and investment environment in the Republic of Srpska, industrial companies are still burdened with certain requirements, procedures and costs that make business difficult and affect the achievement of business results. In addition to numerous formalities accompanying business activities, companies are burdened with paying various types of taxes, fees at all levels of government. Certain legal solutions, apart from complicating the companies' business, are not adapted to EU legislation. Therefore, activities on improving the regulatory framework should be continued, ie. the adoption of a new and harmonization of the existing legislation with the EU legislation, and the implementation of structural reforms, primarily the improvement of the business environment. In addition, it is necessary to review the justification of the existence of all parafiscal payments at the republic and local level and undertake activities to reduce or eliminate certain payments. A favorable business environment will attract investors, who will bring in new investments, employment, modern technologies and managerial skills, which will result in an increase in the productivity and competitiveness of the industry. It is indisputable that these measures will have an impact on the level of budget revenues in the short term, however, we note that they are a product of continuous communication and listening to the needs of the business community and investors, and that they will deliver positive results in the long run. In the long term, the expected outcome of the realization of the activities under this goal is to improve competitiveness, increase investment, increase physical volume of industrial production and the number of employees, and improve the solvency of the industry, which will also positively affect budget revenues. OPERATIONAL EXPECTED OUTCOME: INDICATOR: GOALS: 4.1 Improve regulatory - Improved business - Business environment - framework and eliminate environment ranking barriers to the business - A stimulating regulatory - Number of amended and new operations of companies framework for business and laws in the industry investment - Number of laws harmonized

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4.2 Reduce fiscal burden - Barriers to the business with EU legislation and improve the removed - Number of abolished barriers solvency of the industry - Business registration process - Online company registration improved - Deadline shortened and costs 4.3 Attracting - Electronic company reduced for registration and investments in industry registration obtaining different permits - More efficient work of - Reduced number of unsolved commercial courts business disputes - More effective protection of - Reduced tax rates, taxes and intellectual property rights fees - Reduced fiscal burden on - Solvency indicators industry - Value of loans placed - Improved company solvency - Reduced liabilities and - Increased investment in indebtedness industry - Value of investments - Increased number of workers - Number of newly employed in the industry workers, by - Increased number of - Number of companies companies in the industry

6.4.1 Improve the regulatory framework and eliminate barriers to the business of companies in the industry Numerous studies developed by international institutions in recent years have pointed to the fact that the regulatory environment is one of the main obstacles to long-term and sustainable economic development. Certain legal solutions, apart from complicating the companies' business, are not adapted to EU legislation. In this regard, the analysis and improvement of relevant regulations that affect the business environment and stimulate investment, as well as the adoption of new and harmonization of the existing legislation with the EU legislation will be discussed in the coming period. In the process of drafting new regulations that significantly affect the business community, a full regulatory impact assessment methodology will be implemented. Apart from this, the competent institutions of the Republic of Srpska will continue activities to eliminate administrative barriers that block, slow down and demotivate businessmen and investors to create and implement their business projects. The implementation of regulatory reform and business registration reform will continue in the framework of the implementation of a comprehensive economic system reform, which began in 2015, and whose focus is to create more favorable business conditions and attract investment in the economy. The implementation of the business registration reform, in terms of further improvements that will contribute to shortening the time, simplification of procedures and reduction of costs when starting business in the Republic of Srpska, will be realized through: - Improving the operation of a one-stop-shop business registration system and the introduction of online registration through the establishment of a service for electronic registration of business in the Republic of Srpska, - Improvement of the Single Register of Business Entities in terms of filling it with data on all registered businesses, as well as regular updating of the mentioned register in the following period. This register will enable monitoring of the life

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cycle of all business entities and an analytical approach in the process of developing programs and measures important for industrial development, - Establishment of a Single Register of Entrepreneurs, which contains data on all registered entrepreneurs and which will enable for the registration process to be performed in the same way in all local self-government units in the Republic of Srpska. In addition, it is planned to establish a certification body for issuing qualified electronic certificates (signatures) for business entities, which will enable better use of the benefits of electronic business and simpler procedures in legal transactions.

6.4.2 Reduce fiscal burden and improve the solvency of the industry

The industry of the Republic of Srpska is burdened with fiscal and para-fiscal payments that represent a burden for the companies' business performance. Many of these obligations are justified and their fulfillment enables the work of the services that are necessary, among other things, for the functioning of the industry. However, there are obligations that could be reduced or completely abolished. The burdens for the companies' business performance come from the BiH, Republic of Srpska and local communities, and all levels of government must be involved in the process of unburdening industry. In addition, due to numerous factors that have adversely affected the economic activity in the Republic of Srpska, of which the most powerful was the impact of the global economic crisis, many companies have difficulties in their business performance, increased losses, and face the inability to settle their liabilities. In this regard, it is necessary to undertake activities in the coming period to unburden the economy and improve its solvency, which is one of the priorities of the economic system reform. The key activities and measures that will be implemented in the following period are: . Adoption of reform laws in the field of finance in order to unburden the companies and improve their solvency, to create more favorable business conditions, and stimulate investment in the economy. . The basis for the existence of all fiscal and para-fiscal payments at the republic and local level that burden companies will be reviewed and activities undertaken in order to reduce or eliminate them. . Establishing a register of all fiscal and para-fiscal payments at the Ministry of Finance, which will record all the payments that are regulated by laws or other regulations, which represent the revenues of the budget of the Republic, municipalities and cities, funds and other beneficiaries of public revenues. . Support to the textile, leather and footwear industry will be provided by applying a lower base for employee contributions in the amount of 25% of the average monthly gross salary earned in the Republic of Srpska57, with a view to fiscal unburdening of this sector, which plays a very important role in terms of engaging human resources58.

57 Law on Amendments to the Law on Contributions ('Official Gazette of the Republic of Srpska', Noр. 51/01, 96/03, 128/06, 120/08 and 1/11). 58 Law on Contributions ('Official Gazette of the Republic of Srpska', No. 116/12). 87

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

. Loan support. The Investment - Development Bank will provide support to companies in accessing financial assets under attractive / competitive conditions through credit lines (loans), and according to the conditions and criteria that are regulated by the Placement Rules for each individual credit line. The Bank will periodically adjust its credit lines to current market conditions and specific needs of the domestic economy. In order to improve the solvency of companies, the loans will be available to refinance existing credit indebtedness. Framework plan of the Investment - Development Bank for placement of credit funds in the period 2015-2017 in the amount of BAM 394.3 million for legal entities. In accordance with the stated needs of the clients, the Investment - Development Bank will provide additional funds from international sources of financing. . Guarantees for credit indebtedness. The Guarantee Fund will issue guarantees for credit indebtedments, with the aim of providing easier and faster access of business entities, both legal and natural persons, to the financial means of commercial banks.

In the following period, it is planned to provide significant support to companies in terms of: ‐ introduction of favorable maximum outgoing interest rates and risk premium rates for issuing guarantees; ‐ increase in the nominal amount of the guarantee; ‐ reduction of the necessary procedures and documentation accompanying the processing of the request for the approval of the guarantee.

. Support to woodprocessors, through the conclusion of a contract for the purchase of raw materials for a longer period, deferred payment of raw materials and giving a discount for advance payment of raw materials. The goals of providing this support to woodworkers are: ‐ to ensure reliable supply of raw materials so as to enable smooth manufacturing process, through the conclusion of a contract for the purchase of raw materials; ‐ to allow deferred payment of raw materials for a period of 30 to 90 days (depending on the processing level) in order to facilitate the operation of the woodworkers, taking into account the duration of the manufacturing cycle and the time needed for the payment of delivered products.

6.4.3 Attracting investments in industry Increasing investments is the main goal of many countries, as they play an important role in creating new jobs, transferring modern technology and know-how, increasing competitiveness and exports, and improving overall production. In general, attracting foreign direct investment is affected by the increase in the economic freedom and the rule of law, i.e. the country that succeeds in creating the trust of foreign investors in its legislation, institutions and politics - will attract them. Therefore, in addition to political stability, the foreign investors should be provided with economic safety, which is based on stable business conditions and legal certainty. In the previous period, activities were undertaken to improve the investment and business climate, to create an effective institutional framework for attracting investments, and to attract all types of investments primarily to priority sectors of the economy.

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In addition to everything that has been done so far to attract investments, the level of investment in the manufacturing industry is not satisfactory, and it is therefore necessary to undertake planning and systematic activities to stop this trend. The goals of attracting foreign investments in the Republic of Srpska are closely connected with key development goals of the Republic of Srpska, defined by the Republic of Srpska Economic Policy, as well as sectoral policies, and they relate primarily to creating jobs, creating value added, contributing to balance of payments and developing private sector. The largest effect on the above goals is that of the new (greenfield) investments and brownfield efficiency-seeking investments. For that reason, it is necessary to increase efforts to attract these forms of foreign investments. Target investments are: ‐ investments in fixed capital - in order to improve the balance of payments situation, ‐ export-oriented investments, ‐ labor-intensive investments, ‐ investments that lead to an increase in productivity, ‐ investments that lead to the strengthening of value chains, that is, the increase in added value, ‐ investments that lead to the maximization of the spillover of technological entrepreneurship and innovation59. Several key activities and measures to be implemented in the following period in order to achieve this goal are as follows: . Continuation of activities in improving business environment and raising competitiveness of the industry. Elements of competitiveness and business environment are complex and imply constant improvement of numerous factors (regulatory framework, education system, labor market efficiency, financial sector, infrastructure, etc.). . Implementation of the Employment Support Program60, with the aim of financing employment projects in the manufacturing sector, with investors who employ at least 50 workers for an indefinite period, and in accordance with the project, provide additional employment for at least 50 workers. . Promotion of investment opportunities of the manufacturing industry of the Republic of Srpska, i.e. industrial sectors, individual companies and specific projects, through all forms of investment activity (greenfield and brownfield investments, public-private partnership, etc.). . Implementation of the Investor Aftercare Program in order to motivate existing investors from strategically selected sectors to reinvest and improve relations with the local community. The primary goals of this program relate to a simpler and more efficient startup for new investors, retaining existing investors and supporting their investments, and assisting companies in identifying opportunities for expansion and new investments. . Activities of the Foreign Investors Council of the Republic of Srpska, as an advisory body of the Government of the Republic of Srpska, in creation of conditions for attracting foreign investments and improving the overall business environment, as

59 Source: Study on Encouraging Foreign Investments in the Republic of Srpska 2014–2017, Ministry for Economic Cooperation and Regional Development of the Republic of Srpska, Banja Luka, June 2014 60 Regulation on Conditions and Method of Realization of the Employment Support Program ('Official Gazette of the Republic of Srpska', No. 24/15). 89

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well as more complete coordination and cooperation among the institutions at republic and local level in the field of foreign investments. . Informing investors about all important issues related to investing in the Republic of Srpska through a web site for investors61, a network of representative offices of the Republic of Srpska abroad and other marketing measures, as well as potential locations for launching brownfield investments (free manufacturing capacities)62 and greenfield investments (available land for construction). Within these activities, support will be given to investors who are in the final phase of making investment decisions by providing necessary information so as to successfully realize the planned investment. . Strengthen institutional capacities and cooperation between republic and local authorities. The development of an effective institutional mechanism to support investors is very important, as it enables immediate support to investors from contact point to investment and assists in overcoming various administrative barriers. In that regard, it is necessary to strengthen the capacities of the republic institutions and local self-government units for quality promotion, acceptance and retention of investors, strengthen the role of the Republic of Srpska's representative offices abroad in promoting the investment opportunities of the Republic of Srpska, improve the organization, technical knowledge and efficiency of staff in institutions and the like. . Continuation of implementation of the regional project Certification of Municipalities with a Positive Business Environment (BFC SEE), through the establishment of unique quality standards that municipalities and cities provide to potential investors and companies operating at local level. The certification process is coordinated and managed by the Network for a favorable business environment of the Republic of Srpska. . Adoption and implementation of the Republic of Srpska Foreign Investment Encouragement Strategy 2015-2020 with Action Plan. The overall goal of the Strategy is to attract foreign investment, which will contribute to additional employment, export increase, transfer of knowledge and technologies and strengthen local economy.

. Establishing stronger links with the diaspora in order to activate their investment potential. Through the Representation Office of the Republic of Srpska abroad, in cooperation with the Ministry of Economic Relations and Regional Cooperation, line ministries, local self-government units, and the Chamber of Commerce, a system of cooperation, regular contacts, exchange of information and promotional activities will be established in order to increase investments in industry.

61 http://www.investsrpska.net 62 List of available manufacturing facilities: http://www.vladars.net/sr-SP-Cyrl/Vlada/Ministarstva/mper/EEI_investicioni_potencijali/Pages/Slobodni_prostori.aspx

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STRATEGIC GOAL 5 Application of environmental standards in industry and more efficient use of resources

The constant concern for environmental protection is one of the basic components of the sustainable development of the Republic of Srpska, and it is also an important factor for its entry into wider integration processes. The environmental impact of the industry is reflected in emissions of harmful substances into the air, water and soil, the generation of noise and waste, and increased consumption of electricity, and in order to protect the environment, activities must be carried out to minimize these adverse effects. In this respect, the construction and reconstruction of infrastructure in the industry for environmental protection, as well as the efficient use of energy and raw materials in the production process, should be initiated, and the production and use of products with reduced environmental impact should be promoted. In the forthcoming period, the Government of the Republic of Srpska will continue to provide support for the implementation of projects that contribute to the environmental protection, and within the same measure, the introduction of environmental management standards will be supported. The expected outcome of the implementation of this goal is an established system of sustainable development of the industry with reduced adverse impact on the environment. OPERATIONAL EXPECTED OUTCOME: INDICATOR: GOALS: 5.1 Reduce adverse - Reduction of pollution of the - Number of adopted laws and by- environmental impacts environment laws - Introduction of the best - Number of adopted strategic 5.2 Develop an efficient available techniques (BAT) documents system for using raw in the industry - Number of new and amended materials and renewable - Reconstructed or innovated technical instructions (BAT) materials in the industry existing technological - Number of reconstructed or processes innovated existing technological - Introduced environmental processes 5.3 Increase energy management systems (EMS) - Number of issued environmental efficiency and use of - More efficient and effective permits renewable energy sources use of raw materials - Number of products with an in the industry - Greater use of renewable ecological sign materials and renewable - Reducing air pollution energy sources - Reduced waste and waste water - Savings in energy - Number of recycling centers consumption - The amount of energy saved - Raising awareness of the - The amount of incentives for importance of environmental research and development protection projects in the field of renewable materials and renewable energy sources - Number of users of incentives - Number of awareness raising seminars on the importance of environmental protection

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Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

6.5.1 Reduce adverse environmental impacts Environmental pollution problems in the Republic of Srpska are largely the result of obsolete technology and equipment in the industry, as well as low energy and raw materials efficiency, which is somewhat a consequence of the lack of financial resources to improve the current situation. The general problem is the lack of equipment and pollution reduction facilities, especially in the case of desulphurization rigid particles plants (various types of filters). The basic air pollution protection measures are related to the reduction of emissions of pollutants from existing industrial plants that do not meet EU standards. Currently there are no official measurements and / or estimates of emissions of major atmospheric pollutants in the Republic of Srpska by sector, so there are no data on the industry as a pollutant. In this connection, in the forthcoming period, we will work on improving the air quality monotoring system and updating the Registry of Plants (PRTR).

Of the total amount of discharged wastewater from the processing industry, 44.38%63 refers to untreated wastewater. It is expected that, due to the development of the industry, the quantity of wastewater will be higher, which could significantly jeopardize the quality of watercourses, and it is necessary to conduct constant monitoring of the water quality and increase the number of measuring points on which water is sampled. Key activities to be carried out in the forthcoming period, in order to reduce the pollution caused by industry, are: . Adoption of the Strategy for approximation of environmental legislation to the acquis communautaire, in order to strategically plan the transposition of EU environmental policies, as well as to plan investments in environmental protection infrastructure. . Introduction of the best available techniques (BAT) in the industry, which have the least harmful impact on the environment: drafting and improving the regulations governng the use of the best available techniques and their alignment with the legislation of the European Union, and monitoring the implementation of recommendations for using the best available techniques. By using the best available techniques a high level of environmental protection is achieved, which is reflected in the energy and raw materials consumption reduction, as well as reduction in the harmful emissions in the environment. . Initiating the construction of infrastructure for the environmental protection in the industry (facilities for purification of harmful gases and pollutants, industrial wastewaters, waste treatment) and promotion of the production and use of products with reduced environmental impact. . Support to the realization of environmental protection projects related to the reconstruction / innovation of existing technological processes, introduction of the best available techniques, more efficient use of raw materials and energy in the production process, development of products with reduced environmental impact, reducing waste, recycling, etc. . Within the framework of this support, the introduction of standards for environmental management will be supported. The advantages of implementing these standards for a business entity are multiple and are reflected in gaining competitive

63 Source: Statistics Institute of the Republic of Srpska, data for 2013 92

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

advantage by reducing costs, acquiring new jobs in markets where environmentally- friendly production is important, improving reputation and establishing cooperation with environmentally conscious clients, easier obtaining of the authorizations and permits from local and state authorities, improving the quality of workplace and ethics of employees, etc. In addition to the support of the Republic of Srpska institutions, certain funds should be available from EU funds, which aim to prevent or reduce the environmental impact of the industry, in line with the EU environmental policy priorities. . Implementation of the eco-label allocation procedure.64 The eco-label on the product refers to quality from the environmental point of view throughout the life cycle and indicates the product that has a reduced negative environmental impact in relation to related products or the same products. The allocation of eco-labels to a particular group of industrial products encourages the development of technologies that less pollute the environment and contribute to the production of products that are not harmful to human health, and encourages more rational management of raw materials and energy. . Implementation of the project 'Regional network for EU accession in the field of environment and climate change' (ECRAN). The aim of the project is to strengthen regional cooperation between candidate countries and potential candidates for EU membership in the field of environment and climate, as well as to assist in the harmonization and application of EU policies and instruments in the field of environmental protection and climate change. The project is funded from IPA funds 13, and the total fund amounts to EUR 5 million.

6.5.2 Develop an efficient system for using raw materials and renewable materials in the industry Waste management is a problem of environmental protection that requires prioritization and is one of the most demanding areas in terms of harmonization with the standards of the European Union (EU). Solving this problem and orienting towards modern waste management are one of the prerequisites for the EU accession. In order to achieve better quality waste management, it is necessary to minimize the production of waste, especially hazardous waste, treat waste in such a way as to ensure the recovery of raw material from it, or to burn or dispose of those types of waste that are not subject to recovery of raw material to landfills in an environmentally-friendly way. In addition, it is necessary to create a sense of responsibility for handling waste at all levels, to ensure that problems are identified, provide accurate and complete information, promote principles, incentive measures and partnerships between the public and private sectors in waste management. Initiatives aim to encourage a more responsible attitude towards waste and to treat waste in a sustainable way, such as reducing waste at source, reusing waste, recycling, energy waste utilization and waste disposal in a safe manner. In order to develop an efficient system for the use of raw materials and renewable materials, the following activities will be carried out in the forthcoming period: . Adoption of the Waste Management Strategy, which will determine the strategic planning in the field of waste management in the Republic of Srpska in line with the acquis communautaire.

64 Rule Book on Eco-Labels and Way for Management of Eco-Labels ('Official Gazette of the Republic of Srpska', No. 22/08). 93

Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

. Waste minimization. Minimization must be designed throughout the life cycle of the product, i.e. already at the design phase, through manufacture, packaging, to transport and product placement. In this regard, the industry will initiate the rational use of raw materials and minimize waste generation. . Reuse. Some products are specifically designed to be used more than once, while some may be processed for the same or similar purposes, and in that sense, their reuse will be initiated. Reuse of the product reduces costs for producers and consumers, reduces energy and raw materials costs, as well as costs of waste disposal. . Waste recycling, through which extremely important technical, ecological and economic effects are achieved, and of course the most significant of them is a drastic reduction in the amount of industrial and municipal waste that must be deposited on sanitary landfills, which prolongs the life of landfills and significantly slows down the process of exhaustion of natural resources and emissions from landfills. Reasons for the need for increased waste utilization are multiple, and the main is that we have limited natural resources, which should be used rationally. . Construction of an efficient waste management system, with recycling centers, in accordance with the Solid Waste Management Strategy. The Strategy defines a solid waste management policy in the Republic of Srpska, according to the concept of regional landfill through inter-municipal waste management organizations and its disposal in sanitary landfills of a regional type.

6.5.3 Increase energy efficiency and use of renewable energy sources in the industry

Energy efficiency and the use of renewable energy sources are strategic determinants of energy policy and assumptions for the sustainable development of the Republic of Srpska, and an important factor for the EU accession. The goals of the EU's energy development strategy to 2020 are to reduce greenhouse gas emissions by 20%, to generate 20% energy from renewable sources, to save energy by 20% and renewable energy by 10% in total transport fuels consumption. In order to increase energy efficiency in the industry and the use of renewable energy sources in the forthcoming period, the following activities will be carried out: . Implementation of the Energy Efficiency Action Plan of the Republic of Srpska up to 2018 with the aim of increasing energy efficiency and energy savings. . Implementation of the Action Plan for the use of renewable energy sources in the Republic of Srpska, with the aim of increasing the share of renewable energy sources in final energy consumption and reducing energy consumption. . Initiating measures to increase energy efficiency, such as: replacing non-renewable energy sources with renewable energy, replacing energy-inefficient consumers with efficient ones, insulating the heating area, and introducing tariff systems from distributors that will stimulate energy savings. The above measures will contribute to increase in the energy efficiency of the industry, reduction in the production costs and security in the electricity supply. . Encouraging the use of renewable energy sources, such as the use of energy from small hydropower plants, the use of energy from biomass, the use of geothermal energy, wind farms and solar cells. In addition, the use of waste as an alternative fuel will be initiated.

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Priorities and strategic goals of the Republic of Srpska industrial development 2016-2020

. Financial support to energy efficiency projects and the use of renewable energy sources, through the Environmental Protection and Energy Efficiency Fund of the Republic of Srpska.65 The special attention will be paid by the Fund to co-financing the drafting of preparatory documentation for the submission for financing of the projects from the Republic of Srpska through the allocation of international funds (EU funds, UN organizations, etc.), and strive to provide an adequate share of funding in these projects.

65 From 2009 to 2015, the Fund approved and contracted the use of funds in the amount of about BAM 8 million for co- financing projects in the field of environmental protection and energy efficiency. The largest part of the funds was spent on co- financing environmental protection projects – source: Environmental Protection and Energy Efficiency Fund of the Republic of Srpska.

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Expected outcome of implementation of the Strategy of industrial development for the period 2016-2020

7 EXPECTED OUTCOME OF IMPLEMENTATION OF THE STRATEGY OF INDUSTRIAL DEVELOPMENT FOR THE PERIOD 2016-2020 The implementation of the activities foreseen by the Strategy will significantly contribute to the growth and development of the Republic of Srpska industry over the upcoming period. In line with the vision and set strategic goals for the industrial development 2016-2020, the expected results of the implementation of the Strategy are as follows:  growth of gross domestic product (GDP) realized in the industry  increase in the share of the GDP of the industry in the total GDP of the Republic Srpska  growth of the production volumes in industry  export growth in the industry  reduction in the foreign trade deficit in the industry  increased number of employees in the industry  enhanced supply of skilled labor for industry needs  enhanced business environment for businesses operating in the field of industry  increased investment in the industry  increased competitiveness of business entities from the industry  improved structure of domestic production in favor of production of higher added value  improved system for supporting development and innovation in the industry  improved quality infrastructure for industry needs  increased use of environmental principles and standards in the industry. The Republic of Srpska is a small open economy and as such is heavily exposed to external factors, therefore, it is not possible to predict for sure the trends in macroeconomic indicators in the upcoming period. Based on the trends in macroeconomic indicators in industry in the previous period and development projections of certain indicators in the strategic documents of the Government of the Republic of Srpska, in the following period, the following positive trends can be expected:  increase of 10% in the GDP realized in the industry in 2020 compared to 2015,  average annual growth of 2.5% in the physical volume of industrial production,  increase of 15% in the export of industry in 2020 compared to 2015,  increase of 5.5% in the number of employees in industry in 2020 compared to 2015.

In doing so, it must be taken into account that the implementation of the set strategic goals is influenced by policies implemented by various institutions of the Republic of Srpska, and, therefore, a coordinated action is needed in order to achieve the projected results.

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Financing the implementation of the Strategy of industrial development for the period 2016-2020

8 FINANCING THE IMPLEMENTATION OF THE STRATEGU OF INDUSTRIAL DEVELOPMENT FOR THE PERIOD 2016-2020

The priority of all the institutions responsible for the conduction of the activities under the Action Plan for the implementation of the Strategy should be the realization of the planned activities, as well as the achievement of the goals and the projected results of the Strategy, whereby the necessary financial resources should be provided for the implementation of some activities.

The sources of funding at disposal are: the budget of the Republic of Srpska and local community budgets, dedicated financial resources of various funds of the Republic of Srpska, financial resources of business entities, loans from domestic / international financial institutions, donor programs and various forms of assistance, direct foreign investments, and the like.

The Action Plan for the implementation of the Strategy lists the indicative funds needed for the implementation of some activities. Bearing in mind that there is a three-year budget planning cycle in the Republic of Srpska, the total funds for the implementation of activities financed from the budget in the period of implementation of the Strategy (2016-2020) can not be stated. The budget of the Republic of Srpska is adopted annually, and the realization of the activities financed from the budget depends on the approval and the provision of funds in the current year. For this reason, the activities will be implemented in accordance with the financial possibilities and the approved budget funds in the year of realization. On the other hand, additional financial resources are not required for the implementation of certain activities, as they are carried out by the competent institutions of the Republic of Srpska as regular activities.

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Implementation of the Strategy of industrial development for the period 2016-2020

9 IMPLEMENTATION OF THE STRATEGY OF INDUSTRIAL DEVELOPMENT FOR THE PERIOD 2016-2020 The implementation of the Strategy, i.e. its monitoring, reporting and modification, is an extremely important step in the implementation of the Strategy. It implies the process of continuous data collection and information related to the measurement of the process of successfulness of the Strategy, as well as timely signaling to the responsible institutions of the effects of its implementation, in case of failure of the undertaken activities and the need for correction of the Strategy. Implementation of the strategy is possible only if all institutions of the Republic of Srpska carry out activities under their jurisdiction, in the manner and within the deadlines defined by the Action Plan for the implementation of the Strategy, and if they regularly monitor the achieved results. The monitoring and realization of the Action Plan is a task of all competent institutions of the Republic of Srpska, which will once a year issue a report on the implementation of the activities under the Action Plan which are within their competence and submit it to the Ministry of Industry, Energy and Mining of the Republic of Srpska.

The Ministry of Industry, Energy and Mining of the Republic of Srpska will, on the basis of the reports submitted by the institutions of the Republic of Srpska, prepare the consolidated information on the implementation of the Action Plan, and submit it once a year to the Government of the Republic of Srpska for consideration.

In this regard, all institutions of the Republic of Srpska should improve their databases and provide data for the indicators listed in this document. Also, in budget planning on an annual basis, principal bodies from the Action Plan should anticipate the funds for the implementation of the activities under the Action Plan.

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Key conclusions of the Strategy

10 KEY CONCLUSIONS OF THE STRATEGY

Industry is one of the most important sectors of the economy of the Republic of Srpska. For the Republic of Srpska it is essential that the industrial development gets the status of a long-term social priority of the highest importance. Based on the analysis and research carried out during the preparation of the Strategy, as well as the assessments of the available capacities, development advantages and limiting factors of industrial development, the priorities and strategic goals of the industrial development for the period 2016-2020 are defined as follows:

STRATEGIC GOAL 1 – IMPLEMENTATION OF INDUSTRIAL REVITALIZATION PROCESS (REINDUSTRIALIZATION)

It implies the implementation of the concept of reindustrialization in all sectors of the industry, which aims to initiate and increase the volume of industrial production and employment. This process also implies general cleaning and resolving the current situation in companies with majority state ownership and will be implemented through:

 Completion of the privatization process,  Company restructuring,  Initiation and completion of bankruptcy proceedings and liquidation in industry и  Support the implementation of revitalization projects in industry.

Initiating bankruptcy and liquidation are painful processes that do not have an alternative, but are necessary to prevent further loss and destruction of these companies.

STRATEGIC GOAL 2 – МONITORING, FOLLOW-UP OF INDUSTRIAL DEVELOPMENT AND IMPLEMENTATION OF ADEQUATE MEASURES TO IMPROVE COMPETITIVENESS It implies monitoring of all sectors of the industry from the aspect of economic indicators and their effect on economic growth, and the application of adequate measures to support development and improve competitiveness, as follows:  Increase in exports by supporting the production of higher added value and development projects, innovations, introduction of modern technologies, etc.;  Import substitution by supporting the development of products that are missing on the domestic market, branding domestic products, and encouraging consumption of products of domestic origin;  Financial support to development projects, through the allocation of subsidies, loans of the Investment - Development Bank, and EU funds;  Improving the quality infrastructure for industry needs, which implies the improvement of technical regulations, building the missing capacities for product conformity assessment, and the establishment of effective market surveillance.

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Key conclusions of the Strategy

STRATEGIC GOAL 3 – INCREASING EMPLOYMENT IN INDUSTRY AND IMPROVING LABOR SUPPLY

It implies the implementation of measures to improve the supply of skilled labor to respond to current market demands and increase employment in industry, such as:  Implementation of additional education, retraining, training and educational programs, and education reform aimed at adapting policies to the needs of industry, increasing the share of practical teaching and promoting productive skills;  Implementation of active employment policy programs, i.e. providing financial support to employment in industry, based on the identified needs of employers.  Strengthening control functions of inspection bodies in the field of labor relations and employment, in order to reduce the gray economy.

STRATEGIC GOAL 4 – IMPROVING BUSINESS ENVIRONMENT AND ATTRACTING INVESTMENTS IN THE INDUSTRY

It implies the implementation of measures to secure capital and increase investment in industry, as follows:  Creation of a stimulating business environment by improving the regulatory framework, eliminating barriers to the business, reducing fiscal burden and improving the solvency of the industry;  Attracting investment in industry, through all forms of investment activities (greenfield and brownfield investments, public-private partnership), by promoting investment opportunities for investment in industry, encouraging investment, and implementing post-investment support programs for investors.

STRATEGIC GOAL 5 – APPLICATION OF ENVIRONMENTAL STANDARDS IN INDUSTRY AND MORE EFFICIENT USE OF RESOURCES

It implies the implementation of measures to develop and promote environmentally-friendly industrial production, as follows:  Reducing adverse impact on the environment through the construction and reconstruction of infrastructure in enterprises and the introduction of environmental protection standards, and the production and use of products with reduced environmental impact;  Rational use of production inputs and resources, through waste reduction, reuse and recycling of waste, and construction of an efficient waste management system with recycling centers;  Efficient and rational use of energy, by taking measures to increase energy efficiency and use of renewable energy sources.

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Key conclusions of the Strategy

The success of the realization of the Strategy, i.e. the fulfillment of the strategic goals of the industrial development, depends on the engagement of all the institutions of the Republic of Srpska - the principal bodies and the provision of the necessary financial resources for their realization.

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ACTION PLAN FOR THE IMPLEMENTATION OF STRATEGY AND POLICY OF INDUSTRIAL DEVELOPMENT OF THE REPUBLIC OF SRPSKA FOR THE PERIOD 2016-2020

Banja Luka, October 2016

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ACTION PLAN FOR THE IMPLEMENTATION OF STRATEGY AND POLICY OF INDUSTRIAL DEVELOPMENT OF THE REPUBLIC OF SRPSKA FOR THE PERIOD 2016-2020

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Strategic goal 1 – IMPLEMENTATION OF INDUSTRIAL REVITALIZATION PROCESS (REINDUSTRIALIZATION) 1.1 Completion of the privatization process of state-owned capital in industry Complete the activities on MIEM, Completion of Number of privatized privatization of companies IDB MSPCE, 2018 privatization of companies companies with state-owned capital MAFWM with state-owned capital Number/percentage of companies that ( do not) Fulfillment of obligations respect the provisions of the Monitor privatized undertaken in the IDB con. privatization contract, the companies privatization process number of fines charged on the basis of the breach of contractual obligations 1.2 Company restructuring in the field of industry Improvement of МF, MIEM, Conduct company Number of restructured efficiency and self- IDB MSPCE, con. restructuring process companies sustainable performance MAFWM of companies

103

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Successful implementation of the process of Provide funds for the Amount of financial support, restructuring of companies purpose of social protection МIEM, the number of workers with majority and 100% for workers who lost their MLV, MF MSPCE, con. (technological surplus) who state-owned capital, as jobs in the process of MAFWM are covered by adequate well as social protection of restructuring social protection technological surplus of workers in the process of restructuring Number of professional lectures; number of participants- capital companies whose МIEM, representatives participated in Corporate governance Improvement of corporate IDB MSPCE, con. lectures; the number of past improvement governance MAFWM sessions of the General Meeting of Shareholders, the number of recommendations for voting to the ownership representatives

104

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Participation in the IDB con. Planned funds for the Total amount of funds raised Financing projects financial market through period 2015-2017 in in securities; revenues through issuance of portfolio management the amount of BAM generated from the sale of securities 37,513,000 securities from the portfolio of funds

1.3 Conducting bankruptcy proceedings and liquidation in industry Quality and faster conduction Implementation of the new АIIF, of bankruptcy proceedings, More effective and more legal framework for МIEM, 2016 more efficient reorganization MJ efficient implementation conducting bankruptcy MSPCE, of companies and more con. of bankruptcy proceedings proceedings MAFWM transparent settlement of bankruptcy creditors АPIF, TA, RAGPA, Legal framework established, Establishment of a list of Reducing the number of MIA, list of property owned by property owned by 2017- industrial companies МF Banking companies created, better companies (movable and 2020 100,000 which have been insolvent Agency of insight into the solvency of immovable) for many years the Republic companies of Srpska

105

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Decrease in the number of companies with long-term insolvency, higher level of settlement of creditors in Initiate MSPCE, , bankruptcy proceedings, Effective and efficient bankruptcy/liquidation МF, TA МIEM, con. number of misdemeanor implementation of proceedings in due time MSPCE, sanctions for responsible bankruptcy proceedings MAFWM persons due to failure to submit proposal for bankruptcy proceedings initiation Initiate misdemeanor Number of initiated procedures for debtors who competent misdemeanor procedures, the do not submit a proposal АIIF commercial con. reduction in the number of for opening a bankruptcy courts companies with long-term procedure within the legal insolvency deadline Amendments to the Rulebook Reduce the costs to be on Fees and Rewards for Effective and efficient MSPCE, borne by a company when Bankruptcy Managerss and implementation of competent initiating a bankruptcy or 2016 Members of the Creditors' bankruptcy proceedings commercial liquidation proceeding Committee, reduced costs of courts bankruptcy or liquidation proceedings initiation Accelerate the competent implementation of Reduce the duration of the MSPCE commercial con. bankruptcy proceedings in bankruptcy proceedings courts companies

106

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Number of initiated 2016 15,000* bankruptcy proceedings, the amount of support given Provide financial support 2017 15,000** to companies for MIEM 2018 15,000** bankruptcy proceedings initiation 2019 15,000** * The Republic of Srpska Budget for 2016 **FBD 2017-2019 1.4 Support the implementation of revitalization projects in industry Provide support for the MIEM, Number of plants in which implementation of MAFWM, МF con. production has been started, Industry revitalization revitalization projects in МSPCE the number of employees industry From six to eight business Improvement and MIEM, zones of strategic importance Business infrastructure construction of business RADSME, CCRS con. for the Republic of Srpska provided zones LGU developed, the number of business zone users Strategic goal 2 – МONITORING, FOLLOW-UP OF INDUSTRIAL DEVELOPMENT AND IMPLEMENTATION OF ADEQUATE MEASURES TO IMPROVE COMPETITIVENESS 2.1 Monitor the situation and propose measures to develop and improve the competitiveness of the industry Monitor and analyze the MIEM, System for monitoring the situation in the industry in Number of analyzes, МSPCE, CCRS con. state and trends in the the Republic of Srpska and information, reports, etc. MAFWM industry established its surroundings

107

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Propose measures and take MIEM, CCRS, Number of proposed initiatives to develop and МSPCE, UEARS, con. measures and launched improve competitiveness MAFWM CTURS initiatives of industry Number of promotions, Industrial development number of supported projects, and improvement of Promote and support MIEM, cooperation between industry competitiveness projects with immediate MEC,MST MAFWM, con. enterprises, universities and application in the economy МSPCE scientific and research institutes in joint development projects Develop a methodology for the collection and MST, processing of statistical 2016 Existence of official statistical SIRS MIEM, data and establish a quality indicators for the ICT sector CCRS System for monitoring the system for monitoring the state of the ICT improved, state of the ICT sector as a basis for proposing Monitor and analyze the concrete measures for its state of the ICT sector and Number of analyzes, number development and МMST, MIEM, propose measures for its con. of proposed measures and improvement AISRS CCRS development and launched initiatives improvement Promotion of the ICT MST, Support to the ICT sector sector and its application in CCRS con. Number of promotions MIEM,МТТ development industry

108

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Number of considered requests of companies, Monitor the work and take MIEM, Improvement of number of analyzes, measures to solve the МSPCE, performance efficiency of con. information, given opinions problems of individual MAFWM, industrial companies and responses, proposed companies МТТ measures and launched initiatives Improved cooperation CTURS, with social partners Number of meetings held and MIEM, branch through joint activities in Improve cooperation with activities, number of proposed МSPCE, associations con. solving identified social partners measures and launched MAFWM CCRS, problems in business initiatives UEARS operations of companies and industry branches Monitor the effects of MIEM, con. Effects of implemented System for monitoring the measures taken in industry МSPCE, measures considered effects of implemented and individual companies MAFWM measures established

2.2 Increase export of industry

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Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Improvement of export environment - shortening the Remove barriers faced by MIEM, time, reduction of procedures

companies in performing MAFWM, con. and costs in performing foreign trade activities МSPCE, МТТ foreign trade activities, Improvement of the number of passed/amended competitiveness of laws companies Number of initiatives Active work of the RS CCRS con. launched to improve the Council of Exporters export environment MERRC, Increase in exports of Support to marketing MIEM, Representative Number of promotions, companies, cooperation activities and to promotion MAFWM, Offices of the con. number of marketing with new buyers of companies on the МSPCE, Republic of activities established, new markets foreign market МТТ Srpska, CCRS won MERRC, CCRS, MIEM, Provide information Representative MAFWM, Number of given information, Information support to con. support to exporters Offices of the МSPCE, number of views on website exporters Republic of МТТ Export - RS Info Center Srpska abroad CCRS, MERRC, РА, MIEM, Strengthen the capacities Representative MAFWM, Number of trainings, of exporters through con. Training of exporters Offices of the МSPCE, seminars, etc. held trainings, seminars, etc. Republic of МТТ Srpska abroad

110

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Support to the MIEM, RADSME, con. Number of clusters, number establishment of new and MAFWM, CCRS, IDB of companies joined in Organized market strengthening existing МSPCE clusters, amount of loans presence and greater clusters in the Republic of given to cluster members product competitiveness Srpska 2.3 Support to the development of domestic products in industry Update the Registry of Import raw materials, import raw materials, МIEM con. components and finished components and finished product identified products Register of import materials, Inform potential components and finished manufacturers about products posted to Ministry's

import materials, МIEM con. website, communication with components and finished potential manufacturers Development and start of products established, number of users a production of lacking of information domestic products Link business entities with faculties and institutes in Number of contacts between the process of adopting a Faculties, companies and faculties and new MST, МIEM Institutes, con. institutes, number of new product/manufacturing CCRS products/manufacturing process/technology for processes/technologies products that have been imported so far

111

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Financial support for the Provide financial support development of new products Development of domestic to companies in the that are lacking in the 2017 products, reduction of process of developing МIEM МF domestic market provided, imports, reduction of products that are lacking in con. amount of support, number of foreign trade deficit the domestic market users, number of new products Consider the needs and МIEM, possibilities for Needs and possibilities for MAFWM, Support to industrial establishing a Center for SRO 2016 establishing the Center МSPCE, development Design and Technical identified CCRS Support to the Industry The criteria adopted, raw materials (quantitative and Development of products Adopt criteria for the qualitative) to manufacturers МIEM, PEF, of higher stage of distribution of forest MAFWM 2016 of higher stage of finalization CCRS processing timber assortments provided, increase in the manufacture of higher stages of wood processing МIEM, Increase in the number of Improve the public CCRS, Easier access to jobs for MAFWM, con. selected domestic bidders - procurement system UEARS local manufacturers МSPCE, МF manufacturers Reduced imports, unfair Number of controls, number Conduct permanent control competition and reduced RAIA con. of identified defects, reduced of import materials number of unsafe imports of unsafe products products

112

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Number of announcements Regularly inform Reduced imports of МТТ, and notifications about consumers about unsafe unsafe products and RAIA Consumers' con. dangerous and non-compliant imported industrial reduced unfair associations conforming products products competition identified during inspection The Trade Strategy that will Draft new Trade Strategy МТТ 2016 define models of support to of the Republic of Srpska local manufacture drafted Number of promotions, Increase in sales of campaigns, information domestic products Conduct a campaign to МIEM, 2016 100,000 leaflets, issuance of the encourage the purchase of МТТ, CCRS MAFWM, bulletin entitled 'Best from domestic products МERRC con. Srpska', implementation of the project 'Our is better' МIEM, Amount of incentives, Encourage domestic MAFWM, number of conferences and МТТ 2016 Domestic brands created products branding МSPCE, trainings on product branding МERRC 2.4 Financial support to development projects in industry 2016 210,000* 2017 210,000** Amount of support, number Improvement of the Provide support to 2018 210,000** of supported projects competitiveness of technology development МST RADSME 2019 210,000** companies

* The Republic of Srpska Budget for 2016 **FBD 2017–2019 Provide support RADSME 2016 143,000* Amount of support, number

113

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline toinnovation development МST 2017 143,000** of beneficiaries, number of innovations 2018 143,000**

2019 143,000** * The Republic of Srpska Budget for 2016 **FBD 2017–2019 MIEM, Provide support to the ICT Amount of support, number МST, AISRS CCRS, con. sector development of supported ICT projects RADSME ICT sector development Funds within Number of promotional Promote the importance of RAIA, МIA, Support to intellectual MST con. innovation activities, amount of financial intellectual property courts, AIRS property development support support to innovation Local Provide financial support Improvement of the development Amount of support, number to industrial companies at con. competitiveness of agencies, of supported companies local level companies RADSME Provide professional Local Number of projects assistance to companies in RADSME development con. supported, amount of funds drafting projects to apply agencies granted for funds Development and Number of projects increased investment in МIEM, submitted, number of projects industry Engage in applying for EU RADSME, con. financed, total amount of funds MAFWM, approved funds МSPCE

Improving the 'Voucher МIEM, 2016 61,000 Number of conmpanies Improvement of thr System' program RADSME, 2017 50,000 supported by consultants competitiveness and

114

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline EDA (services, trainings, etc.) development of 2018 50,000 companies

Improving the 'Investment Improvement of the МIEM, Number of supported Services to Enterprises' con. investment ability of RADSME companies system companies

Number of supported Improvement of the Implementation of the МIEM, EDA 2016 companies, amount of competitiveness of 'CREDO Krajina' project supported projects companies The mentoring system Establishment of a МIEM, 2017- established, number of mentoring system in the RADSME 2019 supported companies, amount Improvement of the Republic of Srpska of supported projects competitiveness and development of Number of supported Implementation of the МIEM, 2016- companies companies, amount of 'Challenge 2.0' project RADSME 2019 supported projects RADSME COSME contributi program on МIEM, 2016 201,500 165,000 Strengthening the Number of companies RADSME, Easier access to European Entrepreneurship МF, 2017 184,000 151,000 supported by the European CCRS, information and linking Network of the Republic of МAFWM Entrepreneurship Network UBL,UES, 2018 184,000 151,000 companies Srpska ICBL 2019 184,000 151,000

2020 184,000 151,000

2.5 Improve technical regulations in industry 115

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Strengthen the staff МIEM, Professional staff engaged engaged in drafting Number of hired employees, МAFWM, in technical regulations technical regulations and con. number of trainings and МSPCE, development and monitoring their expert consultations ISMRS monitoring implementation Transpose the directives of MIEM, the New (Global) and Old МAFWM, Number of transposed Technical regulations Approach into the legal МERRC con. МSPCE, directives complied with acquis system of the Republic of ISMRS Srpska Number of conducted МIEM, regulatory impact Monitor the application МAFWM, assessments, the number of Technical regulations and impact of technical МSPCE, UEARS, initiated impact application and con. regulations on the business ISMRS, CCRS amendments/amended monitoring system environment МERRC, regulations that have a established МТТ negative impact on the business environment Updating of the List of МIEM, existing technical List of existing technical Data on existing technical МAFWM, con. regulations of the Republic regulations regularly updated regulations and necessary МSPCE of Srpska conditions for performing business оperations and Inform business entities МIEM, placing products on the about the adoption and МAFWM, con. Number of answers given market is available to implementation of МSPCE, businessmen technical regulations ISMRS

116

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Conduct education and professional consultations МIEM, Number of trainings and Businessmen familiar CCRS, of business entities in the МAFWM, con. consultations, number of with the application of ISMRS application of new МSPCE participants new technical regulations technical regulations

To draft bylaws for the Accuracy of measurement implementation of the Law results for all participants on Metrology in the Bylaws for the in trade of goods and 2016- implementation of the Law on Republic of Srpska ISMRS services 2018 Metrology in the Republic of Srpska adopted

2.6 Improve capacities of quality infrastructure for industry needs Update lists of conformity assessment bodies An up-to-date list of product temporarily authorized in conformity assessment bodies МIEM, Businessmen familiar accordance with technical temporarily authorized in МAFWM, ISMRS con. with the list of conformity regulations taken from the accordance with technical МSPCE assessment bodies SFRY, which are not yet regulations taken from the compliant with EU former SFRY requirements Analyze the needs to МIEM, The analysis carried out, the Recommendations given establish a product МAFWM, needs to establish a (missing) for establishing missing con. conformity assessment МSPCE, product conformity product conformity body ISMRS assessment body identified assessment bodies

117

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Appoint conformity МIEM, Missing capacities for Number of apointed product assessment bodies МAFWM, ISMRS con. product conformity conformity assessment bodies МSPCE assessment appointed

Update the single Registry Updated database of МIEM, of appointed/authorized appointed product conformity Businessmen familiar ISMRS МAFWM, con. conformity assessment assessment bodies on the with the list of appointed МSPCE bodies RISM website product conformity assessment bodies Improve cooperation with Improved cooperation BH inspection bodies and МERRC, among inspection bodies, institutions in charge of МIEM, Number of jointly institutions of quality accreditation, МAFWM, con. implemented activities infrastructure and standardization, metrology МSPCE, institutions of intellectual and intellectual property ISMRS property protection protection Provide expert support in МIEM, Number of support given, the Building the missing candidating quality МAFWM, con. number of built quality quality infrastructure infrastructure capacity МSPCE, infrastructure capacities capacities building projects ISMRS The Republic Institute for Number of new employees, Standardization and Provide resources for the the necessary equipment for ISMRS МIEM con. Metrology has the work of the RISM work procured, the office and necessary capacities for laboratory space provided work Local and international Update the BAS and SRS standards available to all ISMRS con. Up-to-date standard database database interested parties

118

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Improve the metrology and Number of adopted laws and metrological supervision by-laws, number of ISMRS con. system in the Republic of metrological supervision Srpska controls The Strategy of Metrology adpted, ensuring safety and Draft the Strategy of accuracy of measurement Metrology of the Republic results in accordance with the of Srpka ISMRS 2017 international requirements for The Republic of Srpska all the participants in trade of standardization and goods and services and the metrology system provision of international improved measurement traceability The Strategy of Draft the Strategy of Standardization Development Standardization of the Republic of Srpka adopted, further directions for Development of the ISMRS 2017 Republic of Srpka the development of standardization and the basis for creating preconditions for the use of standards defined МIEM, ISMRS, Businessmen familiar Provide trainings related to МAFWM, Number of trainings, number CCRS, con. with the obligations to be quality system introduction МSPCE of trainees RADSME met by products RAIA Provide financial support Amount of support, number to companies for Quality infrastructure of companies that have introducing a quality МIEM, CCRS introduced and conditions con. introduced the quality system and providing for affixing the CE mark infrastructure system and the conditions for affixing the provided CE mark CE mark

119

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline 2016 700 Financial support for 2017 700 Training of stakeholders printing publications to Number of printed ISMRS 2018 in the field of quality promote quality 700 publications infrastructure infrastructure 2019 700 2020 700 Financial support for 2017 50,000 Number of accredited Improvement of accreditation of companies companies metrology system in the 2018 50,000 for carrying out tasks of Republic of Srpska verification of legal ISMRS МIEM metrology mesurement instruments

2.7 Establish efficient market surveillance Market regulation and Conduct regular and Number of regular and RAIA con. higher consumer extraordinary inspection extraordinary inpection protection 2017 153,992 Strengthen the inspection Number of newly employed 2018 141,492 More effective and bodies in terms of their RAIA workers, number of trainings, efficient inspections staff 2019 141,492 missing equipment procured 2020 141,492

120

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline

Electronic networking of the Inspectorate with the institutions of the Republic of Upgrade the inspection AISRS (IIS) Srpska and local information system of the RAIA con. 400,000 communities, a module for Republic of Srpska standardized border inspection established

Strategic goal 3 - INCREASING EMPLOYMENT IN INDUSTRY AND IMPROVING LABOR SUPPLY 3.1 Improve the supply of skilled labor for the needs of the industry MIEM, МAFWM, Number of hours of practical Increase the share and 1,200,000 МSPCE, teaching, improved quality of quality of practical MEC UEARS, con. 'Prilika Plus' Program practical teaching in teaching in the education CTURS, 2014–2018 secondary schools and system RADSME, faculties Improved education CCRS system in accordance with MIEM, the needs of the labor Adapt the educational МAFWM, market Number of professions in system and scientific- МSPCE, secondary schools/faculties, research activities to the MEC, MST UEARS, con. number of research papers needs of sustainable CTURS, related to the field of industry industrial development RADSME, CCRS

121

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline MIEM, МAFWM, Plan for the promotion of Increased interest and MEC, 450,000 Promote professional МSPCE, professions in high demand commitment of young RADSME con. knowledge and professions LGU, 'Prilika Plus' Program drafted, number of people for manufacturing UEARS, 2014–2018 promotions and presentations activities CCRS Establish a system of System of periodic labor Labor market needs analysing the labor market EMRS,UEAR MIEM 2016 market needs analysis identified needs for training S,CCRS, AC established Establish a database of Transfer of experience and CCRS, Database of consulting consulting services MIEM 2016 knowledge needed for the RADSME services providers established providers manufacturing process Provide additional MEC, EMRS, МLWVDPP, 'Prilika Number of additional An adequate supply of Funds educational and retraining IAERS, MIEM Plus' education and retraining labor in the Republic of from the programs for professions RADSME, Program programs, number of persons Srpska's labor market Employm required in the labor UEARS involved in the programs, the 2016 621,000 ent market amount of financial support to Action 2017 621,000 the implementation of the Plan 2018 621,000 programs Identification of needs of Initiate education at all foreign investors, number of levels in companies, МERRC, RADSME, initiatives, number of courses, especially in the field of MIEM, CCRS con. seminars, semiannual and Educated labor skills and knowledge МAFWM, MEC,IAERS one-year specializations of required by foreign МSPCE postgraduate studies, number investors of students

122

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Establish a social MIEM, partnership system at all МAFWM, MEC, МSPCE, Social partnership system levels among employers, MLWVDPP, LGU, con. Number of joint activities that monitors the labor trade unions and educational institutions IAERS UEARS, market needs established CTURS, CCRS 3.2 Support employment in industry Draft an analysis of the line need for the adoption of ministries 2016- Transparent and effective MLWVDPP Analysis drafted the Law on Employment and 2017 support to employment Promotion institutions Develop and implement Employment Strategy the Republic of Srpska 2016- MLWVDPP adopted, measures and Employment Strategy 2020 activities implemented 2016-2020

Encourage employment in MLWVDPP, MIEM, con. Amount of incentives, the industry EMRS RADSME number of newly employed Growth of the workers employment rate in industry Support business and MST, MIEM, con. Number of teams in pre- technology incubators RADSME incubation, number of enterprises in incubation, number of employees EMRS, Increase in the number of Companies are informed Improve informing of MIEM, applications for employment about available companies about available MLWVDPP МAFWM, con. support, number of newly employment support employment support МSPCE, employed workers RADSME

123

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Strengthen the institutional capacities in relation to Greater implementation of legal regulations in the compliance with Increase in the number of RAIA MLWVDPP con. field of labor relations, regulations in the field of controls on the labor market labor relations, employment and employment and occupational safety occupational safety Strategic goal 4 – IMPROVING BUSINESS ENVIRONMENT AND ATTRACTING INVESTMENTS IN THE INDUSTRY 4.1 Improve regulatory framework and eliminate barriers to the business operations of companies in the industry Number of new and amended Initiatives to improve МERRC, regulations, number of relevant regulations that МIEM, CCRS, initiatives to amend have an impact on the con. МAFWM, UEARS regulations, number of business environment and МSPCE, МF regulations harmonized with encouraging investment EU legislation Strengthen the application of methodology of Number of regulatory Improving regulatory МIEM, regulatory impact impact assessments carried framework by improving МERRC МSPCE, con. assessment during their out during their adoption the environment for МAFWM adoption (RIA) business and investment

detailed analysis of the application of labor CTURS, legislation carried out, Improve labor legislation МLWVDPP con. UEARS number of new and amended regulations, number of initiatives

124

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline amendments to laws that Improve the quality of МIEM MJ con. regulate economic activities commercial law more precisely and clearly Reduced number of Accelerate the resolution Commercial Effective resolution of МJ con. unresolved commercial of commercial disputes courts commercial disputes disputes Resolve commercial Number of resolved Commercial disputes from Commercial disputes from the previous МJ 2018 commercial disputes from the the previous period courts period previous period resolved Simplify and reduce the Number of adopted laws and Less expensive, more number of formalities and by-laws, reduced costs and efficient and simpler МSPCE con. costs in issuing building number of formalities in obtaining of approvals permits obtaining building permits required for construction Ensure better and more More effective protection efficient procedures for МIA, RAIA, Number of controls, number МSC con. of intellectual property protecting intellectual courts of corrected irregularities rights property rights Service for electronic Improve one-stop shop for registration of businesses in competent business registration and the Republic of Srpska МEC, АISRS, courts, SIRS, Business registration introduce electronic con. established, faster registration АIIF TARS, system improved registration of business system, reduced registration ITARS entities costs, simplified registration procedures

2016 30,000* Monitoring of life cycles regularly updated and Improve the Single МIEM, 2017 30,000* of business entities of the АIIF available data on all business Business Registry CCRS industry and analytical 2018 30,000* entities in the industry approach in the process of 2019 30,000* developing programs and

125

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline 2020 30,000* measures important for the industrial development * compensation to AIIF in enabled accordance with the Decree of the Government of the Republic of Srpska ('Official Gazette of the Republic of Srpska', number 102/13) The register established, Establish and regularly 2016- regularly updated and update the Register of АIIF MIEM 2020 available data on Entrepreneurs entrepreneurs Establishing new Better use of the JSND Establishing new advanced functionalities within the database, greater functionality within the JSND (electronic archiving of TARS 2017 transparency of data and JSND and its integration documents that are collection of public into the new IS of TARS permanently stored, planning revenues of controls, etc.) Enable electronic filing of Electronic filing system for Saving costs and time TARS 2017 all tax returns all tax returns introduced required to file tax returns Inform and educate Number of visits to the taxpayers about the website, number of answers Improving the application МF,TARS con. application of tax to the questions, number of of the tax system regulations seminars and trainings held Establishment of a By-laws in the field of Better use of the certification body for electronic signature, advantages of e-business, issuing qualified electronic MST, AISRS 2016 document and business simpler procedures in certificates (signatures) for adopted, certification body legal transactions business entities established

126

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Educate newly registered Number of seminars held, Improving the tax system taxpayers regarding the TARS con. higher level of fulfillment of application application of tax laws tax obligations МIEM, Implement measures to Improved business MAFWM, con. Number of measures taken combat corruption environment МSPCE 4.2 Reduce fiscal burden and improve the solvency of the industry

Establish a register of all Register of all fiscal and All charges paid by fiscal and parafiscal MF 2016 parafiscal charges established business entities recorded charges

Number of reduced/canceled МIEM, charges of companies, Implement activities to МSPCE, reduced cumulative reduce or eliminate fiscal MF MAFWM, con. contribution rate, reduced tax Improving business and parafiscal charges CCRS, rate on various bases UEARS environment, reducing the fiscal burden and МIEM, , improving the liquidity of Carry out activities to increased non-taxable portion МSPCE, companies increase the non-taxable 2016 of income; increased non- МF UEARS, portion of income and taxable portion of meal CTURS, con. meal allowances allowances CCRS Determined criteria for the Woodworkers are Provide support to delivery of raw materials, MIEM, provided with sufficient woodworkers for the CCRS con. number of manufacturers who MAFWM quantities and deferred supply of raw materials are entitled to deferred payment of raw materials payment of raw materials

127

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Reducing the fiscal Provide support to textile, burden and improving the МIEM, Reduced base for contribution leather and footwear МF con. solvency of the textile, CCRS calculation industry leather and footwear industry МIEM, Define deadlines for the МSPCE, Law passed, the maximum settlement of financial MF MAFWM, 2017 deadline for the settlement of obligations in commercial Reduction of cash CCRS, financial liabilities transactions determined receivables and improved UEARS financial stability of Number of companies with companies Provide multilateral MF con. collected claims, amount of compensation and cession compensated liabilities Extended VAT payment Securing working capital Initiate improvements in МIEM, МF CCRS con. deadline, reduced deadline for and improving the payment and VAT refunds VAT refund solvency of companies Number of companies that are Approve the settlement of MIEM, entitled to deferred payment Improving the solvency of tax debt through deferred MIEM, TARS МSPCE, con. of tax debt, the amount of companies payment of tax liabilities MAFWM deferred tax liabilities The Law passed, improved Safer sources of financing Adopt the Law on Banks MF 2017 supervision over banks, of companies increased protection of clients 2016 According to the financial plan of the 2017 IDB for the period Number of loans approved, Provide loan support IDB MF 2019 2015-2017, the funds the amount of approved loan Allowed access to loans in the amount of BAM funds 2020 394,261,000 were planned 128

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline favorable terms for obtaining a loan (interest rate, Adjust the existing IDB repayment period), change of credit lines and improve purpose in accordance with Loan terms adapted to IDB MF con. the terms and criteria for the needs of the industry, industry needs giving loans to the industry reduction of number of procedures and of deadline for obtaining a loan

Increase the level of Number of announcements Increase in the number of

information about credit IDB, GF MIEM con. and other promotional requests and users of lines activities loans

2016 6,200,000* 2017 6,800,000* Number of issued guarantees, Support for obtaining a Provide support to loan 2018 7,500,000* placements in industry GF MF value of issued guarantees loan provided through issued guarantees 2019 8,200,000* 2020 9,000,000* * framework plan of placements, in line with the current trend of support Favorable maximum interest Support for obtaining Improve the conditions for GF MF con. rates and premium rates for loans under favorable issuing a guarantee risk for issuing a guarantee conditions Reduced number of Simplify the rules of procedures and Easier and faster access to GF MF con. guarantees' placement documentation for granting credit guarantees 4.3 Attracting investments in industry

129

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline 2016 4,500,000* 2017 4,000,000** Number of investments, value Provide financial support of investments, number of * the total planned funds for the to investment and МF new jobs, value of support implementation of the Employment employment in industry Program in the manufacturing Increasing investment and

sector of the Republic of Srpska hiring new employees ** FBD 2017–2019 Promote industrial sectors, МERRC, IDBRS, individual companies and МIEM, RADSME, con. Number of promotions concrete investment МSPCE, CCRS projects МAFWM МIEM, Implement the Republic of Encouraging the inflow of МSPCE, 2016- Number of measures and Srpska Foreign Investment МERRC foreign direct investment МAFWM, 2020 activities implemented Encouragement Strategy in the industry IDBRS МIEM, Analysis of investment Implement the Investor МSPCE, New investments - МERRC,LGU con. barriers, number of removed Aftercare Program МAFWM reinvestment investment barriers

Active work of the Foreign Number of proposed measures Creating conditions for Investors Council of the МERRC con. to improve the business attracting investments Republic of Srpska environment Regularly update the list of Updated database on free MIEM LGU con. free production capacities production capacities Available data on possible Regularly update the Updated base of available locations for investments database of available МSPCE LGU con. construction land construction land

130

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline CCRS, МERRC, RADSME, Number of given information, Provide information МIEM, representativ number of meetings held, Information support to con. support to investors МAFWM, e offices of number of promotional investors МSPCE, LGU the republic materials issued of srpska, representative МIEM, offices of the Establishing stronger links МAFWM, Number of contacts, number Increase in the republic of con. with the diaspora МSPCE,LG of promotional activities investments in industry srpska, U, CCRS МERRC МIEM, МAFWM, МSPCE, Number of LGU with Strengthen the capacity of CCRS, certificates of favorable Improvement of public republic and local МERRC, RADSME, business environment, con. services in local self- authorities to attract LGU, МF IDBRS, number of trainings, number government units investors representativ of participants of training, e offices of number of projects the Republic of Srpska Strategic goal 5 APPLICATION OF ENVIRONMENTAL STANDARDS IN INDUSTRY AND MORE EFFICIENT USE OF RESOURCES 5.1 Reduce adverse environmental impacts Adoption of the Strategy МSPCE, 2016 Project 'Strengthening The Strategy adopted Strategic planning of for approximation of МAFWM Environmental transposition of EU environmental legislation Protection Institutions environmental policies to the acquis and Preparation for and planning of communautaire Pre-Accession Funds' investments in environmental protection infrastructure

131

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline МAFWM, МIEM, The Implementation of the Republic Number of regulations and project 'Regional network МSPCE, Hydrometeo policies harmonized with EU EU accession in the field for EU accession in the МERRC, rological 2016 IPA 13 legislation, regional of environment and field of environment and МHSW Service of cooperation in the field of climate change climate change' (ECRAN) the Republic environment and climate of Srpska, МHSW Change and amend existing and adopt new regulations in order to Number of new and МIEM, apply the best available МSPCE con. changed/amended technical Introduction of the best МAFWM techniques (BAT) and instructions (BAT) available techniques harmonization with EU (BAT) in the industry, legislation which have the least Monitor the harmful effects on the environment implementation of МIEM, recommendations for using МSPCE con. the best available МAFWM techniques (BAT) МSPCE, Improve the The Republic implementation of the air Hydrometeoro МIEM, Data on air pollution, register quality monotoring system logical con. Monitor environmental МAFWM of plants updated and keeping the Registry Service of the pollution caused by the of plants Republic of adverse impact of the Srpska industry Constant monitoring of МIEM, Data on water pollution МSPCE water quality МAFWM regularly monitored 132

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Number of issued Initiate the construction of environmental permits for infrastructure in the МIEM, new plants (plants for Environmental pollution МSPCE con. industry for environmental МAFWM purification of harmful gases reduction protection and pollutants, industrial wastewater, waste treatment) Rehabilitaton and remediation of the Number of identified Environmental pollution contaminated land on the МSPCE con. locations of 'black spots' - reduction contaminated sites of contaminated industrial sites industrial complexes Promote the production Number of presentations and Use of products with and use of products with МIEM, promotions, number of МSPCE con. reduced adverse reduced environmental products with an ecological МAFWM environmental impact impact sign Provide support to the Amount of support, number implementation of projects Environmental МST con. of projects, number of that contribute to management beneficiaries of funds environmental protection Adopt regulations that will Number of enacted Promotion of products

regulate the process of eco- МSPCE con. regulations, number of with reduced labeling products with eco-label environmental impact Raise awareness of the МSPCE con. Number of seminars, number Increasing environmental importance of of participants awareness environmental protection 5.2 Develop an efficient system for using raw materials and renewable materials in the industry

133

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline Strategic planning in the The Strategy adopted, Develop and implement field of waste quantity of produced the Waste Management 2016 management in the МSPCE EPEFRS World Bank and industrial waste, waste Strategy in the Republic of Republic of Srpska is in con. EPEFRS management - exploitation / Srpska line with the acquis disposal / incineration / export communautaire Implementation of the МSPCE, Increase in the share of Reduction in the final Action Plan for the use of МIEM, con. renewable energy sources in energy consumption in the renewable energy sources МAFWM, final energy consumption Republic of Srpska in the Republic of Srpska EPEFRS waste reduction in the Initiate rational use of raw production process; cost Greater degree of materials in industry, reduction, energy savings and utilization of raw reduce waste generation, МIEM, raw materials in the case of materials in industry, МSPCE con. recycle waste and re- МAFWM the processing of used reduced generation and process used industrial products and their reuse; disposal of waste, energy products reduction of waste disposal and raw materials savings costs Adopt regulations МIEM, Number of adopted Waste management governing waste МSPCE con. regulations system established management МAFWM Build a waste management Number of landfills, number Greater use of waste as a infrastructure with МSPCE МIEM con. of recycling centers secondary raw material recycling centers Support to research and development projects МSPCE, Incentives of the Amount of incentives, Greater use of renewable related to the use of MST МIEM, con. Ministry of Science number of users of incentives materials renewable materials RADSME and Technology

134

Implemen Other Approximate budget Measurable performance Activity Principal body tation Direct effect stakeholders (BAM) indicators timeline 5.3 Increase energy efficiency and use of renewable energy sources in the industry Implementation of the МSPCE, Energy Efficiency Action МIEM, Realized savings expressed in Savings in energy con. Plan of the Republic of МAFWM, PJ consumption Srpska up to2018 EPEFRS Implementation of the МSPCE, Action Plan for the use of МIEM, Increasing the share of con. renewable energy sources МAFWM, renewable energy sources in the Republic of Srpska EPEFRS Initiate measures to Number of initiated measures increase energy efficiency МSPCE, in industry, energy Energy savings in the and use of renewable МIEM, CCRS конт. consumption in industry and industry energy sources in the МAFWM savings industry Provide financial support Increasing energy to energy efficiency Amount of support, number МSPCE EPEFRS con. efficiency and use of projects and the use of of supported projects renewable energy sources renewable energy sources

135

Abbreviations

МIEM Ministry of Industry, Energy and Mining of the Republic of Srpska МERRC Ministry of Economic Relations and Regional Cooperation of the Republic of Srpska МF Ministry of Finance of the Republic of Srpska МТТ Ministry of Trade and Tourism of the Republic of Srspka МST Ministry of Science and Technology of the Republic of Srpska МJ Ministry of Justice of the Republic of Srpska МEC Ministry of Eduction and Culture of the Republic of Srpska МLWVDPP Ministry of Labor, War Veterans and Disabled People's Protection of the Republic of Srpska МSPCE Ministry of Spatial Planning, Construction and Ecology of the Republic of Srpska МAFWM Ministry of Agriculture, Forestry and Water Management of the Republic of Srpska МIA Ministry of Interior of the Republic of Srpska МTC Ministry of Transport and Communications of the Republic of Srpska МALSG Ministry of Administration and Local Self-Goverrnment of the Republic of Srpska МHSW Ministry of Health and Social Welfare of the Republic of Srpka PEF Public Entreprise Forests of the Republic of Srpska RADSME Republic Agency for SME Developement TARS Tax Administration of the Republic of Srpska SIRS Statistics Institute of the Republic of Srpska ISMRS Institute for Standardization and Metrology of the Republic of Srpska EMRS Employment Bureau of the Republic of Srpska IAERS Institute of Adult Education of the Republic of Srpska RAIA Republic Administration for Inspection Affairs RAGPA Republic Administration for Geodetic and Property Affairs IDBRS Investment- Development Bank of the Republic of Srpska CCRS Chamber of Commerce of the Republic of Srpska

136

GFRS Guarantee Fund of the Republic of Srpska СTURS Confederation of Trade Unions of the Republic of Srpska UEARS Union of Employers' Associations of the Republic of Srpska IAERS Institute of Adult Education of the Republic of Srpska SAARS State Administration Agency of the Republic of Srpska АISRS Agency for Information Society of the Republic of Srpska AIRS Association of Inventors of the Republic of Srpska LGU Local Government Units SRO Scientific Research Organization AIIF Agency for Intermediation, Informatics and Financial Services EPEFRS Environmental Protection and Energy Efficiency Fund of the Republic of Srpska UBL University of Banja Luka UES University of East Sarajevo ICBL Innovation Centre of Banja Luka IIS Integrated Information System АC Academic Community EEN Enterprise Europe Network BFCSEE Business Friendly Certification South East Europe FBD Framework Budget Document

137