$ Economic Impact Assessment of COVID-19 in Bosnia and Herzegovina Report May, 2020 Report | Economic Impact Assessment of COVID-19 in BiH Contents Contents 1 Executive Summary 4 Part 1 – Assessment Framework 6 Introduction 6 Brief description of the COVID-19 outbreak 6 Overview of the National and International Response 7 1.2. Assessment Objective 7 Part 2 – Survey and Data Collection of COVID-19 Economic Impact 8 Target Groups and Audience 8 2.2. Methodology 9 Part 3 – Assessment Findings 10 Baseline Situation – Prior to the outbreak situation 10 Production volume 10 Supply of raw materials 10 The growth of the sectors 11 Markets - Export and Import 12 Business Levies 13 Number and structure of active companies 13 Wages and salaries 14 Employment 15 Labour force structure 15 SDG indicators 17 3.2. Early Findings Phase 18 Macroeconomic overview 18 Overview of available surveys 20 Primary data analysis 22 Sectoral and firm size differences 24 Vulnerable demographic groups 28 Implications of COVID-19 for the Sustainable Development Goals 29 3.3. Interpretation of the Findings and Implications for the Economy 32 Summary of findings 32 General findings 33 Findings for sectors and target industries 33 Findings for SMEs 34 Findings for regions 35 Findings for vulnerable groups 35 Part 4 – Options for the Interventions 37 Report | Economic Impact Assessment of COVID-19 in BiH Guiding Principles for Sustainable Recovery 37 4.2. Stakeholders and Their Responsibilities-Field of Action 38 Government (National, entity, cantonal and local level) 38 Business sector/community 38 Financial institutions (National and international) 39 Donors communities 41 4.3. Comparison of measures across countries 42 4.4. Key Assumptions and Constraints 44 4.5. Options for Interventions by Stakeholders 45 Target industries 48 Cross-sector (industry) themes 50 Time and financial framework 52 Conclusions 54 Appendices 57 Appendix 1: Overview of National and International Response 57 Appendix 2: Target Groups and Audience 68 Appendix 3: Methodology 70 Appendix 4: Baseline situation – Production volume 73 Appendix 5: Baseline situation – Supply of raw materials 75 Appendix 6: Baseline situation – The growth of the sectors 76 Appendix 7: Baseline situation - Markets – Export and Import 77 Appendix 8: Baseline situation - Wages and Salaries 82 Appendix 9: Baseline situation – Employment 85 Appendix 10: Baseline Situation – Labourforce structure 87 Appendix 11: SDG indicators 90 Appendix 12: World Bank forecasts for BiH 97 Appendix 13: Export and Import according to Nace Rev.2 97 Appendix 14: Scenarios and Projections 99 Appendix 15: Primary Data Analysis 102 Appendix 16: Interconnection of SDG 113 Appendix 17: Stakeholders and Their Responsibilities (Government Entities) 114 Appendix 18: List of Participants in the Focus Groups 118 Appendix 19: Questionnaires 119 Appendix 20: Urban/Rural Classification 130 This Report has been produced with the support of the United Nations Development Programme (UNDP) in Bosnia and Herzegovina. Its contents are the sole responsibility of the authors and do not necessarily reflect the views of the UNDP. The emergence of coronavirus (COVID-19) was primarily a tragedy for humanity, affecting millions of people. It is also having an increasing impact on the global economy, especially the economies of developing countries, such as Bosnia and Herzegovina. Report | Economic Impact Assessment of COVID-19 in BiH Executive Summary With the COVID-19 (Coronavirus disease 2019) pandemic being a global crisis without a modern parallel, countries are racing to respond to this massive and fast-moving challenge. The lack of global precedent for a „black swan” event is extremely broad in its magnitude and impact across geographic, demographic and economic sectors, and thus emphasizes the importance of the actions companies and policymakers will have to take during the response and recovery period. During January 2020, the new disease began to attract media and public attention worldwide. Scientists soon discovered that the cause of the disease was a new type of coronavirus, officially named SARS-CoV-2, which first appeared in the Chinese city of Wuhan, and for which an appropriate medical response is yet to be discovered. Bosnia and Herzegovina, as one of the countries affected by the COVID-19 pandemic, had the first case confirmed on March 5, 2020, and the number of infected persons has been rapidly growing since then. The overall impact of this pandemic on businesses and supply chains is still not completely known, as economic forecasts are not convergent and quickly undergo substantial revisions. The impact takes on multiple channels, affecting both the supply and demand side of the economy, thus making future forecasts difficult due to the number of factors that must be taken into account. The clearer picture should be available after the end (or easing) of the pandemic, while global recovery will depend on the ability of the affected countries to cope with the effects of the virus. However, one thing is for sure: this event will have global financial consequences that will be felt in almost every branch of the economy. The Economic Impact Assessment (EIA) report presents an overview of the current state of the BiH economy, with an emphasis on the economic situation of vulnerable social groups and industry-level consequences of the COVID- 19 pandemic. The objective of this rapid assessment is to identify the impact of the COVID-19 containment measures such as quarantine, closing of businesses and the disruption of global supply chains on the BiH economy as well as business sector responses to this shock. Finally, the objective is to identify options to address such impact for the private sector. Particular attention is paid to SMEs, export-oriented companies, as well as those in the services sector and agriculture/food production. The assessment report is intended to inform relevant stakeholders for the purpose of their response and recovery interventions to help minimize the negative impacts on companies, institutions, communities and the society. The rapid assessment is based on data collected through specialized surveys conducted for the purpose of this analysis, but also on surveys and research by third parties, and focus groups held with company representatives to bridge data gaps. Special focus was on market feedback around: Productivity losses and effects on employment due to demand loss as well as other reasons, Adjustments of companies to reflect supply and demand disruptions, Recommendations for immediate actions to be undertaken as well as short- and long-term support measures to reduce and mitigate the severity of the pandemic on BiH economy. Key research indicators show that the most directly impacted industries already have been those related to accommodation, food service, and transport, while textiles and fabricated metals sectors experienced the worst hit with regard to the supply chain disruptions. However, in the upcoming months, indirect impact of the crisis is expected to significantly affect the entire economy. Across all key sectors, majority of surveyed firms believe that their turnover will decrease in the 3-month period. It is also alarming that in one of the two most directly affected sectors – Accommodation and food services, 43% of all firms believe that they will have to cease operations completely in three months. However, some of the industries have used the pandemic situation as an opportunity for success, such as the ICT sector, considering changes that involve technology investment, infrastructure deployment, solution strategy and planning. Overall, majority of the firms in BiH have had their normal business capacity utilization decline and turnover decrease as a result of COVID-19 related measures implemented in March and April 2020. With regard to near future perspectives and based on the primary data, majority of firms are planning to take labour cost cutting actions, such as wage reduction and layoffs in the short-term time horizon, defined by 3 to 6 months. They nevertheless took the optimistic view that such measures will be temporary as only half of the companies indicated such measures beyond the 6-month period. Primary data from two surveys is analysed using selected statistical methods. In addition to descriptive statistics, cluster analysis is utilized to identify sectors that are similar in terms of employment of vulnerable groups and other labour market indicators, while the analysis of variance (ANOVA) is performed to test how firm size relates to future 4 Report | Economic Impact Assessment of COVID-19 in BiH business expectations. The analysis shows that smaller firms in key sectors have already been more exposed to the negative effects of the COVID-19 pandemic, and are less prepared to deal with the forthcoming indirect impacts. However, larger firms will tend to have larger, more developed supply chains and will therefore be subject to greater external shocks. Employees working routine-task jobs that require little formal education and experience are the vulnerable group most prone to being negatively affected as a result of the pandemic-induced economic downturn. Results of the primary data analysis also indicated that COVID-19 would have an adverse impact on the most vulnerable group of workers: precarious workers. Explicitly, two specific groups of precarious workers have and will continue to be adversely affected: young people and unskilled individuals. Primary data also shows