metadata: authors: 0: author: Herzberg,Benjamin
count: Bosnia and Herzegovina
docna: 0: docna: Investment climate reform - going the last
            mile : the bulldozer initiative in Bosnia and Herzegovina
docty: Policy Research Working Paper
subtopic: Investment and Investment Climate,State Owned Enterprise Reform,Public Sector Administrative & Civil
            Service Reform,International Trade and Trade Rules,Food Security,Privatization,Energy Privatization,Energy Demand,Energy and Environment,Energy and Mining,Democratic Government,Economics and Finance of Public
            Institution Development,Public Sector Administrative and Civil
            Service Reform,De Facto Governments
teratopic: Health, Nutrition and Population
abstracts: cdata!: The author examines the Bulldozer
            Initiative in Bosnia and Herzegovina, an innovative reform
            methodology that successfully overcame the lack of political
            will and capacity at the government level through a
            bottom-up approach. Using an innovative grassroots and
            public awareness methodology, the initiative mobilized the
            local business community to bulldoze barriers by identifying
            concrete legislative changes and advocating for their
            adoption and implementation. By delivering fast results-50
            reforms in 150 days-the initiative won the confidence of
            entrepreneurs and empowered them to institutionalize
            permanent grassroots reform committees. The force of this
            lobby group created political will by putting public
            pressure on the politicians to do their part to enact the
            reforms. Most important, it carried investment climate
            reform the last mile by delivering concrete, quantifiable
            results in all sectors of the economy. Over time, the
            initiative is establishing a dynamic of reform and
            public-private partnership that will facilitate the tackling
            of more complicated structural reforms. Complementing the
            systemic approach and framework reform efforts of
            governments and international agencies, competitiveness
            partnerships mobilize the local business community to
            catalog concrete problems across the full spectrum of
            investment climate concerns, pinpoint solutions, campaign
            for their adoption, and follow up on reform implementation.
            The author attempts to determine the applicability of
            competitiveness partnerships to different settings by
            modeling the interactions between several key success
            factors, thus providing a pertinent tool for development
            professionals, government officials, and private sector
            advocates who wish to establish a renewed implementation
            dynamic through this kind of results-oriented reform process.
geo_reg_key: 517190,517191
repnme: repnme: Investment climate reform - going the last
            mile : the bulldozer initiative in Bosnia and Herzegovina
display_title: Investment climate reform - going
            the last mile : the bulldozer initiative in Bosnia and Herzegovina
listing_relative_url: /research/2004/09/5114857/investment-climate-reform-going-last-mile-bulldozer-initiative-bosnia-herzegovina
topicv3: Agriculture and Food Security m1326205 435,Investment Climate m1326293 405,Energy and Extractives m1326595 507,Trade m1326924 698,Privatization m1327236 1283
publishtoextweb_dt: 2010-07-01T00:00:00Z
historic_topic: Health, Nutrition and Population
no_of_pages: 51
author_keys: 0: author_key: 713738
model_extractions: <!-- Start of picture text --> —<?""<br><!-- End of picture text -->
# **Introduction and Executive Summary**

Investment climate reform, designed to unleash the private sector as an engine of economic growth, is a key component of poverty reduction and economic reform strategies. This entails providing a sound legal and regulatory framework that encourages investment and business development, and strengthening the capacity of government to respond efficiently to enterprise needs. In transition economies, structural reforms are necessary, but so is the simple elimination of red tape caused by cumbersome and outdated laws and administrative procedures. While several useful tools are available to diagnose these problems and recommend solutions, implementation is left to the respective government, the primary interlocutor of the international community. This top-down strategy can work well where the government has necessary reserves of political will and sufficient capacity and maintains a healthy dialogue with the private sector. In the absence of these conditions, however, opportunities are lost and strategy papers go unimplemented. The result is not only a failure to reform, but also further disillusionment and disengagement of the key stakeholders – the citizen entrepreneurs.

This note examines the Bulldozer Initiative in Bosnia and Herzegovina, an innovative reform methodology that successfully overcame the lack of political will and capacity at the government level through a bottom-up approach. Using an innovative grassroots and public awareness methodology, the initiative mobilized the local business community to bulldoze barriers by identifying concrete legislative changes and advocating for their adoption and implementation. By delivering fast results – 50 reforms in 150 days -- the initiative won the confidence of entrepreneurs and empowered them to institutionalize permanent grassroots reform committees. The force of this lobby group created political will by putting public pressure on the politicians to do their part to enact the reforms. Most importantly, it carried investment climate reform the last mile by delivering concrete, quantifiable results in all sectors of the economy. Over time, the initiative is establishing a dynamic of reform and public-private partnership that will facilitate the tackling of more complicated structural reforms.

While the Bulldozer Initiative is to some extent unique because of its context, other public/private advisory mechanisms have also been initiated across the world for decades. When targeted at improving the investment climate through concrete recommendations that enlist citizens in a country-wide or sector-wide movement, their intent and process are very closely related to those of the Bulldozer Initiative. Giving concrete examples, the later part of this note describes such approaches as Competitiveness Partnerships. Complementing the systemic approach and framework reform efforts of governments and international agencies, Competitiveness Partnerships mobilize the local business community to catalog concrete problems across the full spectrum of investment climate concerns, pinpoint solutions, campaign for their adoption and follow up on reform implementation. In conclusion, this note attempts to determine the applicability of Competitiveness Partnerships to different settings by modeling the interactions between several key success factors, thus providing a pertinent tool for development professionals, government officials and private sector advocates who wish to establish a renewed implementation dynamic through this kind of results-oriented reform process.

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# **Table of Contents**

## 1- Political and economic context

_1a- Political environment_ _1b- Economic indicators_ _1c- Investment climate and private sector development_

## 2- The Bulldozer Initiative as a complementary and sustainable reform process

_2a- Objectives_ _2b- A partnership to bulldoze red tape_ _2c- Role of the International Community_ _2d- Engaging the Business Community_ _2e- Processing reforms_ _2f- Lobbying for reform adoption_

## 3- Regionalization and Government involvement

_3a- Taking it local_ _3b- The Protocol for Prosperity and the creation of governmental Emergency Reform Units 3c- 50 new reforms_ _3d- Shifting perceptions and sustaining momentum through media_

## 4- Dangerous curves and safety features

_4a- Limits, skeptics and critics_ _4b- Benchmarks and implementation measurement tools_

## 5- Assessment of impact

_5a- Impact on investment climate_ _5b- Impact on civil society: bridging the constituency gap_ _5c- Alignment of the reform process with international framework efforts_

## 6- Applicability of the process to different settings

_6a- The Bulldozer and other “Competitiveness Partnerships”_ _6b- It takes three to tango_ _6-c Assessing Competitiveness Partnerships applicability_ _6d- Potential applications_

## ANNEX I: Two detailed reforms from Bulldozer Phase I

ANNEX II: Two detailed reforms from Bulldozer Phase II ANNEX III: Quantifiable results for three different reforms of Bulldozer Phase I as communicated to the public Page 3 of 51
# **1- Political and economic context**

The result of a political compromise to end a terrible war, Bosnia and Herzegovina (BiH) has been on a kind of international community life support. Since 1995, more than 5 billion USD of assistance has poured in, primarily to rebuild destroyed infrastructure and the homes of hundreds of thousands of refugees and displaced people. With much of the post-war reconstruction work complete, the focus is now on rebuilding the economy.

## **1a- Political environment**

Bosnia’s economic recovery is burdened by the complex and multi-layered political structure created under the Dayton Peace Accords. The political compromise reached in 1995 sought to reconcile three peoples living on the same territory: the Bosniaks, who are Muslims; the Serbs, who are Orthodox; and the Croats, who are Catholic. It led to the establishment of two Entities (the Federation of BiH (FBiH) and the Republika Srpska (RS)), 10 Cantons (all located in the Federation) and a semi-independent Brcko District, all loosely connected under a light state structure.

This enormous administration is headed by no less than 139 ministers and is supported by public expenditure at the excessive level of approximately 60% of GDP. Moreover, it is governed by 14 legal jurisdictions, which must be harmonized in order to achieve a single economic space. Reform efforts face the dual challenge of this cumbersome bureaucracy and the acute political sensitivity to change.

In this context, structural reforms are moving extremely slowly, despite strong oversight from the Office of the High Representative, mandated to supervise implementation of Dayton’s civilian provisions, and endowed by the Peace Implementation Council with the power to impose legislation.

## **1b- Economic indicators**

Due in part to strong international conditionality, BiH has made significant progress in achieving macroeconomic stability. On the monetary side, the BiH Central Bank and Currency Board guarantee the most stable currency in South Eastern Europe, which contributed to the near-zero inflation rate of 0.2% in 2002.

## **Table 1: BiH Economy**

||**2000**|**2001**|**2002**|
|---|---|---|---|
|**GNI, Atlas method**<br>**(current US$)**|4.3 billion|5.1 billion|5.2 billion|
|**GNI per capita, Atlas**<br>**method(current US$)**|1,150|1,270|1,270|
|**GDP(current $)**|4.3 billion|4.8 billion|5.2 billion|
|**GDP growth**<br>**(annual %)**|15.6|4.5|3.9|

Source: World Development Indicators database, August 2003 Economic stability is reinforced by a treasury system that is running well and sustained by budgets that are kept within required limits (under the guidance of very tight constraints set by the IMF). The Gross Domestic Product has risen steadily since 1997, and despite unreliable statistical data, it is estimated that the GDP growth rate for 2003 reached 5 percent. Even if this is a considerable slow-down compared to the 25% average of the post-war reconstruction years (1995 – 1997), this rate is now more sustainable and similar to those recorded in neighboring countries.

Nonetheless, eight years into peace building, and despite a heavy reconstruction bill and an ICled agenda of structural reforms, the economy in Bosnia and Herzegovina is still lagging. With a population of 3.5 million, 20% live below the poverty line and another 30% are on or just above it. Official unemployment is 40%. GDP per capita is now estimated at around US$1,800, which is one of the lowest in Europe. BiH is burdened with a total debt - external and internal - of approximately 2.5 billion euros. In 2002, the value of BiH’s exports equaled 25% of its imports.

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Such are a few examples of the many administrative barriers that need to be knocked down in order to unlock local investment.

Led by various international agencies, large-scale reforms have started to overhaul the business environment and stimulate private sector activity. Framework reforms include creating conditions to enable a wider variety of exports, better and faster privatization, implementation of bankruptcy, a more flexible labor market, strengthened domestic credit markets and enhanced corporate governance. BiH is far behind in the establishment of an institutional and regulatory framework to certify the standard of its goods for export. And, while progress has been made, the Single Economic Space<sup>2</sup> has not yet been fully achieved, a critical factor for developing the economy and a must for BiH to become an accession country into the European Union.

Such programs, despite their evident long-term benefits for the country, are mostly moving forward to the extent that the international agencies are supporting them through conditionality, since the political arena is still divided along ethnic lines, and the nationalistic or personal vested interest of politicians often block progress. Nevertheless, some progress is being made on the following framework reforms as outlined in the BiH Development Strategy, approved by all three prime ministers in early December 2003:

- Implementation of indirect tax reforms -- merging the Customs Agencies and introducing VAT – two developments that will make it easier and fairer to do business in BiH.

- Creation of a single business registration system: The BiH framework law on business registration, which is under consideration by the Council of Ministers will eventually make it easier and quicker for foreign and BiH investors to set up companies and create new jobs, resolving the current expensive, bureaucratic and time-consuming system that discourages economic recovery.

- Implementation of a coherent, comprehensive trade policy: In addition to indirect tax reform, the authorities are pushed to move ahead with judicial reforms, and also with liberalizing the telecom and power sectors.  EC certification procedures have to be established to help companies get the required approvals that lets them sell their goods in the EU.

- Improvement of institutions and services to support business and promote exports: The aim is to establish an efficient and responsible, single statistics service to give potential investors an overview of the BiH economy. The Foreign Investor Promotion Agency, the State Veterinary Office, and the Institute for Standardization are finally coming under budgetary financing so that they can help BiH companies compete in the global export market. Establishment of a BiH Investment Guarantee Agency is under consideration.

- Implementation of a domestic debt package is planned, to verify all claims and make arrangements for repayments, also tackling the issue of bonds.

- Restarting of the privatization process, to make it easier to tender and privatize strategic enterprises, through  stronger, more efficient and more transparent Entity privatization agencies.

- Enactment of a Civil Procedure Code setting in place the kinds of commercial legislation and dispute-solving mechanisms that will give confidence to businesspeople and investors; and the enactment of basic contract laws.

- Implementation of a Law on Accounting and Auditing that will modernize this core function of business life.

But these are not quick fixes, nor a very gratifying agenda for a young population of high-energy entrepreneurs who need quick results. To the contrary, the population is extremely skeptical of the government’s commitment to those reform efforts. They see reform as the responsibility of the International Community, and especially the High Representative who has the power, among other things, to enact or repeal legislation. Further, with the employed population earning an average wage of $250 a month, the general public is unresponsive to abstract issues such as business environment. The result has been an absence of motivation for strategic reforms.

> 2 The EC Community Assistance for Reconstruction, Development and Stabilization (CARDS) program for BiH includes a sub-program, currently in its second phase, which aims to establish a Single Economic Space in BiH in line with the EU Aquis Communitaire and in order to facilitate the EU integration adoption through the necessary legislative, regulatory and institutional reforms.

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Entrepreneurs, for example, prefer to apply their energy on navigating the existing system rather than fixing it.

# **2- The Bulldozer Initiative as a complementary and sustainable reform**

# **process**

Active involvement and a sense of ownership by the key stakeholders in Bosnia’s economic future – the private sector – is key to building a sustainable constituency for reform as a complement to comprehensive reform processes. The “Bulldozer Initiative” launched in November 2002 by the Office of the High Representative is aimed at doing just that. The initiative is still ongoing, and is currently in the midst of the second of three phases, anticipated to be completed in the fall 2004. Already, though, the initiative has succeeded in securing enactment of 50 reforms, with another 50 under parliamentary consideration. In a matter of months, this Initiative has generated a sense of progress and a new and authentic engagement by the business community, as well as an enhanced sense of responsibility by the government. This perceptible change in attitude – on the part of the authorities and in the business community – was the product of enlightened self-interest; businesspeople were provided with a mechanism through which they could secure reforms that help the economy in the long-term and help their own entrepreneurial efforts in the short and medium term. Politicians were provided with a mechanism whereby they gained credit for enacting reforms after much of the detailed drafting and canvassing had been done by others, in this case businesspeople. It was a win-win situation.

## **<u>2a- Objectives</u>**

The Bulldozer Initiative uses a cutting edge methodology for economic reform and business climate improvement from the bottom up, by engaging core segments of the population and turning them into active constituents for reform and stability.

The reform process was designed with two goals in mind:

- 1) to create a fast track record of reform by “bulldozing” through a complex legal system rife with red-tape and business disincentives;

- 2) to create a sustainable process in which the private sector could engage in a strong dialogue and partnership with the government.

The Bulldozer Initiative does not aim at making framework changes. As a bottom-up initiative, it is designed to identify specific business roadblocks that are exclusively focused on the entrepreneur’s experience. As a complementary effort to the large-scale reform efforts already underway, the intent is to amend a few articles in a law, rather than to overhaul the law completely. This methodology is also designed to minimize political opposition: by leaving the overall equilibrium of the system in place, the methodology allows for a very limited room for maneuver among those who could potentially oppose the reform. If entrepreneurs explain pragmatically why an article is problematic and suggest a fix that does not jeopardize the rest of the edifice, then there are few reasons for the governments not to enact it. Still, the reform momentum created by the initiative made it possible to include several wide-reaching reforms as well. And by publicizing the successes broadly, the initiative has created a dynamic that is now facilitating the implementation of large scale structural reforms.

## **<u>2b- A partnership to bulldoze red tape</u>**

The Bulldozer Committee was initiated by the High Representative Paddy Ashdown, who asked four other international agencies to join him in “bulldozing red tape”: the European Commission, the International Monetary Fund, the World Bank and USAID. This core group was coordinated from the Bulldozer Coordination Unit located at the OHR. The Unit was composed of a project director, an assistant and a manager. Hosted within OHR’s Economic Department, it worked quite independently, like a small business. It raised funding from the bilateral embassies of, successively, the United States, Switzerland, Norway, Italy and Holland. Funds were used for Page 7 of 51
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The IMF ensured that all selected reforms complied with sound macroeconomic standards. The World Bank ensured they corresponded to good poverty reduction strategies and that they fitted in the Bank’s Business Adjustment Credit. The European Commission guaranteed that each proposed change was compliant with EC standards, so that reforms would remove obstacles to the integration of BiH into the European Union. USAID participated in vetting the reforms against good private sector development principles. Lastly, the OHR ensured that reforms were politically doable in the context of a knotty local and international environment. Hence, Bulldozer reform proposals, once out of the production pipeline, were extremely robust. They bore the legitimacy of local entrepreneurs’ demands. They had been vetted by international agencies. They made sense.

# **<u>2d- Engaging the Business Community</u>**

Submitting such workable reforms requires a remarkable effort from the entrepreneur. However, under the status-quo, businesspeople are in any case obliged to spend time and energy trying to get around existing rules and regulations. When they do this, they do not go back to find the original source of the problem and advocate for change. In the case of an administrative permit, the resources, time, and (often) money of the entrepreneur may be used in a networking effort to get to know someone working in the specific administrative department and, sometimes, bribing officials to obtain the permit. The Bulldozer Initiative had therefore to demonstrate to BiH entrepreneurs that their resources, time and money would be better spent on understanding where a problem came from, designing a legal solution (for instance an amendment to a law) and lobbying for its adoption.

With that objective in mind, the Bulldozer Coordination Unit publicized early on an extremely tight time frame in which it planned to have reforms enacted. Using the slogan “50 Economic Reforms in 150 Days”, it created an impetus as well as an accountability that surprised many in both the local population and the international agencies. Making the timeframe publicly available from the start was part of an open door policy vis-à-vis the entrepreneurs and the media.

**Figure 3: The Bulldozer timeline for Phase I**

<!-- Start of picture text --> Phase I timeline<br>Bulldozer Committee 1Vetting 8 reforms st Plenary Session Bulldozer Committee 2Vetting 15 reforms nd Plenary Session Bulldozer Committee Vetting 27 reforms3 rd Plenary Session Bulldozer Committee 50 REFORMSPUBLISHED IN PRESS Enactment Reformby<br>3<br>Parliaments<br>Joint<br>BC BC BC presents Parliament 3 Govts<br>Public meeting Public meeting 50 reforms to Meeting in give their<br>MOSTAR ZENICA CoM, RS, FBiH National amendments<br>in JOINT Theatre package<br>Public meeting TUZLA BC Public meeting BRCKO BC GOVERNMENT SESSION with BC procedure”“urgent to PAs under<br>BC BC<br>Public meeting Public meeting<br>BANJA LUKA ORASJE<br>HR meeting Young HR Press Conf.<br>Entrepreneurs To Present BC<br>TRAVNIK 50 reforms<br>Nov 12 Dec 17 Jan 16 Jan 27 Jan 29 Feb 07 Feb 12 Feb 13 Feb 20 Feb 25 Mar 03 Mar 12 Mar 24 Mar 25 Apr 3 Apr 22<br>5 0 E C O N O M I C R E F O R M S I N 1 5 0 D A Y S<br><!-- End of picture text --> Page 9 of 51
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the sessions. The five international agencies had a veto power that could be used to prevent a reform from being adopted. The Committee, then composed of about 20 different associations (which each had a vote) in addition to the five international agencies, voted on the best 50 proposals to present to the governing bodies.

**Table 3: The first 50 selected reforms proposed to the government**

|**Enterprise:**|
|---|
|R01 Harmonizingthe LLC Minimum Capital Requirement<br>|
|R02 EliminatingDouble Corporate Profit Taxation|
|R03 RemovingCounterproductive Amendments in the RS Law on Privatization of State Capital|
|R04 EliminatingInvestment Barriers through FBiH Law on Business Companies Reform|
|R05 ClarifyingAudit Requirements of Auditor General in RS|
|R06 RemovingMandatoryFee for Shelter in FBiH|
|R07 RemovingMandatoryFee for Shelter in the RS|
|R08 BreakingMonopolyof RS Geodesyand Property-Legal Affairs administration|
|R09 EasingLaw Firms Operation through Amendments to the Law on Lawyer Profession|
|R10 EasingBarcode IssuingRequirements for PublishingCompanies|
|**Environment and Forestry: **|
|R11 RemovingDouble Taxation of Revenue for FBiH Forest Industry|
|R12 Introduction of New Water Standards at State level|
|R13 Protectingthe Stock of BiH Fruit & Nut Trees|
|R14 PromotingRecyclingBusiness and Environmental Protection in FBiH|
|**Tourism:**|
|R15 Rationalization of Tourism Companies’ Contributions and Accommodation Tax in FBiH|
|R16 ImprovingMechanism of Tourism and HospitalityInspection in FBiH|
|R17 EasingBiH EntryVisas regime for Foreign Nationals|
|R18 ImprovingTourism through Enrollment of BiH in InterRail Pass Program|
|**Labor:**|
|R19 EasingRS Craft Companies Operation and ReducingRed Tape through Amendments to the CraftsmanshipLaw<br>|
|R20 RecommendingStatewide Amendments to Provisions on Trainingand Volunteer Labor|
|R21 HarmonizingPre-Conditions for Bar Exam Across BiH to Ensure Equal Opportunityin Access to Market|
|R22 HarmonizingConditions for CompanyActivityRegistration|
|**Trade:**|
|R23 EstablishingPrinciples on MovingSales Tax Point of Collection|
|R24 EasingExport of Drugs and Medicines from BiH|
|R25 ReducingImport Cost and Delays Relatingto Phyto-SanitaryCertificate|
|R26 Free Trade Zones Operation Under the BiH Law on Free Trade Zones|
|R27 HarmonizingVehicle Trade Mechanisms Across BiH|
|**Registration:**|
|R28 RemovingNeed for Registration of Foreign Representative Office in Both Entities|
|R29 SimplifyingRegistration Procedure of Foreign Direct Investments in FBiH|
|R30 SimplifyingRegistration Procedure of Foreign Direct Investments in RS|
|R31 EnablingCompanyDe-Registration in FBiH|
|R32 EnablingCompanyDe-Registration in RS|
|R33 EnablingCompanyDe-Registration in Brcko|
|**Chambers:**|
|R34 TransformingFBiH Chambers Membershipfrom Compulsoryto Voluntary|
|R35 TransformingChambers Membershipin RS from Compulsoryto Voluntary|
|R36 HelpingFamilyBusinesses byRemovingCompulsoryFBiH Craft Chamber Membership|
|R37 HelpingFamilyBusinesses byRemovingCompulsoryRS Craft Chamber Membership|
|R38 TransformingCantonal Chambers Membershipfrom Compulsoryto Voluntary|
|**Finance:**|
|R39 Definingthe Term CAPITAL in Federation Laws and Practice|
|R40 EnablingOriginal Use of Bill of Exchange in FBiH|
|R41 SimplifyingProcedures for ConveyingBanks Assemblies in FBiH|
|R42 Execution on Claim on Bank Accounts|

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|R43 EasingCollateral Transferability|
|---|
|R44 ShorteningProcedures for IncreasingBank Capital|
|**Transport:**|
|R45 Liberalization of Bus Schedulingin the Federation|
|R46 Removingthe ReciprocityRule in Inter EntityTransport|
|R47 Liberalization of Inter EntityTransport Regulations for HelpingRefugee Return Transportation|
|R48 Facilitatingthe Process of ObtainingCEMT Truck Licenses|
|R49 StreamliningRegulations for Oversize Truck Loads in BiH|
|R50 CorrectingUnfair competition in RS Oversized Transport Fees Against FBiH companies|

Once the package of 50 reforms was completed, a “book of 50 Bulldozer reforms” was produced and formally handed over to the prime ministers in a public event, in the presence of journalists, and followed by a press conference. The book contained the full text of the reform, the reform summary, and a table summarizing action items per jurisdiction

**Table 4: Track-list for Bulldozer Phase I Reform number 20**

|**#**|**Reform title**|**Juris-**<br>**diction**|**Concerned law**|**Specific articles**|
|---|---|---|---|---|
||R20 Statewide|FBiH|Federation Labor Law (Official Gazette<br>FBiH 43/99; 32/00)|Art.26; Art.27; Art.28|
|20|Amendments of<br>Provisions on<br>Training and|RS|RS Labor Law (Official Gazette RS<br>38/00; 40/00; 41/00; 47/02)|Art.29; Art.30; Art.31; Art.32|
||Volunteer Labor|Brcko<br>District|Brcko District Labor Law (Official<br>Gazette BD 7/02)|Art.21; Add 2 new articles|

**Annex 1** shows two detailed reforms from Bulldozer Phase I, as presented in the final package of 50.

## **<u>2f- Lobbying for reform adoption</u>**

Following the hand-over of the reforms, intensive dialogue took place between the Bulldozer Committee and the BiH Council of Ministers, and the RS and FBiH Governments. A coordinator was appointed in each government. These coordinators dispatched their respective proposals to the relevant Ministries, and asked for comments, reactions, and counter-proposals.

Each Ministry formed working groups to look at each reform and formulate a response. The Bulldozer Committee met with all the principal Ministries and discussed the specific reforms and the working-group responses in great detail. In each case, there was complete agreement, or a legal middle ground was negotiated that did not detract from the original intent of the proposal.

In Phase I, the BiH, FBiH, RS and Brcko parliaments adopted all the Bulldozer amendments, just 30 days beyond the original 150-day deadline. Despite this delay, the results were attained within a timeframe that had never been met before, an average of one economic reform every four days. Some of the reforms were dealt with through government decision, while others (consisting of legal amendments to existing laws) were sent to the parliaments.

# **3- Regionalization and Government involvement**

In order to build on Phase I’s success, Phase II of the Bulldozer Initiative was launched in June 2003. The aim of Phase II was to select another 50 reforms while continuing to promote the legitimate interests of the business community, local advocacy associations and civil society, and to create a working partnership with elected representatives.

## **<u>3a- Taking it local</u>**

After the first successes of the initiative, the Bulldozer Coordination Unit decided to minimize the role of internationals while giving the lead to local advocates, organized in Regional Bulldozer Page 12 of 51
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# **Table 5: Selection process for the first Plenary Session of Bulldozer Phase II: 19 proposals selected from 366 suggestions**

|**BULLDOZER**<br>**PHASE II –**<br>**FIRST**<br>**PLENARY**<br>**SESSION**|Forms<br>distributed<br>by<br>committees|Proposals<br>Received<br>by<br>committees|Proposals<br>pre-<br>selected by<br>committees|Selected<br>Proposals<br>sent to<br>Bulldozer<br>Board|Selected<br>proposals<br>by<br>Bulldozer<br>Board|Proposals<br>vetted by<br>IMF, WB,<br>EC, USAID,<br>OHR|Proposals<br>selected in First<br>Plenary Session<br>for inclusion into<br>final book of 50|Proposals<br>on hold for<br>further<br>review|
|---|---|---|---|---|---|---|---|---|
|Northwest|500|29|27|8|7|6|6|1|
|Northeast|700|40|20|10|5|4|4||
|Banja Luka Region|600|70|40|10|4|2|2|2|
|Sarajevo Region|450|132|32|12|9|7|5|3|
|Herzegovina|200|15|10|4|3|1|1|2|
|Central Bosnia|1200|80|25|10|3|1|1|4|
|Total|3650|**366**|154|54|31|21|**19**|12|
|**Ratio**||�**100%**|**42%**|**15%**|**8.5%**|**6%**|**5%**||
|_Total of which_<br>_Agriculture,_<br>_committee_<br>_participated_|||_6_|_3_|_2_|_2_|_1_|_1_|

The 50 reforms selected in Phase II after three Plenary Sessions demonstrate that once engaged in a reform process, the private sector is quick to expand its reform ideas to the society at large. Issues such as national holydays and the rights of disabled persons that have made it to the final package illustrate the willingness of participants to broaden the scope of their work beyond issues of immediate concern to entrepreneurs.

**Table 6: The second round of 50 reforms proposed to the government**

|**Administrative requirements**|
|---|
|R01 Simplification of invoicing procedures forpartnerships and soleproprietor enterprises|
|R02 Removingstaff archivist requirements for SMEs in Tuzla Canton|
|R03 Abolishingcompulsorydailytravel orders for use of companyvehicles|
|R04 Abolishingobligatorysix-month financial statements for companies|
|R05 Enablingbusiness transactions through recognition of faxed orders as written documents|
|R06 Simplifying procedure ofpublishingofficialgazettes|
|**Enterprise**|
|R07 ImprovingBiH IT sector byhelpingto reduce monopolythrough stricter implementation of the Law on Communications|
|R08 Removingmonopolyin marketingcampaign business|
|R09 AbolishingMunicipal special fee/tax on taxpayers’ totalyearlyincome for financingSpecial Institutions|
|R10 Implementation rules for FBiH Law on craft|
|R11 HarmonizingentityLaws on Profit Tax|
|**Finance**|
|R12 Defining public revenues that belongto municipalities in FBiH|
|R13 Enabling growth of local non-profit sector through limited tax-relief for donors|
|R14 Improvingaccess to finance for SMEs via urgent adoption of draft law on Financial Leasingin FBiH and RS|
|R15 Removingbarriers for the sale of stocks bysmall shareholders in the RS|
|R16 Improvingabilityof RS companies to repaydebt byharmonizinghigh dailyinterest rates with those in FBiH|
|**Forestry / environment / agriculture**|
|R17 Protectingthe environment wood industries and forestrystock in BiH through regulatingexports of raw logs|
|R18 Creation of a State Council for Agriculture,Forestryand Rural Development|
|R19 Enablingdevelopment of natural honeybusiness in BiH byestablishingrequired legislation|
|R20 Establishment of FBiH VeterinaryChamber|
|R21 Definingcompetencies between the Federation and Cantons in usingnatural resources|
|R22 Harmonization of the entities laws on Veterinary|
|R23 Improvingbusiness environment for food and vegetableprocessingcompanies|
|R24 Harmonization of business conditions in the RS and FBiH for agricultureproduction|

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**<mark>Investment</mark>** R25 Equalizing rights of local and foreign investors R26 Clarifying incentives to foreign direct investment in the Federation Law on Corporate Income Tax R27 Harmonization of entity regulations on court company registration fees R28 Sales tax exemption for catalogs and printed brochures that are distributed free of charge

R29 Easing the entry of young lawyers to the profession by harmonization of registration fees between Federation and RS <u>Bar chambers</u> **<mark>Labor</mark>** R30 Achieving single economic space through a BiH Law on Holidays R31 Enabling employment of disabled persons by introducing tax relief R32 Harmonizing entity laws on pensions in order to reduce black market employment of pensioners R33 Enabling independent contractors to work by amending the RS Law on Physical Planning R34 Removing discrimination based on entity citizenship in the RS Law on Crafts and FBiH Law on Trade **<mark>Trade</mark>** R35 Improving <u>product safety and quality compliance through amendments to the BiH Law on Consumers Protection</u> R36 Reforming the existing regulations on public procurement in BiH R37 Protecting local production by implementing the Law on Quality Control in BiH R38 Exempting demining equipment from customs fees R39 Request governments to enact law on customs offenses at state level R40 Removing and resolving obstacles to the establishment of the Tourist Organization of BiH R41 Reducing expansion of black market by authorizing market inspectors to confiscate goods R42 Improving business environment by changing the base for calculation of membership fees for tourist communities R43 Facilitating export by simplifying internal processing <u>procedures (the so called import for export)</u> R44 Harmonization of FBiH and RS trade laws R45 Repeal of the Law on Allocation of Funds for Regular and Safe Railway Traffic in the RS R46 Ensuring <u>quality standards of petroleum and fuel imports to BiH through harmonization and clarification of legislation</u> **<mark>Utilities and construction</mark>** R47 Amendments to the FBiH Law on Physical Planning and Law on Construction R48 Enhancing municipal competencies for the issue of town planning approvals and construction permits R49 Harmonizing water supply fees between FBiH and RS R50 Supporting business development by requesting Governments to urgently perform a pricing review in Elektroprivredas <u>and remove obstacles to the implementation of Power III project</u>

**Annex 2** shows two detailed reforms from Bulldozer Phase II, as presented in the final package of 50.

# **3d- Shifting perceptions and sustaining momentum through media**

An important part of the initiative relied on a strong grassroots and public awareness effort since the level of involvement of local businesses was determined by their belief in, or skepticism about, the results, and by their understanding of the lobbying mechanism. They needed to see for themselves that it could be done, and how to achieve concrete results. The media strategy was therefore centered on four approaches.

The first strategy was to create an <u>open-door policy with</u> journalists: Information on the day-to-day Bulldozer process was given out continuously by the Bulldozer Coordination Unit through press releases, interviews or informal breakfasts with journalists. When journalists inquired about the progress of the initiative, all details were provided, including negative ones such as internal disagreements, potential negative short-term impact of

**Picture 3: 84,000 copies of a brochure with a comic strip explaining the 50 reforms to the average citizen**

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some reforms, etc.

Second, a <u>strong public awareness campaign</u> was organized. The Bulldozer Committee published a 64 page information brochure detailing the first 50 reforms, including a comic strip, “The Adventures of Max”, telling the story of a frustrated entrepreneur who overcomes his problems by joining the Bulldozer effort. 84,000 copies of this Brochure were distributed in local newspapers in three different languages (Bosnian, Serb, Croat). 200,000 copies of a specific brochure on issues related to privatization were similarly distributed. 100,000 copies of a brochure detailing the results of Phase I reforms will be distributed in February 2004.

Thirdly, original press conferences were organized to mark specific achievements, such as:

- Bulldozer Committee holds a public information meeting (press conferences with local media for each local meeting)

- Bulldozer Committee meets in Plenary Session and votes on reforms (televised voting session broadcast on prime time news)

- Committee completes its preliminary work (entrepreneurs unfolding a banner reading “D minus 39 days for the government” in front of journalists)

- Committee hands over reforms to government (in front of a real bulldozer)

- Entrepreneurs enter parliaments to explain reforms

**Picture 4: A turning point in the campaign: The public image of the Prime Minister standing in front of a bulldozer and behind a banner reading “50 economic reforms in 150 days”**

Lastly, specific symbolic events were designed for symbolic locations. The press conference that was organized in front of a real bulldozer became a real turning point in the political life of the country. For the first time, the Chair of the Council of Ministers made a public and formal commitment with businesspeople: together, they would enact 50 reforms in 150 days. And reforms would be judged on their merits instead of on internal politics, as is often the case in BiH.

The picture of the Prime Minister wearing a red construction hat was seen the following day on the front page of all BiH newspapers. The media began to cover entrepreneurs in a positive way. Instead of being portrayed as “crooks trying to benefit from the system”, they appeared as “frustrated stakeholders eager to take over the future of their country”. One major paper began to run a daily column featuring local entrepreneurs and the changes in legislation they would like to see. It was a true awakening for BiH businesses and it created a real breakthrough in public opinion, with lasting impact.

Another symbolic event took place in the National Theatre, where the initiative succeeded in bringing all the parliaments of State, Entity and District jurisdictions together for the first time since they were brought into existence by the Dayton Peace Accords of 1995, to discuss reforms on their merits with the Bulldozer Committee.

Another event mentioned earlier, the signing of the Protocols for Prosperity, took place at the Botanical Gardens. It was the first document since the peace treaty to bear the signature of all the heads of the executive and parliamentary bodies. To mark the event, each of the 17 signatories planted a rose tree in an area that was named the “Prosperity Garden”.

Using this four-point approach enabled the Bulldozer Committee to maintain a high momentum at all times, which was exceptionally beneficial to the dialogue process. Every week the media features issues that are identified as economic roadblocks by the Bulldozer Committee. The press helps sustain a national debate on economic reforms and helps keep small and medium entrepreneurs informed about the specifics of the legislation that has slowed down their Page 17 of 51
development. Politicians now often talk about doing things “the Bulldozer way” and a variety of commissions and working groups have now been set up in the parliaments under that very **Box 1: The Bulldozer makes headline** impetus. **news in world top newspapers** The success of the Bulldozer initiative attracted attention well beyond BiH. Articles appeared in the New York Times, the London Times, the Financial Times and other international media, for once talking about the originality and effectiveness of a new BiH reform model, rather than the slowness of post-war recovery.

These reports inaugurated a fundamental shift in the image of the country abroad, carrying the message that BiH is now open for business. This in turn has had a profound impact on the society, by demonstrating that businesspeople – meaning the average citizen – can effect change, rather than simply be affected _by_ change.

|**“Bosnia Charging**<br>**Business Barricades”**|
|---|
|**“Bosnia Bulldozing Trade Barriers”**|
|**“Bosnia harvests fruits of**<br>**brighter future”**|

# **4- Dangerous curves and safety features**

Under such an impetus, it would have been very easy for the Bulldozer to go “off-road”.

Actually, the Bulldozer did drive through dangerous curves, bordering a few issues usually tackled through more systematic top-down approaches. As such it attracted legitimate criticism. The bottom-up process, when it dealt with contentious issues, also prompted anger among the losing constituents.

Under the kind of pressure that this produced, the success or failure of the initiative could easily have been confused with the government’s success or failure in implementing reforms. To allocate responsibilities very clearly and to ensure the legitimacy of the process throughout, a set of benchmarks was developed. These implementation measurement tools were key in assessing and communicating results.

## **4e- Limits, skeptics and critics**

Despite massive support from the population and a strong media reach, the Bulldozer initiative has had many critics both in Bosnia and abroad. These fall into several categories: criticism by those who feel threatened by the process, natural skepticism that the Bulldozer reforms would not significantly change the economy, and concern that the Bulldozer was overstepping its boundaries and jeopardizing long term reform processes.

Among the critics of the first category were the Chambers of Commerce, which led anti-Bulldozer campaigns through articles and interventions with politicians. They felt directly threatened by the Bulldozer, which not only took over many of the ostensible functions of the Chambers, but which also proposed a reform to eliminate mandatory fees to support the Chambers. Certain political leaders, like Mr. Paravac from the Serb nationalist party, the SDS, who currently serves on the rotating tripartite Presidency of Bosnia and Herzegovina, early on was an outspoken opponent of the initiative, citing the “deregulation and chaos” that the Bulldozer was going to bring to the country’s economy, and fearing the dilution of the powers of his Entity, the Republika Srpksa. (He later supported the initiative after meeting the six Regional Bulldozer Committee Coordinators). Former Prime Minister and opposition leader Zlatko Lagumdzija on one occasion stood up in a public Bulldozer meeting to call Prime Minister Terzic a comedian for having worn a construction hat in front of a Bulldozer. Within the Ministry of Foreign Trade and Economic Relations, a Page 18 of 51
Bulldozer reform dealing with delivery of export certificates was met with resentment from the technical staff, who felt the demanded policy change was placing in question the quality of their work. One of the ways the Bulldozer overcame such criticism was through targeted public awareness campaigns, which exposed facts and figures about every issue opposed by the vested interests, hence enrolling the public in the debate.

Natural skeptics from both the local and international communities refused to believe that a bottom-up process could significantly impact the economy, and doubted that 50 economic reforms could be completed in 150 days. They disregarded the process as a true “bottom-up” one because it had been ignited by the OHR, a third party. Once the reforms where actually enacted, they argued that implementation would fail. These critics also argued that the micro nature of the reforms would have no real impact on the economy and was diverting attention from long-term processes. While it is true that the Bulldozer did not intend to make structural reforms, the dynamic for reform that it created must not be underestimated as a major factor that will facilitate such wide-reaching reforms. And while it is true that the High Representative was an unusually powerful matchmaker between the government and the private sector, the process did transform into a locally owned initiative, proving that the energy was present and had only to be unleashed.

Other critics, primarily from international agencies, raised concern when the Bulldozer process started to tackle issues that clearly went out of the scope of the “micro-reforms” it had intended to process. When there were synergies between the development policies of the international agencies and the policy choices of the business community, donors were happy to use the Bulldozer as a platform to voice their concern with the government. In the case of Bulldozer Phase I Reform number 23, which addresses moving the point of collection for excisable tax, the OHR and IMF were happy to have the impetus come from local businesses, although this had long been an IMF policy objective. But this willingness to let the Bulldozer process lead structural policies was limited to the extent it promoted the International Community’s own agenda and priorities. A semi-crisis occurred, for instance, with Bulldozer Phase II Reform number 17, when the Bulldozer Committee on Agriculture decided to request an export ban on raw logs, until a new forestry certification mechanism would enable the export of wood while preserving both the local industry and the BiH ecosystem. Agreeing with the reform goal, which it had identified through consultations with the private sector, the World Bank opposed the approach of an export ban, as it contradicted its longer-term policy choice expressed in a Bank-funded multi-year forestry program. But despite this opposition, entrepreneurs decided to go for the quick solution of the ban and the reform was voted through as the international agencies no longer had veto power in the Plenary Sessions. Whether the government will decide to enact it or not remains to be seen.

This example illustrates the limits of the Bulldozer process. Even if it is sponsored by international agencies, such a process will always remain private sector driven in its approach and in the recommendations it makes. Whether the international agencies can live with the results is another question. But it must be borne in mind that such disagreements are the sign of a healthy democratic process. After all, one cannot wish to have a vibrant private sector advocacy process and at the same time expect it to remain on the sidelines, applauding politely every move made by internationals.

# **4b- Benchmarks and implementation measurement tools**

Whatever solutions citizens and entrepreneurs propose to change things, ultimate responsibility still lies within the government. The Bulldozer Committee initiates and lobbies for reforms. The government is accountable for enacting them. And once the reforms have been published in the Official Gazette, responsibility for implementing them falls to the governments. Still, Committee members monitor implementation and discuss individual reforms with Ministers and departmental working groups.

Designing and implementing Bulldozer reforms is a process that can usefully be divided into 10 steps -- five are the responsibility of the Bulldozer Committee, and five are the responsibility of the government.

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# REFORM RECOMMENDATION AND IMPLEMENTATION PROCESS

<!-- Start of picture text --> BULLDOZER<br>Present reforms to the governments<br>of the relevant jurisdictions<br>Perform cost/benefit analyses and<br>choose the best reform proposals<br>Formulate and dispatch<br>reforms for dialogue<br>Review economic/social/political/legal<br>grounds for each proposal<br>Raise awareness in business community and<br>gather roadblock proposals<br><!-- End of picture text --> <!-- Start of picture text --> bcceiihtertoorkctlad<br><!-- End of picture text --> <!-- Start of picture text --> 5 Verify implementation and<br>4 Implementmeasure reformsperformance<br>throughout public athority<br>3/ Enact reforms and publish them<br>in the Official Gazette<br>2/ Conduct public/private dialogue and<br>‘1/ Reviewprocessreformreformsproposals for enactmentand<br>perform cost/benefit analyses<br><!-- End of picture text -->
This process has to be moved forward in a deliberate and systematic way. The Emergency Reform Units, located in the Prime Ministers’ offices, make sure that reforms are properly discussed, enacted in a timely fashion and implemented efficiently.

A reform can be considered fully implemented only **Box 2: A “slow result” reform:** when citizens and entrepreneurs begin to benefit from **Creating a State Drug Agency** it. But the speed at which reforms are implemented Reform **number 24** of Bulldozer Phase I was also depends on the types of reform themselves. finalized by a commitment of the State Some reforms have an immediate impact. These “fast authorities to create a State Drug Agency. result” reforms start to deliver benefits almost as soon This commitment was published in the BiH as they are published in the Official Gazette. Some Official Gazette, but it was only a first step. other reforms Following that, legislation had to be drafted in cooperation with government and industry take effect little by **Box 3: A “fast result”** representatives. Next, the legislation will have little. The impact **reform: The bomb shelter** to be finalized and adopted. Then, the Ministry of these “slow **fee.** of Health will have to create the Statute of the results” reforms is Agency. Its financing will have to be included in the annual BiH budget. Following that, the more difficult to Reform **number 07** of Bulldozer first employees of the Agency will be hired. assess since as Phase I demanded cancellation of Only after a full year of phased much as two article 179 of the FBiH Law on implementation, will it be possible to register Defense, which required two percent medicines at this single point for the whole of years might pass of the value of commercial BiH, thus ensuring the safety of citizens, between adoption construction to go to municipalities for enabling exports and ensuring implementation of the reform and the maintenance of a bomb shelter. of a single BiH economic space for the its full The Official Gazette decree was industry. applicable immediately. This is a Fast implementation. Result reform because from the day However sometimes, results can begin to show right away. of its publication, nothing else was For instance investors, knowing that a reform is in the needed but to show the municipal clerk the copy of the official gazette to pipeline, may decide to speed up investment in order to be register a building permit without operational when the reform is fully implemented. being charged the two-percent fee.

However sometimes, results can begin to show right away. For instance investors, knowing that a reform is in the pipeline, may decide to speed up investment in order to be operational when the reform is fully implemented.

# **5- Assessment of impact**

In its ongoing reform efforts, the Bulldozer Committee seeks optimal paths to stimulate growth while reducing poverty. In that regard, impact assessment is a key means of setting future reform priorities, improving the dialogue process and increasing both the quality and the “implementability” of the proposed reforms. Through indicators and benchmarks developed during Phase II, teams involved with the initiative assessed results of Phase I while planning and managing the consequences of reform choices. Key questions they had to answer were: Did the reform reach their goals? Did the ultimate beneficiary benefit from the reform? How do Bulldozer reforms facilitate sustainable development? What is the reform’s influence on civil society at large? Do the reforms correspond to the country’s own reform process, and do they help align the country’s reform process with the agenda of international agencies?

## **5a- Impact on investment climate**

All reforms processed through the Bulldozer Committee aim at improving the business climate of the country, according to at least one of six “business climate improvement indicators”, which the Bulldozer Committee defines as follows:

- Create more jobs

- Bring more tax revenue to the authorities

- Free up capital for investment

- Boost exports

- Reduce the administrative burden

- Reduce the gray economy

For every reform it is important to measure and quantify the results in each of these categories. If there is a quantifiable result for at least one category, then it can be said that the reform has been beneficial. However, the reforms being relatively recent, the data are not yet readily available for Page 21 of 51
all of them. Such results measurement was attempted for the 50 economic reforms achieved under Bulldozer Phase I and is to be published in early March 2004 in a public information brochure. **Annex 3** shows how quantifiable results for three different reforms of Bulldozer Phase I are communicated to the public.

Overall, some Bulldozer reforms can be said to have achieved their goal: they have had a positive impact on the economy. But it is early to tell, and no systematic data gathering campaign has been so far organized to measure the impact. The reforms themselves have, in their respective sectors, improved business conditions, as shown in the 12 examples in Table 7. This assessment can only be made for Phase I reforms, which were enacted in April 2003.

# **Table 7: Impact on investment climate of selected Phase I reforms**

|_“R01 Harmonization of LLC Minimum Capital Requirement”_ <br>has lowered the amount needed to create a limited liability<br>company from as much as 10,000 KM to 2,000 KM in all<br>jurisdictions. Subsequently, numbers of companies being<br>registered have increased in many locations, especially<br>regarding conversion of home-based activities to limited<br>liability companies. The reform also lowered the minimum<br>share from as much as 2,000 KM to 100 KM, now enabling up<br>to 20 small investors with 100 KM each to start up a business.<br>In Tuzla Canton, registration of LLC have increased 27% after<br>thereformas compared to the previous year.|� �<br>**POTENTIAL OUTCOME**|�Create more jobs<br>�Bring more tax revenue to the<br>authorities<br>�Free up capital for investment<br>�Boost exports<br>�Reduce the administrative<br>burden<br>�Reduce the gray economy|
|---|---|---|
|_“R06 Removing mandatory fee for shelter in FBiH”_||�Create more jobs|
|has deleted a clause in the FBiH Defense Law that obliged<br>investors to pay a 2% fee on the value of the construction of<br>business premises to maintain municipal bomb shelters that<br>were virtually inexistent. The reform has enabled investors to<br>increase<br>their<br>return<br>on<br>investment<br>on<br>commercial<br>construction of 2%. It also deleted the incentive for investors<br>not to declare constructions, thus reducing the gray market.<br>For a mid-size Canton, if an average of 50 commercial<br>building permits are delivered per month for an average<br>construction value of 30,000 KM, the reform has potentially<br>liberated a capital of 360,000 KM per year that can be<br>directlyinvested by entrepreneurs.|� �<br>**POTENTIAL OUTCOME**|�Bring more tax revenue to the<br>authorities<br>�Free up capital for investment<br>�Boost exports<br>�Reduce the administrative<br>burden<br>�Reduce the gray economy|
|_“R20 Statewide amendments to provisions on training and_<br>_volunteer labor”_||�Create more jobs<br>�Bring more tax revenue to the|
|has enabled internships to take place in the public service by<br>amending articles in the Labor Laws of three jurisdictions, thus<br>providing a new large pre-job market for the youth population<br>and encouraging their interest in government work. No<br>numerical impact has been measured yet, but universities have<br>started toinformstudents about the change.<br>|� �<br>**POTENTIAL**<br>**OUTCOME**|authorities<br>�Free up capital for investment<br>�Boost exports<br>�Reduce the administrative<br>burden<br>�Reduce thegrayeconomy|
|_“R21 Harmonize pre-conditions for Bar exam across BiH to_<br>_ensure equal opportunity in access to market”_<br>has brought down from 4 to 2 years the period young lawyers<br>have to train before being able to open their own law firm. The<br>2 year period was already in use in one jurisdiction. The other<br>one was requesting 4 years of training, while the Bars of the<br>jurisdictions are reciprocal. The reform has enabled half the<br>lawyers of BiH to gain 2 years in their time-to-market after<br>passing the Bar. The numerical impact on the GDP cannot be<br>measured yet but still, accessing the job market two years<br>earlier means being able to be employed, paying tax or even<br>opening new firms 2 years earlier, translating into more tax<br>andmore jobs.|� �<br>**POTENTIAL OUTCOME**|�Create more jobs<br>�Bring more tax revenue to the<br>authorities<br>�Free up capital for investment<br>�Boost exports<br>�Reduce the administrative<br>burden<br>�Reduce the gray economy|

Page 22 of 51
# _<mark>“R23 Principles</mark>_ _<u><mark>on Moving Sales Tax Point of Collection”</mark></u>_

has moved the point of collection of sales tax for excisable goods from point of sales to point of import or production. Full implementation started on August 1<sup>st</sup> 2003, only three months after the adoption of the bulldozer reform by all jurisdictions. Increase in tax revenues jumped immediately following the change. In the RS, revenue collection went from an average 6.8 million KM per month before the reform to an average 12.9 million KM per month after (a 89% increase). In the Federation, the increase, slightly lower due to cantonal discrepancies, still represents a 45% increase in tax revenues for the Entity’s <u>budget.</u> _<mark>“R25 Reducing import cost and delays relating to phytosanitary certificate”</mark>_ has reduced the number of days the cotton imported from the EU is held at the BiH border crossing for administrative verification from 5 days to 1. Cotton is needed to process thread, which is then exported back to the EU with an important added value. Depending on the volume of cotton each day lost at the border can have a cost of 10,000 to 50,000 KM. The reform created as much savings for those textile companies. They can also respond faster on large orders, thus ensuring sound relationships with their clients <u>and sustaining export levels.</u> _<mark>“R28 Removing need for registration of foreign representative office in both entities”</mark>_ has enabled international companies to set up their preliminary office in BiH by registering in a single location instead of three, thus greatly reducing the barrier of entry as well as giving a positive image of a unified country. Such result is not measurable with numbers. However in terms of time, the savings represents approximately 10 days per registration.

_<mark>“R30 Simplifying registration procedure of foreign direct investments in RS”</mark>_ has reduced the number of steps required to register foreign direct investment by half. Now instead of the foreign investor to register his investment in different places, as required by law, the burden is passed on to one Ministry only, which in turn internally reroutes the registration to other ones. Without fundamentally changing the registration system, it allows much better conditions for FDI. However it is unlikely that the reform by itself will increase FDI. But still, it facilitates its <u>entry into BiH.</u> _<mark>“R34 Transform FBiH Chambers Membership from Compulsory to Voluntary”</mark>_ has replaced the obligatory membership fee to Chambers with a voluntary one. Some Chambers requested as much as 1% of the yearly turnover of companies in their jurisdiction. The reform has enabled investors to free up that important capital for internal investments rather than funding outdated Chambers providing poor (if any) business services. The voluntary fee has sent a clear signal to Chambers who have now started to reform themselves to attract companies to pay the voluntary fee.

- Create more jobs

- Bring more tax revenue to the authorities

- authorities

- � Free up capital for investment  Free up capital for investment � Boost exports � Reduce the administrative burden

- � Reduce the gray economy  Reduce the gray economy

- Free up capital for investment  Free up capital for investment

- Reduce the gray economy  Reduce the gray economy

- Create more jobs

- Bring more tax revenue to the authorities

##

- Free up capital for investment

- Boost exports

- Reduce the administrative burden

- Reduce the gray economy

- Create more jobs

##

- Bring more tax revenue to the authorities

- Free up capital for investment

- Boost exports

- Reduce the administrative burden

- Reduce the gray economy

- Create more jobs

- Bring more tax revenue to the authorities

##

- Free up capital for investment

- Boost exports � Reduce the administrative burden

- Reduce the gray economy

- Create more jobs

- Bring more tax revenue to the authorities

- Free up capital for investment

- Boost exports � Reduce the administrative burden

- � Reduce the gray economy

Page 23 of 51
|_“R33 Enabling company de-registration in Brcko” _|**P**|�Create more jobs|
|---|---|---|
|has permitted judges to de-register fictitious companies<br>without the signature of the initial registrant (which obviously<br>cannot be obtained since the companies are fictitious), thus<br>significantly helping reduce the gray economy.|� �<br>**OTENTIAL OUTCOME**|�Bring more tax revenue to the<br>authorities<br>�Free up capital for investment<br>�Boost exports<br>�Reduce the administrative<br>burden<br>�Reduce the gray economy|
|_“R43 Easing collateral transferability” _|**P**|�Create more jobs|
|has given the opportunity to banks to resell packages of<br>loans to other banks. So far since the implementation of this<br>reform, 327 commercial and consumer loans with a total face<br>value of approximately KM 90 million have been sold in BiH,<br>involving at least four commercial banks in the process.|� �<br>**OTENTIAL OUTCOME**|�Bring more tax revenue to the<br>authorities<br>�Free up capital for investment<br>�Boost exports<br>�Reduce the administrative<br>burden<br>�Reduce the gray economy|
|_“R47 Liberalization of Inter Entity Transport Regulations for_<br>_Helping Refugee Return Transportation”_|**POT**|�Create more jobs<br>�Bring more tax revenue to the<br>|
|has permitted a number of refugees in hard-to-reach<br>communities to create bus services with 8+1 passenger<br>vans, thus enabling other refugees to reach urban areas<br>while developing a new public transportation activity. While at<br>least five such companies are known to have registered in<br>one area, a systematic survey is now taking place to quantify<br>theresult throughout the jurisdictions.|� �<br>**ENTIAL OUTCOME**|authorities<br>�Free up capital for investment<br>�Boost exports<br>�Reduce the administrative<br>burden<br>�Reduce the gray economy|

But more than the specific result achieved by each individual reform, the largest impact on the investment climate is the fact that those reforms were passed as a package, pushed by the private sector itself, and that they received a positive response from the government, thus creating a constructive dialogue between the private and the public sectors.

The initiative succeeded in shifting the mindset of many entrepreneurs. For instance "Horizonte”, one of the main Austrian investment funds, had decided to stop investing in BiH because of the intensely bureaucratic behavior of the authorities and problems linked to corruption. After two years of dormant operations, they decided to reopen the fund because they considered the Bulldozer a positive indicator of improvement of the business climate.

The Austrian bank HVB, which participated in the Bulldozer Initiative by submitting two of the selected first 50 reforms, decided to carry out the acquisition of National Profit Banka, more than doubling its presence in BiH by doing so. In his first speech marking the acquisition, the head of HVB mentioned the important role of the Bulldozer process in forming the Austrian headquarters’ view of the business environment of BiH.

At the South East Europe Investment Conference, the BiH Foreign Investment Promotion Agency (FIPA) listed the Bulldozer Initiative as the number one factor of economic stability, noting that it helped create the “fastest improvement of business climate in Southeastern Europe”<sup>3</sup> .

Such examples, among many others, demonstrate a sure, if not measurable, improvement of the perception people now have of the country, and show how Bulldozer was key in shifting mindsets. But its reach, in fact, goes well beyond investment climate per se.

> 3 FIPA presentation, Zurich, September 4 2003

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<!-- Start of picture text --> TOP up<br>Bottom-up reforms<br>are a necessary<br>complement to<br>top-down approach<br>DOWN fn ‘i<br>a tynis,5<br>i constituent —=.<br><!-- End of picture text -->
sectors. Activities of the Bulldozer Committee go along with the PRSP agenda and are a support to preparation of midterm Developmental Strategy BiH – PRSP.”<sup>5</sup> Illustrating the growing private sector influence on governments the Development Strategy BiH – PRSP points to “the Bulldozer Committee, which has had the biggest influence on the governments so far. Even before the creation of the Bulldozer Committee, the private sector had asked for the adoption of the same reform measures that have eventually been instigated by this Committee. However, it was only due to the OHR’s creation of the Bulldozer Committee that governments have been pressured to take suggested measures into consideration.”<sup>6</sup> The World Bank Foreign Investment Advisory Service (FIAS) produced a report on BiH in 2001. According to Jacqueline Coolidge, who led the reporting effort, the Bulldozer “managed to actually implement some of the reforms recommended in the FIAS report, that would have otherwise been left unattended by the governments”<sup>7</sup> . FIAS contributed to the Bulldozer initiative by recommending a stronger involvement of the public sector, which later on translated into the creation of the Emergency Reform Units at the government level. A good cooperation with the World Bank ensured also that the Bulldozer reforms fitted into the Bank’s Business Adjustment Credit that aimed at improving the business environment through structural reforms.

Mr. Javier Solana, EU High Representative for the Common Foreign and Security Policy (CFSP), noted the goodwill that the Bulldozer Initiative created within the government by declaring that “Prime Minster Terzic’s government has played an important role in pushing through the 50 “Bulldozer” microeconomic reforms earlier this year – reforms that will make it easier for entrepreneurs and investors to create new jobs”.<sup>8</sup> The European Bank for Reconstruction and Development (EBRD) underlined in its 2003 Strategy Paper for Bosnia and Herzegovina that the key issue for the authorities was to push for a single economic space, and that “the bulldozer committee, represent[ed] a significant progress in that regard”.<sup>9</sup> In its Stabilization and Association Report of 2003, the European Commission noted that “the [Bulldozer] initiative is welcome on several counts: it concentrates on practical concerns and should thus raise less political opposition and it has arguably built civil society by encouraging citizens to lobby in favor of issues which concern them.”<sup>10</sup> As such, it has been one of the factors taken into account in the Commission’s approval of Bosnia and Herzegovina’s Feasibility Study in November 2003.

Lastly, the Organization for Economic Co-Operation and Development (OECD) in its Enterprise Policy Performance Assessment of 2003 for Bosnia and Herzegovina, described the Bulldozer reform process, noting that it represented a turning point for policy reform for the country.<sup>11</sup> These citations by representatives or from reports of international agencies illustrate how alignment of the process was recognized. Indeed, the Bulldozer process took place in the context of many other initiatives led by various agencies, and it was _aligned_ with their agendas. Alignment is an important factor to consider, as such initiative is not meant to take place in a vacuum or replace all other reform efforts but rather to give a supplementary impetus to larger agendas.

# **6- Applicability of the process to different settings**

> 5 Development Strategy BiH – PRSP Second Draft for Public Discussion, December 2003

> 6 Development Strategy BiH – PRSP Second Draft for Public Discussion, December 2003

> 7 Meeting between FIAS and Bulldozer members, 2003

> 8 Interview with Javier Solana published by Dnevni Avaz (BiH), 24/09/2003

> 9 The European Bank for Reconstruction and Development (EBRD), Strategy for Bosnia and Herzegovina, 29 April 2003. 10 European Commission Stabilization and Association Report for Bosnia and Herzegovina, 26 March 2003

> 11 Stability Pact; South East Europe Compact For Reform, Investment, Integrity And Growth; Bosnia And Herzegovina Enterprise Policy Performance Assessment; Prepared by the Organisation for Economic Co-Operation and Development and the European Bank for Reconstruction and Development; September 2003

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The Bulldozer method obtained positive results in Bosnia Herzegovina, but can it be replicated elsewhere? The situation of BiH is surely unique due to the presence of a High Representative. However, Bosnia is not the only country where such an initiative has taken place.

# **6a- The Bulldozer and other “Competitiveness Partnerships”**

Similar processes have been started in Nigeria, with the “Better Business Initiative”, in Turkey, with the “Reform Program for the Improvement of the Investment Environment” and in Vietnam, with the “Vietnam Business Forum”. These initiatives are described in more detail below. Many public/private advisory mechanisms have also been initiated through NGOs across the world for decades. When targeted at improving the investment climate through concrete recommendations that enlist citizens in a country-wide or sector-wide movement, their intent and process are very closely related to those of the Bulldozer Initiative.

Such may also be the case of Ghana’s Investors’ Advisory Council (GIAC) started in May 2002, followed by Tanzania’s Investors’ Round Table (IRT) in July and Senegal’s Presidential Investors’ Council (PIC) in November. The role of these councils is to promote dialogue between the government and senior executives of local and international companies on ways to improve the investment climate. As envisaged, the councils will identify obstacles to investment and focus on a limited number of issues, to generate concrete recommendations for action and/or further analysis. It is hoped that the councils will reinforce implementation of ongoing policy reforms, by providing feedback and an international investors’ perspective on a country’s efforts to become a sought-after location for investment. Benin, Burkina Faso, Cameroon, Madagascar, and Uganda are also among other African countries that have expressed interest in launching their own investor councils.<sup>12</sup> Such initiatives, that successfully overcome the lack of political will and/or capacity at the government level or within the private sector through a similar approach, could be described as “Competitiveness Partnerships”.

Complementing the systemic approach and framework reform efforts of governments and international agencies, Competitiveness Partnerships mobilize the local business community to identify concrete legislative changes, advocate for their adoption and follow-up on reform implementation. By going the last mile in delivering concrete, quantifiable results across the full spectrum of private sector development indicators, Competitiveness Partnerships are establishing a renewed reform dynamic through government-backed public-private partnerships.

# **6b- It takes three to tango**

A Competitiveness Partnership could be applied in a country with three key actors in place: the private sector, a potentially responsive government, and last but not least, a sponsor. Assessing the applicability of Competitiveness Partnerships amounts to assessing the readiness of those actors to interact.

# <u>The private sector</u>

- The private sector needs to feel a _basic sense of security_ , and _have a stake in reform_ . Entrepreneurs who face threats to life or limb are unlikely to start voicing their business concerns, either because it is not a vital priority for them and their families, or because doing so could put them in great danger. However, if the security situation is stabilized, then they will have a greater interest in improving the conditions in which they do business.

- It needs to be somehow _organized_ , with some entrepreneurs able to provide _leadership_ . A country with no business advocates whatsoever will be hard to mobilize. But if the country is already hosting, even disparately, some entrepreneur networks, business

12 Investor councils examples are cited from Jacqueline Irving’s “Investors Councils: Status report as of April 2003”, IMF, 2003 Page 27 of 51
associations, sector representatives, chambers of commerce, etc. then Competitiveness Partnerships will be able to gather and redirect that existing energy. The presence of highly regarded entrepreneurs will also facilitate the process.

# <u>The government</u>

- Once the process has been initiated by the entrepreneurs, it will collapse if there is no _political will_ to engage in dialogue. Therefore a _responsive government_ is key to the success or failure of Competitiveness Partnerships. Political will is likely to grow with time, as the benefits of engaging in dialogue with constituencies becomes evident to local politicians. It will, however, need to be jump-started in some cases by the sponsor.

- _Capacity_ is key, as lack of capacity will result in failure of reform implementation. In countries with zero capacity in government, Competitiveness Partnerships would be inappropriate, since entrepreneurs would be quickly disappointed by the fact that none of the reforms they propose are implementable.

- Lastly, government _leadership_ is essential. Strong leadership from a strategic visionary head of the executive will often make up for other shortcomings, such as low capacity or general lack of free thinking in the administration.

# <u>The sponsor</u>

- The sponsor needs to be able to act as a middleman between the two first actors. Therefore the most important sponsor’s criteria is _strong credibility_ with both actors. In the case of Bosnia, the High Representative played this role. In other countries the credibility could come from the fact that the sponsor represents an alternative to the existing or former system. The International Community could play this role through its agencies. A mentor country, such as France in some francophone African countries or the UK in the commonwealth, could also be a Competitiveness Partnership sponsor. In Central and Eastern Europe, the EC should also be able to play this role. Credibility comes often from either a “carrot” such as donations and loans to the government’s budget, or a “stick” such as the power to influence local politics or control foreign direct investments in a specific economy. But the sponsor can also be a well-respected personality by both the private sector and the government, such as in the case of the “Competitiveness Initiative” in Nigeria.

- An important condition that the sponsor needs to fill is to have the appropriate _expertise_ . Indeed, bottom-up economic reforms need to be coordinated with framework efforts, and the sponsor needs to have the appropriate experts and contacts at hand to oversee the process at first. Only with that expertise will the sponsor be able to _move the lobbying process forward_ .

- The sponsor needs to be able to _get media attention_ and <u>be complemented by instruments</u> provided either by the sponsor or by others. These instruments can be _logistical facilities_ , _seed funds_ for starting the initiative until further funding becomes available, _budget allocation_ from bilateral embassies, _programmatic loans_ , etc..

# **6-c Assessing Competitiveness Partnerships applicability**

The three actors, together with the instruments, can be mapped out for each context in order to start an assessment of the pertinence of Competitiveness Partnerships for a specific country. This exercise is not intended to be exhaustive. Rather it aims to provide a tool that will start a debate on the selection of the best possible reform process for a given case.

Each of the four Competitiveness Partnerships dimensions is represented in the diagram below. For a given country, the sponsor, the public authorities, the private sector, and the availability of instruments are evaluated from weak to strong. By joining the four dots together, a polygon is obtained, which illustrates strengths and weaknesses of a specific context.

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# **Figure 11: The four dimensions of Competitiveness Partnerships**

<!-- Start of picture text --> SPONSOR<br>PRIVATE PUBLIC<br>Weak<br>SECTOR AUTHORITIES<br>Strong Strong<br>INSTRUMENTS<br>Strong<br>Strong<br><!-- End of picture text --> The weakness of one of the dimensions has to be counterbalanced by corresponding strength in at least one of the others for Competitiveness Partnerships to apply. If all four dimensions are weak, there is a poor chance of applicability. Two dimensions at the minimum need to be strong, as shown in the four examples below.

In the Bosnian case, the Office of the High Representative was a strong sponsor, together with the IMF, the World Bank, USAID and the EC. Each of these organizations play a crucial role in the country, and counterbalanced a weak political will and a lowcapacity government. Instruments were provided by the OHR (hosting of the Bulldozer Coordination Unit and seed funding) and by bilateral embassies (financing).

<!-- Start of picture text --> WEAK<br>STRONG STRONG<br>STRONG<br>STRONG<br><!-- End of picture text --> Page 29 of 51
In Turkey, the “Reform Program for the Improvement of the Investment Environment” is driven by a strong political will from the government and by a responsive and vibrant private sector. The World Bank serves as a partner rather than a sponsor.

Launched in 2001, the process aims at changing the existing business environment in a comprehensive fashion<sup>13</sup> . The government recognized early on that a productive collaboration between the public and the private sector was key in this process to ensure that policy reforms truly reflected and addressed private sector concerns. Intensive and direct involvement of companies and investors in this process has been realized through the Coordination Committee for the Improvement of the Investment Environment

# **Figure 13: Competitiveness Partnership in TURKEY**

<!-- Start of picture text --> WEAK<br>STRONG STRONG<br>STRONG<br>STRONG<br><!-- End of picture text --> (CCIIE), which has been set up as a partnership between government bureaus and private sector representatives. Through 11 technical committees, it defines the reform program, executes it, and determines the business program calendar and final completion deadlines. Driven by a strong political will, this process ensures a firm linkage between the “micro” needs of the entrepreneurs and the “macro” policy of the government. The World Bank plays an important role as the reform program directly derives from the FIAS recommendations, thus ensuring a connection between diagnosis and implementation. By reaching out to the direct beneficiaries (the private sector) and involving the highest government officials, this government-driven Competitiveness Partnership overcame the absence of a constituent with a strong and clear mandate that could carry out effective investment promotion functions such as investor servicing, investment generation and policy advocacy.

In Vietnam, the “Vietnam Business Forum” is now a well balanced process. The IFC and the World Bank have served as sponsors and have provided instruments such as technical assistance and hosting. The public authorities are responsive and the private sector is now well engaged in advocacy.

<!-- Start of picture text --> WEAK<br>STRONG STRONG<br>STRONG<br>STRONG<br><!-- End of picture text --> Launched in 1998, the forum aim is to “improve the business environment, to stimulate economic development in Vietnam and to increase employment and improve people’s lives”<sup>14</sup> . Entering its sixth year of operation, the Forum has succeeded in creating a formal dialogue between the government and the private sector, both foreign and domestic. Its achievements in domains such as tax, licensing, labor and administrative reforms have derived from a strong partnership and direct

> 13 Information on the “Reform Program for the Improvement of the Investment Environment” is derived from presentations and reports issued in 2003 by the Coordination Council for the Improvement of the Investment Environment CCIIE and by Gokhan Akinci who coordinated the program for the World Bank.

14 This quote and other information on the Vietnam Business Forum originate from the VBF activity report 2003, the VBF Website at www.vietnambusinessforum.org and the Socio-Economic Situation In 2003 and tasks for 2004, Government report, Presented by Deputy Prime Minister Nguyen Tan Dung at the Fourth Session of the Eleventh Vietnam National Assembly Legislature on October 21, 2003.

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linkage between four main parties that are the Vietnamese and international private sector, the donor countries, multilateral institutions such as the World Bank, who played the most important role as a facilitator, and the Vietnamese Government through the Ministry of Planning and Investment. It functions through an Executive Committee, composed of the IFC the World Bank, and private sector representatives. Business Groups and Working Groups tackle specific areas and make recommendations or provide assistance to the government for policy setting or specific reform targets.

In Nigeria, the “Better Business Initiative” functions in the context of a lack of political will and a dual-speed private sector (divided between struggling small enterprises and welloff financial and energy companies).

Launched in 2002, its key factor was the sponsorship of a well-regarded academic that could bridge the trust divide between the government and the private sector<sup>15</sup> . The World Bank, which was not in a position of sponsoring such an initiative due to a lack of confidence among the local population in international organizations, provided the necessary technical and financial support in the

**Figure 15: Competitiveness Partnership in NIGERIA**

<!-- Start of picture text --> WEAK<br>STRONG STRONG<br>STRONG<br>STRONG<br><!-- End of picture text --> background. With the other donors (USAID and DFID), the Bank keeps a low profile while the Better Business Initiative is hosted by a local think-tank, the African Institute for Applied Economics. Five Working Groups are focusing on priority issues such as infrastructure, macro and trade policy instabilities, SME access to services, agriculture, legal and regulatory reform. Each Working Group is led by a local stakeholder, and a Steering Committee is comprised of sponsors, Working Group chairs and a senior Federal Representative. Only in its beginning stages, this initiative is supposed to deliver its first round of policy issues in October 2004 for discussion with the government. But with a fragile equilibrium and only the goodwill of the sponsor to carry things through, the success of the Nigerian initiative will probably depend on the continuing availability of instruments such as funding, technical support and staffing from the World Bank and other donors. Indeed, it has already been observed that when the World Bank support declines, the initiative slows down, meaning that the initial sponsor does need to be complemented by strong instruments for the initiative really to succeed.

# **6d- Potential applications**

Following this model, it appears that investment climate improvement derived from the Bulldozer or other similar Competitiveness Partnerships could be beneficial to <u>transitional, low or middle income countries</u> burdened by regulations and the heavy cost of doing business. If the business community is fairly organized, or ready to be organized, and if the government is disposed to listen to its concerns, then the process could be applied. Potential countries for this process might be the Democratic Republic of Congo, Azerbaijan, Guatemala, Cambodia or even Sierra Leone. Wealthier countries could benefit from such programs at the <u>sub-national level. Such is the case</u> in Mexico, where a targeted dialogue between the private sector and municipal officials could help reduce the high number of local formalities (“ _tramites_ ”), while ensuring a better integration with Federal policies aimed at improving the regulatory environment.

Because of its considerable contribution to the growth of civil society, the process could also have unique benefits for <u>post-conflict countries</u> in particular. A Competitiveness Partnership program

> 15 Information of the Nigeria Competitiveness Forum (renamed in February 2004 the “Better Business Initiative” sourced in 2003 reports and presentation of Peter Mousley from the World Bank Group, who launched and coordinates the initiative .

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could be designed for example in Afghanistan to bring previously repressed segments of society into the political culture by engaging them in the identification of administrative and economic reforms relevant to their daily lives. Through this process, small farmers and women could develop a sense of ownership and pride and increase their power as constituents.

In Kosovo, the Bulldozer methodology is actually being applied since July 2004. The Kosovo Bulldozer Committee is sponsored by USAID and UNMIK and involves a dialogue between the Alliance of Kosovar Businesses and the Provisional Institutions of Self-Government, with an aim of identifying regulatory burdens that slow investment down and hinder business operations. This Competitiveness Partnership effort was launched as it was recognized that “not just economic growth but political stability”<sup>16</sup> depend on the success of such undertaking.

In Iraq, appealing to small entrepreneurs for reforming administrative procedures and rewriting commercial rules and legislation could help in reconstruction of a legal framework. In addition to filling in the gaping holes in private sector regulation and boosting a business-oriented middle class, this process would provide much needed legitimacy, coming from the Iraqi private sector rather than from the immediate corporate interest of reconstruction contractors.

In the Palestinian Authority, following decades of economic deprivation, a Competitiveness Partnership process – with, of course, a name other than Bulldozer – might provide an alternative focus for the entrepreneurial-minded and could strengthen the legitimacy of the new government.

# **Conclusion**

The Bulldozer methodology, through its impact and its potential applications, could modify the way investment climate reforms are conducted in transitional economies.

By being results-oriented, by promoting concrete, palpable results and by transforming the private sector into a real constituency for reform, Competitiveness Partnerships do more than just complement structural top-down approaches. They create a strong and lasting civic society that builds itself on the foundations of a new elite. In the case of Bosnia and Herzegovina, the Bulldozer turned the street entrepreneur into a new hero as well as an engine for growth and democracy.

The insight derived from such Competitiveness Partnership provides a new and complementary path for development professionals. Together with government officials and private sector representatives, they now have access to a reform process that goes the last mile in improving a country’s investment climate – and eventually people’s lives.

> 16 Statement of Dale Pfeiffer, USAID Kosovo Mission Director, in July 1, 2004 press release.

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~~<u>a ee es (- a a es [- a a</u> ro Ge~~
4. Single capital for both entities will facilitate the registration of a company in multiple entities.

5. <u>It is too expensive. Lowering the investment will result in more people starting</u> businesses. Additionally, lowering the cost of the minimum stake (share amount or price) will result in enabling small business to start with more partners (e.g. a small group could reach the proposed threshold of 2000 KM by having some individuals bring contributions as small as 100 KM to start the business).

# **Bulldozing solution:**

Make the minimal statutory capital requirement 2000 KM in all cases (single proprietor or multiple partners) and in all instances, and lower the minimum share price to 100 KM.

# **Action item:**

Modify: Art. 314 in the Law on Business Companies (Federation); Art. 331 in the Law on Enterprises (R.S.), and Art. 343 in the Law on Enterprises (Brcko). (see Annex)

# **FEDERATION OF BOSNIA AND HERZEGOVINA**

# **Law on Business Companies**

# **(Official Gazette of the Federation of Bosnia and Herzegovina, No. 23/99, 45/00 and 2/02)**

# **<u>Current Text:</u>**

# **Article 314**

- (1) Statutory capital of limited liability company with several founders shall be no less than 10.000 (ten thousand) KM, and if there is only one founder 2.000 (two thousand) KM, unless otherwise provided by other laws.

- (2) Value of an individual share may not be less than 2.000 (two thousand) KM.

- (3) Contributions in money may not in total be less than the amount provided by paragraph 1. of this article.

- (4) Contributions in items and rights shall be in total be invested in company until the day of submission of application for entry of company establishment into the court register, so that the company may permanently and freely dispose of them.

- (5) Until the day of submission of application for entry of company establishment into the court registry at least half of the contribution in money shall be paid in, and it shall be no less than the amount provided by paragraph 1 of this article.

# **<u>Suggested Text:</u>**

# **Article 314**

- (1) Statutory capital of a limited liability company **_with one or several founders shall be no less than 2.000 (two thousand) KM, unless otherwise provided by other laws._**

- (2) **_Value of an individual share may not be less than 100 (one hundred) KM._**

- (3) Contributions in money may not in total be less than the amount provided by paragraph 1. of this article.

- (4) Contributions in items and rights shall be in total be invested in company until the day of submission of application for entry of company establishment into the court register, so that the company may permanently and freely dispose of them.

- (5) Until the day of submission of application for entry of company establishment into the court registry at least half of the contribution in money shall be paid in, and it shall be no less than the amount provided by paragraph 1 of this article.

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# **<mark>REPUBLIKA SRPSKA</mark>**

# **Law on Enterprises (Official Gazette of the Republika Srpska, No. 24/98, 62/02)**

# **<u>Current Text:</u>**

# **Article 331.**

- (1) Statutory capital of a limited liability company may not be less than 5.000 Convertible Marks. (2) A ready-money founding deposit of a particular member may not be less than 500 convertible marks in dinar countervalue according to the exchange rate on the day of purchase.

Exceptionally from provisions of paragraph 2 of this article, if members of a limited liability company are entities who purchase preferred shares, in accordance with special regulations, a ready - money deposit of a particular member may be less than specified.

# **<u>Suggested Text:</u>**

# **_Article 331._**

- **_(1) Statutory capital of a limited liability company may not be less than 2.000 Convertible Marks._**

- **_(2) A ready-money founding deposit of a particular member may not be less than 100 convertible marks._**

Exceptionally from provisions of paragraph 2 of this article, if members of a limited liability company are entities who purchase preferred shares, in accordance with special regulations, a ready - money deposit of a particular member may be less than specified.

# **<mark>BRCKO DISTRICT</mark>**

Law on Enterprises (Official Gazette of the Brcko District, No. 11/01, 10/02)

# <u>Current Text:</u>

Article 343

- (1) The capital stock shall amount to at least 5.000 KM, and each founding share amounting to at least 100 KM. The least amount of capital stock and the least amount of members’ founding share shall be paid prior to the entry in the Register.

- (2) The capital stock may be funded with monetary contributions or contributions in things and rights. Contributions in things and rights shall be subject to the appropriate application of the provisions of Article 153 of this Law.

- (3) Non-monetary contributions may consist of movable and immovable property, rights, and enterprises or parts of enterprises.

- (4) Non-monetary contributions shall be delivered to the company in full prior to the notification for entry in the Register. If the value of a member's non-monetary contribution does not reach the value of his assumed founding share, the member shall pay the difference in money.

- (5) The founding shares shall be delivered to the company in such a manner as allows the management to make free use of them.

- (6) Monetary contributions shall be paid to the company's bank account.

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# **<u>Suggested Text:</u>**

# **_Article 343_**

- (1) **_The capital stock shall amount to at least 2.000 KM_ ,** and each founding share amounting to at least 100 KM. The least amount of capital stock and the least amount of members’ founding share shall be paid prior to the entry in the Register.

- (2) The capital stock may be funded with monetary contributions or contributions in things and rights. Contributions in things and rights shall be subject to the appropriate application of the provisions of Article 153 of this Law.

- (3) Non-monetary contributions may consist of movable and immovable property, rights, and enterprises or parts of enterprises.

- (4) Non-monetary contributions shall be delivered to the company in full prior to the notification for entry in the Register. If the value of a member's non-monetary contribution does not reach the value of his assumed founding share, the member shall pay the difference in money.

- (5) The founding shares shall be delivered to the company in such a manner as allows the management to make free use of them.

- (6) Monetary contributions shall be paid to the company's bank account.

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~~<u>a a (- a a rr rr 2 a ro</u>~~ ~~<mark>ee</mark> Ge~~ ~~Ce~~
which, according to the assessments on dangers from war activities, could be the target of attacks in war, the investor is obliged, in accordance with the space or urban plan, to secure the construction of shelters or other protection facilities for people and material goods.

Space or urban plan must include the measures for protection and rescue, the construction of new, and the adjustment of the existing shelters and other protection facilities for the protection and sheltering of people and material goods.

Investors are responsible to build shelters in accordance with the plan from paragraph 2 of this Article, or pay a fee for the construction of public shelters to the Ministry of Defense in the amount of 2% of the total value of buildings– if the investor is not building his own shelter.

Public administrator in charge of issuing a building permit, or a usage permit for a certain building, for which a shelter is to be built, cannot issue that permit if the conditions for the construction or usage of the shelter have not been met.”

# **<u>Suggested Text:</u>**

**_Remove Article 179 from the FBiH Law on Defense_ (Official Gazette F BiH n.15/96)** **_._**

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~~<u>a >>a rr</u>~~ **~~<u>a</u>~~** ~~<u>rr >a a ro</u> rr~~
# **Why is this a roadblock?**

- 1- An RS or a foreign buyer can fully process his orders through Facsimile. However, in the case that goods or services were purchased to an FBiH seller, the fax copy of the purchase order will not be sufficient for the FBiH seller, in order for him to comply with the relevant FBiH taxation obligations.

- 2- According to the legislation in force and its interpretation by the Tax Authority, the business friendly and safe process of ordering by fax is not good enough for the financial control / taxation purposes in the Federation. However, Fax transactions are recognized as bona-fide documents in all modern market economies.

- 3- Business transactions cannot be closed until sellers collect the original(s) buyer order(s). In real life, it translates into asking a customer to post each faxed order via regular post after a business case has been already closed (ordered, delivered, paid, invoiced).

- 4- If Bosnia based selling companies aim to sell all over the country (and even export), they deliver on the basis of thousands of orders per year. Urging customers to post additional document after a business transaction is actually closed to satisfaction of all involved, is an expensive and nonproductive activity that implies a significant technical burden for business.

- 5- A faxed document is mostly considered to be a written document on the global market. A faxed document, being a kind of hard copy itself, already displays all necessary elements of an order in a safe manner.

# **Bulldozing solution:**

Amend FBiH Law on Sales Tax Applicable to Products and Services (OG FBiH 49/02) with the view that a written document includes faxed document.

Propose to the Working Group currently reforming Law on Obligations (a harmonized text for Federation of the Bosnia and Herzegovina and Republika Srpska) to determine faxed documents as written documents.

# **Action item:**

# **<mark>FEDERATION OF BOSNIA AND HERZEGOVINA</mark>**

**_LAW ON SALES TAX ON THE TURNOVER OF GOODS AND SERVICES_ (OG FBiH, No. 49/02 – consolidated text)**

# **Current text:**

# **Article 8**

**Point 2)** _that the products are sold based on a written order from the buyer for each single delivery, while issuing of an invoice is obligatory and the payment is not a cash form (payment order from the buyer’s bank account to the seller’s bank account, compensation, cession and the like)._

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**<u>Suggested text:</u>**

# **Article 8**

**Point 2)** _that the products are sold based on a written_ **_(including  faxed)_** _order from the buyer for each single delivery, while issuing of an invoice is obligatory and the payment is not a cash form (payment order from the buyer’s bank account to the seller’s bank account, compensation, cession and the like)._

# **<mark>FEDERATION OF BOSNIA AND HERZEGOVINA and REPUBLIKA SRPSKA</mark>**

# **<u>MIRROR</u>**

# **LAW ON OBLIGATIONS DRAFT DATED 16 JUNE 2003**

# **Acceptance of immediate offer Article 38** (Art 40 ZOO)

- An offer made to a person present shall be considered rejected if not accepted immediately, unless the circumstances of the case indicate that the offeree was entitled to a certain time for considering the offer.

- (2) An offer made by telephone, direct radio communication or video conference or equal means of communications shall be considered as offer made to a person who is present.

A paragraph 3 should be added to this provision. It shall read **:**

# **“** **_An order made via fax shall be considered as an offer in writing_ ”**

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<!-- Start of picture text --> a<br>><br>a<br>a a ro<br>a<br>a (i<br>a<br><!-- End of picture text -->
decision on opening of a trade shop to RS citizens, because the law defines that the founder has to be FBiH citizen.

- 3- In both cases, the current legislation is a clear roadblock to a single economic space in BiH. Citizens from the other Entity are discriminated against. It disturbs the uniformity of the BiH market and it especially affects returnees in marginal areas of both entities.  A BiH citizen should be able to open his trade or craft legal entity wherever he or she deems appropriate.

# **Bulldozing solution:**

- 1- For RS : We propose amendments of the above-mentioned article in a way to delete the part of the text from item 2 of the above-mentioned article that reads: ‘’should be an RS citizen’’ so that the requirement will be limited to being a citizen of Bosnia and Herzegovina.

- _2-_ For FBiH : We propose amendments to the above-mentioned article in a way to modify item 1 of of the above-mentioned article that reads: ‘’that he is citizen of FBiH’’ into ‘’That he is citizen of Bosnia and Herzegovina‘’.

# **Action item:**

Modify :

- Article 14, paragraph 1, item 2 of the RS Law on crafts (RS Official Gazette No. 16/02).

- FBiH Law on trade (FBiH Official Gazette No. 2/95), article 8b. paragraph 1, item 1 of the Law on amendments to the Law on trade (F BiH Official Gazette 19/96).

# **<mark>REPUBLIKA SRPSKA</mark>**

# **LAW ON CRAFTS (RS Official Gazette No. 16/02)**

# **<u>Existing text</u>** <u>:</u>

# **Article 14.**

An entrepreneur can open a shop or have a craft business if he meets the following requirements:

1. To be of age and capable for business,

2. To be citizen of Republika Srpska i.e. citizen of Bosnia and Herzegovina, 3. That a competent body did not prohibit him to perform this activity, 4. That he is not a full time employee, 5. That he meets general health requirements and special health requirements if defined so by the law for certain business, 6. That he has the equipment i.e. means for work, staff and adequate premises, unless the nature of business i.e. work does not require that.

Competent minister defines for which activities business premises are not required.

If the law defines adequate level of education for certain business, apart from requirements in the previous paragraph, applicant is to submit proof of adequate level of education or to hire a person with adequate education level.

# **<u>Proposed text</u>** <u>:</u>

# **Article 14**

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An entrepreneur can open a shop or have a craft business if he meets the following requirements:

1. To be of age and capable for business,

# **2. To be citizen of Bosnia and Herzegovina,**

3. That a competent body did not prohibit him to perform this activity, 4. That he is not a full time employee, 5. That he meet general health requirements and special health requirements if defined so by the law for certain business, 6. That he has the equipment i.e. means for work, staff and adequate premises, unless the nature of business i.e. work does not require that.

Competent minister defines for which activities business premises are not required.

**If the law defines adequate level of education for certain business, apart from requirements in the previous paragraph, applicant is to submit proof of adequate level of education or to hire a person with adequate education level.**

# **<mark>RS AMENDMENT</mark>**

# **LAW**

# **ON AMENDMENTS TO THE LAW ON CRAFTS**

# **Article 1**

In the Law on crafts (RS Official Gazette No. 16/02) in the article 14, paragraph 1, item 2 is to be amended and read ‘‘to be citizen of Bosnia and Herzegovina. ’’

# **Article 2**

This law becomes effective on the eighth (8) day from the day of publishing in the RS Official Gazette.

No: Chair

# **<mark>FEDERATION OF BOSNIA AND HERZEGOVINA</mark>**

_LAW ON TRADE_ **(FBiH Official Gazette, No. 2/95,19/96)**

# **<u>Existing text</u>** <u>:</u>

# **Article 8b**

Person who meets the following requirements will get permit for opening of a trade shop:

- 1- That he is citizen of the Federation and citizen of Bosnia and Herzegovina,

- 2- That he is capable to work,

- 3- That he meets health requirements if health is defined as a special requirement for retail trading with certain products in trade shops,

- 4- That he has business premises that meet general and special requirements,

- 5- That he does not work or already have a trade shop founded,

- 6- That he was not prohibited to work in this business by a legally effective decision on introducing a protective measure,

Page 44 of 51
- 7- That he settled all obligations for general social and common needs, and

- 8- That he meets other requirements defined by the law or other regulations.

## **<u>Proposed text</u>** <u>:</u>

## **Article 8b**

Person who meets the following requirements will get permit for opening of a trade shop:

# **1- That he is citizen of Bosnia and Herzegovina,**

- 2- That he is capable to work,

- 3- That he meets health requirements if health is defined as a special requirement for retail trading of certain products in trade shops,

- 4- That he has business premises that meet general and special requirements,

- 5- That he does not work or already have a trade shop open,

- 6- That he was not prohibited to work in this business by a legally effective decision on introducing a protective measure,

- 7- That he settled all obligations for general social and common needs, and

- 8- That he meets other requirements defined by the law or other regulations.

## **<mark>FBiH AMENDMENT</mark>**

Based on chapter III. article 1 item d of FBiH Constitution (FBiH Official Gazette No.: 1/94, 13/97, 16/02, 22/02, 52/02) FBiH House of Representative at _________session on ______ 2003 passed the:

## **LAW**

## **ON AMENDMENTS TO THE LAW ON TRADE**

## **Article 1**

In the Law on trade (FBiH Official Gazette No. 2/95, 19/96) article 8b, paragraph 1, item 1 is to be amended and read as follows: ‘‘That he is citizen of Bosnia and Herzegovina ’’

## **Article 2**

This law becomes effective on the eighth (8) day from the day of its publishing in the FBiH Official Gazette.

No. : Chair Page 45 of 51
**ANNEX III: Quantifiable results for three different reforms of Bulldozer Phase I as communicated to the public**

Page 46 of 51
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**ANNEX IV: Copy of the “Protocol for Prosperity”.**

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