Speech by Ambassador Peter Sorensen at the presentation of the Enterprise Expansion Fund in Sarajevo

3 July, Sarajevo

Ladies and Gentlemen,

It is
truly an honour this morning to introduce something new and hopeful for
Bosnia and Herzegovina on behalf of the European Union and our
international partners. The initiative is the Enterprise Expansion
Fund—or ENEF—and our partners and initial investors are the European
Bank for Reconstruction and Development (EBRD), who will also manage the
fund, the European Investment Fund (EIF), Kreditanstalt für
Wiederaufbau (KfW) and the Italian Government. The European Investment
Bank (EIB) is a partner in a broader initiative.

The ENEF is a
fund that will support SMEs with a high potential for growth—those that
are incorporated in the Western Balkans and those that will invest in
projects in the region. It will provide equity financing to support the
development and expansion of these businesses and it was officially
incorporated only in February of this year.

The fund was created
to meet a growing demand for financing for the capital expansion of
local SMEs. This, of itself, is a very good sign. And the international
institutions became involved because unfortunately there have been very
few successful home-grown equity funds in the region. ENEF was created
to encourage the expansion of SMEs and SMEs can also clearly benefit
from cooperation with equity investors to make their transition to the
next level of development and realise their full potential. Smart money
it is indeed.

As I am sure others will explain to you in more
detail, the ENEF is just one component of a Western Balkans Enterprise
Development and Innovation Facility (EDIF) that was launched in December
of 2012 to enhance private sector financing for innovative and
high-potential SMEs. This comprehensive programme was designed to meet
all of the needs of the vibrant SME sector and an initial EU
contribution to the EDIF of €60 million was intended to spearhead total
financing of €300 million.

SMEs in ENEF will also benefit from
EBRD expertise through its Local Enterprise Facility. Thanks to the link
between the two programmes, financing will also be enhanced. And we
welcome the EBRD initiative to associate their Small Business Support
programme (SBS) with EDIF. In this way, we will together achieve more
than the sum of our respective programmes could have achieved.

the specific auspices of ENEF, enterprises could obtain financing of
between €1 million and €10 million, primarily in the form of equity and
quasi-equity but also in convertible bonds. The general aim is to
strengthen the balance sheets of SMEs and, at the same time, to provide
the liquidity needed for growth.

The launch of ENEF is an
important milestone in the process of Private Sector Development in this
region and could be an important contributor to growth in Bosnia and
Herzegovina. The initiative adds to the other assistance provided by the
EU in BiH, including the most recent initiative where we support SMEs
and entrepreneurs in 9 selected municipalities throughout the country.

are the engines of the economy of the future and, as such, they embody
the potential for growth. We must look to them, in particular, to get
unemployment down from its very high levels. Youth unemployment is a
particular blight on this country and, at almost 60 percent, is among
the worst, if not the worst in Europe. Sadly, just one in eight young
people have a job in BiH compared to one in three young people in the

And this brings me to the other requirements for growth. In a
sense, funds like ENEF provide crucial nourishment for SMEs and give
water to fledgling plants that might otherwise wilt. But, in order to
take advantage of this assistance, the plants must be placed in fertile
ground. And the business environment in BiH cannot really be described
as fertile ground. As most of you know, BiH is ranked 131st out of 189
countries in the World Bank's Doing Business Indicators and, as such,
sits between Bangladesh and Uganda. It sits 38 places behind any other
country in the region and is ranked 174th (out of 189 countries,
alongside Libya) on the World Bank's assessment of procedures to start a
business. So, in truth, not really SME territory.

So, in
addition to providing direct support to SMEs, we need to create a
business and social environment in which SMEs can survive and thrive.
And it was in order to tackle this that I hosted a Forum for Prosperity
and Jobs the end of May this year; with significant help and input from
our friends at the EBRD and the other International Financial

The idea with the Forum was to set out to identify
six significant areas where action would put BiH back on the road to
reform and growth. When the problems are large, we need to prioritise
our actions and we need to start somewhere. The six areas are: (i) to
cut taxes on jobs from their current levels—at close to 40 percent of
total labour costs; (ii) to remove other specific barriers to hiring new
workers; (iii) to slash the administrative barriers to investment; (iv)
to undertake serious reforms in old enterprises and adopt a plan to
improve the corporate culture; (v) to seriously address corruption by
removing incentives and making administrative procedures more
transparent; and (vi) to target social welfare at those most in need of
help. All six initiatives need to go hand in hand.

We are
continuing to consult with the business community, civil society, the
IFIs and local and regional experts on this agenda, including at a
Seminar planned for July 15 in Banja Luka. These wide-ranging
deliberations will be reflected in what we think will be called a
Compact for Growth and Jobs that will be presented to the public before
the end of the month. It will act as a guide to the most urgent reforms
for whoever is in power or whoever will be in power after elections.

continue to believe that economic reform is possible; but it must begin
again and in earnest. The Compact will be offered to political parties
for their support prior to elections and for their endorsement in
government. Our international partners have programmes at the ready to
implement these measures and we all look forward to discussing them with
new governments after the elections. In the meantime, we encourage
civil society—and the public, more generally—to get involved and to push
the reform agenda with us.

This reform agenda, together with
initiatives like ENEF, can offer a brighter future to BiH—and one that
will surely involve membership in the EU. But there are no shortcuts
available. Reform is not necessary to please the EU; it is necessary so
that the young people of BiH can have a prosperous future. It is
necessary so the BiH can survive in the competitive environment that
there is in the world in and in the region today. And this work needs to
begin in earnest and very soon.

Thank you very much for inviting
me to the opening of the Enterprise Expansion Fund, an instrument which
we believe will be a very important part of generating growth in Bosnia
and Herzegovina.

Thank you.