Remarks by Ambassador Sorensen at the ‘Conference on Employment Growth – on a Road to Recovery’ in Sarajevo

July 1st, 2014

Dear Chairman of the Council of Ministers, Chairman, distinguished Guests, ladies and gentleman,
Thank you very much for letting me be speaker number six, especially after Mr. Garry Jacobs who has just gone through my entire speech! However, I have a different slant to my speech because I was not intending to make big points that were made before. I will make a point on exactly what was mentioned also by the Minister and Chairman Bevanda while he was here, namely the Forum for Jobs and Prosperity – the conference we had in May, about the work which we are continuing through to 24th July. There we will have an outcome on exactly which reforms suggested should be in the first wave of reforms to be done.
Let me say, my job now in this morning’s kick-off is to remind us of a couple of facts that are clear. I do this absolutely cognisant of the fact that I believe strongly that full employment is possible. It is possible, but it requires political leadership. A political leadership we have not seen in Bosnia and Herzegovina from 1992 up until today. So that is the real hurdle that is in front of us. Note that, to do what we have to do, we need the political will to do this. That is why I very much welcome the opportunity and very much welcome the conference today and very much welcome the chance to have this interaction, because that is the expression of the political will. It is now finally getting there.
Let me also say that whatever we have discussed in the Forum, the conclusions of what we will do – it all begins and it all ends with employment. But it is not enough to do only the labour market reform as we all have seen. You need to have tens of reforms and these are the things that came out of the conclusions we had in the conference. And this is the only thing we heard from the first five speakers as well.
In the rest of the world or certainly in Europe, in order to bring down unemployment you need approximately 2% GDP growth. In Bosnia and Herzegovina, you need 6. Go figure. So there are some structural things that we need to attack here which are not to do with traditional unemployment. We need to dig deeper than that.
Actually what we very much got out of our conversations during the Forum for Prosperity and Jobs was that of course we have indirect factors that are influential, such as macroeconomic stability, but I do not believe that the currency and these things are problems we have here, although they can undermine the entire system. Actually, we have a very good system in place. I believe it is very stable. So it is not the indirect factors that are the problem. The inner factors are really what we would have to look at. These are of course doing business issues. It is about the taxes that you have to pay. It is about easier access to permits and so on and so forth. It is about getting away from discouraging investors from coming in.
It is very clear that the private sector here is weak. This is the fact we need to deal with. Many enterprises have never been restructured properly. They are wasting valuable resources and they are stopping other investors from coming in. So in addition to that, we need a proper investment plans, we need corporate governance to be beefed up to the European standards, we need access to finances, we need an insolvency framework.
What was not mentioned before but I will mention it, is that corruption kills. It is not enough that we just pay lip service to it. It is not enough that we just establish the bodies that deal with corruption; we need to actually tackle it. There needs to be a culture in the society, a culture in the governments, a culture in the business that corruption is not acceptable. That culture has to be started and it has to come from top down but it also needs to be built bottom up. We need to have mapping of para-fiscal fees that are out there, the costs of permits. These are some of the things that need to be done.
This morning, I point out to recent studies that mention some of these issues and the state of employment in the Western Balkans. It has been said very clearly that the institutional set up of the labour market, labour cost factors and other things in the whole process are a problem – we knew that and we mentioned that a couple of times this morning. But I want to make one point and that is with reference to the youth.
The youth have a particular problem here. They have little employment history. It is very difficult for them to find work. They might even be ready to accept temporary engagements to work to get a start in life, so they can get into the market. Get into a market that is clearly divided between ‘insiders’ and ‘outsiders’. And that means that they are often driven into what we call the grey economy.
We have a problem with youth here. One in eight in the category from 16 to 24 years old is employed in Bosnia and Herzegovina. In Europe, it is one in three. Youth unemployment is a particular part of the employment sector that needs to be looked at.

But let us tackle a couple of examples if we are really to tackle this issue of economy and full employment. If an employer in Bosnia and Herzegovina is considered to pay, let us say (it is a very high salary and I acknowledge that), 1000 KM to a prospective employee, he will first have to pay around 600 KM on average to the government in taxes and social contributions. This payment acts a significant deterrent to employment – there is no doubt about it. And it also often results in employers deciding not to tell the government that they have employed an individual. Workers thereby get into the grey economy, and they have thereby reduced access to social welfare: they do not contribute to the pension and health system and they are therefore not active participants in a full way they should be. Then they register as unemployed. This means that we have registered unemployed in April 2013 around 550,000 people, whereas we believe that the actual number is perhaps closer to 190,000, which is 27.6 % and not 44%.
But the problem is that you actually have a system whereby the labour market encourages you to come in, work in the grey labour market, you do not register as an employee, you register as unemployed, and then create a double problem. But the real problem for me, when I do my policy decision making in my work during the day is the number of the lowest activity in Europe. Only 44% of the working age population participates. 44%. Only half of your population participates actively in the labour market. That figure is staggering. That figure is what the real problem is in Bosnia and Herzegovina. And that is a figure that needs to be changed.
But as said, you cannot do these changes in isolation. We will have later in this month our practical suggestions to what needs to be done, but I can say very clearly that besides tackling unemployment, besides tackling the rigidity of the labour market, besides tackling all the other issues that were mentioned this morning, the social assistance is the next big chunk that needs to be tackled.
It is not that Bosnia and Herzegovina does not spend on social assistance. Actually, in percentages of GDP, Bosnia and Herzegovina spends double the rest of the region in social assistance. The trouble is that the social system is not targeted to the people in social need. Normally, you spend 2% of your GDP in social expenditures. In Bosnia and Herzegovina we spend 4%. Normally those expenditures are divided such that 40% of what you spend is spent on the poorest fifth. In Bosnia and Herzegovina however you spend 20% on the poorest fifth. The rest goes to people with status, and not according to the needs.
You need a fundamental change in your social system, so that the poor and the people in actual need get the money. And you need that reform at the exact same time as you do the labour market reform because you cannot do the labour market reform if you do not have a security safety net to pick up the people that you will inevitably lose on the ground when you do reforms. You cannot do privatisation of your companies if you cannot hire and fire, if you do not have a social system that picks up the people when they fall on the ground.
The conclusions of our Forum for Prosperity and Jobs runs very closely to what I am sure you will conclude today, that you have roughly around six areas in which you need to do fundamental reforms in Bosnia and Herzegovina in order to tackle the number one problem in this country: namely, the unemployment.
On the 24th of July, hopefully in this room, we will present our suggestions. We will listen very carefully to what you have to say today. I once again thank you very much for inviting us in here. I commend the initiative and certainly my staff will be here with you throughout to listen very carefully.
Finally: full employment is possible but political will is needed. If political will is there, we can do it, and we need to do it and the way to do it is a comprehensive reform process that starts as soon as possible.

Thank you very much.