Bosnia and Herzegovina - News

Struggling against odds, small firms give Bosnia hope

11/07/2006

GRUDE, Bosnia (Reuters) - Half of the diapers, tissues and toilet paper sold in Bosnia are made by a local firm that has become a rare homegrown success story.
Experts say Violeta, and a handful of companies like it, offer the best prospects for boosting economic growth but warn the private sector will be hamstrung until authorities, more focussed on attracting foreign investors, change their approach.
"These middle-tier companies are the future of this country," said Alex Paine of the International Finance Corporation (IFC), the private equity arm of the World Bank.
But only a few firms, like Violeta and the food-and-juice firm Vegafruit, have made the leap from small-time start-ups to sector leaders.
Some analysts say many people and politicians still nourish a deep suspicion of Bosnian business -- fuelled by memories of large, sometimes corrupt state-owned firms that flourished during socialist years.
"It is important that the authorities recognise (private companies) not as thieves but as people who (can) enrich and empower the nation because these firms can be created in three years, take over the market and develop the ability to export," Paine said.
Rich in mineral deposits, forests and rivers, Bosnia was the heavy-industry base of Yugoslavia before a 1992-95 war.
Billions of aid dollars have poured in to rebuild the country since the end of the conflict, but only a handful of foreign investors have come in. Industry now accounts for only 25 percent of gross domestic product (GDP).
Officials say memories of the war are the main obstacle to attracting foreign funds, but a recent World Bank study blamed red tape, ranking Bosnia 87th out of 155 countries for ease of doing business. It was one of the ten worst for the time and cost involved in obtaining a business licence.
Foreign investment over a decade of peace has only come to around $1.7 billion (921 million pounds). Critics say that the state should now give up its losing fight to lure foreign investors and put in place incentives to help locals, like Violeta.
CHARGED DOUBLE
Founded by Bosnians and using mostly local raw materials, Violeta is the country's only widely recognised local brand. Backed by three foreign-owned banks, it employs 300 people, generates over 60 million Bosnian marka (21 million pounds) in revenues and exports half its output.
Petar Corluka, one of Violeta's owners, said the firm launched production of tissues and toilet paper three years ago, with lower prices as its main selling point thanks to lower transport costs and the use of cheaper domestic raw materials.
Customers found the quality matched imported brands and appreciated the savings. Violeta expanded its hold on the market by adding new products to its range, this year with diapers.
But Corluka said the firm was struggling to sell diapers at competitive prices because of high customs duties on the two dozen components they have to import to make them.
Private companies want incentives, like cheaper electricity, but Corluka said his firm had to pay double household electricity rates while bigger industrial consumers could negotiate cheaper contracts.
"That's why there are so few positive examples here because regulations are not made to benefit producers. If we moved across the border to Croatia, our products would be 8-10 percent cheaper," Corluka, a lawyer by training, said at Violeta's plant in the small town of Grude in the rugged Herzegovina region.

Source: Scotsman.com; www.business.scotsman.com