Elections unlikely to revive Bosnia’s troubled economy

By bne IntelliNews October 10, 2014

Clare Nuttall in Sarajevo -


2014 has been a tough year for Bosnia & Herzegovina. Shortly after mass protests forced the government to call early elections, the worst floods on record dashed hopes of economic growth. As Bosnians prepare to cast their votes in presidential and parliamentary elections on October 12, they are already aware that no breakthrough on economic reforms can be expected.

“Now you must listen to the people!” reads a banner draped along central Sarajevo’s Marshal Tito street. The slogan, taken from an EU report, is not a bad message for the country’s politicians, given popular disillusionment over the high level of corruption and lack of progress on basic economic issues.

Opposite the parliament, hand-drawn signs on cardboard boxes and white sheets highlight some of the causes of resentment – corruption, botched privatisations and the long-standing political deadlock that is a product of the country’s power-sharing system. The signs, put up by a group of Bosnian activists who believe the elections are illegitimate, compete for attention with the posters for some of the 7,748 candidates running in the presidential, parliamentary and regional elections on October 12.

A total of 518 positions are up for election, including the national presidency – where three presidents representing the country’s three main ethnic groups hold the post in rotation – and parliament, as well as positions in the autonomous republics within Bosnia. Following the Dayton Agreement that ended the Bosnian War in 1995, the country was split into two autonomous, ethnically based parts: the Serb-dominated Republika Srpska and the Muslim-Croat Bosnian Federation.

Up for grabs

The result is hard to forecast – a fragmented parliament is a virtual certainty, meaning Bosnia is set for weeks at least of negotiations. Fed up with the political establishment, many Bosnians are expected to cast their vote for smaller parties. The most likely possibility is a broad cross-party coalition, though parties from either the centre-left or the centre-right may scrape together enough seats to form a government.

Whatever the coalition composition, however, there is little hope that the new government will be better placed to force through reforms than its predecessor. Early elections were called in February after protests over corruption and unemployment erupted into the worst outbreak of violence since the end of the war in 1995.

Since then, the economic situation has got even worse, dashing hopes of a better future under a new government. The flooding that affected large parts of the country in May was a massive setback for the economy, and the inflow of foreign funds for reconstruction – many suspect – has simply created new opportunities for corruption. Whether through incompetence or deliberate misuse, many of those whose homes or livelihoods were destroyed by the floods say they have not yet received support.

At the beginning of this year, Bosnia was on track for annual GDP growth of around 2%, but forecasts have now been slashed to close to zero, due to a combination of the flooding and slow recoveries in Croatia and Bosnia’s other trading partners within the EU.

Investment decisions have also been put on hold during the last eight months of political uncertainty. “Bosnia has a history of coping with an unstable political environment, but it is difficult to predict the outcome of the elections, and investors want stability,” Erste Bank analyst Alen Kovac tells bne.

Nor has there been much progress on reforms to the business environment, while privatisations of major companies including BH Telecom have stalled. Just under a year ago, the European Bank for Reconstruction and Development’s (EBRD) “2013 Transition Report” identified areas where work was needed, including infrastructure development, improving the business climate, energy sector reform and privatisation of state owned enterprises.

“Since then, there hasn’t been much progress, especially in recent months due to the combination of the pre-election period and the aftermath of the floods,” says the EBRD’s lead economist for Southeast Europe, Peter Sanfey. While things are “not at a complete standstill” – there has been some progress for example on business registration and within the framework of Bosnia’s IMF programme – “we would hope after there is a new government there would be progress,” Sanfey says.

EU journey

Bosnia’s journey towards EU entry is also faltering. The latest EU enlargement report published on October 8 criticised the country’s “very limited” progress and an urgent need for socio-economic reform. “Bosnia and Herzegovina has not overcome the standstill in the European integration process while most other countries in the region are moving ahead decisively. This regrettable situation is caused mostly by a lack of collective political will on the side of the leadership,” the report says.

This is easier said than done, thanks to the complex power-sharing structure of the Bosnian government. The system of two autonomous republics, intended to ensure peace within Bosnia, has the downside of creating conditions for political deadlock that has prevented reforms from being introduced, as well as creating opportunities for corruption.

Close to 20 years since the agreement was signed, frustration has come to a head this year. Faced with an electorate tired of politicking, and unable to impress voters with concrete achievements in tackling unemployment or raising living standards, politicians of various stances have used calls for secession as a rallying cry.

This has been most extreme in the Republika Srpska where Milorad Dodik is fighting to hold onto the presidency, though some Croat leaders have also called for their own entity within Bosnia.

Recently, Dodik has reached out to Serbia’s traditional ally Russia, bypassing Sarajevo to strike a deal with Gazprom to receive gas imports via Serbia through the planned South Stream gas pipeline. Dodik also announced in late September that he had lined up a loan of up to €700m in case the International Monetary Fund freezes funds for Bosnia. Dodik was also closely monitoring events in Scotland in the hopes that a ‘yes’ vote for independence would set a precedent for the Republika Srpska. "The goal of my politics is that we become less an entity and more a state," he told supporters in mid-September, according to RIA Novosti.

This was followed by the arrival of a troop of 150 Russian Cossacks in the Republika Srpska’s administrative capital Banja Luka in October. Their arrival immediately before the election unsurprisingly raised concerns, especially when it emerged that the group’s leader, Nikolai Djakonov, had led a paramilitary unit in Crimea.

Fears that the Cossacks had been brought in by Dodik to either put down opposition protests or stir up trouble have not altogether allayed by assurances from the Republika Srpska’s Ministry of Culture that they were there for a World War I commemoration event. The latest poll from IPSOS published by BN Televizija shows that Ognjen Tadic has a lead of 10 percentage points over Dodik for the republic’s presidency.

While many of the appeals to ethnic sentiment and calls for greater autonomy are likely to die down after the election campaign is completed, there are already gloomy projections of more unrest after the elections if a new government is not formed quickly. That government will be under intense pressure to deliver progress on practical issues - namely job creation and economic growth.

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