Sustainable Development in Bosnia and Herzegovina
Term Paper in GEO 424
Badema Dizdar
Introduction
This term paper is about sustainable development in Bosnia and Herzegovina and I will use the World Bank project “Local Initiatives (Microfinance) Project II” as starting point for my discussion. The theory part will be covered by reviewing definitions and concepts of sustainable development mentioned on lectures and in the book “Global Sustainable Development in the Twenty-first Century”.
But I will first present economic and social situation in BiH (short for Bosnia and Herzegovina) today.
Bosnia and Herzegovina today
Bosnia and Herzegovina is located in South-eastern Europe. Land area is 51129 sq km and population is 3835777.
Its recent history was turbulent: Declaration of sovereignty (1991), civil war (1992-1995), the Dayton Agreement (1995) and transition from communism to market economy (still going on). Today BiH is sovereign state but is divided in to equal parts - entities: Bosnian Serb Republic and the Federation of Bosnia and Herzegovina. These two parts have presidents and governments that are responsible for entities affairs stated in the Constitution. The state-level government is responsible for, among others, these policies: foreign, monetary, trade, etc.
BiH has achieved macroeconomic stabilisation and some structural reforms have been made, but the pace of reform needs to be accelerated and new legislation implemented in order for the growth of private initiative and FDI. BiH still receive economic support provided by reconstruction assistance and humanitarian help.
Deeper discussion and presentation of social, economic and environmental factors in BiH will come in part 3 and 4, but in table 1 we can find recent key figures and information about BiH development.
Table 1: Economic, social and environmental trends in BiH. All figures are from 1999.GDP real growth rate / 5 %
GDP / $ 6,2 billion
GDP per capita / $ 1,770
GDP composition by sector / agriculture: 19 %
industry: 23 %
services: 58 %
Population below poverty line / NA
Inflation rate / 5 %
Labour force / 1026 million
Unemployment rate / 35-40 %
Industrial production growth rate / 5-10 %
Environment- current issues / Air pollution from metallurgic plants; sites for disposing of urban waste are limited; water shortage; and destruction of infrastructure of the 1992-1995 civil war
Environment – international agreements / party to: Air Pollution, Law of the Sea, Marine Dumping, Marine Life Conservation, Nuclear Test Ban, Ozone Layer Protection (all signed but not ratified)
Land use / Arable land: 14 %
Permanent crops: 5 %
Permanent pastures: 20%
Forest and woodland: 39 %
Other: 22 %
Population growth / 3,1 %
Age structure / 0-14 years: 20 %
15-64 years: 71%
65 years and more: 9 %
Infant mortality rate / 0,0257 %
Life expectancy at birth / 73 years
Total fertility rate / 1,71 children born/ woman
Urban population / 43 %
It is very difficult to find more statistics about social and environmental situation in BiH. One of the causes can be lack of a statistical institution on state-level.
There are few figures on poverty in BiH, but since we know that unemployment is high and that GDP, industry production and income level are below 1990- level, then we can conclude that the poverty rate is high.
Relevant literature
Since this paper is abut sustainable development then I will use theory from “Global Sustainable Development in the Twenty-first Century” by Keekok Lee, Alan Holland and Desmond McNeill, lectures and information from internet resources on sustainable development.
Sustainable development is a concept that was deeply elaborated first in Brutland Rapport “Our Common Future” in 1987. It defines sustainable development as:
“Sustainable development is development that meets the needs of the present without compromising the ability of futures generations to meet their own needs”
This concept has three dimensions, and it aims to satisfy several objectives within these dimensions. All dimensions and objectives are illustrated in so-called ESD triangle:
We can see that SD (short for sustainable development) offers alternative views on development: it turns focus on other objectives then economic growth and efficiency, like social participation, poverty, economic equity, etc. SD also forces us to think about long-term rather then short-term development, and to view ecological and environmental problems as global, not local.
But how to “make” development sustainable? Which factors can affect the dimensions and links between them?
We have already stated that sustainable development is development which is:
-Environmentally sustainable
-Economically sustainable
-Socially/culturally sustainable
Since these three dimensions are like three polarities, it is obvious that some conflicts may occur between them and their objectives. Different agents with different objectives and interest are involved in this process. And there are also other factors that affect the dimensions and links between them. Some of factors are: policies, technologies, institution, population pressure, agro climatic conditions and climate change.
As one example we can see how policies affect objectives: It can be very complex task to relate specific policies to environmental, social or economic outcome. Since it is a complex task, a change in policy can affect different decisions and actors at once, either directly or indirectly. And on the aggregate level this change can be critical for reaching development objectives. It is not just process of setting policies that is difficult and complex, implementation can be equally difficult and even more complex.
Some examples of different types of policies are international trade policy, macroeconomic policy, natural resources policy, population policy, stabilisation policy, etc.
As it is argued in “Sustainability, Growth and Poverty Alleviation” by several researchers and experts, the broader the policy instrument, the broader and less predictable the effect will be on dimensions and objectives. And there is always a danger for ineffective and misguided use of policies that can have unwanted impact on other objectives. But sometimes developing countries are not free to set their own policies; they have to follow policies that developed countries had formed, for example trade policies that can have unwanted affect on environmental or social objectives.
This example is just one of the critics on sustainable development. Developing countries has been characterizing sustainable development as “… another constrain to their development”.
Desmond McNeill (in “Global Sustainable Development in the Twenty-first Century”) describes sustainable development concept as vague with many interpretation. He also discusses two other, relatively separated debates on environment and development, and conflicts which are products of these separated debates.
McNeill lists some relations that have to be discussed within sustainable development debate:
-North/south
-Nature/people
-Global/local
-Market/civil society/state
-Right/left
He also defines central ethical and political issues within the same debate:
-Rights of the poor in the present generation as against those of the rich
-Rights of non-humans as against humans
-Rights of future generations as against present generations
Focus of the future debate should be on all of these issues, not just the third one. There is a trade-off between all three and we have to focus on that. Researchers are already asked difficult questions like should the interests of (rich) future generations be served at the expanse of (poor) present generations? The future debate on sustainable development should give us or try to give us an answer on this type of questions.
Even if the concept of sustainable development has been criticized, and the debate is still going on, we can say that The Brutland Rapport has been successful in setting the agenda. We have experienced increased focus on sustainable development.
The World Bank project in Bosnia and Herzegovina: Local Initiatives (Microfinance) Project II
Background for this part of paper is document on Local Initiatives (Microfinance) Project II, which is proposed by the World Bank.
This project is organized by Human Development Sector Unit. The World Bank has proposed credit to BiH in amount of USD 20 millions. It is standard type of credit with 10 years grace period. Agencies responsible for project implementation are FDN for Sustainable Development and Foundation for Sustainable Development (FSD) located in Bosnia and Herzegovina.
The World Bank’s Country Assistance Strategy (CAS) recognizes that post-war growth in Bosnia and Herzegovina has been strong but not yet sustainable. And while BiH has experienced an increase in income generally, there are still many Bosnians that remains worse off than before the war. To secure own economic future BiH have to take responsibility for economic and social development and outcomes.
CAS’s main goal is to help BiH with strategies that will increase economic opportunity and improve the quality of life for all Bosnians. Bank’s strategic objectives are (from CAS’s document on Bosnia and Hercegovina):
i)Strengthen weak and fragmented governance arrangements to build a solid institutional foundation for broad-based self-sustaining and democratic participation
ii)Foster sustainable and inclusive private-sector led growth and employment as the most important means of improving economic opportunity for all Bosnians
iii)Build social sustainability by establishing affordable and equitable social services for all Bosnians, including a social safety net for the most vulnerable
This project will contribute to all three CAS objectives; it will support sustainable private-sector led growth by providing capital to small businesses or to entrepreneurs who want to create or expand their businesses and it will help build social sustainability by providing credit to the low-income people such that they can secure more reliable income.
This project Local Initiatives (Microfinance) Project II will build on the work begun during LIP I. The objectives of LIP I (short version) were:
~to provide access to credit to the economically-disadvantaged and war-affected, specifically low-income microentrepreneurs who have no access to credit from the commercial banking sector;
~to facilitate the development of independent, financially viable microfinance institutions that will continue to provide credit to low income entrepreneurs over the long-term; and
~to create an appropriate legal and regulatory environment for the provision of credit and savings services to low income entrepreneurs.
Presentation of the project: Project development objective
Source: Project Appraisal Document, The World Bank
1. Project development objective:
The overall development goal of the project is to address the urgent need to raise incomes, develop businesses and create jobs in Bosnia and Herzegovina, through provision of credit and other financial services to low-income people. Specifically, the project will:
~Finance the growth and institutional development of high-performing microfinance institutions that have the capacity to provide sustainable financial services to significant numbers of low-income clients considered as "unbankable" by mainstream commercial banks, given their low-incomes and limited assets; and
~Support the transition of the microfinance sector towards sustainable sources of financing.
2. Key performance indicators:
Performance indicators and targets to be achieved by December 31, 2004 include:
Project Level:
~Development of a strong sustainable microfinance sector that performs well from both a social and financial perspective, as measured by social, financial and institutional indicators linked to MFI performance criteria
~150,000 loans disbursed on a cumulative basis by partner MFIs worth approximately KM430 million (US$200 million).
~50,000 active clients with an outstanding loan portfolio of KM125 million.
MFI (Microfinance Institution) Level:
~Increasing number of low-income clients (expected increasing number of active clients, and average outstanding loan size less than 150 percent per capita GDP).
~Improvements in the types and quality of products and services offered to low-income clients and increased depth of poverty outreach.
~Maintenance of high repayment levels, with Portfolio at Risk (past 30 days overdue) less than 5 percent.
~Financially sustainable service delivery, with MFIs maintaining a positive adjusted Return on Assets.
~Shift towards more sustainable sources of financing, measured by capital/assets ratio and commercial funding liabilities ratio.
Client Level:
~Changes in household income, employment, accumulation of business assets, business profitability.
~Impacts on the more intangible aspects of helping clients rebuild their lives after the war.
Will this project lead to sustainable development in Bosnia and Herzegovina?
In second part of this paper we can find the review of relevant literature and now will I try to relate The World Bank project to this concept.
The concept of sustainable development has three main objectives: economic, social and environmental. This project will affect two of the objectives, economic and social, directly and one, environmental, indirectly.
Economic and social objectives are explicitly described in project objective description. To affect environmental dimension, project will have environmental monitoring body; every entrepreneur who applies for the credit will have to go trough simple environmental screening procedure to establish which impact business will have on the environment. This procedure will identify potential environmental risk and only environmental friendly businesses will get the credit.
In the next part I will analyse and discuss this project in the light of reviewed theory, and at the end of the paper I will try to make some conclusions.
Analysis and discussion
Bosnia and Herzegovina is a post war economy. Since the civil war (1992-1995) BiH development has been dictated by the international donor-led strategy program, Priority Reconstruction and Recovery Program. But now Bosnian government are working on the Bosnian-owned strategy development program. This Economic Development Strategy (EDS) will serve as the basis for government policies and as a framework for external development assistance. The core of EDS is the development based on supporting entrepreneurship.
There are several reasons why Bosnian government wants to support local entrepreneurship and I will try to explain some of them.
BiH is a very poor country, second poorest in the South-East Europe on per capita basis. And while incomes per capita have more then doubled in post war period, most Bosnians are still worse off then before the war. Poverty is widespread trough the BiH. Some estimates suggest that one third of Bosnians fall below a relative poverty line, and around 10 % fall below an extreme poverty line.
The main reason for this widespread poverty is unemployment. In 1999 unemployment rate was around 40 %. It is largely a legacy of the war, but post war employment gains have not met the expectations. The largest employers in BiH are the informal sector (21 % of labour forces) and micro and small scale businesses. That is why the Government strategy is to support job creations and enterprise development, especially private-owned micro and small scale businesses. This could be fastest and most immediate way of creating jobs. And most beneficial group will be low-income group.
This World Bank project can be the Governments important tool to support job creation and micro and small enterprises. This project can give low income groups opportunity to improve their living standards.
Private sector is underdeveloped in BiH, it accounts for only 35 % of GDP. There are several reasons for this underdevelopment: slow privatisation process, long and expensive registration procedures, high taxes, insufficient business financing, weak financial sector. All these factors put constrains on business development.
This microfinance project can provide credits to low income people, and it could be engine of private sector growth. But because of unhealthy and difficult business environment only around 40 % of micro businesses are registered. Government has to improve business environment to increase its own revenue.
Microfinance is a financial tool that can be use to meet some social objectives, like improve livelihood of the poor. But for this project to be sustainable it has to reach the low income groups and it has to achieve long-term profitability. It is not always easy to reach both objectives of sustainability. BiH’s experience is that some of the microfinance projects have managed to achieve social objectives but they are still lacking economic and financial long-term profitability. Maybe this second round will be more successful in linking these to objectives and achieving both of them.
Some of desired social development outcomes under this project are improved household welfare and increased employment. And to achieve these outcomes some institutional agreements have been made.
Microfinance Organisations (MCO) will monitor this development and all MCOs have to be committed to both social and finance outcomes and at the same time this project involves direct partnership with NGOs.