Employment levels had already begun to drop in Bosnia and Herzegovina with the onset of economic transition in mid-eighties. The heavy physical damage caused during the war to the social and economic infrastructure, the loss of trade and other economic links, and the forced dispersal of the labour force led to a near total break down of the country’s economic system. Industrial output alone was down by approximately 95% between the years 1990 to 1994. Roughly 50-60% of the current labour force remains unemployed. The Dayton/Paris Peace Agreement emphasised the necessity for employment regeneration and economic recovery for the stabilization of Bosnia and Herzegovina as a state. The reconstruction process itself is not enough to aid economic regeneration, the existing labour force needs to be trained, refugees and displaced persons need to return and participate in the reconstruction of their country, and basic institutions need to be strengthened.

There are other difficulties to face in resolving the problem of unemployment and to enable subsequent economic revitalisation. There are approximately 425,000 demobilized soldiers and over 13,000 people have suffered such war injuries that prevent them from resuming their former occupations. Many families have been left without an income provider. Many skilled professionals are displaced or have become refugees and are unable, or unwilling, to return to their homes. Many returnees face a difficult process of social reintegration.

The post war challenges facing Bosnia Herzegovina (BiH) are many. Continued mass population displacement, either internally or abroad as refugees (50% of total pre war populations) mean that there is a fragile and dislocated social situation and a reduced internal market. The collapse of traditional markets and physical damage to infrastructure has led to a fall in GDP per capita at 30% of pre-war levels while industrial production has dropped to 90% of original levels. Unemployment levels in BiH today remain high at approximately 40%. With little foreign or domestic investment entering BiH, the economy remains largely dependent on foreign aid, which over the last five years has amounted to 5 billion Euros. Today, Bosnia and Herzegovina’s import bill is 2.6 billion euro against revenue of 750 million euro from export. GDP growth fell from 18% in 1998 to 8% in 1999, despite the increase in donor assistance. According to World Bank, BiH is the second poorest country in Europe and is most donor-dependent.

Using an integrated approach, the EC efforts in economic regeneration aim to support long term sustainable economic development and to assist in the transition to a market economy. In its efforts to assist the economic regeneration of Bosnia and Herzegovina the EC has allocated over 70 MEURO to this sector.

In 1996, the EC committed over 9 MEURO to various programmes in support of economic regeneration. The programmes’ main objectives were to restart local economies, provide demobilized soldiers with a minimum income and training, and assist in the repatriation of refugees from European member states. 1 MEURO was allocated to the village employment and environment project (VEEP), a pilot project that aimed to bridge the gap between humanitarian aid and the development of positive economic reforms. The VEEP projects have an immediate and visible impact at the local level in areas of refugee return and involve labour intensive public works projects, like road repairs, sewage system repairs, cleaning of rivers, and re-forestation. By providing employment in small scale public works contracts the programme hopes to encourage community participation and improve social conditions for residents, thereby reducing tensions for the future repatriation of refugees. The EC also committed 1.4 MEURO for the job creation activities in western parts of the country and 1 MEURO to the rehabilitation of the Zica Wire Factory. This project assisted in the development of lending techniques and helped to demonstrate to local banks that small lending can develop profitable activity. This project created some 350 jobs. Furthermore, 0.3 MEURO were committed toward Small and Medium enterprise (SME) support and regional development project, 1.7 MEURO for Industrial Development project and 1 MEURO for assistance to banking sector in BiH.

In 1997 the EC committed over 37 MEURO to the economic regeneration programme. The programme further supported the rapid development of the economy in Bosnia and Herzegovina and also supported local and cantonal administrative structures. A second and third phase VEEP received a total commitment of 11 MEURO, which was distributed through small projects in over 15 villages prioritized by UNHCR for returns including the Brcko region. The projects employed approximately 7,500 people over a one-year period, particularly the unskilled, displaced and former soldiers. A total of 7.5 MEURO was allocated for a micro credits scheme implemented through MEB Banka and signed with the European Bank for Reconstruction and Development (EBRD). The micro credit scheme was set up to provide finances for the establishment of micro and small enterprises that are facing financial constraints. A further 10 MEURO of the 1997 EC economic regeneration programme contributed to the Investment Guarantee Fund. This large allocation will help to establish the flow of foreign investment into Bosnia and Herzegovina by providing guarantees to eligible foreign investors against perceived political and other risks. The 10 MEURO trust fund is administered by the Multilateral Investment Guarantee Agency (MIGA). Regional development within the Tuzla/Podrinje Canton received 3.2 MEURO in 1997. The project was divided into business advisory services and a 1 MEURO micro-grant scheme. The aim was to create job opportunities for returnees through the promotion of SMEs. Returnees received assistance in resettlement whilst cooperation between the ethnic groups was encouraged. It included rehabilitation projects for housing, public facilities and social infrastructure, development of businesses and trade through support for SME, and training in technical and professional skills. Similarly, 2.5 MEURO was allocated to economic revitalisation and employment generation in the Una Sana Canton and Banja Luka region. This pilot project involved the return of highly qualified Bosnian nationals and their families living in European Member States to take up entrepreneurial and commercial activities in Bosnia and Herzegovina. The project encompassed the reconstruction and rehabilitation of four sites in the health and education sector, in addition to the establishment of an Entrepreneurial Support Fund (ESF) composed of micro-grants. The EC and local authorities worked together to provide housing and social support, and incentives were given to create private market structures, improve local economic potential, and increase further employment possibilities.

In 1998 the EC Economic Regeneration Programme allocated a further 7 MEURO. 1 MEURO for the continuing VEEP programmes throughout the country and 4 MEURO on support to SMEs and job creation throughout the country. As aid donations will not continue indefinitely foreign and private investment is increasingly important for the country’s economic recovery. Furthermore, 3 MEURO was allocated for the further support to the banking sector in BiH. The objective of the programme is to assist the creation of a modern, market oriented banking and financial sector, capable of inducing financial discipline, mobilizing long-term financial resources and directs these into productive investments.

The 1999 programme of 32.3 MEURO follows on with many of the projects initiated earlier. A total of 15 MEURO has been committed toward housing and SME loan financing projects, 4 MEURO for a Quick Impact Facility and 2.2 MEURO for the regional development projects targeted at Tuzla Canton and surrounding RS municipalities as well as Brcko District. Further project under this programme include 1 MEURO for Foreign Investment Promotion, 1. 6 MEURO for restructuring of textile, agribusiness and wood sector, reform of Payments Bureaus in BiH (0.7 MEURO) as well as assistance in business environment reform (0.6 MEURO). In addition a total of 5 MEURO has been committed for SME and micro-credit finance.

The 2000 programme aimed at the economic regeneration in Bosnia and Herzegovina, amounts to 9 MEURO. The programme is based on the priorities reflected both in the Madrid PIC Declaration, December 1998, and the Brussels PIC Declaration, May 2000. The European Community’s (EC) Economic Regeneration Programme for BiH has two broad aims: to enhance sustainable economic recovery; and to assist in the transition to a market economy. In this respect the EC has committed 2.5 MEURO for Privatisation and Attracting Strategic Investors project, 2.5 MEURO for Corporate Restructuring of the BiH Electricity Complex project, 3 MEURO for Regional and Enterprise Development and 1 MEURO for Modernization and Regulation of the Insurance Sector project.