Förbättrade statligt ägda företag, WB

This project has experienced multiple issues during its implementation and it did not measure expected results in 2023 but things improved in early 2024. During the 2023, the implementation was uneven across three jurisdictions. In the RS some progress was made during the earlier reporting period slowed down due to complexities. The main focus of the RS government was focused on developing specifications for new IT system aimed to improve oversight of SOEs by the government. As mentioned earlier, in the FBIH project was halted as FBIH government opted to not cooperate with the World Bank having not been properly consulted in the past. Taking into an account the situation it was expected that the project team was reorganized and to adjust number of its activities to better respond to the requests from the respective governments. This resulted in project being able to make some progress. Notably, project implementation and reporting arrangements are strengthened. For a better overview since the project conducts its activities based on level of governance (Federation of Bosnia and Herzegovina, Republika Srpska, Brcko Distrikt) in order to provide more comprehensive overview activities achieved during this reporting period are listed as per level of governance. The activity that was intended for state level in cooperation with the entities are dropped. In Republika Srpska the RS Government adopted an updated SoE Reform Plan. The development of the plan was supported by the project. The plan covers the period from 2024-2026 and it includes the legal and regulatory revision in order to improve SoE performance. Assessment of existing SoEs reporting system is completed allowing for new system of monitoring, reporting and oversight, coordination etc. The biggest efforts as mentioned above were geared towards finalizing technical specifications for the IT system for Public Enterprise oversight coordination. Upon the completion of technical specifications, procurement of IT system was initiated. In Federation of Bosnia and Herzegovina, during the reporting period the biggest achievement was engagement of the Government in early 2024, stipulated in the formal request for the project support in February 2024. Since this reporting period covers activities up to 31 March moderate results were achieved. The Bank jointly with Government representatives identified priority reforms and implementation plan. To be noted, it was agreed that FBIH will mirror activities undertaken in the RS which will facilitate progress and make up for delays in the implementation of intended reforms. Provided that grant component will mainly be allocated to the procurement of RS IT system, it remains to be seen what if any funds could be allocated to support the work of FBIH. Finally, in Brcko District, the project team during the reporting period helped the authorities to draft diagnostics of regulatory framework and corporate governance.

The objective of this project is to support Bosnia and Herzegovina’s (BiH) governments in developing and implementing reforms and enabling tools for a modern policy, regulatory, and institutional SOE sector governance framework, as a foundation for improved SOE sector transparency, effectiveness and sustainability. The project has four components. The components correspond to the four constraints/reform areas identified earlier: policy level (main focus), owner level, company level, and reform enablers. The activities under each component were selected according to their relevance, feasibility, and potential for impact, as well as their alignment with government priorities and requests for support, with Government of Sweden strategy, and with relevant World Bank and development partner projects. The theory of change for this activity can be summarized as follows. BiH SOEs currently find themselves in financial and operational crisis. At the root of this poor outcome is an interlocking set of governance weaknesses which cascade from the policy down to the owner institutions and company levels. The reason the companies are unproductive and inefficient is not because they lack resources or market access, but because they lack incentives for performance as a result of the gaps in governance and accountability. Compounding the challenge of advancing needed reforms is the lack of enabling foundations for reform - lack of strong public demand for reform. This project seeks to lay the foundations for improving the health of BiH’s large SOE sector by supporting BiH governments in addressing these key constraints. It will do so by helping BiH governments set in place key governance fundamentals at policy, owner, and company levels, as well as reform enablers. Together these interventions are expected to contribute to two key intermediate outcomes: provide BiH governments with the evidence, options, and tools to select, design, and begin critical reforms; and help build public awareness and demand for reform. Both together will help entity governments to adopt and begin implementation of key reforms to address the binding SOE sector governance constraints. Although the ultimate impacts of these reforms lie beyond the timeline of the project and are not directly measured here, it is expected that if sustained over a medium-long term period, the reforms supported by this project will directly and significantly improve the sector’s performance: they will create a better, and more effective, sustainable, and transparent SOE (BEST-SOE) sector. The Theory of Change graphically illustrates how proposed ACTIVITES lead to expected OUTPUTS, and how those contribute to achieving INTERMEDIATE and DEVELOPMENT OUTCOMES. The choice to focus on governance aspects is rooted both in extensive literature showing them to be root drivers of challenges as well as in BiH experience. Many SOE projects in BiH in the last few decades, including most donor-supported investment and capacity building projects, have focused on purely technical company-level constraints such as financing for purchase of improved equipment or transfer of technology, while largely neglecting the root governance drivers. The result has been the sector’s continued financial and operational decline over the last decades, despite large capital injections and support. The attempts to address aspects of governance or ownership were generally unsuccessful as they were often not accompanied by critical reform enablers such as strategic communication, change management, and labor management strategies. Without the enablers in place, reforms that were perceived to threaten particular interests were met with stiff resistance and were ultimately rolled back. A notable exception remains the World Bank-supported RS Railways restructuring project, which was seeded with the support of the Government of Sweden, and which invested in consistent strategic communication and a transparent and comprehensive labor restructuring process for that company. Applying these lessons, this project focuses on critical governance reforms needed to fundamentally shift the state of play in the sector. Reform enablers will also receive special attention given the lessons learned about their importance for reform sustainability. Besides the substantive focus on governance, global experience with SOE reform also informs how the interventions will be selected and deployed. Experience from many countries suggests that in challenging political economies like BiH’s the most effective approach is multipronged, flexible, and incremental. The benefits of a multi-pronged approach, which addresses governance constraints not just at the company level but at all relevant complementary levels is that it casts a wide net, and increases the chances of impact. It also brings a wide array of stakeholders into the dialogue, leveraging synergies across different interventions, and allowing strategic sequencing. Applying these lessons, this project will take a holistic approach, addressing governance constraints at all the levels discussed earlier and depicted in Figure 1. Flexibility in the choice or sequencing of activities has been shown to be also critical in uncertain and changing contexts like BiH’s, particularly in light of the COVID crisis. With this in mind, the project will draw on a comprehensive menu of activities (described below) but adopt a flexible approach to selection and sequencing during implementation, to ensure they remain demand driven and responsive to reform openings over the course of the project. Finally, an incremental approach is imperative for the complex and difficult reforms at hand. The project will carefully select and sequence interventions and break down complex reforms into “palatable” steps to set a manageable pace for reforms and ensure that they are sustainable and irreversible. An incremental approach will also facilitate learning by all parties and stakeholders, and allow for easy course corrections as needed at each successive step. To ensure smooth implementation and iterative adaptation to changing needs, the project will be accompanied by continuous technical-level dialogue. Occasional high-level meetings will be organized to facilitate key necessary decisions and follow-up actions.