The private enterprise sector in Bosniaand Herzegovina (BiH) has been expanding steadily, andestimates are that it presently contributes close to 50percent of Gross Domestic Product (GDP). The BiH privateenterprise sector initially developed following theprivatization program starting in 1999. Under that program,the majority of state owned enterprises (SOEs) that wereprivatized were done so using the voucher privatizationprocess. Under this procedure, vouchers were issued to allcitizens over 18 years of age, these vouchers could be usedto buy state owned properties or shares in SOEs. To promotean orderly process, privatization investment funds werecreated to help purchase such vouchers in exchange forcitizens' shareholdings in the investment fundsthemselves. This process was also meant to develop thecapital markets via the eventual trading of such shares.However, the process of voucher-to-share conversion,resulted in the new owners seldom having to invest their owncapital in these voucher privatized enterprises. This wasbecause the 'ownership transfer' was provided on agrant basis from the government to citizens. Because ofthis, new ownership became automatic, without incentives toput up additional capital to improve the businesses, leavingthese enterprises performing below potential capacity. Thegovernment should consider implementing a pilot program ofrestructurings to attract new investor capital within a wellorganized framework using a methodology defined in advance.Finally, economic research shows that increased firmcompetitiveness, innovation, technological capability, andexport potential have a strong correlation with foreign ownership.
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