The Metal Processing Industry in Bosnia and Herzegovina

1
The Metal Processing Industry in Bosnia and
Herzegovina

• For the OECD Investment Compact project
• Investment and Trade Liberalisation,
  Strengthening Development and Implementation of
  Investment and Trade Policy in the Western
  Balkans
• Mario Holzner, Gabor Hunya, Waltraut Urban, Goran
  Nedic

2
Topics

• Aim of the study
• Sector profile
• FDI and the metal processing industry
• FDI survey
• Conclusions

3
Aim of the study

• To analyse the impact of FDI in the BiH metal
  processing industry
• To demonstrate what can be done with officially
  published data and what not

4
Defining the sector

• 27 Manufacture of basic metals
• 27.1 Manufacture of basic iron and steel and of
  ferro-alloys (ECSC)
• 27.2 Manufacture of tubes
• 27.3 Other first processing of iron and steel and
  production of non ECSC ferro-alloys
• 27.4 Manufacture of basic precious and
  non-ferrous metals
• 27.5 Casting of metals
• 28 Manufacture of fabricated metal products,
  except machinery and equipment
• 28.4 Forging, pressing, stamping and roll forming
  of metal powder metallurgy
• 28.5 Treatment and coating of metals general
  mechanical engineering

5
Analysis Relative size, 2003
6
Analysis Production structure, 2004
7
Analysis Production, 1989 2004
8
Analysis Production indices
Missing 2digit unified BiH data
9
Analysis Employment
Missing 2digit RS BiH data
10
Analysis Monthly gross wages, EUR
Missing 2digit RS BiH data
11
Analysis Trade
12
Analysis Trading partners, 2004(SITC 67 68,
Iron, Steel and Non-ferrous metals)
13
Analysis RCA, 2005
1
2
3
14
Missing data

• BiH state level most 2digit data missing
• Output and gross value added
• Employment
• Firm number and structure
• Investment
• Electric energy prices by type of customer
• Material input costs (no Input-Output table)

15
FDI Stock 2005, CBBH
Officially published 2digit data missing
16
FDI Stock in metal processing industry, EUR mn,
2005, CBBH
13
17
FDI Stock, MOFTER
2digit data missing
18
FDI MOFTER list, 2005
48 of D, 28 of total
19
Survey Corrected MOFTER list,book value, 2005
71 of the original figure
20
Survey Employment in comparison
2004 only Mittal Steel (4500) Aluminiji (924)
declared more employees than FBiH NACE 27
21
Survey Production in comparison
NACE 27 FDI companies declare higher production
than total official NACE 27 sector
22
Survey Questionnaires(9 out of presumed 12 FDI
companies)

• Origin of foreign investment
• Most FIEs from Ex-YU (SLO, HR, SiCG)
• For them BiH subsidiary is more important than in
  other CEE/SEE
• Only 1 important multinational company (Mittal)
• Privatisation
• Only 2 green field investments, others privatised
• No restructuring before privatisation
• Low selling prices (also because of arrears)
• Most important case steelwork Zenica (first
  KCIC, then Mittal)
• Other important cases Aluminij Mostar (12 TLM
  from Croatia) Alumina plant Birac Zvornik (64
  Ukio Bank from Lithuania)

23
Survey Questionnaires (cont.1)

• Motivations of foreign investment
• Mostly low cost of production and cheap sourcing
  of inputs
• Also Export base for third countries
• Only 3 FIEs main motive to access BiH market
• Underhand in BiH still not necessary to meet all
  ecological standards
• Impact of FDI
• For 50 investment was a success, for others too
  early to say
• Production and revenues significantly increased
  after foreign entry
• E.g. Mittal Steel produced 2004 170,000 t,
  2005 350,000 t
• E.g. Birac Zvornik produced 2004 370,000 t,
  2005 550,000 t

24
Survey Export revenues
25
Survey Profits
26
Survey Questionnaires (cont.2)

• Problems of FIEs
• Bureaucracy as No.1 problem
• Simplifying customs procedures and exemption for
  raw materials, machinery, equipment beneficial
• Another important problem Bad infrastructure
• E.g. Mittal receives only 55 MWh instead of
  needed 72 MWh, bottleneck railway and port
  infrastructure
• International linkages (unweighted averages)
• Third of inputs local, 10 HR SiCG, 56 other
  European
• 18 local buyers, 19 HR SiCG, 53 other
  European

27
BiH supply linksof Aluminij Mostarin 2005, in
of total supply from BiH (53 of grand total)
Survey Local linkages 1
28
BiH markets of Aluminij Mostarin 2005, in of
total BiH sales(14 of grand total)
Survey Local linkages 2
29
Survey Questionnaires (cont.3)

• Development prospects
• All FIEs plan to increase output and employment
• E.g. Mittal plans to invest EUR 120 mn for
  integrated production of steel tripling output to
  2 mn t in 2009, 800 employees
• Two of the biggest even plan to build a
  cross-border cluster
• Additional FDI on coat tails of sectors big
  companies expected
• E.g. Mittal plans to outsource refractory,
  maintenance, workshop for spare parts Future
  need for limestone, transport, engineering
• General prospects for the sector are favourable
• However world market price for steel and
  aluminium determining

30
Conclusions

• Analysis impediment missing 2digit state level
  officially published data
• No input cost data (I-O table missing)
• Official data seems partly inconsistent

31
Conclusions (cont.1)

• Successful foreign entry through privatisation
  (increase in production, revenue, exports)
• FDI was essential for restructuring
  reconstruction
• Strategic investors more successful than
  financial
• Since 2004 FDI acceleration (due to Mittal
  entry, change in privatisation method)

32
Conclusions (cont.2)

• Majority of FIEs from Ex-YU, capital from outside
  region
• Local linkages could be expanded
• Problems Bureaucracy and Bad infrastructure
• Sectors sub-branches with higher value added
  have a negative Revealed Comparative Advantage

33
Conclusions (cont.3)

• Rather favourable prospects
• Development of world market prices is
  determinant
• Development of local and regional market
  dependent on further reconstruction and
  infrastructure investment (car industry?)

34
Policy conclusions

• Improvement of national statistics
• Disaggregation
• BiH state level data
• BiH coordination of economic policy across
  entities
• Infrastructure investment (electricity, rail,
  road, port)
• More green-field more incentives for local
  spin-offs
• Look for possible domestic and foreign suppliers
  for the big integration companies (e.g. supplier
  fares)

35
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