Green transition and digitalisation: the path towards economic growth and sustainability of Bosnia and Herzegovina
The beginning of a new year is the time for new business decisions. Whereas in private life we start once again with the process of losing weight, physical activities or healthy diet, new technologies, inflation, interest rates, green economy, climate changes, digitalisation, security, supply chains and migrations warn companies about the necessity of taking important business decisions in order to face all the uncertainties of 2023.
The world is changing. A new ship has set sail a long time ago, and governments and companies are trying to catch up with it and board it. While innovative and agile organisations are undergoing change and searching for opportunities in new global trends, most of them hope that they will not be struck by a potential crisis. Will they manage to avoid it?! The pandemic Covid-19 is slowly waning, leaving behind painful experiences and the awareness that small and medium-sized enterprises (SMEs) are those that truly matter and that there is no alternative to SMEs. According to the World Economic Forum, SMEs are crucial for today’s two greatest global challenges.
The first relates to a comprehensive, inclusive and sustainable economic growth, and the second relates to decarbonisation in order to achieve climate goals, or the zero greenhouse gas emission rate. In order to face the above challenges, SMEs do not only need the support of governments, but also financial institutions and corporations. The support includes several important segments, in particular the following:
- Acquisition of new know-how and skills,
- Access to financing.
Small and medium-sized enterprises constitute 90% of all companies and generate around 70% of jobs and GDP worldwide. The statistical data are quite similar in Bosnia and Herzegovina. SMEs are a basis for the development of the national economy and ensure employment for the largest number of persons. In terms of the number of employees, there are only around 1% of large companies. Over the past years, excluding in the year of the pandemic, 2020, SMEs have been growing. Several important indicators such as the number of SMEs, the number of employees, the value of exports, the total income, etc. confirm this. Irrespective of the above, insufficient productivity and overall business environment result in an insufficient growth of the national GDP, which has been varying between 2 and 3% over the past year and has therefore failed to improve the quality of life of the inhabitants in a meaningful way. In order to achieve the desired economic growth of 6-7% per year, the SME sector must undergo a digital transformation and green transition in an accelerated and systematic manner for the purpose of overall increase in productivity, innovation and competitiveness.
Research and development
According to the data of the World Intellectual Property (WIPO), global investments in research and development that amounted to 2.4 trillion dollars in 2022, have tripled as compared to investments in 2000. According to the WIPO Global Innovation Index, Switzerland, USA, Sweden and UK are the most innovative economies of the world. When it comes to the region of the Western Balkans, the best ranked economy is Slovenia (32th position), followed by Croatia (42th position) and Serbia (55th position). Bosnia and Herzegovina ranks 70th. Although the pandemic Covid-19 has marked the years 2020 and 2021, this period was characterised by a sudden increase in global innovation investments. Bosnia and Herzegovina is among the lowest ranking countries in the region when it comes to investments in research and development. As opposed to Slovenia and Croatia, which invest 2.1% (% GDP) and 1.3% (% GDP) respectively, Bosnia and Herzegovina allocates only 0.2% for this purpose.
The long-term sustainability of SMEs in Bosnia and Herzegovina, including micro and start-up companies, will be determined by their ability to undergo digitalisation. The process of digital transformation has to happen at companies of all sizes and from all sectors. A particularly complex challenge in the process of digital transformation is usually faced by micro and small enterprises due to the fact that many digital tools are expensive and tailored to the needs of larger companies. If we wish to have sustainable growth and development in the future, Bosnia and Herzegovina has to ensure an accelerated digital transformation of the SME sector. Some of the key activities that must be implemented in the process of support to digital transformation of the SME sector include:
- Development of digital skills and digital business models,
- Introduction of EU standards in business operations,
- Establishment of strategic innovation funds at various government levels,
- Cooperation of scientific research institutions and SMEs,
- Development of internal entrepreneurship, innovation laboratories and experiments at SMEs,
- Development of ICT start-up companies, etc.
According to the 2021 Study on Digital Transformation of Companies in Bosnia and Herzegovina carried out by the Association for Digital Transformation in Bosnia and Herzegovina, there is a difference in the degree of digital transformation of companies depending on the sector they operate in. In this respect, in compliance with expectations, production companies are primarily focusing on the digital transformation of production processes, whereas companies in the trade sector mostly deal with the digitalisation of the supply and distribution of products. In addition to this, the study confirms that the size of a company determines the level of digital transformation of its business operations to a certain degree, so that medium-sized companies with an employee number between 50 and 249 have a higher level of implemented technologies. Finally, export-oriented companies have a significantly higher absorption of digital technologies, which is largely a consequence of adjustments of business processes to international operation standards. Although progress towards the digitalisation of the SMEs sector is visible, which is also confirmed by the recent establishment of digital innovation hubs supported by Deutsche Gesellschaft für Internationale Zusammenarbeit (GIZ) and the European Union, governments at all levels have to provide additional financial and technical support to digitalisation processes in cooperation with SMEs. The will to achieve the above is also confirmed by the adoption of several development strategies at different government levels in Bosnia and Herzegovina, where the digitalisation of the SME sector is recognised as one of the priorities of the future development of the country.
Although SMEs generate around 70% of jobs worldwide on the one hand, they also release around 60-70% industrial gas emissions. According to CPD, an environmental NGO, the combined emissions generated by SME suppliers are on average five times higher than those of large companies and corporations. Irrespective of challenges and the necessary high investments in the process of digital transformation, the achievement of the zero greenhouse gas emission rate constitutes an even greater challenge for the SME sector. According to a study of the Boston Consulting Group (BCG), in order to achieve the zero emission rate by 2050, the global value chains need investments amounting to 100 trillion dollars. At least half of that value relates to investments that have to come from SMEs that must turn their existing business models into so-called green business models, redesign their products, invest into clean technologies and improve their data gathering. At the end of 2022, small enterprises worldwide got less than 3% of the total support for green transition.
When it comes to important steps in the framework of the green transition road map of the SME sector in Bosnia and Herzegovina, it is necessary to particularly focus on the following elements:
- Define the carbon footprint,
- Carry out analyses and energy efficiency measures,
- Initiate a green transition in processes of production of electricity, heat and mobility,
- Introduce a regular monitoring system.
In order to achieve the above goals, significant funds and financial instruments are necessary. They include green and climate bonds, a strategic investment fund, the financial instrument Apex, credit guarantees for SMEs and numerous other instruments used in the EU and the rest of the world.
It is high time that decision makers and business leaders acknowledge a well-known fact that there is no sustainable development nor green transition without SMEs.
Prof. Nedim Čelebić, , PhD