FOREIGNERS DISCOVER THE PERILS OF INVESTING IN BOSNIA

Nearly four years after the end of the Bosnian war and following the injection of more than $4 billion of donor aid, foreign investors should be queuing up to enter what is a market of 3.5 million people.

Instead, the few who come find themselves caught in a maze of communist-era bureaucracy, widespread corruption and oppressive taxes.

Two American journalists arrived in Sarajevo in March 1999 to start the first local English-language newspaper, The BiH Reader. Such newspapers have thrived in other post-communist countries with large expatriate communities. Targeting the 15,000 foreign employees in international organisations and 30,000 SFOR soldiers living in Bosnia, the project seemed quite feasible.

Before coming to Bosnia, the newspaper's founders had read on the official Bosnian Office for Promoting Foreign Investments and Trade web site, that Bosnia was a "land of opportunity". Moreover, the web site explained how a 100 per cent foreign-owned company could be established in BiH "in a simple, two-step registration procedure".

It sounded too good to be true - and was. After nearly seven months battling with officialdom, during which they failed to get their newspaper registered and suffered considerable financial losses, the founders have decided to pull out.

In Bosnia the registration of a company is crucial to setting up an account with the payment bureau, the so-called ZPP, a communist-era body through which all money transactions must be rooted. The payment bureaux are an extremely effective means for ensuring political control over the economy and are therefore closely managed by the ruling parties.

Without valid registration documents, a company cannot collect debts. Despite an increasing number of interested advertisers and a growing readership, The BiH Reader couldn't collect money owed to it for the three issues published, as it was not properly registered.

Upon arrival in Bosnia, the newspaper's founders had an additional surprise. What the web site had not told them was that 100 per cent foreign ownership of a newspaper is impossible in Bosnia, because the media is treated as a "strategic industry". Therefore, they had to find a local partner to assume at least 51 per cent ownership.

Registration involved obtaining approval from a dozen government ministries, each of which - the newspapers' founders say - delayed its decision unreasonably, or refused to give a response. To get documents signed by the Federation Ministry of Foreign Trade, based in Mostar - 120 kilometres and two hours' drive from Sarajevo - they made the round trip on three occasions, chasing the ever absent Minister. "He simply wouldn't put the registration in the mail," explains John Biemer, the BiH Reader editor.

Some officials seem to have been confused by the vagueness of the law regulating foreign investment in media. In June, more than three months into the procedure, the Bosnian Minister for Foreign Trade informed them that the law on which the registration depended was not yet official, since further restrictions to it were to be passed by the parliament. When the law would be considered by parliament or passed, no one knew.

The first lawyer representing The BiH Reader quit, unable to deal with the obstructions. The second helplessly advised that they seek political intervention by someone high up in the international community. However, despite pressure from the US Embassy's commercial attaché and the Office of the High Representative, local officials continued to drag their feet.

Had the process not reached deadlock, the newspaper would have had to obtain additional approval from yet more ministries, including, for example, the Defence Ministry, which must verify that the office - in this case a rented apartment - is not situated at a location of strategic importance.

"Especially frustrating for us was our inability to figure out exactly who or what was to blame - inefficient lawyers, corrupt ministers, the layers of bureaucracy, or the laws themselves," John Biemer, the editor, wrote in a farewell piece published in the local press.

For those investors who actually make it through the registration process, there seem to be innumerable additional hurdles to overcome. This is best illustrated by the case of Intermarche, the French hypermarket chain, which invested 11 million German marks in constructing a new hypermarket called Interex.

In addition to the complications of registration, Intermarche bought the site from the politically connected Delimustafic family and employed 55 workers, for each of whom it is obliged to pay a tax amounting to 87 per cent of their salary.

The 6,000 square metre hypermarket in Sarajevo's Stup suburb did eventually open on September 1, but was closed by financial police after only 21 days. The official explanation for the closure is an obscure communist-era regulation, which forbids wholesale and retail sales in the same place.

The Interex management had been aware of this regulation and discussed it with Federation Prime Minister Edhem Bicakcic before opening. Bicakcic assured them that the regulation was obsolete and that they could therefore proceed with the project.

Project director Jean Francois de la Roche says that he does not know why the hypermarket was closed, but that there are many theories.

According to one theory, black market operators found that they could not compete with Interex's high-volume discounts and intervened. As a result of porous borders and widespread customs and tax evasion, Bosnia's black market has been thriving since the end of the war. Many senior political figures are widely rumoured to have a direct stake in this sector of the economy.

Another theory is that Interex was caught up in an internal battle within the financial police. A group of financial inspectors had accused their superiors in an open letter of selling 5 million German marks worth of confiscated goods and pocketing the proceeds.

Whatever the reason, Interex was forced to close for two weeks and has suffered financial losses in the process. Nonetheless, de la Roche remains upbeat: "We have been useful," he says, pointing out that the old regulation was changed in a matter of days.

Jadranka Slatina is a pseudonym for a journalist from Belgrade.