Report “Creating a more favorable business environment for decreasing informal (grey) economy in the Republic of Srpska” reveals what employers in the Republic of Srpska see as main causes of grey economy and where we stand on these matters in comparison with Serbia, Croatia, Macedonia and Austria.Interviewed employers have recognized these issues as the main causes of grey economy:
- High fiscal and parafiscal charges have been identified as the main cause of the widespread existence of grey economy in the Republic of Srpska. The majority of interviewed employers think that high labor taxation has the most influence on the creation of informal economy and that it needs to be decreased significantly.
- Unfair competition doing business in the area of informal economy is one of the three key obstacles that employers are facing. The most frequent manifestations used by unfair competition as competitive advantages is unreported employment and failure to report full salaries, doing business without a license, unreported turnover and sale without a receipt. Here also exists the problem of “political protectionism”, reflected in an unequal treatment of companies by inspection bodies.
- Lack of alternative sources of funding, undeveloped capital market and bank preference to approve more credits to the public sector and the general population on the account of the real economy. Companies have problems with limited availability of financial services and rigorous conditions for receiving credits, in a situation when other sources of external funding besides commercial banks are not available, which narrows down their possibilities for growth and development.
- Distrust with the work of public institutions, high level of corruption in the public sector and ineffective work of judiciary bodies. The analysis reveals that small enterprises, which prevail in the structure of the domestic economy, suffer the most because of such situation. In conditions of an orderless market, global exposure and weak competitiveness, small enterprises are often forced to operate in grey area, not to make additional profit, but simply to survive.
- Bad communication and lack of trust between the social partners – representatives of employers, workers and the state. It is interesting that 75% of survey participants finds that the Government of the Republic of Srpska cooperates very little or not at all with other social partners on combating informal economy.
- Lack of adequate workforce. The education system is not able to produce adequate workforce required by the economy, while, in conditions of global competition, companies, especially micro and small ones, are not able to invest in additional training of their employees. Unqualified or low qualified workers are in an especially unfavorable position because, due to lack of skills, they cannot integrate into the labor market and are often forced to keep low-paid jobs in grey area.
This report was produced as part of a project that aims to help the Union of Associations of Employers of the Republic of Srpska (UEARS) to identify the most important causes of the informal economy in the Republic of Srpska and develop a set of quality and conductive recommendations for addressing this significant problem. The author of the report is Center for Research and Studies GEA, Banja Luka. The report and the whole project are conducted on the basis of the methodology of the International Labor Organisation (ILO), which financed their design and implementation.
Complete report with recommendation can be found here.