The COVID-19 pandemic is both a health and economic contagion. In Bosnia & Herzegovina, the effect of the crisis on the labor market was immediate. Crises fall hardest on the most vulnerable, worsening poverty and unemployment and most likely increasing migration. Young people make up one such group. While supporting young people and businesses to keep them afloat in the short term, we’re also using the pandemic as an opportunity to innovate and transform.
Health experts aren't exactly sure why, but the COVID-19 pandemic causes only mild symptoms for most young patients, with some reportedly dying. The pandemic hits the old hardest, but young people are suffering, too, both in terms of health and economically.
‘COVID-19 has exposed the fragility of our economies,’ declares the headline from the International Labor Organization (ILO). Unemployment rates are going to be well above the rates at the height of the Great Recession. Governments had to react quickly to slow down the impact, the full picture of which isn’t yet clear.
For emerging and developing European economies like Bosnia & Herzegovina, the economic impact is a serious one: a decline of 5.2% of GDP in 2020. The Economist’s Intelligence Unit also estimates a drop of 4.5% of its GDP.
In late March, Nouriel Roubini warned that we could face a recession more severe than the Great Depression of the 1930s: the world is at risk of ‘a greater depression’ if the policy response isn’t timely and adequately implemented. In the recent World Economic Outlook, the IMF also estimated a drop of 3% in the global output.
How are labor markets affected? What are the implications for young people in countries like Bosnia & Herzegovina?
Economic contagion disrupting labor markets
Unemployment is soaring, and more than 30,000 people have lost their jobs in Bosnia & Herzegovina since the crisis started. Younger workers are often the first to have their hours cut or be laid off. For recent and this-year graduates and for people who were unemployed before the crisis, the time ahead will be especially difficult.
Trade, tourism, and transport are among the most affected sectors in the country. Remittances, which play a significant role in Bosnia & Herzegovina, are falling sharply. Remittances to the country amount to 10.5% of the country’s GDP. The World Bank estimates the sharpest decline of remittances in recent history: a drop by 20% globally and by 19.7% in low- and middle-income countries.
The impacts will be worsening of poverty and unemployment in the country and leaving many without the only income they had. For the economy, it means lower consumption, which would further expose business and negatively affect the economic output.
Young people are faced with very limited opportunities for employment and career development in the next few years or more. That will intensify existing aspirations of youth to migrate to the developed European countries. Developed countries are facing massive job losses and shrinking opportunities. This may lower down, even though briefly, the rate of migration from Bosnia & Herzegovina.
Cushioning impacts through adaptation
Implemented by Helvetas and Kolektiv ltd, the MarketMakers project aims to identify and address constraints in the growth of private businesses for creating employment opportunities. The pandemic presents a challenge for the MarketMakers project: how to deliver results (impact) in a disrupted and contracting economy?
Many of the jobs and business growth results that the MarketMakers projects supported in the last years are vanishing before our eyes. The pandemic is weakening the progress that we have made in the last few years. This is out of our control and ability to influence and predict. So, what is the purpose of projects like MarketMakers in a period when the room for generating growth and jobs is extremely narrow?
MarketMakers supports for ‘systemic changes’ to happen. These changes are about market solutions, business practices, or policy changes for addressing obstacles that weaken or slow down the growth of the private sector. Thus, our contribution is to the overall economic prosperity and inclusion. We are ‘market system developers’. A thriving and growing private sector creates jobs as a result of growth and diversification.
When the lockdown started, our first instinct was not to simply preserve jobs by offering subsidies or similar support. We quickly reacted to explore ways in which we can support our partners to adapt business practices to ‘the new normal’ and explore the opportunities for the market to transform and sustain growth - or, at least, suffer less from the crisis.
Case one: training and working online
We liaised with partners that provide upskilling services to check if they can organize courses online. True, not all courses can be delivered online. Yet, the majority of them adapted and moved to the online sphere - they use different tools and channels to offer the content to trainees. Only those who rely on practical work and interaction with specialized machines/equipment are constrained to teach their students online.
We also recently published a call to Business Process Outsourcing (BPO) companies interested in ‘institutionalizing’ remote work arrangements, to support them in establishing new or improving existing human resource practices. It would help companies to bridge the current situation, but also utilize the system of remote work for the growth in the post-COVID-19 period. We know from our research that there is an increased global demand for support services. This means more opportunities for BPO companies to increase the amount and scope of services supplied to their clients from overseas markets.
But to expand the business at this particular moment, they need an additional workforce. The work-from-home arrangement is an opportunity for companies to reach the workforce from smaller towns in Bosnia & Herzegovina. They are also able to attract labor that is often overlooked: for example, single parents whose care duty doesn’t allow them to apply for on-site and/or full-time job positions.
Therefore, instead of simply subsidizing the preservation of existing or creation of new jobs to amortize the most tangible effects of the crisis in the short run, the focus has been put on improving the practices that will transform the market incrementally or substantially, thus supporting the growth in the long-run.
Case two: e-commerce
In 2019, MarketMakers launched the initiative to support the development of the e-commerce market in Bosnia & Herzegovina. E-commerce has wider economic potentials. We supported the under-recognized potential of e-shops on the domestic market.
The list of problems was many. On the one hand, private sector enterprises saw e-commerce as an unnecessary cost rather than a good investment. They also lacked knowledge on how to implement webshops and address poor policy framework (that still doesn’t have a system of e-signature in place, to mention one example). On the flip side, there was low trust among citizens towards online payments.
Therefore, to create a wider behavioral change and boost e-commerce, we launched the intervention with the ambition to create a whole ecosystem around e-commerce, which includes companies that develop e-shops, logistics and delivery, payment companies, and leading players in this domain on the domestic market.
Fast-forward: several months later, boom, the COVID-19 pandemic hit with all the lockdown measures put in place immediately. It’s ironic, but this has created an opportunity. It has forced many businesses to go online and introduce delivery services if they want to sustain, at least partially, their business operations. It was a hard choice between the quick adaptation and the risk to permanently close their business – from restaurants to fast food shops, clothing stores, and other non-essential retailers and small artisan shops. In just a few days, online offers exploded.
Although it witnesses the great adaptivity of the system (market), one should avoid romanticizing such a sudden change. It comes with a lot of pain for businesses. E-commerce isn’t something that can be smoothly and efficiently introduced overnight. It requires partial or total adaptation of the business model and taking care of various elements such as intensive and professional communication with customers, a well-developed delivery system, paying extra fees if those are managed by third parties, and so on.
Emerging evidence shows that e-commerce is for many ‘a necessary evil’: many businesses are facing lower margins due to increased costs associated with e-commerce. They have to cope with the intensity of communication and/or struggle to have an efficient delivery system in place. These are the costs of late and ad hoc, crisis-led, modernization, or diversification of business practices.
Looking ahead: from saving to transforming
So, what can we learn from the above two examples?
The examples illustrate the importance of investing and stimulating in transformations of the market. The main role of MarketMakers - and other similar projects in the country and the region - is to stimulate and facilitate these systemic changes, once the obstacles and inefficiencies are identified. E-commerce, in the light of the current crisis, is the best example of how timely transformation of the market could be critical for economic resilience and long-term performance. A more resilient market means a less affected labor market.
Bosnia & Herzegovina is gradually introducing measures for supporting businesses during this challenging time. Some examples include providing subsidies to businesses (primarily to cover social security contributions and taxes on salaries), extending or delaying tax obligations, and establishing a guarantee fund to enable banks to offer loans to businesses that are facing liquidity issues. The impact of these measures would be probably limited to keeping companies afloat.
Yet, the measures aren’t transformational. They aren’t custom-made to lead to innovations, creation of new markets, or new business practices. On top of these measures, we need initiatives like MarketMakers to step in and invest efforts and resources to ensure the recovery period not to be reduced to ‘saving what could be saved’. Our focus should be supporting innovations in industries and business practices. Our economy needs a ‘ventilator’ at the moment, but it also needs the ‘immunity’ – resilience – to adapt and innovate in the future.
This is a great responsibility and opportunity for MarketMakers!
- For a More Inclusive Post-COVID-19 Economic System
- Business as Usual’ in Post-COVID Worsens Vulnerability
- Holding the bull by its horns in Bosnia & Herzegovina: Tackling Structural Unemployment in the Labour Market