PERFORMANCE APPRAISAL AND SUPERVISION OF STATE-OWNED ENTERPRISES IN BOSNIA AND HERZEGOVINA

Bosnia and Herzegovina has opted for a market economy, which implies the liberalization of prices and trade, as well as the existence of an applicable legal system, including real rights. In order for a market economy to function, it is necessary to ensure macroeconomic stability and consensus on economic policy. A developed financial sector and the absence of significant barriers to entry and exit strengthen the efficiency of the economy. By analyzing the database of financial statements of state-owned companies in Bosnia and Herzegovina, we conclude that they are mostly in poor financial condition. This paper analyzes the structure of the state-owned enterprise sector, and identifies individual enterprises that affect fiscal and macroeconomic performance. State-owned companies do not contribute enough to the growth and stability of the economy, the financial analysis showed. The framework for the management of state-owned enterprises has also been analyzed and we come to the conclusion that the entity and cantonal governments do not perform their ownership function in accordance with the WB / OECD guidelines. Quality governance reforms in state-owned enterprises are needed to encourage transparency and increase the quality of accountability. Achieving a higher level of quality in the state-owned enterprise sector can achieve an increase in total GDP of 3 percent annually.


INTRODUCTION
The economy of Bosnia and Herzegovina consists largely of state-owned enterprises, which have a significant impact on macroeconomic stability, including its fiscal stability, labor market stability and competitiveness 1 . State-owned companies are inherited from the former Yugoslavia. The civil war, which lasted from 1992 to 1995 and was interrupted by the Dayton Peace Agreement of 1995, led to further decentralization of state-owned enterprises in accordance with the organization of the state of Bosnia and Herzegovina, into two entities: Republic of Srpska, Federation of Bosnia and Herzegovina and ten cantons in the Federation of Bosnia and Herzegovina, Brcko District and 145 municipalities.
Most state-owned enterprises were privatized from 1996 to 2006, but the public considers the results of the privatizations unsatisfactory, due to a number of unsuccessful high-profile privatizations. www.japmnt.com The legal framework of the former Yugoslavia governing SOE was modernized during this period, but it is considered that the management and supervision of this sector lacks responsibility. There are no high-quality, up-to-date and publicly available databases on the state-owned enterprise sector. The analysis showed that state-owned enterprises participate with approximately 11 percent of total employment, but somewhat less participate in value-added (only 10 percent). One of the objectives of the paper is to determine the size and structure of the sector of state-owned enterprises in Bosnia and Herzegovina. In order to achieve the set goal, it was necessary to create a database of state-owned companies for the period from 2015 to 2017. The second set goal is to analyze the financial performance of the overall sector of state-owned enterprises and individual ente-rprises. Financial ratio analysis (profitability, leverage and liquidity) was used to identify individual firms that pose financial risks to governments.financial performance of the overall sector of state-owned enterprises and individual enterprises. Financial ratio analysis is used to identify individual companies that pose financial risks to governments 2 .
One of the objectives is to analyze the ownership function of governments and their policies to oversee, identify weaknesses and opportunities to improve them. A survey method was used to determine the quality of management of state-owned enterprises in relation to the region and the recommendations of the World Bank and the OECD in the following areas: a) ownership and governance framework; b) financial 2 Renteria, et, al. (2018). supervision; and c) fiscal and policy interactions that companies have with government 3 . The paper discusses the performance and governance issues for certain sectors of state-owned enterprises in Bosnia and Herzegovina.
State-owned enterprises (SOEs) have a significant impact on the economy, but a large number of these enterprises have a negative impact on macroeconomic indicators "The analysis shows that approximately 80,000 workers are employed in 550 stateowned enterprises in all sectors of the economy, accounting for 11 percent of total employment. State-owned enterprises own approximately 40 percent of all fixed assets and are responsible for 10 percent of total turnover. State-owned enterprises are disrupting the labor market because their average wages are 40 percent higher than the wages of private enterprises, even though they have lower productivity. Total SOE debts amount to approximately 26% of GDP. Stateowned companies in Bosnia and Herzegovina have the third highest salary premium in the region" 4 .
"Aggregate SOE debts amount to about 26 percent of GDP. This includes close to 4 percent of GDP in overdue arrears of taxes and social contributions, which reduces tax revenues and has a negative impact on the functioning of the social benefits system. The financial ratio analysis shows that over 44,000 people are employed in state-owned enterprises (SOEs) that face high or very high financial risks (6 percent of total employment)" 5 . Figure 1 shows the added value in relation to employment in 2016 for state-owned enterprises for the countries of Central and Eastern Europe 6 . This paper determines the impact that the state-owned enterprise sector has on the economy of Bosnia and Herzegovina, such as: sector size, sector structure, financial indicators, labor markets. S aggregate amounts mask performancerelated challenges in individual enterprises, financial ratio analysis will be used in the paper to identify high-risk state-owned enterprises. To assess the risk of state-owned enterprises, the following financial indicators are taken into account: profitability, leverage and liquidity. "The paper analyzes the entity frameworks for the management of state-owned enterprises (SOEs), and then considers options for improving the performance of the state-owned enterprises (SOE) sector" 8 QUANTITATIVE ANALYSIS OF 6 Richmond, el. at. (2019). 7 Internet: www.imf.org 8 Perkins , (1996).

STATE ENTERPRISES IN BOSNIA AND HERZEGOVINA
There are over 550 state-owned enterprises (SOEs) in Bosnia and Herzegovina. There is no single register at the level of Bosnia and Herzegovina, although there are centralized registers of state-owned enterprises in the FBiH 9 . The database of financial statements includes the entity, cantonal and municipal levels. Our quantitative analysis is based on a sample of 414 companies for the period from 2014 to 2017 10 . "Therefore, we have information for nearly 80 percent of SOE, but we probably cover more than 90 percent of SOE by income, employment, or resources, as data is more likely to be available to larger enterprises" 11 . "However, most of the economic activity is performed by SOEs owned by the entity central governments, which in 2017 generated about 85 percent of SOE revenue (€ 2.9 billion), held 85 percent of SOE assets and liabilities and EUR 3.5 billion, respectively), and employed 58 thousand out of 76 thousand total SOE employees in the sample" 12 . The largest state-owned enterprises are owned by the entity governments in the electricity generation sector (Federation of Bosnia and Herzegovina and Republic of Srpska -Elektroprivreda), mining (coal mines in FBiH), production (weapons production), agriculture (RS Forests) and transport (roads), highways, railways).  The largest part of revenues and funds is in the sectors of electricity, gas, steam and air conditioning. These state-owned enterprises generate 45.6 percent of total SOE revenues, followed by information and communications (12.4 percent) and transportation of goods and storage of goods (11.7 percent). "These state-owned enterpri-ses generate 45.6 percent of total SOE revenues, followed by information and communications (12.4 percent) and transportation and storage (11.7 percent). The three state-owned enterprises with the highest average revenues in the sample period are Elektroprivreda BiH (EUR 535 million), BH Telecom (EUR 274 million) and Elektroprivreda RS (EUR 210 million). More than 70 percent of all state-owned assets are concentrated in the electricity, gas, steam and air conditioning sectors (37 percent), and transportation and storage (36 percent)" 13 .   "Most of the employment in SOE is concentrated in the production of goods and services. About 37 percent of SOE employment is concentrated in the electricity and water sectors (28,000 workers), transportation (12,000) and mining (12,000). The five largest employers of state-owned companies are Elektroprivreda BiH, FBiH Railways, RS Railways and the Banovići and Kreka coal mines" 14 . "It is interesting that BiH seems to be the only country in the region where the number of employees in state-owned companies has increased since 2005, and is ranked third in terms of the number of employees in state-owned companies expressed as a percentage of total employees" 15 . Number of employees in stateowned enterprises has steadily increased since 2005 compared to the region, and Bosnia and Herzegovina ranks third in the number of employees in state-owned companies as a percentage of total employees 16 . This phenome-non can be explained by the significantly lower volume of privatization in Bosnia and Herzegovina compared to other observed countries of Central and Southeast Europe in the observed period.  In order to significantly reduce the accumu-lated losses by sectors, it is necessary to do significant financial restructuring, which will provide additional fresh capital, in order to 17 Internet: www.imf.org improve the solvency of these companies. The largest accumulated losses are in: mining, manufacturing and energy sector ( Figure 6).
"State-owned enterprises have a negative impact on macroeconomic performance and do not contribute enough to the economy, due to low profitability, high leverage, and low liquidity. The debt of state-owned enterprises totals EUR 4 billion (26 percent of GDP), and through significant overdue tax arrears, these enterprises affect pension and health insurance systems. Almost half are illiquid and rely on state support, both implicit and explicit, to stay afloat" 18 .
www.japmnt.com The total debt of state-owned enterprises in 2017 is at the level of 26 percent of GDP. (Figure 7). "Tax arrears should be deducted from the total liabilities of stateowned enterprises, in order to estimate the net debt to other sectors of the economy. A broader definition of indebtedness, such as total public sector debt, would allow a more accurate assessment of debt sustainability. General government debt, including guarantees, in 2017 amounted to about 40.50 percent of GDP" 19 . Liabilities of state-owned enterprises (long-term liabilities, short-term liabilities) and debt /GDP ratio (as a percentage) in the period 2014-2017. years are shown in Figure 8. Analyzing the above data, it can be concluded that long-term and short-term liabilities have been growing since 2015, and their share in GDP in 2017 is 25.7%.
The structure of liabilities of state-owned enterprises by activities is shown in Figure  9. Analyzing the above data from Figure 9. it can be concluded that the largest liabilities by activities have the following stateowned enterprises: transport and storage (47.8%), supply of electricity, gas and air conditioning (21.9%), mining and quarrying (9.6%), manufacturing (7.5%), information and communication (1.9%), construction (1.2%).
In the period from 2015 to 2017, the stateowned enterprise sector produced losses on average ( Figure 10). The public sector as a whole was on the verge of profitability in 2017, out of the ten sectors analyzed, only three sectors were profitable during the period from 2015 to 2017. The most profitable commercial sector was the information and communication sector (EUR 38.3 million, or 0.4 percent of GDP in FBiH), due to the profit made by BH Telecom, which amounted to more than three quarters of the sector's profit. Other profitable sectors were: transport and storage (0.0075% of GDP), agriculture, forestry and fishing (0.0042% of GDP) and manufacturing (0.0035% of GDP). In contrast, the electricity, gas and air conditioning supply sector recorded a loss of 0.025% of GDP, while the ore and stone extraction sector recorded large losses totaling 0.0346 percent of GDP.

QUALITY OF INVESTMENTS AND OF INFRASTRUCTURE OF STATE-OWNED ENTERPRISES
Investments of state-owned companies in 2017 amounted to 1.7 % of GDP. The largest infrastructure investment projects in Bosnia and Herzegovina are carried out by state-owned companies in the energy and transport sectors (highways). Stateowned enterprises have a monopoly in the road, railway and airport sectors, as well as in electricity and telecommunications. The availability of public using infrastructures was analyzed using the followings criteria:1. Education; 2. Electricity consumption; 3. Built roads in the unit measuring km per 1000 inhabitants; 4. Quality of the health system; 5. Drinking water supply (in% of population). Figure 11 shows the availability of public infrastructure and the quality of infrastructure 21 .  The results of the research show that Bosnia and Herzegovina, out of five possible indicators, is in the rank of the European Union and Europe in emerging and developing in two criteria, namely: criterion.1. Education (number of teachers in secondary schools per 1000 persons) and criterion 5. Drinking water supply (% of population with access to clean water).
The criterion of access to public infrastructure shows us that Bosnia and Herzegovina lags significantly behind EU member states. In the period from 2014, there was an improvement in the quality of infrastructure, but it is, according to the results of the World Survey on the Quality of Economic Infrastructure (from 2015), still far below that in comparable countries. The quality of infrastructure is measured on a scale of 1-7, and it is rated on average with a score of 2.2. In the European Union, the rating of infrastructure quality is 5.5.

The quality of infrastructure in Bosnia and
Herzegovina is not at a satisfactory level, measured in relation to the European Union and the countries of the Western Balkans, although state-owned enterprises account for 16% of total investments.

FINANCIAL RATIO ANALYSIS AND RISK ANALYSIS
The results of the research show that the financial indicators of the state-owned enterprise sector compared to the overall economy of Bosnia and Herzegovina are not satisfactory. Indicators of profitability, leverage and liquidity indicate a weak performance of state-owned enterprises compared to the private sector (Table 2).

Profitability indicators (ROE and ROA)
indicate that state-owned enterprises generate negligible value from the funds available to them. "State-owned enterprises also have a higher leverage than the private sector, and their liquidity is lower than that of the private sector. These indicators point to the need to continue government support for a number of state-owned enterprises in the short term" 22 .
State-owned enterprises have a higher leverage than the private sector, and their liquidity is lower compared to the private sector. On the basis of such criteria calculated, the government needs to urgently intervene with short-term investments in a number of state-owned enterprises. Table 2. Selected financial ratios (Authors, 2020) "We will assess the quality of finances for individual state-owned enterprises using unique criteria. In this way, we will assess the financial difficulties of certain stateowned enterprises" 23 . Financial analysis is key in a comprehensive assessment of the performance of state-owned enterprises. The assessment of the financial condition of certain state-owned enterprises was done using the following financial indicators:  Profitability -Return on capital. This indicates whether the company generates a profit that covers the opportunity cost of capital.
 The loss-making companies, profitabilityit indicates how quickly capital is corroded.
 Lever -Debt to EBITDA ratio 24 . This measures the company's ability to cover its debt obligations (an approximate indicator of how many years it would take the company to repay all debts from earnings from operating activities).
 Liquidity -This indicator measures the ability of an enterprise to meet its short-term liabilities using its shortterm assets (short-term assets are defined as assets with a maturity of less than one year). If the indicator is less than 1, then it indicates that financial support is needed for a stateowned enterprise to meet its short-term obligations.
In Table 3, each state-owned enterprise is classified classified into one of five groups, depending on the value of the results obtained according to the given criteria.
The results of the analysis show that 49% of state-owned enterprises operate with high or very high risks according to the criterion of profitability ( Figure 12).
"The analysis also shows that mediumsized state-owned enterprises and cantonal state-owned enterprises face somewhat higher risks measured by the criterion of profitability than large enterprises" 25 . A total of 58 state-owned companies in the FBiH are in the categories of very high risk to profitability, and 49 companies are in high risk.
In the Republic of Srpska, a total of 52 state-owned enterprises are in the categories to very high profitability risk, and 43 enterprises are in the category of high profitability risk ( Figure 13). The ability of state-owned enterprises to cover their debt obligations -leverage is at a very high and high risk in the FBiH (175 companies), as well as in the Republic of Srpska (143 companies) ( Figure 14). Risk analysis -liquidity of state-owned enterprises is at very high and high risk in the FBiH (108 enterprises), as well as in the Republic of Srpska (98 enterprises) ( Figure  15). He analysis shows that 49% of stateowned enterprises face high or very high risks measured by the profitability criterion ( Figure 16). "Medium-sized stateowned ente-rprises and cantonal stateowned enterprises face slightly higher profitability risks than large enterprises. The sectors with the highest profitability risks (ranked as high or very high) are manufacturing (77 percent), mining (75 percent), construction (64 percent), and transportation (53 percent)" 26 .
www.japmnt.com The analysis shows that more than 78% of state-owned enterprises fall into the categories of high or very high risk measured by the leverage criterion ( Figure  17). Due to the significant fiscal risk under this criterion, assistance to many stateowned gaverment enterprises will be necessary to reduce their debt or embark on significant financial restructuring. "The sectors with the highest profitability risks (ranked as high or very high) are manufacturing (77 percent), mining (75 percent), construction (64 percent), and transportation (53 percent)" 27 . The analysis shows that over 50% of stateowned enterprises face challenges in settling current liabilities ( Figure 18). "This means that almost 50 percent of state-owned enterprises have less current assets than current liabilities, and that they will either have to sell long-term assets, receive budget support, or enter into additional debts to cover their debts that fall due. The sectors with the highest share of high and very high liquidity risks are transport (68 percent), mining (67 percent), manufacturing (60 percent) and construction (57 percent)" 28 .  Table 4 shows the financial ratio analysis of state-owned enterprises, and Table 5 examines the financial risk assessment of the first 20 state-owned enterprises (SOE) and the data for the period from 2015 to 2017. The results of the research show that 228 state-owned enterprises face high or very high financial risk ( Figure 19). Composite indices for state-owned enterprises were made and, based on the criteria of profitability, leverage, the classification of state-owned enterprises into five risk categories was performed.    Table 5 shows the first 20 state-owned companies in Bosnia and Herzegovina for which a financial risk assessment was performed, for the period from 2015 to 2017.

IMPACT OF POTENTIAL GAINS TO EFFICIENCY
"We estimated opportunity costs by comparing the financial performance of state-owned enterprises in BiH with the medium levels of the moderate risk category for profitability, leverage and liquidity indicators" 30 . High opportunity costs indicate the need to improve efficiency by either increasing revenue or reducing operating expenses. Bosnia and Herzegovina incurs significant opportunity costs by not reforming state-owned enterprises ( Table 6). During the period from 2015 -2017, actual ROE averaged -0.3 for all state-owned enterprises. In contrast, actual ROE averaged 4.0 in Sweden over the same period, which is coincidentally the middle level in the "moderate risk" category. "Thus, if state-owned enterprises had generated an average of 4.0 percent in ROE in 2017, net income would have been 3 percentage points of GDP (or € 127 per capita). We can conclude that BiH governments are giving up up to 3.0 percent of GDP in potential revenue on an annual basis due to inefficiency" 31 .
At the end of 2017, the unconsolidated debt of state-owned enterprises amounted to 26.6 percent of GDP (Debt / EBITDA = 8.3). For example, for the Debt / EBITDA ratio to reach the target amount, ie the average level, which is 2.5, the debt would have to be reduced by EUR 2.65 billion (or EUR 750 per person) or, alternatively, EBIDTA would have to to increase by the same amount" 32 . These estimates suggest that significant debt reductions or operational efficiency improvements are needed to bring the debt of state-owned enterprises to sustainable levels (Table 7).
From the done analysis, we conclude that state-owned enterprises are over-indebted, by close to 18.2 % of GDP. The analysis found that significant balance sheet restructuring is necessary to restore the sector's liquidity. For example, current liabilities should be reduced by about 5.6 percent of GDP to reduce the liquidity ratio to 1.4 (medium level in the moderate risk category) (

MANAGEMENT OF STATE ENTE-RPRISES
Quality of management of state-owned enterprises can be ensured by the responsibility of the management structure and employees in the enterprise, by supporting transparency and reducing or mitigating fiscal risks. . Transparency is ensured when information on the commercial and non-commercial operations of state-owned enterprises is provided to governments and the public in a timely and regular manner. Accountability is ensured if the work of the managements of state-owned enterprises and the work of their supervisory boards is the subject of consideration in parliaments and in public. The compiled management index was created using answers to questions covering three pillars. The governance index cannot be used to assess the actual implementation of policies, but it can be used to assess uncovered areas in the legal framework and policies on which the stateowned corporate governance framework is based.
The obtained answers to the questions asked in the Federation of Bosnia and Herzegovina and the Republika Srpska place Bosnia and Herzegovina at the bottom of the index list, with extremely low scores for fiscal ties. Most countries in transition that intend to join the European Union must systematically implement significant reforms in order to achieve the highest possible index (Figure 22). Non-EU countries in Western Balkans have relatively low index scores, reflecting similarities in state-owned enterprises and the legal framework in those countries.

CONCLUSION
In the context of broader reform efforts, the relevant institutions should consider the future of state-owned enterprises, taking into account their relevance to policies and financial performance.
State-owned and non-financially sound state-owned enterprises should be closed, restructured or privatized.
State-owned enterprises that are but financially sound should be privatized. Privatization options include concessions, public-private partnerships (PPPs) and full privatization. The funds generated by privatization are a form of financing and should be subject to reporting, auditing, and parliamentary oversight.
Entity governance frameworks need to be reformed to ensure transparency and accountability.
Competent institutions should establish centralized registers of state-owned enterprises, which would include all state-owned enterprises owned by entities, cantons and municipalities.
Policies to depoliticize appointments to SOE boards and management could help improve the performance of SOEs. Financial oversight could be improved through the establishment of centralized oversight units within ministries of finance.
"Fiscal risks arising from SOE should be disclosed. Finally, budget support should only be granted if it is conditional on exante implementation of public sector obligations provided by SOEs, and should not tolerate quasi-fiscal subsidies through arrears of taxes and contributions. social security" 33 . 33 www.imf.org