European Union External Action

EU investment in Bosnia Herzegovina: From 30 m2 to a dairy farm with more than 100 employees

07/05/2018 - 14:52
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In the Western Balkans, the prospect of EU membership is an important driver for economic reform essential to enhance trade and investments. The trade flow between the EU and the Western Balkans has over the past 10 years more than doubled, reaching almost 44 billion Euros in 2016. Trade is largely liberalised, and more and more European companies are including the Western Balkans in their value chains. This process of business integration has been a powerful engine for creating jobs in EU member states.

Nenad Vukoje and his wife started to produce yoghurt 18 years ago in a small town of Bileca in the south-east of Bosnia and Herzegovina. They invested in a military-sized cauldron and a yoghurt cup filler, rented small premises of 30 square metres and produced around 150 litres each day.

“We did not have any employees, it was just our family,” said Nenad. “It was through hard work and our ambition to succeed that we managed to increase our capacity every year. We purchased more equipment step by step until 2002 when we decided to build a new facility.”

The family continued to build its business and successfully expand production. Last year Padjeni invested around 800,000 Euros among others to establish lacto-freeze stations for collecting raw milk.

Small and medium-sized enterprises (SMEs) are the backbone of Europe's economy. The approximately 23 million SMEs account for 99% of all companies in the EU. In the past five years, they have created around 85% of new jobs and provided two-thirds of the total private sector employment. SMEs in Bosnia and Herzegovina are also main contributors to growth and jobs. They contribute over 40 % to GDP and over 50% to employment, strongly influencing local socio-economic development.

Padjeni is one of almost 60 companies that have already benefited from an EBRD programme with the European Union (EU) to make small and medium-sized enterprises (SMEs) in Bosnia and Herzegovina more competitive locally and regionally as well as on the European and global markets.

The EU supports this project with 4 million Euros in funding to provide advice on equipment and technologies as well as incentive payments to businesses on successful completion of upgrades.

The European Bank for Reconstruction and Development (EBRD) provides over two years a total of 20 million Euros in credit lines to participating banks for lending to businesses in Bosnia Herzegovina such as Padjeni. These funds help the companies to make investments to comply with EU directives in the fields of environmental protection, occupational health and safety, and product quality and safety, and thus to trade with the EU.

 

A boost to the local economy

Padjeni’s success is benefiting the whole local economy: it has grown to more than 100 employees and works closely with up to 1,000 farming cooperatives, providing important job opportunities in the local agriculture sector.

“All our technical equipment is new and high-tech – we must invest in new technologies and products to survive in the market,” Nenad said. “The processing cycle is completely closed and constantly monitored using the HACCP management system and internal controls. Apart from our own lab, all our products are controlled in authorised external ones.”

Milk and dairy are among the most delicate agricultural products and require intense control, explained Nenad. That’s why two agricultural engineers work closely with Padjeni’s dairy suppliers in the field to ensure the raw milk they supply is to the required quality.

Padjeni’s current dairy facility processes around 40,000 litres of milk for 30 end products, including some made of sour milk (yogurts, spreads), soft cheeses, mature cheeses, as well as traditional products (‘sack’ clotted cream or ‘torotan’ cheese).

 

Seizing trade opportunities with the EU

“Our plan is to continue to expand our business, primarily on the local market, but also in neighbouring countries, the EU and elsewhere,” Nenad explained. “It is important for us to adjust our production to the target markets, listen to new demands and adapt quickly to them.”

In 2017 Padjeni planned to increase the processing and sales of its products by over 20 per cent and exceeded this goal by more than 9 per cent. “This is a great success for us. We will build on this and soon start various new activities to reach out to new markets,” added Nenad.

For now, the dairy products are sold in Bosnia and Herzegovina and Montenegro, but the company also obtained a permit to export them to the EU as of 2016.

“A programme like this one by the EBRD and EU is very important for our future development,” said Nenad. “It provides a boost to new investments and new technologies, which are crucial elements to support both our business and our country’s economy.”

“We provide SMEs with much-needed access to finance to make the necessary investments to become more competitive, which in turn creates new employment and economic opportunities,” said Ian Brown, Head of the EBRD’s office in BiH. “This is one of many ways in which the EBRD supports the country’s economy, which includes both support for businesses as well as investments into strategic transport links.”

Andrea Vera, Head of Operations Section for Economic Development, Trade, Infrastructure and Natural Resources at the EU Delegation to Bosnia and Herzegovina, highlights the need for the country to improve its business climate and create opportunities for economic recovery.

“This programme represents a continued EU effort to help Bosnia and Herzegovina in tackling the obstacles that hamper the development of SMEs, which are the backbone of the economy. The EU has provided up to 60 million Euros to support the SME sector in the country over the past 15 years. With our technical assistance and grant funding, SMEs have received tangible support to grow in competitive sectors such as tourism, agro-processing, and the wood and metal industries,” he said.

 

Social impact

Padjeni is proud to support its local community, around 250 households in 15 settlements. The company’s support includes, for example, a water-supply project worth some 770,000 Euros, which is currently being finished in cooperation with the local authorities.

This project will ensure that more than 50 kilometres of the local water network and several pumping stations will function without difficulty, Nenad explained. “I am very happy about this because our community has believed in it since the very beginning, although unsuccessful attempts were made before.”