Attachment_1-Background_Information_(RES-ist).pdf

USAID’s Radical E-Services (RES-ist) Activity

1 February 2019

Attachment 1

III. Background Information

Development Context

BiH consists of two entities and one district: Federation of Bosnia and Herzegovina (FBiH), the Republic of Srpska (RS), and Brcko District (BD). All three entities have governments with often overlapping competencies (executive, legal and judicial).

The differences that hamper the harmonization between the entities and establishment of the single economic space are closely tied to the administrative structure of the entities: FBiH is a highly decentralized entity consisting of three levels of government, with shared competencies and a complex internal administrative structure; Republika Srpska is a highly centralized entity with two levels of government; the BD has a special status, it is jointly owned by the two Entities but not managed by either. The BD has fields of competence that are nearly the same as those of the Entities, as well as social systems that are shared with the entities (e.g. pension system). State legislation directly applies to the District. FBiH consists of ten cantons. There are 78 municipalities and 2 cities in the FBiH and 57 municipalities and 6 cities in the RS. State-level institutions are very limited in their capacities, and there are only a few such institutions that have national-level competencies. The functioning of the state institutions and the exercise of exclusive state competencies can be undermined by Entity/constituent people-based quorum and voting rules. Furthermore, competencies shared between the state and Entities are configured in such a way that there are inadequate mechanisms to ensure Entity compliance with state or joint policy. This is a major problem given that policy-making and coordination capacities are also important for the European Integration process. The EU’s Stabilization and Association Agreement (SAA) requires BiH to ensure proper policy-making coordination between all levels of government.

SAA’s economic criteria for integration with the EU require the existence of a functioning and competitive market economy in BiH that meets strict EU standards and practices regulating the business environment. A significant slowdown in implementation of the reforms in support of the SAA criteria, as well as in initiation of new reforms in support of the EU reform Agenda, has been noticeable in the last few years. Recent EU Progress reports (2016/17/18) on countries from the region continuously show that BiH is making no progress at all, or is making limited to some progress towards meeting certain SAA criteria, while the neighboring countries make more significant progress in almost all SAA areas, “GDP growth 3.0%, Government expenditures share of GDP 40%, CAD % of GDP -4.7%, FDI share of GDP 2.2%.” The 2018 report concluded that the consensus on economic policy essentials has been “impeded by frequent political stalemates and a lack of political ownership. Despite general acceptance of the main principles of a market-based economy, frequent short-term oriented political disputes have resulted in delays and interruptions of agreed and long overdue reform projects. 2017 has been particularly affected in this respect. Following progress up to early 2017, a major reform package, the Reform Agenda experienced a substantial slowdown during most of 2017 and 2018.

BiH remains unattractive to investors as other countries from the region are advancing faster.

The World Bank‘s Doing Business (DB) Report for 2018/19 starkly illustrates BiH’s development stagnation. Between 2016 and 2017, BiH’s efforts towards the elimination of para-fiscal fees, digitized tax filing and simplify business registration were recognized by WB, and consequently, BiH’s ranking improved from 110th to 81st place in 2017 DB report (out of 183 economies). Since almost all reforms stalled in BiH during the last two year, other economies improved at a faster pace than BiH, and the 2018 DB report ranked BiH at 86th place. This trend continued, and in the latest (2019) DB report BiH is ranked as 89th economy. The slow pace of reforms in the last two years resulted in BiH’s decline in the World Bank’s DB rankings. The countries in the region are currently ranked below 50th place, and the closest ranked European country to BiH is Ukraine at 71st place. BiH remains the worst ranked in Europe.

Problem Statement and Major Issues (this Activity is meant to help in some of these areas, but not all - this is a statement of major issues)

Corruption continues to be the major issue and an obstacle to the BiH progress towards Euro- Atlantic integrations.

The EU 2018 Progress Report stated that Bosnia and Herzegovina has made some level of preparation in the fight against corruption. Further, some progress was made on addressing the previous report's recommendations with the adoption of AC strategies and action plans at various levels of governance. However, the same report concludes that the legal and institutional framework in BiH remained inadequate and the implementation ineffective. Still, there is a significant gap between the declared political commitment and the lack of concrete actions to fight corruption. With such a weak approach to the corruption problem solving, the country shall not be able to meet the key SAA requirements related to the country’s ability to establish a functioning and competitive market economy in BiH, in accordance with the strict EU standards and practices regulating the business environment. To meet this requirement, BiH must urgently reform its public administration, reduce public spending, waste and related corruption, and harmonize and improve the business environment.

On the Transparency International’s (TI) 2016 Corruption Perception Index, BiH has been ranked 83rd place out of 176 countries, which represents a regress in comparison with 2015, when BiH took 76th place. Similarly, in the World Economic Forum’s Global Competitiveness Reports for 2017 and 2018, inefficient bureaucracy and corruption were rated the two most problematic factors for doing business in BiH. The reports ranked BiH 100th (out of 138 countries) and 91st (out of 140 countries) respectively in irregular payments and bribes; and 134th in number of days to start a business. These, along with the findings from the 2018 Doing Business report, show that there is a worrisome regression trend regarding corruption and related government-provided services in BiH. This regression can be explained by the fact that political elites are often associated with individuals or companies involved in big corruption affairs in the country. According to the TI reports the public administration in BiH is traditionally perceived by the citizens as the most corrupt segment of the society. In BiH, both the “supply” side

(companies, citizens, etc., willing to engage in corrupt actions) as well as the of “demand” side (public authorities, politicians, etc. demanding bribe) of corruption exist.

“According to the results of the MEASURE-BiH mini-survey, almost 96 percent of surveyed enterprises stated that, when interacting with government institutions, agencies, and municipalities, they must submit requests and fill out applications in paper form and in person.

Electronic interaction is predominantly related to accessing basic information from the websites of government institutions and downloading forms, activities cited by 79 percent of survey respondents. About 70 percent of surveyed enterprises said that they use email to communicate with government institutions. Only 46 percent of enterprises reported submitting any forms, applications, or reports online to government institutions. About 48 percent of enterprises said that they paid electronically for some public administrative procedure. Regarding digitization of administrative services, 40 percent of surveyed enterprises stated that all of their interactions with public administration are completed in person and on paper; 58 percent stated that only a small part of their administrative processes and services is digitized and that most interaction is physical and on paper. About 97 percent of surveyed enterprises stated that digitization of interactions with public administration would substantially help their business operations. About 88 percent of enterprises agreed that digitization of administrative procedures and interactions with government institutions would substantially reduce the possibility of corruption and rent-seeking behavior.”

According to the 2018 EU Progress report for BiH, the country is still at an early stage with the reform of its public administration. According to the same report no progress has been achieved in the past year and the Commission's recommendations from 2016 have not been implemented, hence the country downfall on the DB rankings. Although there has been an increase in political support for development of a country-wide public administration reform strategy, the progress was slow and often fragmented. Many of the reforms identified in the PAR Action plan (2006) and the Revised Plan (2010) remained outstanding. One of the persistent issues associated with the reforms proposed under the PAR is related to the excessive level of corruption at all levels of the government in BiH. The Public Administration Reform Strategy as well as the Action Plan 1 was adopted in 2006 for its enforcement. Four years after adopting of the Action Plan 1, the plan was revised. One of the identified priorities of this strategy and its Action plans is the establishment of e-Administration as an action that shall have impact on the advancement of business climate and elimination of the rent seeking behavior by public officials.

Sector Accomplishments to Date

The Constitution of BiH limits the state-level government’s jurisdiction over the adoption and implementation of public policies. In RS, the authority for local self-government is with the entity government. In FBiH, the competence for local self-government is divided between the entity and cantonal level authorities. Often, these competencies are overlapping and competing.

At the state level, the Law on the Information Society Agency has not yet been adopted. One of the most strategically important projects at the state level was the introduction of a system for issuing personal documents called CIPS (Citizen Identification Protection System) that is currently operated by the Agency for Identification Documents, Records and Data Exchange of Bosnia and Herzegovina. At the entity levels, the FBiH relies exclusively on the laws adopted at the state level, whose adoption is delayed for more than 10 years. In the RS, the government has already adopted a whole set of laws and by-laws related to e-government. The RS Government recently created Agency for Information Society of Republika Srpska (AIDRS) with responsibility of development and coordination of the development of the Information Societies in the RS. AIDRS is working on proposing and implementing measures for the construction of information systems of local self-government bodies, ensuring communication with republic authorities and applying unified software solutions as much as possible, as well as coordinating the establishment of a single database of state authorities and local government bodies in the RS.

The RS has adopted the strategic document for electronic Government Development and formed a body for monitoring the implementation of the strategy. The RS also created the web portal of the public administration of the Republika Srpska -eSrpska (www.esrpska.org).

Although both the State and RS levels adopted number of legislative pieces, the legal and regulatory framework currently in place is outdated. The current legislation is based on old EU Directive that was replaced a while ago and, hence, both the State and RS levels plan to enact the new e-signature laws in a near future. The newly drafted state level e-signature law is disputed by RS for the alleged transfer of authority from entity to the state level.

The following E-Governance Policies, Laws, and Bylaws were enacted at the state level:

Policy on Development of Information Society in Bosnia and Herzegovina for the 2017-2021 Period;

Policy on Management of Information Security in Institutions in Bosnia and Herzegovina for period 2017-2020;

The Law on Digital Signature;

The Law on Digital Document;

The Law on Electronic Legal and Commercial Transaction;

The Adoption of an Interoperability Framework in Bosnia and Herzegovina;

The Rulebook on Registry of Verifiers;

The Rulebook on Issuing Qualified Certificate; and

The Rulebook on Measures for Use and Protection of Digital Signature, Means for Forming E- Signature and Certification System.

The following E-Governance Policies, Laws, and Bylaws were enacted at the RS level:

Law on Electronic Signature of the RS;

Law on Electronic Document of RS;

Law on Electronic Business of RS;

about:blank

Law on Information Security of RS;

Rulebook on Information Security Standards;

Regulation on Information Security Measure;

Rules on the records of certification bodies;

Registration policy certification;

Rulebook on Electronic Signature and Qualified Electronic Signature Protection Measures (e.g., minimum amount of compulsory insurance and application of organized and consolidated text);

Rulebook on technical rules for ensuring the connection of records of issued and revoked certificates of certification bodies in RS.

The major issue with the RS legislation lays in the fact that the jurisdiction of the RS e-signature law is specified for Republika Srpska and the EU member countries. The legislation has no mentioning of the Bosnia and Herzegovina, and furthermore completely excludes the certificates from the FBiH or the ones from the State level.

As already stressed, the FBiH relies exclusively on the laws adopted at the state level.

The following table presents the key players from the State and entity levels relevant for the E-governance sector:

Relationship to the CDCS, and applicable agency policies

U.S. Mission Strategic Plan. The 2012-2016 CDCS (which was extended throughout the FY19) for the US Mission in BiH identified economic growth and the strengthening of economic aspects of governance relevant to the business environment and private sector development as key foreign policy priorities for the United States Government (USG) in the country.

Development Objective and Cross-cutting Linkages. The proposed E-Governance Reform activity which shall be implemented under the PAD 2.2, Improving Economic Governance (IEG) Project, and in close cooperation with other USAID-funded projects, is designed to address critical needs identified in BiH’s CDCS. The overarching objective of this economic development project shall indirectly address a number of crosscutting initiatives: 1) inter-ethnic reconciliation by supporting state and entity-level economic institutions that promote a single economic space through regulatory, legislative and interoperability harmonization; 2) improved business enabling environment; and 3) anti-corruption measures by simplifying procedures for businesses and citizens and by reducing opportunities for regulatory abuse that deter private sector development.

The activity shall also leverage other USAID funded projects/activities for preventing/reducing corruption (DG office), and the relevant departments from the US Embassy in Sarajevo (Economic and Political Sections) to facilitate rapid and smooth adoption of the regulations and policies targeted by this project.

Linkages with the Results Framework. The following development hypothesis designed by the Economic Growth (EG) office is applicable to this activity:

“If government processes are automatized and digitalized; the discretionary power of public officials is reduced; there is less frequent personal interaction between government employees and businesses/citizens; and there is greater transparency in government-led processes, then the level of corruption in BiH shall decrease”.

In addition, the DG office has drafted the following development hypothesis while developing their anti-corruption activity:

“If we increase the pressure on the public sector by coordinating all programmatic and diplomatic efforts to effectively embed accountability mechanisms into select public institutions that limit an individual’s discretion over public funding, and increase the cost of such mechanisms not being utilized or followed, opportunities for corruption shall decrease, deterrence shall increase, and corruption in public institutions shall begin to decrease.” This DH is also applicable to the RESist activity.

For these hypotheses to hold the businesses community, CSOs, media and governments at different levels must be willing and engaged in the reform and the necessary regulatory framework must be developed and implemented.

The planned project falls under Development Objectives 1 and 2 but it shall be implemented and accounted for under the DO2: Economic Growth/Economic Opportunity, as identified in the 2012-2016 USAID/BiH Country Development Cooperation Strategy. The activities that shall be implemented under this project shall directly support Intermediate Result (IR) 2.2 “Improved economic aspects of governance relevant to business activity”, with a focus on Sub IR 2.2.1

“Regulations and policies which foster a single economic space and private sector development and investment”.

This IR was envisioned to improve business-relevant strategies and policies that shall stimulate economic growth and attract investment while reducing corruption and improving the overall image of the country.

USAID Contributions to the E-governance to Date

This section provides a brief overview of USAID funded activities related to the implemented IT services for government, businesses, and citizens.

Fiscal Activity Reform Project (2014-ongoing): Developed and installed Budget Management Information System (BMIS) for budget planning in 10 FBiH Cantons (G2G); Developed Single Register of Business Accounts hosted by Financial Information Agency in FBIH (G2G and G2B); Developed IT based Treasury System for RS Health Sector (G2G); Developed IT Treasury System for 42 FBiH municipalities (G2G); Developed IT module for risk based auditing of gambling industry in FBiH (G2G); Developed Annual Report of paid social contributions in FBiH (G2C); Developed IT system for electronic filing of direct taxes in RS (G2B; G2C); Developed e-archiving and e-communication box systems for the RS Tax Administration (G2G, G2B, G2C); Developed interactive Registers of taxes and fees for RS, FBiH and Brcko District; (G2G, G2B, G2C); Developed the Fiscal Analyses Capacity in the RS and the FBiH by providing training on micro-simulation models using internationally recognized STATA software. (G2G)

Intellectual Property Rights Project (2011-2013): Developed management information system for the Institute for Intellectual Property that automated all stages of the patent examination and approval process; and established a document management system for the entire Institute. (G2G, G2C);

Excellence in Innovation: ICT applications to improve efficiency and productivity in SMEs in the wood processing, agricultural production/processing, apparel/textile/leather industry, logistic/supply chain management, tourism and light manufacturing sectors. (B2B)

Partnership for Innovation: Established sustainable Business Innovation Centers (BICs) in BiH to support efficiency of small and medium size enterprises (SMEs) by utilization of information and communication technologies (ICT) solutions. (B2B); Digital Cities: Digitalization of municipalities of Srebrenica and Bratunac providing e-governance type of assistance improving work of government and improving various services to citizens (G2G and G2C)

G2G direct grant to Central bank: Credit information registry (physical and legal entities) with Central Bank (and IMF); Single Account registry with CB - current need for upgrade, given entity laws and implementation, shall be addressed through Fiscal; Real time gross settlement (RTGS) payment system and clearance with Central Bank Pledge Registry with ministry of Justice; Bank exchange data with Deposit Insurance Agency (G2G)

Tax and Fiscal Project (2010-2013): Completed the efforts for the Unified Collection System (UCS) in FBiH and RS. (G2G, G2B, G2C); Implemented regulations and IT solutions for detecting stop-fillers and non-fillers of direct taxes. (G2G, G2B, G2C); Development and

Implementation of Audit software to automate the taxpayer audit processes and to avoid discretion among tax administration staff in the selection of returns for audit. (G2G, G2C);

Enabling Labor Mobility Project (2006-2010): Introduction of the Unified Collection System (UCS) in Republika Srpska and FBiH for simplified, one-stop-shop registration/deregistration of employees for taxes and social contributions; (G2G, G2B, G2C);

Streamlining Permits and Inspection Regime Activity (2006-2010): Introduction of the Information management System in the entity inspection services.

Tax Administration Reform Activity Project (2006-2010): Modernized TAX administration systems. (G2G)

Tax Administration MP Project (2001-2006): The reform that modernized tax structures in both entities and Brcko District. (G2G)

Other Stakeholders in the E-governance Sector

In addition to the USAID’s efforts in the sector, other donors recognized the importance of these governance reforms for the economic stability and growth of the country.

Donor Project Institution Status

GIZ e-procurement Public Procurement Agency BiH

Ongoing, project ends by 2019 Q1.

e-procurement, follow up Public Procurement Agency BiH

Planed waiting for approval and scope

Land registry Land registry Agency

FGU

Recently Finished (data consolidation ongoing)

WB and

IFC

Business registration RS AFIP RS Ongoing, shall include online application process

Court archive digitalization (business registration) RS

Courts RS Ongoing

Building permits City of Banja Luka, Gradiska

Ongoing, pilot project

Business registration Brcko District

Courts Waiting for supporting laws

Business registration Federation

AFIP / Courts in Federation

Waiting for supporting laws

Court archive digitalization (business registration) Federation

Federation On going

Electronic registry of administrative procedures

Local municipality Ongoing, implemented in some municipalities

EU Support for establishment of

CA

IDDEEA and UINO Planed (international certification)

Support of High Judicial and Prosecutorial Council

High Judicial and Prosecutorial Council of BiH

Ongoing, scope unknown

PARCO e-tourist On hold

Central portal for e-services GS Federation, GS RS Just completed

Background on the various activities:

Activity A.1 - BiH, as a member of the Initiative for Electronic South East Europe (ESEE), signed the ESEE Agenda for the Development of the Information Society. According to the Agenda the country shall develop strategy for the development of an information society and, through the priority area of Unique SEE Information Space, defined a process to establish a public infrastructure for secure business based on e-signatures. The same document in addition defines 23 priority e-services from the ESEE Agenda Plus.

The BiH government has limited jurisdiction over the adoption and implementation of e-governance policies at the entity, cantonal, and municipal levels, however, it did adopt several key legislative documents that provide sufficient platform for further development of the sector.

Based on the Strategy adopted in 20014 by the Council of Ministers (CoM), between 2006 and 2009, the BiH parliament adopted a law on electronic signature, along with the Law on Electronic and legal business traffic and the Regulations on access to records and data exchange.

The law on e-signature was never fully implemented because of the political unwillingness and ultimately a failure to adopt by-laws, rules books etc. Hence, failure to implement the state e-signature law in BiH prevented further development of e-services. Presently, BiH is lagging behind countries in the region and it has failed in meeting the requirement of the ESEE Agenda Plus.

Although it became clear to both entity governments that delays in implementation of such law are taking heavy toll on local economies, there is still a struggle between the RS and State level government regarding the implementation of the aforementioned law.

Meantime, due to a lack of common strategy, entities went in different directions in development of the e-governance. RS has adopted a strategic document called The Strategy of Electronic Government Development for the Period 2009–2015 and formed a body for monitoring the implementation of the strategy. The RS has adopted its own law on Electronic signature in 2013 while FBiH adopted the similar Law in 2017. In 2007, the RS government established AIDRS, which is in charge of the development of the information society and promotion of ICT. In February 2017, the CoM adopted the necessary rulebooks and by-laws which now mean that actual implementation of this law at the BiH level are finally possible. In May 2017, the BiH CoM officially adopted the Policy on Development of Information Society in Bosnia and Herzegovina for 2017–2021, which aligns with the EU’s digital agenda. However, in summer of 2018, the updated BiH e-signature law, which is aligned with the EU eIDAS regulations (electronic IDentification, Authentication and trust Services which is the EU set of standards for electronic identification and trust-services for electronic transactions in the European Single Market), was disputed by RS due to the alleged transfer of the authority from the entity to the state level.

Weaknesses/Needs:

According to the USAID/MEASURE report, the lack of harmonization of legislation, unclear authorities and misalignment between the state and entity legal frameworks have created gaps in the support of e-services and e-signature. Based on their research, USAID/MEASURE concluded that the Law on General Administrative Procedures, regulations governing office procedures in BiH public institutions, and specific sectoral laws are inconsistent when it comes to e-services. Furthermore, these laws also sometimes require unnecessary paper support documents from citizens and businesses.

BiH and its entities have multiple autonomous IT systems that differ in quality and efficiency.

The independence of these systems limits data exchange. In cases where data exchange is possible, the data are typically considered to be for informational purposes only; citizens and businesses are still required to provide supporting documentation in paper format as part of application processes.

The lack of a Certifying Authority (CA) has been identified as a key limitation to further development and provision of e-services to citizens and the business community. The lack of e-signature platform is hindering almost all e-service projects, whether they are set up to be closed-loop or hybrid solutions. Only a limited number of e-services are available at this time and they were all developed with the local PKI infrastructure, with limited access and recognition.

Activity A.2 - Weaknesses/needs:

Results of USAID/MEASURE’s survey showed that inspection service is rated the second most important service by the business community for reducing public corruption. The Integrated Management System for the inspection services is a system that supports all inspection services for both entity inspection administrations. The current IT systems in the inspection offices in both entities are outdated and at the verge of collapse, and also it could benefit from greater interoperability in terms of data exchange among systems. Such data exchange would facilitate the development of risk-based profiling and audits, and shall improve data gathering systems, while increasing efficiency and transparency in the inspection processes.

Further development and expansion of e-construction services can be facilitated for the selected pilot municipalities. According to the 2013 World Bank Group Enterprise Survey, the second highest percentage of the all surveyed firms provided bribes related to getting a construction permit – 9.6 percent on average (17 percent in the case of medium sized firms). According to the results of the MEASURE-BiH mini-survey, 52 percent of surveyed enterprises stated that digitization of construction permit-related administrative procedures would substantially reduce the possibility of corruption and rent-seeking behavior. Transparency International has published a report on BiH citizens’ perceptions of corruption according to which some 64 percent of citizens flagged the “Personal contact with the municipality & municipal officer to obtain a construction permit” as the example of corruption. The WB is at the time working on a related pilot project for e-permitting in Banja Luka and Gradiska through the WB Life Project. Hence, any donor working on digitization of this service should be closely working with the World Bank Group. The implementation of the current WB e-construction project is slow because the process is heavily dependent on the quality of data and due to large number of stakeholders participating in the construction permit process. This e-service solution would limit the influence and discretionary powers of civil servants involved in application processing and decision-making, bringing transparency to the decision-making process. This e-service would assist with digitizing construction permit process.

The laws on basic social welfare, social welfare of civil victims of the war and social welfare of families with children in Bosnia and Herzegovina provide social welfare benefits for every person who is unable of taking care of herself or himself or who is without basic financial means and who does not have any relatives to take care of him/her.

Individuals who suddenly find themselves in need due to natural disaster or illness are also entitles to benefits of the social welfare system in Bosnia and Herzegovina. Approval of claims and the subsequent social welfare services are provided through the municipal Centers for Social Welfare. However, there is unsystematic approval of these benefits at the different levels of the government. By aggregating this data, the e-social service can develop accurate reports to gain insight into household social welfare that can serve as a basis for determining eligibility for benefits. The proposed digitized social security registry shall record the social assistance programs through which each citizen has applied for benefits and identify benefits that they currently receive. The most important functions of this service shall include the integration of data from all levels of government providing social assistance, thereby creating a “social map.”

This shall reduce the misuse of the system and the taxpayer’s money by unethical beneficiaries as well as by the corrupt public officials who allegedly facilitate transfers to their family members or to fictitious individuals. This system shall also centralize household data on property, income, expenditures, social and healthcare needs. Eligibility for means-tested social transfers can be determined the same day an application is submitted, thereby facilitating citizens’ access to their benefits and reducing the administrative burden of collecting paper-based proof of eligibility. Importantly, e-social services create a fairer system of social protection for the poor and vulnerable groups of the population while simultaneously improving the quality of service. Implementing this e-service could be complex because all levels of government provide some form of social assistance.