The aim of the Bit Alliance initiative “Software industry – a strategic branch of B&H’s economy” is to initiate the adoption of institutional strategic solutions for the key weaknesses, challenges and problems in the development of the software industry in B&H.
Initiative for strengthening software industry in Bosnia and Herzegovina
SOFTWARE INDUSTRY –STRATEGIC BRANCH BIH ECONOMY
ABOUT BIT ALLIANCE
BIT Alliance is the leading association of software industry companies in Bosnia and Herzegovina comprised of most prominent ones in sector of information technologies in our country. All member-companies are export oriented, recording 40 million KM worth of export only in 2015 and employing 1800 staff members, mainly highly qualified ones. It is estimated that at present there are between 2500 to 3500 programmers in Bosnia and Herzegovina.
Projection of economic benefits from software industry development in Bosnia and Herzegovina
According to a preliminary analysis of BIT Alliance, the annual income per software engineer ranges between 80, 000 and 120, .000 KM. For example, training of a new 1000 software engineers Bosnia and Herzegovina could generate, primary from export, more than 90 million KM per year. With 12, 000 software engineers, B&H software industry would generate over a one billion KM of revenue and almost equalize this revenue with the strongest economic sector in BiH at present, wood industry. For comparison sake, in the city of Timisoara (Romania), whose size of population is similar to that of Sarajevo, BiH, 7000 software experts are trained every year through their educational system. By 2020 there will have been 300, 000 IT experts in Romania. A shortage of software engineers in the world today amounts to 2 million and it is further increasing.
1 software engineer = 90.000 KM annual revenue
12.000 software engineers x 90.000 KM = 1.080.000.000 KM annually ( one billion and 80 million KM)
25.000 software engineers x 90.000 KM = 2.250.000 KM annually (2 billion and 250 million KM)
BIT Alliance believes that Bosnia and Herzegovina possesses potentiality to direct social energy to reach out to a goal of training 25, 000 software engineers. Thus, software industry in Bosnia and Herzegovina with revenue of 2 billion and 250 million KM annually would become the most powerful BiH industry and a driving engine of development od the entire country.
Investments for reaching this objective mainly related to education and training of this profile of engineers.
Occupational associations of IT companies, like BIT Alliance, are a critical factor of development in countries of growing IT industries. Particularly active in Croatia is the Association of Software Exporters CISEx and in Serbia- ICT Cluster in Vojvodina. In Bulgaria there are several organisations engaged in specific activities contributing to development of IT industry, some of them founded as early as in 2001.
The development of software industry in Bosnia and Herzegovina has not come about as a result of strategic measures of governmental institutions, as is the case in Romania and Bulgaria, which are marked by an expansion in development of IT sector. IT sector in BiH, and primarily software industry, has developed owing to entrepreneurial initiatives of private IT companies who exploited on great demand for IT services on the world market, with contribution of our diaspora as well.
While struggling to survive in the market and grow but without institutional support ( legislative, budgetary, etc.), they have succeeded in developing a respectable industrial branch.
In approximate division IT companies are divided into firms which focus on hardware and firms involved in software. Bosnia and Herzegovina has not developed production of hardware components. Existing companies, even though employing a large number of people, are mainly engaged in their distribution. As to software producers, they can also be divided into two groups: a group performing on the market with its own software solutions recording a moderate trend of growth, and another group characterised by outsourcing (work commissioned by foreign companies) which develops state of the art software applications for most successful international companies, leaders in technological development in the world. The second group whose business activities are based on «outsourcing» records enormous expansion in development.
Members of BIT Alliance fall into both groups of companies, those companies who develop their own software and those who provide programming services for foreign companies (outsourcing) which is at present the most promising segment of IT activities paving the way for employment of well trained staff on a massive scale in view of vast need on developed world markets.
The BIT Initiative «Software industry- strategic branch of BiH Economy» aims to initiate provision of institutional strategic solutions for crucial shortcomings, challenges and problems in development of software industry in BiH. This can be summarised as follows:
- lack of trained IT staff and prevailing trend of their further lessening,
- undeveloped IT infrastructure and lack of support to development,
- unfavourable business (legislative) environment foe business and growth of software industry.
CURRENT STATE OF PLAY
Shortage of IT staff
Despite the fact that the existing BiH companies have almost limitless possibilities for opening of new work places, their long term existence is uncertain due to an insufficient number of trained professionals. Even now, they are compelled to reject some exceptionally lucrative business opportunities due to labour limitations. Hence, the state directly loses revenue amounting to million on an annual basis. Bosnia and Herzegovina shares the destiny of other countries of the region in terms of an increasingly pronounced trend of IT professionals brain drain.
However, the problem in Bosnia and Herzegovina is even more noticeable given weaknesses of educational infrastructure and level of expertise of educational staff to make up for brain drain, as compared to educational systems in neighbouring countries who «produce» IT professional to a considerable measure. In addition, evidently there is a lack of practical work during training of IT professionals which should reflect current developments and exceptionally fast development of new technologies. Hence, even a small number of IT professionals trained within the educational system in Bosnia and Herzegovina, have to be additionally trained and professionally advanced. Today this appears to be the biggest problem of software industry in Bosnia and Herzegovina. Not only that this can prevent its further growth, but it can also make the entire sector stagnate, even be reduced. Replacement for trained staff cannot be found on labour market, nor in the countries of the region. Insufficient labour has to be “produced”.
The other two mentioned problems or challenges of IT industry, a weak infrastructure and an unfavourable legal framework directly and indirectly impact on the first problem: a shortage of IT staff.
Weak IT-infrastructure and lack of support for development
Bosnia and Herzegovina is positioned at the very bottom of the list of countries when it comes to investments in research and development (0,04% of GDPm, the world average being 2.7 % of GDP.) However, software industry companies contribute significantly in that segment as well, allocating annually up to 10% of revenue for research and development of new products and services in addition to the fact that IT companies invest ample resources in training and education of their employees. The capital of Bosnia and Herzegovina, Sarajevo, does not have even one technological park. Banja Luka and Mostar have one each. Germany, for example, back in 1992 had 32 technological parks. As a result of planned development, today Berlin alone has 10, 000 IT companies generating income exceeding 26 billion KM, which is almost equal to the overall GDP of Bosnia and Herzegovina. Nearly 100,000 persons are employed in that industry. Ljubljana and Zagreb have highly developed technological parks, founded in the early 90-ties. Nowadays, Technological Park Ljubljana comprises over 300 companies with more than 1,500 employees, mainly in IT sector.
There are no state funds for development of IT sector. In the previous period IT companies could not apply for development funds. A lack of support by domestic companies is evident (mainly with majority state ownership) by means of using domestic software solutions. On the other hand, examples of successful long standing co-operation can be found in relations between economy and IT sector, for example in financial services sector. In this sector domestic IT companies design and implement specialised products. Until today a significant progress has not been made in introduction of e-service in public sector in BiH, hence domestic IT sector had no opportunity for its own development in this way.
Unfavourable legislative framework and business operation conditions
In Bosnia and Herzegovina there is a lack of understanding of a huge potentiality of software industry, by authorised institutions of government in BiH, and a wider public as well. As a result, strategic support to IT sector and software industry is missing. This is particularly true in comparison to developed countries as well as neighbouring countries. Hence, we are considerably lagging behind in terms of institutional support to IT sector. Earlier activities of BiH institutions (policies, strategies and the action plan for development of information society in BiH 2004-2010), even though outdate and inadequately implemented at a desired level, had made some progress in a wider outreach of society informatisation, but not in the context of support for software industry development. In addition to lacking of strategic documents, and most likely as a result of this, laws regulating IT area were not adopted, an independent authorised institution was not established, directed relief measures for doing business were missing, support fund was not established, etc. In brief, software industry has not been recognized as a strategic branch of industry. Even information provided for the purpose of attracting foreign investments are out-dated and give erroneous guidelines to potential investors. It is encouraging that a new strategic document at the BiH national level (Policy of information society development in BiH, Ministry of Communications and Transport BiH), yet in the form of a draft and in the process of adoption, recognises software industry as a separate segment of IT sector and attaches relevance to it.
Nowadays, in new circumstances of exceptionally rapid development of information technologies in the world and changes on the global market, development of software industry requires more concrete and resolute institutional approach. A more resolute approach in strategic support to software industry in the countries of the region have made this industry in these countries by far more advanced than in our country. For example, concerning export of information technologies services in the context of overall export, at present all neighbouring countries are better positioned than BiH which takes 77. place of the world list ( Romania takes 18. place, Macedonia 37, Bulgaria 41, Monte Negro 45, Croatia 50.place). Except in terms of a level of usage of the Internet, BiH is rated worse in all other aspects than the countries of the region.
Compared to the countries of the region, Bosnia and Herzegovina is falling behind mostly in the quality of IT education and training and insufficient support of authorised institutions.
ADVANTAGES AND POTENTIALS OF SOFTWARE INDUSTRY AND EXAMPLES OF OTHER COUNTRIES
Software industry takes significant part in the overall GDP in BiH even today. Even though in terms of the overall export it cannot be compared to other branches of economy, such as dual use products or wood processing industries which record export exceeding one billion KM, it has multiple advantages over other industry branches: in terms of quality of work places and high salaries (50% higher than the average salary), the fact that it is not importing considerably, that it produces «ecologically clean products», that it records the fastest growth of export, revenues and employees, that is requires lesser initial investment funds for establishment and development of business and opening of new work places. It is also significant in terms of its role in reduction of «brain drain» and the fact that new work places in this industry do not undermine development and business operations of smaller similar firms, which is often the case in other industry branches.
In addition to numerated advantages over other industries, IT companies and their software solutions are a critical leverage for significant development of all other industries. According to research results, small and medium size enterprises using innovative technologies increase their revenue by 15% faster and open new work places almost twice as fast compared to their competitors. Also, the value of software industry is reflected in the fact that 60-70% of its labour in BiH constitute young people up to the age of 35.
The software industry in BiH, though not very large, is advanced and competitive on the world market for outsourcing). Experience in long-standing work for the American market where new IT technologies are created and implemented, only later to come to Europe and other parts of the world- owing to business co-operation with US firms, IT engineers from BiH, in terms of their knowledge, skills, experience and insight into modern trends, are frequently ahead of their colleagues in other European countries. Moreover, it concerns an activity which is the highest demand on the world market with a trend of long-term continuous growth. This is collaborated by the fact that in the past few years, the growth of revenue of software companies in BiH ranged between 200% to as high as 1,400%, and in terms of new employees almost 600%.
Similar trends are recorded in the countries of the region, whereas some new EU member states, like Romania, (where software industry takes the third place of industries with the largest export), have managed to advance their software industry to the level of the most promising branch of industry and the best business promoter of their country.
In neighbouring Serbia export of software exceeded even export of traditional export products, such as raspberries and corn, fetching over 580 million EUR of export in 2015. In Croatia, 1% of the overall labour works in software production, numbering of more than 12, 000 employees.
COURSE OF ACTION
BIT Alliance has already implemented a number of projects aimed as a response to mentioned challenges of software industry. Among other things, a six-months professional education programme «BIT Camp» was organised. As a result, 50 new programmers who completed their training got employments in member-companies. «BiT Camp» has demonstrated that intensive educational programmes can effectively re-train people of other occupations, like political scientists, economists or lawyers into IT specialists employable in IT industry.
However, high cost of education and training and a lack of subsidies and support for employment halted further implementation of this project. In order to have systematic solutions, we need to have participation of state institutions with a comprehensive strategic approach.
The objective of BIT Alliance is to provide that software industry should have a separate development strategy, or become a separate part of a strategic document for information society development at national level, due to specificities of its development, and in line with good practices of countries in the world and our region. We believe that a more specific approach of the national authorities to support software industry will reflect positively on all strategies of IT sector development at lower levels of government.
Bearing in mind competencies of governmental institutions in BiH, BIT Alliance holds that the national authorities should publicly declare their support to software industry development in BiH as of strategic importance. By way of public manifestation (topical session, specialised public events, etc., further investments by domestic IT companies would be encouraged, and a wider public at home and abroad would be informed and encouraged to believe that software industry represents the future of economic development and employment in Bosnia and Herzegovina.
Even though the Ministry of Communication and Transport of BiH is mainly responsible for promotion and strategic development of IT sector, in view of main features and current trends in software industry exports, it is necessary to involve other institutions as well, primarily the Ministry of Foreign Trade and Economic Relations and the Ministry of Foreign Affairs of BiH. Positive practice in the countries of the region relates to strong engagement of state agencies for promotion of foreign investments, promotion of domestic IT sector and its potentials and capacities by way of publication and promoting of IT companies lists, issuance of brochures with precise information, etc. Unfortunately, published information in Bosnia and Herzegovina,
In addition to being scarce are also out-dated and provide erroneous guidelines, given the fact that the situation on the IT market has drastically changed in the past few years, particularly in regard to availability of labour. We believe that involvement of the BiH Agency for Statistics would be of importance. The Agency should introduce as its regular activity collection and publication of statistical indicators related to IT industry. Following earlier declared strategic commitment of BiH authorities, it is necessary to work on establishment of a specifically authorised agency for information society of BiH, empowered to take an active part in software industry development.
In operational terms, next steps to follow after adoption of strategic document would relate to strategic and action plans at all levels of government. Such plans should include support to start-ups financial initiatives and education, support to IT clusters, setting up of IT parks, etc.), introduction of tax and other reliefs for companies investing in research and development, subsidies for cost of participation on foreign markets and fairs, improvement of legislative framework, and most importantly- improvement of education in the widest terms: revision of elementary and secondary school curricula as well as of faculties to meet the needs of IT industry, increase of a number of students at technical faculties, re-training of persons registered with employment bureaus, improvement of scholarship policies, informatisation of teaching classes to a possible extent, continued education and training of IT teaching staff due to fast technologies development and changes on the market. It is also necessary to enhance development of informal education, spreading of informal IT education, online IT education and professional advancement.
The European Union is planning to invest almost 50 billion EUR for development of its digital infrastructure in the next four years. This could be an opportunity for Bosnia and Herzegovina as well.
Within this initiative, BIT Alliance is not only working on identification of problems and proposing of adequate solutions, but wishes to offer co-operation with responsible governmental institutions in a full capacity, at BiH and other levels as well. It wishes to provide concrete contribution in implementation of all plans and activities envisaged by future policies, strategies and action plans for software industry development in Bosnia and Herzegovina.