Understanding Barriers to Doing Business: Survey Results of how the Justice System impacts the Business Climate in South East Europe the Business Climate in South East Europe June 2019 TABLE OF CONTENTS EXECUTIVE SUMMARY ............................................................................................................................ 1 Key findings ............................................................................................................................................. 2 Noteworthy variations across countries ................................................................................................. 4 Recommendations .................................................................................................................................. 5 1. INTRODUCTION ............................................................................................................................... 7 1.1. Sample and survey demographics ............................................................................................ 11 1.2. Methodology............................................................................................................................. 12 2. GENERAL PERCEPTION OF THE JUSTICE SYSTEM .......................................................................... 15 2.1. Extent to which the rule of law exists in each country ............................................................. 16 2.2. Regional analysis of key elements of the justice system .......................................................... 18 2.3. Institutional compliance with the law ...................................................................................... 25 3. PERCEPTION OF THE IMPACT OF THE JUSTICE SYSTEM ON BUSINESS OPERATIONS ................... 35 4. PROBLEMS BUSINESSES FACE AND HOW THEY ADDRESS THEM ................................................. 51 4.1. Perception of How the Justice System affects certain aspects of a business’ operations ....... 51 4.2. Perception of how often businesses face certain problems..................................................... 60 4.3. Ways to Resolve Problems: Perception .................................................................................... 70 4.4. Experiences with Problems Related to the Justice System....................................................... 72 4.5. Ways to Resolve Problems: Actual Experience ......................................................................... 77 4.6. Effectiveness of Ways to Resolve Problems ............................................................................. 85 4.7. The Effect of Problems on Various Aspects of a Business’ Operations .................................... 92 5. CONCLUSION AND RECOMMENDATIONS................................................................................... 110 5.1. Conclusion ............................................................................................................................... 110 5.2. Recommendations and Next Steps ......................................................................................... 110 5.3. Way Forward ........................................................................................................................... 112 ANNEX 1. SURVEY DEMOGRAPHICS.................................................................................................... 114 ANNEX 2. SURVEY QUESTIONS WITH A SMALL NUMBER OF RESPONDENTS ..................................... 118 ANNEX 3. SURVEY QUESTIONNAIRE ................................................................................................... 123 ANNEX 4. ANALYSIS BY GENDER OF RESPONDENT ............................................................................. 134 ANNEX 5. KEY INDICATORS ................................................................................................................. 140 ACKNOWLEDGEMENTS The report was developed as part of a broader World Bank initiative to raise awareness of reform opportunities and inform justice policy dialogue in the Western Balkans through a series of targeted analytical reports on common justice sector challenges faced by countries in the region. The data collected through the research provides a strong analytical basis for future reforms to improve the performance of justice systems in the region, focusing specifically on increasing efficiency and enhancing the quality of justice systems, as well as enlarging access to justice. This report, which documents the survey results of how the justice system impacts the business climate in South East Europe, is one of six analyses produced under an Externally Financed Output (EFO) funded by the Dutch Rule of Law Initiative. The World Bank is grateful to the Dutch Rule of Law Initiative for the generous funding. The team would like to acknowledge and thank the representatives of firms from each of the countries where the survey was implemented for taking time out of their busy schedules to participate in the survey and share their insights. The report was prepared by a World Bank team, led by Runyararo Gladys Senderayi and Srdjan Svircev (Task Team Leaders) and comprised Zoran Skopljak (Lead Author) and Domagoj Ilic (Survey Expert). The team also drew on the expertise and editorial insights of Agnes Said (Legal Expert). Dusko Vasiljevic (Senior Private Sector Specialist), Paul Prettitore (Senior Land Administration Specialist) and Nicholas Menzies (Senior Governance Specialist) provided excellent comments as peer reviewers. The team is also grateful to Roby Senderowitsch (Practice Manager in the Governance Global Practice for Europe and Central Asia) for his valuable guidance and insights. The survey was designed and implemented by a team from GfK, led by Ana Antic. All errors are the team’s alone, and the views expressed herein do not represent the position of the World Bank or its Executive Directors. EXECUTIVE SUMMARY 1. This report documents the results of a survey that was conducted to better understand how the justice system affects the business environment in eight countries in South East Europe (SEE); Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Montenegro, North Macedonia and Serbia. The primary purpose of the Survey was to analyze businesses’ perceptions of and experiences with the justice system and in particular, the performance of the courts in their respective countries. The Survey also identified the challenges businesses face in their daily operations, assessed the impact of the justice system on businesses and established which justice issues present the greatest obstacles for business operations and growth. This research is part of a broader initiative to inform justice policy dialogue and reform in the Western Balkans. 2. The survey sought to understand how various aspects of the justice system affect the business climate, and this creates a challenge with conceptual equivalence in terms of what constitutes the justice system. The survey was very broad and covered the overall existence of the rule of law as well as key aspects of a justice system that constitute the rule of law, and determine the extent to which it does or does not exist. Theoretical discussions on the rule of law and its various elements are not often reflected in survey practice. Also, given that the purpose of the survey was to better understand the challenges firms face and contribute to improving the justice system rather than contribute to theoretical debate, the concepts ought to be understood in a pragmatic way. 3. Existing data show that firms face various problems that affect the business environment; the most common and most pervasive among these being weak rule of law. The European Commission’s progress reports, the U.S. Department of State’s Investment Climate Statements and country-specific analyses and judicial reviews consistently raise concerns about how weak rule of law negatively affects the business environment. Specific problems include slow, unpredictable justice systems, weak contract enforcement and cumbersome business regulations. 4. The collective perceptions and experiences of the firms surveyed across SEE revealed the nature and extent of various challenges that they face as they navigate the justice system and helped to shine a light on common problems in the justice systems of each of the countries. The findings also demonstrated that firms are affected differently by various problems in the justice system, depending on their size, location, sector and whether they are foreign-owned or domestic entities. 5. The findings provide policy makers and development partners with an empirical foundation to better understand and measure how the justice system impacts the business climate. The data also fortifies and delineates the business case for investing in justice reforms as they are integral to the development agenda, especially from the perspective of facilitating market transactions for economic growth. More specifically, the data can help to identify specific reform options to improve the delivery of justice services for businesses and thereby improve the business climate and economic integration in the region. 6. To the extent possible, the report attempts to explain the results of the survey. To this end, where appropriate, reasonable assumptions and hypotheses are made in an effort to analyze and explain the results. That said, in situations where there are insufficient data to draw reasonable 1 assumptions, the report simply presents the results of the survey and does not purport to explain them. Going forward, it would be beneficial to collect more data that allows in-depth analyses of some of the key aspects and areas that emerged as major constraints to the business climate. 7. To ensure that the data collected was robust, the methodology adopted a two-pronged approach. First, information on court performance, and region/country-based analyses on judicial reform related to business activities, in selected SEE countries was reviewed. Second, a survey which examined the perceptions and experiences of how justice systems affect business operations and which justice issues present the greatest barriers for businesses in the region was conducted. The Survey was conducted on a representative sample for each of the eight countries covered. To ensure adequate coverage, the Survey stratified responses based on sector, firm size, location and firm ownership. The Survey collected data from firms with real and recent court experience, but also from businesses that avoid the courts. The Survey was conducted through face-to-face interviews as well as focus group discussions and in-depth individual interviews. KEY FINDINGS 8. Generally, firms across the region have negative perceptions of how their justice systems function. The Survey measured the extent to which respondents agreed that the justice system is fair, unbiased and uncorrupted, and the majority (56 percent) did not agree. Furthermore, 57 percent of respondents were of the view that the system does not treat all businesses equally, while 67 percent did not agree that the system is quick and efficient. Also, trust is low region-wide, and firms reported that they are disappointed in and lack trust in the justice system. According to firms, the system is not business friendly; it does not support businesses and it restricts business operations and opportunities. 9. Negative perceptions of the justice system are even more pronounced among firms with previous court experience. This might be because such firms have experienced, first-hand, the system’s inefficiency, its costs, and tendencies towards bureaucratic procedures. Firms with previous court experience are also less positive about the existence of the rule of law. 10. Despite the negative perceptions, the justice system is peripheral (or positive) to 80 percent of businesses who reported that in general, the justice system does not affect their business at all or affects their business positively. When specific aspects of business operations are analyzed, data show similar results with some variations. The number of employees is least affected by the justice system while the stability and security of the business seems to be the most affected. It is unexpected that the number of employees is least affected by the justice system. Studies have shown that the efficiency of the justice system influences firms’ employment decisions and productivity through costs associated with dismissing employees. 11. The most common challenge faced by firms is the collection of payments due from other businesses. However, this particular challenge, and others are not regarded as severe. Survey results show that in the last three years, 30 percent of respondents experienced problems with collecting payments due from other businesses. Other challenges identified by respondents included: the application of labor regulations (18 percent); the fulfilment of non-monetary obligations (12 percent) 2 and paying government levies, such as taxes, customs duties and contributions (10 percent). However, most of the respondents do not find these problems severe. In fact, only 21 percent of respondents reported that problems related to the collection of payments due were a major problem for them, 14 percent reported the same for labor regulations, 22 percent for the fulfilment of non-monetary obligations and 25 percent for paying government levies. 12. Businesses prefer to resolve legal problems outside of the court system. Businesses only resort to the courts in situations where negotiations are unsuccessful (82 percent of the respondent firms attempted to resolve their problems through direct negotiations with the other party before resorting to the courts). This is primarily because trials are viewed as lengthy and unpredictable. Almost 90 percent of the respondents reported that they find direct negotiation and mediation to be effective, while only about 60-70 percent of respondents find courts to be effective, depending on the legal problem in question. Negotiations prior to engaging the courts or lieu of the courts are standard, and are encouraged, even in well-functioning court systems. This is because it would be undesirable for a large percentage of legal disputes to enter the system, as this would either overwhelm the system or require a huge investment of state resources to effectively deal with the incoming cases. Therefore, assuming that a clear legal framework is in place, with sufficient legal information, access to lawyers and impartial mediation and arbitration, parties ought to attempt to resolve their disputes outside of the courts, saving the courts’ time and resources for more complex disputes. However, in the absence of a clear legal framework and jurisprudence, or in this case, because firms view trials as lengthy and expensive, firms are forced to negotiate in the shadows of the law. Such a situation is particularly undesirable for small firms that may not have as much bargaining power and as many resources as larger firms. 13. Inefficiency is the biggest and most prevalent problem for businesses in SEE; 69 percent of respondents reported that the justice system is not efficient. 64 percent of the respondents reported that the costs of court proceedings were prohibitive, making this the second most widespread problem. This is not surprising given that the most frequently cited causes of dissatisfaction in the review of international research relate to issues such as the speed and cost of procedures, and the overall efficiency of the justice system. 14. Across the region, courts and existing laws are viewed as having the greatest negative impact on business operations, ahead of other institutions in the justice sector such as notaries, the police, bailiffs, prosecutor’s offices and government departments & regulatory agencies. 35 percent of the respondents reported that courts and existing laws have a negative influence on the business environment, while 16 percent and 19 percent of the respondents reported the same for the police and notaries respectively. 15. 44 percent of the respondents reported that there is a gap between the law on the books and the law in practice. Respondents also noted that the situation could be further improved by harmonizing the different laws, bylaws and regulations. For 56 percent of the respondents, there is no proverbial gap between the law on the books and the law in practice, and more than half of the firms represented, 53 percent, agree that the law is applied and enforced in practice. 3 16. Compared to male respondents, female respondents had a more positive perception of the justice system in general and specific aspects of the justice system such as; its ability to enforce decisions, the competence of the people who administer the system, efficiency and fairness, and its influence on the business environment. As the respondent unit in the survey was a business entity, it would be remiss to belabor this finding or try to draw additional analysis to explain the positive perceptions. However, it would be extremely helpful if future surveys could disaggregate data by gender of the respondent to determine if men and women have different perceptions of and experiences with the justice system, especially with regards to the barriers they face, which could provide enriching data on access to justice for women led businesses. 17. Data on the gender of the respondents also revealed that fewer women than men were company owners or held high level leadership positions in the company such as director or deputy director. 64 percent of male respondents were company owners or co-company owners compared to 55 percent of the female respondents. This is another important area that warrants further investigation and analysis in subsequent surveys. An analysis of key elements based on the gender of the respondents is provided in Annex 4. NOTEWORTHY VARIATIONS ACROSS COUNTRIES 18. 58 percent of the respondents from Bosnia and Herzegovina believe the rule of law does not exist in their country. Bosnia and Herzegovina is an outlier in this regard as it is the only country in the region where more than half of the respondents believe that the rule of law does not exist at all or does not really exist. Conversely, 72 percent of respondents in Albania believe that the rule of law exists. This is significantly higher than the regional average (61 percent). 19. In Croatia and Bosnia and Herzegovina, very few respondents; 27 percent and 42 percent respectively, agree that the system is administered by competent people. For both countries, this is well below the regional average; 52 percent. All the other countries surveyed were above the regional average; Serbia 61 percent, Bulgaria 62 percent, North Macedonia 58 percent, Kosovo 56 percent, Albania 55 percent and Montenegro 60 percent. 20. The highest percentage of respondents who reported that they do not agree that the justice system is fair, unbiased and uncorrupted were from Croatia and Bosnia and Herzegovina, 70 percent and 66 percent respectively and with 36 percent of those respondents in both countries noting that they do not agree with the statement at all. In Serbia, more than half of the respondents (52 percent) agree that the justice system is fair, unbiased and uncorrupted, while the same is true for 56 percent of the respondents in Montenegro. 21. 53 percent of the respondents in Serbia agreed that the justice system treats all businesses equally regardless of their size. This is also true of Albania, where 48 percent of the respondents held the same views. For both Serbia and Albania, the percentage of respondents who agreed that the system treats all businesses equally regardless of their size is significantly higher than the regional average; 38 percent. 22. In Croatia, 66 percent of the respondents were of the view that the current justice system affects the business environment negatively, and in Bosnia and Herzegovina the percentage was 63 percent. For both countries, the percentage of respondents who reported that the justice system has 4 a negative impact on the business environment is significantly higher than the percentage who reported the same across the region; 38 percent. 23. A country by country analysis shows that in all the countries, except Bosnia and Herzegovina and Croatia, respondents believe that government departments and regulatory agencies have a positive impact on the business environment. The percentage of respondents who believe this was as high as 47 percent in Albania and 38 percent in Serbia, while in Bosnia and Herzegovina and Croatia, only 21 percent and 15 percent, respectively of the respondents held this view. 24. The majority of respondents from Bosnia and Herzegovina and Croatia believe that existing laws have a negative influence on the business environment; 51 and 55 percent respectively. For both countries, the percentage of respondents who hold this view is not only well above the regional average; 35 percent, but also significantly higher than the percentage of respondents in comparator countries who held the same view. 25. Challenges related to labor laws and regulations are common throughout the region but more so in Croatia and Montenegro where 72 percent and 80 percent of the respondents reported that this was a problem that they faced often. 26. Challenges in the collection of payments due from the state are prevalent in Croatia, with 71 percent of respondents reporting that they faced this problem often. Of the 71 percent, 32 percent of the respondents reported that they faced this problem “very often”. This problem is also common in Bosnia and Herzegovina, Bulgaria and Serbia where in each of these countries 52 percent of the respondents were of the view that this problem occurs often. RECOMMENDATIONS 27. The primary purpose of the Survey is to document the common justice challenges faced by firms in their day to day operations and in turn raise awareness of reform opportunities and inform justice policy dialogue in South East Europe. Identifying these challenges enhances our understanding of the various performance barriers to doing business and provides policy makers and development partners with a window of opportunity to explore, develop and prioritize specific policy and operational interventions to improve the situation by boosting justice system performance for the business environment. This is especially true for EU candidate countries that are in the process of strengthening their justice systems to facilitate their integration into the EU. Increase court efficiency 28. Courts in the region would benefit from adopting measures and reforms that reduce delays and increase efficiency. The specific reforms will depend on the nature of the inefficiency and the stage at which it occurs in the court process, however reforms that have proven to be particularly effective include; introducing legislation that limits adjournments and imposes time limits, streamlining procedures, fast-tracking the resolution of small claims, improving levels of ICT use in courts and adopting modern case flow management techniques. These approaches have had positive effects on the economy by improving access to justice for firms and helping courts to diminish backlogs by resolving cases more easily. 5 Improve integrity and enhancing transparency 29. Transparency in the justice system promotes accountability, combats corruption, and helps eliminate arbitrariness in a way that builds trust and confidence in the system. When a justice system operates openly and transparently, there is free flow of information from the judiciary to citizens about its performance and key court decisions. Transparency can be an effective way for courts to demonstrate to businesses that they are committed to upholding the rule of law and adjudicating matters impartially and with the highest level of integrity. This can have a range of positive spillover effects for the economy, and in particular, can inspire confidence in potential investors. Armed with robust data, it is easier to build a compelling case for counterparts in governments, business, and civil society to engage in evidence-based policy making and pursue pragmatic reform opportunities. Furthermore, accelerating the practice of justice reforms in SEE is essential to improve justice performance in line with EU benchmarks. This will in turn make the economies of these countries more competitive and attractive to investors. Adopt a more citizen-centric approach to the delivery of justice services 30. Courts around the world are increasingly adopting a more citizen-focused, user-friendly approach to justice. Beyond ensuring an individual, or a firm’s access to the court, they also ensure that legal information is readily available and easy to understand. They recognize that user satisfaction is a key dimension of the quality of justice and is instrumental in improving trust in the system. To obtain a detailed understanding of the experience of court users, courts might consider conducting user satisfaction surveys and regular exit interviews. This will also enable courts to collect data that i) contributes to the evidence base and improves understanding of how courts and the justice system impact the business climate, and ii) provides a framework of indicators to measure improvements in justice service delivery over time. 6 1. INTRODUCTION 32. The importance of the justice system in shaping economic behavior and facilitating poverty- reducing development is now widely recognized. Economies with effective justice systems, where courts enforce contractual obligations and resolve disputes quickly, demonstrate a higher level of economic development overall. This is because “efficient markets require a legal order [that is] able to protect private property rights and enforce contracts…”1 in a way that facilitates market transactions for economic growth by promoting competition, constraining the elite capture of public resources, fostering specialization in innovative industries, deepening regional integration, enhancing access to justice and contributing to the development of financial and credit markets.2 However, aside from indicators provided in key governance and justice indices,3 there is limited hard data that shows precisely how the justice system impacts businesses, primarily because of the limits of businesses’ self-reporting experiences. 33. The Survey was undertaken to better understand the nature and extent of the justice system’s impact on businesses and their operating environment by analyzing the perceptions and experiences of firms in eight countries in South East Europe —Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Kosovo, Montenegro, North Macedonia and Serbia. The report is part of a broader World Bank initiative to raise awareness of reform opportunities and inform justice policy dialogue on efficiency, quality and access to justice across countries in the Western Balkans, with a view to improving the performance of their justice systems. The report is the sixth and final output of a series of targeted analytical and advisory reports on justice challenges in the region. 34. The European Commission’s 2018 progress reports on Serbia, Montenegro, Bosnia and Herzegovina, Albania, North Macedonia and Kosovo reiterate the importance of improving legal and policy conditions of doing business and investment activity in these countries. Among other things, the report on Serbia notes that “companies continue to face a number of challenges, including an unpredictable business environment”. In Montenegro “rule of law weaknesses, including unfair competition from the informal economy, negatively impact the business environment”. Similarly, the report on Bosnia and Herzegovina cites weak rule of law and a poor business environment as key outstanding issues. For Albania, the report notes that business-relevant regulations remained cumbersome and shortcomings in the rule of law continued to hamper businesses and deter investments. In North Macedonia, weak contract enforcement was regarded as a constraint in the business environment, while the slow and inefficient administration of justice in Kosovo remains a key challenge. 35. Key findings and messages from the 2018 Investment Climate Statements on Bulgaria, Croatia and Kosovo are analogous. According to the 2018 Investment Climate Statements on Bulgaria, investors cite unpredictability due to frequent regulatory and legislative changes, slow judicial system processes, and limited enforcement of intellectual property rights as problems that impede 1 Cox, Marcus, (2008, August) “Security and Justice: Measuring the Development Returns, A Review of Knowledge” 2 OECD (2013). "What makes civil justice effective?", OECD Economics Department Policy Notes, No. 18, June 2013. 3 Doing Business, World Governance Indicators, World Justice Project Rule of Law Index, World Economic Forum Competitiveness Index, Investment Climate Statements etc. 7 investment. Furthermore, the busiest courts in Sofia suffer from serious backlogs, limited resources, and inefficient procedures that hamper the swift and fair administration of justice. Investors in Croatia continue to face rigid labor laws, slow and complex permit procedures for most investments, and a slow, sometimes unpredictable justice system. In Kosovo, tenuous rule of law, including a lack of contract enforcement negatively affects the investment climate. Annex 5 contains a table with the countries’ most recent scores and ranks on the World Bank Doing Business enforcing contracts indicator and the World Economic Forum, Global Competitiveness indicator on the efficiency of the legal framework in settling disputes. 36. The challenges highlighted in the datasets discussed above are formidable, but they also need to be addressed in order to align the performance of justice systems in SEE with EU standards, and more importantly, to improve efficiency, quality and access to justice for firms. The World Bank has active justice reform engagements in Serbia, Montenegro and Bosnia and Herzegovina that provide tailor-made technical assistance packages to improve efficiency, quality and access to justice. The project in Bosnia and Herzegovina is specifically designed to support justice institutions to implement reforms that improve efficiency and access to commercial justice. The activities are intended to promote a competitive business environment by deepening judicial reforms to foster a more competitive economy that will attract private investment and create jobs. The World Bank is currently designing an investment project in Croatia to improve efficiency and quality of selected justice services in targeted justice institutions and to ease business entry and operations to contribute to a more favorable business environment. In partnership with the EU, the World Bank is conducting a regional study on the perceptions of justice which will cover Armenia, Azerbaijan, Belarus, Georgia, Moldova, Ukraine, Albania, Bosnia and Herzegovina, Kosovo, North Macedonia, Montenegro, and Serbia. The purpose of the study is to better understand issues related to the performance of justice systems in the respective countries from the perspective of both service providers and service users, and to inform the next wave of judicial reform initiatives in line with the EU accession process. 37. Although a great deal of work is already being done by the governments, the World Bank and other development partners, more focused efforts are required to move the needle on justice reform in SEE countries. The findings of the report provide country counterparts with a wealth of data that can be used to inform policy, promote dialogue, and better target reforms and approaches to justice system performance in a way that can significantly improve the business climate across the region. Specifically, the data provides stakeholders with an opportunity to conduct a thorough analysis of the issues in the justice system that manifest as the greatest barriers for businesses and in turn economic growth. Based on the data, counterparts can begin to shape their reform efforts in response to the specific problems identified. Furthermore, counterparts can engage in structured dialogue to share results of recent reforms, analyze lessons from previous reform failures, and cross-fertilize ideas and reform proposals. 38. Furthermore, the results of the Survey provide policy and decision makers with an opportunity to strengthen the core underlying functionalities of a capable justice system by focusing on making the system more user-friendly for businesses, thus increasing trust and satisfaction in institutions. This is particularly important given that the Survey was conducted to understand how the justice system impacts businesses. Therefore, their perceptions of the status quo and their experiences with the system give a rich perspective that can be leveraged to transform the justice 8 system so that it is more citizen/business centric and is poised to efficiently deliver justice services and facilitate economic growth. 39. The rule of law is now at the heart of the EU accession process, and countries aspiring to become EU member states must demonstrate a solid track record and show that justice reforms are deeply rooted. Of the eight countries covered in this report, two are EU member states (Bulgaria and Croatia), four are candidate counties (Albania, Montenegro, North Macedonia and Serbia), while two are potential candidates (Bosnia and Herzegovina and Kosovo).The EU places great emphasis on the quality of reforms implemented and the need to monitor achieved results. The findings of the report and accompanying recommendations provide policy makers with a blue print for potential reform and policy changes that can be implemented in country and contribute to the EU accession discussions. The data collected through the survey can serve as a baseline to measure future improvements in justice reform and the business climate. 40. The Survey, which was conducted by GfK in partnership with the World Bank, is the largest survey of its kind in the region. The Survey was conducted between April and May 2018 and reached a total of 2800 firms of varying size, location, sector and ownership structure. To glean all the vital information and provide a representative overview of how the justice system impacts different firms, the team first collated and reviewed information on court performance, and region/country-based analyses on judicial reform related to business activities in select SEE countries. The substantive research methodology comprised a quantitative and a qualitative aspect. The quantitative part of the Survey was conducted through Computer-Assisted Personal Interviewing (CAPI).4 The qualitative aspect involved conducting focus group discussions and individual in-depth interviews with firms across the region. A detailed explanation of the methodology is provided below. 41. The remainder of Chapter 1 provides an outline of how the survey results are captured, an overview of the survey and the demographics of the respondents, and the survey methodology. 42. Chapter 2 explores the general perception that firms across the region have of their justice systems and does a deep dive on key institutions in the justice sector and key aspects of the justice system. Chapter highlights: - Generally, firms across the region have a negative perception of the justice system. The Survey measured the extent to which respondents agreed that the justice system is fair, unbiased and uncorrupted, and the majority (56 percent) did not agree that this is the case. Furthermore, 57 percent of respondents were of the view that the system does not treat all businesses equally, while 67 percent did not agree that the system is quick and efficient. Negative perceptions of the justice system are even more pronounced among firms with previous experience with courts. - On a positive note, 61 percent of the respondents believed that the rule of law exists to some extent in their country. 58 percent of the respondents believe that the justice system 4 CAPI was deemed to be the most appropriate method of data collection given the nature and length of the questionnaire. The use of tablets (CAPI) decreases the possibility for error, increases the level of fieldwork control and removes the need for data entry. 9 is able to enforce court decisions and 52 percent believe that generally, the justice system is administered by competent people. - Respondents across the region were of the view that key institutions in the justice system act in accordance with the law, with 76 percent and 75 percent of respondents respectively reporting that notaries and the police act in accordance with the law for the most part. Business representatives had less confidence in the extent to which courts act in accordance with the law, with 35 percent of the respondents reporting that they did not agree that courts act in accordance with the law. - More than half (56 percent) of the respondents were of the view that the law on the books is consistent with what the firms experience in practice. That said, a relatively large percentage of respondents (44 percent) still reported that the laws on the books do not reflect their lived realities. 43. Chapter 3 documents firms’ perceptions of the impact of the justice system on their business operations, first, by providing a general perspective, then delving into the granular aspects by assessing firms’ perceptions of the impact that individual institutions and processes have on their operations. Chapter highlights: - A larger percentage of respondents reported that they believe that the justice system has a negative impact on the business environment, than those who did not hold this belief; 38 percent and 27 percent respectively. - 80 percent of businesses reported that in general, the justice system does not affect their business at all or affects their business positively. When specific aspects of business operations are analyzed data show similar results with some variations. The number of employees is least affected by the justice system while the stability and security of the business seems to be the most affected. - The majority of firms (80 percent) in SEE are of the opinion that the justice system does not affect their business positively or at all. When specific aspects of business operations are analyzed data shows similar results with some variations. The number of employees is least affected by the justice system while the stability and security of the business seems to be the most affected. - Across the region, courts and existing laws are viewed as having the greatest negative impact on business operations (35 percent respectively), ahead of other institutions in the justice sector such as bailiffs (32 percent), government departments & regulatory agencies (30 percent), prosecutor’s offices (26 percent) notaries (19 percent), and the police (16 percent). 44. Chapter 4 covers the problems that businesses face and how they address them, looking first at the extent to which firms believe that certain aspects of the justice system affect their operations, then scrutinizing how certain aspects of the justice system affect specific areas of a firm’s business operations. Finally, the Chapter also presents respondents’ actual experiences with problems related to the justice system and how they addressed them. Chapter highlights: - The findings demonstrate that by and large, the justice system does not influence key aspects of a firm’s operations. One of the aspects where a relatively large percentage of respondents were of the view that the current situation in the justice system has a negative influence is operational costs. 10 - The most common challenge faced by firms is the collection of payments due from other businesses. However, this particular challenge, and others are not regarded as severe. The findings show that in the last three years, 30 percent of respondents experienced problems with collecting payments due from other businesses. Other challenges identified by respondents included: the application of labor regulations; fulfilment of non-monetary obligations and paying government levies, such as taxes, customs duties and contributions. - Businesses prefer to resolve legal problems outside of the court system. In fact, businesses only resort to the courts in situations where negotiations are unsuccessful (82 percent of firms attempted to resolve their legal problems through direct negotiations before resorting to the courts). Almost 90 percent of the respondents reported that they found direct negotiations and mediation to be effective, while only about 60-70 percent of respondents found courts to be effective, depending on the legal problem in question. Interviews and focus group discussions revealed that generally, firms prefer not to go to court to solve problems as they find the courts to be slow, ineffective, inefficient, and resource and time consuming. 45. The conclusion, recommendations and next steps are in Chapter 5. 1.1. SAMPLE AND SURVEY DEMOGRAPHICS 46. The quantitative part of the Survey was conducted on N=350 firms for each country, with a total of 2,800 firms across the region. 47. The Survey encompassed: • Different sized firms: Micro (1 – 9 employees), small (10 – 49 employees), medium (50 or more employees) and large5 (more than 250 employees); • Firms from three different sectors6: Manufacturing, trade and services, with the option to insert a different sector if the firm’s sector did not fall into these three categories; • Firms with different legal forms: Sole proprietor, limited liability company, joint-stock company and partnership, with the option to insert a different legal form (there were also country-specific options) 48. It is important to note that the data are weighted based on official data on the number of companies by their size and listed business activity . Depending on the official provider of this information in each country, GfK used data issued by national statistical offices or business register agencies. 49. The results of the quantitative research are presented through figures showing regional data as well as those obtained in each country separately. All figures where the base of respondents is sufficiently large to make relevant conclusions (at least N=30) are followed by narrative 5 Given that the large firms (firms with more than 250 employees only formed 3% of the survey sample, the findings from this demographic were incorporated with the findings from the medium sized firms. 6 The survey covered all businesses except, state-owned enterprises, non-profit organizations and firms from the agriculture sector. The three categories; manufacturing, trade and industry, were used for sampling purposes and analysis because they are the most common in the databases that the survey firm drew its sample from. 11 interpretations, which include an explanation of regional results and comparison between countries focused on statistically significant differences. In addition, an analysis of the agreed firm subgroups at the regional level is displayed through macro tables (tables where statistical significances are marked according to predefined formulas), and they are also corroborated by comments. 50. The findings of the qualitative research are given through quotations to support the quantitative results and provide more perspective. They are placed in text boxes and marked as in the following example – QQ from Bosnia and Herzegovina, Medium business, Services. Given that the quotes present the opinion of just one or a few individuals, all quotes are anecdotal and do not have statistical validity. 51. In summary, the demographics of respondents are as follows: 7 • Respondents’ position in the firm: 47 percent of respondents were owners or co-owners of the firm, 14 percent were directors, 5 percent deputy directors and 34 percent were managers with decision-making authority. • Number of employees: 50 percent of the firms surveyed had up to 9 employees, 30 percent between 10 and 49, 17 percent between 50 and 249, and 3 percent had more than 250 employees. • Main activity: 27 percent of the firms surveyed were from the manufacturing industry, 42 percent from the trade industry, and 31 percent from the services sector. • Legal form: The majority of the firms surveyed (61 percent) were limited liability companies, 26 percent were sole proprietors, 5 percent joint stock companies, 4 percent partnerships, while 4 percent had some other legal form. • Gender: 58 percent of the respondents were male, and 42 percent were female • Educational background: 60 percent of the respondents had a university degree or better, 39 percent had completed high school, while 1 percent had primary school education. • Majority owner: 82 percent of the firms surveyed were owned by a domestic individual, 13 percent by a domestic legal entity, 3 percent by a foreign individual, and 3 percent by a foreign legal entity. • Turnover: 21 percent of respondents have a turnover of up to 50,000 EUR, 11 percent between 50,000 and 100,000 EUR, 8 percent between 100,000 and 200,000 EUR, 7 percent between 200,000 and 400,000 EUR, 6 percent between 400,000 and 600,000 EUR, 3 percent between 600,000 and 800,000 EUR, 2 percent between 800,000 and 1,000,000 EUR, 2 percent above 1,000,000 EUR, while 32 percent did not know or refused to answer. 1.2. METHODOLOGY Quantitative Research 52. The methodology used in the quantitative part of the Survey was CAPI (Computer-Assisted Personal Interviewing). The Survey was conducted via personal interviews in selected companies by trained interviewers from GfK. Some adjustments and preparations were necessary for the successful implementation of the Survey. 7 See Annex 2 for a full description of the survey demographics, including country specific data. 12 Questionnaire 53. The questionnaire was designed by the GfK team in cooperation with World Bank experts. It was originally written in English and subsequently translated into eight local languages, with the exception of Kosovo and North Macedonia, where the questionnaires were in Albanian and Macedonian. The World Bank reviewed and approved the final English version of the questionnaire. 54. As CAPI software was used in the research, all questionnaires were converted to a digital format and installed on interviewers’ laptops. The program was reviewed by a competent person in each country. Interviewers 55. The Survey was conducted by GfK subsidiaries in each of the survey countries. All interviewers were given written instructions containing general descriptions of the questionnaire, the method of selecting companies for the interviews and the respondent selection process. In addition to providing written instructions, GfK organized training for interviewers which explained the goals of the research. Moreover, project coordinators examined the entire digital questionnaire together with the examiners and emphasized important elements (especially the need to read individual answers where one or more answers were possible, etc.). Interviewing Procedure 56. Before the main part of the fieldwork, i.e. interviews with business respondents, GfK conducted two preparatory phases: Company selection and telephone recruitment. a) Company selection The selection of companies was performed randomly within various regions, sectors, and based on various sizes and legal forms. Official data provided by relevant national statistical offices or business register agencies was used as the data source. The selection was completed before the first phase of fieldwork, enabling interviewers to receive lists of companies to be contacted. b) Telephone recruitment The target group was company representatives in high positions (owner, co-owner, director, deputy director or other manager included in decision- making important to the business). Given that people in leadership positions have a significant amount of responsibility and are often very busy, telephone recruitment was organized. This was the first step in the fieldwork which increased the response rate and led to a successful interviewing process. In telephone conversations, the interviewer presented the idea and the objectives of the Survey to the respondent and then attempted to arrange a face-to-face interview. The interviewer had to be very familiar with the project, and to be eloquent, persuasive, polite and persistent. The lists contained the company’s name, address and telephone number and, in some cases, the name of a contact person. In the event that a person on the list believed they were not qualified to discuss the topics mentioned, the interviewer asked to be referred to a competent person. A similar request was made when there was no contact person on the list. 13 Every telephone interviewer was obligated to contact a potential respondent at least three times and arrange an appointment (except in cases when a person categorically refused to participate in the Survey). The interviewer was required to note down the scheduled date and time clearly. Thus, the contact lists contained only relevant information; they were filtered and ready for face-to-face interviews. Qualitative Research 57. The qualitative research was carried out through focus group discussions and in-depth interviews. Representatives of micro and small businesses participated in the focus group discussions, while executives of medium and large companies were interviewed. 58. In all the countries except Albania, a mini focus group discussion with 4 to 6 participants (2 to 3 per each size of businesses) and 4 in-depth interviews (2 per each size of businesses) were conducted. In Albania, it was found more suitable to conduct a standard focus group discussion with 8 participants (2 per each size of company). Discussion Guide 59. As in the case of the questionnaire, the World Bank experts and the GfK team jointly developed the discussion guide, following agreed topics of the Survey. The Guide was originally written in English and subsequently translated into eight local languages (in Kosovo and North Macedonia, additional translations were also done). The World Bank reviewed and approved the final English version of the Guide. Moderation of Focus Group Discussions and In-depth Interviews 60. Trained and experienced GfK staff moderated the focus group discussions and in-depth interviews in all the countries. Following the focus group discussions and interviews, each GfK subsidiary was obliged to prepare a country report in English and submit it to the GfK office in Belgrade which was the lead member of the GfK consortium. 14 2. GENERAL PERCEPTION OF THE JUSTICE SYSTEM 61. The public’s perception of a justice system can be an important measure of the system’s performance and the quality of services that it is delivering. Perceptions, whether legitimate or not, are important, and a judiciary that is not seen as being independent can quickly fall into disrepute and have adverse effects on the business environment. Lack of trust in the judicial system can negatively affect business decisions and ultimately lead to reduced business activity. The rule of law is also an essential element of the business environment as it provides a framework for commercial activity, by ensuring predictability and legal certainty in a potentially unstable environment. CHAPTER HIGHLIGHTS Generally, firms across the region have a negative perception of the justice system. The Survey measured the extent to which respondents agreed that the justice system is fair, unbiased and uncorrupted, and the majority (56 percent) did not agree that this is the case. Furthermore, 57 percent of respondents were of the view that the system does not treat all businesses equally, while 67 percent did not agree that the system is quick and efficient. Negative perceptions of the justice system are even more pronounced among firms with previous experience with courts. On a positive note, 61 percent of the respondents believed that the rule of law exists to some extent in their country. 58 percent of the respondents believe that the justice system is able to enforce court decisions and 52 percent believe that generally, the justice system is administered by competent people. Respondents across the region were of the view that key institutions in the justice system act in accordance with the law, with 76 percent and 75 percent of respondents respectively reporting that notaries and the police act in accordance with the law for the most part. Business representatives had less confidence in the extent to which courts act in accordance with the law, with 35 percent of the respondents reporting that they did not agree that courts act in accordance with the law. More than half (56 percent) of the respondents were of the view that the law on the books is consistent with what the firms experience in practice. That said, a relatively large percentage of respondents (44 percent) still reported that the laws on the books do not reflect their lived realities. 62. Generally, firms across the region have a negative perception of their justice systems. For example, the majority of respondents (56 percent) did not agree that the justice system is fair, unbiased and uncorrupted, 57 percent of respondents were of the view that the system does not treat all businesses equally, while 67 percent did not agree that the system is quick and efficient. Respondents from Bosnia and Herzegovina and Croatia have the most negative perceptions of the justice system. Potential reasons for this could be higher expectations from the EU accession in Croatia and a uniquely complex government structure in Bosnia and Herzegovina. The survey does not provide further insights on the potential reasons for these perceptions and further research is required to fully understand what shapes and/or perpetuates these perceptions. 15 2.1. EXTENT TO WHICH THE RULE OF LAW EXISTS IN EACH COUNTRY 63. The responses demonstrate that the majority of businesses in SEE believe that the rule of law exists to some extent in their country (61 percent). Interestingly, among the respondents who believe that the rule of law exists, only a fraction— 12 percent, believe that it exists to a ‘great extent’, the rest (49 percent) believe that the rule of law only somewhat exists. Furthermore, the perception of the relatively large percentage of respondents who believe that the rule of law does not really exist or does not exist at all (35 percent) is consistent with the messages on weak rule of law that emanated from the European Commission’s 2018 progress reports on select countries in the region. 64. In Albania, 72 percent of the respondents believe that the rule of law exists. This is significantly higher than the regional average (61 percent). Furthermore, of the 72 percent, 29 percent of the respondents are of the view that the rule of law exists to a great extent. Figure 2.1.1: From your perspective, to what extent is the rule of law present in your country? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means not at all and 4 means to a great extent, share of total, %, mean, median) DK/refuse (%) Mean Median SEE 10 25 49 12 Albania 15 13 43 29 Serbia 5 22 50 11 Bulgaria 9 22 50 17 Kosovo 9 21 45 17 North Macedonia 7 26 59 7 Montenegro 8 24 58 7 Croatia 7 34 48 9 Bosnia and Herzegovina 18 40 38 2 Not at all Statistically significantly lower than SEE Not really Statistically significantly higher than SEE Somewhat To a great extent 65. In the focus group discussions, respondents from Bosnia and Herzegovina described the rule of law as an “organized market where all players feel safe” , suggesting that a stable, predictable system where all players are treated equally is important to them. 58 percent of the respondents believe the rule of law does not exist. Bosnia and Herzegovina is an outlier in this regard as it is the only country in the region where more than half of the respondents believed that the rule of law does not exist at all or does not really exist. 16 QQ from Bosnia and Herzegovina, Medium business, Services: “An organized market means the people feel safe. I don’t think that the black or grey market is good for Bosnia and Herzegovina. There are companies that pay their levies towards the state, but they have no protection from those who don’t do that.” 66. There is consensus regionwide that for the rule of law to exist, there needs to be equality before the law and key institutions need to be free from external influences. Laws and related regulations should be clearly defined, based on the Constitution, and applied equally to all citizens and business entities. QQ from Albania, Small business, Manufacturing: “Law should function for all the same, regardless of being big or small.” QQ from Serbia, Large business, Manufacturing: “There shouldn’t be any room for free interpretation and also the possibility to make different decisions for the same situations. ” QQ from Croatia, Small business, Trade: “The justice system must not be influenced by politics. ” 67. Firms that have been in contact with courts in the past are more critical of the extent to which the rule of law exists (the average score is 2.6), compared to those that have not interacted with the courts (2.7). The same is true for businesses in the trade industry (2.6). However, firms located in capital cities (2.8) as well as those majority-owned by domestic legal entities (2.9) believe, to a larger extent than others, that the rule of law exists in their country. Table 2.1.1: From your perspective, to what extent is the rule of law present in your country? Region by subgroups 17 2.2. REGIONAL ANALYSIS OF KEY ELEMENTS OF THE JUSTICE SYSTEM 68. A justice system’s ability to enforce court decisions is particularly important for business operations and can also contribute to building trust in the justice system. On average, more than half of the respondents (58 percent) in SEE agree that the system can enforce court decisions. However, a significant percentage of respondents, 39 percent, do not agree that the system is able to enforce court decisions. This is concerning given that the ability to enforce court decisions is a basic function of any justice system. 52 percent of the respondents in the region agree that the justice system is administered by competent people. 69. However, other aspects that are central to the rule of law and a well-performing justice system are not rated as highly. For example, 67 percent of respondents do not agree that the justice system is quick and efficient, while 57 percent and 56 percent respectively do not agree that the system treats all businesses equally regardless of size and that the system is fair, unbiased and uncorrupted. Figure 2.2.1: To what extent do you agree with the following statements related to the justice system in your country? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not agree at all and 4 means completely agree, share of total, %, mean, median) SEE The justice system is able to enforce 13 26 44 14 court decisions The justice system is administered by 13 29 40 12 competent people The justice system is fair, unbiased and 20 36 34 8 uncorrupted The justice system treats all businesses 26 31 30 8 equally regardless of their size The justice system is quick and efficient 26 41 25 5 Do not agree at all Mostly disagree Mostly agree Completely agree 70. The focus group discussions and individual interviews corroborated the results of the survey — generally, perceptions of the justice system are negative. The system is perceived as corrupt, slow and inefficient, mostly because of complicated bureaucracy and sluggish court proceedings. Words used by the respondents to describe the justice system included: unreliable, non-transparent, chaotic, incompetent, arbitrary, and selective. 71. Across the board, business leaders are generally disappointed with and lack trust in their justice systems, reiterating that they do not feel protected. In addition, the justice system is not perceived to be business friendly – not only does it not support businesses, it also restricts existing opportunities. 18 QQ from Bulgaria, Micro business, Manufacturing: “[The] administrative system is selective – when a business needs something to be done by the administration, the process is slow, clumsy and there is always delay in the services. And vice versa – when a business is late with something, the sanctions have immediate effect.” QQ from Montenegro, Medium business, Tourism: “It is very complicated to hire someone from abroad. The procedure takes almost two months, and we have a lot of workers from Serbia, Bosnia and Herzegovina and North Macedonia who come back every summer season.” QQ from Kosovo, Micro business, Services: “All institutions in the state, led by the Government and Ministry of Finance, should cooperate with the business sector in order to develop and adopt regulations and laws that will protect us, as owners, from unlawful competition.” 72. During the focus group discussions and individual interviews, representatives of firms from Croatia identified the following reasons for the lack of trust in the judiciary and state administration: widespread bribery and corruption, the lack of support and incentives for the business sector, populist laws, and the inability of an outdated administration to harmonize national legislation with the laws of the EU. 73. The issues listed above that affect trust in the justice system in Croatia, also exist in Bosnia and Herzegovina. Furthermore, decision-makers from Bosnia and Herzegovina also mention that a large, complicated and slow administrative machinery at the four levels of government – state, entity, cantonal and municipal burdens the business sector and negatively affects their business operations. Additionally, the lack of harmonized legislation at the various levels is a barrier for business operations, it creates and perpetuates unpredictability which can in turn fuel corruption which ultimately increases the cost of doing business. 74. Despite the circumstances, firm representatives from North Macedonia also indicated that prospects for improvement exist and that the EU accession process provides a window of opportunity for justice systems to undergo significant reforms that will improve their performance, and in turn their standing in the eyes of firms. QQ from North Macedonia, Large business, Services: “[We] hope that we will comply with the EU legislation soon, which will provide a liberalization of the market, free movement of goods, capital, services, and labor.” 75. Respondents in most of the countries in the region, except for Croatia and Bosnia and Herzegovina agree to a large extent that the justice system is able to enforce court decisions. For example, only 29 percent of respondents in Bulgaria and Montenegro do not agree at all or mostly disagree that the justice system is able to enforce court decisions, while a much larger percentage— 58 percent were of the same view in Croatia and Bosnia and Herzegovina. 19 Figure 2.2.2: To what extent do you agree that the justice system is able to enforce court decisions? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not agree at all and 4 means completely agree, share of total, %, mean, median) SEE 13 26 44 14 North Macedonia 6 26 48 19 Kosovo 7 27 38 24 Bulgaria 6 23 46 17 Serbia 6 25 48 14 Montenegro 8 21 62 7 Albania 14 29 42 13 Croatia 25 33 34 8 Bosnia and Herzegovina 31 27 33 8 Do not agree at all Mostly disagree Mostly agree Completely agree 76. The professionalism and technical expertise of judicial and administrative staff in the justice system is important, this is especially true for commercial cases that often require specialized knowledge. Therefore, the extent to which a firm believes that the justice system is administered by competent people matters, as this is often a reflection of how conversant key personnel in the system are with the different processes, which can in turn help them to facilitate processes that enable the business environment. 77. Generally, respondents agreed that the justice system is administered by competent people, with all the countries surveyed, except for Croatia and Bosnia and Herzegovina, scoring above the regional average (52 percent); Serbia 61 percent, Bulgaria 62 percent, North Macedonia 58 percent, Kosovo 56 percent, Albania 55 percent and Montenegro 60 percent. In Croatia and Bosnia and Herzegovina, very few respondents; 27 percent and 42 percent respectively, agreed that the system is administered by competent people. For both countries, this is well below the regional average. 20 Figure 2.2.3: To what extent do you agree that the justice system is administered by competent people? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not agree at all and 4 means completely agree, share of total, %, mean, median) SEE 13 29 40 12 Serbia 4 24 47 14 Bulgaria 7 24 46 16 North Macedonia 7 28 44 14 Kosovo 9 31 38 18 Albania 13 28 36 19 Montenegro 9 28 55 5 Bosnia and Herzegovina 32 25 34 8 Croatia 25 46 24 3 Do not agree at all Mostly disagree Mostly agree Completely agree 78. Integrity and fairness are key features of high-quality justice systems. Judiciaries that are known to render fair judgments devoid of external influences promote a conducive business climate that encourages competitiveness and inclusivity. 79. On average, more than half (56 percent) of the respondents in SEE do not agree that the justice system is fair, unbiased and uncorrupted. The percentage of respondents who reported this was highest in Croatia (70 percent) and then Bosnia and Herzegovina (66 percent), with 36 percent of those respondents in both countries noting that they do not agree with the statement at all. The situation is not much better in Kosovo and Bulgaria where 62 percent of the respondents in Kosovo and 57 percent in Bulgaria do not agree that the justice system is fair, unbiased and uncorrupted. 80. In Serbia, more than half of the respondents (52 percent) agree that the justice system is fair, unbiased and uncorrupted, while the same is true for 56 percent of the respondents in Montenegro. However, the percentage of respondents who do not agree is significant in both countries; 42 percent in Serbia and 41 percent in Montenegro. 21 Figure 2.2.4: To what extent do you agree that the justice system is fair, unbiased and uncorrupted? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not agree at all and 4 means completely agree, share of total, %, mean, median) SEE 20 36 34 8 Serbia 5 37 40 12 Montenegro 11 31 51 5 North Macedonia 11 43 33 12 Albania 17 34 36 13 Bulgaria 17 40 30 7 Kosovo 25 37 28 7 Bosnia and Herzegovina 36 30 27 6 Croatia 36 34 25 3 Do not agree at all Mostly disagree Mostly agree Completely agree 81. In a thriving business environment, justice should not be dependent on who the players are, or on the business venture at stake. Users of varying economic backgrounds and financial status, including and especially, small, less affluent firms, can approach the courts with confidence, knowing that the outcome of their case will not be determined by anything other than its merits. 82. Survey findings demonstrate that, for the most part, this theory holds true in Serbia, where 53 percent of the respondents agreed that the justice system treats all businesses equally regardless of their size. This is also true of Albania, where 48 percent of the respondents held the same views. For both of these countries, the percentage of respondents who agreed with this statement is significantly higher than the regional average; 38 percent. In contrast, only 15 percent of respondents from Croatia and 38 percent from Bosnia and Herzegovina agree that the justice system treats all businesses equally. To add further perspective, more than half; 52 percent of the respondents from Croatia, did not agree with the statement at all. 22 Figure 2.2.5: To what extent do you agree that the justice system treats all businesses equally regardless of their size? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not agree at all and 4 means completely agree, share of total, %, mean, median) SEE 26 31 30 8 Serbia 16 27 42 11 Albania 20 31 37 11 Kosovo 17 40 26 11 North Macedonia 22 33 29 12 Bulgaria 20 34 30 10 Montenegro 25 28 38 5 Bosnia and Herzegovina 39 24 29 5 Croatia 52 30 13 2 Do not agree at all Mostly disagree Mostly agree Completely agree 83. The centrality of a strong justice mechanism lies in its essential contribution to economic stability and growth, and to enabling all manner of disputes to be resolved within a structured and orderly framework.8 Justice systems that value the business sector create conditions that catalyze economic growth and serve as gateways to the prompt, efficient and competent disposal of commercial cases, saving both time and money. 84. Efficiency and timeliness in case processing is a fundamental challenge in SEE. Regionally, 67 percent of the respondents did not agree that the justice system is quick and efficient and in each of the countries surveyed, more than half of the respondents did not agree that the system is quick and efficient. The percentage of respondents who did not agree with this statement was highest in Croatia (92 percent), then Bosnia and Herzegovina (77 percent). Furthermore, in Croatia, of the 92 percent who did not agree that the system is quick and efficient, 59 percent did not agree with the statement at all. 8 Resource Guide on Strengthening Judicial Integrity and Capacity, UNODC, 2011: 1 23 Figure 2.2.6: To what extent do you agree that the justice system is quick and efficient? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not agree at all and 4 means completely agree, share of total, %, mean, median) SEE 26 41 25 5 Albania 17 38 36 9 Montenegro 16 36 43 4 Kosovo 14 48 27 8 North Macedonia 13 52 25 8 Serbia 17 48 24 9 Bulgaria 26 46 20 5 Bosnia and Herzegovina 46 31 21 1 Croatia 59 33 60 Do not agree at all Mostly disagree Mostly agree Completely agree 85. The results show that firms that have prior experience with the courts are less likely to believe that the justice system is able to enforce court decisions, compared to those without prior court experience (a score of 2.4 v. 2.6). Among the different firm types, partnerships agreed the least with the statement that ‘the justice system is able to enforce court decisions’ (2.3), while sole proprietorships were the most likely to agree (2.7). Responses regarding the extent to which the justice system is administered by competent people were similar. Firms with prior court experience agreed with this less than those without (2.3 v. 2.6), while among the different firm types, partnerships agreed with this statement less (2.4) than limited liability companies and joint stock companies (2.5 respectively) and sole proprietorships (2.6). 86. Small firms (that employ between 10 and 49 employees) (2.5), firms in the manufacturing industry (2.4), firms that are majority owned by a domestic legal entity (2.4) and firms in the capital (2.4) agreed the most with the statement that the justice system is fair, unbiased and uncorrupted, while partnerships agreed the least (1.9). 87. Firms that operate outside the capital (2.1) and firms with court experience (2.0) were the least likely to agree that the justice system treats all businesses equally regardless of size, while sole proprietors (2.3) and firms in the capital were slightly more likely to agree with the statement (2.4). Firms that have prior experience with the courts were more likely to disagree with the statement that the justice system is quick and efficient (1.9) than those who did not have such experience (2.1). 24 Table 2.2.1: To what extent do you agree with the following statements with regards to the justice system in your country? Region by subgroups SEE Level of confidence Statistically significantly higher than total 95% 90% Statistically significantly lower than total 95% 90% 88. The findings in this section demonstrate that all the countries surveyed need to invest more efforts in strengthening the independence, accountability, impartiality, professionalism and overall efficiency of the judicial system. All these aspects are at the core of Chapter 23 of the acquis for EU accession. 2.3. INSTITUTIONAL COMPLIANCE WITH THE LAW 89. Generally, respondents across the region were of the view that key institutions in the justice system act in accordance with the law, with 76 percent of respondents noting that notaries act in accordance with the law for the most part as do the police; 75 percent. A noteworthy percentage of respondents were of the view that government departments and regulatory agencies, the prosecutor’s office and the courts do not always act in accordance with the law; 29 percent, 31 percent and 38 percent respectively. These percentages are high, relative to the percentage of respondents who thought bailiffs (26 percent), police (21 percent) and notaries (17 percent) do not always act in accordance with the law. 25 Figure 2.3.1: In your opinion, to what extent do these institutions act in accordance with the law? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means does not act in accordance with the law at all and 4 means that they act completely in accordance with the law, share of total, %, mean, median) SEE Notaries 4 13 49 27 Police 4 17 56 19 Bailiffs 7 19 44 21 Government departments and regulatory 7 22 45 16 agencies Prosecutor’s office 7 24 49 13 Courts 8 27 48 12 Not at all Mostly not Mostly yes Completely QQ from Albania, Small business, Trade: “Businesses are afraid of the tax office and its officials. Due to frequent legal changes, they are not well informed about the procedures and in most cases, they are not able to interpret them, that’s why businesses don’t oppose but accept any kind of control by the tax office even if it is illegal.” 90. The focus group discussions and individual interviews in Croatia showed that respondents believe there is a lack of knowledge and understanding of the laws among government departments and regulatory agencies. For example, participants explained that foreign suppliers sometimes sell their goods in the Croatian market without the necessary permits. Despite warnings from various Ministries to refrain from doing this, ultimately the practice continues because authorities refuse to take responsibility, arguing that the issue is not under their jurisdiction. 91. Respondents also reported that there are insufficient human resources and capacity in key government institutions. QQ from Croatia, Small business, Manufacturing: “The reason is incompetence, lack of people. You have two people in Croatia who work for the Ministry, two people in the entire Croatia. They cannot cover it. Also, the law is indefinite and then such situation occurs. I find it absurd to have a foreign supplier that sells goods for which they have no permit, and we cannot do anything about it.” 92. For courts, the requirement to act in accordance with the law is integral to the functioning of the entire justice system. Courts that are known to render fair judgments devoid of external influences promote a conducive business climate that encourages competitiveness and inclusivity. Participants from North Macedonia noted that it is difficult for courts in their country to make decisions that are free from external influence. 26 QQ from North Macedonia, Large business, Services: “I would describe the rule of law as an opportunity to have security, stability, and get a decision which is in accordance with the law, no matter which institution I contact for that reason. For me, the judiciary should be that key element, but there is a problem here, because the court is almost disabled to make decisions easily and without an external influence.” 93. Throughout the region, notaries are perceived to act in accordance with the law. 76 percent of respondents agreed with this statement. Only Albania and North Macedonia fell below the regional average with 71 percent and 68 percent, respectively of the respondents from these countries noting that the notaries generally act in accordance with the law. 94. The same is true for the police; with as many as 85 percent and 81 percent of the respondents in Kosovo and Serbia respectively, reporting that to a large extent, the police act in accordance with the law. The lowest percentage of respondents who think that the police act in accordance with the law was from Bosnia and Herzegovina, 68 percent. Figure 2.3.2: In your opinion, to what extent do notaries act in accordance with the law? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not act in accordance with the law at all and 4 means that they act completely in accordance with the law, share of total, %, mean, median) SEE 4 13 49 27 Montenegro 2 6 49 39 Kosovo 1 7 57 28 Serbia 0 14 49 28 Bulgaria 3 15 46 27 Croatia 7 17 45 29 Bosnia and Herzegovina 10 15 39 33 Albania 6 11 54 17 North Macedonia 5 23 52 16 Not at all Mostly not Mostly yes Completely 27 Figure 2.3.3: In your opinion, to what extent do police act in accordance with the law? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not act in accordance with the law at all and 4 means that they act completely in accordance with the law, share of total, %, mean, median) SEE 4 17 56 19 Kosovo 0 8 61 24 Serbia 0 15 52 29 Bulgaria 2 19 56 17 Montenegro 3 20 60 14 Albania 6 19 50 19 Croatia 6 18 57 17 North Macedonia 4 21 58 13 Bosnia and Herzegovina 13 16 51 17 Not at all Mostly not Mostly yes Completely 95. 65 percent of the firms in SEE believe that to a large extent, bailiffs act in accordance with the law. Similarly, in the individual countries surveyed, most of the respondents were of the view that bailiffs act in accordance with the law, with the highest percentage of respondents who held this view coming from Montenegro (80 percent) and Kosovo (78 percent). While more than half of the respondents in Croatia and Albania held the same view, the percentage was significantly lower compared to the other countries and to the regional average; 55 percent and 54 percent respectively. Figure 2.3.4: In your opinion, to what extent do bailiffs act in accordance with the law? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not act in accordance with the law at all and 4 means that they act completely in accordance with the law, share of total, %, mean, median) SEE 7 19 44 21 Kosovo 1 7 46 32 Montenegro 3 11 45 35 Serbia 4 25 42 22 Bulgaria 3 21 41 18 Bosnia and Herzegovina 15 19 43 17 Croatia 11 23 39 16 Albania 9 24 42 12 North Macedonia 10 23 50 11 Not at all Mostly not Mostly yes Completely 28 96. Government departments and regulatory agencies are perceived to act in accordance with the law for the most part in all the countries surveyed, with survey results revealing that more than half of the respondents in each country were of this opinion.9 However, compared to the other countries, the percentage of respondents who do not believe that government departments and regulatory agencies act in accordance with the law is relatively high in Bosnia and Herzegovina and Croatia; 44 percent and 42 percent respectively, while for other countries, such as Serbia, it was 22 percent. Figure 2.3.5: In your opinion, to what extent do government departments and regulatory agencies act in accordance with the law? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not act in accordance with the law at all and 4 means that they act completely in accordance with the law, share of total, %, mean, median) SEE 7 22 45 16 Serbia 2 20 45 25 Kosovo 2 12 36 17 Bulgaria 3 23 51 15 North Macedonia 5 20 53 15 Montenegro 4 22 53 13 Albania 6 26 46 17 Bosnia and Herzegovina 18 26 36 16 Croatia 14 28 42 10 Not at all Mostly not Mostly yes Completely 97. Generally, prosecutors’ offices are deemed to act in accordance with the law, as demonstrated by a regional average of 62 percent. However, there are interesting variations by country. For example, the percentage of respondents from Serbia and Bulgaria who believe that prosecutors’ offices act in accordance with the law is well above the regional average; 72 percent for Serbia and 70 percent for Bulgaria, yet only 52 percent of respondents in Albania and 49 percent of respondents in Bosnia and Herzegovina held the same view, leading both countries to fall well below the regional average. 98. The pattern is the same with respect to the extent to which respondents believe that courts act in accordance with the law, with Serbia, Montenegro and Bulgaria soaring above the regional average; 60 percent—Serbia 70 percent, Montenegro 73 percent and Bulgaria 69 percent. However, in Bosnia and Herzegovina and Albania, only 47 percent of the respondents reported that they believe 9 It should be noted that although the lowest percentage of respondents who do not believe that government departments and regulatory agencies act in accordance with the law is from Kosovo (14 percent), almost a third of the respondents did not answer this question. 29 that the courts act in accordance with the law. Again, both countries fell well below the regional average. Figure 2.3.6: In your opinion, to what extent does the prosecutor’s office act in accordance with the law? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not act in accordance with the law at all and 4 means that they act completely in accordance with the law, share of total, %, mean, median) SEE 7 24 49 13 Serbia 2 22 48 24 Bulgaria 4 20 55 15 Kosovo 6 22 40 20 North Macedonia 4 20 56 13 Montenegro 4 19 62 8 Croatia 7 29 50 7 Albania 15 25 42 10 Bosnia and Herzegovina 14 33 39 10 Not at all Mostly not Mostly yes Completely Figure 2.3.7: In your opinion, to what extent do courts act in accordance with the law? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means do not act in accordance with the law at all and 4 means that they act completely in accordance with the law, share of total, %, mean, median) SEE 8 27 48 12 Serbia 4 23 44 26 Montenegro 4 17 62 11 Bulgaria 4 22 54 15 Kosovo 7 25 42 16 North Macedonia 6 30 49 10 Croatia 10 29 49 8 Bosnia and Herzegovina 16 35 38 9 Albania 15 34 43 4 Not at all Mostly not Mostly yes Completely 99. Generally, firms that employ between 10 and 49 people believe that all the aforementioned institutions act in accordance with the law. On the other hand, partnerships and firms with court experience are less convinced that the police, the courts, the prosecutors’ office and government 30 departments and regulatory agencies work in accordance with the law for the most part. Firms that are based in the capital and those engaged in trade also believe to a lesser extent that the prosecutors’ office and the courts act in accordance with the law. Table 2.3.1: In your opinion, to what extent do these institutions act in accordance with the law? Region by subgroups 100. More than half (56 percent) of the respondents across the region agree that the laws on the books align with the lived realities of firms. Still, a significant percentage of respondents (44 percent) do not agree. The large percentages of respondents from Serbia (64 percent), Kosovo (65 percent) and Montenegro (71 percent) who reported that, for the most part, the laws on the books align with what firms experience in practice illustrates that in these countries challenges with the interpretation and the implementation of the laws are less prominent. In Bosnia and Herzegovina, Bulgaria and Croatia, a smaller percentage of respondents; 47 percent, 42 percent and 42 percent respectively, were of the view that the law on the books is the same as what businesses experience in practice. Figure 2.3.8: In your opinion, to what extent is the law on the books the same as what businesses experience in practice? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means not at all and 4 means completely, share of total, %, mean, median) SEE 7 33 47 9 Serbia 2 26 51 13 Kosovo 7 22 49 16 Montenegro 3 23 66 5 North Macedonia 7 28 52 9 Albania 9 32 44 14 Bosnia and Herzegovina 11 39 42 5 Bulgaria 9 45 37 5 Croatia 8 47 39 3 31 Not at all Mostly not Mostly yes Completely 101. Deliberations during the focus group discussions and the individual interviews confirmed that in most cases, the legal framework (i.e. law on the books) is sound, but challenges arise because of inconsistences between the laws, bylaws and other regulations, which result in the uneven interpretation and implementation of the law. QQ from Serbia, Medium business, Services: “On one side, there is the Law on the protection of personal data, and on the other, the Law about student cooperative. The former law states that I will be punished in case of publishing personal data and the latter one requires to publish them, or I will also be punished by penalties that range between 4000 and 8000 EUR.” QQ from Bosnia and Herzegovina, Micro business, Services: “For example, we considered the option to change the legal form of our firm, from limited liability company into branch office. The law exists, but it doesn’t work in practice – it is not possible to make such change in the Federation BiH. The only solution is to move the company to the Republic Srpska where it can be re-registered as a branch.” Table 2.3.2: In your opinion, to what extent is the law on the books the same as what businesses experience in practice? Region by subgroups 102. 59 percent of respondents from medium sized firms (with more than 50 employees) agreed for the most part with the statement that the law on the books is the same as what they experience in practice. This is also true for 56 percent of small firms (that employ between 10 and 49 employees). 49 percent of the respondents from micro sized firms (up to 9 employees) agreed with the statement. However, only 44 percent of the respondents from sole proprietorships ‘mostly agreed’ with this statement. The percentage is lower than what limited liability companies and joint stock companies reported; 50 percent and 58 percent respectively. 103. Results show that the application and enforcement of the law in SEE is a challenge. Although more than half of the respondents (53 percent) at the regional level noted that in practice, the law 32 is applied and enforced, 44 percent were of the opinion that it is not. A country analysis reveals that even for the countries where the percentage of respondents who believe that the law is applied and enforced in practice is higher than the regional average, the difference is not very significant. For example, in Serbia, the percentage of respondents is 55 percent, in Kosovo its 59 percent and in Montenegro is 57 percent. Put differently, the percentage of respondents who believe to a lesser extent that the law is applied and enforced in practice is sizeable; 37 percent in Serbia, 35 percent in Kosovo and 40 percent in Montenegro. In Croatia, Bulgaria and Bosnia and Herzegovina the percentage of respondents who do not believe that the law is applied and enforced in practice is even higher; 47 percent, 50 percent and 57 percent respectively. Figure 2.3.9: In your opinion, to what extent is the law applied and enforced in practice? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means not at all and 4 means completely, share of total, %, mean, median) SEE 7 37 46 7 Serbia 3 34 44 11 Kosovo 7 29 46 13 Montenegro 4 36 53 4 North Macedonia 7 35 49 7 Albania 9 38 44 9 Croatia 8 39 48 2 Bulgaria 8 42 42 4 Bosnia and Herzegovina 13 44 37 3 Not at all Mostly not Mostly yes Completely QQ from Bosnia and Herzegovina, Medium business, Trade (to the question on the main problems businesses face today): “Primarily, legislation - there are segments that are uncovered or inadequately covered, that don’t match the actual situation. Another thing would be adherence to the existing legislation, which is an even bigger issue.” 33 Table 2.3.3: In your opinion, to what extent is the law applied and enforced in practice? Region by subgroups 104. An analysis of the perception of the application and enforcement of the law in practice shows that 60 percent of medium sized firms (with more than 50 employees) and 55 percent of firms in which the majority is owned by a foreign individual or legal entity believe, for the most part, that the law is applied and enforced in practice. 34 3. PERCEPTION OF THE IMPACT OF THE JUSTICE SYSTEM ON BUSINESS OPERATIONS 105. Firms’ perceptions of the impact of the justice system on their business operations can in turn impact the way they interact with the system and more importantly, the way they conduct their day to day operations. It is accepted that poorly performing courts delay business activity, undermine predictability, increase risks and constrain private sector growth. The World Bank’s Doing Business reports show that efficient judiciaries are associated with the rapid growth of small firms and have a positive impact on the business climate, innovation, and foreign direct investment.10 To better understand the nature and extent to which firms across the region believe that the justice system impacts their business operations, the survey asked firms to state their perceptions about the functioning of the justice system in general and their perceptions about how key institutions in the justice system impact their business operations. CHAPTER HIGHLIGHTS A larger percentage of respondents reported that they believe that the justice system has a negative impact on the business environment, than those who did not hold this belief; 38 percent and 27 percent respectively. The majority of firms (80 percent) in SEE are of the opinion that the justice system does not affect their business positively or at all. When specific aspects of business operations are analyzed data shows similar results with some variations. The number of employees is least affected by the justice system while the stability and security of the business seems to be the most affected. Across the region, courts and existing laws are viewed as having the greatest negative impact on business operations (35 percent respectively), ahead of other institutions in the justice sector such as bailiffs (32 percent), government departments & regulatory agencies (30 percent), prosecutor’s offices (26 percent) notaries (19 percent), and the police (16 percent). 106. Given that, in general, firms do not have a positive perception of the justice systems in which they operate, it follows, unsurprisingly, that the majority of businesses in SEE believe that the justice system has a negative impact on the business environment. 38 percent of the respondents across the region reported that their current justice systems affect the business environment negatively. The situation is particularly dire in Bosnia and Herzegovina and Croatia. In Croatia, 66 percent of the respondents were of the view that the current justice system affects the business environment negatively, and in Bosnia and Herzegovina, the percentage was 63 percent. For both countries, the percentage of respondents who reported that the justice system has a negative impact on the business environment is significantly higher than the percentage who reported the same across the region. Although respondents in Kosovo and Montenegro reported that the justice system has a negative impact on the business environment, the percentage of respondents who held this view is low relative to the other countries and to the regional average; 16 and 27 percent in each country respectively. Through the focus group discussions and interviews, it emerged that three aspects of the justice system that negatively impact the business environment the most are issues caused by labor 10 World Bank. 2017. Doing Business 2017: Equal Opportunity for All. Washington, DC: World Bank. 35 laws and regulations, collection of payments due, and burdensome bureaucracy. The perspectives shared by respondents during the focus group discussions and interviews are synonymous with the findings in the European Commission’s progress reports and the US Department of State’s Investment Climate Statements regarding aspects that constrain the business environment. Figure 3.1: In your opinion, how does the current situation in the justice system affect the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 6 32 29 24 3 Kosovo 2 14 32 37 2 Montenegro 3 24 35 30 3 Albania 7 27 20 39 4 North Macedonia 3 28 31 30 4 Serbia 1 30 35 20 5 Bulgaria 2 33 32 22 1 Bosnia and Herzegovina 17 46 26 8 1 Croatia 15 51 22 70 Very negatively Negatively It has no influence Positively Very positively 107. Interestingly, in each country, a sizeable percentage of respondents reported that the justice system has no influence or impact on the business environment; 35 percent in Serbia and Montenegro, 32 percent in Kosovo and Bulgaria and 31 percent in North Macedonia. Regionwide, 29 percent of the respondents were of the view that the justice system has no impact on the business environment. 108. It is also worth noting that in Kosovo, Albania and North Macedonia, the percentage of respondents who reported that the justice system has a positive impact on the business environment; 39 percent, 43 percent, 34 percent, is higher than the percentage of respondents who reported that the justice system had a negative impact on the business environment or no influence on it. 109. Among the different types of firms, the most apparent difference is between enterprises owned by domestic legal entities and foreign-owned ones. More domestic legal entities believe that the justice system has a positive influence on the business environment, than foreign owned firms do (3.0 v. 2.6). The same is true for businesses without court experience vis-à-vis those that have court experience (2.9 v. 2.6). For sole proprietors and partnerships, the current situation in the justice system affects the business environment positively, compared to the other types of firms (2.9 for sole proprietorships and partnerships v. 2.8 for limited liability companies and joint stock companies). 36 Similarly, more firms from the capital reported that the current situation in the justice system affects the business environment positively, than firms outside of the capital (2.9 v. 2.8). More small sized firms (firms that employ between 10 and 49 employees) believe that the justice system affects the business environment more positively than micro firms (up to 9 employees) and medium sized firms (more than 50 employees) — 2.9 v. 2.8. In all these cases, the difference is not significant. Table 3.1: In your opinion, how does the current situation in the justice system affect the business environment in your country? Region by subgroups 110. An analysis of the firms’ perception of how key institutions and aspects of the justice system affect the business environment shows mixed results. For each key institution a sizable percentage of the respondents reported that the institution has no influence on the business environment; 30 percent for the courts and 38 percent for the police and the prosecutor’s office. For firms, notaries and the police have the least negative impact on the business environment; 19 and 16 percent of respondents respectively. 111. Courts, existing laws, and government departments and regulatory agencies are perceived to have the greatest negative impact on the business environment. 38 percent of respondents held this view for courts and existing laws, and 30 percent for government departments and regulatory agencies. Interestingly for these institutions/aspects of the justice system, a relatively large percentage of respondents are of the view that they have no influence on the business environment, 30 percent for the courts, 25 percent of existing laws and 27 percent for government departments and regulatory agencies. At first blush, it may seem like it’s neither here nor there that these institutions/aspects of the justice system are not deemed to influence the business environment in any way. However, it is in fact regrettable that they are perceived to have no influence on the business environment. Part of the raison d’etre of a high performing and well-functioning justice system is to facilitate market transactions for economic growth by, for example, protecting private property rights and enforcing contracts. Courts that value the business sector, and indeed those that are valued by the business sector, function well and create conditions that catalyze economic growth. All this to say that, all things being equal, courts should be, and should be seen as being at the forefront of facilitating the ease of doing business, because they function well. Therefore, the fact that they are seen as having no influence on the business environment is concerning. 37 QQ from North Macedonia, Large business, Trade: “In North Macedonia, the biggest problem is the judiciary. The judiciary is not efficient at all. If you start a litigation, it can take years to solve the problem. It can be delayed every year; the witnesses can avoid the trial... The judiciary is very complicated and there is no quick resolution of disputes.” Figure 3.2: In your opinion, how do the following influence the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE Notaries 5 14 33 34 9 Police 4 12 38 32 8 Bailiffs 10 22 28 25 8 Prosecutor’s office 6 20 38 23 4 Government 8 22 27 27 6 departments and… Existing laws 7 28 25 33 3 Courts 8 27 30 25 4 Very negatively Negatively It has no influence Positively Very positively Figure 3.2. showed a general overview. The following figures will present a deep dive on each institution/aspect of the justice system, showing country specific results. 112. On average 43 percent of the respondents in the region believe that notaries have a positive impact on the business environment. The percentage of respondents who believe the same in each country are consistently high, with all countries recording percentages above the regional average except for Serbia (27 percent), Bosnia and Herzegovina (40 percent), North Macedonia (33 percent) and Croatia (26 percent) A large percentage of respondents from Kosovo and Montenegro believe that notaries impact the business environment positively; 67 percent and 57 percent respectively. Contrastingly, a comparatively smaller percentage of respondents in Croatia and Serbia; 26 percent and 27 percent respectively, believe that notaries impact the business environment positively. In North Macedonia, an equal percentage of respondents (33 percent) believe that notaries have a positive influence on the business environment and have no influence on business environment. 38 Figure 3.3: In your opinion, what is the influence of notaries on the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 5 14 33 34 9 Kosovo 2 3 20 53 14 Montenegro 1 9 30 39 18 Albania 5 5 39 34 11 Bulgaria 3 10 35 37 6 Serbia 3 17 41 21 8 Bosnia and Herzegovina 9 16 31 31 9 North Macedonia 4 28 33 30 3 Croatia 14 20 37 23 3 Very negative Negative It has no influence Positive Very positive 113. The trend in the firms’ perceptions of the influence of the police on the business environment is very similar to that of notaries, with 40 percent of respondents regionwide holding the view that the police influence the business environment positively . Most of the respondents from the individual countries have a positive perception of the police’s influence on the business environment, with the percentage of respondents in Kosovo and Albania who hold this view coming in much higher than the regional average; 64 percent and 48 percent respectively. For Bulgaria and Serbia, the percentage of respondents who believe that the police influence the business environment positively is slightly lower than the regional average; 39 and 37 percent respectively. Fewer respondents from Croatia and Montenegro believe that the police have a positive influence on the business environment, with only 28 percent of the respondents in these countries holding this view, significantly lower than the regional average. 114. It is also worth noting that the percentage of respondents who do not believe that the police have any influence on the business environment is quite large in all the countries surveyed except for Albania and Kosovo. The largest percentages of respondents who held this view were from Montenegro (51 percent), Serbia (47 percent) and North Macedonia and Bosnia and Herzegovina (44 percent respectively). 39 Figure 3.4: In your opinion, what is the influence of the police on the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 4 12 38 32 8 Kosovo 1 4 22 53 11 Albania 4 12 26 37 18 Serbia 2 7 47 27 10 Bulgaria 3 16 33 33 6 North Macedonia 1 17 44 32 4 Montenegro 4 11 51 23 5 Croatia 7 17 39 30 5 Bosnia and Herzegovina 11 13 44 26 2 Very negative Negative It has no influence Positive Very positive 115. Overall, respondents across the region believe that the influence that bailiffs have on the business environment in SEE is negative; an average of 32 percent of the respondents across the region believe this. Comparatively, 28 percent believe that they have no influence, while 33 percent believe that they have a positive influence. A country-by-country analysis reveals that the only countries where the percentage of respondents who believe that bailiffs have a positive influence on the business environment is higher than those who believe that they have a negative influence are Kosovo (64 percent), Montenegro (51 percent) and Albania (33 percent). Otherwise, for all the other countries, a large percentage of respondents are of the view that bailiffs have a negative influence on the business environment, with the highest percentages of respondents who believe this coming from Croatia (50 percent), North Macedonia (46 percent) and Serbia (38 percent). QQ from Kosovo, Large business, Services (to the question on the collection of due payments from another business entity): “If we do not manage to solve the problem through mediation, then our lawyer will go to court, if he also does not succeed, then through the bailiffs. Bailiffs have proven to be an effective organ in our country” 40 Figure 3.5: In your opinion, what is the influence of bailiffs on the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 10 22 28 25 8 Kosovo 1 6 18 42 22 Montenegro 3 14 25 35 16 Albania 6 17 36 28 5 Bulgaria 9 26 20 26 5 Serbia 6 32 30 17 8 Bosnia and Herzegovina 14 19 34 22 5 North Macedonia 18 28 30 19 4 Croatia 20 30 27 9 1 Very negative Negative It has no influence Positive Very positive 116. For most countries in SEE, the prosecutor’s office has no influence on the business environment. This is not surprising given that for the most part, unless a criminal offence has been committed, prosecutors are seldom involved in the day to day affairs of a firm. Furthermore, when firms go to court, the proceedings are likely to be civil in nature, again significantly limiting, or eliminating altogether the role of the prosecutor’s office. 117. On average, 38 percent of respondents reported that the prosecutor’s office does not influence the business environment. In some cases, the percentage of respondents in each country who reported the same was higher than the regional average, for example, 44 percent in Serbia, 43 percent in Montenegro, 41 percent in North Macedonia and 43 percent in Albania. 118. It is worth noting that for Bosnia and Herzegovina and Croatia, a large percentage of respondents; 45 and 46 percent respectively, reported that the prosecutor’s office negatively impacts the business environment. The percentage of respondents who hold this view in both countries is significantly higher than the regional average; 26 percent and the percentages recorded in other countries. For instance, Albania, which has the third highest percentage of respondents who believe the prosecutor’s office negatively impacts the business environment, sits right on the regional average (26 percent), while the percentage of respondents from the other countries who hold this view is materially lower; 15 percent in Serbia, 16 percent in Kosovo, 17 percent in Montenegro and 18 percent in Bulgaria. 41 Figure 3.6: In your opinion, what is the influence of the prosecutor’s office on the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 6 20 38 23 4 Kosovo 2 14 30 31 9 Serbia 2 13 44 Prosecutor’s office 25 8 Bulgaria 4 14 35 31 4 Montenegro 3 14 43 25 4 North Macedonia 1 20 41 29 3 Albania 8 18 43 17 5 Bosnia and Herzegovina 18 27 34 16 1 Croatia 9 37 33 12 0 Very negative Negative It has no influence Positive Very positive 119. An average of 33 percent of respondents in the countries surveyed reported that government departments and regulatory agencies have a positive impact on the business environment. 27 percent reported that they had no influence while 30 percent reported that they had a negative impact on the business environment. A country by country analysis shows that in all the countries except Bosnia and Herzegovina and Croatia, respondents believe that government departments and regulatory agencies have a positive impact on the business environment, with the percentage of respondents who believe this soaring to as high as 47 percent in Albania and 38 percent in Serbia, while in Bosnia and Herzegovina and Croatia, only 21 percent and 15 percent respectively of the respondents held this view. Put differently, 43 percent of the respondents in Bosnia and Herzegovina and 56 percent of respondents in Croatia believe that government departments and regulatory agencies have a positive impact on the business environment. For both countries, this is well above the regional average of respondents who believe the same; 30 percent. QQ from Croatia, Large business, Trade & Manufacturing (to the question on the collection of due payments from another business entity): “It takes too much time, you have to go to a public notary’s office, where you spend a certain amount of time; then you sort things out with the Financial Agency FINA. Even though you have all the arguments on your side, there is a 60-day wait for the money at FINA and only then can you enter the process of collecting due payment.” 42 Figure 3.7: In your opinion, what is the influence of government departments and regulatory agencies on the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 8 22 27 27 6 Kosovo 2 7 21 27 9 Albania 5 23 20 36 11 Serbia 3 21 29 31 7 Montenegro 5 18 32 31 5 North Macedonia 6 21 34 31 4 Bulgaria 5 27 24 26 7 Bosnia and Herzegovina 17 26 32 19 2 Croatia 21 35 24 14 1 Very negative Negative It has no influence Positive Very positive 120. Despite a somewhat low regional average of respondents who believe that existing laws have a positive influence on the business environment; 36 percent, a country by country analysis shows that large percentages of respondents in most of the countries surveyed believe that existing laws have a positive influence on the business environment. For example, 51 percent in Albania, 47 percent in Kosovo, 41 percent in North Macedonia, 40 percent in Montenegro and 37 percent in Serbia— all above the regional average and with a smaller percentage of respondents reporting that existing laws have a negative influence on the business environment. This is less true in Bulgaria, where, although 40 percent of the respondents believe that existing laws have a positive influence on the business environment (and this is above the regional average), 39 percent of the respondents also reported that existing laws have a negative influence on the business environment. 121. The majority of respondents from Bosnia and Herzegovina and Croatia believe that existing laws have a negative influence on the business environment; 51 and 55 percent respectively. For both countries, the percentage of respondents who hold this view is not only well above the regional average, 35 percent, but also significantly higher than the percentage of respondents in comparator countries who held the same view. QQ from Bosnia and Herzegovina, Micro business, Services: “We made some profit in 2017, and then in January 2018, the new regulation was established, forcing us to pay advance tax for the current year based on the profit earned last year. We are a small start-up. This tax can kill our liquidity. There is a promise of the tax return if you don’t have t he same profit, but nobody has had it returned so far.” 43 Figure 3.8: In your opinion, what is the influence of the existing laws on the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 7 28 25 33 3 Kosovo 3 9 25 44 3 Albania 6 25 18 47 4 North Macedonia 2 24 30 38 3 Montenegro 4 24 27 37 3 Serbia 2 29 28 31 6 Bulgaria 8 31 17 36 4 Bosnia and Herzegovina 16 35 30 17 0 Croatia 12 43 27 14 0 Very negative Negative It has no influence Positive Very positive 122. Respondents across the region believe that courts impact the business climate negatively; 35 percent of respondents hold this view. Conversely, only 29 percent of respondents believe that courts impact the business climate positively, while 30 percent believe that the courts have no influence. In four countries, Kosovo, Montenegro, Serbia and Bulgaria, the percentage of respondents who believe that the courts have a positive impact on the business climate is comparatively larger than the percentage of respondents in the same countries who believe that courts have a negative impact on the business environment. In all these countries, the percentage of respondents who believe that courts impact the business climate positively is higher than the regional average; 46 percent in Kosovo, 35 percent in Montenegro and Serbia and 34 percent in Bulgaria. However, the percentage of respondents in each of these countries, except Kosovo, who believe the courts have no impact on the business environment is also quite high, and in each case sits on, or is above the regional average; 35 percent for Montenegro and Serbia and 30 percent for Bulgaria. (Please see section 3 and the explanation of the figure 3.2 above for a discussion on why firms’ perception that the courts have no influence on the business environment could be emblematic of a court system that is not functioning and/or is not performing well). 123. There are more respondents in North Macedonia, Albania, Bosnia and Herzegovina and Croatia who believe that courts have a negative impact on the business environment than there are respondents who believe that courts have a positive impact on the business environment. In all these countries, the percentage of respondents who believe that courts have a negative impact on the business climate is the same as, or much higher than the regional average; 35 percent— 35 percent in North Macedonia, 40 percent in Albania, 50 percent in Bosnia and Herzegovina and 57 percent in Croatia. Again, in these four countries, the percentage of respondents who believe that courts have 44 no influence on the business environment is quite large; 36 percent in North Macedonia and 33 percent in Bosnia and Herzegovina (both countries coming in above the regional average) and 27 percent in Albania and 26 percent in Croatia (both lower than the regional average but still high). 124. It would be remiss not to note that the percentage of respondents in Bosnia and Herzegovina and Croatia who believe that courts impact the business environment negatively is large; 50 percent and 57 percent respectively. Viewed from a different lens, only 16 percent of respondents in Bosnia and Herzegovina and only 12 percent of respondents in Croatia believe that courts have a positive impact on the business environment. Figure 3.9: In your opinion, what is the influence of courts on the business environment in your country? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 8 27 30 25 4 Kosovo 2 18 21 39 7 Montenegro 1 21 35 32 3 Serbia 5 18 35 28 7 Bulgaria 6 22 30 31 3 North Macedonia 3 32 36 21 5 Albania 10 30 27 23 5 Bosnia and Herzegovina 19 31 33 15 1 Croatia 13 44 26 12 0 Very negative Negative It has no influence Positive Very positive 125. An analysis of the influence that key institutions and aspects of the justice system have on the business environment from the perspective of different types of firms confirms the results that have been emanating throughout the Chapter. Small firms (with between 10 and 49 employees), and firms where the majority is owned by domestic legal entities believe that key institutions and aspects of the justice system analyzed in this Chapter impact the business environment positively. For foreign- owned companies and firms that have court experience the opposite is true, they believe that the key institutions and aspects of the justice system discussed in this Chapter impact the business environment negatively. 45 Table 3.2: In your opinion, what is the influence of the following on the business environment in your country? Region by subgroups 126. On average, more than half of the respondents across the region reported that the situation in the justice system is not important for their business operations; 54 percent. Of the 54 percent, 20 percent reported that the system is not important at all for their business operations. Respondents in Bulgaria, Montenegro and Serbia reported in large percentages, well-above the regional average, that the situation in the justice system is not important for their business operations; 64 percent, 72 percent and 71 percent respectively. Diversely, large percentages of respondents from Albania (61 percent), Kosovo (55 percent) and Bosnia and Herzegovina (53 percent) reported that the situation in the justice system is important for their business operations, again, with the percentage of respondents in each of the countries who held this view, sitting well above the regional average; 44 percent. 127. In Croatia, 48 percent of the respondents reported that the situation in the justice system is important for their business operations; higher than the regional average (44 percent), while 51 percent reported that it is not important; lower than the regional average (54 percent). 46 Figure 3.10: Which of the following statements best describes the importance of the current situation in the justice system for your business’ operations? (All respondents - N=2832, share of total, %, mean, median) SEE 20 34 27 17 Albania 6 33 32 29 Kosovo 10 35 31 24 Bosnia and Herzegovina 14 30 30 23 Croatia 17 34 26 22 North Macedonia 17 32 28 19 Bulgaria 30 34 27 4 Montenegro 29 43 20 6 Serbia 39 32 21 6 The situation in the justice system is not important at all for my business The situation in the justice system has small importance for my business The situation in the justice system has moderate importance for my business The situation in the justice system is very important for my business 128. The results are mixed and also a bit difficult to decipher—this could, in part, be because of the non-specific way in which the question was phrased. Therefore, to better understand the findings, reference to and inference from other findings in the report are necessary. Respondents in Bulgaria, Montenegro and Serbia reported that the situation in the justice system is not important for their business operations. As Montenegro and Serbia have fared quite well in terms of firms’ general perception of the justice system and firms’ perception of the impact of the justice system on their business operations, it could be inferred that firms in these countries think that the situation in the justice system is not important for their business operations because for the most part they do not have any major complaints against the justice system and the way it is functioning. That is to say, because the justice system in these countries is not a major obstacle for firms, the situation in the justice system is not important for their business operations. 129. It is difficult to infer the same for Bulgaria, as the country has had mixed results regarding firms’ general perception of the justice system and firms’ perception of the impact of the justice system on their business operations, sometimes faring very well, other times less so, and in some cases sitting on the average mark. Because of the variance in findings, it could be inferred that because the justice system in Bulgaria neither outrightly impedes nor facilitates the business environment, firms think it is not important for their business operations. 130. Most firms in Kosovo and Albania reported that the situation in the justice system is important for their business operations. Both these countries fared reasonably well vis a vis firms’ general perception of the justice system and firms’ perception of the impact of the justice system on their business operations. We can therefore assume that firms from Kosovo and Albania are not only satisfied with the current state and influence of the justice system on their business operations, but 47 also recognize the importance of the situation in the justice system for their business operations and the role the justice system plays to facilitate and maintain a thriving business environment. For Albania, it is also possible that the high level of informality and the relatively small size of businesses in the country mean that most firms do not rely on the justice system. It is also worth noting that the seemingly positive results of the survey for Albania are inconsistent with other data sources such as the Doing Business indicator on the enforcement of contracts and the European Commission’s country reports — especially with regard to the rule of law. 131. For firms in Bosnia and Herzegovina, their general perception of the justice system and their perception of the impact of the justice system on their business operations has been consistently low. It can therefore be inferred that for firms in Bosnia and Herzegovina the situation in the justice system is important for their business operations because they realize that the existing situation negatively affects their operations, and that if the situation were improved, the justice system could have a positive effect on their operations. In other words, it is possible that firms in Bosnia and Herzegovina think that the justice system is important for their operations because they understand that it can either be a key driver in shaping the business environment or an inhibitor, depending on its performance. 132. Croatia is a classic case of “half and half”. Like Bosnia and Herzegovina, firms in Croatia’s general perception of the justice system and their perception of the impact of the justice system on their business operations has been consistently low. So, firms could have reported that the situation in the justice system is important for their business operations because they view the justice system as an obstacle to their business operations. By the same token, the firms that reported that the situation in the justice system is not important for their business operations could have done so because they do not see the value of the justice system as a catalyst for their business operations. QQ from Croatia, Big business, Trade: “If there is no common criteria for all business entities then it can have a major effect on a company’s business activity.” 133. An analysis of the results shows that the justice system is more important to medium sized firms (with more than 50 employees) (2.8 vs. 2.4) compared to micro and small firms (those with up to 9 employees and those with between 10 and 49 employees), as well as firms that have previous court experience (2.7 vs. 2.4) compared to those that do not. Large firms tend to have more complex business operations which potentially exposes them to a range of legal issues, which makes the justice system more important to them. 48 Table 3.3: Which of the following statements best describes the importance of the situation in the justice system for your business’ operations? Region by subgroups 134. A cross-analysis of the influence of the justice system on the business environment and its importance for business operations can provide an indication of where reform is needed in the countries surveyed (please see Figures 3.11 and 3.12 below). When questions of the perceived effect of the justice system on the business environment and actual importance for business operations are taken together, we can cluster the countries surveyed into three groups based on the findings: • Firms in Albania, Kosovo and North Macedonia perceive the justice system to be important and believe that it has a positive influence on the business environment. • Firms from Bulgaria, Montenegro and Serbia believe that the justice system has a positive effect on the business climate, but do not find it particularly important for their business operations. • Firms from the last group of countries; Croatia and Bosnia and Herzegovina, reported that the justice system has a negative effect on the business environment and is very important for their business operations. 49 Figure 3.11: Influence & Importance Matrix Figure 3.12: Influence & Importance Matrix Basic information about analysis 50 4. PROBLEMS BUSINESSES FACE AND HOW THEY ADDRESS THEM 135. To understand the experiences of firms and to provide context on the challenges that firms face vis a vis the justice system, the survey asked questions on the firms’ perception of problems related to the justice system, problems that firms have faced in recent years, and how they attempted to resolve the problems. The responses help us to understand the most common challenges faced by firms and how they address them. CHAPTER HIGHLIGHTS The findings demonstrate that by and large, the justice system does not influence key aspects of a firm’s operations. One of the aspects where a relatively large percentage of respondents were of the view that the current situation in the justice system has a negative influence is operational costs. The most common challenge faced by firms is the collection of payments due from other businesses. However, this particular challenge, and others are not regarded as severe. The findings show that in the last three years, 30 percent of respondents experienced problems with collecting payments due from other businesses. Other challenges identified by respondents included: the application of labor regulations; fulfilment of non-monetary obligations and paying government levies, such as taxes, customs duties and contributions. Businesses prefer to resolve legal problems outside of the court system. In fact, businesses only resort to the courts in situations where negotiations are unsuccessful (82 percent of firms attempted to resolve their legal problems through direct negotiations before resorting to the courts). Almost 90 percent of the respondents reported that they found direct negotiations and mediation to be effective, while only about 60-70 percent of respondents found courts to be effective, depending on the legal problem in question. Interviews and focus group discussions revealed that generally, firms prefer not to go to court to solve problems as they find the courts to be slow, ineffective, inefficient, and resource and time consuming. 4.1. PERCEPTION OF HOW THE JUSTICE SYSTEM AFFECTS CERTAIN ASPECTS OF A BUSINESS’ OPERATIONS 136. At the regional level, it is difficult to conclude whether or not the justice system influences key aspects of a firm’s operations because the results were so varied. For example, at the regional level, 45 percent of the respondents reported that the current situation in the justice system has no influence on the business’ stability and security, 57 percent reported the same for the competitiveness of their firms, 58 percent for access and cost of financing and 54 percent for the business’ growth and ability to expand. The number of employees is an aspect of a firm’s business operations where the largest percentage of respondents reported that the current situation in the justice system has no influence; 69 percent. In each case, the percentage of respondents who believe that the current situation in the justice system has no influence on key aspects of a firm’s business operations is much larger than the percentage of respondents who think it either has a positive or a negative influence. For instance, 27 percent of respondents are of the view that the current situation in the justice system positively influences their business’ operations in general, only 18 percent believe that it has a negative influence, while 53 percent of the respondents believe that it has no influence. 51 Figure 4.1.1: How does the current situation in the justice system affect the following aspects of your business’ operations? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE My business’s operations 3 15 53 23 4 in general The number of employees 3 9 69 14 3 Business stability and 5 19 45 25 4 security The competitiveness of 3 16 57 17 4 my business Business growth and 3 18 54 18 4 ability to expand Access and cost of 2 17 58 16 3 financing Operational costs 5 19 54 14 4 Very negatively Negatively It has no influence Positively Very positively 137. One of the aspects where a relatively large percentage of respondents were of the view that the current situation in the justice system has a negative influence is operational costs; 24 percent of the respondents held this view. In every country, participants in the focus group discussions and in- depth interviews were very keen to discuss this topic and a significant amount of time was devoted to discussing this aspect. Participants explained that increases in operational costs are primarily associated with existing labor laws and regulations, often complaining about the abuse of sick or maternity leave and inflexibility in the recruitment and dismissal of workers. QQ from North Macedonia, Large business, Services: “There is the law obligation to pay a person who is on sick leave. That allows them to stay at home if they do not want to work. Once you give them a permanent contract, it is not easy to terminate the employment relationship, even in case when they obviously misuse the system. ” QQ from Serbia, Micro business, Services: “I don’t want to take anyone from the Employment Bureau because I have to keep that employee for two years. This job is specific in that it’s not for everyone, and I’m obliged to keep him or her even in case it’s obvious that he/she doesn’t perform his/her job well and doesn’t bring me any profit.” 138. The findings of a country-by-country analysis of how the current situation in the justice system affects a firm’s business operation in general, mirror the findings at the regional level in that in each of the SEE countries surveyed, except Albania, the largest percentage of respondents 52 reported that the current situation in the justice system has no influence on the firm’s business operations in general. There are a few noteworthy variations; for instance, a relatively large percentage of respondents from Kosovo and Albania; 37 and 43 percent respectively, are of the view that the current situation in the justice system positively affects their business operations in general. In the case of Albania, the percentage of respondents who believe this is much higher than the percentage of respondents who are of the view that the current situation has no influence; 34 percent believe it has no influence while 43 percent believe it has a positive influence. 139. While the percentage of respondents in Bosnia and Herzegovina and Croatia who believe that the current situation in the justice system has no influence on their business operations in general is similarly large, compared to the other countries, the largest percentage of respondents who reported that the current situation negatively influences their business operations in general came from these two countries; 27 percent in Bosnia and Herzegovina and 25 percent in Croatia. Figure 4.1.2: How does the current situation in the justice system affect your business’ operations in general? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 3 15 53 23 4 Kosovo 2 10 44 32 5 Albania 2 18 34 36 7 North Macedonia 2 9 58 27 4 Bulgaria 1 16 50 24 3 Serbia 3 12 55 22 4 Montenegro 0 13 69 17 1 Bosnia and Herzegovina 5 22 48 16 6 Croatia 5 20 64 9 0 Very negatively Negatively It has no influence Positively Very positively 140. Again, the current situation of the justice system in each country is deemed, by respondents, to have no influence on the number of employees in a firm. In each country, a large percentage of the respondents, always well over 50 percent, and in the case of Montenegro, 85 percent, were of this view. Reiteratively, Kosovo and Albania were the two countries with the largest percentage of respondents who believe that the current situation in the justice systems positively affects the number of employees in a firm; 27 and 31 percent respectively. Croatia and Bosnia and Herzegovina were once again the two countries with the largest percentage of respondents who believe that the current situation in the justice systems negatively affects the number of employees in a firm; 21 and 16 percent respectively. 53 Figure 4.1.3: How does the current situation in the justice system affect the number of employees in your firm? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 3 9 69 14 3 Kosovo 4 6 59 23 4 Albania 3 12 54 27 4 Serbia 1 5 74 9 7 North Macedonia 2 7 70 16 4 Bulgaria 1 4 76 12 3 Montenegro 1 7 85 80 Bosnia and Herzegovina 8 12 62 13 3 Croatia 4 17 69 62 Very negatively Negatively It has no influence Positively Very positively 141. Regionally, 29 percent of the respondents are of the view that the current situation in the justice system positively affects the stability and security of their firm. A sizeable percentage of respondents from four of the eight countries surveyed concur with this view, and in each of these countries, the percentage of respondents is higher than the regional average; 42 percent in Kosovo, 50 percent in Albania, and 30 percent in both North Macedonia and Bulgaria. The lowest percentage of respondents who believe that the current situation in the justice system positively affects the stability and security of their firm is from Croatia; 11 percent. 54 Figure 4.1.4: How does the current situation in the justice system affect your business’ stability and security? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 5 19 45 25 4 Kosovo 3 15 35 34 8 Albania 5 19 26 44 6 North Macedonia 4 16 50 24 6 Bulgaria 2 20 43 27 3 Serbia 5 13 52 22 4 Montenegro 2 14 62 22 0 Bosnia and Herzegovina 5 25 46 16 6 Croatia 11 27 50 10 1 Very negatively Negatively It has no influence Positively Very positively 142. Regionally, the influence of the current situation in the justice system on the competitiveness of businesses in SEE is marginal, with 57 percent of the respondents reporting that the current situation has no influence. This is also true at the country level, where in almost all the countries, except for Kosovo and Albania, more than 50 percent of the respondents reported that the current situation in the justice system has no influence on the competitiveness of businesses. In Montenegro, the percentage of respondents who held this view were as high as 81 percent. A relatively large percentage of respondents in Kosovo and Albania; 33 and 36 percent respectively and both above the regional average (21 percent), were of the view that the current situation in the justice system positively affects the competitiveness of their businesses. Conversely, a relatively large percentage of respondents in Croatia and Bosnia and Herzegovina; 29 and 27 percent respectively and both above the regional average (19 percent), were of the view that the current situation in the justice system negatively affects the competitiveness of their businesses. 55 Figure 4.1.5: How does the current situation in the justice system affect the competitiveness of your business? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 3 16 57 17 4 Kosovo 1 11 48 26 7 Albania 4 17 42 33 3 North Macedonia 2 17 58 15 8 Bulgaria 2 17 51 19 3 Serbia 4 15 58 15 5 Montenegro 2 6 81 10 0 Bosnia and Herzegovina 6 21 53 13 3 Croatia 7 22 62 61 Very negatively Negatively It has no influence Positively Very positively 143. In an interview, a firm from Bosnia and Herzegovina gave a striking example of how the justice system affects competitiveness. According to the firm, some firms do not pay taxes and other financial obligations, which is tolerated by the state. They can therefore offer lower prices for products or services, which threatens the existence and sustainability of the firms who do business in accordance with the law. QQ from Bosnia and Herzegovina, Medium business, Services: “So, there is disloyal competition that should meet minimum requirements and that is never checked by inspections. They have a better position on the market, although they do not meet the standards and requirements demanded by vendors. This makes operations of healthy businesses difficult. We, as a company that needs to have ISO certificates and meet certain standards demanded in our industry, invest about 200.000 euros every year, we start with the expenses. Companies operating illegally don’t have that expense and are initially more competitive by 10-15% than us.” 144. Once more, firms in the SEE countries surveyed do not believe that the current situation in the justice system has an influence on the growth of their business or its ability to expand. Countries where the largest percentage of respondents are of the view that the current situation in the justice system positively affects the growth of their business or its ability to expand are Kosovo, Albania, Serbia and Bulgaria; 35 percent in Kosovo, 30 percent in Albania, 23 percent in Serbia and 22 percent in Bulgaria. In these countries, the percentage of respondents who believe this are higher than or equal to the regional average; 22 percent. Interestingly, Kosovo and Albania also have a relatively large percentage of respondents who believe that the current situation in the justice system negatively affects the growth of their business or its ability to expand; 23 percent in Kosovo and 27 percent in Albania, and both above the regional average; 21 percent. Croatia (27 percent) and Bosnia and Herzegovina (31 percent) are also above the regional average in terms of the percentage of 56 respondents who believe that the current situation in the justice system negatively affects the growth of their business or its ability to expand. Figure 4.1.6: How does the current situation in the justice system affect your business’ growth and ability to expand? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 3 18 54 18 4 Kosovo 2 21 40 30 5 Bulgaria 1 14 59 18 4 Serbia 3 15 55 16 7 Montenegro 0 13 70 16 1 Albania 5 22 41 25 5 North Macedonia 2 18 60 16 3 Bosnia and Herzegovina 6 21 48 17 5 Croatia 6 25 58 8 1 Very negatively Negatively It has no influence Positively Very positively 145. At the regional level and among the countries surveyed, most respondents were of the view that the current situation in the justice system has no influence on their firm’s access to and cost of financing. 58 percent of respondents at the regional level held this view, while over 50 percent of the respondents in each of the countries, except Kosovo and Montenegro, held this view. In Montenegro, the percentage of respondents who believe that the current situation in the justice system has no influence on their firm’s access to and cost of financing was as high as 73 percent. Bulgaria, Kosovo, North Macedonia and Albania are the countries where a relatively high percentage of respondents believe that the current situation in the justice system positively influences their firm’s access to and cost of financing; 23 percent, 26 percent, 23 percent and 28 percent respectively. The percentage of respondents in Albania who were of the view that the current situation in the justice system negatively influences their firm’s access to and cost of financing was almost as high, 27 percent, as those who believe that the influence is positive. Other countries where a relatively large percentage of respondents were of the view that the current situation in the justice system negatively influences their firm’s access to and cost of financing were Bosnia and Herzegovina and Croatia; both 26 percent and both above the regional average — 19 percent. 57 Figure 4.1.7: How does the current situation in the justice system affect access and cost of financing of your business? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 2 17 58 16 3 Bulgaria 1 11 59 18 5 Kosovo 1 17 49 21 5 North Macedonia 1 18 57 19 4 Montenegro 0 11 73 15 0 Albania 3 24 44 24 4 Serbia 3 16 57 18 2 Bosnia and Herzegovina 3 23 59 10 2 Croatia 6 20 64 8 2 Very negatively Negatively It has no influence Positively Very positively 146. While it is true that across the region most firms (54 percent) were of the view that the current situation in the justice system has no influence on their operational costs, and the situation is analogous in the individual countries surveyed, there are some countries where relatively large percentages of respondents were of the view that the current situation in the justice system negatively influences their operational costs. These are Albania and Serbia (both 24 percent and sitting right on the regional average), Bosnia and Herzegovina (35 percent), Montenegro (30 percent) and Croatia (42 percent and significantly higher than the regional average). In Albania, the same percentage of respondents who believed that the current situation in the justice system negatively influences their operational costs (24 percent) was almost the same as the percentage of respondents who believed that it positively influenced their operational costs (25 percent). 58 Figure 4.1.8: How does the current situation in the justice system affect operational costs of your business? (All respondents - N=2832, scores are on a scale of 1 to 5 where 1 means very negatively, 3 means it has no influence and 5 means very positively, share of total, %, mean, median) SEE 5 19 54 14 4 Bulgaria 0 10 63 13 5 Kosovo 2 11 53 18 5 North Macedonia 3 12 65 15 5 Albania 5 19 51 20 6 Serbia 7 17 54 14 4 Bosnia and Herzegovina 8 27 41 15 6 Montenegro 4 26 55 14 0 Croatia 11 31 49 71 Very negatively Negatively It has no influence Positively Very positively 147. It would be useful to get a better understanding of why such large percentages of respondents reported that the current situation in the justice system does not affect key aspects of their business operations; in particular access to and cost of financing, growth and ability to expand, and competitiveness. The aforementioned aspects are integral to a business’ operations and are directly influenced by a country’s legal context. It is therefore curious that relatively large percentages of respondents believe that the situation in the justice system has no influence on these key elements, yet in Chapter 3, the findings demonstrated that a larger percentage (38 percent) of respondents reported that they believe that the justice system has a negative impact on the business environment than those who did not (27 percent). One would think that if the justice system has a negative impact on the business environment in general, it would also affect key aspects of a business’ operations negatively. Unfortunately, the Survey questionnaire did not contain follow-up questions that could enable us to analyze the reasons underpinning this contradiction. That said, this is an important area, worthy of further investigation and it would be beneficial for future surveys to seek to understand why most firms in the region believe that the justice system has no influence on specific aspects of their business operations. 148. An analysis of how different types of firms view the effect of the current situation in the justice system on key aspects of their business operations shows that firms with prior court experience are more likely to believe that the influence is not positive. On the other hand, firms that are majority owned by domestic legal entities seem to believe that the effect of the current situation in the justice system on key aspects of their business operations is positive. 59 Table 4.1.1: How does the current situation in the justice system affect the following aspects of your business’ operations? Region by subgroups 4.2. PERCEPTION OF HOW OFTEN BUSINESSES FACE CERTAIN PROBLEMS 149. According to the respondents, the three most common problems faced by firms in SEE are collecting payments due from other business entities (56 percent), problems related to labor laws and regulations (55 percent) and collecting payments due from the state (49 percent). Problems related to violations of property rights (both immovable and movable), the safety and security of employees and assets and problems related to the infringement of intellectual property rights are less common; with 59 percent, 61 percent and 60 percent of the respondents, respectively, reporting that they are rare or very rare. 60 Figure 4.2.1: In your opinion, how often do business entities in your country face the following problems? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare 11, share of total, %, mean, median) SEE Problems between two business entities related to collecting due payments 19 37 27 12 Problems related to labor laws and regulations 17 38 27 13 Problems related to the collection of payments due by the state to business… 15 34 28 15 Problems related to the payment of other financial obligations towards the state 12 33 31 18 Problems between two business entities related to the non-fulfillment of… 10 32 32 17 Problems between the state and business entities related to the non-fulfillment of… 9 30 33 17 Problems that arise as a result of improper performance of duties by various state… 10 28 32 20 Problems that arise as a result of a relationship/interaction with a state… 7 26 36 20 Problems related to violations of property rights over movable or immovable property 6 23 36 23 Problems related to the safety and security of employees and assets 6 23 39 22 Problems related to infringements of intellectual property rights 5 19 35 25 Very often Often Rarely Very rarely 150. Challenges with collecting payments due from other entities are perennial, with 56 percent of the respondents at the regional level reporting that they face this challenge often. The problem is particularly serious in Croatia (78 percent), Serbia (63 percent), Montenegro (73 percent) and Bosnia and Herzegovina (57 percent); with all these countries falling well above the regional average. Of the 78 percent of respondents from Croatia who reported that collecting payments due from other entities is a problem, 35 percent reiterated that they faced this problem “very often”. Bulgaria and North Macedonia were not too far from the regional average, with 54 and 55 percent of the respondents, respectively, from these countries reporting that collecting payments due from other entities is a common problem. The situation is less severe in Albania and Kosovo where only 39 and 31 percent of the respondents reported that this is a problem that occurs often. 11 In contrast to the other questions, results are given in ascending order to emphasize the most burdensome issues. 61 Figure 4.2.2: In your opinion, how often do business entities in your country face problems between two business entities related to collecting due payments? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 19 37 27 12 Croatia 35 43 16 2 Montenegro 22 51 19 6 Serbia 25 38 25 8 Bosnia and Herzegovina 26 31 26 13 Bulgaria 17 37 22 14 North Macedonia 14 41 29 11 Albania 9 30 36 21 Kosovo 5 26 42 21 Very often Often Rarely Very rarely 151. Challenges related to labor laws and regulations are common throughout the region but more so in Croatia and Montenegro where 72 percent and 80 percent of the respondents reported that this was a problem that they faced often. In both countries, of the respondents who reported this, 29 percent were of the view that the problem occurs “very often”. The percentage of respondents from Bulgaria who reported having faced challenges related to labor laws and regulations was also relatively high (56 percent) and above the regional average — 55 percent. The percentage of respondents who thought the same was similarly high in the other countries; 51 percent in both Bosnia and Herzegovina and Albania. This problem is least common in Serbia where only 41 percent of the respondents reported that they faced it often. 62 Figure 4.2.3: In your opinion, how often do business entities in your country face problems related to labor laws and regulations (employment and lay-offs of workers)? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 17 38 27 13 Montenegro 29 51 12 3 Croatia 29 43 20 5 Bulgaria 15 41 26 13 Bosnia and Herzegovina 17 34 36 11 Albania 10 41 27 16 Kosovo 18 28 25 22 North Macedonia 11 32 33 21 Serbia 6 35 41 14 Very often Often Rarely Very rarely 152. Challenges with the collection of payments due from the state are prevalent in Croatia, with 71 percent of respondents reporting that they face this problem often. Of the 71 percent, 32 percent of the respondents reported that they faced this problem “very often”. This particular problem is also common in Bosnia and Herzegovina, Bulgaria and Serbia where in each of these countries 52 percent of the respondents were of the view that this problem occurs often. In all these countries, the percentage of respondents who believe that this is a common problem is above the regional average; 49 percent. The problem is less common in Montenegro (42 percent), Albania (41 percent) and North Macedonia (42 percent), but not significantly so. The problem is least common in Kosovo, where only 34 percent of the respondents reported that they face problems related to the collection of payments due from the State. Figure 4.2.4: In your opinion, how often do business entities in your country face problems related to the collection of payments due by the state to business entities? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 15 34 28 15 Croatia 32 39 17 7 Bosnia and Herzegovina 24 28 30 13 Bulgaria 10 42 21 16 Serbia 9 43 29 14 Montenegro 11 31 37 11 Albania 10 31 26 18 North Macedonia 13 29 30 20 Kosovo 7 27 30 24 Very often Often Rarely Very rarely 63 153. Firms in Croatia face problems related to the payment of other financial obligations towards the state such as taxes, customs, duties and contributions often; 58 percent of respondents were of this view. Likewise, the problem is quite common in Serbia, Montenegro, Kosovo, and Albania where large percentages of respondents; 53 percent, 52 percent, 48 percent, and 47 percent respectively reported that they faced problems related to the collection of other financial obligations towards the state such as taxes, customs, duties and contributions often. In each of these countries, the percentage of respondents who were of this opinion was higher than the regional average; 45 percent. Bulgaria was slightly below the regional average — 44 percent. The problem is least common in North Macedonia (27 percent), followed by Bosnia and Herzegovina (31 percent). Figure 4.2.5: In your opinion, how often do business entities in your country face problems related to the payment of other financial obligations towards the state (taxes, customs, duties, contributions)? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 12 33 31 18 Croatia 19 39 26 12 Serbia 14 39 28 13 Montenegro 11 41 37 9 Kosovo 15 33 29 15 Albania 10 37 28 16 Bulgaria 7 37 25 20 Bosnia and Herzegovina 9 22 34 29 North Macedonia 8 19 37 27 Very often Often Rarely Very rarely 154. According to responses, the non-fulfillment of contractual obligations between firms (other than the collection of payments due) is most common in Croatia (60 percent), Montenegro (54 percent), Serbia (45 percent), Bulgaria (44 percent) and Bosnia and Herzegovina (45 percent), all above the regional average — 42 percent. The problem is less common in North Macedonia (34 percent), Albania (33 percent) and Kosovo (25 percent). In fact, in Kosovo, 66 percent of the respondents were of the opinion that the non-fulfillment of contractual obligations between firms (other than the collection of payments due) is rare. 64 Figure 4.2.6: In your opinion, how often do business entities in your country face problems between two business entities related to the non-fulfillment of contractual obligations other than collection of payments due? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 10 32 32 17 Croatia 15 45 28 5 Montenegro 8 46 28 9 Serbia 13 32 33 15 Bulgaria 12 32 25 18 Bosnia and Herzegovina 14 31 32 18 North Macedonia 8 26 35 22 Albania 9 24 34 23 Kosovo 2 23 40 26 Very often Often Rarely Very rarely 155. In Croatia, the problem of non-fulfillment of contractual obligations (other than collection of payments) between firms is just as common as the problem of non-fulfillment of contractual obligations (other than collection of payments) between firms and the state, with 61 percent of the firms reporting that this problem occurred often. While less severe, the same problem is prevalent in Bulgaria (43 percent), Bosnia and Herzegovina (41 percent), Montenegro (41 percent) and Serbia (40 percent), and all above the regional average — 39 percent. Again, the problem is less common in North Macedonia (30 percent) and least common in Kosovo (25 percent). Figure 4.2.7: In your opinion, how often do business entities in your country face problems between the state and business entities related to the non-fulfillment of contractual obligations other than collection of due payments? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 9 30 33 17 Croatia 19 42 25 7 Bulgaria 10 33 27 16 Bosnia and Herzegovina 12 29 36 16 Montenegro 5 36 35 14 Serbia 9 31 34 19 Albania 6 28 32 17 North Macedonia 8 22 37 21 Kosovo 3 22 42 24 Very often Often Rare Very rare 65 156. Problems that arise as a result of improper performance of duties by various state and/or local institutions and their officials follow a similar trend; they are most common in Croatia, with 60 percent of the respondents reporting that these problems occur often. 47 percent of respondents from Montenegro and 39 percent of respondents from Serbia reported the same. For both these countries, the percentage of respondents who were of this opinion was higher than the regional average; 38 percent. For the other countries, Bosnia and Herzegovina (36 percent), Albania (34 percent), North Macedonia (29 percent) and Kosovo (20 percent), the percentage of respondents who were of this opinion was lower than the regional average, and for Bulgaria (38 percent) it was the same as the regional average. Figure 4.2.8: In your opinion, how often do business entities in your country face problems that arise as a result of improper performance of duties by various state and/or local institutions and their officials? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 10 28 32 20 Croatia 25 35 27 9 Montenegro 10 37 37 10 Serbia 6 33 40 13 Bosnia and Herzegovina 11 25 36 21 Bulgaria 7 31 27 22 Albania 8 26 25 22 North Macedonia 7 22 31 30 Kosovo 3 17 32 30 Very often Often Rarely Very rarely 157. Across the region, more than half of the respondents; 56 percent, reported that problems that arise as a result of a relationship/interaction with a state and/or local institutions and their officials are rare. Of the 56 percent, 20 percent reported that such problems are “very rare”. Among the countries surveyed, the problem is most common in Croatia then Bulgaria, where 57 percent and 42 percent of the respondents respectively, reported that the problem occurred often, or very often. The problem is least common in Kosovo where only 15 percent of the respondents reported that the problem occurs often or very often. 66 Figure 4.2.9: In your opinion, how often do business entities in your country face problems that arise as a result of a relationship/interaction with a state and/or local institutions and their officials? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 7 26 36 20 Croatia 18 39 30 8 Bulgaria 7 35 28 20 Montenegro 7 27 41 16 Serbia 7 26 42 18 Albania 7 24 32 24 Bosnia and Herzegovina 6 21 42 22 North Macedonia 4 20 35 30 Kosovo 2 13 40 25 Very often Often Rare Very rare 158. Across the region, problems related to the safety and security of employees and assets are uncommon; 61 percent of respondents reported that these problems are rare. The trend is similar in each of the countries surveyed; the problem is most rare in North Macedonia, where 76 percent of respondents reported that problems related to the safety and security of employees and assets are rare. Of the 76 percent, 32 percent were of the view that these problems are “very rare”. Relatively high percentages of respondents from Montenegro (68 percent), Serbia (66 percent) and Bosnia and Herzegovina (65) reported the same. In Albania, Kosovo, Bulgaria and Croatia, the problem is still quite uncommon but is more prevalent than in the other countries surveyed, with the percentage of respondents from each of these countries who reported that this problem is rare, coming in lower than the regional average (61 percent) but still above 50 percent. For Albania and Kosovo —52 percent, Bulgaria —57 percent and Croatia —51 percent. Figure 4.2.10: In your opinion, how often do business entities in your country face problems related to the safety and security of employees and assets? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 6 23 39 22 Croatia 10 32 41 10 Albania 10 23 29 23 Kosovo 6 23 32 20 Bosnia and Herzegovina 9 21 40 25 Bulgaria 5 26 34 23 Serbia 4 23 44 22 Montenegro 3 20 45 23 North Macedonia 2 14 44 32 Very often Often Rarely Very rarely 67 159. The violation of property rights (immovable/movable) is not a prevalent problem among firms in SEE—59 percent of the respondents reported that this problem was not common. This is also true among the individual countries surveyed with more than 50 percent of the respondents in every country reporting that they rarely faced this problem. In fact, the percentage of respondents from Bosnia and Herzegovina (65 percent), Serbia (66 percent), Montenegro (68 percent) and North Macedonia (76 percent) who thought this problem was rare was higher than the regional percentage. The percentage of respondents from Croatia, Albania and Kosovo who held this view were less than the regional average; 51 percent and 52 percent respectively. Figure 4.2.11: In your opinion, how often do business entities in your country face problems related to violations of property rights over movable or immovable property? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 6 23 36 23 Croatia 13 30 38 13 Albania 8 32 29 19 Bulgaria 9 26 28 26 Bosnia and Herzegovina 9 22 40 25 Serbia 4 26 38 22 Montenegro 4 20 42 21 Kosovo 2 16 34 24 North Macedonia 3 14 41 34 Very often Often Rarely Very rarely 160. For the respondents representing firms across the region, problems related to the infringement of intellectual property rights are few and far between—59 percent of respondents reported that this problem is rare, and among those 23 percent were of the opinion that this problem was “very rare”. The problem is most infrequent in North Macedonia where according to 76 percent of the respondents the problem is rare. Among the countries surveyed, the problem is still rare but more common in Croatia, Kosovo and Bulgaria, where only 52 percent, 50 percent and 53 percent of the respondents, respectively, reported that the problem was rare. For these three countries, the percentage of respondents who were of this opinion was lower than the regional average — 59 percent. 68 Figure 4.2.12: In your opinion, how often do business entities in your country face problems related to infringements of intellectual property rights? (All respondents - N=2832, scores are on a scale of 1 to 4 where 1 means very often and 4 means very rare, share of total, %, mean, median) SEE 5 19 35 25 Croatia 9 28 39 13 Kosovo 2 24 31 19 Bulgaria 6 24 23 30 Serbia 3 17 45 18 Albania 7 14 27 25 Bosnia and Herzegovina 7 16 41 28 Montenegro 3 16 40 24 North Macedonia 3 13 34 42 Very often Often Rarely Very rarely 161. The range of problems discussed in this Chapter occur more frequently for firms that operate outside the capital city and for firms with previous court experience than they do for firms that operate in the capital city and for firms without court experience. The frequency of the problems also seems to increase with the size of the firm, with firms that employ more than 50 employees facing some of the problems, especially the collection of payments due, more often than firms that employ a smaller number of employees. Also, firms that provide services experience the problems discussed in this Chapter more regularly than firms in the trade and manufacturing industries. Table 4.2.1: In your opinion, how often do business entities in your country face the following problems? SEE Region by subgroups Majority Majority Majority Between 50 and Sole Limited Joint- owned by Without Up to 9 Manufact Partnersh owned by owned by With court Mean Total employees 10 and 49 more uring Trade Services Proprieto Liability stock ip Other domestic domestic foreign experience court Capital Rest employees employees r Company Company individual or experience individual legal entity legal entity Base 2832 1417 855 560 751 1196 885 729 1720 136 125 122 2318 371 143 632 2200 964 1868 Problems between two business entities related to collecting due 2.3 2.4 2.2 2.1 2.3 2.4 2.3 2.5 2.2 2.2 2.7 2.1 2.3 2.3 2.3 2.0 2.4 2.6 2.2 payments Problems related to labor law and regulations (employment and lay- 2.4 2.4 2.3 2.3 2.4 2.4 2.3 2.5 2.3 2.6 2.5 2.0 2.4 2.5 2.6 2.2 2.4 2.6 2.3 offs of workers) Problems related to the collection payments due by the state to 2.5 2.5 2.5 2.4 2.5 2.6 2.4 2.5 2.5 2.4 2.5 2.3 2.5 2.6 2.4 2.2 2.5 2.7 2.4 business entities Problems related to the payment of other financial obligations 2.6 2.6 2.6 2.7 2.7 2.6 2.5 2.5 2.7 2.8 2.3 2.6 2.6 2.6 2.7 2.5 2.6 2.7 2.5 towards the state (taxes, customs, duties, contributions) Problems between two business entities related to the non- fulfillment of contractual 2.6 2.6 2.6 2.4 2.6 2.6 2.6 2.7 2.6 2.6 2.5 2.6 2.6 2.6 2.7 2.4 2.6 2.8 2.5 obligations other than collection of due payments Problems between the state and business entities related to the non-fulfillment of contractual 2.6 2.6 2.7 2.5 2.7 2.7 2.6 2.7 2.6 2.6 2.6 2.6 2.6 2.6 2.6 2.4 2.7 2.9 2.5 obligations other than collection of due payments 69 Majority Majority Majority Between 50 and Sole Limited Joint- owned by Without Up to 9 Manufact Partnersh owned by owned by With court Mean Total employees 10 and 49 more uring Trade Services Proprieto Liability stock ip Other domestic domestic foreign experience court Capital Rest employees employees r Company Company individual or experience individual legal entity legal entity Base 2832 1417 855 560 751 1196 885 729 1720 136 125 122 2318 371 143 632 2200 964 1868 Problems that arise as a result of improper performance of duties 2.7 2.7 2.7 2.7 2.7 2.7 2.6 2.7 2.6 2.9 3.1 2.6 2.7 2.8 2.7 2.4 2.7 2.9 2.6 by various state and/ or local institutions and their officers Problems that arise as a result of relationship/interaction with the 2.8 2.8 2.8 2.7 2.9 2.8 2.7 2.8 2.7 3.0 3.0 2.8 2.8 2.9 2.8 2.6 2.8 2.9 2.7 state and/or local institution and their officials. Problems related to violation of property rights over movable or 2.9 2.8 2.9 2.8 3.0 2.8 2.8 2.8 2.9 3.0 2.8 2.9 2.9 2.8 2.9 2.7 2.9 3.0 2.8 immovable property Problems related to the safety and security of employees and 2.9 2.8 3.0 2.8 2.9 2.9 2.8 2.8 2.9 3.0 2.7 2.8 2.8 3.0 2.8 2.7 2.9 3.0 2.8 assets Problems related to infringement 2.9 2.9 3.0 3.0 3.1 3.0 2.9 2.9 3.0 3.1 2.7 3.0 2.9 2.9 3.0 2.8 3.0 3.1 2.9 of intellectual property rights Level of confidence Statistically significantly higher than total 95% 90% Statistically significantly lower than total 95% 90% 4.3. WAYS TO RESOLVE PROBLEMS: PERCEPTION 162. Across the region, the most common way firms solve problems is through direct negotiation with the other party — 79 percent of respondents ranked this option as the one that occurs most frequently. Only 41 percent of the respondents ranked the courts as the most frequent avenue to resolve problems. Mediation emerged as the third most common way to solve problems, with 27 percent of the respondents ranking this option as the one most frequently used by firms. Although the percentage of respondents who see informal payments or gifts and political influence and other personal contacts and favors as common ways of resolving problems is relatively small; 17 percent and 16 percent respectively, these two aspects are among the top five options commonly used to resolve problems by firms in SEE. Figure 4.3.1: Please rank the following options for solving problems in terms of how commonly they are used by businesses. (All respondents - N=2832, ranks are on a scale of 1 to 8 where 1 means the most frequently used and 8 means the least frequently used, share of total, mean) 7 7 6 17 16 27 41 26 79 49 64 70 68 59 51 68 35 29 15 22 9 15 15 5 Direct negotiations Court Mediation Informal payments Arbitration Political influence Publicising the Threat of force or with the other or gifts to make or personal problem in the use of force or party the problem go contacts and media intimidation of the away favours other than other party payments and gifts to make the Top ranked options (ranks 1 and 2) problem go away Medium ranked options (ranks 3 - 6) Bottom ranked options (ranks 7 and 8) 70 163. A country by country analysis shows that solving problems through direct negotiations with the other party is common in North Macedonia, Kosovo and Croatia (all 1.8). This approach is most common in Bosnia and Herzegovina and Bulgaria (both 1.7) but is less common in Serbia (2.0) and Montenegro (2.1), and least common in Albania (2.7). Comparatively, resolving problems through the courts is less common, as a first option, across all the countries surveyed— all countries had a rank of 3.0 or more. Using the courts to resolve problems is more common in Bosnia and Herzegovina (3.0) and Serbia (3.1) and less common in Croatia (3.9) and Kosovo (3.8). The use of mediation to resolve problems is most common in Kosovo (3.1) then Albania (3.4) and less common in Bulgaria (4.7). Generally, using informal payments or gifts to resolve problems is not common. When it does occur, according to the data collected, it happens most in Albania (4.2) and Bulgaria (4.3) and least in Montenegro (4.9) and Kosovo (5.0). The use of political influence or personal contacts and favors is also uncommon among the countries surveyed. The highest incidences of using political influence or personal contacts and favors were reported in Croatia (4.6). This approach is least common in Bosnia and Herzegovina (5.6). Table 4.3.1: Please rank the following options for solving problems in terms of how commonly they are used by businesses.12 By countries Bosnia and North Median SEE Albania Herzegovina Bulgaria Croatia Kosovo Montenegro Macedonia Serbia Direct negotiations with the other party 1 1 1 1 1 1 1 1 1 Court 3 4 2 3 3 3 3 3 3 Mediation 3 3 3 4 4 3 4 3 4 Arbitration 5 5 4 5 5 5 4 5 5 Informal payments or gifts to make the problem go away 5 4 5 5 5 5 5 5 5 Publicising the problem in the media 6 6 6 5 6 6 5 6 6 Political influence or personal contacts and favours other 6 6 7 6 5 5 5 5 5 than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other 8 8 8 7 8 7 8 7 7 party 12 In contrast to the other questions, the green mark does not mean statistically significantly higher, but statistically significantly rarer option. 71 164. An analysis of how different types of firms resolve problems shows that limited liability companies and, small and medium sized firms that employ between 10 and 49 employees, and 50 employees or more, respectively are more likely to solve problems through direct negotiation with the other party, scoring 1.8, 1.6 and 1.8, respectively. Conversely, relatively smaller firms, that employ up to 9 employees and partnerships are less likely to solve a problem through direct negotiation with the other party; scoring 2.0 and 2.3, respectively. Firms with previous court experience, where the majority shares are owned by a domestic legal entity and limited liability companies are more likely to use the courts to resolve problems, ranking 3.1, 3.1 and 3.3, respectively. Sole Proprietors and partnerships are less likely to approach the courts to resolve a problem. Instead, partnerships are more likely to use mediation (3.2), alongside firms that operate in the capital (3.8). Informal payments and gift giving to resolve problems are most common among small firms that employ up to 9 employees, in the trade industry, among Sole Proprietors and firms that operate outside the capital, all ranking (4.5). Table 4.3.2: Please rank the following options for solving problems in terms of how commonly they are used by businesses. Region by subgroups of firms 4.4. EXPERIENCES WITH PROBLEMS RELATED TO THE JUSTICE SYSTEM 165. To a large extent, firms’ actual experiences with problems related to the justice system are synonymous with their perceptions which are documented in the previous section. The problem most frequently experienced by firms is collecting payments due from other business entities; regionwide, 30 percent of the respondents reported that they had experienced this problem in the last three years. Problems related to labor laws and regulations are also common— 18 percent of respondents at the regional level reported that they had experienced this problem, as are problems with other business entities related to the non-fulfillment of contractual obligations (other than the collection of payments due). 12 percent of the respondents reported that they had experienced this problem in the last three years. It would be remiss to not mention that the largest percentage of 72 respondents (40 percent), in the SEE region reported that they had not experienced any of the problems listed in the survey question in the last 3 years. During the focus group discussions and individual interviews, firm representatives explained that some of the problems they had faced that were not listed in the questionnaire were (i) establishing and maintaining a qualified work force, (ii) heavy and time-consuming administrative procedures, and (iii) unfair competition. Figure 4.4.1: Which of the following problems has your business faced over the past 3 years? (All respondents - N=2832, share of total, %) SEE None of the above Problems related to infringements of intellectual property rights Problems related to violations of property rights over movable or immovable property Problems between the state and your business related to the non-fulfillment of contractual obligations other than the collection of due payments Problems related to the safety and security of employees and assets Problems that arise as a result of improper performance of duties by various state and/ or local institutions and their officials Problems that arise as a result of a relationship/interaction with a state and/or local institution and their officials Problems related to the collection of payments due by the state to your business Problems related to the payment of other financial obligations towards the state (taxes, customs, duties) Problems between your business and another business related to the non-fulfillment of contractual obligations other than the collection of due payments Problems related to labor laws and regulations (employment and lay-offs of workers) Problems between your business and another business related to collecting due payments 65 56 55 54 46 40 40 35 36 34 32 26 30 27 23 25 26 24 . 23 21 19 19 14 18 18 18 16 17 14 13 14 14 14 15 14 13 11 8 12 11 12 9 10 10 10 10 10999 9 8 7 6 6 7 68777 76 8 8 7 7 65 77 65 4 54 4 45 5 54 54 554 3 3 5 3 43 45 2 3 23 2 23 22 21 3 0 Albania Bosnia and Bulgaria Croatia Kosovo North Montenegro Serbia SEE Herzegovina Macedonia 166. Aside from problems experienced by firms which were not listed in the questionnaire, problems with collecting payments due from other business entities were the most common across all the countries surveyed, except for Kosovo where problems related to labor laws and regulations were experienced the most by firms in the last three years. 73 The following paragraphs give an overview of the top three problems experienced by firms in each country: 167. In Albania, 14 percent of the respondents reported that they had experienced problems with collecting payments due from other businesses. The second most common problem experienced by respondents in the last three years was the payment of other financial obligations to the state such as taxes, customs, duties etc. —13 percent. Problems related to labor laws and regulations and relations/interactions with a state and/or local institution and their officials were also experienced by 9 percent of the respondents in the last three years. 168. The most common problems faced by respondents in Bosnia and Herzegovina in the last three years are problems with collecting payments due from other businesses, 46 percent (compared to the regional average of 30 percent), collecting payments due from the state, 19 percent (compared to the regional average of 9 percent), and problems related to labor laws and regulations, 14 percent. 169. The top three problems experienced by firms at the regional level in the last three years were the same problems experienced by firms in Bulgaria — 18 percent of the respondents reported that they had experienced problems with collecting payments due from other businesses, 10 percent reported that they had experienced problems related to labor laws and regulations, and 8 percent reported that they had experienced problems with other business entities related to the non- fulfillment of contractual obligations (other than the collection of payments due). 170. Collecting payments due from other businesses is a widespread problem in Croatia— 56 percent of the respondents reported that they had experienced this problem in the last three years (much higher than the regional average; 30 percent). Other problems experienced by firms in Croatia were problems that arise as a result of relations/interactions with a state and/or local institutions and their officials (26 percent) as well as problems that arise as a result of the improper performance of duties by various state and/or local institutions and their officials (25 percent). In both cases, the percentages are above the regional averages, both at 9 percent. It is also worth mentioning that for every problem listed in the survey questionnaire, except problems related to the collection of payment due from the State, the percentage of firms in Croatia that had experienced the problem in the last three years, was always higher than the regional average. 171. In Kosovo, 34 percent of the firms reported that they had experienced problems related to labor laws and regulations, making this the problem experienced by the largest percentage of respondents from Kosovo. The percentage of respondents who reported this in Kosovo is much higher than the regional average; 18 percent. The second problem experienced by respondents in the last three years was the payment of other financial obligations to the state such as taxes, customs, duties etc.; 18 percent, and again higher than the regional average; 10 percent. Collecting payments due from other businesses is a problem that was experienced by 17 percent of the respondents; a notably lower percentage than at the regional level; 30 percent. 74 172. For respondents in North Macedonia, the top problems experienced were problems with collecting payments due from other businesses (19 percent reported having experienced this problem in the last three years), problems related to labor laws and regulations (14 percent) and problems with other business entities related to the non-fulfillment of contractual obligations (other than the collection of payments due (7 percent). 173. In Montenegro, 35 percent of the respondents (above the regional average; 30 percent) reported that they had experienced problems with collecting payments due from other businesses. The second problem experienced by respondents in the last three years related to labor laws and regulations — 26 percent, and again above the regional average; 18 percent. Problems that arise as a result of relations/interactions with a state and/or local institutions and their officials were experienced by 15 percent of the respondents from Montenegro in the last three years; more than the percentage of respondents who reported the same at the regional level; 9 percent. 174. As in the other countries surveyed, the collection of payments due from other businesses is a prevalent problem in Serbia—36 percent of the respondents (higher than the 30 percent regional average) reported having experienced this problem in the last three years. Problems with other business entities related to the non-fulfillment of contractual obligations were experienced by 14 percent of the respondents while problems related to labor laws and regulations were experienced by 13 percent of the respondents. 175. During focus group discussions and individual interviews, firms across the region highlighted having experienced similar problems. These included problems that arose because of the lack of a qualified and professional workforce; influenced by an inadequate education system. Firms also reiterated that existing laws were also the cause of many problems that they experienced in the last three years. QQ from Bulgaria, Large business, Holding: “It is the simple truth that there are no qualified staff especially in Bulgaria. This has become clear in the last two years. This problem will be even bigger and will go deeper. Therefore, fresh workforce has to come from somewhere. We need to have legislation and regulations that make hiring people from outside Bulgaria easy and quickly.” QQ from Kosovo, Large business, Services: “As a serious company, we respect the laws and regulations, but in cases when our employees don ’t fulfill their contractual obligations, we demand to terminate the contract. It happens that they sue us in court for this reason.” QQ from Montenegro, Medium business, Services: “About 5 – 6 years ago, the Government made a decision that facilities located near a beach must pay higher taxes if they have less than 4 stars. Our facilities have 2 stars, and it became very difficult to maintain the business. I understand the logic - they want to encourage elite tourism, but in order to do so, they primarily have to invest in every destination. Sutomore is still not a four-star destination.” 75 QQ from Croatia, Large business, Trade: “If there are no identical criteria for all business entities, then it can have a major effect on a company’s business activity.” QQ from Montenegro, Medium business, Tourism: “We often have inspections, which is a waste of our time. They always find something. I have a feeling that they have to fulfill a certain quota - if they want to find something, they will find something. And sometimes they calculate - they ignore some irregularities, while for others, you are going to pay penalties. That is really discouraging for us as a company. ” 176. In the last three years, small firms that employ between 10 and 49 employees and medium sized firms that employ 50 or more employees experienced the following problems more often than micro firms: problems with collecting payments due from other businesses (44 and 61 percent v. 27 percent)13, problems related to labor laws and regulations (27 and 33 percent v. 16 percent) and problems related to the non-fulfillment of contractual obligations (17 and 23 percent v. 10 percent). Limited liability companies and joint stock companies experienced problems with collecting payments due from other businesses and problems related to the non-fulfillment of contractual obligations more often than sole proprietorships, partnerships and other companies. 39 percent of the limited liability companies and 51 percent of the joint stock companies experienced problems with collecting payments compared to 19 percent of the sole proprietorships and 14 percent of the partnerships. 15 percent of the limited liability companies and 23 percent of the joint stock companies experienced problems with non-fulfillment of contractual obligations compared to 7 percent of the sole proprietorships and 10 percent of the partnerships. For partnerships, the problem experienced most often in the last three years was related to labor laws and regulations (31 percent). Firms with court experience reported having experienced all the problems listed in the survey more often than firms without court experience (67 percent v. 23 percent for problems with collecting due payments, 33 percent v. 15 percent for problems related to labor laws and 31 percent v. 8 percent for problems with non-fulfillment of contractual obligations). 177. Micro sized firms with up to 9 employees and firms without court experience reported more often than the others that they had not experienced any of the listed problems during the last three years (42 percent of the micro firms v. 24 percent of the small firms and 21 percent of the medium sized firms, and 47 percent of the firms with court experience v. 0 percent of those without). 13 Given that one firm could report having experienced more than one of the problems listed the percentages add up to more than 100%. 76 Table 4.4.1: Which of the following problems has your business faced over the past 3 years? Region by subgroups SEE Majority Majority Majority Between 50 and Sole Limited Joint- owned by Without Up to 9 Manufact Partnersh owned by owned by With court Total 10 and 49 more Trade Services Proprieto Liability stock Other foreign court Capital Rest employees uring ip domestic domestic experience employees employees r Company Company individual or experience individual legal entity legal entity Base 2832 1417 855 560 751 1196 885 729 1720 136 125 122 2318 371 143 632 2200 964 1868 Problems between your business and another business related to 30 27 44 61 37 29 26 19 39 51 14 21 30 32 37 67 23 25 33 collecting due payments Problems related to labor law and regulations (employment and lay- 18 16 27 33 20 17 17 16 18 28 31 19 18 12 32 33 15 22 16 offs of workers) Problems between your business and another business related to the non-fulfillment of contractual 12 10 17 23 15 12 9 7 15 23 10 4 11 12 12 31 8 11 12 obligations other than the collection of due payments Problems related to the payment of other financial obligations 10 10 7 7 9 11 10 11 10 8 8 4 10 11 4 17 8 10 10 towards the state (taxes, customs, duties) Problems related to the collection payments due by the state to your 9 8 13 18 10 10 8 6 11 26 16 4 9 9 21 24 7 8 10 bussiness Problems that arise as a result of relationship/interaction with the 9 9 10 9 10 7 10 6 12 10 7 7 9 10 15 23 7 8 10 state and/or local institution and their officials Majority Majority Majority Between 50 and Sole Limited Joint- owned by Without Up to 9 Manufact Partnersh owned by owned by With court Total 10 and 49 more Trade Services Proprieto Liability stock Other foreign court Capital Rest employees uring ip domestic domestic experience employees employees r Company Company individual or experience individual legal entity legal entity Base 2832 1417 855 560 751 1196 885 729 1720 136 125 122 2318 371 143 632 2200 964 1868 Problems that arise as a result of improper performance of duties 9 9 10 12 10 7 11 5 13 11 8 6 9 6 13 20 7 9 9 by various state and/ or local institutions and their officials Problems related to the safety and security of employees and 5 5 7 6 5 6 5 5 6 9 5 3 5 6 5 13 4 5 6 assets Problems between the state and your business related to the non- fulfillment of contractual 5 5 7 9 7 4 5 4 6 2 3 3 5 8 10 13 4 6 5 obligations other than the collection of due payments Problems related to violation of property rights over movable or 4 4 4 7 3 5 5 3 5 10 4 0 4 6 14 12 3 4 5 immovable property Problems related to infringement 3 3 3 2 3 2 3 2 3 4 4 0 2 4 3 9 1 3 2 of intellectual property rights None of the above 40 42 24 21 35 40 43 50 32 20 25 60 40 45 14 0 47 40 40 Level of confidence Statistically significantly higher than 95% 90% total 95% 90% Statistically significantly lower than total 4.5. WAYS TO RESOLVE PROBLEMS: ACTUAL EXPERIENCE 178. Regardless of the nature of the problem faced, for firms across SEE, the first port of call to resolve the problem is to engage in direct negotiation with the other party . While firms have attempted to resolve all the problems listed through the courts, the percentage of firms who reported approaching the courts was relatively low across the board. Compared to other problems, the data show that a relatively large percentage of respondents (32 percent) used the courts to resolve problems related to the violation of property rights, problems related to collecting payments due from other business entities (28 percent) and the state (27 percent). Mediation is most commonly used for resolving problems related to labor law regulations and problems collecting payments due from the 77 state than for other problems. For these two problems 18 percent and 16 percent of the respondents reported that they had resorted to mediation. Figure 4.5.1: How have you attempted to solve each of these problems? (Respondents whose business has faced specified problems - N=1122, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE Problems related to labor laws and regulations 79 15 18 4 4 4423 Problems related to the collection of payments due by the state to your business 56 27 16 5 7 2 514 Problems between your business and another business related to collecting due payments 77 28 6 242313 Problems between the state and your business related to the non-fulfillment of contractual obligations other than… 59 22 13 5 7 11 4 3 4 Problems between your business and another business related to the non-fulfillment of contractual obligations… 72 23 13 3 4 4 423 Problems related to the safety and security of employees and assets 50 18 12 3 8 6 7 2 11 Problems related to infringements of intellectual property rights 52 25 15 3 7 6 51 11 Problems related to violations of property rights over movable or immovable property 48 32 7 7 6152 6 Problems that arise as a result of a relationship/interaction with a state and/or local… 65 11 42 10 7 8 4 8 Problems that arise as a result of improper performance of duties by various state and/ or local institutions and… 68 11 3242 7 1 11 Problems related to the payment of other financial obligations towards the state 63 110 15 8 2 6 42 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer 179. When asked to describe the ways in which they attempted to solve problems, participants in focus group discussions and in-depth interviews unanimously agreed that engaging in direct negotiations with the other party is always their first step. For them, this is usually the quickest and least complicated way to resolve the problem. QQ from Kosovo, Small business, Services: “Firstly, I try to contact them via email. If there is no response, I contact the other party by phone with hope that the problem will be solved. After all attempts and if all reasonable deadlines are not met, I will sue them in court.” 78 QQ from Bulgaria, Medium business, Manufacturing: “If you understand that there is no way to collect your money under acceptable terms, then you need to find a solution in which you get at least something. It could be any trade-off, which depends on the business. For example, despite filing a lawsuit against one of my counterparties, I invited him to dinner to discuss the situation... At the end, he rented me one of his buildings free of charge for a certain period. Five years later, my office is still in that building, although I pay the rent now because the debt is already collected.” 180. For each of the countries surveyed, respondents reported that the most common way to resolve problems related to labor law and regulations is through direct negotiation with the other party. This is especially true in Kosovo, Serbia, Montenegro and Croatia where a large percentage of respondents; 93 percent, 91 percent, 85 percent and 83 percent respectively reported that they used direct negotiation to resolve this problem. For each of these countries, the percentage of respondents who reported this was higher than the regional average (79 percent). Businesses from Bosnia and Herzegovina are more likely to look for court assistance, while respondents from Albania and Kosovo are more likely to resort to informal payments/gifts or political influence. 181. Compared to the other countries surveyed, a large percentage of respondents from Bosnia and Herzegovina (30 percent) used the courts to resolve problems related to labor law and regulations. The percentage of respondents who reported this is double the regional average; 15 percent. The use of mediation to resolve problems related to labor law and regulations in Kosovo is much higher than in the other countries surveyed, based on the percentage of respondents who reported this (64 percent). Figure 4.5.2: How did you attempt to resolve problems related to labor laws and regulations? (Respondents whose business faced specified problem - N=617, % , multiple responses were possible, therefore totals may add up to more than 100%) SEE 79 15 18 444423 Albania 47 24 1 17 11 Bosnia and Herzegovina 56 30 10452 114 Bulgaria 72 63 8 103 1 Croatia 83 2 14 324 Kosovo 91 14 64 10 8 7 12 52 North Macedonia 66 6 8 6 9 410 Montenegro 85 2 15 1 Serbia 93 12 31 2 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer 79 Figure 4.5.3: How did you attempt to resolve problems related to the collection of payments due to your business from the state? (Respondents whose business faced specified problem - N=323, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE 56 27 16 5 7 2514 Albania 49 33 19 6 Bosnia and Herzegovina 49 39 26 5111 5 Bulgaria 47 8 18 9 17 92 Croatia 73 27 5 9 Kosovo 56 20 52 8 12 4 4 North Macedonia 36 14 19 17 34 9 21 81 Montenegro 77 23 4 Serbia 52 43 25 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer 182. In all the countries surveyed, the firms’ responses indicate that firms prefer to engage in direct negotiations with the other party to solve problems with other businesses related to the collection of payments due. 77 percent of respondents across the region reported this, and in each country, except North Macedonia where the percentage of respondents was relatively lower, but still a majority (57 percent), more than 70 percent of the respondents reported the same. In Albania, Bulgaria, Croatia and Montenegro, the percentage of firms who reported this were above the regional average; 78 percent, 84 percent, 83 percent and 83 percent respectively. Comparatively, a larger percentage of respondents from Croatia (37 percent), North Macedonia (37 percent), Montenegro (30 percent) and Serbia (33 percent) approached the courts to resolve problems with collecting payments due from other firms. For all these countries, the percentage of respondents who reported this was higher than the regional average; 28 percent. A significantly large percentage of firms from Kosovo (48 percent) resolve problems with collecting payments due from other firms through mediation. This is the highest percentage reported among of the countries and it is much higher than the regional average; 6 percent. 80 Figure 4.5.4: How did you attempt to resolve problems between your business and another business related to the collection of payments due? (Respondents whose business faced specified problem - N=1020, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE 77 28 6 242313 Albania 78 9 18 333 Bosnia and Herzegovina 73 26 15 52 2 2 Bulgaria 84 24 14 5 4 41 Croatia 83 37 2 11 Kosovo 73 11 48 7 17 14 14 33 North Macedonia 57 37 7 8 10 35 7 5 Montenegro 83 30 2 2 2 Serbia 77 33 141 14 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer 183. Although the majority of the firms in the countries surveyed reported that they attempted to resolve problems related to the non-fulfillment of contractual obligations, other than the collection of payments, between the state and their business through direct negotiation, the responses were more disparate in this instance compared to others. For example, respondents from Bulgaria, Croatia, Kosovo, Montenegro and Serbia reported, in relatively large percentages; 89 percent, 85 percent, 66 percent, 81 percent and 65 percent (all above the regional average of 59 percent), that they attempted to resolve this problem through direct negotiation. However, in Albania and especially in Bosnia and Herzegovina and North Macedonia, the percentage of respondents who reported this was significantly smaller; 39 percent, 16 percent and 17 percent respectively. The percentage of firms who attempted to solve this problem through the courts is equally disparate, with relatively high percentages (above the regional average 22 percent) being reported in Albania (36 percent), North Macedonia (35 percent) and Montenegro (36 percent), and comparatively lower percentages in Bosnia and Herzegovina (16 percent) Bulgaria (6 percent), Croatia (16 percent) and Kosovo (17 percent). In comparison to the other countries, the percentage of respondents in Albania and Kosovo; 25 percent and 58 percent respectively, who reported that they resorted to mediation to solve problems between them and the state related to the non-fulfillment of contractual obligations other than the collection of payments due, was quite high. For other countries, North Macedonia and Serbia in particular, the percentage of respondents who reported the same was very low; 4 percent and 3 percent respectively. 81 184. Yet again, direct negotiation with the other party is the most common avenue used to resolve problems related to the non-fulfillment of contractual obligations other than the collection of payments due between firms. Across the region, large percentages of respondents reported this; notably 94 percent of respondents from Kosovo, 89 percent of respondents from Bulgaria and 85 percent of respondents from Croatia reported this. Although the percentage of respondents who reported this in Albania (30 percent), Bosnia and Herzegovina (59 percent), North Macedonia (39 percent) and Serbia (69 percent) is comparatively lower and is indeed lower than the regional average; 72 percent, these percentages still reflect that for the majority of firms, direct negotiation with the other party is still the first port of call to resolve problems. Relatively small percentages of respondents reported that they solve this problem through the courts; 23 percent across the region and 22 percent in Albania and Kosovo, 30 percent in Bosnia and Herzegovina, 20 percent in Croatia, 4 percent in Bulgaria, 32 percent in North Macedonia, 33 percent in Montenegro and 23 percent in Serbia. The percentage of firms who reported that the engage in mediation to solve problems related to the non- fulfillment of contractual obligations other than the collection of payments due between them and other firms, was statistically significant in Kosovo, North Macedonia and Kosovo; 50 percent, 27 percent and 28 percent respectively, and all much higher than the regional average—13 percent. Figure 4.5.5: How have you attempted to resolve problems between your business and another business related to the non-fulfillment of contractual obligations other than the collection of payments due? (Respondents whose business faced specified problem - N=397, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE 72 23 13 344423 Albania 30 22 27 6 60 17 5 Bosnia and Herzegovina 59 171 30 2 13 Bulgaria 89 19 4 Croatia 85 2 20 31 12 Kosovo 94 22 50 11 11 11 11 5 5 North Macedonia 39 32 28 8 12 8 18 6 9 Montenegro 72 33 933 Serbia 69 2 23 5102 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer 185. For problems that arise as a result of a relationship/interaction with state and/or local institutions and their officials, problems that arise as a result of improper performance of duties by 82 various state and/or local institutions and their officials and problems related to the collection of other financial obligations towards the state, for the most part, the base was too small for valid conclusions to be drawn. However, for the countries where the base was sufficient, in almost every case, except for Albania, where a large percentage of respondents (40 percent) reported that they resolve problems related to the collection of other financial obligations towards the state through the courts, firms reported that they tried to resolve these problems through direct negotiations with the other party. The following paragraphs document the findings from countries where the base was sufficiently large to draw conclusions. 186. In Albania, Croatia and Montenegro, large percentages of respondents; 52 percent, 77 percent and 69 percent respectively, reported that they resolved problems that arose as a result of a relationship/interaction with state and/or local institutions and their officials through direct negotiation. 4 percent of the respondents from Croatia reported that they resolved this problem through the courts. The percentage of respondents who reported this is significantly smaller than the regional average; 11 percent, and the percentages reported in Albania and Montenegro; 12 percent and 25 percent respectively. For Montenegro, the percentage of respondents is significantly higher than the regional average. (Figure 4.5.7). 187. Faithful to the trend observed throughout, firms in Croatia and Montenegro reported that they resolved problems that arose as a result of improper performance of duties by various state and/or local institutions and their officials through direct negotiation. In Croatia, the percentage of respondents who reported this was 71 percent and in Montenegro it was 76 percent. Only 7 percent of the respondents from Croatia reported that they resolve this problem through the courts, while a significantly higher percentage, 16 percent reported the same in Montenegro. (Figure 4.5.8) 188. In Albania, firms reported that they attempted to resolve problems related to the collection of other financial obligations towards the state through the courts; 40 percent of the respondents reported this, significantly higher than the SEE regional average; 15 percent. The percentage of respondents from Albania who reported that they use informal payments or gifts to make the problem go away was also relatively high— 15 percent, and statistically significant in that it was more than double the regional average; 6 percent. 34 percent of respondents reported that they resolve this problem through direct negotiation. In Croatia (90 percent), Kosovo (71 percent) and Serbia (62 percent), a large percentage of firms reported that they resolved this problem through direct negotiation. In Kosovo, the second most common way to resolve this problem was through mediation, with 32 percent of the respondents reporting the same. This is significantly higher than the regional average; 8 percent. In Croatia, Kosovo and Serbia, the percentage of firms who reported that they resolve this problem through the courts was very small; 7 percent, 3 percent and 10 percent respectively. (Figure 4.5.9) 83 Figure 4.5.6: How have you attempted to resolve problems that arise as a result of a relationship/interaction with a state and/or local institutions and their officials? (Respondents whose business faced specified problem - N=258, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE 65 1142107 8 4 8 Albania 52 12 8 114 13 Bosnia and Herzegovina 55 17 1 24 1 16 Bulgaria 72 410619 Croatia 77 1 4354110 Kosovo 49 25 26 24 North Macedonia 16 12 28 1 35 37 64 27 2 Montenegro 69 25 13210 8 Serbia 71 8 6 21 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Figure 4.5.7: How have you attempted to resolve problems that arise as a result of improper performance of duties by various state and/or local institutions and their officials? (Respondents whose business has faced specified problem - N=255, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE 68 11 32 42 7 1 11 Albania 39 21 11 23 6 Bosnia and Herzegovina 51 22 17 1 20 Bulgaria 67 1 3 611 23 Croatia 71 7 14 4 10 12 Kosovo 40 40 20 North Macedonia 53 8 7 32 4 24 Montenegro 76 16 3 6 10 9 Serbia 90 318 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away 84 Figure 4.5.8: How have you attempted to resolve problems related to the payment of other financial obligations towards the state? (Respondents whose business has faced specified problem - N=270, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE 63 15 1 10 8 2 6 42 Albania 34 40 3 15 3 5 Bosnia and Herzegovina 37 16 4 14 1 14 9 1 21 Bulgaria 59 20 20 Croatia 90 7 36 Kosovo 71 3 32 3 13 3 3 3 North Macedonia 47 39 18 Montenegro 74 15 17 Serbia 62 10 3 10 16 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer 4.6. EFFECTIVENESS OF WAYS TO RESOLVE PROBLEMS 189. For the various problems outlined in the questionnaire, firms were asked to rate how effective the problem-solving avenues they used were. For the most part, the base was too small to draw valid conclusions. Therefore, the following paragraphs only focus on the statistically relevant areas where the base was large enough to draw valid conclusions. 190. 94 percent of the firms reported that direct negotiations with the other party were an effective way of resolving problems related to labor laws and regulations. Of the 94 percent who reported this, 52 percent were of the view that direct negotiations with the other party were very effective in resolving this problem. Similarly, 89 percent of the respondents were of the view that mediation is an effective way of resolving problems related to labor laws and regulations, with as many as 63 percent of the 89 percent reporting that this was a very effective problem-solving mechanism. 69 percent of the firms reported that courts were an effective way to resolve problems related to labor laws and regulations, while 30 percent were of the view that they were not an effective way to resolve these problems. (Figure 4.6.1). 191. For the collection of payments due to the business from the state, a large percentage of firms reported that mediation and direct negotiation were effective; 70 percent and 81 percent respectively. The courts did not fare as well; 52 percent of the respondents reported that they were an effective way to resolve problems with collection payments due to the business from the state. 85 Also, a relatively large percentage; 48 percent, reported that the courts were not an effective way to resolve this problem. Of those, 33 percent were of the view that the courts were not effective at all. (Figure 4.6.2). 192. 88 percent of the firms reported that mediation was an effective way to resolve problems between firms related to collecting payments due. 89 percent reported that direct negotiation was effective, while 74 percent reported that the courts were effective. (Figure 4.6.3). Figure 4.6.1: How do you assess the effectiveness of the methods you used to solve problems related to labor laws and regulations? (Respondents whose business faced the specified problems and tried to solve them in at least one these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Mediation 8 26 63 Direct negotiations with the other party 14 42 52 Informal payments or gifts to make the problem go away 14 61 16 Court 4 26 48 21 Publicising the problem in the media 25 75 Arbitration 12 44 7 36 Political influence or personal contacts and favours other than… 17 65 Threat of force or use of force or intimidation of the other party 40 27 Not effective at all Not very effective Somewhat effective Very effective Figure 4.6.2: How do you assess the effectiveness of the methods you used to solve problems related to the collection of payments due to your business by the State? (Respondents whose business faced the specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Informal payments or gifts to make the problem go away 9 19 67 Arbitration 14 29 30 Publicising the problem in the media 8 66 26 Mediation 5 17 34 36 Direct negotiations with the other party 11 8 56 25 Political influence or personal contacts and favours other than payments and gifts 32 51 16 Court 33 15 41 11 Threat of force or use of force or intimidation of the other party 86 100 Not effective at all Not very effective Somewhat effective Very effective Figure 4.6.3: How do you assess the effectiveness of the methods you used to solve problems between your business and another business related to collecting payments due? (Respondents whose business faced the specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Threat of force or use of force or intimidation of the other party 56 44 Arbitration 36 7 56 Mediation 6 5 54 34 Direct negotiations with the other party 4 7 65 24 Informal payments or gifts to make the problem go away 5 14 43 28 Publicising the problem in the media 28 40 31 Political influence or personal contacts and favours other than payments and… 6 26 39 29 Court 11 14 58 16 Not effective at all Not very effective Somewhat effective Very effective 193. 80 percent of the firms reported that direct negotiation was an effective way to solve problems between the state and their business related to the non-fulfillment of contractual obligations other than the collection of payments due. Only 40 percent of the firms reported that the courts were an effective way to solve such problems. Conversely, 57 percent of the firms reported that the courts were not an effective way to solve problems between the state and their business related to the non-fulfillment of contractual obligations other than the collection of payments. Furthermore, of the 57 percent that reported this, 34 percent were of the view that courts were not effective at all (Figure 4.6.4). 194. For problems between firms related to the non-fulfillment of contractual obligations other than the collection of payments due, 91 percent of respondents were of the view that mediation and direct negotiation were effective. While 60 percent of the firms reported that the courts were an effective way to resolve these problems, a comparatively large percentage of respondents; 40 percent also reported that courts were not an effective way to resolve these problems. (Figure 4.6.5). 195. 81 percent of the firms reported that problems related to the safety and security of employees and assets were effectively resolved through direct negotiation. (Figure 4.6.6). 87 Figure 4.6.4: How do you assess the effectiveness of the methods you used to solve problems between the state and your business related to the non-fulfillment of contractual obligations other than the collection of payments due? (Respondents whose business faced the specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Informal payments or gifts to make the problem go away 100 Threat of force or use of force or intimidation of the other party 100 Mediation 39 61 Political influence or personal contacts and favours other than payments and gifts 71 29 Arbitration 90 10 Publicising the problem in the media 20 56 24 Direct negotiations with the other party 11 7 51 29 Court 34 23 33 8 Not effective at all Not very effective Somewhat effective Very effective Figure 4.6.5: How do you assess the effectiveness of the methods you used to solve problems between your business and another business related to the non-fulfillment of contractual obligations other than collection of payments due? (Respondents whose business faced specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Mediation 53 53 38 Arbitration 14 56 31 Direct negotiations with the other party 2 7 69 22 Publicising the problem in the media 33 23 44 Court 9 31 38 22 Informal payments or gifts to make the problem go away 73 23 3 Political influence or personal contacts and favours other than payments and gifts 90 10 Threat of force or use of force or intimidation of the other party 100 Not effective at all Not very effective Somewhat effective Very effective 88 Figure 4.6.6: How do you assess the effectiveness of the methods you used to solve problems related to the safety and security of employees and assets? (Respondents whose business faced the specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Mediation 17 26 57 Informal payments or gifts to make the problem go away 96 4 Political influence or personal contacts and favours other than payments and gifts 97 3 Threat of force or use of force or intimidation of the other 84 Direct negotiations with the other party party 6 12 62 19 Court 13 21 41 25 Publicising the problem in the media 30 70 Arbitration 31 69 Not effective at all Not very effective Somewhat effective Very effective 196. The data collected for problems related to the infringement of intellectual property rights are not statistically significant for us to draw valid conclusions. 197. 72 percent of the firms reported that direct negotiation was an effective way to solve problems related to violations of property rights over movable or immovable property, while 59 percent reported that the courts were an effective mechanism to solve such problems (Figure 4.6.7). For 82 percent of the respondents, direct negotiation was an effective way to resolve problems that arose as a result of a relationship/interaction with state and/or local institutions and their officials (Figure 4.6.8), while 83 percent of the respondents found direct negotiation effective in solving problems that arose because of improper performance of duties by various state and/or local institutions and their officials (Figure 4.6.9). Regarding problems related to the collection of other financial obligations towards the state, 90 percent of the firms reported that these were effectively solved through direct negotiation, while 83 percent were of the view that these problems were effectively solved by the courts. In both cases, the percentage of respondents who though that, both, direct negotiation and the courts were very effective in solving this problem, was relatively high; 34 percent for direct negotiation and 35 percent for the courts. (Figure 4.6.10). 89 Figure 4.6.7: How do you assess the effectiveness of the methods you used to solve problems related to violations of property rights over movable or immovable property? (Respondents whose business faced the specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Informal payments or gifts to make the problem go away 98 2 Mediation 24 49 28 Court 16 24 29 30 Direct negotiations with the other party 16 12 61 11 Political influence or personal contacts and favours other than payments and gifts 50 42 8 Arbitration 66 34 Publicising the problem in the media 84 16 Not effective at all Not very effective Somewhat effective Very effective Figure 4.6.8: How do you assess the effectiveness of the methods you used to solve problems that arose because of a relationship/interaction with a state and/or local institutions and their officials? (Respondents whose business faced the specified problems and tried to solve them in at least one these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Mediation 3 97 Arbitration 50 50 Informal payments or gifts to make the problem go away 50 45 Political influence or personal contacts and favours other than payments and gifts 12 41 47 Direct negotiations with the other party 6 12 72 10 Court 27 1 42 31 Threat of force or use of force or intimidation of the other party 25 75 Publicising the problem in the media 27 70 3 Not effective at all Not very effective Somewhat effective Very effective 90 Figure 4.6.9: How do you assess the effectiveness of the methods you used to solve problems that arose because of improper performance of duties by various state and/or local institutions and their officials? (Respondents whose business faced the specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Direct negotiations with the other party 3 13 55 28 Political influence or personal contacts and favours other than payments and gifts 9 1 64 25 Informal payments or gifts to make the problem go away 23 31 46 Arbitration 100 Mediation 40 23 37 Court 4 37 49 11 Publicising the problem in the media 59 41 Threat of force or use of force or intimidation of the other party 96 4 Not effective at all Not very effective Somewhat effective Very effective Figure 4.6.10: How do you assess the effectiveness of the methods you used to solve problems related to the collection of other financial obligations towards the state? (Respondents whose business faced the specified problems and tried to solve them in at least one of these ways, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Political influence or personal contacts and favours other than payments and gifts 8 92 Mediation 6 39 55 Direct negotiations with the other party 7 56 34 Informal payments or gifts to make the problem go away 16 30 54 Court 4 13 48 35 Publicising the problem in the media 21 46 34 Arbitration 29 68 2 Threat of force or use of force or intimidation of the other party 90 10 Not effective at all Not very effective Somewhat effective Very effective 198. The focus group discussions and interviews revealed that firms in SEE generally prefer to resolve problems through direct negotiation with the other party because it is faster, more flexible 91 and more efficient than the other options available to them. Courts emerge as the second most common avenue to resolve problems. However, the focus group discussions and interviews demonstrated that firms would rather not engage the courts because they are slow, ineffective, inefficient, time and resource intensive, expensive, complicated, uncertain, unpredictable etc. QQ from Serbia, Large business, Manufacturing: “We have some labor disputes that last too long. If a labor dispute takes 10 years and an employee gets it, we need to pay him/her earnings for those 10 years, and all that time he/she didn’t work in our company. I think that is not right.” QQ from North Macedonia, Small business, Services: “We have had problems with the collection of payments due which led to a court dispute. Although we won the case, we cannot collect payments due because a debtor had started a liquidation procedure in the meantime.” 4.7. THE EFFECT OF PROBLEMS ON VARIOUS ASPECTS OF A BUSINESS’ OPERATIONS 199. As delineated in Figure 4.7.1, firms reported that problems related to labor laws and regulations are not a major obstacle to various aspects of their business operations. In each case, 50 percent, or more, of the respondents were of the view that labor laws and regulations are not an obstacle to various aspects of their business operations. Figure 4.7.1: To what extent are problems related to labor laws and regulations an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=354 Operational costs 32 18 28 12 7 Business growth and expansion 34 21 26 13 5 The number of employees 28 27 29 12 3 Business stability and security 34 24 23 12 5 My business’ operation in general 33 26 25 9 5 The competitiveness of my 38 20 24 10 7 business Access and cost of financing 38 25 21 12 3 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 92 200. The focus group discussions and individual interviews shed light on the problems related to labor market regulations that concern employers the most. Firms from most of the countries surveyed (Bulgaria, Croatia, Montenegro and Bosnia and Herzegovina) are of the opinion that the law is too protective of the rights of employees at the expense of the firms’ rights, especially insofar as the performance of employees is concerned. QQ from Bulgaria, Medium business, Trade: “The labor law completely favors the workers and protects their rights, so it is almost impossible to lay off a worker when an employee lacks the qualities for efficient work performance – there are no strict procedures for that and it is almost impossible to prove that the employee is not eligible for the position. The HR should find and make different maneuvers to terminate the contract with such worker – e.g. state partial closing down of the company or personnel reduction and prepare all documents for that. When the company finds appropriate candidate at the place of the fired one, the HR should find a way to hire them at the already closed position that is connected to a lot of paperwork.” QQ from Croatia, Large business Services: “If an employee has signed a permanent contract, it is very difficult to sanction him /her for damage done, whether it is about recovering damages or dismissing someone. It has a very negative influence on the overall climate in the company because in such a way “bad” worker give a negative example to others. In such a way you cannot manage people or processes properly. “ QQ from Montenegro, Medium business, Manufacturing: “Laws support slackers. For example, I cannot just fire lazy and inefficient workers - I have to give them warning first and then they go on sick leave. When they return, they go on vacation and that can last for years. I wrote to the Ministry of Health to complain about certain doctors who approve fake sick leave, but nothing ever happened. This is a bad example for good and hardworking employees – they see that there are no consequences if you don’t do your job properly and that can affect their motivation.” QQ from Bosnia and Herzegovina, Micro business, Production: “The employment contracts used to have five pages, today they have thirty. One needs to be an acrobat. It is impossible to let go of the workers, the Government drafted the law in such a way because it’s not good for them if you lay someone off. This way an inefficient worker is your problem, and you pay 82% of the payroll deductions to the state.” 201. The collection of payments due from the state is seen as an obstacle to key business operations, in particular business growth and expansion, — 34 percent of the respondents reported that problems related to the collection of payments from the state were an obstacle to business growth and expansion. Similarly, 33 percent of the respondents were of the view that problems related to the collection of payments from the state were an obstacle to the competitiveness of the business. Other notable areas affected by this problem are access to and cost of financing (30 percent), and business stability and security (29 percent). The problem also impacts operational costs and the businesses’ general operations, but to a lesser extent (both 27 percent). (Figure 4.7.2) 93 202. Interestingly, based on the responses provided by the firms, problems with the collection of payments due from other firms do not necessarily pose the same level of obstruction that problems with collecting payments from the state cause. For instance, except for operational costs, more than 50 percent of the respondents reported that problems with the collection of payments due from other firms are either not an obstacle or are a minor obstacle to specified aspects of their business operations. However, as expected, problems with the collection of payments due from other firms are an obstacle to firms’ operational costs. A relatively large percentage of firms, 31 percent, reported that these problems affect their operational costs. Still, 38 percent of the respondents were of the view that these problems were not an obstacle to their operational costs or were only a minor obstacle. (Figure 4.7.3) Figure 4.7.2: To what extent are problems related to the collection of payments due by the state to your business an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=145 Operational costs 12 17 40 20 7 My business' operation in general 10 24 35 22 5 Business stability and security 16 22 32 20 9 The competitiveness of my 23 12 28 27 6 business Business growth and expansion 22 18 23 25 9 Access and cost of financing 23 23 23 24 6 The number of employees 32 25 29 5 6 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 94 Figure 4.7.3: To what extent are problems between your business and another business related to collecting payments due an obstacle to the following aspects of your business’ operations? (Respondents whose business has faced the specified problems – random choice of problem, %, mean, median) SEE, N=622 Operational costs 14 24 29 22 9 My business’ operation in general 23 26 28 14 7 Business stability and security 24 25 27 14 8 Business growth and expansion 26 25 24 16 8 The competitiveness of my 33 21 26 13 8 business Access and cost of financing 32 22 25 15 5 The number of employees 48 25 16 8 2 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 203. Participants in the focus group discussions and interviews emphasized that collecting payments due from other businesses is one of the biggest problems they face in everyday operations. However, firm representatives from Croatia mention that this problem is nonetheless significantly smaller today than it used to be several years ago, which is, in their opinion, as a result of the harmonization of domestic legislation with EU laws. Also, participants from Kosovo and Serbia noticed an improvement in this regard, thanks to the use of bailiffs who are seen as more efficient and expedient than a long trial process. QQ from Kosovo, Medium business, Manufacturing: “Yes, we have this type of problems. Earlier, we were tr ying to solve it through the court, and now only through the bailiffs.” QQ from Serbia, Large business, Manufacturing: “Sometimes they (bailiffs) just take the money out of your account or confiscate your property. From that perspective, the law has gone overboard, even though the situation with the payment is better than before.” 204. Representatives of firms from Albania emphasized that late payments put firms in danger of becoming illiquid. This is a huge problem because it can start a chain reaction—if a firm does not receive payments (on time), in turn it is not able to pay its debts (on time). 95 QQ from Albania, Small business, “If one of our business partners or clients is not able to pay, the whole business related directly or indirectly, are affected.” 205. In Bosnia and Herzegovina, Bulgaria, and Montenegro, participants in the focus group discussions and the interviews explained that some debtors use the weak regulatory framework and/or the low enforcement capacity to avoid paying their debts; they simply shut their firm down in the middle of the litigation process. There are no restrictions against this, and so there are no consequences for firms that resort to this tactic. QQ from Bosnia and Herzegovina, Small business, Manufacturing/Trade: “For example, I am being sued by a company for not paying my obligations, and I deliberately used the money instead of taking a loan, it is cheaper to pay interest for court fees than a loan. I even had an agreement with the company that sued me and with the court to be exempt from penalty interest, to pay just the court fees, and it was way cheaper for me, and helped me increase liquidity and invest in a new shipment.” QQ from Bulgaria, Medium business, Manufacturing: “The company cannot collect payments due from various business entities. When it files a lawsuit, it turns out that some of the sued companies are in insolvency. Yet, there is no regulation that connects individuals with business entity, i.e. the owner is not personally responsible for the failed company’s debts, i.e. he might have other well running businesses, and be personally well off, but the due payments cannot be collected.” QQ from Montenegro, Large business, Trade: “There is a situation when a company can’t pay because they are going through some crisis and in those cases, we are tolerant and can negotiate. However, in other cases companies planned to deceive you from the beginning. They order goods and never pay. Then they close the company and soon after, they open new one. Like nothing has happened. They never pay debts they have made previously.” 206. Firm representatives agreed that delays in collecting payments due have a significant (negative) impact on business operations. Representatives of micro and small firms reported that delays in payment can easily lead to a decrease in cash flow, which results in lack of money for daily operations as well as decreased competitiveness and shortage of personnel. It is not unusual for owners to invest their personal finances in the business to mitigate these difficulties. QQ from Montenegro, Small business: “For example, a big company wants to cooperate with you, but they require to pay after 60 to 80 days. You can have a problem if you are not solvent enough.” QQ from Bulgaria, Small business, Production: “The company receives its due payments with big delays. They are not a major problem for companies with big turnover, but for the small companies the lack of sufficient cash flow is quite challenging. For example, once, the owner was forced to take a loan in order to be able to pay salaries and state social insurance taxes to keep the employees at work.” 96 207. In Bosnia and Herzegovina collecting payments due from the state is particularly difficult because of the long wait period for payments to be realized. This affects the cash flow of firms and increases their costs of operation, which is especially detrimental to small businesses as they usually have limited access to credit. QQ from Bosnia and Herzegovina, Medium business, Services: “However, the whole system is slowed down by the public companies and their payment deadlines. For example, the payment deadline when you undertake work for the Clinical Center is three years. The money has its flow, and you clearly see the moment when they pay to the small firms - the money starts fluctuating through the system, the people start paying their debts to one another. Those public companies and institutions really are the greatest debtors. Moreover, there is no way to fight against them. And people work with them because they believe that these companies have assets, and one day even if they go bankrupt, the debt will be paid somehow.” 208. Generally, problems between the state and firms related to the non-fulfillment of contractual obligations other than the collection of payments due is an obstacle to all the listed aspects of the business’ operations, except the number of employees. According to the respondents, the obstacles that these problems cause are more apparent for the business’ growth and expansion; 43 percent of respondents reported that this problem was an obstacle, operational costs (40 percent) and the business’ stability and security (37 percent) than other key operational aspects of the business. Only 24 percent of the respondents reported that these problems are an obstacle to the number of employees. In fact, 54 percent of the respondents reported that this problem was either not an obstacle or was a minor obstacle to the number of employees. (Figure 4.7.4) 209. Problems between firms related to the non-fulfillment of contractual obligations other than the collection of payments due are not an obstacle to key aspects of a business’ operations. Relatively large percentages of respondents reported that these problems were either not an obstacle or were a minor obstacle to the number of employees (75 percent), access to and cost of financing (53 percent) and competitiveness of the business (50 percent). Comparatively, the percentage of respondents who reported the same for the business’ stability and security (45 percent), the business’ operations in general (44 percent), the growth and expansion of the business (43 percent) and operational costs (39 percent) was lower, but still large. (Figure 4.7.5) 97 Figure 4.7.4: To what extent are problems between the state and your business related to the non- fulfillment of contractual obligations other than the collection of payments due an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=82 Business growth and expansion 14 8 32 34 9 Business stability and security 13 14 32 30 7 Operational costs 10 21 26 36 4 Access and cost of financing 14 19 29 25 10 The competitiveness of my 10 23 29 29 5 business My business’ operation in general 11 20 36 26 4 The number of employees 25 29 15 20 4 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle Figure 4.7.5: To what extent are problems between your business and another business related to the non-fulfillment of contractual obligations other than the collection of payments due an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=162 Operational costs 12 27 36 13 12 Business stability and security 21 24 26 18 11 Business growth and expansion 28 15 30 20 6 My business’ operation in general 22 22 31 17 5 The competitiveness of my 30 20 25 15 9 business Access and cost of financing 27 26 28 12 5 The number of employees 56 19 14 5 5 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 98 210. During the focus group discussions and interviews, representatives of firms reported that the non-fulfillment of contractual obligations other than financial ones is not a particularly severe obstacle. The breach of such contractual obligations usually involves delays in the delivery of products or services and non-compliance with quality standards. Firms also noted that oftentimes, specifying the obligations of all the parties clearly in the contract goes a long way in terms of avoiding these problems and/or ensuring that they are resolved swiftly if they do occur, usually through the payment of penalties. Interestingly, delays on the part of customs offices also emerged as a recurrent problem that significantly impacts delivery times. QQ from Kosovo, Medium Business, Manufacturing: “We pay very high taxes to the state for every imported pro duct. We also have a problem with the customs where they require too many documents and we waste a lot of time waiting.” QQ from Montenegro, Large business, Trade: “There is a problem when it comes to goods with short shelf life. Trade can keep goods and require analysis of product and it often happens that products are kept at customs for 10 days and then expiration date passes, and you cannot sell those products, so you have material loss. Some kind of solution should be found that satisfies both sides. They have to be sure those products, which are imported, meet standards, but to give us enough time to put them on the market after custom control.” QQ from Serbia, Medium business, Production and Trade: “Sometimes we have to deliver the goods with a short deadline, but the customs office only works until 3p.m, or their system is down; or they are just slack, while our goods are late. ” 211. In Croatia, respondents reported that large firms mitigate problems related to the non- fulfillment of contractual obligations other than the collection of payments due by engaging their suppliers on a small scale to start with. Long-term contracts are seldom signed at the outset. This gives the firm an opportunity to determine the supplier’s adherence to deadlines, as a breach in deadline could have adverse effects for the firm and disrupt or even destroy a firm’s operations. Once the firm has established that the supplier complies with deadlines and a relationship has been built, contracts can be expanded. QQ from Croatia, Large business, Trade: “There is a long-term cooperation; we have new suppliers that we test with small amounts. We work with them step by step; a long-term contract is not signed right away.” 212. In Montenegro, focus group discussions and interviews revealed that at times, problems with the non-fulfillment of contractual obligations other than the collection of payments due are a result of differences in expectations regarding the quality or specifications of a service or a product. All told, the difference in expectation or miscommunication results in delays, which often lead to pecuniary losses. 99 QQ from Montenegro, Large business, Trade: “We have litigation with a software company - they sold us a software but a few months later, we realized it is not what we have ordered – they did not fulfill the project task as stated in the contract. We demanded a refund, but they refused, and now we are waiting for the end of the litigation.” QQ from Montenegro, Small business, IT industry: “In the IT industry, delays and request changes are common things. Problems arise when a client does not explain what they want. They do not explain in detail where the problem is and how they imagine resolving it. If the client does not provide accurate information, or constantly changes their mind, it can lead to delays of the project. In those cases, the project can last for years and in the moment when you finally complete it, it is often already outdated because new technologies have emerged in the meantime. In addition, you lose your money because you have to give salaries to employees although they sit and waste time while the client changes the requests.” 213. For firm representatives in Serbia problems with the non-fulfillment of contractual obligations other than the collection of payments due are most common when dealing with state or local institutions, as they seldom respect delivery schedules and timelines, and are dilatory in issuing documents. The perception is that invariably, the state is in a more privileged and powerful position relative to the firms and oftentimes abuses this dominant position. QQ from Serbia, Medium business, Manufacturing & Trade: “We did not have bigger problems with delivery deadlines so far. But if any problem occurs, the state is completely protected by the contract. When we talk about a supplier of necessary raw material, we do not have a choice, we are in a “take it or leave it” situation. There is nothing as bad for us as a delay of their goods! As a consequence, our production gets late, or even worse, it stops.” 214. Problems related to the safety and security of employees and assets are not an obstacle to the key aspects of a business’ operations, with relatively large percentages of firms reporting that these problems are not an obstacle or are a minor obstacle. For 43 percent of the respondents these problems were not an obstacle or were only a minor obstacle to operational costs, 38 percent for the business’ operation in general, 44 percent for access to and cost of financing and business growth and financing, and 58 percent for the number of employees. For business stability and security and the competitiveness of the business, a larger percentage of respondents (40 and 44 percent respectively) reported that problems related to the safety and security of employees and assets were a moderate obstacle, than those who reported that the problems were not an obstacle or were a minor obstacle (35 and 39 percent respectively). 100 Figure 4.7.6: To what extent are problems related to the safety and security of employees and assets an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=73 Operational costs 11 32 26 21 5 My business’ operation in general 16 22 31 23 4 Business stability and security 16 19 40 17 4 Access and cost of financing 22 22 32 19 3 The competitiveness of my 21 18 44 11 3 business Business growth and expansion 21 23 33 15 3 The number of employees 41 17 21 17 3 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 215. The consistency with which firms take out insurance for the safety and security of their employees and assets largely depends on the size of the firm and the industry in which it operates. Medium sized and large firms tend to take out insurance while small and micro firms are less likely to do so. Also, firms that deal with pharmaceuticals are more likely to take out insurance for the safety and security of their employees and assets. Overall, the respondents agreed that most firms insure their employees and assets, so when problems related to their safety and security arise, the insurance covers them. Also, some firms have internal security procedures or invest in other means of security (e.g. set up cameras and alarms, outsource to security agencies etc.). QQ from Bulgaria, Medium business, Trade: “As medical products are very expensive goods, a damaged pallet of medicines might cause a loss of millions of BGN or EUR. No company in the pharma industry can afford operating without insurance of assets and people. Insurance is their main instrument to prevent problems related to safety and security.” QQ from Serbia, Small business, Manufacturing: “I am not insured. I would have serious problems if something happened to my manufacturing machines.” 216. During the focus group discussions and interviews, representatives of firms admitted that they are not very familiar with problems related to the infringement of intellectual property rights. As such, they recommended that concerted efforts should be made to raise awareness on the nature and effects of the infringement of intellectual property rights. In the discussions and interviews, firm 101 representatives from Bosnia and Herzegovina demonstrated that they have good working knowledge of the infringement of intellectual property rights and cited that for the most part, infringements occurred in the IT industry (e.g. copying software or applications or using them without licenses), and creative fields such as design, photography, advertising. QQ from Bosnia and Herzegovina, Medium business, Services: “There is a lot of it, especially in the IT industry. I know of several lawsuits, even in the banking sector, where people worked on some systems in one company, then they changed employer and took the knowledge with them, offering the same ideas, maybe with minor changes, under a different name.” 217. Representatives of some firms also pointed out that when intellectual property rights are infringed, the methods of recourse available to remediate this are not effective. This could also be, in part, because of lack of knowledge about how to address such infringements. Some firm representatives, especially those representing small and medium sized firms, also noted that investing in patents, trademarks etc. to protect intellectual property rights is expensive and as a result it is mostly large firms and ‘big names’ in the market that can afford to make this investment. QQ from North Macedonia, Medium business, Services: “Although we trademarked our brand, we faced several problems related to infringement of intellectual property. A restaurant from Montenegro stole our logo and our name, but as they are not internationally patented, there is nothing we can do.” 218. Generally, problems related to violations of property rights over movable or immovable property are not an obstacle to most business operations, in particular the business’ operation in general, operational costs, access to and cost of financing and the number of employees. For each of these aspects, large percentages of the respondents; 40 percent, 49 percent, 51 percent and 74 percent respectively reported that problems related to violations of property rights over movable or immovable property were not an obstacle or were a minor obstacle. For business stability and competitiveness for the business, the percentage of respondents who reported that problems related to violations of property rights over movable or immovable property are a moderate obstacle (38 percent and 41 percent respectively) is much higher than the percentage of respondents who reported that the problems are not an obstacle or are a minor obstacle, (33 percent for both). 29 percent of the firms reported that problems related to violations of property rights over movable or immovable property are a major or severe obstacle, a relatively large percentage (43 percent) reported that they are a moderate obstacle and 26 percent reported that they are not an obstacle or are a minor obstacle. 102 Figure 4.7.7: To what extent are problems related to violations of property rights over movable or immovable property an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=56 Business growth and expansion 16 10 43 19 10 Business stability and security 17 16 38 20 7 The competitiveness of my 28 5 41 20 4 business My business’ operation in general 20 20 37 13 7 Operational costs 22 27 27 14 8 Access and cost of financing 37 14 30 9 7 The number of employees 63 11 20 31 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 219. Responses during the focus group discussions and interviews matched the responses collected through the questionnaires in that the general sentiment was that problems related to violations of property rights over movable or immovable property are not an obstacle to most business operations. However, there was also consensus that it would be beneficial to firms if such problems could be resolved more effectively and efficiently. Specifically, representatives of firms from Serbia highlighted that problems related to violations of property rights take too long to finalize through the courts. QQ from North Macedonia, Medium business, Services: “We had a few robberies in the restaurant, some parts of the inventory were stolen, but these cases were never solved.” QQ from Serbia, Large business, Trade: “We had a problem due to refrigerators that we gave to a retailer. It is a similar situation as with payment; the shop closed, and the owner disappeared with our property. There was a long court proceeding, and when we finally won the case, we could not get the payment. After that, we had to do something to avoid these situations in the future. We established our own system, now employees visit shops and check if everything is all right. If it is not, they contact the owners and try to solve the problem with them. This has proved to be very efficient, so we have minimized potential losses.” 103 220. Firm representatives from Montenegro also noted that pecuniary losses from petty theft, usually for goods that amount to less than 150 EUR, in which case the perpetrators cannot, by law, be prosecuted, ultimately add up and negatively affect the operational costs of the business. QQ from Montenegro, Large business, Trade: “The law in Montenegro does not foresee criminal liability for damage under 150 EUR. For example, if a few drinks are stolen, there is nothing we can do about it. If we catch the culprits all we can do is warn them not to come to the store again. So, we have to pay extra money for cameras and security in order to reduce the problem in the future.” 221. Generally, problems that arise because of a relationship/interaction with state and/or local institutions and their officials (Figure 4.7.8) and problems that arise because of improper performance of duties by various state and/or local institutions and their officials (Figure 4.7.9) are not obstacles to key business operations. For both problems, large percentages of respondents reported that these problems are not an obstacle to or are only a minor obstacle to the business operations listed in the questionnaire. Notably, 45 percent and 40 percent of the respondents respectively reported that the problems that arise because of a relationship/interaction with a state and/or local institutions and their officials and problems that arise because of improper performance of duties by various state and/or local institutions and their officials are not an obstacle or are only a minor obstacle to the business’ stability and security. 45 percent and 47 percent respectively reported the same vis-à-vis the business’ growth and expansion and 42 percent and 51 percent respectively reported the same regarding the business’ competitiveness. The percentage of respondents who reported that problems that arise because of a relationship/interaction with a state and/or local institutions and their officials and problems that arise because of improper performance of duties by various state and/or local institutions and their officials are not an obstacle or are a minor obstacle to their operational costs (35 percent and 37 percent respectively) and their business operation in general (37 percent for both) was still large (and larger than the percentage of respondents who reported that these problems were obstacles) but comparatively lower than the percentage of respondents who reported the same for the other key aspects of the business’ operations. Figure 4.7.8: To what extent are problems that arise because of a relationship/interaction with a state and/or local institutions and their officials an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=100 Operational costs 12 23 35 16 14 Business growth and… 16 29 21 19 14 My business’ operation… 12 25 37 11 12 Business stability and… 21 24 20 19 14 The competitiveness of… 29 13 23 18 15 Access and cost of… 31 18 30 14 8 The number of employees 44 25 11 12 8 No obstacle 104 Minor obstacle Figure 4.7.9: To what extent are problems that arise because of improper performance of duties by various state and/or local institutions and their officials an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=101 Operational costs 18 19 35 16 11 My business’ operation in general 17 20 38 17 7 Business stability and security 19 21 31 20 8 Business growth and expansion 24 23 23 20 9 Access and cost of financing 24 27 30 13 5 The competitiveness of my… 26 25 34 9 5 The number of employees 51 21 11 12 4 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 222. In every country surveyed, slow administrative procedures, burdensome bureaucracy and dilatory issuances of licenses and permits were cited as fundamental problems, as was the consistent breach of stipulated deadlines on the part of institutions, with no repercussions. QQ from North Macedonia, Small business, Services: “I was waiting for a transport license for 2 years, which in a normal country you would get in a month. If I do not have it, the police will punish me with 5000 EUR, and automatically I should close the company.” QQ from Bulgaria, Medium business, Trade: “The National Council on Prices and Reimbursement of Medical Products does not meet the set deadlines for registration of the medical product price. Moreover, if it does not register the price, the medicine cannot be launched and sold on the market. Therefore, the longer the Council delays the registration, the more the company loses. The deadline for giving the price is 3 months, and sometimes the price is given within a year. ” 223. The situation is particularly cumbersome in Bosnia and Herzegovina due to specific state regulations and system fragmentation at all levels of government - municipal, cantonal, entity or state. This is especially true for courts and various agencies. QQ from Bosnia and Herzegovina, Small business, Trade: “In my case, it might be specific of the particular industry I am in, but the organization of the state makes it all difficult. Cantonal ministries of health and ten cantons, plus FBiH, and Brčko District… it is 13 permits, 13 essential medicines lists.” 105 224. The professionalism, or lack thereof, and competence of officials was also raised during the focus group discussions and interviews. Firm representatives noted that officials are often neither professional nor competent and often lack the necessary training to carry out their duties effectively and efficiently. QQ from Kosovo, Micro Business, Services: “There are not sufficiently professional staff in the institutions, we often get wrong information on issues very important to us.” QQ from Bosnia and Herzegovina, Medium business, Service: “We had some solutions, such as electronic signatures that were supposed to be done by someone in the respective ministry, but there weren’t any personnel trained for that. The state is in a halt for three or four years because they can’t use it, they don’t have knowledge, and on the other hand, companies need it because it is a standard that the global market imposes.” 225. Representatives of the firms also reported that the existing situation in their countries constrains the business environment and makes it difficult to maintain a viable operation without engaging in corruption. Firm representatives also pointed out that this has deeper and longer-term adverse effects on the functioning of the economy and the society in general. QQ from Kosovo, Medium business, Trade: “When you have to obtain some permit or license, waiting time is too long and after a while, it becomes clear to you that there is a need for a bribe, otherwise you will never receive the necessary documentation.” QQ from Bulgaria, Large business, Services: “The National Institute for Immovable Cultural Heritage is the institution that issues permissions and regulations for usage of old buildings with architectural value. Yet, it also works very clumsily and gives its permit with delay; its officials often ask for bribes to do what they are supposed to do.” QQ from Serbia, Medium business, Services: “I had a problem with a woman from the communal police. She wanted to give me 50 EUR penalty because the billboard was placed in front of the store; we removed the billboard, but she returned five days after, and still punished me. Eventually, I gave a job to her kid, so she stopped coming. ” 106 226. Respondents also reported that the use of personal contacts and connections to expedite procedures or bypass laws and regulations is common. The authorities’ failure to treat all firms the same has adverse effects on their operations, in particular their competitiveness and encourages corruption. Also, it is not uncommon for authorities to contravene the very regulations that they are tasked to implement and enforce, and, needless to say, comply with themselves. QQ from North Macedonia, Large business, Services: “One of the institutions required us to bring too many documents on the smoking ban in offices, because we had only one sign of it at the entrance to the company. When we went to deliver all those documents, their employee smoked in the office.” 227. Furthermore, respondents reported that the lack of clarity in the laws and regulations makes it very easy for the same to be manipulated and enforced selectively, which again exposes the key processes and procedures to corruption as authorities have scope to act arbitrarily and with no consequence and, usually, there is no recourse for the affected firm. QQ from Serbia, Large business, Trade: “When it comes to jurisdiction of inspections, the problem is that there is no rule book according to which they operate. We have a problem with sanitary inspections, because there is no national lab and we do not know where to send samples for analysis - to sanitary, phytosanitary or veterinary inspection and all of them work under the same ministry. This is where various analyses are interpreted differently, and we do not know who is right and who is wrong. Each of these inspections can visit us any time and punish us if we do not have analyses which they consider relevant.” QQ from Bulgaria, Micro business, Trade: “We supply some of our goods, more accurately kids ’ clothes, from a warehouse, which imports them from China. Customs procedures are heavy, clumsy and officials check and release the containers with huge delays. At the same time, a competitor’s warehouse has no problems with delays of customs release and its business flourishes.” QQ from Montenegro, Micro business, Services: “We had a problem with a regulation of space in front of our catering facility in Podgorica. There is a regulation according to which you can have a space in width of the building, but at the same time, you have to leave 2 meters space for pedestrians. I called an official and got information about these rules. Then, I told the inspector that none of the cafes in the next street left even 1 meter of space for pedestrians and she just said she can’t control if they move chairs and tables during the day, but I have to follow the law. At the end, we haven’t opened our cafe this summer, because we can’t comply with the rule of a two-meter pass and if the inspection comes, they will write us penalties.” 228. Based on the responses provided by the firm representatives, problems related to the collection of other financial obligations towards the state are not an obstacle to key business operations. In each case, large percentages of respondents reported that the problems are not an obstacle or are a minor obstacle to their operations. For example, 53 percent of the respondents noted that the problems are not an obstacle to or are a minor obstacle to access to and cost of financing, 48 percent reported the same for operational costs, 47 percent reported the same for the business’ 107 stability and security, while 44 percent reported the same for the business’ operations in general and the competitiveness of the business. Figure 4.7.10: To what extent are problems related to the collection of other financial obligations towards the state an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=142 Business stability and 11 36 24 20 6 security Business growth and 14 28 32 22 4 expansion My business’ operation in 12 32 29 22 3 general The competitiveness of my 25 19 24 22 7 business Operational costs 19 29 28 17 6 Access and cost of financing 19 34 30 12 3 The number of employees 47 27 13 12 0 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 229. During the focus group discussions and interviews, firm representatives reiterated that inconsistency, unpredictability, lack of flexibility and cumbersome bureaucracy are the main problems that businesses face when fulfilling their financial obligations towards the state. Furthermore, firm representatives from Bosnia and Herzegovina highlighted that the extremely high taxes that they are required to pay (which according to them are the highest in the region) negatively impact the national economy. For instance, they said that in the last five or six years, international companies have shut down or reduced their operations in Bosnia and Herzegovina and moved to other more competitive and profitable markets. QQ from Bosnia and Herzegovina, Micro business, Services: “I don’t have any external support to survive each month, and the state levies are higher than all other expenses that I have. I consider myself lucky that I work in a field where the clients are liquid and are going through development.” 230. Representatives of the firms also noted that the fact that some firms can get away with not paying taxes for extended periods of time and amass huge arrears is indicative of the fact that there are loopholes in the system (which can be abused) and consequently that the system does not function well and is not capable of ensuring that laws are complied with. QQ from Croatia, Large business, Trade & Manufacturing: “I don’t see how to avoid it, how not to pay. You can hear about enormous tax debts in the media, and I just do not understand how it can even occur... that means that the justice system does not function well.” 108 231. Firm representatives from Albania, especially those from small firms, expressed their concern with the lowering of the VAT threshold. The new threshold means that almost all small businesses are now included in the VAT system and have additional financial obligations towards the state. This development is perceived to favor large corporations that would benefit from eliminating competition from, for example, small traditional trades or neighboring supermarkets which, until recently, did not have to register for VAT. According to representatives of small enterprises, such firms are bound to experience financial difficulties and many of them could be forced to scale down or shut down. LIMITED USE OF THE COURTS TO RESOLVE LEGAL PROBLEMS Throughout the report, the findings have pointed to the fact that firms across the region do not see or use courts as their first port of call to resolve legal problems, almost always preferring to engage in direct negotiation with the other party. The reasons for this were cited in the focus group discussions and interviews and included complexity, inefficiency and lengthy timeframes associated with court proceedings. Direct negotiation, mediation, and arbitration are the most common dispute resolution mechanisms outside of the courts o Regionwide, 82 percent of the firms reported that they engaged in direct negotiations with the other party before approaching courts. 17 percent reported that they used mediation first while 8 percent reported that they used arbitration. o At the country level, 93 percent of the firms from Croatia reported that they engaged in direct negotiations to solve their legal problems before approaching the courts. This is above the regional average (82 percent). In Kosovo and Albania, 50 percent and 45 percent of the respondents respectively reported that they used mediation to resolve problems before they approached the courts. In both cases, the percentage of respondents who reported this was higher than the regional average (17 percent). Court proceedings are inefficient and court costs are prohibitive o Although more than half of the respondents (53 percent) across SEE agreed that court decisions are enforced, a higher percentage; 69 percent did not agree that court proceedings are conducted quickly and efficiently. Of the 69 percent, 35 percent did not agree with this statement at all. Additionally, 64 percent of the respondents did not agree that the costs of going to court are acceptable. o 61 percent of the respondents from Montenegro and 62 percent from North Macedonia agree that court decisions are enforced, while 50 percent and 52 percent of respondents from Bulgaria and Bosnia and Herzegovina respectively do not agree. o The largest percentage of respondents who did not agree that court proceedings are conducted quickly and efficiently were Croatia (91 percent), then Bulgaria (88 percent). The lowest percentage of respondents were from Kosovo (49 percent) and then North Macedonia (47 percent). Although the percentage of respondents from Kosovo and North Macedonia was relatively lower compared to the other countries, the percentages are still quite high and account for almost half of the respondents. o In Bulgaria, 70 percent of the respondents did not agree that the costs of going to court are acceptable, while the percentage of respondents in Bosnia and Herzegovina was 73 percent. In both countries, the percentage of respondents who did not agree was higher than the regional average (64 percent). The percentage of respondents who did not agree that the costs of going to court are acceptable was comparatively lower in North Macedonia (53 percent) and Kosovo (49 percent); both lower than the regional average but still quite high. 109 5. CONCLUSION AND RECOMMENDATIONS 5.1. CONCLUSION 232. This report documents firms’ perceptions of and experiences with the justice system and performance of the courts in their respective countries, in a way that reveals the nature, range and extent of the challenges businesses face in their operations because of the system. 233. Although articulated in different ways, court inefficiency and the associated delays and expenses emerged as the most common and most severe challenge for firms in the region. As a result, firms avoid the courts and prefer to resolve their problems outside of the court system. Perceptions of and experiences with the justice system are negative and trust in the system is low. 234. Firms also complained about unpredictability in decision-making, specifically that courts are not fair, unbiased and uncorrupted. This is problematic because firms are unable to make reasonable assumptions as they operate, and this dampens the business climate. It also explains, in part, why firms prefer to negotiate as best they can outside of the court system to resolve disputes. 235. Most courts in the region have not adopted a citizen-centric approach to justice service delivery in a way that instills trust in the system and increases user satisfaction. Therefore, courts are not perceived as facilitators of the business environment, instead, they are viewed as an impediment or are deemed to have no influence at all. 236. Improving justice system performance on a regional scale can help to foster innovation, deepen regional integration, and improve the business climate for the entire region. 5.2. RECOMMENDATIONS AND NEXT STEPS 237. The report was not intended to provide specific policy recommendations. Instead, the report was designed to help policy makers, development partners and CSOs to better understand the nature and extent of barriers to doing business by documenting firms’ perceptions of and experiences with the justice system. The report raises the challenges that firms in the region face because of low performing justice systems. 238. By following the data, stakeholders can then engage in more structured policy dialogue and better target reforms to improve justice system performance. The data contained in the report can serve as a baseline to measure future improvements in justice reform and the business climate. The data can also be used to feed into country specific reform agendas and could inform the sequencing and prioritization of reforms based on a diagnostic of where the fundamental problems lie. 239. That said, the survey findings reveal three key challenges in the region that, if addressed, could contribute to improving the performance of the justice system and signal to investors in SEE and beyond that the region is open for business. The challenges are slow, inefficient courts, lingering perceptions of corruption and undue influence in the judiciary, and the absence of a user-centric approach in the delivery of justice services. The report will focus on these challenges by framing, in very broad strokes, the priority areas that could be leveraged as effective entry points. 110 Increasing court efficiency 240. Courts in the region would benefit from adopting measures and reforms that reduce delays and increase efficiency. The specific reforms will depend on the nature of the inefficiency and the stage at which it occurs in the court process, however reforms that have proven to be particularly effective include; introducing legislation that limits adjournments and imposes time limits, streamlining procedures, fast-tracking the resolution of small claims, improving levels of ICT use in courts and adopting modern case flow management techniques. These approaches have had positive effects on the economy by improving access to justice for firms and helping courts to diminish backlogs by resolving cases more easily. 241. For example, simplifying and streamlining procedures for minor disputes can enhance efficiency. To achieve this, countries may need to update their civil procedure rules and update their court systems to cater to the new approach and facilitate the expedited processing of cases in a cheaper and more efficient manner that is more appropriate for justice in that instance. According to Doing Business data, 138 economies have a small claims procedure of some kind. Simple procedures speed up the process, and permit courts to deviate from strict rules of procedure. This includes doing away with court hearings by processing the case on the strength of papers filed, setting aside ordinary rules of evidence, and imposing shorter deadlines. Limiting, or eliminating altogether, the need for lawyers, by encouraging parties to represent themselves with guidance from the judge, as well as limiting the right to appeal to points of law, are effective ways of simplifying the procedures and making the system quicker and more accessible. Also, low court fees for small claims make the procedure affordable for and accessible to firms, especially small and micro enterprises. 242. Modernization through ICT is also essential and can help to improve efficiency. Users increasingly expect more modern processing befitting EU member states, such as free online legal information, e-filing, paperless handling, SMS updates, legible performance data and the like. Offering these services would expedite case processing, reduce vulnerabilities to corruption, increase user satisfaction and build trust in the judiciary. Estonia is the bastion of e-justice and uses ICT solutions in court management and communication between courts and other parties. Countries can look to the Estonian experience to see what lessons might be useful in their own contexts. 243. Introducing or upgrading case management systems (CMS) is an effective way of increasing efficiency in the processing of cases and increasing the capacity of judges and court staff to use CMS for case management and monitoring. CMS keep track of scheduled hearings, adjournments and the reasons thereof, and can help to monitor efficiency. Advanced systems also make it possible to prepare various types of electronic analytical reports based on the statistical data collected. For instance, in Azerbaijan, the introduction of progressive electronic management in the judiciary increased the effectiveness of strategic management and planning in the judicial system. Improving integrity and enhancing transparency 244. Transparency in the justice system promotes accountability, combats corruption, and helps eliminate arbitrariness in a way that builds trust and confidence in the system. When a justice system operates openly and transparently, there is free flow of information from the judiciary to citizens about its performance and key court decisions. Transparency can be an effective way for 111 courts to demonstrate to businesses that they are committed to upholding the rule of law and adjudicating matters impartially and with the highest level of integrity. This can have a range of positive spillover effects for the economy, and in particular, can inspire confidence in potential investors. 245. Enhanced independence, accountability, and professionalism of the judiciary is necessary to ensure that laws and regulations are implemented in an efficient and nondiscretionary way, helping to improve the business environment in the region. The professional capacity of judges, court staff, ministries of justice and staff in other key justice institutions can be strengthened by conducting needs assessments, developing training courses and curricula and then delivering the training to the relevant target groups. Adopting a more user-centric approach to the delivery of justice services 246. Courts around the world are increasingly adopting a more citizen-focused, user-friendly approach to justice. Beyond ensuring an individual, or a firm’s access to the court, they also ensure that legal information is readily available and easy to understand. They recognize that user satisfaction is a key dimension of the quality of justice and is instrumental in improving trust in the system. To obtain a detailed understanding of the experience of court users, courts might consider conducting user satisfaction surveys and regular exit interviews. This will also enable courts to collect data that i) contributes to the evidence base and improves our understanding of how courts and the justice system impact the business climate and ii) provides a framework of indicators to measure improvements in justice service delivery over time. 247. Given the heavy reliance on direct negotiations more could be done to ensure that the negotiations are fair and effective. Countries might consider promoting legal awareness among firms, especially smaller firms that may not have access to inhouse counsel or sufficient resources to hire corporate lawyers. Providing legal information about where to access legal advice and on the tenets of principled negotiation could be useful. 248. There is also room to use and promote mediation, especially court-annexed mediation, given that it seems to be underutilized but firms believe that it is effective. Mediation is a cost efficient and effective way of resolving disputes and can help to enlarge access to justice especially for small firms. 5.3. WAY FORWARD Improve the range and quality of data • Evidence suggests that low performing justice systems in SEE have a negative effect on the business environment and inhibit private sector development. However, data that documents the specific problems that cause inefficiency in the justice system and suboptimal performance are scant, especially in the region. Furthermore, the limited data available are not collected in a harmonized fashion, which makes it difficult to compare findings and draw evidence-based conclusions. 112 • Data and empirics are an effective way to raise the volume on justice reform by identifying specific problems in the sector and tying the causes of these challenges to actionable recommendations that demonstrate the potential positive impact of investing in justice to promote and sustain development and economic growth. • The survey results show significant differences in the experiences and perceptions of the justice system for firms with and without court experience. However, due to the small sample size, it is not possible to conduct an analysis and draw reliable conclusions on this finding. Going forward, it would be useful to conduct additional analysis based on a larger pool of respondents. Raise awareness and promote dialogue among stakeholders • Armed with robust data, it is easier to build a compelling case for counterparts in governments, business, and civil society to engage in evidence-based policy making and pursue pragmatic reform opportunities. Furthermore, accelerating the practice of justice reforms in SEE is essential to improve justice performance in line with EU benchmarks. This will in turn make the economies of these countries more competitive and attractive to investors. Build reform scenarios that demonstrate the potential benefits of reform • Wholesale reforms, while ideal, seldom occur. The report focuses on a range of specific challenges in the justice sector and attempts to document how these challenges affect the business climate in each of the countries surveyed. By following the data, each of the countries can begin to identify specific areas of reform in the justice system that would have a tangible impact on the business climate. This could set the scene for approaches with very targeted reforms that can be deepened and augmented over time until all the key aspects in the justice system that constrain the business environment are addressed. In the same vein, the data provided by this report can be used to feed into country-specific reform agendas and can also inform the sequencing and prioritization of reforms based on a diagnostic of where the fundamental problems exist. 113 Annex 1. Survey Demographics Respondents’ position in the firm: 47 percent of respondents were owners or co-owners of the firm, 14 percent were directors, 5 percent deputy directors and 34 percent other decision-making managers Figure A1.1: Sample structure by respondent’s position SEE 47 14 5 34 Albania 44 43 50 Bosnia and Herzegovina 34 28 6 31 Bulgaria 60 6 6 28 Croatia 45 22 6 26 Kosovo 48 6 7 40 Montenegro 45 15 2 37 North Macedonia 46 14 5 35 Serbia 52 14 9 25 Owner, Co-owner Director Deputy Director Other manager included in decision making important to the business Number of employees: 50 percent of surveyed firms had up to 9 employees, 30 percent between 10 and 49, 17 percent between 50 and 249, while 3 percent of surveyed firms had more than 250 employees. Figure A1.2: Sample structure by number of employees SEE 50 30 17 3 Albania 50 30 18 2 Bosnia and Herzegovina 50 30 17 4 Bulgaria 50 29 18 3 Croatia 50 31 15 4 Kosovo 50 30 19 1 Montenegro 51 30 16 4 North Macedonia 50 30 17 2 Serbia 51 31 15 3 Up to 9 10 - 49 50 - 249 More than 250 114 Main activity: 27 percent of surveyed firms were from manufacturing, 42 percent from trade, while 31 percent were from the service sector. Figure A1.3: Sample structure by main activity SEE 27 42 31 Albania 25 50 25 Bosnia and Herzegovina 26 41 33 Bulgaria 26 41 32 Croatia 30 37 33 Kosovo 26 43 31 Montenegro 25 43 32 North Macedonia 26 43 31 Serbia 28 40 31 Manufacturing Trade Services Legal form: The majority of surveyed firms (61 percent) were limited liability companies, 26 percent were sole proprietors, 5 percent joint stock companies, 4 percent partnerships, while 4 percent of surveyed firms had some other legal form. Figure A1.4: Sample structure by legal form SEE 26 61 5 4 4 Albania 32 57 3 8 Bosnia and Herzegovina 7 81 9 12 Bulgaria 26 63 7 22 Croatia 13 79 1 61 Kosovo 63 14 3 20 Montenegro 11 80 41 4 North Macedonia 27 43 32 24 Serbia 27 69 3 Sole Proprietor Limited Liability Company Joint-stock Company Partnership Other Gender: 58 percent of the respondents were male, and 42 percent were female Figure A1.5: Sample structure by gender of the respondent 115 SEE 58 42 Albania 55 45 Bosnia and Herzegovina 66 34 Bulgaria 48 52 Croatia 50 50 Kosovo 76 24 Montenegro 58 42 North Macedonia 57 43 Serbia 54 46 Male Female Educational background: 60 percent of the respondents had a university degree or better, 39 percent had completed high school, while 1 percent had primary school education. Figure A1.6: Sample structure by respondent’s educational background SEE 1 39 60 Albania 24 76 Bosnia and Herzegovina 33 67 Bulgaria 35 64 Croatia 1 40 59 Kosovo 1 39 60 Montenegro 47 53 North Macedonia 2 45 53 Serbia 48 51 Primary school Finished high school Finished higher school or university degree (including MA, PhD) Majority owner: 82 percent of surveyed firms are owned by a domestic individual, 13 percent by a domestic legal entity, 3 percent by a foreign individual, and 3 percent by a foreign legal entity. 116 Figure A1.7: Sample structure by majority owner SEE 82 3 13 3 Albania 59 4 34 3 Bosnia and Herzegovina 81 5 9 5 Bulgaria 82 1 17 Croatia 83 1 11 5 Kosovo 98 1 1 Montenegro 79 2 15 4 North Macedonia 88 5 61 Serbia 84 2 13 1 Domestic individual Foreigner Domestic legal entity Foreign legal entity Turnover: 21 percent of respondents have a turnover of up to 50,000 EUR; 11 percent between 50,000 and 100,000 EUR; 8 percent between 100,000 and 200,000 EUR; 7 percent between 200,000 and 400,000 EUR; 6 percent between 400,000 and 600,000 EUR; 3 percent between 600,000 and 800,000 EUR; 2 percent between 800,000 and 1,000,000 EUR; 2 percent above 1,000,000 EUR; while 32 percent did not know or refused to answer. Figure A1.8: Sample structure by annual turnover SEE 21 11 8 7 6 3 2 11 32 Albania 30 22 13 13 13 4 212 Bosnia and Herzegovina 5 6 7 9 10 7 4 26 26 Bulgaria 23 7 4 3 2117 52 Croatia 14 11 12 8 8 6 6 26 9 Kosovo 27 13 7 5 2212 43 Montenegro 31 10 8 9 5 32 15 15 North Macedonia 24 10 7 4 222 4 45 Serbia 17 6 4 4215 61 Up to 50,000€ From 50,000 to 100,000€ From 100,000 to 200,000€ From 200,000 to 400,000€ From 400,000 to 600,000€ From 600,000€ to 800,000€ From 800,000€ to 1,000,000€ More than 1,000,000€ Do not know/ refuse to answer 117 Annex 2. Survey questions with a small number of respondents In Bosnia and Herzegovina, 53 percent of the respondents reported that they resolve problems between them and the state related to the non-fulfillment of contractual obligations other than the collection of payments due by publicizing them in the media. In North Macedonia, 37 percent of respondents reported that they resolved this problem through informal payments of gifts, to make the problem go away, as did 11 percent of the respondents from Albania and 17 percent of the respondents from Kosovo; all above the regional average; 7 percent. Figure A2.1: How did you attempt to resolve problems between the state and your business related to the non-fulfillment of contractual obligations other than the collection of payments due? (Respondents whose business faced specified problem - N=184, %, multiple responses were possible, therefore totals may add up to more than 100%) SEE 59 22 13 5 7 11434 Albania 39 36 25 13 11 Bosnia and Herzegovina 1 16 16 1 53 428 Bulgaria 89 6421 Croatia 85 16 2 Kosovo 66 17 58 8 17 8 8 8 North Macedonia 17 35 4 34 37 2 16 39 16 Montenegro 81 36 11 Serbia 65 33 362 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer Generally, problems related to the safety and security of employees are resolved through direct negotiation. 70 percent of respondents reported this in Croatia. For the other countries, large percentages of countries reported that same, but the base is too small to draw valid conclusions. This is also true for the other problem resolution avenues listed in the questionnaire. 118 Figure A2.2: How have you attempted to resolve problems related to the safety and security of employees and assets? (Respondents whose business faced specified problem - N=177, %) SEE 50 18 12 3 8 6 7 2 11 Albania 57 16 16 27 Bosnia and Herzegovina 46 13 6 4 8 18 4 13 Bulgaria 23 34 23 3 5 21 Croatia 70 13 34210 Kosovo 45 22 45 11 11 North Macedonia 37 25 3 15 39 6 21 Montenegro 59 48 1 Serbia 43 11 26 6 6 24 6 15 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party For problems related to infringements of intellectual property rights and problems related to violations of property rights over movable or immovable property, the base for all the countries surveyed is too small for us to draw valid conclusions, but the trend seems to be the same. With few exceptions, firms resolve these problems primarily through direct negotiation, then the courts, then through mediation. 119 Figure A2.3: How have you attempted to resolve problems related to infringements of intellectual property rights? (Respondents whose business faced specified problem - N=73, %) SEE 52 25 15 37 6 5111 Albania 70 30 43 1 Bosnia and Herzegovina 51 14 83 30 Bulgaria 100 Croatia 61 36 24 Kosovo 43 28 114 14 North Macedonia 46 50 21 51 21 29 6 19 Montenegro 63 19 19 Serbia 100 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer Figure A2.4: How have you attempted to resolve problems related to violations of property rights over movable or immovable property? (Respondents whose business faced specified problem - N=149, %) SEE 48 32 7 7 61526 Albania 23 49 1 20 7 7 Bosnia and Herzegovina 63 21 2102 15 32 Bulgaria 45 33 10 12 Croatia 64 32 43 Kosovo 50 25 36 13 12 North Macedonia 8 34 30 29 21 11 30 22 Montenegro 30 54 1 18 Serbia 77 16 7 Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicising the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party Do not know/ refuse to answer 120 Figure A2.5: How do you assess the effectiveness of the methods you used to solve problems related to the infringement of intellectual property rights? (Respondents whose business faced the specified problems and tried to solve them in at least one of these way, 3 questions at most – random choice of methods and problems, %, mean, median) SEE Arbitration 100 Publicising the problem in the media 13 87 Mediation 20 80 Direct negotiations with the other party 2 9 61 29 Informal payments or gifts to make the problem go away 100 Court 22 33 45 Not effective at all Not very effective Somewhat effective Very effective The extent to which problems related to the infringement of intellectual property rights are an obstacle to key aspects of a business’ operations varies depending on the type of business operation in question. For example, 26 percent of the respondents reported that problems related to the infringement of intellectual property rights are an obstacle to their operations costs. Of the 26 percent, 16 percent noted that these problems are a severe obstacle. Furthermore, a relatively large percentage; 42 percent reported that these problems are a moderate obstacle, while only 17 percent reported that these problems are not an obstacle or are a minor obstacle. The trend is similar for the competitiveness of the business and the business’ operations in general, where 29 percent and 18 percent of the respondents respectively reported that problems related to the infringement of intellectual property rights are an obstacle. 29 percent and 44 percent of the respondents reported that these problems are a moderate obstacle and 27 percent and 22 percent respectively, reported that these problems are not an obstacle or are a minor obstacle. Conversely, for the business’ stability and security, access to and cost of financing and number of employees, large percentages of respondents; 61 percent, 58 percent and 62 percent respectively reported that problems related to the infringement of intellectual property rights are not an obstacle or are a minor obstacle. For the business’ growth and expansion, slightly more respondents (35 percent) were of the view that problems related to the infringement of intellectual property rights were a moderate obstacle, than those who were of the view that they are not an obstacle or are a minor obstacle (33 percent). 121 Figure A2.6: To what extent are problems related to infringements of intellectual property rights an obstacle to the following aspects of your business’ operations? (Respondents whose business faced the specified problems – random choice of problem, %, mean, median) SEE, N=25* Operational costs 8 9 42 10 16 The competitiveness of my 11 16 29 29 0 business My business’ operation in general 13 9 44 18 0 Business growth and expanding 4 29 35 17 0 Business stability and security 10 51 10 12 1 Access and cost of financing 35 23 15 5 8 The number of employees 34 28 7 16 0 No obstacle Minor obstacle Moderate obstacle Major obstacle Very severe obstacle 122 Annex 3. Survey Questionnaire Survey on Justice Problems and the Business Climate World Bank Length of interview: xx min Start fieldwork: xx .2018. End fieldwork: xx.2018 I. SAMPLE VARIABLES II. QUOTA CHECK BASED ON SAMPLE VARIABLES III. INTRODUCTION Good morning/afternoon. My name is ______________ and I’m coming from GfK – Market research agency. We are currently conducting a survey on business environment and problems that businesses can face in their daily operations. The survey is commissioned by the World Bank and carried out in 8 countries in the region. I need to interview a member of your management team, a decision-maker in your company. May I talk with him/her? Your opinion would be very important for this subject, we would very appreciate if you can take the time to complete the questionnaire that takes about 40 minutes? Your answers will remain strictly anonymous, i.e. they will be used for statistical purposes solely. You can refuse to answer any question or terminate the interview at any stage. Demography Base: all respondents Q01 [S] What is your position within the business? INTERVIEWER: READ THE ANSWERS 1. Owner, Co-owner 2. Director 3. Deputy Director 4. Other manager included in decision making important to the business Base: all respondents Q02 [S] How many people are permanently employed in your business? [O] SCRIPTER: Mark category automatically. 1. Up to 9 2. 10-49 3. 50-249 4. More than 250 Base: all respondents Q03 [S] What is the main activity of your business? INTERVIEWER: READ THE ANSWERS 1. Manufacturing 123 2. Trade 3. Services 4. Other [O] (DO NOT READ!) Base: all respondents Q04 [O] What is the main product/service of your business? … Base: all respondents Q05 [S] What is the legal form of your business? INTERVIEWER: READ THE ANSWERS 1. Sole Proprietor 2. Limited Liability Company 3. Joint-stock Company 4. Partnership 5. Other [O] (DO NOT READ!) A. General perception of the justice system Base: all respondents A01 [S] From your perspective, to what extent is the rule of law present in your country? INTERVIEWER: READ THE ANSWERS 1. Not at all 2. Not really 3. Somewhat 4. To a great extent 98 Do not know (DO NOT READ!) 99 Refuse to asnwer (DO NOT READ!) Base: all respondents A02 [S per row] To what extent do you agree with the following statements related to the justice system in your country? Please use a scale from 1 to 4 where 1 means that you do not agree at all and 4 means that you completely agree. INTERVIEWER: READ THE STATEMENTS Rows: 1.The justice system is fair, unbiased and uncorrupted 2.The justice system is quick and efficient 3.The justice system is administered by competent people 4.The justice system is able to enforce court decisions 5.The justice system treats all businesses equally regardless of their size Columns: 1. Do not agree at all 2. Mostly disagree 3. Mostly agree 4. Completely agree 98. Don’t know (DON’T READ) 99. Refuse to answer (DON’T READ) B. Justice system in detail Base: all respondents 124 We’ve talked about the general concept of the justice system, and now please concentrate on its influence on the private sector. B01 [S] In your opinion, how does the current situation in the justice system affect the business environment in your country? INTERVIEWER: READ THE ANSWERS. PLEASE NOTE THAT, AMONG OTHER THINGS, THE JUSTICE SYSTEM IMPLIES LAWS, BYLAWS AND DIFFERENT REGULATIONS RELEVANT FOR DOING BUSINESS. 1. Very negatively 2. Negatively 3. It has no influence 4. Positively 5. Very positively 98. Don’t know (DON’T READ) 99. Refuse to answer (DON’T READ) Base: all respondents B02 [S per row] In your opinion, what is the influence of the ... on the business environment in your country? Please use a scale from 1 to 5 where 1 means very negative and 5 means very positive. INTERVIEWER: READ THE ITEMS Rows: 1. Existing laws 2. Prosecutor’s office 3. Courts 4. Police 5. Notaries 6. Bailiffs 7. Government departments and regulatory agencies Columns: 1. Very negative 2. Negative 3. No influence 4. Positive 5. Very positive 98. Don’t know (DON’T READ) 99. Refuse to answer (DON’T READ) Base: all respondents B03 [S per row] In your opinion, to what extent do these institutions act in accordance with the law? Please use a scale from 1 to 4 where 1 means that they do not act in accordance with the law at all, and 4 means that they act completely in accordance with the law. INTERVIEWER: READ THE ITEMS Rows: 1. Prosecutor’s office 2. Courts 3. Police 125 4. Notaries 5. Bailiffs 6. Government departments and regulatory agencies Columns: 1. Not at all 2. Mostly not 3. Mostly yes 4. Completely 98. Don’t know (DON’T READ) 99. Refuse to answer (DON’T READ) Base: all respondents B04 [S] In your opinion, to what extent is the law on the books the same as what businesses experience in practice? INTERVIEWER: READ THE ANSWERS 1. Not at all 2. Mostly not 3. Mostly yes 4. Completely 98. Don’t know (DON’T READ) 99. Refuse to answer (DON’T READ) Base: all respondents B05 [S] In your opinion, to what extent is the law applied and enforced in practice? INTERVIEWER: READ THE ANSWERS 1. Not at all 2. Mostly not 3. Mostly yes 4. Completely 98. Don’t know (DON’T READ) 99. Refuse to answer (DON’T READ) C. Influence of the justice system on business environment – perceptive and general experiential module Base: all respondents Now I will kindly ask you to set the focus on your business’s operations. C01 [S] Which of the following statements best describes the importance of the situation in the justice system for your business’ operations? INTERVIEWER: READ THE ANSWERS. PLEASE NOTE THAT, AMONG OTHER THINGS, THE JUSTICE SYSTEM IMPLIES LAWS, BYLAWS AND DIFFERENT REGULATIONS RELEVANT FOR DOING BUSINESS. 1. The situation in the justice system is not important at all for my business 2. The situation in the justice system has small importance for my business 3. The situation in the justice system has moderate importance for my business 4. The situation in the justice system is very important for my business 98 Do not know (DO NOT READ!) 99 Refuse to answer (DO NOT READ!) 126 Base: all respondents C02 [S per row] How does the current situation in the justice system affect the following aspects of your business’ operations? INTERVIEWER: READ THE ITEMS. PLEASE NOTE THAT, AMONG OTHER THINGS, THE JUSTICE SYSTEM IMPLIES LAWS, BYLAWS AND DIFFERENT REGULATIONS RELEVANT FOR DOING BUSINESS. Rows: 1. The number of employees 2. Access and cost of financing 3. Business growth and ability to expand 4. Business stability and security 5. Operational costs 6. The competitiveness of my business 7. My business’ operations in general Columns: 1. Very negatively 2. Negatively 3. It has no influence 4. Positively 5. Very positively 98. Don’t know (DON’T READ) 99. Refuse to answer (DON’T READ) Base: all respondents Now we would like to talk about more specific problems related to the justice system that businesses can encounter in their daily business. C03 [S per row] INTERVIEWER: READ THE PROBLEMS ONE BY ONE In your opinion, how often do business entities in your country face the following problems? Rows: 1. Problems related to labor law and regulations (employment and lay-offs of workers) 2. Problems related to the collection of payments due by the state to business entities 3. Problems between two business entities related to collecting due payments 4. Problems between the state and business entities related to the non-fulfillment of contractual obligations other than collection of due payments 5. Problems between two business entities related to the non-fulfillment of contractual obligations other than collection of due payments 6. Problems related to the safety and security of employees and assets 7. Problems related to infringement of intellectual property rights 8. Problems related to violation of property rights over movable or immovable property 9. Problems that arise as a result of relationship/interaction with the state and/or local institution and their officials. 10. Problems that arise as a result of improper performance of duties by various state and/or local institutions and their officers 11. Problems related to the payment of other financial obligations towards the state (taxes, customs, duties, contributions) 127 Columns: 1. Very often 2. Often 3. Rare 4. Very rare 5. Do not know (DO NOT READ!) 6. Refuse to answer (DO NOT READ!) Base: all respondents C04 [Q] I now want to ask you about how businesses solve these kinds of problems. There are several options that businesses can pursue. Please rank the following options for solving problems in terms of how commonly they are used by businesses. Rank 1 would mean that you believe its the most frequently used by businesses to solve problems, and Rank 8 would mean it’s the least frequently used by businesses to solve their problems. INTERVIEWER: READ THE ITEMS 1. Direct negotiations with the other party 2. Court 3. Mediation 4. Arbitration 5. Informal payments or gifts to make the problem go away 6. Publicising the problem in the media 7. Political influence or personal contacts and favours other than payments and gifts to make the problem go away 8. Threat of force or use of force or intimidation of the other party Base: all respondents C05 [M] Which of the following problems has your business faced over the past 3 years? INTERVIEWER: READ THE PROBLEMS ONE BY ONE 1. Problems related to labor law and regulations (employment and lay-offs of workers) 2. Problems related to the collection payments due by the state to your business 3. Problems between your business and another business related to collecting due payments 4. Problems between the state and your business related to the non-fulfillment of contractual obligations other than collection of due payments 5. Problems between your business and another business related to the non-fulfillment of contractual obligations other than collection of due payments 6. Problems related to the safety and security of employees and assets 7. Problems related to infringement of intellectual property rights 8. Problems related to violation of property rights over movable or immovable property 9. Problems that arise as a result of relationship/interaction with the state and/or local institution and their officials. 10. Problems that arise as a result of improper performance of duties by various state and/or local institutions and their officers 11. Problems related to the payment of other financial obligations towards the state (taxes, customs, duties, contributions) 12. None of the above [S] (DO NOT READ!) Base: respondents who didn’t mark code 12 on C05 C06 [M per row] How have you attempted to solve each of these problems? INTERVIEWER: READ THE ANSWERS SCRIPTER: Enlist all the problems marked on the previous question Problems in rows 128 Columns: 1. Direct negotiations with the other party 2. Court 3. Mediation 4. Arbitration 5. Informal payments or gifts to make the problem go away 6. Publicising the problem in the media 7. Political influence or personal contacts and favours other than payments and gifts to make the problem go away 8. Threat of force or use of force or intimidation of the other party 98 Do not know (DO NOT READ!) 99 Refuse to answer (DO NOT READ!) Base: all respondents C07 [S] You said that you have been solving the (SCRIPTER: randomly selected problem marked on C05) in a way that implies (SCRIPTER: randomly selected way marked for the respective problem on C06) How do you assess the effectiveness of this method in solving this problem? INTERVIEWER: READ THE ANSWERS SCRIPTER: Ask 3 questions in total – random choice of methods and problems 1. Not effective at all 2. Not very effective 3. Somewhat effective 4. Very effective 98 Do not know (DO NOT READ!) 99 Refuse to answer (DO NOT READ!) Base: all respondents C08 [S per row] You said that your business has recently faced (SCRIPTER: randomly selected problem marked on C05) To what extent was that type of problem an obstacle to the following aspects of your business’s operations? INTERVIEWER: READ THE ANSWERS SCRIPTER: Ask for only 1 randomly selected problem marked on C05 not necessary the same as in C07. Rows: 1. The number of employees 2. Access and cost of financing 3. Business growth and expanding 4. Business stability and security 5. Operational costs 6. The competitiveness of my business 7. My business’s operation in general Columns: 1. No obstacle 2. Minor obstacle 3. Moderate obstacle 4. Major obstacle 5. Very severe obstacle 98. Don’t know (DON’T READ) 129 99. Refuse to answer (DON’T READ) Base: if code 2 (in columns) is marked for any problem on C06 C09 [M] You said that at least one of the problems your business faced was going to court as a possible solution. Have you used some of the following ways before going to court? INTERVIEWER: READ THE ANSWERS 1. Direct negotiations with the other party 2. Mediation 3. Arbitration 4. Informal payments or gifts to make the problem go away 5. Publicising the problem in the media 6. Political influence or personal contacts and favours other than payments and gifts to make the problem go away 7. Threat of force or use of force or intimidation of the other party 8. None [S] (DO NOT READ!) 98 Do not know [S] (DO NOT READ!) 99 Refuse to answer [S] (DO NOT READ!) Base: if code 2 (in columns) is marked for any problem on C06 C10 [S per row] You say that your firm has been to court some time in the last 3 years. I’d now like to ask you about your experience with the courts. Please tell me your agreement with the following statements, using a scale of 1 to 4, where 1 means you do not agree at all, and 4 means you agree completely. INTERVIEWER: READ THE ANSWERS Rows: 1. Court proceedings are conducted quickly and efficiently 2. Court proceedings are conducted fairly and impartially 3. Court proceedings are conducted competently 4. The costs of going to court are acceptable 5. Court decisions are enforced Columns: 1. Do not agree at all 2. Mostly disagree 3. Mostly agree 4. Completely agree 98. Do not know (DO NOT READ!) 99. Refuse to answer (DO NOT READ!) Base: if code 2 (in columns) is not marked for any problem on C06 C11 [S] If you consider the problems your business has encountered over the past 3 years, and which did not use court as a possible solution, which was the main reason for not going to court? INTERVIEWER: READ THE ANSWERS. 1. The nature of the problem was such that it did not require court as a solution 2. Going to court as a solution for such problems is slow and ineffective 3. Going to court as a solution for such problems is unfair and biased 4. Going to court as a solution for such problems is expensive 98 Do not know (DO NOT READ!) 99 Refuse to answer (DO NOT READ!) D Legal aid Base: all respondents D01 [S] 130 When facing the problems we’ve talked about, where do you seek a legal advice or information? INTERVIEWER: DO NOT READ THE ANSWERS! MARK THE FIRST ANSWER OF RESPONDENT. OTHER ANSWERS MARK ON THE NEXT PAGE. SCRIPTER: First mentioned answer. 1. In-house legal officer 2. Lawyer or law office with a retainer agreement with my business 3. Lawyer or law office whom/which we contact in case of need 4. Various business/professional associations 5. Friends, family 6. Various government departments/agencies 7. Non-governmental organizations 8. Other _____? [O] 9. Nowhere 99. Refuse to answer Base: respondents who didn’t marked codes 9 or 99 on D01 D01a [M] Anywhere else? INTERVIEWER: DO NOT READ THE ANSWERS! MARK ALL OTHER ANSWERS OF RESPONDENT. SCRIPTER: Other mentioned. Do not show the answer marked on D01. 1. In-house legal officer 2. Lawyer or law office with a retainer agreement with my business 3. Lawyer or law office whom/which we contact in case of need 4. Various business/professional associations 5. Friends, family 6. Various government departments/agencies 7. Non-governmental organizations 8. Other _____? [O] 9. Nowhere else [S] 99. Refuse to answer [S] Base: all respondents D02 [S] You say that you went to (SCRIPTER: Always ask for the item marked on D01 + (if exists) 1 randomly selected item marked on D01a) for information or advice. How satisfied were you with the information/advice that you got there? Please use a scale from 1 to 4, where 1 means that you were not satisfied at all and 4 means that you were completely satisfied. INTERVIEWER: READ THE ANSWERS 1. Not satisfied at all 2. Mostly dissatisfied 3. Mostly satisfied 4. Completely satisfied 98. Do not know (DO NOT READ!) 99. Refuse to answer (DO NOT READ!) Base: all respondents D03 [S] If you have a problem in the future, where would you like to go for information/advice? INTERVIEWER: READ THE ANSWERS 1. Law offices 2. Business/professional associations 3. Government department/agency specialized in providing legal aid to business entities 4. Existing government institutions (e.g. ministries, various agencies etc.) 5. Courts 131 6. Online portal 7. Other _______? (DO NOT READ!) 98. Do not know (DO NOT READ!) 99. Refuse to answer (DO NOT READ!) Demography Base: all respondents F01 [S] Gender of the respondent 1. Male 2. Female Base: all respondents F02 [S] Age of the respondent 1. 18 - 35 2. 36 - 55 3. 56+ Base: all respondents F03 [S] Educational background 1. Primary school 2. Finished high school 3. Finished higher school or university degree (including MA, PhD) Base: all respondents F04 [O] What year was your company founded? Base: all respondents F05 [S] Who is the majority owner of your company? 1. Individual from your country 2. Foreigner 3. Domestic legal entity 4. Foreign legal entity Base: all respondents F06 [S] What was the annual turnover of your company (in 2017)? 1. Up to 50,000€ 2. From 50,000 to 100,000€ 3. From 100,000 to 200,000€ 4. From 200,000 to 400,000€ 5. From 400,000 to 600,000€ 6. From 600,000€ to 800,000€ 7. From 800,000€ to 1,000,000€ 8. More than 1,000,000€ 98 Do not know (DO NOT READ!) 99 Refuse to answer (DO NOT READ!) Base: all respondents We have finished the interview. I would ask you for your first and last name and phone number for possible phone control from GfK to check my work, or whether the interview was really done. 132 COMPANY NAME [O] NAME OF RESPONDENT [O] PHONE NUMBER [O] CITY [O] REGION [O] End message Thank you very much for your patience and time. 133 Annex 4. Analysis by gender of respondent The gender analysis was conducted on the original dataset. Data were weighted to ensure the representativeness and reliability of results. For nominal variables the test used was comparison of column proportions. Only valid answers were included in the analysis (“don’t know” or “No answer” were excluded). For scale variables the test used was t-test for independent variables. Both tests used the 95% probability as the determined significance level. Respondent units in this survey were businesses entities. As such they do not have gender as their demographic characteristic. The question in the questionnaire referred to the gender of the respondent who may or may not be the business owner, director or main decision maker. All conclusions from this analysis ought to take this into account. Only statistically significant differences are discussed. If there is no discussion, it means that no differences by gender were found or that the number of respondents was too low for a reliable analysis. The main finding is that female respondents have a more positive perception of the justice system, and specific aspects of the system and their influence on the business environment. There are three possible explanations for this. The explanations highlighted below are speculative and further research is required to fully understand why female respondents have more positive perceptions: a. Female respondents generally have more a positive ‘perspective’. b. The nature of businesses represented by female respondents could be the reason for the more positive perception (there were more female respondents in the trading sector than in the manufacturing industry). c. The positions female respondents occupy in the business may shelter them from some of the barriers and difficulties faced by the business. Most female respondents were “other managers involved in the decision making of the business”, while male respondents were commonly directors and owners of the business. Q01: What is your position in the business? A higher percentage of male respondents were owners of the business (64 percent) and directors (16 percent) compared to females respondents; 55 percent and 14 percent respectively. More female respondents than male respondents were managers with decision making authority; 30 percent of the female respondents and 19 percent of the male respondents. Q02: How many people are permanently employed in your business? No difference found Q03: What is the main activity of your business? 42 percent of the female respondents worked in the trade industry, while the percentage of male respondents was 37 percent. There were more male respondents in the manufacturing industry (26 percent) than female respondents (19 percent). Q05: What is the legal form of your business? 134 No difference found A01: From your perspective, to what extent is the rule of law present in your country? No difference found A02: To what extent do you agree with the following statements related to the justice system in your country? Scale: Do not agree at all Mostly disagree Mostly agree Completely agree Items: a. The justice system is fair, unbiased and uncorrupted b. The justice system is quick and efficient c. The justice system is administered by competent people d. The justice system is able to enforce court decisions e. The justice system treats all businesses equally regardless of their size For all statements, female respondents had more positive perceptions than male respondents. For example, 10 percent of the female respondents completely agreed that the justice system is fair, unbiased and uncorrupted while 7 percent of the male respondents were of the same view. Similarly, 14 percent of the female respondents completely agreed that the justice system is administered by competent people while 11 percent of the male respondents had the same view. However, given that overall, perceptions were generally negative, a more accurate interpretation would be that female respondents had a less negative perception. B01: In your opinion, how does the current situation in the justice system affect the business environment in your country? Compared to the male respondents, fewer female respondents (31 percent) were of the opinion that the justice system negatively affects the business environment. The percentage of men who believed that the system negatively affects the business environment was 35 percent. B02: In your opinion, what is the influence of the (items in rows) on the business environment in (the country? Rows: Scale: 1. Existing laws 1. Very negative 2. Prosecutor’s office 2. Negative 3. Courts 3. No influence 4. Police 4. Positive 5. Notaries 5. Very positive 6. Bailiffs 135 7. Government departments and regulatory agencies Except for notaries and bailiffs (where no difference was found) female respondents expressed more positive (or less negative) evaluations than male respondents. B03: In your opinion, to what extent do these institutions (in rows) act in accordance with the law? Rows: Scale: Prosecutor’s office Not at all Courts Mostly not Police Mostly yes Notaries Completely Bailiffs Government departments and regulatory agencies Female respondents differ from their male counterparts in their evaluation of courts, and government departments and regulatory agencies. For these institutions, female respondents expressed a somewhat more positive perception of the extent to which they act in accordance with the law. B04: In your opinion, to what extent is the law on the books the same as what businesses experience in practice? No difference found B05: In your opinion, to what extent is the law applied and enforced in practice? No difference found C01: Which of the following statements best describes the importance of the situation in the justice system for your business’ operations? a. The situation in the justice system is not important at all for my business b. The situation in the justice system has small importance for my business c. The situation in the justice system has moderate importance for my business d. The situation in the justice system is very important for my business The analysis showed that female respondents assign significantly lower importance to the justice system than male respondents; 24 percent of the female respondents reported that the justice system is not important at all for their business, while 17 percent of the male respondents reported the same. C02: How does the current situation in the justice system affect the following aspects of your business’ operations? Aspects: Scale: The number of employees Very negatively Access and cost of financing Negatively 136 Business growth and ability to expand It has no influence Business stability and security Positively Operational costs Very positively The competitiveness of my business My business’ operations in general Female respondents express more positive evaluations of how each of the aspects affect their business’ operations. C03: In your opinion, how often do business entities in your country face the following problems? Problems: a. Problems related to labour law and regulations (employment and lay-offs of workers) b. Problems related to the collection payments due by the state to business entities c. Problems between two business entities related to collecting due payments d. Problems between the state and business entities related to the non-fulfilment of contractual obligations other than collection of due payments e. Problems between two business entities related to the non-fulfilment of contractual obligations other than collection of due payments f. Problems related to the safety and security of employees and assets g. Problems related to infringement of intellectual property rights h. Problems related to violation of property rights over movable or immovable property i. Problems that arise as a result of relationship/interaction with the state and/or local institution and their officials. j. Problems that arise as a result of improper performance of duties by various state and/or local institutions and their officers k. Problems related to the payment of other financial obligations towards the state (taxes, customs, duties, contributions) No difference found C04: Ways of solving problems. (Ranking 1 to 8, with 1 being the highest and 8 being the lowest) Direct negotiations with the other party Court Mediation Arbitration Informal payments or gifts to make the problem go away Publicizing the problem in the media Political influence or personal contacts and favours other than payments and gifts to make the problem go away Threat of force or use of force or intimidation of the other party No difference was found between female and male respondents except on “publicizing the problem in the media” which is ranked somewhat higher by female respondents. However, this solution is ranked lowly in general (between 5 and 6) so this difference does not seem to be very relevant. C05: Which of the following problems has your business faced over the previous 3 years? Female respondents report experiencing the following problems less frequently than male respondents: - Problems related to the collection payments due by the state to your business 137 - Problems between your business and another business related to collecting due payments - Problems between your business and another business related to the non-fulfillment of contractual obligations other than collection of due payments - Problems that arise as a result of relationship/interaction with the state and/or local institution and their officials. - Problems that arise as a result of improper performance of duties by various state and/or local institutions and their officers Female respondents reported more frequently that they did not experience any of the problems mentioned. C06: In which ways has each of these problems attempted to be resolved? Male respondents reported using mediation, informal payments, and political influence or personal relations more frequently than female respondents. C07: How do you assess the effectiveness of this method in solving this problem? Male respondents were more likely to be of the view that informal payments are effective compared to female respondents. There are no differences in how the other methods of resolving problems were assessed. C08: To what extent was that type of problem an obstacle to the following aspects of your business’ operations? Aspects: Scale: The number of employees No obstacle Access and cost of financing Minor obstacle Business growth and ability to expand Moderate obstacle Business stability and security Major obstacle Operational costs Very severe obstacle The competitiveness of my business My business’s operations in general Compared to female respondents, male respondents were more likely to report that the problems were severe obstacles for all aspects of their business, except for “business stability and security” and “the competitiveness of my business”. C09: You said that at least one of the problems your business faced was going to court as a possible solution. Have you used some of the following ways before going to court? No differences found C10: You say that your firm has been to court in the last 3 years. I’d now like to ask you about your experience with the courts. Please tell me your agreement with the following statements, using a scale of 1 to 4, where 1 means you do not agree at all, and 4 means you agree completely. Statements: Scale: Court proceedings are conducted quickly and efficiently Do not agree at all 138 Court proceedings are conducted fairly and impartially Mostly disagree Court proceedings are conducted competently Mostly agree The costs of going to court are acceptable Completely agree Court decisions are enforced No differences found C11: If you consider the problems your business has encountered over the past 3 years, and which did not use court as a possible solution, which was the main reason for not going to court? Female respondents reported more frequently that the reason for not going to court was that “the nature of the problem was such that it did not require court as a solution” while male respondents reported more frequently that “going to court as a solution for such problems is slow and ineffective”. F02: Age of the respondent The percentage of male respondents who reported that they were 56 years or older was 16 percent, while the percentage of female respondents was 12 percent. F03: Educational background The difference found is not statistically representative or reliable because of the extremely low number of respondents in that category. F04: What year was your company founded? No difference found F05: Who is the majority owner of your company? No differences found F06: What was the annual turnover of your company (in 2017)? There is a larger percentage of female respondents (35 percent) in the lowest turnover group than male respondents (29 percent). 139 Annex 5. Key Indicators World Bank Doing Business 201914 – Indicator: Enforcing Contracts Quality of Enforcing Enforcing judicial Contracts Contracts Cost (% of processes rank/190 Score/100 Time (days) claim value) index (0-18) Europe & Central Asia 51 65.65 496.3 26.3 10.3 OECD 45 67.65 582.4 21.2 11.5 Lithuania 7 78.80 370 23.6 15.0 Austria 10 75.49 397 20.6 13.0 France 12 74.89 395 17.4 12.0 Estonia 13 74.34 455 21.9 13.5 Denmark 14 73.92 485 23.3 14.0 Luxembourg 15 73.32 321 9.7 8.5 Romania 17 72.25 512 25.8 14.0 Latvia 20 71.66 469 23.1 12.5 Hungary 22 70.98 605 15.0 12.5 Spain 23 70.90 510 17.2 11.5 Croatia 25 70.60 650 15.2 13.0 Germany 26 70.39 499 14.4 10.5 UK 32 68.69 437 45.7 15.0 Portugal 35 67.91 755 17.2 13.5 North Macedonia 37 67.79 634 28.8 14.0 Sweden 38 67.61 483 30.4 12.0 Malta 39 67.57 505 21.5 10.5 Bulgaria 42 67.04 564 18.6 10.5 Montenegro 44 66.75 545 25.7 11.5 Finland 46 66.40 485 16.2 8.5 Slovak Republic/Slovakia 47 66.12 775 20.5 13.5 Kosovo 50 65.66 330 34.4 9.5 Poland 53 64.36 685 19.4 11.0 Belgium 54 64.25 505 18.0 8.0 Serbia 65 61.41 635 40.8 13.0 Netherlands 74 59.94 514 23.9 7.0 Bosnia and Herzegovina 75 59.67 595 36.0 10.5 Albania 98 56.44 525 34.9 7.5 Czechia/Czech Republic 99 56.38 678 33.8 9.5 Ireland 102 56.03 650 26.9 7.5 Slovenia 110 54.82 1160 12.7 11.5 Italy 111 54.79 1120 23.1 13.0 Greece 132 50.19 1580 14.4 12.0 Cyprus 138 48.59 1100 16.4 8.0 14 http://www.doingbusiness.org/en/reports/global-reports/doing-business-2019 140 World Economic Forum, Global Competitiveness Report 201815- Indicator: Efficiency of legal framework in settling disputes Rank/140 Score/100 Finland 2 81.7 Netherlands 6 74.1 Luxembourg 7 73.5 Sweden 9 72.5 UK 11 72.3 Germany 17 69.7 Denmark 18 69.2 Austria 22 64.1 Belgium 27 53.2 France 31 58.9 Estonia 39 54.2 Ireland 51 50.7 Romania 53 50.3 Lithuania 60 47.0 North Macedonia 61 46.8 Malta 65 45.6 Cyprus 73 43.9 Spain 80 41.3 Czechia/Czech Republic 84 39.3 Hungary 89 38.4 Slovenia 97 34.4 Bulgaria 99 34.1 Albania 102 33.8 Poland 106 32.9 Serbia 108 32.5 Latvia 109 32.0 Portugal 116 30.2 Slovak Republic/Slovakia 128 22.4 Montenegro 129 21.3 Greece 133 19.6 Bosnia and Herzegovina 134 19.6 Italy 137 17.7 Croatia 139 14.4 Kosovo N/A N/A 15 The Global Competitiveness Report 2018, World Economic Forum, Geneva, 2018 http://www3.weforum.org/docs/GCR2018/05FullReport/TheGlobalCompetitivenessReport2018.pdf 141 According to the 2019 Doing Business indicator on enforcing contracts, most SEE countries rank relatively well compared to EU Member states, with many of them ranking above 50 out of 190. Croatia in particular, performs very well with a rank of 25, outperforming Germany (26), the UK (32) and Finland (46). However, according to the survey results, 58 percent of respondents from Croatia do not agree that the justice system is able to enforce court decisions. Although Serbia’s rank is 65 out of 190, in the survey, 62 percent of the respondents agreed that the system is able to enforce court decisions. For Bosnia and Herzegovina, the doing business rank for enforcing contracts is 75, which is consistent with the survey findings where 58 percent of the respondents did not agree that the system is able to enforce court decisions. Albania is ranked 98 and has the lowest rank among the SEE countries. However, according to the survey results, less than half of the respondents (43 percent) do not agree that the justice system is able to enforce court decisions. The seemingly positive results of the survey should be interpreted with caution. In any case, given the importance of a system’s ability to enforce court decisions, the percentage of respondents who do not agree that the justice system is able to enforce court decisions is relatively large. In terms of the efficiency of the legal framework in settling disputes, the SEE countries do not fare very well compared to the non-SEE countries, with almost all of them ranking in the bottom half in WEF’s 2018 Global Competitiveness Index, except for North Macedonia which was ranked 61 out 140. Bosnia and Herzegovina ranked 134 and Croatia ranked 139. The rankings in the report are consistent with the survey findings; for each country, more than half of the respondents did not agree that the justice system is quick and efficient. The largest percentage of respondents who held this view were from Croatia (92 percent) and Bosnia and Herzegovina (77 percent). 142