Having embarked on an intensive process of physical as well as socio-economic reconstruction with international support, Bosnia and Herzegovina (BiH) now ranks among upper middle-income countries in metrics compiled by the World Bank. Both Standard & Poor's and Moody's proclaim a “stable” outlook for the Bosnian economy. Standard & Poor’s graded the country a “B,” while Moody’s assigned it a “B3” rating. The nation is also a potential candidate for membership in the European Union. The first formal steps towards ascension with the EU took place in 2004 and negotiations with Brussels are still ongoing in the form of regular meetings. In 2008 the Stabilization and Association Agreement was signed thought it has yet to enter in effect. Since 2010 visa free travel regime has been introduced with the EU, which made it possible for all BiH citizens with a biometric passport to travel to Schengen area visa free. Besides, as European Bank for Reconstruction and Development suggested in 2014, it can be claimed that Croatian accession by June 2013 to the EU will increase the relevance of BiH's regional integration.
Thanks to efforts for comprehensive national re-development has overcome the political turmoil of the 1990s and emerged as a stable democracy. In doing so, this young nation provides a striking example of how a formerly non-market economy can successfully manage both post-conflict political transformation and economic liberalization.
Key Economic Indicators
Growth projections from the European Commission indicate the progressive development of the country’s economy. It is estimated that GDP growth will reach 3.9% in 2015. A separate forecast by the World Bank indicated economic growth in BiH will rise to 3.5% in 2015. In addition, statistical data from BiH’s Foreign Investment Promotion Agency (FIPA) placed income per capita at $4,451 in 2013, an increase of around 2.5% compared to the previous year.
Services represent the largest sector of BiHs economy, accounting for 65.6% of GDP. The country’s agricultural sector composes 8.2% of its total GDP, while industry represents another 26.2% of total GDP. Employment across sectors largely reflects the overall picture of GDP composition. The service sector is the main source of employment in the country, generating over half of all jobs. Agriculture accounts for around one-fifth of overall employment, and industry supplies about one-third of Bosnian jobs.
The country’s agricultural sector demonstrates a measure of diversity, although opportunities remain underutilized. BiH’s strategic proximity to the EU makes it possible to become an agriculture exporter as well. Favorable climatic conditions mean the country’s agricultural season usually opens earlier than most other European countries. Factor costs such as shipping, labor, and the price of land are low, especially when compared with other Southern European economies. Wheat, corn, fruit, and cattle are some of the most prominent Bosnian agricultural products.
Bosnia’s location also means it is well positioned to export of raw materials, finished and semi-finished goods to the EU as well. According to a 2014 publication of USAID, industrial production improved considerably in 2013, growing by 6.7%. Manufacturing led industrial growth, expanding at a rate of 9.5%.
Same right to invest §Article 3
A foreign investor shall have the right to invest and reinvest the profit made from such investments in any area of commercial and non-commercial activities in the Federation BiH in the same manner and under same terms and conditions as a domestic investor (BiH resident) according to current FBiH and BiH legislation (hereinafter: BiH).
Mining and mineral industry of BiH is dominated by production of bauxite, iron and zinc. Besides, Bosnia is an important exporter of natural resources such as iron, copper, lead, zinc, cobalt, manganese, and nickel. Amongst others, however, compared to its size BiH is performing well in aluminum production by ranking as 32th, which is a better score than many countries in the region such as Montenegro, Slovenia, Turkey. This abundance of natural resources has contributed to a strong export-oriented metal processing sector. Wood processing also stands out. Excluding furniture, the sector grew by 12.5% in 2013.
EU ascension talks and rising trade are fueling the growth of a new middle class and the emergence of a strong service sector The two most important service sector categories at present include banking and tourism. Introduced in 1998, BiH’s currency, the Bosnian Convertible Mark (BAM) has been pegged to Euro since 2002. This policy marks a continuation of an earlier peg of the BAM to the Deutsche Mark. This contributed to increasing confidence in the national currency and banking sector. Today, assets owned by banks amount to 87% of total financial markets and multinational banks clearly dominate the sector. The country’s tourism sector also looks promising. The World Tourism Organization predicts Bosnia’s tourism market will grow at an annual rate of 10 % through the end of the decade, making the Bosnian tourism sector one of the fastest growing in the world. Being a socio-cultural melting pot with a rich historical heritage and natural endowments in the middle of Europe, Bosnian tourism is promising.
Imports and Exports
The total value of imports in 2013 stood at $10.3 billion. Raw materials, minerals, fuels, lubricants, machinery, and transport equipment were the main categories of imported goods, while the top service imports were in the transportation, travel, and communication fields. The EU serves as the main source of BiH’s imports. Croatia (12.9% of total imports), Germany (11.4%), Italy (9.8%), and Slovenia (5%) are Bosnia’s top import trade partners in the EU. Russia and Serbia are also key partners, supplying 9.9% and 9.8% of Bosnian imports, respectively.
The Bosnian economy’s total exports amounted to $5.7 billion in 2013. Raw materials, miscellaneous manufactured products, machinery, and transport equipment dominated goods exports, while service exports were strongest in the travel, transportation, and communication sectors. The EU member states such as Germany, Croatia, Italy, Slovenia and Austria, are the country’s most important trading partners. Overall the EU is the final destination for almost 60% of Bosnian exports.
The acceleration of BiH’s integration into the EU is a top priority for policymakers. Bosnian leaders are facing mounting pressure especially from the European Union to upgrade their country’s policies and systems in order to gain access to the EU and other international markets for local goods and services. This has become even more important in the wake of Croatia’s accession to the EU due to the relatively large foreign trade volume between the two countries. Securing economic growth by fostering a dynamic, competitive private sector will be key to further EU integration.
Attracting foreign direct investment (FDI) is a major priority for Bosnian leaders. In 2013, BiH attracted $270mn in FDI, while total FDI in the country reach $7.6bn by the end of the year. The sectors receiving the largest amount of investment included manufacturing (32%), banking (22%), telecom (15%), and retail (11%). The greatest contributors of foreign investment were Austria (23.5%), Serbia (17.7%), Croatia (13%), Slovenia (8.8%), and Russia (6%).
According to a survey conducted by the World Economic Forum in 2013 highlighted a positive status quo for Bosnia and Herzegovina. In this sense, Bosnia ranked as the 87th most competitive country in the overall list, giving it the second place after Macedonia (73th) in the Balkans. On the other hand, despite the fact that World Bank did not count Bosnia among the top of "Ease of doing business" rankings, steps have been taken by the government to enhance the business environment should not be neglected. For instance, in 2012, authorities were able to reduce the amount of time required to establish a business or obtain a construction permit. The number of procedures needed to start a business fell from 12 to 10, and the average amount of time it took to launch a firm dropped from around 65 days to less than 40. Bosnian authorities have also moved to accelerate the computerization of commercial transactions (e.g. registration, electronic filling, and payment systems).
Though the International Labor Organization (ILO) projects that Bosnia’s unemployment rate in 2014 stood at 28.7%, the government takes this issue seriously. Real unemployment, however, is commonly thought to be considerably lower due to the existence of a large informal sector. The lack of diversification among the country’s exports and its exposure to the risks of swings in world market prices for raw materials are additional economic weaknesses.
Same right to establish a company §Article 4
A foreign investor may establish a company in the Federation BiH under the same terms and conditions applicable to local investors according to the Company Law ("FBiH Official Gazette", No. 23/99 and 45/00) provided it is otherwise prescribed by this Law. As defined by this Law "founding rights of foreign individuals" shall include the right to establish and manage legal entities under terms and conditions applicable to domestic investors.
Real Estate §Article 6
Foreign investors shall have the same ownership rights of real estate as have domestic legal and physical persons.
Policymakers have taken a number of steps to address these issues. The establishment of Bosnia’s Foreign Investment Promotion Agency in 1998 was an important milestone in the country’s quest to attract foreign investment and a signal of the importance the government places on foreign direct investment (FDI) as an engine for growth. The enactment of Bosnia’s "Law on Foreign Investments" in 2001 demonstrated the country’s interest in attracting FDI and marked an important step in economic liberalization. The law established equality between foreign investors and domestic entrepreneurs with regards to investment. With the exception of ventures in the armament and media sectors, there are no limits on foreign investment in Bosnian companies. Furthermore, Bosnian law protects foreign investments from nationalization or expropriation.
Beyond these, Bosnian involvement in regional and international trade agreements as well as participation in multinational organizations are further indicators of a desire for integration into regional and global economic structures to eradicate the economic problems country faces. In this regard, the Bosnian government amended the law on establishment of free trade zones (FTZ) in 2009 to foster investments. According to a 2013 report of United States Commercial Service there are four FTZs in Bosnia, namely Vogosca, Visoko, Herzegovina-Mostar, and Holc Lukavac.. Amongst others, Bosnia and Herzegovina signed a free trade agreement (FTA) in 2002 with Turkey, eliminating tariff and non-tariff barriers between the two parties. Moreover, Bosnia became a party to the Central European Free Trade Agreement (CEFTA) in 2007. In June 2013, Bosnia signed a free trade agreement (FTA) with The European Free Trade Association (EFTA) countries Iceland, Liechtenstein, Norway, and Switzerland, abolishing all customs duties on industrial products. Agreement has been in force since January 2015. In 2009 Bosnia fulfilled its obligations under an IMF stand-by agreement. This allowed the country access to $1.57bn worth of support for fiscal and banking reforms. Bosnia signed a second stand-by agreement worth $507mn with the IMF in 2012 to help tackle structural challenges and combat the effects of the Eurozone crisis. The country has also received support from the World Bank and aspires for both the EU and WTO membership.
BiH is striving to rapidly transform itself into a liberal, open market. Optimistic economic indicators and its aspirations for European Union paint the BiH as one of the more promising countries in the Balkan region. In this sense, 2013 can be seen as a year of recovery for Bosnia and Herzegovina. For instance, GDP growth is measured as being above 3.5% in 2014 and industrial production improved considerably in 2013, growing by 6.7%. Cross-country assessments as well as credibility evaluations confirm the positive developments and stable outlook of the country. Bosnia and Herzegovina future is promising given the country’s location in the heart of Europe and the likely further regional economic integration.