Bosnia and Herzegovina
Bosnia and Herzegovina (BiH) is open to foreign investment, but to succeed, investors must overcome endemic corruption, complex legal/regulatory frameworks and government structures, non-transparent business procedures, insufficient protection of property rights, and a weak judicial system under the indue influence of ethno-nationalist parties and their patronage networks. Economic reforms to complete the transition from a socialist past to a market-oriented future have proceeded slowly and the country has a low level of foreign direct investment (FDI). According to the BiH Central Bank preliminary data, in the first nine months of 2021 FDI in BiH was USD 617 million, a 65% increase from the same period in 2020. In the World Bank’s 2020 Ease of Doing Business Report, BiH was among the least attractive business environments in Southeast Europe, with a ranking of 90 out of 190 global economies. (Note: Beginning in 2021, the World Bank discontinued the worldwide assessment in the Doing Business Report.) The World Bank 2020 report ranked BiH particularly low for its lengthy and arduous processes to start a new business and obtain construction permits. According to the World Bank estimates, real GDP is expected to grow 4 percent in 2021 after contracting 3.2 percent in 2020. The European Bank for Reconstruction and Development (EBRD) expects BiH’s GDP to grow by 4.5% in 2021. EBRD announced that BiH’s economic recovery has been stronger than expected mostly due to the recovery in external markets and strong expansion of domestic private consumption, backed by higher exports of goods and services. BiH is tied closely to global value chains as it primarily exports goods rather than services.
U.S. investment in BiH is low due to its small market size, relatively low income levels, distance from the United States, challenging business climate, and the lack of investment opportunities. Most U.S. companies in BiH are represented by small sales offices that are concentrated on selling U.S. goods and services, with minimal longer-term investments. U.S. companies with offices in BiH include major multinational companies and market leaders in their respective sectors, such as Coca-Cola, Microsoft, Cisco, Oracle, Pfizer, McDonalds, Marriott, Caterpillar, Johnson & Johnson, FedEx, UPS, Philip Morris, KPMG, PwC and others. Nonetheless, BiH offers business opportunities to well-prepared and persistent exporters and investors. Companies that overcome the challenges of establishing a presence in BiH often make a return on their investment over time. A major U.S. investment fund was able to enter the market with a regional investment in the telecom/cable sector in 2014 and exit its majority position in 2019 with a good return. There is an active international community, but lack of political will has stalled the many reform efforts that would improve the business climate as BiH pursues eventual European Union membership. The country is open to foreign investment and offers a liberal trade regime and its simplified tax structure is one of the lowest in the region (17 percent VAT and 10 percent flat income tax).
The complex institutional and territorial structure of BiH complicates the economic landscape of the country and may lead to further disruptions in Foreign Direct Investment. In July 2021, the Republika Srpska (RS) entity began a blockade of state institutions and in October 2021 began to take unconstitutional steps to return competencies to the entity-level government. This near-virtual decision-making blockade and attempts to withdraw the RS from state institutions and agencies have created questionsfor many investors and businesses. The duplicative nature of the proposed RS-based parallel institutions and agencies will complicate the investment landscape and create regulatory and legal confusion. While no new parallel RS agencies are yet operational, the RS has taken concrete legislative and regulatory steps to lay the groundwork for their full implementation in the near to mid-term. Investors should exercise all due diligence and take into account ongoing and potential Constitutional Court challenges and the fact these RS moves violate the Dayton Peace Agreement when deciding whether to conduct business with these nascent agencies or operate under constitutionally questionable legal frameworks established by the RS. The Federation of Bosnia and Herzegovina entity also has functionality issues, with 2018 election results yet unimplemented, and a legislative body that struggles to pass basic economic reforms. Potential investors are urged to read the legal reviews and statements of the High Representative to BiH.
BiH is pursuing World Trade Organization membership and hopes to join in the future. It is also richly endowed with natural resources, providing potential opportunities in energy (hydro, wind, solar, along with traditional thermal), agriculture, timber, and tourism. The best business opportunities for U.S. exporters to BiH include energy generation and transmission equipment, telecommunication and IT equipment and services, transport infrastructure and equipment, engineering and construction services, medical equipment, agricultural products, and raw materials and chemicals for industrial processing. In 2021, U.S. exports to BiH totaled USD 322 million, a 37 percent increase from 2020, and held around 3 percent share of total BiH imports. BiH exports to the United States in 2021 totaled USD 94 million, an increase of 135 percent from 2020. U.S. exports to BiH are primarily in the areas of raw materials for industrial processing, food and agricultural products, machinery and transport equipment, and mineral fuels.
|TI Corruption Perceptions Index||2021||110 of 180|
|Global Innovation Index||2021||75 of 131|
|U.S. FDI in partner country||2021||$9 million|
|World Bank GNI per capita||2020||$6,080|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
In BiH, subnational governments (the two entities and ten cantons) own the vast majority of government-owned companies. Private enterprises can compete with state-owned enterprises (SOEs) under the same terms and conditions with respect to market share, products/services, and incentives. In practice, however, SOEs have the advantage over private enterprises, especially in sectors such as telecommunications and electricity, where government-owned enterprises have traditionally held near-monopolies and are able to influence regulators and courts in their favor. Generally, government-owned companies are controlled by political parties, increasing the possibilities for corruption and inefficient company management. With the exception of SOEs in the telecom, electricity, and defense sectors, many of the remaining public companies are bankrupt or on the verge of insolvency, and represent a growing liability to the government.
The country is not party to the Government Procurement Agreement within the framework of the WTO.
8. Responsible Business Conduct
Foreign and local companies conduct some corporate social responsibility activities and there is a general awareness of standards for responsible business conduct. More could be done in this area to respond to BiH’s various social and economic needs. In general, consumers tend to view favorably companies that initiate and carry out charitable activities in the local market. Corporate governance is not part of the broader economic mindset, and shareholder protection is not a priority. The financial system is not yet developed enough to understand and apply principles of corporate governance and shareholder protection. The BiH Consumer Ombudsman leads efforts to ensure that consumers are aware of their rights and takes action against organizations that have been accused of violating consumer rights. The local American Chamber of Commerce (AmCham) has an Ethics and Compliance Committee to raise awareness about responsible business conduct and make it a more routine part of doing business in BiH.
Corruption remains endemic in many political and economic institutions in Bosnia and Herzegovina and raises the costs and risks of doing business. BiH’s overly complex business registration and licensing process is particularly vulnerable to corruption. The multitude of state, entity, cantonal, and municipal administrations, each with the power to establish laws and regulations affecting business, creates a system that lacks transparency and opens opportunities for corruption. Paying bribes to obtain necessary business licenses and construction permits, or simply to expedite the approval process, occurs regularly. Foreign investors have criticized government and public procurement tenders for a lack of openness and transparency. Public procurement reform, which would establish rules and regulations to close off some of the avenues for corruption in public contracting, has been stalled due to opposition from leading political parties.
Transparency International’s (TI) 2021 Corruption Perception Index ranked BiH 110 out of 180 countries. According to TI, relevant institutions lack the will to actively fight corruption; law enforcement agencies and the judiciary are not effective in the prosecution of corruption cases and are visibly exposed to political pressures or under the outright control of politicians and their patronage networks; and prosecutors complain that citizens generally do not report instances of corruption and do not want to testify in these cases. In 2011, BiH established a state-level agency to coordinate efforts to combat corruption; while officially active, the agency has shown limited results. Nascent efforts to, with U.S. support, establish cantonal-level Anti-Corruption Offices are underway throughout the FBiH, but efforts to undermine their independence and obstruct investigations are widespread.
Corruption has a corrosive impact on both market opportunities overseas for U.S. companies and the broader business climate. Several BiH individuals and one business entity are under OFAC sanctions for destabilizing activities and corruption, while others have been designated by the Department of State under 7031(c) authorities barring their entry to the United States. Most prominent among these is Serb member of the BiH Presidency and President of the SNSD political party Milorad Dodik. Other individuals have been sanctioned for war crimes. Corruption deters foreign investment, stifles economic growth and development, distorts prices, and undermines the rule of law. U.S. companies must carefully assess the business climate and develop an effective compliance program and measures to prevent and detect corruption, including foreign bribery. U.S. individuals and firms should take the time to become familiar with the relevant anticorruption laws of the United States and of BiH at all levels of government in order to properly comply, and where appropriate, seek the advice of legal counsel.
The U.S. government seeks to level the global playing field for U.S. businesses by encouraging other countries to take steps to criminalize their own companies’ acts of corruption, including bribery of foreign public officials, and uphold obligations under relevant international conventions. A U.S. firm that believes a competitor is seeking to use bribery of a foreign public official to secure a contract should bring this to the attention of appropriate U.S. agencies.
While the U.S. Department of Commerce cannot provide legal advice on local laws, the Department’s U.S. and Foreign Commercial Service can provide assistance with navigating the host country’s legal system and obtaining a list of local legal counsel.
The U.S. Department of Commerce offers a number of services to aid U.S. businesses. For example, the U.S. and Foreign Commercial Service can provide services that may assist U.S. companies in conducting due diligence when choosing business partners or agents overseas and provide support for qualified U.S. companies bidding on foreign government contracts. For a list of U.S. Foreign and Commercial Service offices, please visit the Commercial Service website:
Alleged corruption by foreign governments or competitors can be brought to the attention of appropriate U.S. government officials, including U.S. Embassy personnel or through the Department of Commerce Trade Compliance Center “Report a Trade Barrier” Website at:
Contact at government agency or agencies responsible for combating corruption:
Contact at “watchdog” organization (international, regional, local or nongovernmental organization operating in the country/economy that monitors corruption):
BiH signed and ratified the UN Anticorruption Convention in October 2006. BiH is also party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.
10. Political and Security Environment
Bosnia and Herzegovina has been at peace since the conclusion of the Dayton Peace Accords in November 1995. There have been no attacks targeting foreign investments. In mid-June 2013 and early 2014, large groups of citizens protested the country’s economic stagnation and the government’s apparent inability to improve the situation. The vast majority of protests were peaceful with relatively small numbers of participants, but some protests in Sarajevo, Mostar, and Tuzla resulted in attacks on government buildings, destruction of government property, and injuries. There were no reports of foreign investors being directly targeted in the protests. However, there are still risks from occasional, localized political and criminal violence.
The political environment in BiH has deteriorated since July 2021 when the RS entity began blockading the work of state level institutions and agencies and in October 2021 proceeded with unconstitutional steps to withdraw from state-level institutions and create parallel institutions and agencies. Since this blockade began, little progress has been made by state level institutions to enact necessary reforms strengthening the business environment. RS moves to pull out of state level institutions and form parallel entity level institutions, such as the Medicine and Medical Equipment Agency, threaten to create legal ambiguities that further complicate the business environment, disrupt the economy, and hinder investment. The Federation of Bosnia and Herzegovina entity also has functionality issues, including a government that has not yet implemented 2018 election results.
11. Labor Policies and Practices
BiH has a workforce with low labor costs by Western standards, and university enrollments have been increasing for a number of years. However, several sectors such as construction, information technology, and health care have experienced a significant loss of skills over the past decade due to a lack of education and job training opportunities, as well as emigration. Mandatory contributions on labor are high, discouraging employment of new workers and increasing incentives for unregistered employment.
Each entity has its own pension and health care systems, and the systems are not harmonized. Companies working in both entities have two sets of rules to follow related to employment, wages, and contributions. Employees and employers share the costs of health care, pension, and unemployment insurance in the Federation, while in the Republika Srpska employers cover all of these costs, as well as childcare and unemployment contributions. Many employers underreport their labor force to avoid paying taxes and benefits, creating a significant gray market.
The official rate of registered unemployment according to the BiH Statistical Agency was approximately 31.2 percent in January 2022. However, unemployment based on the International Labor Organization (ILO) definition, which factors in unregistered workers in the “gray economy,” was approximately 20.5 percent, and estimates the share of informal employment in total employment was 30 percent in 2021. The youth unemployment rate is among the highest in the world at 36.6 percent, driven by widespread corruption, nepotism, and economic stagnation. BiH suffers from mass emigration to European countries as citizens see limited opportunities for employment and securing a better future for their families. The majority of unemployed persons are skilled workers.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
*Source: BiH Statistics Agency
|Direct Investment from/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations 1994-2022 (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$8,882||100%||Total Outward||524||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
According to the BiH Central Bank preliminary data for 2021, FDI inflow in Bosnia and Herzegovina increased significantly by 65% comparing to the same period of 2020 and amounted to USD 617 million. The all-time high for FDI was USD 2.1 billion in 2007. Most investments in 2014-2021 came from Croatia, Austria, Russia, Serbia, Germany, The Netherlands, UAE, and the United Kingdom.
14. Contact for More Information
United States Embassy Sarajevo
Robert C. Frasure 1
Bosnia and Herzegovina