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|