Bosnia and Herzegovina: Country Report

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At present, the nation of Bosnia and Herzegovina has a slowly progressing relationship with the European Union. In January 2006, it was the last Balkan nation to begin talks with the EU on a Stabilization and Association Agreement (SAA), a weigh station on the path to EU membership.¹ Although more reforms are needed, this is a promising move for the nation to advance and consolidate its democratic institutions and position in the global economy.

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  Though the country ranks second to poorest (above Macedonia) among the republics of the former Yugoslav region, there is some hope for economic growth in Bosnia and Herzegovina as more time passes from the 1992-1995 civil war. The currency that was introduced in 1998, the “konvertibilna marka” or convertible mark, is pegged to the euro, an economic move that has increased confidence in Bosnia’s banking division.²
  
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  Since 2004, the annual inflation rate in Bosnia and Herzegovina has been the lowest of all the countries that formerly made up Yugoslavia with an average inflation of 2.2%.³ Bosnian external debt size at the end of 2012 was estimated at $9.01 billion.
  

Main macroeconomic indicator s http://www.ebrd.com/pages/research/publications/flagships/transition/bosniaandherzegovina.shtml

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  Bosnia’s GDP as of 2012 was at estimated at $32.08 billion. However, the country also has a large informal sector (black market) that could also total to as much as 50% of the official recorded GDP. 2012 GDP composition by sector: 8.2% agriculture, 26.2% industry, 65.6 % services.⁴
  
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  Bosnia’s main trading partners are all local European countries, such as Croatia, Slovenia, Italy, Germany, and Hungary.
  
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  In 2001, a monumental banking reform took place when all the payment bureaus from Communist rule were closed by the government. Prominent banks from Western Europe and other foreign countries now dominate most of Bosnia’s banking sector specifically Italy and Austria.⁵
  

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  The Dayton Peace Accords of 1995 divided the country into two entities—the Federation of Bosnia and Herzegovina (FBH) and Republika Srpska (RS)—to stabilize ethnic tensions.⁶
  
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  Bosnia is a relatively new nation that is still working towards a stable democratic government and a functioning economy after civil strife in the early 1990s. Bosnia and Herzegovina created a cooperative federal democratic republic that incorporated their three primary ethnicities: the Bosniaks, the Serbs, and the Croats.) The presidency involves three members, one from each ethnic background, that rotate the position of Chair of the Presidency every eight months. The current chairman of the presidency is Nebojsa RADMANOVIC-Serb, then the other two presidents are Bakir IZETBEGOVIC-Bosniak and Zeljko KOSMIC-Croat.⁷
  
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  The Parliamentary Assembly is the legislative branch of the Bosnian government and consists of two branches: the House of Peoples and the House of Representatives. The House of Peoples has 15 delegates, five from each ethnic group. The House of Representatives has a total of 42 members, two-thirds of whom are elected from the Federation and one-third from the Republika Srpska.⁸
  
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  In 1995, the Constitution of Bosnia and Herzegovina was created. The establishment of a working constitution was a major step towards promoting democratic practices and equality after the nation was ripped apart by war. The line in the preamble that asserts, “Democratic governmental institutions and fair procedures best produce peaceful relations within a pluralist society”⁹ rings true for this nation after a decade of peaceful coexistence between the Bosniaks, Serbians, and Croats.
  

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  F
  Source: Foreign Investment Promotion Agency of BiH
  oreign investment: Since the end of the civil war in 1995, the amount of foreign investment in Bosnia has been rapidly increasing with each passing year. In 2007 Bosnia and Herzegovina experienced increased Foreign Investment inflow of 1.6 billion EUR which is considered to be the highest amount received in the last 15 years. Recognizing the importance of foreign investments Bosnia and Herzegovina has signed 35 Agreements on Promotion and Protection of Investments.¹⁰ In 2010 total FDI was estimated at $231,539,200 shrinking from the 1.6 billion EUR due to the global financial crisis.¹⁰ What makes the country more attractive to foreign investors is that it offers free trade zones which mean free transfer of profit and investment, relief from customs and ⁷⁸other tariffs on imports and exports. Bosnia has signed Central European Free Trade Agreement. Foreign investors also face few formal restrictions in business activities—the government works hard to please investors abroad by granting them national treatment and protecting them from nationalization of assets and changes in the law that might affect their investments.¹¹ In 2009, Bosnia and Herzegovina undertook an International Monetary Fund (IMF) standby arrangement, necessitated by sharply increased social spending and a fiscal crisis exacerbated by the global economic downturn. The program aims to reduce recurrent government spending and to strengthen revenue collection. 
  
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  Seaports in the Adriatic Sea: Bosnia and Herzegovina has good connections to the Adriatic Sea that present a great opportunity to expand trade with neighboring countries and the rest of the world. Some of the country’s main seaports include Port Ploce, Rijeka, Kopar and Bar. All of these ports are connected to the major cities and industrial centers of BiH through railways and highways.¹¹ Possesses rich agricultural endowments – soil and climate.
  
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  Educated work force: Bosnia and Herzegovina boasts a high literacy rate for a recently war-torn country—98.4% for males and 91.1% for females. With educated citizens working in Bosnia, advances in industrial technology and more efficient production procedures are likely to occur over the next decade as the country strives to make an impact on the global market.¹²
  

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  High Unemployment Rate: Bosnia faces growing unemployment (officially at close to 40%) and social disintegration provoked by high poverty rate. Poor tax collection, a minimal tax base, and the transition to a new payment and bank supervision systems – all led to diminishing tax and customs revenues.¹³ Bosnia relies heavily on West Europe for trade and credit.
  
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  Need to reeducate the workforce: Bosnia and Herzegovina still suffers from a surplus of workers in industry, a trouble spot left over from the days of communist Yugoslavia. While industry does make up a lesser portion of the nation’s economy than it used to be (25.8% as of 2012),¹⁴ there is still a lot of work force that needs to be reeducated for new professions. As the value of industry declines, industry workers would likely be more productive in Bosnia’s largest sector, services (64.1% in 2012).¹⁵
  
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  Slow integration of two entities: The 1995 division of Bosnia that resulted in the sub-national entities of FBH and the RS has proved surprisingly successful in moving the country towards a stable central government. However greater economic integration of the two entities is required. This is a prerequisite for association with the European Union. More effective integration will also enable the RS to keep pace with the FBH and the countries of SE Europe. Unless there is a dramatic acceleration in the pace of reform, the informal sector will continue to grow and the structures of a modern self-sustaining economy will not develop. The political situation continues to be marked by a continuing lack of trust among the leaders. The leaders of three ethnic groups, as well as the political leaders in FBH and RS, need to find more collaboration points and work together to see democratic institutions and practices prevail in their recovering country.
  
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  Environmental Considerations: BiH has one of the most diverse populations of plant and animal species in Europe. As the global climate continues to change countries in the south and southeastern parts of Europe are going to be hit the hardest. This can have a major impact on BiH diversity; shifting vegetation zones, extinction of species, and fragmentation of habitats. Like any other developing country BiH has seen a rapid growth in the economy since the end of the civil war, this has led to increased CO₂ emissions. In 2012the estimated carbon dioxide emissions per capita was 7.9887 metric tons.¹⁶