Bosnia-Herzegovina
In-depth country-focused analysis on Bosnia-Herzegovina's economic, political and operational risk environment, complemented by detailed sector insight

Our comprehensive assessment of Bosnia-Herzegovina's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Bosnia-Herzegovina, as well as the latest industry developments that could impact Bosnia-Herzegovina's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Bosnia-Herzegovina before your competitors.

Country Risk

Bosnia-Herzegovina Country Risk

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Core Views

  • The domestic political environment remains heavily divided along ethnic lines, stunting structural reform and weighing on the country's EU membership ambitions. With few signs that radical change can be implemented, we expect the country to muddle through in the coming years, with frustrating delays to badly-needed reforms.

  • The economic recovery that began with earnest in 2013 faces an important, albeit temporary, setback after historic flooding in May caused massive damage to property and infrastructure. Notwithstanding uncertainty over the rate at which reconstruction programmes can be completed, will expect the economic climate to improve again from 2015.

  • Budget policy will continue to be guided by the government's Stand-By Agreement with the IMF - which we expect to be extended beyond June 2015 - though budget execution will...

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Bosnia-Herzegovina Operational Risk Coverage (9)

Bosnia-Herzegovina Operational Risk

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BMI View: Investors considering entering Bosnia-Herzegovina are likely to benefit from the moderate level of economic openness with regards to foreign direct investment (FDI). However, risks remain in the form of a complicated and fragmented regulatory structure; a time-consuming, non-transparent and generally burdensome process to open a business; and the risk of double inspections and fees because of the overlapping jurisdictions of fragmented state and cantonal authorities. The greatest risks to investors, however, are posed by the weak rule of law and meagre protection of property rights in Bosnia. In BMI's Operational Risk Index, Bosnia receives a score of 44.8 out of 100 for Trade and Investment Risk. This is a relatively weak performance for the region and places Bosnia 25th out of 30...

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Bosnia-Herzegovina Crime & Security

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BMI View: Bosnia - Herzegovina's domestic security situation is far more stable than it was two decades ago, and improving regional relations, in tandem with the EU accession process, are reducing the threat of interstate conflict or a relapse into civil war. In addition, the crime rate is low on a regional scale, posing few risks to foreign workers and businesses. However, the peace agreement which ended the 1992-95 civil war has entrenched ethno-religious divisions, and the reconciliation process is ongoing. The Muslim population is at risk from radicalisation by Islamist terror groups and low-scale terrorist attacks are an underlying threat. Bosnia's low overall score for Crime and Security Risks reflects this terrorist threat as well as the historic regional instability. At 36.3 out of 100, the country is placed eighth from bottom on a regional comparison, between Russia...

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Bosnia-Herzegovina Labour Market

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The overall performance of Bosnia in our Labour Market Risk Index is poor, with a score of 43.2 out of 100, putting the country in last place regionally and 113th place globally. This is due to a limited labour force, extremely high unemployment (especially among the young and female populations), large informal economy and rather poor quality of the education system at all levels, as well as elevated labour costs due to an inflexible and fragmented system of minimum wage determination.

One of the key risks facing incoming investors is the limited size of the labour force, which was severely impacted by the war between 1992 and 1995, as well as a poor female participation rate and low urbanization. Additionally, the general pervasiveness of the informal economy also reduces the size of the available labour force, particularly in urban areas. The skilled labour pool is constrained by "brain-drain", due to the most educated young professionals...

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Bosnia-Herzegovina Logistics

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BMI View: Bosnia- Herzegovina's logistics network is still suffering from the lingering effects of the 1992-95 Bosnian War, during which damage to utilities and transport infrastructure was extensive. Furthermore, the political legacy of the conflict has hindered subsequent investment in the logistics network, which requires extensive improvements in order to reduce the risks of higher costs and disruption to supply chains. The war and the continuing lack of development in transport infrastructure, as well as recent damage from flooding, have also exerted a drag on economic growth, with the country's market size remaining small and offering few attractions for investors. These factors have converged to account for Bosnia and Herzegovina's poor overall score in BMI's Logistics Risk Index, with 38.5 out of 100 placing the country fifth from bottom out...

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Bosnia-Herzegovina Trade & Investment

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Investors considering entering Bosnia are likely to benefit from the moderate level of economic openness with regards to foreign direct investment (FDI). However, risks remain in the form of a complicated and fragmented regulatory structure; a time-consuming, non-transparent and generally burdensome process to open a business; and the risk of double inspections and fees because of the overlapping jurisdictions of fragmented state and cantonal authorities. The greatest risks to investors, however, are posed by the weak rule of law and meagre protection of property rights in Bosnia. In BMI's Operational Risk Index, Bosnia receives a score of 44.8 out of 100 for Trade and Investment Risk. This is a relatively weak performance for the region and places Bosnia 24 th out of 29 states, behind Belarus and ahead of Ukraine.

Bosnia receives a score of 50.5 on the Economic Openness sub-component of our Trade and...

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Bosnia-Herzegovina Industry Coverage (5)

Commercial Banking

Bosnia-Herzegovina Commercial Banking

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Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Defence & Security

Bosnia-Herzegovina Defence & Security

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BMI View: Political instability remains the key security concern in Bosnia in the near term. With a general election due in October 2014, party brinkmanship could exacerbate ethnic divisions among the population of Serbs, Croats and Bosniaks. Nevertheless, at the time of writing Bosnia's candidacy for European Union membership has been described as being 'on track' by a senior EU official. Security threats stem from a number of issues including: threats of Serb succession; regional developments with Croatia and Kosovo; porous borders facilitating organised crime and the black market trade in arms. Defence spending is forecast to fall over the year from a huge drop in 2013; due to a lack of government funded procurement, Bosnia will continue in its role as a small arms exporter.

Bosnia is preparing for an election later in 2014 which, coupled with...

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Infrastructure

Bosnia-Herzegovina Infrastructure

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BMI View: Revisions to historical data by Bosnia & Herzegovina's statistical authorities have prompted some adjustments to our construction industry forecasts. While our outlook for the sector remains broadly unchanged, weaker data for 2013 than previously thought has led us to revise down our 2014 growth forecast, to 2.9% from 3.1% previously. W e believe that risks are weighted firmly to the downside due to prevailing political uncertainty and a cumbersome business environment.

Key developments

  • Despite our expectation for a pick-up in construction activity in 2014, we note that downside risks over the near term come in the form of rising...

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Real Estate

Bosnia-Herzegovina Real Estate

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BMI View: Although there has been an improvement in economic data from Bosnia, with the country returning to growth in 2013 on the back of strong manufacturing and exports, the commercial real estate sector continues to be affected by low demand and high vacancy rates.

However, over the long term there is significant potential in the market, which is one of Europe's relatively few untapped real estate markets. We believe that in the longer term interest from international retailers, manufacturers and real estate developers will lead to the development of the market. As consumer spending rises and unemployment falls, considerable demand for modern retailing should develop, and as transport and other infrastructure projects make trade and logistics easier, we see significant scope for the development of industrial real estate.

However, there are downside risks to this...

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Telecommunications

Bosnia-Herzegovina Telecommunications

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BMI View: Bosnia is one of the more challenging markets in the Central and Eastern European (CEE) region. Although local loop unbundling (LLU) and number portability have provided some respite to the underlying decline in the wireline market, the three regional incumbents still dominate and alternative operators' customer bases appear to be shrinking. The mobile market, too, seems to be suffering from a degree of fatigue, although the arrival of MVNO Izi mobil in mid-2013 seems to have added a new competitive dynamic. Additional MVNO services were announced in Q214, but it is too soon to determine the scope of their impact. Competition will likely be price-led, although m:tel 's purchases of small alternative wireline and cable TV operators suggests that innovations in the converged services arena...

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