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. Bosnia's candidacy for EU membership is still undergoing negotiation and is expected to be finalised following the country ' s general election in October 2014. 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.

We expect Bosnia to spend up to USD249.8mn on defence in 2014. Up to 2019 we expect Bosnia to spend an average of USD257.1mn on defence each year. Towards the end of the forecast period, we expect Bosnia to be spending USD278.5mn on defence annually. Although the trend of Bosnian defence spending has been broadly upwards during the forecast period, the country has...

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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: The   outcome of October 2014's general election is likely to have done little to ease investors' fears surrounding the stability of the Bosnia-Herzegovina commercial real estate sector.   The country currently ranks bottom of BMI's Central and Eastern Europe Risk/Reward Index,   while economic growth has been largely stagnant over recent quarters. That said, we maintain that the real estate sector holds   long-term potential for foreign investors.  

The year 2014 has been difficult for the Bosnia-Herzegovina commercial real estate sector as a number of economic and political headwinds contrived to dent the country's...

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Telecommunications

Bosnia-Herzegovina Telecommunications

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BMI View: Bosnia 's mobile market contracted in Q114, despite a relatively low penetration rate. This indicates that a considerable proportion of the population still do not have regular access to mobile services, a situation we attribute to poor network coverage in underserved areas and the inability of low income earners in these areas to afford the service. With the uptake of 3G and multiplay services in urban areas, the operators are less inclined to embark on expensive and less rewarding network deployment projects in rural areas. We expect this to weigh on mobile subscriptions growth over our forecast period, through to 2018, with the penetration rate remaining below 100%.  

Key Data

  • The mobile market contracted by 3.7% quarter-on-quarter (q-o-q) in Q114, as penetration declined to...

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