Bosnia and Herzegovina

GDP (US$ Billion)

18.06 (2017)

World Ranking 113/192

GDP Per Capita (US$)

5,149 (2017)

World Ranking 99/192

Economic Structure

(in terms of GDP composition, 2017)

Services
(55.80%)
Industry
(23.00%)
Agriculture
(6.00%)

External Trade (% of GDP)

87.7 (2016)

Currency (Period Average)

Bosinia and Herzegovina convertible mark

1.77 per US$ (2016)

Political System

Republic

Overview

Bosnia and Herzegovina is an upper middle-income country, which has made good progress in terms of its development since the end of the Bosnian War in the mid-1990s. Its complex political system reflects the constitutional provisions made by the Dayton Agreement (to end the ethnic conflict), as well as the subsequent amendments introduced under the auspices of the international community through the Office of the High Representative. It is an European Union (EU) potential candidate country that is embarking on a new growth model.

Sources: World Bank, Fitch Solutions

Major Economic/Political Events and Upcoming Elections

March 2015

EU foreign ministers and Bosnia signed the Stabilisation and Association Agreement (SAA) that has been on hold since 2008, increased the likelihood of Bosnia joining the EU if it carries out key political and economic reforms.

February 2016

Bosnia submitted formal application to join the EU.

September 2018

Bosnian utility EPBiH announced that a BAM1.8 billion (USD1.1 billion) generating unit at its Tuzla coal-fired power plant has received backing from China-based firms. Under a deal signed in November 2017, the state-funded Export-Import Bank of China is to provide a BAM1.2 billion loan for what will be the largest investment in Bosnia’s post-war energy infrastructure.

October 2018

Bosnia and Herzegovina held presidential and parliamentary elections on October 7. The new three-person presidency is made up of Bosnian Serb leader Milorad Dodik, Šefik Džaferović from the Party of Democratic Action (SDA – the main Bosnian Muslim Party), and Social Democrat Željko Komšić, who represents Croat voters.

Sources: BBC Country Profile – Timeline, Fitch Solutions

Major Economic Indicators
Graph: Bosnia and Herzegovina real GDP and inflation
 
Graph: Bosnia and Herzegovina real GDP and inflation
 
Graph: Bosnia and Herzegovina GDP by sector (2017)
 
Graph: Bosnia and Herzegovina GDP by sector (2017)
 
Graph: Bosnia and Herzegovina unemployment rate
 
Graph: Bosnia and Herzegovina unemployment rate
 
Graph: Bosnia and Herzegovina current account balance
 
Graph: Bosnia and Herzegovina current account balance
 

e = estimate, f = forecast

Sources: IMF, World Bank, Fitch Solutions

Date last reviewed: March 22, 2019

External Trade

Merchandise Trade

Graph: Bosnia and Herzegovina merchandise trade
 
Graph: Bosnia and Herzegovina merchandise trade
 

 

Source: WTO

Date last reviewed: March 22, 2019

Graph: Bosnia and Herzegovina major export commodities (2018)
 
Graph: Bosnia and Herzegovina major export commodities (2018)
 
Graph: Bosnia and Herzegovina major export markets (2018)
Note: Area NES accounts for 12.6% of 2018 exports
Graph: Bosnia and Herzegovina major export markets (2018)
Note: Area NES accounts for 12.6% of 2018 exports
Graph: Bosnia and Herzegovina major import commodities (2018)
 
Graph: Bosnia and Herzegovina major import commodities (2018)
 
Graph: Bosnia and Herzegovina major import markets (2018)
Note: Area NES accounts for 10.9% of 2018 imports
Graph: Bosnia and Herzegovina major import markets (2018)
Note: Area NES accounts for 10.9% of 2018 imports

Sources: Trade Map, Fitch Solutions

Date last reviewed: March 22, 2019

Trade in Services

Graph: Bosnia and Herzegovina trade in services
 
Graph: Bosnia and Herzegovina trade in services
 
 

Source: WTO

Date last reviewed: March 22, 2019

Trade Policies
  • Bosnia and Herzegovina is not yet a member of the World Trade Organisation (WTO). The Working Party was established on July 15, 1999, when the country started its accession negotiations for the WTO. In February 2018, the 13th meeting of the Working Party on the Accession of Bosnia was held, where WTO members supported the prompt conclusion of negotiations and welcomed the commitment by Sarajevo to finalise its accession process over the course of 2018.

  • The customs policy law and the rates of customs tariffs to be applied are largely based on EU standards. Bosnia and Herzegovina has signed the SAA and the Central European Free Trade Agreement (CEFTA).

  • An excise tax is also paid on certain imported and domestic goods which include coffee, oil derivatives, tobacco, beverages and alcoholic drinks.

  • In 2009, Bosnia and Herzegovina introduced a law for the protection of domestic products against imports from Croatia and Serbia. The law stipulates that safeguard measures were necessary due to the influx of imports and dumping of particular agricultural products from Croatia and Serbia, as well as a conceivable decrease in exports from Bosnia to Serbia.

  • As a result of Bosnia and Herzegovina not having EU member status, even though the majority of its trading partners are EU member states, export and import supply chains will face more onerous border and documentary times and costs when compared to those of EU states. The most salient risk is the high cost associated with the import border compliance process, which is higher than that of countries such as North Macedonia, and contributes towards Bosnia's status as regional underperformer in relation to customs burdens.

Sources: WTO - Trade Policy Review, Fitch Solutions

Trade Agreement

Trade Updates

Bosnia formally applied for EU membership in February 2016, and if the country were to join the union, its tariff rate would be lowered in conjunction with the EU Common Tariff of 1.0%. For the time being, however, Bosnia's import tariffs are harmonised each year with the combined nomenclature of EU and legislative regulations.

Multinational Trade Agreements

Active

  1. Bosnia and Herzegovina-European Free Trade Association (EFTA) – The EFTA consists of Switzerland, Norway, Iceland and Liechtenstein. The main focus of this free trade agreement (FTA), which came into force in January 2015, is the liberalisation of trade in goods. The agreement abolishes all customs duties on industrial products as of its entry into force. Additional agricultural agreements between the individual EFTA states and Bosnia and Herzegovina form an integral part of the instruments establishing the free trade area.

  2. The CEFTA: CEFTA consists of Albania, BiH, Serbia, Moldova, Montenegro, North Macedonia and Kosovo. It came into force in May 2007 and helps increase trade between regional counterparts and fosters non-EU bilateral relations.

  3. Bosnia and Herzegovina-EU: The SAA between the EU and Bosnia and Herzegovina entered into force on June 1, 2015 and has caused a shift in the latter's export and import partners and goods. The SAA establishes a close partnership between the EU and Bosnia and deepens the political, economic and trade ties between the two parties. It is from now on the main framework for relations between the EU and Bosnia and Herzegovina, further preparing the latter for future EU membership. The entry into force of the SAA has also increased the confidence of domestic and international investors in Bosnia and Herzegovina. It allows both Bosnian and EU companies to access their respective markets. This is conducive to enhanced business opportunities for the EU and Bosnia-based companies, and would stimulate economic growth and employment. SAA will also contribute to the progressive alignment of Bosnian norms and legislation with EU legislation, thus benefiting Bosnian citizens through better quality, healthier and safer goods.

  4. Bosnia and Herzegovina-Turkey: An FTA with Turkey, which came into force in July 2003, provides additional free access to a consumer market of 80 million people.

Under Negotiation

Bosnia and Herzegovina-Malaysia: The agreement, which is expected to materialise by 2020, will help businesses exploit opportunities in manufacturing and the import and export of Halal products due to the large population of Muslim consumers in both markets. This will also boost service exports in terms of tourism in both countries.

Source: WTO Regional Trade Agreements database

Investment Policy

Foreign Direct Investment

Graph: Bosnia and Herzegovina FDI stock
 
Graph: Bosnia and Herzegovina FDI stock
 
Graph: Bosnia and Herzegovina FDI flow
 
Graph: Bosnia and Herzegovina FDI flow
 

Source: UNCTAD

Date last reviewed: March 22, 2019

Foreign Direct Investment Policy

  1. The Foreign Investment Promotion Agency (FIPA) of Bosnia and Herzegovina works to attract Foreign Direct Investment (FDI), and encourage existing investors to expand their businesses in Bosnia and Herzegovina. FIPA has identified sectors, such as manufacturing, energy and wood processing as key industries that are likely to see high investment growth in the coming years. Overall, there are no restrictions on foreign investment or ownership, with the exception of the defence and media sectors, where foreign control is capped at 49%.

  2. FDI has mostly gone into the manufacturing sector and supported the privatisation of many key industries after the war, such as the metals, agriculture, food processing, textile and chemical industries. FDI also contributed to the rapid development of banking and financial services in Bosnia and Herzegovina.

  3. Currently there are 20 energy projects, valued at more than EUR2 billion, currently under development in Bosnia and Herzegovina. The estimated value of investment in the development and rehabilitation of the electricity transmission network is expected to reach EUR279 million by 2020. Projects worth more than EUR1.5 billion for new coal-fired power plants were signed in May 2016.

  4. In August 2018 Autoceste FBiH launched a EUR235 million (USD272 million) tender for construction of two priority Corridor Vc sections along European transport Corridor Vc. The project covers construction of the section Tarcin-Konjic, the subsection Tarcin-Ivan (length 6.8km), lot 2 Tunnel Ivan (length 2km) and the Poprikuse-Nemila section (length 5.1km). The European Bank for Reconstruction and Development will loan EUR120 million and the European Investment Bank will loan EUR90 million towards project financing.

  5. Businesses operating in Bosnia and Herzegovina face a high import burden as infrastructure development, industrial capacity and diversification remain weak due to a dearth of fixed capital formation and lack of political resolve in the country. Imports are, therefore, driven by the country's need for complex machinery and manufactured goods that cannot be produced locally, as well as some of its energy requirements, such as oil and gas.

  6. A bonus to foreign investors is the Law on the Policy of FDI, which accords foreign investors the same rights as domestic investors, including during the bidding process for privatisation tenders. Existing investors are also granted protection from amendments to the Law on Foreign Investment. If the Bosnian government were to make changes to this law, the individual investor may select the most favourable version of regulations to apply.

  7. Despite the various investment incentives of the Bosnian market, some short-term risks as well as long-term barriers to FDI still exist. State-owned enterprises (SOEs) – which affect sectors such as defence, media and telecommunications – are mostly owned by the sub-national governments and are thus controlled by various political parties, which leaves them open to inefficient management/management focused on national objectives as opposed to market-efficient operations. By law, private enterprises can compete under the same conditions as public ones, but in practice, SOEs have the upper hand as some of them hold a near-monopoly and make large profits due to their dominant market position.

  8. Corporate income tax laws are rather complicated owing to the fragmentation of Bosnia and Herzegovina into two territorial entities. The Federation of Bosnia and Herzegovina (FBiH) distinguishes between: resident business entities (whereby actual management or supervision is in the FBiH), which have to pay corporate income tax on their worldwide income, and non-resident businesses (whereby actual management and supervision is based outside the FBiH), which pay taxes on income realised in the FBiH only.

  9. Although Bosnian law states that foreign investors will have the same ownership rights of real estate as domestic persons, the Law on Agricultural Land prohibits foreigners from acquiring ownership of agricultural land unless international agreements state otherwise. The rights of foreigners to own real estate in Bosnia and Herzegovina may also be subject to reciprocity. This may present risks to investors or simply dissuade them from investing or seeking ownership of property in the country.

Sources: WTO - Trade Policy Review, ITA, US Department of Commerce, Fitch Solutions

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
Bosnia and Herzegovina operates a number of Free Trade Zones (FTZs) which offer a range of incentives for investment. There are six FTZs which are located at Vogošća, Sarajevo, Holc, Lukavac, Mostar and Visoko. - Investors in these zones do not pay taxes or contributions, and are free to invest and re-transfer capital, as well as transfer their profits



- Exempted from Value Added Tax (VAT), contributions and import duties



- Investment and transfer of profit and investments are free of charge



- Reduced Municipal fees for facilities construction, allowing for payment in instalments



- Faster administration for acquisition of construction permits



- Reduced costs for certificates of occupancy for usable areas

Sources: US Department of Commerce, Fitch Solutions

Taxation – 2019
  • Value Added Tax: 17%
  • Corporate Income Tax: 10%

Sources: Indirect Taxation Authority of Bosnia and Herzegovina, Fitch Solutions

Important Updates to Taxation Information

Bosnia and Herzegovina has complex taxes, owing to the fragmentation of the state into semi-autonomous entities. Despite a generally low corporate tax rate and an array of tax exemption schemes, a high VAT rate and prohibitive payment procedure.

Business Taxes

Type of Tax Tax Rate and Base in Federation of Bosnia and Herzegovina Tax Rate and Base in Republika Srpska Tax Rate and Base in District of Brčko
Corporate Income Tax (standard) 10% on operating profits 10% on operating profits 10% on operating profits
Capital Gains Tax Taxable as part of operating profits at 10% Taxable as part of operating profits at 10% Taxable as part of operating profits at 10%
VAT
 
17% on value of the products in all regions 17% on value of the products in all regions 17% on value of the products in all regions
Dividends 5% withholding tax 10% withholding tax 10% withholding tax
Property Tax Not applicable for corporate entities 0.05% to 0.5% of property value 0.05% to 1.0% of property value
Social security contributions Total rate 41.5% applicable to gross salary; out of that, 31% is employee contribution and 10.5% is paid by employer Total rate 33.0% applicable to gross salary – all payable by employee; no employer contribution Total rate 31.5% applicable to gross salary – 25.5% is payable by employee; 6% employer contribution

Source: Indirect Taxation Authority of Bosnia and Herzegovina

Date last reviewed: March 22, 2019

Foreign Worker Requirements

Localisation Requirements

Since unemployment in Bosnia and Herzegovina is high, requirements for businesses to hire foreign workers are rigorous. Quotas on the number of work permits which may be issued to foreign workers for each sector of the economy are decided on an annual basis by the Council of Ministers. Only the highest level educational degrees are accepted as a legitimate reason to hire a foreigner instead of a local.

Foreign Worker Permits

The permit application process is lengthy, with 45-50 days required for a work permit and 30 days for a residence permit. Work permits are valid for a period up to one year and are only valid for the specific job and specific employer for which they are originally issued. The risks associated with such rigorous demands and lengthy visa processes will deter businesses requiring highly skilled workers from setting up in Bosnia and Herzegovina, as the low skill level of the domestic labour force means that foreign labour will often be required.

Visa/Travel Restrictions

A visa application will take approximately 30 days and citizens of all African, some Latin American and most Asian and Middle Eastern states require a visa before arrival. Due to various visa arrangements, foreign nationals from 79 jurisdictions that include Europe (except Belarus), North America, Australia, New Zealand and some parts of Latin America enjoy access to Bosnia and Herzegovina without a visa for up to 90 days.

Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings


 
Rating (Outlook) Rating Date
Moody's
 
B3 (Stable)
 
16/02/2018
 
Standard & Poor's B (Stable)
 
08/03/2019
Fitch Ratings
 
Not Rated
 
Not Rated
 

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators


 
World Ranking
 
2017 2018 2019
Ease of Doing Business Index
 
81/190 86/190 89/190
 
Ease of Paying Taxes Index
 
133/190 137/190 139/190
Logistics Performance Index
 
N/A 72/160 N/A
Corruption Perception Index
 
91/180 89/180 N/A
IMD World Competitiveness N/A
 
N/A N/A

Sources: World Bank, Transparency International

Fitch Solutions Risk Indices


 
World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 132/202 132/202
 
Short-Term Economic Risk Score 35.0 36.5 35.8
 
Long-Term Economic Risk Score 44.8 46.3 47.0
 
Political Risk Index Rank N/A 132/202 132/202
Short-Term Political Risk Score 40.6 41.0 39.4
 
Long-Term Political Risk Score 55.8 55.8 55.8
 
Operational Risk Index Rank N/A 116/201 114/201
Operational Risk Score 45.1 46.0 46.6
 

Source: Fitch Solutions

Date last reviewed: March 22, 2019

Fitch Solutions Risk Summary

ECONOMIC RISK

Economic activity continues to show resilience despite political uncertainty, and GDP growth is expected to remain on its current trajectory over the coming years with rising investment in infrastructure projects and robust export growth. At the same time, the country's growth potential remains capped by a shortage of skilled workers.

OPERATIONAL RISK

Bosnia and Herzegovina offers an operating environment with significant operational risks, mainly relating to weak transport infrastructure, the limited size of the labour force, a fractured political environment and weak cross-border relationships. Even though the country has a relatively open investment climate, with no restrictions on foreign direct investment and a low rate of corporate income tax, its small market size, shortages of skilled workers, complicated regulatory barriers, and legal risks weigh down investor confidence. The transport network's poor coverage and quality increase the costs of freight transport and the risk of supply chain disruption. However, there are several projects in the works to bring Bosnia's railway network up to par with EU railway legislation guidelines, including plans to build a high-speed rail connection between Sarajevo and Belgrade.

Source: Fitch Solutions

Date last reviewed: February 10, 2019

Fitch Solutions Political and Economic Risk Indices

Graph: Bosnia and Herzegovina short term political risk index
 
Graph: Bosnia and Herzegovina short term political risk index
 
Graph: Bosnia and Herzegovina long term political risk index
 
Graph: Bosnia and Herzegovina long term political risk index
 
Graph: Bosnia and Herzegovina short term economic risk index
 
Graph: Bosnia and Herzegovina short term economic risk index
 
Graph: Bosnia and Herzegovina long term economic risk index
 
Graph: Bosnia and Herzegovina long term economic risk index
 

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Economic and Political Risk Indices

Date last reviewed: March 22, 2019

Fitch Solutions Operational Risk Index


 
Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
Bosnia and Herzegorvina Score 46.6 45.5 46.3 48.5 45.9
Southeast Europe Average 57.6
 
52.8 58.8 59.5 59.4
Southeast Europe Position (out of 12) 12
 
12 12 12
 
10
 
Emerging Europe Average 57.1 54.1 59.1 58.6 56.8
Emerging Europe Position (out of 31) 26
 
29 28 27
 
22
 
Global Average 49.6
 
49.7 49.9 49.0 49.8
Global Position (out of 201) 114
 
126 116
 
97
 
108

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Graph: Bosnia and Herzegovina vs global and regional averages
 
Graph: Bosnia and Herzegovina vs global and regional averages
 
Country
 
Operational Risk Index
 
Labour Market Risk Index
 
Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
Slovenia
 
68.6 54.0
 
63.4 73.5 83.4
Croatia 64.1 51.9
 
56.6 71.3 76.7
Romania 62.4 57.1 61.0 63.0 68.5
Cyprus 62.3 55.1 64.2 61.3 68.8
Bulgaria
 
60.2 55.5 64.1 60.1 61.1
Serbia
 
57.2 58.5 60.7 57.0 52.5
Montenegro
 
56.7 52.8 58.1 56.6 59.3
North Macedonia 56.2 47.2 64.1 56.2 57.3
 
Turkey
 
54.8 52.0 60.4 64.9 42.0
Kosovo 51.5 55.2 58.3 52.0 40.7
Albania 51.1 49.0 49.1 49.7 56.8
Bosnia and Herzegovina 46.6 45.5 46.3 48.5 45.9
Regional Averages 57.6 52.8 58.8 59.5 59.4
Emerging Markets Averages 46.7 48.0 45.5 47.4 46.0
Global Markets Averages 49.6 49.7 49.9 49.0 49.8

 

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: March 22, 2019

Hong Kong Connection

Hong Kong’s Trade with Bosnia and Herzegovina

 

Graph: Major export commodities to Bosnia and Herzegovina (2018)
 
Graph: Major export commodities to Bosnia and Herzegovina (2018)
 
Graph: Major import commodities from Bosnia and Herzegovina (2018)
 
Graph: Major import commodities from Bosnia and Herzegovina (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Bosnia and Herzegovina (by consignment)

Date last reviewed: March 22, 2019

Graph: Merchandise exports to Bosnia and Herzegovina
 
Graph: Merchandise exports to Bosnia and Herzegovina
 
Graph: Merchandise imports from Bosnia and Herzegovina
 
Graph: Merchandise imports from Bosnia and Herzegovina
 

Note: Graph shows Hong Kong exports to/imports from Bosnia and Herzegovina (by consignment)

Exchange Rate HK$/US$, average

7.75 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

7.83 (2018)

Sources: Hong Kong Census and Statistics Department, Fitch Solutions

Date last reviewed: March 22, 2019


 
2017
 
Growth rate (%)
Number of Bosnian residents visiting Hong Kong 775
 
0.4
 

Source: Hong Kong Tourism Board


 
2017
 
Growth rate (%)
Number of European residents visiting Hong Kong 1,929,824
 
-0.2

Sources: Hong Kong Tourism Board, Fitch Solutions

Date last reviewed: March 22, 2019

Commercial Presence in Hong Kong


 
2017
 
Growth rate (%)
 
Number of Bosnian companies in Hong Kong N/A N/A
- Regional headquarters
- Regional offices
- Local offices



Treaties and Agreements between Hong Kong and Bosnia and Herzegovina

  • The agreement between China and Bosnia and Herzegovina on the Promotion and Protection of Investments entered into force in January 2005. The duration of the initial treaty term is 10 years, with its purpose being to extend and intensify the economic cooperation between the two countries.

  • The agreement on the abolition of visa requirements for holders of ordinary passports between Bosnia and Herzegovina and China was signed by the two countries in November 2017. The agreement stipulates that citizens of Bosnia and Herzegovina and China who are holders of valid passports will have no obligation to obtain visas for entry, exit, stay or transit through the territory of the other contracting party for up to 90 days within a 180-day period.

  • The agreement on agricultural cooperation between Bosnia and Herzegovina and China was signed in November 2017. The signing of this agreement is opening the process of intensive communication between institutions and business communities in the field of agriculture and rural development in both countries, as well as providing further promotion of economic, scientific and technological cooperation in the aforementioned sectors.

  • Bosnia and Herzegovina has a Double Taxation Agreement with China, which entered into force in December 1989.

Sources: Government Sources, Fitch Solutions

Visa Requirements for Hong Kong Residents

A tourist visa is not required for Hong Kong residents for a stay up to 90 days. All travelers will need a passport valid for at least 90 days from the date of first entry into the territory of Bosnia and Herzegovina.

Source: Hong Kong Immigration Department

Date last reviewed: March 22, 2019

 

Graph: Major export commodities to Bosnia and Herzegovina (2018)
 
Graph: Major export commodities to Bosnia and Herzegovina (2018)
 
Graph: Major import commodities from Bosnia and Herzegovina (2018)
 
Graph: Major import commodities from Bosnia and Herzegovina (2018)
 

Note: Graph shows the main Hong Kong exports to/imports from Bosnia and Herzegovina (by consignment)

Date last reviewed: March 22, 2019

Graph: Merchandise exports to Bosnia and Herzegovina
 
Graph: Merchandise exports to Bosnia and Herzegovina
 
Graph: Merchandise imports from Bosnia and Herzegovina
 
Graph: Merchandise imports from Bosnia and Herzegovina
 

Note: Graph shows Hong Kong exports to/imports from Bosnia and Herzegovina (by consignment)

Exchange Rate HK$/US$, average

7.75 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

7.83 (2018)

Sources: Hong Kong Census and Statistics Department, Fitch Solutions

Date last reviewed: March 22, 2019


 
2017
 
Growth rate (%)
Number of Bosnian residents visiting Hong Kong 775
 
0.4
 

Source: Hong Kong Tourism Board


 
2017
 
Growth rate (%)
Number of European residents visiting Hong Kong 1,929,824
 
-0.2

Sources: Hong Kong Tourism Board, Fitch Solutions

Date last reviewed: March 22, 2019

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