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Bosnia and Herzegovina

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Foreign Direct Investment

In the 2000s, the Bosnian Government took a series of measures to attract FDI, which resulted in a record amount of FDI in 2007; unfortunately, the global economic crisis triggered by the Covid-19 pandemic led to a decline in FDI inflows in recent years. Nevertheless, according to UNCTAD's 2022 World Investment Report FDI inflows were above the pre-pandemic level and amounted to USD 519 million in 2021, up from USD 395 million in the previous year. Meanwhile, the total stock of FDI was estimated at USD 9.4 billion, around 42.3% of GDP. Based on data from the Central Bank of Bosnia and Herzegovina, the Federation of B&H participates in total FDI with 62.8%, the Republic of Srpska accounts for 34.4% and Brčko District for 0.9%. The largest share of FDI stock is held by Austria (EUR 1.5 billion), followed by Croatia (EUR 1.4 billion), Serbia (EUR 1.2 billion) and Slovenia (EUR 0.6 billion). European countries are still the most important investors in the country, accounting for 63% of the total stock. Out of total foreign direct investments, 36% are concentrated in the manufacturing sector (primary, industrial and electricity production), followed by the banking sector (23%), trade (13%) and telecommunications (12% - data CBBH).

Bosnia and Herzegovina can offer investors low levels of corporate taxation, several well-developed industrial zones, a solid banking sector and its strategic location. The country is richly endowed with natural resources, providing potential opportunities in energy (hydro, wind, solar, along with traditional thermal), agriculture, timber, and tourism. Major problems facing foreign investors include a lack of transparency of procedures and weak judicial structures, as well as the dual nature of the state and weak protection of property rights. Furthermore, complex labour and pension laws as well as the lack of a single economic space also hinder investment. Excluding some exceptions (defence industry and some areas of publishing and media, electric power transmission), foreign investors are entitled to invest in any sector of the economy in the same form and under the same conditions as those defined for residents. There have been no significant privatization programs in the recent past. The country ranks 70th out of 132 in the 2022 Global Innovation Index and 110th out of 180 in the Corruption Perception Index.

 
 
Foreign Direct Investment 202020212022
FDI Inward Flow (million USD) 429587661
FDI Stock (million USD) 9,6729,4329,323
Number of Greenfield Investments* 131119
Value of Greenfield Investments (million USD) 451348657

Source: UNCTAD - Latest available data.

Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.

Country Comparison For the Protection of Investors Bosnia and Herzegovina Eastern Europe & Central Asia United States Germany
Index of Transaction Transparency* 3.0 7.5 7.0 5.0
Index of Manager’s Responsibility** 6.0 5.0 9.0 5.0
Index of Shareholders’ Power*** 5.0 6.8 9.0 5.0

Source: Doing Business - Latest available data.

Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.

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What to consider if you invest in Bosnia and Herzegovina

Strong Points

The country's strong points include:

  • High tourism and energy potential
  • A strategic location halfway between western and eastern Europe
  • Excellent integration into the global economy with regional and bilateral free trade agreements, IMF financial assistance and stabilisation agreements with the EU
  • One of the most stable currencies in the region, reinforced by a low rate of inflation and a currency directly linked to the euro
  • A well-developed banking sector
  • An abundance of industrial zones
  • Low level of corporate taxation
  • Foreign currency reserves covering more than six months of imports
  • Supportive legal environment
Weak Points

Bosnia and Herzegovina still has a number of weak points:

  • A structurally weak economy based on low value-added production and high dependence on its exports to eastern European countries (these countries account for more than half of the country's exports)
  • The unemployment rate is high (16.85% in 2020, World Bank) and the poverty rate of the population is higher than the regional average
  • A complex legal and regulatory framework with a country divided into two government entities, which thus considerably slows down the implementation of necessary reforms
  • Very high external debt (16.6 billion in 2019 - World Bank, latest data available)
  • A lack of transparency in commercial procedures, in particular in regard to public tenders
  • High emigration and high youth unemployment (33.8% in 2019 - World Bank, latest data available)
Government Measures to Motivate or Restrict FDI
Bosnia and Herzegovina has made significant efforts to open its economy to foreign investors. The main initiatives include a State Foreign Investment Policy Law, the establishment of a foreign investors' support fund and a uniform trade and customs policy.

The main provisions established by the Government include :

  • Equal treatment of foreign and national investors
  • The establishment of free trade zones
  • Investor protection by prohibiting nationalisation or expropriation of property
  • The ability for foreign investors to freely employ foreign nationals
  • Foreign investors are allowed to, freely and without any delay, transfer overseas to the freely convertible currency the profits made following their investment in Bosnia and Herzegovina

These measures are reinforced by the country's bid for EU and WTO membership, which mandate that the country makes these changes. The reforms imposed by these institutions aim to improve the business environment by standardising and simplifying, in particular, the legal and fiscal framework.

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