Wednesday, 30 Oct 2013
Overseas Business Risk - Bosnia and Herzegovina
Political and Economic
The Dayton Peace Agreement, which ended the war in Bosnia and Herzegovina in 1995, established the structure comprised of a state level government and two entities that enjoy substantial autonomy - the Federation of Bosnia and Herzegovina (FBH) and Republika Srpska (RS). Brcko District is a unit of local self-governance which comes under the exclusive sovereignty of the national Government
Since 1995, the country has made considerable progress in post-conflict reconstruction, social integration, and state building. Problems over formation of a new state-level government which hampered the county’s progress on much needed reforms were overwhelmed after over a year of political stalemate. The appointment of a new government was confirmed in February 2012.
Over the coming period, priority areas for the new government will be: progress towards EU and NATO integration, WTO membership and financial and budgetary stability
Bosnia and Herzegovina is a middle-income country with an official GDP per capita of USD 4.461 in 2012 and a growth rate of – 0.7% (Source: World Bank). In 2012 inflation was reported at 3%, unemployment at 28% (by ILO standards) and average salary of Euro 400/month. Government spending is large at 50% of GDP.
The economy is underpinned by a convertible currency which has a fixed parity with the Euro.
The post-war economic growth was initially driven by reconstruction efforts, but as of late it is mostly driven by private sector investment. Investors are guaranteed free transfer of capital as well as repatriation of profit. However, FDI remains modest hindered by excessive layers of bureaucracy, political interference and subtle corruption.
In 2009 the economy of Bosnia and Herzegovina started feeling the negative impact of the global financial and economic crisis. It started a slow recovery in 2010 on the back of strong export growth which was reflected in 2011 and 2012 when both export and imports increased by around 15%. Export growth is observed across all traditional industries: electric power, steel, aluminum, furniture, as well as primary agricultural products.
To cover a decline in GDP and budget deficit, Bosnian and Herzegovinian authorities took emergency measures to reduce public expenditures and concluded a Stand-by Arrangement (SBA) with the IMF amounting to USD 1.52 billion, which was approved in July, 2009. In May 2013, the IMF approved the 24 –month SBA package with an amount of EUR 39 million.
In October 2011, the World Bank’s approved a Partnership Strategy for Bosnia and Herzegovina for 2012-15 which will provide US$148 million of interest free assistance whilst the IBRD will make available US$200 million to support structural reforms.
The country finalised negotiations on EUR 108.84 million in IPA funding for 2013. However, due to lack of coordination mechanism on national level, the IPA funding for 2013 has been suspended.
More information on political risk, including political demonstrations, is available in FCO Travel Advice Bosnia and Herzegovina.
Bosnia and Herzegovina has signed the European Convention on Human Rights and thereby has formally secured the rights of workers. Trade unions operate on entity level, with the exception of trade union of civil servants where in addition to entity level, the union exists on state level too. The two entities - Federation of BiH and Republic of Srpska have signed contracts that define rights and responsibilities in working with trade unions. In practice, the entities do not fulfill their contractual obligations, particularly in expected public sector downsizing.
In private sector, the state enforcement agencies often fail to react on cases of human rights abuse of workers, like missing payments on social contribution. This is the result of the Government’s interest for keeping existing foreign investments. The workers associations have limited access to relevant Government organisations which limits their ability to fight for their rights effectively.
According to the Gender Equality Agency of BiH, the presence of woman in public and private sectors is insufficient. The central Government does not implement the adopted legislation on presence of woman in public sector.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
The 2010 Bribery Act, become law on 1 July 2011, signalling a concerted effort by the UK to be among the leading nations in international anti-corruption efforts. The Ministry of Justice published Guidance for businesson 30 March 2011, to help companies to familiarise themselves with the Act before it becomes law.
Corruption remains prevalent in many political and economic institutions and has a negative impact on the quality of public services. Overall, Bosnia and Herzegovina needs to improve its anti-corruption legislation and ensure proper implementation of the National Anti-Corruption Strategy and the associated Action Plan.
Transparency International(TI) operates a branch office in BiH. TI's 2011 Corruption Perception Index, ranked Bosnia and Herzegovina 91st out of 180.
Visit the Business Anti-Corruption portalwhich provides advice and guidance about corruption in Bosnia and Herzegovina.
Read the information provided on our Bribery and corruptionpage.
The Foreign & Commonwealth Office assesses that there is an underlying threat of terrorism, indicating a low level of known terrorist activity.
Read the latest FCO Travel Advice Bosnia and Herzegovinafrom the Foreign & Commonwealth Office.
Read the information provided on our Terrorism threatpage.
Protective Security Advice
The Centre for the Protection of National Infrastructure also provides protective security advice to businesses
The level of crime is low, and crime against foreigners is particularly low. You should be aware of pickpockets in the tourist and pedestrian areas of Sarajevo and on public transport. There have been a number of thefts from "locked" sleeping compartments on the overnight train. You should also be aware that excessive displays of wealth, including large quantities of cash or jewellery and luxury vehicles can make you a target for opportunist thieves. You should remain vigilant and ensure personal belongings, passports and other travel documents are secure.
All incidents of crime should be reported to the local police station and a report obtained. The loss or theft of a passport should be reported immediately to the local police and the British Embassy in Sarajevo.
Read the information provided on our Protective security advicepage.
Bosnia and Herzegovina is in the process of upgrading its intellectual property rights laws in preparation for eventual membership in the European Union and the World Trade Organization. However, high levels of counterfeiting and piracy persist in the country. A reliable system for collecting, analysing and exchanging data among the various institutions involved is lacking. Enforcement remains to be improved.
In general, there is a low level of awareness of copyright related in issues the country’s private sector.
Read the information provided on our Intellectual Propertypage.
Like many countries in the Balkans region organised crime and corruption continue to pose a threat to the rule of law and sound and accountable institutions. The State Investigation and Protection Agency has successfully conducted investigations which have ended the activities of several organised crime groups operating in the country. The most common examples of organised crime were underrated taxation, smuggling of persons and money laundering.
The Balkans remains a significant route for the trafficking of drugs, people, weapons and other illicit goods into Europe and Bosnia and Herzegovina is at the crossroads. Some progress in fighting trafficking has been made over the last year. As a result the number of related investigations, indictments and convictions has decreased.
Read the information provided on our Organised crimepage.
More information is available on overseas business risk in a range of markets.