Business and Economics
Like other countries that were part of socialist
Yugoslavia, Bosnia and Herzegovina's business is in a
transitional phase. Since these countries became
independent, their aim has been to privatize and modernize
business and to join the EU. However, Bosnia and Herzegovina
has not progressed as far as Croatia, Serbia and Montenegro.
On the contrary, it is one of Europe's poorest countries.
Of the two main parts of the country, the Federation of
Bosnia and Herzegovina accounts for close to 2/3 of total
GDP and the Serbian Republic (Republika Srpska) for about
The war and its consequences. The causes of
poverty and development problems are mainly found in the
civil war in 1992-95. It brought many thousands of
casualties, tore up business and destroyed much of the
infrastructure. Several million residents fled from home, to
other parts of the country or to other countries.
Still, after nearly twenty years, many thousands of
internally displaced people have been unable to return home.
The move has continued and the country's population in 2013
was only 86 percent of what it was in the early 1990s.
The war also deepened the contradictions between the
three linguistic and cultural categories of Bosnians,
Bosnians and Bosnians. After the war, politicians have
hardly worked to unite them into a single nation. On the
contrary, the Dayton Peace Agreement in 1995 brought about a
political and administrative structure that reinforced the
differences. The country's division into two large entities
entails a comprehensive division in terms of legislation,
business policy, social policy and education policy. In
practice, this entails an ineffective duplication, for
example, within the infrastructure and difficult barriers to
labor mobility and people's access to social support.
A few years of economic growth. As a poor
country with a very limited industry and weak domestic
purchasing power, Bosnia and Herzegovina is dependent on
foreign trade. During a few years in the mid-1990s, trade
increased significantly with a number of countries in the
EU, and the country's GDP grew by close to 6 per cent in
2004–08. Well-needed foreign investment enabled
modernization of parts of the business sector. In 2008, a
Stability and Association Agreement was signed with the EU,
a first step towards becoming a candidate country. But the
agreement has not been updated, since Bosnia and Herzegovina
did not meet the requirements set by the EU in, for example,
administrative and judicial reforms.
International dependency and other problems. The
global financial crisis hit hard on Bosnia and Herzegovina.
In 2009, the country's GDP fell by 3 percent. The protracted
euro crisis that followed led to unstable growth and 2012
saw a decline in GDP, which was then still below the pre-war
level. Investment from abroad shrank, as did development aid
from the United States, the EU and individual states, and
the country faced increasingly difficult economic problems.
The current account deficit increased and so did the
problems in the state budget. Money is lost in widespread
corruption. At the same time, the social safety net of the
country's poorest is being eroded.
The overall guideline for the country's economic
development has been to promote competitive business through
privatization. Privatization began in the 1990s, but it has
been slow and has also created problems. The new, private
owners replaced many of the employees with new technology,
workers were laid off and unemployment increased further.
Foreign owners misjudged the production possibilities or
were not entirely serious. The companies went bankrupt and
the state has to re-enter as owner to save employment.
Privatization processes were darkened and politicians and
officials were suspected of corruption.
A modernization of business is necessary, but capital is
not available in the country. It must come from outside, but
the outside world is skeptical of what is happening in the
country. As economic problems increase, more is heard by
nationalist rhetoric and ethical suspicion among politicians
within each unit. At demonstrations in 2014, it became clear
that there was a great dissatisfaction with privatization,
corruption and what was termed political misconduct.
More than half of the country's land is used for
agriculture and livestock management. About 20 per cent is
arable land and in addition some per cent is used for
growing grapes and other fruit. About 25 per cent is made up
of permanent pastures and 43 per cent of forest land, while
the remainder are lean areas with natural pastures.
The most fertile land is on the hilly lowlands in the
northeast, and agriculture is therefore of greater
importance in the Serbian Republic (Republika Srpska) than
in the Federation of Bosnia and Herzegovina.
Because of the country's breakdown, it is difficult to
calculate the importance of agriculture for GDP and
employment across the country. Half of the population lives
in the countryside and a large part of them work with arable
farming and livestock management. Domestic food production
is not enough, however, and food imports have increased
every year, especially wheat.
The war hit agriculture very hard. More than half of the
farm animals died, buildings, roads and other facilities
were largely destroyed and vast areas of land were mined.
Food production is still significantly lower than before the
war. Above all, grain production is declining. Animal
production has increased since the mid-00s, but has not yet
reached the pre-war levels. The most important agricultural
products in agriculture are milk and other dairy products,
maize, chicken meat, plums and other fruits as well as
sunflower seeds, peppers and other vegetables.
The vast majority of farms are small family farms, mainly
self-catering. The average size is three hectares and the
eggs are split into many small ticks. Milk from some cows
can make a small income.
Outdated aids and outdated farming practices mean that
yields are lower than in almost every other country in the
region, and most farmers lack the money and knowledge to
improve conditions. However, agriculture receives extensive
state aid, especially in the Serbian Republic. Especially
livestock breeding is considered to have great development
opportunities, since the natural conditions are suitable. In
higher-lying areas, sheep farming has a long tradition and
it provides both wool and meat and milk.
A modern fish farm has started to emerge, mainly salmon
Forests are a significant natural resource in the country
and the forestry and timber industry have traditionally been
important parts of the business sector in this part of the
About 43 percent of the acreage is wooded, most with
high, dense populations. Just over three-fifths of these are
deciduous forests, especially books that are considered to
be of high quality. Oak, ash, walnut, cherry and other fruit
trees are also included in the deciduous forest stock. Wood
of these types of wood is used for, among other things,
furniture and wooden floors, which are important export
goods. The coniferous forest is for the most part spruce.
More than 80 percent of all forest is owned by the state.
Forests of lower quality are found in parts of the
Serbian Republic (Republika Srpska), mainly in the
southernmost part of the country. It is long before the
forest industry as a whole lives up to the international
level in terms of sustainability and harvesting.
Certification according to international standards is
ongoing, for example FSC for responsible forestry. For an
export-oriented timber industry, it is a strength in the
international market to be able to show that the raw
material has been certified wood.
Illegal logging occurs but to a lesser extent than in the
years immediately following the war. Both forestry and the
timber industry receive international support for, among
other things, developing sustainable forestry and marketing
of forest products.
The country has quite a lot of minerals, mainly iron,
bauxite and lead. As the area was a Yugoslav state, it
accounted for most of the iron ore and bauxite mining in
Yugoslavia; Zenica was an important center for the mining
and metal industry. The war of the 1990s was devastating for
all these activities. The mines were damaged and water
filled and factories and infrastructure destroyed.
Eventually, mining could be resumed, but production had not
yet reached the 1990 level. However, products from the
mining and metal industry account for a significant portion
of export earnings.
Iron ore is found in two areas, partly in central Bosnia
with Vareš and Zenica as the main locations, and in the
northwest at Prijedor, where one of the host's largest
mining and steel companies, Luxembourg- based ArcelorMittal
SA., Operates open- pit mining in Ljubija. After the war,
operations were resumed in 2004 and a second mine was opened
in 2009. Three quarters of the ore is transported to the
company's steel mill in Zenica, while the remainder goes to
steel mills in the Czech Republic and Poland.
Bauxite was mined before the war in many places in the
country's northwest and easternmost part. After the end of
the war, bauxite production started fairly quickly, but the
companies that process the raw material have had growing
economic problems (see Industry) and bauxite production has
dropped since 2007. The company Boksit a. Dead Milici is
extracting bauxite in the east, near the border with Serbia.
Manganese ore began to be mined in Bužim in the far
northwest in the late 1980s, but the mine was abandoned
during the war. After coming into Bulgarian ownership, it
was put back into service in the summer of 2013.
In the country's easternmost part, between Srebrenica and
the Serbian border, lead and zinc were mined in several
mines before the war. At the beginning of the 2000s,
operations were resumed in one of the mines and production
has increased every year.
A number of industrial minerals are also extracted, such
as salt, lime and gypsum.
The country has large resources on lignite and a good
potential for water energy, which can provide opportunities
to export electricity. However, all crude oil and natural
gas must be imported. In households, firewood still plays an
important role as an energy source, especially in rural
areas and especially in poor households.
The war in the 1990s meant that both the demand for
energy and energy production were greatly reduced. By 2010,
total energy consumption had not yet reached the 1990 level,
mainly as a result of industry shrinking. By contrast,
electricity production had reached pre-war levels.
The country's two main parts, the Federation of Bosnia
and Herzegovina and the Serbian Republic (Republika Srpska),
have no common energy strategy. They also act individually
in terms of energy decisions in the short term and
implementation of decisions made at national level.
The most important energy raw material is lignite, which
in 2008 accounted for just over 45 per cent of all energy
use in the country. The assets are located in different
parts of the country and are mostly mined.
Many mines were abandoned during the war, when pumps and
other facilities were destroyed, but since the late 1990s
some mines have been restored and production has started
again and slowly increased. Around 2010, coal production was
about 40 percent of the 1990 level. For the most part, the
lignite is used to generate electricity. Coal mining is a
highly fragmented industry with many units not cooperating.
In 2013, lignite was mined in twelve mines. They are found
in the Tuzla area in the northeast, in central Bosnia as
well as in Ugljevik and Gacko.
Business operations are limited by shortcomings in
transport networks and other infrastructure and by capital
shortages. There is no means to make the operations less
environmentally polluting and to clean up old and old mines.
Furthermore, many mines still have outdated equipment.
Oil accounts for about one fifth of energy production and
is used primarily in the industrial and transport sectors.
Crude oil is imported via a pipeline from an oil terminal at
Rijeka in northwestern Croatia. Bosnia and Herzegovina's
only major oil refinery is located in Bosanski Brod on the
Sava border in the north. From there comes most of the
refined oil products needed in the country. The refinery
became unusable during the war but was partially used for
short periods up to 2005. In 2007 it was purchased by
Russian JSC Zarubezhneft, who gradually reconstructed it and
in 2009 also started a smaller refinery in Modriča, in the
northeastern part of the Serbian Republic, for the
production of motor oils. In addition, JSC Zarubezhneft has
a long-standing concession for test drilling for oil and
natural gas near the Croatian border in the north.
Natural gas accounts for 8 percent of energy production.
It is transported under the guidance of Russian Siberia via
Ukraine, Hungary and Serbia. Gas is seen as a good future
energy alternative for industrial companies. However, this
makes the business sector vulnerable, since that energy raw
material comes via a single line from a single supplier.
When the Russian exporter Gazprom in 2011 raised the gas
price very sharply, Bosnian companies were threatened by
More than half of the electricity comes from the four
coal-fired power plants located in each of the coal fields.
The residue is generated in 14 rather small hydroelectric
power stations. Bosnia and Herzegovina ranks eighth in
Europe in terms of expanded water energy, but less than half
the capacity is currently used. Much was damaged or
destroyed during the war and there was no capital to fully
Bosnia and Herzegovina is the country in the Balkan
Peninsula that has the greatest potential in terms of
renewable energy. Wind and solar energy can be utilized in
areas in the west and geothermal energy in the north. A
large part of the country's area is wooded and firewood is
the most important energy source for more than half of
households. Wood and other biomass should account for one
fifth of total energy use in the country.
Industry and service
In 2011, industry, including mining and construction,
accounted for 21 percent of employment. Compared to
neighboring countries Serbia and Croatia, Bosnia and
Herzegovina is a country with very little manufacturing
industry. It employs only 6 percent of everyone in the labor
market. Particularly low is industrialization in the Serbian
Republic (Republika Srpska). The two main parts of the
Bosnia and Herzegovina and Serbian Republic ferries have
their industrial policies, and state ownership means that
either of the two owns the company in question.
During the Yugoslav era, the most important industries
were the wood, metal, weapons and textile industries. After
the country became independent, business would be
privatized, but all the problems created by the war made it
delayed. Several large, stale companies have not yet managed
to get a stable business under private ownership or with
private and state co-ownership. Small, private companies now
account for a large part of production.
At the turn of the 2000s, industrial production was at a
very low level. Thereafter, up to 2008, production growth
averaged 8 percent per year. The stimulus was mainly foreign
demand. However, this meant that the ensuing global economic
crisis hit hard on the country's business and industrial
production decreased by 15 percent in 2009. Since then,
development has been volatile.
Declining demand in the EU has caused problems mainly for
the aluminum industry and has led to reduced production in
almost the entire metal industry. At the same time, some
industrial sectors have attracted foreign direct investment.
In particular, the automotive industry has experienced
strong annual growth in the early 10s.
The metal industry is the industry that has
traditionally been of the greatest importance to the economy
of Bosnia and Herzegovina. These include some of the
country's largest companies, which manufacture aluminum,
steel and steel alloys and semi-finished products, such as
pipes and profiles. The industry is highly export-oriented
and therefore dependent on how demand and metal prices
change in the world market. The metal industry uses a lot of
energy in the form of imported Russian natural gas. These
large companies were previously completely state-owned. They
were privatized in whole or in part after the turn of the
The aluminum industry was hit hard by the global crisis
in 2009. The two smelters have since then had great
difficulties in maintaining stable production. The Birač
aluminum plant in Zvornik near the border with Serbia
normally had more than 1,000 employees. Low world market
prices, poor corporate governance and sharply rising gas
prices led to bankruptcy of the Lithuanian majority owner in
the summer of 2013, after which the state, that is the
Serbian Republic, completely took over the company. Similar
problems hit the aluminum smelter in Mostar. The facilities
were closed for economic reasons in the fall of 2013. The
state, that is, the Federation of Bosnia and Herzegovina,
took over all ownership to sustain life in operations that
are of great importance to the country's business. The
company has been the largest exporter and in addition
provided many domestic small companies with aluminum for
further processing. In both cases, it was also about saving
employment in the country, where unemployment was already
The steel industryon the other, has had a
positive development since the crisis year 2009. The iron
and steel industry has a long tradition in the central parts
of the country, which was one of Yugoslavia's most important
areas for ironmaking and weapons manufacturing. Most of it
was destroyed during the war, both mines and ironworks in
Vareš and the steel mill in Zenica. ArcelorMittal Zenica
became majority owner in 2008, renovating the old facilities
and gradually expanding its operations. Several attempts
have been made to restore the two ironworks in Vareš, but
very little remains of all the iron industry in that city.
In Jajce in the central part of the country, before the war,
there was a smelting plant which produced the alloy metal
ferro silicon. After dividing companies and several changes
of ownership, they try to regain their lives. The metal
industry has created major environmental problems,
The timber and furniture industry has long been
significant and in the 2010s, exports of wood products
increased every year. Its share of GDP has decreased to just
over 3 per cent, but it provides 10-20 per cent of all
export income. It is an industry that attracts foreign
investors. The workforce is knowledgeable and the wage
situation is low, and there are also a number of high
quality native woods. The timber industry has a broad focus.
Here furniture, floors, doors and prefabricated houses are
manufactured as well as plywood, pulp and paper. Exports of
wood products are mainly to countries within the EU and the
furniture industry has found new markets in the major
countries of Western Europe. Like other industries, the
timber industry is in great need of foreign capital to
modernize its production.
The textile, clothing and leather industry is an
important industry in terms of employment. Many small
companies in different parts of the country focus on
clothing and footwear manufacturing. Most of the raw
materials are imported and most of the production is
exported, mainly to countries within the EU. The aim is to
find foreign companies that can join as a partner and raise
capital so that the operations can be modernized and
The service industries are less developed than
in most other European countries. According to the official
statistics for 2011, they accounted for only half the
employment in the country. However, especially in the retail
sector, many more work in the informal sector (see Social
conditions). The major service sectors are trade, education
and healthcare. A structural change started in the trade
during the expansionary years after the turn of the century.
Since then, many small one-person stores and family
businesses have been out-competed by grocery and other
retail chains. The three largest (2013) are the Serbian
chain Maxi, the domestic Bingo and the Slovenian supermarket
countryaah, Bosnia and Herzegovina already had companies in the
Yugoslav era exporting aluminum, timber and textiles. The
civil war of 1992-95 broke down all such trade contacts and
foreign trade began to get underway only in the 21st
century. It increased significantly for each year leading up
to the global financial crisis of 2008–09, but has
subsequently shown less stable development. Most of the
trade is with countries in the EU, and the crisis in the
euro zone has been reflected in falling demand from these
The country has, since it became independent, had a trade
deficit and it has been strengthened for each year since
2009. In 2012, import costs were almost twice the export
revenues. Exports mainly comprise metals and metal products,
clothing and shoes, furniture, flooring materials and other
wood products as well as components for cars and machines.
The country has a growing import of fossil fuels and
foodstuffs, and also imports of machinery, transport and
chemical products of many kinds. The most important trading
partners are Germany Italy and Croatia.
In 2007, Bosnia and Herzegovina became a member of the
South-Eastern European Free Trade Association CEFTA.