Bosnia and Herzegovina

4.2 Trade in Services

Multinational Trade Agreements

Active

1. Bosnia and Herzegovina-EU: The SAA between the EU and Bosnia 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, 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. 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. The SAA will also contribute to the progressive alignment of Bosnian norms and legislation with EU legislation, thus benefitting Bosnian citizens through better quality, healthier and safer goods. The EU accounts for approximately 50% of imports and exports.


2. Bosnia and Herzegovina-European Free Trade Association (EFTA): The EFTA consists of Switzerland, Norway, Iceland and Liechtenstein. The main focus of this 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 individual EFTA states and Bosnia form an integral part of the instruments establishing the FTA.


3. The CEFTA: CEFTA consists of Albania, Bosnia and Herzegovina, Serbia, Moldova, Montenegro, North Macedonia and Kosovo. It came into force in May 2007 and helps increase trade between regional counterparts as well as foster non-EU bilateral relations.


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. In May 2019, the two parties signed a new revised FTA.

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 owing 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

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. 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.


2. 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%.


3. FDI has mostly gone into the manufacturing sector and supported the privatisation of many key industries after the Bosnian 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.


4. Currently, there are 20 energy projects, valued at more than EUR2 billion, under development in Bosnia. 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.


5. The Corridor Vc project in Bosnia will receive EUR930mn (USD1.05 billion) from the EU and the European Bank for Reconstruction and Development (EBRD. Since 2015, the EU has allocated a total of EUR110 million (USD124.2 million) in grants for the construction of the eight planned sections of the corridor in the country. Of the EU grant, EUR15 million (USD16.9 million) will be spent on the ongoing construction of the 5.65km Johovac-Rudanka section, the first stretch of Corridor Vc to be built in Bosnia's Serb Republic. EBRD's overall credit arrangements for Corridor Vc projects in Bosnia total EUR820 million (USD925.8 million). State-run highways company Autoputevi Republike Srpske has hired Integral Inzenjering and North Macedonia's Granit to build the Johovac-Rudanka section at a cost of EUR62.5 million (USD70.6 million). The 335km Bosnian section of the Corridor Vc will link key cities in the country, from south to the north east, and is likely to be built until 2030 (Xinhua). Currently, 35% of the project in Bosnia is either complete or under construction.


6. Businesses operating in Bosnia face a high import burden as infrastructure development, industrial capacity and diversification remain weak owing to a dearth of fixed capital formation and the 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.


7. 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.


8. 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. 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.


9. Corporate income tax laws are rather complicated owing to the fragmentation of Bosnia 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.


10. 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 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

Fitch Solutions Risk Summary

ECONOMIC RISK
Economic activity continues to show resilience despite political uncertainty, and GDP growth is expected to accelerate slightly over the coming years. Household consumption will be the main driver of the expansion, and investment activity has strong potential, but remains highly vulnerable to political and funding risks. External headwinds from a regional slowdown will weigh on export growth and on Bosnia and Herzegovina’s industrial sector, although the impact on headline growth should be modest. Economic growth is likely to remain moderate in 2020. Private consumption should remain solid on the back of declining unemployment and higher wages. However, slowing investment growth will weigh on the economy together with external headwinds from slowing regional growth and the risk of an escalation in global trade tensions.

OPERATIONAL RISK
Bosnia 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, shortage 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 ongoing projects with the aim 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: May 18, 2020

Fitch Solutions Political and Economic Risk Indices

Exchange Rate HK$/US$, average
7.75 (2015)
7.76 (2016)
7.79 (2017)
7.83 (2018)
7.77 (2019)

Visa Requirements for Hong Kong Residents

A tourist visa is not required for HKSAR passport holders 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: May 18, 2020