Economic situation A difficult investment environment
The high unemployment rate continues to be a serious problem in Bosnia and Herzegovina. It is around 16 per cent, with a much higher rate among young people. The employment rate is very low at around 40 per cent among 15- to 64-year-olds (in Germany, it is 75 per cent).
So far, it has not been possible to forge all the parts of Bosnia and Herzegovina into a single, integrated economic area. Foreign investors find the highly fragmented state structures and complex administrative system almost impenetrable. Following a lull as a result of the COVID-19 pandemic in 2020, foreign direct investment has recently increased. However, it is unclear how the current political crisis will affect the business climate and willingness to invest.
The lack of legal certainty and the corruption at all levels and in all areas is holding back economic development. Bosnia and Herzegovina ranked 110th out of 180 countries in the 2021 Corruption Perception Index compiled by Transparency International.
In recent years, economic growth in Bosnia and Herzegovina has ranged from 2.8 to 3.7 per cent. In 2020, gross domestic product fell by 3.2 per cent as a result of the COVID-19 pandemic. Since lockdown measures were lifted in the summer of 2021, however, the economy has recovered, driven by private consumption and exports to the EU. The International Monetary Fund (IMF) estimates economic growth of about 3 per cent for 2022 and the following years. The impact of the war in Ukraine on Bosnia and Herzegovina’s economy is not yet clear.
Remittances sent by the nearly two million people from Bosnia and Herzegovina who live abroad and support their families back home are an important economic factor. These transfers amount to around 2 billion US dollars each year – approximately 10 per cent of the country’s gross domestic product.
Despite the many challenges the country is facing, Bosnia and Herzegovina has great potential for development. The decision to peg the national currency to the euro has brought price stability to Bosnia and Herzegovina, and has brought inflation down. Thanks to its central position, Bosnia and Herzegovina is an attractive location for businesses wanting to serve the markets of Southeast Europe or establish more regional supply chains. The energy sector in particular holds significant potential, notably in terms of exports (see also: Core area “Climate and energy, just transition”).
As at: 07/06/2022