Economic situation A difficult investment environment
The high unemployment rate continues to be a serious problem in the country. In 2019, even before the COVID-19 pandemic struck, it was as high as 15.7 per cent, and reached about 19 per cent in 2020. Foreign direct investment, which had been increasing steadily in previous years, also went down considerably.
Even before the pandemic, the dire economic situation had caused many young people to leave the country. In 2019, the youth unemployment rate was 34 per cent.
So far, it has not been possible to create a single economic area comprising all the individual parts of Bosnia and Herzegovina. Foreign investors find the extremely fragmented state structures almost impenetrable. In the World Bank's Doing Business Report, Bosnia and Herzegovina ranks 90th out of 190 countries (2020).
The remittances that the roughly two million people from Bosnia and Herzegovina living abroad are sending home to support their families constitute an important economic factor. In 2019, remittances totalled 2.2 billion US dollars, accounting for almost 11 per cent of GDP. According to World Bank estimates, this amount went down to approximately 1.6 billion US dollars in 2020.
The situation is made even more difficult by a lack of legal certainty and corruption in all areas and at all levels. Bosnia and Herzegovina ranks 83rd out of 180 countries in the 2020 Corruption Perception Index compiled by Transparency International.
Potential for development
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.
The energy sector in particular offers many opportunities, notably for exports. The country could improve its competitiveness by exporting electricity. With support from the BMZ, several wind farms are being set up, and efforts are under way to tap further renewable sources of energy.