Bosnia and Herzegovina

Situation and cooperation

View of the city of Sarajevo, the capital and largest city of Bosnia and Herzegovina

Although the war in Bosnia and Herzegovina ended in 1995, the situation in the country is still tense as relations between the three ethnic groups of Bosniaks, Croats and Serbs remain strained. The greatest challenge in social terms is how to offer the country's people the prospect of peaceful coexistence, regardless of ethnic background or religion.

By the end of the war, one third of all housing had been destroyed. The years that followed were therefore dominated by the reconstruction effort. At the same time, Bosnia and Herzegovina underwent a radical process of reform, with restructuring of the economy, the education system, legislation, and the administration system. The international community provided support to the country's efforts.

Economic situation

Street scene in Sarajevo

During the war, many industrial plants and state-run enterprises were destroyed. The country's economy was brought to its knees. Even today, Bosnia and Herzegovina's national economy is still one of the weakest in Europe. The country's most serious problems continue to be the high unemployment rate, which was about 25 per cent in 2016; the difficult environment for private sector investment; and the low level of foreign direct investment compared with neighbouring countries.

So far, it has not been possible to forge all the parts of the country into a single, integrated economic area. Foreign investors find the extremely fragmented state structures almost impenetrable. In the World Bank's 'Doing Business' Report, Bosnia and Herzegovina ranks 81st out of 190 countries (2016). It comes last among the successor states to the former Yugoslavia.

Country's complex structure hampers development

Street scene in Sarajevo: Old men playing chess.

The political structure of Bosnia and Herzegovina is extremely complex. The state is made up of two entities – the Bosniak-Croat Federation of Bosnia and Herzegovina (FBiH) and the Republika Srpska (RS) – plus a third region, the Brčko District. At its head is a three-member presidency, the leadership of which rotates every eight months between representatives of the three ethnic groups.

The situation is made even more difficult by a lack of legal certainty and corruption at all levels. Bosnia and Herzegovina is 83rd out of 176 countries in the 2016 Corruption Perceptions Index compiled by Transparency International.

Some initial progress towards improving the situation in the country has been made by reforming its defence system. The police force, too, was restructured, and the country managed to improve the workings of its justice system significantly.

Development potential

View of the city of Mostar, Bosnia and Herzegovina

In spite of many problems, Bosnia and Herzegovina has great development potential. The decision to peg the Bosnian 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 has significant potential, 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.

Other sectors that have potential for growth are the timber, construction, textile, leather-making and food industries – as have the tourism, metalworking and information technology sectors. The country also has considerable mineral resources, such as lead, copper, iron ore, zinc, bauxite and coal.

Priority areas of German cooperation with Bosnia and Herzegovina

During the government talks between Germany and Bosnia and Herzegovina in April 2013, the two countries agreed to focus their development cooperation activities more closely on specific areas. Since that time, Germany's Financial cooperation has concentrated on renewable energy and energy efficiency. Technical Cooperation focuses on democracy, civil society and public administration.

Renewable energy and energy efficiency; water supply

Properly working water and energy supply systems are an important prerequisite for stable economic and financial development in Bosnia and Herzegovina.

Germany is focusing in particular on supporting the use of renewable energy and enhancing energy efficiency. With international support, Bosnia and Herzegovina now has a chance to export energy to neighbouring countries, thus generating revenues. The country has a vast potential – which has by far not been fully tapped yet – for the generation of energy from hydropower, wind power, biomass and solar energy.

One major Bosnian-German development cooperation project is the construction of a wind farm in southern Herzegovina. This will be the first installation of its kind in the Western Balkans. Germany is also helping the country expand the use of hydropower by assisting with the construction or modernisation of small and medium-sized hydropower plants.

And in order to help enhance energy efficiency, Germany is providing advice to municipalities on how to use energy sparingly and make use of renewable sources of energy. In addition, the relevant authorities are being supported in their efforts to implement laws and guidelines.

Stabilisation of democracy, civil society and public administration

Seat of Bosnia and Herzegovina at the UN Security Council in New York

Political stability, economic growth and peace in the Balkan region hinge upon the development of institutions that are based on the rule of law, and of a strong civil society. Properly functioning state institutions must be supported by a performance-oriented civil service and be placed on a sound financial footing. Germany is helping Bosnia and Herzegovina to reform its public administration with this aim in mind. In addition, Germany is also helping to strengthen institutions such as the country's central bank and its statistical and public procurement agencies.

In order to foster a social market system in Bosnia and Herzegovina, the German government is supporting local and regional private-sector development and business self-organisation. For instance, Germany continues to provide advice to the regional agencies set up in the two entities to promote development and the private sector.

At the regional and local levels, Germany has development cooperation programmes with the economic development organisations of several municipalities. Based on cooperation between local authorities, industry federations and businesses, strategies are being developed to make the towns in question more attractive sites for business activities. In addition to offering training for the staff of local economic development organisations, Germany is also providing equipment and materials to help with innovative development activities, as well as grants for local activities.

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