Bosnia and Herzegovina’s economy is in transition and has a high per capita income. On March 1, 1992, Bosnia and Herzegovina broke apart from socialist Yugoslavia and declared its independence. Primarily, trade occurs with Germany, Italy, Austria, Turkey, and other Balkan countries.
The country of Bosnia and Herzegovina has gone a long way since the mid-1990s and is now considered an upper-middle-income nation. In the midst of poor growth and the global financial crisis, it is currently a potential EU candidate country and is launching a new growth strategy.
In 2016, services contributed 55% of the GDP to Bosnia and Herzegovina’s small, open economy, while industry and manufacturing contributed 23% and 12%, respectively; agriculture contributed 6%.
The 1998-introduced konvertibilna marka (convertible mark or BAM) is pegged to the euro, boosting investor and consumer trust in the currency and the financial system. However, privatization implementation has been sluggish, and local entities only grudgingly back national-level institutions.
In 2001, reforms in the banking industry sped up because so many foreign banks, mainly from Western Europe, had taken over. The two largest issues with the economy are the high unemployment rate and the large current account imbalance.
While the international world has been providing significant aid for the country’s rehabilitation and humanitarian needs, such aid is expected to decrease in the future.
The Country Commercial Guide is a yearly report put out by the United States Embassy in Sarajevo, Bosnia, and Herzegovina, which provides an in-depth examination of the country’s commercial and economic climate by way of analysis of the country’s economy, politics, and markets.
Bosnia And Herzegovina Economy In Europe 2023 [Facts & History]
During the time of the Socialist Federal Republic of Yugoslavia (SFRY), Bosnia and Herzegovina served as a major mineral processing center, trading basic mineral commodities with the other republics for everyday products.
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Even though the public sector invested heavily in capital during the 1970s, productivity levels remained low. This was often attributable to the lack of expertise among public sector management. Metal-product businesses were encouraged in the republic by former premier Demal Bijedi and Yugoslav president Tito, leading to the construction of many of the country’s metal-product plants.
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The SFRY frequently merged smaller businesses into larger conglomerates in order to maintain full employment. Over time, this led to the establishment of four major conglomerates in the country of Bosnia and Herzegovina: Energoinvest (the energy sector), Unis (the automotive and defense industry; they partnered with Volkswagen in the early 1970s), iPad (the wood processing industry), and RMK Zenica (the mining industry) (steel industry, later acquired by ArcelorMittal).
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The construction and defense industries were vital to Bosnia’s economy, but they were also among the least productive and most likely to experience an oversupply of goods and services. Mostar, located in the south, was an important metallurgical hub and also home to a thriving defense sector (Aluminij Mostar).
North of the country, specifically in the Banja Luka area, was where many different kinds of machinery were manufactured. The chemical industry in the Tuzla neighborhood was well-known.
Plants in Sarajevo, Mostar, and Banja Luka produced automobile parts in the 1950s, and the industry grew to include full-fledged automobile assembly in the following decades.
Despite the importance of agriculture to the economy and the presence of the vast Agrokomerc conglomerate near the country’s northwestern border with Croatia, agriculture was not well developed.
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Tito actively promoted the growth of the metal industries and the electro-energetic sector in the country, leading to the proliferation of numerous manufacturing businesses in Bosnia and Herzegovina.
Companies like Coca-Cola, Pepsi, Marlboro, Volkswagen, and SKF were among those that some of them have worked with. In that time period, major corporations such as Energoinvest, UNIS, Hidrogradnja, Vranica, RMK Zenica, TAS Sarajevo, FAMOS Sarajevo, and BNT Novi Travnik have annual revenues in the billions of US dollars.
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Businesses in the construction industry generate significant annual revenue. During that time, the unemployment rate was exceptionally low. Management, engineering, and scientific expertise are all handled by highly trained personnel, and the latest Western-developed technologies are put to use on a massive scale.
The conflict halted the progress that Yugoslav PM Ante Markovi had made toward privatization in the economic, financial, and industrial sectors.
Between 1990 and 1995, the GDP (excluding services) dropped by 90% due to the war in Bosnia and Herzegovina, and material damages from the conflict were over €200 billion.
The majority of the aforementioned businesses are now privately owned. The economy is nonetheless precarious, as it is mostly driven by consumer spending and subject to foreign shocks.
The global economic crisis pushed Bosnia and Herzegovina into recession in 2009 and 2012 (with GDP growth of -3.0% and -0.8%, respectively), and the devastating floods in 2014 inflicted damage equivalent to nearly 15% of GDP, so these events have been clearly visible.
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GDP growth has averaged above 3% each year since 2015. Despite a decrease in its trade deficit, which was 17.4% of GDP in 2017, the country nonetheless posted a current account deficit of 4.7% of GDP in 2017, down from 5.3% in 2015.
After holding debt discussions with the London Club in December 1997 and the Paris Club in October 1998, the Central Bank of Bosnia and Herzegovina issued the Bosnian and Herzegovinian convertible mark in the middle of 1998.
With the Convertible Mark’s growing popularity in 1999, the Central Bank’s reserve holdings surged considerably. Bosnia’s low overall inflation rate can be attributed to the country’s stringent currency board policy, which pegs the Bosnian mark to the Euro.
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With a fragile peace in place, production increased rapidly from 1996 to 1999 but decreased in 2000 and 2001. Large amounts of humanitarian relief and reconstruction help are being sent to the country.
Twenty percent to twenty-five percent of economic expansion in Bosnia and Herzegovina can be attributed to support from the Support for East European Democracy (SEED) program. While both the Federation and the RS have experienced growth in the decades since the war’s end, the Federation’s expansion has been more rapid.
Compared to the RS, GDP grew by 35% in 1996, flat in 1997, and continued to expand in 1998 in the Federation, as reported by the World Bank.
The pace of change has been gradual, but significant progress has been achieved in economic reform since peace was restored. There was a delay in enacting privatization and implementing reforms in the banking industry.
The privatization of many businesses (mostly factories) resulted in severe difficulties, leading to pay cuts and wage withholdings on the part of company owners. In some cases, new business tycoons even destroyed the facilities that had been privatized.