BiH is among the least competitive economies in Southeast Europe.  BiH suffers from lengthy and arduous processes to start a new business and obtain construction permits, issues which have impacted U.S. companies.  The lack of a single economic space in BiH affects companies trying to do business across the entire country.  BiH’s poor investment climate, endemic corruption, complex legal and regulatory frameworks and government structures, non-transparent business procedures, insufficient protection of property rights, and weak judicial system have resulted in stagnant foreign direct investment inflows over the past five years.

The country’s political environment and complex government structure creates significant obstacles to economic development.  Moves by the RS entity to unconstitutionally seize control of state property have increased tensions, including threats by RS President Milorad Dodik to separate the RS from BiH.  These actions, combined with RS efforts to form parallel entity level institutions, threaten to create legal ambiguities that further complicate the business environment, disrupt the economy, and hinder investment.  While no new parallel RS agencies are yet operational, the RS has taken concrete legislative and regulatory steps to lay the groundwork for their full implementation in the near to mid-term.  Investors should conduct adequate due diligence.  This includes avoiding exposure to individuals and entities under U.S. sanctions and clarifying land ownership rights and the status of sub-national institutions to avoid becoming entangled in a potential illegal and/or unconstitutional arrangement.  Potential investors are urged to read the legal reviews and statements of the High Representative for BiH.  The Federation also has functionality issues.  After forming a new government in April 2023 for the first time in eight years, the governing coalition has achieved only modest progress on economic and rule of law reforms. 

Government and public procurement tenders have been criticized for a lack of openness and transparency.  In August, the Government adopted long-delayed amendments to the Law on Public Procurement, but the law still does not include sufficient controls to prevent political interference into procurement processes nor does it provide for sufficient sanction to act as a deterrent to those who would seek to manipulate contracts for their own benefit.    

Dispute resolution is also challenging as the judicial system moves slowly, often does not adhere to existing deadlines, and provides no recourse if the company in question re-registers under a different name.  Judges, especially in the Federation where there is no dedicated commercial court, often lack experience with technical commercial matters.  Arbitration and mediation of commercial disputes is infrequently used.