The lack of a single economic space in BiH affects companies trying to do business across the entire country. The country’s political environment and complex government structure creates significant obstacles to economic development.
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 American companies. 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 inflow over the past five years.
The complex institutional and territorial structure of BiH complicates the economic landscape of the country and may lead to further disruptions in Foreign Direct Investment. In July 2021, the Republika Srpska (RS) entity began a blockade of state institutions and in October 2021 began to take unconstitutional steps to return state-level competencies to the entity-level government. The RS near total blockade of state-level decision making, and its attempts to withdraw from state institutions and agencies, have created questions for many investors and businesses. The duplicative nature of the proposed RS-based parallel institutions and agencies would complicate the investment landscape by creating regulatory and legal confusion. 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. It has also passed a law on immoveable property under which the RS is attempting to claim ownership of property belonging to the state of BiH. Investors should exercise all due diligence and take into account ongoing and potential Constitutional Court challenges and the fact these RS moves violate the Dayton Peace Agreement when deciding whether to conduct business with these nascent agencies or operate under constitutionally questionable legal frameworks established by the RS. The Federation also has functionality issues, with 2018 election results still unimplemented, and a legislative body that struggles to pass basic reforms. Potential investors are urged to read the legal reviews and statements of the High Representative to BiH.
Historically, U.S. investment in BiH has been low due to the small market size, relatively low income levels, distance from the United States, challenging business climate, and the lack of investment opportunities.
Government and public procurement tenders have been criticized for a lack of openness and transparency. A long-awaited public procurement law has been stalled in the BiH parliament for over a year.
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. Arbitration and mediation of commercial disputes is infrequently used.