Bosnia and Herzegovina: industry and energy at the heart of Europe

Bosnia and Herzegovina (B&H) is nestled in the Balkans, east of Italy, and south of Austria and Hungary. Independence from its neighbouring Balkan states came in 1992 with the break-up of Yugoslavia and the conflict that followed. Today, B&H is building its economy around its industrial past and its agricultural assets. Gordan Milinić, Director of the Foreign Investment Promotion Agency of Bosnia and Herzegovina (FIPA), explains.

According to the Central Bank of B&H (CBBH), the total amount of FDI into B&H from 1994 until 2015 was €6.2 billion. The best year for FDI on record was 2007 when B&H attracted €1.3 billion, mainly thanks to the privatisation of certain large state-owned enterprises. FDI inflow in 2014 was €399 million and €244 million in 2015. FDI inflows are certainly up and down but there are some positive trends emerging.

The country that has invested the most in B&H since 1994 is Austria (€1.3 billion), followed by Balkan neighbours Serbia and Croatia with €1.1 million each, and Russia (€502 million). In 2015, B&H also saw significant investment from the Netherlands, Turkey, Luxembourg, Italy and Kuwait. B&H has a long industrial tradition so it is not unexpected that the manufacturing sector received the largest share of FDI (34%) between 1994 and 2015. Surprisingly, a significant share of investment has been in the banking sector (25%).

More recently, those figures have shifted. In 2015, the biggest share of investment was in financial service activities, except insurance and pension funds (€82.5 million), telecommunications (€29 million), the manufacture of chemicals and chemical products (€28.7 million), real estate activities (€24.6 million) and wholesale trade, except of motor vehicle and motorcycles (€24.2 million).

Mr Milinić points out that FDI in B&H offers investors participation in a much wider market than just B&H itself. “Bosnia and Herzegovina is a signatory of the Central European Free Trade Agreement, which provides free access to a market of 50 million consumers,” he says. “We also have free trade agreements with the European Free Trade Association countries of Iceland, Liechtenstein, Norway and Switzerland, and with the Republic of Turkey, as well as preferential export regimes with the European Union, USA, New Zealand, Switzerland, Norway, Japan, Russia, Kazakhstan, Belarus, Canada, Australia and Iran.”

He continues: “Starting a business in Bosnia and Herzegovina presents the opportunity for exporting to a market of over 500 million people with significant customs benefits.”

Apart from trade agreements and export opportunities, Mr Milinić says that foreign companies come to B&H primarily because of the country’s favourable geographical location, the availability of natural resources, a long tradition of industrial production, a large number of industrial zones, attractive locations for manufacturing facilities, favourable legislation for foreign investors, a currency pegged to the euro and the prospect of B&H joining the European Union.

B&H has always played host to the industrial sector, especially automotive. Major brands have relied on the local skilled workforce to assemble cars for Western markets. Within the last 10 years, this sector has experienced dynamic development, and, exports around 90% of production to 30 countries all around world. Today, B&H automotive supply chain companies supply engines and parts as well as leather and plastic products to a wide market. Companies supplied by the B&H automotive parts manufacturers are: Mercedes, Audi, BMW, Volkswagen, Toyota, Mazda, Opel, Ford and Ferrari.

Energy, both renewable (water, wind, solar, biomass) and thermal based on coal reserves, also shows plenty of potential as a growth sector. Mr Milinić says investments worth up to €10 billion could be realised in the short term. B&H is a member of the Energy Community of South East Europe (SEE), established in November 2002 between EU and SEE countries in order to extend the EU internal energy market to SEE and beyond.

The list of B&H’s energy attributes is long. The main energy resource is coal (brown coal and lignite) and plenty of reserves have been identified. Only about 35% of the huge potential for hydro-electricity of over 6000MW is in use; and there is significant wind energy potential. There is also a plethora of raw material available for bio-mass energy, for example wood waste; and there is the potential for the exploitation of geo-thermal and solar energy.

Metal and wood working have also been traditional B&H sectors and still offer great potential, not least because of the country’s plentiful natural resources and a large supply of local talent.

Of course agriculture is a mainstay of the B&H economy. However, about 50% of agricultural land is uncultivated. Nevertheless, B&H is ranked 11th in the world for the production and export of raspberries and 16th for the production and export of plums.

B&H is a scenic country which lends itself to tourism, especially since so much of the countryside remains untouched. “The large natural resources and beauty of our country are only slightly used, so that the development of tourism is just beginning,” says Mr Milinić. “The most promising branches of B&H tourism are: winter and mountain tourism, ecotourism, spa tourism, cultural and religious tourism and marine tourism.”

It has produced two Nobel Prize winners – one for literature and another for chemistry – it has hosted the 1984 Winter Olympic Games, produced an Oscar winner (Danis Tanović in 2002 for the best foreign film), attracts pilgrims and film buffs alike, and has given the world IrfanView (by Irfan Skiljan). On top of all that trams were first regularly used in Europe in Sarajevo, the capital of B&H, in 1885. These streetcars were an animal railway, usually using horses and sometimes mules to haul the cars. There is so much more to learn about this location.