Why will no one invest in Bosnia and Herzegovina?
Why will no one invest in Bosnia and Herzegovina?
Table of Contents
  1. Executive Summary
Report / Europe & Central Asia 1 minutes

Why will no one invest in Bosnia and Herzegovina?

The donor countries hoped the governments of Bosnia and Herzegovina would use the promised $ 5.1 Billion post-war reconstruction aid to undertake the structural changes necessary to transition from communism to capitalism.

Executive Summary

The donor countries hoped the governments of Bosnia and Herzegovina would use the promised $ 5.1 Billion post-war reconstruction aid to undertake the structural changes necessary to transition from communism to capitalism.  As donor-aid diminished, private investment would replace it, stimulated by structural reforms.  Unfortunately, this has not been the case.  Indeed, interviews with Bosnian and foreign businessmen show a common reluctance to invest in BiH.

The current economic and political structures in all three ethnic sections of BiH maintain the failed communist-era policies that contributed to former Yugoslavia’s economic downturn and eventual break-up.  These policies discourage business activity and investment.  The continued existence and implementation of these failed economic policies and structures means that donor aid, no matter how wisely targeted or spent, will prove ineffective in creating long-term, sustainable economic development.

To date, the experiences of foreign investors in BiH have not been very positive.  In most instances they engage in marketing goods produced outside BiH.  Those engaged in manufacturing have largely failed.  Some have closed and left.  Interviews with businessmen in BiH revealed significant concern over the banking system, payments bureaux, delays with privatisation, high tax rates, communist-era business regulations, non-functioning judiciary, excessive official corruption, and porous borders.

Yet the key to Bosnia and Herzegovina’s viability under the Dayton Peace Accords is economic growth.  Refugees will return to their pre-war homes only if they have reasonable opportunities to earn a living.  Government will function only if a stable tax base exists.  A stable tax base will exist only if businesses thrive and prosper.  And businesses will thrive and prosper only if the government creates stimulatory economic policies and regulations.  In the end, the long-term success of the Dayton Peace Accords depends on Bosnia and Herzegovina’s ability to develop a self-sustaining economy, which creates jobs, keeps inflation in check, and provides fertile ground for investment.

In order to set Bosnia’s economy on a sound footing a series of structural and other reforms are needed:

  • dismantle immediately all payment bureaux;
     
  • improve the legal environment for business:
     
  • rationalise tax policies;
     
  • rationalise business regulations;
     
  • create a viable commercial banking system;
     
  • implement the Law on Tariffs of Feb. 11, 1998;
     
  • remove customs authority from the entities and place it at the national level;
     
  • remove barriers to inter-entity trade;
     
  • privatise without further delay.

Sarajevo, 21 April 1999

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