Investment opportunities in Bosnia and Herzegovina

Bosnia and Herzegovina is a country that is moving forward and has made amazing progress in improving its business climate. Through its reforms, adoption and approval of strategic documents, laws and regulations, Bosnia and Herzegovina has significantly improved its business environment and created better conditions for foreign investors.

Bosnia and Herzegovina (BiH) signed the Central European Free Trade Agreement (CEFTA), creating a free trade area with access to a large consumer market. Negotiations for joining the World Trade Organization are also underway.

Incentives for foreign investors

In Bosnia and Herzegovina, foreign investors are provided with numerous benefits and incentives.

Tax system

One of the main reasons to invest in BiH is the favorable tax system. The country has one of the lowest VAT rates (17%), as well as very reasonable corporate tax rates, which are also among the lowest in the region and Europe (10%).

Favorable legislation

The Law on Foreign Direct Investment Policy of Bosnia and Herzegovina (Official Gazette of BiH, 17/98, 13/03 and 48/10) guarantees:

• National treatment for foreign investors, i.e. foreign investors have the same rights and obligations as residents of BiH.
• Foreign investors have the right to open accounts in any commercial bank in national and/or any freely convertible currency on the territory of BiH.
• Have the right to freely employ foreign citizens, subject to compliance with labor and immigration laws of BiH.
• Have the right to freely and without delay transfer abroad in convertible currency the income received as a result of their investments in BiH.
• Foreign investors can own real estate in BiH. Enjoy the same property rights in relation to real estate as legal entities of BiH.
• Protected from nationalization, expropriation, requisition or measures having similar consequences; such measures may only be taken in the public interest, in accordance with applicable laws and regulations and subject to the payment of appropriate compensation, that is, compensation that is adequate, effective and timely.

The rights and benefits granted to foreign investors and the obligations imposed by the Foreign Direct Investment Policy Law (mentioned above) cannot be terminated or repealed by subsequent laws and regulations. If a subsequent law or regulation is more favorable to foreign investors, the investor will have the right to choose the regime under which the investment will be regulated.

In practice, most business sectors in BiH are completely open to foreign share capital, with some exceptions in the defense, electricity transmission and media sectors.

Customs benefits

• Equipment of a foreign investor imported as part of the authorized capital is exempt from customs duties (with the exception of passenger vehicles and gaming machines).

Free trade zones

Free trade zones (FTZs) are part of the customs territory of BiH and have the status of a legal entity. According to the Law on Free Trade Zones of BiH, the founders of an FTZ can be one or more domestic and foreign legal entities or individuals. The creation of a free trade zone is considered economically justified if the submitted feasibility study and other evidence can demonstrate that the value of goods exported from the free trade zone will exceed at least 50% of the total value of manufactured goods exported from the FTZ within 12 months. There is the possibility of using storage space outside the zone (same owner).

The most attractive sectors for investment in the country are:

Agriculture

BiH has about a million hectares of arable land, of which approximately half, or 500,000 hectares, is farmland. Domestically, the sectors with the best available and productive natural resources are fruits and vegetables, livestock and poultry. The largest culture — corn, followed by wheat and potatoes. The agricultural sector's share of GDP is around 8%, while it accounts for 20% of total employment. Farms are largely small and inefficient, and the country remains a net importer of food. In 2022, agri-food imports were worth $2.4 billion and exports were valued at $582 million. Agricultural products account for about 6%, but account for 15% of total imports. Major imported food products include grain and cereal products, beverages (alcoholic and non-alcoholic), meat and dairy products.

Opportunities

Despite slow economic growth and weak purchasing power, food costs and food imports are constantly rising.

Energy

Electricity is a key sector of economic activity in BiH. Electricity is primarily generated from coal-fired thermal and large hydroelectric power plants, and the country is a net exporter of electricity. The generating capacity is approximately 17,000 GWh. BiH has historically had a comparative advantage in electricity, especially due to its natural hydropower resources and coal reserves. However, as the EU seeks to introduce a carbon tax and phase out funding for new fossil fuel projects, BiH needs to develop a strategic plan to transition away from coal. The country is in the process of finalizing a National Energy Climate Plan (NECP) to address energy efficiency, renewable energy, greenhouse gas emissions reduction, interconnectivity, and research and innovation. An approved NECP with a clearly outlined decarbonization strategy is needed for BiH to ensure continued access to international and European funding in the energy sector. In the long term, the World Bank estimates that BiH's power sector will require more than $6 billion in investment for modernization, life extension and new generation capacity for the power generation and coal mine sectors.

BiH has significant renewable energy potential, especially in the field of hydropower and wind power. Hydropower contributed 29% of the country's total electricity production in 2022, and there is room for additional growth. Solar and wind power have recently emerged, but they still represent a small percentage of the total energy mix (approximately 6%). According to a study carried out by the German government, BiH can generate up to 2000 MW of wind energy per year, mainly in the areas of Livno, Tomislavgrad, Mostar and Trebinje.

After the 1992-1995 war, the once unified energy system in BiH was divided into three vertically integrated companies. Three state-owned electricity generation and distribution companies: Elektroprivreda BiH (EPBiH), Elektroprivreda Republike Srpske (ERS) and Elektroprivreda Hrvatske Zajednice Herceg Bosna (EPHZHB). The companies were created along ethnic/geographical lines rather than for technical reasons, and there are significant differences in energy generation between them.

Although BiH has taken some significant steps towards liberalizing the electricity market, including the creation of an independent regulator, market opening and competitive market processes. But the country has a lot to do in terms of organizing the internal electricity market so that it can be fully transparent and ready to join the regional market. BiH is implementing reforms to make the energy sector more attractive, efficient, transparent, independently regulated and free of corruption.

Leading subsectors

• Desulfurization equipment/technology
• Emission control equipment and systems
• Generating equipment for hydro and thermal (coal) power plants
• Generating equipment for wind and solar power plants
• Energy efficiency

Opportunities

BiH's electricity grid suffers from decades of neglect and lack of investment. The European Bank for Reconstruction and Development (EBRD) has provided a corporate loan of up to €20.1 million to Elektroprenos BiH (Transco) to modernize and upgrade its telecommunications system. The project should lead to improved cross-border trade through better management of the transmission network. The project will facilitate the acquisition and installation of a new telecommunications system for the entire transmission network in BiH; supply and installation of backup power supplies for substations; reconstruction of data centers; and providing consulting services to the Project Implementation Team. The tender process continues.

Most Yugoslav-era coal-fired power plants in BiH will become obsolete within the next 5-10 years. The country is looking for opportunities to modernize existing infrastructure and build new ones, primarily in the field of hydro, wind, and coal. Chinese and Russian companies have expressed interest in many power generation projects. In 2016, the Chinese company Dongfang International Corporation completed the construction of the Stanari coal-fired power plant in RS. The project was a joint venture between the China Development Bank (CDB), energy company EFT Group, Dongfang International Corporation and the RS government. In April 2014, EPBiH selected a consortium consisting of China's Gezhouba Group and Guangdong Electric Power Design Institute to build a 450 megawatt (MW) coal-fired block known as "Tuzla 7". at its power plant in Tuzla. Construction of this largest post-war investment in BiH's energy sector was delayed and suspended. It remains unclear when the project will be resumed.

In January 2023, the RS government granted ETMAKS from Banja Luka a 50-year concession for the construction and operation of the Nevesinje solar park. Its total capacity will be 500 megawatts, and it will consist of one 200-megawatt power plant and six 50-megawatt power plants.

In March 2020, the RS government granted a 50-year concession for the construction and operation of a solar power plant in the municipality of Bileca to EFT International Investments Holding Limited, based in London. The power plant will have an installed capacity of 60 MW and an estimated annual generation of 84 GWh. The RS government also granted in October 2020 to the utility company Elektroprivreda RS a concession for the construction of a solar power plant in the city of Trebinje with an installed capacity of 100 MW and an average annual production of 147.7 GWh. All three concessionaires are interested in cooperation with potential foreign partners as investors or suppliers of technologies and equipment for the planned solar parks.

In November 2019, the Federation Ministry of Energy launched the first competitive round of bidding for licenses for the exploration and development of oil and gas fields in four blocks in the Dinaric and Panonian basin regions. According to the Geological Institute of the Federation, the territory of the Dinaric Alps could potentially contain deposits with a volume of about a billion barrels of oil.

In 2021, the share of natural gas in BiH was approximately 3% of the total available energy, with the majority used to heat houses in winter in Sarajevo. "Gazprom" is the only supplier of natural gas to BiH through the only BiH pipeline that is connected to Serbia. The Federation has long expressed interest in building a second pipeline, the Southern Interconnection, to connect to Croatia's gas network in order to diversify and increase gas supplies. USAID financed and the EBRD completed a feasibility study for the pipeline in 2021. The RS government plans to build an additional natural gas pipeline with Serbia.

ITC

BiH's fragmented public sector is the largest consumer of IT equipment and services in BiH. It is followed by the financial sector and the telecommunications sector. Retail sales are also showing growth due to the expansion of shopping centers and retail stores. Although IT spending in the financial and telecommunications sectors will continue to rise, the greatest share of prospects and opportunities will remain in the public sector due to the multitude of government departments, agencies and state-owned companies in BiH.

According to the BiH Customs Agency, BiH has imported more than US$50 million in information technology equipment over the past four years.

Leading subsectors

• IT services
• Equipment sales
• Software, including enterprise resource planning (ERP) and customer relationship management (CRM) solutions
• Broadband infrastructure

Opportunities

Information technology equipment and services, including computer software and IT equipment, as well as supply services to BiH state-owned companies, retail operators, financial and telecommunications sectors. Generally, the government, private and public companies, and commercial banks are very receptive to foreign computer technologies. Local experts predict high spending in the IT/cybersecurity and data protection segments in the coming years. As more customers adopt integrated security and protection product solutions, related services that follow the same model are also in demand. There is also growing interest in moving existing systems and services to the cloud, as well as in data storage and management.

Ground transport

The road infrastructure in BiH is poor and underdeveloped. At the end of 2023, the country had 220 km of usable highways. Trunk roads and regional roads with a total length of 8,501 km constitute the country's main road network. BiH is focused on completing the Vc corridor ("Five Cs"), the only major highway that connects the north and south of the country on one section. Once completed, the highway will link BiH to European road networks. The Vc Corridor Project is a major road construction project that has made some progress since it was first designed and is part of the trans-European land corridor network. His final project will connect the central part of the Adriatic coast and Budapest (Hungary). The Vc corridor will run 336 km in the country from north to south. The Bosnian government took out several loans from the European Bank for Reconstruction and Development (EBRD) and the European Investment Bank (EIB) to finance the construction of the Vc corridor.

The main goals of the Vc corridor are the inclusion of BiH into the main transport flows of Europe, as well as easier access to the European market. Experts predict that the highway will become the main driver of economic activity in BiH and should provide connectivity with neighboring countries and regions.

Opportunities

The best opportunity may lie in the two most difficult segments of the project — 60 km section from Zenica to the Croatian border (north of Sarajevo) and 125 km section from Tarcin to Biacci (southern end point). The estimated construction cost for these two segments is approximately US$1.1 billion. The southern section will include the construction of a 10.5 km Pregn tunnel with an expected completion date of 2028. The estimated cost of constructing the tunnel is approximately US$620 million. Most of the required financing was provided by the EBRD and the EIB. After the Government of the Federation issued a tender in September 2022 for the main contractor, three companies were selected and are currently under consideration. The procurement of construction equipment such as pavers, bulldozers, backhoe loaders, cranes, excavators and mowing equipment, as well as other road construction equipment, presents significant opportunities as construction of the Vc Corridor continues.

An agreement has been reached on the Sarajevo-Belgrade highway project, which is planned to be built between Sarajevo and Belgrade with the support of Turkey. The project is reported to cost approximately US$2.1 billion. However, debate over the route of the motorway continues and will require further negotiations.

In 2020, RS Highways announced an international tender for the construction of three sections of the highway from Vukosavle, through Brčko and Bijeljina, to Rača and the border with Serbia, with a total cost of 1.35 billion KM (813 million US dollars). The tender is divided into three lots — the Vukosavle-Brčko section, which has an estimated cost of KM 600 million (USD 31 million), the Brčko-Bijelina section, which should cost KM 310 million (USD 186.7 million), and the Bijelina-Rača section , worth KM 440 million (USD 265 million). The length of the Vukosavle-Brčko section is about 33 km, the Brčko-Bijelina section — 17 km, and the Bijelina-Raca section — 20 km and should become part of the future Sarajevo-Belgrade highway. Successful companies or consortia that are awarded contracts will be required to provide 85% of the project's financing, while the RS government will provide loan guarantees. The tender was canceled in May 2021 due to a lack of interested companies.

Materials for industrial processing

BiH has a long tradition of metalworking due to the country's abundance of natural resources such as iron ore, bauxite, lead, zinc and copper. The metals sector is an important driver of exports, with a steady production growth rate of over 10% over the past few years. The metals sector's main export products include aluminum, steel and automotive components. Exports from the metallurgical sector in BiH are primarily focused on the EU and Central European Free Trade Agreement (CEFTA) markets.

Leading subsectors

• Petroleum coke, petroleum bitumen and other petroleum residues
• Coal
• Sodium hydroxide

Opportunities

The current structure of the metals sector, characterized by small enterprises, provides an opportunity for larger companies to integrate existing primary producers and further develop their business operations. Labor costs in the metalworking industry in BiH are competitive with global market costs. Apart from industrial processing materials, small private companies also purchase modern computerized equipment and strive to keep up with modern technology. Many factories produce semi-finished components for foreign companies based in the EU and neighboring countries.

Medical equipment

Most medical equipment suppliers in Bosnia and Herzegovina — producers from the EU, mainly from Germany and Italy. However, in recent years, other foreign manufacturers have made significant progress in supplying their technologies to hospitals across the country, in particular diagnostic equipment for clinical centers in Sarajevo, Tuzla, Banja Luka and Mostar. High-quality medical equipment manufactured in other countries enjoys an excellent reputation in BiH for its advanced technology and reliability. The medical equipment market is very price sensitive.

The health insurance institutes of the constituent entities and cantons manage health care systems, which are financed by mandatory contributions from the wage fund of both employers and employees. BiH's healthcare system is largely government-funded, with a growing number of private practices. The RS healthcare system also has some public-private partnerships (PPPs), but the Federation does not have a law allowing PPPs in any industry. Individual cantons have their own PPP laws, which vary.

The Law of the RS subject on medicines and medical devices, aimed at creating a parallel RS Agency for medicines and medical devices, came into force on June 28, 2022. The Constitutional Court overturned the law on December 2, 2022. Companies should take precautions before considering doing business outside of the National Medicines Agency, the country's sole regulator of pharmaceuticals and medical devices.

Opportunities

There is a demand in the country for foreign cardiovascular diagnostic equipment, non-invasive surgical devices, anesthesia and intensive care devices, diagnostic imaging (CT, MRI), radiation therapy, ultrasound and urological equipment, etc. There are also good prospects for products such as ultraviolet/infrared equipment used in medical, surgical and dental procedures, as well as machines based on the use of alpha, beta or gamma X-rays. Opportunities also exist for manufacturers of complex diagnostic equipment such as electrocardiographs, endoscopes, scanners, imaging equipment, pacemakers, digital x-ray equipment, nuclear medicine instruments and clinical laboratory equipment. Diagnostic imaging equipment, especially ultrasound diagnostic equipment, and dialysis machines are in great demand.

Mining

The country has significant reserves of brown coal and lignite. Official estimates of total coal reserves in BiH are around 5 billion metric tons, of which operational reserves are estimated at around 2 billion metric tons. Iron ore deposit reserves are estimated at 653 million metric tons; zinc and lead — at 56 million metric tons; and bauxite — at 120 million metric tons. There are two aluminum and alumina processing plants located near bauxite mining operations. Annual coal production is approximately 15 million metric tons, both open pit and by mining.

Leading subsectors

• Heavy mining equipment, including bulldozers, tractors, excavators, surface mining conveyor systems and heavy trucks.

Opportunities

The Federation Government has consolidated seven coal mines under the new ownership of Elektroprivreda BiH. The government hopes this will pave the way for significant investment in rehabilitating these seven mines. Elektroprivreda BiH has committed to investing $497 million over the long term in mine rehabilitation, primarily through the purchase and modernization of heavy mining equipment that should improve the efficiency of coal mines. Recent foreign investment in mining has shown that there are significant reserves of silver, lithium borate, nickel and other minerals.

Railway transport

BiH's railway system is divided into entities, burdened with redundant workers and hampered by poor and outdated infrastructure. The total length of existing railway tracks in BiH is 1031 km. The main users of the rail transport system are large industrial plants (such as the chemical plant in Tuzla and the Arcelor-Mittal steel plant in Zenica), coal mines (Zenica, Tuzla, Stanari and Prijedor), the Aluminij aluminum smelter in Mostar and oil distribution companies (INA, Energopetrol and HIFA). Passenger rail transport is very limited, but has been growing since 2017, when railway companies introduced modern and comfortable passenger carriages.

Rail transport in Bosnia and Herzegovina is managed by two state-owned companies: Željeznice Federacije Bosne i Hercegovine, which operates in the Federation, and Željeznice Republike Srpske, which operates in the RS. Entity companies manage infrastructure and provide transport operations for both freight and passenger transport within their borders. Priorities for the railway sector in both entities are the reconstruction and modernization of infrastructure and the purchase of new locomotives and cars. Although there is an umbrella organization called "Bosansko Hercegovačka Željeznička Javna Korporacija" which coordinates the activities of the two railway companies, politics between the entities plays a large role in railway transport. In cooperation with the World Bank, the RS railway company is undergoing a restructuring to improve financial results and optimal staffing levels.

Opportunities

RS Railways has announced that the company plans to significantly upgrade its existing railway infrastructure in the near future. Passenger services between Banja Luka, Sarajevo and Mostar were resumed in 2017, although volumes are still relatively small. Seasonal passenger service between BiH and the Croatian city of Ploce was restored in July 2022 and is expected to become year-round. Reconstruction and modernization of railway infrastructure, such as signaling equipment and track modernization, will remain the focus of both railway companies.

Telecommunications industry

Bosnia's telecommunications sector has been divided along ethnic lines since the war. In the Federation, services are divided between Sarajevo-based BH Telecom in Bosniak-majority areas and Mostar-based HT Mostar in Croat-majority areas, while Banja Luka-based M:Tel (Telekom Srpske) covers the entire territory of the Republic Serbian.

Currently, the mobile communications market is estimated at approximately 98% penetration.

A notable event was the emergence of broadband Internet service deployed via cable television. In the coming years, more providers will be able to offer a “triple package” from telephone, Internet and cable service.

According to the Business Monitor International (BMI) Bosnia-Herzegovina Telecommunications Report, the telecommunications market in BiH remains one of the least developed in Central and Eastern Europe and, as such, represents a significant growth opportunity for operators and suppliers of telecommunications equipment. Meanwhile, BMI believes higher value services, especially mobile data and postpaid subscriptions, will be the main growth drivers as operators try to capitalize on improving economic growth prospects.

Leading subsectors

• Telecommunications equipment and services to expand existing networks, including mobile, fixed line and broadband Internet access.

Opportunities

The above-mentioned operators remain the best opportunity for marketing goods and services. Their near-monopoly position in mobile telephony services will continue to generate sufficient revenue to finance the expansion and modernization of their networks.

The fast-growing cable television sector also provides investment opportunities.

In accordance with EU standards, all television stations in BiH must begin digital broadcasting. Five information technology centers across the country will be connected to digital connections and transmitters of public broadcasting services to cover the cities of Sarajevo, Banja Luka and Mostar with a digital signal. The digitization will cover three public broadcasters and will cost approximately $30 million once all phases of the project are completed. The tender procedure for the digitalization project, which includes the acquisition, installation, testing and commissioning of equipment for information technology centers, as well as equipment necessary for the digital integration of BiH with neighboring countries, was launched in August 2022 and is still ongoing.

Tourism sector

Bosnia and Herzegovina, a land of breathtaking natural beauty and unique historical and cultural heritage. The country caters to new trends in the travel market, especially the demands of travelers seeking new destinations, adventure and authenticity. Investment opportunities in the tourism sector are varied, including: ski and mountain tourism, ecotourism, spa tourism, marine tourism, cultural heritage and religious tourism, adventure and sports tourism.