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BOSNIA AND
HERZEGOVINA

 
  
  

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
Millions of US $ 6,963 5,249 4,800 104
         
GNI per capita
 US $ 1,540 1,270 1,240 123
Ranking is given out of 208 nations - (data from the World Bank)

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Update No: 155 - (25/04/10)

Between past and future
Bosnia is facing crucial elections this year that could well decide its future for decades. Meanwhile it continues to be haunted by its past.

The ghosts of Bosnia’s past, indeed, are shackling its economy, and there may be little prospect of improvement after the ethnically divided country holds elections later this year. The conflict among Serbs, Muslims and Croats may no longer be waged with heavy artillery and ethnic cleansing, but a toxic combination of de facto partition, obstruction and graft by politicians in each group keeps a stranglehold on the economy.

Driven by corruption, greed and worse
To heed one very perceptive voice: “What sort of investment can we expect when our political leaders are sending such very bad messages to the world and to each other?” said Svetlana Cenic, an economist and former finance minister of the Bosnian Serb Republic within Bosnia and Herzegovina.

In the Balkans, only Kosovo — which more than half of the international community does not recognize as an independent state — is in a worse economic limbo, and it is even more dependent on a drip-feed of foreign aid to keep its head above water.

Fallout from the financial crisis has deepened the economic stagnation wrought by the rival Bosnian communities’ inability to reform the dysfunctional institutions created by the 1995 Dayton, Ohio, peace accords that ended the 1992-95 war. A staggering 42 percent of the work force is officially unemployed. Taking into account the informal grey economy, the actual jobless rate is estimated to be nearly 25 percent.

A house divided against itself
On paper, the Bosnian Serb Republic has a single market, with free circulation of goods and the same rates of customs and value added tax. But Ms. Cenic said that to operate, businesses often had to bribe or obey politicians in the country’s two main entities, the Serb Republic and the Muslim-Croat Federation. Foreign companies “have to struggle to get all kinds of permissions and guarantees that no one will disturb them, that they will not be racketeered,” she said.

Milorad Dodik, the hardline Bosnian Serb prime minister, keeps a tight grip on economic activity in his fiefdom, but things are messier in the Muslim-Croat Federation, where several layers of administration have to be greased.

“The perception of this country is still so bad that serious investors don’t want to risk anything,” said Mladen Ivanic, the former foreign minister of Bosnia and Herzegovina. “The main problem is the political system, not the economic system.”

For local private companies, the key to survival is often to stay close to the governments in both Bosnian entities to ensure they obtain a share of contracts dependent on the state budget.

Bosnia’s home market of an estimated 3.8 million citizens, with gross domestic product per capita of just $4,600, according to the National Statistics Office of Bosnia-Herzegovina, is too poor to attract much investment. Access to the larger neighbouring markets of Croatia and Serbia is vital, but there are many non-tariff barriers.

Politics in command
A trade forum in the central Bosnian town of Mostar in mid-April illustrated how politics continues to trump economics. President Boris Tadic of Serbia came to promote business cooperation among the former Yugoslav republics. But he walked into a political lecture from Haris Silajdzic, a Muslim who is chairman of the presidency of Bosnia and Herzegovina, who warned “we must not push the problems of the past under the carpet.” Bosnian Serb companies and executives mostly stayed away.

The main potential for investment in the mountainous country, still patrolled by European peacekeepers, lies in energy and infrastructure, but political feuding and self-enrichment continue to thwart big projects.

The Austrian construction giant Strabag was chosen by the Bosnian Serb government in 2006 to build an expressway from Banja Luka, the autonomous region’s capital, to the town of Doboj. It was a €3 billion project, or $4.1 billion at current exchange rates. But the company ran into financing problems because there was no competitive bidding for the contract. The European Bank for Reconstruction and Development refused to participate, and construction on the road has still not started.

Energy investments are held up because Bosnia still lacks a functioning national electricity grid, despite repeated promises to remove political obstacles to one. The prime ministers of the two entities agreed in November to enable the Elektroprenos power transmission company to operate normally, but little has moved. The dispute may also endanger a potentially lucrative power deal with Italy and Montenegro.

Prime Minister Silvio Berlusconi of Italy has courted Mr. Dodik for joint energy projects, including the Bosnian Serb Republic’s participation in the Russian South Stream natural gas pipeline, a rival to the European Union-backed Nabucco pipeline from Central Asia.

Another brake on economic growth is land ownership. While other former Yugoslav republics have overhauled their laws, Bosnia still labours under a system whereby the government owns the land, and companies buy only the right to build on or use it.

This gives politicians a huge source of patronage. Several layers of bribery are often required to complete a building or run a business. Furthermore, the lack of freehold ownership limits the amount of money companies can borrow and stifles growth, according to a senior international official in Sarajevo.

Add to that the 400 state enterprises in the Muslim-Croat Federation alone, whose board members and top management are all political appointees, and it is easy to see how politics continue to shackle the economy.

While many Bosnians seem unhappy at this state of affairs, nationalist politicians have so far succeeded in fanning ethnic fears at election time to drown out economic discontent. Don’t count on this year being any different.

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