Lably
Skip to content

Economy of Bosnia and Herzegovina

  • 19 min read
  • 8 chapters

Related on Lably

Through Developing country, European Union and Balance of trade

Lab · Class 6–12Ancient Indian Ocean Trade

Overview

Bosnia and Herzegovina is an upper middle-income country which has significantly developed since the mid-1990s. It is an EU candidate country and is embarking on a new growth model after a period of slow growth and the 2008 financial crisis. Bosnia and Herzegovina is a small, open economy, dominated by services, which accounted for 55% of gross domestic product (GDP) in 2016, with a moderately developed industrial and manufacturing sector (23% and 12%, respectively), and a limited agricultural base (about 6% of GDP).

The konvertibilna marka (convertible mark or BAM) - the national currency introduced in 1998 - is pegged to the euro, and confidence in the currency and the banking sector has increased. Implementation of privatization, however, has been slow, and local entities only reluctantly support national-level institutions. Banking reform accelerated in 2001 as all the Communist-era payments bureaus were shut down; foreign banks, primarily from Western Europe, now control most of the banking sector. A sizable current account deficit and a high unemployment rate remain the two most serious economic problems. The country receives substantial amounts of reconstruction assistance and humanitarian aid from the international community but will have to prepare for an era of declining assistance.

The United States Embassy in Sarajevo, Bosnia and Herzegovina produces the Country Commercial Guide – an annual report that delivers a comprehensive look at Bosnia and Herzegovina's commercial and economic environment, using economic, political, and market analysis.

According to Serbian American economist, Branko Milanović, Bosnia and Herzegovina did the best job in the transition from socialism to capitalism when compared to the other republics of the former Yugoslavia. From 1985 until 2021, Bosnia and Herzegovina performed the best on the annual average GDP growth per capita (1.6%), Slovenia (1.4%), Croatia (1%), Serbia without Kosovo (0.9%) and North Macedonia (0.5%).

At the time of the Socialist Federal Republic of Yugoslavia (SFRY), Bosnia and Herzegovina was an important mineral processing centre and provided the other republics with basic mineral commodities in exchange for current consumption goods. While large amounts of public capital investments poured in during the 1970s, productivity levels remained low, often due to the limited capacity of public managers. Under former republican premier Džemal Bijedić, and Yugoslav president Tito, metal-product industries were promoted in the republic, resulting in the development of a large share of Yugoslavia's metal products plants.

Merging small firms into larger agglomerates was a common practice in the SFRY to preserve employment levels. As a result, four large conglomerates emerged in Bosnia and Herzegovina over time: Energoinvest (energy sector), Unis (automotive and defence industry, which partnered with Volkswagen in the early 1970s), Šipad (wood processing) and RMK Zenica (steel industry, later acquired by ArcelorMittal). Construction and defence were important industries in the Bosnian economy, despite their low efficiency and, ultimately, excess supply. The defence industry was particularly developed in the southern districts and around Mostar, which was also a relevant metallurgical centre (Aluminij Mostar). Machinery production was concentrated in the north, particularly around Banja Luka. The Tuzla district was renowned for its chemical industry. The automotive industry, which developed in the 1950s with the production of vehicle components, extended later on to passenger and commercial vehicles, with plants in Sarajevo, Mostar and Banja Luka. Agriculture was not highly developed, despite its importance for employment and the presence of the large Agrokomerc conglomerate based at the north-west border with Croatia.

Tito had pushed the development of metal industries, and electro-energetic sector, in the republic with the result that Bosnia and Herzegovina were a host of large numbers of industrial firms. Some of them were worked with World brand names, companies like Coca-Cola, Pepsi, Marlboro, Volkswagen and SKF. Big Companies like Energoinvest, UNIS, Hidrogradnja, Vranica, RMK Zenica, TAS Sarajevo, FAMOS Sarajevo and BNT Novi Travnik, have yearly income in billions of US$ at that time. Building sector companies bringing large amounts of income in USD. Unemployment at that time was very low. Work force is highly skilled, with highly professional, educated managers, engineers, science experts, which use western world's newest technologies in large scale areas. Before the war, Yugoslav premier Ante Marković, made some preparations for privatization, in economy, finance, and industry sectors, but the war ceased development in these actions.

The economy suffered heavily from the war in Bosnia and Herzegovina, with over €200 billion in material damages and GDP (excluding services) reduced by 90% between 1990 and 1995. Today, most of the above-mentioned companies have been privatised. The economy remains fragile, primarily consumption driven and vulnerable to external fluctuations. This was seen with the global economic crisis, which pushed Bosnia and Herzegovina into recession in 2009 and 2012 (with GDP growth of -3% and -0.8%, respectively) and severe floods in 2014, which caused damage of approximately 15% of GDP. Since 2015, annual GDP growth has increased to more than 3%. Still, the country registered a current account deficit of 4.7% of GDP in 2017, decreasing from 5.3% in 2015, resulting from a reduction in its trade deficit, which nevertheless remains large (17.4% of GDP in 2017).

The Central Bank of Bosnia and Herzegovina was established in late 1997, debt negotiations were held with the London Club in December 1997 and with the Paris Club in October 1998, and a new currency, the Bosnia and Herzegovina convertible mark, was introduced in mid-1998. In 1999, the Convertible Mark gained wider acceptance, and the Central Bank dramatically increased its reserve holdings. Due to Bosnia's strict currency board regime attaching the Bosnian mark to the Euro, inflation has remained low in the entire country.

With an uneasy peace in place, output recovered in 1996–99 at high percentage rates from a low base; but output growth slowed in 2000–02. The country receives substantial amounts of reconstruction assistance and humanitarian aid from the international community. Support for East European Democracy (SEED) assistance accounts for 20%-25% of economic growth in Bosnia and Herzegovina. However, growth has been uneven throughout the post-war period, with the Federation outpacing the RS. According to World Bank estimates, GDP growth was 62% in the Federation and 25% in the RS in 1996, 35% in the Federation and flat in the RS in 1997, and continued growth in the Federation in 1998.

The movement has been slow, but considerable progress has been made in economic reform since peace was re-established. Banking reform lagged, as did the implementation of privatization. Many companies (mainly factories) that were privatized faced massive problems, causing the owners to reduce salaries and deny the workers their salaries, and some of the new owners and tycoons destroyed those factories.

Macro-Economic

The following table shows the main economic indicators in 1997–2025.

By some estimates, grey economy is 25.5% of GDP.

Sign in to keep reading

7 more chapters are free with a Lably account.

More in Economics

European CommissionExecutive branch of the European UnionThe EconomistBritish news and current affairs journalTertiary sectorService sectorEconomistProfessional in the discipline of economicsSecondary sectorManufacturing and construction industriesEconomic developmentProcess and policies to improve economic well-being