As for the governmental spending for military expenditure, Bosnia-Herzegovina has decreased significantly its related budget, when compared to the 7.6% of 2002. More specifically, of the 2016 BiH budget, about 14.5% was projected to be spent on Social protection, 6.2% on Health, 6% on Public services, 4.9% on Education, 2.6% on Economic affairs and only 1% of the GDP on Defence. In more detail, in 2002, BiH spent US $ 437.6 million on Defence, while in 2015, the government spent only US $ 193.04 million.

According to the World Bank, Bosnia and Herzegovina belongs to the upper middle-income countries, having accomplished great progress since the end of the interethnic war (in 1995).

Traditionally, Bosnia and Herzegovina has been a naturally rich country in mineral resources –silver, iron, zinc, bauxite, copper, magnetite, etc.-, with large deposits of coal and limestone, and with large production and exports of zeolite in Europe. Over the years, BiH has developed an excellence in the production of high quality auto parts and components, with the local automotive industry counting more than 50 plants across the country.

In terms of agriculture and the food sector, BiH has specialised in the cultivation of highly gourmet foods (e.g. fruits of the forest, wild mushrooms, etc.), aided by the geographic and climatic advantages of the region.

Finally, the banking sector is privatised and it is primarily controlled by banks from Austria and Italy, while the national currency, adopted since 1998, is the ‘Konvertibilna marka’ (BAM – convertible mark).

While economic reconstruction was supported by international financial organisations, a continuous increase of GDP was noticed till 2008, when the global financial crisis caused a downturn.

Despite the progress achieved in the coming years, the natural disasters -fires and floods- that took place in 2012 and 2013, did not allow the economy to reach the unprecedented growth levels before the crisis (2008). Recently (2015), the country’s GDP amounted to some $16 billion, while the GDP growth rate, reached 3.2%. The latter, could be seen as an auspicious sign of the economic recovery of BiH.

Nowadays, the BiH economy is predominantly based on Services (66% of the GDP), while the Industrial sector is responsible for a significant part of the Gross Domestic Product (26%).

BiH’s economy has ‘traditionally’ recorded significant account deficits. However, in 2015, BiH managed to reduce its account deficit as a result of the Services surplus and the relatively stable remittances (in nominal value).

Bosnia and Herzegovina’s production greatly increased after the end of the Bosnian war. Great efforts have been invested since then, towards the development of the BiH exports share; BiH’s membership in the Central European Free Trade Agreement, signed in September 2007, is considered of significant importance towards this direction.

As shown in the chart above, both imports and exports have (on average) increased since the accomplishment of the Agreement, however the former at a higher pace.

More specifically, in 2015, the trade deficit improved to US $5.5 billion, as a consequence of the weak oil prices and lower imports of related products.

The top export destinations of BiH are Germany, Croatia, Italy, Austria and Serbia (See chart below).

Today, Bosnia and Herzegovina mainly exports machinery and transport equipment, manufactured goods and chemical and related products.

In terms of imports, the main trade partners of BiH are Germany, Italy, Serbia, Croatia and China.

BiH mainly imports consumer goods and intermediate goods from the aforementioned countries.

According to the 2015 European Commission’s report, despite the progress recorded in terms of business environment and the resilient to external and internal factors economic growth, the labour market conditions in BiH, have remained unchanged. Today (2015), unemployment remains significantly high (27.6%), and surpasses the 60% mark as far as youth labour; consequently in recent years, many young Bosnians have migrated and work abroad.

Today, unemployment remains one of the biggest macroeconomic issues for BiH; it cannot be underestimated that high unemployment and low wages affect significantly the private consumption. Therefore, it is essential to promote a more ‘flexible’ labour market. This, could be reinforced through reduction of the tax wedge, improvements in the governance of the public sector, as well as steps to accelerate privatisation and investments.

BiH’s economy has been for a long period, in a ‘transitional’ period of economy restructuring. Highly dependent on its exports and foreign remittances, excessive bureaucracy and toilsome economic policy-governance. Therefore, despite the sharp increase in 2007 FDI flows, the economic crisis, the complex regulatory framework and the low-transparency business procedures, have not allowed significant foreign flows into the country, dropping to only US $267.3 million, in 2015.

It is indicative that according to the World Bank’s “Doing Business 2016” Report, Bosnia and Herzegovina, which has improved its global ranking (by 3 places compared to the previous year) to the 79th position, it is still rated low in the list.

In order to turnaround this negative climate, BiH has taken various steps. In June 2016, an agreement between the EU and BiH was signed for the participation of local entities to the EU Programme “Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) (2014-2020)”. Through this, a significant part of the total fund of some €2.3 billion, will be offered to small & medium-sized BiH companies, for the reinforcement of their competitiveness, as well as for the ‘cultivation’ of entrepreneurship.
World Bank currently supports 11 initiatives in BiH, focusing on the agriculture, water and solid waste management, energy sector environmental protection and natural disaster management and recovery.

Despite however such support from external parties, BiH remains one of the most difficult places to do business in Europe, notwithstanding its geostrategic position and well-educated labour. It is therefore crucial for BiH, to focus on ‘upgrading’ its policies, according to EU standards. Moreover, BiH should aim on increasing public sector efficiency, expanding the private sector and finally stabilising the economy, in order to become more resilient to changes. The aforementioned could be achieved through the empowerment of the private versus the public sector, the establishment of a common tax policy between the two entities –Republic of Srpska and Federation of Bosnia and Herzegovina- and finally through facilitating access to finance for SMEs.