State Department on BiH: Open for foreign investment but corruption remains a problem

(Patria) - Corruption remains one of the biggest problems for most Western Balkan countries when it comes to the business environment and investment climate, according to the annual report of the State Department, which is prepared to assist American companies in making business decisions.

The report describes conditions in foreign markets regarding factors such as market openness to foreign investment, the legal system and transparency, industrial policy, protection of real and intellectual property rights, state-owned enterprises, business accountability, corruption, and the political and security environment, Radio Free Europe reports.

Bosnia and Herzegovina (BiH) is open to foreign investment, but investors must overcome endemic corruption, complex legal and regulatory frameworks and government structures, non-transparent business procedures, insufficient protection of property rights, and a weak judicial system, according to the State Department report.

“Economic reforms to complete the transition from a socialist past to a market-oriented future have progressed slowly, and the country has a relatively low level of foreign direct investment (FDI). According to the Central Bank of BiH, FDI in BiH in the first nine months of 2019 amounted to USD 505 million. Total FDI in 2018 amounted to USD 458 million,” the report states.

The State Department also states that, according to the World Bank's 2020 Ease of Doing Business report, BiH is among the least attractive business environments in Southeast Europe, ranking 90th out of 190 global economies.

“The World Bank report ranks BiH particularly low due to its lengthy and arduous processes for starting a new business and obtaining building permits,” the State Department states, emphasizing that both of these issues have affected American companies.

It is also stated that before the COVID-19 pandemic, BiH's economic growth was expected to accelerate in 2020, reaching four percent in 2021, supported mainly by consumption and to some extent by public investment. BiH's economy expanded by an estimated 3 percent in 2019, with domestic demand remaining the dominant driver of growth, according to the Report.

The State Department also points out that American investments in BiH are low due to the small market size, relatively low income levels, distance from the United States, a challenging business climate, and a lack of investment opportunities.

“Most American companies in BiH are represented by small sales offices focused on selling American goods and services, with minimal long-term investment in BiH,” the Report states, also noting that American companies with representative offices in BiH include large multinational corporations and market leaders in their sectors, such as Coca-Cola, Microsoft, Cisco, Oracle, Pfizer, McDonalds, Marriott, Caterpillar, Johnson & Johnson, FedEx, UPS, Philip Morris, KPMG, Price Waterhouse Coopers, and others.

The State Department simultaneously states that BiH offers business opportunities for well-prepared and persistent exporters and investors, and that companies that have managed to overcome the challenges of establishing a presence in BiH have often recouped their investments over time.

This year's global State Department report on the investment climate also states that the international community is active in BiH and that reform efforts are being made to improve the business climate, as BiH strives for eventual membership in the European Union.

It is also stated that BiH is actively continuing to strive for membership in the World Trade Organization and hopes to join in the near future. It is also emphasized that the country is rich in natural resources, offering potential opportunities in energy (hydro and thermal power plants), agriculture, timber, and tourism.

“The best business opportunities for American exporters in BiH include energy production and transmission equipment, telecommunications and IT equipment and services, transport infrastructure and equipment, engineering and construction services, medical equipment, and raw materials and chemicals for industrial processing,” the State Department states in its report.