Economy of Bosnia and Herzegovina
Encyclopedia
This page discusses the Economy of Bosnia and Herzegovina
since Bosnia and Herzegovina's declaration of sovereignty in October 1991 and the declaration of independence from the former Yugoslavia
on 3 March 1992.
, military industries were promoted in the republic, resulting in the development of a large share of Yugoslavia's defense plants but fewer commercially viable firms. Although agriculture is almost all in private hands, farms are small and inefficient, and the republic traditionally is a net importer of food. Industry remains greatly overstaffed, a holdover from the socialist economic structure of Yugoslavia. Yugoslav President Josip Broz Tito had pushed the development of military industries in the republic with the result that Bosnia and Herzegovina was saddled with a host of industrial firms with little commercial potential.
The war in Bosnia and Herzegovina caused production to plummet by 80% from 1992 to 1995 and unemployment to soar. 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. Part of the lag in output was made up in 2003-05. National-level statistics are limited and do not capture the large share of black market activity.
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 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 centrally planned economy has resulted in some legacies in the economy. Industry
is greatly overstaffed, reflecting the rigidity of the planned economy. Under Josip Broz Tito, military industries were pushed in the republic; Bosnia hosted a large share of Yugoslavia's defense plants for military reasons - Bosnia was in the center of former Yugoslavia.
Three years of War (1992–1995) destroyed the economy and infrastructure in Bosnia, causing unemployment
to soar, as well as causing the death of about 100,000 people and displacing half of the population. Mean wages were $4.36 per manhour in 2009.
Bosnia has been facing a dual challenge: not only must the nation recover from the war, but it also has to finish the transition from socialism
to capitalism
.
With an uneasy peace in place, output recovered in 1996-98 at high percentage rates on a low base; but output growth slowed appreciably in 1999, and GDP remains far below the 1990 level.
Economic data are of limited use because, although both entities
issue figures, national-level statistics are not available. Moreover, official data do not capture the large share of activity that occurs on the black market. The Grey market
is a notable source of income for Bosnian traders.
A Central Bank of Bosnia and Herzegovina was established in late 1997, successful 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, inflation
has remained low in the entire country.
The country receives substantial amounts of reconstruction assistance and humanitarian aid
from the international community. Support for Eastern European Democracy (SEED) assistance accounts for 20%-25% of economic growth
in Bosnia.
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.
Movement has been slow, but considerable progress has been made in economic reform since peace was re-established in the republic. 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. Combined with persistent inter-ethnic problems in the country, for many workers this meant that they had a useless job, getting paid perhaps after two three or even six months late only for one month, but one which they clung on to. They don't want to leave the job because they think someone from another nationality will then get it. The privatized factories are now owned mostly by Germans and foreigners, who used webcams to monitor the workers. One example of all this is the Alloy factory in Jajce
which produces wheels for cars, sold in Germany or other EU members.
The tourism
sector has been recovering and helping the economy altogether in the process, with popular winter skiing destinations as well as summer countryside tourism. An estimated 500,000 tourists visit Bosnia and Herzegovina every year and contribute much of the foreign currency in the country. Of particular note is the diaspora
population which often returns home during the summer months, bringing in an increase in retail sales and food service industry.
Political corruption
is one of the more acute problems in Bosnia and Herzegovina, and the main one that accounts for low amount of tax money used for the population, due to government inefficiency and corruption, especially at the lowest levels.
Bosnia has been preparing for an era of declining international assistance. Bosnia's most immediate task remains economic revitalization to create jobs and income
. In order to do this the workers need to form unions and demand their payment or similar. The owners need to pay the salaries all months the full salary agreed upon.
The Bosnian government plans to issue an international tender for the construction of the 350 km long Corridor 5c in Bosnia and Herzegovina which will passes along the route Budapest-Osijek-Sarajevo-Ploče. The highway along this corridor is the most significant roadway in B&H and the shortest communication route between Middle Europe and the Adriatic. The routing of the road passes through the central part of the country in the North-South direction from Donji Svilaj to the border of B&H, north from the Croatian port of Ploče
, following the rivers Bosna and Neretva. More than 50% of the total population and the economic activity of Bosnia and Herzegovina lies within the zone of influence along this route.
Project documentation for that highway is ready, so in January 2006, the Bosnian government will issue an international tender for construction of the highway Corridor 5C using a DBFOT system (Design, Build, Finance, Operate, Transfer). Using this system, the concessionaire secures finance, bears all business risks and upon expiration of the concession period, transfers the highway to the state of Bosnia and Herzegovina. The estimated cost for the construction of the highway is 2.5 billion EUR.
Bosnia and Herzegovina
Bosnia and Herzegovina , sometimes called Bosnia-Herzegovina or simply Bosnia, is a country in Southern Europe, on the Balkan Peninsula. Bordered by Croatia to the north, west and south, Serbia to the east, and Montenegro to the southeast, Bosnia and Herzegovina is almost landlocked, except for the...
since Bosnia and Herzegovina's declaration of sovereignty in October 1991 and the declaration of independence from the former Yugoslavia
Yugoslavia
Yugoslavia refers to three political entities that existed successively on the western part of the Balkans during most of the 20th century....
on 3 March 1992.
Overview
Bosnia and Herzegovina faces the dual problem of rebuilding a war-torn country and introducing market reforms to its formerly centrally-planned economy. One legacy of the previous era is a greatly overstaffed military industry; under former leader Josip Broz TitoJosip Broz Tito
Marshal Josip Broz Tito – 4 May 1980) was a Yugoslav revolutionary and statesman. While his presidency has been criticized as authoritarian, Tito was a popular public figure both in Yugoslavia and abroad, viewed as a unifying symbol for the nations of the Yugoslav federation...
, military industries were promoted in the republic, resulting in the development of a large share of Yugoslavia's defense plants but fewer commercially viable firms. Although agriculture is almost all in private hands, farms are small and inefficient, and the republic traditionally is a net importer of food. Industry remains greatly overstaffed, a holdover from the socialist economic structure of Yugoslavia. Yugoslav President Josip Broz Tito had pushed the development of military industries in the republic with the result that Bosnia and Herzegovina was saddled with a host of industrial firms with little commercial potential.
The war in Bosnia and Herzegovina caused production to plummet by 80% from 1992 to 1995 and unemployment to soar. 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. Part of the lag in output was made up in 2003-05. National-level statistics are limited and do not capture the large share of black market activity.
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 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.
Macro-economic trend
| GDP | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| Year | GDP real growth rate | GDP (PPP) per capita | ||||||||
| 1997 | 29.9% | 2,817 | ||||||||
| 1998 | 28.9% | 3,782 | ||||||||
| 1999 | 9.5% | 4,121 | ||||||||
| 2000 | 5.2% | 4,364 | ||||||||
| 2001 | 3.6% | 4,603 | ||||||||
| 2002 | 5.0% | 4,871 | ||||||||
| 2003 | 3.5% | 5,110 | ||||||||
| 2004 | 6.3% | 5,497 | ||||||||
| 2005 | 4.3% | 5,942 | ||||||||
| 2006 | 6.2% | 6,466 | ||||||||
| 2007 | 6.5% | 7,031 | ||||||||
| 2008 | 5.4% | 7,550 | ||||||||
| 2009 | -3.4% | 7,361 | ||||||||
| 2010 | 0.5% | 7,428 | ||||||||
| Source: IMF World economic outlook, April 2010 | ||||||||||
The centrally planned economy has resulted in some legacies in the economy. Industry
Industry
Industry refers to the production of an economic good or service within an economy.-Industrial sectors:There are four key industrial economic sectors: the primary sector, largely raw material extraction industries such as mining and farming; the secondary sector, involving refining, construction,...
is greatly overstaffed, reflecting the rigidity of the planned economy. Under Josip Broz Tito, military industries were pushed in the republic; Bosnia hosted a large share of Yugoslavia's defense plants for military reasons - Bosnia was in the center of former Yugoslavia.
Three years of War (1992–1995) destroyed the economy and infrastructure in Bosnia, causing unemployment
Unemployment
Unemployment , as defined by the International Labour Organization, occurs when people are without jobs and they have actively sought work within the past four weeks...
to soar, as well as causing the death of about 100,000 people and displacing half of the population. Mean wages were $4.36 per manhour in 2009.
Bosnia has been facing a dual challenge: not only must the nation recover from the war, but it also has to finish the transition from socialism
Socialism
Socialism is an economic system characterized by social ownership of the means of production and cooperative management of the economy; or a political philosophy advocating such a system. "Social ownership" may refer to any one of, or a combination of, the following: cooperative enterprises,...
to capitalism
Capitalism
Capitalism is an economic system that became dominant in the Western world following the demise of feudalism. There is no consensus on the precise definition nor on how the term should be used as a historical category...
.
With an uneasy peace in place, output recovered in 1996-98 at high percentage rates on a low base; but output growth slowed appreciably in 1999, and GDP remains far below the 1990 level.
Economic data are of limited use because, although both entities
Political divisions of Bosnia and Herzegovina
The political divisions of Bosnia and Herzegovina were created by the Dayton Agreement, which recognized a second tier of government in Bosnia and Herzegovina comprising two entities—a joint Federation of Bosnia and Herzegovina and the Republika Srpska -- each presiding over roughly one half of...
issue figures, national-level statistics are not available. Moreover, official data do not capture the large share of activity that occurs on the black market. The Grey market
Grey market
A grey market or gray market also known as parallel market is the trade of a commodity through distribution channels which, while legal, are unofficial, unauthorized, or unintended by the original manufacturer...
is a notable source of income for Bosnian traders.
A Central Bank of Bosnia and Herzegovina was established in late 1997, successful debt negotiations were held with the London Club
London Club
An informal group of private creditors on the international stage. Similar to the Paris Club of public lenders. London Club is not the only informal group of private creditors. Its first meeting took place in 1976 in response to Zaire's payment problems....
in December 1997 and with the Paris Club
Paris Club
The Paris Club is an informal group of financial officials from 19 of some of the world's biggest economies, which provides financial services such as war funding, debt restructuring, debt relief, and debt cancellation to indebted countries and their creditors...
in October 1998, and a new currency, the Bosnia and Herzegovina convertible mark
Bosnia and Herzegovina convertible mark
The Bosnia and Herzegovina convertible mark is the currency of Bosnia and Herzegovina. It is divided into 100 fenings...
, 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, inflation
Inflation
In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time.When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money – a...
has remained low in the entire country.
The country receives substantial amounts of reconstruction assistance and humanitarian aid
Humanitarian aid
Humanitarian aid is material or logistical assistance provided for humanitarian purposes, typically in response to humanitarian crises including natural disaster and man-made disaster. The primary objective of humanitarian aid is to save lives, alleviate suffering, and maintain human dignity...
from the international community. Support for Eastern European Democracy (SEED) assistance accounts for 20%-25% of economic growth
Economic growth
In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs for a given amount of output. Lowered costs increase demand...
in Bosnia.
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.
Movement has been slow, but considerable progress has been made in economic reform since peace was re-established in the republic. Banking reform lagged, as did the implementation of privatization
Privatization
Privatization is the incidence or process of transferring ownership of a business, enterprise, agency or public service from the public sector to the private sector or to private non-profit organizations...
. Many companies (mainly factories) that were privatized faced massive problems, causing the owners to reduce salaries and deny the workers their salaries. Combined with persistent inter-ethnic problems in the country, for many workers this meant that they had a useless job, getting paid perhaps after two three or even six months late only for one month, but one which they clung on to. They don't want to leave the job because they think someone from another nationality will then get it. The privatized factories are now owned mostly by Germans and foreigners, who used webcams to monitor the workers. One example of all this is the Alloy factory in Jajce
Jajce
Jajce is a city and municipality located in the central part of Bosnia and Herzegovina. It is part of the Central Bosnia Canton of the Federation of Bosnia and Herzegovina entity...
which produces wheels for cars, sold in Germany or other EU members.
The tourism
Tourism
Tourism is travel for recreational, leisure or business purposes. The World Tourism Organization defines tourists as people "traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes".Tourism has become a...
sector has been recovering and helping the economy altogether in the process, with popular winter skiing destinations as well as summer countryside tourism. An estimated 500,000 tourists visit Bosnia and Herzegovina every year and contribute much of the foreign currency in the country. Of particular note is the diaspora
Diaspora
A diaspora is "the movement, migration, or scattering of people away from an established or ancestral homeland" or "people dispersed by whatever cause to more than one location", or "people settled far from their ancestral homelands".The word has come to refer to historical mass-dispersions of...
population which often returns home during the summer months, bringing in an increase in retail sales and food service industry.
Political corruption
Political corruption
Political corruption is the use of legislated powers by government officials for illegitimate private gain. Misuse of government power for other purposes, such as repression of political opponents and general police brutality, is not considered political corruption. Neither are illegal acts by...
is one of the more acute problems in Bosnia and Herzegovina, and the main one that accounts for low amount of tax money used for the population, due to government inefficiency and corruption, especially at the lowest levels.
Bosnia has been preparing for an era of declining international assistance. Bosnia's most immediate task remains economic revitalization to create jobs and income
Income
Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...
. In order to do this the workers need to form unions and demand their payment or similar. The owners need to pay the salaries all months the full salary agreed upon.
Port of Ploče
The Port of Ploče is a seaport in Ploče, Croatia, near the mouth of the Neretva river on the Adriatic Sea coast. It was formally opened in 1945 after a railway was built as a a supply route to connect the site with industrial facilities in the Sarajevo and Mostar areas of Bosnia and Herzegovina,...
, following the rivers Bosna and Neretva. More than 50% of the total population and the economic activity of Bosnia and Herzegovina lies within the zone of influence along this route.
Project documentation for that highway is ready, so in January 2006, the Bosnian government will issue an international tender for construction of the highway Corridor 5C using a DBFOT system (Design, Build, Finance, Operate, Transfer). Using this system, the concessionaire secures finance, bears all business risks and upon expiration of the concession period, transfers the highway to the state of Bosnia and Herzegovina. The estimated cost for the construction of the highway is 2.5 billion EUR.
See also
- Central Bank of Bosnia and HerzegovinaCentral Bank of Bosnia and HerzegovinaThe Central Bank of Bosnia and Herzegovina is the central bank of Bosnia and Herzegovina, located in the capital city, Sarajevo.The Central Bank of Bosnia and Herzegovina was established in accordance with the law adopted at the Parliamentary Assembly of Bosnia and Herzegovina on June 20, 1997...
- List of banks in Bosnia and Herzegovina
- Bosnia and Herzegovina convertible markBosnia and Herzegovina convertible markThe Bosnia and Herzegovina convertible mark is the currency of Bosnia and Herzegovina. It is divided into 100 fenings...
- Bosnia and HerzegovinaBosnia and HerzegovinaBosnia and Herzegovina , sometimes called Bosnia-Herzegovina or simply Bosnia, is a country in Southern Europe, on the Balkan Peninsula. Bordered by Croatia to the north, west and south, Serbia to the east, and Montenegro to the southeast, Bosnia and Herzegovina is almost landlocked, except for the...