Dateline: Tbilisi, Georgia
Just the other day we discussed the potential for real estate appreciation in upcoming EU candidate countries. One country that we didn’t discuss was Bosnia and Herzegovina. This Balkan country does not have candidate status and tends to lag behind the other countries in the region. However, there are still opportunities for business and development in Bosnia and Herzegovina.
It’s been a couple years since I’ve been to Bosnia and Herzegovina. While I saw a lot of opportunities for entrepreneurship there, my experience was one of bureaucracy. However, it seems like things are improving, which is promising for a country with so much potential.
The question now is whether or not Bosnia and Herzegovina (BiH) can be as good as its neighbors. BiH is in a neighborhood that I am very bullish on. I’m not saying it’s a perfectly uncorrupt neighborhood, but it has incredible potential.
In fact, between the Baltics and the Balkans you can find all my favorite countries for planting business flags in Eastern Europe.
Bosnia and Herzegovina has historically been one of the laggards, but that is no reason to write it off just yet. It is clear that they understand the need to reach out to and be accommodating of people who are in the country to invest.
On the downside, BiH is the only place I’ve ever been threatened with death by a waiter for complaining about getting beef when I had ordered chicken. I’m pretty sure the waiter wanted to throw down and fight right then and there. I was later told that you just don’t complain about that kind of thing in Bosnia and Herzegovina.
So, while it seems the system is improving, we’ll see how long it takes for the culture to pick up.
That said, let’s take a look at BiH and what it has to offer, from its investment and business culture to its geography, taxes and second citizenship opportunities.
Challenges and advantages in Bosnia and Herzegovina’s economy
Located in South-Eastern Europe, BiH has long been a crossroads of culture, ideas, goods, religion and more. Bosniaks, Serbs, and Croats make up the country’s population of 3.8 million, with a diverse religious make-up of Muslims, Orthodox Christians, Roman Catholics and others.
The country has that unique blend of East and West that gives it a competitive edge in an increasingly globalized world economy. Its location at the crossroads of Europe and the Middle East give it a strategic advantage for commerce flowing between the two regions (even though export levels are currently some of the lowest in Europe).
What’s more, Bosnia and Herzegovina also has a diverse landscape, with forests, fertile plains and 23km of coastline along the Adriatic Sea. The country’s economy was valued at 14.6 billion EUR and had growth rates as high as 4.5% in 2015.
Still, the country has a lot of growth and development left to achieve. The Bosnian War from 1992-1995 left its mark on the country. Even venues from the 1984 Winter Olympics were used as Bosnian-Serb artillery strongholds during the war.
Other challenges include a large public sector, low exports, high poverty rates and more consumption than production. However, when I was in Bosnia and Herzegovina two years ago, I wrote about how smart entrepreneurs can use such reputation arbitrage to their advantage and build successful businesses where no one else even considers going.
Plus, BiH’s challenges are part of the reason it’s looking to reform and create a more inviting environment for investors.
Is Bosnia and Herzegovina a good emerging market investment?
But why exactly would you invest in Bosnia and Herzegovina? According to one study, about 80% of current investors plan to reinvest their profit back into BiH. So what’s the draw?
As mentioned, BiH has a favorable geographical location. Though it has not fully capitalized on this position in the past, the current government is working to foment the export economy. The country’s geo-economic position allows for easy and fast access to large markets. BiH also has duty free trade or preferential status with almost all major countries.
Other factors working in Bosnia and Herzegovina’s favor include abundant natural resources (for example, 50% of the country is covered in forests) and available industrial zones and low-cost manufacturing facilities. BiH also has a qualified and relatively affordable labor force. The median monthly salary is roughly USD$685 which — while not the cheapest labor in Europe — is decent.
One of BiH’s most attractive features is its flat corporate tax rate of 10%. Personal income is taxed at the same low rate of 10%. The social security rate for companies is only 10.5% and the sales tax is set at 17%. There is also less regulation in Bosnia and Herzegovina in comparison to the EU, creating another advantage for investors.
The Bosnia and Herzegovina business environment
The country also has the prospect of joining the EU. Although I don’t see that happening anywhere in the near future (and I’m not necessarily for it), it does provide motivation for the government to promote a freer market.
In fact, Bosnia and Herzegovina has formed the Foreign Investment Promotion Agency (FIPA) to create a stronger investment environment in the country. The agency works directly with investors providing analysis on economic and business trends and helping you navigate BiH’s legal framework.
FIPA also identifies available investment opportunities that are ready for development or implementation. They can point you to companies that are in the process of privatization or local companies that are seeking foreign partners. They also advocate for greater free-market policies in the government.
At a glance, some of the stronger industries in BiH include renewable and thermal energy, manufacturing auto parts, agriculture, tourism, and the metal and wood industries.
Citizenship and residency options in BiH
In terms of residency, a foreign investor can obtain second residence through the establishment of a company. Additionally, the director (CEO) and employees of a foreign company can obtain permanent residence status through a work permit.
In Bosnia and Herzegovina you can acquire citizenship through descent, “jus soli” (i.e. birth on BiH territory), adoption, naturalization or through an international agreement.
Citizens of Bosnia and Herzegovina have visa-free access to 101 countries, including Europe’s Schengen Area. The BiH passport is ranked 52nd in the world and is one of the five most improved passports since 2006. As the country continues to develop, it is likely their ranking will continue to improve.