The economy of Bosnia and Herzegovina is still largely transitional. Successive governments have pursued structural and market reforms since conflict ended in the mid-1990s, but privatization has been slow and government spending remains high at roughly 50% of GDP. The coordination of economic policy is made considerably more difficult by the highly decentralized nature of the government and its ethnically-based power-sharing arrangement.
However, the country shows stable macroeconomic performance, and the national currency (the convertible mark – BAM or KM) has a fixed exchange rate pegged to EURO to ensure confidence.
BiH, as part of its efforts to accede to the WTO, has made major trade policy reforms to bring practices in full conformity with WTO requirements and eventual membership in the EU. GSP which designated Bosnia and Herzegovina as a beneficiary country under the United States Generalized System of Preferences (GSP) program, under which more than 3,400 products are eligible for duty-free entry to the United States.
Compared to regional and EU countries, where corporate taxes range from 20 to 25%, Bosnia and Herzegovina has significantly the lowest corporate tax rate (10%) and general VAT rate of 17%.
According to the Central Bank of Bosnia and Herzegovina, the total merchandise trade is estimated at 25,55 billion BAM in 2016. Bosnia and Herzegovina has a diverse export sector, and industry making a relatively high share in economy. Bosnia and Herzegovina is specialized in mineral products, metals, timber, steel, lead, zinc, aluminium); timber; manufactured goods (furniture, domestic appliances, and leather goods); and accounted for 40 percent of the former Yugoslavia’s military production.
Due to its climate (moderate continental in the North, Alpine in central parts, and Mediterranean at South), and geographical position with predominantly mountainous terrain, Bosnia and Herzegovina has abundance of natural resources. Bosnia and Herzegovina is among richest in Europe in terms of forests extent which encompasses an area of 3,231,500 hectares, i.e. 63% of the total country area, with quality of wood that is among the highest in Europe. Thus, wood industry is one of the strongest export oriented sector in B&H. In 2016, total B&H exports of wood products were BAM 1,188,865,450 which is an increase of 12% compared to 2015. The wood sector is the only major manufacturing sector with a multiple positive foreign trade balance (361% in 2016). The wood sector is employing almost 30,000 people in B&H. Bosnia and Herzegovina has an enormous hydrological potential and resources, fertile soils, valuable deposits of minerals such as coal, iron ore, bauxite, copper, lead, zinc, chromite, cobalt, manganese, nickel, clay, gypsum, salt, sand…
Energy is one of the fastest growing industries and contributors to overall industry production growth. It represents 32.63% of share in total industry.
Out of total area of 5.113 million hectares of the country, 47% represents agriculture land. However, large parts of the country are mountainous (66% of the territory is considered mountainous or hilly) and only 20% (approx. 1.0 million ha) is suitable for intensive farming. High availability of grassland and mountainous pastures suggests a potential advantage for production of livestock and dairy products. The structure of the agricultural sector is characterized by small sized family farms. Agricultural production in Bosnia and Herzegovina is dominated by crop production, with livestock production representing less than one third of the total output. The economically most important sub-sector of the country’s agriculture is vegetables. Of considerable importance are also fresh cow milk, maize and potatoes.