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Reference ID: 10SARAJEVO73
Created: 2010-01-25 13:42
Released: 2011-08-30 01:44
Classification: UNCLASSIFIED
Origin: Embassy Sarajevo
VZCZCXYZ0001
RR RUEHWEB
DE RUEHVJ #0073/01 0251342
ZNR UUUUU ZZH
R 251342Z JAN 10
FM AMEMBASSY SARAJEVO
TO RUEHC/SECSTATE WASHDC 1284
INFO RUCPDOC/USDOC WASHDC
UNCLAS SARAJEVO 000073
SIPDIS
STATE FOR EB/IFD/OIA
E.O. 12958: N/A
TAGS: EINV OPIC KTDB USTR BK
SUBJECT: BOSNIA: 2010 INVESTMENT CLIMATE STATEMENT SUBMISSION
REF: 09 STATE 124006
Openness to Foreign Investment
--------------------------------
1. In the past several years, Bosnia and Herzegovina (BiH) has made
considerable efforts to open its economy to more foreign investment.
However, the global economic crisis, coupled with increasing
internal political struggles, has led to a significant slowdown in
necessary reforms since 2008. Previous initiatives included a
liberal state-level foreign investment policy, a value-added tax,
and a uniform trade and customs policy. Foreign investors continue
to face a number of serious obstacles, including a complex legal and
regulatory framework, non-transparent business procedures, and weak
judicial structures. Privatization of state-owned enterprises
continues to lag behind others in the region including Croatia,
Serbia, Montenegro, and Macedonia. Although some government
authorities have begun to address these obstacles as part of the
transition to a market economy, foreign investment -- particularly
greenfield investment -- has shown only limited gains. Foreign
investment in the banking sector is the exception, with Austrian
banks taking a dominant position in the local market.
2. BiH will need to address three fundamental issues in the near
term to further economic reform:
-- Complex legal and regulatory framework: Under the constitution
established through the Dayton Accords, Bosnia and Herzegovina is
divided into two sub-federal "entities," the Federation of BiH
(FBiH) and the Republika Srpska (RS). A third, smaller area, the
Brcko District, operates under separate administration. The
establishment of governmental structures at the state (federal) and
entity levels created a multi-tiered legal and regulatory framework
that is often duplicative and contradictory. For example, current
employer contributions on net wages total 69 percent in FBiH and 52
percent in the RS. There has been some progress: corporate income
taxes in the two entities and Brcko District have been harmonized at
ten percent, for example. Nonetheless, the lack of a single
economic space has a chilling effect on job creation in the formal
economy and creates difficulties for companies trying to do business
in the entire country. Entity business registration requirements are
not harmonized. The Federation, for example, is comprised of ten
cantons, and each canton has different business regulations and
administrative procedures affecting companies. Simplifying and
streamlining this framework is essential to improving the investment
climate.
-- Business regulations and administrative procedures: With multiple
layers of administration, opportunities for corruption abound,
increasing the cost of doing business. In particular, public
procurement tenders are not always transparent. Even though
European Union-compliant public procurement legislation has been
adopted, it has not been adequately enforced. The World Bank rates
Bosnia and Herzegovina 116 out of 183 countries (2010 World Bank
Doing Business Report) in ease of doing business. (Bosnia's ranking
for ten aspects of doing business can be found at
www.doingbusiness.org/ExploreEconomies/?econo myid=26)
-- Weak judicial structures: BiH's legal/judicial system provides no
means for quick resolution of commercial disputes. Commercial
courts do not exist and non-judicial dispute resolution mechanisms
are few. Legal judgments in commercial disputes often appear to be
less than objective. One positive development was the creation of
the Competition Council in 2004, an independent public institution
mandated to enforce anti-trust laws, prevent monopolies, and enhance
private sector competition. The Council reviews and approves
foreign investments in cases of mergers and acquisitions of local
companies by foreign companies. It has created a refreshing level
of transparency in the local legal system - an organization yet to
be tainted by the country's political scene.
3. Investment Law: The state-level "Law on Foreign Direct
Investment" provides a generic framework for foreign investment. The
law accords foreign investors the same rights as domestic investors,
including bidding on privatization tenders. With the exception of
the defense industry and the media sector, where foreign control is
limited to 49 percent, there are no restrictions on investment.
Investors are also protected from changes in laws regarding foreign
investment. Should the government make changes, the investor may
choose the most favorable set of rules to apply. The law prohibits
expropriation and nationalization of assets, except under special
circumstances and with due compensation.
4. BiH's Foreign Investment Promotion Agency provides some
assistance to foreign investors, but is constrained by limited staff
and budgetary resources. (www.fipa.gov.ba )
5. Public-private partnerships, particularly in the health-care and
transportation sectors, are gradually gaining wider acceptance with
Bosnian officials. In December 2008, the RS approved a law
authorizing public-private partnerships in a large group of sectors,
including transportation, energy, and health care.
Conversion and Transfer Policies
---------------------------------
6. The Law on Foreign Direct Investment also guarantees the
immediate right to transfer and repatriate profits and remittances
and allows local and foreign companies to hold accounts in one or
more banks authorized to initiate or receive payments in foreign
currency. The implementing laws in both entities include transfer
and repatriation rights. The Central Bank's adoption of a currency
board in 1997 guarantees that the local currency, the convertible
mark or KM, is fully convertible and fixed at an exchange rate of KM
1.95583 to the euro. From January through October 2009, annualized
inflation was -1.4 percent, compared to +0.5 percent in the EU-27
(source: Central Bank BiH). The largest price decreases over this
period were in transportation, clothing, footwear, food, and
non-alcoholic beverages, while prices rose for alcoholic beverages,
tobacco, restaurants, hotels, electricity, gas, and other fuels.
Central Bank reserves have risen steadily, registering over USD 4.8
billion in October 2009, a sign of the continued strength of the
currency board.
Expropriation and Compensation
--------------------------------
7. As noted above, the state investment law forbids expropriation
of investments, except in the public interest. According to Article
16, "foreign investment shall not be subject to any act of
nationalization, expropriation, requisition or measures that have
similar effects, except where the public interest may require
otherwise." In such cases, all procedures are executed in
accordance with applicable laws and regulations, without any type of
discrimination and with payment of appropriate compensation. Laws
in both entities implement this guidance. Neither entity
governments nor the state government has expropriated any foreign
investments to date.
Dispute Settlement
------------------
8. BiH has recently implemented significant changes to court
operations and staffing, designed to streamline commercial and other
proceedings. The U.S. Government is implementing a number of court
reform programs which should expedite case processing and further
develop judicial capacity. The U.S. Government also provided
training and resource materials to judges, trustees, attorneys, and
other stakeholders to assist in the development of new bankruptcy
and intellectual property rights laws. BiH courts recently
completed their first bankruptcy cases under new bankruptcy
legislation, and early indications are that the system functions
well.
9. Over the past few years there has been only one case of a legal
dispute involving a U.S. investor and the local government.
Although this dispute remains unresolved, the claimant is currently
pursuing negotiations with the local government and has not opted
for international mediation. While the outlook for BiH's commercial
court system is positive, capacity and practical inefficiencies
limit timely resolution of commercial disputes.
10. Bosnia and Herzegovina has been a member of the International
Center for the Settlement of Investment Disputes since 1997. It
accepts international arbitration to settle private investment
disputes if the parties outline this option in a contract.
Performance Requirements and Incentives
----------------------------------------
11. There are several incentives for foreign direct investment,
including exemptions from payment of customs duties and customs
fees. Bosnia and Herzegovina is divided into three jurisdictions
for direct tax purposes: the Federation of BiH, the Republika Srpska
and the Brcko District. The corporate income tax in the Federation
allows tax relief to foreign investors who invest KM 20 million KM
(roughly USD 15 million in January 2010) over a five year period.
In the Brcko District, the corporate income tax allows offsetting of
profits against losses over a five-year period. Foreign investors
can open bank accounts in all jurisdictions and transfer abroad the
funds acquired from their profits, without any restrictions.
Right to Private Ownership and Establishment
---------------------------------------------
12. Under the state-level investment law, a foreign enterprise has
the same rights as a Bosnian enterprise or citizen, and foreign
entities can establish and own a business with the same rights as
domestic entities. Foreign investors may own real estate in BiH and
enjoy the same property rights as BiH citizens and legal entities,
except in the defense industry and media, where foreign control is
limited to 49 percent. Foreign interests must follow the same
regulatory procedures when establishing their enterprises.
Property Registers
-------------------
13. Bosnian property registers are largely unreliable. Under laws
of both entities, property transfers must be registered with
municipal authorities. In practice, however, transactions are often
not recorded due to high transfer taxes. This leads to inaccurate
and unreliable property records that leave property transfers open
to dispute. In 2004 BiH passed a state-level framework law to
create a moveable pledge registry. The registry became operational
as of January 2005. In 2007, Brcko District passed a real estate
property law annulling previous conflicting laws and developed a new
workable registry. The Republika Srpska adopted a similar registry
system in January 2010.
Protection of Property Rights
-----------------------------
14. The BiH government is strengthening its intellectual property
rights laws in preparation for eventual membership in the European
Union and the World Trade Organization. Bosnia's new IPR framework
consists of seven laws, all of which have been recently submitted to
the parliament for adoption. Although existing legislation provides
a basic level of protection, BiH's civil and criminal enforcement
remains weak. Jurisdiction over IPR investigations is split between
customs officials and local law enforcement agencies and no
institution has specialized IPR investigation teams. The court
system is also inefficient and the few indictments actually brought
to court have languished for months with little action from
prosecutors or judges. However, there are signs of progress-BiH
filed its first ever indictment in a software piracy case in
December and the U.S. in conjunction with local partners has made
IPR awareness within the enforcement community a priority.
15. In the Bosnian private sector, awareness of IPR, particularly
the importance of copyright protection, remains low. Curbing
business software piracy could significantly improve the local
economy through the creation of new jobs and the generation of
significant tax revenue. This failure to recognize the importance
of reducing copyright infringement makes software producers and
official distributors less competitive and the establishment of a
legitimate market more difficult. According to the Business
Software Alliance, the rate of illegal software installed on
personal computers in Bosnia and Herzegovina last year dropped by
another one percent from the year before and currently stands at 67
percent, which is about average for the region.
16. In addition to the software piracy indictment, there are other
indicators that BiH is strengthening its IPR enforcement regime.
Entity and state-level governments have agreed to legalize and
license their use of Microsoft software, a significant step forward
in the government's commitment to IPR protection. In 2006,
Microsoft and Oracle successfully reached a legalization agreement
with one of BiH's electric utilities, one of the largest state-owned
businesses in the country. Although illegal DVDs and CDs are still
available for sale in small public markets, local authorities have
made an effort to dismantle larger venues, such as Sarajevo's
notorious "CD Alley." In 2008, customs officials seized over
170,000 counterfeit products that included logo emblems of Nike,
Adidas, Puma and Diesel apparel and footwear and they have also
interdicted shipments of fake Viagra.
Transparency of the Regulatory System
-------------------------------------
17. Establishing a business in Bosnia can be an extremely
burdensome and time-consuming process for investors. Registration
is a 12-step procedure that takes on average one month to complete.
Retaining a local lawyer can sometimes expedite the process. The
administrative costs are approximately USD 450 and attorney fees
range from USD 200 to USD 1,000. Businesses must register in each
entity in which they wish to conduct operations. However, investors
in one entity may register their business as a branch in the other
entity, significantly reducing the time and administrative hurdles
to begin operations. Other administrative procedures can be even
more time-consuming. For example, obtaining a construction permit
can take six months to one year.
18. The multitude of state, entity, cantonal (in the Federation
only), and municipal administrations - each with the power to
establish laws and regulations affecting business -- creates a
heavily bureaucratic, non-transparent system. It is difficult to
know all of the laws or rules that might apply to certain business
activities, given overlapping jurisdictions and the lack of any
central source of information. It is therefore critical that
foreign investors obtain local assistance and advice.
19. Businesses are subject to inspections from a number of entity
and cantonal/municipal agencies including the financial police,
labor inspectorate, market inspectorate, sanitary inspectorate,
health inspectorate, fire-fighting inspectorate, environmental
inspectorate, institution for the protection of cultural monuments,
tourism and catering inspectorate, construction inspectorate,
communal inspectorate, and veterinary inspectorate.
Efficient Capital Markets and Portfolio Investment
--------------------------------------------- ------
20. Capital markets remain underdeveloped in Bosnia. Both entities
have created their own modern stock market infrastructure with
separate bourses in Sarajevo (SASE) and Banja Luka (BLSE), both of
which started trading in 2002. The small sizes of the market, lack
of progress on privatization, and public mistrust of previous
voucher privatization programs have impeded the development of a
market. Nonetheless, both stock exchanges experienced a significant
boom in the first half of 2007, supported by strong performances in
neighboring stock markets in Belgrade, Zagreb, and Ljubljana.
However, during the second half of 2007 and throughout 2008 foreign
investment dwindled and investors saw previous gains dissipate on
both exchanges. While this has not had a significant impact on the
broader Bosnian economy, it is a setback to the development of
Bosnia's capital market. For example, in 2008 the BLSE had a
turnover smaller than KM 250 million ($180 million), compared to BAM
700 million ($500 million) in 2007. This downward trend continued
in 2009, shaped not only by the global financial crisis but also by
Bosnia's own political instability and reform slowdown.
21. Standard & Poor's issued its first sovereign credit rating for
Bosnia and Herzegovina in December 2008. In 2009, the agency
upgraded Bosnia's long-term foreign and local currency government
bond to a "B+ rating." Both S&P and Moody's maintain a "stable"
outlook for Bosnia and Herzegovina. By contrast, in November 2009,
Dun & Bradstreet downgraded Bosnia's credit rating from DB5c to
DB6a, citing political instability as the key factor for the
downgrade.
22. Bosnia and Herzegovina, since the end of the war, has had a
relatively stable banking and financial system, with the most
significant investment coming from Austria. The banks' weathering
of the recent global financial crisis is an indication of its
stability, but also its lack of exposure to external markets.
Bosnia's Central Bank noted in December 2008 that citizens withdrew
more than KM 800 million (USD 571 million) from commercial banks
since the start of the financial crisis, although the trend has
certainly slowed from its peak in September/October 2008 and an
increasing number of deposits have been made during 2009, indicating
a return to confidence in the financial system.
23. In 2004 BiH passed a state-level framework law mandating the
use of international accounting standards, and in 2005 both entities
passed legislation eliminating the previous differences between the
entities and Brcko District. All governments have implemented
accounting practices that are fully in line with international
norms. However, these standards have not yet been internalized
throughout the country due to weak accounting capacity, and the
standards are continually threatened by legislative officials
attempting to protect local accounting firms. Foreign investors
should therefore carefully scrutinize Bosnian corporate financial
statements.
Competition from State-Owned Enterprises (SOEs)
--------------------------------------------- ---
24. Generally, private companies are allowed to compete with public
enterprises under the same terms and conditions with respect to
access to markets, credit and other business operations. However,
in the sectors such as telecommunications and electricity,
state-owned enterprises hold a near-monopoly, making hefty profits
as a direct result of their dominant market position.
Corporate Social responsibility (CSR)
---------------------------------------
25. Foreign and local companies exercise a variable level of
corporate social responsibility and awareness. In general,
consumers tend to view favorably companies that initiate and carry
out charitable activities in the local market.
Political Violence
------------------
26. The war in Bosnia and Herzegovina was halted by the Dayton
Peace Accords in November 1995. Armed conflict has ceased and there
have been no attacks targeting foreign investments. However, there
are still risks from occasional, localized political and criminal
violence.
Corruption
----------
27. Corruption, including bribery, raises the costs and risks of
doing business. Corruption has a corrosive impact on both market
opportunities overseas for U.S. companies and the broader business
climate. It also deters international investment, stifles economic
growth and development, distorts prices, and undermines the rule of
law.
28. It is important for U.S. companies, irrespective of their size,
to assess the business climate in the relevant market in which they
will be operating or investing, and to have an effective compliance
program or measures to prevent and detect corruption, including
foreign bribery. U.S. individuals and firms operating or investing
in foreign markets should take the time to become familiar with the
relevant anticorruption laws of both the foreign country and the
United States in order to properly comply with them, and where
appropriate, they should seek the advice of legal counsel.
29. The U.S. Government seeks to level the global playing field for
U.S. businesses by encouraging other countries to take steps to
criminalize their own companies' acts of corruption, including
bribery of foreign public officials, by requiring them to uphold
their obligations under relevant international conventions. A U. S.
firm that believes a competitor is seeking to use bribery of a
foreign public official to secure a contract should bring this to
the attention of appropriate U.S. agencies, as noted belQ
30. U.S. Foreign Corrupt Practices Act: In 1977, the United States
enacted the Foreign Corrupt Practices Act (FCPA), which makes it
unlawful for a U.S. person, and certain foreign issuers of
securities, to make a corrupt payment to foreign public officials
for the purpose of obtaining or retaining business for or with, or
directing business to, any person. The FCPA also applies to foreign
firms and persons who take any act in furtherance of such a corrupt
payment while in the United States. For more detailed information on
the FCPA, see the FCPA Lay-Person's Guide at:
www.justice.gov/criminal/fraud/docs/dojdocb.h tml
31. Other Instruments: It is U.S. GovernmeQolicy to promote good
governance, including host country implementation and enforcement of
anti-corruption laws and policies pursuant to their obligations
under international agreements. Since enactment of the FCPA, the
United States has been instrumental to the expansion of the
international framework to fight corruption. Several significant
components of this framework are the OECD Convention on Combating
Bribery of Foreign Public Officials in International Business
Transactions (OECD Antibribery Convention), the United Nations
Convention against Corruption (UN Convention), the Inter-American
Convention against Corruption (OAS Convention), the Council of
Europe Criminal and Civil Law Conventions, and a growing list of
U.S. free trade agreements.
32. OECD Antibribery Convention: The OECD Antibribery Convention
entered into force in February 1999. As of December 2009, there are
38 parties to the Convention including the United StaQ(see
www.oecd.org/dataoecd/59/13/40272933.pdf). Major exporters China,
India, and Russia are not parties, although the U.S. Government
strongly endorses their eventual accession to the Convention. The
Convention obligates the Parties to criminalize bribery of foreign
public officials in the conduct of international business. The
United States meets its internatQal obligations under the OECD
Antibribery Convention through the U.S. FCPA.
33. UN Convention: The UN Anticorruption Convention entered into
force on December 14, 2005, and there are 143 parties to it as of
December 2009 (see
www.unodc.org/unodc/en/treaties/CAC/signatori es.html). The UN
Convention is the first global comprehensive international
anticorruption agreement. The UN Convention requires countries to
establish criminal and other offences to cover a wide range of acts
of corruption. The UN Convention goes beyond previous
anticorruption instruments, covering a broad range of issues ranging
from basic forms of corruption such as bribery and solicitation,
embezzlement, trading in influence to the concealment and laundering
of the proceeds of corruption. The Convention contains
transnational business bribery provisions that are functionally
similar to those in the OECD Antibribery Convention and contains
provisions on private sector auditing anQoks and records
requirements. Other provisions address matters such as prevention,
international cooperation, and asset recovery.
34. OAS Convention: In 1996, the Member States of the Organization
of American States (OAS) adopted the first international
anticorruption legal instrument, the Inter-American Convention
against Corruption (OAS Convention), which entered into force in
March 1997. The OAS Convention, among other things, establishes a
set of preventive measures against corruption provides for the
criminalization of certain acts of corruption, including
transnational bribery and illicit enrichment, and contains a series
of provisions to strengthen the cooperation between its States
Parties in areas such as mutual legal assistance and technical
cooperation. As of December 2009, the OAS Convention has 33 parties
(see www.oas.org/juridico/english/Sigs/b-58.html)
35. Council of Europe Criminal Law and Civil Law Conventions: Many
European countries are parties to either the Council of Europe (CoE)
Criminal Law Convention on Corruption, the Civil Law Convention, or
both. The Criminal Law Convention requires criminalization of a
wide range of national and transnational conduct, including bribery,
money-laundering, and account offenses. It also incorporates
provisions on liability of legal persons and witness protection.
The Civil Law Convention includes provisions on compensation for
damage relating to corrupt acts, whistleblower protection, and
validity of contracts, inter alia. The Group of States against
Corruption (GRECO) was established in 1999 by the CoE to monitor
compliance with these and related anti-corruption standards.
Currently, GRECO comprises 46 member States (45 European countries
and the United States). As of December 2009, the Criminal Law
Convention has 42 parties and the Civil Law Convention has 34 (see
www.coe.int/greco)
36. Free Trade Agreements: While it is U.S. Government policy to
include anticorruption provisions in free trade agreements (FTAs)
that it negotiates with its trading partners, the anticorruption
provisions have evolved over time. The most recent FTAs negotiated
now require trading partners to criminalize "active bribery" of
public officials (offering bribes to any public official must be
made a criminal offense, both domestically and trans-nationally) as
well as domestic "passive bribery" (solicitation of a bribe by a
domestic official). All U.S. FTAs may be found at the U.S. Trade
Representative Website:
www.ustr.gov/trade-agreements/free-trade-agre ements
37. Local Laws: U.S. firms should familiarize themselves with local
anticorruption laws, and, where appropriate, seek legal counsel.
While the U.S. Department of Commerce cannot provide legal advice on
local laws, the Department's U.S. and Foreign Commercial Service can
provide assistance with navigating the host country's legal system
and obtaining a list of local legal counsel.
38. Assistance for U.S. Businesses: The U.S. Department of Commerce
offers several services to aid U.S. businesses seeking to address
business-related corruption issues. For example, the U.S. and
Foreign Commercial Service can provide services that may assist U.S.
companies in conducting their due diligence as part of the company's
overarching compliance program when choosing business partners or
agents overseas. The U.S. Foreign and Commercial Service can be
reached directly through its offices in every major U.S. and foreign
city, or through its Website at www.trade.gov/cs
39. The Departments of Commerce and State provide worldwide support
for qualified U.S. companies bidding on foreign government contracts
through the Commerce Department's Advocacy Center and State's Office
of Commercial and Business Affairs. Problems, including alleged
corruption by foreign governments or competitors, encountered by
U.S. companies in seeking such foreign business opportunities can be
brought to the attention of appropriate U.S. government officials,
including local embassy personnel and through the Department of
Commerce Trade Compliance Center "Report A Trade Barrier" Website at
tcc.export.gov/Report_a_Barrier/index.asp
40. Guidance on the U.S. FCPA: The Department of Justice's (DOJ)
FCPA Opinion Procedure enables U.S. firms and individuals to request
a statement of the Justice Department's present enforcement
intentions under the antibribery provisions of the FCPA regarding
any proposed business conduct. The details of the opinion procedure
are available on DOJ's Fraud Section Website at
www.justice.gov/criminal/fraud/fcpa. Although the Department of
Commerce has no enforcement role with respect to the FCPA, it
supplies general guidance to U.S. exporters who have questions about
the FCPA and about international developments concerning the FCPA.
For further information, see the Office of the Chief Counsel for
International Counsel, U.S. Department of Commerce, Website, at
www.ogc.doc.gov/trans_anti_bribery.html. More general information
on the FCPA is available at the Websites listed below.
41. Exporters and investors should be aware that generally all
countries prohibit the bribery of their public officials, and
prohibit their officials from soliciting bribes under domestic laws.
Most countries are required to criminalize such bribery and other
acts of corruption by virtue of being parties to various
international conventions discussed above.
42. Corruption remains prevalent in many political and economic
institutions. The overly-complex business registration and licensing
process is particularly vulnerable to corruption. With the large
number of officials involved, there are multiple opportunities to
demand "service fees." Domestic and international entrepreneurs
often have been known to pay bribes to obtain necessary business
licenses, or simply to expedite the approval process.
43. Local authorities do not generally accept degrees from
international universities, creating problems for some locals, many
foreign investors and other foreign businessmen. Due to an outdated
law that has yet to be revised, employees of government, business
and financial institutions that have foreign degrees are obliged to
get these degrees "validated" by the local authorities. The process
for validation is rather obtuse, and opens the door for rent-seeking
from local officials.
44. Transparency International operates a branch office in BiH.
Its 2009 Corruption Perception Index ranked Bosnia and Herzegovina
99th out of 180.
Anti-Corruption Resources
--------------------------
45. Some useful resources for individuals and companies regarding
combating corruption in global markets include the following:
Q Information about the U.S. Foreign Corrupt Practices Act (FCPA),
including a "Lay-Person's Guide to the FCPA" is available at the
U.S. Department of Justice's Website at:
www.justice.gov/criminal/fraud/fcpa
Q General information about anticorruption initiatives, such as the
OECD Convention and the FCPA, including translations of the statute
into several languages, is available at the Department of Commerce
Office of the Chief Counsel for International Commerce Website:
www.ogc.doc.gov/trans_anti_bribery.html.
Q Transparency International (TI) publishes an annual Corruption
Perceptions Index (CPI). The CPI measures the perceived level of
public-sector corruption in 180 countries and territories around the
world. The CPI is available at:
www.transparency.org/policy_research. TI also publishes an annual
Global Corruption Report which provides a systematic evaluation of
the state of corruption around the world. It includes an in-depth
analysis of a focal theme, a series of country reports that document
major corruption related events and developments from all continents
and an overview of the latest research findings on anti-corruption
diagnostics and tools.
Q The World Economic Forum publishes the Global Enabling Trade
Report, which presents the rankings of the Enabling Trade Index, and
includes an assessment of the transparency of border administration
(focused on bribe payments and corruption) and a separate segment on
corruption and the regulatory environment.
Q Global Integrity, a nonprofit organization, publishes its annual
Global Integrity Report, which provides indicators for 92 countries
with respect to governance and anti-corruption. The report
highlights the strengths and weaknesses of national level
anti-corruption systems. The report is available at:
http://report.globalintegrity.org/
Bilateral Investment Protection Agreements
-------------------------------------------
46. BiH has signed/ratified 42 agreements to promote and protect
investments with the following countries: Albania, Austria, Belgium,
Belarus, China, Croatia, Czech Republic, Denmark, Egypt, Finland,
France, Germany, Greece, Netherlands, Hungary, India, Iran, Italy,
Jordan, Kuwait, Lithuania, Luxembourg, Macedonia, Malaysia, Moldova,
Montenegro, Netherlands, Pakistan, Portugal, Qatar, Romania,
Serbia, Libya, Slovakia, Slovenia, Spain, Sweden, Switzerland,
Turkey, UAE, Ukraine, and the United Kingdom
BiH does not have a bilateral investment treaty with the United
States.
OPIC and Other Investment Insurance Programs
---------------------------------------------
47. OPIC's activities in Bosnia include: insurance for investors
against political risk, coverage of losses due to expropriation of
assets, political violence, and currency inconvertibility; and
insurance coverage for contracting, exporting, licensing and leasing
transactions.
48. Political risk insurance is also available from the EU
Investment Guarantee Trust for Bosnia and Herzegovina, administered
by the Multilateral Investment Guarantee Agency, a World Bank
affiliate.
Labor
-----
49. BiH has an educated workforce with relatively low labor costs.
However, several sectors such as construction, information
technology, and health care have experienced a significant loss of
skills and staff over the past decade, due to a lack of educational
opportunities and emigration. Tax rates on labor are high,
discouraging hiring of new workers and increasing incentives for
unregistered employment. In addition, a rigid wage determination
system stands in the way of job creation and worker mobility. This
is a result of a collective bargaining system that retains most of
its socialist era characteristics. Employees and employers share
the costs of health care, pension, and unemployment insurance in the
Federation while in the Republika Srpska all of these costs are
borne by employers. In the Republika Srpska, employers also bear
child care contributions. Many employers underreport their labor
force in order to avoid paying taxes and benefits. While official
unemployment is approximately 40 percent, "unofficial" estimates of
unemployment that include the large gray economy are approximately
18-22 percent.
Foreign Trade Zones/Free Ports
------------------------------
50. The BiH Law on Free Trade Zones allows the establishment of
free trade zones (FTZs) as part of the customs territory of BiH.
One or more domestic or foreign legal entities registered in BiH can
create a FTZ. The users of FTZs do not pay taxes and contributions,
with the exception of those related to salaries and wages.
Investors are free to invest capital in the FTZ, transfer their
profit and retransfer capital. Customs and tariffs are not paid on
imports into the FTZ. The import of equipment that will be used for
manufacturing within the FTZs can be discontinued if the value of
goods produced and exported abroad is less than 75 percent of the
total value of goods produced in that zone. Currently there are
four free trade zones in BiH: Vogosca, Visoko, Hercegovina-Mostar,
Holc Lukavac.
Foreign Direct Investment (FDI) Statistics
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51. Between January and November 2009, new foreign direct
investment in BiH totaled EUR 268 million (USD 350 million). This
was down from a peak of USD 2.1 billion in 2007 and a 51% drop
compared with the first eleven months of 2008. Investments from
Austria, Germany, Slovenia, Turkey, Croatia, Russia, Montenegro,
Serbia, Saudi Arabia, and Belgium predominated in 2009. The
manufacturing sector had the highest percentage of FDI, followed by
the banking and trade sectors. (Source: FIPA-Foreign Investment
Promotion Agency of Bosnia and Herzegovina.)
52. BiH has signed free trade agreements with Albania, Croatia,
Macedonia, Moldova, Montenegro, Serbia, UNMIK/Kosovo and Turkey. It
has preferential export regimes with Australia, Canada, Japan, New
Zealand, Norway, Russia, Switzerland and USA. According to the
preferential export regime with the European Union, all goods of BiH
origin that fulfill EU technical standards and conditions can be
imported to all 27 European Union member states until the end of
2010 without any quantitative restrictions and without paying
customs and other similar duties. In December 2006, Bosnia and
Herzegovina signed the Central European Free Trade Agreement (CEFTA)
which became fully operational in November 2007. The regional trade
group includes Albania, Bosnia and Herzegovina, Croatia, Macedonia,
Serbia, Montenegro, Kosovo and Moldova. In 2008, Bosnia and
Herzegovina signed the Stabilization and Association Agreement (SAA)
with the European Union, a step towards EU membership. The SAA
establishes a free trade zone between Bosnia and Herzegovina and the
European Union, implying the mutual abolishment of all custom
tariffs and quantity limitations in goods between the two. The SAA
should encourage further development of competitiveness among the
country's exporters and increase investments and employment. As of
January 1, 2009, import tariffs were eliminated for 11,000 products
that BiH imports from the EU.
ENGLISH
WWeek 2015