Economy and society in Bosnia and Herzegovina

by Thierry Domin
First published in
SFOR Informer#128, December 12, 2001

The economic model - and its social counterpart - is one of the main political decisions of the state, and has a daily impact upon the citizen's life. The re-distribution of the national wealth, the priorities between the various ministries and the orientations chosen as far as it concerns social policy determine the kind of economy: free market or state interventionism, with all the shades between the two.

Before the war, as the name indicates, the Socialist Federal Republic of Yugoslavia was a socialist state, nevertheless with an interventionism less strong than in communist countries. Of course, this was also so in Bosnia and Herzegovina. The main indicators of this policy were the small number of privately-owned firms, the high degree of social re-distribution and the predominance of heavy industries, as in Zenica (BiH Steel) or in Mostar (Aluminji). Furthermore, in his desire to strengthen the unity of the whole country, Marshall Tito spread out the points of fabrication of consumer goods among the whole of Yugoslavia. Thus, to quote a "Zastava" car as an example, the chassis was manufactured here, the engine there, and the tyres in a third republic of the country.
Another specific point was the existence of the so-called "payment bureaux," which collected all the bills and taxes from the citizens and paid part of this revenue directly to the Party.
But BiH remained a landlocked country, with no access to the sea, no highways, few railway lines and only two ports on the Sava River, Samac and Brcko.
The consequences of the war
The first consequence of the war was the heavy destruction of the industries and the port facilities on the Sava River. A lot of people became unemployed, as well as a great part of the combatants when the General Framework Agreement for Peace (GFAP) was signed in Paris, Dec. 14, 1995. Furthermore, the move of the population from rural settlements to bigger cities also contributed to the rise in the unemployment figures. Small communities that used to live in self-sufficiency found themselves back in the suburbs of Sarajevo, Banja Luka or Mostar, without housing, jobs and schools for their children.
The first need was of course the reconstruction. For this aim, the International Community gave in almost six years more than 10 billion Konvertible Marks (5 billion €). The voluntary return of Displaced Persons and Refugees (DPRE) sped up the process, for a lot of returnees decided to re-build their pre-war homes by themselves. But the needs are still great, and United Nations High Commissioner for Refugees (UNHCR) stated in June 2001 that there was still a gap of 22,400 between the on-going reconstruction and the needs.
For its part, the World Bank launched a programme called the Emergency Demobilisation and Reintegration Programme (EDRP) to further the re-insertion of demobilised soldiers. Since the Armed Forces in BiH continue to be downsized, this help will be needed for the long-term.
The figures
Every three months, the Economic cell of the Office of the High Representative (OHR) publishes an Economic Newsletter where the main indicators are assessed ( The last spreadsheet appears in the attached box. It shows the disparity between the two entities (Federation and Republika Srpska) in the areas of salaries, unemployment, and inflation. The only similar figures deal with deficit in foreign trade.
It partly explains why people are still reluctant to return to RS, where the standard of living is considerably lower than in Federation.
Moreover, one has to admit that the expenditures of the military budgets for the two entities are largely too high in regard to the actual threats. A readjustment of those budgets, associated with a common defence policy, could allow for more money to be spent in priority areas.
And finally, one of the biggest concerns in this country is corruption. The free market economy is something quite unknown in post-communist countries, and the tradition of the backhander is still strong. That's why OHR set up an Anti Fraud Department two years ago, dealing with all aspects of corruption, at whatever the level it is practised.
The way ahead
Is that to say that economic and social situations are frozen and that there is no chance of improvement? Certainly not, for a lot of things have recently changed for the better. Of course, it's always more difficult to go towards an unknown system than to come back to a previously well known one. During more than 50 years - about two generations -, citizens of this country only experienced war and communism, and sometimes both together. Such moves, however as normalisation of the dismantling of payment bureaux, Air Space co-ordination, privatisation, and the march for joining the Council of Europe are many examples of the efforts of the common institutions to reach western standards.
The HR himself adopted a new concept of "ownership," which means the progressive withdrawal of the international community and more responsibilities for the state institutions.
Another positive point was the creation, in July 1999, of the Stability Pact, which deals with all the countries of the Balkans through a regional approach. There is virtual unanimity, in South Eastern European countries, that the way forward is integration into Europe.
On June 27, 2001, a very significant event took place in Brussels. Ministers from Albania, BiH, Croatia, Former Yugoslav Republic of Macedonia (FYROM), the FRY, Romania and Bulgaria - the so-called beneficiary countries of the Stability Pact - signed a Memorandum of Understanding (MoU) on Trade Liberalisation. This MoU signals the commitment for these countries to liberalise 90 percent of mutual trade in value by the end of 2006. The MoU covers both the agricultural and industrial sectors.
But as long as BiH doesn't speak with a single voice in economy area, nationalistic points of view and entities' selfishness will hamper any improvements. In this domain also, the way ahead is the strengthening of the common institutions.


Table of contents

Chapter 1

Chapter 2

Chapter 3

Chapter 4

Chapter 6



Communiqué of the PIC Steering Board Brussels, Oct. 30, 2001 (Extracts)
The PIC Steering Board met at the level of Political Directors with the High Representative in Brussels on 30 October 2001.
The Steering Board appreciated the recent establishment of the Co-ordination Body for Economic Development and European Union (EU) Integration, and called upon this body to work in close co-operation with the International Community as part of the overall partnership process.
The Steering Board took note of the less than satisfying economic transition process in BiH. The Steering Board again urged BiH authorities to increase the tempo of implementation of the economic reform agenda, which is not only imperative for higher investment and employment levels but also an indispensable requisite if BiH does not want to fall even further behind its neighbouring countries in the EU Stabilisation and Association Process.

BiH Economic Data January-September 2001