Bosnia and Herzegovina 2018

of government). European Court of Human Rights declared this constitutional provision as a violation of human rights, but it nevertheless remained unaddressed during the period under review. Political system is characterized by large, complicated and asymmetric state apparatus, separated into two entities – Federation of BiH and Republic of Srpska, and numerous other tiers of government. Country`s tripartite collective Presidency is represented by one elected representative from the ranks of each of the constitutional – “constituent” - ethnicities: Bosniaks, Serbs and Croats. General elections in the country were scheduled for autumn 2018, whereby in mid-2018 all political parties were already largely in the campaign. Still it is perceived that divisive rhetoric will benefit nationalists, with the outcome similar as during several previous electoral cycles. 

from interfering into country’s political decision making. Deadlock in BiH is additionally instigated by the lack of independence and impartiality of judiciary, itself proving unable to hold politicians accountable for their actions. Religion is separated from the state. However, religious institutions play an important role in shaping public opinion and have got significant influence on decision making.

verbal harassment, often as a result of insults coming from politicians. Reporting on sensitive cases, such as war-related stories, many times led to death threats against journalists.* Press freedom score will be updated after data from primary source have been published. For more information see Methodology section.

published in February 2018, based on an extensive research into corruption trials in BiH in 2010-2017, has revealed numerous shortcomings of the system, from lack of competence or integrity to systemic deficiencies such as overlaps of responsibilities between courts at different levels, or else judicial vacuums thereof. The fierce debate over the participation of foreign judges in the Constitutional Court is still on.

of the political class as main factors of its persistence. Bribery rate is very high, 27%, according to the Global Corruption Barometer 2016. Portal GAN finds the public procurement sector as particularly vulnerable to corruption, while the risks are quite high also in judiciary, police and tax administration.

Human trafficking remains as a huge problem. With the rise of a new migrant route, which passes through BiH, there is a new, dangerous dimension to it - migrant smuggling by cross-border organized criminal groups. Treatment of refugees differs widely not least between but also within entities, cantons or ethno-national communities. On 21 May 2018, a dispute between state and cantonal police over relocation of asylum seekers led to their brief standoff at a cantonal border, quickly resolved yet frightening and ominous. RS meanwhile refuses to accept any of the migrants that recently came to FBiH. Around mid-2018, would-be legalization of same-sex unions in the BiH`s entity Federation of BiH was discussed. The case of David Dragičević, 21, who died in March 2018, officially by accident, drew thousands of people in Banja Luka and other towns in BiH to the streets multiple times, in a multi-ethnic citizens` initiative against police arrogance, arbitrariness and cover-ups in this and a few other similar cases.

uneven decisions in similar cases. Although there are specialized commercial courts, commercial cases are not always regarded as priority ones. Bankruptcy procedures do not put sufficient emphasis on rehabilitation or reorganization of companies, so the latter are mostly sold through a piecemeal sale. Insolvency procedures are also extremely long and lead to very low recovery rates, below 40% of the claim. Registering property is a very long procedure, which could be expensive in some Federation`s cantons due to high property transfer taxes. This tax, however, is not applied in the entity Republika Srpska. The two entities have different real property cadastre services. A significant proportion of land does not have a clear title, due to an inefficient and slow restitution process but also to weak administration capacities. This situation is further aggravated by the unnecessary role of municipality courts in land registration process. Very slow and inefficient proceedings of the Commission for Real Property Claims of Displaced Persons and Refugees in effect do not protect property rights of internally displaced persons and war time refugees, although more than two decades have passed since. Foreign nationals face few ownership restrictions, such as in defense industry, media and electricity transmission, while land ownership is restricted but on a reciprocal basis. Yet, the latter is easily circumvented through establishment of a foreign owned legal entity.

sector reform was partial, as there were no changes in the fiscal mix that would increase competitiveness of the economy (increase in consumption taxes and decrease of taxes of labour). The wage bill put expenditures under control, but there was little increase in capital expenditures in order to provide for important infrastructure. As a result, growth rates are still sluggish, with 2.7% in 2017, well below the rates necessary to reduce unemployment, that is close to 25% of the labour force. Total investments are very low in regional comparison, leading to low growth rates, mostly propelled by rise of economic activities in the European core (through increase in exports and rising local consumption through higher remittances). Government gross debt is on a downward path, reaching 41% of GDP in 2017. Although a wide scale privatization process was conducted after the war, there are still many state owned enterprises (SOEs). Most of them are owned by the two entities, which further lessens their efficiency since it disables the economy of scale (with two different rail companies, for example). Many of these SOEs are inefficient, with management that is not independent form daily politics and political parties in power, leading to low business performance. Some of these companies rely heavily on government indirect or direct subsidies, and produce with high unpaid arrears. Privatization plans have been drafted in both entities, but were implemented more in the Federation, which sold its either full or minority stake in several important companies in pharmaceuticals, insurance, tobacco and petrol retail sectors during recent years. But, the privatization of the two telecom companies was put on hold. Instead of using profits of SOEs for higher investments, that have been low for years, the Federation government used it to finance infrastructure projects. At the same time, restructuring of railways in the RS continued, aimed at putting expenses under control. Corporate and personal income taxes have been harmonized between the entities. Both taxes have flat rates of just 10%. However, social security contributions are still different, since entities have their own healthcare and pension systems. This also leads to a different labour tax wedge - 40% in Federation (which is on the upper threshold of the Western Balkans) and 34% in Republika Srpska (which is slightly below the regional average). VAT is low for European standards, and consists only of one standard rate of 17%, without preferential rates.

situation and divisions across ethnic and entity lines stifle much needed reforms of the business environment, and the economic space of the country remains effectively fractured. Starting a business is a very slow procedure, lasting 2.5 months on average, burdened with bureaucracy. It includes not only notaries but also municipal courts and various other bodies; it also incurs high costs not only due to high fees but also due to a high minimum capital requirements. This procedure also differs between entities; since Republika Srpska established a more efficient one stop shop (registration procedure lasts for between one and two weeks only). Obtaining a construction permit and getting electricity also incur very high costs, due to high fees involved, as well as to numerous and slow procedures.  Compliance with tax regulation involves a high number of payments, with complicated and inconsistent procedures, of which VAT regulations are considered the most burdensome. Both entities introduced labour code changes in 2016 in order to make labour market more flexible, easing the process of hiring and firing. Fixed term contracts are not prohibited for permanent tasks, and their duration is 36 months. On the other hand, severance pay still increases with years in tenure, thus protecting more seasoned workers, but notice periods have been significantly shortened. Recent changes decreased wage premiums for overtime, weekly holiday and night work. Minimum wage in the country is high relative to the average wage, which encourages activities in the shadow economy, and was recently increased again.

rate of 6.3%. Furthermore, there are also regulatory trade barriers in certification and quality standardization, which poses significant burden on international trade. Custom service is not well organized, with inefficient or complicated procedures and with outdated electronic systems. Corruption and partial treatment of different companies by the administration also remain present. Since the most important foreign market for BiH goods are EU countries, most notably Croatia and Germany, the majority of trade is conducted under the Stabilization and Association Agreement (SAA) that supplanted the Interim Agreement on Trade in 2015. This agreement provides free access of BiH goods to the EU market, apart from some agriculture products. Regional trade is also very important for the BiH economy, since Serbia and Montenegro also play an important role in trade flows, which are conducted under the Central European Free Trade Agreement (CEFTA). However, since BiH does not recognize Kosovo as an independent state, this leads to factual discrimination of goods in specific situations, making barriers to trade with Kosovo, even though both countries are members of CEFTA. The Law on Internal Trade was finally amended in October 2017 in order to erase the discriminatory measure by which at least 50% of all items in retails chains had to be of domestic origin, which was a clear protectionist measure, against WTO and EU rules. Potential WTO accession would liberalize trade, as well as the EU accession, but these are yet to be reached.