Despite Bosnia-Herzegovina having to date achieved only modest results in terms of attracting foreign investments and transfers of new technology, space is opening up to utilise nearshoring as a development opportunity
In order for Bosnia-Herzegovina to improve its competitive standing, it is primarily necessary to create conditions to more easily attract foreign investments and thereby facilitate transfers of new technology, which at the same time is one of the country’s main competitive opportunities. Due to the limited resources available to B-H to research and develop new technologies, the fastest development path for the transferring of new technology is through the attracting of foreign direct investment. The country has so far achieved very modest results in this area, which is why great strides are required in this field.
The Western Balkan region is now confronted by a combination of new challenges: the war in Ukraine, which has resulted in a sharp rise in energy prices and a slowdown in global growth, as reflected in the economic growth of all six countries of the region. Alongside inflation, there is also the tightening of monetary policy.
At the Chamber, and on the basis of our knowledge gathered on the ground, we are aware that the positive impact of nearshoring is being felt in the country despite the current global crises. We are recording ever-more inquiries from foreign investors, and this applies in particular to the metals, textile and footwear industries, as well as the processed food industry.
The Bosnia-Herzegovina economy is such that the country is characterised as a very reliable and professional partner, while its advantages also include geographical proximity to investor countries and its expertise, particularly in traditional industries like the metals, electrical engineering and wood industries.
Compared to all other Western Balkan economies, Bosnia-Herzegovina maintains a high level of realising cooperation with international partners. However, most of that foreign trade turnover unfolds in two directions, with us either buying or selling. Plenty of room exists to advance cooperation in the area of developing joint products/services, especially when it comes to research and development. Introducing standards and adapting to market conditions are things that we need to do better in the future.
According to a study on the potential of the Western Balkans to attract foreign investments in the post-Covid period, which was conducted by the Western Balkans 6 Chamber Investment Forum (WB6 CIF), the economies of the region could benefit greatly from the trend among multinational companies of relocating production operations from Asia to Europe. However, analysis suggests that in order to benefit fully from these likely developments the Western Balkans may need to change the narrative around their economies – from destinations that offer low costs for investors to those that offer high quality. Over the past 15 years, the strategy to attract foreign investors has been based first and foremost on low costs and the availability of cheap labour, low taxes and generous government incentives for foreign investors. This strategy has had mixed success, with some economies clearly ranking among Europe’s best in terms of FDI, while some are only average despite their best efforts. Investors already know that these economies represent relatively cheap countries, with low earnings and low taxes, and that these factors will not change markedly in the foreseeable future.
The Western Balkan countries should promote the potential of the “common regional market” as a resource for organising regional value chains within the scope of major companies
Cooperation between domestic and foreign companies doesn’t only imply foreign companies acquiring domestic companies. Cooperation can also take other forms, such as exchanges of knowledge and information, the joint development of products, joint lobbying in areas of common interest etc. Surveyed domestic companies have indicated that these softer forms of cooperation are the most desirable way for them to collaborate with foreign companies. It is for these reasons that governments and chambers could find an interest in exerting special efforts to facilitate opportunities for domestic and foreign companies to cooperate in some of these ways. The Western Balkan economies could also try to better exploit the potential arising from regional cooperation and integration and the “common regional market” when it comes to local and regional sourcing. In the case that a foreign investor is unable to source required goods or services from domestic companies in one of the Western Balkan economies, they could source what they require from another Western Balkan economy, thereby keeping the value chain regional and short.
Finally, building and maintaining good relations with foreign investors appears to be important for at least two reasons. The first is that these companies could reinvest, and in the case that they decide to do so, then it is in the interests of the economies of the Western Balkans for their first choice to be to reinvest in the economy of the Western Balkans. Certain investment promotion agencies have stated that they are taking this element into consideration, but it would be good for this to be the rule and not the exception. The second reason is reputation. Interviews with companies and investment promotion agencies have shown that a country’s reputation is a very important factor that drives decisions on where companies locate their production operations. In the case that a country has a good reputation based on good relations with investors, word will spread among other companies and entice other investors to that country.
The WB6 economies are working to harmonise their regulations with the EU acquis, in order to ensure their progressive integration into the EU market, and as such the adopting of European standards – by following the regulations and directives of the European Commission – is an essential step in establishing new partnerships and positioning on new markets.
With the aim of supporting members, 60 WB6 companies last year received free support for foreign exports and to join supply chains across the region and in the EU. A total of 60 adapted export strategies were developed to support producers of metals, alcoholic beverages and agri-food, with them all receiving a list of the standards and documents needed to penetrate new markets.
