Bosnia Herzegovnia Business Forecast Report Q3 2008

Publication Date	May 2008
Publisher	Business Monitor
Product Type	Report
Pages	52
ISBN Number	1748-2380
Product Code	BMI02058

Buy this product or for assistance call +44 20 7060 7474

PDF £250.00$416 | €280

FAX Order above formats by FAX

Summary

Long-Term Outlook Still Positive In the Q308 Bosnia & Herzegovina Business Forecast Report we examine the implications of the key political, macroeconomic and business environment factors affecting the country. We conclude that the Bosnian economic growth story still has much further to run and continue to forecast above- .0% real GDP growth through to 01 . Underpinning the economy will continue to be the comprehensive process of convergence with the European Union which is affecting all aspects of the country ranging from the investment climate to the political risk profile. Already, we have begun to see a rapid acceleration of foreign direct investment owing to the country's reform and privatisation programme, which will significantly enhance the productive capacity of the economy going forward. As infrastructure improves and the regulatory regime steadily harmonises to EU standards, the country's attractiveness to foreign investors will improve even further, bolstering the export sector and underpinning sustainable growth over the long term.

The political environment in Bosnia & Herzegovina remains our greatest concern for the country's longterm economic growth prospects. Sustaining the high levels of net foreign direct investment seen in 007, especially since the stock of privatisation assets will begin to run out in 009, will require a much more aggressive reform strategy then we have been witness to in the past two years. Unfortunately, we expect ethnic divisions and the country's complex, multi-level constitutional structure to continue impeding the formation of a cohesive national reform policy. That said, there are also reasons to be optimistic. After much rancorous debate, the Bosnian national parliament finally passed a key police reform law in April that will pave the way for the formal signing of a stabilisation and association agreement with the EU. This will provide a formal framework for necessary EU accession reforms and thus act as a key policy anchor for the national and entity-level governments over the long term.

Bosnia's current account dynamics are forecast to worsen further in 2008, with the deficit reaching a record 1 .8% of GDP. We stress though that this is just part of a larger external account picture that is far healthier than the current account belies. Indeed, not only do we expect foreign direct investments to continue covering a large portion of the shortfall, but much of the recent high rises in imports are directly correlated to FDI-funded projects as opposed to a rapid rise in household demand. Indeed, as the country's industrial capacity increases over the long term, subsequent to the current inflows of capital investments, we expect import demand to fall concurrently with an acceleration of export growth. We are forecasting the current account deficit to begin falling in 2009, reaching 7.8% of GDP by 2012.

Several major infrastructure projects, financed through FDI have been signed in Q108. These include a key EUR .0bn highway construction plan and a proposal to build a BAM1. bn power plant. These are just two of a wide range of projects that will transform Bosnia's electricity, transport and telecommunications networks over the long term, significantly enhancing the business environment. Not only will these developments increase the capacity of the Bosnian industrial sector, but they will also improve trade linkages to the western Balkan region and the European continent as a whole. This will boost the potential of the Bosnian economy to become a major trade and distribution centre.

Content

Executive Summary5
Long-Term outlook still Positive
Chapter 1: Political Outlook6
- SWOT analysis
- BMI Political Risk Ratings
- Domestic Politics8
- Lack of Co-ordination To hamper Policy Formation
- Bosnia's complex constitutional system, which includes multiple layers of government, is to remain a major
- impediment to the development and implementation of national policy going forward
- Foreign Policy
- EU Membership application To Progress
- With the passage of a key police reform law on April 10, Bosnia will likely be allowed to sign a stabilisation and
- association agreement with the European Union within the short term
- Table: bosnian Politics10
Chapter 2: economic outlook
- SWOT analysis12
- BMI economic risk ratings
- Introduction
- Economic Activity
- Making Up For Lost Time
- Bosnia's economic growth story has lagged that seen elsewhere in the emerging Europe region, with this year's
- 6.0% growth being below the 6.9% frontier market weighted average
- Table: bosnia & herzegovina - economic activity16
- balance of Payments
- Current Account Deficit To Remain A Problem In 2008
- Against the background of a worsening external position in H207, we have revised up our forecasts for Bosnia's
- current account deficit, which we now expect to peak this year at 14.8% of GDP before beginning to narrow in
- 2009 on the back of improvements in trade dynamics
- Table: Bosnia & Herzegovina - balance of Payments18
- Foreign Direct investment
- FDi To remain robust
- We expect that inflows of foreign direct investment into Bosnia will stay robust in the medium term, driven by
- planned privatisations, and an increase in greenfield investment
- Monetary Policy
- Inflation Set To Level Off But Remain Elevated
- We forecast Bosnian inflation to come down to 4.6% y-o-y by end-2008, from 4.9% y-o-y at end-2007
Chapter 3: Special Report
- Business Outlook For global Frontier Markets
- growing Fast on The new Frontier
- The 41 states that BMI examines in a new report on our online service may make up only a small slice of the
- world economy, but they possess characteristics that will see them gain importance in the eyes of investors and
- global businesses over the coming years
- Frontier investment
- Potential and Pitfalls
- The spectacular macroeconomic performance of frontier markets in recent years has been matched by mildly
- successful efforts to deepen capital markets
- Table: Frontier Markets - Key Data and Projections For Top 10 Countries
- Table: gDP Per Capita, Us$ (in order of % increase)
- Table: Diversify Through Frontier Markets - Correlation Coefficients January 2004-April 2008
- Table: Frontier Market indices26
- Regional overview
- From hidden Dragons To Final Frontiers
- Laos
- Neighbouring economies The Key To growth28
- Laos's GDP growth has been boosted in recent years as neighbours China, Thailand and Vietnam compete for
- its natural resources. GDP expansion in 2007 has been estimated at 7.6% and we see annual growth remaining
- above 7% for our five-year forecast period
- Yemen
- Huge Potential, but Don't bank on gCC Membership
- Markets do not come much more frontier than Yemen, and, as would be expected, there is huge potential for
- development, with the prospect of eventual GCC membership likely to act a key investment pull
- Table: Yemen - economic activity
- Democratic Republic of the Congo
- Mining industry To Drive growth33
- The Democratic Republic of the Congo's mining industry will be a key driver of growth and is likely to attract
- significant levels of FDI, with our real GDP forecasts standing at 8.3% and 7.9% in 2008 and 2009, respectively
- Table: Democratic republic of The Congo - economic activity33
- Cuba
- Investment Prospects after Fidel
- The accession of a new leadership structure in Cuba has sparked excitement that the 45-year-old trade
- embargo with the US may be lifted and Cuba may move toward market liberalisation
- Table: Cuba Macroeconomic Data and Forecasts
- Mongolia
- Minerals To Drive economic boom
- Mongolia is in the midst of a massive resource-led economic boom that should lift GDP growth into the double
- digits and underpin robust increases in exports and inflows of foreign investment capital over the long term
- Table: Mongolia - economic activity
Chapter 4: Business Environment40
- SWOT analysis40
- BMI business environment risk ratings41
- Business environment outlook
- Table: BMI business and operational risk ratings
- Institutions
- Table: BMI Legal Framework ratings44
- Infrastructure46
- Market orientation
- Table: Emerging Europe, Annual FDI Inflows
- Table: BMI Trade ratings50
- Operational risk