As a republic of the Yugoslav federation, Bosnia and Herzegovina adhered to the unique economic system known as socialist self-management. In this system, business enterprises, banks, administration, social services, hospitals, and other working bodies were intended to be run by elected workers’ councils, which in turn elected the management boards of the bodies. In practice the level of workers’ control was extremely variable from enterprise to enterprise, since ordinary workers often were not motivated to participate except in matters such as hiring, firing, and benefits and in any case lacked the necessary time and information to make business decisions. In the 1980s Yugoslavia’s large foreign debt and rising inflation lowered the standard of living in Bosnia and Herzegovina. In the period immediately following the 1991 war in Croatia, Bosnia and Herzegovina’s official economy collapsed. Huge increases in the price of oil, falling imports and exports, hyperinflation, shortages of food and medicine, insolvent banks, and unpaid pensions all resulted in a swelling black market, or informal economy. In addition, the 1992–95 war (see Bosnian conflict) caused widespread destruction.
International financial organizations were heavily involved in the postwar reconstruction of the economy. As a result, inflation fell, exports increased and were diversified, and the gross domestic product (GDP) experienced growth, at least until a global financial crisis began in 2008. However, privatization was contentious and remains incomplete. Moreover, the number of workers in the informal sector and the unemployment rate both remain stubbornly high. Remittances from Bosnians working abroad continue to be a significant source of income.
Agriculture, forestry, and fishing
Bosnia and Herzegovina is a significant agricultural region, with some one-third of its land under cultivation or in pasture. The most fertile soils are in the north, along the Sava River valley. In hillier areas, land is employed for both cultivation and grazing. Principal crops include corn (maize), potatoes, wheat, plums, cabbages, and apples. In Herzegovina and in the more sheltered areas of Bosnia, tobacco is grown. Sheep are the major livestock, although cattle and pigs are raised, and apiculture is practiced. With about two-fifths of the country forested, timber, as well as furniture and other wood products, have been important exports. Fishing potential is increasingly exploited.
Power and resources
Bosnia and Herzegovina has reserves of iron ore around Banja Luka and in the Kozara Mountains, bauxite near Mostar, and lignite and bituminous coal in the regions around Sarajevo, Zenica, Tuzla, and the Kozara Mountains. Zinc, mercury, and manganese are present in smaller quantities. Forests of pine, beech, and oak provide a source of timber. The country possesses considerable hydroelectric potential; there are several hydroelectric and thermal power plants.
Manufacturing
Manufacturing historically represented a large part of Bosnia and Herzegovina’s economy. In the wake of the war, however, the country struggled to reinvigorate industrial production. Metal manufactures, iron and steel, sawn wood and wood products, food, and textiles are among the products produced in various parts of the country.
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Finance, trade, and services
The Dayton Accords created a largely autonomous central bank, which has sole authority over monetary policy and the issuing of currency. The national currency, the convertible marka (konvertibilna marka; KM), is pegged to the euro. After the war, fiscal consolidation was strong, and most banks are now privately owned. Foreign direct investment was substantial in the early 21st century, but foreign investors faced serious obstacles, including a complex legal and regulatory framework, less than transparent business procedures, and a weak judiciary. Bosnia and Herzegovina’s largest trading partners are Croatia, Serbia, Italy, and Germany.
The service sector accounts for more than half of the country’s GDP, with retail trade and restaurants being an important component. There have been efforts to revive tourism by attracting visitors to the country’s rich cultural heritage sites, gorgeous mountains, and aquamarine rivers.
Labour and taxation
The largest portion of the labour force is engaged in services, followed respectively by manufacturing and agriculture. Labour unions have been largely fragmented and weak in the postwar economy. Bosnia and Herzegovina’s autonomous entities, the Republika Srpska (Bosnian Serb Republic) and the Federation of Bosnia and Herzegovina, have different tax policies. The individual income tax rate in both entities is relatively low. Other taxes include corporate tax, property tax, and value-added tax.
Transportation and telecommunications
The major obstacle to transportation in Bosnia and Herzegovina has always been the mountainous topography. In addition, much of the transportation infrastructure was destroyed in the postindependence war. The railway system, begun under Austro-Hungarian rule (1878–1918), connects Sarajevo with major towns to the north and with Zagreb (Croatia) and Belgrade (Serbia). Another line runs south from Sarajevo to Mostar and on to Ploče on Croatia’s Adriatic coast. However, few lines are direct, and as a result roads of variable quality have in many cases been the preferred means of passenger and freight transportation. Scheduled air services connect Sarajevo with other Balkan capitals, such as Belgrade and Zagreb, as well as with other European and international destinations.
Although Bosnia and Herzegovina has lagged behind its neighbours with regard to citizens’ use of telecommunications, the number of cellular phone subscribers increased dramatically during the first decade of the 21st century. During the same period, the number of Internet users grew exponentially.