Foreign direct investment can be a key factor in a country's ability to achieve economic development, increase employment or increase exports. Attracting foreign investment is of special importance for countries like Bosnia and Herzegovina (BiH), whose transition from a socialist economy to a market economy has been disrupted by conflict. With awareness of this need, BiH is constantly trying to improve its business climate to attract foreign investors.
The most recent measure taken to attract foreign investment is the adoption by the BiH Council of Ministers of a Decision on the Establishment of a Foreign Investors Support Fund (FISF). The FISF, which came into existence in February 2008, is unusual in that it provides direct financial support for foreign direct investment. BiH has budgeted approximately 1 million ($1.6 million) in special funds for fiscal year 2008 to the FISF. In future years, the amount of special funds will be based on BiH's budget allocation. The FISF is obliged to distribute these funds, on a non-repayable, free-of-charge basis, to eligible foreigners investing in BiH's manufacturing, research and development and other industries that are thought to be key for the economic development of BiH. The areas of trade, catering, banking, insurance and leasing are specifically excluded, perhaps because these have already attracted significant foreign investment.
The specific requirements, manner of allocation and criteria for allocation of the FISF funds are regulated in detail by the Rule Book on the Manner of Distribution of Resources for Support to Foreign Investors in BiH (Rule Book). According to the Rule Book, the criteria that will be considered in making a decision on whether the FISF will grant funds to an applicant's project include, among other things, the number of new jobs to be created, the total amount to be invested in the project and the effect the project is likely to have on the environment. Applicants must submit a standard application form to the FISF with support documentation regulated in the Rule Book. The FISF's funding decision will be delivered to the applicant within 30 days.
Although the FISF has only recently become fully operational, it has already distributed funds to qualifying foreign investors for their ongoing projects in BiH. Foreign investors can expect additional improvements to the BiH business environment as a result of its entering into a Stabilisation and Association Agreement (SAA) with the EU in June 2008. The SAA will require BiH to carry out significant legal and financial reforms as a condition to its possible accession to the EU.
David Ayres and Suvad Bakic