FEDERATION OF EURO-ASIAN STOCK EXCHANGES
SEMI ANNUAL REPORT OCTOBER 2006
BANJA LUKA STOCK EXCHANGE
ECONOMIC AND POLITICAL DEVELOPMENTS
Politic and Economic Environment
Bosnia and Herzegovina (BiH) is comprised
of two distinct entities - The Republic of
Srpska (RS), which accounts for one-third of
the population and contains mostly Serbs,
and the Federation of Bosnia and
Herzegovina (Federation), which accounts
for the other two-thirds of the population and
consists mostly of Bosniak and Croats. There
is also a tiny district Brcko controlled by both
entities.
In the first half of 2005 Bosnia and
Herzegovina moved closer both to opening
negotiations with the EU on a Stabilization
and Association Agreement (SAA) and
becoming a member of NATO’s Partnership
for Peace (PfP) program. In November 2005,
Stabilization and Association Process
between the EU and Bosnia and
Herzegovina was officially opened. Joining to
the EU was due to significant progress that
Bosnia and Herzegovina has made in the
past ten year.
Ongoing reforms have led to the creation of
a state-level Indirect Taxation Authority (ITA)
that will be responsible for the introduction
and implementation of a state-wide value-
added tax (VAT) in 2006, revenues from
which will fund the governments of the state
of Bosnia and Herzegovina as well as the
two entities. Customs, which had been
collected by agencies of the two entities, will
now be collected by a new single state
customs service. Draft defense legislation is
under consideration by the state and entity
parliaments that would create a single, multi-
ethnic military under state-level command
and control and eliminate the previous entity-
based institutions.
Economic Performance
After a disappointing start to the year, Bosnia
and Herzegovina’s economy has picked up
pace. Industrial output growth in the
Federation, which slowed down markedly in
the first quarter of 2005 compared to the
same period of the previous year, picked up
in the course of the second quarter. January-
July industrial output rose by 5.7% year on
year, up strongly from 2.9% in the first
quarter. The 7-month figure marked a solid
industrial performance, especially given the
rapid 13.2% annual output growth in 2004.
which have become cheaper and more
readily available as result of the
implementation of the free-trade agreements
with Croatia, and with Serbia and
Montenegro.
Manufacturing output surged in the second
quarter, pushing total January- July
production up by 21% year on year. This
represented an increase of almost 12%,
compared with the annual manufacturing
growth figure for 2004. All but six of the 23
industries covered by the RS statistics
agency recorded growth in the first seven
months of 2005. Some of the most important
industries in the RS, such as food and
beverages, textiles and metal-processing
recorded above-average rates of growth,
despite increased foreign competition and
still-weak demand in the euro zone (much of
the output in these industries is exported).
The main driver of industrial output growth in
the first seven months of 2005 was the
manufacturing sector, which increased
production by 13.5% year on year. Textile
production rose strongly, as did output in the
coke and petroleum products sector (both
linked to significant increases in exports). In
contrast to the robust manufacturing
performance in January- July, electricity
output, which accounts for over one-third of
the Federation's total industrial output,
declined by 7.1% year on year, and mining
output remained almost flat.
In the RS, the performance of the
construction industry was more subdued,
with January-July output recording a 1.9%
decline in annual terms. The contraction in
the value of output coincided with a larger
fall in the number of hours worked, which fell
by 5.3% year on year, suggesting some
improvement in productivity during the
period. The RS government has also
launched an ambitious road-building project,
but the start of the largest one–the Gradiska
motorway–was delayed owing to insufficient
funding, which was in turn caused by an
alleged error in the original calculation of the
costs of the project.
Most of the Federation's leading industries
recorded strong growth in January-July.
Production of base metals rose by 28.9%
year on year, driven primarily by strong
increases in the manufacture of steel and
aluminium, as a result of investment in new
production capacity in Mittal Steel Zenica
and Aluminium Mostar. Output in food and
beverages, which recorded declines in
several consecutive months earlier in the
year, picked up in the second quarter, so
that output in the year to July rose by 2.9%
year on year. The industry has come under
strong competitive pressure from imports,
* Banja Luka Stock Exchange and Sarajevo Stock Exchange.
Key Information Contacts
Bosnia and Herzegovina Council of Ministers www.vijeceministara.gov.ba
Ministry of Foreign Affairs of Bosnia and Herzegovina www.mvp.gov.ba
Directorate of European Integration www.dei.gov.ba
Central Bank of Bosnia and Herzegovina www.cbbh.ba
Republic of Srpska Government www.vladars.net
Foreign Trade Chamber of Bosnia and Herzegovina www.komorabih.com
Republic of Srpska Securities Commission www.khov-rs.org
Central Registry of Securities www.crhovrs.org
2004-SHARE IN GROSS VALUE ADDED (%) (a)
Industry (c)
Manufacturing
20.2
Services
Agriculture
Private consumption
General government consumption
Exports of goods & services
Import of goods & services
10.4
9.6
59.8
PAGE 54
2003-MAIN COMPONENTS OF GROSS DOMESTIC PRODUCT (%) (b)
100
90
80
70
60
50
40
30
20
10
0
91.7
59.1
22.3
25.1