A lull in the markets and legislative activity, due to political and global concerns, is offset by high foreign finance confidence and high foreign investor interest in Bosnia and Herzegovina, with client-driven ESG projects a particularly bright spot, according to Attorney-at-Law Andrea Zubovic-Devedzic, a Partner of CMS Reich-Rohrwig Hainz.
"The current political setup remains intricate in light of the upcoming general elections," Zubovic-Devedzic begins. "In general, the situation has always been complex over the past years but, considering the pandemic, war, and economic conditions, we are facing a distinct challenge. So, everyone is waiting to see what the next months will bring, in terms of political and economic changes."
Despite that general feeling, Zubovic-Devedzic highlights a recent winner in Bosnia and Herzegovina. "At the end of 2021, we achieved the equivalence of standards in banking between BiH and the EU," she explains. That was followed by the "very strong regulator reaction on the issue of Russian banks in the country, with temporary administration proceedings, and their swift offload, which did a lot to ensure that the overall banking system and the markets weren’t too badly affected." It all raised the confidence that "foreign financiers have in the Bosnian banking sector, despite the global situation: we’ve seen over ten deals involving financing in the financial sector in BiH happen so far this year," she says, "and we’re barely past the halfway mark."
"We’re also seeing a fundamental shift of the M&A market," Zubovic-Devedzic reports. "Unlike previous years, there are fewer regional M&A transactions involving local subsidiaries. The market’s being driven by direct investments," she points out. "Foreign partners, that have been cooperating with local businesses for some time now, decided to opt for equity investments – whether a controlling or a significant stake in local companies."
Most of these investments relate to industry and production, historically one of the country’s strong points, according to Zubovic-Devedzic. "This could well become a trend," she says, "with the investors further securing their supply chain and streamlining quality control, while also bringing in capital, know-how, and further improvements in corporate governance and structures." This is important, she notes, "as it creates a chain reaction, opening up markets for other local players, securing exports, and moving everyone closer to alignment with the requirements of EU legislation." The one downside to the markets becoming more integrated? "With the worldwide workforce shortage, we’re seeing a significant spill out of our workforce into other countries. If no remedies are implemented, we’re just years away from facing the same workforce issues of Western economies," she says.
"There is also an increasing interest in renewable energy," Zubovic-Devedzic adds. "Recently, certain restrictions were imposed on the development of small hydropower plants, mostly on environmental impact grounds. And the project for a massive thermal power plant is faltering, for both objective and contractual reasons. Accordingly, the focus has shifted to solar and wind energy, with increased financial institution activity on financing such projects."
"We still haven’t developed an ESG framework," Zubovic-Devedzic points out, "but it’s on the agenda of the banking sector, which is definitely having a spillover effect in other sectors." Looking back, she says "compliance used to be unpopular and often considered cumbersome." Compared to those GDPR early days, she notes that clients already know about ESG and willingly seek and engage in that conversation. "When initiatives come from the business side – it’s much easier and more efficient to answer those needs because the change is not perceived as imposed – the market changes swiftly as a result. There are fewer gaps between local and international markets now, and the butterfly effect is more direct, so local players understand they either get on board or face negative impacts."