Due to elevated political risk—largely generated by imposed decisions of high representatives and recurring institutional crises—Bosnia and Herzegovina loses between 1.1 and nearly 1.4 billion KM in potential investments every year, claims international and economic policy expert Nemanja Plotan.
Plotan argues, in his column for SRNA, that this “political tax” directly reduces GDP growth, limits the creation of new jobs, and long-term weakens the economic competitiveness of Republika Srpska and the entire country compared with other states in the region.
Below is Plotan’s full column:
For the past 30 years, all indicators point to the conclusion that the Office of the High Representative (OHR) has done more harm than good to Bosnia and Herzegovina.
For three decades, the World Bank has classified BiH as a politically unstable state. This is reflected in the negative value of the Political Stability and Absence of Violence/Terrorism Index, defined as a measure of the likelihood of political instability and politically motivated violence.
In other words, BiH has been in a state of permanent political crisis for 30 years, and whenever a period of stabilization—achieved through political dialogue—begins to emerge, the high representative undermines the compromise with an imposed decision.
This trend becomes clear when comparing drops in the political stability index with the timing of high representatives’ interventions. Whenever the OHR imposed a political decision, political stability deteriorated across the country.
These declines signaled risk to foreign investors, negatively affecting inflows of foreign direct investment (FDI). Although BiH has the highest corruption index in the region—meaning the public perception of corruption is worse than in other Western Balkan countries—this alone does not explain why BiH receives proportionally the least FDI in the region, given that corruption index differences are not drastic.
Examples from Chile, Israel, and India demonstrate this dynamic: despite relatively positive corruption ratings, these countries still experienced reduced foreign capital inflows due to political risks.
In Chile, mass protests in 2019, constitutional uncertainty, and unclear property rights and regulations weakened investor confidence.
Israel faces political polarization, disputes over judicial reforms, and security risks linked to Iran and proxy groups.
India struggles with political centralization, regulatory unpredictability, and geopolitical tension with Pakistan.
Political risk therefore plays a greater role in deterring foreign capital than corruption perception does.
The World Bank index also considers the potential for terrorism and political violence—risks that have never been fully neutralized in BiH. But given that the main generator of political crises is the OHR, the analysis must focus on this institution.
Until now, most arguments against the illegitimate actions of high representatives have been political and legal. The true consequences of their decisions have rarely been fully measured.
An economic analysis shows that imposed decisions have long-term destabilizing effects on both the political system and the economy.
According to World Bank estimates, the Western Balkans as a whole attracts around 5–7% of GDP annually in foreign direct investment, while BiH attracts only 2–3%. The difference—at least 3% of GDP annually and often more—can be interpreted as a penalty for political risk, which includes the impact of OHR-imposed decisions.
It would not be accurate to claim that 100% of this gap is caused by the OHR. Larger markets and reforms may also play roles.
However, given that BiH has the lowest political stability index in the region, persistent institutional blockages, and repeated political crises closely tied to OHR interventions, political risk is the primary driver of this gap.
Potential FDI losses can be calculated using the following formula:
lost FDI = (average FDI gap as % of GDP) × (average GDP) × (number of years).
If we project the economic damage caused by the OHR over the past 20 years, assuming an FDI gap of 3–4% annually (consistent over two decades) and an average GDP of 35.6 billion KM, we reach an estimate of 22 to 26 billion KM in lost foreign investment.
This means that due to elevated political risk—largely generated by imposed decisions and institutional crises—BiH loses between 1.1 and almost 1.4 billion KM in potential investments every year.
This “political tax” directly decreases GDP growth, restricts job creation, and significantly weakens the long-term economic competitiveness of Republika Srpska and BiH as a whole compared with neighboring countries.
The economic evidence shows that high representatives’ decisions have set BiH back not only institutionally and politically, but also economically. And while many Western European countries blame corruption for poor economic performance, high unemployment, and large waves of emigration, examples from Chile, Israel, and India demonstrate that the real cause in BiH lies elsewhere—in Sarajevo, at the address of the OHR.
Source: RTRS
