Entrepreneurship plays a key role in the economic development of Bosnia and Herzegovina (BiH) by creating new jobs, fostering innovation, and promoting competitiveness. However, starting and running a small business in BiH involves numerous challenges shaped by the country’s unique political and economic circumstances. BiH is known for having a low number of enterprises per capita—according to an analysis by the KULT Institute, it ranked 99th out of 138 countries on the Global Entrepreneurship Index as far back as 2017, indicating a lag in the development of this sector. Small and medium-sized enterprises (SMEs) form the backbone of employment in BiH (accounting for about 62.8% of employees in business entities in the Federation of BiH and as much as 75% of the workforce in the private sector of Republika Srpska by 2021). However, their contribution to GDP and overall economic activity remains below the country’s potential.

This case study analyzes the state of small businesses in Bosnia and Herzegovina across key sectors—services, crafts, IT, and agriculture—highlighting examples from both entities (the Federation of BiH and Republika Srpska), available forms of support (grants, incentives, and programs), and the real challenges faced by entrepreneurs. The analysis takes into account the broader context of inflation, demographic trends, and EU integration, using a narrative style suited to the portal StandardPrva.ba to bring readers closer to the everyday experiences of BiH entrepreneurs by combining statistics, on-the-ground stories, and policy improvement recommendations.

Political and Economic Framework for Doing Business

The business environment in BiH is largely shaped by the country’s complex political system and transitional economy. The Dayton Peace Agreement established BiH as a country composed of two entities—the Federation of Bosnia and Herzegovina and Republika Srpska—plus the special administrative unit of Brčko District. Each entity has its own government, parliament, and legal system, while the state-level institutions remain relatively weak. This multi-layered structure results in duplicated and often contradictory regulations at different levels of government, creating administrative chaos and space for corruption. The internal market of BiH remains effectively fragmented along entity lines—economic policies are not harmonized, making it difficult to operate a business across the entire country. The European Commission, in its 2023 report, noted that BiH is still at an early stage in developing a functioning market economy and that economic policy coordination between entities has even deteriorated. As a result, political issues often overshadow economic reforms, sending a message of instability to investors.

Political instability is manifested through frequent delays in government formation, jurisdictional disputes between levels of government, and even open challenges to the enforcement of state-level decisions. For example, in 2023, Republika Srpska adopted laws rejecting the application of decisions made by the High Representative and the Constitutional Court of BiH on its territory. Such actions, according to the Vienna Institute for International Economic Studies (wiiw), undermine the constitutional order and may "put economic progress on hold" by diverting focus away from economic growth and discouraging potential investors. The World Bank points out that BiH’s economic model is unbalanced: public policies and incentives are more focused on the public sector and consumption rather than on the private sector, investment, and exports. In other words, the environment is not sufficiently supportive for the development of dynamic small and medium enterprises that could generate sustainable economic growth. Corruption and inefficient bureaucracy remain chronic problems. Although BiH was granted EU candidate status in 2022, this was more a political signal than a reflection of genuine reform. Many crucial reforms in areas such as rule of law, regulatory transparency, and strengthening the market economy are still pending. As a result, the business climate suffers from legal uncertainty. Entrepreneurs frequently encounter slow administrative procedures, overlapping regulations, and high compliance costs with bureaucratic requirements. The institutional framework is underdeveloped: the economy suffers from insufficient professionalization of public administration, excessive bureaucratization, and weak implementation of adopted policies. In this environment, investors and entrepreneurs must navigate unpredictable conditions with limited systemic support.

The domestic economic landscape is further marked by slow economic growth and a strong informal (grey) economy. After recovering from the COVID-19 pandemic, BiH recorded modest growth—GDP increased by 4.0% in 2022 but slowed to around 2% in 2023. Growth is largely driven by personal consumption (partly fueled by remittances from the diaspora) and public spending, while investment and exports play a smaller role. The export structure reveals a low level of economic sophistication—BiH mainly exports raw materials and low value-added products, while importing far more finished goods. The large trade deficit (imports are almost twice the value of exports) is mostly financed by money sent home by workers abroad. Despite a stable currency (the Convertible Mark pegged to the Euro) and low inflation by the end of 2023, BiH’s economic performance remains below its potential. The European Commission has openly stated that strategic planning and reforms are stalled due to political deadlock and a short-term approach by the authorities, and that the country lacks sufficient focus on tackling structural issues such as the business environment, the informal economy, inefficient public enterprises, and high unemployment. All of this creates an environment where doing business is difficult and the development of the private sector is slow.

The State of Small Businesses by Sector

Despite the aforementioned systemic weaknesses, entrepreneurs in BiH operate across a wide range of sectors, from traditional crafts to modern IT activities. This section provides an overview of key characteristics and challenges in the service sector, crafts, IT industry, and agriculture, with reference to the specificities of both entities where applicable.

Service Sector

The service sector encompasses a broad array of small businesses: retail, hospitality and tourism, transportation, financial and consulting services, creative industries, and more. Service activities account for over 50% of BiH’s gross value added, and many entrepreneurs see this field as an entry point into business due to its relatively low startup threshold (e.g., opening a café, hair salon, marketing agency, or tourist accommodation).

Tourism and hospitality have seen growth in recent years—tourist numbers in BiH increased following the pandemic, particularly in cities such as Sarajevo, Mostar, and Banja Luka. Many small entrepreneurs have launched rental apartments, rural guesthouses, adventure tourism agencies, and similar ventures. These businesses contribute to employment and revitalization of local communities, but face challenges such as seasonal demand, limited access to global markets, and increasing competition from the region.

Retail (particularly small stores, boutiques, and online shops) is also popular among small business owners. However, low purchasing power and the presence of large retail chains exert constant pressure.

Service businesses often report being burdened by administrative overhead and various fees. Inspections are frequent, and regulations—particularly in hospitality—are stringent (e.g., sanitary permits, fiscalization, municipal fees for outdoor seating, etc.). Obtaining various approvals can be time-consuming, especially for business registration or securing local permits. For example, registering a new company in the Federation of BiH requires 13 separate steps and takes an average of 37 days—the longest in the region (for comparison, in New Zealand it takes 1 day, and in North Macedonia 2 days). After registration, procedures like fiscalization and tax authority registration take additional weeks. For small service providers, this means a loss of valuable time and resources before they can even begin operating.

The service sector also depends heavily on domestic demand: given BiH’s small market of around 3 million people and low average income, growth is limited by consumer purchasing power. Inflation, which surpassed 14% in 2022 (the highest in decades), significantly reduced real household income, causing many hospitality and retail businesses to experience a decline in turnover.
On the positive side, inflation dropped to about 2% by the end of 2023, but energy and supply costs remained high, keeping operating expenses elevated.

Crafts and Trades

Crafts include traditional and small-scale production or service activities—ranging from carpenters and blacksmiths, to tailors, cobblers, auto mechanics, hairdressers, and other individual professionals. These businesses are often family-run and have a long tradition, especially in cities like Sarajevo (Baščaršija is well known for copper smiths and goldsmiths), Konjic (wood carving), and towns like Tešanj and Zavidovići (metalworking crafts). In Republika Srpska, centers of traditional crafts also exist (e.g., textile workshops in East Sarajevo or leather trades in Banja Luka).

Artisans may find it easier to start as sole proprietors, but they face many of the same challenges as other entrepreneurs: high taxes and contributions, expensive and often outdated equipment, and limited state support.
According to research by the Impakt Investment Foundation, as many as 63.3% of new entrepreneurs consider fiscal and parafiscal burdens (various fees and levies) to be quite or extremely high, with wage-related contributions being especially burdensome. In the Federation of BiH, for example, combined contributions for pension, health, and unemployment insurance exceed 41.5% of gross salary (23% pension, 16.5% health, 2% unemployment), among the highest rates in the region. Similar burdens exist in Republika Srpska (though slightly reduced recently, still over 30%). For a sole craftsperson, this means that hiring even one employee can double their payroll obligations due to state-mandated contributions. Unsurprisingly, many artisans remain in the informal economy or operate as small family businesses without formally registered workers, which limits their growth and access to formal markets.

Craftsmen also face competition from cheaper imported goods or large-scale suppliers. Local carpentry shops struggle to compete with low-cost mass-produced furniture; cobblers and tailors barely survive against imported apparel and footwear. Still, preserving traditional crafts is recognized by authorities, and some support programs at various government levels target this sector. For example, according to an analysis by the KULT Institute, around 10% of the 2015 budget for business support was allocated to entrepreneurship and crafts—ranking behind agriculture, industry, and services.
In the Federation of BiH, a special funding category exists to preserve traditional and historic crafts (e.g., handmade goods and artisan products), which includes subsidies for employment in such workshops and co-financing of skill preservation. In 2024, the Federal Ministry of Development, Entrepreneurship, and Crafts allocated BAM 1,000,000 in grants for the development of crafts and related activities—a modest but important measure to help artisans improve their equipment or working conditions.

In Republika Srpska, crafts are regulated differently—through the Law on Craft-Entrepreneurial Activity—but some support is still provided. The Republic Agency for the Development of Small and Medium Enterprises (RARS) and the RS Ministry of Economy organize trainings for traditional crafts and maintain a registry of heritage trades. Government incentives in RS are generally more focused on industrial sectors, but craftspeople can still benefit indirectly from certain programs (e.g., favorable loan lines from the Investment-Development Bank of RS or local subsidies). Local governments sometimes provide direct support to crafts—some municipalities, for instance, exempt heritage crafts from signage fees or offer lower rents for business premises in craft centers. Similar examples exist in the Federation—e.g., the municipality of Stari Grad Sarajevo operates a craft center for young artisans.

Overall, the survival of crafts in BiH is largely due to individual persistence, family traditions, and loyal customer demand. However, for the sector to grow, modernization of equipment, better access to finance, and more training for new generations of craftsmen are essential. Currently, young people show little interest in taking over traditional trades, risking the extinction of certain skills. Ironically, targeted incentives for youth self-employment in the crafts sector—through training and seed grants—could solve two problems at once: reducing unemployment and preserving traditional trades.

IT Sector

Information technology (IT) is one of the most promising yet most challenging sectors for entrepreneurship in Bosnia and Herzegovina. Over the past 10–15 years, the number of small IT companies (software agencies, startups, freelance teams) has significantly increased, especially in major cities like Sarajevo, Banja Luka, Mostar, and Tuzla. The IT sector is attractive because it generally requires knowledge more than capital, and the market is global—many Bosnian firms provide outsourcing services for international clients. Salaries in the IT industry are among the highest in the country, which helps attract young talent and gives the sector strategic importance in retaining skilled professionals. Some estimates indicate that the average programmer’s salary is several times higher than the national average, which is why IT is considered a priority development area by policymakers.

However, despite its potential, BiH still lags behind the region in digital competitiveness. According to the Emerging Europe IT Competitiveness Index, BiH ranks last among 23 Eastern European countries. This is due to a mix of factors: underinvestment in IT education, lack of infrastructure (such as tech parks), complex procedures for founding startups, and even slow internet in parts of the country. Startups and tech businesses face the same bureaucratic obstacles as others—there are no specific tax or regulatory breaks for innovative companies. Another major issue is brain drain: many top IT professionals emigrate or work remotely for foreign firms, making it difficult for domestic companies to retain talent.

On the positive side, both government and international partners have recognized the need to support digital entrepreneurship. In 2024, the Federation of BiH allocated BAM 2.7 million in non-refundable grants to support small and medium-sized IT enterprises through a public call by the Ministry of Development, Entrepreneurship and Crafts (FMRPO), aimed at co-financing technological advancement. The EU is financing projects such as EU4DigitalSME and EU4Innovation, which offer grants and technical assistance to tech startups. In addition, active IT clusters and associations (e.g., Bit Alliance in BiH) advocate for improved business conditions and the promotion of the IT industry. Through business incubators and coworking spaces in Sarajevo, Banja Luka, Tuzla, and Mostar, young IT entrepreneurs can access mentorship and networking opportunities.

Some success stories prove that it is possible to build globally competitive IT businesses even under current conditions. Companies like Mistral Technologies and Ministry of Programming from Sarajevo have developed software for international markets, while NSoft from Mostar has grown from a small startup into a leading regional provider of betting software. Their success lies in top-tier expertise and strong ties with foreign investors and partners.
However, for the broader IT entrepreneurial base, systemic support has yet to catch up with individual enthusiasm. If the education system were improved (with more IT tracks and practical training) and tax breaks were introduced for startups and investors (e.g., incentives for R&D investment, as many experts suggest), BiH could unlock the immense potential of the IT sector for economic growth.

Agriculture

Agriculture has traditionally been an important sector in Bosnia and Herzegovina, with a large number of small family farms that mostly qualify as micro-enterprises. In rural areas—particularly in northeastern BiH, Posavina, parts of Krajina, and Herzegovina—many households rely on agriculture, whether it's dairy and meat production, fruit and vegetable farming, or primary wood processing. However, agricultural businesses face extremely difficult market conditions: fragmented land ownership, low productivity, strong import competition, and reliance on government subsidies.

Unlike other sectors, agriculture receives relatively the highest level of state support—agricultural budgets have for years accounted for the largest share of economic incentives. Agriculture regularly receives nearly half of all available incentive funding at all levels of government. For example, in 2023, the Federation of BiH planned over BAM 100 million in agricultural subsidies via the Federal Ministry of Agriculture, while the Ministry of Agriculture of RS allocated similar amounts. These subsidies include milk premiums, subsidized fuel, incentives for planting and livestock breeding, and capital investments (machinery, greenhouses, etc.). Many small farmers survive largely thanks to these subsidies, though they often complain that the support is insufficient and irregular (delays in payments are a common reason for farmer protests).

The main challenge for small agricultural businesses is how to access the market and achieve profitability. The food market in BiH is flooded with cheaper imports from the EU and surrounding countries—local producers of milk, vegetables, honey, or meat often cannot match those prices due to higher costs and smaller production volumes. Furthermore, the quality and packaging standards required by large retail chains are difficult for small producers to meet. Cooperatives and producer associations could be a solution—by acting collectively, farmers can more easily meet market demands—but the culture of cooperatives has weakened since the war.

Nevertheless, there are inspiring examples of persistent agricultural entrepreneurs who have built sustainable businesses. One such example is Esnaf Murtić from the Sarajevo area, who left a job in poor working conditions at a large company to dedicate himself to his family farm. Today, his farm, “Murtić Natural,” successfully raises goats and produces cheese and kefir, along with quail eggs, natural juices, and vegetable preserves. He turned his passion for natural products into a business, involving his entire family of eight in the operation. Although he struggles with financing new investments—he managed to take out a loan to build a new barn and buy equipment, but has received only minimal government support due to complex eligibility requirements (only twice so far)—Murtić remains undeterred. He says that as a small entrepreneur, “you have to be ready for anything” and constantly look for new opportunities and sources of support: “In this business, there’s no time to relax—you always have to be looking for new opportunities… Recognizing the right chance at the right time is key to survival and success.” He successfully leveraged support from an online platform for small farms, which helped with promotion and training, significantly boosting his sales.

Murtić’s story reflects the broader reality of agricultural entrepreneurship in BiH: many hard-working people in rural areas have the knowledge and will to produce quality food, but they lack the advisory and financial support needed to commercialize their work. Those who succeed usually combine multiple income streams (e.g., diverse products, perhaps rural tourism), utilize loans or donor funding (as government grants are hard to obtain), and build direct relationships with consumers (via social media, fairs, etc.). In the future, greater integration into EU value chains (e.g., exporting organic products with the help of IPARD programs) could open new doors for small farmers—but achieving this will require compliance with EU standards and investments in processing and storage infrastructure.

Available Forms of Support and Incentives

Although entrepreneurs in BiH often claim that they receive “virtually no support from the state,” there is, in fact, a wide range of programs and measures—at various levels of government and from international organizations—aimed at supporting small businesses. This section provides an overview of grants, tax relief, and support programs available to entrepreneurs in BiH.

Grants and Financial Support

Federation Level:
The key institution for small business support in the Federation of BiH is the Federal Ministry of Development, Entrepreneurship and Crafts (FMRPO).
This ministry annually publishes public calls for various types of incentives. In 2024, approximately BAM 25.9 million has been planned to support entrepreneurship through seven programs. Funds are targeted toward a variety of beneficiaries: Municipalities (BAM 7.5 million for the development of business zones), Entrepreneurial infrastructure (incubators, development agencies – BAM 350,000), Direct support to businesses. A notable BAM 13 million is allocated for enhancing SME competitiveness—this public call is aimed at small companies for co-financing equipment purchases, standardization, innovation, etc. Additionally, specific categories are recognized: IT sector (BAM 2.7 million), Crafts and related activities (BAM 1 million), Startups (also BAM 1 million). These grants are awarded competitively—entrepreneurs apply with project proposals, and those that meet the criteria (often based on number of new jobs, self-financing ratio, and business sustainability) receive non-refundable funds covering a percentage of their investment. While individual amounts are limited (typically ranging from BAM 5,000 to BAM 50,000 depending on the program), they provide significant momentum for small firms needing equipment, digitization, or working capital. However, demand far exceeds supply—many eligible businesses do not receive funding due to limited availability.

Entity Level (Republika Srpska):
Republika Srpska, through its Ministry of Economy and Entrepreneurship, offers similar programs, though with a stronger emphasis on industrial investments and productivity. In 2024, the RS Ministry’s budget includes BAM 14.4 million in incentives for business development and operational efficiency, with a particular focus on introducing new technologies. This scheme subsidizes a portion of investment project costs, especially in manufacturing industries (metal, textiles, plastics, wood, etc.). In 2023, for example, subsidies were granted to 233 businesses that collectively planned investments in equipment worth approximately BAM 87.7 million, with the government contributing a percentage of those investments. Additionally, RS has implemented a wage subsidy program for several years—employers who increase wages for workers can receive partial reimbursement of social contributions. The goal is to incentivize wage growth and employee retention. This measure, widely used by employers, continues in 2024 (with some adjustments to the calculation methodology).

Cantonal and Local Level:
In the Federation, ten cantons also allocate funds to support entrepreneurs, usually through their ministries of economy. Practices vary—some cantons offer continuous support programs, while others issue periodic calls.
Examples: Zenica-Doboj Canton issued seven calls in 2023 to support SMEs (including startup competitions and interest subsidies), Bosnian-Podrinje Canton Goražde allocated BAM 290,000 that year, Canton 10 designated BAM 400,000 for small businesses. At the municipal/city level, numerous local governments have established business development funds or startup incentive programs. Examples include: City of Banja Luka issuing calls for subsidies to newly established (especially youth-led and innovative) businesses; Municipality of Tešanj, known for its entrepreneurial culture, co-finances quality certification costs for local firms; Smaller municipalities like Berkovići offer startup support through grants and subsidies. While local funding is modest, these targeted supports (e.g., rent exemptions, small grants for business registration, or interest co-financing) can be a vital boost for businesses in their early stages.

International Programs

In addition to domestic sources, entrepreneurs in BiH can also apply for various international and donor-funded support programs.
The European Union, through its Instrument for Pre-Accession Assistance (IPA), funds initiatives such as EU4Business, EU4Agri, and EU4DigitalSME, which have disbursed tens of millions of euros in grants and technical assistance in recent years. For example, EU4Business has supported startup hubs, innovation vouchers, and capacity-building programs for SMEs. The German GIZ has led programs in vocational training and entrepreneurship; UNDP has implemented local development projects providing equipment to small businesses; USAID has run projects like WHAM (Workforce and Market Access) and Diaspora Invest, aimed at helping diaspora-led businesses in BiH. The diaspora’s role has been explicitly recognized—through the U.S. Development Finance Corporation (DFC), a $5.18 million credit guarantee was launched to ease lending to diaspora businesses in BiH. Under this scheme, ProCredit Bank issued loans to over 80 small firms linked to the diaspora, in sectors such as tourism, manufacturing, and agriculture. This innovative model targets a specific barrier: many diaspora entrepreneurs lack collateral or credit history in BiH, making banks hesitant to lend. With the guarantee, risk is reduced, allowing more returnees or diaspora-supported entrepreneurs to access capital.

Microcredit organizations represent another key financing pillar for small businesses—especially those excluded from traditional bank financing.
Organizations like Partner, Mikrofin, EKI, and others offer microloans up to BAM 50,000, often without standard collateral, though with relatively high interest rates (14–20%). Nevertheless, many small farmers and craftspeople have launched businesses thanks to microcredit, especially when other funding sources were inaccessible.

Tax Relief and Regulatory Measures

Tax policy in Bosnia and Herzegovina contains some favorable elements for doing business, but entrepreneurs continue to call for additional relief. The corporate income tax rate in both entities is 10%, making it one of the lowest in Europe. Theoretically, this is a competitive advantage—low tax rates are attractive to investors. However, as analysts note, this low rate has not led to an investment boom, primarily because investors are deterred by weak rule of law and bureaucratic inefficiencies. There are some income tax relief measures: In Republika Srpska, companies that reinvest profits into equipment have been allowed to reduce their taxable base, Exporters with more than 30% of production sold abroad were eligible for tax exemptions (introduced several years ago). In the Federation of BiH, there has been an ongoing debate over a proposal to exempt 100% of reinvested profits from taxation—something strongly advocated by the business community. However, this measure has not been fully implemented; partial reliefs exist but come with strict conditions.

Personal income tax is slightly lower in RS (8%) compared to FBiH (10%). Both entities are subject to a unified 17% VAT, administered by the Indirect Taxation Authority at the state level. For small businesses, one of the most burdensome issues is parafiscal charges—such as municipal fees, advertising permits, mandatory chamber memberships, and tourism board contributions. According to research by the Impakt Foundation, only 4.2% of entrepreneurs consider parafiscal fees to be low, while over 63% find them very high. There have been repeated calls for authorities to create a registry of parafiscal charges and eliminate unnecessary ones. Some local governments have reduced certain fees (e.g., waiving signage fees for the first year of operation), but systemic relief is still lacking.

Regulatory Environment

On the regulatory front, some progress has been made toward simplifying company registration. In Republika Srpska, a one-stop-shop system has been established through the Business Registry Agency, enabling LLC registration through a single unified application. The Federation has announced plans to implement a similar system. However, the overall practice remains far from ideal. Key procedures—such as obtaining construction permits or business licenses—can take over a year due to overlapping jurisdictions between municipal, cantonal, and entity-level authorities. This delays investments, as entrepreneurs often start repaying loans while still waiting for bureaucratic approvals.

To improve the business climate, both experts and entrepreneurs recommend several key measures: Simplifying administrative procedures (e.g., digitalizing registration and licensing, introducing electronic permits), Reducing labor-related contributions, to make informal employment less attractive and ease the burden on employers, Providing targeted tax incentives for innovation and exports (e.g., tax credits for R&D investment or equity investment in startups). Currently, BiH holds EU candidate status, which will require harmonization of many laws with EU standards. At the same time, this opens access to EU programs for SMEs, such as COSME, Horizon Europe, and innovation support mechanisms. The key is for domestic authorities to recognize SMEs as a strategic priority and to create a more stimulating business climate through tax policy and budgetary support.

Real Challenges on the Ground

Despite the existence of various support mechanisms, entrepreneurs in BiH continue to face numerous practical obstacles in their day-to-day operations. Some of these have been touched upon in earlier sections, but here we summarize the most commonly reported real-world challenges, as described by the entrepreneurs themselves:

Political Instability and Legal Uncertainty

Frequent political crises and regulatory changes create an unpredictable environment. Entrepreneurs find it difficult to plan long-term when, for example, budgets and incentives are delayed due to political gridlock or when laws differ between entities, complicating operations across entity lines. One young entrepreneur put it bluntly: “There’s no real business environment here because of corrupt bureaucracy, oversized administration, and political instability.” Nationalistic rhetoric interfering with economic policy raises political risk, deterring both domestic and foreign investment.

Administrative Barriers and Bureaucracy

Starting or expanding a business entails an overload of paperwork.
As previously noted, company registration takes significantly longer in BiH than in neighboring countries. Every subsequent change—such as expanding operations or opening a new facility—requires new approvals. The regulatory framework is often outdated—some laws date back to the Yugoslav era or are inconsistently applied across government levels. As a result, entrepreneurs spend an inordinate amount of time “at the counter” instead of growing their businesses. Digitalization of public services is partial; in many municipalities, paperwork still has to be physically carried from one office to another. As one NGO noted: “Unjustified restrictions, redundant regulations, and rigid requirements are the greatest obstacles to running a business.” Removing administrative barriers must be a top priority—either through legal reform or, at the very least, through internal procedural simplification and shortened timeframes.

Tax and Parafiscal Burdens

While taxes and contributions are necessary for the functioning of the state, they are disproportionately high in BiH relative to the quality of public services received. As discussed, labor-related contributions are among the highest in the region, making it costly for employers to hire. Hiring one worker often results in nearly double the cost of their net salary due to payroll taxes.
Additionally, parafiscal charges—fees, licenses, chamber memberships, tourism board contributions—“rain down” from all levels of government (state, entity, cantonal, municipal). According to a survey by Impakt Foundation, high fiscal burdens were cited as the #1 obstacle by 38.5% of new entrepreneurs—far more frequently than issues like workforce or information gaps. Another 19.7% rated these charges as “excessive,” with almost no one considering them low. This clearly illustrates the widespread perception that the state takes more than it gives. For many small firms, taxes and fees consume the bulk of revenue, leaving little for capital accumulation or reinvestment.
Some resort to informal strategies—such as paying part of wages “off the books” or splitting businesses into smaller entities to avoid crossing VAT thresholds. But these are not sustainable solutions, only symptoms of a broken system.

Access to Finance and Capital

Most small business owners lack the accumulated capital needed for investments and thus rely on loans. Although commercial banks in BiH are numerous and liquid, they remain conservative in lending to SMEs. They typically require strong collateral (often property) and maintain strict credit criteria. Startups stand little chance of obtaining bank loans due to a lack of credit history. Until recently, interest rates were somewhat affordable (around 4–6% for business loans), but they are rising in line with global trends. Entrepreneurs also express frustration with banks’ behavior: “As subsidiaries of foreign banks, they don’t really support business development—they act like loan sharks, driven solely by profit.” As a result, many turn to alternative sources: family and diaspora loans, microcredit (despite higher costs), grant applications. Venture capital and angel investing are still in early stages in BiH. While some funds exist (e.g., EU- or USAID-backed), the ecosystem is small and insufficient relative to demand. Improving access to finance is critical for SME growth. This includes: encouraging state development banks (FBiH and RS) to better tailor credit lines for SMEs, and partnering with international financial institutions (EBRD, EIB) to channel funds through local banks with guarantees—similar to the diaspora guarantee program previously described.

Market Challenges and Competition

Bosnia and Herzegovina is a small and relatively low-income market, meaning that for many businesses, growth can only come through exports or expansion abroad. However, exporters from BiH face numerous barriers—from administrative (customs procedures, lack of required certifications for the EU market) to financial (transport costs, small-scale production that lacks economies of scale). Import competition within BiH is also intense: domestic products often cannot compete with foreign goods on price due to higher input costs, taxes, and smaller production volumes. Market access is particularly difficult for small producers and artisans who lack the capacity for marketing and distribution. A common complaint is: “Store shelves are full of imported goods—no one wants ours.” Reaching customers and finding a market niche—whether through quality, uniqueness, or patriotic appeal (“Buy Local”)—is a major undertaking for small business owners.

Workforce and Migration

Paradoxically, despite high general unemployment (estimated between 15–20%, with youth unemployment exceeding 32%), employers still struggle to find qualified and motivated workers. The emigration wave of recent years has been massive—some estimates suggest that around 350,000 people left BiH in 2022 alone, nearly 10% of the total population. Most of those leaving are young and skilled, creating labor shortages in construction, hospitality, and even IT sectors. Entrepreneurs are forced to raise wages to retain staff, which also increases payroll contributions and overall labor costs—creating a vicious cycle. Demographic decline also means fewer local customers and a shrinking pool of future entrepreneurs. Moreover, workforce qualifications often do not align with modern labor market needs. The education system adapts too slowly, forcing businesses to invest in retraining. In a survey of new entrepreneurs, 21.5% cited a lack of competent workers as a major challenge—the second most common issue after fiscal burdens. Today, it is not unusual for firms in BiH to import workers from poorer countries such as Nepal, Turkey, or China to staff construction sites and production lines—a striking reversal for a country with so many unemployed people. The cause lies in both migration trends and skills mismatches.

Community Support and Entrepreneurial Mindset

Beyond institutional issues, there are social and cultural barriers as well.
Entrepreneurship in BiH has long lacked the image and recognition it deserves. Many young people traditionally aspire to secure jobs in the public sector or large companies, while starting a private business is often seen as risky and uncertain. Back in 2017, the KULT Institute noted that “young people are afraid to start a business” due to questions like: “Where will I get funding? How will I survive until the business is stable? What if I fail and am left with debts?” Business failure is still stigmatized in Bosnian society, rather than seen as a learning opportunity—as it is in places like Silicon Valley, where “fail fast, learn faster” is a guiding mantra. Likewise, successful entrepreneurs receive little positive media attention, and are often unfairly lumped together with “tycoons,” even when they’re small business owners. A positive narrative around entrepreneurship is only beginning to develop—through success stories and examples of best practices. This matters because social attitudes can either encourage or discourage people from pursuing entrepreneurial paths.

Summary

The challenges are numerous and interconnected, but many brave individuals continue to navigate these obstacles daily to keep their small businesses alive. Some succeed and become an inspiration to others; some give up. In the next section, we present a few such success and failure stories that vividly illustrate the realities of entrepreneurship in Bosnia and Herzegovina.

Real-World Case Studies: Successes and Failures

Successful Examples

Despite often discouraging conditions, many success stories show that it is possible to overcome challenges and build a sustainable business in Bosnia and Herzegovina. We've already mentioned the Murtić Natural farm as a positive example in agriculture—here are a few more illustrative cases from different sectors:

“Murtić Natural” – From Vision to Success

Esnaf Murtić, from the Sarajevo area, turned his passion for natural food into a diverse agricultural business. He started from scratch after leaving his corporate job, investing family land and a loan into goat farming and food processing. Today, he has a stable customer base for his products. Although he received minimal institutional support (only two small grants due to strict eligibility rules), he did not give up. He actively sought alternative support—joining the Pravi Lider platform, which provided free web promotion, agronomist and veterinary advice, and access to fairs. This improved his visibility and sales. Today, he employs his family and plans to expand production. His story shows how initiative, persistence, and leveraging every opportunity can lead to success, even in a challenging environment.
Murtić emphasizes: “You have to be proactive and keep looking for new chances—because in BiH, if you wait for the state to solve everything for you, you won’t get far.”

IT Startup Developing a Global Product

One of the standout tech success stories in BiH is Lanaco, based in Banja Luka. While established in the 1990s, Lanaco has recently launched innovative IT products, including its own cloud data center and software solutions sold across the region. The company also built the LANACO Innovation Observatory, a modern tech hub in Banja Luka. Their growth has been driven by investing in knowledge, collaborating with the education sector, and participating in incentive programs for the IT sector, including export-related benefits. Today, Lanaco employs hundreds of engineers, proving that a local company can become a technological leader. Though not a “garage startup,” it’s still an inspiring story of growth from a small team to a major tech enterprise.

Traditional Craft in a Modern Format

In Sarajevo’s Baščaršija, the family-run shop “Kazandžija” makes copperware and souvenirs—skills passed down through generations. Facing declining local demand, they turned to online markets and tourism. With the help of younger family members, they launched sales via Etsy and social media, shipping their hand-hammered džezvas and decorative plates worldwide. They also used a City of Sarajevo grant for preserving traditional crafts to modernize their workshop. Now they earn income even outside tourist season and have trained new apprentices, contributing to the survival of the craft. This is a great example of market innovation: blending tradition with digital marketing.

Diaspora Investment – A Boutique Winery in Herzegovina

A returnee from the diaspora launched a small winery near Trebinje, using family-owned vineyards. He took advantage of the USAID Diaspora Invest program to acquire equipment (receiving a BAM 50,000 grant alongside his own investment), while local authorities helped with infrastructure (electricity and road access). Today, he produces high-quality Žilavka and Vranac wines, selling to tourists and exporting a small volume to the EU. The winery employs five seasonal workers. This example highlights how private initiative, diaspora engagement, and targeted donor support can create a sustainable business that revitalizes a local community.

For every success, there are many who don’t make it—but the successful ones share key traits: Diversified support sources – combining loans, grants, savings Innovative approaches to market access – using niche products, online platforms, or export strategies Persistence despite bureaucracy Willingness to learn and adapt In addition, peer networks (formal or informal) often play a key role—entrepreneurs help each other by sharing information about available programs, funding opportunities, and ways to navigate obstacles

Failures and Lessons Learned

Unfortunately, many small businesses in Bosnia and Herzegovina do not survive long. Statistics show that thousands of companies close every year.
In 2023 alone, the number of bankruptcies among SMEs increased by 13% compared to the previous year—reflecting the broader trend of challenging conditions for businesses across Europe. It’s often said that the first year of operations is critical—if an entrepreneur cannot withstand the early pressure of high costs and low revenue, the business folds. Here are some common causes of failure, illustrated with real-world examples:

Overwhelming Fiscal Burden

A small shop owner from Zenica publicly declared that he was closing his business because: “After I pay all taxes, VAT, parafiscal fees, and contributions, I have nothing left. I’m working for the state, not for myself.” This sentiment is shared by many. Despite running a profitable store in theory, high operational costs and narrow margins made it unsustainable. He closed the shop after two years. Lesson: Without reducing fiscal pressure, many businesses will continue to close—or operate in the informal economy.

Administrative Delays and Lost Momentum

A startup team from Banja Luka planned to open a microbrewery and craft pub. They leased a space and purchased equipment, but then waited over 10 months for an alcohol production permit due to complex procedures and conflicting entity and state-level regulations. During that time, they paid rent and utilities, but were not allowed to sell beer. Eventually, they gave up and sold the equipment at a loss. Lesson: In business, time is money—if procedures drag on unreasonably, they kill entrepreneurial momentum. One-stop-shop systems and enforceable administrative deadlines are not a luxury—they're essential.

Lack of Market Access and Changing Circumstances

Some businesses fail simply due to insufficient market demand. A small furniture maker from Prijedor produced high-quality handmade pieces, relying on a few local showrooms. When those stores switched to cheaper imports from Poland, he lost his contracts. Without a marketing budget or capacity for large production volumes, he couldn't find new customers or enter export markets. Within two years, he had to shut down his workshop and seek work abroad. Lesson: Without secured markets or strong marketing, it’s hard for small manufacturers to survive. Collaborating with others or entering value chains could help avoid such outcomes.

Pandemic and Post-Pandemic Shocks

Many hospitality, tourism, and transport businesses went bankrupt during the COVID-19 pandemic in 2020/21. Government support, such as wage subsidies and tax relief, was short-term and insufficient. While some adapted (e.g., food delivery, domestic tourism), many restaurants and travel agencies did not survive prolonged lockdowns. This was a failure driven by external circumstances, but also revealed a lack of systemic resilience. Self-employed entrepreneurs are often more agile than large corporations—but when operations grind to a halt, small businesses lack reserves. Lesson: Crisis-response funds and resilient safety nets for SMEs are necessary to prevent another wave of closures in future crises.

Psychological Barriers – Fear of Failure

Some businesses never get started at all due to fear of risk. Research shows that many young people prefer to emigrate rather than start a business in BiH, perceiving that “they have no chance” and that any effort will be crushed by taxes or corruption. The KULT Institute conducted a survey where young aspiring entrepreneurs called on the state to provide more support for new businesses, particularly through simplified registration (one-stop-shops) and better information about available incentives. Unfortunately, the lack of trust in the system deters many potential entrepreneurs—a form of “invisible failure” for society, which loses out on innovation and job creation.

These cases clearly show what needs to change in the system. Entrepreneurs often say they don’t expect the state to “do everything”—they just want it to stop getting in the way. Reducing bureaucracy, Lowering cost burdens, and Providing basic advisory support …would often mean the difference between giving up and surviving.

Conclusions and Recommendations

Entrepreneurship in Bosnia and Herzegovina persists and finds ways to grow even in complex conditions—but it remains far from reaching its full potential.
Small businesses have proven to be resilient—many emerged even during the war and post-war crises. Today, in peacetime, one would expect a flourishing entrepreneurial scene, but it is still held back by human-made barriers (policy, bureaucracy, tax burdens) while global pressures (markets, migration) add further strain.

Key Findings from This Case Study:

• BiH has a fragmented and unfavorable institutional environment for business: excessive red tape, inconsistent regulations, slow bureaucracy, and widespread perceptions of corruption discourage entrepreneurial initiatives.

• SMEs dominate private sector employment (over 60–70%), but are not sufficiently supported to drive sustainable economic growth—neither financially nor through public policy.

• Sector-specific challenges:

  • Services depend on weak consumer purchasing power and are burdened by regulations,

  • Crafts preserve tradition but struggle under heavy fiscal pressure and import competition,

  • IT holds enormous potential but needs systemic support to retain talent,

  • Agriculture is vital for rural areas but depends heavily on subsidies and suffers from low value addition.

• Support programs do exist (entity, cantonal, and international), and nominal tax rates are low (10% corporate tax), but entrepreneurs say it remains “too little and too complicated”—support is hard to access, while burdens are constant.

• Challenges are both external (small market size, labor emigration, global competition) and internal (politicization, risk aversion, regulatory complexity).

• There are success stories that show the way forward—driven by persistence, innovation, resourcefulness, and community connections.
  However, many failures highlight urgent reforms needed to improve the survival and growth of small enterprises.

Recommended Actions to Improve the Entrepreneurial Climate in BiH

1. Reduce Bureaucracy and Accelerate Administrative Procedures

• Fully implement one-stop-shop systems for business registration in both entities. Introduce statutory deadlines for issuing key permits (construction, inspections). Apply the “administrative silence” principle: if no decision is made within the legal timeframe, the request is deemed approved. Digitize all processes related to registration, tax filings, and customs declarations to minimize human contact and reduce corruption risks.

2. Tax Relief for Small Businesses

• Introduce tax exemptions or reductions for micro and small enterprises, e.g. no corporate tax for the first few years or below a certain income threshold. Gradually reduce payroll taxes to encourage formal employment and ease the burden on employers. Create a registry of parafiscal charges and eliminate unjustified ones to reduce financial pressure on small firms.

• 3. More Accessible and Targeted Incentives

• Increase total funding for entrepreneurship incentives—not just tens but hundreds of millions, accompanied by stronger governance. Simplify eligibility criteria so more small firms can apply and benefit. Introduce vouchers for training, digitalization, and innovation that are easy to use. Prioritize support for future-facing sectors: IT, food processing, creative industries, export services. Create dedicated support lines for women entrepreneurs and marginalized groups who face additional barriers.

4. Strengthen Development Institutions

• State development banks (FBiH and RS) should focus more on SMEs. Use guarantee funds (e.g. like the diaspora credit guarantee) to allow banks to lend to higher-risk SMEs. Establish a venture capital fund with international partners to invest in high-potential startups—filling the gap where commercial banks won’t invest.

5. Invest in Education and Talent Retention

• Introduce entrepreneurship education in schools to build a startup mindset early on. Reform vocational education, linking it with industry via dual training systems. Promote STEM and IT skills, as they are key for future-oriented jobs and startups. Improve living standards by increasing net wages through tax relief and co-financing wages for critical occupations.

6. Leverage the Diaspora

• Create diaspora business centers in embassies or relevant ministries to provide legal and advisory support. Offer tax incentives for diaspora investment. Consider establishing special economic zones or pooled investment funds for diaspora-led startups. Given that remittances make up a large portion of GDP, channeling them into productive ventures instead of consumption is a win-win strategy.

7. Ensure Political Stability and Rule of Law

• Though beyond the economic domain, this is a foundational condition.
  The business community must advocate for predictable governance and depoliticized economic decision-making.Transparent administration and fighting corruption would reduce the informal “tax” that burdens entrepreneurs.

Finally, there is a need to celebrate successful small entrepreneurs, share their stories, and recognize their role in society. Platforms like StandardPrva.ba can help shape this new narrative—through analysis, interviews, and inspirational case studies. This sends a powerful message to young people: “You can succeed here too, if you’re ready to fight through the challenges.” And it reminds policymakers that entrepreneurs fill the budgets that fund the state—they deserve to be heard and supported.

Final Conclusion

Entrepreneurship in Bosnia and Herzegovina today is like a flame that burns despite the wind—it hasn't been extinguished, but in order to grow stronger, it needs to be protected and nourished. With targeted reforms and meaningful support, small businesses could become a true engine of economic growth, even in such a complex environment. That would bring new jobs, higher wages, and encourage young people to stay—goals that are often talked about, but now require real conditions to become reality. BiH may currently be a difficult place to do business, but many hard-working entrepreneurs have shown that persistence and innovation can lead to success—even here. And with better conditions, there would be countless more stories like theirs.

Sources:

• Institute for Youth Development KULT – Policy analysis and recommendations

• Impakt Investment Foundation – Research on the entrepreneurial ecosystem in BiH (2025)

• Support Programs – FMRPO 2024 (Federation Ministry of Development, Entrepreneurship and Crafts), and Ministry of Economy RS

• Emerging Europe – Bosnia and Herzegovina Economic Outlook (2024)

• U.S. Development Finance Corporation (DFC) – Report on challenges and diaspora investment (2023)

• Market Overview: Bosnia and Herzegovina – U.S. Department of Commerce (2024)

• Media Examples –

  • Lider.ba on “Murtić Natural” family farm

  • RTRS and StandardPrva.ba on SME support and regulatory burdens

  • Coalition of Trade Unions – column on administrative hurdles

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"Standard Prva" LLC Bijeljina is a company registered in Bijeljina at the District Commercial Court in Bijeljina. Company’s activities are accountancy, repurchases of receivables, angel investing and other related services. Distressed debt is a part of the Group within which the company repurchases the receivables, which function and are not returned regularly.

Lawyer’s Office Stevanović is the leading lawyer’s office in the region with the seat in Bijeljina. The LO abbreviation represents Lawyer’s Office of Vesna Stevanović and Lawyer’s Office of Miloš Stevanović.

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