SME Policy Index for Western Balkans and Türkiye 2026 – Economy Profile for Bosnia and Herzegovina

Bosnia and Herzegovina: SME sector overview

The SME landscape

Bosnia and Herzegovina is a small, lower middle-income economy with a population of approximately 3.4 million and a gross domestic product (GDP) of approximately EUR 27.5 billion in 2024 (Eurostat, 2026[8]). GDP per capita in purchasing power standards reached 35% of the EU-27 average in 2024 – one of the lowest ratios in the Western Balkans and Türkiye (WBT) region, having improved by only 3 percentage points since 2019 (Eurostat, 2026[8]). The economy’s structural profile in 2024 reflects this income position: industry accounts for 17.7% of gross value added (GVA) and manufacturing for 12.7%, but both are shaped primarily by capital-intensive energy and basic materials production rather than by a diversified, innovation-driven base; wholesale and retail trade, transport, and accommodation together represent 20.7% of GVA; agriculture absorbs 4.5% – roughly three times the EU‑27 average (Eurostat, 2026[8]). This income position is compounded by a declining trend in structural convergence: Bosnia and Herzegovina ranks fifth among the six Western Balkan economies in the OECD’s Economic Convergence Scoreboard 2025, and its overall convergence score has fallen since 2014-2016 (OECD, 2025[9]) – reflecting persistent divergence in the business environment and digital transformation clusters.

A constitutional feature without parallel in other WBT economies – Bosnia and Herzegovina's two‑entity governance structure – directly and materially shapes the conditions for enterprise development. Bosnia and Herzegovina is organised into two largely autonomous entities – the Federation of Bosnia and Herzegovina (FBiH) and Republika Srpska (RS) – plus the Brčko District, each with separate legislative frameworks, business registers, and small and medium-sized enterprise (SME) support infrastructures. This produces measurably uneven enterprise conditions: company registration takes approximately three days in Republika Srpska through an integrated portal versus up to one month in the Federation of Bosnia and Herzegovina – and close to three months to become fully operational – owing to additional cantonal-level regulatory layers (see Dimension 3). Only 28% of businesses report satisfaction with their operating environment, the lowest share in the WB6 region (RCC, 2024[10]), and this structural fragmentation – rather than any single policy failure – is the defining context for the SME policy dimensions assessed in this publication.

The macroeconomic environment provides a degree of stability, but several structural headwinds constrain enterprise investment and growth. Real GDP growth of 3.2% in 2024 was sustained largely by domestic demand, while export performance deteriorated: the goods trade deficit widened to 21.3% of GDP, partially offset by a services surplus of approximately 8% and remittance inflows equivalent to 9.8% of GDP (European Commission, 2025[11]). Headline inflation stood at 1.7% in 2024, among the lowest in the WBT region, anchored by the currency board arrangement that pegs the convertible mark (BAM) to the euro at a fixed rate (European Commission, 2025[11]). The employment rate reached 58.2% in 2024 and the unemployment rate declined to 12.6%, both improving gradually from 52.6% and 17.1%, respectively, in 2021, yet both remain substantially below EU-27 benchmarks (Eurostat, 2026[12]). Structural disparities are pronounced: youth unemployment (15-24 year olds) reached 34.6% in the first half of 2024, long-term unemployment accounted for 73% of total unemployed and significant numbers of workers continued to leave the country – these are compressing the productive labour supply available to private sector firms (European Commission, 2025[11]). The informal economy, estimated at up to one-third of GDP, compounds these pressures by depressing measured productivity and creating asymmetric competition conditions that disadvantage compliant micro, small and medium-sized enterprises (MSMEs).

Structure and dynamics of the SME sector

Bosnia and Herzegovina's business economy is overwhelmingly dominated by MSMEs, which account for 99.7% of registered firms, 70.7% of employment and 69.0% of GVA (Figure 1) (BHAS, 2024[13]). The MSME footprint in Bosnia and Herzegovina is substantially larger than in the EU-27, where MSMEs account for approximately 64% of employment and 51% of value added (Eurostat, 2026[14]). The entity-level picture reveals a meaningful difference in 2024: in Republika Srpska, MSMEs accounted for 99.6% of firms, 70.7% of employment and 70.8% of GVA (RSIS, 2026[15]), while in the Federation of Bosnia and Herzegovina the MSME GVA share is somewhat lower at 63.9% (with a 65.2% employment share) (FZS, 2025[16]), reflecting a larger and more prominent large enterprise sector – including a substantial number of state-owned enterprises in energy, mining and manufacturing – that generates a proportionally greater share of economic output without a commensurate employment premium. At the economy-wide level, only 280 large enterprises generate close to 31% of business economy employment and value added: a thin large enterprise tier that operates largely through capital-intensive activities rather than as supply chain anchors or innovation leaders (BHAS, 2024[13]).

The enterprise base expanded steadily between 2021 and 2024, though the growth pattern reveals an important asymmetry across size classes. The total number of registered businesses grew from approximately 78 900 to 86 920, a compound annual rate of 3.3%. The small enterprise segment expanded at the same 3.3% annual rate, adding approximately 7 975 firms. The medium-sized segment grew substantially more slowly at 1.6% per annum, while large enterprise numbers remained essentially flat (BHAS, 2024[13]). This divergence between the small and medium segments is analytically significant: it points to a pattern of widening rather than deepening, where enterprise creation is not matched by a proportional thickening of the middle layer of more developed, growth-oriented firms. The EU Progress Report notes that high entry barriers – to starting a business, rules on taxes and para-fiscal (non-tax) charges, regulatory differences across various levels of government, and separate business registers – remain a structural constraint on formal business creation (European Commission, 2025[11]).

Figure 1. Business demography indicators in Bosnia and Herzegovina, 2021 - 2024

Source: BHAS (2024[13]).

Manufacturing occupies a position of structural importance in Bosnia and Herzegovina’s MSME economy that distinguishes it from most of its other WBT peers (Table 4). With 23% of MSME value added (and 26% of MSME employment), it is the largest employment sector in the MSME economy – ahead of wholesale and retail trade (25% of employment and 27% of value added). This reflects an inherited industrial base and the fact that manufacturing is the dominant source of goods exports: it accounts for the vast majority of total merchandise exports in both entities, with metal products, basic metals, wood products, food processing, chemicals and furniture as the leading sub-sectors. The MSME share within manufacturing – 67% of sector employment and value added – indicates that large enterprises retain a significant presence, principally in export-oriented production of base metals and motor vehicle components, but MSMEs still generate the majority of sectoral output (BHAS, 2024[13]). This degree of manufacturing integration is a structural advantage compared to economies where the MSME base is more narrowly concentrated in domestically oriented services, though it comes with exposure to commodity price cycles, quality infrastructure requirements and EU standards compliance pressures that disproportionately affect smaller producers.

The ICT sector is the most analytically important outlier in the sectoral structure: with only 4% of MSME employment, it generates 7% of MSME value added – a productivity premium relative to the MSME average of approximately 75% (BHAS, 2024[13]). This signal is consistent across both entities, with ICT identified as the highest productivity sector in both Republika Srpska and the Federation of Bosnia and Herzegovina, though with a notable intra-entity divergence: the Federation of Bosnia and Herzegovina hosts a larger ICT workforce (6.2% of entity MSME employment) but at a productivity level estimated at only 63% of Republika Srpska’s ICT sector’s output per employee, pointing to scale and composition differences in the two entities’ tech ecosystems (RSIS, 2026[15]; FZS, 2025[16]). The ICT sector’s elevated value-added density, which already contributes 4.9% of GDP despite representing only 4% of MSME firms (BHAS, 2024[13]), positions it as the primary structural candidate for productivity-led upgrading within Bosnia and Herzegovina’s MSME economy. The extent to which this potential is realised will depend critically on the supply of digital skills, the ecosystem infrastructure for innovation-driven enterprises and the development of export-oriented service delivery – all areas where the assessment identifies significant gaps (see Dimensions 8b and 10).

Table 4. Sectoral profile of MSMEs in Bosnia and Herzegovina, 2024, selected sectors

	Significance of sector for the MSME economy		Significance of MSMEs within the sector			Macro context
Sector	Share of total MSME firms1	Contribution to total MSME value added2	MSME share in number of companies3	MSME share in sector employment4	MSME share in sector value added5	Sector share in GDP6
Wholesale and retail trade	28%	27%	99.7%	69%	69%	15%
Manufacturing	14%	23%	99.1%	67%	67%	13%
Construction	8%	11%	99.9%	93%	93%	5%
Information and communication	4%	7%	99.6%	57%	55%	5%
Professional services	9%	7%	99.5%	83%	85%	3%
Transportation and storage	8%	5%	99.8%	63%	63%	3%
Accommodation and food	11%	5%	100.0%	100%	100%	2%
Administrative and support services	2%	2%	99.3%	57%	64%	1%

Notes: MSME: micro, small and medium-sized enterprise. Sector share in GDP (2024 national accounts). Macroeconomic weight of the sector in the overall economy, independent of enterprise size. Agriculture (4.5% of global value added), financial and insurance activities and public administration are excluded from the structural business statistics business economy. “Professional services” aggregates NACE M (professional, scientific and technical activities) and parts of N (administrative and support services) where separately identifiable.

Reader’s guide: The table is organised in three groups. Columns a-b show how the MSME population and its value added are distributed across sectors (i.e. how important each sector is for MSMEs). Columns c-e show how dominant MSMEs are within each sector (i.e. how important MSMEs are for the sector). Column f provides macroeconomic context on the overall size of each sector. Rows are sorted by contribution to MSME value added (column b), from highest to lowest.

1. Share of total MSME firms. Each sector’s share of the aggregate number of MSMEs registered in the business economy. The 8 sectors shown account for approximately 84% of all registered MSMEs.

2. Contribution to total MSME value added. Each sector’s share of aggregate MSME value added at factor cost (EUR 10 877 million). Together these 8 sectors generate approximately 87% of total MSME value added in the business economy.

3. MSME share in number of companies. MSMEs as a percentage of all registered enterprises within each sector. Figures include sole proprietors (preduzetnici) alongside legal entities; when sole proprietors are excluded, MSME shares are marginally lower, but the pattern is unchanged. Values below 99% reflect sectors with a non-negligible presence of large enterprises.

4. MSME share in sector employment. MSME employment as a percentage of total employment within each sector. Lower values indicate sectors where large enterprises are significant employers – most notably wholesale and retail trade (69%), where large retailers and trading companies absorb a substantial share of formal employment, and ICT and administrative services (57%), where large outsourcing and utility companies dominate headcount.

5. MSME share in sector value added. MSME value added as a percentage of total value added generated within each sector. In manufacturing, the gap between the MSME employment share (67%) and the MSME value added share (67%) is symmetric, indicating that large enterprises do not capture a productivity premium in this sector at the aggregate level. The wider gap visible in ICT – where MSMEs hold 57% of employment but generate only 55% of value added – points to a moderate large enterprise productivity premium in the sector.

Sources: Author’s calculations based on BHAS (2024[13]); Eurostat (2026[8]).

Labour productivity

Labour productivity grew strongly across both size classes between 2021 and 2024, with MSME productivity expanding at a compound annual rate of 12.8% in nominal terms – substantially outpacing large enterprises at 5.7% (Table 5). Adjusted for cumulative consumer price increases of approximately 18‑20% over the period, real MSME productivity growth amounts to roughly 5-6% per annum – a solid performance by regional standards, broadly comparable with nominal productivity gains recorded in Albania and North Macedonia over similar periods. Notably, these gains were accompanied by sustained employment growth of 2.1% per annum (BHAS, 2024[13]), placing Bosnia and Herzegovina among the small group of WBT economies where nominal productivity improvements have not been driven by a contraction in the formal workforce. The simultaneous expansion of employment and value added is a positive signal, though it partly reflects base effects from post-pandemic recovery rather than a structural acceleration of enterprise performance.

In absolute terms, MSME labour productivity reached EUR 24 939 per person employed in 2024 (BHAS, 2024[13]), placing Bosnia and Herzegovina’s SME sector at a significantly higher level than a majority of its regional peers, and at approximately 48% of the EU-27 MSME average (Eurostat, 2026[14]). The large enterprise tier recorded productivity of EUR 27 045 per employee in 2024 – a narrow premium over MSMEs (BHAS, 2024[13]). This narrow gap is largely explained by the composition of the large enterprise sector, which includes a substantial share of state-owned entities in utilities, mining and transport that operate with regulated pricing, accumulated debt of close to 30% of GDP and below-market efficiency incentives rather than commercially dynamic, internationally competitive firms (European Commission, 2025[11]).

Table 5. Key indicators of the MSME sector in Bosnia and Herzegovina, 2024 levels and 2021‑2024 growth

	Small	Medium	MSME total	Large	MSME share1
Levels (2024)
Number of enterprises2	85 244	1 396	86 640	280	99.7%
Persons employed3	296 803	139 365	436 168	180 941	70.7%
Value added (EUR million)4	7 169	3 708	10 877	4 894	69.0%
Labour productivity (EUR)5	24 153	26 612	24 939	27 045	92.2%6
Compound annual growth rate, 2021-20247
Number of enterprises	+3.3%	+1.6%	+3.3%	+0.4%	+0.0
Persons employed	+2.1%	+1.7%	+2.1%	+0.9%	+0.6
Value added	+16.5%	+12.6%	+15.1%	+6.6%	+5.4
Labour productivity	+14.1%	+10.7%	+12.8%	+5.7%	+16.3

Notes: MSME: micro, small and medium-sized enterprise. Coverage: Business economy excluding agriculture (NACE Section A), financial and insurance activities (Section K) and public administration (Section O).

1. MSME share: In the upper panel, the MSME share in the economy-wide total for each indicator (e.g. 70.7% means MSMEs account for 70.7% of total business economy employment). In the lower panel, values show the change in this share between 2021 and 2024 in percentage points (pp).

2. Number of enterprises: Count of active legal entities registered in the business economy, classified by number of employees (small: 0-49; medium: 50-249; large: 250+) following Bosnia and Herzegovina’s statistical classification. The “small” class therefore subsumes micro and small enterprises as defined under the EU SME Recommendation. See Section 3 for a note on the data coverage implications.

3. Persons employed: Total persons engaged in productive activity, including employees and working proprietors, measured as annual averages.

4. Value added: Gross value added at factor cost. Expressed in millions of euros at current prices, converted from BAM at the fixed rate of BAM 1.95583/EUR.

5. Labour productivity: Gross value added at factor cost per person employed (EUR). Standard Eurostat structural business statistics measure of apparent labour productivity.

6. Productivity ratio: MSME labour productivity expressed as a percentage of large enterprise labour productivity (EUR 24 939/EUR 27 045 = 92.2%). The EU-27 average ratio is approximately 60%. Bosnia and Herzegovina’s narrower gap reflects the relative underperformance of the large enterprise tier (dominated by state-owned entities in capital-intensive sectors) rather than a high absolute level of MSME productivity.

7. Compound annual growth rate (CAGR): Annualised growth rate over the three-year period 2021-2024, calculated as (Value₂₀₂₄ / Value₂₀₂₁)^(1/3) − 1. All growth rates are nominal. Cumulative consumer price inflation was approximately 18-20%, implying real growth rates roughly 6-7 percentage points lower.

Sources: Author’s calculations based on BHAS (2024[13]); Central Bank of Bosnia and Herzegovina (2026[17]).

The MSME-to-large enterprise productivity ratio rose substantially from 75.9% in 2021 to 92.2% in 2024 – a gain of more than 16 percentage points in 3 years. This convergence is the direct arithmetic consequence of the divergent nominal growth trajectories of the two segments: MSME productivity grew at 12.8% per annum versus 5.7% for large enterprises. As noted above, the rapid nominal gains partly reflect sectoral price effects and base recovery rather than structural efficiency improvements (BHAS, 2024[13]). Entity-level data add an important layer of analytical nuance. In Republika Srpska, small enterprises are not merely more productive than medium-sized ones – they are more productive than large enterprises as well, recording 103.3% of the entity-wide average labour productivity against 93.2% for medium and 99.6% for large firms (RSIS, 2026[15]). This outcome is notable: it points to a configuration in which the large enterprise tier – dominated by capital-intensive, partly state-owned operators – does not generate a productivity premium over the small business base, while medium enterprises in Republika Srpska structurally underperform both segments. The pattern is typically associated with growth barriers at the small-to-medium transition – financial constraints, regulatory compliance costs, tax threshold effects – and is taken up directly in the assessment of the operational environment (see Dimension 4). In the Federation of Bosnia and Herzegovina, the hierarchy runs in the expected direction: medium enterprises record 103.8% and large enterprises 103.6% of the entity-wide average while small firms stand at 94.0%. The economy-level aggregate – which shows medium enterprises (EUR 26 612) more productive than small firms (EUR 24 153) – therefore reflects primarily the Federation of Bosnia and Herzegovina’s larger economic weight rather than a uniform structural pattern across the economy (FZS, 2025[16]).

SME outlook

Bosnia and Herzegovina's MSME sector enters the assessment period at a structural inflection point. The enterprise base has shown genuine resilience – consistent firm creation, simultaneous employment and value-added expansion, a manufacturing presence that distinguishes it from most of its regional peers – and the near-term macroeconomic footing provides a degree of stability: the currency board contains inflation, and the International Monetary Fund projects growth returning toward 3% by 2027 (IMF, 2025[18]). The challenge is that these foundations have not translated into income convergence. GDP per capita stands at 35% of the EU average (Eurostat, 2026[8]) after more than a decade of positive growth, and the productivity gap with the EU MSME frontier has narrowed only marginally in real terms (Eurostat, 2026[14]). For that trajectory to change, the enterprise sector needs to move beyond input-driven growth – and the conditions for doing so remain structurally constrained.

The structural weaknesses are mutually reinforcing and compounded by near-term pressures. Bosnia and Herzegovina records the lowest innovation performance in its assessment profile, with R&D investment that is low and stagnating relative to the WB average and no operational economy-wide Smart Specialisation Strategy (OECD, 2025[9]), conditions that confine productivity growth primarily to factor accumulation rather than knowledge-intensive activity. MSME participation in international markets remains concentrated in a narrow tier of first-level manufacturing subcontractors, and export performance weakened rather than strengthened over the assessment period – a structural vulnerability that may deepen given the introduction of the EU Carbon Border Adjustment Mechanism from 2026, which will impose carbon charges on BiH exporters of aluminium, steel, cement and electricity at the EU border in the absence of a domestic carbon pricing framework. On the cost side, minimum wage increases of 61.5% in the Federation of Bosnia and Herzegovina and up to 44% in Republika Srpska are bringing wage floors close to median net wages, placing acute and immediate pressure on margins in construction, hospitality and retail trade (IMF, 2025[18]).

Several developments nonetheless offer tangible scope for upgrading. The ICT sector already generates nearly double the value added per employee of the MSME average and has demonstrated export-oriented capacity in both entities, offering a replicable model for productivity-led growth if skills supply and innovation infrastructure can keep pace. The EU Growth Plan’s allocation of EUR 976.6 million to Bosnia and Herzegovina – equivalent to 3.5% of GDP – provides a potential financing channel for SME‑focused structural reforms, contingent on the implementation of a credible reform agenda. Whether this potential translates into broad-based enterprise upgrading will depend on institutions’ capacity to move from policy design to effective delivery, and – critically – on whether the fragmented governance architecture can be leveraged rather than circumvented.

The demographic context removes the option of gradual adjustment. Bosnia and Herzegovina’s resident population has contracted from 3.53 million at the 2013 census to an estimated 3.41 million in 2024, with natural population change recording a deficit of over 10 000 persons in 2024 alone, live births at less than half their mid-1990s level and an emigration flow concentrated precisely in the working-age cohorts that MSMEs most depend on for expansion (BHAS, 2024[13]). Labour shortages already coexist with high structural unemployment – a paradox that the World Bank identifies as the defining feature of the regional labour market, sustained in Bosnia and Herzegovina by informality and entrenched by governance fragmentation (World Bank, 2025[19]). Progress on state-level co-ordination – the prerequisite for policy coherence across the economy – will largely determine whether the constraints documented in this overview are addressed within the current policy cycle or continue to compound.

References

[4] BHAS (2025), Structural Business Statistics 2023, Thematic Bulletin TB 14, Agency for Statistics of Bosnia and Herzegovina, Sarajevo, https://bhas.gov.ba/data/Publikacije/Bilteni/2025/SBS_00_2023_TB_1_EN.pdf.

[13] BHAS (2024), Structural Business Statistics: Preliminary Results 2024, Agency for Statistics of Bosnia and Herzegovina, Sarajevo, https://bhas.gov.ba/data/Publikacije/Saopstenja/2025/SBS_01_2024_Y1_0_BS.pdf.

[17] Central Bank of Bosnia and Herzegovina (2026), “Currency exchange BAM/EUR”, https://www.cbbh.ba/CurrencyExchange (accessed on 5 February 2026).

[11] European Commission (2025), Bosnia and Herzegovina 2025 Report, European Commission, Brussels, https://enlargement.ec.europa.eu/bosnia-and-herzegovina-report-2025_en.

[3] European Commission (2003), Commission Recommendation 2003/361/EC of 6 May 2003 concerning the Definition of Micro, Small and Medium-sized Enterprises, Official Journal of the European Union, https://eur-lex.europa.eu/eli/reco/2003/361/oj/eng.

[12] Eurostat (2026), Labour Force Survey: Employment and Unemployment (database), https://ec.europa.eu/eurostat/web/lfs.

[8] Eurostat (2026), National Accounts (database), https://ec.europa.eu/eurostat/web/national-accounts/database.

[14] Eurostat (2026), Structural Business Statistics (SBS) (database), https://ec.europa.eu/eurostat/web/structural-business-statistics.

[7] Eurostat (2025), International Trade in Goods Database, https://ec.europa.eu/eurostat/web/international-trade-in-goods/database (accessed on 5 February 2026).

[2] Federation of Bosnia and Herzegovina (2024), Law on Encouraging the Development of Small Business, Official Gazette of the Federation of Bosnia and Herzegovina.

[5] FZS (2026), Federal Institute of Statistics of the Federation of Bosnia and Herzegovina webpage, https://fzs.ba (accessed on 5 February 2026).

[16] FZS (2025), Structural Business Statistics 2024, Federal Office of Statistics of the Federation of Bosnia and Herzegovina, https://fzs.ba/index.php/publikacije/godisnji-bilteni/strukture-poslovne-statistike/.

[18] IMF (2025), Bosnia and Herzegovina: 2025 Article IV Consultation—Press Release; Staff Report; Staff Supplement; and Statement by the Alternate Executive Director for Bosnia and Herzegovina (IMF Country Report No. 25/252), https://doi.org/10.5089/9798229023283.002.

[9] OECD (2025), Economic Convergence Scoreboard for the Western Balkans 2025, OECD Publishing, Paris, https://doi.org/10.1787/bc0babf3-en.

[10] RCC (2024), Balkan Barometer: Business Opinion, Regional Cooperation Council, Sarajevo, https://www.rcc.int/balkanbarometer/key_findings_2024.

[1] Republika Srpska (2024), Law on Development of Small and Medium Enterprises (with amendments), Official Gazette of Republika Srpska.

[6] RSIS (2026), “Structural Business Statistics”, web page, https://www.rzs.rs.ba/front/category/28 (accessed on 5 February 2026).

[15] RSIS (2026), Structural Business Statistics, Time Series, Institute of Statistics of Republika Srpska, http://www3.rzs.rs.ba:8080/rzs/faces/indicators.xhtml.

[19] World Bank (2025), Western Balkans Regular Economic Report No. 28, Fall 2025: Towards Better Jobs, https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099100625100539134.