IFLR 1000
The Guide to the World's Leading Financial Law Firms

The largest and most notable event in the last year in Bosnia and Herzegovina (BiH) was the general election on October 3 2010 for the federal Government and its constituent entities, the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS). The result of this, at the federal level, was that the state failed to form a government....

The largest and most notable event in the last year in Bosnia and Herzegovina (BiH) was the general election on October 3 2010 for the federal Government and its constituent entities, the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS). The result of this, at the federal level, was that the state failed to form a government.

Apart from Belgium, Bosnia is the only place in Europe without a government and this state of affairs is sure to have political and economic ramifications. However, some remain positive: "The political situation is stable. We still have no government after the election, but then again, the other day, I had clients from Belgium who said we have had this problem for ten months. It is stable," says one partner. Nevertheless, other market commentators suggest that the country's negative economic situation is a natural result of this political uncertainty.

As a consequence of the Dayton Accords (the peace treaty signed in 1995 after the Yugoslavian conflict), the legal system is complex and a source of confusion for lawyers and clients alike. "We have an extremely fragmented legal system. This makes investors nervous and turns them away," says one partner, "We have 13 laws on different levels; state, entity [FBiH and RS] and each canton has its own legislation," stresses one partner. Such fragmentation has been the subject of discussion for years. When it comes to civil and criminal matters, harmonisation exists to a large extent. Yet, the real fragmentation and main obstacles lie on the business side.

However, some technical aspects have been overcome. A new law on PPPs (public-private partnerships) has laid the foundation for some projects. This is particularly so in energy as Bosnia seeks feasible projects for investors. Moreover, there has been some simplification and a hint of progress on all levels.

But on the whole, says one partner, the government is "not taking care of urgent matters that are vital for the function of the state and this is reflected in the economic and political situation in both entities. No new laws are discussed. We see the government trying to remove obstacles for foreign investors and amend the policy on direct foreign investment. It was simplified and we see progress on all levels but there is a lack of government seriousness and there's a negative political image". The fact is that foreign direct investment has markedly dropped in the last few years.

Despite this, in the last 12 months there has been some M&A work and more significantly there has been an increase in restructuring and insolvency as the market has shifted to enforcing proceedings through court litigation.

In general, apart from the latent potential in the energy sector, there is scope for more development in infrastructure and telecommunications. The liberalisation of the latter sector can be expected in the future when there might be a drive to privatisation (it is on hold due to the political situation).

Bosnia is a potential candidate for membership to the EU and this is a shared aim between the two entities. This will require a synchronisation of the country's legal system with EU standards. However, some doubt whether true harmonisation will be achieved: "We have seen in the past some countries joined [the EU] with a legal framework far from the EU."

In the legal market itself, the main news was DLA Piper's exit from the market, though as one partner says: "The practice was not in tier one, it was a small office."