Bosnia and Herzegovina

Metal Sector

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2011

Bosnia and HerzegovinaMetal sector

Sarajevo, 2011

B o s n i a a n d H e r z e g o v i n a

Largest exporter

of BiH

F o r e i g n I n v e s t m e n t P r o m o t i o n A g e n c y

TABLE OF CONTENTS

Background ............................................................................................................................... 6

Why invest in B&H Metal sector? ........................................................................................... 6 Actual Status .......................................................................................................................... 7

Export ...................................................................................................................................... 8 Human Resources ................................................................................................................... 8 Investment Opportunities ........................................................................................................ 9 Legal Framework ................................................................................................................... 10 FDI in Metal procesing sector .................................................................................................. 11 Useful Contacts ..................................................................................................................... 11 Top Metal Companies in BiH ................................................................................................. 12

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Metal sector in Bosnia and Herzegovina

BACKGROUND

Thanks to Bosnia & Herzegovina’s natural endowment of mineral resources, metal processing sector has traditionally been one of the country’s strongest ones. There is a longstanding tradition of metal processing in B&H, due to the country’s richness in natural resources (in particular iron ore, bauxite, lead, zinc, copper) and the concentration of the military industry of former Yugoslavia. Before the war B&H metal processing industry was embedded in the Yugoslav economic system. Mainly using local inputs the industry was an important supplier of semi-finished products for the rest of Yugoslavia and for markets of the third world countries. Exports did not play a significant role, but existed in special

fields. The automotive industry, an important customer of the metal processing industry, was partly located outside B&H (in Slovenia and Serbia) and partly inside, with Volkswagen running an assembly plant near Sarajevo, using about 30% local components. Mostar was a centre of the aluminium and aircraft industries in former Yugoslavia.

The metal sector in Bosnia and Herzegovina seems to have a natural competitive advantage mainly due to existing raw material resources, low wages and skilled labour force.

WHY INVEST IN B&H METAL SECTOR?

B&H metal sector has permanent and robust production growth rate of over 10% within past few years, being strongest exporter in B&H economy. Metal industry is one of the most important industrial sectors of the whole region based upon the following data: • Abundance of production facilities and industrial zones • Skilled labour force • Rich in mineral resources • Export oriented sector (50% of the total export) • No restrictions for foreign partnership with domestic companies • Unused sector capacities that enforced development potential without high investments • Long tradition in metal processing industry

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ACTUAL STATUS

Metal processing industry is of great importance for B&H economy with long tradition enabling sustainable development of various value-added businesses, export oriented in particular. According to the economic strategy set by the B&H Government, the metal industry is a strategic industry with comparative advantages. The government supports both foreign and local investors to establish the new companies or to transform existing companies to produce a higher value added products, using domestic semi-finished products.

The global crisis specially affected metal sector since it is export oriented. Export orientation has become the solution for most companies, trying to reutilize and upgrade their former capacities. In spite of significant imports as well, the trade balance for the sector as a whole is positive. This is in contrast to the highly negative overall trade balance of B&H. Companies from metal sector succeeded to move on and according to some estimations gradual market recovery has been expected from 2010 – 2012. Metal industry has a leading position in the value of the manufacturing industry in B&H with a share of 32% in 2005 and 32% in 2009. The share of metal industry is smaller in gross value added (26.1% in 2005 or 25.1% in 2009) and investments (25% in 2005 or 31.1% in 2009). The big majority of companies in the metal processing industry in B&H are small enterprises 80%, 15% are medium sized and 5% large companies.

The manufacturers of basic metals are large firms, producing: • Basic iron and steel, ferro-alloys and aluminium; • Basic precious and non-ferrous metals, etc; • Large range of different products (sheets, bars, tubes, strips, etc.).

Medium sized and small companies are more specialized and customer-oriented, characterized by higher stages of metal processing and by manufacturing of various metal products, such as: • Casting of metals (grey and ductile iron, aluminium, brass, etc.); • Forging, pressing, stamping and roll forming of metal; • Treatment and coating of metals; • Precision turning, milling, forming; • Manufacturing of pressure vessels - boilers, heat exchangers, condensers, columns, reactors, etc; • Manufacturing of steel structures; • Manufacturing of components and parts for the automotive industry, etc.

The price of labour in metal processing industry is competitive, comparing with the world market

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prices. It makes production cheaper and enables huge orders from abroad. Small private companies buy modern computerized equipment and try to stay on par with current technologies by introducing laser and CNC machines. Their main activity is final processing and the most of them are engaged in cooperation with foreign partners, mostly from Austria, Holland and neighbour countries.

EXPORT The importance of the metal industry in particular is expressed in the trade.Metal industry recorded 37.8% of B&H exports in 2010. In the structure of exports dominate are metals and metal products; share of machinery and equipment and electrical equipment is growing, while there is a decrease in the share of vehicles.The main customer of metal processing industry is the industry itself (primary and secondary processing), the manufacture of metal products, the vehicle and machinery industry, construction and petroleum, gas and electricity industry (tubes, wires).

Exports of metal industry groups according to the market (million KM):

Markets 2005 2007 2008 2009 2010

EU 993.3 1578.9 1640.6 1107.7 1595.3

CEFTA 360,7 942,9 1043,3 602,8 757,3

Other 243.9 70.9 90.0 96.5 163.3

TOTAL 1767.9 2592.7 2773.9 1807.0 2515.9

Structure (%)

EU 56.2 60.9 59.1 61.3 63.4

CEFTA 20.4 36.4 37.6 33.4 30.1

Other 13.8 2.7 3.2 5.3 6.5

Total 100.0 100.0 100.0 100.0 100.0Source: Indirect Taxation Authority of Bosnia and Herzegovina

Exports of the metal industry in the period 2005-2010 recorded its maximum in 2008, due to high global recession in 2009 had a fall, while in 2010 recorded substantial recovery.

HUMAN RESOURCES

Reliable basis for sustainable development of the metal processing sector is availability of all categories of qualified, adaptable, innovative, foreign language spoken, and highly motivated labour force. The price of labour in metal processing industry is competitive, comparing with the world market prices. Average net wages are app.300 Euros. According to the Agency for Statistics metal industry employs 37.500 employees, or 27.4% of all employees in the manufacturing industry, or 5.5% of employees in the B&H economy.Supporting infrastructure, including the education system, research and development institution, design and engineering companies, represents a strong base for a powerful development of the sector.

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At present the most reliable education and research sources are: • Faculty of Mechanics, University of Sarajevo • Faculty of Mechanics, University of East Sarajevo • Faculty of Mechanics, University of Banja Luka • Faculty of Mechanics, University of Zenica • Faculty of Mechanics, University of Tuzla • Faculty of Mechanics and Computers, University of Mostar

INVESTMENT OPPORTUNITIES

Strong development and permanent production growth that characterized B &H metal sector is considerably below its real potentials and expected performances. The existing structure of metal sector in B&H, characterized with small companies, provides huge chances for large integrator companies in sector, to integrate existing primary producers and to start their operations.

Local metal companies are already recognized as reliable partners by present foreign investors. Privatization opportunities are stilled offered to foreign investors and according to the privatization plans of Federation of B&H and Republic of Srpska those opportunities include the following compa-nies:

• Unis – Udružena metalna industrija, Sarajevo - Federation of B&H • Fabrika motora za specijalne namjene, Istočno Sarajevo, Republic of Srpska • Fabrika specijalne transmisije, Istočno Sarajevo, Republic of Srpska • UNIS – Valjaonica hladnovaljane trake, Banja Luka, Republic of Srpska • Čajavec, Banja Luka, Republic of Srpska

Information on Public announcement for privatization of abovementioned companies will be available at FIPA web site www.fipa.gov.ba.

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LEGAL FRAMEWORK

According to the Law on Foreign Direct Investment Policy in B&H there are no any restrictions and limitations regarding metal products and metal processing industry in general when it comes to foreign investor who is allowed to be a 100% owner of the metal company at the B&H territory and has the same rights as local owner. They are allowed to freely open a bank account in any commercial bank and make transactions in currency they are obliged.

Foreign investor enjoys equal status, rights and duties as domestic legal and physical persons. A foreign investor enjoys full legal security and legal protection in respect of rights acquired by virtue of the investment. Rights of foreign investor acquired in the moment of registration of the legal documents cannot be deteriorated by subsequent alteration of laws and other regulations. Company with foreign investment enjoys equal legal status and carries on its business under equal conditions and in an equal manner as domestic companies do.

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FDI IN METAL PROCESSING SECTOR

BiH registered large investments in the metal processing sector (Mittal Steel Zenica, Tvornica glinice Biraca and Jelsingrad Banja Luka), in the amount of app. 500 million EUR. Successful stories of FDI:

USEFUL CONTACTS

Foreign Trade Chamber of B&H ................................................................................www.komorabih.ba

Ministry of Energy, Mining and Industry of Federation of B&H ................................ www.fmeri.gov.ba

Ministry of Industry, Energy and Mining of Republika Srpska ..................................... www.vladars.net

Chamber of Economy of Federation of B&H .................................................................. www.kfbih.com

Chamber of Commerce and Industry of Republic of Srpska ...................................... www.komorars.ba

MLM Alutec - Slovenia Presal Exstrusion - Italy Arcelor Mittal - Switzerland

Cimos Group - Slovenia Birač - Lithuania Jelšingrad - Slovenia

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TOP METAL COMPANIES IN BIH

1. ALUMINIJ d.d. Mostar - www.aluminij.ba2. ARCEROL MITTAL ZENICA,d.o.o. - www.arcelormittal.com3. ARMEX ARMATURE doo Sarajevo4. BEKTO-PRECISA doo, Goražde - www.precisa.ba5. METALNA INDUSTRIJA PRIJEDOR - www.mip.rs.ba6. BOSNAMONTAZA a.d. Prijedor Company - www.bosnamontaza.com7. BNT-Tvornica Masina i Hidraulike, d.d. Novi Travnik - www.bnt-tmh.com.ba8. Energoinvest - termoaparati TAT, Sarajevo - www.tat.ba9. BIRA - Bihać - www.bira.com.ba10. FEAL doo Široki Brijeg - www.feal.ba11. Metalno d.d. Zenica - www.metalno .com12. MLM Alutec Bugojno - 13. MaxMara d.o.o. Banja Luka - www.maxmaradoo.com14. Fagus Haus d.o.o. Banja Luka - www.fagushaus.biz15. Termoklima d.o.o. Trn Laktaši - www.termoklimadoo.com

Foreign Investment Promotion Agency

Avaz Twist Tower Tešanjska 24A,

71 000 sarajevo, bih

Phone: + 387 33 278 080,

Fax: + 387 33 278 081

E-mail: fipa@fipa.gov.ba,

Website: www.fipa.gov.ba