UK BH Investment Forum Kemal Kozarić Governor of the Central Bank of Bosnia and Herzegovina London, United Kingdom, April 18, 2013

Macroeconomic Data for Bosnia and Herzegovina (projected) Gross Domestic Product (GDP) EUR 13,24 billion Real Growth Rate -0,5%1,0% Industrial Production Growth Rate -5,2%3% Average Inflation on Annual Level 2,1%2% Unemployment Rate 28%27% Average Salary 422 EUR Foreign Debt EUR 3,64 billion (27,53% of GDP)EUR 3,83 billion (28% GDP) Current Account Deficit EUR 1,25 billion (9,45% of GDP) FDI (Estimate) EUR 492 million (end year estimate) Foreign Reserves (end year) EUR 3,327 billion

Potential Risks for Economic Activity Small and open economies do not have access to EU funding Bosnia and Herzegovina has good relations with major IFIs EBRD credit lines for support of infrastructure (EUR 125 million in 2012) IMF Stand-By Arrangement worth EUR 400 million for budget deficit support (3% budget deficit) European Commission EUR 100 million reform support for social sector World Bank, USD 120 million for small and medium enterprises Access to Finance KfW – EUR 100 million for various projects Reforms need to be continued – we need to fulfill two remaining conditions for EU candidate status before June 3

Monetary policy of Bosnia and Herzegovina Monetary policy implemented through Currency Board Arrangement Provided monetary stability Provided financial stability (new responsibility of the Central Bank of Bosnia and Herzegovina) Low inflation (2.1% in 2012) Fixed peg of local currency with euro Majority trading partners and investors are from EU – no exchange rate risk, no risk of profit erosion Foreign reserves invested in a safe way in central banks of EU (total reserves EUR 3.3 billion) Central Bank of Bosnia and Herzegovina chairs Financial Stability Committee and has signed MoU with supervisory bodies of 13 countries Excellent regional central bank cooperation 4

Banking sector as support for investors 28 commercial banks available EUR 7.5 billion in loans, of which 60% to private companies Good capitalization of banks (16%) Stress tests four times a year to control the health of the banking sector Good liquidity (close to EUR 700 million above reserve requirement level) Local savings growth (8% in 2012) No bank failures during the crisis Citizens’ confidence preserved Deposit insurance scheme established EUR currency insured, until the end of the year it will increase to EUR The only problem is existence of NPL, currently at 13.2%, as a direct consequence of the crisis 5

Why invest in Bosnia and Herzegovina? Young and educated labor force Salary-wise competitive (app. 422 EUR average salary) Very liberal Law on Foreign Direct Investment Free transfer of capital in and out of the country Same treatment like local investors, including ownership rights over real-estates Any existing privilege cannot be revered or undone by new laws or legislations Excellent geographic position As of July this year it will border with the EU (near KM) Gateway to eastern markets 6

Greenfield investments Energy sector as potential Increasing regional and domestic demand It was registered around 1000 (small, medium and large) rivers and streams Only 38% of hydro potentials have been utilized so far Many other opportunities for development of renewable energy sources like solar, biomass, geothermal, etc. are available. Bosnia and Herzegovina is the only country with surplus in the Region 7

Greenfield investments Food production Favorable climatic conditions Availability of skilled and cheap labor and a long tradition in agriculture Potential to become major organic food producer Wood processing 53% of territory covered in forests Large potential to develop processing industry Along with energy sector, wood processing industry is the sector which has foreign trade surplus Tourism Ski and Mountain tourism Ecotourism Spa tourism Cultural Heritage & Religious tourism Adventure (Extreme) & Sports tourism 8

Investment in infrastructure Continuation of 5C corridor construction Privatization in domains attractive for potential investors Telecommunication Wood industry Energy... Cluster of producers of automotive industry components‘with great expansion capacity We need to continue with reforming the business environment to remove business obstacles We need to continue with reforming the business environment to remove business obstacles The main precondition for new business friendly environment is political stability The main precondition for new business friendly environment is political stability 9

BH – UK Trade Relations – A lot of room for improvement Years Export to Great Britain Import from Great Britain Deficit Imports coverage (%) Share in BH Exports (%) Share in BH Imports (%) ,522,34950,222,96333,700, ,713,49451,933,97138,220, ,684,50461,424,29445,739, We sincerely hope that this conference will help to improve these numbers

11 Thank you for your attention!