Boston, MA -- (SBWIRE) -- 04/14/2014 -- Revisions to historical data by Bosnia & Herzegovina's statistical authorities have prompted some minor adjustments to our construction industry forecasts, but our broad outlook remains unchanged. We forecast the sector will expand by 3.1% in real terms in 2014, with growth picking up steadily over the medium term. That said, we believe risks are weighted firmly to the downside due to persistent political uncertainty and a cumbersome business environment.

Key developments

- Despite our expectation for a pick-up in construction activity in 2014, we note that downside risks over the near term come in the form of rising political risk levels. Given the political divisions and simmering ethnic tensions that continue to haunt Bosnia-Herzegovina, the general election scheduled for October 2014 carries significant risks and a repeat of the delays in post-election government formation seen in 2010 will be a setback for the country's fledgling economic recovery.
- Such delays will pose particular risks to the execution of infrastructure spending, which is already constrained by the effects of ongoing fiscal consolidation in the country. The uncertainty created by frequent political deadlocks and disputes at regional and national levels will, along with other business environment concerns, keep private investment subdued.
- A consortium, comprising German subsidiary of European construction company Strabag, Euro-Asfalt and ZGP, has secured a contract worth EUR84mn (US$113.31mn) to construct the Svilaj-Odzak section of the international motorway corridor 5c in Bosnia. Under the contract, the consortium will be responsible for the construction of the roadway, the border crossing at Svilaj, the Svilaj toll station, two service areas and two motorway exits. The construction work on the 10.4km-long section is scheduled to start in October 2013. Construction will be completed in 14 months, with the motorway to be opened for traffic in December 2014.
- Bosnia continues to score relatively weakly compared to its regional peers in our Infrastructure Team's Risk/Reward Ratings (RRRs) for Central and Eastern Europe (CEE). In the latest update. Among others factors dragging down its score are restricted government spending, elevated political risk levels, endemic corruption and an overreliance on capital inflows.

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