Country Profile: Bosnia and Herzegovina Slowly Opens Up to Investors

 One of the things that is striking during a visit to Bosnia and Herzegovina (BiH) is the relative lack of international franchise companies doing business in the country. This is especially notable in the hospitality sector, where the vast majority of hotels are independent and locally-owned. Currently, Accor and Marriott are the only major international hotel companies operating in the country. But the picture may be different in five years’ time, thanks to a number of initiatives being put in place by international organizations.

Latin Bridge in Sarajevo, Bosnia and Herzegovina. (Leonid Andronov/Getty Images)

On October 12, the EU recommended Bosnia for candidate status, on the condition that a number of steps be taken dealing with several issues, including rule of law, judicial reform and corruption.This could seem like good news for international investors, according to Charlotte Ruhe, managing director for Central and South Eastern Europe at the European Bank for Reconstruction and Development (EBRD).

“When countries ascend into the EU, it’s like a Good Housekeeping seal of approval in terms of their rules of governance, which gives investors confidence,” she said.

However, Ruhe adds that given Bosnia’s current constitutional issues and complicated political structure, both relics of the  Dayton Peace Agreement, it might be quite some time before the country is able to make the qualifications for EU accession. And there are plenty of other matters as well.

Simply put: it’s complicated. The political structure divides the country’s governing bodies into two main entities: the Federation of Bosnia and Herzegovina, made up of a collection of somewhat autonomous cantons, and the Republika Srpska, where power is centralized at the top. There is a third administrative area, Brcko District which is a tiny section straddling a border between the other two. The three areas share a tripartite national presidency. As a result, says Almir Pestek, PhD, a professor teaching at the University of Sarajevo School of Economics and Business, “We are trapped into the post-Dayton structure, which is a big burden, since there are different economic and political systems and legislation is not harmonized.”

That means, he says, that “the overall business climate is pretty-bad compared to other countries in the region. You can see it from recent World Bank reports, the complex environment when it comes to government structure and legislation, plus high levels of corruption and slow administration, are main constraints. Based on that information, you can see why companies avoid us in terms of investments.”

The Slow Winds of Change

Yet, despite the aforementioned challenges, Pestek says he would still suggest investment here, particularly in the tourism sector. “In terms of tourism the positive things outweigh the negative. “Bosnia is far from its full potential,” he notes. Prior to the pandemic, Bosnia was growing at the third highest tourism rate in the world. While the pandemic put a huge dent in that progress, investment during that period by international organizations like USAID and the EBRD didn’t slow down.

EBRD is investing in the highway systems, improving connectivity between the country’s main cities and between BiH and neighbouring countries. Meanwhile, USAID’s Developing Sustainable Tourism in Bosnia and Herzegovina (Turizam) project is in the middle of a five-year (2020-2025), $20 million project aimed at improving the economic regulatory environment, enhancing the quality and diversity of products, professionalizing human and institutional capacity, and promoting Bosnia and Herzegovina to high-yield visitors.

Plus, there’s that EU invitation. Pestek believes working toward EU membership will give a boost to improvement efforts.

“So many international organizations tell us what should be done, but just a narrative and the situation hasn’t changed over the years,” says Pestek. “But maybe the idea of EU accession may finally be the incentive to help us resolve the issues on our to-do list. So, I think the invitation will help make the business climate better, but it will still take a while for us to make the changes.”

Opportunities for Private Investment

Despite the lack of a national tourism office and its limited transportation infrastructure, the country’s competitive advantages are many. BiH is cheap compared to most other European countries; the diversity of product and culture in a relatively small area is appealing, and its proximity to the rest of Europe are bonuses. Plus, the country is making substantial headway in Gulf markets.

About ten years ago, Ajdin Sehic, sales manager for the Tarcin Forest Resort and Spa, part of Accor’s  MGallery Hotel Collection, says BiH became increasingly popular among Saudis and other Middle Easterners looking to escape the scorching summers at home. Aside from its natural advantages, such as mountains and waterways, Sehic said Bosnia was particularly attractive because “it is a cheap destination in terms of accommodation and food (particularly attractive to Middle Easterners looking to stay for several weeks or months) and it is a ‘brotherhood’ country.” Muslims comprise the single largest religious community in the country, with the majority of those concentrated in the Federation of Bosnia and Herzegovina.

Where GCC travelers went, investment followed. Saudi investors in particular made note of the increasing demand and invested in several hotel properties, including the Tarcin Forest Resort and three other properties which were brought under Accor flags (the Novotel, Ibis Style and Swissotel, all located in Sarajevo). All of these properties opened between 2017 and 2019.

Frank Reul, Accor’s vice president of development for Northern Europe, Eastern Europe and the Balkans, says that after a pandemic pause, the company is once again exploring partnership possibilities in the country. Targets include the cities of Mostar, Banja Luka and Tuzla, plus resort locations in the mountainous regions. Given that the market “cannot carry many five-star hotels,” says Reul, “we are looking at growing the midscale Mercure brand and the premium Movenpick brand in the country.” He thinks the time for international investment in tourism is right. “It’s a tremendous opportunity, as the country is underdeveloping in terms of exploiting its tourism potential.”

Courtney Chubb, mission director of USAID/Bosnia and Herzegovina, concurs, saying: “The tourism sector offers tremendous investment potential. We are already seeing examples of successful foreign investments in the hotel and entertainment sector. For example, Hotel Malak Regency, a five-star hotel on the outskirts of Sarajevo, Tarcin Forest, Swissotel and several other resorts are examples of Middle East investments that have done well.”

Moving forward, Chubb adds: “Opportunities exist in the conferencing and exhibition space for new facilities, mixed use facilities (hotels with serviced or non-serviced residences), and in transport. In the hotel sector specifically, there are opportunities to increase international brand presence, as this is an area that offers ample room for brands to either invest or come in with management contracts to brand and operate local hotels.”

This article first appeared in Hospitality Insights.

The Biggest Hotel Brand You Never Heard Of: Israel's Brown Hotels Expands into Europe

Brown Hotels sometimes calls itself the biggest hotel brand you’ve never heard of. The Israel-based hospitality company, founded in 2010, is a power player in its home country, and is now making moves in southern Europe. 

The company’s expansion strategy is based on brand growth through opportunity. In the micro sense, that means looking around for deals in terms of individual properties for sale. But on the macro scale, it’s a matter of considering destinations that may be suffering from hospitality real estate hits due to Covid-19 or other economic and political factors.

Brown Hotels is undergoing a major expansion 
in Greece

Brown Hotels evolved out of the desire to create dwellings that not only showed visitors the real culture and creativity of the city's youthful population, but also to expand the nightlife and neighborhood hangouts for locals. During its decade in existence, the Tel Aviv-based company has opened more than 16 hotels around Israel. The properties operate under five different brands, each encapsulated by a female icon. For example, Brown Beach Houses, sporting a 1950s vibe, according to founder Leon Avigad, pays homage to Brigitte Bardot while Lighthouse, the modern “Work Hard, Play Hard” brand, uses Paris Hilton as inspiration.  

In 2016, the company opened its first property outside of Israel, the Brown Beach House in Trogir, Croatia. Avigad said the destination made sense, given its proximity to headquarters and its Mediterranean climate. The success of that resort spurred further investigation of expansion in southern Europe.

Brown Beach House, Croatia

“For us, it was very clear that when expanding into Europe, it was more natural to start in places that look and feel like Tel Aviv,” according to Avigad. 

After Croatia, he started looking into Greece, deciding to earmark the country as its next destination for heavy investment. Brown purchased its first two hotels there in 2018. 

“Greece seems even more dynamic than Croatia, and I think Athens is poised to be the next Berlin,” said Avigad. “Plus, Greece has much more to offer than just islands. The mainland is so rich with culture and experiences.” 

Seeing an underdeveloped market on the mainland, and an economy ripe for investment, Brown decided to go all in.

“When we started looking, the real estate market was not very strong, but at the same time, the destination was strong and demand steady,” noted Avigad. At the same time, he said “the Greek government was becoming very receptive to new businesses and new investment.” 

While the government was not offering financial incentives per se, “they were more open to foreigners and trying to make it easier for everyone to invest.” 

Brown Acropol Athens

All of the legwork in Greece started paying dividends in July, when Brown Hotels announced the opening of its first three properties in Athens. The Brown Acropol, DAVE Red Athens and Villa Brown Ermou all represent individual design concepts, and are the first of seven new properties by Brown Hotels set to open in Greece by the end of 2021. Brown Hotels will subsequently expand to Thessaloniki, Cyprus and Corfu, and then by 2023, will have a total of 50 properties in Greece. 

Villa Brown Ermou, Athens

Next up is Hungary. The company has identified a quartet of hotels in Budapest for redevelopment. The first of them is slated to open in 2023. The company is also scouting  “happening cities” like Berlin, that fit with the company’s hip urban brands, and looking in Italy for both resort and city hotel opportunities. However, Avigad says the brand will not enter any new market unless it can develop at least four properties concurrently, with a minimum total of 400 rooms. 

In the meantime, Brown Hotels continues to expand in its home country. Six hotels, two in Jerusalem and four in Tel Aviv, are opening in Israel this year, and another three are slated to open in Tel Aviv by the end of 2022.

The original version of this article appeared in Hospitality Insights.