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The legal market in Bosnia and Herzegovina is small, undeveloped but stable. It is marked with familiar names and sees little movement....

The legal market in Bosnia and Herzegovina is small, undeveloped but stable. It is marked with familiar names and sees little movement. "There are no new law offices that are serious. There are young lawyers but they work alone and are hard to take seriously," one partner says. One continual challenge for firms lies in helping clients negotiate the country's convoluted regulatory environment.

Following the Dayton Agreement, Bosnia and Herzegovina (BiH) comprises the entities of the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS). While work in RS is easier to handle, in terms of volume, it is a small market. The real problem for investors exists in FBiH, which has 10 cantons each with its own government. "From federal to cantonal to municipal, there are many levels," one partner says, adding that, "there are 10 small governments in the federation and it's easier to do business in Srpska." The fragmented nature of the legal system is a source of frustration for many practitioners. "The main problem is cantonal in the federation part," says one such practitioner, adding that, "they have to make their own laws in accordance with the federal level but they won't do it for 5-10 years."

In light of the social and economic environment of recent years, the legal market has suffered from a flight of human capital. "In intellectual services, there is an obvious gap," one partner says, adding that, "over time the gap is closing and some people are returning to develop the legal market". Another development in recent times sees the presence of firms operating from Banja Luka but unable to have their activities fully normalised in Sarajevo. However, it is felt that in time the market will develop. "Operations have been more or less regular and it's obvious that the legal market will develop in time," says one partner, adding: "I believe in time we'll witness spinoffs and new people coming in. There is still a habit of Croatian and Serbian firms doing work in Bosnia without an office here. You can't do this properly and it might be easier to have a presence here but it's hard to find people."

CONTEXT AND TRENDS After a political impasse that dated back to the 2010 elections, Bosnia and Herzegovina's (BiH) Muslim, Serb and Croat leaders finally agreed to form a government, pass a budget for 2011 to avoid financial collapse and open the path to EU membership. "EU accession is going forward....

After a political impasse that dated back to the 2010 elections, Bosnia and Herzegovina's (BiH) Muslim, Serb and Croat leaders finally agreed to form a government, pass a budget for 2011 to avoid financial collapse and open the path to EU membership. "EU accession is going forward. It is slower than Serbia and Croatia but is going forward," one commentator states. Due to the arrangement of Bosnia and Herzegovina, which is made up of the Federation of Bosnia and Herzegovina (FBiH) and the Republic of Srpska (RS), the political deadlock has only had an impact on foreign investment. "We now have a central government and of course this is progress," one partner says, adding that "but economic policy is not affected as the two strong entities have their own government."

Practitioners have already witnessed an uptick in foreign investment with one drawing attention to the arrival of mining clients from Ukraine and Austria. Furthermore, renewable energy is a big topic for foreign investment but, as one partner says: "the government doesn't help investors in renewable energy projects". Bosnia's rivers provide ample opportunity for hydro-power projects. "I expect to see more as water here is surplus and undeveloped in a certain sense," says one partner, adding that, "investors are interested in getting this going." However, by way of a central government, despite the improvement in Bosnia's overall impression, prejudices still linger when it comes to doing business even though the war years are well behind.

There is no doubt that quiet optimism suffuses the market. "Everything looks a little bit better than a year ago," one partner says. For example, banks that had slowed down their activities are now starting to support projects again, but there is still a healthy amount of work in restructuring and the repackaging of portfolios. "It's not booming but it is not as stuck as it was," one partner says, adding that, "the general atmosphere is still not pink because there is a lack of liquidity".

M&A hasn't generated too much work for practitioners and while transactions are happening, they are not at pre-crisis levels and tend to be on the domestic side with a low volume of international M&A. Nevertheless, in certain areas, China has been displaying interest in the market and has invested into the construction of a power plant in Stanari. In fact, the Chinese government may want to set aside significant funds for infrastructure projects in the region. This may also be in the construction of highways where the Bosnian government seeks to develop PPP (public-private partnerships) projects but is looking for a good partner.