Under socialism, Bosnia specialized in mineral products; metals (steel, lead, zinc, aluminum); timber; manufactured goods (furniture, domestic appliances, and leather goods); and accounted for 40 percent of the former Yugoslavia's military production. Like Serbia and Montenegro, the industry wanted to counter unemployment and employed more workers than it really needed. Traditionally, the industrial bases were divided: heavy industry was in the Federation, and light industry was in the Serb Republic.
Most of the country's industry was damaged by the war, and in late 1995, manufacturing dropped to one-tenth of the pre-war level. Although destruction between regions varied, companies suffered because of disrupted supplier and buyer links. Given the low base, post-war industrial recovery was notable; however, it was limited to metal and wood processing, food, beverages, textiles, and clothing. Most factories are still operating at a fraction of their capacity.
In 1999, food processing accounted for 14 percent of the Federation's manufacturing production, metals for 13.4 percent, and wood processing for 5.4 percent. Recovery was much slower in engineering, chemicals, and pharmaceuticals. The Unis Vogosca company in the Federation and Germany's Volkswagen set up a joint venture to assemble Skoda cars, but had disappointing results. During this year, the Federation also established a consortium to manufacture tractors and other agricultural machinery. Construction grew, driven by housing reconstruction, and in 1999, Germany's Heidelberger Zement acquired a 51 percent stake in one of the cement plants, Kakanj. Consumer goods represent about 30 percent of total manufacturing output.
The government does not pursue a specific industrial policy. Trade is liberalized , there is no particular policy for protecting local companies, and domestic producers are exposed to foreign competition. Foreign investors are cautious in investing, donors favor the private sector , and large state-owned enterprises find it difficult to restart work because of lack of capital, technology, and extensive markets.