Serbia looks east for recovery
Foreign direct investment from Western Europe is dwindling; Serbia courts Russia, China and the Middle East
With membership of the European Union no longer a distant prospect and at the end of a year-long recession, Serbia has pinned its hopes of an economic recovery on investment from the Middle East, Asia and Russia.
The country, like its neighbours, faces the complex challenges of fiscal consolidation and promoting growth in a subdued external environment. Nearly 65% of Serbias exports go to the eurozone; the country spent 2012 in recession, finally emerging with a tentative return to growth in the first quarter of this year.
Foreign direct investment, mainly from Italy and Germany, has been a large component of the countrys growth in recent years, with a new Fiat factory in Kragujevac, which opened in July 2012, named in a recent European Commission report as a critical factor in the recent stirrings in the economy. However, investment from Italy in particular is hard to come by, and Serbia is casting the net wider.
If there is no capital in the West, we will look for capital in the East, Mladjan Dinkic, Serbias minister of finance and the economy, told a panel on investment in the country at the EBRD annual meetings.
In April, the European Commission recommended that the EU begin accession talks with Serbia, after a limitedbut significantagreement with Kosovo that demonstrated that an entente between the two bitter rivals might be possible.
The government has secured an $800 million loan from Russia to renovate its rail network, and a E1 billion loan from China to construct a highway connecting Belgrade to the west of the country. The deal was agreed following the positive experience that the government had had with an earlier Chinese project, the construction of the Danube Bridge. They completed it on time, which is rare in our country, Dinkic said.
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The United Arab Emirates is becoming an important source of finance, he explained. Around $1 billion worth of investment is already on the table, and the government has been discussing the privatization of the management of the national airline to Etihad, Dinkic said.
Other privatizations are likely in the near term, he added, with public utilities in particular the telecoms and power sectors, imminent.
The government, which raised $1.5 billion in a 7-year bond issue in February, has been working on restructuring its debt to take advantage of lower yields. It is also looking to redirect its borrowing from local to international markets, in order to allow Serbian banks to retain more capital to support small enterprises.
Consolidation in the banking sector is likely, according to Ivica Smolic, the CEO of Komercijana Banka. While there are 32 banks in the country, the smaller half of them make up only 2% of market share, he said. We only have 10 active banks, and only six or seven competitive banks, he said.
But the investment climate, while dramatically improved over the past decade, still needs work, warned Dragica Pilipovic-Chaffey, CEO of Serbia Broadband SBB, a regional media and telecoms company. Instability in the exchange rate remains a problem, while corporate courts are still inefficient, even a newer institution set up for the mediation of disputes for large business, she said.
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