Slovenes and Croats Forge Foreign Investment Path

Slovene and Croat businessmen are playing a substantial role in Vojovodina’s economy and that of Serbia in general, partly by helping to open up the market to western investors, according to economists.

Businessmen from the two former Yugoslav republics have the advantage of prior knowledge of the market in Serbia, which is why companies in the European Union that are interested in Serbia often engage Slovenes in particular as middlemen or representatives.

The presence of Croat and Slovene investors also sends a signal to investors in the EU that investing in the Serbian market is not necessarily a high-risk venture.

According to Serbia’s ministry for foreign economic relations, overall investments from Slovenia since 2000 exceeded 500 million euro. Croatian investments were far less significant, valued at around 50 million euro in the same period.

According to Aleksandar Miloradovic, of the Serbian Investments and Exports Promotion Agency, SIEPA, total foreign investments in Serbia in the period were worth 3 billion euro – meaning that tiny Slovenia is responsible for about one-sixth of this total.

Economic ties between Serbia and its former partners in Yugoslavia began to thaw after the fall in 2000 of the regime of Slobodan Milosevic, which Croats and Slovenes held directly responsible for the wars waged on their territory.

The conflict between Belgrade and the republics of the northwest began in earnest in the late 1980s, when Serbia under Milosevic initiated a boycott of Slovene goods. Warfare soon broke out in Slovenia, Croatia and finally, in 1992, in Bosnia and Hercegovina.

But as memories of warfare have receded, the economic ties that were severed in the 1990s are being renewed. Investors from both Croatia and Slovenia are showing strong interest in companies being privatised on the stock exchange or through public sales of shares. They have also started green-field investments, financing and constructing new hypermarkets, spas and other facilities.

Slovene companies have mainly invested in food products and metallurgy, while Croats have focused on food and construction, according to the ministry for foreign economic relations.

The largest single Slovene investor so far has been the retail firm Merkator, which has already invested 38 million euro in building a hypermarket in Belgrade and is planning a five-year investment programme in Serbia worth 200 million euro.

Next in size is the machinery concern Cimos, which has bought the Livnica foundry in Kikinda, in northern Vojvodina. This firm’s investments in Serbia total 100 million euro.

Slovene companies have been active on Serbia’s new stock market, buying up shares in the Palanacki Kiseljak water bottling plant, the Transped transport company and the Sintelon carpet factory.

Nenad Gujanicic, a broker on the Belgrade Stock Exchange, said Slovenes have become serious actors on the stock market. “A large number of Slovene companies are present as well as private individuals. Along with some Swedish investment funds, they are the biggest players on the Belgrade exchange,” he said.

Croat investors also have important plans in Serbia. Agrokor, one of the largest Croat investors, is taking over Serbia’s largest cooking-oil plant, Dijamant, in Zrenjanin, in Vojvodina. It bought the Frikom frozen food concern in Belgrade in 2003.

The Nexe construction company is now the owner or co-owner of several major Serbian construction companies, including the Toza Markovic ceramics plant in Kikinda and the quarry at Jelen Do.

Not all these bids and ventures have worked out. The Slovene brewery Lasko suffered a major setback when it failed to buy up Serbia’s largest brewery, Apatin, of Vojvodina, for example. The Croatian cigarette manufacturer Ronhil also failed to buy the Nis tobacco company.

Businessmen from both countries, especially Slovenia, have carved out an additional niche for themselves as mediators and middlemen between locals and foreigners interested in Serbian concerns.

Three Slovene-owned brokerage firms are operating on the Belgrade Stock Exchange, AC broker, Ilirika Investments and Beopublikum. Besides trading in stocks and bonds for Serbian and regional investors, they have mediated the entry of key companies from Western Europe into important Serbian companies.

Beopublikum, for example, acted as agent to the Belgium’s Interbrew when it took over Apatin. The company’s investments in September 2003 totaled 327 million euro, making it the biggest single investor in Serbia at the time.

Ilirika Investments mediated in the purchase of over 29 per cent of Hemofarm Vrsac, the leading pharmaceuticals company in Vojvodina, by the Dutch firm Aktiva Sei.

When they want to penetrate the Serbian market, many companies from the EU also engage Slovene managers, citing their familiarity with the Serbian market. Slovenes act as chief representatives of many foreign companies in Serbia.

Dmitar Polovina, director of the Belgrade office of the Slovene Chamber of Commerce, said Slovene businessmen know both sides of the coin – the way business is done in the West and the way it is done in Serbia.

“Directors of foreign banks in Serbia are often Slovenes or Austrians and Germans who have worked in Ljubljana,” he said.

Aleksandar Miloradovic, of SIEPA, said investments from Croatia and Slovenia convey the message to the EU that “there is regional cooperation and economic stability here”.

Zarko Maletin, director of the Investments Support Fund in Vojvodina, agreed. Slovenes play a bridging role, revealing the Serbian market to EU investors and bringing them in, he said.

“Foreign investors come to Serbia most often through their representative offices in Slovenia and their delegations are often headed by Slovenes managers who know their way around here,” he said.

“The mentalities of the two nations are the same. There is a similar case in Russia, where many EU company offices are headed by Serbs.”

Polovina said that some private companies in Serbia - as opposed to foreign investors - had also hired managers from Slovenia recently.

“That is the case in Verano Motors, the Peugeot dealer for Serbia and Montenegro, who brought in Igor Sauper because of his experience in car sales,” he said.

“Serbs were isolated under sanctions for ten years and still are not well informed of current world business trends. We have company directors here who have never been abroad, so these [foreign] managers can help bring the Serbian economy closer to the EU.”

Slovene and Croat investors also show foreigners how to negotiate the many obstacles and minefields still facing the unwary foreign investor.

One of the biggest is the constitutional provision banning foreign nationals from owning any land in Serbia. They can only lease it.

In spite of the ban, Merkator went ahead with the largest ever green-field investment in Serbia, when it built its hypermarket in Belgrade.

“Merkator paid 7.5 million euro for land in Belgrade but did not get a title to it,” said Polovina. “Which foreigner would do that? None!”

He added, “The problem was the term ‘construction land’, which cannot be bought but only leased for use. But the Merkator people knew the fact that they had got the land for use meant that they had practically bought it.”

The first western green-field investments did, indeed, follow the trail blazed by the Slovenes.

“There are over 300 Slovenian companies operating in Serbia at present and as Slovenia is also a member of the EU, that motivates investors from Germany and other countries to invest here,” said Polovina.

A prominent independent consultant for foreign investments, Milan Kovacevic, said it was natural that Slovene and Croat investors should make the first moves.

“Companies from those countries are quicker to invest,” he said. “The role of the Croat and Slovene investors is to reveal the Serbian market to companies in other countries that are the biggest exporters of capital.”

Kovacevic recalled the fairly similar role played by US-based Poles in Poland’s economic transition, saying they “opened the door to larger, more market-oriented investors”.

Gujanicic said foreign investors were naturally nervous of high-risk environments and wanted to see how these trailblazers fared before they stepped in.

“Investors choose safer places, despite the lower profits,” he said. “The Serbian market was extremely risky up to two years ago, with companies losing their value by 200-300 per cent in a short period. The arrival of Slovene investors was seen as a sign that business could operate normally in Serbia.”

Gujanicic added, “The role of the Slovenes has been to prepare the way for the arrival of foreign investors who want guarantees for their investments.”

Polovina agreed. “Companies from the EU often contact the Slovene Chamber of Commerce to ask about investment possibilities in Serbia. They want advice and explanations,” he said.

Vladimir Cvorkov is a journalist with the Novi Sad daily Dnevnik.