Serbia Pulling in Western Funds

Many western banks and companies are likely to continue investing in Serbia, despite ongoing political instability, the persistence of organised crime and the slow pace of reform, IWPR can reveal.

The narrow victory of the Democratic Party candidate Boris Tadic over his Serbian Radical Party rival Tomislav Nikolic in the June 27 presidential ballot will have come as a great relief to many liberal Serbs concerned that an SRS triumph, on top of all the other problems blighting the republic, would scare off foreign investment.

Far-right gains are thought to stem from the public’s dissatisfaction with the economic reforms of the last few years and the hardships that have accompanied them.

Nonetheless, a number of western investors interviewed by IWPR said that they would continue to regard Serbia as a good bet, even if Nikolic had won - and would only get cold feet in the event of the European Union or the Americans imposing sanctions on Belgrade.

Western investors said they were confident that Serbia would in time develop into an advanced, democratic country. They said they were particularly attracted by the republic’s geographical position – in the heart of south-east Europe - and transport network; educated and skilled workforce; and the willingness of a significant proportion of the population to embrace reform.

Analysts predict that Serbia will attract 600 US million dollars of foreign investment by the end of December 2004 - about 50 per cent down on last year, but only because a wave of privatisations in 2003, notably the sale of state tobacco companies to Philip Morris and British American Tobacco, acted as a magnet for overseas funds.

The influx of western investment has come despite the murder of the western-minded reformist prime minister Zoran Djindjic, the threat posed to the republic’s young democracy by criminal gangs, the rise of the far-right and the limited success of the government’s economic reform programme.

The cool-headed approach to Serbia by international investors was tested to the full with the Djindjic murder in March last year, but Richard Eames, central and east European analyst for the London-based Economist Intelligence Unit, told IWPR that investors were unfazed by the setback, “Though that set a risky backdrop to the situation in Serbia, in the months following the assassination, foreign investment was high and Serbia continued to attract more investors.”

In one of the biggest investment coups to date, the European subsidiary of the US giant Ball Packaging has just begun to build a 75 million euro factory in Belgrade, creating 120 jobs and, Belgrade hopes, encouraging other major league corporations to do likewise.

The company said its decision to invest in Serbia was prompted by two of the republic’s main attractions to western firms. “We needed a highly educated workforce in a geographically advantageous region - and Serbia meets these demands,” said Sylvia Bloemaker, spokeswoman for Ball Packaging Europe.

Oliver Roegl, deputy chairman of Raiffeisen Bank AD Belgrade, an arm of the Austrian bank that had an influential role in the transition of other eastern European countries in the early Nineties, said the aforementioned factors significantly benefit its operations.

“Serbia’s workforces are one of its strongest assets, if it were not for the excellent attitude, commitment and expertise of our 630 staff across Serbia we would not be in the position we are in today, being the largest of the foreign banks and competing at the top of our sector,” he said.

And as far as the republic’s location is concerned, he said, “Serbia now borders the EU, and is a mere four hours away from any other major city in the region. And thanks to the position the country was in during the Seventies and Eighties, it has an effective [transport] infrastructure network that spreads over the entire country – Poland and Romania can’t match this.”

Ball Packaging Europe has been watching the political situation in Serbia closely, but as with a number of investors, told IWPR a Nikolic victory at the weekend would not have discouraged them. “Someone has to start investing in Serbia. We are in the position to be one of the first to invest here,” said Bloemaker.

She believes Serbia has made significant strides since the overthrow of the Milosevic regime in 2000, suggesting her company is only likely to reconsider its involvement in the republic in event of the international community imposing sanctions on Belgrade, “Only in that situation would we then need to re-assess our operations in Serbia.”

The chief financial officer of the Belgrade branch of Austrian bank HVB, Aleksandar Kovacevic, suggested that while right-wing parties may exploit the hardships many Serbs are currently experiencing as a result of tough economic policies, such trends were experienced by other former communist countries in the transition to market economies in the Nineties.

“Politicians may be taking advantage of this situation now, but it also happened across the region in countries such as Hungary. Serbia showed this weekend that it will follow those countries toward Europe,” he said.

Alex Weynants, the vice president of Tenovis, a German company that is investing in the Serbian telecommunications sector, said he was confident that the republic is heading in the right direction, “ Serbia has suffered a lot of political conflict and war but we believe there will be no return to the old conflict. People have learnt their lessons.”

Alan Parsons, US under secretary for economics, business and agricultural affairs, acknowledged while visiting Belgrade earlier this year that doubts remain in the minds of some potential investors about Serbia’s prospects.

“The competition for investment globally, and in this region, is intense,” he said.” Unfortunately, the legacy of Serbia’s recent past leaves pre-conceptions in the minds of people unfamiliar with recent changes. This means that Serbia has to be that much more attractive, and work harder, to lure investment.”

Parsons at the same time pointed out that the republic’s leaders were taking up the challenge and winning over American investors, “In the face of tremendous challenges, Serbia’s economic reformers deserve credit for substantial achievements….I’m very pleased to see that US commercial interest is steadily increasing in Serbia, as evidenced by the US becoming the largest source of foreign direct investment in Serbia.”

John Simpson is an IWPR contributor based in London.