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The Government of the Republic of Serbia

In the service of citizens

Foreign investors recognise advantages of investing in Serbia

Belgrade, 23 May 2005

Serbian Prime Minister Vojislav Kostunica speaks in an interview to a special edition of the Ekonomist magazine about the government's measures aimed at attracting foreign investment, the legislative activity, the strengthening of institutions, the restructuring of public companies and other current topics. The official web site of the Serbian government brings the interview in full.

Serbian Prime Minister Vojislav Kostunica

What is Serbia’s most valuable asset from the point of view of the economy and what would you recommend to foreign (and domestic) investors?

Among Serbia’s most valuable assets, from the point of view of the economy, is the awareness of the necessity of changes in all fields of economic life as well the readiness to accept those changes and to take part in them.

By drafting a large number of legislative solutions, the Serbian government has sought to create a legal environment in order to provide security for investment in Serbia. Since the formation of this government, in March last year, we have initiated the passing of a large number of systemic laws, which are in line with the European Union’s regulations. Our goal is to create conditions that will guarantee economic stability and a market-oriented economy so as to make Serbia even more attractive for investment and business development. In order to encourage investment, we changed the Law on corporate profit tax and introduced a tax rate that is among the lowest in Europe – 10 percent. We also scrapped the Law on salary and wage fund, and we are preparing a series of bills that will enable the safety of investment and encourage economic development.

There are more advantages that investors recognise when it comes to the state union of Serbia-Montenegro. Our country is on the crossroads of Eastern and Western roads. Two key autoroutes run through Serbia – Corridor 10, which includes a network of highways, and Corridor 7, which enables the Danube River to connect several European countries with the Black Sea.

Serbia-Montenegro represents the centre of the newly formed free trade zone of Southeast Europe, with all the advantages that free trade agreements involve. The free movement of people, capital, and ideas allow for the creation of a much larger, single market, the speeding up of trade flows, stronger economic cooperation, and the balancing of economic growth in this part of Europe.

What makes a distinction between Serbia-Montenegro and other countries in the region and represents an excellent opportunity for foreign investors is the free trade agreement with the Russian Federation. We are the only country outside the Commonwealth of Independent States to enjoy this privileged status. The government has initiated the preparation of similar agreements to be signed with the Ukraine, Belarus, and Turkey.

So, if an investor chooses to launch production in our country, he will have duty-free access to a much larger market of Southeast Europe, which has 55 million consumers, as well as the possibility of access to Russia’s 150-million person market without paying import duties.

Are you satisfied with what foreign companies have brought to Serbia? What are the good things and what are your objections?

Foreign investment not only depends primarily on political stability in the country, but also on the legal framework, workforce availability, access to modern infrastructure, and telecommunications. Foreign investment in our country over the past few years has come mostly through privatisations. Last year, the level of foreign investment reached almost $900 million. As we are nearing the completion of the privatisation process, privatisation receipts will, naturally, decline and for that reason the government has given top priority to ensuring favourable conditions for the flow of foreign direct investment, which brings not only new jobs and fresh capital but also a very important thing in the long term, that being contemporary expertise from developed countries.

I believe that this will also help to change the structure of our economy, raise the level of our products’ quality, and, most importantly, result in the integration of our economy into European and global flows.

We are aware that our economy’s transition is a painstaking process but we are also determined to make Serbia a modern European country. As you know very well, investors come to places where they have a good environment and it is our task to make Serbia’s market as attractive as possible. Everything that the government has done so far is proof of our resolve to continue this work in the best interest of our fellow citizens and to enable a faster development of our country.

Serbia has passed many laws but their enforcement is the hard part. What does the government intend to do in that respect?

During 2004, the Serbian parliament passed 89 laws and a further 20 since the beginning of this year. It is clear that the government is determined to continue with proposing bills and bylaws this year in order to improve the enforcement of adopted laws. The laws governing civil procedure and law enforcement procedure envision faster and more efficient work of courts when passing judgments and enforcing court rulings. Given that the implementation of these laws was launched recently, I expect to see concrete results very soon.

It is also necessary, of course, to punish disobedience to existing regulations more severely and we intend to achieve that by defining suitable penalties for those who do not abide by the law. In this respect, we expect the passage of the Criminal Code very soon as well as a law on offences. Also, in line with European standards, the Ministry of Justice, in cooperation with international expert organisations, has initiated programmes for training judges to handle disputes in such areas as intellectual property protection, competition protection, receivership, etc.

The legislation system is an important part of the previous question, that is the crucial element of a legal state. What will the government do to additionally strengthen the rule of law?

The rule of law, the strengthening of institutions and the fight against corruption are the priorities in the work of the Serbian government. We are firmly committed to establishing and maintaining legal security. We have already adopted some important systemic laws and work on the preparation of the new ones. The government is intensively working on achieving consensus of all political factors for the adoption of the most important of all legal preconditions for Serbia's development and stability, and that is the new Constitution.

As I have already said, all regulations adopted and those whose preparation is underway have been fully harmonised with European Union regulations. Such a modern legal framework is a good precondition for the creation of favourable economic environment and development of the market economy.

One important legal area has remained unsolved and that is the anti-monopoly legislation. When will the adoption of laws that regulate this area be expected?

The Serbian government prepared an anti-monopoly law - the Bill on protection of competition and forwarded it to the Serbian parliament for adoption. Through the adoption and implementation of this law, this field will be harmonised with the legislation and competition policy of the European Union and will secure the equality of market players, the prevention of monopolistic and cartel behaviour of companies, the building of a competitive market and a healthy economic environment. This Bill envisages the establishment of a Commission for the Protection of Competition, whose members would be independent in relation to state bodies, companies and other interested parties. The Commission will be financed through its own resources and will have broad powers to successfully remove and penalise behaviour that prevents, limits or harms competition.

Early this year, Serbia recorded excellent results in exports, but production is declining. How will the government tackle that problem?

Last year, Serbia showed really excellent macroeconomic results. In the first quarter of the year, exports grew by more than 52 percent while foreign deficit is decreasing.

It is clear that Serbia needs efficient, competitive, market-oriented companies. Only highly competitive companies secure economic growth, open new jobs, and thus improve the life of Serbia’s citizens. Our aim is to accomplish that through appropriate measures for stimulating economic and institutional development. The Serbian government adopted a National strategy for stimulating foreign investment and a Strategy for the development of small and medium-sized enterprises (SMEs).

Bearing that in mind, the Ministry of Economy and the Ministry of International Economic Relations prepared a pilot project with which we plan to promote and support connecting enterprises in clusters. The stimulation of the cluster development is not planned as a one-time measure and will not end with the pilot project. The preparation for a medium-term programme for the cluster development is underway and the government should adopt it in autumn.

Will the economy’s restructuring speed up, primarily in public companies?

The speeding up of the privatisation process results in accelerated restructuring of the economy. With the aim of speeding up the privatisation, the Serbian government suggested changes of the Law on privatisation, Law on privatisation agency and Law on share fund. The Serbian parliament already adopted the Law amending the Law on the privatisation agency while the remaining two are in the adoption procedure. These measures should result in accelerated privatisation this year, particularly of large companies and those overburdened by debt.

According to the proposal, the crucial change of the Law on privatisation refers to the part that says that the state will write off debts that debt-laden companies for sale accumulated to funds and public companies, and thus those companies will become more attractive for potential investors. The said debts could be settled later from revenues generated from the sale of those companies.

Certain provisions of the Law on securities market will be changed and the adoption of the Law on investment funds is awaiting us.

The framework plan of the Privatisation Agency said that 18 tenders will be called in 2005, but we will try to increase the number of tenders this year. Public companies are awaiting preparation for privatisation. It is necessary that these companies consolidate and reduce the expenses of their operations.

A Latin proverbs says "festina lente" (make haste slowly), the Serbian people say "haste makes waste". However, do you think that things for which it is clear that have to be done are too often prolonged and delayed? Can we go faster to Europe?

The process of accession into the European Union is very demanding. It requires the engagement of all segments of society, from the government to the non-governmental sector, the parliament, trade unions, the economy, science, the media…

Experience from other countries also testifies how very complicated this process is, especially that of the countries of Central and Eastern Europe who became EU members in 2004. The EU concluded agreements with these countries during the 1990s so that they could become full EU members only last year. It should be taken into account that these countries had a much better starting position in the process of European integration, as opposed to our country, which in the last decade went through numerous temptations arising from economic sanctions, isolation and bombing.

Our task is to work as quickly as possible to make up for wasted time and achieve the integration of the state union of Serbia-Montenegro into the European Union as soon as possible.

In order to achieve that goal, this government submitted to the Serbian parliament for adoption a few dozen reform-laws harmonised with EU regulations and adopted the Action plan for realisation of priorities of the European partnership. We have made significant progress in cooperation with the International Criminal Tribunal for the former Yugoslavia based in The Hague and carried out economic reforms that were positively assessed by the International Monetary Fund and the World Bank.

All that resulted in the adoption of a positive feasibility study and negotiations with the EU on the conclusion of the Agreement on Stabilisation and Association, which will likely begin in autumn this year. I expect that in the course of 2006 the negotiations will be completed, after which our country can officially apply for EU membership.