Successfully investing in Serbia

published on May 16, 2018

  

How do you assess the current economic situation in Serbia?

The economy appears to be in good shape, following accelerating growth in the fourth quarter of 2017 on the back of surging fixed investment. Industrial production grew in both January and February at a healthy year-on-year rate, driven by increased manufacturing output. In the same months, merchandise exports and retail sales increased solidly year-on-year, with the latter likely powered by higher real wages. Meanwhile, according to an IMF statement on 16 March, the Serbian government expressed interest in joining a new reform-focused IMF program that would not include any financial arrangements. By joining, the government would send positive signals to investors and follow up on the progress made during the three-year program it completed in February, which did include financial offerings. The IMF said that a new program, which it plans to discuss further with the government in May, would focus on reducing the size of the informal economy, increasing public- and private-sector investment, strengthening fiscal institutions and ensuring a strong financial sector.

 
Economic growth should be supported by increased government spending and accommodative monetary policy. However, the country’s public debt burden, which is still large despite falling last year, remains a concern. Experts expect GDP growth of 3.2% in 2018, which is up 0.1 percentage points from last month’s forecast, and 3.1% in 2019.
Serbia’s economic freedom score is 62.5, making its economy the 80th freest in the 2018 Index. Its overall score has increased by 3.6 points, with a dramatic increase in fiscal health and higher scores for trade freedom and judicial effectiveness outweighing declines in property rights and government integrity. Serbia is ranked 37th among 44 countries in the Europe region, and its overall score is below the regional average but above the world average.

 

Serbia is still making the transition from state to a market economy. Inflation is under control, and the budget has stabilized. The many large state-owned enterprises in the electricity, communications, and natural gas sectors should be reformed and eventually privatized. Deeper institutional reforms are also needed to tackle bureaucracy, reduce corruption, and strengthen a judicial system that is vulnerable to political interference.
 

How would you describe the investment climate in Serbia and which industries have great potential?

The biggest surprise of Serbian industry is IT sector. Started slowly but by now this is fastest growing industry sector which outnumbered agriculture as the biggest Serbian export. It is also good because most of the companies in that area are registered as entrepreneur shops and this will give real private entrepreneurship talent to the many of young Serbians!

 

Many world-renowned companies have recognized Serbia's potential and decided to locate and to re-locate operations in Serbia. For some of them, Serbia serves as a manufacturing hub that enables duty-free exports to a market of almost 1 billion people. Others are attracted by adept level of English language proficiency, highly skilled and easily trained workforce and incentives environment. Any business that decide to set up operations or conduct trade in Serbia encounter a reliable and dynamic country that affords them a much greater opportunity than they initially perceived.

 

What challenges does a German entrepreneur have to master in Serbia?

As one director of German company in Serbia wrote: “to succeed in the business world in Serbia today you need to be flexible and have good planning and organizational skills. I highly recommend every German company that is ready to understand and accept cultural differences, understand their employees, and have their doors open for new insights and ideas to invest in Serbia. Starting and running a successful business is always challenging. Surely, success requires focus, discipline and perseverance. However, success will not come over night - it requires a long-term focus and that you remain consistent in challenging environments such as the country of Serbia.”

 

Serbia is a candidate for EU membership. Do the associated adjustments to EU standards offer opportunities for companies?

We mentioned the growth of construction industry. That growth is supported by new legislation in that field, which is mostly prepared based on EU legislation in the area of construction. In order not to be accused that we are enhancing reality, we must say that some rules are not implemented, or the implementation is postponing from now and then. As example, inclusive education is still dead letter on the paper as most probably, there are no funds to support private assistants for the children with that needs.

 

How do you think Serbia will develop?

As mentioned earlier, Serbia is trying to harmonize its legislation with EU legislation. Most of the laws are further harmonized and Ministry for EU Accession is “firing on all cylinders” as trying to open new Chapters. Serbian president Vučić, proposed creation of the Zone of Free Trade between former Yugoslav Republics which are not in EU and Albania. That area will be about 220,000 square meters with 18 million of inhabitants. Projects for new highway which will connect second largest city of Serbia, Niš and port Durrës in Albania via Priština (Kosovo), as well highways from Belgrade to Sarajevo and further to the Montenegrin seaside are on their way.

   

 Contact

Slobodan Mihajlović

Senior Associate

+381 60 0441 381

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Radu-Dragos Dobrescu

Partner

+40 21 2302 275
+49 911 9193 9059

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