One of the mayor SAM political and economical goals is the promotion of successful and new economic climate and investments opportunities. New economic programs are based on attracting foreign direct investments.
In support of this priority, the previous and current governments have moved rapidly to liberalize their investment regimes to create an overall business climate that is conducive to foreign investors as well as promoting growth and competitiveness. The government in 2004 has scored important successes including: agreement with the IMF on the terms of SAM's exisiting Extended Arrangement (May 2004); a London Club deal with 62 percent write-off (July 2004); and adoption of key economic legislation (Insurance Law, Bankruptcy Law, VAT Law, Business Services Agency Law).
Serbia and Montenegro is quickly establishing a liberal investment regime. Although structural barriers still persist at this stage of inchoate transition, the republic governments recognize the necessity to remove impediments, reform business activity and open the economy to foreign participation. For example, in June 2004 the Serbian government launched an Action Plan (together with the World Bank) identifying barriers and working with the business community to eliminate these barriers. Unlike other countries in the region where foreign companies encountered a mild xenophobia and enormous bureaucratic hurdles to investment, there is a favorable attitude towards foreign investors. Serbia and Montenegro had an active history of international commerce and once attracted a sizeable foreign company presence. On the whole, the populace is eager to reestablish international ties and revitalize foreign investor activity.
Leading investor nations in Serbia and Montenegro include: Austria, France, Germany, Greece, Italy and the United States. As highlighted above, Serbia is attracting the preponderance of interest. Foreign investor participation was kicked-off with the privatization of Serbia's cement sector in late 2001. Through privatization tenders, three companies were sold to strategic partners from France, Greece and Switzerland. Since then, Serbia has successfully attracted other strategic investors: France's Michelin entered into a joint venture with a local tire producer; Germany's Henkel (detergent producer) acquired a local producer (Merima); Heineken (Netherlands) purchased Serbia's largest brewery (Apatinska); and Carlsberg (Denmark) invested in the Celarova Brewery. In August 2003, the Privatization Agency concluded the very lucrative privatizations of the Nis and Vranje tobacco companies to Philip Morris International (USA) and BAT (UK), respectively, followed later in the Autumn with the sale of Beopetrol (retail petrol stations) to Lukoil (Russia). Finally, the banking sector previously attracted investment from Raifeissen (Austria), HypoVereinsbank (Germany), National Bank of Greece (Greece) and Societe Generale (France). In 2003, the banking sector witnessed new market entrants: Hypo Alpe Adria (Austria), ING (Netherlands), Nova Ljubljanska (Slovenia), Soros Capital Management Investment Fund (USA) and Volksbank (Austria). Three more banks will be privatized by the end of 2004 with likely foreign participation. Other countries in the region are also becoming a source of investment, in early 2003, Croatia's leading vertically integrated food-processing company, Agrokor, purchased Frikom, a Serbian food processor. Slovene investors have purchased hotel assets on Montenegro's coast and invested in a new retail store in Belgrade (Mercator).
Serbia and Montenegro has enacted specific legislation outlining guarantees and safeguards for foreign investors. The former Yugoslav Law on Foreign Investments (January 2002), amended and formally incorporated into Serbian law (2003), establishes the framework for investment in the republic. The law eliminates previous investment restrictions; extends national treatment to foreign investors; allows for the transfer/repatriation of profits and dividends; provides guarantees against expropriation; and allows for customs duty waivers for equipment imported as capital-in-kind. In late 2002, the Government of Serbia promulgated new tax incentives for foreign investors. Montenegro's Foreign Investment Law (November 2000) incorporates these same rights and protections for foreign investors. Through this law, the Montenegrin government does provide some foreign investment tax incentives.
With 7.5 million people, the Serbian market is among the largest in the region. In addition, Serbia and Montenegro is the only country outside of the Commonwealth of Independent States that enjoys a free trade agreement with the Russian Federation, giving customs-free access to a market of 150 million people. A tradition of cooperation with foreign companies and decades of openness towards the West are visible in the skill-set. Significantly, this exceptional human capital is available at very competitive prices. The cost of labor in Serbia is significantly lower than in most Central and Eastern European countries.
The tax regime in Serbia is conducive to investments, with the following major features:
- the lowest corporate profit tax rate in Europe, set at 10%;
- tax credits for investing in fixed assets of up to 80% of the assets' value;
- a 10-year tax holiday for investments of €7.5 million or more;
- Government subsidies, tax exemptions, and other incentives for creating new jobs.
"Serbia has the same pace progress, if not even faster than praised Poland at the time, which was pointed out as the praiseworthy country in transition", EBRD representative did not save the admiration. Director of European Bank for Recovery and Development in SAM explained his overwhelmed impression of the reforms with the achieved macroeconomic stability, financial sector determined restructuring, legacy reforms and the announcements of its continuation. Opinion of the World Bank representatives is that the present progress is impressive. WB is one other key international financial institution to materially cover its admirations.
Foreign investors still do not rush in great numbers into SAM but the fact that the most important international financial institutions and leading world's expert agencies want to motivate them to do so, tell us we could expect a lot more than the previous years.
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