slide 1 serbia economic centre of southeast europe after the democratic changes in serbia, the...

SERBIA SERBIA ECONOMIC CENTRE OF SOUTHEAST EUROPE ECONOMIC CENTRE OF SOUTHEAST EUROPE

After the democratic changes in Serbia, the six-year period of transition was marked by the efforts to promote and develop market economy, which includes essential economic reforms . Implementation of such reforms was carried out with different dynamics and success in certain stages of transition.

Generally speaking, the results of transition have enabled Serbia to become an economic centre of the Southeast Europe.

Real GDP growth rates

Real GDP growth rates show that substantial progress has been achieved in relation to the period before democratic changes and transition reforms. Gross domestic product in the period 2001-2005 grew at the average annual rate of 5.5%. The dynamic reforms that lasted for several years, since 2001, resulted in the highest growth in 2004, that is 9.3%, when the first effects of privatization were evident. In 2005, in relation to 2004, real GDP growth rate was 6.3%, while in the first six months of 2006, in relation to the same period last year, it was 6.7%.

The Serbian economy changed qualitatively, and in 2005, service industry became the primary generator of growth, and within it particularly: transport, storage and communications (23.0% growth in relation to the previous year); wholesale and retail trade (21.9%), financial mediation (16.9%) etc. The same trend continued in the first half of 2006, but this time transport and financial services showed more dynamic growth than trade.

GDP in million USD and GDP per capita

It is evident that in the five-year period of transition, GDP grew from 10.6 billion USD, in 2001, to 24.6 billion USD in 2005. In the same time GDP per capita grew from 1,371 to 3,283 USD. According the estimates of the Ministry of Finance, GDP per capita could exceed the amount of 3,500 USD in 2006.

Structure of gross added value (2005)

In parallel with the growth of GDP, its structure changed. Gradually a turn was taken from the primary and secondary sectors towards service sector, which is one of important indicators of the overall economic progress. In 2005, the share of services in the structure of gross added value reached 56.7%, which is much higher than in the first year of transition, but it is still below the share they have in highly developed economies (about 70%).

The growth trend in the share of services in gross added value continued in 2006 (expected growth in 2006 is about 1.8 %).

Industrial production in Serbia 2000-2006 (growth rates in %)

Industrial production has had changing dynamics in the last years. As in all other transition economies, it was difficult to achieve simultaneously macroeconomic stability and satisfactory production growth. Certain stages of slowdown in growth of industrial production were followed by falling inflation and vice versa. Nevertheless, in 2002 in relation to 2001, there was a growing trend in industrial production (1.8%), and inflation decreased (from 40.7% in 2001 to 14.8% in 2002).

Industrial production growth of 5.5%, in the period January-September 2006, in relation to the same period previous year, resulted from rise in domestic demand, which was fostered by high growth of bank loans. The impact of rise in foreign demand was also significant, within the context of favourable conjuncture on the world market.

Annual inflation rates 2000-2006 (%)

In the period 2000-2005, the lowest inflation was recorded in 2003, when it amounted to 7.8%. It was already in 2004 and 2005 that much more dynamic growth in retail prices was recorded, 13.7% and 17.7% respectively.

The beginning of sixth year of transition was also marked by inflationary pressures. However, restrictive measures of the NBS monetary policy and budgetary surplus, along with the policy of strong dinar, resulted in stopping inflationary trends in the second half of the year. Thus, in October 2006, in relation to December previous year, inflation amounted to 5.6%, and it is expected that at the end of this year it will be much below the projected level of 9.3% (estimation of the Ministry of Finance is 7-7.5%).

Serbian foreign trade, 2000-2006

Serbia has achieved high deficit in foreign trade. In 2004, the deficit exceeded 7 billion USD, while in 2005 commodity trade deficit was reduced to about 6 billion USD.

In the period January-September 2006, when Montenegro was evidenced as a foreign market for the first time, trade deficit amounted to 4.8 billion USD. In the same period, exports reached 4.5 billion USD, while imports amounted to 9.3 billion USD.

High deficit and the need for dynamic development of the Serbian economy impose the necessity of faster growth of exports in the forthcoming period. The so far growth of the Serbian economy, which has mainly depended on domestic demand, should be reoriented towards the international market requirements, in order to take the challenges of expansion to foreign markets.

Coverage of import by export, 2000-2006

Coverage of import by export, with certain oscillations in the observed transition period, has not been satisfactory. In 2005, coverage of import by export was 43.1%, and in the period January-September 2006 it grew to 48.7%.

Although the coverage of import by export is higher in the current year (which has been mainly caused by evidencing Montenegro as an international market), Serbia will have to make great efforts for a long time to change its economic structure, which is traditionally highly dependent on import.

Serbian export structure, January-September 2006

The so far structure of Serbian exports has been very unfavourable, because the products of lower processing stage are dominant (the share of reproduction material in overall exports in the first nine months of 2006 amounted to 67.5%, while the share of equipment was only 5.7%, and of consumer goods 26.8%).

To enable dynamic growth of export in the forthcoming period and reduce foreign trade deficit, it is necessary to make structural adjustments in accordance with the target markets requirements. Such adjustments require the strategic approach.

Serbian import structure, January-September 2006

In the structure of goods import, reproduction material is also dominant, with the share of 63.6%, with particularly high share of oil and oil derivatives and other sources of energy. Import of consumer goods accounts for 21.0%, and equipment 15.4%.

To achieve accelerated development and growth of the country, domestic producers must improve their competitive position, which requires much higher import of new generation capital goods. In the forthcoming period, therefore, we should expect increase in imports of equipment and intermediary goods and certain decrease in imports of consumer goods.

Serbian export in the period I-IX 2006, by major partner

In the first nine months of 2006, major export markets were: Italy, Bosnia and Herzegovina, Montenegro, Germany and Macedonia. The value of goods marketed on these five markets was round 2.3 billion USD, which is 51.1% of the total exports in that period.

The strategic approach to entering new markets should contribute to higher exports in the forthcoming period.

Serbian import in the period I-IX 2006, by major partner

The major countries – partners in import in the period January-September 2006, were: Russian Federation, Germany, EMU, Italy and China. These five countries accounted for 4.5 billion USD, which was 48.8% of the total value of the Serbian import of goods in the first nine months of 2006.

If we make individual analysis, the biggest import market in the observed period was the Russian Federation, with more than 1.5 billion USD, or 16.5% of the total Serbian import.

Foreign direct investments in the period 2001 – August 2006

As the result of many-year changes towards encouraging FDIs, a relatively high level of FDIs was recorded in some years of the transition period : in 2003 – 1,360 million USD; in 2005 – 1,481 million USD; and in the period January-August 2006 – 3,364 million USD. According to the estimations of the Ministry of Finance, by the end of 2006, FDIs could reach the value of almost 4.0 billion USD.

Further development of the Serbian economy will largely depend on fulfillment of the political conditions, which will have impact on continuation of negotiations on the Stabilization and Association Agreement. The political stability will largely determine attractiveness of Serbia for foreign investors.

Attraction of FDIs, (greenfield investments in particular) is one of the key factors for further development of the Serbian economy, on its way to the EU.

Major investors in Serbia in the period 2001 – August 2006

Major investors in Serbia, in the period 2001 - August 2006, were the following countries: Norway, Germany, Austria, Holland, Greece, etc. The five mentioned countries invested into Serbia 4.9 billion USD, i.e. 62.5% of the total FDIs in the observed period.

Slides 15- 24

FDI success stories in Serbia

FDI success stories in Serbia are: „Telenor” from Norway, “Stada” from Germany, „Tetra Pak“ from Sweden, „US Steel“ and „Ball Corporation“ from the USA, „Credit Agricole“ from France, Brewery „Carlsberg“ from Denmark and “Eurobank EFG Group” from Greece, etc. They have found interest in investing in various economic activities in Serbia and achieved enviable success.

It is in the interest of further development of Serbian economy, to attract substantial foreign capital, modern management, know-how and technological innovations, and to use all available benefits to attract foreign capital to Serbia. Some of the benefits already exist: favourable geo-strategic position; availability of highly educated personnel; relatively high percentage of population with good knowledge of English language and relatively low labour costs; laws in different fields adjusted to the EU laws; tax and other benefits, etc.

Some very important conditions should be further promoted and created: stable political environment, fulfillment of political conditions for continuation of negotiations on stabilization and association with the EU, promotion of regional cooperation, continuation of privatization process and restructuring of public companies, achievement of long-term macroeconomic stability, equalization of the balance of payments, further harmonization of regulations with the prevailing EU regulations, development of infrastructure, etc.

SERBIA SERBIA ECONOMIC CENTRE ECONOMIC CENTRE

OF SOUTHEAST OF SOUTHEAST EUROPEEUROPE

Slobodan Slobodan Milosavljević,Milosavljević, PhDPhD

SCC PresidentSCC President

Real GDP growth rate Real GDP growth rate

2,4

6,7

6,35,2 5,14,5

9,3

0

1

2

3

4

5

6

7

8

9

10

2000 2001 2002 2003 2004 2005 I-VI2006*

Note: * Growth rate for the first half of 2006 in relation to the same period previous year.Source: According to Republic Statistics Office

GGDP DP inin mil million lion USD USD andand GDP pGDP per capita er capita

2638524600

22400

18900

14300

10600

3518

3283

2902

2478

1908

1371

0

5000

10000

15000

20000

25000

30000

2001 2002 2003 2004 2005 Procena2006*

Mil

. U

SD

0

500

1000

1500

2000

2500

3000

3500

4000

US

D

GDP in million USD GDP per capita

Napomena: * Procena Ministarstva finansija RSIzvor: NBS, Ekonomski pregled, januar 2006.

Gross added value Gross added value structurestructure (2005) (2005)

Services 56.7%

Agriculture, hunting, forestry

and fishery 15.3%

Industry24,4%

Construction industry3.6%

Izvor: RZS.

IndustriIndustrial production in Serbiaal production in Serbia2000-2006 2000-2006 (growth rate (growth rate %)%)

11,4%

0,1%

1,8%

-3,0%

7,1%

0,8%

5,5%

-4

-2

0

2

4

6

8

10

12

14

2000 2001 2002 2003 2004 2005 I-IX 2006*

Note: * Industrial production growth rate in the period January-September 2006 in relation to the same period previous yearSource: Republic Statistics Office

Makro

ekon

om

ska

sta

biln

ost

113,3%

40,7%

14,8%

7,8%

13,7% 17,7%

5,6%

0

20

40

60

80

100

120

2000 2001 2002 2003 2004 2005 I-X 2006*

Note: * Price growth in October 2006 in relation to December previous year .Source: Republic Statistics Office

Annual inflation rates (%)

Serbian foreign tradeSerbian foreign trade, 2000-, 2000-20062006

15583330

-1772

1721

4261

-2540

2075

5614

-3539

2756

7477

-4721

3523

10753

-7230

4553

10576

-6023

4515

9267

-4752

-10000

-5000

0

5000

10000

15000

Mil.

USD

2000 2001 2002 2003 2004 2005 I-IX 2006*

ExportImportBalance

Note *In September, Montenegro was recorded as a foreign market for the first time. Source: Republic Statistics Office

Coverage of import by Coverage of import by exportexport, ,

2000-20062000-200646,8%

40,4%

37,0% 36,9%

32,7%

43,1%

48,7%

25

30

35

40

45

50Per

centa

ge

2000 2001 2002 2003 2004 2005 I-IX 2006*

Note *In September, Montenegro was recorded as a foreign market for the first time.

Source: Republic Statistics Office

Serbian export structureSerbian export structure, , JJanuaranuaryy--SSeptembeptembeer 2006r 2006

Reproduction

material

67.5%

Equipment

5.7%

Consumer goods

26.8%



Serbian import structureSerbian import structure, , JJanuaranuaryy--SSeptembeptembeer 2006r 2006

Consumer goods21.0%

Equipment15.4%

Reproduction material, 63.6%



Serbian export in the periodSerbian export in the period I-IX I-IX 20062006, by major partner , by major partner ((in millionin million

USD)USD)

Source: Republic statistics Office

133.8

170.2

172.0

177.2

203.9

212.2

460.0

468.5

528.6

638.3

0 100 200 300 400 500 600 700

Italy

Bosnia and Herzegovina

Montenegro

Germany

Macedonia

Russian Federation

Croatia

Slovenia

France

Austria

Serbian import in the periodSerbian import in the period I-IX I-IX 20062006, by major partner, by major partner ( (in millionin million

USD)USD)


230.6

240.4

250.6

273.2

317.3

526.3

771.8

810.8

887.2

1529.3

0 200 400 600 800 1000 1200 1400 1600

Russian Federation

Germany

EMU

Italy

China

Romania

Bulgaria

France

Croatia

Bosnia and Herzegovina

FOREIGN DIRECT INVESTMENTS IN THE FOREIGN DIRECT INVESTMENTS IN THE PERIOD PERIOD 20012001-AUGUST -AUGUST 20020066

((IN MILLION IN MILLION USD) USD)

475165

1360

966

1481

3364

560

188 186

-29

53

233*

0

500

1000

1500

2000

2500

3000

3500

4000

2001 2002 2003 2004 2005 I-VIII 2006

Mil.

US

D

-100

0

100

200

300

400

500

600

Per

cent

age

FDI inflow Annual FDI inflow growth in %

Note: * Growth rate January-August 2006 in relation to the same period previous year.

Source: NBS.

Major investors in SerbiaMajor investors in Serbia in the in the period 2001 - 2001 - AugustAugust 2006 2006

(net i(net investmentsnvestments, mil, millionlion USD) USD)

46.6

81.6

87.9

208.6

245.8

290.7

521.8

540.2

780.4

1097.1

193.,3

0 200 400 600 800 1000 1200 1400 1600 1800 2000

Mil. USD

Norway

Germany

Austria

Holland

Greece

Great Britain

France

Cyprus

Slovenia

Croatia

Slovakia

Source: NBS

FDI success stories in FDI success stories in Serbia-1Serbia-1

Chief Executive Officer for Serbia

Stein-Erik Vellan

Telenor is one of the largest mobile operators worldwide with the share in ownership of 13 mobile operators in Europe and Asia, and with more than 100 million subscribers. In September, Telenor celebrated a very important event – one millionth subscription, and at the end of the third quarter Telenor provided services to 105 million subscribers on a hundred percent basis. The figure includes 2.3 million Telenor subscribers from Serbia. After the investment of 1.513 billion euros, on 31 July 2006, Telenor has been operating officially in Serbia since 1 September this year.

Only a month after having approached the Serbian market, the company invested 15.3 million euros into new equipment, to meet the requirements for further expansion of the network to the whole territory of Serbia.

Telenor Srbija

FDI success stories in FDI success stories in Serbia-Serbia-22

Hemofarm Vršac

Miodrag Babić,

Managing Board President:

German company Stada has purchased, within the set time limit, 97.9 % of our company’s shares, and thus officially become a majority owner of Hemofarm. A. D. Stada offered 485 million euros to purchase 100 % Hemofarm shares, which was the most valuable purchase in the history of this 111-year-old company. According to recent information, 480.4 million euros were paid for 97.9 % shares by Stada. The tender of this German company was evaluated as exceptionally good and favourable, both for shareholders and further development of Hemofarm. The Contract between Stada and Hemofarm protects completely the vital interests of Hemofarm, i.e. its brand, the seat of the company remains unchanged, the same social responsibility for the employees will be maintained, etc.

FDI success stories in Serbia-3Tetra Pak - Sweden Licensed production in Serbia since 1960s

Acquisition was carried out in 1997

Export oriented to the EU and Russia

One of five most productive factories in Europe (out of 15)

Mr. Nelson Falavina, Managing Director:

During his 16-year employment in the company Tetra Pak, he worked on sale, marketing and management.He came to Serbia in January 2006, fromTetra Pak-Venezuela, where he occupiedthe post of Managing Director. Today he is responsible for Tetra Pak Balkan, which covers the markets of Romania, Bulgaria, Moldova, Macedonia, Republic of Srpska and Serbia.

FDI success stories in Serbia- 4US Steel - USA Sept 2003 – The greatest steel mill in Serbia

emerged through acquisition of a bankrupted company.

Turning point in business occurred in 2004.

In 2005, the company U. S. Steel Serbia was proclaimed the best Serbian exporter. Mr. Douglas R. Matthews, General Director:

“Our employees have been efficiently trained in the field of continued promotion of safety at work, product quality, consumer services, environmental protection and cost reduction.”

FDI success stories in Serbia-5

Ball Corporation – USA

Regional centre – manufacturing of equipment for aluminum cans

Foundations were laid in May 2004, production started in May 2005

Greatest Greenfield investment in the Region in 2003, OECD award

Mr. Anthony Barnett, Director

Photo by AmCham Serbia

FDI success stories inFDI success stories in S Seerbirbia-a-66

Crédit Agricole

Meridian Meridian BankBank - member of Credit - member of Credit AgricoleAgricole Group, the Group, the second biggest bank in the world by capital valuesecond biggest bank in the world by capital value..

ObjectiveObjective:: Leadership in retail banking Leadership in retail banking, , SMEs and SMEs and transactions with the business sectortransactions with the business sector

Božidar Božidar DjDjelićelić, , Meridian Banke A.D.Meridian Banke A.D. Managing Board Managing Board PresidentPresident

Tomislav Đorđević, General Director:

“Owing to the partnership with Credit Agricole, Meridian Bank will be in the position to speed up its development and offer the clients throughout Serbia complete services and products. "

FDI success stories inFDI success stories in SSeerbirbia-a-77

Carlsberg - Denmark

In September 2003, the decision was reached to buy the majority package of shares (51%) in Čelarevo Brewery.

Mr. Boguslaw Bartczak,

CEO Carlsberg Čelarevo Brewery:

“In the first eighteen monthsafter acquisition of the ČelarevoBrewery,12 million euros were invested into modernizationof production facilities,promotion of our brand, expansion of distribution network, promotional campaign

and local utility projects. We are particularly proud of three-million-euro worth production line for PET bottling of beer, with the capacity of 8,200 PET two-liter bottles per hour.”

FDI success stories inFDI success stories in SSeerbirbia-8a-8

Dr.Georgios Dr.Georgios E.LychnosE.Lychnos, , DDirectorirector

National Savings Bank – the bank was National Savings Bank – the bank was established in 2002. as a joint-stock company. In established in 2002. as a joint-stock company. In September 2005, Eurobank EFG Group, the most September 2005, Eurobank EFG Group, the most dynamic bank in the Southeast Europe Region, became dynamic bank in the Southeast Europe Region, became the owner of the majority stake. In March 2006, the owner of the majority stake. In March 2006, Eurobank purchased the Government package of shares Eurobank purchased the Government package of shares and thus became the owner of the entire National and thus became the owner of the entire National Savings Bank. Savings Bank.

On the takeover of this prosperous domestic On the takeover of this prosperous domestic bank, the leaders of Eurobank EFG Group committed bank, the leaders of Eurobank EFG Group committed themselves to place innovative products and high-themselves to place innovative products and high-quality services at the disposal of the National Savinks quality services at the disposal of the National Savinks Bank’s customers. This has been confirmed by the offer Bank’s customers. This has been confirmed by the offer of Euro BONUS saving to the owners of old citizens’ of Euro BONUS saving to the owners of old citizens’ foreign exchange savings bonds.foreign exchange savings bonds.

National Savings Bank

NorwayNorway

277277AcquisitionAcquisitionBankingBankingItalyItaly

150150Acquisition through Acquisition through liquidationliquidationSteelSteelUSAUSA

5353AcquisitionAcquisitionPivoPivoDenmarkDenmark

6767Joint ventureJoint ventureFloor coveringsFloor coveringsGermanyGermany

7070PrivatizationPrivatizationHousehold cleaning Household cleaning agentsagentsAustriaAustria

8080GreenfieldGreenfieldPackagingPackagingUSAUSA

8787PrivatizationPrivatizationTobaccoTobaccoGreat BritainGreat Britain

9494PrivatizationPrivatizationCementCementGreeceGreece

126126PrivatizationPrivatizationCementCementFranceFrance

185185PrivatizationPrivatizationCementCementSwitzerlandSwitzerland

210210PrivatizationPrivatizationOilOilRussian Russian FederationFederation

326326AcquisitionAcquisitionBeerBeer BelgiumBelgium

480480AcquisitionAcquisition PharmaceuticalsPharmaceuticalsGermanyGermany

Value Value (mil. EUR)(mil. EUR)Form of investmentForm of investmentActivityActivityCountry of originCountry of originCompanyCompany

Major investors in Serbia

TelecommunicationsTelecommunications PrivatizationPrivatization 15131513

518518 PrivatizationPrivatization

USAUSA TobaccoTobacco

Foreign Banks inForeign Banks in SSeerbirbiaa::

ALPHA BANK A.E.ALPHA BANK A.E. BANCA INTESABANCA INTESA CREDIT AGRICOLECREDIT AGRICOLE EFG EUROBANK A.D.EFG EUROBANK A.D. ERSTE BANKERSTE BANK HVB BANKA A.D.HVB BANKA A.D. HYPO ALPE-ADRIA-BANK A.D.HYPO ALPE-ADRIA-BANK A.D. LHB BANKALHB BANKA NATIONAL BANK OF GREECE S.A.NATIONAL BANK OF GREECE S.A. NOVA LJUBLJANSKA BANKANOVA LJUBLJANSKA BANKA PIRAEUS BANKPIRAEUS BANK ProCredit BANK A.D.ProCredit BANK A.D. RAIFFEISENBANK A.D.RAIFFEISENBANK A.D. SOCISOCIÉÉTTÉÉ G GÉÉNNÉÉRALE YUGOSLAV BANK RALE YUGOSLAV BANK

A.D.A.D. VOLKSBANK A.D.VOLKSBANK A.D.

kupovina domaće banke - Trust banka

Green field investicija


kupovina domaće banke - Atlas banka

kupovina domaće banke - Kontinental banka


kupovina domaće banke - Prva preduzetnička banka


Green field investicijakupovina domaće banke - Eksim banka

kupovina domaće banke - Novosadska banka

Green field investicijakupovina domaće banke - Nacionalna štedionica i Post banka

kupovina domaće banke - Meridian banka

kupovina domaće banke- Delta banka

Green field investicijakupovina domaće banke - Jubanka


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