FDI at risk in Serbia's drawn out political fight

By bne IntelliNews June 7, 2012

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Serbian prime ministerial hopeful Boris Tadic moved to push his bid to form a new government on June 6 with claims that political uncertainty threatens to derail two major investments.

The former president, who is locked in talks over a new government with President Tomislav Nikolic who beat him to his office in a vote in May, said that two Italian investors - steelmaker Danieli and watchmaker Alessandro Baldieri - have postponed planned investments in Serbia due to the political vacuum.

Danieli signed a memorandum of understanding with Tadic's administration on March 29 on developing a €500m plant in the western city of Sabac that would employ about 1,000 people and produce some 750,000 tonnes of steel a year, with a view to supplying Fiat's new factory in Kragujevac. Baldieri also signed an MoU in March, and the pair were expected to ink final deals in June.

However, the Italian company acquired the Croatian Pipe Mill and CMC Sisak in eastern Croatia for $30m on June 5. "Danieli has made an investment in Croatia. This is bad news for us, and this happened after the elections," Tadic told reporters, according to Tanjug. "Every company takes care of its interests and all potential investors are waiting to see the result of forming the Serbian government," he added, claiming that investors are nervous over which direction the new government will take.

Negotiations over a new administration with Nikolic continued the same day, with Tadic claiming that his Democratic Party, in coalition with the Socialist Party, hopes to win a mandate in parliament imminently. "We believe we can secure a parliamentary majority in a few days" that would back the new cabinet, he said, according to Bloomberg. "The main questions in all the talks with all the parties are Serbia's economic future and the challenges we face in the domain of fiscal and macroeconomic policies."

Political horse trading took off in earnest following the May 6 parliamentary election, which saw Nikolic's Serbian Progressive Party (SPP) win the most seats, but come well short of securing a majority in the 250-seat house. The second-placed Democrats quickly moved to renew a coalition agreement with the third placed Socialists to keep the incumbent administration in office. However, Nikolic's defeat of Tadic in a presidential run off on May 20 put the cat amongst the pigeons, and the SPP is resisting the proposed coalition.

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