Forza Serbia!

By bne IntelliNews October 21, 2009

Ian Bancroft in Belgrade -

When a strategic partnership between Belgrade and Fiat was signed just days prior to the pivotal parliamentary elections of May 2008, it not only had immediate and important political implications, but it reconfirmed Serbia's growing strategic importance to Italian companies.

With over 200 currently operating in Serbia, employing more than 18,000 and generating total revenue of around €2.4bn a year, such investments, particularly in the banking and automobile sectors, constitute an increasingly key part of the Serbian economy. Thanks to its skilled, yet still inexpensive, labour force, with a strong manufacturing heritage; free trade agreements with a variety of neighbouring countries such as, crucially, Russia; plus low corporate tax rates and a plethora of government inducements, Serbia continues to cement its reputation as an attractive destination for Italian capital.

Since purchasing a 67% stake in Zastava, a symbol of the Yugoslav automaking industry, in September 2008, Fiat has invested heavily in modernizing the Kragujevac manufacturing plant, 110 kilometres south of Belgrade, where it enjoys a 10-year break on local taxes and pledges of free land for any future expansion. Once production resumes in 2011, Fiat will churn out an estimated 200,000 units per year of a new low-cost car brand - seen as a potential rival to Renault's Dacia and Tata Motors's Nano in India - which will be exported worldwide.

Aside from competitive labour and other resources costs, the willingness of the Serbian government to engage in a joint-venture with Fiat - with the former contributing some €200m of initial investment, the latter around €700m - was a decisive motivating factor behind the deal. Subsequently, Magneti Marelli (Fiat's main components subsidiary) and Iveco (Fiat's truck, bus, and diesel engine manufacturing subsidiary) were also enticed to Serbia.

Legwork

Another Italian company to benefit from the Serbian government's financial inducements is Golden Lady, one of the world's leading producers of hosiery, tights and socks. Having initially chosen Serbia because of its strategic logistical position vis-a-vis its Balkan neighbours, Turkey and other emerging European markets, plus the ability to import machinery duty-free, Golden Lady attributed the Serbian government's €3m grant for greenfield investment as a important factor behind its decision to make investments totaling nearly €100m.

According to Fabio Paternoster, a controller at Golden Lady, "the duty free regime between Serbia and Russia represents an additional attraction given the strategic importance of the Russian market for Italian small and medium-sized enterprises." Furthermore, "attractive government incentives, such as a 10-year exemption from corporate profit tax for investments exceeding €7.5m and creating 100 new jobs, encourage investments in production capacity," insists Paternoster.

Biagio Carrano, managing director of eastCOM Consulting, a Belgrade-based consultancy specialised in marketing and communication services for Italian companies operating in the Balkans, emphasizes how the Fiat deal has "reassured many about the reliability of Serbia's markets and institutions, encouraging them to start investing in Serbia in order to "trampoline" into other eastern European markets."

Carrano adds that in order to do so, "many Italian companies have started to develop an international corporate culture and are striving to introduce organisational innovations, such as outsourcing, into Serbia."

Pompea, a leading producer of lingerie, sports and leisure wear, as well as children's swimwear, also plans to invest around €17m over the next three years in new production plants in the free business zone in Zrenjanin, roughly an hour north of Belgrade.

Serbia currently has four duty-frees zones offering favourable conditions for foreign investors, with a further three due to open in the near future. Aside from the high productivity realised, Marco Sestan, an advisor to Italian companies in the region, stresses how, "Serbia's 10% corporate tax rate is very competitive, plus there are no particular problems in transferring dividends to Italy thanks to a 1982 agreement with the former Yugoslavia."

Nor is the success of Italian companies limited to manufacturing. In the fields of finance and insurance, Italian companies account for one quarter and 44% of each sector, thanks in large to the continued successes of Banca Intesa and Fondiaria, respectively. In the pharmaceuticals sector, meanwhile, Zanini Hemofarm, a successful drug-packaging firm located close to the Romania border, was established out of a joint venture between the Serbian company Hemofarm and Grafica Zanini from Pisa. Italian investors have also expressed interest in a variety of other sectors, including energy, IT, transport infrastructure, agriculture and waste management.

The recent signing of a joint declaration on strengthening economic cooperation, and the scheduling of the first inter-governmental summit between Italy and Serbia in November, epitomises the current vitality of relations between the two. With Serbia intent on deepening and diversifying such ties, particularly by supplementing the incentives available and by attempting to negotiate the inclusion of vehicles into its free trade agreement with Russia, its significance and potential to Italian investors continues to multiply, in spite of the hazy economic outlook and lingering uncertainty.


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