Growing trade between Serbia and Croatia breeds new antagonisms

By bne IntelliNews September 21, 2010

Ian Bancroft in Belgrade -

Whilst the extradition of Sretko Kalinic - allegedly involved in the 2003 assassination of Serbian Prime Minister Zoran Djindjic - from Croatia to Serbia has been hailed as the latest sign of reconciliation between the two former adversaries, increasing trade is fuelling new economic animosities.

A 2009 economic cooperation deal is starting to bear fruit; trade totalled €530.4m last year, making Croatia Serbia's 10th most important trading partner. In the first half of 2010, trade between the two was up almost 5% on year, with Serbian exports growing 7.5% and Croatian exports 3.1%. Croatia is also Serbia's sixth largest foreign investor, accounting for 19% of total Croatian investments abroad, making Serbia its second most important market after the Netherlands.

One of the latest high-profile deals came in the summer when Croatia's Atlantic Grupa brought Istrabenz's food and beverage company, Droga Kolinska, for €382m, in the process acquiring a string of leading day-to-day brands on the Serbian market, such as Cedevita, Argeta, Barcaffe, Grand Kafa, Cockta and Smoki.

Yet while over 200 Croatian companies are active in Serbia, only around a dozen Serbian companies operate in Croatia - a situation that some Serbs hint darkly is no accident. "Croatian capital is welcome in the Serbian market and treated just as any other foreign capital, in some cases even better than domestic capital," Ivan Jaksic, spokesperson for the Serbian Chamber of Commerce, tells bne. "It is quite evident, however, that Serbian capital does not enjoy even remotely as good treatment as Croatian capital does.

Jaksic points out that the only Serbian investment in Croatia was the €20m purchase of EuroFood Market from Sisak by Swisslion-Takovo despite several attempts by Serbian companies to take part in the privatisation of Croatian companies. He even cases of direct obstruction and annulment by the Croatian authorities, such as the experience of Serbia's Galeb Group, which tried to buy a majority stake in Pluto from the government, or the attempt by Delta to take over the meat company Improm from Krizevci, or to buy land belonging to Zagrepcanka in Zagreb.

Goran Masnec, director of the Croatian Chamber of Economy Representational Office in Serbia, which promotes, represents and informs Croatian businesses, disputes this version of events, insisting that despite this widespread perception within Serbian business circles, his office has not received a single complaint by a Serbian company, nor has he heard of concrete examples from Serbian companies. Whilst Serbian companies request "lists of potential business partners...[such as] manufacturers, importers or distributors in Croatia," Croatian companies enquire about "direct appearance" on the Serbian market.

Masnec attributes these differences in perspective to economic and logistical factors, arguing that most Serbian companies with export potential are oriented towards agricultural production or the manufacture of semi-finalised products, and so don't need - or find it too expensive - to establish their companies abroad. Furthermore, Serbia's government has failed to set up a strong economic team within its embassy in Zagreb or a representational office of the Serbian Chamber of Commerce, which would help prepare and follow business activities of Serbian companies in Croatia.

Better equipped

The strength of Croatian investments into Serbia, however, can also be attributed to the countries' different phases of economic development and levels of government support. As Jaksic points out, "privatisation and the entire process of transition and restructuring of the Serbian economy have been lagging behind the rest of the region, particularly Croatia, where these processes are practically complete. Croatian companies were, therefore, ready to welcome the beginning of privatisation in Serbia. In addition, they also had a significant support from the state with these acquisitions, which is also necessary for Serbian companies in order to make a breakthrough into the Croatian market."

Masnec concurs, adding that those Serbian companies privatised through domestic capital are expanding to other markets based on their financial power and business strategy, looking for markets with lower tax rates, cheaper labour and less competition. "It is, therefore, logical that Serbian investment is primarily focused on Bosnia-Herzegovina and Montenegro," he says.

The irony is that growth in trade between the former adversaries was supposed to help cement ties and help heal the divisions from the Balkan wars of the 1990s. However, what it's also doing is focusing attention on the economic differences between the countries and this lack of reciprocity could pressure governments, often eager to distract from their insufficient and ineffective support for domestic firms, into tit-for-tat measures amidst the economic downturn.

Jaksic stresses that Serbia shouldn't resort to reducing cooperation with Croatia, but instead work it "to present the region jointly in the markets of third countries." Such a practice would serve as a positive and constructive example to the rest of the Balkans and elsewhere.

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