Ian Bancroft in Belgrade -

With rising unemployment, particularly amongst young people, local economic development is a key issue in Serbia's upcoming May elections - particularly after the Serbian Association of Small and Medium-Sized Enterprises and Entrepreneurs (APPS) publicly criticized the current government and announced its support for the opposition Serbian Progressive Party.

Amidst the challenges of post-socialist and post-war transition, several municipalities throughout Serbia - particularly Valjevo, Stara Pazova, Sremska Mitrovica, Ruma, Nis, Cacak and Zajecar - have been working hard to create more business-friendly conditions.

It's not been easy: Violeta Jovanovic, executive director of the National Alliance for Local Economic Development (NALED), tells bne that attracting investment requires that Serbian municipalities offer "competitive conditions...[including] simple procedures, efficient administration, well-equipped land and financial incentives, as well as advanced marketing tools for promoting their investment potential."

In order to improve economic competitiveness, Jovanovic stresses that more attention needs to be paid to regional cooperation to harmonise business standards in Southeast Europe. With this in mind, NALED has implemented a business-friendly certification programme - whose evaluation criteria pertain to strategic planning in partnership with businesses, efficient systems for securing construction permits, transparent local taxation and financial incentive policies, and investments in local workforce development - as a means of introducing "common standards of business environment quality."

Despite the challenging economic conditions, several municipalities have begun to see the fruits of their labours. As Branislav Nedimovic, mayor of Sremska Mitrovica, a municipality some 60 kilometres due west of Belgrade, explains: "the difficult period we live in cannot at any time be an excuse for not working to create a better Mitrovica."

He says the past few years have seen the completion of 242 different infrastructure projects, worth almost RSD2.4bn [about €22m]. And these improvements - which include the development of industrial zones and the establishment of an Office for Local Economic Development - has helped create some 3,000 new jobs since 2007. "Infrastructure is only a prerequisite for dealing with the biggest problem in the country - unemployment," he says. "We need to continue the path of foreign investments, as they bring us the jobs we all need."

Other municipalities have also enacted reforms worthy of replication elsewhere in the country. Zrenjanin for instance - the second largest municipality in terms of area, roughly 76 km north of Belgrade - has, in partnership with Slovenia's Kolpa, established six duty free zones and plans to reconstruct Ecka Airport and build a pier on the Begej River. Valjevo - one of only three cities with its own credit rating ('B1') - has attracted investment from Austrotherm (a manufacturer of insulation products), Interrex, Gorenje (which produces domestic appliances) and Golden Lady (one of the world's largest producers of hosiery), amongst others.

Velimir Stanojevic, mayor of Cacak in central Serbia, tells bne that a large number of steps have been taken in his patch, including the adoption of strategic documents and the foundation of a Science and Technology Park. "We invest a lot in education...[and] our efforts in the future will be focused on becoming a university town," Stanojevic says, adding how such work was only the "foundation stones" on which the future of the town would be constructed; "nourishing tradition, yet also following modern trends."

Red tape

In spite of such valiant efforts at the local level, many structural obstacles to stimulating inward investment remain. Aside from the general economic downturn, excessive bureaucracy and lack of affordable credit remains one of the key impediments for many small businesses.

The recent draft Law on Development Bank of Serbia has been criticised not only because of the lack of public consultation, particularly with business, but because it doesn't provide for oversight by the National Bank of Serbia and possesses extremely low start-up capital (€400m). Fears abound that the Development Bank will lack transparency, be vulnerable to corruption and do little more than prop up loss-making enterprises chosen on a criteria other than economic rationale - similar criticisms to those leveled at Serbia's Development Fund. There are also question marks as to whether a new Development Bank would provide more favourable funding rates than those currently offered by the Development Fund.

The example of business friendly-certified municipalities provides a source of considerable optimism amidst a largely bleak economic picture. Indeed, in a country as centralised as Serbia - with its largely Belgrade-dominated institutions and outlook - such municipalities are key drivers of economic reform; advocating for legislative and institutional changes necessary to improve the business climate of Serbia as a whole.

In the absence of wholesale reforms necessary to create a more favourable climate for local economic development and the flowering of small businesses, Serbia's unemployment will continue to place an intolerable socio-economic strain on the country's creaking public finances and services. Only local economic development can provide a way out of the downward economic spiral.