Serbia's fast lane to development

By bne IntelliNews July 14, 2010

Ian Bancroft in Belgrade -

Stretching from Salzburg to Thessaloniki, via Ljubljana, Zagreb, Belgrade and Skopje, the construction of Corridor X - one of the EU's Pan-European transport corridors - has been promoted as a key driver of economic development in Serbia.

With 792 kilometres of highway crossing Serbia, Corridor X constitutes one of the country's biggest infrastructure projects. However, over the past 10 years, only about 150 km of the Corridor have been built, leaving around 300 km yet to be constructed.

The main priority is the construction of a number of "missing links," including a second two-lane carriageway on 118 km of highway between Horgos and Novi Sad (Corridor Xb), a motorway covering 98 km of the Corridor between Nis and the Bulgarian border at Dimitrovgrad (Corridor Xc), a motorway between Grabovnica (in the south of Serbia) and the border with the Former Yugoslav Republic of Macedonia (Corridor Xd), and Sections 1 to 6 of the Belgrade Bypass.

The economic downturn - whilst amplifying the importance of the Corridor as a means of directly and indirectly creating an estimated 100,000 jobs - has aroused concerns about Serbia's ability to finance the almost €2bn of road construction and over €4bn of rail improvements, along with other planned infrastructure projects (including investments to ensure navigable inland waterways and a developed system of ports), particularly with the country's budget arrangements being closely monitored by the International Monetary Fund (IMF).

Despite having secured loans for €275.2m from the World Bank, €600m from the European Investment Bank (EIB), €150m from the European Bank for Reconstruction and Development (EBRD), and €100m from the Hellenic Plan for the Economic Reconstruction of the Balkans (HiPERB), Serbia will still have to draw upon privatisation revenues, part of a $1bn loan from Russia and other sources to finance the remaining stretches of the Corridor.

Road blocks

Implementation of the various projects has been affected by a plethora of problems. A tender for the construction of the Horgos-Novi Sad stretch of the Corridor previously failed due to a lack of suitable bids, whilst incomplete documentation delayed construction of a bridge over the river Danube near Beska, in Vojvodina, and completion of the Belgrade Bypass. Serbia is also experimenting for the first time with public-private partnership (PPP) arrangements, which have provoked considerable dissent, particularly in Vojvodina, about future profits from road tolls. Concerns, therefore, persist about the timeframe for completion - currently foreseen by the end of 2012 or 2013 - with any delays carrying additional costs.

According to figures from the Serbian Ministry for Infrastructure, investments in infrastructure (including those related to Corridor X) will total between €1bn and €1.5bn per year over the course of the next 10 years. Many look apprehensively towards Croatia - whose own extensive road-building programme burdened the country with heavy debts - and wonder what economic benefits will accrue as a result of such spending.

The comparatively poor quality of Serbia's infrastructure (ranking 83rd out of 134 countries) vis-a-vis some regional competitors has long been listed as a competitive disadvantage from the perspective of foreign investors. Aside from increasing transit traffic, it is envisaged that reductions in transport costs attributable to the Corridor will help stimulate exports and entice foreign investors.

Greenfield investments, for one, will benefit, with industrial zones and technological parks increasingly being strategically located close to Corridor X. As Vladimir Markovic, promotion consultant at Beocin Business Park near Novi Sad, tells bne, "the closeness of the Corridor inputs additional value to Beocin Business Park. We've noticed growing interest from EU companies and a trend towards the relocation of production and other business to Serbia, with areas around Corridor X and even Corridor VII - the Danube - being of special interest. Locating close to both Corridors provides excellent logistics for entering local markets and, more importantly, exporting to other trade preferential markets with whom Serbia has agreements, such as Russia, CEFTA, Turkey and, of course, the EU."

In addition, the Corridor has already contributed to improving regional co-operation and trade - in particular between Serbia and Macedonia, a stretch which carries the highest amount of traffic per day - and should also benefit economically marginalized parts of Serbia, particularly the under-developed south.

As Nenad Mitrovic, major of Vladicin Han, a municipality in the southeast corner of Serbia, tells bne, "Corridor X will stimulate economic development by connecting south Serbia with the neighbourhood; it will also stimulate the development of the entire economy. The direct highway from Western Europe to Greece, Turkey and beyond will activate huge investments and have positive primary and secondary effects on economic growth and employment in this part of Serbia."

Southern pains

Further destabilization of the south of Serbia, however, would severely impact these envisaged gains. Having witnessed a small-scale insurgency by ethnic Albanians in 2000-2001, the Presevo Valley - as it is commonly referred to locally - remains the subject of a possible land exchange between Serbia and Kosovo, with the former receiving the predominantly ethnic Serb north of Kosovo in return. Such speculation continues to deter both domestic and foreign investment, and casts a cloud over the Corridor itself. With the Valley earmarked as a possible future route for oil or natural gas pipelines, the success of Corridor X in helping to stabilize and reintegrate the region will have important consequences for other key strategic projects.

Completing Corridor X on schedule and to budget is key to securing the benefits of sustainable economic development - derived from competitiveness gains, transit growth and greenfield investments - that will help cover the costs of these sizeable investments. Overcoming the various obstacles that lie ahead - including mitigating inter-ethnic tensions in the south - will therefore help ensure that Corridor X puts Serbia firmly on the fast road to development.

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