bne -

With its established industrial base, skilled-yet-affordable labour force, free-trade agreements with many countries in the region (particularly Russia) and proximity to Central Europe, Serbia has proved an attractive investment destination for German companies over the last decade. In 2009, bilateral trade reached €2.8bn, making Germany Serbia's largest trading partner.

Twasn't ever thus: during the 1990s, civil war in the former Yugoslavia - precipitated by Germany's vindication of the right to self-determination for its historic allies Croatia and Slovenia - and international sanctions impeded trade and foreign direct investment (FDI), and it wasn't until the ousting of former dictator Slobodan Milosevic in 2000 that things rapidly picked up.

Many of Germany's biggest names already operate there: Siemens, Osram, Linde and Bayern; Stada, a German pharmaceutical company, is the majority owner of Hemofarm and the top German investor in Serbia, having invested €650m. Current investment opportunities that German interests are looking at include the Serbian government's sale of a majority 80% stake in state-owned Telekom Srbija, in which Greece's OTE has the remaining 20%. Deutsche Telekom and the Greek state are OTE's two biggest shareholders, with stakes of 30% and 20% respectively. In September, Serbian Deputy Prime Minister Bozidar Djelic said Deutsche Telekom had publicly expressed interest in the sale of Telekom Srbija.

Serbia also gets a third of its electricity from hydroelectric power sources and the opportunities for further investment in this area are huge. In November 2009, RWE and Serbia's power monopoly EPS signed a joint venture agreement to look into building hydropower stations with a total combined capacity of 3,000 megawatts at three potential locations on the Danube, Morava and Drina rivers. Michael Schmidt, head of the regional German chamber of commerce and a former advisor to the Serbian government, told bne at the time that the success of this kind of venture was crucial for creating confidence in the country for investors, but that Serbia had to do a lot of work to create the necessary legal and political framework, as well as put EPS on a sounder financial footing. However, on October 4, RWE was forced to deny speculation that it was abandoning those plans for Serbia.

Germany now looks set to be overtaken by Italy as the main investor in Serbia. Large projects such as Fiat's takeover of car-maker Zastava in 2008 are expected to more than double bilateral trade between the two countries to more than $6bn annually over the next few years, Trade Minister Slobodan Milosavljevic said on October 13. Serbian-Italian trade came in at $2.4bn last year, making Italy Serbia's second-biggest trade partner after Germany.