SERBIAN ECONOMY AND ITS PROSPECTS FOR ACCESSION TO EUROPEAN UNION. Prof. Vladimir Grečić Institute of International Politics and Economics. Selected Economic Indicators/1 .
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In the late 1980s, Serbia started the process of economic transition from the planned economy to the free market.
Serbia experienced two disintegrations - in 1992 and 2006.
Following the disintegration of the Socialist Federal Republic of Yugoslavia and the violence that ensued in Croatia and Bosnia and Herzegovina, was founded the Federal Republic of Yugoslavia comprising of Serbia and Montenegro.
Serbia's economy had a favorable position, but it was gravely impacted by UN economic sanctions 1992-1995, as well as excessive damage to infrastructure and industry during the NATO bombing in 1999.
Total damage of NATO bombing is estimated at $30 billion in a detailed study done by 17 renewed economists.
After the changes in October 2000, the country went through the economic liberalization, and experienced fast economic growth.
The end of the State Union of Serbia and Montenegro was in 2006.
In May 2008, the government adopted the National Sustainable Development Strategy(NSDS) of Serbia, which is a comprehensive framework for addressing the main areas ofeconomic and social development of Serbia.
It complements the priorities set out by:
i) the Poverty Reductionstrategy (PRS), which is centred around economic growth and job creation objectives;
ii)the National Strategy for Economic Development (2006-2012) geared to increase thecompetitiveness of the Serbian economy and to align economic development with socialequity objectives;
iii) the National Employment Strategythat aims to achieve fullemployment, improve quality and productivity of labour and strength social and territorialcohesion; and
iv) the Strategy for Regional Development (2007-2012) that seeks to redressregional development disparities and develop human capital through knowledge and skills.
Since 2001, the Republic of Serbia has undergone major economic and political changesto catch-up with a late start of its transition to a market economy.
These changes revolvearound the reform of the institutional framework, the privatization of productive andfinancial assets, the liberalization of the trade regime and the improvement of the businessenvironment,
as well as the development of a new system of industrial relations, socialsecurity, and employment and social policies.
The status and recognition of employers’ and workers’ organizations has been hindered bya volatile political and economic environment, affecting disadvantageously their roles in(supposedly tripartite) decision-making about the key measures of structural reforms.
TheGovernment has recently renewed its dialogue with the social partners through areinforcement of the Social-Economic Council (SEC).
Despite this recentrefocus on revitalising the SEC, both the trade unions and the Serbian Employers’Association (SEA) have underlined the need for direct support and capacity building ofthe SEC to enable the latter to play its role of an effective forum for tripartite deliberationson the country’s most pressing challenges such as youth employment promotion, povertyalleviation and addressing the problem of undeclared work.
The main factors which contributed to a considerable poverty reduction, between 2002 and 2007, were a significant and continuous economic growth since 2000, along with a growth of real earnings and other income sources, particularly of remittances from the abroad.
However, overall unemployment rates in Serbia remained quite high over this period and have diminished the impact that robust growth may have on the poverty reduction.
Although absolute poverty is accepted as a national standard, a relative poverty measure is also used in some studies.
Serbian economy has experienced high and stable growth since 2000 – an annual average of about 5,5%, and 7,1 % in 2007 and 6.1% in 2008; Expected GDP growth in next year is projected to be between 1 and 3%, as result of economic crisis.
Total FDI in Serbia during 2006 amounted to 4.3 USD billion, one of the highest in the region. A great decline in FDI was in 2007, reaching only 2.0 USD billion. Nevertheless, Serbia has increased FDI, reaching 3. USD billion.
The process of privatization in Serbia has been in progress for more than 7 years; big public enterprises from telecommunication, transport and energy sectors are awaiting privatization in the next years.
After the changes in October 2000, the country went through the economic liberalization, and experienced fast economic growth (GDP per capita went from $1,160 in 2000 to $7,054 in 2008. Furthermore, it has been preparing for the membership in the EU, its most important trading partner. Estimated GDP (PPP) of Serbia for 2008 is $80.717 billion which is $10 911 per capita.
At present, main economic problems are high unemployment rate (14%) and large trade deficit ($11 billion). Being the only European country with free trades agreements with both the EU and Russia, Serbia expects more economic impulses and high growth rates in the coming years.
Serbia is open to foreign direct investment, and attracting FDI is set as a priority for the government of Serbia, which provides both financial and tax incentives to companies willing to invest.
Today, leading investor nations in Serbia include: Norvey, Germany, Austria, Greece. In recent years, Serbia has seen an increasingly swift foreign direct investment trend, including many blue-chip companies (US Steel, Philip Morris, Microsoft, FIAT, Lukoil, Coca-Cola, Gazprom, Lafarge, Simens, Carlsberg).
By countries, most cash investments in 2000-2007 period came from Austrian companies ($2.2bn), followed by those from Greece ($1.6bn), Norway ($1.6bn), and Germany ($1.4bn).
Companies from these four EU countries account for two thirds of all cash investments in that period.
Blue-chip corporations making investments in Serbia include: US Steel, Philip Morris, Microsoft, FIAT, Coca-Cola, Lafarge, Siemens, Carlsberg and others. In the energy sector, Russian giants Lukoil and Gazprom have made large investments.
The banking sector has attracted investments from Banca Intesa (Italy), Credit Agricole and Societe Generale (France), HVB Bank (Germany), Erste Bank (Austria), Eurobank EFGand Piraeus Bank (Greece), and others . U.S. based Citibank, opened a representative office in Belgrade in December 2006.
In the trade sector, biggest foreign investors are France's Intermarche, German Metro Cash & CArry, Greek Veropoulos, and Slovenian Mercator.
Gazprom Neft gets a 51% stake in state-owned Petroleum Industry of Serbia for 400 million euros in cash and 550 million euros in investments. As a part of the deal, a 400-km (248-mile) leg of the South Streamgas pipeline will be built through Serbia, an investment valued at another 2 billion euros.
On September 25, 2007, the Government of Serbia and Indian firm Embassy Group signed an memorandum of understanding on information technology park construction. Embassy Group plans to build their first Technological Park in Europe at an area of 280ha in the town of Indjija near Belgrade.
The five year plan predicts building a business area of 250,000 square meters and employing around 25,000 people. This is planned as the largest Greenfield investment in Serbia, accounting for a minimum of $600 million.
With the victory of a wide coalition of Serbian democratic forces at the federal elections in 2000, relations with the then Federal Republic of Yugoslavia were raised to the formal level already achieved by it's Western Balkan neighbours and Belgrade and Podgorica embarked on the road of European integration that should eventually offer an opportunity to become a full member of the EU.
This opportunity has been formalised on the basis of decisions taken at the Thessaloniki Summit in June 2003 and confirmed on several occasions by the EU, Serbia is a potential candidate country for the EU accession.
Since 2001 Serbia has benefited from the EU policy advice provided through the EU-FRY Consultative Task Force (CTF), later replaced by the Enhanced Permanent Dialogue (EPD).
The task of EPD is to encourage and monitor reforms on the basis of the European Partnership adopted by the EU Council in June 2004 and updated in January 2006.
Several sectoral groups have been set up to deepen technical discussions. After the end of the State Union, the Enhanced Permanent Dialogue has continued separately both with Serbia as well as with Montenegro.
The Stabilization and Association Process (SAP) is the EU’s policy framework for the countries of the Western Balkans.
The main elements of this long-term commitment to the region were proposed in one Commission Communication (1999). The Zagreb Summit, of 24 November 2000, set the seal on the SAP, by gaining the region’s agreement to a clear set of objectives and conditions.
The SAP supports the Western Balkan countries’ development and preparations for future EU membership by combining three main instruments: the Stabilization and Association Agreement, autonomous trade measures and substantial financial assistance. Regional co-operation constitutes a cornerstone of the SAP.
In May 2003, a Commission Communication in “The Western Balkans and European Integration proposed to enrich the EU policy towards the region with elements taken from the Enlargement process, reinforcing the ultimate goal of extending membership to the Western Balkans.
The European Council of Thessaloniki (19-20 June 2003) confirmed the SAP as the policy framework of the EU course of the Western Balkan countries all the way to their future accession and endorsed the Thessaloniki Agenda.
The Thessaloniki Agenda strengthened the SAP so that it can better meet the new challenges.
It established the European Partnerships with the Western Balkan countries, which identify short and medium term priorities which each country needs to address on its way to the EU.
The first European Partnershipfor the then State Union of Serbia and Montenegro was adopted in 2004 and the current revised European Partnership valid for Serbia was adopted on 30 January 2006.
The EU – Western Balkans Summit of Thessaloniki (21 June 2003), which was a follow-up to the Zagreb Summit of 2000, provided an opportunity for the EU and the Western Balkan countries to assess three years of work in stability, democracy and economic recovery in all countries of the region and saw the adoption of the Thessaloniki Declaration.
On the basis of decisions taken at the Thessaloniki Summit in June 2003 and confirmed on several occasions by the EU, Serbia is a potential candidate country for the EU accession.
Serbia signed the Stabilisation and Association Agreement (SAA) and an InterimAgreement covering trade-related matters on 29 April 2008.
The Council howeverdecided that the implementation of the Interim Agreement and the ratification of theSAA are subject to Serbia fully cooperating with the International Criminal Tribunalfor the former Yugoslavia (ICTY).
Serbia may gain EU candidate status in 2009. I believe that, if conditions are met, Serbia could get candidate status this year. The EU's ratification of the SAA - a pre-accession treaty - is on hold over Dutch objections that Serb war crimes fugitive general Ratko Mladic and Goran Hadzic remain at large.
Serbia was told that, in the October 2008 best scenario and with full cooperation over tracking down war crimes suspects, it might be able to start EU membership talks by the end of 2009.
Serbia has beenincreased stability ingovernment and greater consensus on European integration after the last election last year.
Serbia made significant progress on cooperation with ICTY, including the arrests ofRadovan Karadzic and Stojan Zupljanin. Parliament ratified the SAA in September2008 and began work on a package of laws.
Serbia has good capacity in its publicadministration.
European integration structures were strengthened and theNational Programme for EU Integration was adopted.
Regulatory bodies performedwell under difficult conditions.
Further efforts need to be taken to ensure the independence, accountability andefficiency of the judicial system. Corruption remains widespread and constitutes aserious problem.
Civil and political rights in Serbia are generally protected.
Relations between the EU and Serbia have been affected by the declaration ofindependence of Kosovo.
Serbia may gain EU candidate status in 2009 but must crack down on corporate corruption.
In the legal vacuum that followed the collapse of former Yugoslavia, corruption, organised crime, tax evasion, financial fraud as well as the grey economy emerged as serious problems.
Justice, freedom and security, including the fight against corruption and organised crime are therefore EU priorities in Serbia.
It is very dificult to provide the answer to following question: What are the prospects for the Western Balkan countries as a whole? The stability which EU membership would bring to the region would open the door for foreign investment, knowledge transfer, tourism development, competitive economies and a reversal of the ‘brain drain’ of talented young people and would lead to faster economic growth. It is obvious that EU membership is the most favourable outcome, but it will take years, may be 8-9, till 2018.
Even if the EU accepts all the Western Balkan countries as members, difficult reformswill still need to be carried out, especially those regarding the rule of law.