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SOME ELEMENTS OF COMPETITIVENESS OF THE ECONOMY OF SERBIA NBRM Conference, Skopje , 30 May 2008

SOME ELEMENTS OF COMPETITIVENESS OF THE ECONOMY OF SERBIA NBRM Conference, Skopje , 30 May 2008. Branko Hini ć and Milan Š oji ć , National Bank of Serbia Economic Analysis and Research Department. Contents. Memorandum of the NBS on Setting Inflation Objectives for 2009 and 2010

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SOME ELEMENTS OF COMPETITIVENESS OF THE ECONOMY OF SERBIA NBRM Conference, Skopje , 30 May 2008

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  1. SOME ELEMENTS OF COMPETITIVENESS OF THE ECONOMY OF SERBIANBRM Conference, Skopje, 30 May 2008 Branko Hinić and Milan Šojić, National Bank of Serbia Economic Analysis and Research Department

  2. Contents • Memorandum of the NBS on Setting Inflation Objectives for 2009 and 2010 • Medium-term core inflation objectives • Core inflation projection • World Economic Form - Global Competiveness Index for Serbia • Investing in Serbia

  3. Memorandum of the National Bank of Serbia on Setting Inflation Objectives for the Years 2009 and 2010 • Linearly declining band of core RPI year-on-year inflation rates with the following parameters: • 2009 starting level: a range of 3.0% - 6.0% with a midpoint of 4.5 % • 2009 end level and 2010 starting level: a range of 2.5% - 5.5% with a midpoint of 4.0%; • 2010 end level: a range of 2.0% - 5.0% with a midpoint of 3.5%.

  4. Medium-term core inflation objectives

  5. Core inflation projection

  6. Dinar exchange rate and foreign exchange market • Non-economic factors had a strong impact on foreign investors’ expectations

  7. ... in Q1 2008,quarterly core inflation slowed down! • In Q1, core inflation (7.7%, y-o-y) was above the upper bound of the target range in line with expectations, despite the decline in its quarterly growth rate in Q1 (1.5%) relative to Q3 and Q4 2007 (2.2%); • In Q1, retail price growth equaled 2.8% (11.8% y-o-y), with regulated prices contributing 1.6 pp.

  8. CORE AND HEADLINE INFLATION IN SERBIA 2001-2007 45.0 40.0 Headline inflation 35.0 30.0 25.0 In % per annum 20.0 15.0 10.0 Core inflation 5.0 0.0 2001 2002 2003 2004 2005 2006 2007 Years Core and headline inflation 2001-2007

  9. GDP GROWTH RATES 2000-2007

  10. FDI-inward FDI Stock (2001-2007): $13.5 bn

  11. 5. Current account deficit in Serbia and other countries • Capital inflows exceeded the current account deficit financing needs in 2007, which reflects an increase in foreign exchange reserves. • The strongest average increase in foreign exchange reserves in the period 2003-2007 was recorded for Serbia (7% of GDP).

  12. World oil prices • Annual price growth: • Ural oil 84% (May 2008/May 2007); • Oil derivatives 21.9% (April 2008/April 2007). • Strengthening of the dollar places additional upward pressure on prices of oil derivatives.

  13. In order to boost liquidity in the IFEM, the NBS sold a daily average ofEUR 4.4 mln in the year to date • No steps have been taken to defend the exchange rate in the fixing session since mid-May 2007; • Since the start of the year, the NBS sold a total of EUR 393 million (outside the fixing session), compared to EUR 556.7 million soldin the same period a year earlier (in fixing sessions) – 42% more!

  14. Capital market • The impact of non-economic factors and world financial crisis.

  15. World Economic Form-Global Competiveness Index-2007-2008Republic of Serbia..... rank 91 of 131 (score 3.78 of 7) • Subindex A-Basic requirements......................78 • 1st pillar- Institutions ..........................................99 • 2nd pillar-Infrastructure.......................................92 • 3rd pillar-Macroeconomic Stability.........................88 • 4th pillar-Health and primary education.................31 • Subindex B-Efficiency enhancers....................88 • 5th pillar-Higher education and training.............82 • 6tht pillar-Good market efficiency.....................114 • 7tht pillar-Labour market efficiency...................111 • 8th pillar-Financial market sofistication.............98 • 9th pillar-Technological readiness......................57 • 10th pillar-Market size...........................................75 • Subindex C-Innovation and sophistication.....88 • 11th pillar-Business sophistication....................95 • 12th pillar-Innovation............................................78 • Quality of national business environment......90

  16. World Economic Form-Global Competiveness Index-2007-2008BY COUNTRIES

  17. Republic of Serbia- comparative advantages • Investment Incentives • State grants in the range between €2,000 and €10,000 per every new job created and tax incentives now available. • Quality Human Resources • Skilled and productive labor force- one of the major competitive advantages. • Strategic Geographic Location • You can effectively serve your European and Middle Eastern customers • Low Operating Costs • Attractive tax environment- corporate profit tax rate 10%and other benefits. • Lowest individual income tax- 12% • Total monthly labor costs EUR 550 (April 2008) • Locate Business • Property Database

  18. Republic of Serbia- market access • Duty free exports to the EU • FTA with Russian Federation - market of 150 million people • CEFTA – duty free access to 30 million people market (CEFTA agreement signed in 2007) • WTO accession expected in 2008

  19. Republic of Serbia - investment factors • Continuous macroeconomic stability (GDP growth, budget balance, relatively low public debt to GDP,core inflation-new monetary framework) • Market access and market potential • Valuable human capital • Attractive tax environment • Government incentives • Law of Concessions/ free zones incentives / BOT-investments, etc... • FDI growth

  20. Republic of Serbia- Number of graduated students from universities in Serbia Base of young, educated, skilled and committed workforce Source: SIEPA

  21. FOREIGN DEBT 2000-2007

  22. Foreign exchange reserves

  23. Republic of Serbia- Favorable investment regime

  24. Republic of Serbia- Financial incentives Non-refundable funds for investments in all sectors, except agriculture, tourism, hospitality and trade Investment projects rated based on the evaluation criteria : investors reference; participation of domestic suppliers; effects on R&D, HR etc.

  25. Republic of Serbia- Major Foreign Investors

  26. MONETARY AND MACROECONOMIC RESULTS IN REPUBLIC OF SERBIA ·WIDE-RANGING ECONOMIC REFORMS (FISCAL REFORM, NEW BANKS, OWNERSHIP RIGHTS, GOVERNANCE REFORM, etc.) ·MACROECONOMIC STABILITY · CORE INFLATION ONE DIGIT LEVEL WITH DECREASING TREND ·GROWING FOREIGN CURRENCY RESERVES ·GROWING FX SAVINGS DEPOSITS OF CITIZENS ·ENHANCED РRIVATIZATION PROCESS, BUT ALSO: ·РROBLEMS: UNEMPLOYMENT, AS WELL AS TRADE BALANCE DEFICIT

  27. Thank you for your attention!

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