Foreign Investors Council in Serbia 2016 / 2017

FOREIGN INVESTORS COUNCIL IN SERBIA

GUIDE TO 2016/17

10 STRIKE WHILE THE IRON IS HOT Comment

12 WE STAND FIRMLY ON THE REFORM COURSE

34 HELPING SERBIA BUILD A RESILIENT ECONOMY

60 SYSTEMATIC APPROACH AGAINST ILLEGAL TRADE

DRAGOLJUB ZDRAVKOVIĆ

DANIEL BERG

Director for Serbia at the European Bank for Reconstruction and Development (EBRD)

EDITOR Tanja Jakobi

ALEKSANDAR VUČIĆ Serbian Prime Minister

38 FOCUSED REFORMS WILL YIELD RESULTS

18 SATISFIED INVESTORS ARE THE BEST PARTNERS FOR GROWTH

JOHN KYRITSIS

Vice President of the Foreign Investors Council and COO of Delhaize Serbia

PHOTOGRAPHY Zoran Petrović

COPY EDITING

YANA MIKHAILOVA

WITH SPECIAL THANKS TO Ana Firtel, Executive Director of the Foreign Investors Council Milica Ðorđević, Communication Officer of the Foreign Investors Council Tijana Đaković, Office Assistant of the Foreign Investors Council PROJECT MANAGERS Biljana Dević, b.devic@aim.rs Aleksandra Ebilji, a.ebilji@aim.rs Ljiljana Knežević, lj.knezevic@aim.rs Nataša Trifunović, n.trifunovic@aim.rs BUSINESS SECRETARY Svetlana Petrović, s.petrovic@aim.rs

44 WE’RE CONTINUING TO INVEST IN SERBIA ANDREI CUCU

CEO of LUKOIL SRBIJA and Head of Balkan MRO

46 BETTER CONDITIONS FOR EXPORTERS DEJAN VUKOTIĆ

Director of the Agency for the Insurance and Financing of Exports of the Republic of Serbia

JORGOVANKA TABAKOVIĆ Governor of the National Bank of Serbia

FINANCIAL MANAGER Dragana Skrobonja, d.skrobonja@aim.rs

61 WE’RE ENTERING THE SERBIAN MARKET WITH OPTIMISM FREDERIC AUBET 62 BETTER PROSPECTS WITH ADVANCED FOOD REGULATION

MIHAJLO ŽIVKOVIĆ

President of Vojvođanska Banka

22 WE’RE READY FOR CHALLENGES FROM THE INTERNATIONALENVIRONMENT

26 JOINT EFFORTS TO A BETTER BUSINESS ENVIRONMENT

71 GOOD APPLICATION IS MOST IMPORTANT FOR GOOD LAWS

42 SEEING SIGNS OF RECOVERY MARINOS VATHIS

President of the Foreign Investors Council and Regional Director of Nestlé Adriatic

Mark R. Pullen PUBLICATION MANAGER Neda Lukić, n.lukic@aim.rs

President of the Anti–Illicit Trade Committee of the Foreign Investors Council (JT International a.d. Senta)

General Manager of CRH Serbia

ART DIRECTOR Jasmina Laković

TRANSLATIONS Snežana Bjelotomić

President of the Leasing and Insurance Committee of the Foreign Investors Council (AXA Osiguranje)

GORAN PEKEZ

48 WE OFFER THE GOVERNMENT OUR KNOWHOW AND EXPERIENCE

MILICA STEFANOVIĆ

PRINTING Rotografika d.o.o.

Segedinski put 72, Subotica

63 SUBOTICA PROVED TO BE A GOOD INVESTMENT

IVAN GAZDIĆ

64 “GUYS, WHO DRIVES HOME?” – A TRADITION OF THE BELGRADE BEER FEST HEINEKEN

66 RESOLVE THE ISSUE OF LEASING OF WORKERS

73 STRENGTHEN LEGAL SECURITY

SWAROVSKI: First Anniversary of Production Facility in Serbia

President of the Real-Estate Committee of the Foreign Investors Council (Bojović & Partners a.o.d. Beograd)

BILJANA BUJIĆ

President of the Taxation Committee of the Foreign Investors Council ( KPMG d.o.o.)

MARKO ČADEŽ

President of the Serbian Chamber of Commerce

28 HOPE FOR EVEN BETTER PROGRESS IN REFORMS

FOREIGN INVESTORS COUNCIL OF SERBIA - THE VIEW ON 2016/17

DIMITRIJE KNJEGINJIĆ

Vice President of the Foreign Investors Council and CEO of Lafarge Serbia

52 THROUGH DIALOGUE TO GOOD SOLUTIONS FOR ALL

DEJAN JEČMENICA

President of the Human Resources Committee of the Foreign Investors Council (Wiener Städtische osiguranje a.d.o. Beograd)

67 THERE WILL ALWAYS BE CHALLENGES TO OVERCOME MICHAEL ORFANOUDAKIS General Director of Marbo

PUBLISHER alliance international media in collaboration with the Foreign Investors Council of Serbia Makenzijeva 67, 11000 Beograd, Srbija Phone: +(381 11) 2450 508 Fax: +(381 11) 2450 122 E-mail: office@aim.rs www.allianceinternationalmedia.com ISSN no: 1451-7833 All rights reserved alliance international media 2016.

72 MORE EFFICIENT PROCEDURES YIELDING RESULTS

President of the Food & Agriculture Committee of the Foreign Investors Council (The Coca-Cola Company-Barlan S&M d.o.o.)

EXECUTIVE DIRECTOR Maja Vidaković, m.vidakovic@aim.rs GENERAL MANAGER Ivan Novčić, i.novcic@cma.rs

President of the Legal Committee of the Foreign Investors Council (Societe Generale Bank Serbia)

H.E. MICHAEL DAVENPORT Head of the EU Delegation to Serbia

32 DEMAND FOR LOANS RISING, BUT BANKING PROFITS MODEST MARIA ROUSSEVA President of the Executive Board of Societe Generale Banka Srbija AD

ANA FIRTEL

Executive Director of the Foreign Investors Council

56 FOCUS

58 LONG-TERM PARTNERSHIP SLAVICA PAVLOVIĆ Eurobank Executive Board Chairperson

Product and Commercial Director of PepsiCo for the Western Balkans

68 FROM BANKRUPTCY TO REBIRTH MLADEN PETKOVIĆ Director, Krušik AD Valjevo 70 CHANGES TO BETTER SOLUTIONS FOR ALL

8 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

74 FEWER BARRIERS FOR MORE DYNAMIC DEVELOPMENT

JASMINA VIGNJEVIĆ

President of the Telecommunications and IT Committee of the Foreign Investors Council (Telenor d.o.o.)

76 KEY MESSAGES

78 WE GROW TOGETHER Foreign Investors Council

COMMENT

Strike While The Iron Is Hot

The new government is expected to be a government of continuity in those areas where it has itself created high standards: in the field of European integration, in the implementation of reforms and in dialogue with the business community. The current modest but dispersed and sustainable economic growth is the result of just such an approach

T

he National Bank of Serbia recently came out with a new projection of economic growth for this year and next. Projected growth of 2.5 per cent this year and 3 per cent next year is not the result of inertia in a small open economy, nor a reversal of the previous deep fall. It seems that behind the presented figures presented stands diversified and sustainable growth.

Among the factors that have contributed to this kind of outcome the most important is, undoubtedly, the consistency of the government in implementing the arrangement signed with the IMF. Although the agreed timing also has significant delays, it seems more than ever that the international financial organisations have shown patience for the political developments in the country, primarily because in the interregnum between the two governments there was a clear commitment to stick to the goals set.

The new government created high expectations in public. First, thanks to its work in the previous term, it realised a long-expected goal – the practical opening of accession negotiations, and promised the consistent enforcement of obligations on the basis of the opened chapters. Then, with good indicators of fiscal policy, hopes were encouraged that these results will be supported and strengthened through serious structural reforms. A solid and mostly stable dialogue was achieved with the business community, especially international investors, which also resulted in additional investments from companies that already operate on the domestic market and some new ones. The new legal provisions, and partly their application, created the hope that, at least in a limited number of fields – in the construction sector and in the setting up of inspection services on new foundations – the public administration and the business community could work in synergy. There are certainly plenty of these and similar tasks for the future. For a start let us mention only the full professionalisation of the public administration, the creation of an efficient tax administration and the fight against the grey economy and corruption, where after the initial steps space for sustainable solutions is yet to be created.

We stand on the threshold of a unique chance for that which has been done well to now be continued. That’s because, even without the taking on of new, larger tasks, the government already has ahead of it enough work to complete that which was left half done in the previous term. It would be good if the mutually beneficial dialogue with the business community was not interrupted by episodes such as the one at the end of 2015 when several laws were adopted without public debate. All the more because the predictability of the business environment is an important prerequisite for the smooth operations of businesses.

If we can quickly return to the expected economic results, it is easy to see that they can largely be based on the effects of the entry of foreign investments, which have brought a technological rise in industry, greater exports, job creation and, as much as is possible, balanced regional growth.

For example, economic growth was recorded precisely in those sectors, especially the construction industry, which had previously had complicated and lengthy procedures and had, among other things, hampered the recovery of this important industry. Until the dismissal, which also led to the above average contributions of the construction industry to GDP, and to an increase in the issuance of building permits, which in and of themselves represent a symbol of further recovery, came thanks to the cooperation of administration and the business community in finding good and, what is equally important, solutions that are applicable in practice.

One society and its prosperity depend on many factors. Harmonious cooperation between the government and the business community, of course, on the principle of being as arm’s length, and in a structured, critical dialogue, could be a bright guiding principle for the settling of other bottlenecks in the functioning of the community, where good laws are not followed by equally good practice.

The first positive results are already there, now they need to be consistently nurtured and grown. ■

Transformation in the construction industry, which, after a long period of stagnation, has become one of the engines of economic growth, is an example of constructive cooperation between the government and investors for the benefit of the whole society

10 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

We Stand Firmly On The Reform Course

INTERVIEW

ALEKSANDAR VUČIĆ Serbian Prime Minister

The reforms started in 2014 should be completed by the end of this government’s mandate and enable Serbia to become an orderly democratic country, with efficient institutions, a functioning market economy and a European future

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his government has the energy to continue work on a new wave of reforms, and it is aware that its success in this work is crucial to defining the economic fate of the country in the coming decades, says Prime Minister Aleksandar Vučić, announcing in this interview a series of measures that his office intends to undertake in the coming period.

► How should your new programme be viewed? Is it a programme of continuity or a programme of qualitative steps forward in reforms?

– The programme that I presented in my exposé is the continuation of reforms started in 2014, which, once they are completed, by the end of the mandate of this government, should be a big step forward, or for them to turn

Serbia into an orderly democratic country with efficient institutions and a functioning market economy. In the past two years we have worked on the creation of preconditions for economic recovery, macroeconomic and fiscal stabilisation, and important structural reforms of the labour market, building permits and the like, in the period ahead we are awaited by a more demanding, not to say technically more complicated, part of the job, and that is reform of the judiciary and essential sectoral reforms in the fields of education and public administration, which should round off this reform process.

► Several governments before yours managed to stabilise public finances by a certain deadline, bt they all halted precisely on issues of structural reforms. In your opinion, do you think that in the elections you received the clear legitimacy you were seeking to crack that nut?

– This government has the energy to continue work on the new wave of reforms, in order for us to ensure the results achieved and create opportunities for further progress. In that sense I consider that we are at a crucial stage of the re-

12 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

REFORMS

BUSINESS ENVIRONMENT

This government has the energy to continue work on the new wave of reforms, in order for us to ensure the results achieved and create opportunities for further progress

If we want to make it into the global premier league of countries with the best business environment, we have a lot of work ahead in order to continue improving in practice

form process, because our success in the implementation of the forthcoming reforms is crucial to defining the economic fate of the country in the coming decades, i.e. it will determine whether we will, as before, have frequent and seismic shifts in period of slight growth and stagnation, i.e. recession, or whether will fix ourselves on the rote to longterm sustainable and dynamic growth. The election results show that citizens are aware of this.

INVESTMENTS

The increased volume of investments is primarily the result of the efforts of the Government, which established macroeconomic stability and provided for the predictability of the business environment

by any chance Serbia becomes a member in the coming years we would, through development projects from structural funds on today’s projected GDP, be able to count on an additional 1 to 1.5 per cent of GDP.

► What could you announce from the areas of chapters 23 and 24 among policies that are essential for strengthening the rule of law in the economic sphere?

– I would dare to assess that we as the Government, and as the executive branch of government, have done a lot to fix the business environment in Serbia. This resulted in a better rating of Serbia in the Doing Business list.

If we want to make it into the global premier league of countries with the best business environment, we have a lot of work ahead in order to continue improving in practice. That is not only the job of the government and the judiciary, but also the Parliament, the Serbian Chamber of Commerce, so-called independent institutions and expert associations, but also civil society. Everyone should bear his own burden of responsibility for the results achieved.

Each field in the Action Plans for Chapters 23 and 24 is directly or indirectly important to the business environment. I cannot say that the fight against organised crime is less important than the rule of law. There cannot be one without the other, and the first is in chapter 24, while the second is in chapter 23. I would remind you that we welcomed the opening of chapter 23 with 77 per cent of the measures envisaged by the Action Plan for this chapter completely fulfilled. The remaining 23 per cent is in various stages of implementation. However, for strengthening the rule of law in the economic sphere I would single out the efficiency of the courts at all levels and issues, addressing obsolete cases, the fight against corruption, crimes against the economy and in the media domain.

Because of all of these issues negotiations with the EU are important for us. Progress in chapters 23 and

A politically strong and developed Serbia, in a stable regional environment, which accepts the latest legal and economic standards of the EU, received almost plebiscitary support in the elections

► Your coalition and the assembly have been joined by right-wing parties that oppose further EU integration.

Do you expect resistance in the implementation of European policies?

– It is good that the Serbian political scene consists of different opinions and ideas. I consider that as the richness of our political life, because nobody shold fear the diversity of political ideas as long as there is a strong institutional framework and democratic institutions that support diversity and guarantee the rule of law. Our challenge and goal is not to overstep everyone or to replicate everyone. I believe in the power of arguments, knowledge and hard work. I sincerely believe in the policy of the Government of Serbia, and our arguments are the results that we achieve. A politically strong and developed Serbia, in a stable regional environment, which accepts the latest legal and economic standards of the EU, received almost plebiscitary support in the elections.

Any substantiated criticism is welcome and comes as good advice. I think every eurosceptic needs to know a bit more than supporters of the EU project if they want to fundamentally criticise this organisation. Even among them there are those who do not dispute the importance of applying European standards. These are the questions around which it is healthy to build a consensus.

Why should Serbia be the exception? Why should Serbia be outside of a project that already today brings it a significant level of investment, new jobs, an ever better trade balance and respectable financial support? If

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 13

24 means that we are on the right track and that we receive good grades, and that is the best signal to investors that Serbia is a safe haven for all investors, regardless of their national or international sign. ► Economic growth is strengthening and what is particularly satisfying is that recovery is evident in a relatively large number of branches. What does the government intend to do to make it sustainable?

– In order for growth to be sustainable, the state needs to do two things. One is to complete public investments and the other is to create the preconditions for private investment. Growth should be achieved with small fiscal and trade deficits in order for public and external debts not to grow. In this sense, the reforms that we have implemented represent an excellent basis (reducing the fiscal deficit from

eight per cent of GDP in 2014 to 2.5 per cent of GDP this year, reducing the current account deficit to below five per cent of GDP, strong growth in foreign direct investments of 46 per cent in 2015). In order for us to make economic growth really sustainable, and not only sustainable but also dynamic, we plan to: continue strong macrofiscal stabilisation, until we reduce the fiscal deficit to around one per cent of GDP (by 2020); increase public investment by about 150 million euros a year until we reach the average of Central and Eastern Europe (4-5 per cent of GDP annually). In this sense, our focus will be on strong modernisation of road and rail infrastructure, because we are aware that the impact of these projects on economic growth is several times higher if we had focused that money on consumption; launch the reform of education at all levels; actively lead specific sectoral policies, such as agricultural policy, and create conditions for the development of fast-growing activities, such as in the IT industry.

► When it comes to public companies, if we look at your programme from 2014, the least has been done in relative terms. What new deadlines can you announce for resolving the issues of these enterprises?

– Restructuring public enterprises is a process that began in late 2014 and which will last several years and which is taking place according to an established schedule. Activities on the restructuring of EPS, Srbijagas and the Serbian Railways are carried out in accordance with the plans of restructuring and in stages. Professional support and funding are provided by the World Bank.

The legal framework for better, more economical and more efficient operations of public enterprises is given in the new Law on Public Enterprises.

► It seems that the problem of the Smederevo Steelworks has been resolved successfully, but it is an expensive solution. How much space is left for such solutions and similar ones when it comes to, for example, RTB Bor? – The pre-prepared plan of reorganisation for RTB Bor envisages the modalities of establishing new companies through the separation of certain assets such as mines. This company would be founded or function independently with the aim of concluding technical business contracts with a potential investor or joint investments with a potential investor. In any case, the precondition is that all ores and their concentrate are processed at the smelter RTB Bor according to market prices, with our intention to develop and manufacture the final products. In this way we would ensure two types of income – on the basis of profits in the newly formed company and on the basis of income from the smelter. ► What is the next step in resolving the issue of companies undergoing reconstruction that have moved from the phase of protection against creditors and largely entered the regime of the pre-prepared plan of reorganisation?

– Plans will be made that are sustainable over the long term and acceptable for the creditors of these companies, and the state will support this process through the conversion of their claims and in some places also through write-offs.

Likewise, money has also been provided for the implementation of social programmes, and with that we have created all the prerequisites for plans to be acceptable for commercial creditors, because we have significantly decreased the levels of total liabilities and planned expenditures.

This government has the energy to continue work on the new wave of reforms, in order for us to ensure the results achieved and create opportunities for further progress

► The World Bank particularly praised you for the new trend of a larger number of smaller but widely dispersed foreign investments. Is that the result of the strategic commitment of the government, or a ques-

14 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

tion of the current dynamics?

– The increased volume of investments is primarily the result of the efforts of the Government, which established macroeconomic stability and provided for the predictability of the business environment. Successfully implemented fiscal consolidation, balancing the balance of payments imbalance, price stability and a clear course of reforms aimed at strengthening the competitiveness of the domestic economy are factors that can largely define the decisions of investors regarding whether to start their investment cycle in Serbia or not. We expect that in the future a large number of major investments in third generation will appear, which will valorise the economic position of Serbia and have a regional scope.

citizens need to respond to that by voluntarily and transparently reporting their income and paying taxes.

► When will Tax Administration be thoroughly reformed?

– Plans for the transformation of the Tax Administration have already been prepared and their rapid implementation is expected soon, which will involve a smaller number of better organised regional offices of the Tax Administration.

Likewise, reform is also being implemented through the system of recruitment, training, advancement and remuneration of staff, strengthening the material base of the work of the Tax Administration and technical and technological modernisation.

The process of transformation of the Tax Administration into a modern organised unit modelled on the administration of Western European countries is a long lasting process that we have already agreed with representatives of the World Bank and the IMF, it is realised in phases and is gradually yielding the first results. The state should be careful what and how much it taxes, the Tax Administration needs to be a credible threat of law enforcement and

► What kind of rank do you envisage for Serbia on the next Doing Business list?

– Last year saw Serbia advance 32 positions thanks to the recognition of reforms in the areas of paying taxes, to some extent due to the new system for issuing building permits and following changes to the methodology that finally placed on an equal footing the position of continental countries with those bordering the sea. It should be considered that each country’s ranking on the Doing Business list depends on the success of other countries. However, we expect that on the Doing Business list for 2017, which the World Bank will publish in October, we will have progressed by around a further four places, so we will achieve 55th place, and that in 2017 we will advance by a further 7-10 place and break into the top 45 to 50 world economies.

► Foreign investors continue to note their satisfaction with the new Labour Law and the speed of issuing building permits. On the other hand, the Law on Land Conversion, with great delay, has only just entered into the application, while there is still no Law on Para-fiscal Charges. What novelties can you announce when it comes to improving the business environment?

– The effects of the reform of the Labour Law are as we expected them to be - there has been growth in employment and a reduction in unemployment and inactivity. The effects of the reform of the system for issuing building permits are even more positive. The growth of construction in the past year and a half is one of the pillars of the new momentum of the economy. When it comes to the further improvement of the business environment, in the short term we will regulate the financing of local governments, and our plan is to work intensively on the reform of fees and charges, in order for us to have a more transparent system.

► What will be in the focus of the government when it comes to combatting the grey economy?

– The continuation of the fight against the grey economy remains a task that is ranked very highly among the priorities of the Government. The results achieved in 2015 and 2016, which were largely the result of more intense controls, must be translated into lasting improvements in the administration system and reform of the Tax Administration itself. Coordinated efforts of the Tax Administration, the Interior Ministry and the Security Information Agency achieved notable reslts in the fight against illicit trade in excisable goods. This kind of cooperation will also be continued in the period ahead.

If we want to make it into the global premier league of countries with the best business environment, we have a lot of work ahead in order to continue improving in practice

► Although the results of economic growth and the inflow of investments are encouraging, the unemploy-

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 15

ment rate is still high and analysts from the European Commission to the IMF expect stagnation or onlt a small shift, unlike you – as you have announced a fall to 13 per cent by the end of 2017. What makes you optimistic?

– The latest data of the National Institute of Statistics shows that Serbia has its lowest unemployment rate since 2007, and that it has fallen below 16 per cent for the first time. The employment rate has increased by 3.2 percentage points compared to the previous quarter and the same quarter last year, from 42.6 per cent to 45.9 per cent. The best indicator is growth in employment and falling unemployment among young people, but the general unemployment rate is heading in the right direction, as it was 19 per cent in the first quarter and now it is 15.2%.

Contributing to reducing unemployment rates is

enhanced economic activity, investments in new jobs and support for the development of the private sector, especially small and medium-sized enterprises, but also a better performance of the labour inspectorate and the reporting of seasonal workers.

At the same time, we are working on bringing the system of training, additional training and dual education closer to the structure of knowledge and skills of the working age population in order to meet the needs for new jobs that are emerging in small, medium-sized and large enterprises.

Reasons for optimism reside in very dynamic and diversified growth that the domestic economy has been recording in the previous period, as well as our commitment to fully implementing the programme of structural reforms and fiscal consolidation. The only real risk we see is possible geopolitical disruptions that could have an adverse impact on our largest trade partners and, thus, on export demand for our products.

► What could the government do in order, for example, for Siemens or General Electric or Ikea to be able to find more partners among Serbian SMEs than the current virtually symbolic number? How will you continue to support these small engines of development and employment?

– The inclusion of our companies in the supply chains of major international companies, those present here and those from abroad that are interested in partners in Serbia, has multiple benefits for local companies: they become suppliers of such systems; they are opened up not only to channels to sell products, but also to the ability to acquire additional skills, achieve standards and new technologies; to grow and continuously improve business processes, from technological to management, and the quality of their products, in order to sustain themselves in these arrangements and agree on new business.

As the private sector becomes stronger, so our companies will be better able to be included in the chains of large systems, so there will be more foreign investment here, because every investor, along with other parameters, also measures the capability of the domestic economy – domestic companies that they can rely on.

We are proud of our small businesses that have already become suppliers to large global companies. Recently, during the visit of the Swedish Prime Minister to Serbia, I had the opportunity to give him some of our domestic products – a chopping board and rolling pin, which our company from Ćuprija, Standard Furniture, produces for Sweden’s IKEA.

► Apart from dual education, what can you announce when it comes to education reform, and which would better connect this sector to the needs of the economy?

– In our country, despite efforts, the classical system of teaching is still dominant at the majority of colleges, in which the student is largely a passive participant. Also, equally important is secondary education and its reform, which must follow in the period ahead, because it is difficult for young people who have no experience in a particular practice to decide on starting an independent business.

Data shows that only three to five per cent of young people will launch their own business if they did not acquire some form of work experience during their schooling.

The dual education system develops a tendency towards entrepreneurship, reducing unemployment, increasing income, so Serbia – with a view to the experiences of developed countries like Germany, Austria and Switzerland, which for years have applied the dual model in their school systems – expects that this innovation will contribute significantly to economic development and reducing unemployment in Serbia as well. ■

We expect that in the future a large number of major investments in third generation will appear, which will valorise the economic position of Serbia and have a regional scope

16 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 17

INTERVIEW

Satisfied Investors Are The Best Partners For Growth YANA MIKHAILOVA President of the Foreign Investors Council and Regional Director of Nestlé Adriatic

The FIC contributes to improving the business climate in Serbia and targets working more efficiently, together with the Government, on the common goal of making Serbia the optimal investment destination, appealing both for new and existing foreign investors

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he Foreign Investors Council is looking forward to continuing the dialogue with the Serbian government and, through qualitative discussion, speeding up the reform process for the benefit of all stakeholders, says Yana Mikhailova, FIC President and Regional Director of Nestlé Adriatic. ► What steps should the government take in order to ensure stable and robust economic growth over the longer term?

– Our expectations are centred on three major areas: acceleration of important structural reforms, better law enforcement, and harmonisation with EU regulations. Let me elaborate on each of them. First, structural reforms make the market more competitive and foster economic growth – that’s why the

acceleration of structural reforms is a good sign for the business community in the country and for investors who plan to enter. The privatisation and corporatisation of state-owned enterprises are important steps on that path. Second, we have seen a few positive moves in the development of the regulatory framework, now there is an urgent need for further progress in alignment of the laws and bylaws, consistent implementation of legislation at the level of all stakeholders and improvement of the efficiency, capacity and capability of governmental structures. As a few examples the Law on Inspections should be followed up with the fully functioning Coordination Body and the formation of the Council for Risk Analysis. In the tax area, we need better coordination between the Ministry of Finance and Tax Administration and Tax Administration reform. We are looking forward to the quick implementation of the new Law on Land Conversion, which will

18 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

EXPECTATIONS

TASKFORCE

SYNERGY

Our expectations are focused on three major areas: acceleration of important structural reforms, better law enforcement, and harmonisation with EU regulations

The joint taskforce between the Government and FIC would be an appropriate mechanism to ensure optimal results in the reform processes, and at the same time serve to promote good collaboration between the Serbian government and foreign investors

The power of the FIC is in the synergy of experiences, wealth of knowledge and the expertise they are bringing to the country

enable the introduction of private ownership over land.

Third, there is a gap to be closed in the harmonisation of the Law on Foreign Exchange Operations and the Law on Personal Data Protection with EU standards. We expect the Law on Charges to safeguard us from new para-fiscal charges and the regulation of staff leasing.

duced for a limited period of time and applied in a very transparent way.

► Where are the key challenges for the further development of an enabling environment for investment?

– The key challenge is certainly the better implementation of laws. Clarity of the regulatory framework, consistency of implementation and law enforcement are the key preconditions for legal certainty in Serbia. And if these things are in place, those investors who are already operating in Serbia will become the best promoters of Serbia’s potential. So far, we have witnessed some progress in this area, but the Government needs to work further in order to transparently improve regulations, strengthen institutional capacity, minimise the administrative burden and provide effective safeguard to investors.

In that respect, it is important that the government continues to have a consistent dialogue with the Government needs to work business community and receives further in order to transparently feedback.

► What is the role of foreign investments in boosting output, export and employment in the country, and how much are FIC members contributing to these goals?

– Foreign companies bring new investments and jobs, introduce modern technologies, facilitate innovations, and engage local small and medium-sized enterprises in their value chains, integrating them into the global market.

The FIC contributes by itself to the Serbian economy as it continues to expand, gathering around 130 foreign companies which have invested over €23.5 billion, contributed 18 per cent of GDP in 2013 and which directly employ more than 97,000 people in Serbia. improve regulations, strengthen FIC members promote ethical ► How are foreign companies business conduct and operate in institutional capacity, minimise already operating on the market line with solid corporate governadministrative burdens helping the Serbian economy to ance principles, therefore elevating and provide an effective catch up in terms of productivthe overall business and investment climate to a new level. ity, efficiency and advances in safeguard to investors Last, but not least, the FIC is technology? a multicultural and multi experi– Foreign companies are bringing innovation, knowhow and expertise. FIC members are enced community which, along with 70% of EU memparticularly true promoters of the knowledge-based bers, comprises companies from the U.S.A. to Russia economy, as they base their business models on conand China, which are starting to invest more in Serbia than they used to. Therefore, the FIC unites a good temporary practices and innovation. Additionally, busiblend of experience which can help Serbia to progress ness ethics, clarity of the way they operate, and comfurther and become a stronger market economy. pliance with the law are areas where FIC members are bringing important further values to the country. ► Does the Government’s subsidies policy play a key role in investors’ decisions to invest in Serbia and stay? ► Where should Serbia exert additional institu– Subsidies are not a bad thing in and of themselves, but tional efforts in the European integration process? they are a short-term measure which should be intro– The EU accession process will make the Serbian marTHE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 19

ket more competitive, because by achieving a functioning market economy it will secure the same framework for everyone and this will boost growth. Furthermore, when you are improving the internal market you make it more competitive within the EU landscape too, which means that Serbia will gain the capacity to cope with competition and market forces within the EU. To achieve that, Serbia will need to execute a widespread set of structural and economic reforms, which call for strong political consensus and public support.

► How do you provide support to Serbia’s EU accession negotiation process?

– The FIC is instrumental in the process, as it has a deep understanding of both the markets

The FIC contributes to the improvement of the business climate in Serbia and targets working more efficiently together with the government on the common goal of making Serbia the optimal investment destination of the EU and of Serbia, and can help the smooth transition of the Serbian market into the EU. How? First of all by providing feedback, but also by helping to shape the regulatory framework.

We already took important and tangible steps in that way by organising two official visits to Brussels in October 2014 and September 2015.

The third one is planned for October 2016. ► Viewed in general terms, what are the main characteristics of the business climate in Serbia at present?

– There are evident positive changes in specific policy areas, such as inspections and illicit

trade, the adoption of the Law on Inspection Oversight; acceleration of the procedure for issuing construction permits; and changes of the Law on the Employment of Foreigners that allow self-employment, exercising unemployment rights and harmonisation of national legislation with the EU Acquis.

However, the end of last year brought changes to the previously established good practice of consultations with the private sector regarding new laws, as some were adopted without public insight or debate. An example of this is the new Law on Chambers, which introduces mandatory membership and a fee in the Serbian Chamber of Commerce (SCC) for all businesses as of January 2017. The same happened with a number of tax laws. We understand the purpose of creating the SCC, though we question whether SCC membership should be obligatory – considering that most of our members see the mandatory fee as a para-fiscal charge. ► In which areas could strengthened dialogue between the government and the business community contribute to taking a qualitative step forward?

– The FIC contributes to the improvement of the business climate in Serbia and targets working more efficiently together with the government on the common goal of making Serbia the optimal investment destination, appealing both for new and existing foreign investors, and to be a good ambassador of Serbia abroad.

In order to do so, we propose a set of taskforce topics which correlate to the PM’s expose in the National Assembly, such as fighting unemployment though the creation of a predictable tax environment, stimulating agriculture by introducing EU standards in food safety, fighting the grey economy by cutting unfair competition and introducing strong inspection system, creating a capable, open-minded and well-educated workforce by forging links between schools/universities and businesses, sharing FIC members’ knowledge in creating a sustainable and efficient health sector and promoting Serbia’s interests in Brussels using the leverage of our members (75% from the EU) to make prompt and steady progress. ► In this context, how do you see the long-term contribution of the FIC to these processes?

– We believe that the joint taskforce of the

20 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

Government and FIC representatives, which was proposed ing of important laws and regulatory changes. by the prime minister at the White Book event in 2015, Each year, as our White Book testifies, brings progress would be an appropriate mechanism to ensure optimal rein mutual cooperation and the public-private dialogue.

The FIC’s major strength is that it solely promotes sults in the reform processes, and at the same time serve views and suggestions which are the common denomito promote good collaboration and openness in dialogue between the Serbian government and foreign investors. In nator of a majority of its members. That is the source of our view, the taskforce should be comprised of the highthe association’s strength, which is not the voice of one company or a group of comest government representatives and members of the FIC Board of panies, but the unified voice of The FIC’s major strength is that Directors. Through regular meetmore than 100 entities whose operations depend on the deings, this body will recognise the it solely promotes views and progress made and set new goals to velopment and growth of the suggestions which are the common be achieved. entire Serbian market. Through denominator of a majority of its its inter-sector and sector-spe► In terms of FIC collaboration cific committees, the FIC offers members. That is the source of the with the Government, what is knowledge and expertise in the association’s strength in your view of the FIC’s major form of comments of its memstrengths and which practices ber companies on new draft legin the period to date have proven to be the most islation and amendments to existing laws and, based on effective for making tangible improvements to the them, specific recommendations are formulated in the business and investment environment? best interests of the stakeholders on the market. Based on – More than a decade after its establishment, we can a request of our members, we recently formed our ninth say that all Serbian Governments were receptive and committee: Digital and E-Commerce. We are convinced open to hear foreign investors’ positions on the busithat the FIC can make a considerable contribution to the development of the industries. By the end of the year we ness climate. We welcome all of the opportunities so will form the tenth committee. ■ far given to be part of consultations about the draft-

INTERVIEW

We’re Ready For Challenges From The International Environment JORGOVANKA TABAKOVIĆ Governor of the National Bank of Serbia

The instability that comes from our environment has so far not had an impact on foreign investments that are at the level of the same period last year. At the same time, the NBS will take all measures within its jurisdiction to preserve stability and mitigate excessive oscillations of the dinar exchange rate

T

he better the shape of the national economy, the better prepared it is to resist the negative tendencies from the international environment, says Jorgovanka Tabaković, Governor of the National Bank of Serbia.

► How does the NBS estimate that the new dynamic in the EU will impact GDP growth, Serbian exports and the stability of the domestic currency?

– As we always emphasise, Serbia is a small and open economy that is on the European path, which means that our economic developments are inevitably affected by developments in the EU. At the moment, it is difficult to assess not only the intensity but also the direction of the impact of Brexit on exports and growth, and the NBS is cautious in its projections. The uncertainty in the international environment is included in our projection of GDP growth and exports, to the extent

possible from this perspective. Given that the turbulences in the international environment are first felt in the foreign exchange market, the NBS has taken and is taking appropriate measures to ease excessive volatility of the exchange rate, maintain stability and mitigate the negative spill-over effects. We have established a practice where, by taking carefully thought out measures, we achieve good results in the foreign exchange market at little cost.

► Has the NBS developed any contingency plans for Brexit, like it did for Grexit, and how much of a threat to the stability of the domestic currency do you consider announcements that some other EU member states might consider leaving the Union?

– The NBS and the government have at their disposal all measures to effectively respond to any challenges from the international environment our economy could face. Financial stability, improved investment climate and stronger macroeconomic fundamentals reduce the sensitivity of the domestic economy to external shocks, and it is in this way that we can significantly mitigate the effects of unfavourable developments in global markets on our economy.

22 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

INVESTMENTS

INFLATION

STABILITY

The inflow of foreign direct investments in Serbia last year reached 5.4% of GDP, which is significantly higher than the inflow in other countries in the region

Inflation in Serbia is low and stable, and for almost three years in a row it has totalled an average of about two per cent

The NBS invests all of its resources in maintaining the stability of the financial system, as well as its credibility and foreign exchange reserves

► To what extent did these circumstances have an impact on FDI inflow to Serbia?

– FDI inflow to Serbia reached 5.5% of GDP last year, which is considerably higher than the inflow registered by other regional peers. According to preliminary estimates for the first seven months of 2016, FDI inflow was by around 13% higher than in the same period last year, which confirms that FDI is still significant. Equally important as the level of FDI is its structure or diversity by project and geography. Unlike previous years when investments in a small number of large companies dominated, in the last two or three years it is evident that foreign investors are investing in a larger number of smaller projects in Serbia, primarily export-oriented companies. ► We have recently recorded an outflow of foreign loans and portfolio investments. Are these trends continuing and how do you explain them?

– What best illustrates globalisation is information and money. And this brings both advantages and uncertainty, demanding at the same time the capacity to adjust. Developments in the domestic securities markets of developing countries are often influenced by developments in global markets. The end of last and the beginning of this year were marked by uncertainty regarding the FED’s decisions on the scope and pace of change in the benchmark interest rate. The uncertainties in the international environment were amplified by the announcement and holding of the referendum in the UK. All of that led to a withdrawal of non-residents from securities, in Serbia and in almost all other developing countries.

Judging by the improved macroeconomic fundamentals of Serbia and the yield portfolio investors realise in Serbia, alongside political and macroeconomic stability, it is realistic to expect a steady renewal of portfolio investments.

► Late last year we recorded growth in loans to the corporate sector and a decline in NPLs, only for these positive trends to be reversed in the first quarter of 2016. Please tell us something about the current trends and the reasons for such dynamics?

– It should firstly be noted that there has not been a reversal in the movement of the said series. The level of NPLs in the corporate sector is on a continuous decline – it fell from 198 billion dinars at the end of 2015 to 171 billion at the end of May this year.

Given that the level of NPLs fell significantly following the sale of non-performing claims outside the banking sector, this also led to a reduction in the level of total corporate loans. Looking at nominal amounts, from the end of 2015 to 31st May this year, 22 billion dinars worth of corporate loans were sold outside the banking sector, while the level of total corporate loans decreased by about 17.8 billion. The NBS estimates that in 2016 the real growth of loans to the corporate sector will be at the level of about 3%.

By the end of the year new legislation should be prepared to regulate the means of financial security and the rights of financial services consumers in negotiating distance contracts via internet, mobile phones and other modern means of communication

► You recently presented a study entitled “Analysis of impediments to the sale of NPLs in Serbia”. What are the next steps?

– The NBS was involved in the preparation of that study in a purely advisory capacity. The consultants working on the study were engaged by the Ministry of Finance, via the EBRD. The conclusions of the study represent only one of the options in terms of further activities to resolve the issue of NPLs. The latest amendments to the regulatory framework for banks mark the completion of all NBS activities envisaged by the Action Plan adopted in August 2015. We will continue to monitor and evaluate the effects of activities that have been undertaken so far, but we will also make further efforts to implement measures to resolve the NPLs,

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 23

both as a member of the working group and independently, as a supervisor and regulator of the banking system.

► Inflation has been below the target level for more than two years. You recently announced that you expect a slight rise in inflation, but that it will still be below the targeted level. Is it time for higher inflation or for the revision of the target?

– Inflation in Serbia is stable and low and has averaged about 2% for almost three years in a row. Disinflationary pressures in this period were expected on account of the majority of domestic factors, but were also unexpectedly strong on account of price movements in the international environment. The gradual depletion of the disinflationary impact of these prices, in addition to the expected increase in inflation in the euro zone and accelerated recovery of economic activity in Serbia, should contribute to the gradual growth of year-on-year inflation and its return to within the target boundaries.

Undershooting of the lower bound of the target band is not a sufficient reason to lower the inflation target, because that undershooting is in part a consequence of factors whose disinflationary impact is not permanent. On the other hand, the fact that we are on the right path to achieve lasting stabilisation of inflation at a low level, that inflation expectations are anchored within the target band, and that macroeconomic fundamentals have significantly improved, is of course a valid argument for lowering the target. However, in all inflation targeting countries a decision to revise the target implies a comprehensive analysis and careful weighing of all the pros and cons.

fluences from the international environment. What supports greater caution in our policy-making is the overwhelmingly negative experience of a not-at-all negligible number of states that allowed significant weakening of their currencies since the beginning of the crisis. It is important to point out that the NBS does not target any level of the exchange rate and that it is precisely the calming of undesirable short-term fluctuations in the dinar that prompted a number of improvements in the macroeconomic environment. Looking ahead, the NBS will strive to move towards less participation in the foreign exchange market, but will do so gradually because it is essential for the financial system to be ready for the implementation of these processes. ► What are the most important tasks of the NBS regarding the continuation of the programme agreed with the IMF? – The IMF has positively assessed the monetary policy a number of times, stating that the current inflation targeting framework is appropriate to preserve stable inflation and that the implementation of a managed floating regime of the dinar exchange rate protects the economy from external shocks. The most important tasks of the NBS in the continuation of the programme with the IMF relate to improving the ability of the banking sector to deal with potential shocks.

► Can you tell us what legislative activities the NBS plans for the coming period?

– Already by the end of the year new legislation should be prepared to regulate the means of financial security and the rights of financial services consumers in negotiating distance contracts via internet, mobile phones and other modern means of communication. The possibility of limiting interbank fees when it comes to payment card transactions will also be carefully considered. It should not be forgotten that the NBS plans to align banking regulations with Basel III standards in the coming period.

The most important tasks of the NBS in the continuation of the programme with the IMF relate to improving the ability of the banking sector to deal with potential disturbances

► The NBS spends relatively significant sums of money to keep the dinar relatively stable, although there are economists, with whom the IMF agrees, who suggest that mild depreciation would be welcome. What is your opinion on this issue?

– The NBS invests all of its resources in maintaining the stability of the financial system, as well as its credibility and foreign exchange reserves. The NBS pursues a regime of a managed floating exchange rate which is compatible with the inflation targeting framework. This exchange rate regime leaves the possibility for the central bank to intervene in the foreign exchange market in the event of significant oscillations in the national currency and threats to financial stability and the adequate level of foreign exchange reserves. It should not be forgotten that Serbia is a small and open economy with a still high level of euroisation that makes it sensitive to the in-

► In which way does the NBS adjust to the requirements of European integration?

– The NBS actively participates in all stages of the European integration process and continuously adjusts its business standards to the standards and best practices of central banks in the EU. During the negotiation process the NBS has the most important role in two negotiating areas: Financial Services and Economic and Monetary Policy, where it is the lead institution, and in the chapter Free Movement of Capital, as the second relevant institution. ■

24 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

INTERVIEW

Joint Efforts To A Better Business Environment MARKO ČADEŽ President of the Serbian Chamber of Commerce

The aim of the Serbian Chamber of Commerce and the Foreign Investors Council is to increase the competitiveness of Serbia as a business and investment destination

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or the sustainable development of the Serbian economy, there is no alternative to increasing investment and exports and private sector development, says Marko Čadež, President of the Serbian Chamber of Commerce (SCC).

► How do you see the role of foreign investors in Serbia and their contribution to the development of the domestic market?

– Foreign investors are especially important for the Serbian economy, not only because of the capital that they invest here, but also because they employ our people, they engage our companies for their suppliers, they export with the label Made in Serbia, and they transfer their technologies, standards and business models from the developed world. According to the data of the Foreign Investors Council, its members alone have so far invested 23.5 billion dollars in Serbia, and of the 15 biggest exporters in Serbia in the first half of this year half are FIC members.

However, it is important – in parallel with attracting foreign investors – for us to strengthen local companies, because foreign investors evaluate their quality and their ability to become partners and include them in their supply chains. ► From some quarters, opinions can be heard that foreign companies are present only to grab

profits and take them out of the country. What is your position?

– There is no company whose goal is not to successfully do business and make a profit. It is a business decision for each company whether they will reinvest gains earned here, transfer them to their own country or invest elsewhere. It is not in the interests of any country that wants to be part of international economic flows to limit the free movement of capital, including the possibility of repatriation.

NBS data showing that the reinvested profits of foreign companies in the Serbian economy last year amounted to 835 million euros and was as much as 84 per cent higher than in 2014 speaks volumes about their interest in expanding operations and remaining on this market in the long run. This is yet more proof that Serbia has become one of the most desirable destinations for investment in Europe.

► How do you see the role of foreign investors’ associations, primarily the Foreign Investors Council?

– The activities of associations of foreign companies, such as the Foreign Investors Council, are particularly significant because they provide recommendations to the creators of economic policies and regulations for improving the business environment from the perspective of businesspeople who have come to Serbia with practices from orderly and developed economies. In this sense, the FIC “White Book” is valuable, not only because of the recommendations, but also because of its continuous monitoring of progress in implementation.

26 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

► In which way do you to work together and which common goals are shared by the Serbian Chamber of Commerce and the Foreign Investors Council?

– Our common goal is to increase the competitiveness of both Serbia, as a business and investment destination, and the companies that do business here. The most efficient possible realisation of these goals requires synergy of activities and resources, in order for us, through a common approach in addressing issues important to the economy, in dialogue with government institutions and at the international level, to achieve the best solutions for our members.

► In your opinion, how will this cooperation be operationalised in the future?

– The Chamber of Commerce is a business association that brings together foreign investors and offers bilateral chambers a permanent platform for open, constructive and high quality dialogue with the Government and state institutions, in order for us to jointly and regularly discuss and solve problems and the initiatives of entrepreneurs. The Agreement on the Establishment of the Council of Mixed Chambers has already been signed by nine business associations, and I believe that will also be done very quickly by the FIC. ► Which topics will the SCC propose as being in the common focus of the two organisations?

– A common interest of our companies is introducing dual education in order for our school system to be adapted to the needs

We highly value the contribution of the FIC to date in terms of improving the business environment in Serbia and developing a dialogue between the economy and the state

of the economy. Mutually beneficial for FIC members and Serbian enterprises is their networking, through which one side will get good and reliable suppliers on the local market, while the other will gain works and all other benefits of entering the supply chains of large systems.

Our business associations will also have an important role to play in the process of European integration – through support for the state and the economy. Significant in this will be the help of FIC members, 70 per cent of which come from the EU.

► How do you see that this cooperation can develop in the long run?

– The SCC, the FIC and mixed chambers have, and will have, a place and role in the corpus of business association of Serbia. Many FIC members are already SCC members, and as of 1st January 2017 they will all be SCC members. This opens up new space and creates great opportunities for us to work together and to put our membership fully into operation, which is why we exist as a business association.

► What has the SCC recognised as the key potential of the FIC that it can rely on?

– The quality of the FIC is primarily in the power and quality of the companies that it brings together, as well as in the building of mechanisms for the harmonisation of positions within the organisation and a developed dialogue with the state and stakeholders. ■

Hope For Even Better Progress In Reforms

INTERVIEW

H.E. MICHAEL DAVENPORT Head of the EU Delegation to Serbia

It is important to make a success of the economic reforms that are underway and to create a business environment which favours entrepreneurship and investment. This would be good for Serbia, but also for the EU, which has an interest in seeing Serbia become stronger and more prosperous

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ith the new Serbian Government now established, we spoke with the Head of the EU Delegation, Ambassador Michael Davenport, about what lies ahead when it comes to Serbia’s EU accession process, and specifically about the economic reforms facing the government and how the EU is supporting that effort.

gress across the board. Serbia is receiving the largest level of pre-accession funding of all Western Balkan countries – some 200 million euros per annum. The UK has yet to start negotiations over leaving the EU and, as an EU member state, continues to contribute to this budget, a process that is strongly supported by the EU, politically, technically, and with financial assistance.

► At the beginning of the year it was announced that, apart from chapters 23 and 24, some other chapters – such as chapters 5, 15, 25 and 26 – could be opened. How much is it now likely that this could be achieved?

– So far we have four chapters opened and preparations for opening new chapters are ongoing. That said, I do not want to speculate about which chapters will be opened next, or when. We open chapters once Serbia does its part of the work in adopting laws, bylaws, necessary strategies and action plans, and once all our Member

I believe that we could have additional progress in accession negotiations in the months ahead, especially now that there is a new government in place, but the final decision depends on Member States

► Will the UK’s exit from the EU have an impact on the dynamics of accession for EU candidate countries?

– I don't think so. All EU countries are supporting enlargement. The dynamics of accession depend primarily on the success of reforms undertaken by candidate countries and their ability to meet EU standards. The EU is providing strong support, especially through pre-accession funding, to help candidate countries to make pro-

28 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

REFORMS

STABILITY

INVESTORS

The dynamics of accession depend primarily on the success of reforms undertaken by candidate countries and their ability to meet EU standards

Fiscal consolidation and financial stability were strongly emphasised in this year's recommendations. Both are crucial for overall macroeconomic stability

Companies from the EU are the biggest investors in the country and a significant employer in Serbia. Around 70 per cent of Serbian exports go to the EU market

States agree on a common position related to a particular chapter. The Chapters you mention are probably the ones that are most likely to be opened next. I believe that we could have additional progress in accession negotiations in the months ahead, especially now that there is a new government in place, so that, for example, work on new legislation can be taken forward. However, the final decision on opening chapters is taken

by Member States in response to a recommendation from the European Commission that sufficient progress has been made. ► Looking at the last 15 years of partnership between Serbia and the EU, to what extent has Serbia become more European in terms of its everyday functioning?

– Well, if we compare Serbia during the ‘90s and today’s Serbia, we can see a huge difference. Serbian cities in many respects do not differ much from other European cities. Citizens are travelling freely to the EU from Serbia and vice versa, transit traffic through Serbia is increasing every year, Serbian road infrastructure has been gradually improving. More and more tourists are coming to Serbia from Europe, for example on big cruisers down the Danube. Belgrade is becoming an ever more attractive and “cool” destination for tourists.

Companies from the EU are the biggest investors in the country and a significant employer in Serbia. Around 70 per cent of Serbian exports go to the EU market. An increasing number of companies from the EU are setting up their regional “hubs” in Serbia. Serbia’s policy of EU accession offers investors from the EU and elsewhere reassurance that reforms will be continued and that Serbia will become ever more predictable as a place to do business. Foreign businesses know what kind of market and investment rules and conditions they will be faced with, since rules existing in the EU will exist in Serbia. This is good for Serbia. It’s also good for the EU, which has an interest in seeing Serbia become stronger and more prosperous.

sembly and been included in the ruling coalition. During your visits to different parts of Serbia, how much proEuropean sentiment do you see?

– Having euro-sceptic parties in the parliament is not uncommon in Europe. A dialogue between opposing views is an integral part of a democratic society. And the parliament and media are natural places for such a dialogue to take place.

That said, as I travel around Serbia I meet many people and listen to their views. Mostly I hear people telling me how much they want to see improvements in their everyday lives. They want to see the courts delivering justice, schools providing a good education to their children, hospitals meeting their expectations. Many young people tell me of their anxiety about finding jobs and of possible plans to seek a new life elsewhere. This emphasises how important it is to make a success of the economic reforms underway and to create a business environment which favours entrepreneurship and investment. Many people I meet want to know more about the EU and what the EU is doing in Serbia. I rarely meet people who tell me they disagree with Serbia’s policy of EU integration, but perhaps they are too polite!

I think there is a lot of work ahead to explain the benefits of European integration. The Delegation and our Info Centres in Belgrade, Novi Sad and Niš are here to support Serbia every step of the way, including through providing information to the public about the EU and European integration, but the main responsibility is with the Serbian administration at all levels.

Serbia’s policy of EU accession offers investors from the EU and elsewhere reassurance that reforms will be continued and that Serbia will become ever more predictable as a place to do business

► Some parties that oppose the continuation of European integration have entered the Serbian National As-

► Do you think that the new Serbian government responded with its programme to the recommendations of the EU in the field of economic reforms?

– The Government was of course sworn in only very recently, so delivering on economic and other reforms still lies ahead.

However, in his speech to the Parliament the Prime Minister did indeed address the issues raised in the EU’s recommendations, so it’s clear that the goal of the new government is to start permanently and continuously working on them. We,

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 29

of course, welcome this stance – addressing the recommendations makes sense for Serbia, but will also help prepare Serbia for joining the EU. It’s worth bearing in mind that the economic recommendations to which you refer are part of a wider process which includes submission of the Government’s annual Economic Reform Programme. This year's recommendations, published in May, emphasised some points from last year's recommendations which have not been fulfilled. We hope to see more progress in next year's recommendations. It is important to understand that here we are talking about developments which need time and dedication in order to obtain the desired results. One or two years is often not sufficient. What is important is that the Government is dedicated to achieving these goals and that the course of action is right. In my view, this is indeed the case. ► In which areas do you expect the most active work of the government in creating a positive business and investment climate?

– Fiscal consolidation and financial stability were strongly emphasised in this year’s recommendations. Both are crucial for overall macroeconomic stability. When it comes to the business environment, we expect that the Government will address the issue of para-fiscal charges, something which the local business community has been complaining about for years. Another issue that should be addressed is access to finance, which is of particular importance for SMEs. In 2016, the Year of Entrepreneurship, will, I am sure, be high on the agenda of the new Government, and we are working together to encourage business to invest and develop in Serbia.

but transferred to the general budget of Serbia, though only once agreed reform targets have been achieved. Sector budget support is for example given to Serbia in support of public administration reform.

When it comes to loans, I should mention very favourable loans that the EU bank, the European Investment Bank, is offering Serbia, under repayment conditions which are unmatchable.

► How much has Serbia improved its management of public funds, including EU funds, in the previous period?

– Serbia has invested significant efforts into reforming its Public Financial Management (PFM) system in recent years, achieving mixed results and uneven improvements across the various PFM subsystems. The main obstacle appears to have been the lack of a comprehensive reform programme to ensure proper planning and coordination.

I am pleased to say that this problem has been clearly recognised by the Serbian authorities. Based on identified gaps, in November 2015 Serbia adopted a comprehensive public financial management reform programme (PFM) 2016-2020, which covers all the relevant PFM sub-systems. The measures defined in the programme aim to improve efficiency and effectiveness in the allocation and use of public resources, introduce proper accountability, improve transparency and scrutiny of public funds and strengthen cooperation between the Ministry of Finance, line ministries and all other relevant stakeholders.

Having in mind the complexity of the tasks ahead, the Ministry of Finance is implementing a functional review that will further advise on appropriate capacity and organisation of the Ministry to respond properly to the challenges at hand.

Some of the key short-term reform priorities are to improve macroeconomic forecasting, to align the medium-term budgetary framework (MTBF) and annual budget processes with strategic planning, to enhance programme budgeting, to enhance tax collection and voluntary compliance, to improve debt management, strengthen public investment and capital project planning and to step up practical implementation of internal control.

When it comes to the management of EU funds, the Serbian authorities have been accredited by the EC to manage the IPA 2013 programme, as well as part of the IPA 2014 programme. On the recommendations of auditors from the European Commission, the Serbian authorities are making ongoing improvements to ensure that the management and control systems for IPA funds meet the Commission’s standards. ■

One or two years is often not sufficient for achieving desired results in the process of reforms. What is important is that the Government is dedicated to achieving these goals and that the course of action is right. In my view, this is indeed the case

► It was announced recently that the EU will move to a new way of financing that will be less reliant on grants and more on loans. What will this change bring to candidate countries?

– Assistance delivered by the EU Delegation on behalf of the European Commission is non-refundable and it will remain. However, in agreement with the Government, especially for Serbian SMEs, we will be using non-refundable funds to support financial instruments that will facilitate access to finance. For example, through IPA 2016 funds we will support the establishment of a guarantee facility that will allow SMEs without sufficient collateral to access bank loans. However, let me also mention another new instrument we are using increasingly: sector budget support.

Here, the EU is agreeing reform targets with the government and is then giving the Serbian government money to finance these reforms. These funds are thus not disbursed via projects

30 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 31

CORPORATE: INTERVIEW

Demand For Loans Rising, But Banking Profits Modest MARIA ROUSSEVA President of the Executive Board of Societe Generale Banka Srbija AD

Economic recovery has resulted in the growth of demand for bank loans, both among the population and businesses, but low provisions and record low interest rates have a negative impact on the profitability of the sector

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e discussed with Mario Rousseva, President of the Executive Board of Societe Generale Bank Srbija AD, the current economic juncture, the operations of banks and new services that this bank offers its clients.

► What are the biggest challenges for banks on our market?

– There are several existing signals that indicate the growth of the Serbian economy. Positive projections for GDP growth, with a forecasted rate of 2.5 per cent by year’s end, and a better macroeconomic position are good preconditions for the development of banking, both in dealing with the economy and with the population. For this reason, we have seen growth in demand for loans among the population and businesses over the previous year, which caused the further lowering of interest rates, due to low inflation and a reduced deficit.

On the other side, low fees and record low interest rates have a negative impact globally on the profitability of banks, which is the case with us. Domestic banks also expect the continuation of work on the harmonisation of the regulatory framework with local and EU legislation, as well as work on solutions for recovery from problematic loans.

– The development of technology has led to the fact that many customers want to communicate with the bank in a digital way and we are aware that it is not only necessary to respond to the new demands of clients, but also to anticipate future trends and be as innovative as possible. We were among the first to move towards meeting the future - we opened the first online branch in Serbia, which allows our clients to realise some more complex services, such as the process of obtaining cash loans, online in their entirety, without a single visit to the bank, with the support of our bankers via video calls. We launched cooperation with the Centre for the Development of Technological Entrepreneurship (ICT Hub), we support startups and we be-

bia, which we organised recently, when teams developed many innovative solutions that can improve the experience of banking clients.

► Changes in behaviour and new demands of clients transcend the framework of the traditional offer of services of banks. In which way do your operations stand out on the market?

– Our bank is constantly seeking new solutions in order to be as close as possible to the needs of our clients, and that also implies changing our own business model. Therefore, in the case of Societe Generale Bank, we are today talking about partnerships that aim to provide added value to customers and full service in one place. In the corporate sector we have developed a special concept of financing supply chains that we successfully apply with our partner, company Delhaize Serbia. This concept provides access to all participants – suppliers, customers and the bank, and the implementation of financing through innovative electronic platforms, unique on the market. In this respect, our bank is a kind of “payment agent” to suppliers of Delhaize, performing administrative duties and paying obligations.

We are planning a partnership with another international company with a large market share, thanks to which we will offer additional services to our customers in the retail banking sector.

In the future we have the ambition to develop, through cooperate with partners, services that are not exclusively related to financial services. ■

We want to improve every aspect of customer communication with our bank, whether that be online or physical branches, mobile applications, via ATMs or any of the social networks

► To what extent does the domestic banking sector follow technological changes?

lieve that together we can create opportunities to exchange knowledge and improve our services. We want to improve every aspect of customer communication with our bank, whether that be online or physical branches, mobile applications, via ATMs or any of the social networks.

In that the idea of start-up communities are of great help to us, which can also be seen in the example of the first Fintech hackathon in Ser-

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INTERVIEW

Helping Serbia Build Resilient Economy DANIEL BERG Director for Serbia at the European Bank for Reconstruction and Development (EBRD)

The reduction of fiscal deficits and structural reforms will help reduce Serbia’s vulnerability to external shocks like Brexit and enhance the country’s attractiveness as an investment target. The measures included in the EBRD’s Investment Climate and Governance Initiative support this process in many areas

“T

he Serbian government has undertaken many important reforms but needs to do more in order to build resilient economy,” says Daniel Berg, Director for Serbia at the European Bank for Reconstruction and Development.

► In your opinion, will the situation created by Brexit have an impact on economic growth and investor sentiment towards investing in Serbia?

– Serbia has been relatively insulated up to now from the effects of Brexit. The direct effects are minor, as trade and other relationships are limited. Less than 2% of FDIs and less than 1% of external trade is with the UK. The indirect effects, through other EU countries, may be more relevant. If Brexit causes a major slowdown in EU economies, then Serbia will also be negatively affected by lower exports and FDI inflows. Investor risk assessments may also change, raising risk premiums, although Serbia has been doing a good job reducing its vulnerability within the

IMF programme. Investor sentiment will probably be more affected by further business environment reform that can make Serbia more attractive as an investment destination.

► To what extent could these events lead to a potential change in Serbia’s EU accession process?

– It is hard to say for now, but it would be premature to conclude that the UK’s departure will have a direct impact on the pace of EU accession negotiations. At present, there is too much uncertainty about the whole process both on the UK and the EU sides. Pro-European (and pro-EU) sentiment in Serbia is unlikely to be seriously affected by Brexit. The appeal of EU membership remains strong, most likely due to the population’s long-lasting links with European neighbours and due to the expectation of practical benefits.

Studies have shown that changes in popular support for EU membership depend relatively little on developments within the EU. The perceived prospects for progress in EU integration are far more important: support for the EU decreases when the accession process slows, and it goes up again when citizens see their country moving forward with EU integration.

34 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

BREXIT

EFFICIENCY

SUPPORT

If Brexit causes a major slowdown in EU economies, then Serbia will also be negatively affected by lower exports and FDI inflows

The government has still more to do in restructuring public enterprises, improving their corporate governance and making them more efficient

The EBRD does not allocate a certain amount of financing to each country each year. We assess the potential for EBRD to support the government and the private sector

► What can Serbia do to minimise the impact of possible negative trends, and does the “Investment Climate and Governance Initiative”, signed last year, offer responses to this dilemma?

– Serbia should continue with reforms started in 2014, and which are supported by the IMF programme signed in 2015. The reduction of fiscal deficits and structural reforms, including those designed to improve the business environment, will help reduce Serbia’s vulnerability to external shocks like Brexit and enhance the country’s attractiveness as an investment target.

Measures included in the EBRD’s Investment Climate and Governance Initiative support this process in many areas. These include supporting debt resolution, inspection reform and corporate governance, enhancing alternative dispute resolution practices, competition and public procurement practices, among others. These are areas where Serbia still needs further improvements to become more business friendly and transparent and these are topics about which investors cite concerns.

on public finance, which would not be good for Serbia.

What is your opinion?

– Serbia does need to monitor its overall debt levels carefully and ensure that each dinar/euro/dollar/yuan is invested effectively. Loans from China have been connected until now to large projects such as transport (Zemun-Borca bridge) or energy infrastructure (the proposed Kostolac power station).

Each project should be appraised for its economic and social benefits, and the government should ensure that effective project implementation is in place. The EBRD of course is also working to implement sovereign loans in rail and power, for example. In fact, rather than more financing, it is the effective implementation of key projects that is the highest priority. We also encourage the government to consider innovative financing structures, such as PPPs, which may allow the government to reduce its share of the financing while sharing the returns with an investor. PPPs and concessions, when well structured, can also ensure competition among bidders, which may thus provide better outcomes.

► Considering that a large number of projects underway with China relate to loans rather than investments, some economists warn that this could lead to pressure

► In your opinion, has the new Serbian government considered the appeals of the IMF, World Bank and expert public that it needs to speed up the structural reforms?

– The government has taken many important steps to re-

EBRD activities in Serbia include helping the state administration in improving business procedures and the business climate, engaging in resolution of problems with NPLs, enhancement of corporate governance, and assisting the needs of SME

► Do you think it is a good decision for Serbia to connect economically with China more intensely?

– China has become the second largest economy in the world and its growth, despite a recent slowdown, has been impressive. Building strong economic relationships with one of the most important economic hubs of the world will help Serbia diversify its trade and FDI structure as well as provide opportunities for faster trade growth and investment. China also seems interested in building solid cooperation with Serbia to benefit from opportunities in Serbia as a manufacturing hub and with easier access to EU markets. China recently became a shareholder of the EBRD, and EBRD is prepared to work with Chinese investors that meet EBRD’s normal legal, technical and financial standards.

► Are there any large foreign investments that you expect in Serbia?

– In the past two to three years, there has been a steady capital inflow, reaching 4-5% of GDP. They were mostly smaller investments, unlike the high profile investments such as Fiat in Kragujevac in 2011. A large number of small investments can help to diversify the investment structure without making the economy reliant on any particular industry (Fiat has around a 10% share in exports and around 3% in GDP).

We also have seen the entry of financial investors, such as MidEuropa Partners (Moji Brendovi) and KKR (SBB). We are in contact with both financial and strategic investors and are prepared to work with those interested in EBRD financing, and which meet our business criteria.

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 35

duce the deficit and improve the business climate, including important reforms in labour and permitting codes, stepped up privatisation or the downsizing of state-owned enterprises. It has also made improvements in property registration and allowing the conversion of land lease to ownership rights. The rightsizing of the public administration has also started, but further steps are needed so that government institutions provide enhanced services with fewer public employees. It has still more to do in restructuring public enterprises, improving their corporate governance and making them more efficient. The government does consider the advice of international financial institutions, but at the same time, it must determine its own domestic and social policies within its long-term reforms.

► How will the EBRD support the government in the reforms of the state administration and public companies?

– We are providing specific support for the state administration in improving business procedures, and the business climate through our Investment Climate and Governance Initiative, mentioned before.

Through our participation in the NPL working group, EBRD has contributed to solving this important issue, which is slowing down lending. We helped prepare a report defining key obstacles for solving NPLs and will now work with government institutions and other members of the working group in order to address these obstacles.

We have several projects (including at EPS) that have a corporate governance enhancement component. In the private sector, when EBRD takes an equity stake in a company, we conduct a corporate governance due diligence and can engage in technical assistance to improve governance. EBRD also delegates experienced board members who support governance through their presence and expertise – this is currently the case for example at Komercijalna Banka, where we have proposed two experienced independent directors.

We continue to discuss projects in the power and gas sectors, although these are likely to happen in 2017. In the municipal sector, we have active dialogues with almost all the larger municipalities including Belgrade, Novi Sad, Nis, Subotica, and Kragujevac. In the private sector, we are in talks with at least one new large investor and numerous smaller local and foreign investors. We also continue to work with local banking sector partners who we support with funding for SMEs lending. Finally, we are expecting a number of investors in renewable energy and would work with financing partners to syndicate the needed long-term loans.

► You have supported the development of small and medium-sized enterprises since 2001. Have any of these companies grown into serious market players?

– Our Advice for Small Business program conducts post-program analysis and has found that companies that worked with EBRD-funded consultants see more investment (including from local banks), higher growth, increased trade and more job creation.

Consulting services often facilitate companies’ access to finance. For example, we are very pleased that donor funds have been made available to support companies through our Women in Business programme – women entrepreneurs have access to both advice and incentivised financing. Over the years, companies that received direct financing from EBRD have grown into national champions –such as Forma Ideale and SBB (where we invested in the very early days). Clients that have received advice from EBRD advisors include local leaders such as Desing, Ivkovic, Silbo, Algotech, PONS, Delmax, or Gomma Line.

Over the years, companies that received direct financing from EBRD have grown into national champions –such as Forma Ideale and SBB. EBRD also advised local leaders such as Desing, Ivkovic, Silbo, Algotech, PONS, Delmax and Gomma Line

► What are some other priorities of the EBRD in 2016 in regard to the EUR 300 million allocated for Serbia?

– The EBRD does not allocate a certain amount of financing to each country each year. We assess the potential for EBRD to support the government and the private sector. EUR 300 million is not a target, but rather a potential outcome for 2016, and it could be more or less. That said, we continue to work with the national and municipal governments on a number of projects. These include upgrades in railway infrastructure.

► What does the regional project WB EDIF, intended to prepare SMEs for European entry, provide?

– The Western Balkans Enterprise Development & Innovation Facility (WB EDIF) is an EU-funded instrument aimed at improving access to finance for SMEs. We are mainly involved in the management of the Enterprise Expansion Fund (ENEF), which provides equity, quasi-equity and loans to companies with a view to strengthen their balance sheets and support their growth. EBRD is also involved in EDIF’s Advisory and Support Services component through the Advice for Small Business program. This enables us to maximise the potential of the close relationship developed with the SMEs benefitting from advice to serve as an instrument for developing financing relationships down the line. ■

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INTERVIEW

Focused Reforms Will Yield Results JOHN KYRITSIS Vice President of the Foreign Investors Council and COO of Delhaize Serbia

For Serbia, it is crucial to maintain macroeconomic and financial stability, but also to improve living standards by fostering economic growth and the country’s competitiveness through the acceleration of structural reforms, better implementation of laws and continuing harmonisation with the EU Acquis

B

y galvanising the reform efforts, especially in the process of improving the business climate, Serbia has improved its attractiveness considerably. Still, there are some features that hinder the reform progress and that need to be addressed, says John Kyritsis, Vice President of the Foreign Investors Council and COO of Delhaize Serbia.

► How would you assess the overall progress of reforms in Serbia, particularly in light of the key recommendations of the FIC from the previous period?

– In the last two years, the FIC was focused on priorities set by our members, like a more consistent and predictable tax system, flexible labour regulations, a streamlined bankruptcy procedure, simplified construction permitting and land conversion, and a more efficient inspection system to fight illicit trade. The progress was achieved in four out of five of these

Serbia has improved its attractiveness considerably. Still, there are some features that hinder the reform progress and that need to be addressed 38 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

SUPPORT

FOCUS

CONSISTENCY

The support of international financial institutions is critical for Serbia to keep its macroeconomic framework under control, especially the development of solid cooperation with the IMF

Stronger efforts are needed on the finalisation of privatisation and the corporatisation of state-owned enterprises

Focus on more consistent application of tax regulations, as well as efficient implementation of new laws on land conversion and inspections, is needed

topics, and not a small one, as around 60 per cent of FIC recommendations have been adopted and implemented. In 2016 we are more focused on the tax system.

► Of the progress achieved, what can be evaluated as being fundamental, and where has progress only been partial, and why?

– We consider Labour Law changes in 2014 as fundamental progress. Amendments include 70 per cent of recommendations provided in the White Book for 2014 and some of the positive developments are extensions of the maximum duration of fixed-term employment to 24 months, the abolishing of the obligation to pay increased salaries for shift work, a new basis for the calculation of salary compensation, redundancy pay only for the years of service with the current employer and limited extended application of industry-wide collective agreements. Still, there are some remaining issues, such as staff leasing not being regulated yet, the legal limit of 24 months for a fixedterm employment contract hasn’t been extended to 36 months, and the extended applicability of collective agreements hasn’t been repealed in full.

Also, Amendments to the Law on Planning and Construction brought positive developments, like acceleration of the procedure for issuing construction permits. Significant progress has been made in inspections and the fight against illicit trade, especially with the adoption of the Law on Inspection Oversight. Full implementation of this Law is expected.

► How much does the current European and reform agenda of the Serbian government support the further advancement of the business and investment climate?

– Serbia has significantly improved its attractiveness. In the past two years we have witnessed the re-energising of the reform efforts, especially in the improvement of the business environment. Still, there are some elements that stall and hamper the reform process, such as: the complexity of designing and executing structural reforms and social sensitivities that are linked to them.

Time and funds are needed in order to create the administrative and institutional capacity to implement new laws, including strengthening institutional capacities.

Significant progress has been made in inspections and the fight against illicit trade, especially with the adoption of the Law on Inspection Oversight. Full implementation of this Law is expected

► What do you consider as being the key institutional challenges along the way?

– For Serbia, it is crucial to maintain macroeconomic and financial stability, but also to improve living standards by fostering economic growth and the country’s competitiveness.

Serbia is deeply connected to the EU market, the biggest investments come from EU countries and more than half of Serbia’s export is to the EU. The potential acceleration of the Eurozone crisis would certainly have a negative impact on this market. With that in mind, the support of international financial institutions is critical for Serbia to keep its macroeconomic framework under

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 39

control, especially the development of solid cooperation with the IMF.

► ...and what are the biggest challenges in terms of the practical implementation of regulations?

– Better implementation of the law, with a special focus on Tax Administration and inspections, is a challenge in itself. The focus should be placed on the privatisation process being signifi-

The FIC has internal rules of competition compliance regulating the protection of competition, and guidelines that apply to all activities under the FIC’s auspices and to all FIC bodies cantly accelerated and organised in a transparent manner. We need a fully-functioning Coordination Body and creation of a Council for Risk Analysis, in order to strengthen cooperation between ministries and inspections to ensure the implementation of the Law on Inspections.

► Which specific FIC initiatives from the previous period would you single out as having contributed to solving problems that previously plagued the business community?

– The FIC has many different initiatives on a

regular basis, for providing better business conditions. This is due to the fact that it has nine committees that deal with various topics. More flexible labour regulations and simplified construction permitting brought key improvements in solving problems that impacted on the business community for years.

► Which examples at the sectoral level would you single out as being instances where good laws and practices gave a boost to successful companies and new investments, and is there room for concrete measures to improve conditions for doing business?

– In terms of new FDI’s, positive changes were made by amending Law on Planning and Construction introducing more efficient issuing of construction permits and changes of the Inspections Law. Further improvement can be attained by accelerating structural reforms, improving the implementation of laws and continuing harmonisation with EU Acquis. On structural front, Government should invest stronger efforts to finalise privatisation and corporatisation of state-owned enterprises.

Implementation vise, focus should be put on more consistent application of tax regulations, as well as efficient implementation of new laws on land conversion and inspections. Also, harmonisation with EU Acquis should concentrate on changes of foreign exchange and data protection regulations.

► How does the FIC resolve the opposing interests of its members at the internal level when it comes to specific sectoral measures?

– The FIC solely promotes the views and suggestions which are the common denominator of a majority of its members and it has nine committees and some of them are sectoral, such as Food & Agriculture or Telecommunication & IT. These committees work jointly on identifying specific obstacles to investments and developing advice on how to overcome them. At committee meetings, companies that represent competition have to agree on common positions, otherwise they cannot be on the FIC’s advocacy agenda. The FIC has internal rules of competition compliance regulating the protection of competition, and guidelines that apply to all activities under the FIC’s auspices and to all FIC bodies, particularly at the meetings of the FIC’s specialised working committees. ■

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CORPORATE: INTERVIEW

Seeing Signs Of Recovery MARINOS VATHIS President of Vojvodjanska Banka

We are seeing a renewed interest in large and (more importantly) small companies, and that tells us that the economy is getting back on the right track. But the situation remains complex, and banks must navigate these waters with great care

T

hanks to our professional team that understands and thoroughly analyses the operations of the bank's clients, Vojvodjanska Banka has seen a rise in lending activities and has been the recipient of awards in the area of commercial payments and financial transfers, says Marinos Vathis, President of Vojvodjanska Banka.

► How much do the somewhat improved macroeconomic trends reflect on the activities of the banking sector, and what prerequisites must to be met in order for the corporate loan sector to grow?

– Macroeconomic and political stability are prerequisites for a market-oriented economy, and we have both in Serbia. We are witnessing an increase in domestic corporate loans on the market and, at the same time, a decrease in the level of NPLs [non-performing loans]. I can tell you in more detail by the example of Vojvodjanska Banka. After several years, we are getting requests from our large corporate clients for project financing, including the financing of a shopping mall and a large hotel in Belgrade. Our SME clients, on the other hand, are asking for more long-term investment loans and revolving loans. We are very satisfied with our results in the small business segment as well. We have achieved a 90% increase in loans disbursed to small business clients in the past year. This is all very important as it signals that economy is on the right track.

► What are the biggest challenges in the banking sector, and how does Vojvođanska Bank respond to them?

– In my opinion, the main challenges are low growth, non-performing loans and low interest rates. Due to the high level of NPLs on the market, all banks have become more cautious in approving lending facilities, which slowed down the level rate of lending expansion. This led to excess liquidity, which, as a further as a consequence, has low interest rates. I can tell you that Vojvodjanska Banka has a strict risk policy and a strong team that analyses and understands the operations of our diverse clients so as to avoid problems or not to overload a client because of any foreseen difficulty to repay the loan.

The Commerzbank award is a confirmation of our commitment always to provide high-quality services for our clients. For them, it is important to know that they have a first-class bank, especially in the execution of payment transactions, as a partner ► The leading international banking and financial institution, Commerzbank, has yet again declared Vojvođanska Bank as the best bank in the area of commercial payments and financial transfers. How does this benefit your clients in practice?

– Commerzbank awarded us for the fourth consecutive year for the exceptional quali-

ty, high standards and extreme efficiency in our delivery of commercial payments and financial transfers. This STP award represents a confirmation of our commitment always to provide high quality services to our clients. And our clients know it best.

For them, it is important to have a top-notch bank in the execution of payment transactions as a partner.

► What benefits will students get from the cooperation between Vojvođanska Bank and the University of Novi Sad and the University of Belgrade’s faculties of economics?

– We have signed protocols on cooperation with the Faculty of Economics of Belgrade University and Novi Sad University for now, and we are planning to sign with other universities as well. These protocols call for internships for students with the possibility of employment, scholarships, mentoring programs, sponsorships and support to faculties’ programs, professional lectures of experts from Vojvodjanska Banka, students participation in case studies, organisation of workshops, and many other activities.

We want to be an active partner to our academic community and to help students understand both economic and financial processes while getting hands-on banking experience.

I think that internships during studies are very important as practical experience and can shape a professional career choice. This is a perfect example how business can work together with education and science. ■

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CORPORATE: INTERVIEW

We’re Continuing To Invest In Serbia ANDREI CUCU CEO of LUKOIL SRBIJA and Head of Balkan MRO

LUKOIL is today a Russian transnational company that possesses unique technology. And that is the biggest achievement for all of these 25 years

O

n the occasion of the major anniversary of Lukoil Serbia, we spoke with company CEO Andrei Cucu about the company's plans in Russia and abroad, as well as activities in Serbia.

► LUKOIL is celebrates 25 years of its existence and more than a decade of operations in Serbia. Which moments could you single out as being key to the development of the company as a whole and LUKOIL SERBIA? – LUKOIL welcomes its 25-year anniversary with the rank of one of the world’s largest oil companies. Its assets are vast explored reserves of oil and gas, its status as a powerful company in Russia and abroad, a collective measured in tens of thousands of high-class professionals. The company secures the production and processing of oil and gas, transportation of petroleum products, the production and sale of electricity and heating energy.

Worldwide, LUKOIL is rightly considered a reliable partner and a conscientious taxpayer.

LUKOIL emerged in November 1991 from the oil concern “Langepas-Uraj-Kogalimnjeft”.

A quarter of a century has been filled with

each day moving forward. And 2016 is no exception, as a year in which LUKOIL completed an entire series of major investment projects, both in Russia and beyond its borders, even during the period of the economic crisis.

In the next 10 years, LUKOIL intends to significantly increase its reserves and production of oil and gas, modernise all refineries, ensure the growth of dividends in the long term, and in so doing not increase the volume of debt.

LUKOIL SERBIA AD has operated on the Serbian market of oil products since 2003.

During this time we have passed through the stage of privatisation and the investment period, to the stable development of the company. We have a creative team of professionals who skilfully react to economic conditions in the world and on the local markets.

In the last two years we have implemented an investment programme worth over $16 million on modernisation, increasing the attractiveness of our assets, petrol stations, and orientation towards the client. We have practically fully automated our business processes and improved the customer service culture. This has yielded its results. And, most

importantly, that has been noticed and rewarded by our customers.

► Which challenges and what sort of advantages has the company encountered on the Serbian market?

– The 21st century is rapidly accelerating processes, dictated its rules of the game, its own challenges. More energy and strength is required, but environmental requirements have become stricter, which causes the necessity to produce and apply a new generation of fuels.

In solving these problems, company LUKOIL is working on motor fuels of the Euro 5 standard, applying multifunctional packages of components, produced and marketed branded motor fuel “ECTO” with improved exploitation and ecological characteristics, which enables increase in the power of the engines of cars with simultaneous significant reductions in fuel consumption. In this the content of harmful substances in exhaust fumes is also reduced. These are automotive gasoline types “ECTO Plus” and “ECTO Sport”, as well as “ECTO Diesel”.

We offer drivers an organic compound of impeccable quality in conjunction with savings. Our branded fuel has been rewarded

44 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

with the confidence of many corporations and car manufacturers, such as BMW and Porsche. The share of sales of branded motor fuel is 34% and is growing year on year.

► Which corporate social responsibility projects does LUKOIL SERBIA AD consider as the most significant?

– The company’s social policy is focused on increasing the efficiency of operations and creating conditions for the social protection of employees and stability in labour collectives. The main document upon which the

tarian projects, as well as providing assistance according to the requests of individuals and companies.

As an example, I would note the company’s share in financing the reconstruction of the Avala Tower, which was destroyed ► What is your view of the energy segment in Serbia... during the NATO bombing. In May 2014, – Energy is one of the global problems of human the company helped in flood relief efforts. development, given that energy is an inWe also allocated assistance in May dispensable precondition for any sphere for the institution for the elderly Serbia is trying to create favourable 2015 of activity, including the very existence in Leskovac and the Hristina Markišić conditions for potential investors, of mankind. Therefore, energy problems child institution from Aleksinac. Or, are in the centre of attention of the Govso LUKOIL will continue to invest in as another example, a cooperation ernment of the Republic of Serbia. agreement with the City of Belgrade. development of its retail network, I would like to emphasise that Serbia With the aim of developing long-term but also to finance projects of a strives to create favourable conditions for cooperation, the company took on the potential investors. The tax system of the obligation to finance projects in the social and humanitarian character country is characterised by a low level of fields of culture and science, as well system of incentives and guarantees for emincome tax, the existence of a period of tax exas social and charity projects. In this way, emptions, low rates on the income of citizens. ployees is based is the Collective Agreement. during 2016 a total of 20 million dinars will The petroleum products market has been LUKOIL SERBIA AD is a completely socialbe invested in the projects: the 44th Internaly-orientated company that provides signifitional film festival “FEST”, the 63rd Belgrade liberalised. According to our perspective, cant support to organisations in the region in Documentary and Short Film Festival, the LUKOIL will also continue to invest in the development of its retail network, especially as which it operates. We implement our policy of “Days of Belgrade” event, reconstruction of there are obvious synergies with the compasocial responsibility in three main directions: the Children’s Culture Centre of Belgrade, ny’s refineries, which are located in Bulgaria by concluding and fulfilling agreements with and the programme “We’re Nurturing the and Romania. local administrations, implementing humaniSerbian language”. ■

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INTERVIEW

Better Conditions For Exporters DEJAN VUKOTIĆ Director of the Agency for the Insurance and Financing of Exports of the Republic of Serbia

Recognising the importance of exports and therefore its importance, during 2015 the Agency started with the application of a reduced minimum amount of exports with which a large number of new exporters were provided with the opportunity to apply for products and services with the Agency

T

hanks to good business and the expanding of its circle of clients, the Agency for the Insurance and Financing of Exports (AOFI) contributed to strengthening the export potential of the country and the transfer of part of profits into the Serbian budget and fiscal stabilisation. We spoke with the Director of the Agency, Dejan Vukotić, about this and other topics related to the work of the AOFI. ► How many clients does the AOFI have today in the credit segment, insurance and factoring, and how much doe Serbian companies today recognise the benefits of working with the AOFI? – The importance of the AOFI, as the official export credit agency of the Republic of Serbia, is increasingly recognised by domestic exporters, which is reflected in constant growth in the number of requests of clients who use our products and services. The decision of the Government of the Republic of Serbia to declare 2016 the Year of Entrepreneurship further strengthened the Agency's position on the domestic financial market.

on reducing the external trade deficit.

Export should be encouraged, in addition to via direct funding, through changing the business environment and through finding new markets, which is simultaneously also the backbone of the strategy of the Government. It is essential to encourage exports which create newly added value and create an environment in which the export products of our manufacturers dominate the share of “local” raw materials. Recognising the importance of exports and therefore their significance, during 2015 the Agency started with the implementation of new requirements, i.e. reducing the minimum amount of exports from the earlier €300,000 to

The decision of the Government of the Republic of Serbia to declare 2016 the Year of Entrepreneurship further strengthened the Agency's position on the domestic financial market

► Has lowering the threshold for the volume of annual exports increased the number of your clients among small businesses?

– Firstly I would like to say that promoting export leads to increased levels of employment, increased productivity and therefore also to economic growth. Increasing exports impacts

€100,000. This change enabled a large number of new clients/exporters to apply for products and services with the Agency.

► In which way does the AOFI secure new credit lines and how far have previously announced negotiations with international financial institutions on the collection of additional capital progressed?

– The good results of the operations of the

Agency in the last three years have created conditions for further recapitalisation from the Agency’s own gains, which caused a “slowdown” in the commenced negotiations with international financial institutions on the provision of additional sources of financing.

► You are one of the few economic enterprises that is not a budget user, and you also contribute significantly to the budget. According to your estimates, what will be the AOFI’s contribution to the state budget this year?

– In the last two accounting periods the Agency achieved significant results, both in terms of an increased number of processed requests, i.e. increasing the number of clients, and in terms of the realised net result. The realised net profit for 2014 and 2015 amounted to 716.6 million dinars. During the same period, the AOFI paid 270 million dinars into the budget of the Republic of Serbia, on the basis of income tax and compulsory payments of profit.

The amount of profit from 2014, of 300 million dinars, was used, based on a decision of the Government of the Republic of Serbia, to increase the capital of the Agency with the aim of launching insurance operations in the name and on the account of the state. A decision on the mandatory payment of income for the year 2015 will be issued by the Assembly of the Agency, in coordination with the Ministry of Economy and the Government of the Republic of Serbia, in the coming period, and on the basis of results achieved in 2015 it is expected that it will not total less than 100 million dinars. ■

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THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 47

INTERVIEW

We Offer The Government Our Knowhow And Experience DIMITRIJE KNJEGINJIĆ Vice President of the Foreign Investors Council and CEO of Lafarge Serbia

In the process of European integration Serbia will have to build a functioning market economy and a business sector capable of coping with the pressure of competition and market forces within the framework of the EU. We are ready to place our knowhow and experience in the function of those two goals to the benefit of all participants on the market

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he priorities that the Serbian government has set for itself largely concur with the long term goals of the Foreign Investors Council. We believe that we can work together on their realisation, says Dimitrije Knjeginjić, Vice President of the FIC and CEO of Lafarge Serbia.

The council has for years advocated for the providing of equal conditions for doing business for all market participants. Given that domestic regulations are largely harmonised with the laws of the EU, it is necessary to focus on their implementation. Those are the basic preconditions for Serbia to become a functioning market economy and for it to be able to cope with the pressure of competition and market forces within the framework of the EU.

Many of the priorities of the government, such as the fight against unemployment, encouraging agriculture, creating a capable and educated workforce, a quality health system and public administration, are also the longterm goals of the FIC

► One of the key requirements that EU candidate countries must fulfil is the existence of a functioning market economy.

How close is Serbia to achieving this goal?

– Serbia is well on its way to the creation of a functioning market economy.

Now a firm will and the readiness of all stakeholders is required to persevere in the implementation of difficult decisions in order for the Serbian market to be as close as possible to the EU in terms of conditions for doing business.

► From the perspective of the many years of advocacy of the FIC aimed at improving the business environment, how do these developments look in terms of statistical and qualitative indicators?

– In the previous period we marked a visible improvement in the business climate, primarily in the fields of real estate and construction, or

48 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

CONSISTENCY

PREDICTABILITY

TRANSPARENCY

A firm will and the readiness of all stakeholders is required to persevere in the implementation of difficult decisions in order for the Serbian market to be as close as possible to the EU and its market principles

Through closer cooperation and the exchange of knowhow with the Tax Administration we want to contribute to building of a predictable tax environment, which is of essential importance for all companies that operate in Serbia

We advocate for the implementation of mandatory public debates for all legal solutions. We consider that this is the only possible way to reach satisfactory and applicable changes

in the process of issuing building permits. Fiscal consolidation had a positive impact on macroeconomic stability. Visible progress has also been made in relation to priority areas that are monitored by the Council, and those are: 1. simplified bankruptcy procedures; 2. flexible labour legislation; 3. simplified obtaining of construction permits; 4. a more effective inspection system to combat the grey economy and; 5. a more consistent and predictable tax system. Of these five, progress of about 60 per cent has been achieved in four of them - that is to say that this is the percentage of our recommendations that have been adopted and implemented in the past two years. Only the area of taxation is lagging, and that will continue to be one of the key priorities of the Council. ► Given that the elections saw the government receive clear support for the carrying out of reforms, in which areas would it now be particularly important to make up for the perceived shortcomings?

– In addition to the noted area of tax, and under the auspices of which we expect the practice of the tax administration to be unified and thus more consistent implementation of the law, there are other areas within which we see further room for improvement. Following the exposé of the Prime Minister, we have noticed a correlation between the priorities defined on the part of the new government and our longterm priorities. In these areas we expect tangible progress within the mandate of the Government: 1. The fight against unemployment with a focus on a predictable tax environment that is of essential importance for all companies that do business in Serbia; 2. Stimulating agriculture, because food industry and agriculture are still insufficiently utilised in terms of the potential of Serbia, which can be encouraged with the introduction of EU food safety standards; 3. The fight against illicit trade, with the aim of eliminating unfair competition and introducing a solid inspection system;

4. Education, i.e. the creation of a capable and educated workforce, which is the basis for economic development; 5. Improving health, i.e. creating a sustainable and efficient health sector; 6. Improving the efficiency of the public sector; 7. Continuing the route to the EU, within the framework of which we offer expertise and assistance in securing the conditions for accession negotiations with the European

We advocate for the introduction and application of systemic solutions in the field of illicit trade, including also the fight against corruption, which is one of the announced priorities of the Government

Union to bring optimal short-term and medium-term results.

► How can the need for swift and decisive action, on the one hand, be reconciled with the necessity, on the other hand, for public debate in general to be used to overview the advantages and disadvantages of proposed legislation?

– We advocate for the carrying out of mandatory public debate regarding all legal solutions, because we consider that it is only through open dialogue among all interested professional sides that it is possible to reach a satisfactory legal solution. We also recognise the importance of an efficient public administration and the desire to harmonise laws as soon as possible with those

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 49

of the EU, but we are not in favour of haste at any cost. We place in the service of our broad knowhow from this and other markets, with the aim of creating simpler and better laws, and for the benefit of all market participants.

sign that the Commission monitors the EU path and that it can become an important instrument in the enforcement of competition rights.

► What progress has been made in the field of the protection of intellectual property rights and the protection of competition, and to what extent are these procedures now closer to European practices?

– Although Serbia has for several years had adequate regulations pertaining to intellectual property, which are generally in line with international and EU standards, further work is needed on their effective implementation. With the adoption of the existing applicable Law on the Protection of Competition came the creation of better material and technical prerequisites for the independent conduct of the Commission for the Protection of Competition. The successful implementation of a binding process by the Commission can be considered as a good

► Which examples of practices of common action of the government and the business sector would you single out as good models, and in which areas should this cooperation by particularly intensified in the coming period?

– As an example of good practice I would cite the adoption of the new Law on Enforcement and Security, i.e. good cooperation with the working group that resulted in the accepting of a large number of the recommendations of the Council. We see room for improvement primarily in the context of tax and is is for this reason that we intensified cooperation with the Tax Administration with the goal of considering all the ways in which the Council can contribute its knowledge in this very important area in the period ahead. ■

► To what extent have regulations adopted in the previous period impacted on reducing the grey economy, corruption and the simplification of administrative procedures?

– The dedication of the Government in the fight against illicit trade has had a positive impact on reducing the grey economy and the simplification of administrative procedures is visible in some segments of the business climate. It is now important to ensure their consistent implementation.

That is why we advocate for the adoption and implementation of systemic solutions in these areas, including the fight against corruption, which is one of the announced priorities of the Government.

► Serbia has announced that by 2018 it will fully harmonise its regulations regarding labour legislation with that of the EU. What do you see as the priorities in this area?

– The priorities of the Council in this field have long been defined and we hope it will be included in the announced harmonisation with EU regulations. We advocate for the resolving of the issue of staff leasing that will suit all stakeholders in the process and will be fully harmonised with European best practices. It is also necessary to abolish the excessive administration faced by foreigners who do business in this market and in that respect we advocate for a synchronised amendment of the Law on Foreigners and the Law on the Employment of Foreigners.

With the adoption of the existing applicable Law on the Protection of Competition came the creation of better material and technical prerequisites for the independent conduct of the Commission for the Protection of Competition

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THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 51

INTERVIEW

Through Dialogue To Good Solutions For All ANA FIRTEL Executive Director of the Foreign Investors Council

By offering specific recommendations based on knowledge and experience of doing business in Serbia, EU Member States and globally, we strive to contribute to the pro-reform and pro-European aspirations of the country

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he FIC hopes that the successful dialogue established with the previous government will continue, says Ana Firtel, Executive Director of the Foreign Investors Council.

to solve certain problems. When it comes to the pro-European agenda, it is important to emphasise that the FIC brings together 130 companies, 75 per cent of which come from the EU, while the rest operate on the territory of the EU, and thus they have very good knowledge of the reg► How can the FIC, with its ulatory framework and expertise and professional standards that need to be resources, contribute to the met. It is particularly signifIt is important for us that we icant that a large number achievement of the current are extremely objective, to of members have the expro-reform and pro-Europraise that which is good pean agenda of the holders perience of operating on of public policy? markets during the acces– but to also offer criticisms in – The FIC, thanks to its sion process, and Serbia can a constructive way member companies, posuse all of that knowledge to sesses extensive knowledge traverse the accession process as quickly and painlessly as possible. In that and experience – and not just on how to successfully do business in Serbia, but rather also on the sense, the FIC collaborates with both the Serbian global market. When you have knowledge you and the European negotiating teams. also have the ability to help. The FIC is trying to ► Which examples of the FIC’s activities help by giving very concrete proposals on how 52 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

MEMBER COMPANIES

DECISIONS

PUBLIC ADMINISTRATION

The FIC, thanks to its member companies, possesses extensive knowledge and experience – and not just on how to successfully do business in Serbia, but rather also on the global market

The decision making process is set up in such a way that you can hear the voice of every member, which promote their interests through participation in the FIC working committees

Raising the quality of public administration is a prerequisite for the solving of the key problem of the Serbian market, and that is inconsistent enforcement of the law

to date in this respect would you emphasise?

– One of the freshest examples is the work of the Law on Enforcement and Security, where we took a big step forward compared to the initial solution, thanks to the openness of the Ministry of Justice. We previously worked on the modernisation of the Labour Law and better inspection oversight. New legislation in these two areas endorsed 70 per cent of our recommendations, which testifies to the tangible results of our work, but also the willingness of the government to actually execute reforms. There is also work on the land conversion, where good cooperation with the Ministry of Construction, however, was not crowned with an adequate decision adopted by the Assembly. Likewise, the FIC has established an active dialogue with the Tax Administration and we hope that it will yield results in the near future.

does the FIC measure the progress achieved between the publishing of two White Books, and communicates these findings to the holders of public policy?

– The Reality Check Conference and the White Book are the crowns of our work, when we have a public dialogue with the state and present our assessment of the business climate. This year we did not hold a Reality Check Conference because its scheduling coincided with the

► How is the functioning of the FIC in this area regulated institutionally at the internal and external levels?

– I think that the FIC is, amongst other things, very specific in that it has extremely strong - some would say overly rigid – “corporate governance”.

However, I think that this is our great advantage, because it actually allows for the taken positions to previously go through in-depth analysis from In our opinion, advancing the work of various aspects and by various interest groups that operate on the market. The decision makthe Tax Administration and inspection should have ing process is set up in such a way that you can priority and we hope that the new government hear the voice of every member, which promote will support the Tax Administration in dynamically their interests through participation in the FIC working committees. At the meetings of these launching its reform committees a battle of arguments is conducted, and decisions are generally made by consensus, national elections, but this does not mean that we have and not outvoting. The decision-making process involves not communicated our views to the technical governtwo stages, and the final word is given by the Board of ment in another format, through expert discussions and Directors. In this way we ensure that the FIC avoids representing the interests of certain groups or industries, but direct contact, as opposed to large conferences. rather only the general interest of the membership. This ► The sudden increase in the tax burden, a return to process is demanding, but, on the other hand, it provides the tradition of adopting laws under an accelerated very high quality solutions and proposals that are backed procedure and the introduction of fiscal charges in late by all members.

2015 disrupted the hitherto very constructive dialogue ► During the years in which there was not an FIC Rebetween the government and the business community. ality Check Conference, like this year and 2012, how How can these challenges be overcome in the future?

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 53

– The situation of swiftly changing laws without public debate is a kind of unpredictability that kills competitiveness. At the end of 2015 new tax regulations were brought and compulsory membership in the Serbian Chamber of Commerce was introduced without any notice or public debate. In the future such situations should be avoided. It would be good for us to have an institutionalised solution that would ensure that any new law must pass through serious consultations to ensure that its effects are positive, both socially and economically, and in every other sense.

This, unfortunately, is not the case now. However, in the past two years the quality of public-private dialogue has improved significantly, which gives hope that things can change for the better.

the World Bank. On the other hand, since this is an ongoing process, in order not to lose the momentum of reforms it is extremely important to work in parallel on specific projects, such as was the case with the reform of inspections. Now, in our view, the government should focus on rapid reform of the Tax Administration, and that process involves the removal of so-called non-core activities, introducing transparent procedures, staff training and other mechanisms in order to ensure more uniform, consistent and efficient work.

► In Serbia there are a large number of business associations that influence the formulation of the business and investment climate in various ways, and take care to protect the interests of their ► What are your members. From an expectations of the institutional perspective, how much further professionalisation of the public do they start from the same position?

A new law introduces mandatory membership – The short answer is both yes and no. With in the Serbian Chamber of Commerce for all the adoption of the businesses as of 2017... In our opinion, the Serbian 2009 Law on Associamarket is not ready for this and the existing reform tions, an institutional framework was creatcapacities should rather be focused on resolving ed that provides equal the most pressing structural problems that rights to all. But since hamper economic growth the end of last year we have had an exadministration when it comes to strict apception to this rule: the Serbian Chamber of plication of the law? Where do you see Commerce, because the new law introduced progress, and in which areas is further procompulsory membership in the Chamber for gress needed? all companies in Serbia as of 2017. Although – Raising the quality of public administrathis model works well in countries like Gertion is a prerequisite for the solving of the key many and Austria, in our opinion the Serbian problem of the Serbian market, and that is market is not ready for it and the existing reform capacity should be focused on the other inconsistent enforcement of the law. Public administration reform is a big mouthful and needs side – resolving the most pressing structural to be worked on two fronts: on the one hand, problems that impede economic growth. We to look for systemic solutions, which was starthope that another adequate solution can be ed by the previous government with the help of reached in the next few months. ■ 54 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 55

FOCUS

Timely Reactions To The Needs Of Users PETAR POPOVIĆ

Executive Director of Business Customer Division , Telekom Srbija

Apart from the fact that Telekom Serbia takes on its own investments, special attention has been placed on the educational segment

Serbia, which has satisfied their needs, firstly telecommunication needs, and then IT/ICT services.

Telekom Serbia recognised on time the needs of users for ICT resources, and in the years to come it will continue to listen to the needs of the market, where it will, alongside intensifying cooperation with its partners, enable Serbia to become a leader in the use of ICT in modern operations, increasing productivity and a faster transition to so-called “always-on” operations. Our ultimate goal is that users, when they have a need in ICT, as in, for example, telephony, they first think of Telekom Serbia as a reliable partner and a company which they can rely on and to which they can leave this aspect of their operations by focusing on their core business. ■

Rising Demand For Quality Education DR ROBERT RISCH

E

Director of The International School of Belgrade

xperts from Telekom Serbia have carried out presentations of new technologies in recent years, both at various conferences and at special events organised by the company itself. This kind of “evangelical” presentation, at which an emphasis is placed on business solutions and their benefits, rather than simply presenting services, has received a very good response among users.

There is also another very important role of Telekom, which is to connect and create a synergic effect throughout the entire market through the providing of solutions not only independently, but rather through the inclusion of relevant partners. It is precisely partnership with local companies that represents the main engine of progress for ICT in Serbia. In addition to the mentioned Cloud platform, Telekom Serbia is ready to offer domestic IT companies other forms of cooperation, primarily providing its sales network, billing systems and vast experience in marketing. Many companies have extremely high quality products, but are often unaware that access to ICT seeks that they are better acquainted with their customers, their needs, habits,

he extent to which foreign investment increases and expands in a country is a reflection of the openness of that country to invite and embrace foreign investment.

Such increases in foreign investment usually correlate to an increasing number of expatriates in the country, which

future expectations etc., and, based on this, can offer them the best solution at the right time and at an affordable price. Telekom Serbia has excellent knowledge of its customers, many of these users have grown alongside and with the help of Telekom

frequently includes families with school-aged children. One of the most important considerations for these families is the availability of quality schools for their children.

Belgrade offers a variety of choices in this regard. Some employees of foreign investment companies or diplomatic missions may prefer an education in their home language or national

Telekom Serbia is ready to offer domestic IT companies other forms of cooperation, primarily providing its sales network, billing systems and vast experience in marketing

Parents who work for foreign investment companies coming to Belgrade and Serbian re-pats can rest assured that their children’s educational needs will be met

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Equally reassuring for parents, children changing countries can seamlessly transition from one IB school to another

56 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

system, while many recognise the importance of an international education and a curriculum framework that spans across various national educational systems, such as the International Baccalaureate (IB) programme. The IB, in addition to representing a challenging academic programme, incorporates elements focused on developing a global mind-set and global citizens. Equally reassuring for parents, children changing countries can seamlessly transition from one IB school to another.

The International School of Belgrade was founded in 1948 and follows IB programmes for students aged from three to 18. ISB has a long history of providing a quality education to children from foreign investment firms and diplomatic missions. Parents who work for foreign investment companies coming to Belgrade can rest assured that their children’s educational needs will be met and that they will be inspired to discover their passions at ISB. We currently have students representing 42 nationalities.

We have also noticed the following trends that add to the demand for international education in Belgrade: • Many Serbian re-pats are coming home and are in need of quality education for their children; • Our former students return to Serbia as CEOs, diplomats, etc. and often enrol their children in ISB. Our hopes for the future are that even more international companies and foreign investment come to Serbia. ■

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CORPORATE: INTERVIEW

Long-Term Partnership SLAVICA PAVLOVIĆ Eurobank Executive Board Chairperson

Foreign banks have a strong influence on creating a stable and reliable banking system. Eurobank pays special attention to securing long-term financing sources for companies and individuals, thereby contributing to higher export and improved trade while addressing the vital needs of the population

O

ne of the things on which international financial institutions and organisations often compliment Serbia is the quality of its banking sector. Eurobank contributes to this quality with its successful operations. ► How much has the participation of foreign banks on the Serbian market contributed to the creation of a stable and reliable banking system?

– There are a total of 30 banks operating on the Serbian market, with seven of them being locally owned. In terms of assets, domestic banks have a 24.4% share, which points to the fact that the banks with foreign ownership dominate the banking market and that their influence on creating a stable and reliable banking system is substantial and very important.

► Which of your bank’s products are the most popular among clients?

– Currently, the demand for consumer and SME loans is at its highest. We were also mindful of the habits of our clients who usually use summer to settle their financial obligations or to make large investments in their living spaces. At the very beginning of summer, we offered the consolidation of existing loans with a bonus of extra cash. The offer includes 300,000 dinars for consolidation and another 300,000 dinars in cash. The repayment period is eight years regardless of the client’s salary. This offer is advantageous for several reasons. The loan amount is such that a person can settle his or her financial obligations and solve some larger life issues (like decorating a house, buying a car, going on a holiday, studying, etc.). Many of our existing and new clients are very happy with this attractive offer.

My primary goal is to continue multiplying the successes achieved by my predecessor, which implies ensuring stability for the bank, the satisfaction of our clients, the bank’s profitability and having employees that are happy and satisfied working for the bank

► Considering that you have been appointed to the bank only recently, could you tell us something about the goals you set for yourself in this position?

– My primary goal is to continue multiplying the successes achieved by my predecessor, which implies ensuring stability for the bank, the satisfaction of our clients, the bank’s profitability and having employees that are happy and satisfied working for the bank.

► In collaboration with the IFC, your bank is also working on the higher availability of long-term retail and corporate loans. Could you elaborate on this?

– The International Finance Corporation (IFC), a member of

58 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

the World Bank Group, has granted Eurobank a.d. funds in the amount of €35 million to boost mortgage lending and trade finance for companies in Serbia. The money will be disbursed through two loans - a €15 million loan for financing mortgage lending growth and a €20 million loan to provide working capital financing for Serbian companies engaged in imports and exports. Thanks to this loan arrangement, Eurobank has widened its product range to include favourable corporate and retail loans. With regards to retail loans, we are especially proud of being able to offer financial support to our clients wanting to buy a home.

Anybody who is interested in this product can apply for a mortgage, indexed in euros, up to the amount of €100,000, with the lowest interest rate ever and a 30-year repayment period.

Long-term financing is an important source of funding for capital investments and mortgages under favourable terms and conditions. The cooperation between the one of the leading international financial institutions, IFC, and Eurobank has been going on for years now, which just validates the trust that the IFC has in Eurobank and in the entire financial sector in Serbia. ► Eurobank a.d. Belgrade has also won an EBRD award in the trade and finance category. How does your bank contribute to the better promotion of trade in Serbia and in the wider region?

– By using EBRD’s specialised credit lines for financing trade, we are able to help our companies achieve higher exports and find funding for their needs so that each loan tranche coincides with their export activities and the payment they receive for the same. The same option is available for the financing of imports. By utilising credit lines from international financial institutions, the bank also uses the network of their partner banks in the region to deal with the accompanying documentary operations, which means that clients can swiftly get the needed information about the foreign market and banking support in a specific country.

ideas and suggestions that are in the best interest of business community - from changing legislation and ensuring other necessary improvements in regulation to voicing ideas that are important for achieving stable conditions for doing business. I would especially like to single out the Foreign Investors Council (FIC) and their successful engagement in resolving many burning issues to assist Serbia in improving its rating among foreign investors.

Business associations are extremely important because they ensure implementation of ideas and suggestions that are in the best interest of business community and improving Serbia’s rating among foreign investors, which is something that the FIC has been successfully doing

► Eurobank is a member of several large business associations in Serbia. In which way do these associations contribute to advancing the business and investment climate in Serbia?

– Business associations are extremely important because they gather different interest groups, facilitate dialogue between all interested parties and ensure implementation of

► Eurobank is a member of the UNDP Global Compact initiative and the Business Leaders Forum. What kind of systemic contribution can the members of these organisations give to the CSR culture in Serbia?

– Eurobank is among the very first companies to join the Global Compact in Serbia.

We were members of the Global Compact’s Managing Board for two consecutive terms. This is a voluntary association of companies, NGOs, and state institutions, assembled under the umbrella of the United Nations, which promotes nine principles of the corporate social responsibility (CSR) in the areas of human and work rights, environmental protection and fighting corruption. We are also members of the Business Leaders Forums, an organisation that promotes good practice cases in the CSR field.

► Which of the bank’s CSR projects would you like to single out?

– Eurobank started to pay a lot of attention to corporate social responsibility back in 2006 when we became one of the leading banks in Serbia. Through developing our CSR projects, we developed ourselves.

CSR is an integral part of our Group’s strategy and an attribute of our brand in every single country in which we operate.

Through our programme called Investing in European Values, we have spent over €4 million on developing the community in which we successfully operate.

Eurobank’s socially responsible activities are not based on one-off sponsorships or donations. We have been trying to build and implement CSR programmes that have national coverage and to involve as many interested parties as possible in their implementation, like local community, state bodies, workforce, NGO sector, the media...

This year, we launched a CSR project called ‘Eurobank – Year of Good Deeds’ which was envisaged to actively involve our staff in helping marginalised groups and promoting humanitarianism and philanthropy through a series of all-yeararound socially responsible activities. ■

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 59

COMMENT

Systematic Approach Against Illegal Trade GORAN PEKEZ President of the Anti–Illicit Trade Committee of the Foreign Investors Council (JT International a.d. Senta)

The grey economy is still an issue that demands the close attention of the Government and those industries that are most threatened by it: tobacco, fast moving consumer goods, IT, textiles and the like

T

he commitment of the Government to fight the grey economy has helped reduce the deficit by 1% of GDP in 2015, according to Fiscal Council member Nikola Altiparmakov. However, we have come to the point where we have exhausted the short-term quick solutions, and we need to focus on a systematic approach to fight the grey economy.

It is time to turn to the National programme for combating the grey economy, established in December 2014, if we want to make the improvements made so far permanent and secure the further reduction of the grey economy. The Programme contains an action plan and established criteria for evaluation of results, which need to be met in order to achieve the defined goal – reducing the grey economy to a maximum of 26.7% of GDP. What does this systematic approach include?

Firstly, it would include the full implementation of the Law on Inspection Supervision, for which two key factors are important. The first factor is the harmonisation of sector regulations where resistance of inspection authorities is expected.

The deadline proscribed by the Law for Defining Regulations for the change is October 2016, and they should be adopted by April 2017.

Second is the establishment of the Government’s organisational unit that will provide support to the Coordination commission with the Ministry responsible for the state administration, which is already envisaged by the Law, but has not been implemented.

Following this, it is necessary to provide adequate resources to the bodies combating the grey and black economy. Considering that the size of the illegal market is estimated at over 30% of GDP, this means that the loss of tax revenue for the state is enormous, and to this should be added damage from loss of turnover suffered by

companies who practice legally compliant business. Increasing the capacities of these bodies should be considered as an investment in revenue protection and enabling of the business environment, which will maintain the level of employment and attract investment.

Since the number of staff in the controlling authorities is already insufficient compared to its needs, it is important to make exemptions for the controlling authorities, primarily inspection and basic administration in the upcoming process of reducing the number of civil servants.

Furthermore, it is necessary to conduct risk analysis and indicate priority areas that contain the largest scope of illegal trade and which seriously affect the state and the economy. Illegal trade in excise goods has such characteristics.

The National programme envisages integrated border control by all authorities, and we hope that this process will be improved. The reforms in the judicial system are of crucial importance for curbing the grey economy.

The court practice of imposing mild penalties and the inefficient prosecution by the prosecutor's offices lead to making the perception of risk in illegal trade very low, which combined with high profit encourages the illegal market.

The Serbian Government cannot interfere in the court practice related to penalties, but it can propose a better regulatory framework. Special prosecutorial departments for illegal trade (financial, economic) should be introduced at several locations in the country.

Such a focused approach would allow for the specialisation of prosecutors and a higher level of expertise and would send a clear message that the state will not tolerate denial of budget revenues and deterioration of the business environment. ■

The Government cannot interfere in the court practice, but it can propose a better regulatory framework. Introducing special prosecutorial departments for illegal trade would allow prosecutors’ specialisation. Also, it would send a clear message that the state will not tolerate denial of budget revenues

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CORPORATE: INTERVIEW

We’re Entering The Serbian Market With Optimism FREDERIC AUBET General Manager of CRH Serbia

I am an optimist and want to think that the economic measures taken by the Government, as well as key projects that have been announced (Belgrade Waterfront, Corridor X, XI) will have a positive impact on the market, which will result in the construction industry beginning to recover. We are already seeing some improvements

I

n August 2015, Irish company CRH completed its acquisition of the Novi Popovac cement plant. The transaction was part of a global deal for CRH to acquire certain assets from Lafarge S.A. and Holcim Ltd., for a total of €6.5 billion.

Here we talk to Frederic Aubet, general manager of CRH Serbia.

With two concrete plants in the vicinity of Belgrade, in Krnjača and Dobanovci, CRH Serbia is present on the concrete market as well, and its fleet of almost 20 ships exploits, transports and sells sand and gravel of different size fractions all over Serbia.

A separate sector at CRH Serbia has many years’ experience in the treatment and production of alternative fuels from sorted municipal waste, and our experts offer solutions for environmental protection in the petrochemical and tyres industries as well.

is delivering robust performance with very well located and resource-backed assets, and with a strong local management team.

On the other hand, the construction industry in Serbia has been in crisis for several years. I am an optimist and want to think that the economic measures taken by the Government, as well as key projects that have been announced (Belgrade Waterfront, Corridor X, XI), will have a positive impact on the market, which will result in the construction industry beginning to recover. We are already seeing some improvements.

► Mr Aubet, can you briefly introduce CRH to our readers?

– CRH is the leading international group in the field of building mateWe expect that we can learn a lot rials, which employs 89,000 people from other FIC members about the at almost 3,900 operating sites in 31 ► In your view, what is the role of countries worldwide. With a marbusiness climate in Serbia, but also the FIC and what are your expectaket capitalisation of 24 billion euros tions? to be very proactive in contributing, (August 2016), CRH is the largest – The FIC is certainly one of the with our experience and expertise, most reputable business associaticompany in the building materials ons in Serbia. We consider the role industry in North America and the to the efficiency and quality of the FIC as a medium to import second largest worldwide. The Groof FIC initiatives up has a leading position in Europe, the best world business practices to as well as an established strategic Serbia, but also as a social respon► How do you see CRH Serbia operatisible partner to the Serbian Government position on emerging markets in Asia and ons at the moment and its position on and society.

South America. the market?

We expect that we can learn a lot from The cement plant CRH Serbia is situated in Central Serbia, in the village of Po– Serbian operations are very develoother FIC members about the business clipovac near Paraćin, 160 km to the south ped, with a strong market position in mate in Serbia, but also to be very proactive in contributing, with our experience of Belgrade. The annual capacity of the cethree business areas: cement, ready-mix ment plant is 1,350,000 tonnes of cement and expertise, to the efficiency and quality and aggregates. CRH Serbia, as number and binder. of FIC initiatives. ■ two in a consolidated Serbian market, THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 61

COMMENT

Better Prospects With Advanced Food Regulation MILICA STEFANOVIĆ President of the Food & Agriculture Committee of the Foreign Investors Council (The Coca-Cola Company-Barlan S&M d.o.o.)

There is much to be done in order to turn the food&agriculture sector into a true motor of the Serbian economy. The fully operational National reference laboratory and the alignment of registered plant protection products in line with the EU standards are important steps leading that way

F

On the mark of quality and safety of food produced is ood and agriculture is so often cited as the key Serthe issue of plant protection products, an area that has bian potential and advantage – the longstanding needed urgent and full harmonisation with EU regulafood production tradition, arable and fertile land, tions for a long time now, to the benefit of all – the conand a mild continental climate all enable the relasumer, the agriculture industry and the environment. The tively stable production of a range of foods. While we agree current widespread practice of inadequate use of unregisthat this sector is of paramount importance for the vitalitered plant protection products brings serious and detrity of the Serbian economy, we in the Food and Agriculture mental health, economic and environmental consequences.

Committee feel that there is much to be done to treat this It is not a sustainable practice, as it seriously impairs Serreal potential of our country in a more productive, sustainabia’s potential to export ble, and effective way. and market food competNo doubt, a lot has The differences in implementation of the itiveness. been done to improve the Another industry preslegislative landscape that import procedures are creating unnecessary sure point are the differencdefines the production and uncertainty for producers, not to mention es in the implementation trading of food. Some of the of the import procedures, most important highlights creating room for potential corruption with varying procedures of this progress are in upamong inspectors across dated horizontal regulacountry regarding the number of samples required, the durations like the Law on Food Safety, Law on Inspection Oversight, tion, cost and sometimes content of the declaration, all of which Rulebook on Labelling and Advertising of Food. But, regardcreate unnecessary uncertainty for producers, not to mention less of that, there is still a lot of room for progress, and not oncreating room for potential corruption. ly in the application of laws harmonised with those of the EU, Creating a level playing field with clear, precise, EU-harbut rather also in creating a regulatory framework that would monised legislation and its consistent implementation is a ensure high standards in the control of food quality and the aclong journey, but it is one we are taking. It will lead to Sercuracy of consumer information. bia fulfilling its potential to be a reliable producer of qualOne of the key pieces missing in this complex puzzle is ity food, able to compete in the demanding European and in completing the control mechanisms to ensure food is of a world markets and supporting the health and wellbeing quality required by law and in accordance with labelled inof domestic consumers to the benefit of the local econotrinsic qualities and claims on pack. We are still missing a fulmy. The FIC Food and Agriculture Committee is looking forly operational National reference laboratory, which should ward to the harmonisation of this strategically important be the leading body for ensuring that all quality standards field for Serbia and remains at the full disposal of all releare fully respected and should act as the ultimate authority vant parties to continue constructively. ■ when uncertainties arise.

62 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

CORPORATE: SWAROVSKI

First Anniversary of Production Facility in Serbia

Subotica Proved To Be A Good Investment

Backed by a highly motivated team and support from the Serbian authorities, Swarovski found an excellent place for its manufacturing facility in Subotica, which fits well into the company’s international production strategy

I

t was one year ago that Swarovski put into operation its modern production facility located in Subotica, an emerging economic hub in northern Serbia. The 15,000-square-metre site was able to be realised in only 16 months, thanks to the unique bundling of all of the company’s internal and external strengths. The site in Subotica has since developed well and now forms an important part of the Swarovski family.

For this reason, the first anniversary of the production facility in Serbia is designed to particularly thank the committed employees, the public authorities involved and all those participating in the successful development of the site. Swarovski states: “Subotica provides a strong logistical network with our headquarters in Wattens, Austria. This connection makes it possible for us to provide optimal service and specific solutions to our most strategically important customers. With this, we have laid the foundation for our future growth. We are proud to have a highly motivated team in Subotica. The Serbian authorities have been highly professional and engaged in their support for us. The partnership that has grown over the past years has created a solid foun-

dation for a long-term commitment.”

The production facility in Subotica forms part of the international production strategy of Swarovski. In keeping with this new strategy, in the future the production of crystal components and forward integrated elements will be concentrated in the main facility at the headquarters

In the future the production of crystal components and forward integrated elements will be concentrated in the main facility at the headquarters in Wattens, Austria, and the new production facility in Serbia in Wattens, Austria, and the new production facility in Serbia. The Wattens site will remain the company’s centre for global production, innovation and technological expertise, and will be strengthened and expanded.

Swarovski delivers a diverse portfolio of unmatched quality, craftsmanship, and creativity. Founded in 1895 in Austria, Swarovski

designs, manufactures and markets high-quality crystals, genuine gemstones and created stones, as well as finished products such as jewellery, accessories and lighting. Now celebrating its 121st anniversary and run by the fifth generation of family members, the Swarovski Crystal Business has a global reach with approximately 2,680 stores in around 170 countries, more than 26,000 employees, and annual revenue of about 2.6 billion euros in 2015. Sales were expected to show double-digit growth – and in fact they grew by nearly 12 per cent from 2014 to 2015.

The Swarovski Group comprises Swarovski Optik, which produces precision optical instruments such as telescopes and binoculars; Tyrolit, a leading producer of grinding, sawing, drilling, and dressing tools, as well as a provider of tools and machines; and the Swarovski Crystal Business. In 2015, the Group generated revenue of about 3.37 billion euros and employed more than 31,000 people.

The Swarovski Foundation was incorporated in 2013 to pursue charitable goals to honour the philanthropic spirit of Daniel Swarovski, who founded the crystal business in 1895. Its mission is to build on this heritage by supporting charitable initiatives and organisations working in three areas: fostering Culture and Creativity, promoting Wellbeing, and protecting the Environment. ■

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 63

HEINEKEN

“Guys, Who Drives Home?”

– A Tradition Of The Belgrade Beer Fest

In order for all beer lovers to be able to enjoy themselves responsibly during the Beer Fest, free city transport was provided and, as of this year, long-distance transportation was also organised for loyal customers.

H

EINEKEN is the world's most international brewer. It is the leading developer and marketer of premium beer and cider brands. Led by the Heineken® brand, the Group has a powerful portfolio of more than 250 international, regional, local and specialty beers and ciders. The company is actively committed to promoting responsible consumption.

In the same spirit, the campaign “Guys, who drives home?” of company HEINEKEN Srbija, has been organ-

ised for the fourth consecutive year during the Belgrade Beer Fest, one of the largest beer festivals in this part of Europe. The campaign was organised under the auspices of the promotion of responsible consumption, in order for all beer lovers to be able to enjoy themselves responsibly during the Beer Fest, free city was provided and, as of this year, long-distance transportation as well.

Corporate Relations Manager at HEINEKEN Srbija, Biljana Bobić Subin, explains that the campaign “Guys, who

64 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

drives home?” represents an excellent platform to highlight the importance of responsible consumption to consumers in an innovative and convenient way.

“Through all of our activities and every business move we strive to present responsible consumption to consumers as a social norm. We wish to direct the attention of the public in an adequate way and influence them with a positive example for the responsible consumption of alcohol and raising the level of personal responsibility. The campaign “Guys, who drives home?” is growing every year and we are trying to develop it in accordance with the feedback we receive from consumers, the general public and stakeholders. Its impact and significance are enormous. In the past four years, more than 150,000 visitors to the Beer Fest have used HEINEKEN buses in order to arrive home safely and securely,” says Bobić Subin.

This year, the campaign “Guys, who drives home?” was organised at the Beer Fest in cooperation with the Agency for Traffic Safety, the Belgrade Beer Fest, the City Transport Enterprise (GSP) and the “Srbijatransport” Business Association of Road Traffic.

“In accordance with the feedback we received from our loyal customers that they would also use intercity transport during the Beer Fest, our campaign “Guys, who drives home?” campaign was expanded beyond Belgrade this year and several thousand people from Kragujevac, Niš and Novi Sad took advantage of the opportunity to freely and safely travel to Belgrade and return home. For company HEINEKEN Srbija, security comes first and, as in previous years, not a single incident was recorded in Through all of our activities and every business the framework of this move we strive to direct the attention of the public campaign,” says Bobić Subin. in an adequate way and influence them with a Responsible conpositive example for the responsible consumption sumption was promoted this year in partnerof alcohol and raising the level of personal ship with the Agency responsibility for Traffic Safety and

Partnership With EXIT

This year, the campaign “Guys, who’s driving home?” was also conducted during the EXIT Festival, one of the world’s most renowned and most prestigious events in Serbia.

Visitors to the EXIT Festival had available free transport on arrival and departure from the festival, with both buses and taxis. Free transport was also provided on routes to and from Belgrade-Novi Sad. The campaign was conducted by the Agency for Traffic Safety, the EXIT Foundation and company HEINEKEN Srbija, while the main message of the campaign was that safety and responsibility can be an integral part of having fun. The campaign was also supported by the Ministry of Internal Affairs of Serbia.

within the Safe Zone at the festival itself, where visitors had the opportunity to participate in fun and educational activities.

The same activity was held in July this year at the EXIT festival in Novi Sad, as well at the

Lovefest in Vrnjačka Banja.

The value of the campaign “Guys, who drives home?” has also been recognised by the expert public. Thus, company HEINEKEN Srbija has received two awards for this campaign from UEPS (the Association for Market Communicationsof Serbia), in the form of an award for socially responsible PR campaigns and an award for socially responsible campaigns in the profit sector. It also received an award for the best socially responsible campaign from famous magazine “Autobild”. The campaign also received an award from the Belgrade Culture Network, organiser of the Belgrade Beer Fest, for the best corporate campaign within the framework of the festival, and it was also included in the publication “Primeri dobre prakse odnosa s javnošću 2015” [Examples of Good Practices of Public Relations 2015], which was published by the Faculty of Technical Sciences in Novi Sad. ■

COMMENT

Resolve The Issue Of Leasing Of Workers DEJAN JEČMENICA President of the Human Resources Committee of the Foreign Investors Council (Wiener Städtische osiguranje a.d.o. Beograd)

The business community expects the simplification of procedures in the Law on Foreigners and the resolving of outstanding issues in the area of the Labour Law, primarily in connection with the leasing of workers and simpler payroll calculation

W

ith the new Law on the Employment of Foreigners the substance of the employment of foreigners is more fully and more accurately regulated than ever, not only employment is enabled, but also the self-employment of foreigners, as well as exercising rights concerning unemployment being regulated and domestic regulations in this area are harmonised with the European Union.

On the other hand, we hope that the amendments to the Law on Foreigners will simplify the obtaining of temporary residence permits, because an excessively complicated and time-consuming process is in effect. The duration of the work permit should reflect the needs of employers who have officially confirmed the duration of an employment contract, which can even be concluded over an indefinite period.

There are also issues that are yet to be regulated by law.

Leasing labour in companies in Serbia, although tolerated in practice to an extent, can lead to some problems for employers who use this institute due to the absence of formal regulations. Specifically, there is a possibility of punishing these employers due to the fact that people who work as leased labour have no kind of contract with the employers. Likewise, there is a risk (in certain cases that are evident in practice) of leased staff claiming that they were actually employed within the company where they performed work, despite them not having any kind of contract with this company.

Certain solutions regarding the latest innovations to the Labour Law continue to represent a potential problem for employers in the Republic of Serbia. The leasing of the workforce is still not legally regulated, but our recommendation is that the Labour

Law stipulates that salary payments during leave be equal to the amount of basic salary increased in relation to years of service.

We also consider that limits for employment contracts for a specified time should be extended from 24 to 36 months, while the complex model of calculating earnings should be simplified.

When it comes to the Law on Conditions for Referring Employees to Temporary Work Abroad the most important innovations in the matter of referring employees on temporary work abroad that the new law brings are the simplification of referrals of administrative and technical procedures, or notification of the Ministry of Labour, Employment, Veteran and Social Affairs, shortening the existing time limits (from 30 days to 1 day before the date of the referral), as well as reducing additional documentation that the employer is obliged to submit to the ministry while giving notice on the referral.

One of the important issues is also the harmonisation of educational profiles with the needs of the economy.

In all regional and global changes that relate to education – we at least have a shift. Such an attitude towards education has a direct impact on the entire society, both in terms of the community itself and the business environment. We talk much more about changes in education than about the real key issues and the necessity of what should be harmonised. The education system still needs to be improved and better connected with the business community. In this way we would reduce the gap between education and the needs of employers, while the image of Serbia as a desirable investment location would be further enhanced, and thus the competitiveness of the workforce would be increased. This is not the case at this moment. ■

Improving the education system in accordance with the needs of the business community would improve the image of Serbia as a desirable investment location and the competitiveness of the workforce

66 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

CORPORATE: INTERVIEW

Michael Orfanoudakis, General Director of Marbo Product and Commercial Director of PepsiCo for the Western Balkans

There Will Always Be Challenges To Overcome The success of our company is based on our quick and tailored reactions, our commitment to the local market, and the continuous growth of exports to the EU markets, which is an important incentive for us. Such developments are not only beneficial for our company, but also for Serbia and its future

B

y employing the highest standards in business and combining the expertise of PepsiCo and the needs of consumers on the local market, we have created a company that is successful, environment-conscious and responsible to its employees, and which by so doing contributes to the improvement of the overall business and economic situation in Serbia.

► Following its acquisition by PepsiCo, Marbo Product has undergone significant changes. In which production and sales segment has the company achieved the greatest progress?

– In 2008 we became part of a multinational company that operates with the highest standards in mind. Alignment with those standards was the first phase of integration and it lasted until 2011. During this phase, we have been working on a comprehensive improvement of all business processes – production, logistics, commercial and financial. After this consolidation of business standards a modern high-capacity potato chips production line was implemented. Additionally, we set up a wastewater treatment plant which is in line with PepsiCo highest standards of sustainable development. Special focus was given on distribution and go-to- market capabilities adapting PepsiCo processes and systems aiming to secure that all of our brands and wide range of products are available to consumers across West Balkan region.

We upgraded and extended the knowhow and skill sets of our employees through continuous training and education, ranging from

functional to managerial. By engaging talented people, we have created a high-quality, supportive and creative working environment, and the prestigious awards "Top Employers Europe" and "Top Employers Serbia", which we won for the second time in a row, are a sign of our commitment to creating the best possible business environment for our employees. ► Just like PepsiCo Group, Marbo Product has also been recognised for actively participating in socially responsible activities. What motivates you to carry out such projects?

– As a part of the PepsiCo Group, we are deeply dedicated to the PepsiCo mission "Performance with Purpose". We are continuously

and give them the opportunity to start working with us after completing one-year training.

Furthermore, given that the residents of Serbia and Bosnia and Herzegovina were faced with the consequences of natural disasters in 2014, we considered it our duty to support international efforts to overcome these consequences. We did so thru PepsiCo Foundation and world food program.

► How beneficial is the current business climate for your company, given the present economic conditions?

– There will always be challenges and circumstances that one need to overcome, but the success of our company is based on our quick and tailored reactions to such circumstances. We manage to adapt the products we offer to the actual needs of the consumers, by which we further underline our commitment to the local market.

Over the past several years, we have had a continuous growth of export to the EU markets UK, France, Belgian, Netherlands, Romania, which was an important step for us.

Such developments are not only beneficial for our company, but they also contribute to the improvement of overall business and economic situation in Serbia, bearing in mind that we fully operate by the local regulations, and intend to do so in the future. ■

We have created a high-quality, supportive and creative working environment and the prestigious awards "Top Employers Europe" and "Top Employers Serbia" came as a sign of our commitment to creating the best possible business environment for our employees working on building a healthier future for all the people and the planet, because this ensures a more viable future for PepsiCo. We have launched very representative projects in each of the areas stipulated by this mission.

Best examples are innovative environmental solutions for waste water treatment in the Maglić plant and the PepsiCo Start project through which we recruit young graduates

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 67

INTERVIEW

From Bankruptcy To Rebirth MLADEN PETKOVIĆ Director, Krušik AD Valjevo

Despite the fact that it was on the brink of oblivion until recently, Krušik today records good operating results, invests in new technologies and in many ways is classified as a flagship company of the military industry

“K

rušik’s products are known for their high quality and reliability and owing to that they are today present in more than 70 countries”, says Mladen Petković, Director of Krušik

► Where is the place of Krušik in the military industry in Serbia today, following significant investments in the expansion of capacity and innovation in production?

– The average annual growth rate of Krušik’s revenue in the past three years is 47.7%. Krušik has, in order to realise contracts on time, employed 811 new workers during 2014, 2015 and 2016. The total value of contracted works is $214 million and more than 90 per cent of production is exported. A factory for rocket motor chambers production was put into operation in May and the foundation stone was laid for the construction of a new primers plant, which will be put into operation by the end of 2016. The value of these investments is around €20 million. In 2017 Krušik will generate the highest revenue since its foundation.

Considering everything that has been done at Krušik from the moment I assumed the position of General Director in January 2014 to the present, it can be said that Krušik has become the leader of the military industry of Serbia in many segments.

► Is the construction of the primers plant progressing according to plan?

– After the factory for rocket motor chambers production, the construction of which created conditions for the mass production of rocket materials, construction on the new primers plant has begun. The value of this investment is about 10 million Euros and Krušik is implementing it in cooperation with JP Jugoimport SDPR. The primers, which have so far been imported for the needs of companies from the Defense Industry of Serbia, will be produced at Krušik, once the construction of this plant has been completed.

Construction of the primers plant is progressing according to plan and will become operational by the end of 2016, and another 120 workers will be employed there. ► How much interest is there among eighth graders for enrolment in the Technical School, which Krušik requires, and is there sufficient skilled staff who can handle the restoration of production at Krusik at this point?

– Last year Krušik started cooperation with the Technical School in Valjevo and, as a result of this collaboration, two departments with the educational profile of machining operator have been established. Krušik will grant scholarships to the best students, provide them with professional training in their units and upon leaving

68 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

school all students with this educational profile will be employed with Krušik. There is qualified staff in Krušik, but with an unfavourable age structure, and great effort is made to transfer knowledge to new workers. Due to the measures taken, continuity of production at Krušik is not brought into question. Krušik is today a desirable employer, where the average salary is above the national average and is paid on time. The contracted transfer of technology in the amount of €30 million is the proof of Krušik employees’ expertise.

► In your opinion, how much do the government’s plans recognise the export potential of the military industry?

– I am of the opinion that the Serbian government has recognised the export potential of the military industry, and especially the net export effect that is achieved through exports of products of the military industry. The government provides great support to the development of new technologies and the modernisation of existing resources, and thus contributes military industrial products

► Has the State honoured its proto more easily access new markets The average annual growth rate and customers. mise to support Krušik and what it means for the further development of Krušik’s revenue in the past of the factory? ► What are your further ambitithree years is 47.7%. Krušik has, ons – The Serbian government has creawhen it comes to developing in order to realise contracts on Krušik? ted an environment in which companies that are market-orientated and time, employed 811 new workers – In the forthcoming period, Krušik will focus on the development of new have a management that is sincerely during 2014, 2015 and 2016. technologies, primarily in the field of committed to the success of the commissile programs, in the modernisapanies have a good chance of success.

The total value of contracted Change of Krušik management in Jation of resources that it produces toworks is $214 million nuary 2014 demonstrated the deterday and in expansion of the product range. mination to reform a company that We will continue to invest in equwas facing bankruptcy and it started operating positively and selling its products worldwide. ipment and facilities in order to increase the production capacity and meet all of the goals set. ► What are your most important markets today and what is Krušik’s current share in the export segment ► The possibilities of foreign capital entering the of the defense industry? military industry have been discussed for years.

– Krušik’s products are known for their high quality and Where do you see opportunities for the entry of inreliability, and it is thanks to that they are today present in vestors? more than 70 countries worldwide. Nowadays we mostly – Space for the entry of foreign investors exists in the export to the Kingdom of Saudi Arabia, the United States field of production and joint development of sophisticaand the United Arab Emirates. ted missile assets. ■ THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 69

COMMENT

Changes to Better Solutions For All DRAGOLJUB ZDRAVKOVIĆ President of the Leasing and Insurance Committee of the Foreign Investors Council (AXA Osiguranje)

There is room for the improvement of the legal framework in the field of insurance and leasing that would be contributed to by the introduction of European practice, strengthening the equality of all participants in the market and the attractiveness of the product to end users

T

he next step in the harmonisation of national legislation in the insurance field with European practice should be to reduce discrimination between composite and non-composite companies. Amendments to the Law on Insurance enables companies with the same shareholder, which are separated between life- and non-life insurance, to carry out so-called “shared services”: concluding insurance contracts; promotional and related marketing activities; general, personnel, administrative and technical support activities. However, the noted article is not harmonised with the Law on VAT. In order for the mentioned services to have tax-neutral treatment, the amendment of the Law should be allowed in order for “shared services” to be defined as the movement of services, which is not taxable.

After that it is necessary to make changes to regulations in the field of vehicle insurance in traffic. The Law on Compulsory Traffic Insurance prohibits the payment of any fee for technical inspections, through which the distribution of insurance is mainly carried out, which exceed five per cent of intermediary premiums. This legal provision has been ignored by the market for many years. In 2015 and 2016 there was deterioration in the vehicle insurance market with the new approach to the Tax Administration regarding the payment of rent for office space by entrepreneurs. The Tax Administration in its interpretation of the lease, transferred tax liabilities to insurance companies and individual firms paid high fines.

The amendment of legal requirements would enable the liberalisation of the price of vehicle liability insurance, it would open the possibility for insurance companies to carry out the registration of cars in their own premises, as well as internet sales of vehicle liability insurance policies.

We propose the amendment of legislation regarding “Unit linked”

products. The new Law on Insurance enables investing in investment units of investment funds, albeit with limits: the investment units of a fund may invest up to 25 per cent of technical provisions arising from this type of product; funds invested abroad cannot be higher than 25 per cent of core capital. It is necessary to amend the Law on Insurance in order to facilitate the development of the aforementioned products.

The insurance industry can become part of a systemic response of the state for eliminating the consequences of natural disasters.

After 2014, the number of polices sold for insurance against natural disasters and other catastrophes has not increased drastically. It is necessary to clearly define a strategy at the state level that could be introduced gradually: first the introduction of compulsory insurance for all state and public property and infrastructure; then the introduction of compulsory cover of all assets as collateral for certain financing and eventually the introduction of mandatory coverage of natural disasters for all assets that include insurance against fire.

In order to ensure equal tax treatment of the banking and leasing sector it is necessary to initiate amendments to the Law on Value Added Tax, in the part relating to the taxation of interest, and to equate it to the tax treatment of interest in the banking sector. It is necessary to initiate amendments to the Law on VAT, in the part relating to the taxation of interest, but in terms of the abolition of VAT on the part of the leasing fee that relates to interest.

The leasing industry expects to be included in subsidised government programmes, given that financing through leasing is a direct long-term investment in production, which can be crucial for the further development of agriculture. In order to ensure this it is necessary to amend the law and bylaws governing incentives in the economy (industry, agriculture, etc.) so that, through incentives, financing through bank loans is equalised with other forms of financing, such as financial leasing. ■

Amendments to regulations in the field of vehicle liability insurance in traffic would allow the liberalisation of the price of insurance and internet sales of policies

70 FOREIGN INVESTORS COUNCIL IN SERBIA THE VIEW ON 2016/17

COMMENT

Good Application Is Most Important For Good Laws MIHAJLO ŽIVKOVIĆ President of the Legal Committee of the Foreign Investors Council (Societe Generale Bank Serbia)

The manner in which extensive discussions that preceded the adoption of the Law on Enforcement and Security were conducted can and must serve as a guideline in the future when it comes to enacting new regulations that relate to economic relations. It is now particularly important that new solutions are adequately implemented

I

t seems that at a general level we can draw the conclusion that there exists a readiness of the state to continue the process of building a legal framework that would stimulate and further economic relations that would facilitate new foreign investments and the retaining and improving of existing ones. However, the slowness in the work of the courts and the inadequate enforcement of regulations really significantly impacts on the overall impression and in that respect further improvements certainly have to be achieved.

One of the most important changes in the previous period was the adoption of the new Law on Enforcement and Security. The FIC Legal Committee played an important role in this process, and good cooperation with the working group resulted in the acceptance of a large number of comments and recommendations of the Council.

The new law came into force on 1st July and thus it is now of particular importance that the new solutions be adequately implemented.

In that sense there are great expectations for the economy, especially in terms of speeding up the actual process of enforcement. It is especially important to emphasise access to the proponent, the Ministry of Justice, during the preparation of this law. Specifically, unlike the process that preceded the adoption of laws in the matter of execution in previous years, when the new law was brought a broad public debate was indeed carried out and the proponent listened to the comments of the economy, including the Foreign Investors Council. In this way a new foundation was set that can and must serve as a guideline in the future when making new regulations concerning economic relations. Including the Foreign Investors Council in the legislative process can only contribute to broadening the expert debate and better final legislation, and that’s why it represents an obligation for future cases.

It is precisely in this context that the FIC Legal Committee approached the analysis of the proposal of the new Civil Code and the Working Group submitted a large number of proposals and comments. This is a very important legal act that regulates the legal base of civil and economic relations and has a crucial impact on foreign investment. In any case, we expect to find adequate solutions to all outstanding issues in an open dialogue with the proponent.

Also, based on the announcements we have we await changes to bankruptcy legislation. It is now obvious that the changes from 2014 did not bring change and the improvement of the process that had been expected and that further work is necessary to amend legislation. The Legal Committee certainly supports that and expresses its readiness to take an active part in drafting a new Law on Bankruptcy Proceedings, given that it is an important, systemic law which is of great importance for the economy. In this regard, the Legal Committee impatiently expects the proposal of a new law for which it would, following analysis of the text, have the opportunity to draft recommendations and comments and to point out the most important problems that foreign investors have had in bankruptcy practice.

Of the good examples of prevention from the introduction of unfavourable legislation we can emphasise the Law on the Central Registry of Temporary Restrictions on the Rights of Persons Registered in the Business Registers Agency, when the FIC Legal Committee succeeded, in cooperation with other organisations, in finding a common language with the proponent.

Lastly, but not of least importance, the Legal Committee will continue to insist on amendments to the Foreign Exchange Act with respect to further liberalisation in the carrying out of payments in order for changes to this law to be adapted to the needs of foreign investors, but also those that other economic operators have in their operations. ■

The FIC Legal Committee is ready to take an active part in drafting the new Law on Bankruptcy Proceedings, to point out the most important problems that foreign investors had in bankruptcy practice and to propose solutions to overcome them

THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 71

COMMENT

More Efficient Procedures Yielding Results IVAN GAZDIĆ President of the Real-Estate Committee of the Foreign Investors Council (Bojovic & Partners a.o.d. Beograd)

The experience with the implementation of the Planning and Construction Law so far is generally positive, the procedures are more efficient, while the deficiencies identified are to be addressed soon.

The provisions on land conversion need further attention

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t has been almost two years since the Planning and ConstrucConversion proceedings (i.e., the conversion of right of use for tion Law was significantly changed, introducing for the first construction land into ownership against a fee) finally, to some extent, are being implemented. However, a large number of cases of time the “integrated procedure” for obtaining the documentation necessary for construction on a “one-stop-shop” basis. The conversion have been terminated, and the main reason for this are integrated procedure encompasses all actions from the issuance the provisions of the Law on Conversion for a Fee which provide of location conditions, through the issuing of construction and use that the competent authority, if the plot of land is subject to a restitution process, will terminate any conversion proceedings until the permits, up to registration of ownership over the newly constructed facility with the Real Estate Cadastre. restitution process is finally ended. It is essential that these provisions be limited to cases where the applicant for conversion is Efficiency is achieved in several ways. The exchange of all relevant documents is performed electronically; the competent authoria company with a majority social or state capital, given that only ty examines only whether the formal conditions for construction are these entities are obliged to return nationalised property in kind, fulfilled. The Law prescribes shorter legal deadlines for the authortherefore in all other cases termination of the conversion proceedities to take action and strictings is unjustified. er misdemeanor proceedings As of July this year, the against the breaches of the right of use of land no longIt is essential that provisions related to the er serves for the purpose of deadlines, and so on. process of restitution be limited to cases where obtaining construction perFrom 1st January 2016, mits. Given that a large numthe implementation of electhe applicant for conversion is a company tronic construction permits ber of conversion processwith a majority social or state capital, given es (against a fee) are not started through a functional that only these entities are obliged to return a resolved or have been tersystem for the issuance of Eminated, construction could permits. nationalised property in kind again be blocked (as was the As to the number of issued building permits, the case from 2013 until the new total number of permits issued for the period from January - April regulations were enacted), which could badly effect not only the 2016 increased by 4.3% compared to the same period last year. construction industry, but also economic development in general.

According to the World Bank, Serbia moved up 39 places in When it comes to the leasing of real estate, the legal framework the Doing Business ranking list for 2016 regarding the issuance of has not been sufficiently developed and is not fully operational yet, building permits, now taking 139th place. with the exceptions of a few office buildings acquired through leasing. The main problems in the application of the Law on Financial The impression of the implementation of the Planning and Leasing related to the high costs and tax treatment of leasing have Construction Law so far is generally positive, as it seems that the not yet been resolved. Therefore, by amending the tax legislation, administration is finally getting into gear. However, all deficiencies the state should create a more favourable climate for implementing that were identified along the way should be eliminated by new financial leasing in the real estate sector. ■ amendments to the Law being announced for 2017.

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COMMENT

Strengthen Legal Security BILJANA BUJIĆ President of the Taxation Committee of the Foreign Investors Council ( KPMG d.o.o.)

The key problem that is continually met by the business community is the uneven application of regulations, the unpredictability of changes in tax rules and the associated legal uncertainty

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key to strengthening institutions, and that applies to both the Tax Adhen it comes to the predictability of tax policy it seems to us that the key is the way tax regulations are introduced. ministration and the Ministry of Finance. Here I’m primarily referring We see that they are brought in without public discusto employees, investing in their education and training, as well as in terms of being technically equipped and as an informational system, sion or the involvement of the business community in especially of the Tax Administration. their preparation and adoption. Essentially, there is a continuation of A serious question is the number and structure of employees, the trend that has been in existence for the last few years. An addior whether these institutions have a sufficient number of employees tional problem is that there is no advanced notice of changes, in order and whether their structure is appropriate. Highly qualified and wellfor the business community to at least be informed about what directrained staff need to be attracted, and with the current level of wages tion can be expected from changes in regulations. The regulations are and working conditions we are not sure that this is possible. adopted with the application within eight days, or even less, which is In addition to this, it seems to us that the strengthening of the cocertainly not a sufficient period for the business community to adapt to the changes, particularly considering that it did not have the opporordination of the Ministry of Finance and the Tax Administration is of great importance, because it is the ministry that brings the regulations tunity to get informed about them. and interprets them through the issuing of binding opinions. Because Another problem related to predictability is the application of tax of that I would like to mention the earlier initiative of the Council reregulations and the problem of different interpretations. Although the introduction of binding opinions issued by the Ministry of Finance garding the relocating of the second instance on appeals according to should contribute to solving this the tax solution of the Ministry of problem and equalising tax pracFinance, because we believe that Relocation of the second instance on can contribute to the uniform aptice, we see that in practice the Tax Administration in its controls plication of regulations. appeals according to the tax solutions in is increasingly refusing to comply When it comes to the implethe Ministry of Finance could contribute to mentation of the Action Plan for with the opinions.

In short, the key problem the Transformation of the Tax the uniform application of regulations with which the business commuAdministration for the 20152020 period, the key recommennity is confronted is the uneven application of regulations, the unpredictability of changes in tax regudation that the Council offers for the work of the Tax Administration to be more efficient and transparent is the strengthening of the inlations and the associated legal uncertainty.

In addition to that, each regulation follows a large number of bystitutions of the tax Administration through investments in people, their education and training, and through investment in the inforlaws. For example, in addition to the Law on VAT there are 26 ordinances and three statutes that more closely regulate the application of mational system. We are aware that this cannot be done in a short the law on VAT, thus it is often very difficult to manage and properly apperiod, and that the support of all is necessary in order for the Tax Administration to be transformed into a modern and efficient adply the tax rules. The best practices of other countries are that each tax law follows a regulation on the application where in one place there is ministration in the service of taxpayers. closer clarification of the provisions of the law.

When it comes to further dialogue between the government and If we add to this the problem of applying the binding opinions the business sector, we believe in an open dialogue on all issues of imof the Ministry of Finance, then the problem of doing business in portance to the improvement of the business environment in Serbia, Serbia is even greater. and which implies the involvement of the business community in the We believe that the elimination of the mentioned obstacles is the planning and changes in the regulations which it applies. â– THE VIEW ON 2016/17 FOREIGN INVESTORS COUNCIL IN SERBIA 73

COMMENT

Fewer Barriers For More Dynamic Development JASMINA VIGNJEVIĆ President of the Telecommunications and IT Committee of the Foreign Investors Council (Telenor d.o.o.)

Removing monopolies and reducing the price of access to infrastructure would contribute to the greater penetration of new technologies and the more dynamic development of the capacity of operators

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e recognise that ever more people are following trends and more actively using new possibilities of modern technology, which has resulted in the industry striving to offer more innovative services and develop new digital services. The release of the frequency band at 800MHz fulfilled expectations over the allocation of the spectrum, while sales of the digital dividend in the framework of two frequency ranges (800 and 1800 MHz) contributed to the development of broadband and improved coverage of the mobile telephony signal.

Over the past year new para-fiscal charges for operators have not been introduced, which is a positive impulse for the development of the telecommunications market that otherwise faces a number of challenges.

The space exists for improving coordination between state institutions in a way by which a leading role is taken by the competent ministry in the domain of issues specific to the telecommunications sector.

The regulatory body should enable full independence where financial independence is one of the most important aspects.

A prerequisite for the greater penetration of LTE technology and increasing the capacity of operators is abolishing the monopoly and reducing the price of access to infrastructure. The adoption of the Law on Electronic Operations and the new Law on Electronic Communications are expected this year. It is recommended that representatives of the industry be enabled in the early stages of drafting legislative proposals to provide their suggestions and comments. With the aim of securing a new and higher quality offer of existing services other regulations of socalled operator billing, cross-border data transfer and protection against non-ionizing radiation should be modified.

The development of e-business represents great potential for the economy and citizens. The proposal for the improvement of e-commerce is to prescribe methods, rather than the technical means of electronic identification, as is currently the case. A qualified electronic signature is

used by a small number of private individuals, while the issuance of a qualified certificate requires additional costs and formalities. We believe that transactions that are not of the highest legal or economic nature should be allowed to be carried out by using a regular (non-qualified) electronic signature, where any type of transaction would be prescribed by a mechanism for identification of the appropriate level of security.

The IT sector is currently estimated at about $650 million and records steady growth, which is why it is recognised as one of the main levers for the development of the Serbian economy. In order to preserve the growth and competitiveness of domestic companies it is necessary to restore the lower rate of VAT of 10 per cent on IT equipment, instead of the current 20 per cent. Likewise, the accelerated development of e-government, as well as public-private partnerships, which are still in the development phase, although they can offer significant success in the area of improving costs, especially at the municipal level, would contribute to the faster development of IT. E-government is recognised as an important issue by the economy, but also the state. For success in this field a central management system should be established through a body that would have the political and legal capacity to carry out all steps and coordinate the exchange of information. That body would be composed of representatives of the central government, local governments and businesses. It is important that e-government integrates existing data in electronic form – building permits, tax administration, the business registers agency. A big problem is represented by the lack of a central registry, thus the establishing of a single database is a priority. E-government would bring great savings in terms of time and costs for citizens and businesses, and in addition to greater transparency, the functioning of public administration could be improved. Following the trend of increasing access to the internet via mobile devices, it is essential that e-governance is also available on these platforms (MGovernment). â–

It would be useful for representatives of industry to be able to provide their suggestions and comments at an early stage in the drafting of the Law on Electronic Operations and the new Law on Electronic Communications

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KEY MESSAGES Aleksandar Vučić, Serbian Prime Minister

Yana Mikhailova, President of the Foreign Investors Council and Regional Director of Nestlé Adriatic

WE STAND FIRMLY ON THE REFORM COURSE

SATISFIED INVESTORS ARE THE BEST PARTNERS FOR GROWTH

The reforms started in 2014 should be completed by the end of this government’s mandate and enable Serbia to become an orderly democratic country, with efficient institutions, a functioning market economy and a European future.

A politically strong and developed Serbia, in a stable regional environment, which accepts the latest legal and economic standards of the EU, received almost plebiscitary support in the elections.

Jorgovanka Tabaković, Governor of the National Bank of Serbia

WE’RE READY FOR CHALLENGES FROM THE INTERNATIONAL ENVIRONMENT

The aim of the Serbian Chamber of Commerce and the Foreign Investors Council is to increase the competitiveness of Serbia as a business and investment destination.

The activities of associations of foreign companies, such as the Foreign Investors Council, are particularly significant because they provide recommendations to the creators of economic policies and regulations for improving the business environment from the perspective of businesspeople who have come to Serbia with practices from orderly and developed economies.

Daniel Berg, Director for Serbia at the European Bank

H.E. Michael Davenport, Head of the EU Delegation to Serbia

for Reconstruction and Development (EBRD)

HOPE FOR EVEN BETTER PROGRESS IN REFORMS

John Kyritsis, Vice President of the Foreign Investors Council and COO of Delhaize Serbia

Marko Čadež, President of the Serbian Chamber of Commerce

JOINT EFFORTS TO A BETTER BUSINESS ENVIRONMENT

The instability that comes from our environment has so far not had an impact on foreign investments that are at the level of the same period last year. At the same time, the NBS will take all measures within its jurisdiction to preserve stability and mitigate excessive oscillations of the dinar exchange rate.

Serbia is a small and open economy that is on the European path, which means that our economic developments are inevitably affected by developments in the EU.

It is important to make a success of the economic reforms that are underway and to create a business environment which favours entrepreneurship and investment. This would be good for Serbia, but also for the EU, which has an interest in seeing Serbia become stronger and more prosperous.

Serbia’s policy of EU accession offers investors from the EU and elsewhere reassurance that reforms will be continued and that Serbia will become ever more predictable as a place to do business.

The FIC contributes to improving the business climate in Serbia and targets working more efficiently, together with the Government, on the common goal of making Serbia the optimal investment destination, appealing both for new and existing foreign investors.

Government needs to work further in order to transparently improve regulations, strengthen institutional capacity, minimise administrative burdens and provide an effective safeguard to investors.

HELPING SERBIA BUILD RESILIENT ECONOMY The reduction of fiscal deficits and structural reforms will help reduce Serbia’s vulnerability to external shocks like Brexit and enhance the country’s attractiveness as an investment target. The measures included in the EBRD’s Investment Climate and Governance Initiative support this process in many areas.

EBRD activities in Serbia include helping the state administration in improving business procedures and the business climate, engaging in resolution of problems with NPLs, enhancement of corporate governance, and assisting the needs of SME.

FOCUSED REFORMS WILL YIELD RESULTS For Serbia, it is crucial to maintain macroeconomic and financial stability, but also to improve living standards by fostering economic growth and the country’s competitiveness through the acceleration of structural reforms, better implementation of laws and continuing harmonisation with the EU Acquis.

Significant progress has been made in inspections and the fight against illicit trade, especially with the adoption of the Law on Inspection Oversight. Full implementation of this Law is expected.

Dimitrije Knjeginjić, Vice President of the Foreign Investors Council and CEO of Lafarge Serbia

WE OFFER THE GOVERNMENT OUR KNOWHOW AND EXPERIENCE In the process of European integration Serbia will have to build a functioning market economy and a business sector capable of coping with the pressure of competition and market forces within the framework of the EU. We are ready to place our knowhow and experience in the function of those two goals to the benefit of all participants on the market.

We advocate for the introduction and application of systemic solutions in the field of illicit trade, including also the fight against corruption, which is one of the announced priorities of the Government.

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KEY MESSAGES Ana Firtel, Executive Director of the Foreign Investors Council

THROUGH DIALOGUE TO GOOD SOLUTIONS FOR ALL

Goran Pekez, president of the Anti – Illicit Trade Committee of Foreign Investors Council (JT International a.d. Senta)

SYSTEMATIC APPROACH AGAINST ILLEGAL TRADE

By offering specific recommendations based on knowledge and experience of doing business in Serbia, EU Member States and globally, we strive to contribute to the pro-reform and pro-European aspirations of the country.

It is important for us that we are extremely objective, to praise that which is good – but to also offer criticisms in a constructive way. In our opinion, advancing the work of the Tax Administration and inspection should have priority and we hope that the new government will support the Tax Administration in dynamically launching its reform.

The grey economy is still an issue that demands the close attention of the Government and those industries that are most threatened by it: tobacco, fast moving consumer goods, IT, textile and the like.

Milica Stefanović, president of the Food & Agriculture Committee of Foreign Investors Council (The Coca-Cola Company-Barlan S&M d.o.o.)

Dejan Ječmenica, president of the Human Resources Committee of the Foreign Investors Council (Wiener Städtische osiguranje a.d.o. Beograd)

BETTER PROSPECTS WITH ADVANCED FOOD REGULATION

RESOLVE THE ISSUE OF LEASING OF WORKERS

There is much to be done in order to turn the food&agriculture sector into a true motor of Serbian economy. The fully operational National reference laboratory and the alignment of registered plant protection products in line with the EU standards are important steps leading that way.

The business community expects the simplification of procedures in the Law on Foreigners and the resolving of outstanding issues in the area of the Labour Law, primarily in connection with the leasing of workers and simpler payroll calculation.

Dragoljub Zdravković, president of the Leasing and Insurance Committee of the Foreign Investors Council (AXA Osiguranje)

Ivan Gazdić, president of the Real-Estate Committee of the Foreign Investors Council (Bojovic & Partners a.o.d. Beograd)

CHANGES TO BETTER SOLUTIONS FOR ALL

MORE EFFICIENT PROCEDURES YIELDING RESULTS

There is room for the improvement of the legal framework in the field of insurance and leasing that would be contributed to introduction of European practice, strengthening the equality of all participants in the market and the attractiveness of the product to end users.

The experience with the implementation of the Planning and Construction Law so far is generally positive, the procedures are more efficient while the deficiencies identified are to be addressed soon. The provisions on land conversion need further attention.

Biljana Bujić, president of the Taxation Committee of the Foreign Investors Council ( KPMG d.o.o.)

Jasmina Vignjević, president of the Telecommunications and IT Committee of the Foreign Investors Council (Telenor d.o.o.)

STRENGTHEN LEGAL SECURITY

FEWER BARRIERS FOR MORE DYNAMIC DEVELOPMENT

The key problem that is continually met by the business community is the uneven application of regulations, the unpredictability of changes in tax rules and the associated legal uncertainty.

Removing monopolies and reducing the price of access to infrastructure would contribute to the greater penetration of new technologies and the more dynamic development of the capacity of operators.

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FOREIGN INVESTORS COUNCIL

We Grow Together In the fourteen years of its existence, the Foreign Investors Council has proved to be a loyal and trusted partner for growth, devoting its resources to creating a long-term, sustainable and healthy business framework in Serbia. It became instrumental in speeding up the country’s EU integrations process and promoting its investment appeal to newcomers

REALITY CHECK CONFERENCE 2015

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he Foreign investors Council is an independent, voluntary business association established in 2002, with the aim of contributing to a sustainable business environment in Serbia. Over more than a decade, from 14 founding members, the FIC has grown to encompass over 130 companies, which have invested over €23.5 billion, contributed 18 per cent of GDP in 2013 and di-

rectly employ more than 97,000 people in Serbia.

The initiative for the establishment of the association came from the Organisation for Economic Cooperation and Development (OECD) – the Investment Compact for SEE, and mirrors similar projects in Bulgaria and Romania. The majority of FIC members hail from the European Union, but there are also members from other parts of the world – from the United States to the Russian Federation and the People’s Republic of China.

In the fourteen years of its existence, the Council has

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proved to be a loyal and trusted partner for growth, devoting its resources to creating a long-term, sustainable, and healthy business framework in Serbia, as opposed to short-term gains. Unlike other associations, whose goal is to lobby in the interest of their member companies or engage in B2B activities, which are by themselves legitimate objectives, the FIC is focused on advocating for reforms that are in the interests of the wider business community.

By providing thoughtful and tangible proposals for regulatory changes, based on the wealth of knowledge and expert resources of the member companies, the FIC

basis, by introducing up-to-date business practices and innovation into their local operations and by investing in the skills of their workforce. Through their corporate responsibility strategies, FIC members are addressing the problems and needs of the local communities in which they operate, clearly sending the signal to the wider community that a society can grow only if it has responsible companies.

The Council envisages an arm’s length principle in its dealings, as it wants to stay true to its goal of promoting solid business ethics and high corporate governance principles within the organisation and towards local companies, government, and other external stakeholders.

YANA MIKHAILOVA, New President of the Foreign Investors Council and Regional Director of Nestlé Adriatic

has established itself as an active participant in the reform process in Serbia and one of the key stakeholders and reliable partners of the Serbian government and international organisations in their efforts to put the economy on a sustainable path of growth.

The FIC specialises in improvement of the business climate, but was also quick to recognise its other unique capability - to support Serbia’s EU integration process, as over 70 per cent of FIC members come from the EU, while other members have a footprint on the EU market. Considering that FIC members have been operating in new member states, the FIC proves instrumental in helping Serbia to pass the transition process by avoiding mistakes made in NMS. FIC members have been contributing to the overall development of Serbia’s economic potentials on a daily

FIC members’ goals coincide with the efforts of the Serbian government to build a functioning market economy, speed up the EU negotiation process and develop economic potentials for growth

REGULATORY AGENDA The FIC is the unified voice of more than 100 companies. In order to achieve that goal, the Council employs refined internal mechanisms that have to secure a transparent and fruitful exchange of opinions and allow for building consensus between members. A consensual decision making process represents the source of the association’s strength and reputation.

The FIC draws its expertise from the impressive expert resources of its member companies. Based on the interests of its members, the FIC esta-

At Present FIC Has Nine Committees:

• Legal, tax, human resources, anti-illicit trade and digital and e-commerce Committees are cross functional, • Food and agriculture, leasing and insurance, real estate, telecommunications and information technology are sector-based Committees. blishes specialised committees that discuss draft laws, amendments to existing regulation, exchange opinions with various interested parties, from governmental bodies to other expert and business associations, and formulate recommendations for policy changes, ensuring that they are in the best interest of all stakeholders in the society.

In a two-step process, their recommendations are vetted by the Board of Directors and publicised in the annual White Book.

The White Book represents an important tool for measuring the progress of regulatory reforms in Serbia, and allows for comparison on a year-on-year basis, based on clear benchmarks.

The White Book is recognised as a transparent and reliable source of information for the wider internatio-

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FIC's Regulatory Expertise The main resources of FIC regulatory expertise are its committees, which are instrumental in providing the associations with recommendations on regulatory changes. There are nine committees at present, with a tenth to be established by the end of 2016.

The committees are divided into two groups.

Cross functional committees include the legal, tax, human resources, anti-illicit trade and digital and e-commerce Committees. Sector-based Committees include food and agriculture, leasing and insurance, real estate and telecommunications and information technology.

nal and investment communiHahn, who gave the keynote The Council envisages an arm’s length ty and is highly rated among speech at the 2015 Reality domestic decision makers, Check Conference. This year principle in its dealings, as it wants to experts, and in the Serbian puthe FIC decided not to organistay true to its goal of promoting solid se the conference, as it would blic. The results of the White have taken place during the Book are presented annually business ethics and high corporate election campaign. at a conference which gathers governance principles within the FIC members’ goals codistinguished guests from the organisation and towards local incide with the efforts of the Government, diplomatic corps Serbian government to build a and international organisaticompanies, government, and other ons resident in Serbia. functioning market economy, external stakeholders In addition, half a year after speed up the EU negotiation the public presentation of the process and develop economic White Book, the FIC organises potentials. For example, the its Reality Check Conference, at which FIC members and FIC’s decision to form the digital and e-commerce committee preceded the recent government decision to focus representatives of the government discuss the current on development of the country’s potentials in the ICT setrack of reforms, often in the presence of renowned guector. Recent FIC recommendations regarding the labour sts, such as EU Commissioner for European Neighbourhood Policy and Enlargement Negotiations Johannes law, construction industry, inspections and illicit trade, helped Serbia to unleash its growth potentials, create jobs and curb the grey economy.

EU AGENDA The Council believes that the development of a transparent, efficient and competitive business environment

Members Opportunities • FIC members are predominantly domestic companies with the significant participation of foreign capital. The Council is also open to local consulting companies and firms representing foreign business interests, regardless of the form of their incorporation.

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Why join?

• Participate in dialogue with key government representatives and members of the state administration; • Address a variety of regulatory issues which hinder their daily operations, through engagement in FIC committees; • Promote regulatory issues relevant to the industry they represent, potentially leading to a common FIC position, and sharing positive practices and experience.

in Serbia is tightly connected dialogue with the EC, both Over the last three years, the FIC to the country’s EU accession at the level of expert briehas organised two official visits to fings and at meetings of top process and specifically to its officials. efforts to build a fully functional Brussels – first in October 2014 and Over the last three years, market economy. second in September 2015, while a the FIC has organised two ofBy taking an active role in ficial visits to Brussels – first this course, the Council positiothird is planned for October 2016. The ned itself as a private sector foin October 2014 and second association’s activities are financed cal point in the EU negotiation in September 2015, while a solely from membership fees process. third is planned for October Drawing its expertise from 2016. its members, more than 70 per The association’s activities are financed solely from membership fees. cent of which originate from the EU, the FIC offered its Furthermore, members can contribute to drafting the resources to both negotiating parties, the EU Commission and the Serbian Government, in order to ensure “White Book”, gain early access to draft legislation and efficient and effective accession negotiations; it encogive comments/suggestions for its improvement, gain uraged the European Commission to provide vigorous first-hand information on recently enacted legislation support to Serbia, both through accession negotiations and set up direct contact with those responsible for the and assistance instruments; and it maintains an active implementation of different regulations. ■

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