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ISSN 1452-6085 Contributions Nebojša Ćirić, Minister for Economy and Regional Development Oliver Dulić, Minister for Environment, Mining and Spatial Planning Dragan Parezanović, Raiffeisen Investment John Nicholson, Deloitte Milica Bisić, KPMG AmCham Forum Sweeping Priorities for Serbia’s New Government

Editor’s Corner

Contents 8 Government Perspective Nebojša Ćirić Minister for Economy and Regional Development

Wishing you the light of a new dawn

In this issue of Perspective Magazine, we asked experts and government officials to explore the topic: ‘Economic Outlook And Policy For The Future’ and received some interesting and even encouraging responses. When economic crisis threatens many firms with bankrupcy, any other outcome can seem worth trying. John Nicholson of Deloitte outlines a fourstep debt restructuring alternative, the pillars of which are realism, clarity of goals, consistent communication and integrity, In generally discouraging times, Vojislav Glavinić of Delta Real Estate sees definite hints of a bright side and says that the undersupplied Serbian real estate market, though currently moribund, could awake with vigor if the new government has the foresight to curtail needless delays, bureaucracy and paperwork. On the labor front, Slobodan Doklestić of Karanović & Nikolić law office asserts that in the interests of a “labor-friendly” environment for employers, specifically foreign investors, the Serbian Labor Law of 2005 should be amended to improve employer-employee relations and enable the courts to adjudicate more efficiently on employment issues. Looking forward to post-crisis recovery, Milica Bisić, Head of Markets, KPMG Belgrade says that effective tax reforms cannot be imposed unless they fit within a rational and comprehensive tax system that takes into account their impact on the economy in general. One area in which it was difficult to find even a ray of sunshine was effective protection of intellectual property rights. Aleksandar Simić, Partner, JMS Law Office and a former Federal judge, insists that impressive-sounding IPR laws must be supported and implemented by competent judicial systems, effective technology, cooperation and stringent enforcement of the laws. Finally, in our FORUM feature, leaders of Serbia’s major business organizations offer a wide and comprehensive range of suggestions for improving the country’s business environment and economy. They include measures to attract foreign investors and encourage those already here. Serbia should, they argue, offer a competitive advantage to investors in terms of ease of doing business, less red tape and flexibility of labor relations. Also recommended are taking advantage of positive momentum from achieving EU candidacy status and implementing concrete measures that will create a stable, predictable and supportive business environment

Sincerely yours,

Branislav Čale AmCham Communications Manager

12 American Chamber of Commerce in Serbia Smiljanićeva 24/I 11000 Belgrade, Serbia Tel: +381 11 30 88 132; 34 46 437 Fax: +381 11 30 88 922

National Bank Perspective Diana Dragutinović Vice-governor of the National Bank of Serbia

15 Investment Perspective Dragan Parezanović Managing Director, Regional Coordinator Western Balkans, Raiffeisen Investment


18 Debt Restructuring Perspective John Nicholson Partner, Financial Advisory, Deloitte 20

Banker Perspective Dragan Santovac Vice-President of the Executive Board, Komercijalna banka


Government Perspective Oliver Dulić Minister for Environment, Mining and Spatial Planning



26 Real Estate Perspective Vojislav Glavinić General Manager, Delta Real Estate Editor-in-Chief Branislav Čale

29 Labor Market Perspective Radmila Bukumirić Katić Assistant Minister, Ministry of Labor and Social Policy, Labor Department

Editorial Board Amalija Pavić Acting Executive Director

32 Labor Law Perspective Slobodan Doklestić Partner, Karanović & Nikolić

Advertising, Member Benefit & Network Branislav Valent Marketing & CSR Coordinator Production, coordination and editorial contribution Emina Azizi/Future Media


IPR Perspective Aleksandar Simić Partner, JMS Law Office, ex Federal Constitutional Court Judge

38 AmCham Forum  Sweeping Priorities for Serbia’s New Government

English proofreader Charles Alverson


Commercial Regulation Perspective Nenad Popović Senior Partner, Janković, Popović & Mitić Law Office Stefan Dobrić Attorney at Law, Janković, Popović & Mitić Law Office

Director of Photography Miroslav Petrović/BlackBox


Entrepreneur Perspective Željko Tomić General Manager, OSA - Računarski inženjering

Cover Page McCann Erickson

50 Insurance Perspective Dragoljub Zdravković CFO, Managing Board Member, UNIQA

Printing Rotografika, Subotica

54 Advocacy Update, AmCham News and more...

Graphic Layout and Prepress Branko |u\ić/BlackBox


34 Tax Perspective Milica Bisić Head of Markets, KPMG Belgrade




AmCham Patron Members

4 Perspective April, 2012

5 Perspective April, 2012

From the President

Charting a Hopeful Route for the New Government

www .amc ham .rs i nfo@ amc ham .rs

With the prospect of a new Serbian government less than a month ahead, perhaps this is the moment to consider the national situation in light of where we are now and where we want to be in the not-too-distant future. I hope it will not seem too fanciful to suggest that come May 6 Serbia will be in a position comparable to someone with the same old vehicle but with a new and largely unpredictable driver. The candidates are all promoting their good intentions now, but the real test will be when one of them is in the driver’s seat and where they propose to take us.

Miloš Đurković AmCham President

The business community of Serbia can generally agree on its preferred destinations: • membership in the European Union with all the benefits that status implies; • realistic legislation effectively enforced, providing a level playing field for all stakeholders; • flourishing exports from heavy industrial products to agriculture to service industries and expertise; • inflation brought under control by long-term and farsighted measures of the National Bank of Serbia and the cooperation of the private banking sector; •m  eaningful involvement in relevant international trade associations including the WTO; • a strong and vibrant private economy that will encourage the best of our educated youths to exercise their abilities at home and a down-sized but functioning and efficient public sector performance in strategic areas; • improved efficiency of court proceedings in commercial matters; • a nd–above all–regulations and enforcement that will encourage vastly increased local and foreign direct investment and the jobs and prosperity that will come with it. That’s in outline our chosen destination to which we want to be taken by a new government. As AmCham has been making clear for some years now, we stand willing to lend effective and meaningful support in getting there. No backseat driver, the business community is willing and able to help keep Serbia on the path to prosperity. There will be bumps in the road ahead and detours, but with goodwill and cooperation we will get to our desired destination.

business ad v o cac y . s h aring e x periences . net w o r k ing .

The Key to Serbia’s Economic Future: Investment Inflow and Export Outflow > Whether faced with a new economic crisis or the aftermath of the current one, the main challenges for any future government will be to encourage more FDI, increase exports, improve employment levels and foster GDP growth. <

What could you realistically promise Serbia’s citizens with regard to the pace of recovery from the economic crisis? When can we realistically expect growth in the standard of living and creation of new jobs? I am deeply convinced that the growth of the standard of living of our citizens is very much linked to foreign direct investments (FDI) inflows and creation of new jobs in line with a long-term Government strategy to restructure the Serbian economy along productive and exportbased lines. On the other hand, stable FDI inflows and proceeds from exports are very important to the reduction of our trade deficit. This, in contrast, will ensure the stability of our domestic currency, since most of our citizens still “mentally” calculate their net salary in terms of the euro. Moreover, in my opinion, a higher standard of living can be achieved when we see a major shift of employment from public to private sector. A healthy

8 Perspective April, 2012

Nebojša Ćirić Minister for Economy and Regional Development

economy is one in which the majority of the work force is employed in the private sector, especially in the segment of small and medium enterprises that have a real economic potential to spur growth and therefore ensure higher wages. Achieving this shift is no easy task. It is very time consuming, since it takes time to realize large investments

that come mostly from abroad. Also, numerous other factors outside of the economic domain are important, primarily in the field of education and a qualified work force available to potential investors. How many people have been laid off since the crisis started? What

Achievable Goals? You have said that Serbia can count on US$2.5 billion in foreign direct investment this year. Is this a realistic expectation? What kind of investment did you have in mind and from what source? In 2011, we were able to attract around US$2.9 billion. I believe that US$2.5 billion can be achieved in 2012 in spite of the fact that this year we have scheduled parliamentary and local elections. In political terms, it is my opinion that these elections will not have a negative impact on the level of FDI. I expect that we will be able to finalize one large investment in the energy sector coming from an EU member country by the end of this Government’s mandate. Meanwhile, U. S. Steel Serbia, a big investor, has left the market. Are you concerned that more companies might leave? If this happens, is there a Plan B, and are there available funds that could help in case other investors seek financial support? Considering the fact that U. S. Steel Serbia was the largest domestic exporter, I was certainly not glad that this happened. However, I do not see this as a major obstacle or “turn off” for new investments. Bear in mind that every investor has specific investment objectives and is responsible to its shareholders in terms of profit maximization or other objectives. Industries follow specific cycles, and global crises have played a major role especially in the ability to set prices of steel as well as the energy inputs needed to produce it. There is nothing I, as a minister, or any other member of the Government can do to influence the important determinants of market exit strategies that are beyond our reach. However, we have accomplished a lot, and will continue to do so when it comes to encouraging new investments and the creation of a positive investor climate in our country.

will you do to turn this negative trend around? It is estimated that around 50.000 workers were laid off in 2011. However, without pro-active measures of the Government aiming to mitigate the negative effects of the global crisis, this figure would have been much larger. One of the measures that we carried out in 2009, 2010 and part of 2011 was the programme to subsidise working capital, consumer and investment loans. More than two billion euros were pumped into the economy in that period, and many large, small and medium sized enterprises (SME) were able to maintain existing employment levels due to lower financing costs and the availability of funds to meet their working capital needs. A large number of companies were also able to initiate longer term investments in that period.

Stable demand On the aggregate demand side, cheap consumer loans and cash loans did a good job of keeping the demand for goods and services relatively stable in a recessionary environment. Various other measures were taken to stimulate production in the metal processing industry sector via direct subsidies for sold products manufactured in Serbia. Also, the Development Fund of the Republic of Serbia issued around one billion euros in cheap loans in the period 2007-2011 to around 13.000 enterprises, 80 percent of them issued to SMEs. All of these measures, according to the IMF, made a major contribution (around 50 percent) to the real GDP growth figure in 2010. Most of these measures will be continued in the upcoming period. However, in the long run, it is my opinion that two major forces of the reduction of the unemployment are our ability to attract more FDI and to reform the fiscal policy that should reduce taxes related to employment.

Further legislative changes are needed Can the informal economy be at least kept under control considering that the crisis has driven the country deeper into this sector instead of finding a solution to it?

9 Perspective April, 2012

Government Perspective

Government Perspective

Government Perspective

Nebojša Ćirić Minister for Economy and Regional Development

> A higher standard of living can be achieved when we see a major shift of employment from public to private sector. A healthy economy is one where a majority of the work force is employed in the private sector, especially in the segment of small and medium enterprises that have a real economic potential to spur growth and therefore ensure higher wages. < In the last year we have initiated via Government decree a significant reduction of contributions and taxes for the purposes of stimulating the hiring of new employees. This measure resulted in the creation of around 13,000 new jobs in the second half of 2011 alone. This effort will be continued and, along with other stimuli carried out by the Ministry of Economy, will help to keep the informal economy under control, but with a limited impact. Further legislative changes are needed in the area of labor law in order to fully cope with this issue. Will the Ministry continue to subsidize employment? How much money has been spent so far and how many new jobs have been created?

selves when it comes to our opinion on how important these subsidies really are. Are you satisfied with what the government and your ministry have done so far? Given the harsh recessionary environment in the previous three years, structural and transitional problems of the Serbian economy and budgetary and public-debt constraints, I can say that we have done well. There is, of course, significant room for improvement in tackling numerous economic issues. In my opinion, the main challenge for the future government will be to maintain current public and budgetary debt lev-

sends a strong signal that Serbia is a safe country where it makes sense to invest. That is very good for Serbia, bearing in mind that the rise of the standard of living is in direct relationship with the level of FDI. Apart from various EU funds that will be available, moreover, the country risk can further be reduced in the foreseeable future, lowering the cost of financing. This is very important for economic growth. EU candidacy also puts another dimension into our equation. Candidacy is not only an economic issue, but also one of political, cultural and historic importance. Since no economy takes place in a vacuum, this is an important factor in regional cooperation and trade. This fact ensures that all countries in the region are trying to reach the same goal, following the same rules and sharing the same values. To what extent can the Serbian economy endure the new wave of crisis predicted for 2012? Personally, I do not believe in any new wave of crisis, but rather in the

> It is estimated that around 50.000 Serbian workers were laid off in 2011. However, without the pro-active measures of the Government aiming to mitigate the negative effects of the global crisis, this number would have been much larger. <

In 2010 and 2011 combined, around 5.4 billion dinars were allocated from the State Budget. In those two years, we directly created around 25.000 jobs in the manufacturing field. Bear in mind that these figures are only relevant when counting direct employment. This number is much larger when we account for all new jobs created in the supply chain that services these new factories. Given the budgetary constraints, as the Ministry of Economy we have been able to persuade the government to allocate 4.5 billion dinars this year, almost as much as in the two previous years combined. Considering that this year the budgetary allocation for our Ministry has been reduced by around 35 percent compared to the previous year, I think that the numbers speak for them-

10 Perspective April, 2012

els and at the same time to keep or improve current employment levels and to try to achieve a reasonable amount of GDP growth given these constraints. This will necessary introduce a strong need for fiscal reform and careful examination of budgetary allocations. In common language and in other words, we have to be smarter and stronger with fewer available resources.

EU influence How is achieving EU candidate status expected to influence the country’s economy? I believe that EU candidacy status will benefit Serbia in a multitude of ways. It

prolonged effects or the “aftermath” of what has already happened in the world and, specifically, in the region. Not to be a cynic, but we are unfortunately accustomed to a very prolonged period of recession or economic uncertainty. We have been in the “trenches” for too long fighting a common economic enemy. What encourages me is that, even in these circumstances, we have a proven ability to attract FDI. In the last year alone, we attracted more FDI than any other country in the region. Again, in my view, I cannot stress enough how important FDI and the general level of investment is to the overall state of our economy. All efforts, in my opinion, shall be expended to continue to attract FDI to our country.

11 Perspective April, 2012

National Bank Perspective

Diana Dragutinović Vice-Governor of the National Bank of Serbia

Learning the Lessons of Crisis Management T

he current crisis has reminded everyone that our primary interest in regulating the banking sector is the preservation of systemic stability. We have drawn two great lessons from the crisis. The first is that a factor which aggravated the crisis was the absence of adequate mechanisms for dealing with insolvent banks and that putting in place robust resolution regimes and plans would be a wise approach. The second is that the financial system contains complex and shifting inter-connections affecting the real economy. This is why the macro-prudential debate is so important.

Financial risks in Serbia

> The economic crisis has taught the National Bank of Serbia that prudent control of both internal and external mechanisms for monitoring bank solvency and having a strong battery of solutions is necessary to protect and strengthen the banking system and the real economy. < 12 Perspective April, 2012

Financial stability in Serbia faces various risks. A number of factors, separately or jointly, influence financial stability. The chief among these include non-performing loans (NPL) impact on capital adequacy; free use of the currency clause; public debt sustainability and the external environment. NPL, as a share of total loans increased to 19 percent, ranging from six to seven percent of consumer loans and mortgages to 29-30 percent of corporate and SME loans. Despite a high rate of NPL, the banking sector of the Republic of Serbia is well capitalized with the capital adequacy ratio exceeding 19 percent. This capital adequacy ratio provides guaranties that the high level of NPL could not in the short run produce a systemic crisis, but in the long run might spark a financial crisis. It is essential for banks, in concert with the authorities, to take comprehensive action to resolve the large and growing stock of NPL. This would not only help to reduce the balance sheet risk from deteriorating assets – thus providing a sound basis for the resumption of credit growth--but would also mitigate the associated contingent fiscal risks. Moreover, from an operational perspective, it is crucial that gaps and shortcomings in the regulatory, prudential, tax and legal frameworks are identified and appropriate enhancements undertaken. Another factor that contributes to the development of systemic risks in our financial system is a high degree of financial euroization. The share of foreign currencies (FC) deposits (including FC-indexed deposits) in total deposits is 70 percent, as is the share of FC lending (including FC-indexed lending) in total lending. FC savings account for 98 percent of total household savings. Consequently, unexpected significant depreciation of the domestic currency against foreign currencies could lead to the realization of systemic risk. For that reason, strong prudential buffers in the financial sector should be maintained to counter risks from this high degree of euroization.

Controlling systemic risk The sustainability of public debt is the next potential source of systemic risk. Parliament adopted a numerical rule for the

fiscal deficit, introducing a 45 percent of GDP ceiling on public and publicly-guaranteed debt, and established a Fiscal Council to oversee the new framework. But large fiscal gaps emerged. Further uncontrolled government borrowing could have consequences for the sustainability of public debt. Last but not least, an important factor that could affect financial stability is a sovereign crisis in the EU. Around 73 percent of the our banking sector assets are on the balance sheets of foreign-owned banks whose owners primarily originate from EU countries. This means that a systemic banking crisis in the EU caused by sovereign default could easily be transferred to our domestic banks through a sudden stop of capital inflows from or outflows to parent banks.

Mitigating systemic dangers The National Bank of Serbia has an explicit mandate to conduct macro prudential policy with instruments aimed at continuously enhancing the strength of the financial system vis-à-vis all the risks to which the system is exposed. Pursuant to the Decision on measures for safeguarding and strengthening the stability of the financial system, the National bank of Serbia prescribes measures for mitigating financial system risks arising from the high share of FC denominated or indexed loans. The Decision imposed a cap of 80 percent on LTV ratio for FC denominated mortgages and a restriction on FC lending in all contracts except for those involving indexation to the euro. There are no legal or other obstacles to urgent, immediate action by the National Bank of Serbia in situations requiring a response to a systemic event.

How to direct money from the banks to the real sector and investment? Various incentives and subsidies could be extended directly to the real sector. Alternatively, various restrictions (caps, taxes, etc.) could be imposed on loans which are not directed to the real sector, thus making loans to the real sector more profitable for lenders.We have long-standing experience with credit (or subsidy) incentive schemes: from extending direct grants or subsidies to subsidizing interest rates. Other measures include a conditional cut in the reserve requirement aimed at increasing the supply of loans, the provision of government guarantees on loans and the conversion of debt of companies in financial difficulty into government equity. Nevertheless, I could not qualify these measures as effective. Moreover, all these measures require caution, close supervision of the issued loans’ quality and risk management practices of participating banks.

National Bank Perspective

Diana Dragutinović Vice-Governor of the National Bank of Serbia

Investment Perspective

Dragan Parezanović Managing Director, Raiffeisen Investment

Serbia Offers Potential Investors a Mixed Message > Among Western Balkans countries, Serbia presents great opportunities for Foreign Direct Investment so long as it maintains political and economic stability and does not frighten risk-averse potential investors away. <

M > We have drawn two great lessons from the crisis. The first is that a factor which aggravated the crisis was the absence of adequate mechanisms for dealing with insolvent banks and that putting in place robust resolution regimes and plans would be a wise approach. The second is that the financial system as a system contains complex and shifting inter-connections affecting the real economy. < The National Bank of Serbia, together with the Government, has a wide range of instruments that might be used to control systemic risk, such as a cap on foreign currency lending, restrictions on foreign currency holdings,varying premiums for deposit insurance depending on local or FC denomination of deposits, diverse deposit insurance coverage depending on local or FC denomination of deposits, restrictions on shareholders’ rights for capital outflows, the DTI ratio, differentiated reserve requirements for foreign currency, introduction of recovery and resolution plans for systemically Important financial Institutions, placing restrictions on some activities of banks (e.g. the Volcker rule). These instruments are mentioned by way of example, while their actual use depends on the competent authority’s assessment. In addition, the authorities may use procedures such as lending of last resort, special resolution regimes for financial institutions, government lending guarantees, government capital injections and so forth.

Inflation expectations Monetary policy has responded adequately to the inflation path. In the absence of further economic shocks, disinflation is expected to continue. However, the risks to this outlook are substantial. The main sources of risks were identified as: capital inflows drying up quickly leading to currency depreciation; further loosen-

14 Perspective April, 2012

ing of the fiscal stance and a poor outcome for the agricultural sector. Unfortunately, there is no magic wand for economic recovery. What is essential is good macro-economic management. And this implies the necessity of balancing the economy. Serbia has a large external deficit that poses significant macro-economic risks. Regardless of the source of the external imbalance, fiscal policy may have a role to play in facilitating external adjustment. An institutional commitment to maintaining a low public debt target and running a counter-cyclical fiscal policy provides reassurance to international investors. At the same time, an independent fiscal council can add credibility by monitoring compliance with numerical fiscal rules and providing an independent assessment of the evolving external and local macroeconomics risks facing Serbia. But, fiscal policy is not enough. Implementing structural reforms that support more balanced growth is necessary. These include: restructuring and privatizing large public enterprises, addressing the problem of unsuccessfully privatized enterprises, increasing the transparency of public enterprise operations and strengthening government control of their financial plans, facilitating land ownership transfer, improving property registration, streamlining the licensing system, strengthening contract enforcement by courts, promoting competition and increasing the flexibility of the labor market. This is a very challenging agenda!

ergers and Acquisitions (M&A) activity is often a good indicator of how well a given market performs and whether the economic environment within a country is suitable for investments. The first signs of economic instability in a given country activate an alarm indicator for investors to reconsider their investment opportunities and the amount of risk they are willing to embrace. The turmoil in the financial markets that ensued after the collapse of Lehman brothers in September 2008, led to fears of a breakdown of the global financial system. Even though the epicenter of the crisis was in the USA, the contagion spread to Europe and began affecting all market performance to various degrees due to correlation between the American and other markets. Starting as a crisis of financial markets, it soon became crisis of the real economy due to contraction of the banking industry and consequent problems in the real sector. Soon after that, most EU markets sank into recession.

Cautious investors M&A activity is a very important, and yet not totally sufficient, factor of economic development especially of emerging economies, such as the countries of Western Balkan region (WB). Primary economic growth catalyst in the WB in this decade is based on foreign direct investments (FDI), mainly from Europe, whose resources for outward investments due to the global economic crisis became increasingly scarce. M&A deals are very sensitive to political or economic risks. Investors are cautious when it comes to WB countries which are still struggling with unemployment, low level of transparency and relatively undeveloped financial markets. In spite of vast investment incentives offered by governments, the lack of macroeconomic and political stability in this region is the main obstacle for major investments, as multinational companies value the stability of established markets. The strategy of development based on high dependence on FDI without development of internal capacities for growth, puts

15 Perspective April, 2012

Dragan Parezanović

Investment Perspective

Managing Director, Regional Coordinator Western Balkans, Raiffeisen Investment

Major M&A experience

Raiffeisen Investment AG started its operations in the Serbian market in 2001, and has become the leading M&A and privatization counselor, advising the Government of Serbia on more than 40 privatizations. In addition, Team Serbia has provided buy-side advisory services for a number of foreign investors (Uniqa, the Vienna Stock Exchange, Mital Steel, RWE, Tvornica duhana Rovinj, Agrana, Kraft, Kras) as well as to some of the largest domestic investors. Raiffeisen Investment was the financial advisor on the largest private deal so far in Serbia, acting as a buy-side advisor to Delhaize Group on acquisition of Delta Maxi at the price of 932.5 million euros cash and debt free. Furthermore, RIAG is acting as a buy-side advisor on acquisitions in the region to Royal Friesland Campina for diary companies, Andreae-Noris Zahn AG (ANZAG) for pharmaceutical companies, Telecom Austria Group for the telecom sector and Wuppermann AG for steel pipe production companies. As the Raiffeisen Investment’s hub for the Western Balkans, the Serbian team has also actively participated in the biggest deals in Montenegro (privatization of Telecom Montenegro, Coal mine and Thermo Power Plant Pljevlja and various hotel operators and assets), Bosnia & Herzegovina (buy-side advisor for LNM Holdings, the largest transaction in this market, the acquisition of the Steel plant in Zenica), Republika Srpska (privatization of Telekom Srpske) and Macedonia (buy side advisor for RWE and Sencap/Contur Global). 16 Perspective April, 2012

a country in a position of high exposure to risk of external disturbances. Problems that occurred in the global financial crisis immediately influenced the behavior of potential investors. Reduced ability to raise financing for acquisitions was the main reason for hampered M&A activity of Private Equity funds which based their strategy on leverage. Even the most stable companies were facing at least two types of problems. Equity-wise, market capitalization of listed companies has dropped significantly due to the slump in stock prices, while liabilities remained fixed. Debt-wise, caught up in a chain of liquidity problems, companies have intensively used short term debt. Hoarding debt positions consequently increased leverage of the companies. Soon after that, calls from bankers seeking capital increase or debt repayment was inevitable due to higher overall indebtedness of the companies. A similar fate hit commodity producers and traders. At the same time, some foreign companies that were among the most aggressive acquirers, become takeover targets. Serbia, along with other emerging markets in South East Europe, was not immune to the impact of the global financial crisis. At the time we could hear arguments that the Serbian economy would be spared due to its insignificant role in the global economy. Having an economy which is mostly driven by FDI, with relatively weak domestic production, still struggling with inherited socialist-era business practices, with a public sector burdening the state budget, Serbia was far from a position to claim benefits from the crisis.

Attractive investment destination? Serbia experienced a significant drop in FDI, sinking to one billion euros in 2010 from 4.1 billion euros in 2006, according to the National Bank of Serbia. Throughout 2009 and 2010, although the global crisis led to an increase of midmarket distressed M&A activity and corporate restructurings, FDI was not comparable to pre-crisis years. Since most of the private equity funds entered the capital structure in Serbian assets during the initial privatizations in 2003-2005, they were prevented from exiting after three to five years due to reduced valuation as a consequence of revised market conditions. Notable movements in M&A markets started with

the recovery of the EU as well as of the Serbian economy in 2011. One of the largest M&A deals in the Western Balkan region and the biggest private deal in Serbia, acquisition of Delta Maxi by Delhaize group for 932.5 million euros, was signed at the beginning of the year. This transaction was highly encouraging for Serbia as an investment destination as well as to other investors with an interest in the Western Balkans. Serbia is currently recognized as an attractive investment destination due to one of the lowest corporate tax rates in region, high financial incentives for Greenfield investments as well as extensive subsidies offered by the Government. Serbia has low-cost and highly educated labor and among the lowest electricity prices in the region. These are the reasons why international companies, seeking cost cutting opportunities, are moving their production facilities to Serbia (for example, Fiat, Bosch, Danieli, and Gorenje). A pre-requisite for such a scenario to be fully accomplished is, again, macroeconomic and political stability. We are currently anticipating a number of M&A transactions that are in the pipeline. On the other hand, a number of companies are entering bankruptcy procedures, while some privatized are being re-nationalized again as the owners failed to fulfill their investment obligations. The sale of Komercijalna banka, although a major transaction, is not expected to be a gamechanger as the financial services sector is already dominated by foreign players. The eventual privatization of Telekom Serbia, one of the last incumbent telecom operators in Europe, will attract interest from strategic investors. It will result in market

liberalization and increased competition among strategic players, raising the quality of infrastructure and services. Energy projects are a priority of the government and along with infrastructure projects will be in focus for potential partnerships. Family run business that have hit the limits of their capacity for further business development will seek partnerships in order to prepare for competition that is about to come with EU expansion. We can conclude that there are good reasons to be optimistic that the recovery of other European economies will lead to increase in the number of M&A transactions in Serbia and other WB countries. In their short M&A history, even at its peak, Western Balkan countries were not caught up in the whirlwind of modernized leverage buyouts and other sophisticated financing technique. With further development of financial markets and institutions, improvement of regulation and an increased level of transparency of procedures, foreign investors will be even more active in this part of the Europe. But as long as the level of political and macroeconomic risk persists, investors will be reluctant to invest. Unresolved issues with public companies that “swallow” any value created in the budget as well as a high level of political interference and corruption remain the main obstacles to serious economic development in Serbia. EU association and harmonization of regulation and procedures will gradually reduce the risk and consequently increase attractiveness of the market. The question which remains is whether at that time there will be enough companies left that are attractive enough for acquisition.

John Nicholson

Debt Restructuring Perspective

Partner, Financial Advisory, Deloitte

Four Not-So-Easy Steps The only way out of this situation is to speak to the people to whom you owe money and follow four easy steps. Easy to say, that is, but hard to do. 1. Tell them about your problems A company has to identify its key stakeholders and open a dialogue with them. Generally, these stakeholders will comprise lending banks, leasing companies, key suppliers, key customers and staff. Once a problem has been aired and everyone knows, it becomes much easier to begin to identify potential solutions. The solutions may involve “pain” for everyone. But maybe, just maybe, a little pain today is better than a big pain tomorrow. Even if the response is not sympathetic or cooperative, you will have only accelerated matters a little by taking this initial step.

Four Hard – but Necessary – Steps to Business Survival > For many Serbian businesses, the economic crisis has been one crunch too many. The obvious options are bankruptcy or survival, but how does a business in extremis engineer the latter rather than suffer the former? <

18 Perspective April, 2012


he financial crisis had a catastrophic effect on financial sectors around the globe. While banking globally has undergone a series of significant transformations to ensure its recovery, many Serbian businesses are still facing financial difficulties, and the worst is yet to come. Serbian businesses are fighting to survive against global competition. The effects of under-investment and a weak economy have been magnified by the financial crisis and Illiquidity in the economy as a whole. More stringent controls on lending and lack of consumer confidence have combined to slow the flow of money to such an extent that more and more businesses are finding themselves in a position where they are unable to meet their financial obligations as they fall due. This situation is set to continue for the remainder of 2012 and potentially beyond. Bad though the current situation is, it can, and will, get worse. The owners and managers of many businesses are spending a significant portion of their time focussing on getting enough cash through the door to last another month

instead of conducting normal business activities or seeking longer term solutions to current problems. As more and more businesses start to suffer, the flow of money gets slower and slower, gradually affecting all businesses. Unchecked, for many companies, this vicious downward spiral will be terminal.

How did we get into this mess? Prior to the financial crisis, the future looked bright; the global economy was strong, and Serbia seemed set for a period of sustained growth. Companies were eager to borrow in order to take advantage of available opportunities. Banks were equally eager to lend, since they needed to grow and compete in their market. Funds went into real estate, business expansion, acquisitions and other projects where returns, at that time, looked good. And then it all ended very suddenly. The returns did not materialise, cash flow stopped, economies did “handbrake turns” and went into reverse. There

2. Tell them what you intend to do Once you have followed step one, you will have taken the initiative and you, to some extent, will be in the driving seat. It won’t be a free ride, but better than waiting until someone else starts a process in which your role will be almost totally passive. A new business plan is required, a business plan that acknowledges where you are today, in distress, and is realistic about what the future will hold. A projected meteoric increase in cash flow and profitability, while looking good in any business plan, is unlikely to be viewed as credible.While the business plan has to demonstrate a future, it must reflect the fact that regaining stakeholder trust will be difficult. Customers, market share, suppliers and buying power will all have to be fought for. Few miracle cures There are few miracle cures. The business plan has to be well presented, self-consistent and has to clearly show the effects of potential variations was little or no time to react, if reaction was at all possible. But the “how” is irrelevant - the question is what to do “now”. The initial approach of many companies was to ignore the situation: “We didn’t cause it and we don’t have to solve it” was a tried and tested reaction that doesn’t work. As the situation got worse, companies started financing their businesses at the expense of their suppliers. Banks tend to have louder voices and often get their monthly repayments. But the lack of working capital eventually reduces the volume of business that a company can do. Without direct and decisive action, the results are inevitable. Working capital is drained out of businesses to finance

from the basic assumptions. The more thought that goes into this plan, the more likely it is that you will get a positive response. But nothing is guaranteed. A key requirement of any lender will be that the company takes whatever steps it can to deleverage – to reduce the level of debt that has to be serviced in the future. It has to be borne in mind that a sale of assets, any assets, may be difficult in today’s market. Profit is unlikely and the banks will not care – cash is king at the moment, not profit. Profit is a return for the owners and they too will have to feel the pain. Banks worldwide, in the region and in Serbia are open to such dialogue have been responsive when approached or have even initiated this type of process. They are following the same steps. 3. Tell them what you need from them This is a negotiation. All parties will have to give, and it may not be easy for anyone. But if the goal of everyone is the same or at least congruent; survival of the company being the same as getting the loans repaid, then solutions can generally be found. 4. Stick to your promises You will only get one chance at this process; the restoration of trust is a key component to the restoration of normal business arrangements. Therefore, the business plan must be achievable – actions promised must be delivered and a continuous dialogue maintained. Restructuring followed by utter silence is unlikely to succeed in the long term – hiccups will occur, but if communications channels have been kept open, such glitches can be dealt with. A few companies and banks in the region have gone through this process. They are currently at step three and will enter step four.What the future will bring remains to be seen, but at least they have a future, and managements are focussed on doing business and not on where the next loan repayment will come from.

debt-service payments, supplier trust is lost, purchases get more expensive, alternative suppliers have to be found, credit is no longer extended. The business starts to spiral downward; this spiral if not addressed will be terminal.

Only losses are certain It’s not only companies who have problems. Banks may be getting some of their money in the short term, but in the medium term defaults are unavoidable. Collateral is probably not worth what it was and may or may not cover the bank’s exposure. Losses on the current portfolio are certain. But this is not the worst thing,

as many of these loans will have already been provisioned. The bigger issue is who will be left for the banks to lend to after the crisis is over. The more businesses that disappear, the weaker the economy will be in the future and the fewer the national lending opportunities. Today, it seems that there is more restructuring of existing debt than the extension of new facilities. Every bank in doing it – many companies still need to do it. At the end of the day, some companies will end up in bankruptcy as a direct result of the crisis. But where companies have a strong business proposition, and the key issue is illiquidity, then solutions do exist and can be found.

19 Perspective April, 2012

Dragan Santovac Vice-President of the Executive Board, Komercijalna banka

For 2012, the Only Certainty Is Uncertainty > Turbulence in the global market, seasoned by long-term crisis in the domestic economy and electoral/postelectoral effects will be very testing for the banking sector this year. Only those taking a long-term perspective and operating on sound but flexible and courageous principles will make the most of sector opportunities. <


he only thing certain is that 2012 will be most uncertain; time will therefore accelerate, not only from the subjective point of view or mathematical principles, but indeed, in the segment of the economy. Turbulence in the global market, seasoned by long-term crisis in the domestic economy and electoral/post-electoral effects on the usual economic flows and economic logic, will define the business environment as the most sensitive ever, especially in the banking sector. Year 2012 will raise many issues for the banks and it will require them to be very flexible and to provide many high-quality responses.

The greatest danger The greatest danger lies precisely in so many uncertainties. Not only those linked to the events in the international economic and banking markets, but even more the uncertainties concerning government activities. These could come by way of some expected programs that could surely lead to positive effects and relaxation of business, but, on the other hand, could cause serious headaches. In this sense, election years such as this one are an additional complication. The banks will have to take special care about sensitive environmental signals and increasing demands of clients, competitors’ actions, activities of the Government and National Bank of Serbia (NBS), whereas foreign banks, which are the most numerous in the Serbian market, will have to adapt their business policy to the conditions and trends in their foreign parent banks despite the concerns about volatile market and non-market circumstances, which will additionally complicate their operation. All the above will result in continuation of a decrease in the number of active banks in the Serbian banking market in 2012. I don’t refer so much to a formal reduction in the number of registered banks, but more to the number of active “practitioners“ with steady investments and global operations in the banking market.

20 Perspective April, 2012

Forthcoming recapitalization If a majority State-owned company operates well and achieves results in the market in the long term, with permanent, year-long market verification, as is the case of Komercijalna Banka, then it certainly makes sense for the State to retain the same share in the ownership structure. Given that the agreed term for recapitalization between the State and the second largest shareholder – the EBRD – has been set for the end of this year, and the required 11.5 billion dinars has been set aside in the State budget, there is no reason to wait until the last moment for re-

Time for Getting Serious It’s likely that we won’t be able to compare 2012 with previous years. However, all the dangers ahead will bring new challenges, open new possibilities that will bring benefit to only those who prove to be the most flexible and well prepared. I am primarily referring to the provision of funds to finance high-quality, competitive and promising clients in terms of development under conditions that would not smother them with additional cost pressures. Therefore, an additional seriousness and analytical proficiency in loan application management will be required, but also a dose of courage and business risk, which is necessary for all large business operations. This carries the danger of an increase of irrecoverable claims, which are our reality. Last year, non performing loans (NPLs) reached a serious level of 18-19 percent in the banking sector of Serbia. However, this category seems to have become a new success filter that will distinguish quality and perceptive banking practitioners from the others. Komercijalna Banka managed to hold its NPL level below 11 percent, including its legacy portfolio. capitalization. On the contrary. Especially taking into account dinar budgeted recapitalization, it is undoubtedly in the economic interest of the State to acquire as many shares as possible by paying the same amount of money. I have neither personal nor professional doubt that the State will make this move, which is economically more than rational and will bring positive effects for the State, the Bank and its clients. Komercijalna Banka’s capital increase is not the result of liquidity requirements or solvency of the Bank (as in some other European or local cases) but an economic interest of the most important shareholder to multi-fertilize their investment in the coming period. Retail-oriented banks in Europe – of the same business model as Komercijalna Banka - achieved higher level of success in business, which is yet another motive for the upcoming recapitalization. In recent years, the State has proved to be a very responsible and professional owner. It has allowed the bank to manage its investments according to economic, banking and professional criteria, particularly in terms of client development. Moreover, our business often followed State engagements, regarding projects that had wide economic significance and interest, such as subsidized loans and agriculture. Everybody profited from these engagements: our Bank, the economy and people and the State. I refer to development, financial and budgetary effects. If, as expected, the appropriate shareholders decisions are adopted during the April session of

> If, as expected, the appropriate shareholders’ decisions are adopted during the April session of the General Meeting of Shareholders, our shareholders will provide necessary legal and technical assumptions for the Bank’s recapitalization by the State, as anticipated by the agreement signed between the two major shareholders two years ago.<

the General Meeting of Shareholders, our shareholders will provide necessary legal and technical assumptions for the Bank’s recapitalization by the State, as anticipated by the agreement signed between the two major shareholders two years ago.

Focus removed from Serbia The crisis in the Eurozone will inevitably have outstanding adverse effects on our economy and banking system. It will reduce the demand for products of the Serbian economy, further reducing the odds to achieve even a minimum projection of domestic product growth, or keep it at its current level. The price of the Eurozone crisis is to a large extent charged to the banks, which considerably impairs their performance, capital, and consequently investment and development plans. Their investment intentions will also be deterred by freezing Serbia’s arrangement with the IMF and delay of Serbia’s candidate status for EU membership, and especially by current uncertainty regarding the final date for negotiations. After the results of stress testing in the EU are made public, the objective of the European banking sector will be to restore stability and confidence in the markets. The main challenges of the most important European banks are capital increase and a more balanced debt-to-capital ratio. Having these activities in mind, the focus of the banking groups will be removed from subsidiaries and small markets such as Serbia. This year’s problem is that around five billion euros will be needed for an orderly repayment of old credit liabilities and closing of the fiscal deficit, which could cause an additional anxiety for the banking sector and potential foreign investors. However, all’s not doom and gloom; the recently published retention of the country’s credit rating is a very good sign for the international investment community, despite the problems the country is facing. In addition, there is also reason for optimism in the fact that the banking sector in Serbia has been the most regulated segment of the country’s economy for several years now and as such, the strongest factor in economic survival and development.

21 Perspective April, 2012

Banker Perspective

Banker Perspective

Government Perspective

Oliver Dulić Minister for Environment, Mining and Spatial Planning

Energy Conservation and Construction Get a Boost

solar power. Only a small portion of this potential is currently exploited. Renewable energy sources account for 21.2 percent of Serbia’s consumption. Hydropower and biomass are exploited more than the other renewable sources of energy. EU regulations classify large hydroelectric power plants as renewableenergy production and consumption as

> The government is making serious and comprehensive efforts to improve Serbian energy efficiency and conservation and to help the construction industry get through a time of crisis. <

The Government has adopted the National Energy Efficiency Program, proposed by the Ministry, and its realization will follow the finalization of the public call for allocation of grants procedure. The Program has two parts - one for local governments and the other for householders. The former provides one billion dinars for the adaptation of public buildings such as schools, medi-

22 Perspective April, 2012

The Act, which came into force on July 4, 2010, regulates conditions and manner of realization of building and civil engineering construction, reconstruction and adaptation projects and other important issues in the field. Having reviewed the law, we’ve decided that it should be extended to one more year. As regards the application, the law has provided good

Rules on Rules Serbia was ranked 175th of 183 economies on the World Bank’s Doing Business list for 2012. One of the criteria is dealing with construction permits (in Serbia, it takes 19 procedures over 279 days to get a permit). How can the process be made faster? The Planning and Construction Act has reduced the number of prescribed documents to be submitted with the construction permit application. However, there are other, special laws at the same level as this one, which require meeting certain conditions before the construction permit is issued, on which the Ministry has no influence. Such laws include the Fire Protection Act, Waters Act and Energy Act. The legal procedure for getting a construction permit has been administratively simplified as much as it was possible by introducing new legal solutions to speed up the procedure. Investors may be required to supplement their documentation only once, technical aspects of the project are checked by licensed engineers not clerks, and clerks may not seek consent on the main project from public utility companies. The issue that has determined Serbia’s ranking on that list of the World Bank is the fact that the condition for getting a construction permit is payment of a fee for construction land development, which is not a condition in the European Union Member States. cal centers, cultural and sports venues. Grants will be allocated for the installation of thermal insulation and exterior finish, carpentry, boiler room replacement, procurement of boilers for biomass-powered incinerators, installation of heat pumps and the like. The funds for the modernization of public buildings will be allocated to local government units, public enterprises or legal persons founded by the Republic of Serbia or the Autonomous Province. The latter part of the Program, for householders, grants three hundred million dinars for the improvement of energy efficiency of residential buildings. Householders will be able to get subsidized loans from commercial banks for the adaptation of their homes with a view to saving energy and

reducing the cost of living. The realization of this part of the program started in March, following a public call for the banks to take part in the program. What is Serbia’s potential for renewable sources of energy and how well are they exploited? Serbia has great natural potential for renewable energy sources, estimated at around the equivalent of five million tons of oil per year. Biomass has the greatest potential, with the equivalent of over three million tons of oil per year. We have 0.6 million tons of oil equivalent in unused hydropower potential, 0.2 million in geothermal sources, 0.2 million in wind power and 0.6 million in

well because damming has a significant effect on the environment, predominantly on biodiversity. Without large hydroelectric power plants, the share of electricity generated by renewable sources is relatively small. How far has the legalization gone? The legalization procedure has moved much faster in the entire country since the Planning and Construction Act entered into force, which resulted in an increased number of resolved cases relative to the earlier period. Immediately after the law took effect, we adopted the Legalization Rulebook, which regulates the area further and removes ambiguities and other issues

applications may be resolved in the next few years.

Saving the Construction Industry Construction is the industry that has suffered most during the crisis. Is it realistic to expect its recovery in 2012? How can it be helped? Have regulations been relaxed enough? Reacting to the global economic crisis that has affected Serbia as well, and on the initiative of representatives of construction industry, we passed the Encouraging Serbian Construction Industry in Times of Crisis Act, along with a set of relevant government regulations.

results. Construction recorded moderate growth last year. The main objective of this law was to help save jobs, employ local construction operatives and encourage the use of domestic construction products in an environment burdened with negative effects of the global economic crisis. That objective has been achieved. According to the data of the Serbian Statistics Office (SSO) collected in the first half of 2011, the value of that awarded to Serbian contractors increased by 1.6 percent relative to 2010. In the first three months of 2011, the value of contracts increased by 59.4 percent compared to the same period of the year before. The number of issued construction permits in May 2011 was higher by 13.1

23 Perspective April, 2012

Government Perspective

You announced that in March Serbia will pass a regulation on financial assistance of 1.3 billion dinars for the improvement of buildings in order to increase their energy efficiency. Who will be eligible for this assistance and how big a demand do you expect?

regarding the law’s application. According to our information, faster and easier legalization procedures have helped liberalize the rules regarding the documents proving legal and ownership relations, prescribed reductions for some and better payment conditions for all categories of applicants. If this trend continues, the majority of legalization

Government Perspective

Oliver Dulić Minister for Environment, Mining and Spatial Planning

> In the first three months of 2011, the value of construction contracts increased by 59.4 percent compared to the same period the year before. The number of issued construction permits in May 2011 was higher by 13.1 percent relative to the same period the year before. < - one is near the military barracks Stepa Stepanović in Voždovac and the other just off Dr Ivana Ribara Street in Novi Beograd. These are the largest residential development projects in the past thirty years. In Voždovac, a residential and business complex comprising 4,616 units covering an area of 434,000 square meters is being built. Out of 2,400 condominiums on this location that have been put on the market to date, the Serbian Construction Directorate has sold around 1,600 units. The procedure of signing contracts for another 150 apartments is underway. At this stage, the sold condominiums are worth around 100 million euros in total.

Major worker involvement

percent relative to the same period the year before. The Serbian Statistics Office attributes the growth in the construction industry to investment, initiated by the state. According to the SSO the real effects of the Encouraging Serbian Construction Industry in the Times of Crisis

Act should be expected in the first half of 2012.

Residential developments We should mention two big residential development projects in Belgrade

> We should mention two big residential development projects in Belgrade - one is near the military barracks ˇ Stepa Stepanovic´ in Vozdovac and the other one just off Dr Ivana Ribara Street in Novi Beograd. Covering nearly half a million square meters, these are the largest Serbian residential development projects in the past thirty years. < 24 Perspective April, 2012

Almost the entire construction industry is involved in the project. So far, some 70 construction companies employing around nine thousand workers have been involved. By the time the project finishes, some 30 thousand workers will have been directly or indirectly involved. Final preparations, including resolving all legal and technical issues, will soon be finalized for the residential complex in Novi Beograd. The works will start when the investor gets a construction permit. We expect this project to be finished by late 2012 or early 2013, depending on the work dynamics. The plan is to build six apartment buildings with a total of 707 condominiums covering the area of 58,000 square meters with all the amenities. In your opinion, how efficient is the new Regulation on the Conversion of Land Use Rights into Property Rights? Has the new regulation simplified the procedure in practice? There is no doubt that the new regulation has simplified the procedure and that the number of resolved applications for the conversion of land use rights to property rights with a fee has increased.

Vojislav Glavinić

Real Estate Perspective

General Manager, Delta Real Estate

Will Real Estate Kick-Start the Recovery?

start once the planned infrastructure projects are completed. The residential segment is dormant, but it still has a lot of potential. Overall, recovery in the real estate sector is closely tied to economic growth, although real estate investments can start ahead of the overall recovery if investors are confident that the government will enact necessary reforms. All investors, foreign and domestic, need to see that the government is advancing in its initiative to join EU, that necessary legislation is being adopted, and that procedures are simplified.

Misunderstandings Conversion of right to use into right of land ownership in Serbia was established as a noble idea by the latest Law on Planning and Construction enacted in September 2009. The Serbian government had the idea to start with the abolition of social ownership over construction land, a legacy of the communist period. Implementation of this law, however, has encountered numerous and so far completely insoluble obstacles. The conver-

> Serbian real estate market, though undersupplied, is currently moribund, but could wake up with vigor if the government has the foresight to eliminate needless delays, bureaucracy and paperwork.<

26 Perspective April, 2012


n the last few years any discussion related to the real estate market in Serbia has had several common points – crisis, legislation and the perspective for the industry. The real estate market in Serbia is greatly undersupplied across all segments (office, retail, residential, industrial) compared to the neighboring countries. Unfortunately, the previous year was generally a slow, since there were no new developments announced and existing ones were delayed. The office segment has started to recover in the sense that class A buildings are filling up, however at lower prices than a couple of years ago, and the pace of new developments is low, so the vacancy rate will be further decreased. Belgrade still has significantly less stock of newly constructed office space compared to similar size cities in the region. Retail is still the most attractive segment, while the industrial segment can

Delta’s Big plans When I announced that I would join the real estate industry, my friends asked me why I was doing this when the real estate sector was hit hard by the financial crisis. My answer was simple – there are a lot of opportunities and potential and challenges. And really, the real estate market in Serbia has a lot of potential. Speed of recovery is strongly related to simplifying legislation and procedures. Recovery in the office segment has begun, but it will be visible only in a couple of years. The retail segment will pick up with planned new developments, including our own Delta Planet project in Belgrade (Autokomanda). Delta Real Estate as a major real estate developer in the region is aware of the huge potential of the Serbian market. With this in mind, beside the Delta Planet shopping mall, we will develop another shopping mall in Belgrade and three retail parks in Belgrade (Blok 53), Kragujevac and Novi Sad. During this year we will start the reconstruction of the hotel Continental and construction of Retail Park Belgrade with Bauhaus.

Vojislav Glavinić General Manager, Delta Real Estate

Labor Market Perspective

Radmila Bukumirić Katić Assistant Minister, Ministry of Labor and Social Policy

Hard Times Require Cooperative Efforts

> Overall, the recovery in the real estate sector is closely tied to economic growth, although real estate investments can start ahead of the overall recovery if investors are confident that the government will enact the necessary reforms. All investors, foreign and domestic, need to see that the government is advancing in its initiative to join the EU that the necessary legislation is being adopted, and that procedures are simplified. <

sion process was not invented in Serbia, since other post-communist countries have gone through the same process without major problems. What is present only in the Serbian law is a stipulation for conversion with and without obligation to pay, with precise indications in the law which categories of land users are to implement the procedure with conversion fee. Also, the legislature has determined that only the land owner can invest in construction, which means that one needs to finish the procedure of conversion prior to obtaining building permits. These statutory provisions are the essence of the problem with conversion. Foreign and domestic investors were not able to complete the conversion fee procedure for more than

ers with international licenses or civil engineering experts who acknowledge the reality of the market in their assessments provide an objective picture of the value of the land. Since realistic market values differ drastically from those provided by the Tax Authorities, the appraisers, who follow international standards, are often discredited, and procedures in which such assessments are being used usually end up in a maelstrom of public debate in the first degree, appeals of public attorneys and a slow decision-making process. This situation has forced the government to re-adopt the legal act on conversion in which the role of the tax administration was abolished and complete responsibility for assessment is transferred to

> Foreign and domestic investors were not able to complete the conversion fee procedure for more than two and a half years, and therefore were not in a position to apply for documents that would allow them to build. <

two and a half years, and therefore were not in a position to apply for documents that would allow them to build. Instead of abolishing this provision in the law and sending a signal that Serbia is open to new investments in order to restart the ruined construction industry, the Government continues to insist on this provision and is trying to solve problems in the construction industry by becoming an investor itself. One of the subjects where no agreement has been reached is on the criteria for assessments of the market value of land. For the Tax Authorities in Serbia, the economic crisis has not yet happened. In their assessments the land plots still continue to hold values established four or five years ago. Apprais-

28 Perspective April, 2012

the professionals, but still with numerous limitations on them to perform their tasks. The fact that under the latest legal act no final decisions have been issued speaks for itself. The current legal act on conversion went a step further to allow local governments to establish a table with pre-determined market values of land to be converted. No local government has yet created such a table with values within a prescribed deadline and again has failed to start the conversion process.

No benefit for anyone With this kind of relations between the government and investors, no one receives any benefits. There are no new

investments, foreign investors are avoiding us, the country is not in a position to collect any funds from conversion fees and the government has, by acting as investor and developer, secured additional borrowing from financial institutions to complete started projects, which further worsened the government indebtedness level and made it difficult for private developers to borrow from commercial banks. At first glance, the Law on Planning and Construction has simplified the procedures for obtaining the necessary documentation for construction and has clearly established the responsibility of all stakeholders as well as sanctions for violators. Unfortunately, as in other cases, the implementation of this law is a different story. The slowness of administrative bodies at all levels contributes to the period required to obtain building permits, despite strict legal deadlines, is optimistically nine to 12 months, but more often it extend to three years. Fortunately, during the last several months there have been a lot of signals from Government and local authorities that they are aware of the problems and that they are actively working on solutions. If the post-election period is prolonged as a result of political negotiations, this year could be lost. But if the new government realizes that administration needs to be simplified and the land development fee and other fees have to be reduced, we could see some investment activity in the second half of the year. Several big-name international retailers are interested in Serbia, which is a great sign of confidence in our market and, generally speaking, a huge potential which our country has to use. All of this together with EU candidacy and expected reform of legislation will be a strong message for investors to seize the opportunity and start new projects in this undeveloped and unsaturated market.

> Especially in times of economic crisis, it is imperative that employers, workers and the government pull together to create conditions that not only enable Serbia to survive difficult times, but build a framework for future prosperity <


ike the global economy, Serbian companies are facing a new wave of economic crisis. Its most serious effect is a delay in planned economic investment. The symptoms of recession - reduced external and internal demand and investment, increased risks and investment costs and fear of failure - have affected business generally. There is practically no industry that has not suffered from the negative effects of the crisis and recession. It then is understandable that due to reduced demand in the marketplace and inability to sell their goods, employers are considering cutting down their number of employees. These decisions are reflected in the financial capacity of families whose members are laid off. Consumer demand has fallen, confidence in business is reduced and this has affected the availability of financial assistance and much-needed loans. All of this has considerably limited creation of new jobs and maintaining existing employment levels. Investment in human capital, education, research and technological development, the foundations of rapid economic growth, are at a low state in Serbia and this is seriously hampering further development and reforms. Serbia annually allocates some 4.5 percent of its GDP to education and about 0.3 percent of GDP to science. However, over 90 percent of these funds go for salaries in these sectors, and only a small portion remains to cover the huge need for investment in development.

Low Rankings In addition to this, the Serbian economy is technologically obsolete, an indication that its workforce needs to add to its skills and improve its knowledge. According to the assessment of the European Bank for Reconstruction and Development Serbia’s efficiency and competitiveness ranking in relation to 139 chosen economies indicate that Serbia is lagging badly. It ranks 102nd in labor market efficiency, 137th in the efficiency of its anti-

29 Perspective April, 2012

Labor Market Perspective

Real Estate Perspective

Labor Market Perspective

Radmila Bukumirić Katić

IPR Corner

Assistant Minister, Ministry of Labor and Social Policy, Labor Department

Miloš Blagojević

New Foundations for a New Economy The Serbian Government plans to provide special incentives in 2012 for the food, metal, transportation, IT and healthcare industries. Economic growth will be a moderate 0.5 percent, reflecting slower recovery, lower aggregate demand and slow adjustment of the labor market. With a view to attracting foreign direct investment, one priority in 2012 will be capacity building in local governments. This will be done through a joint financing of active employment policy programs and measures. Local governments are

expected to determine their concrete needs and ability to create new jobs. Furthermore, improved and simplified procedures for issuing construction permits and development of new legal possibilities for public and private partnerships and concessions will improve local capacities and help create a better business environment for the creation of new jobs. The Serbian economy should strive to improve the political ambiance and eliminate structural bottlenecks. The economy needs new foundations. The

monopoly policy, 131st in local competitiveness intensity and a somewhat better 74 in higher education and training.

High Labor Cost Structural reforms that aim to promote the growth of Serbia’s economic capacity for manufacture and services are supposed to ensure a more efficient economy with a dominant private sector, plus increased labor market flexibility and creation of new jobs. The White Book makes a variety of recommendations: reducing labor costs, the income tax rate, income exempt from tax and contributions to compulsory social insurance, simplifying salary calculation, reducing documentation that employers have to provide, changes in compensation for absence from work computations, introducing a concept of hired labor and regulating shift work. By every definition, the Labor Act implies harmonization of labor and capital market trends and needs, and ensuring minimum labor conditions in accordance with ratified International Labor Organization (ILO) conventions. Amendments will introduce job centers offering temporary employment as a form of flexible work in line

fiscal framework should make room for active employment measures, new foreign direct investment, adult education, trade facilitation and solutions for land and energy issues. The Ministry of Labor and Social Policy is responsible for dealing with social issues and poverty, but it should also provide a legal framework for the development of know-how among workers, create new jobs and save existing ones. Only educated and active people can successfully combat societal challenges, especially those of economic crisis.

with international standards; in cases of discrimination and sexual harassment, the burden of proof will be on the person accused; a more detailed legal framework for part-time work will be established in order to create more part-time jobs, not as a substitute for full-time jobs but as a worker’s option. A legal framework that will help increase employment should be provided through further amendments to the Labor Act in order to balance the key interests of employees, employers and the state and make the labor sector more stable and predictable. Considering that this is a systemic law, equally important for the labor world as for the world of capital, consensus among social partners should be ensured.

Through Social Dialogue to Solution In times of crisis, compromises on many sensitive issues can be found, especially when it comes to saving jobs and reducing poverty. The problems affecting social dialogue come from both sides. Finding successful solutions will be possible with the development of social agreement, mutual trust and understanding among social partners, respect for agreements and fulfillment

> Employers, trade unions and the government have a common task to find the best possible mechanisms to ensure the survival of companies and simultaneously protect workers’ jobs and provide humane working conditions even in times of crisis. <

30 Perspective April, 2012

of obligations by all actors. This is particularly difficult during an economic crisis, as employers are financially weakened and labor rights more vulnerable. This is why employers, trade unions and the government have a common task to find the best possible mechanisms to ensure the survival of companies and simultaneously protect workers’ jobs, to provide good and humane working conditions and to adequately protect labor rights. Labor rights are guaranteed under the Labor Act, in line with international standards. However, some employers violate the law and the rights of their employees. Workers mostly complain that their employers do not pay wages regularly, pay less than the minimum wage and fail to pay contributions for compulsory social insurance. According to trade union data, around 55,000 workers are owed salaries, while 650,000 workers do not get paid regularly. Those working in processing and textile industries wait for their salaries longest. According to data of the Pension and Disability Fund, contributions are regularly paid for only about a million of a total of 1.7 million workers in Serbia. In addition, Labor Inspection data shows that 22,000 labor-related inspections were performed in 2011 and around 1,500 charges were brought against employers, mostly because of irregular payment. So far, 968 decisions have been delivered ordering employers to pay outstanding wages. In the case of 650 companies, the government has agreed to provide missing social service insurance contributions for over 100,000 workers. Employers have also avoided giving severance pay to laid-off employees, often because they lack funds for basic maintenance and investment. When the unemployment rate is high, legal conditions

> Labor rights are guaranteed under the Labor Act, in line with international standards. However, some employers violate the law and the rights of their employees.Workers mostly complain that their employers do not pay wages regularly, pay less than the minimum wage and fail to pay contributions for compulsory social insurance. According to trade union data, around 55,000 workers are owed salaries, while 650,000 workers do not get paid regularly. Those working in processing and textile industries wait for their salaries longest. < should be created to introduce new and flexible forms of work that enable workers to earn a living and provide for their families. Special collective agreements have been concluded in a number of industries, including agriculture, food, tobacco, water management, construction and construction materials, water management, metal, chemicals and nonmetals, to improve the position of workers and relations between them and their employers. Extended effects of these agreements have caused problems, especially for workers in menial jobs, because some employers are not able to pay agreed wages. They have also imposed an obligation on foreign investors that has created additional legal insecurity. Other aspects of special collective agreements envisage better rights for workers and more restrictive obligations of employers, which are not connected with the protection of labor rights.

Business Development Manager Microsoft Serbia

Anti-Piracy Efforts Require a United Front Software piracy not only hurts the industry, but has serious impact on the national economy and a negative effect on Serbia’s European Union aspirations. All interested parties, private and public, must join to combat this criminal trade.


eeping in mind the fact that software is part of any intellectual property protection system, effective IPR protection is absolutely fundamental for the industry’s growth. Unless software producers are allowed to properly manage and commercialize their products, not only the development of the software industry but also the growth of the entire IT industry will be at best severely limited. Furthermore, it must be noted that due to a high software piracy rate, which in Serbia is 74 percent, the state budget is also heavily impacted since the vast majority of the software market is in the “gray market” zone. According to a BSA piracy report, the commercial value of pirated software was $96 million in 2010. In addition, the high software piracy rate suggests that an overall low enforcement level which certainly has a negative impact on the sustainability of foreign direct investments and might be an obstacle to furthering the EU integration process in the future. In order to address this issue comprehensively, we need strong and synchronized enforcement action across all major institutions. Firstly, the Tax Administration cannot be the only Government agency combating software piracy, despite all their great efforts. Trade inspection needs to be active in enforcing anti-piracy measures in retail situations, and the judicial sector would profit from more IPR-related education. Secondly, the media need to focus more attention on piracy and IPR protection in general. That would lead to increased awareness of this very important issue and help educate both companies and consumers on the benefits related to using genuine products and the risks associated with using unlicensed or pirated software. Last but not least, software companies need to be more strongly focused on educating their market and reaching out to consumers across all segments in more appropriate ways. Also, along with other relevant stakeholders interested in IPR protection, software producers need to voice their concerns and messages more efficiently and lead the way in addressing this highly important issue.

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Slobodan Doklestić Partner, Karanović & Nikolić Law Office

Cloudy Labor Law Creates Problems > In the interests of clarity, flexibility and provision of a “labor-friendly” environment for employers, specifically foreign investors, the Serbian Labor Law of 2005 should be amended to improve employer-employee relations and enable the courts to adjudicate more efficiently on employment issues. <


he Serbian Labor Law was adopted in 2005 and has been amended twice – in 2005 and 2009. Although this law is in many aspects commendable, it seems that some of its measures call for prompt modernization. This is either because some are outdated and do not follow international trends or because they lack adequate rationalization. Moreover, some important issues are inadequately regulated or not regulated at all. This is particularly the case with regard to the regulation of salaries and compensation, termination due to underperformance and staff leasing. Key points for modernization in relation to these issues are briefly discussed in the following.

Salary dilemmas Regulation of the salary structure under the Labor Law is unnecessary complicated, and a lot could be done to simplify it. Moreover, current regulation of salary under the Labor Law lacks necessary flexibility, which would enable international companies to maintain in Serbia their salary systems which are utilized worldwide. This inflexibility is heightened when general or branch collective agreements (CBA) determine salary structure based on the systems of coefficients, which have been abandoned in practice of most western countries whose companies we seek to attract as investors. Often the “coefficient requirements” from the applicable CBAs in combination with the inflexible regulation of the salary structure under the Labor Law put multinational companies in Serbia in a position where they have to reconcile their global salary systems

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with the local requirements. Frequently this will result in untested compromise solutions that bear legal uncertainty and usually raise costs and risks of doing business in Serbia.

What is underperformance? Additionally, from the current regulation of salary in the Labor Law it is not clear how the employee’s salary can be

reduced in case of underperformance. In the first place, the Labor Law does not anticipate such a salary reduction. Second, assuming this is possible, it is not clear what components of the salary may be subject to such a reduction – i.e. is this possible only with regard to the performance aspect of the salary or also to the basic salary. Finally, it is unclear what procedural requirements must be fulfilled by the employer in order to

> It seems that more rational and practical regulation in the Labor Law could increase the attractiveness of the Serbian labor system for foreign investors without causing any real adverse effects to the position of employees. < properly and safely apply this measure in individual cases. Needless to say, this issue bears significant importance for employers since it allows them to effectively sanction underperforming employees, which at the present time they are usually reluctant to do because of imminent legal uncertainty in this area. Logically, the inability to sanction underperforming employees may often result in reduced efficiency of operations and thus reduce profitability of business operations in Serbia. It is noteworthy that currently the basis for compensation of salary in the case of absence from work (e.g. in case of sick leave or annual leave) is determined by the employee’s average salary in the preceding three months. As a result, it is not rare for employees to take annual leave or sick leave shortly after receiving a periodical bonus in order to benefit from that bonus one more

time through its inclusion in the basis for compensation of salary. This type of regulation is truly difficult to rationalize or justify.

Staff leasing – an unregulated area Staff leasing is a flexible way of worker engagement that enables companies to hire labor through specialized employment agencies that employ respective individuals and then direct them to work in a relevant company. In this way companies are able to engage workers in situations when, for various reasons, they are not ready to engage them in an employment relationship. On the other hand, the workers are able to achieve employment-related rights and benefits through the employment relationship established with the employment agency. Consequently, this type of

Termination Due to Underperformance Termination of employment due to underperformance, although formally possible, is probably one of the least utilized grounds for termination of employment in Serbia. The reason for this lies in insufficient legal certainty. The Labor Law provides for almost no guidelines as to how to properly utilize this ground for termination of employment, and court practice in this regard is not consistent. Thus, it would be useful if the Labor Law would clearly set out guidelines relating to the pre-conditions that must be fulfilled for termination due to underperformance and the procedural requirements for this type of termination. This in particular applies with regard to International Labor Organization (ILO) conventions and recommendations which Serbia has ratified and accepted and which regulate the requirements for termination of employment due to unsatisfactory performance of employees. Currently, these ILO conventions and recommendations are not implemented in the Labor Law, although certain court decisions clearly set out the duty of the employers to obey them in this kind of employment termination.

work engagement should lead to the socalled “flexicurity” providing necessary flexibility on the demand side of the labor market and required security on the supply side of the same market.

A “tolerated” practice Although regularly utilized (and tolerated by the authorities), in practice staff leasing is not regulated under Serbian law. As a result, there is a significant degree of legal uncertainty about this practice. In the first place, lack of adequate regulations causes significant uncertainties for companies wishing to make use of this type of labor. Practically, such companies are always at risk that the workers being thus engaged could claim full employment status with the company where they actually work, especially since the Labor Law currently explicitly regulates only the situation of assignment of an employee to another employer, which includes temporary (fixed term) employment with the employer to whom they were assigned.

Protect the worker Secondly, lack of adequate regulation also affects the interests of the engaged workers, since they can be put in a less favorable position compared to regular employees of the ordering company who may work at identical jobs. Moreover, on some occasions it may even be unclear where and in what procedure they should seek and obtain protection of their rights. Finally, from the position of the regulation of the labor market, a lack of adequate regulation results in a lack of criteria that must be fulfilled by the agencies engaged in staff leasing operations. It seems that more rational and practical regulation in Labor Law could increase the attractiveness of the Serbian labor system for foreign investors without causing any real adverse effects to the position of employees. In the longer term, this would contribute to the creation of an overall more “business friendly” legal environment in Serbia.

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Labor Law Perspective

Labor Law Perspective

Milica Bisić Head of Markets, KPMG Belgrade

Tax Reform Is Only Part of the Answer T

he Serbian tax system was comprehensively reformed and consolidated at the beginning of the transition process in 2001 - 2003. Since then changes in tax laws, with the exception of the introduction of value added tax (VAT), were mostly partial, i.e. lacking a comprehensive approach towards the tax system. They were often inspired by the idea that tax policy could resolve economic problems induced by completely different causes, and, recently, mostly driven by the necessity to raise public revenues. In addition, these (successful) attempts to secure resources outside the standard budgetary process resulted in the overflow of various earmarked duties which became “revenues” of (too) many budgetary funds. Finally, numerous fees solely the under discretion of local governments are an outcome of an inconsistent approach towards the local governments transfer system coupled with a politically coloured, but economically unfounded, concept of fiscal decentralization. As a consequence, nowadays the Serbian tax system is almost as fragmented and administratively cumbersome as it was twelve years ago, while annual operational tax costs are practically unpredictable.

Tax reform: the sooner the better Obviously, serious and comprehensive tax reform is more than necessary, the sooner the better. However, it is hard to say that it has been delayed, since it was not planned at all. During the economic boom period it was not seen as needed, and later, during the crisis, it seemed too (politically) risky. Moreover, clear and comprehensive concepts with an associated programme of tax changes (which are the necessary features of any changes labeled reform) have not yet been publicly presented by any political

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authority (either in power or in opposition). It is crucial to understand that without reform of the expenditure policy and the public sector as a whole, including state and communal enterprises, any reform of the tax system will not lead to successful and sustainable consolidation of Serbian public finance. What’s more, tax policy cannot be a substitute for all other economic policies. The lack of structural reforms (of the labour market, state enterprises, enforcement of bankruptcy procedures instead of implementation of restructuring or nationalization) imperils consistent enforcement of any tax system. Without consistent enforcement no tax system can generate favorable results, no matter how carefully it was designed.

> Without reform of expenditure policy and the public sector as a whole, including state and communal enterprises, reform of the tax system will not lead to successful and sustainable consolidation of Serbian public finance. Effective tax reforms cannot be imposed unless they fit within a rational and comprehensive tax system that takes into account their impact on various segments of society and on the economy in general. <

VAT increase: pros and cons In general, I believe that the Serbian tax system can be made more publicrevenue effective without increasing existing tax rates. On the other hand, the consolidation of various duties into regular tax forms may cause an increase of rates in some cases, but necessarily coupled with a decrease or termination of the burden in some other. Basically, the economy-wide average tax rate should not increase as a result of tax reform. Public revenue increases should come from the widening of the base, improving enforcement and, most important, from an increase in economic activity enabled by other policies, not by tax policy. When it comes to VAT revenues, there is lot of room for improvement without an increase in the general rate. Apart from some administrative improvements, changes in VAT law should narrow the scope of the special lower rate. For example, there is no justification in a differentiation in the VAT rate for electricity (18 percent) and natural gas (8 percent). Also, the lower rate on computers is not justified. This is clear if prices of the

same type of computer are compared across the region, which are more or less the same in spite of different VAT rates. In addition, the current interpretation of VAT provisions discriminates against export of services compared with export of goods. The equalization of tax treatment could increase employment of a highly qualified labour force (software production, production of advertising videos and so on) and hence indirectly increase tax revenues from other sources (wages, income, social contributions). To conclude, I believe that increasing the VAT rate solely to raise revenues is not a good idea. Firstly, VAT revenues may be increased without a rate increase. And, secondly, because any increase in the rate will be followed by a decrease in the tax base to the extent that overall revenue impact cannot be estimated with certainty. On the other hand, the idea, discussed in public for some time now, to increase the VAT rate to compensate for the decrease in the fiscal burden on wages seems to have more basis than solely closing the gap between state revenues and expenditures. However, within the fiscal burden on wages, in-

come tax has a negligible role, since more than 70 percent of tax comes from mandatory social contributions for pensions and health care. Hence, a relevant decrease in this burden calls for a decrease in the rate of one or both of these contributions. This immediately implies the increase in the budgetary transfers for related funds. In the absence of reform of the system of social insurance, i.e. of the expenditure side, this or similar change could not bring sustainable long-term effects.

Enforcement is vital Tax law enforcement is one of the most serious problems of the tax system in Serbia. Inconsistent enforcement of tax laws undermines legal security and generates high uncertainty, damaging investor confidence and motivation. This is a consequence of the systematic negligence of the administrative side of tax regulation and, in particular, of the development of effective Tax Administration. The successful implementation of any tax reform requires fundamental change in this domain.

What Should the New Government Do? Bearing in mind the current situation of the Serbian tax system, I believe that following three main courses of action should be undertaken by the new Government. First, consolidation of earmarked duties into existing or clearly defined new tax forms (various environmental charges are good example). This includes cancelling of earmarking on principle as well as termination of some of these duties (for example: the charge for the protection, usage and improvement of generally useful functions of forests, which is now paid by all legal entities based on gross revenues). Second, changes in the local public finance system which should secure stable resources to local governments and simultaneously limit their discretion in imposing local taxes (both in terms of levels and forms). And, third, but just as important, the detailed reconsideration of main tax forms aiming at a widening of the tax base, alignment of rates applied to essentially the same tax base and decreasing administrative costs. In addition, within all these courses of action it is necessary to develop, publish and follow a plan of alignment with EU regulation. The discrepancies between Serbian and EU requirements are frequently quite wide and could not be aligned in the short term without severe consequences for local market stability or the sustainability of local companies. 35 Perspective April, 2012

Tax Perspective

Tax Perspective

Aleksandar Simić

IPR Perspective

Partner, JMS Law Office, ex Federal Constitutional Court Judge

The True Test of Laws Is Their Effectiveness


erbian legislative framework of intellectual property rights (IPR) was almost completed with the adoption of the Optical Discs Law and Protection of Trade Secrets Law. If one adds to that: amendments to the Copyright Law and a new Patent Law harmonizing our patent system with the EU adopted last December, the formation of the Special Unit for the Software Legality within the Tax Administration comprised of 25 trained inspectors, last year’s Government adoption of the 2011-2015 Intellectual Property Development Strategy, the legal framework established in the last ten years resembles that of EU countries.

of courts and prosecution offices dealt with war crimes and organized crime in the beginning of the last decade and produced sound results according to competent international bodies. Therefore, why shouldn’t this principle be applied to IPR protection considering it’s importance to economic progress? The reduction of competent regular and commercial courts would accomplish the same purpose as specialized courts. Judges would be more qualified and their training would be more expedient and effective in a subject that requires specific skills and competencies, driven by fast technological development and thorough knowledge of international and comparative law. In a way, this was initiated by the adoption on the Law on Organization and Competencies of Governmental Authorities in Suppression of High Technology Crimes in 2006. The proposal was made that a high census prescribed for the competence of a Special Department of High Prosecution Office and a High and Appellate Court in Belgrade, for the whole territory of Serbia, should be reduced. The penal policy should also be stiffened with large fines or effective prison sentences prescribed by the Criminal Code, particularly for persistent offenders instead of the prevailing sentences of probation. Such sentences discourage all government authorities participating in detection and prosecution and encourage the prevailing public opinion that piracy is not regarded as theft.

Introducing the obligation of all courts and prosecution offices, as well as of administrative authorities (Customs Administration, competent inspection offices, police, Tax Administration, RRA) to standardize processing of data in relation to IP violations and sanctions would contribute to more efficient protection. The data would detail goods seized and destroyed, the type of sanctions and duration of procedures involved. A standing coordination body should be established and institutionalized for operational detection of IPR violations. This could be accomplished by a Governmental Agency, since such institutions have been present in our system for a decade, if not always with such a clear purpose. If the Intellectual Property Office was transformed into an agency, as proposed in the Strategy, such coordination might fall within its competence. This coordination would be a precondition for regional cooperation among the states detecting and preventing forgery and piracy.

Unenviable position Is a well-known fact that Serbia is a country with law enforcement problems. Court and administrative systems are in general weak, lacking expertise and independence, underpaid and unmotivated, unstable and subject to corruption. All this affects their efficiency. The Global Competitiveness Index (GCI) issued by the World Economic Forum ranks the

Specialized IPR courts needed Recommendations were adopted at the IPR Conferences that laws should be amended by concentrating territorial jurisdiction of specialized courts dealing with IPR, particularly in civil procedures. Today, 42 courts exercise their competence in all of Serbia. Establishment of specialized courts would be even more efficient solution, which is not an unknown practice in comparative law. After all, specialization

36 Perspective April, 2012

Despite the fact that laws, administrative and program acts, as well as ratified international conventions in general show that Serbian legislation is in compliance with legislation adopted in EU countries, most other European countries have a considerably higher level of intellectual property protection than Serbia. Drastic figures constantly repeated by the software and film best illustrate this situation: the Serbian software piracy rate is 74 percent, and in 2010 we had just above two million cinema attendants. Software piracy in Europe is higher only in Albania, and Hungary, which has a similar number of citizens, has five times the cinema visitors. Two questions arise: are the legal norms governing and protecting IPR applied at all and, if not, why haven’t they been applied in Serbia?

> The reduction of competent regular and commercial courts would accomplish the same purpose as specialized courts. Judges would be more qualified and their training would be more expedient and effective in a subject that requires specific skills and competencies, driven by fast technological development and to this thorough knowledge of international and comparative law. <

Serbian judicial system’s efficiency at settling disputes at 137th place and judicial independence at 128th place of a total of 142 countries in its 2011 – 2012 Annual Report. Therefore we should not be surprised when protection of intellectual property is ranked 107th and general protection of property rights is even worse at 122nd place. Generally speaking, Serbia is ranked in 95th place. The Government’s efforts to conduct complete judicial reform and rationalization of the judiciary system in this transition period did not result in expected improvements. The outcome was in some ways quite the opposite, and the effect of the reform conducted in 2009 was seriously disputed, both by the European Commission and by judicial associations. The

High Council of Judiciary still deliberates on appeals of non-appointed judges and prosecutors, and even the Constitutional Court has not reached a final decision on this matter, much less the Court in Strasbourg. Again, history has repeated itself: radical and rapid reform of the complete judiciary system must be carefully prepared and even more carefully implemented. Otherwise, it threatens legal security and efficiency. Nor does it encourage foreign direct investments necessary to the development of the economy and improvement of social welfare. We should not wonder why Serbia is regarded as a land of contrasts by foreigners: a country with willing, intelligent and qualified workers and free trade arrangements with the EU, Russia and Turkey on the one hand,

and administrative weakness and political instability on the other. The effectiveness of any administration, the judiciary particularly, depends on its efficiency, i.e. on ability to implement enacted laws and regulations and make them work in practice. This is necessary for the public and even more for business in the highly competitive global economy. But to achieve this requires fundamental change in the social climate and a political consensus which must support a stable legal system with predictable, impartial and efficient judicial decisions. After all, the Anglo-American legal tradition does not see the law only as a legal norm or standard; also takes into account the court decisions issued. It is not easy to foresee when this will be achieved in Serbia.

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IPR Perspective

> It is not enough to pass impressivesounding laws protecting Intellectual Property. These laws must be supported and implemented by competent judicial systems, effective technology, cooperation and stringent enforcement of the laws as written. <

Software Piracy Is Higher Only in Albania

AmCham Forum

> Leaders of Serbia’s major business organizations offer the prospective new government a wide and comprehensive range of suggestions for improving the country’s business environment and economy. <

Miloš Đurković

38 Perspective April, 2012

What are your main recommendations to the new government? What do you expect from the future government? What should be its priorities? How can the Serbian economy recover?

Miloš Đurković President, American Chamber of Commerce in Serbia The new government should focus on providing a better investment climate, primarily through the continued implementation of structural reforms and improvement of regulations, as well as consistent enforcement of measures adopted. More specifically, in the area of fiscal policy, it is very important to balance the budget and achieve a sustainable level of public debt. Furthermore, in order to attract foreign investors and enable successful operation of those already in place, it is necessary to restrict the proliferation of para-fiscal charges and renew the IMF arrangement. As to structural reforms, the state should focus on measures of administration reform and completion of the restructuring process of public companies, thus contributing to higher liquidity and improved efficiency of the public sector. In the construction and real estate sector, it is necessary to simplify obtaining construction permits and to clarify procedures regarding the right to ownership, particularly in relation to conversion. In addition, it is necessary to improve the public procurement system, primarily through greater transparency of procurement procedures, as well as to ensure improved efficiency of court proceedings in commercial matters. Furthermore, one of the priorities of the new Government should be modern-

ization of regulations concerning labor relations to improve market flexibility and the elimination of complex administrative procedures that burden business operations.

Miloš Bugarin

Miloš Bugarin President, Serbian Chamber of Commerce In early July, the business community will offer the Serbian government a new 2012-2016 economic platform for partnership in resolving urgent economic issues. This will be a clearly defined proposal aimed toward sustainable development. The Serbian Chamber of Commerce (PKS) has made recommendations to the government since the economic crisis began, but these have been only partially adopted and, unfortunately, our warnings have been confirmed. To make things worse, some political parties are using these recommendations to secure

Costin Borc

better positioning in the pre-election campaign. Among these are our request that VAT be charged on the amount paid rather than the invoiced value. We also urged reform of the tax system and reduction of both the public sector and public spending. The suggested new law on public procurement has not been adopted. Business people are disappointed in the drafting and adoption procedures of the law on regular salary payments. Serbia needs a new development concept, based above all on growth of industrial production, the processing industry and goods for export, the agro-industry complex, energy and big infrastructure projects. More than ever before, legislative and executive authorities as well as the monetary sector and the business community need to collaborate in defining business priorities. Costin Borc President, Foreign Investors Council We recommend continuous work on improvement of the business environment. Serbia should offer a competitive advantage to investors in terms of ease of doing business, less red tape and flexibility of labor relations, not only in terms of corporate profit tax. The FIC promotes continuance of the EU integration process, establishing a predictable business climate; enactment of by-laws and more efficient law implementation, public sector reform, elimination of unnecessary bureaucracy and a clear plan to prevent corruption. The FIC advocates for speedy opening up of the economy, finalization of privatization and withdrawal of the state from non-strategic sectors. In view of defined public debt limits, the new public-private partnership (PPP) law offers opportunities to sustain investment in infrastructure and improve the local utilities sector. Vladimir Čupić President, National Alliance for Economic Development The Government should take advantage of the positive momentum from achieving EU candidacy status and implement concrete measures that will create a stable, predictable and supportive business environment and a sustainable macroeconomic framework including re-

balancing of the fiscal deficit and the current account deficit. The main axis of future policies and remaining reforms should rely on: first, strengthening regional cooperation and economic exchanges with the South East Europe countries. Second, we need to encourage municipalities to be more investment oriented. Further, reduction of cumbersome regulations and state administration and relaxation of labor regulation are a must. Also, public property should be appropriately managed, as well as state-owned agricultural land. In parallel, the new government should implement fiscal consolidation, including improvement in the efficiency of fiscal spending and abolition of certain rights. The remaining deficit should be used for financing of infrastructure projects that contribute to the competitiveness of the private sector and facilitate new investments. Finally, additional support should be given to the development of entrepreneurship and education to meet business needs.

Vladimir Čupić

39 Perspective April, 2012

AmCham Forum

Sweeping Priorities for Serbia’s New Government

Finally, we believe that harmonization with European standards will result in greater transparency of legislation, including public debates and consultations with the private sector, bearing in mind that these are some of the key prerequisites for stability and predictability of the business environment.

Nenad Popović, Senior Partner, Janković, Popović & Mitić Law Office Stefan Dobrić, Attorney at Law, Janković, Popović & Mitić Law Office

A Legal Task Begun but Not yet Finished > In the past few years, the business-related legal environment in Serbia has been significantly improved. But there are still numerous legal provisions to be corrected for the benefit of the economy, Serbia’s competitiveness and the country’s progress toward joining the EU. <


n the past few years, since harmonization of the corpus of “Community law” was initiated, the business-related legal environment (laws and regulations) in Serbia has been significantly improved. But this process, one of the most important steps toward joining the EU, has not yet been completed, and there are still numerous legal provisions to be improved for the benefit of the Serbian economy. Due to the increasing struggle for new markets and resources, the countries of South Eastern Europe (SEE) are constantly trying to increase their “economical desirability” and ability to attract new investments. In such a competitive atmosphere, Serbia can strengthen its position and increase its competiveness only by consistent business development and a perpetual inflow of investments, specifically foreign direct investments.

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Legal framework The attractiveness and competitiveness of each national economy depends on numerous aspects, including the stability of the judicial system, the state of capital flow barriers, tax incentives, tax rates and investment security. Nenad Popović

Each of these aspects has to be highly developed in order to qualify a specific country for the ranks of supportive business environments in which investors will choose to place their money. All of these aspects are legally framed in dozens of regulations that are decisive for the competitiveness of the business

environment in Serbia. Some of them, such as the Law on Commercial Companies, Law on Capital Market, Law on Foreign Exchange Operations, are recently amended or newly adopted due to the EU harmonization process, and an analysis of their provisions could indicate whether the legal-business framework in Serbia is appropriately efficient, secure and easily applicable or requires further improvement. It could be concluded that Serbia is a very competitive country for investment, if one considers taxation as the only criteria. There are a lot of tax and quasitax incentives, and applicable tax rates are relatively low, compared to other countries. However, the overall conclu-

Most Important Improvement One of the most important improvements in regard to the legal-business environment in Serbia has been anticipated with the adoption of the Law on Planning and Construction. This act finally introduced the possibility of conversion of right of use over land into ownership right. However, proposed legal solutions have encountered many difficulties, especially in relation to the estimation of market value of the land and the issuance of construction permits. This has resulted in only a small number of resolved requests for conversion and, consequently, the proposed adoption of new by-laws with the intention of overcoming all obstacles and avoiding complicated procedures that has hindered the process of conversion.

sion might be different because some other aspects are not at the same level of competitiveness partially due to an unadjusted business-legal environment. In general, shortfalls of the business legal-environment are relatively common. There is much room for removal of numerous obstacles for normal business conduct, stimulation of foreign direct investments and the expedient adoption of by-laws required for the application of newly adopted laws and regulations. One of the greatest achievements in the course of enhancing the Serbian business atmosphere is the adoption of the new Law on Commercial Companies, which has significantly upgraded the system of corporate governance and other corporate-related issues. Since it resolves previously unclear and underregulated provisions of the old law, its practical effects and possible imperfections will be tested only upon the implementation of all its provisions. Some of the new elements, such as the possibility for shareholders to make additional payments, better regulation of jurisdictional issues, provision of a new set of instructions for squeeze-out procedures and proper rules on obligatory liquidation have already been received as very reasonable. Moreover, there are some new solutions, especially in corporate governance structures, so that capital societies now may choose between onetier or two-tier corporate governance structures, which is common in EU jurisdictions. Nevertheless, the new Law on Commercial Companies includes certain shortfalls, especially due to several areas of inconsistency with existing laws. For example, the provisions on limitations of the powers of legal representatives are inconsistent with the relevant provisions of the Law on Contracts and Torts. On the other hand, it appears that several issues, such as financial assistance rules, are needlessly harsh.

Law on Capital Market brought changes Also very important is the new Law on Capital Market that introduces numerous changes and enhancements that have been well received by both business circles and experts and consid-

> Shortfalls in the business-legal environment are relatively frequent and there is much room for further improvement, specifically in the field of removal of numerous obstacles for normal business conduct, stimulation of foreign direct investments and the expedient adoption of all the by-laws required for the application of newly adopted laws and regulations. < ered a positive development. One of the principal new elements is the reorganization of the financial market and a new definition of a public offer with compulsory publication of the prospectus and its prior approval by the Securities Commission. In Addition, the law defines the entity of a public company correspondent to the new Law on Commercial Companies and introduces the Investor Protection Fund as a new body in the financial market authorized to protect investors whose resources or financial instruments are exposed to the risk of bankruptcy. A remaining issue, however, is the adoption of all the by-laws required for the full implementation of this law. Closely related to these two laws is the, recently amended, Law on Taking Over of Joint Stock Companies, which underwent harmonization of its provisions with the Law on Commercial Companies and Law on Capital Market. It is proclaimed by the legislature that this law is in full compliance with the respective EU Directives and that best solutions from the neighboring countries have been implemented. In any case, the main goals of these changes were preventing evasion of its application, enhancing the capital market in Serbia by reducing necessary takeover costs and providing additional protection for minority shareholders. Besides those very optimistic and positive solutions, the real effects of the amendments of the Law on Taking Over of Joint Stock Companies are yet to materialize.

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Commercial Regulation Perspective

Commercial Regulation Perspective

Views from Serbia Investment and Export Promotion Agency (SIEPA)

Commercial Regulation Perspective

Nataša Vujović Marketing Advisor, SIEPA

ligation to repatriate profits realized from investments abroad and the extension of the number of cases in which in-country payments can be made in foreign currency. Despite the fact that amendments to the Law on Foreign Exchange Operations have introduced substantial innovations in the Serbian foreign exchange operation practices, there is a lot of room for improvements, such as recommendations to enable cross-border intercompany invoicing, removal of anachronisms in respect to the residents’ loans abroad or issuance of guarantees based on the order of a non-resident in business between two non-residents in all non-credit operations. Besides this, a prompt enactment of accompanying by-laws is highly desirable.

Stefan Dobrić

Serbia Invests in New Jobs The world economic crisis periodically shows some signs of recovery, but we shouldn’t be too quick to forget the depth of its impact that will surely also influence its length. As a measure toward easing the impact on our country, the government has revised the Decree on Investment Attraction, and some major changes have been agreed. The biggest change is introduction of a scoring system that adds to the transparency of the awarding process. What remains the same is that the conditions for investment support are equal for domestic and international investors. What is more, the awarding process remains completely clear, with Decree data available on line together with all the past results.

Scoring for openness

Unachievable complete correction

> The current tendency toward harmonization and start-up of the reparation and upgrading of the Serbian legislature to EU standards is a sign for optimism and encouragement of the expectation that Serbia will be regarded by investors as a preferred location for their investments in coming years. < The business environment in Serbia gained new perspectives, especially in regard to capital outflow possibilities, through enactment of amendments to the Law on Foreign Exchange Operations. This law demonstrates the tendency toward general liberalization of the foreign exchange regime in Serbia, improvement of the exist-

42 Perspective April, 2012

ing legal solutions and introduction of new categories in accordance with the recommendations of the international financial organizations. There are some acceptable new elements, including a significantly extended deadline for entry duration of foreign currency into the country on grounds of current transactions, abolition of the ob-

There are a lot of inconsistencies in many other legal acts important to the efficient and proper conduct of business not specifically mentioned in this article. These inconsistencies need to be remedied as soon as possible for the purpose of upgrading the legal-business environment in Serbia. Some striking examples of such inconsistencies are the provisions of the Law on Contracts and Torts related to construction agreements with a fixed price since the contractor is the party entitled to request a price adjustment due to changes of market conditions, which is absolutely opposed to common FIDIC practice. In addition, some other particular provisions could be characterized as legal relics, e.g. the fact that ownership title over agriculture land cannot be acquired by foreign persons or that agriculture land of privatized companies may be claimed by agriculture cooperatives. These and many other shortfalls still represent an obstacle for doing business in Serbia. And since they are distributed in numerous regulations, it is very unlikely that complete correction of all inaccuracies is achievable in the short run. However, the current tendency toward harmonization and beginning of the reparation and upgrading of the Serbian legislature to EU standards is a sign for optimism and encouragement of the expectation that Serbia will be regarded by investors as a preferred location of for their investments in coming years.

In an effort to kick-start Serbia’s recovery from the economic crisis, the Government has improved the terms and transparency of the Investment Attraction program.

A scoring system has been launched to further highlight the openness of the investment application process. Projects are now evaluated based on eight criteria: investor references, share of local supply, investment sustainability, new technologies and knowledge sharing with local suppliers, human resource effects, volume of international trade, economic effects of the investment project, and effect of the investment on municipality development. The Decree’s funding does not differentiate between regions based on the unemployment rate when it comes to the amounts given for every new job created. Grants per job range from €4,000 up to €10,000. This upper limit for funding remains the same, but the lower limit has been raised from €2,000 and is now identical for all sectors. However, the minimal amount to be invested in production in undeveloped cities and municipalities is €500,000, while in others this amount has risen to €1,000,000. When investing in services, this amount is identical throughout the whole country at €500,000. In addition, along with large-scale investment projects and those of special interest, a new category has been introduced representing mid-scale projects where investment of €50,000,000 creating 300 new jobs within 10 years can be subsidized up to a rate of 10 percent, depending on the i amount of investment.

Project eligibility limits The most important changes involve financing investment projects in the production sector, services that can be internationally provided, as well as strategic projects in the area of tourism. Funds are not granted for investment in projects of primary agricultural production, hospitality services, trade, production of synthetic fiber or coal. In addition, there is a restriction on companies whose capital has decreased by 50 percent in the past 12 months, have qualified for or begun bankruptcy procedures, have pending payments due Serbia, have already been granted funds for investment from the Republic of Serbia or whose founder or majority owner is the country of Serbia.

Results To-Date • The Decree on Investment Attraction has been implemented since 2006 • 15 public calls have been announced • €224 million has been assigned • 40,088 new jobs have been created • The average return time of funds to the Serbian state budget is 17 months • The average value of active investment projects is €1,290,000,000 • 226 companies have been given awards; 127 domestic and 99 foreign • 92 municipalities have participated • The largest amount of active projects is in South and East Serbia, Šumadija, West Serbia and Belgrade • The most new jobs have been created in South and East Serbia, Vojvodina, Šumadija, West Serbia, and Belgrade

Economic expert’s Perspective

Nebojša Savić Professor, Faculty for Economics, Finance and Administration

Serbia’s Economic Chains Must be Broken > Some indicators suggest that Serbia could increase its GDP in the coming decade, but only if it takes a long view and accepts the bitter medicine of economic reform. To fail to do this could threaten the country’s economic survival. <


he Serbian economy is closely linked to the European economic environment. About 60 percent of Serbia’s foreign trade is accounted for by trade with EU members. Economic trends in Serbia are predominantly determined by economic trends in the EU. The growth of the European economy is currently very slow, which means that the Serbian economy has significantly less possibilities for increasing its exports. Considering the modest purchasing power of Serbian citizens and the relatively limited domestic market, it is difficult to assume that an increase in domestic demand can promote GDP growth. The scope for formulating economic policies is narrow yet clearly determined.

Horrible economic chain Serbia is characterized by high public expenditure that should be reduced. There are indications that the current level of public expenditure is about 50 percent of GDP. This is the well-known ”crowding-out” effect which occurs when an excessive tax burden drives profits from the economy. Firms without profits do not invest. The consequences are reflected

Reforms in an Election Year Serbia must carry out necessary reforms for one simple reason – without them there will be no survival. The crisis has revealed that. An election year is upon us, but populism cannot solve the problem. It is necessary to have strong leadership based on long-term prosperity as well as a consensus among all relevant elites in the society that resolute reforms must be carried out. 44 Perspective April, 2012

in a further decline in profits and, at times, in pushing enterprises into loss. This is directly reflected in a decline in employment. Serbia should combine three sets of measures. The first is aimed at reducing public expenditure, which corresponds with austerity measures. However, public expenditure cuts must not be concentrate on reducing the government’s capital investments. Investments in infrastructure development are of utmost significance because they create good conditions for private capital investment. The second set of measures should encourage Small and Medium Enterprises (SME) and activating available household savings with a view to reducing unemployment. The

> The growth of the European economy is very slow, which means that the Serbian economy has significantly fewer possibilities for increasing its exports. <

government must completely shift its activities towards creating a hospitable environment for SME development. The third set of measures, which could even be ranked higher due to its significance, is the creation of a favourable business environment, eradication of corruption and lowering of the level of market monopolization.

Can the economy survive another wave of crisis? The Serbian economy has high potential. The problem lies in the fact that under current circumstances its potentialities cannot be translated into GDP growth and a rise in the living standard of its citizens. Harvard Professor Ricardo Housmann and his associates recently published The Atlas of Economic Complexity, based on mapping paths to prosperity. Believe it or not, Serbia ranks 17th in the world in terms of its prospects for increasing GDP percentage before 2020. The crucial thing which Serbia lacks is long-term development vision. Due to this, any longer-term analysis ends with a statement about a series of missed chances. In the coming period Serbia can achieve positive growth, increase the growth rate and reduce unemployment if its development is laid on a long-term foundation. This should anticipate improvement of the business environment, public expenditure cuts, public investment increases and SME development.

Željko Tomić General Manager, OSA - Računarski inženjering

Loans only in an emergency

The Keys to SME Success > In times of crisis, more than ever, small and medium enterprises - the backbone of Serbian industry-need both government support and understanding and a high degree of efficient management, hard work and employee motivation <


n economic crisis hits everyone. On the one hand, small and medium enterprises (SMEs) are more sensitive to crisis due to their size, available resources and financial potential. But on the other hand they are more flexible and can adapt to changes more rapidly. This flexibility refers, in the first place, to micro and small enterprises, while medium enterprises adapt at a somewhat slower rate and find it difficult to ride out the crisis. The effects of the crisis are best reflected in the deterioration of the ratio between the number of established and the number of closed companies and businesses, and in a reduced rate of survival of newly-established SMEs from 71.9 percent in 2007 to 61.7 percent in 2010.

When there is a storm... The crisis is not and definitely should not be regarded as some kind of comparative advantage, as was proposed by some politicians at the beginning of the first wave of crisis. However, we can’t look for justifications for all failures during the crisis, as well. I heard a saying once: when there is a storm, some people build walls, and others erect windmills. Business operations in a time of crisis cannot tolerate mediocrity. Organization and management, a quality assurance system, innovation and motivation of employees must be brought to the highest possible level. We should be prepared for the future strategically and manage the changes which are fast and definite. The advantage of SMEs is in their capacity to assess and adapt to changes quickly, as well as to utilize technological innovations. At the level of mature technologies, SMEs can hardly compete with large corporations. During crisis-stricken 2011, OSA – Računarski inženjering recorded total revenue growth of 36 percent and net income growth of 57 percent. It must be fairly admitted that this increase was mostly due to physical expansion of the market for distribution of Autodesk software to Croatia and Slovenia where we had established companies. But at the same time it was the result of better organization, cost management and higher motivation of employees. During the period of crisis, no OSA employee was terminated. On the contrary, the number of our employees has increased year in, year out. I deeply believe that the synergy of customer, employee and capital-owner satisfaction is a key factor of success. Upon adoption of final accounts, 20 percent of the profits generated in the previous year were distributed to OSA employees. Motivation of employees and positive organizational culture are the key elements of sustainable competitiveness. Anything else can be copied.

46 Perspective April, 2012

The banks take care of their own interests, which is understandable and legitimate. SME loans are available, but under very unfavourable conditions. Loans offered by banks may be classified as shortterm or long-term or loans for working capital or investments. Clients are mostly interested in short-term RSD loans with a currency clause, usually with a 12 month term of use. The interest rate for RSD loans ranges between 12 and 20 percent annually. The banks protect themselves with reference interest rates which are usually integrated as a variable portion of the interest rate. The loans with the application of the currency clause are usually linked to the euro, and the interest rates range from five to eight percent plus three-month or

six-month Euribor (or they are expressed in an absolute amount where the margin does not go below eight percent). These are very high interest rates for the current state of our economy. In spite of all that, the banks are very strict about granting loans. They require lots of documentation and engagement with clients during the process of approval which usually takes between 20 and 40 days. The banks require a good profitability of the company in order to be sure that certain claims, if they remain uncollected, would not affect the total result. Investment loans are rare since the fear of uncertainty is high, and the justification of investment has been brought into question. The term for investment loans is up to eight years. According to the survey of the National Agency for Regional Development,

SMEs Versus Government The SME sector employs 67 percent of all industry employees today, and SMEs account for almost 99.8 percent of the total number of registered companies (333,500). In 2010, the share of SMEs in the national GDP was 33 percent. According to certain measures taken, it seems that the state understands the significance of this sector, while according to some other measures it appears as if the government wants to saw off the branch on which it sits. I understand that in conditions of a very high budget deficit, every penny means a lot to the state. But if the state imposes exaggerated duties and kills the only healthy and somewhat vital part industry, soon it won’t have anyone else on whom to impose any duties whatsoever. The current government has announced some measures that I hope won’t be just pre-election slogans: reduction of taxes and contributions for salaries of SME employees, VAT paid upon collection of money, rather than upon issuing an invoice, provision of free land in state ownership for the construction of production plants and employment of new staff. Finally, someone who understands that perhaps local investors should be given some grants to which foreign investors are usually entitled. I cannot say that the state has done nothing so far to help SMEs through ensuring grants for development and stimulating export activities. I must emphasize that a great deal of initiative and responsibility lies with people themselves. No one will benefit from the state, the system or access to the European Union without doing one’s best and working hard. The crisis has emphasized this fact even more: we should invest redoubled efforts. Of course, we expect that the state should create a favorable environment for work: a decrease in high duties, tax and non-tax duties (various fees and contributions), anticorruption activities, ensuring favourable sources of funding and removal of administrative barriers.

the use of foreign sources of funding for investments increased in the SME sector by 11 percent in 2011 versus 2010 and by three percent for working capital. My advice is to take loans at this moment only if you must or if you are absolutely sure about your investment.

2012 is even more difficult According to basic macroeconomic considerations, 2012 will be even more difficult than last year. This means that it will also be more difficult for SMEs. I suspect that in an election year some companies will operate a lot at idle speed. I’m afraid of political parties’ interference in industry and departure from announced positive measures for SMEs after the elections. Serbia as a country does not have time for idle speed any more. Neglecting SME interests is like shooting oneself in the leg. According to public elections theory, those who are in power try to benefit their own interests. That is understandable. But in order to ensure meeting any level of interest in the future, there must be a minimum of common social interests that we will all fight for. According to a survey of the National Agency for Regional Development conducted in 2011 on a sample of more than 3.000 SMEs, 46 percent of SMEs think that the crisis significantly affects the volume of business operations, but does not require reduction in the number of employees. The same survey identified that most of surveyed intended to continue with business operations with an increase (44 percent) or maintaining volume (48 percent) in the next three years. With regard to the company OSA – Računarski inženjering, in spite of even more intensive crisis affect, we expect total revenue growth of 33 percent this year, as well as growth of consolidated net profit by 29 percent. We plan further training and improvement of skills and competencies of our employees and enhancement of our organization. But this does not mean that we will be lulled by positive results. The time to repair the roof is when the sun is shining, not when it rains. The sphere in which we do business is susceptible to rapid changes of technology and global business conditions. We try to make timely preparation for such changes and be ready to face them.

47 Perspective April, 2012

Entrepreneur Perspective

Entrepreneur Perspective

Frank Staud

Pharmaceutical Corner

Executive Vice President of Corporate Communications, Branding and Sponsoring, Actavis Group

“The Time of Expensive Medicines has Passed!”

> Actavis revenue in 2011 was €30 million in Serbia and €1 million in Montenegro. The Actavis Group was ranked second in terms of sales of prescription medicines, which represents an advance of one place on the list. <


Walk for Health

uring 2010 and 2011, Actavis introduced new global management and ended 2011 with estimated revenue of €1.85 billion with a 13 percent increase in EBITDA comparing to 2010. We are very proud of our accomplishments globally, but during my visit to Serbia I found that Actavis here managed to achieve the same good results despite the crisis and illiquidity of the pharmaceutical market. Revenue in 2011 was €30 million euros in Serbia and €1 million in Montenegro. This was a good year for Actavis in Serbia. Our business development priority was to supply pharmacies continuously with required medicines, thus avoiding market shortages. This task was not easy because the market is burdened with challenges in terms of liquidity. However, Actavis managed to collect receivables and remained financially very healthy and strong. The main task for the industry is to organize a distribution system, forming an effective supply chain. We changed distributors and continued working only with professionals, and that change stabilized our market supply. Liquidity is not just a local problem, for all of the neighboring and EU countries have similar issues to solve but we succeeded in maintaining liquidity.

Very important market Serbia is the 10th biggest European market for Actavis and important in many ways. Today, our Leskovac factory produces two billion medicine units annually, contributing more than 8 percent of Actavis’s global medicine production. Around 50 percent of the products from Leskovac are exported to the European markets including France, Sweden and Denmark. The Serbian market is very important for Actavis Group, and we treat it very well and see no reason to change. Recently, Actavis invested €4 million in the Leskovac factory, upgrading production capacities and, according to AMS records, achieved second position in terms of total sales of prescription medicines in the country. The

Corporate Social Responsibility It is not only the Serbian market that is important to us, but also the community in which we operate. We keep investing and donating where we are most needed. For three years Actavis has supported a clinical center in Gracanica in Kosovo in a total amount of €70.000. We were sensitive to their needs and, as they say, we were insightful in spotting the right moment for this donation. 48 Perspective April, 2012


> Actavis Group continues to serve Serbia’s under-funded healthcare with a growing list of generic medicines and increasing production for export to Europe. <

investment was made in the production capacity of medicine for Parkinson’s disease, and we will supply the entire European market from Leskovac. This will enrich the portfolio of generic medicines produced by our company and simultaneously create new job possibilities in the manufacturing sector of the company. Actavis currently employs 414 workers in Leskovac and 120 more in its office in Belgrade. In the last year we placed 10 new generic medicines in the Serbian market and plan to place about 10 more medicines of

the newest generation in 2012. What make it sometimes difficult is that there are no regular meetings of the Commission for price determination of pharmaceuticals operating under the Ministry of Agriculture, Trade, Forestry and Water management. For example, there was no meeting held last year. Meetings on a regular basis can provide predictability which is very important for our industry because they enable plans for launching new products to be more accurate. Without such guides, we may keep stocks that are not profitable. From this aspect, one more issue should be considered. Actavis produces less expensive medicines, affordable for more people. So when the license of an original medicine expires, and its price is high, we start production of the same pharmaceutical but at a much lower price. If we keep unprofitable stocks, they get out of date, and we all lose – Actavis, the market and the end user. Serbia is at the bottom of the European chart in terms of annual public spending on medicines at €50 per capita. The low employment rate is one of the reasons. Unemployment leads to less tax paid and less money in the Republic Fund for Health Insurance. These minimal resources coming from the Fund have to be handled more efficiently and more rationally. And that is where Actavis as producer of generic medicines sees opportunities, as the generic medicines are more affordable. There are other classes of medicines not yet introduced in Serbia. Clearly the product price to a large degree determines local markets today. The time of the expensive medicines has passed! We are trying to find more efficient ways for new generic medicines to be introduced into the Serbian market. Cheaper medicine can decrease the rate of cardio-vascular disease, diabetes etc. During the past couple of years we have promised to keep supplying the market with pharmaceuticals with regularity. Even though there were some hard times, we managed to keep our promise and we will continue to do that. That is another promise.

49 Perspective April, 2012

Pharmaceutical Perspective

A year ago we started the campain Step for the Heart in order to motivate people to walk more and to do something good for their heart and health. Promoting a healthy life style, Actavis would like to demonstrate that there is one little step that can do so much good. Cardio-vascular diseases can be prevented, and it is never too early to start with precautions that should last a lifetime. Walking is such a simple activity that can lead to a long and happy life.

Dragoljub Zdravković CFO, Managing Board Member, UNIQA

> Starting from a very low platform, the insurance sector in Serbia has weathered the economic crisis with a combination of improved service, new and varied products and conservative management. Tax breaks on insurance premiums could be a breakthrough element that would boost profits of the sector and increase its contribution to the general economy. <


ccording to the total of insurance premiums collected, Serbia is still significantly below the European average. But that means that the potential of this market is huge. Total insurance market premium in Serbia contributes two percent to the country’s gross domestic product, which indicates a lot of room for achieving the European average of five percent. If the right path is chosen, over the next ten years Serbia could emulate the market development of Poland, Hungary, the Czech Republic and Slovakia. In those countries, the insurance premium is €368 per capita, while for the 27 EU mem-

The Sleeping Giant of the Serbia Economy ber countries it is €1.932. In Serbia, the amount per capita is less than €100.

Stable despite the crisis It is important to note that the insurance market in Serbia remained stable throughout the crisis, without major disturbances, retaining clients’ confidence. This is

50 Perspective April, 2012

> Total insurance market premium in Serbia contributes two percent to the country’s gross domestic product, which indicates a lot of room for achieving the European average of five percent. < the most important issue because when we talk about insurance we are actually talking about clients’ confidence in the insurers to provide protection when it is needed most. Despite the influence of the world crisis, insurance market growth in Serbia was three percent in 2011. If we are talking in real terms of euros, the total amount of insurance premiums in Serbia was on the decline for two consecutive years. There is a correlation between the domestic product and insurance premiums, so it is not surprising that in conditions of reduced national economic activity, the amount of insurance premiums is also in decline. Our industry is facing a situation that is the reality for everybody – from the increased difficulty of collecting receivables to a decrease in standard of living. Considering that nothing in the way of tax breaks has been done to increase insurance sales in the country, we are forced to face the decline of our insurance market. The way that the crisis negatively affected the insurance industry was through the reduction in actual premiums collected in 2010 as well as in 2011 as a consequence of the decline in the standard of living. Premium growth of some five to six percent in terms of dinars is misleading because inflation must be taken into account. The life insurance sector in Serbia is still growing, despite the lack of tax breaks from the state. But this growth

must not mislead us, considering that in respect to the allocation for life insurance per capita, we start nearly at the bottom of the scale in Europe. Nevertheless, I expect further growth, given the very high quality offers on the market and the growing awareness of Serbians of the necessity of life insurance. The business structure of the insurance industry is more resistant to crisis than the banking system. Unlike the banks, there are no risks of sudden deposit outflow as a result of withdrawals by customers. Our industry is ready for a second wave of the crisis. Growth plans are revised and investments are conservatively planned. Control and optimization of costs are important management instruments of insurance companies during periods of crisis. According to the latest projections, the Euro zone is expecting a recession, but not of the earlier strength, and therefore with a milder knock-on impact on the economy of Serbia. The effects of crisis are, unfortunately, high unemployment, increased public debt and budget deficit and deterioration of the standard of living, causing insurance growth rates to be lower than in previous years. There is a trend toward increasing the influence of the state in economic and financial flows. This is a state that attracts the most capital from the financial sector, increased government apparatus, the

Impact on the Capital Market The crisis has also affected the capital market, in which insurance companies are present as institutional investors, but not as severely as in developed economies. Insurance can be one of the important factors for the development of this market. The insurance companies accumulate money from customers for long-term life insurance, usually for a period of 15-25 years. The insurance companies are willing to invest that significant money in high securities over the same period of time. Through the introduction of tax breaks for life insurance payments for Serbians, insurance companies could initiate the exponential growth of this segment that would allow for the investment of significant resources in long-term securities issued by the state, which could then invest in much-needed infrastructure projects that would encourage the recovery of our economy. At the same time, increased awareness that the insurance policy is a pillar of long-term financial planning and security of customers contributes to the growth of life insurance even in times of crisis.

majority of unemployed expecting public sector jobs and an estimated share of the state and public companies of about 40 percent of GDP, which is significantly higher than in developed economies and other economies in the region. Up to now, the state management apparatus has not proved itself to be more efficient and more productive than the private sector.

Is the worst over? Expectations are that the year 2012 will be better than 2011 and that we will actually, not just statistically, emerge from the crisis. I think the worst is behind us, but I am also a realist in terms of what should be done to achieve growth rates that will improve the standard of living. We must allow entry of new foreign capital through green field and brown field investments in the auto industry, infrastructure and energy which would create new jobs and increase market competitiveness; reduce the state grant apparatus and further stimulate export and infrastructure projects. Positive effects on the economy will also affect the insurance market but not in terms of high growth rates. The auto insurance market is expected to stabilize, and insurance law is expected to be positively modified, fully harmonizing it with EU directives. Introduction of risk management and Solvency II Directive is a subject that will become important for the insurance market, as it will require a different model and approach to business. Unfortunately, there is a negative tendency for companies, especially SME economic structures, not to be sufficiently protected against business risks, interest rates changes, exchange rate risk changes, and insurance related risks (including fire, theft, flooding and liability). As a consequence, businessmen often complain of loan cost increases due to rising interest rates and dinar depreciation, losses due to negative exchange rate differences or even of total property loss from failure to ensure their businesses. The banking sector and insurance companies offer products that provide reduction of risk and losses.

51 Perspective April, 2012

Insurance Perspective

Insurance Perspective

Joe Lowther

Business Enabling Perspective

Director, USAID Business Enabling Project


ith European Union accession negotiations likely to begin in 2012, Serbia has tremendous opportunities to begin a period of sustained growth. Increased trade and investment and integration with the EU economy can propel private-sector-led growth. But the same factors that have hindered private-sector expansion during the past few years will continue to impede growth unless several key reforms are urgently made. As in other countries in the southern tier of Europe, problems caused by the European financial crisis are exacerbated by a business environment that is not conducive to private-sector growth. Serbia’s private sector continues to suffer from insufficient public services and inadequate infrastructure; regulatory and administrative red tape; slow and unpredictable courts; high taxes and contributions, particularly on labor; para-fiscal charges and limited access to finance. These problems manifest themselves in a lack of liquidity, low investment, low productivity, and poor business and financial plan-

> With the goal of invigorating the Serbian economy and simplifying government administration, USAID’s Business Enabling Project joins AmCham in promoting a wide range of reforms aimed at promoting private-sector efficiencies and facilitating investment and growth. < ning. The USAID Business Enabling Project has conducted a series of roundtables with businesses throughout Serbia, as well as a survey of 928 businesses. It is clear that the difficult business environment is causing many firms to barely survive or to fail.

Focused and sustained efforts Some of the suggestions reforms aren’t that difficult to realize. They just require a focused and sustained effort by the responsible government agencies. For example, the new Law on Enforcement of Judgments could dramatically transform the current abysmal system for collecting debts into an efficient system that utilizes competent and motivated private enforcement officers. The Ministry of Jus-

tice simply needs to make an intensive effort to recruit and train private enforcement officers and establish the necessary disciplinary body – with already committed assistance from USAID and the EU. In an area cited as an obstacle to increasing employment, the Government can, by amending a few articles of the Labor Law, take much of the risk and expense out of hiring new employees. Other changes will take more effort and much political resolve. Such reforms probably can only be done early in a government’s term when it has political capital and does not have to worry about an upcoming election. These reforms include: taking a strategic approach to budgeting, analyzing the cost and benefits of government programs, reducing borrowing and strengthening capital planning.

Defeating vested interests Such actions could lead to elimination or scaling back of some programs that have vested interests and increasing investments that support business growth. Much effort and political leadership is also needed to streamline inspections. The Government needs to establish an inspections coordination body, then must dictate basic procedures that each inspectorate must follow (e.g. risk-based inspections, focus on compliance and not punishment, transparency and standardization). During the last few years many improvements have been made toward reducing regulations and stabilizing the macroeconomic environment. The Serbia Business Registers Agency is a modern and efficient institution that has helped

52 Perspective April, 2012

Overcoming challenges To overcome these challenges, the Government needs to marshal support to focus on priority reforms and overcome resistance. AmCham and other business associations play a key role here: they can provide sustained pressure for the reforms and educate the public on the benefits for society, helping the Government push its case against internal and external resistance. An excellent example of this is the current effort by AmCham and other Serbian business associations to jointly advocate for the Government to speed up inspections reforms. Businesses in Serbia can also help transfer private-sector management practices to the public sector. For example, government agencies have applied such techniques as change management, Customer Relationship Management, Balanced Scorecard, lean Six Sigma, IT solutions and many other private sector innovations to improve management, save money and automate.

USAID Business Enabling Project

USAID’s Business Enabling Project (BEP) is a five-year initiative launched in January 2011. The purpose of the project is to help the Government of Serbia improve the competitiveness of the Serbian economy and its private - sector businesses. BEP provides technical assistance, training, and other support to improve the business enabling environment, maintain macroeconomic stability and further develop financial markets. The project is demand driven: all activities are based on the priorities of the private sector and Government. It is working to finalize many important legal and regulatory reforms, including: paraUrgent transformation fiscal charges, inspections, construction permits, An urgent transformation of the Governenforcement of judgments, ment’s approach to the private sector and labor policy, public-private the reform process can help Serbia take adpartnerships, macroeconomic vantage of opportunities provided by the EU and fiscal policy. Other efforts accession process. By completing reforms include: strengthening the that for years have been identified as priFiscal Council; improving the orities, Serbia can move toward productivity Government budget process and export-driven economic growth. and performance management, improving Government debt USAID BEP 2011 Survey of Businesses Most Burdensome Regulations management, financial market Direct Financial Impact negative positive reforms, including policy Para-fiscal charges 96% 4% improvements to increase Wage taxes and contributions 96% 4% access to finance for SMEs, VAT 87% 13% implementing the new Capital Administrative Time negative positive Markets Law and developing a Administrative procedures 94% 6% legal framework for a commodity exchange. Construction permits 93% 7% These improvements will reduce Court procedures 93% 7% the time and money required by Tax reporting and payment 89% 11% Compliance time Last 12 Months Compliance Financial Costs Last 12 Months Serbian businesses to comply with laws and regulations and will help the Government to be more efficient. The activities will also enable businesses to attract necessary investment at an appropriate cost. As result, Serbian businesses will be able to aggressively compete in the global economy. This will lead to More time, 48% Greater cost, 56% export-led economic growth and Less time, 3% Less cost, 4% increased employment. About the same, 49% About the same, 40% 53 Perspective April, 2012

Business Enabling Perspective

USAID BEP: Leading the Way to Reforms and Growth

decrease the time and cost involved in registering a business. The Government’s regulatory guillotine eliminated over 200 unnecessary regulations. Inflation and exchange rate fluctuations were reduced. But the USAID BEP Business Survey demonstrated that businesses are not experiencing the impact of these improvements. Since February 2011, the USAID Business Environment Project has been working with AmCham, other business associations and the Serbian Government to reduce regulatory burdens, improve macroeconomic and fiscal policy and increase access to finance. We have experienced some meaningful successes and have worked with some motivated and dedicated Government officials and staff. But we have also observed some issues that may be slowing the reform processes. Ministries often have difficulty managing implementation of laws due to failure to establish dedicated teams, lack of planning, too few qualified staff, too many simultaneous activities, lack of IT applications and insufficient attention to improving processes and training staff. Ministries tend to be judged by the number of adopted EU-compliant laws and not by the impact of their implementation. Some reform efforts appear to be stymied by vested interests inside government agencies and by external firms and individuals that benefit from the status quo.

AmCham Business Advocacy Activities

BUSINESS ADVOCACY update March 2012 AMCHAM COMMITTEES ELECTED NEW LEADERSHIP FOR 2012 During February, AmCham Committees elected new members for its Steering Committees who will lead the working groups in the course of 2012. In the upcoming period, all Committees will schedule meetings in order to discuss topics for the groups’ annual working plans, including preparation of policy briefs for the new Government. Finance Committee Chairperson

Zoran Petrović of Raiffeisen Bank

Vice Chairperson

Maja Jovančević of Karanović & Nikolić Law Office

Untitled Steering Committee Member

Dragoljub Zdravković of Uniqa

Health Care Committee Chairperson

Miloš Andrović of MSD

Vice Chairperson

Dragomir Marisavljević of Hemofarm

Untitled Steering Committee Member

Dušan Nikolić of Eli Lilly

HR Committee Chairperson

Jelena Kralj of Pedersen & Partners

Vice Chairperson

Marina Rakić of IBM

Untitled Steering Committee Member

Sonja Jovanović of Ernst & Young

IPR Committee Chairperson

Miloš Blagojević of Microsoft

Vice Chairperson

Vuk Pribić of JTI

Untitled Steering Committee Member

Slobodan Kremenjak of Živković Samardžić Law Office

Tax Committee Chairperson

Igor Lončarević of KPMG

Vice Chairperson

Stefan Strovjanovski of Ernst & Young

Untitled Steering Committee Member

Zoran Skopljak of Deloitte



AMCHAM ACTS AS PROMOTIONAL PARTNER FOR BELGRADE OPEN PRE-MOOT COMPETITION Belgrade, March 24-25, 2012 – For the fourth year in a row, AmCham Serbia joined the Law Faculty of Belgrade University in supporting the Arbitration Conference and the Belgrade Open Pre-moot Competition involving 37 university teams from 25 countries with more than 400 participants, including students, academics, arbitrators, judges, lawyers and in-house counsels. The Pre-moot Competition was an opportunity for students to hone their disputational skills and prepare for the Willem C. Vis International Commercial Arbitration Moot, one of the world’s largest and most prestigious moot competitions. This competition is held annually in Vienna and fosters the study of international commercial law and arbitration for the resolution of international business disputes, usually with more than 250 universities from over 60 countries participating in the competition. This year, for the first time, AmCham hosted part of the Pre-moot competition. The teams welcomed to AmCham’s premises included representatives from several U.S. Universities: the University of Pittsburgh, Loyola University, the University of Denver, the Columbus School of Law and Touro College. At the arbitration sessions, the US students met their peers from Italy’s Università Bocconi, JRTI (Judicial Research & Training Institute) from South Korea, Universidad Nacional de Asunción, Paraguay, Università degli Studi di Milano from Italy and Queen Mary University, London, England. The following AmCham member companies were part of the sponsorship pool for the Pre-moot competition: Karanović & Nikolić Law Office and Moravčević Vojnović Zdravković in cooperation with Schönherr.

On February 10th, AmCham‘s Finance and Tax Committee submitted a letter to the Ministry of Finance regarding a joint initiative to amend the Rulebook on the Content of the Tax Balance. The letter specifically recommends change of the tax treatment of loans in RSD with a FX clause, granted to related parties, from current treatment as RSD loans to foreign exchange loans. In addition, it also advocates for defining specific reference interest rate for overnight loans.

AmCham News

FINANCE COMMITTEE ADDRESSED SECURITIES COMMISSION ON NEW AND INCREASED TARIFFS OF THE CENTRAL REGISTRY On January 25th, the Finance Committee sent a letter to the President of the Securities Commission advocating against new and increased tariffs of the Central Registry and pointing out on the negative consequences of these changes.

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AMCHAM Mission statement AmCham Serbia acts as a catalyst in improving the business environment in Serbia, promotes American best business practices, values and responsible partnerships between the U.S. and Serbia, leading to economic development through trade and investments. In addition, the Board adopted amendments to the Advocacy Guidelines, specifying the procedure for approving chairpersons of committees. With the aim of increasing member satisfaction, the AmCham Office and Board will engage members in bilateral meetings seeking their feedback on AmCham’s activities, and consequently increasing the service provided to the membership. Key account meetings with Board members will be held between May 15 and June 15 in smaller groups, allowing for more qualitative discussion

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man, and even US Vice President Joe Biden. In her keynote luncheon address Secretary of State Clinton focused on economic statecraft and economic diplomacy, saying; “America’s global strength and leadership are a package deal of both public excellence and private enterprise”. She and the other US government speakers stressed the need for the United States government to be the most effective champion of business and emphasized three areas of focus: promotion of US business overseas, attracting US investment back home and creating a level-playing field for US business worldwide.

There were also several interesting policy-specific and regional break-out sessions with other State Department, Commerce and USTR representatives, on topics including US Trade Policy, US Government Advocacy on behalf of Businesses, Intellectual Property Rights and US Energy and Climate Policy. In these interactive sessions, AmCham representatives took the opportunity to communicate messages from the US business community in Europe and related success stories of how business, and in particular European AmChams, are already collaborating effectively with each other and with US embassies on issues of mutual concern.

and a survey of member’s needs and expectations. Regarding the advocacy focus in 2012, the Board agreed on the following major topics - labor regulations, real estate regulations, tax policy & earmarked revenues, intellectual property rights, health care, and public procurement. In addition, all committees are mandated to deliver their policy briefs to the newly formed government, alongside the roadmap of long term policy goals and short term measures within their respective areas/competences. Furthermore, the Board considered important issues encompassing the AmCham Communications Strategy and decided to focus on bolder attitudes and stands in communication with the public related to specific advocacy topics. In addition, the Board encouraged further development of the organization’s on-line public relations (E-PR) activities, in particular development of the AmCham LinkedIn group and the opening of a Twitter account, as well as cooperation with business portals. In the field of CSR, the Board decided to continue to focus on Belgrade University students within the Meet the Business First Hand and Kadar da budem Kadar programs. Furthermore, in line with the great interest that the Business Forum on Ethics and Compliance (2011), Business Ethics Week (2010) and CSR During Economic Downturn Conference (2009) attracted among the membership and wider business community, the AmCham Office will work to develop an event related to the importance of reporting sustainability in terms of economic, environmental, social and governance performance development.

AmCham News

Belgrade, March 19, 2012 – Following the AmCham General Assembly, the AmCham Board of Governors established its guidelines for this year at the annual strategy meeting, which took place on March 19, 2012. The mission statement was amended to reflect the organization’s focus as well as recent amendments to the AmCham Statute.

Washington DC, February 21-23, 2012 - AmCham Serbia was represented at the Global Business Conference in Washington DC, organized by Secretary of State Hillary Clinton and attracting U.S. business organization presidents or executive directors representing some 120 countries worldwide. The attendees were able to listen to and to meet very high-level government representatives including Secretary of State Clinton, Deputy Secretary of State Tom Nides, US Trade Representative Ron Kirk, Secretary of Commerce John Bryson, Assistant to the President and Deputy National Security Advisor for International Economic Affairs Mike Fro-

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Belgrade, February 9, 2012 – On Thursday, February 9, 2012, representatives of AmCham member companies elected three officers to the Board of Governors at the 11th Annual AmCham General Assembly. As a result of the votes of a majority of those present, the AmCham President will continue to be Miloš Đurković, Managing Director of Hewlett Packard Serbia. Mr Đurković has been AmCham President since October 2011, succeeding from the position of First Vice-President of the Chamber. Paul Riley, Managing Director of Philip Morris in Serbia was elected First Vice-President of AmCham, and the new Untitled Governor will be Milica Bisić, Head of Markets for KPMG. The AmCham Board is comprised of nine elected members whose task is to define a strategy and implement basic

guidelines for AmCham’s development policy. As defined by the Statute of the American Chamber of Commerce, members elect officers to fill half of the seats on the Board of Governors every year in order to ensure continuous functioning of the organization. Special guest speaker US Ambassador Mary Warlick emphasized the Embassy’s support for AmCham and said she was looking forward to even closer cooperation in 2012. In addition, she thanked US Steel for all its efforts and contributions towards Serbian economic development and prosperity during its presence in Serbia. In addition, President Đurković delivered the association’s Annual Report for 2011, followed by voting for a proposed set of Amendments to the AmCham Statute, and a ceremonial concert by the NEVSKI QUARTET.

Belgrade, January 31, 2012 – On Tuesday, January 31, AmCham held a traditional Pre-election Cocktail Party at the Novak Café & Restaurant to introduce the four candidates for three two-year term positions as Board members - in particular for the titled positions of AmCham President, Miloš Đurković, Managing Director, Hewlett Packard Serbia, and First-Vice President, Paul Riley, Managing Director, Philip Morris Services; as well as for one untitled position as Governor, Milica Bisić, Head of Markets, KPMG, and Željko Tomić, General Manager, OSA - Računarski inženjering. The event was moderated by two incumbent Board members, Jelena Kralj of Pedersen and Partners and David Banjai of Ball Packaging. The candidates took the opportunity to present their reasons for wanting to serve on the AmCham Board of Governors. In addition, during the candidates’ presentations, a number of important issues were addressed including the strategic priorities of AmCham in 2012, potential contribution to the existing business advocacy initiatives, contribution to AmCham’s economic diplomacy activities and the organization’s approach to membership satisfaction.

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AmCham News

A total of 62 voters participated in this year’s elections, with the procedure overseen by an Elections Committee comprised of Gustavo Navarro, General Manager of Holcim Srbija, Chairman, and Elections Committee members Aleksandar Bakoč, General Manager of Algotech, Bradley Harker, Commercial Attaché at the U.S. Embassy, and Miloš Živković, a Partner in Živković & Samardžić Law Office. 59 Perspective April, 2012

AmCham Network

AmCham Serbia welcomes new members

Member Benefit Program - Special Active Offers Business gifts have a significant place in business culture and may be a good start in establishing positive business relationships, and also a way to thank your partners for successful cooperation.

EOS Matrix will help you find solvent customers, and, if invoices are not paid, we offer a variety of receivables management services. With our international network of offices, we can even help your firm manage receivables from international clients. How do we do it? With focus and understanding – our promise to you.

ProCredit Bank a.d. Belgrade is a development-oriented and socially responsible bank. It is a member of the international ProCredit group which today operates in 21 countries on three continents worldwide. A sole business bank in Serbia whose majority owners and shareholders are from Germany, ProCredit Bank has been operating in the domestic market since 2001 with a view to offering companies and individuals a wide range of quality and professional banking services. In its daily operations, the Bank is primarily committed to cooperation with small and medium-sized enterprises, entrepreneurs and agricultural producers, and also to promotion of the culture of savings and banking as a relationship that is founded on partnership, understanding, responsibility and trust. By fostering such an approach, ProCredit Bank has to date invested over three billion euros in the development of the Serbian economy and projects aimed at long-term improvement of living standards. More than 20 percent of the loans disbursed to enterprises and entrepreneurs in Serbia, as well as almost every second loan to domestic agricultural producers today have been approved by ProCredit Bank.

EOS Matrix d.o.o. Đorđa Stanojevića 14 11070 Beograd

ProCredit Bank a.d. Belgrade Milutina Milankovića 17, 11070 Belgrade Tel: (+381 11) 20 57 000

EOS Matrix d.o.o. is part of the EOS Group. Formed in1974 in Hamburg, Germany, it operates today in 27 countries with 49 offices and over 8,500 employees. We have been active In the Serbian market since 2004. We make your firm’s decisions on matters relating to profitable customer relationships easier by putting our expertise and experience at your service. We have been enhancing our competence in all payment-related aspects of business relationships for decades. The EOS Group’s services encompass process definition, minimization of bad debt risks and, finally, implementation within companies.

Hence, it’s worth the effort of finding unique and personalized gifts as a token of appreciation for your business partners. We encourage you to “wow” your business partners and colleagues with novelty corporate gifts they will remember for a long time.

Contact: Marko Andrejić Cell: (+381 63) 8 744 944

Passport and cell phone cases, wine-bags, laptop bags, coasters, men’s and women’s scarves, caps and gloves, as well as a variety of souvenirs are just some of Ethno Network’s unique products, representing a refined blend of traditional techniques and modern design, in luxurious packaging, and with traditional Serbian motifs. Special offer to all AmCham members – 20% off until the end of May 2012

Terme Čatež offers healthy, relaxing bathing in our numerous pools at our Summer and Winter Thermal Riviera. You are invited to take part in programs for relaxation, pampering and health in the wellness centers and to participate in various sports and recreation activities in the sports centre and outdoors. Package prices include: B&B, bathing in the hotel swimming pools (indoor & outdoor swimming pools with hot spring water, open all year round), entry to the Winter Thermal Riviera once a day, or 2 entrances to the Summer Thermal Riviera and the entertainment program. For AmCham Serbia members we offer a 2-night package at the ČATEŽ hotel *** Package price for 2 guests: EUR 158* Price is for 2 guests in a double room with balcony The offer is valid from April 8 until June 6, 2012. (Excluding period April 26-May 1)

As a global specialist in energy management with operations in more than 100 countries, Schneider Electric offers integrated solutions across multiple market segments including leadership positions in Utilities & Infrastructures, Industries & Machine Manufacturers, Non-residential Buildings, Data Centres and Networks and Residential. Focused on making energy safe, reliable, efficient, productive and green, our Group’s 130,000 plus employees have an active commitment to help individuals and organizations make the most of their energy.

Contact: Mr. Boštjan Koren Manager, Marketing & Sales – Foreign Markets Tel: (+386 749) 36 710 Fax: (+386 749) 35 005

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*Supplements: Tax- an additional 1.01 EUR per person per day is payable; Registration fee: 1.00 EUR per person

“Red Star - Belgrade” Rowing Club invites you to improve your bodily health and mental performance. Master the technique of rowing, look good and feel mighty! The program is specially tailored for business people.

For over 10 years, Schneider Electric been cooperating with local companies highly trained to work with our solutions. We have developed a rich network of partners with more than 80 distributors, system integrators and points of sale in Serbia and Montenegro.

Schneider Electric Srbija d.o.o. Vladimira Popovića 38-40, 11070 Belgrade Tel: (+381 11) 37 73 100 Fax:(+ 381 11) 31 21 222

Discounts for children: • A child up to 5.99 years: free of charge when sleeping with parents • A child from 6 up to 11.99 years: 50% discount on additional bed • 3rd adult person: 15% discount on additional bed

We offer AmCham members a discount of 20% off the standard price of EUR 1.140, charging EUR 912* for one year’s full fitness & wellness membership, with a one month Learn to Row program.

Contact: Ms. Maja Arežina Tel: (+381 11) 355 4 652 Cell: (+381 63) 202 758

The membership card for the exclusive fitness & wellness club includes: • spa, turbojet, swimming pool, saunas and more… •o  ne of Belgrade’s last really adventurous recreation activities: rowing in the Sava and Danube • VIP entrance to Ada Ciganlija This offer is valid until the end of June 2012. * Payable in monthly installments.

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AmCham Membership Abbott Labaratories S.A............................................................ Actavis.............................................................................................. Air France Airport City d.o.o................................................... Alcatel-Lucent................................................................. Aleksić & Ratković Law Office with Algotech d.o.o.............................................................................. Alliance One Tobacco d.o.o. Altis Capital............................................................................. Apatinska Asseco South Eastern Avon Cosmetics SCG d.o.o........................................................... Balkans Real Estate (MPC Properties).......................... Ball Packaging Banca Intesa ad Beograd..................................................... BBDO Ovation Advertising...................................................... BDO Bel Medic General Belgrade Philharmonic Orchestra................................................ Berlin Chemie AG Representative office Serbia.......... Best Seed Producer Ltd.................................................................. Bojović Dašić Kojović, Attorneys at Law............................. Božić i sinovi d.o.o............................................................................ British American Tobacco South-Eeast Europe d.o.o................ Carlsberg Serbia CB Richard Ellis CEED Serbia........................................................................... CES Mecon.............................................................................. Cisco SR d.o.o. Beograd................................................................ Citibank N.A. Representative Office Belgrade Coca Cola Company Coca Cola HBC Serbia Colliers Communis.................................................................................. ConsulTeam d.o.o. ............................................................ DAI PPES Danas Conference Dekel d.o.o. Beograd ................................................................. Deloitte .................................................................................. Delta Delta Sport ............................................................................ DHL International Belgrade Diners Club International Belgrade Ltd. .................................... Direct Group ............................................................................. Dufry d.o.o. Ebart Ltd Belgrade............................................................................. EKI Transfers - Western Eli Lilly (Suisse) S. A. Representative EOS Matrix................................................................................. Ernst & Erste Bank a.d. Novi Sad.......................................................... Eurobank EFG......................................................................... Executive Group Findomestic Banka First Data d.o.o. FORD - Grand Motors d.o.o................................................................ Fresenius Medical Care........................................................ G4S Security Gemax ............................................................................................. GlaxoSmithKline Export Globex Grand Casino Harrison Solicitors.................................................... Harvard Club.................................................................... Hemofarm Koncern A.D. ................................................... Hewlett Packard Honeywell d.o.o. ................................................................ Hogg Robinson Group Serbia and Hyatt Regency Hypo Alpe - Adria Bank a.d. ...................................... IBM .............................................................................................. Identico........................................................................................... IKEA Srbija d.o.o. Infobiro d.o.o................................................................................. Intermol ....................................................................................... Jankovi', Popovi', Miti' Law Office ................................................ Johnson & Johnson............................................................................ Jovanović, Milovanović & Simić Law JT International a.d. Senta .......................................................... Karanovi' & Nikoli' Law Office Keystone Development Company Kinstellar.................................................................................. Knjaz Milo[.....................................................................................

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Komercijalna banka Konsing....................................................................................... Koving KPMG d.o.o. ...................................................................................... Kraft Foods L’Oréal Lalin Law Office ....................................................................... Leo Burnett d.o.o...................................................................... Link Consultants.................................................................... Luka Beograd.......................................................................... LUNA & TBWA Ma[ McCann Merck Sharp & Dohme Idea, MetLife Metro Cash & Carry Mikijelj Janković & Bogdanović Attorneys-At-Law....................... MK Group Ltd Moravčević, Vojinović, Zdravković in cooperation with Naumovi' & Partneri............................................ Nelt CO New Moment................................................................... New York Trade d.o.o................................................................ Oracle............................................................................................. Orbital Engineering Serbia d.o.o. OSA - Računarski In\injering.............................................................. OTIS GmbH........................................................................................ OTP banka Srbija a.d. Novi Sad............................................... Pedersen & Partners......................................... Philip Piraeus Bank........................................................................... PriceWaterhouseCoopers d.o.o.............................................. ProCredit Bank a.d. Belgrade........................................... Raiffeisen banka Rudnap Group AD SAGA................................................................................................. Salford Schneider Electric Srbija SEAF South Balkan Fund Rep. Serbian Business Systems............................................................. SGS Beograd Siemens d.o.o. Smart Kolektiv................................................................... Societe Generale Srbija St. Jude Medical Balkan................................................................. Stracon Security.....................................; Strauss Adriatic SVA d.o.o................................................................................................ TeleGroup d.o.o............................................................... Titan Cementara Kosjerić.................................................................. TMF Services d.o.o................................................................ Unilever Beograd Uniqa................................................................................................... Urbis Verano Motors................................................................................. VIP mobile VREME Ltd Newspaper Company............................................ West Pharmaceutical Wiener Städtische osiguranje a.d.o....................................... Wolf Theiss & XPRO d.o.o...................................................................................... Živković Samardžić Law Offices.....................................................

AmCham Serbia Board of Governors President: Mr. Miloš Đurković, Hewlett Packard Serbia First Vice-President: Mr. Paul Riley, Philip Morris in Serbia Second Vice-President: Mr. Zoran Petrović, Raiffeisen banka a.d. Secretary-Treasurer: Mr. Stephen Fish, Ernst & Young Untitled Governors: Ms. Jelena Kralj, Pedersen & Partners Mr. Ivan Vujačić, Eurobank EFG Mr. David Banjai, Ball Packaging Europe Belgrade Mr. Nikola Stefanović, SEAF South Balkan Fund Ms. Milica Bisić, KPMG Acting Executive Director: Ms. Amalija Pavić


Issue 37 April 2012 The American Chamber of Commerce Magazine