Overseas Business Risk – Serbia

Information on key security and political risks which UK businesses may face when operating in Serbia.

Political and Economic

Key risks:

  • Political instability following potential elections in Spring 2014.

  • Continued inability of the Government to tackle serious fiscal risks.

  • Decreasing public support for EU accession due to slow progress, high unemployment, and/or a change of political priorities for governing political parties.

  • Dinar depreciation, putting pressure on foreign exchange-exposed indebted businesses and households, predicating slowing credit flows and lower spending.

  • Increased crisis in the Eurozone spills over into Western Balkan capital markets, particularly if Greece’s reform programme goes off-track, or amid concerns about debt restructuring.

  • Social unrest or increased political tensions related to Kosovo.

Politics

Serbia has the largest population (7.4 million) and land area of the ex-Yugoslav countries. It benefits from Belgrade having been the administrative and business capital of Yugoslavia. However, it has been late in making its political and economic transition towards Western European standards, due mainly to conflict and sanctions in the 1990s. As such, it has lagged some other Former Yugoslav Republics: Slovenia joined the EU in 2004; Croatia will do so in July 2013; and FYR Macedonia and Montenegro became Candidate countries earlier than Serbia.

In December 2009 the European Union agreed to implement the Interim Agreement (IA) on trade, and in September 2013 a Stabilisation and Association Agreement (SAA) came into force, which gradually liberalises trade between the EU Member States and Serbia.

Serbia achieved Candidate Status for membership of the European Union in March 2012 and, in December 2013, the European Council agreed to open accession negotiations in January 2014.

Following elections in May 2012, a new President – Tomislav Nikolic – came to power, and a new government was formed by the Progressive, Socialist and United Regions of Serbia parties, headed by Socialist Ivica Dacic.  The new President and Government have stated commitment to keeping Serbia on its EU accession path. At the time of writing however, early elections in 2014 seem a possibility.

Kosovo made a unilateral declaration of independence from Serbia in 2008, which Serbia does not recognise. The UK, 21 other EU Member States and nearly half of UN member states recognise Kosovo as sovereign. Kosovo has seats at the IMF and World Bank, but is not itself a UN member yet. Despite Belgrade’s stance of non-recognition, in late 2011 it began engagement in an EU-Sponsored ‘Dialogue’ with Pristina (Kosovo’s capital), to discuss practical matters such as border control, telecommunications and customs. Later, the Dialogue developed into political talks between the two Prime Ministers, meditated by Baroness Catherine Ashton, which culminated in an Agreement on 19 April 2013. This Agreement, and its implementation by Serbia, has largely been credited as the reason why Serbia was given the green light to start accession negotiations in January 2014. Despite the progress, Kosovo remains a politically-charged issue.

Economy

Serbia has a mixed economy, dominated by a large and growing services sector. However, the industrial sector is still significant, generating about 25% of GDP, as is the agricultural sector at 12%. Owing to its proximity and good links to EU markets, Serbia is marketing itself as an investment destination for manufacturing and processing industries. Many of Serbia’s current exports are intermediary goods, and the country will be looking to import expertise and technology to enable it to add value.

Serbia grew at an average of about 6% in 2000-08, and has made significant strides in transforming itself into a modern, market-based economy. Major factors were the liberalisation of the banking sector, which brought previously unavailable credit to the country, and the privatisation process, which has encouraged large numbers of foreign companies to invest in Serbia. The bulk of major privatisations have now been completed; though many large companies and several thousand small, municipal-level firms remain in the public sector.

While Serbia was not spared by the global economic downturn, the effects were not as bad as many feared. Growth prior to the crisis had been characterised by an unsustainable boom in domestic consumption and a widening trade deficit, financed by foreign capital flows. Nonetheless, Serbia’s banks were well capitalised, and comfortably weathered the post-Lehman shocks. The Government moved quickly to guarantee all bank deposits, and the panic subsided. The economy contracted by an estimated 3.5% in 2009, before returning to modest growth in 2010 and 2011. However, in 2012 the economy contracted again by 1.7%, before returning to modest growth in 2013 (expected between 1 and 1.5%); beyond 2013 expansion will continue to be minimal, and the EBRD expects growth of only 1.7%.

A €3bn IMF agreement agreed following the global crisis expired in April 2011 and the Government has only just begun negotiations on a successor precautionary arrangement. The budget deficit for 2013 was around 7.1% of GDP, and although the Government have taken some steps to reduce the deficit, it is unclear yet whether the measures they have proposed will be enough to start reducing the deficit significantly for 2014 and beyond.

Inflation, although low in a recent historical context (Serbia experienced hyperinflation in the nineties), exceeded 10% in 2010 and was around 8% in 2011. Slowing economic conditions have helped inflation to decline since then and inflation dropped to a historic low of 1.4% at the end of November 2013, although the Serbian central bank (NBS) expects inflation to remain close to its 4 percent target through 2016.

Commercial

Serbia is strengthening its economic relationships with others in the region, and is a member of the Central Europe Free Trade Agreement with Albania, Moldova and former Yugoslav countries (minus Slovenia, and Croatia as of July 2013). It is among the few countries outside the former Soviet Union to have a free trade agreement with Russia, and has also agreed FTAs with Turkey, Belarus and EFTA.

Monopolies, and associated political corruption, are a significant impediment to doing business in Serbia. The retail and real estate sectors are particularly hampered by powerful interests. The Commission for the Protection of Competition has largely proven unable to see antitrust rulings successfully handed down.

Serbia was ranked 93rd in the World Bank’s Ease of Doing Business Index 2014, down from 87th in 2013.

Opportunities exist in the transport, power, renewables, environmental, petrochemical, automotive and retail sectors. Looking forward, foreign expertise in professional and financial services will be in high demand as the economy continues to restructure. EU- and EBRD-funded projects will offer lucrative tender opportunities. Expertise and technology will also be in demand as Serbia looks to update its manufacturing processes and meet its environmental needs. Growing wealth in the main population centres will continue to drive increasing demand for consumer goods and services.

More information on political risk, including political demonstrations is available in FCO Travel Advice.

Human Rights

Serbia has a legal and institutional framework that is broadly satisfactory concerning the protection of human and minority rights. However implementation of legislation is still patchy and often inadequate. Minority representation in state institutions remains low, particularly among the ethnic Albanian community in the south of Serbia. This community, and to a lesser extent the Bosniak and other communities, remain somewhat detached from Serbian society. Serbia’s large Roma population also continues to live on the margins of society.

Women hold positions at all levels of Serbian government, political parties, commercial entities, and in the media and in civil society, including ministerial positions and heading multinational corporations. However, this representation is short of being proportionate.

Freedom of speech is broadly respected and there is a free and plural press. However lack of transparency of outlets’ ownership, and the role of the state and of political parties in their editing remain causes for concern.

Bribery and Corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.

In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

The UK’s Bribery Act applies as of 1 July 2011.

Corruption is widespread in Serbia, and is present at all levels of society. Recently, there have been some legislative moves to combat corruption, including establishment of an Anti-Corruption Agency and the adoption of an Anti-Corruption Strategy. However, implementation remains patchy at best, with very few high-profile corruption cases coming to court. Serbia’s anti-corruption bodies are weak and have lacked political support. The State Audit Institution has been barely functional, with only a few posts filled. Its inaugural report on the execution of the 2008 budget, released in December 2009, suggested serious shortcomings, with possible criminal malpractice. The Anti-Corruption Agency took up its role on 1 January 2010 to oversee the government’s preventative measures, in a complementary role to the investigative and advisory Anti-Corruption Council. The Agency has already had a positive effect in highlighting the issue of corruption. It has required public officials to declare their assets and has forced those holding more than one public position to choose between them in an attempt to reduce conflicts of interest. However, the Anti-Corruption Agency is still seen in general as ineffective in holding public officials to account.

According to Transparency International’s 2013 Corruption Perception Index (CPI), Serbia ranked 72nd out of 177 countries surveyed, a slight improvement on its 2012 score of 80th. The European Commission’s 2013 Progress Report for Serbia comments that, “the implementation of the legal framework and the efficiency of anti-corruption institutions need to be improved [and] the Anti-Corruption Agency needs to make full use of its capacity”. The most vulnerable sectors are public procurement, privatisation, state-owned enterprises, the health sector, other large budgetary expenditures, taxation, customs and licensing.

Visit the Business Anti-Corruption portal page providing advice and guidance about corruption in Serbia and some basic effective procedures you can establish to protect your company from them.

Read the information provided on our Bribery and corruption page.

Terrorism Threat

Read the information provided on our Terrorism threat page

Protective Security Advice

The Centre for the Protection of National Infrastructure also provides protective security advice to businesses

Belgrade is, by European capital cities’ standards, relatively safe, as is most of the rest of Serbia. However, as in other parts of Europe, you should be aware of the incidence of street crime, particularly in larger cities. Be extra vigilant for pick pocketing in public places such as airports and on public transportation. As a foreigner, you may be a target for criminals who may assume you are carrying large amounts of cash. Four-wheel-drive and luxury vehicles are popular targets. Isolated incidents of armed violence in major cities have occurred. These are usually linked to organised crime and are not directed against foreigners, including British nationals. All incidents of crime should be reported to the local police from whom you should obtain a report. There have been some examples of protests in Belgrade turning violent.

Read the information provided on our Protective security advice page

Intellectual Property

IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.

For information on registering your trademark or patent in Serbia, you should contact the Republic of Serbia Intellectual Property Office:

Kneginje Ljubice 5

11000 Beograd

Serbia

T: +381 (0)11 20 25 800

F: +381 (0)11 311 2377 / +381 (0)11 2629 483

Email: zis@yzis.gov.rs

Read the information provided on our Intellectual Property page.

Organised Crime

Like many countries in the Balkans region, Serbia has a problem with organised crime. In the 1990s, criminals in the former Yugoslavia exploited the vacuum created by the collapse of the country and the ensuing conflicts, and by the isolation due to international sanctions, to establish lucrative networks, which reached into government and retarded social and economic development. Organised crime and corruption continue to pose a threat to the rule of law and sound and accountable institutions.

A defining moment came on 12 March 2003, when Prime Minister Zoran Djindjic was assassinated outside a government building in Belgrade. This followed a number of ministerial assassinations and attempted-assassinations. In the immediate aftermath, the government launched a nation-wide crackdown on organised crime (‘Operation Sabre’), which made great progress in reducing its influence in Serbia. It resulted in the arrest of 4,000 people, many belonging to various organised crime gangs implicated in the assassination. The authorities resolved 14 other murders, 3 kidnapping cases, and 200 drug-related crimes. The prime suspects for the assassination of PM Djindjic were sentenced to 40 years imprisonment in 2007.

Since PM Djindjic’s assassination, positive steps have been made towards implementing reforms within judicial, political and military institutions. However, there is still much to be done by the current Serbian Government in establishing an independent judiciary and prosecution service, including a functioning witness protection system, and in reforming the state security structures in order to tackle organised crime more effectively. A reform of the judiciary in 2010, comprising the re-hiring of around 80% of judges, was deemed un-transparent and of limited effectiveness; the process was reviewed during 2011-12 and found to be deeply flawed; many previously ousted judges and prosecutors were reinstated. The Balkans remains a significant route for the trafficking of drugs, people, weapons and other illicit goods into Europe. As such, Serbia is of significant interest to international and domestic organised crime groups. The UK and others are closely involved in assisting the Serbian government to minimise the threat from organised crime.

Read the information provided on our Organised crime page.

More information is available on overseas business risk in a range of markets.

UK Trade & Investment Contact:

Jeremy.Lang@fco.gov.uk

Countries: Serbia
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