2013 Investment Climate Statement - Serbia

2013 Investment Climate Statement
Bureau of Economic and Business Affairs
April 2013

Openness to, and Restrictions Upon, Foreign Investment

Serbia is open to foreign direct investment (FDI) and attracting FDI is a priority for the Government of Serbia. Serbia has a long history of international commerce, even under communism, and has attracted a sizeable foreign company presence.

Serbia has enacted specific legislation outlining guarantees and safeguards for foreign investors. The current Law on Foreign Investments establishes the framework for investment in Serbia. The law eliminates previous investment restrictions, extends national treatment to foreign investors, allows the transfer/repatriation of profits and dividends, provides guarantees against expropriation, and allows customs duty waivers for equipment imported as capital-in-kind.

Serbia is introducing a number of legislative changes designed to bring the country into compliance with European Union (EU) requirements. The country obtained EU Candidate status on March 1, 2012, and now awaits a date for the opening of accession negotiations. The government is implementing a National Program for Integration into the European Union, a plan for harmonizing domestic legislation with EU norms in order to meet the criteria necessary for EU accession. The modernization of Serbian legislation is contributing significantly to improvements in the investment climate in a variety of areas, including foreign trade, corporate governance, and environmental regulation.

In 2006, Serbia developed a range of incentives designed to attract FDI, including cash grants to investors that create specified numbers of new jobs, tax incentives in the form of credits, cuts in payroll contributions, and reduced corporate tax rates. The government maintains a specially designated organization, the Serbian Investment and Export Promotion Agency (SIEPA) (http://www.siepa.gov.rs/sr/), to administer the investor incentive program. (Details about Serbia's investment incentives programs are set forth in the "Performance Requirements and Incentives" section below.)

A number of Serbian governmental organizations provide direct assistance to investors. In addition to SIEPA, the Serbian Privatization Agency provides information to and works with potential investors to inform them about the privatization program and related investment opportunities. (Details about privatization policies and results are set forth in the "Competition from State-Owned Enterprises" section below.) In 2010, Serbia established Economic Advisor positions at selected foreign missions, e.g., the Serbian Consulate General in Chicago, to promote foreign investment in Serbia (http://www.scgchicago.org/). The Foreign Ministry has announced plans to review the results of those advisors and withdraw those whose performance is not satisfactory.

The new Serbian government that took office in the summer of 2012 has adopted a number of new laws in an effort to introduce economic reform and to improve the business climate. As of December 2012, Serbia's National Assembly (parliament) passed the following new measures:

-- the Law on Payment Deadlines in Commercial Transactions, an attempt to improve liquidity in the economy by prescribing maximum payment terms of up to 60 days for business-to-business transactions and 45 days for public sector-to-business sector payments;

-- the Law on Conditional Write-off of Interest and Tax Debt, which allows those companies which currently pay their taxes on time but have unpaid tax debts to write off interest on the outstanding tax debt. The law will unblock the bank accounts of many companies with tax debts, enabling them to restart operations and reschedule their debts;

-- the Law on Public Companies, which mandates selection of public company managers through a public tender/hiring process. The law is designed to eliminate the practice of appointing political party officials as directors of state enterprises and introduce greater professionalism into public sector management; and

-- the Law on the Takeover of Debts of Health Institutions toward Wholesalers of Drugs and its Conversion into Public Debt, which will convert monies owed by the public health services to private suppliers, in particular pharmaceutical companies, into public debt. The measure is intended to facilitate payments to private companies for health products and services while relieving the financially-strapped public health sector of substantial debts.

In addition, in January 2013, the National Assembly passed Amendments to the Trade Law, which remove administrative barriers to investments by eliminating the requirement for a market impact study for large trade centers (larger than 2,000 square meters) and by abolishing the Center for Development of Trade, a public agency that issued licenses for large trade centers. The Amendments also improve legal protection for unfair competition by introducing legal grounds for a company to sue unfair competitors for non-material damages for having harmed a firm's business reputation.

In addition to new legislation, the government announced ambitious plans to decrease its budget deficit from 6.7 percent of GDP in 2012 to one percent by 2015 and to reduce total public debt levels from 60.5 percent of GDP in 2012 to 45 percent by 2020. Pursuant to this plan, the Ministry of Finance and Economy implemented a series of budget and fiscal measures in late 2012, including:

-- increasing the Value Added Tax (VAT) rate from 18 percent to 20 percent for most non-food items;

-- raising excise taxes on cigarettes, spirits, and petroleum products;

-- increasing corporate profit taxes from 10 percent to 15 percent;

-- channeling all revenues collected by government agencies through a single treasury account under the Ministry's control, rather than allowing individual ministries to control the funds;

-- limiting pension and public sector wage increases to two percent through October 2013;

-- capping public sector salaries at RSD 162,740 (USD 1,900) per month;

-- centralizing procurement for public health sector expenditures; and

-- curbing state loan guarantees for indebted public companies and reducing subsidies to companies in restructuring.

Serbia attracted approximately EUR 638 million (USD 829 million) in FDI in the first ten months of 2012, according to the National Bank of Serbia's October 2012 Balance of Payments report. (The exchange rate used throughout this report is 1 EUR=1.3 USD.) Net FDI during this period, however, was only EUR 81 million (USD 105 million) because FDI outflows (EUR 557 million/USD 724 million) were unusually high. The high level of FDI outflow is attributable to Telekom Srbija's payment of EUR 381 million (USD 495 million) for the buyback of its shares and Norwegian investor Telenor's repatriation of EUR 176 million (USD 229 million). Additional details are set forth in the Foreign Direct Investment Statistics section below.

Well-known multinational companies, including Italy's Fiat and Benetton, Germany's Siemens and Grundfoss, Belgium's Delhaize, Korea's Yura, and from the United States, Cooper Tire and Rubber and Johnson Controls, completed major new investments in Serbia in 2011 and 2012. Foreign investors cite Serbia's strategic location in the Balkans, relatively inexpensive labor rates and skilled labor force, free trade agreements with key markets (the European Union, Russia, Turkey, Central European Free Trade Agreement countries, and others), and Serbian government support mechanisms for investors as the prime incentives to opening new businesses in the country. (More details on recent, major foreign investments are set forth in the "Foreign Direct Investment Statistics" section below.)

Serbia's ranking by key indices is as follows:




TI Corruption Index


80th of 176 countries (score of 39)

Heritage Economic Freedom


83rd of 180 countries (score of 77.9)

World Bank Doing Business


86th of 185 countries

Fiscal Policy

(IMF World Economic Outlook)


Government deficit: 6.5 percent of GDP

Trade Policy

(Heritage Economic Freedom)


77.9 (slightly above the average of 74.8)

Starting a Business

(World Bank Doing Business)


42nd of 185 countries

Land Rights Access

(World Bank Doing Business)


Dealing with Construction Permits: 179th of 185 countries

Registering Property: 41st of 185 countries

Natural Resource Mgmt

(Natural Resource Management Index)


88.2 on a scale of 100

Conversion and Transfer Policies

Serbia's Foreign Investment Law guarantees the right to transfer and repatriate profits from Serbia.

Serbian law permits relatively free flows of capital, as follows:

-- Payment and transfer of capital related to direct investments of residents and legal entities, entrepreneurs and physical entities, as well as non-residents in Serbia.

-- Payments for the purpose of acquiring real estate by residents abroad and non-residents in Serbia.

-- Payment for the purpose of purchasing equities abroad that do not represent direct investment, as well as long-term debt securities issued by OECD member countries and international financial organizations, or securities whose level of risk rating and issuer country may be prescribed by the National Bank of Serbia.

Serbian law permits non-residents to maintain both foreign exchange and dinar denominated bank accounts without restrictions. These accounts may be used to make or receive payments in foreign currency. Non-residents may not transfer capital for the purpose of purchasing domestic short-term securities.

Payments, collections, and transfers on current transactions between residents and non-residents may be executed freely.

Foreign exchange is readily available and may be purchased through exchange bureaus by physical persons and through commercial banks by legal persons.

Expropriation and Compensation

Serbia's Law on Expropriation defines various economic and security justifications as authorized bases for expropriation and sets forth procedures that must be followed to effect an expropriation. Expropriation is authorized for reasons that include: education; public health; social welfare; culture; water management; sports; transport; power and public utility infrastructure; national defense; local/national government needs; environmental protection; protection from weather related damage; exploration for, or exploitation of minerals; land needed for re-settlement of people holding mineral-rich lands; property required for certain joint ventures; and housing construction for the socially disadvantaged. The law authorizes competent subject matter courts to exercise jurisdiction over expropriation claims.

Following a determination that a legal basis for the expropriation exists, a proposal for expropriation may be filed with competent local authorities. The authorities are obliged to hold proceedings and render a decision. The Ministry of Finance and Economy is designated as the competent authority to resolve appeals or complaints filed against first-instance decisions by local authorities.

In the event of an expropriation, Serbian law requires compensation in the form of similar property or cash approximating the current market value of the expropriated property. The law sets forth various criteria for arriving at the amount of compensation applicable to different types of land (agricultural, vineyards, forests) or easements that affect land value. The local municipal court is authorized to intervene and decide the level of compensation if there is no mutually-agreed resolution within two months of the expropriation order.

The Law on Foreign Investment provides safeguards against arbitrary government expropriation of foreign investments. There have been no cases of expropriation of foreign investments in Serbia since the dissolution of the former Republic of Yugoslavia.

There are, however, outstanding claims against Serbia related to property nationalized under the Socialist Federal Republic of Yugoslavia. In September 2011, 11 years after the country underwent major political changes that strengthened democracy, Serbia finally passed a Law on Restitution of property taken by the government during the years of socialist rule. The law, which went into effect October 2011, applies to property seized by the government since the end of World War II (May 1945), and also includes special coverage for victims of the Holocaust, who are authorized to reclaim property confiscated by Nazi occupation forces.

The restitution law provides for restitution of property in-kind, when possible, and financial compensation in state bonds as an alternative in cases where in-kind restitution is not possible. Numerous categories of properties are exempted from the in-kind restitution principle, including: properties of public companies and some other public organizations (e.g., police, schools, and hospitals); properties used by state bodies for representational purposes (i.e., former royal residences); foreign diplomatic premises; and privatized property. The list of exemptions essentially limits the list of properties eligible for restitution in-kind to a narrow inventory of central and local government property.

In instances where property is exempted from return in-kind, claimants may receive compensation in cash or bonds. Serbia has allocated EUR 2.0 billion (USD 2.6 billion) for financial compensation in bonds. The bonds will be issued commencing January 1, 2015, be denominated in Euros, carry a two percent annual interest rate, have a maturity period of 15 years, and be tradable on securities markets. For citizens 70 years of age and older, the bond maturity period is five years. Claimants have two years from the date of passage of the law to file restitution applications. The filing process supersedes a 2005 law that provided for registration of potential claims. (The 2005 law covered property taken through confiscation, nationalization, agrarian reform, sequestration, expropriation, and other regulations that became effective after March 9, 1945. Approximately 150,000 claims relating to about 75,000 properties were registered under this legislation.)

The restitution law caps the amount of compensation that any single claimant may receive at EUR 500,000 (approximately USD 650,000). The law establishes a reciprocity principle for foreign citizens that permits them to file claims in Serbia if their home nation allows similar claims by Serbian citizens. Serbia has signed 22 such bilateral agreements, including with the United States. American citizens may file claims under the new law.

The Agency for Restitution began receiving restitution claims on March 1, 2012. According to data provided by the Agency, through the end of 2012 it had rendered decisions in 14 percent of filed claims, accepting some and rejecting others. In 2012 the Agency returned approximately 500 properties to claimants. Additional information about the Agency for Restitution is available at its website: http://www.restitucija.gov.rs/eng/index.php.

Several legal issues in Serbia's restitution regime are unresolved. The 2011 private property restitution law has not been harmonized with Serbia's 2006 Law on Restitution to Churches and Religious Communities, which authorizes in-kind property restitution, financial reimbursement, and substitution of alternative property as means of compensation. The two restitution laws have been criticized as being discriminatory because they provide two different sets of possible compensation for restitution claims. In addition, Serbia's law states that the issue of "heirless properties" left by victims of the Holocaust will be addressed by a separate law, but no action to draft the legislation has been taken.

Dispute Settlement

Serbia's judicial system is based on European civil law. Higher court decisions, however, may be used as "guidance" by lower courts. Serbia's judiciary lacked independence and was subject to political manipulation during the communist and Milosevic eras. The Government of Serbia is working to reform the court system to create a more independent, efficient, responsible, and transparent judiciary. The U.S. government, through USAID and the Department of Justice, is providing assistance for improving criminal justice procedures and for court reform.

Since 2008, the Serbian judicial system has been engaged in a protracted process of reform, which has included challenge after challenge to various efforts to restructure the judiciary and to review the appointments of all judges and prosecutors. That process is not yet concluded, and continues to cause confusion and uncertainty in the judiciary. This protracted process began in December 2008, when the National Assembly approved a package of judicial reform laws that included laws on the High Judicial Council, on the State Prosecutors' Council, on the Public Prosecutor, on Judges, and on the Organization of the Courts. The laws created a new network of courts and prosecutors' offices intended to improve the efficiency of the judiciary. The new legislation also created High Judicial and State Prosecutors' Councils, which are now responsible for the selection, discipline, and dismissal of judges and prosecutors, and for administrative oversight of the courts.

In December 2009, the Councils selected prosecutors, deputy prosecutors, judges, and magistrates for the new court system and nominated first-time appointees who were elected to their positions by the National Assembly. Those appointments, as well as the new network of courts and prosecutors' offices, took effect on January 1, 2010. However, non-elected judges, prosecutors and deputy prosecutors, professional associations of judges and prosecutors, as well as high-ranking EU representatives challenged the 2009 election process. To address these challenges, the National Assembly in December 2010 passed amendments and addenda to the laws on judges, the prosecutor's office, the High Court Council, and the State Prosecutor's Council. These amendments, among other things, provided for the transfer of appeals pending before the Constitutional Court back to the High Court Council and the State Prosecutor's Council for assessment by those bodies. The two Councils then completed this revised review process in the spring of 2012.

Disappointed former judges and prosecutors have continued to challenge the re-election review process. In July 2012, the Constitutional Court began to render a series of decisions that eventually will invalidate the entire re-election review process. The Constitutional Court has invalidated all of the review decisions it has so far addressed, holding that that the Council review process did not meet the standards of due process. The Court ordered the two Councils to reinstate virtually all of the individual judges and prosecutors who had not been re-elected.

Some additional uncertainty has been introduced by a campaign initiated in the fall of 2012 by the new government to amend a number of organizational and procedural laws, including the Criminal Procedure Code, the Law on Judges, the Law on Prosecutors, the Law on the Organization of Courts, the Civil Procedure Code, the Criminal Code, the Law on Misdemeanors, and the Law on Mediation. Only limited changes to the Law on Judges and the Law on Prosecutors and changes to the Criminal Code were adopted by the National Assembly by the end of the year. There is concern that the speed of their consideration and passage left inadequate time for full consideration of their impact prior to passage.

Some anticipated changes in the various drafts are potentially positive. For example, the Misdemeanor Law draft is progressive and has been developed with significant independent advice and public consultation. The draft Court Organization law is expected to expand the number of courts in Serbia, in part to accommodate the large numbers of reinstated judges. Other proposed changes impair the effectiveness and efficiency of the criminal justice system. The Government of Serbia has agreed to have experts from the Council of Europe's Venice Commission review judicial reform drafts to assess alignment with European and international norms.

In December 2009, the National Assembly approved a new Bankruptcy Law that brings Serbian bankruptcy procedures closer to international standards. The law introduced "automatic bankruptcy" for legal entities whose accounts have been blocked for more than three years and allowed debtors and creditors to initiate bankruptcy proceedings. The law provided a faster and more equitable settlement of creditors' claims, lowered costs, and clarified rules regarding the role of bankruptcy trustees and creditors' councils.

According to the Bankruptcy Law, foreign creditors have the same rights as Serbian creditors with respect to the commencement of, and participation in, a bankruptcy proceeding. Claims in foreign currency are included in the bankruptcy estate in that currency, but they are calculated in dinars at the dinar exchange rate on the date the bankruptcy proceeding commenced.

In May 2006, Serbia enacted its first Law on Arbitration, which authorizes the use of institutional and ad hoc arbitration in all manner of disputes (commercial, labor, etc.). The law is based on the UN Commission on International Trade Law (UNICTRAL) model law. International arbitration is accepted as a means for settling investment disputes between foreign investors and the state. The Foreign Trade Court of Arbitration (founded in 1947), the leading domestic arbitration body, operates within the Serbian Chamber of Commerce. Arbitration is voluntary and conforms to the UNICTRAL model law.

Serbia is a signatory to the following international conventions regulating the mutual acceptance and enforcement of foreign arbitration:

-- 1923 Geneva Protocol on Arbitration Clauses;

-- 1927 Geneva Convention on the Execution of Foreign Arbitration Decisions;

-- 1958 New York Convention on the Acceptance and Execution of Foreign Arbitration Decisions;

-- 1961 European Convention on International Business Arbitration; and

-- 1965 Washington Convention on the International Center for the Settlement of Investment Disputes (ICSID).

Although Serbia is a signatory to many international treaties concerning foreign arbitration, Serbia's Privatization Agency refused for five years (2007-2012) to recognize an International Chamber of Commerce (ICC)/International Court of Arbitration award in favor of a U.S. investor. The dispute caused the U.S. Overseas Private Investment Corporation (OPIC), which had insured a portion of the investment, to severely restrict its programs in Serbia. The U.S. Embassy facilitated a settlement agreement between the Serbian government and the investor that took effect in January 2012. OPIC reinstated its programs for Serbia in February 2012.

Performance Requirements and Incentives

Since 2006, the Serbian government has maintained a system of cash grants and other incentives for greenfield and brownfield investment projects undertaken by foreign and domestic investors. The conditions for the incentives are adjusted regularly by government decrees to reflect changing investment priorities. In 2008, for example, the government added specific incentive for investments in targeted industries -- automotive, electronics, and information and telecommunication technology. In 2010, the Serbian government incentivized investments in "devastated areas," or regions of the country in which economic development is considered less than 50 percent of national average levels.

In 2012, the government, through SIEPA, instituted a "scorecard" system for foreign investments, with a sliding scale of incentives depending on the amounts invested, the number of jobs created, and the location of the investment. Investments in manufacturing, in the internationally marketable services sector, and in the field of tourism are eligible for incentives. (Projects in the agriculture, hospitality, and trade/retail sectors are not eligible to receive funding, nor are projects which involve the production of synthetic fibers or coal.) The system divides Serbia geographically based on four levels of development, ranging from "developed" to "devastated," with higher incentives offered for investments in less-developed areas. The new incentives scheme doubled the minimum level of incentives from EUR 2,000 to EUR 4,000 (USD 2,600 to USD 5,200). Details are set forth below:

For greenfield and brownfield projects in manufacturing, export-related services, and tourism, non-refundable government payments range from EUR 4,000 to EUR 10,000 (USD 5,200 to USD 13,000) per new job created within three years of the signature date of an investment incentive agreement. The exact amount per-job is determined by a scoring system that takes into account the following factors:

-- investor's references;

-- participation of domestic suppliers;

-- investment sustainability;

-- introduction of new technologies and transferability of knowledge and skills to -- domestic suppliers;

-- effects on human resources;

-- international sales volume;

-- economic effects of the project; and

-- effects on the development of the local community.

Minimum investment thresholds to qualify for incentives differ according to the industry and the level of development. For example, to qualify for incentives for manufacturing investments in an area ranked in the top three development levels requires a minimum investment of EUR 1.0 million (USD 1.3 million) and creation of 50 new full-time jobs. For such an investment in the lowest category of development ("devastated region"), the minimum investment threshold is EUR 500,000 (USD 650,000). For investments in export-related service sectors, the minimum investment, valid for all development levels, is EUR 500,000 (USD 650,000), with the creation of ten new full-time jobs. For tourism projects, the conditions are an investment of EUR 5.0 million (USD 6.5 million) and creation of 50 jobs.

Additional incentives are available for investments over EUR 50 million (USD 65 million), as follows:

-- investment projects valued at more than EUR 200 million (USD 260 million) that create at least 1,000 new jobs within 10 years of the signature date of the investment agreement are eligible for incentives worth up to 17 percent of the investment's total value;

-- projects valued at more than EUR 50 million (USD 65 million) that create at least 300 new jobs within 10 years are eligible for incentives worth up to 20 percent of the investment's total value; and

-- projects valued at over EUR 50 million (USD 65 million) that create at least 150 new jobs within 10 years are eligible for incentives worth up to 10 percent of the investment's total value.

Additional details about SIEPA and its programs and activities are available on SIEPA's website: http://www.siepa.gov.rs/sr/.

The Serbian National Employment Service (NES) maintains two basic job creation incentives programs: the Employment Subsidies Program and the Training Program. The Employment Subsidies Program provides grants to companies that hire persons who are registered as unemployed with the National Employment Service or declared "redundant workers." A company may apply for grants for hiring up to 50 persons, but the cap does not apply to greenfield and brownfield projects. Grant amounts range from approximately EUR 860 (USD 1,118) to EUR 3,450 (USD 4,485) per employee, depending on the unemployment rate in the municipality where the project is located.

The NES Training Program offers incentive grants to companies to reimburse them for worker training, provided there are no registered unemployed workers with the requisite skills. The company and NES jointly select candidates for training, which can be provided either by the company itself or by selected educational institutions. The grants cover training expenses of up to RSD 150,000 (approximately USD 1,700) per employee. The NES bears the cost of transportation and insurance for the trainees throughout the training program.

Funding for the NES programs is limited. Companies that qualify for NES job creation and training incentives may experience difficulty collecting payment from the NES. As of the end of 2012, at least one U.S. investor who qualified for an NES grant during the year had yet to be paid.

Serbia's tax laws offer several tax incentives to new investors. The corporate profit tax rate is a flat 15 percent, one of the lowest in the region. (The rate increased from 10 percent on January 1, 2013). Non-resident investors are taxed only on income earned in Serbia. Companies that meet the following investment conditions are exempt from the corporate profit tax for up to ten years, dating from the first year in which they earn a profit: investment of more than 800 million RSD (approximately USD 9.3 million) in fixed assets; and hiring at least 100 additional employees during the investment period.

Companies that do not meet the requirements for a full 10-year tax exemption may qualify for an investment tax credit equal to 20 percent of the amount invested in fixed assets in a given tax year. The tax credit can be carried forward for up to ten years, but may not exceed 50 percent of total tax liability. Small enterprises may qualify for an investment tax credit equal to 40 percent of the amount invested in fixed assets in a given tax year (with a ten-year carry-forward period), but the credit cannot exceed 70 percent of the total tax liability.

Companies that invest in designated sectors may qualify for an investment tax credit equal to 80 percent of the amount invested in fixed assets (with a ten-year carry-forward period). These sectors are: agriculture; yarn and fabric production; garment manufacturing; leather processing; base metals and standard metal products; machinery; electronic goods; medical instruments; motor vehicles; recycling; and video production.

In addition, the tax law provides incentives for hiring new workers. An employer who hires new workers on a permanent basis is exempt from paying salary taxes (12 percent of the salary amount) and social insurance contributions for two to three years, depending on the person's age and how long he/she has been unemployed. Those who hire disabled persons qualify for a three-year exemption from payment of salary taxes and social insurance contributions.

The tax law also includes provisions for accelerated depreciation of fixed assets, tax exemptions for concession-related investments, income tax credits, and customs-duty exemptions for certain goods and equipment imports.

Right to Private Ownership and Establishment

Serbian citizens and foreign investors enjoy full rights to private property ownership. Private entities can freely establish, acquire and dispose of interests in business enterprises. Private companies compete equally with public enterprises in the market and for access to credit, supplies, licenses, and other aspects of doing business.

Protection of Property Rights

Serbia is still grappling with the consequences of the nationalizations and confiscations of all forms of private property following World War II. Property titles can be complicated and clouded by a multitude of factors – restitution claims, unlicensed and illegal construction, limitation of property rights to "rights of use," outright title fraud, and other issues. Investors are cautioned to investigate thoroughly all property title issues relating to land acquired for investment projects.

Related to the issue of property restitution (discussed above) is the issue of property conversion. During the socialist years, owners of nationalized land became "users" of the land and acquired "rights of use" that, until 2003, could not be freely sold or transferred. In 2003, a Law on Urban Planning and Construction recognized sales and transfers of property rights of use. The right of use was limited, however, to 99 years.

The October 2006 Constitution recognized private rights in "construction land" (a term of art referring mainly to land in urban areas). A September 2009 Law on Planning and Construction authorized the transformation of land-use rights into rights of freehold private ownership in construction land. Companies that had gained land pursuant to privatization, bankruptcy, or other means were able under the 2009 law to transform usage rights into ownership rights by paying a fee representing the difference between the current market value of construction land and the costs of acquiring the land rights. The law did not, however, adequately define the procedures for property right conversions. The National Assembly amended the law in April 2011 in an effort to clarify the procedures, but the amendments failed to produce the desired results.

Investors continue to complain that land-rights conversions are stalled for a variety of reasons. Local authorities often lack expertise in valuing land and other technical aspects of conversion, land registries tend to avoid positive resolution of conversion requests, and public attorneys' offices commonly challenge land-registry actions that do recognize conversion applications.

The uncertainty and lack of action on conversion applications, among other factors, caused a significant slowing of construction activity in Serbia over the last several years. In an effort to address inadequacies in the law and to stimulate the construction industry, in December 2012 the National Assembly approved amendments to the Law on Planning and Construction that suspend the conversion process and permit construction on non-converted land for up to one year, pending passage of a revised law.

The 2009 Law on Planning and Construction also addressed zoning and urban planning, construction permitting procedures, and legalization of property titles, all of which continue to be problematic. Serbia has not yet enacted all of the by-laws needed to implement these provisions.

Construction permitting is a particularly serious problem (Serbia ranks 179 out of 185 countries for dealing with construction permits in the 2013 World Bank's Doing Business Report). Serbia's Foreign Investors Council (FIC), National Alliance for Local Economic Development (NALED), the American Chamber of Commerce in Serbia (AmCham), and other organizations report that the process of issuing construction permits is non-transparent and heavily burdened with red tape. USAID has completed a comprehensive study of the current system that lays out specific recommendations for improvement. At the request of the Government of Serbia, USAID will assist in drafting a new law on construction permitting.

Serbia's real property registration system is based on a municipal cadastre and land books. A modern Law on Cadastre and State Survey was adopted in August 2009. Serbia, with World Bank assistance, completed a seven-year cadastre modernization project in May 2012. For the first time in its history, Serbia now has the basis for an organized real estate cadastre and property title system. The new system is expected to mitigate the problem of unlicensed building construction and to spur development of the mortgage market. However, the problem of legalizing tens of thousands of structures built without proper licenses over the past twenty years remains. Serbia also maintains a register of movable property under the authority of the Agency for Business Registers.

The World Bank Doing Business 2013 report ranks Serbia 41 of 185 countries with respect to time required to register real property (an average of 11 days). Although this is a slight decline from its 2012 ranking (39th place), it represents a significant improvement over Serbia's 2011 ranking (100th place).

Serbia's 2005 Law on Mortgages authorizes banks to issue mortgages on buildings under construction. (The previous law did not permit the registration of unfinished buildings in land registries, making it difficult to secure loans during construction.) The FIC has recommended extensive legislative changes in order to harmonize the mortgage laws with the 2009 Law on Planning and Construction. Citing the law's many omissions and unclear provisions, the FIC suggests that the Mortgage Law be completely redrafted.

Serbia has an adequate body of laws for the protection of property rights, but enforcement of property rights through the judicial system can be extremely slow. The World Bank Doing Business 2013 report, for example, ranks Serbia 103 of 185 countries with respect to time required to enforce a contract through the courts (635 days on average). This ranking reflects a slight decline from Serbia's 102 ranking in 2012 and 94 ranking in 2011.

Intellectual Property Rights

Serbia modernized its basic IPR legislation from 2004-2011, bringing its domestic IPR laws into conformity with international agreements, principles, and standards. From 2009 through 2011, the National Assembly enacted seven new IPR laws, each dealing with a particular form of intellectual property rights: the Law on Trademarks (2009); the Law on Indications of Geographical Origin (2010); the Law on Copyrights and Related Rights (2009); the Law on Protection of Topographies of Integrated Circuits (2009); the Law on Protection of Industrial Designs (2009); the Law on Optical Discs (2011); and the Law on Patents (2011). These laws, together with other legislation passed in recent years, extended legal protections to all major forms of IPR – patents, trademarks, copyrights, rights of performers and producers, industrial designs, integrated circuits, etc – and represented a significant achievement.

The most significant remaining legal steps for the modernization of Serbia's IPR regime are:

-- amendments to the Criminal Procedure Code and related procedural laws, particularly in the area of cyber-crime; and

-- the adoption of implementing regulations for various IPR laws.

In December 2012, Serbia took a step backward concerning its IPR laws when the National Assembly passed amendments to the Copyright Law that: exempted small businesses from paying royalties for copyrighted music played on their premises; capped remuneration fees paid to collection organizations representing the music industry; and required businesses to pay one collective bill for music rights, rather than separating payments to collection organizations representing different segments of the music industry (artists, authors, and producers). The government disregarded complaints by international collection organizations, AmCham, the European Commission, the U.S. Embassy, and other concerned parties that the amendments were inconsistent with World Trade Organization (WTO) and EU standards and with Serbia's obligations under applicable international IPR agreements.

Serbia is a World Intellectual Property Organization (WIPO) member and a signatory to all key agreements administered by WIPO. Steps have been taken to implement and enforce the WTO Trade-Related Aspects of Intellectual Property Rights (TRIPS) Agreement. TRIPS-compliant provisions are included in Serbia's intellectual property rights (IPR) laws and enforced by courts and administrative authorities. The Serbian government signed and ratified the WIPO internet treaties on June 13, 2003.

The Serbian government is now focused on effective IPR enforcement. On June 23, 2011, the Government of Serbia adopted a Strategy on Intellectual Property Development for the period of 2011-2015 in an effort to strengthen IPR protections. Pursuant to the strategy, the government established a Permanent Coordination Body on December 5, 2011, to coordinate the IPR enforcement activities of the Tax Administration, Police, Customs, and state inspections services.

Despite these positive steps, Serbia's record on enforcement of its IPR laws remains mixed. Pirated optical media (DVDs, CDs, software) and counterfeit trademarked goods, particularly athletic footwear and clothing, are easily available, though the government has stepped up its actions to combat illegal street sales and to seize pirated goods at the border.

Government efforts to combat software piracy have been somewhat effective -- the estimated rate of software piracy has fallen from about 99 percent ten years ago to approximately 72 percent in 2011, according to the Business Software Alliance (BSA). The BSA estimated the value of the illegal software market in Serbia at USD 116 million.

Illicit internet downloading of music and films remains a serious issue. Film and music industry representatives estimate that more than 95 percent of the films and music downloaded in Serbia is downloaded through unauthorized channels.

The European Commission offered the following assessment of Serbia's IPR enforcement activities in its 2012 Progress Report for Serbia:

Some progress was registered in the field of enforcement. The Intellectual Property Office (IPO) conducted a large number of training events for government enforcement agencies and organized promotional activities for stakeholders. No solution has yet been found to the issue of the long-term financial sustainability of the IPO. The Customs Administration of Serbia developed its IT capacity for use in IPR protection. The level of counterfeit goods that it has seized has gone up. The administrative fee for submitting a request for intellectual property rights enforcement has been revoked, leading to an increase in requests. In the course of 2011, the Tax Administration was involved in launching three registers (of producers, of distributors, and of software) in collaboration with IPR holders, with a view to facilitating its work and its checks.

The EC Progress Report continues:

The Market Inspectorate of the Ministry of Foreign and Domestic Trade and Telecommunications was given the use of twelve warehouses across Serbia for the storage of counterfeit and pirated goods. The number of goods that it confiscated in the first half of 2012 significantly increased with respect to 2011. However, the number of checks carried out by the Tax Administration has declined. A formal coordination mechanism between the institutions in charge of IPR protection is still lacking. The participation of economic operators and consumers in preventing counterfeiting and piracy remains limited. Regarding judicial protection of intellectual property rights, the Law on Territorial Organization of Courts in Serbia still needs to be amended to allow judges to specialize and IPR cases to be concentrated in a limited number of courts. Further specialization of prosecutors, judges and court panels handling IPR cases remains to be ensured.

The EC concluded that "good progress was made in the alignment of Serbian intellectual property law with the acquis. The national IPR strategy 2011-2015 is being implemented and capacity has been strengthened. A formal coordination and cooperation mechanism between the institutions in charge of IPR protection still needs to be established. Specialization of prosecutors, judges and court panels handling IPR cases needs to be ensured. Overall, alignment in the area of intellectual property law is advanced."

According to the proceedings of the American Chamber of Commerce's 2012 IPR conference, Serbia's leading IPR event:

One of the major problems in IPR in Serbia is unbalanced, slow, and often inefficient legal protection. The solution lies in specialized courts and judges for these cases. It is necessary to enable more efficient procedures for presenting evidence in cases of high-tech crime. What is also necessary is more efficient access to information on temporarily-impounded goods at customs facilities, which includes photographing confiscated items and sending them to the rights holder by e-mail for faster identification of counterfeited products. This would significantly reduce costs and speed up the procedures for identifying goods suspected of breaching intellectual property rights. A special problem is the uncoordinated approach toward the destruction of confiscated goods, resulting in high costs of storage for the state administration. (http://www.amcham.rs/events/news.95.html?nId=701)

Transparency of the Regulatory System

Serbia's record on transparency of the regulatory system is mixed. Many government procedures that affect investors are opaque, with limited opportunities for investors to consult with government regulators on measures affecting their businesses. For example, the Ministry of Energy, Development and Environmental Protection developed a new regulatory regime for investments in renewable energy in late 2012-early 2013 without adequate consultations with major renewable energy investors.

Regulations are sometimes applied unevenly, or in a discriminatory manner. For example, a leading U.S. investor complained to the U.S. Embassy in November 2012 that the Ministry of Agriculture, Forestry and Water Management strictly enforces fruit drink labeling regulations on its products, but takes no action against apparent violations by domestic producers of competing products.

Some governmental bodies have a very good record of transparency. The Ministry of Finance and Economy, for example, maintains a comprehensive website with extensive information about existing regulations, legal and regulatory proposals, data on the government budget, public debt, and so on. When the Ministry proposed a series of revenue-raising measures in late 2012 to address Serbia's rising budget deficit and public debt, Ministry officials conducted extensive public briefings for interested parties, with ample opportunities to comment on and pose questions about the proposals.

The process for public participation in the drafting of new laws is inconsistent. There is no legal requirement for public comment on proposed laws and regulations; the decision to invite public comment is left to the ministry responsible for the legislation or rule. Some major pieces of draft legislation are printed online on ministry websites or the website of the National Assembly, and the public can weigh in during scheduled, open meetings in Belgrade and other major cities. In other cases, draft laws and regulations are formulated within the government with little or no public participation, and the public has limited opportunity to learn the precise content of the law before its passage and publication in Serbia's "Official Gazette."

This inconsistency has been exacerbated by a high volume of new laws and amendments to existing laws adopted by the new Serbian government in the latter half of 2012. Certain pieces of legislation were rushed through the National Assembly with little public or expert consultation (e.g., amendments to the Law on the National Bank of Serbia), while others underwent various levels of public scrutiny before being sent to the National Assembly (e.g., the new Public Procurement Law). The European Commission's 2012 Progress Report for Serbia highlighted the rushed nature of the passage of these and other laws or amendments: "The drafting process continues to lack transparency, sufficient structure and time for effective consultation of all interested parties, which would also make the legal environment more predictable."

The government's "regulatory guillotine" project, initiated in 2009, continues to streamline laws and regulations that impede businesses by removing those that are unnecessary, outdated, or contradictory. Of the 340 recommendations for regulatory reform under the "regulatory guillotine" process, 212 (or 70 percent) were implemented by the end of September 2012, accounting for an annual savings of approximately USD 170 million for businesses. Implementation of 26 of the recommendations remains in progress. An additional 66 recommendations, including key reforms in areas such as construction permits, inspections, and labor legislation, still await implementation. (The remaining 36 recommendations were abandoned following a Serbian government analysis.) Despite these efforts, the implementation of new laws and regulations remains slow. The government is preparing a regulatory reform strategy and action plan for 2013 to accelerate the regulatory guillotine process and further cut red tape.

In September 2012, the Government of Serbia eliminated 138 so-called "para-fiscal" charges imposed by various local governments that add to the financial and regulatory burden on businesses in Serbia. Many of these charges are imposed and administered in a non-transparent manner. The 138 charges eliminated represent a portion of the 370 fees identified in an April 2012 study by USAID's Business Enabling Project. The charges amounted to more than two percent of Serbia's GDP, but provided little to no benefit to business or citizens. Eliminating the 138 charges was considered a significant step in improving business conditions by various institutions, including the National Alliance for Local Economic Development, various employers' associations, and the American Chamber of Commerce in Serbia.

The 2013 World Bank Doing Business Report, which measures the efficiency of business regulation across 185 countries, ranks Serbia 86th (up from 95th place in 2012). The report recognized Serbia as one of the top-ten most improved countries in 2012. Serbia's improvement in the rankings was attributable largely to a 49-place jump in "starting a business" (from 91st place in 2012 to 42nd in 2013) and a 17-place jump in "resolving insolvency" (from 120th place in 2012 to 103rd in 2013).

The World Bank report indicates that Serbia continues to lag in other key areas. Serbia's worst ranking is in "dealing with construction permits" – 179th out of 185 economies (a one-place drop compared with 2012). The World Bank report cited excessive red tape, high costs, the eighteen different procedures, and length of time (an average of 269 days) required for procuring a construction permit as factors in the low ranking. Serbia is also low-ranked in the categories of "paying taxes" (149th place, down from 145th in 2012) and "enforcing contracts" (103rd place, down from 102nd in 2012).

There are a number of local Serbian organizations that publish recommendations for government action to improve the transparency and efficiency of business regulations. The Foreign Investors Council publishes an annual "White Book" that offers concrete proposals for the improvement of Serbia's business climate, including suggestions for ease of doing business in specific business areas. (The White Book is available at the following link: http://www.fic.org.rs/cms/item/whitebook/en.html.) The National Alliance for Local Economic Development NALED publishes a "Grey Book"

(http://www.naled-serbia.org/documents/lavirint/Grey%20Book%20III.pdf) with recommendations for removing administrative obstacles to doing business in Serbia. The American Chamber of Commerce in Serbia publishes similar materials at its website: http://www.amcham.rs/home.9.html.

Efficient Capital Markets and Portfolio Investment

Serbia's financial sector successfully weathered the 2008 global financial crisis, largely because of conservative banking policies and regulations that require high capital adequacy ratios and high liquidity for banks operating in the country. Serbia experienced no bank failures or bailouts during the crisis, though a number of state-controlled banks have since had financial difficulties as a result of mismanagement and, in one instance, alleged corruption. The banks honored all withdrawal requests during the financial crisis and appear to have regained consumer trust, as evidenced by the gradual return of the withdrawn deposits to the banking system during 2009 and 2010. By September 2012, savings deposits in the banking sector reached USD 9.22 billion, exceeding the pre-crisis, October 2008 level.

The banking sector comprises 91 percent of the total assets of the financial sector in Serbia. As of September 2012, consolidation had reduced the sector to 33 banks with total assets of USD 33 billion (about 80 percent of GDP), with 74 percent of the market held by foreign-owned banks. The top ten banks, with country of ownership and estimated assets (in Euros) are: Banca Intesa (Italy, 2.9 billion); Komercijalna Banka (Government of Serbia (40%) European Bank for Reconstruction and Development (25%, 2.2 billion); Raiffeisen Bank (Austria, 1.9 billion); UniCredit Bank (Italy, 1.5 billion); Eurobank EFG (Greece, 1.4 billion); Hypo Alpin-Adria-Bank (Austria, 1.4 billion); AIK Banka Nis (Serbia, 1.1 billion); Société Générale Banka ( France, 1.0 billion); Vojvodjanska Banka (Greece, 830 million); and Alpha Bank (Greece 750 million).

Credit is allocated on market terms. Average interest rates are high, and business leaders in Serbia cite tight credit policies and the high expense of commercial borrowing as impediments to business. According to the National Bank of Serbia (NBS), the average interest rate for business loans (in November 2012) was 7.24 percent, compared to 4 percent in Germany, 6.5 percent in Spain, and 6.24 percent in Italy. The average interest rate on a mortgage loan in Serbia was 4.7 percent. Most mortgage lending, and much commercial lending, is done in Euros to provide lower rates to borrowers and minimize exchange rate risks to lenders.

The business community has actively lobbied the NBS to lower its reserve requirements for commercial banks in an effort to secure easier, cheaper credit. The NBS has resisted, arguing that its high reserve requirements are necessary to maintain the health of the banking system and the overall stability of the economy. A new NBS governor, appointed in August 2012, confirmed the NBS' intention to maintain strict reserve requirements. (The new Serbian government, which assumed power in July 2012, enacted amendments to the Law on the National Bank of Serbia that undermined the NBS' independence and led to the resignation of the sitting governor. The new governor has largely adhered to the NBS' traditionally conservative oversight policies with respect to the financial sector.)

The high rate of non-performing loans in the banking sector is problematic. The non-performing loan rate increased from 16.9 percent of total loans issued at the end of 2010 to 19.9 percent as of September 2012. In addition, there are significant foreign exchange risks in the banking sector, as 75 percent of all outstanding loans are indexed to foreign currencies (primarily the Euro). A sudden, swift depreciation of the dinar would cause repayment difficulties for a large number of borrowers who receive wages in dinars but whose loans are indexed to the Euro. The dinar weakened significantly throughout the first seven months of 2012, decreasing more than 11 percent versus the Euro and causing the central bank to sell more than EUR 1.33 billion (USD 1.73 billion) on the forex market to prop up the fragile dinar.

Portfolio investments are efficiently regulated. From January-October 2012, Serbia attracted USD 1.2 billion in portfolio investment from abroad.

The Serbian government regularly issues T-bills to finance the budget deficit. In 2009, the Serbian Treasury began to issue dinar-denominated T-bills for three-month, six-month, and 12-month terms. The program expanded in 2010 to include 18 and 24-month issuances, and again in 2011 to include a 36-month issuance. In January 2012, the government issued five-year T-bills for the first time. Purchase rates over the last two years have fluctuated widely, from as little as two percent (in June 2012 for three-year T-bills) to fully subscribed. Purchase rates since the formation of the new government in July 2012 have ranged between 22 to 100 percent. The total value of dinar-denominated T-bills reached USD 4.7 billion as of the end of 2012.

In September 2011, the Serbian government successfully issued its first Eurobond, selling USD 1 billion of Euro-denominated bonds bearing a 7.25 percent interest rate. The government issued another USD 1 billion worth of ten-year Eurobonds (bearing a 6.625 percent coupon rate) on September 28, 2012, and an additional USD 750 million in five-year Eurobonds (bearing a 5.25 percent coupon rate) in mid-November 2012. U.S. financial companies reportedly purchased more than half of these Eurobond issuances. With both dinar-denominated T-bills and Eurobonds included, the total stock of Serbian government-issued debt instruments stood at USD 7.5 billion at the end of 2012.

To meet its 2013 financing requirements, the Serbian government has announced plans to issue additional Eurobonds and to borrow directly from foreign governments, reportedly including Russia, China, and the United Arab Emirates.

Unfavorable public-debt dynamics resulted in sovereign debt rating downgrades for Serbia in August 2012. Standard and Poor's (S&P) downgraded Serbia's sovereign debt rating from BB to BB- with a negative outlook. Fitch Ratings followed by downgrading Serbia's outlook from stable to negative, but affirmed Serbia's long-term credit rating at BB- and its short-term rating at B. According to the World Bank, the credit rating downgrades could impede the Serbian government's ability to finance its deficits (though Serbia's successful Eurobond issues in late 2012 suggest otherwise). The World Bank cautions that further downgrades may follow if current risks to fiscal and debt sustainability are not adequately addressed.

Serbia has a capital market infrastructure, but the equity and bond markets are underdeveloped. Corporate securities and Republic of Serbia bonds are traded on the Belgrade Stock Exchange (BSE). Out of 1,091 companies listed on the exchange, shares in fewer than 100 companies trade regularly (i.e., more than once a week). The total annual turnover at the BSE was halved in 2009 to EUR 442 million (USD 575 million) and halved again in 2010 to approximately 222 million Euros (USD 289 million). The Exchange recovered slightly in 2011 to reach a turnover level of approximately EUR 280 million (USD 364 million), but declined again in 2012 to EUR 220 million (USD 286 million). These levels are far below the turnover on the BSE prior to the 2008 financial crisis -- in 2007 total turnover reached 2.2 billion Euros (USD 2.9 billion). The BSE's low turnover in the past four years is attributed to the crisis in the Eurozone and the struggling global economy.

Since 2010, the Serbian National Assembly has adopted or amended a number of laws governing capital markets and the financial system. The legislative measures are intended to develop the domestic capital market, increase the availability of dinar loans, and stimulate investment, while harmonizing Serbia's financial laws with those of the EU. For example, a new Capital Markets Law, which was developed with USAID support, was adopted in May 2010. The law was amended in the fall of 2012 to enable municipalities to issue bonds to institutional investors and on the securities market. The Foreign Exchange Law underwent major revisions in May 2011. It was amended again in December 2012 to authorize Serbian citizens to conclude transactions abroad through Internet payment systems, such as Pay Pal.

The Securities Commission (SC), established in 1995, regulates the Serbian securities market. The SC supervises investment funds in accordance with the Investment Funds Law, which came into force in January 2006 (as amended in July 2009 and May 2011). As of January 2013, 20 registered investment funds operate in Serbia.

Competition from State-Owned Enterprises

Serbia maintains 35 large State-Owned Enterprises (SOEs) and more than 650 municipal enterprises in select sectors of the economy. SOEs dominate many of the leading sectors of the economy, including energy, transportation, utilities, telecommunications, infrastructure, mining and natural resources. According to the European Commission's October 2012 Progress Report for Serbia, SOEs incur approximately EUR 1.0 billion (USD 1.3 billion) in combined losses annually, approximately 40 percent of all losses in the economy. The losses amount to approximately 3.5 percent of GDP. In addition, total government subsidies and transfers to state enterprises amount to an estimated 2.3 percent of GDP.

Serbian law explicitly authorizes the establishment of SOEs in the following sectors: production, transmission, and distribution of electricity; production and processing of coal; production, processing, transport and distribution of crude oil, natural gas and liquefied natural gas; trade in crude oil and oil derivatives; railways; postal services; air traffic services; telecommunications; issuance of the official gazette of the Republic of Serbia; publishing of school books; management of nuclear facilities; use, management, protection and development of "public interest goods" (including water, roads, mineral resources, forests, rivers, lakes, shores, hot springs, wild game, and protected areas); production, trade and transportation of arms and military equipment; waste management; and utility services.

Recent Serbian governments have treated SOEs as political prizes to be divvied up among political parties in the ruling government coalition. SOE managers often are politicians or party activists appointed because of their political connections rather than their management skills or substantive expertise. In an effort to reverse the politicization of public enterprises and put them under more professional management, the National Assembly adopted a new Law on Public Companies in December 2012 that requires all SOE directors to be selected through a public tender process by mid-2013. The law permits an SOE director to maintain a political party membership, but bars him or her from exercising political party functions while serving as director. The new law also abolishes SOE Managing Boards, relics of the socialist period that served primarily as a means of rewarding political party members.

The 2012 law also introduced greater transparency into the work of public companies by requiring them to publish quarterly financial reports, plans, and all tenders on their websites. The law makes explicit that private entities, including companies and entrepreneurs, are entitled to equal treatment with public companies in the marketplace, unless otherwise provided by law.

In some economic sectors dominated by SOEs, Serbia has started opening or preparing for the opening of markets to competition. In telecommunications, for example, the Norwegian mobile-telephone provider Telenor won a 10-year renewable license from Serbia's Telecommunications Agency (RATEL) in 2010 to operate telephone landlines, thereby ending state telecom operator Telekom Srbija's landline monopoly. In 2011, the Serbian government attempted to privatize state-owned Telekom Srbija, though the privatization failed.

In energy, the government sold a majority share in the former state-owned petroleum company Naftna Industrija Srbije to Russia's Gazpromneft in 2008. Full liberalization of the domestic oil and oil derivatives market commenced on January 1, 2011. Although electricity production remains the monopoly of state-owned power utility Elektroprivreda Srbije (EPS), private trading in electricity is permitted and a flourishing, private, cross-border power market has developed. The Energy Act 2011 envisages gradual liberalization of the Serbian energy market by the introduction of market-based mechanisms for determining energy prices, an incentive structure for developing renewable energy sources by private companies, and free choice of electricity suppliers for all consumers by January 1, 2015.

Serbia encourages foreign participation in the privatization of state-owned or "socially- owned" enterprises. As of the end of 2012, foreign entities and citizens have purchased 177 companies through the privatization process. Foreign investors and entities may not, however, establish enterprises in the defense sector or areas legally designated as restricted zones, although they may acquire minority rights in such investments, subject to Ministry of Defense approval.

Recent, high-profile attempts to privatize large, state-owned companies have not been successful. A tender for 51 percent of Telekom Srbija shares failed in 2011 because the offer of the sole bidder, Telekom Austria, was lower than the prescribed minimum-offer price (EUR 1.4 billion). In 2012, the Serbian government rolled back a prior, partial privatization of Telekom Srbija by paying USD 495 million to buy back a 25 percent stake held by Greek telecom operator Hellenic Telecom (OTE). Serbian government officials suggested that full government ownership would make Telekom Srbija easier to privatize in a future tender, and indicated that the minimum purchase price would be EUR 2.5 billion (USD 3.3 billion).

The Serbian government initiated a second attempt to privatize JAT Airways on August 1, 2011, but attracted no bids. Serbian officials maintain that JAT will be restructured and/or privatized, and the new government has organized a working group to address the issue. The government also opened a tender in 2012 for the sale of loss-making Zelezara Smederevo steel works, which U.S. Steel sold back to the government for a nominal EUR 1 in January 2012. The government has extended the tender process twice thus far, reportedly at the request of an interested company, Russia's UralVagonZavod.

Additionally, on December 13, 2012, the Serbian government ordered the Ministry of Finance and Economy to locate a strategic partner for the deeply indebted, state-owned pharmaceutical company Galenika. The Ministry announced that an international tender privatization of Galenika will be opened in early 2013. The Ministry also announced plans to sell state-owned Privredna Banka Beograd in 2013.

Other large, state-owned enterprises are potential future candidates for privatization of all or a portion of their shares, including: Belgrade's Nikola Tesla airport; state-owned power utility EPS; the state railway company; and the remaining nine state-owned banks. However, the Serbian government stated in its "Fiscal Strategy for 2013 and Projections for 2014 and 2015" that it will sell only those companies that face competition in their specific markets on grounds that they could potentially increase their competitiveness by a sale to strategic partner. Pursuant to this policy, the Serbian Prime Minister announced in late 2012 that the government will not sell certain state-owned monopolies, e.g., power supplier EPS, and will maintain a majority share in the railways, postal services, and Belgrade's airport.

The number of "failed privatizations" has exceeded 27 percent since the beginning of the privatization process in 2000. Over the past ten years, a total of 2,350 companies were privatized; of this figure, 646 privatization contracts (27 percent) were annulled because of the buyers' failure to fulfill the contract terms.

Approximately 535 companies still await privatization, their prospects clouded for a variety of reasons. Approximately 170 of these companies are designated as "in restructuring;" most companies in restructuring are highly indebted, overstaffed, lack markets for their products, and survive on government subsidies, rendering them relatively unattractive to potential buyers. On December 15, 2012, Serbia adopted amendments to the Privatization Law that set a deadline of June 30, 2014 for resolving the status of companies in restructuring, which will force them to either find a buyer or enter bankruptcy proceedings.

Efforts at privatization are sometimes complicated by ownership disputes, some of which are the legacy of Yugoslavia's dissolution (i.e., joint ownership with enterprises in former Yugoslavia that are now separate, sovereign nations). Many other companies on the privatization list were returned to the Privatization Agency following the annulment of privatization contracts. Finally, privatization of "socially-owned entities" (a Yugoslav-era designation distinguishing "worker-owned" firms from larger, state-owned firms) has stalled. A 2008 Law on Privatization stipulated that all socially-owned entities were to have been privatized by the end of 2008, but many of these entities continue in existence with no productive activity.

Corporate Social Responsibility

Corporate social responsibility (CSR) is a relatively new concept in Serbia and remains poorly understood by the Serbian public. The business sector is gradually becoming more familiar with the concept of CSR, though many Serbian companies view CSR mainly as a public relations tool to help improve their image or reputation. Although the largest Serbian companies have a growing awareness of the importance of CSR, multinational companies that possess wide experience in this field are its primary and most effective practitioners. The corporate sector has become more active over the last few years in partnering with NGOs and other relevant organizations to organize events and conferences to raise awareness of CSR principles.

In general, the Serbian public has a limited understanding of CSR principles and is often skeptical about the intentions of the business sector. According to CSR surveys conducted over the last two years by the Synovate market intelligence agency, only 34 percent of 2,241 respondents had heard of the concept and only 11 percent were able to give an example. The survey also suggested that consumer pressure is unlikely to motivate the corporate sector to be more socially responsible, as 60 percent of respondents said they would buy a product regardless of whether its manufacturer acts in conformity with ethical principles.

Several local organizations actively promote the concept of CSR in Serbia. The American Chamber of Commerce in Serbia (AmCham), for example, actively promotes CSR principles among its member companies and the wider Serbian business community and public. AmCham maintains a CSR web-page with member success stories and publishes a CSR-themed e-newsletter, available at: http://www.amcham.rs/corporate_social_responsibility_(csr)/amcham_members_success_stories.22.html, and http://www.amcham.rs/corporate_social_responsibility_(csr)/csr_e-news.140.html. Through these tools, AmCham has published more than 50 reports about its members' CSR initiatives and activities. In 2012, AmCham launched an educational program, AmCham Academy, for young, prospective managers to learn from top business leaders on leadership, corporate governance, and other topics.

USAID sponsors the annual Virtus Awards for Corporate Philanthropy, which recognizes companies that most effectively and efficiently support non-profit actions or organizations for the public good. The award has been presented for the last six years by the Balkan Community Initiatives Fund (BCIF) to companies that have demonstrated the highest degree of social responsibility in Serbia. The latest round of awards was held in January 2013, honoring corporate recipients for their philanthropic activities on the national and local levels and for their long-term cooperation with non-governmental organizations. In cooperation with USAID, BCIF also supports the Serbian Philanthropy Forum, a networking body for donors (including numerous corporate actors) to advance philanthropic concepts in Serbia.

USAID also promotes CSR through its partnership with a Serbian organization, Smart Kolektiv, whose outreach and advocacy efforts encourage corporate volunteer programs and other forms of community engagement. Smart Kolektiv staffs the Business Leaders ' Forum, which engages prominent businesspeople (increasingly from Serbian, rather than multinational, companies) to address socio-economic and community challenges.

Since its launch in Serbia in 2007, the UN Development Program's (UNDP) Global Compact initiative has organized a number of educational events intended to strengthen capacity in areas relating to CSR. Global Compact is a voluntary international network of companies and non-corporate actors committed to improving human rights, labor practices, environmental protection, and anti-corruption efforts. All UNDP Global Compact members are obliged to incorporate theses principles in their business practices. In Serbia, Global Compact has created a five-member Steering Committee, a Secretariat maintained by UNDP Serbia and the National Bank of Serbia, and five working groups.

In December 2012, the UN Global Compact held its Annual Assembly in Belgrade to highlight its local activities. Among the notable achievements of Global Compact members were: a donation of 500 books to a local library, assistance to elderly and disabled persons in rural areas, and the organization of conferences on "Business Principles and Children's Rights" and "Principles of Empowering Women" (attended by the President of Serbia). Belgrade also hosted the Third Annual Meeting of the European Network of the Global Compact in October 2012. During the two-day conference, domestic Global Compact representatives joined 55 members of delegations from 21 local European networks to promote the fight against corruption, among other topics.

Political Violence

Since October 2000, Serbia has been led by democratically elected governments that have publicly committed to supporting stability and security in the region.

There have been periodic spikes in political tension and threats of politically motivated violence in both the Sandzak region and south Serbia. In the Sandzak region, these tensions have led to sporadic, localized violence between competing political groups. This violence is usually directed at opposing party figures and has not targeted unrelated civilians or businesses

Immediately following Kosovo's February 17, 2008 declaration of independence from Serbia, groups twice broke away from larger demonstrations and attacked embassies of countries that had recognized Kosovo, including the U.S. Embassy in Belgrade. Since these attacks in February 2008, there have been no major violent incidents in Serbia related to Kosovo. However, extremists from Serbia regularly have been accused of fomenting and participating in politically motivated violence in northern Kosovo.

The October 10, 2010 Pride Parade in Belgrade was marred by significant violence. Approximately 6,000 demonstrators, mostly young soccer hooligans and nationalist extremists, attempted to attack and disrupt the parade. When police prevented them from reaching the parade, they attacked several buildings, including foreign embassies and political party headquarters, in downtown Belgrade. The rioters injured 147 police officers and caused approximately USD 1.4 million in property damage. The Serbian government cancelled the planned October 2011 and October 2012 Pride Parades at the last minute, ostensibly because of threats of violence by the same nationalist and extremist groups that attempted to disrupt the 2010 parade.

Following the assassination of Serbia's prime minister in the spring of 2003 by a criminal group, the Serbian government launched a crackdown on organized crime. Starting in 2008, the government passed and began implementing new legislation to strengthen the tools available to law enforcement and prosecutors to combat organized crime. The previous government increased law enforcement cooperation with other governments in the region. The government elected in 2012 has pledged to continue these efforts, and has already registered some high-profile arrests and investigations.

In September 2011, the National Assembly adopted a new Criminal Procedure Code. The Code is intended to make the criminal justice system more effective and efficient by, among other reforms, introducing prosecutor-led investigations and expanding the use of cooperating witnesses and guilty pleas. The new Code took effect in January 2012 for the specialized courts for organized crime and high-level corruption and for war-crimes cases. It is scheduled to take effect nationwide in October 2013, although it is currently undergoing some significant revisions in consultation with U.S. government experts. In November 2012, the National Assembly passed an amnesty law reducing the sentences of thousands of convicts, including many convicted of involvement in organized criminal activities.

Organized crime in Serbia is frequently linked to sports hooliganism. In 2009, sports hooligans in Serbia attacked and killed a visiting French national. The government responded with a renewed crackdown on organized crime and sports clubs promoting hooliganism. In October 2010, Serbian ultra-nationalist soccer hooligans clashed with Italian police in the northern Italian city of Genoa during the two countries' Euro 2012 qualifying game. At least sixteen people were hospitalized and 17 Serbian fans were arrested after violent riots caused a 40-minute delay in the match, and then forced the game to be abandoned after six minutes of play. Serbian officials expressed concern afterwards about a right-wing extremist plot against Serbia's entry into the European Union. Security forces increased their presence substantially at all ensuing international soccer matches in Serbia. In January 2012, hooligans attacked visiting Croatian fans in Novi Sad and Ruma, resulting in several injuries, and set fire to visitors' cars in Novi Sad during the Euro 2012 handball championships held in Serbia.

A number of ultra-nationalist organizations, such as "Obraz" and "Nasi," are active in Serbia. Popular support for such organizations appears to be very limited. In 2012 these organizations issued numerous statements and so-called "blacklists" targeting certain Serbian political leaders, local NGOs, and media outlets alleged to be "pro-Western." To date, the calls of these organizations for action against their targets have not resulted in any violent incidents.


Although difficult to quantify, corruption in Serbia is believed to be pervasive. Serbia ranked 80 of 174 countries in the 2012 Corruption Perception Index survey compiled by Transparency International, an international, anti-corruption watchdog organization. Serbia's ranking improved compared to 2011 (86th place).

In an effort to combat corruption, the Serbian National Assembly in 2008 approved the creation of an Anti-Corruption Agency (ACA). The ACA began functioning on January 1, 2010 as an independent governmental body accountable to the Serbian National Assembly. The ACA is charged with unifying current anti-corruption activities, including: enforcing the National Strategy to Fight Corruption; monitoring conflicts of interest; tracking politicians' property and assets; monitoring political party financing; and facilitating international anti-corruption cooperation.

During 2012, the ACA continued filling vacancies and hired a number of highly qualified experts. The ACA suffered a setback in November 2012, however, when its first Director, Zorana Markovic, was dismissed in the wake of allegations of abuse of authority arising from the purported misuse of state-owned apartments. The ACA managing board selected a new Director, Tatjana Babic, in January 2013. Babic had served as the ACA's Acting Director since the dismissal of her predecessor.

The ACA played a significant role in Serbia's 2012 parliamentary and presidential elections. For the first time, the ACA verified asset disclosure forms of both former and new public officials, reviewed new public officials for conflicts of interest, and examined election financing. During the summer of 2012, the ACA compiled a series of reports on former members of the government who had failed to disclose all of their assets. The ACA also uncovered several conflict of interest cases involving Serbian public officials and referred a number of them to appropriate investigative authorities. The ACA's evaluation of election financing, however, encountered delays, and as of the end of 2012, the ACA had not produced complete results of political party financing during the 2012 elections.

Since its formation in the summer of 2012, the new Government of Serbia has made the fight against corruption a priority. The anti-corruption campaign has resulted in a number of highly-publicized arrests of prominent political figures and businessmen. In October 2012, Serbian authorities charged the minister of environment and spatial planning in the previous government and two of his associates with corruption and abuse of office in connection with construction deals in 2009 and 2010.

In November 2012, authorities arrested the former minister of agriculture and eight others on charges of corruption and suspected fraud arising out of the issuance of state grants to selected companies and the bankruptcy of a state-controlled bank, Agrobanka. An additional 19 persons were also arrested in connection with the Agrobanka case, including Agrobanka's executive board chairman. (Agrobanka allegedly issued large loans to politically connected enterprises without appropriate collateral or guarantees. The loans were never repaid, resulting in USD 369 million in losses.)

In December, authorities arrested one of Serbia's wealthiest and most powerful businessmen and his son for alleged abuses in the privatization of a road construction and maintenance company. In addition, the new government initiated an investigation of 24 allegedly suspicious privatization transactions, as recommended by the EU.

Serbia is a signatory to the Council of Europe Civil Law Convention on Corruption and has ratified the Council's Criminal Law Convention on Corruption, the United Nations Convention Against Transnational Organized Crime, and the United Nations Convention Against Corruption. Serbia is also a member of the Group of States against Corruption (GRECO), a peer-monitoring organization that provides peer-based assessments of members' anti-corruption efforts on a continuing basis.

Both giving and receiving a bribe is a crime in Serbia. Bribes by local companies to foreign officials are also criminal acts punishable by law. Corruption offenses are handled by higher courts and prosecutors' offices. On January 1, 2010, the Organized Crime Prosecutor's Office assumed jurisdiction over corruption-related offenses involving high-level public officials and cases involving more than USD 2.7 million in illicit proceeds.

The Criminal Code was amended at the end of 2012 to introduce a new corruption offense – abuse of authority in relation to public procurements – in response to the significant number of corruption cases in this area. The 2012 amendments also establish a distinction between abuse of public authority and abuse of private authority, making the latter a separate offense subject to criminal prosecution if it resulted in an unlawful benefit or significant damage. Serbian government officials indicate that drafting legislation to address corruption-related offenses by the private sector will be a priority in 2013.

In November 2010, the National Assembly passed amendments and addenda to the Anti-Money Laundering and Counter-Terrorism Law. Among other provisions, these amendments require banks and other financial institutions to gather data about legal and natural persons that electronically transfer money and to monitor unusual transactions. The amendments also expand the role of the Anti-Money Laundering Unit of the Ministry of Finance and Economy by vesting it with supervisory authority over a number of institutions and business, including money transmitters and factoring and forfeiting entities.

The Regional Anti-Corruption Initiative, originally organized under the auspices of the Stability Pact for South Eastern Europe, maintains a website with updates about anti-corruption efforts in Serbia: http://www.anticorruption-serbia.org/

Bilateral Investment Agreements

Serbia has concluded investment protection treaties/agreements with the following 51 countries: Albania, Algeria, Austria, Azerbaijan, Belarus, Belgium, Luxemburg, Bosnia and Herzegovina, Bulgaria, Russia, China, Cyprus, Croatia, Cuba, the Czech Republic, the Democratic People's Republic of Korea, Denmark, Egypt, Finland, Macedonia, Malta, France, Germany, Ghana, Greece, Guinea, Hungary, Holland, India, Indonesia, Iran, Israel, Italy, Kazakhstan, Kuwait, Libya, Lithuania, Nigeria, Montenegro, Poland, Portugal , Romania, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, the United Kingdom, Ukraine, and Zimbabwe.

The United States does not have a bilateral investment treaty or a double taxation treaty with Serbia. The United States extended duty-free privileges to qualified Serbian exports under the Generalized System of Preferences program in July 2005.

In April 2008, the Serbian government signed a Stabilization and Association Agreement (SAA) and Interim Agreement on Trade and Trade-Related Matters with the European Union. Implementation of the SAA's interim trade agreement with Serbia was put on hold over the issue of Serbia's cooperation with the International Criminal Tribunal for the Former Yugoslavia (ICTY). Serbia unilaterally applied the interim trade agreement beginning February 1, 2009. In December 2009, the EU Council of Ministers decided to implement the interim trade agreement following a positive report from the ICTY prosecutor on Serbia's cooperation. The European Parliament approved the SAA in January 2011. As of the end of 2012, 26 of the 27 EU Member States had ratified the SAA. Full implementation of the SAA cannot take place until Lithuania, the only EU member not to have ratified the accord, does so.

The Serbian government continues to pursue membership in the World Trade Organization. The government made steady progress in 2012 in multilateral and bilateral negotiations that are part of the WTO accession process. Multilateral negotiations are at an advanced stage. Serbia must still finalize bilateral negotiations with a handful of countries, including the United States.

The primary remaining obstacle in Serbia's WTO negotiations is the country's complete ban on the cultivation and trading of agricultural biotechnology products. According to the Serbian government's "Action Plan" for fulfilling European Commission recommendations to advance Serbia's European integration, the law will be amended to conform to the EU acquis and WTO rules in the first half of 2013.

Serbia has been a member of the Central European Free Trade Agreement (CEFTA) since December 19, 2006. CEFTA is a multilateral free-trade agreement among southeastern European countries, including: Croatia, Macedonia, Serbia, Montenegro, Bosnia-Herzegovina, Albania, Moldova and UNMIK/Kosovo. Croatia will cease to be a CEFTA member upon entry into the European Union in 2013. CEFTA's primary objective is to facilitate and expand trade and investment among its members, whose collective population is almost 30 million.

Serbia has concluded bilateral free trade agreements with Russia, Belarus, Kazakhstan, Turkey, and the European Free Trade Association states (Norway, Switzerland, Iceland, and Liechtenstein).

OPIC and Other Investment Insurance Programs

Serbia and Montenegro signed a bilateral agreement with the U.S. Overseas Private Investment Corporation (OPIC) in July 2001 and became eligible for OPIC programs in November 2001 upon the agreement's ratification. Following Serbia and Montenegro's separation, the agreement remained in effect with respect to Serbia.

OPIC products include:

-- insurance for investors against political risk, expropriation, damages due to political violence and currency convertibility;

-- insurance for certain contracting, exporting, licensing and leasing transactions;

-- medium- to long-term funding through direct loans and loan guaranties to eligible investment projects in developing countries and emerging markets; and

-- support for the creation of privately-owned and managed investment funds.

For complete information on OPIC programs, see: http://www.opic.gov.

In July 2009, OPIC severely restricted its programs for Serbia over an investment dispute involving a U.S. company that held OPIC policies on its Serbian investments. The Serbian government and the investor concluded a settlement agreement in January 2012 that led to the reinstatement of the full range of OPIC programs for Serbia the following month.

Serbia became a member of the Multilateral Investment Guarantee Agency (MIGA), a World Bank affiliate, in April 2002.


Serbia has a total labor force of approximately 2.86 million people, of which 2.20 million are employed, according to October 2012 figures from the Serbian Statistics Office (http://webrzs.stat.gov.rs/WebSite/Public/PageView.aspx?pKey=28). Approximately two-thirds of those employed work in the private sector, while one-third work in the public sector, which includes state-owned companies and the government. The unemployment rate as of October 2012 stood at 22.4 percent. The unemployment rate declined slightly from the previous year (23.7 percent in October 2011).

Labor costs are relatively low in Serbia. As of the end of 2012, the average net take-home salary was approximately USD 500. The minimum wage for the period April 2012 to February 2013 is set at approximately USD 250 per month.

Staff leasing, although frequently used in practice (and to a certain extent tolerated by labor authorities), is not regulated by Serbian law. As a result, there is a significant degree of legal uncertainty in this area.

Business associations, including AmCham and the Foreign Investors Council, advocate significant changes in Serbia's labor laws, which they view as highly favorable to the employee. Businesses assert that the rigidity of the labor laws is a disincentive to hiring new employees. Among the most problematic aspects of the labor laws in the view of business associations are:

-- a requirement that in cases of redundancy, the current employer pay severance based on an employee's total years of employment, rather than on the years of service with that employer;

-- strict and inflexible mandates concerning working hours, annual leave, and other conditions of employment;

-- excessive administrative burdens for employers (e.g., voluminous documentation requirements, physical signature requirements, lack of authorization for electronic signatures, document delivery or salary payments);

-- temporary, fixed-term employment contracts that are limited to 12 months (business associations favor a 36-month term); and

-- a chaotic system of collective bargaining at the national and industry levels under which the terms of labor agreements may be extended to all companies (either nationally or within a given industry), whether or not they were represented in the bargaining process.

According to AmCham, these and other regulatory shortcomings are coupled with a haphazard system of enforcement by the Labor Inspectorate and slow court procedures for resolving labor disputes.

Foreign investors can be particularly disadvantaged by Serbia's collective bargaining system. Industry-wide labor agreements are negotiated by the relevant labor unions and the Serbian Association of Employers, the sole employers' representative organization involved in collective bargaining. Most foreign investors are not members of the Association. Under the labor laws, the Ministry of Labor, Employment and Social Policy can extend collective agreements negotiated by the Association to all companies operating in the industry, including foreign-owned companies.

In this way, employers who do not participate in negotiations and the conclusion of these industry-wide collective agreements are compelled to abide by the obligations contained in them. Foreign investors often learn about the terms of the industry-wide collective agreements only after they are published. AmCham and the Foreign Investors Council criticize this practice on the grounds that it extends an agreement between two parties to a third party that did not participate in its negotiation, creating additional uncertainty for foreign investors. (In 2012, the Labor Ministry extended industry-wide collective agreements to all employers in Serbia in the following three spheres: chemical and non-metals industry; metals industry; and the construction and construction materials industry.)

A related organization, the Serbian Social and Economic Council, is an independent body comprising representatives of the Serbian government, the Serbian Association of Employers, and trade unions. The Council is authorized to conclude an umbrella collective bargaining agreement at the national level on basic employment conditions (minimum wage, working hours, etc.) for all companies in Serbia. The Council is also a leading venue for tripartite (government, labor, and business) discussions of significant labor and social issues, including: working conditions and terms of employment; the impact of economic policies on employment, wages and prices; competition policies; privatization; workplace health and safety; and education and professional training. Additional information about the Council is available at its website: http://www.socijalnoekonomskisavet.rs/en/index.html.

Foreign-Trade Zones/Free Ports

Serbia maintains eleven designated free-trade zones (FTZs): Subotica, Pirot, Zrenjanin, Kragujevac, Sabac, Novi Sad, Uzice, the Nis-based Free Zone South, Smederevo, Krusevac, and Svilajnac. FTZs, which are established in accordance with the 2006 Law on Free Trade Zones, are intended to attract investment by providing tax-free areas for company operations. Businesses operating in FTZs qualify for benefits that include: unlimited duty-free imports and exports; preferential customs treatment; and tax relief/VAT exclusions. Companies operating within an FTZ are subject to the same laws and governmental supervision as other businesses in Serbia (except for the tax-free privileges that the FTZ offers).

Goods moving in or out of the FTZs must be reported to the customs authorities and payments must be made in accordance with regulations on hard currency payments. Earnings and revenues generated within an FTZ may be transferred freely to any country, including Serbia, without prior approvals, and are not subject to any kind of taxes, duties or fees. The law allows up to 100 percent foreign ownership of the FTZ's managing company.

Additional information about Serbia's free-trade zones is available at: http://www.usz.gov.rs/en.html.

Foreign Direct Investment Statistics

The National Bank of Serbia (NBS) and the Republic Statistics Office report that net foreign direct investment (FDI) in Serbia, including goods and equipment, totaled approximately EUR 81 million (USD 105 million) from January-October 2012. FDI inflows in the period totaled approximately EUR 638 million (USD 829 million). FDI outflows during the period, at approximately EUR 557 million (USD 724 million, were unusually high, largely because of two large transactions. First, at the beginning of 2012, the state-owned telecommunications company, Telekom Srbija, re-purchased 20 percent of its shares from the Greek telecom operator Hellenic Telecom (OTE) for EUR 381 million (USD 495 million). Second, Norway's Telenor, owner of Serbia's leading mobile telephone service provider, transferred approximately EUR 176 million (USD 229 million) from Serbia to Denmark. According to SIEPA, political uncertainty stemming from the country's May elections contributed to a slow-down in FDI inflows in 2012.

Serbia's net portfolio investments totaled EUR 941.7 million (USD 1.2 billion) between January-October 2012. This represents a decrease from the same period in 2011, when it stood at EUR 1.63 billion (USD 2.12 billion). Full NBS balance of payment statistics can be found at: http://www.nbs.rs/internet/english/80/platni_bilans.html.

According to SIEPA, two-thirds of total investments in 2012 were greenfield investments. A number of large-scale projects (over USD 50 million) were completed in 2012. In April, production commenced at Fiat Group Automobile's EUR 947.0 million (USD 1.2 billion) automobile factory in Kragujevac. The French electric engineering company Schneider Electric opened a USD 132 million greenfield investment in a smart-grid technology development center in Novi Sad. U.S. tire manufacturer Cooper Tire and Rubber Company purchased a tire manufacturer in Krusevac as part of a USD 65 million investment. The U.S.-Canadian brewing company Molson Coors purchased Apatinska Brewery as part of a USD 3.3 billion corporate acquisition of Starbev brewing company and its nine brewery properties in Central and Eastern Europe. More common were small (up to USD 10 million) and medium-sized (between USD 10 million and USD 50 million) greenfield and brownfield investments.

The food processing and beverage industry was the leading sector for FDI in 2012, followed by retail, construction, real estate, the financial and insurance industry, IT and communications, transportation, and mining.

According to the NBS, Croatia was the leading investor by country in Serbia in 2012, followed by Switzerland, Italy, Austria, Germany, Cyprus, Bulgaria, the United Kingdom, the United States, and Luxemburg. (Note: Many firms, including U.S.-based firms, invest through subsidiaries registered in Luxembourg or the Netherlands.) According to the American Chamber of Commerce, U.S. companies have invested nearly USD 3.0 billion in Serbia to date.

The largest investors over the previous decade were:


Millions EUR

Millions USD




Gazprom Neft NIS



Fiat Group Automobiles






Philip Morris



Stada Hemofarm



Mobilikom Austria






The following are major FDI transactions completed or announced in Serbia in 2012:




Fiat Group Automobiles


USD 1.2 billion in an export-oriented automobile production plant in Kragujevac (production commenced in April 2012)

Schneider Electric DMS


USD 132 million in a smart grid technology IT development center in Novi Sad

Consortium of the Bulgarian companies Rubin and Glass Industry


USD 100 million acquisition of 63 percent of the Paracinka Glass Works Paracin



USD 94 million in a production facility for automobile windshield wipers in Pecinci

Boral Aluminyum Sanayi ve Ticaret Company


USD 73 million in an aluminum processing plant in Doljevac (South Serbia)

Cooper Tire and Rubber Co.

United States

USD 65 million in a tire plant in Krusevac



USD 28 million in a crystal processing plant in Subotica


Czech Republic

USD 27 million in an expansion of a tire plant in Ruma



USD 27 million in a meat industry waste treatment operation

Cooper Standard Automotive

United States

USD 26 million in a rubber automotive parts plant in Sremska Mitrovica



USD 24.8 million in a new factory for the production of home appliances in Valjevo



USD 22 million in a textile company in Subotica



USD 20 million in the construction of a biogas power plant in Bac



USD 20 million acquisition of a dairy company in Senta



USD 21 million in a shoe production facility in Vranje

Ditre Italia


USD 18 million in a furniture company in Vranje


Czech Republic/Serbia

USD 16 million in the construction of a wood pallet company in Sombor

Panasonic Lighting Europe GmbH


USD 16 million expansion of an electric components factory in Svilajnac



USD 14.5 million acquisition and brownfield investment in the textile company "Prvog Maja" in Pirot

Eurofoil/Drava International/JJS

Serbia/Croatia/United States

USD 9.3 million in a recycling facility in Bor