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Doing Business with Serbia
Second Edition
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1-905050-14-3_FM_iii_02/20/2006
GLOBAL MARKET BRIEFINGS
Doing Business with
Serbia Second Edition
Consultant Editor: Dr Marat Terterov
GMB GMB Publishing Limited
Publisher’s note Every possible effort has been made to ensure that the information contained in this publication is accurate at the time of going to press and neither the publishers nor any of the authors, editors, contributors or sponsors can accept responsibility for any errors or omissions, however caused. No responsibility for loss or damage occasioned to any person acting, or refraining from action, as a result of the material in this publication can be accepted by the editors, authors, the publisher or any of the contributors or sponsors. Users and readers of this publication may copy or download portions of the material herein for personal use, and may include portions of this material in internal reports and/or reports to customers, and on an occasional and infrequent basis individual articles from the material, provided that such articles (or portions of articles) are attributed to this publication by name, the individual contributor of the portion used and GMB Publishing Ltd. Users and readers of this publication shall not reproduce, distribute, display, sell, publish, broadcast, repurpose, or circulate the material to any third party, or create new collective works for resale or for redistribution to servers or lists, or reuse any copyrighted component of this work in other works, without the prior written permission of GMB Publishing Ltd. GMB Publishing Ltd. 120 Pentonville Road London N1 9JN United Kingdom www.globalmarketbriefings.com This edition first published 2006 by GMB Publishing Ltd. © GMB Publishing Ltd. and contributors Hardcopy ISBN 1-905050-14-3
E-book ISBN 1-905050-68-2
British Library Cataloguing in Publication Data A CIP record for this book is available from the British Library Library of Congress Cataloging-in Publication Data Doing business with Serbia/consultant editor Marat Terterov.– 2nd ed. p. cm. Includes index. ISBN 1-905050-14-3 1. Serbia–Commerce. 2. Serbia–Economic conditions. 3. Investments, Foreign–Serbia 4. Commercial law–Serbia. I. Title: Doing business with Serbia. II. Terterov, Marat. HF3732.5.D657 2006 330.94971–dc22 2005037397
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Contents Foreword Jasna Matic, Director, Serbia Investment and Export Promotion Agency (SIEPA)
ix
Foreword Miodrag Djordjevic, Director, Privatization Agency, Republic of Serbia
xi
List of Contributors
xiii
Map 1: Serbia and Montenegro and Their Neighbours
xxiii
Map 2: Infrastructure of Serbia
xxiv
Map 3: Infrastructure of Montenegro
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Part One: Background to the Market
1.1
1.2
1.3
Serbia: Country Profile Slobodan Markovich, Institute for European Studies, Belgrade Economic Overview Jelena Galic, Executive Director, Economics Institute, Belgrade Serbian Business Culture Galjina Ognjanov, Faculty of Economics, Belgrade University
3
13
31
Part Two: Financial Markets and the Investment Environment
2.1
2.2 2.3
2.4
The Investment Climate Mike Ahern, President, Foreign Investors Council of Serbia and Montenegro Foreign Trade and Investment SIEPA Administrative Barriers to Entry Nikola Fabris, Faculty of Economics and The Economics Institute, Belgrade The Role of the Privatizaton Agency in Serbian Privatization Activity The Serbian Privatization Agency
41
47 63
77
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2.5 2.6 2.7 2.8 2.9
Contents
Amendments to Serbian Privatization Legislation Karanovic & Nikolic New Regulations for Bankruptcy Procedures Karanovic & Nikolic The Securities Market Saša Aleksiü, Sinteza Invest Group a.d., Belgrade The Banking System Raiffeisenbank Privatization Procedures and Practices Raiffeisenbank, Belgrade
85 93 101 111 115
Part Three: Market Potential
3.1 3.2 3.3
3.4 3.5 3.6 3.7
The IT Sector SIEPA The Electronics Industry SIEPA The Telecommunications Sector Milena Gajovic Shrestha, Associate, Bedminster Capital Management LLC Marketing Communications and Advertising Media Galjina Ognjanov, Faculty of Economics, Belgrade University The Pharmaceuticals Industry SIEPA Agribusiness SIEPA Tourism SIEPA
129 139 145
151 159 167 177
Part Four: The Taxation and Legal Environment
4.1 4.2 4.3 4.4 4.5
4.6
Business Entities and their Incorporation Karanovic & Nikolic Property Legislation and Real Estate Karanovic & Nikolic The Taxation System Ernst & Young, Belgrade Accounting and Auditing Ernst & Young, Belgrade Employment Regulations for Serbian and Foreign Employees Ernst & Young, Belgrade Dispute Resolution Karanovic & Nikolic
187 195 205 221 229
239
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Contents
4.7 4.8 4.9
Intellectual Property Rights Karanovic & Nikolic Competition Law Harrisons Solicitors Money Laundering Harrisons Solicitors
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245 253 261
Part Five: Serbia’s Dynamic Companies
5.1 5.2 5.3 5.4 5.5 5.6 5.7 5.8 5.9 5.10 5.11
YUGOIMPORT-SDPR Masinoprojekt Termoelektro a.d. Alfa Plam Velefarm FAP KORPORACIJA a.d. Priboj AD Imlek SRPSKA BANKA a.d. Metals-Banka a.d. Sinteza Invest Group a.d. Kopaonik Insurance Company
271 273 277 297 299 305 313 317 323 329 333
Part Six: Appendices
Appendix I: Useful Business Contacts
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Appendix II: Contributor Contact Details
353
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Foreword On behalf of the Serbia Investment and Export Promotion Agency (SIEPA), I am honoured to present a new edition of Doing Business with Serbia. This publication is a comprehensive guide for international investors, business executives, as well as governmental and nongovernmental officials, who seek a thorough overview of the investment environment and business opportunities in our country. For companies planning to start or expand their business in South East Europe, Serbia is rapidly becoming a highly competitive investment destination. The reform progress achieved in recent years is reflected in the 100 per cent increase in foreign capital inflow in 2005. The list of blue-chip companies and banks that poured almost US$2 billion into the country is topped by Microsoft, Coca Cola, Metro Cash & Carry, Michelin, Banca Intesa, and Alpha Bank. One of them – Metro Cash & Carry – was named the Investor of the Year in South East Europe by the OECD for the largest greenfield investment in the region. Another greenfield investor in Serbia – the US Ball Corporation – was an award winner the year before. In 2005, Serbia’s economic and legislative reforms and the improvement of the business climate were widely acknowledged. The European Union positively assessed the country’s overall progress and commenced the negotiations on reaching the Stabilization and Association Agreement. According to the World Bank, Serbia was the global top reformer in 2004, leading in reforms aimed at spurring business activities and creating new employment. The international credit rating agency Standard & Poor’s raised Serbia’s long-term sovereign credit rating to BB- from B+ saying the country’s prospects had improved both financially and politically. Having been granted Most Favored Nation status for exports of most products and services to the United States early last year, Serbia now boasts duty-free access to a market of one billion people. In addition to the domestic market, export oriented companies in Serbia gain free access to the European Union and a 55 million people South East Europe Free Trade Area. Furthermore, Serbia is the only country outside of the Commonwealth of Independent
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States that enjoys a Free Trade Agreement with Russia. With a population of 7.5 million people, Serbia’s internal market is among the largest in South East Europe. After reaching its record growth of 9.3 per cent in 2004, the Serbian economy maintained a high growth rate of around 6 per cent in the first half of the last year. Since 2001, Serbia’s per capita GDP has doubled to US$3,000, ahead of most other countries in the region, including Romania, Bulgaria, Macedonia, Albania and Bosnia and Herzegovina. While providing businesses with excellent growth opportunities, Serbia offers various tax incentives for investors seeking ways to reduce their overhead costs. Set at 10 per cent, Serbia’s corporate profit tax rate is the lowest in Europe. In addition to profit tax savings, tax incentives – such as credits for investment in fixed assets of up to 80 per cent of the invested amount and a 10-year tax holiday for investment over ¼7 million – help businesses significantly boost margins. The government of Serbia is determined to further improve the environment for doing business and is willing to give international companies all assistance in realizing their investment projects in Serbia. We, at SIEPA, look forward to working with you, whether you are interested in greenfield, brownfield or joint venture options. Jasna Matic Director Serbia Investment and Export Promotion Agency (SIEPA)
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Foreword The results of privatization so far indicate the serious orientation and decisiveness of our country towards further integration into the European Union and the world market. The total number of successfully privatized enterprises, as well as the significant presence of multinational companies that have had enough trust to invest their assets, is the best evidence of this. The presence of multinational companies such as Philip Morris, British American Tobacco, Titan, Lukoil, Henkel and many others, which entered the Serbian market by purchasing socially or stateowned companies, not only prove the Serbian market to be attractive, but also that the institutions in charge are capable of carrying out such activities in an efficient and productive manner. We have also benefitted from the experience gained from this cooperation with international companies. The Privatization Agency carries out all activities related to the promotion, initiation, implementation and supervision of privatization procedures, in accordance with the established legal framework on privatization and the role of Privatization Agency. Our work respects the highest principles of business ethics, and ensures the correct, professional and transparent procedure implementation. All this has proved the Privatization Agency to be a stable and confident partner. Bearing in mind that our main goal is association with the European Union, along with establishing a strong economy and competitive market and opening up new opportunities, the fact that we are not a member of the European Union has not been a problem for potential investors. The conditions for market penetration have not proved difficult for them. In addition, our geographic and economic connection with neighbouring countries has enabled foreign investors to expanded their businesses from a base in the Serbian market. On completion of the privatization process, the transformation of state and socially-owned capital into private property is expected, which will include the sale of assets through bankruptcy, as well as the privatization of public enterprises (which has already been approached in 2005).
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The quality of our work has motivated, among others, the aforementioned companies to put their trust in us, and also their results in our market will attract new investors to successfully start their businesses in Serbia. It is also worth mentioning that investing in Serbia not only provides profit for foriegn companies, but also the opportunity to influence the prosperity and economic stability of both our country and the entire region. Further, forthcoming investors will contribute to strengthening the reputation of our country worldwide and accelerate the process of our joining the European Union. Miodrag Djordjevic Director Privatization Agency, Republic of Serbia
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List of Contributors Mike Ahern is Tax and Legal Services Partner at PricewaterhouseCoopers, Belgrade. Mike qualified as a chartered accountant in South Africa and, subsequently, has acquired tax qualifications in South Africa and the UK, as well as an MBA. Mike worked for Deloittes in South Africa until moving to Poland in 1998 to head their tax practice in Warsaw. Mike joined PWC in Belgrade in November 2002 as head of the tax and legal group. His primary areas of expertise are in corporate and personal tax. Mike has been on the board of the Foreign Investors Council of Serbia and Montenegro (FIC) since mid-2003 and became the President in mid-2004. The FIC represents approximately 120 leading MNCs in Serbia. Its primary objective is to partner with the government in improving the business climate. The Economics Institute is an independent research and advisory institution dedicated to the values of democracy and a market economy. Its mission is: (i) to support economic and social reforms in Serbia and Montenegro, (ii) to advocate expansion of private sector development, (iii) to promote economic liberalization, the principles of an open economy and society in Serbia and Montenegro, as well as its integration into the region and the rest of Europe, and (iv) to enhance regional cooperation development. The Economics Institute operates as research institution, carrying out fundamental research projects, and as a consulting firm, working both for domestic and foreign companies, organizations and agencies. The Economics Institute offers a broad range of core services to its clients, including Research in Economics and Social Science (including analysis and forecasts of short- and medium-term economic trends and different types of surveys), Advisory and Consulting Activities, Professional Training, Publishing and Promotion of Publications, Organization of Conferences, Seminars and Round Table Discussions Jelena Galic is currently the Executive Director of the Economics Institute in Belgrade, where she has been working since 1994. She was born in Belgrade, on March 12, 1972. She graduated from the Faculty of Economics in Belgrade in 1994, where she also earned her MA in monetary policy under transitional conditions, in
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1999. She is currently a PhD candidate at the Faculty of Economics in Belgrade. Her fields of specialization include economic policy/ monetary policy under transitional conditions, central banking, banking reform and development of the capital market. As a member of the project team or team leader, she participated in the implementation of numerous projects for the needs of both the Republican government and Federal government. She was also engaged as a consultant in a number of programmes by international development and humanitarian institutions and donors’ agencies, which are currently implementing the projects designed to support the reforms in Serbia (GTZ, DFID, WB/FIAS, EAR, CIPE, USAID, OECD, UN, etc). She has published numerous papers in the area of economic policy and transition and participated in domestic and international conferences, symposia and consultative meetings. She is fluent in English. Ernst & Young, a global leader in professional services, is committed to restoring the public’s trust in professional services firms and in the quality of financial reporting. Its 103,000 people in more than 140 countries around the globe pursue the highest levels of integrity, quality and professionalism to provide clients with solutions based on financial, transactional, and risk-management knowledge in Ernst & Young’s core services of audit, tax, and corporate finance. Ernst & Young practices also provide legal services in those parts of the world where permitted. Further information about Ernst & Young and its approach to a variety of business issues can be found at www.ey.com/perspectives. Ernst & Young refers to all the members of the global Ernst & Young organization. Ernst & Young Belgrade is an integral part of the Ernst & Young Southeast Europe region, which employs more than 1,600 people in Albania, Bulgaria, Cyprus, Greece, Macedonia, Romania, Moldova and Turkey. Ernst & Young Belgrade was founded in 1997, being the result of the business combination between a local independent audit firm and Ernst & Young Southeast Europe. It currently employs 70 professional staff members and is being headed by two local partners. Services, which are provided locally, include Audit, Tax, Book-keeping & Payroll, and Transaction Advisory Services. Nikola Fabris is a permanent associate of the Economics Institute, Assistant Professor at the Faculty of Economics in Belgrade and Chief Economist in the Central Bank of Montenegro. As a visiting professor, he teaches at the following faculties: Braca Karic Faculty for Management, Belgrade; Faculty for Business in the
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Service Sector, Novi Sad; Faculty for Management, Slobomir P. University, Bijeljina, and Military Academy, Belgrade. He gained his MA in macroeconomics and his PhD in theoretical conceptions of economic policy. His interests are economic policy, foreign investment, financial systems, enterprise restructuring, privatization, etc. As a member of the project team or team leader he worked on more than 30 projects for the Serbian government and Federal government, specifically in the following areas: attracting foreign investment, economic deregulation, economic transition, financial systems, privatization, monitoring of reforms, export promotion, etc. He has also worked on similar projects for a large number of reputable international institutions, such as: GTZ, UK DFID, FIAS, EAR, CIPE (Centre for International Private Entrepreneurship, Washington), OECD and others. As a consultant he has worked for a large number of international consulting firms, such as: Delloite & Touche, PE International, Euro Consulting Group, Barenshot International Solutions, etc. He has also been a consultant for 10 or so large Serbian enterprises, including Vojvodjanska banka, Novosadski sajam, Zastava Automobile Factory, DMB Engine Factory, Kostolac Public Enterprise, Inex, etc. He is fluent in English and published over 30 scientific papers in Serbia and abroad. He is also co-author of four books. He can be contacted on
[email protected]. Harrisons is an English law firm, and the first international law firm to establish offices in Serbia and Montenegro where it has now been operating for over six years. The firm now comprises two Foreign Lawyers and 13 Domestic Lawyers, making it one of the largest law firms, domestic or otherwise in Serbia and Montenegro. Harrisons is registered with, and regulated by, the Law Society of England and Wales, and unlike all Serbian domestic law firms, Harrisons has the benefit of cover of Professional Indemnity Insurance (underwritten by Lloyds of London). In the region, the firm has an unrivalled track record in acting on major transactions. Harrisons is presently heavily involved in the privatization and foreign investment process in Serbia, an area of legal expertise for which the Firm is particularly renowned and is playing a key role in advising leading international and domestic financial institutions in the Serbian market. Harrisons has acted on most major privatization projects in Serbia to date. The firm has recently acted as an exclusive legal adviser to the government of Serbia on the privatization of Beopetrol, the second largest oil retailer in Serbia. Harrisons
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completed the purchase of Sartid, Serbian steel producer and one of the most important companies in the country, on behalf of U.S. Steel Balkan. The Firm has also acted for British American Tobacco on their purchase of Duvanska Industrija Vranje. Harrisons has also acted for the EBRD on its major projects in Serbia to date including the formation of a new foreign owned bank (now Pro-Credit Bank), large loans to leading Serbian Companies and the first investment and take-over by foreign financial entities of a domestic bank. The firm has a special practice in Energy Law and Infrastructure in the Balkans. In Serbia and Montenegro, it has been extensively involved in the restructuring and privatization of the oil, gas and electricity industries. It is currently advising a number of major energy companies on inward investment in this sector. Harrisons has acted as an exclusive legal adviser to the government of Montenegro on the most profitable and successful privatization and sale in Montenegro, that of Jugopetrol Kotor. Harrisons is also advising the government of Macedonia on the privatization and sale of Elektrostopanstvo na Makedonija. In Montenegro, the firm has acted as an exclusive legal adviser to the Tender Commission and Privatization Council of Montenegro. Harrisons was in overall charge of the privatization of the National Telecommunications and Electricity Companies, the National Oil Company and they also coordinated all legal aspects in the Tourism Industry. Sonja Kosanovic is a Serbian lawyer at Harrisons, having graduated from the Faculty of Law, University of Belgrade in March 2003. She is currently also undertaking postgraduate studies in the field of intellectual property at the Faculty of Law, University of Belgrade. She joined Harrisons in May 2003 and has since worked on a number of privatization and foreign investment deals alongside other senior lawyers. The Institute for European Studies (IES) was established in Belgrade in 1990. It has been the only research institute of its kind in Serbia conducting integral research of political, economic, social and cultural changes in Europe. IES has focused on: processes of European integration, accession of the State Union of Serbia and Montenegro to the European Union, transition in Central and Eastern Europe, questions of democracy, federalism, regional development and cultural identity. IES has also been engaged in preparing policy papers. The Institue has rich publication activities. It organizes summer schools for graduate students with foreign partners
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and its researchers are lecturers and visiting lecturers at domestic and foreign universities. Slobodan G Markovich is a Researcher at the Institute for European Studies, Belgrade and Assistant Professor at the Faculty of Political Science, Belgrade. He holds an MPhil in Historical Studies from the University of Cambridge and a PhD from the University of Belgrade. In 2005, he was a Visiting Faculty Fellow at the Centre for the Study of Global Governance at the London School of Economics. He deals with Anglo-American relations with the countries of South East Europe and their perceptions of the region. His publications include: Challenges to New Democracies in the Balkans, S G Markovich, E B Weaver and V Pavlovic, eds. (Belgrade: Cigoja Press, 2004) and British Perceptions of Serbia and the Balkans (Paris: Dialogue, 2000). Established in 1995, Karanovic & Nikolic is a market leader practising business law in Serbia, Montenegro and Republika Srpska. With four partners – Mr Dragan Karanovic, Mr Dejan Nikolic, Ms Patricia Gannon and Mr Milos Vuckovic – and a total of 30 lawyers, it is the largest commercial law firm in Serbia and Montenegro. Drawing on the international education and experience of its lawyers in both civil and common law, Karanovic & Nikolic provides professional services in the sometimes complex and risky environment in the region. Our lawyers’ international education and approach ensures that clients are securely advised on their investment. Karanovic & Nikolic has an extensive practice in commercial law, banking, corporate, privatization, taxation, infrastructure, labour and intellectual property. Clients of Karanovic & Nikolic include medium-sized to large companies engaged in manufacturing, trading and professional services, multinationals, government agencies, triple-A international banks, select private clients, large auditing firms and international organizations. In particular, Karanovic & Nikolic has the largest privatization practice in Serbia and has advised both foreign investors and the Privatization Agency of the Republic of Serbia extensively since the process of privatization began. The Firm is a founding member of a regional practice entitled SEE Legal, made up of leading lawyers from South East Europe. Further information on SEE legal may be found on the website www.seelegal.com. Predrag Vidakovic graduated from the Belgrade Faculty of Law in 2004. He completed additional an undergraduate course in Business Law (Economics, International Business Law, Transportation Law, IP Law, Company Law, Banking & Securities and
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Insurance Law). Currently he is studying for his master in Civil Law at the Belgrade Faculty of Law. A member of Karanovic & Nikolic Law Firm since early 2005, he is currently focused on privatization practice and general corporate law. Djordje Popovic graduated from Belgrade University, Faculty of Law in 2004. Djordje’s work experience includes expert/lecturer in the area of legal aspects of the local self-government in Serbia within the Centre for Free Elections and Democracy and as an independent legal advisor in two political parties for presidential and local elections in Serbia. Djordje is a Fellowship holder of the Konrad Adenauer Stiftung, Belgrade office. In 2005, Djordje commenced a postgraduate specialization programme on Joint Stock Companies and the Stock Market and Shares at Belgrade University, Faculty of Law. Having joined Karanovic & Nikolic as an Associate in 2005, Djordje’s areas of practice within the Firm are mainly commercial law, banking and privatization. Djuro Otasevic graduated from the Belgrade Faculty of Law in 2004 and was a participant of Villem C. Vis International Commercial Arbitration Moot in 2004. Djuro obtained the Scholarship of the Royal Family Karadjordjevici in 2003 and is currently attending master studies in International Business Law at the Belgrade Faculty of Law. Djuro joined Karanovic & Nikolic Law Firm in October 2004 and is currently focused on mergers and acquisitions and general corporate law. Rastko Petakovic graduated from the Belgrade Faculty of Law in 2003 and has completed courses in International Business Law (University of Pittsburgh Program) and in Negotiation (Harvard Peace Project). Rastko is currently attending master studies in International Business Law at the Belgrade Faculty of Law. Having joined Karanovic & Nikolic Law Firm in May 2005, Rastko is currently focused on competition/anti-trust practice and general corporate law. Darko Jovanovic graduated from Belgrade Faculty of Law in February 2004 and was a participant of Villem C. Vis International Commercial Arbitration Moot in 2004. Darko obtained the Scholarship of the Government of the Republic of Serbia during his legal studies and is currently attending master studies in International Business Law at the Belgrade Faculty of Law. He joined Karanovic & Nikolic Law Firm in May 2004 and is currently focused on mergers and acquisitions, foreign investment and privatization. Galjina Ognjanov is an assistant professor of marketing communications and public relations at the Faculty of Economics, Belgrade
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University. She holds a PhD in business and marketing from the same university. In addition, she has been a visiting researcher to the University of Pittsburgh, PA as well at the European School of Management (ESCP-EAP) in Paris. Among her main fields of interests are: marketing communications in South East Europe, cultural differences and their influences on business negotiations and communication, as well as ethnicity and communication. She has participated in a number of research projects including, for example, Liberalization of Trade in Services in Serbia, Effects of Privatization in Serbia and Mapping Serbia’s Labour Market. She has a number of articles published both in Serbian and in English. She has authored one book (Communicative Power of Selling) and coauthored another (Media Relations). In addition to her academic career, she has been working as a business consultant to Serbian firms and potential foreign investors, providing her expertise in market research, marketing communications and media relations. The Privatization Agency carries out all activities related to the promotion, initiation, implementation and supervision of privatization procedures, in accordance with the established legal framework on privatization and the role of Privatization Agency. Its work respects the highest principles of business ethics, and ensures the correct, professional and transparent procedure implementation. For coordination between privatization activities and general audience interested, the Privatization Agency has established a Communication Sector, which consists of two major parts – the PR and Marketing Department and the Info-centre. The PR and Marketing Department is not only responsible for communications with the general audience, journalists and public opinion leaders, but also for attracting potential investors interested in participation in the privatization process. The Info-centre has been established to communicate with all interested parties and individuals who require the services of the Privatization Agency on daily basis. The Head of the Communication Sector is Mr Rade Sevic, an economist with significant experience in the field of marketing. After graduating from the Faculty of Economy in Belgrade, Mr Sevic begin his career in banking as a payment officer, but soon decided to join the successful marketing team in the Serbian branch of advertising agency Saatchi & Saatchi. In 2002, recently after the privatization process has begun, he decided to accept challenge of being part of the team responsible for transformation of social and state-owned capital into private ownership.
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Raiffeisenbank a.d., Belgrade, received its working licence on 9 March 2001, from the National Bank of Yugoslavia, as the first bank to be established with 100 per cent foreign capital in the country after the political changes in October 2000. In the four years of its operations, Raiffeisenbank was able to become the largest and the most dynamically expanding foreign bank in the local market, servicing more than 2,500 top local and international corporate clients, over 260,000 retail clients and approximately 9,400 SME clients. The bank offers Western service standards to all of its clients, while understanding the specific conditions and opportunities in the local financial market. The bank’s shareholders are Raiffeisen International (90 per cent) and the World Bank affiliate, International Finance Corporation (IFC) (10 per cent). Raiffeisenbank provides international companies entering the Serbian market with financing, guarantees, letters of credit, e-banking and retail products and services for their staff. To all companies that wish to set up a business, purchase a company or are exporters to Serbia and Montenegro, Raiffeisenbank offers a complete banking product and services package. Also, Raiffeisenbank has played an important role in Serbian privatization, having become one of the leading and most active banks in managing privatization proceeds. Ljiljana Grubic is Head of the Financial Institution Analysis Department at Raiffeisenbank a.d., Belgrade. Prior to her engagement with the bank, she spent four years with the audit firm KPMG and was engaged in the audit of corporate companies as well as financial institutions in Serbia. At Raiffeisenbank, she is involved in comprehensive analyses of the market, especially banking industry. Raiffeisen Investment AG (RIAG) is a 100 per cent subsidiary of Raiffeisen Centrobank (RCB), Raiffeisen Group’s investment banking and corporate finance platform. As an integral part of the new Equity House, Raiffeisen Investment is the M&A and financial advisory competence centre of the entire Raiffeisen organization. In Central and Eastern Europe, Raiffeisen Investment AG ranks among the top M&A and privatization advisors to governments, strategic and financial investors as well as supra-national organizations like the World Bank, EBRD and the EU, with a proven track record in international consulting and project management. Right now RIAG executes 94 mandates with a transaction volume of ¼97 billion. The Serbian operations of Raiffeisen Investment AG began in July 2001 with the appointment of a local representative and are now extended into a local office with six professionals of
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different profiles. The team in Belgrade has gained significant privatization experience in the local environment, having advised the Privatization Agency on the privatization of over 20 companies, as well as international investors on the buy-side. Ongoing projects include sell-side advisory services for the tender privatization of 13 socially-owned companies in Serbia. Milena G Shrestha, based in the Belgrade, Serbian office of Bedminster Capital Management LLC, is involved in the analysis and monitoring of SEEF portfolio companies and due diligence of new investment opportunities. Prior to joining SEEF, Milena served with CA-IB Corporate Finance, primarily involved in privatization assignments and corporate finance projects. She has also worked for the National Bank of Greece investment group, with activities throughout Serbia and Montenegro and Republic of Srpska. Milena graduated from the Belgrade University Faculty of Economics with Bachelor Degree in Economics. Milena is the president of the Telecom Committee of the FIC (Foreign Investors Council) in Serbia. SIEPA (Serbia Investment and Export Promotion Agency) – founded in 2001 by the first democratic government – helps both foreign investors set up their businesses in Serbia and local producers boost their export volume. Created as a one-stop-information-shop, SIEPA acts as a reliable partner for foreign and domestic clients, following the project from start until completion to ensure its best results. As a central institution in the field of foreign direct investment, SIEPA is primarily tasked with promoting Serbia’s rapidly improving business climate and enhancing FDI inflow in the country. Major SIEPA’s services offered to potential investors are: providing information on the general investment environment and specific industries, linking companies to greenfield, brownfield and joint venture opportunities, including site visit organization, assistance with registration, licences, permits and other documentation, and presenting ready-to-invest projects. The Agency networks with all FDI-related public and private sector bodies, including government ministries and other governmental bodies, municipal authorities and local self-government, building land agencies, tax and customs authorities, statistical bureaux, chambers of commerce and the National Bank of Serbia. The list of SIEPA’s clients includes companies like US Ball Corporation, Austrian Knauf and OMV, and British European Nickel with around ¼500 million worth investment.
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List of Contributors
Dragan Pejcic is a Marketing and Research Advisor at the Serbia Investment and Export Promotion Agency (SIEPA). He graduated from the School of Economics, Belgrade University in 2000. Prior to joining the Agency in 2002 he had worked as a Teaching Assistant of Strategic Management. His fields of professional specialization also include marketing strategy and corporate organization and restructuring. At his current post, he has been involved in a large number of projects aimed at presenting business opportunities in Serbia to potential foreign investors. As a project leader, he organized an investor targeting campaign and the preparation of several SIEPA publications and promotional brochures. In addition, he took part in the organization of a number of investment and export conferences and similar events including the Serbia and Montenegro Investment Forum on the occasion of the Annual EBRD Meeting in Belgrade. He has also published various articles in domestic business magazines and has given presentations at numerous international investment conferences. He is fluent in English. Dejan Tufegdzic, one of the founders of Sinteza Invest Group a.d., has been among the company’s key players since the very beginning. Mr Tufegdzic is managing director responsible for major clients. He is also the President of the Ethical Committee of the Association of Stock Exchanges and Brokerages. Mr Tufegdzic is a graduate of the University of Belgrade, Faculty of Organizational Sciences. Before he and his partners decided to start their own business, Mr Tufegdzic had worked at several brokerages in Serbia. He was born in 1971 in Kraljevo, Serbia, is married and has one child. Sasa Aleksic was born in 1972 in Pozega. He has been the Head Broker and Project Manager for Consulting on Corporate Governance, at Sinteza Invest Group, a.d. Belgrade since 2003. He manages securities trade at the Belgrade Stock Exchange, organizes company takeovers and gives consulting services on corporate law to joint stock companies. He is a member of the Board of Directors of Telefonkabl a.d. Belgrade. He earned his degree from the Faculty of Economics, Belgrade, Department of Accounting and Business Finance. Mr Aleksic’s professional experience includes: 2003– present as Head Broker and Project Manager at Sinteza Invest Group a.d. Belgrade; 2000–2003 as Head Broker at Senzal a.d. Beograd; and 1997– 2000 as Senior Official of Securities at Hemofarm Concern a.d. Vršac.
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Map 1 Serbia and Montenegro and Their Neighbours
1-905050-14-3_FM_xxiv_02/20/2006
Map 2 Infrastructure of Serbia
1-905050-14-3_FM_xxv_02/20/2006
Map 3 Infrastructure of Montenegro
1-905050-14-3_FM_xxvi_02/20/2006
1-905050-14-3_P01_1_02/20/2006
Part One Background to the Market
1-905050-14-3_P01_2_02/20/2006
1-905050-14-3_P01_3_02/20/2006
1.1
Serbia: Country Profile Slobodan Markovich, Institute for European Studies, Belgrade
Historical background Contemporary Serbia re-emerged as a separate political entity in the 1990s. Since February 2003, it has been part of a confederation called the State Union of Serbia and Montenegro. Before that, Serbia existed in the middle ages as a separate state but was conquered by the Ottoman Turks in 1459. After three and a half centuries the First Serbian Uprising broke in 1804, leading gradually to the creation of an autonomous (1830) and then independent Serbia (1878). The Kingdom of Serbia united in 1918 with other South-Slavs from the AustroHungarian Empire into the Kingdom of Serbs, Croats and Slovenes. This kingdom was renamed into the Kingdom of Yugoslavia in 1929. During World War Two, Yugoslavia was conquered by the troops of the Third Reich and its satellites. In Serbia, there were two resistance movements: 1) the communist movement under the Soviet influence, known as partisans, led by Josip Broz Tito; and 2) the anti-communist Yugoslav Home Army, known as chetniks and led by colonel Drazha Mihailovich. At the end of 1941, a civil war began between these two movements, which was ended by the victory of the communists in the second half of 1944. A bloody revenge was taken against ideological enemies, first in Montenegro and Serbia, and, in May 1945, it spread to Croatia and Slovenia. Immediately upon entering Serbia, the communists established a polity based on the Soviet model.
Socialist Yugoslavia The Constitution of the new state was accepted in January 1946. The new state was named the Federal People’s Republic of Yugoslavia. It accepted the federal model, with six republics (Bosnia and
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4
Background to the Market
Herzegovina, Croatia, Macedonia, Montenegro, Serbia and Slovenia). Serbia became the only People’s Republic containing one autonomous province (Vojvodina) and one autonomous region (Kosovo). The Constitution followed the Soviet model in most details. A totalitarian polity was introduced with the full executive power of party oligarchy led by the self-proclaimed marshal, Josip Broz Tito. The split of the Yugoslav communists with Stalin in 1948 was not, according to their own testimony, motivated by ideological reasons but was rather the consequence of the Yugoslav communists’ aspiration to maintain full control of their power within their territory. However, conflict with Moscow brought massive Western support, particularly American, as soon as the early 1950s. As a consequence of the fact that Yugoslavia was recipient of a substantial Western economic aid, she had to offer some concessions in the fields of human rights and the market economy. Since the mid-1950s, the opening of Yugoslavia towards Western states became obvious, economic standards were substantially raised, and citizens of Yugoslavia were allowed, by the end of 1950s, to travel freely abroad. Although the monopoly of the League of Communists Yugoslavia (LCY) remained intact, by the end of 1950s the period of totalitarianism had ended and Yugoslavia entered an authoritarian, less repressive form of polity. To support Yugoslavia, the United States offered generous financial support. Comprehensive financial aid from the United States continued during the 1950s. After US$497 million of emergency aid was donated between 1949 and 1952, the United States added another US $1.75 billion in grants, soft loans and dinar purchases during the period 1953–1964. The penetration of Western taste, mass culture, and a new relationship with the West were all noticeable as early as the 1950s. Western fashion was copied immediately. Later this penetration became even more obvious. As a correspondent of the National Geographic noted in 1970: ‘Life among Yugoslavia’s youth pulses with a Western beat; the latest fashions parade the streets of Belgrade and Zagreb shortly after appearing in Paris, London, or New York’. By the 1960s, Western countries had become the preferred tourist destination for the Yugoslav elites. All citizens were allowed to have bank accounts in foreign currency, a practice that became very widespread as it was fostered by the number of Yugoslav workers making a living abroad, the so called Gastarbeiter. Savings in foreign currency grew from a modest US189 million in 1966 to reach US$15.2 billion in the year of Tito’s death (1980). Along with the penetration of Western influence, the propaganda machine of the communist party insisted that the Yugoslav ‘unique path to socialism’ was the only correct form in the world, and the only practice that corresponded to original teachings of Marx and Engels.
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Serbia: Country Profile
5
Having relatively high standards of living, citizens demonstrated a readiness to neglect questions of human rights and freedom of speech.
The dissolution of socialist Yugoslavia When the dictator with the powers of an absolute monarch died in 1980, the last trace of the country’s unity disappeared. The US aid that had been maintained following Tito’s death began to be withdrawn by the mid-1980s. This strengthened the economic crisis in Yugoslavia, which was burdened by foreign debt of US$21 billion in 1982. Elsewhere, the crisis of the countries of real socialism also became apparent by the mid-1980s. The rise of Slobodan Milosevic to the position of the leader of the League of Communists of Serbia, and his victory over a softer line in the party in September 1987, signified the beginning of a populist policy in Serbia. Mass rallies organized to demonstrate support for the new leader of the Serbian communists, strengthened his position and helped him to force leaderships of three regions to resign: first in Vojvodina (October 1988), then Montenegro (January 1989), and finally in Kosovo (February/March 1989). In March 1989, the Constitution of the Socialist Republic of Serbia was amended and two provinces (Kosovo and Vojvodina) were placed under the control of Belgrade. Finally, Milosevic consolidated his power by winning the support of more than 80 per cent of voters in November 1989, at the elections organized for the position of the Presidency of the Socialist Republic of Serbia. A fear of Serbian domination fuelled nationalist circles in Ljubljana and Zagreb and led them to demand secession of these two republics. The dissolution of the League of Communists of Yugoslavia, in January 1990, signified the beginning of the end of the communist Yugoslavia. Multi-party elections held in the Yugoslav republics, from April till December 1990, only reaffirmed tendencies towards dissolution of Yugoslavia. Slovenia and Croatia proclaimed their independence (in 1991), and, by this act, Yugoslavia ceased to exist. A confusing 10-day conflict between the Yugoslav People’s Army and Slovenian defence forces in Slovenia (June–July 1991) only symbolically confirmed that Socialist Yugoslavia had ended its historical life.
The Milosevic era in Serbia Party pluralism was recognized in Serbia in 1990, and the first multiparty elections were organized in December 1990 when the Socialist Party of Serbia, led by Milosevic, won around 80 per cent of all
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6
Background to the Market
mandates. However, Serbia, under the leadership of Slobodan Milosevic (1989–2000), never became a liberal democracy. Rather it oscillated between soft dictatorship and hard authoritarianism. Naturally, during the wars for Yugoslav Succession in Croatia and Bosnia (1992–1995), particularly in 1992 and 1993, his policy was more authoritarian than before or after. At the beginning of 1994, he tactfully dissociated himself from the Bosnian Serbs and tried to help the economy recover by appointing an American Serb as Governor of the National Bank of Yugoslavia. The policy that subsequently followed helped the economy to develop, to some degree, during the 1994–1997 period. In the period from the beginning of the NATO bombing in March 1999 until his downfall in October 2000, Milosevic, again, showed very strong authoritarian tendencies. In terms of economic trends, the Milosevic era represents the most striking period in the history of modern Serbia, in which the Serbian economy diverged from the European average. One could say that in the period between 1990 and 2000, in which Milosevic governments were in charge of the Serbian economy, Serbia’s GDP declined to half its initial size in absolute terms, due mainly to international economic sanctions introduced in April 1992 by the UN Security Council. Below are the fluctuations in Real GDP in FR Yugoslavia (Serbia and Montenegro). The year of 1990 has been given the index of 100.
Year 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 per 100 cent
88.4 63.7 44.1 45.2 48.0 51.7 56.9 58.0 47.6 49.9 52.7 54.8
In the decade of Milosevic rule, several years were particularly harsh for the population of Serbia. The years of hyperinflation in 1992 and 1993, when the rate of inflation reached 9,327 per cent in 1992 and an incredible 16.5x1012 in 1993, are remembered for general poverty and an outburst of criminal elements in Serbia. Milosevic’s inability to deal with ethnic problems in Kosovo (and his uncontrolled use of power in Kosovo against ethnic Albanians) led to an 11-week campaign of bombings by NATO against FR Yugoslavia (FRY) in March–June 1999. In the campaign, around 200 towns and settlements were bombed by some 1,200 planes, mostly US. Up to 2,000 civilians were killed during the bombing, some 30 per cent of them children. The expert organization G 17 estimated total economic damage caused by the NATO bombing of FR Yugoslavia to be US$29.6 billion. Of this, the loss to national wealth (infrastructure, economic infrastructure, non-economic civilian objects) accounted for US$4.06
1-905050-14-3_P01_7_02/20/2006
Serbia: Country Profile
7
billion. Human capital loss (Albanian victims were not included) was US$2.3 billion, and the projected loss of GDP resulting from the bombing was estimated at US$23.2 billion. As a consequence of the NATO bombing, the Yugoslav army and the Serbian police units were forced to leave Kosovo, which then came under direct control of the UN administration and NATO troops. The intervention created an outburst of anti-Western feelings in Serbia. On 23 September 2000, elections were held in Serbia. Milosevic attempted to falsify the results of these elections, but was forced to accept the real results on 5 October 2000, after massive demonstrations took place in Belgrade. This change has had a tremendous impact on Serbia, which quickly opened up towards the West. The situation of the economy of Serbia and Yugoslavia following the downfall of Milosevic was summarized in a press release No. 00/75 of the International Monetary Fund in December 2000: Ten years of regional conflicts, international isolation, and economic mismanagement have left a dire legacy in the Federal Republic of Yugoslavia. Output, which has only partly recovered from the economic devastation caused by the Kosovo war, stands at about 40 percent of its 1989 level. Unemployment amounts to one half of the labor force. The country’s infrastructure is in disrepair following years of inadequate investment and the damage inflicted during the Kosovo war. About 900,000 refugees and internally displaced persons live in FRY under difficult conditions. Serious energy shortages are being somewhat alleviated with humanitarian assistance. The macroeconomic situation is very fragile, and with declining output, the ratio of external debt to GDP has risen to about 140 percent in the absence of debt servicing.
Emergence of Democratic Serbia In October 2000, Vojislav Kostunica, leader of the Democratic Party of Serbia, took the position of the President of FR Yugoslavia. In Serbia, a provisional coalition government was formed. In December, the Democratic Opposition of Serbia, a coalition of 18 rather diverse parties, decisively won the elections for the Parliament of Serbia, and Zoran Djindjic, leader of the Democratic Party became the first democratically elected Prime Minister of Serbia since World War Two. He demonstrated exceptional skill in balancing the interests of his coalition of 18 different political parties, and focused primarily on economic reforms. He was instrumental in bringing Serbia closer to the West.
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8
Background to the Market
Initially the new authorities received strong support from both the EU and the United States. The relations of Serbia with Western countries were largely influenced by the positions that various governments and politicians took towards the International Criminal Tribunal for the Former Yugoslavia (ICTY) in The Hague. In June 2001, the government of Zoran Djindjic extradited Slobodan Milosevic to ICTY. However, ICTY demanded, persistently, that all those indicted for war crimes had to be extradited, and accused successive governments of reluctance to extradite all suspects, especially the Bosnian Serb, General Ratko Mladic, who has been indicted for genocide against Bosniaks in Srebrenica in 1995 and for other atrocities. The political development of Serbia during 2001 and 2002 was marked by the rivalry between a very popular president of FRY, Kostunica, and the not-so-popular Prime Minister of Serbia, Djindjic, who had primary control of financial and police affairs. This rivalry slowed down the pace of transition, and blocked many significant reforms. In spite of this, an important goal was achieved. For the first time, in its annual report of 2002, Freedom House placed FRY in the category of ‘free states’. This means that by that year, Serbia had reached the basic standards of a liberal democracy. Some significant problems from the Milosevic era remained, including a powerful secret police apparatus (which the new authorities have not been able to fully control), financial oligarchs who became rich under very dubious circumstances, and criminal groups who flourished during the years of international economic sanctions. On 12 March 2003, after the Prime Minister of Serbia, Djindjic, had decided to start a police action against the most influential criminal gang closely connected with the secret police, he was assassinated. A decisive police action against criminal groups was undertaken, in March–May, and a state of emergency was proclaimed, resulting in the suppression of the most powerful criminal groups. The new Prime Minister of Serbia, Zoran Zivkovic (March 2003– March 2004), did not prove capable of balancing the opposing interests of more than a dozen coalition parties and was forced to call extraordinary elections in December 2003. These new elections showed that the most powerful party in Serbia had become the Serbian Radical Party, a nationalist party and former coalition partner of Milosevic governments. However, the new government was formed by Vojislav Kostunica, who received support from the G17plus party, the Serbian Renewal Movement and New Serbia. Even so, this coalition did not have a parliamentary majority, and a minority government was formed with the support of the Socialist Party of Serbia, which provided the necessary votes. The victory of Boris Tadic, leader of Democratic Party, at the Serbian presidential elections in July 2004, led to the stabilization of political
1-905050-14-3_P01_9_02/20/2006
Serbia: Country Profile
9
life in Serbia. During his first year as president, he proved able to cooperate constructively with the Prime Minister of Serbia, especially in the field of Euro– Atlantic integrations. He contributed significantly to the improvement of relations with the United States and NATO. The performance of the government of Vojislav Kostunica was moderate in the first six months, but improved in the subsequent period. He succeeded in obtaining a positive Feasibility Study from the European Union (EU) in April 2005. The Study initiated the beginning of negotiations on the Stabilization and Association Agreement between Serbia and Montenegro and the EU in October 2005. The negotiations are expected to last until mid-2006. The current government is more cautious than the previous one in predicting the year when Serbia (and Montenegro) could become a full member of the EU. However, some government officials hope that this might happen by 2013. Independent experts believe that it is more realistic to expect that Serbia could become a full member of the EU between 2015 and 2018. Kostunica’s government has also extradited a significant number of suspects to the ICTY through a policy of voluntary surrenders of the indicted, designed to satisfy both domestic public opinion and the ICTY. Another problem that the Serbian government has faced is the question of the final status of Kosovo and the enthusiastic support of all ethnic Albanian politicians in Kosovo for Kosovo’s independence, not later than 2006. Throughout 2005, the Serbian government has insisted on a fluid formula known as ‘more than autonomy, less than independence’. It has been agreed that the negotiations for the new status of Kosovo will take place in 2006. In the economic arena, new Finance Minister, Mladjan Dinkic, has introduced very important and successful reforms of taxes, introducing VAT and new cashiers with GPRS mobile technology, enabling the Tax Agency to monitor online all transactions and designed to prevent tax evasion and reduce the grey economy.
Relations between Serbia and Montenegro After the dissolution of socialist Yugoslavia, its two remaining republics, Serbia and Montenegro, decided to maintain a joint state and formed the Federal Republic of Yugoslavia in April 1992. At the end of the 1990s relations between Slobodan Milosevic and the Montenegrin leaders became increasingly bad and a movement for an independent Montenegro grew. The ruling parties in Montenegro boycotted federal elections in September 2000 and Vojislav Kostunica was thus forced to negotiate a new Federal government with Montenegrin opposition leaders, who had previously been Milosevic’s allies, but who were also in favour of the maintenance of the State Union. The
1-905050-14-3_P01_10_02/20/2006
10
Background to the Market
relations between Montenegrin and the Federal government remained strained, and mutual negotiations between Serbia and Montenegro, supervised by the EU, took place in 2002, resulting in the creation of the State Union of Serbia and Montenegro on 4 February 2003. This new state formation is usually described as a confederation of two states with very few joint competences (mostly limited to foreign affairs and a unified army) and lacking both a joint currency and even a common market. After the creation of the State Union, relations with Montenegro have remained unresolved. Although only half of the population of Montenegro supports independence, the political leadership of Montenegro, led by its Prime Minister Milo Djukanovic, has insisted for several years that Montenegro should decide through a referendum on whether it would remain in the State Union with Serbia or should form a separate republic. Under pressure from the EU, the planned dates for the referendum were postponed several times. The results of the census in November 2003 showed that a surprisingly high percentage of the population declared themselves to be Serbs (30 per cent in comparison with 9.3 per cent in 1991) and that none of the ethnic groups in Montenegro form an absolute majority (Montenegrins now represent 40.6 per cent of the population). In spite of this, the Montenegrin leadership continues to insist on the referendum and plans to organize it in the Spring of 2006. However, EU officials have put some pressure on the Montenegrin leadership to postpone the referendum.
The ethnic, religious and linguistic picture of Serbia The census of 2002 revealed that Serbia was predominantly inhabited by Serbs (82.86 per cent). The minorities that cover more than one per cent of the population of Serbia are: Hungarians (3.91 per cent), Bosniaks (1.81 per cent), and Romanians (1.44 per cent). Central Serbia is even more ethnically homogeneous with 89.48 per cent of Serbs, while northern Serbia (or Vojvodina) is the most heterogeneous in both ethnic and religious terms, with a population of 65.05 per cent Serbs and the following minorities: Hungarians (14.28 per cent), Slovaks (2.79 per cent), Croats (2.78 per cent), Roma (1.50 per cent), and Bunjevac (0.97 per cent). According to the same census, the most populous religion in Serbia is Christian Orthodox or Eastern Orthodox (84.97 per cent) followed by Roman Catholic (5.48 per cent), Moslem (3.20 per cent), Protestant (1.08 per cent), and Jewish (0.01 per cent). There is no official religion in Serbia but some laws following the regulations of the Kingdom of Yugoslavia distinguish between seven traditional religions and others.
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Serbia: Country Profile
11
The seven traditional religions and denominations are: the Serbian Orthodox Church, the Roman Catholic Church, the Islamic Community, the Slovak Evangelical Church (Lutherans), Reformed Christian Church (Calvinists), Evangelical Christian Church (Lutherans), and the Jewish Community. Inter-ethnic and inter-religious relations in Serbia (excluding Kosovo) are relatively stable, with only occasional incidents. Tensions in Kosovo, however, tend to effect inter-ethnic relations in Serbia. When Serbian enclaves were massively attacked by ethnic Albanians in Kosovo in March 2004, inter-ethnic relations in Serbia immediately worsened. There were also tensions between ethnic Hungarians and Serbs in Vojvodina throughout 2004, but the situation had stabilized by the end of that year. Serbs, Croats, and Bosniaks speak the same language in linguistic terms. This language was known, since 1918 until the break-up of Yugoslavia, as Serbo-Croatian. Now each group insists that it speaks a separate language called Serbian, Croatian and Bosnian. In 2005, the Ministry of Education of Serbia basically accepted that each group can call their language what they like, so this division has been given official confirmation. Serbs use two alphabets when writing in Serbian: traditional Cyrillic and the Latin alphabet that took root in Serbia in the second half of the 20th century. In common practice, both alphabets are used and are simultaneously taught in schools, although Cyrillic is given preference. The Constitution of Serbia designates only Cyrillic as the official alphabet and state organs primarily use the Cyrillic alphabet. Therefore, it is sometimes better to use the Cyrillic alphabet in official communication with state organs. Street names are usually in Cyrillic only and therefore foreigners are advised to learn the Cyrillic alphabet if they decide to work in Serbia.
Conclusion A decade of isolation and international economic and political sanctions has had serious consequences both for the economy and the political stability of Serbia. The downfall of the regime of Slobodan Milosevic did not automatically bring political stability. The murder of Prime Minister Djindjic was a severe blow for domestic reform forces. However, the state proved capable of winning a war against criminal gangs and continues with important reforms. Since 2004, the political scene in Serbia has been stable, the commitment to economic reforms and Euro-Atlantic integrations has been reinforced, and the prospect of EU membership offered to the states of the Western Balkans at the Thessalonica summit of the EU in
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12
Background to the Market
June 2003 is expected to foster new wave of reforms in Serbia. The pro Euro-Atlantic approach of the major democratic parties in Serbia is also an important catalyst that should lead to further democratization, stability and economic prosperity.
1-905050-14-3_P01_13_02/20/2006
1.2
Economic Overview Jelena Galic, Executive Director, Economics Institute, Belgrade
The results of the macroeconomic reforms, 2001–2004 The basic results of the reforms carried out since the end of 2000 include the achievement of macroeconomic stability, the implementation of the process of liberalization (external and internal), the establishment of the rule of law and the building of institutions. The results of macroeconomic stability are reflected in the key macroeconomic indicators (see Table 1.2.1), and this has introduced a higher degree of safety and certainty in business activities. Table 1.2.1 Key macroeconomic indicators for Serbia Description
2000
2001
2002
2003
2004 (estimate)
2005 (projection)
4.2
4.8
3.7
2.6
7.0
4.5
Nominal GDP (in 8,602 US$ mil)
10,624
14,254
19,023
22,079
n/a
GDP per capita (in US$)
1,416
1,900
2,540
2,950
n/a
0
1.7
-3.1
7.1
n/a
Economic activity Real GDP (growth rate, in %)
942
Industrial output 121 (growth rate, in %)
1-905050-14-3_P01_14_02/20/2006
14
Background to the Market Description
2000
2001
2002
2003
2004 (estimate)
2005 (projection)
Unemployment (registered, in %)
27.45
24.68
27.09
29.83
28.16
n/a
111.9
40.7
14.8
7.8
13.7
9.1
143.9 Industrial producer prices (growth rates, in %)
29.1
6.1
4.6
12.0
n/a
Prices, wages and exchange rate Inflation, yearend (growth rate, in %)
Average monthly gross wages (real growth rates, in %)
6.4
18.8
30.1
16.3
8.8
n/a
Exchange rate, YUD/US$ (average)
63.16
67.67
58.98
54.63
57.93
n/a
Exchange rate, 58.67 YUD/€ (average)
59.70
61.51
68.31
78.88
n/a
Foreign trade Commodity exports (in US$ millions)
1,923
2,003
2,412
3,185
3,701
n/a
Commodity imports (in US$ millions)
3,711
4,837
6,320
7,935
11,139
n/a
Current account -327 deficit/surplus (in US$ millions)
-528
-1,384
-2,121
-2,577
n/a
Current account -4.7 deficit/surplus (% of GDP)
-4.6
-8.8
-10.2
-11.3
n/a
FDI inflow (in US 50 $ mil)
165
475
1,360
966
n/a
1-905050-14-3_P01_15_02/20/2006
Economic Overview Description
2000
15
2001
2002
2003
2004 (estimate)
2005 (projection)
890 Foreign exchange reserves (in US$ millions)
1,809
3,063
4,435.6
5,146.3
n/a
Foreign debt (in 10,829 US$ millions)
11,124
11,229
13,574.9
14,098
n/a
External debt (% of GDP)
125.8
104.7
78.8
71.3
63.8
n/a
Public revenue (% of GDP)
44.0
38.,9
43.4
43.1
43.6
44.1
Public expenditure (% of GDP)
39.7
40.2
46.7
46.5
46.1
45.5
Fiscal deficit (% of GDP)
4.3
1.3
3.3
3.4
2.5
1.4
Money supply 82.6 M1 (growth rate, in %)
115.4
61.1
11.9
5.7
n/a
76.7 Money supply M2 (growth rate, in %)
106.7
62.9
12.34
17.4
n/a
10
-38.2
27.3
n/a
n/a
Average interest 117.43 rate on the money market
55.31
32.21
27.14
n/a
n/a
Currency in circulation/ M1 (%)
43.4
46.6
43.2
40.6
n/a
122.5 NBS foreign exchange reserves/M1 (%)
135.8
142.4
194.9
221.1
n/a
Total foreign 208 exchange reserves/M1 (%)
210.1
190.6
230.4
268
n/a
Public finance
Monetary indicators
Domestic credits (growth rate, in %)
58.2
40.4
1-905050-14-3_P01_16_02/20/2006
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Background to the Market Description
2000
2001
2002
2003
2004 (estimate)
2005 (projection)
NBS foreign exchange reserves/ average threemonth imports (%)
150.9
272.1
362.6
443.9
309.9
n/a
Total foreign exchange reserves/ average threemonth imports (%)
276.9
408.3
501.3
550.1
378.2
n/a
Sources: National Bank of Serbia, Federal Bureau of Statistics, EBRD Transition Report (2004), IMF Country Report (July 2004), Republican Labour Market Office, Memorandum on the Budget and Economic and Fiscal Policies for Fiscal Year 2005 with the projections for 2006 and 2007 (Government of the Republic of Serbia, 2004).
In 2001 and 2002, the growth rates of real GDP were four per cent and 5.5 per cent respectively. In 2003, a lower growth rate of GDP was recorded (2.6 per cent) but, in 2004, output and exports increased again (the expected growth rate of GDP in 2004 is about seven per cent). As for the structure of GDP, it is evident that the economy relied mostly on the primary and secondary sectors (whose output accounted for about 60 per cent). In 2001 and 2002, the share of the service sector rose mildly (see Figure 1.2.1), while the share of the private sector exceeded one-third of GDP. Compared to 2003, the total increase in the level of industrial output in 2004 was 7.1 per cent, and this growth resulted from the production of base metals, machinery, chemicals and chemical products, foodstuffs and oil products and, to a lesser extent, from the production of metal products, electrical machines and appliances. This acceleration of economic activity was created mostly by the areas with a significant share in the private sector. As for the effects of price stability, the lowering of the inflation rate below 10 per cent had a significant influence on improving the living conditions of the population and encouraging investment activity – after a high increase in prices in 2000 (ie by 111.9 per cent), the inflation rate fell to 40.7 per cent in 2001 and 14.8 per cent in 2002, thus ensuring the stability of domestic financial and real flows. In 2003, the positive trend of lowering the inflation rate continued and was 7.8 per cent. In 2004, a general increase in retail prices was recorded and subsequently the inflation rate rose to 13.7 per cent. The major sources of inflation were an expansionary fiscal policy (conducted in the first half
1-905050-14-3_P01_17_02/20/2006
Economic Overview
17
of 2004), costs associated with an increase in the world market prices of crude oil and an increase in the prices of utilities.
Share of GDP
100%
9.0%
9.2%
8.4%
8.5%
9.9%
9.5%
9.3%
10.0%
6.0% 1.7% 15.5%
90%
2.6%
2.4%
2.3%
2.3%
2.1%
2.3%
2.8%
3.0%
80% 70%
15.1%
15.7%
16.1%
16.9%
18.0%
18.1%
8.7%
8.9%
8.7% 5.7%
19.0%
21.0%
8.7%
6.3%
7.5%
7.6%
5.3%
7.0%
5.5%
6.4%
5.2%
5.0%
20.7%
60%
6.7%
50% 40%
20.5%
19.8%
19.7%
18.7%
22.0%
17.9%
37.5%
37.9%
39.0%
39.7%
36.4%
38.3%
6.1%
8.7% 8.2% 15.8%
19.0%
30% 20% 10%
35.4%
35.0%
43.9%
2002
2003
0% 1995
1996
1997
Industry Constuction Trade Other activities
1998
1999
2000
2001
Agriculture Transport and communication Catering
Source: Republican Bureau of Statistics Figure 1.2.1 The structure of GDP by activity, 1995–2003 During the last four years, the reform of the monetary and banking sector produced positive results in terms of price and currency stability, developed confidence in national currency, increased dinar and foreign currency savings (to over €1 billion in 2003), liberalized the operation of the foreign exchange market and increased foreign currency reserves of the National Bank (at the end of 2004, they amounted to US$5,146 million, compared to US$890 million in 2000). During this period, a moderately restrictive monetary policy was pursued. The coverage of reserve money and money supply by foreign currency reserves of the NBS was relatively high, which helped to maintain financial stability in the country. The reform of the banking sector will continue towards speeding up the privatization of banks owned by the state as a majority stakeholder, and increasing confidence in the banking system. During the past four years, foreign trade regulations and, in particular, trade with the South East Europe (SEE) countries were significantly liberalized, and EU preferential treatment was approved for about 95 per cent of domestic products. However, the results achieved in foreign economic relations felt short of expectations. In this regard, the greatest problem is posed by an increasing trade deficit, which peaked at US$7.4 billion in 2004. This deficit is more than twice the value of exports, which points to the low level of competitiveness of the
1-905050-14-3_P01_18_02/20/2006
18
Background to the Market
domestic economy, threatening to affect the hitherto positive macroeconomic results. In 2004, the total value of foreign trade increased by 25.8 per cent relative to 2003, while the current account deficit in 2004 amounted to about 11.3 per cent of GDP. The domestic supply is still not matched with the demand on the world market, which is also evidenced by the pattern of foreign trade. Namely, imports are still dominated by intermediate goods (57.2 per cent in 2004); the share of equipment is gradually increasing (from 19.1 per cent in 2003 to 19.9 per cent in 2004), while the share of consumer goods accounted for 22.9 per cent in 2004. The share of raw materials and low-grade finished goods in imports is still highest. In 2004, the value of exports increased by about 27.5 per cent, while the value of imports increased by more than 42 per cent, when compared to the 2003 figures. It was possible to achieve macroeconomic stability relatively fast. However, achieving economic growth and sustainable development is a process that depends on the pace and intensity of structural reforms. One of the indicators of the need to have a longer time period to pass before more serious structural changes in the economy can be felt, is the low capital-earning capacity of the economy – the rate of investment, which reached about 17 per cent of GDP in 2004, is still far below the average level of investment in the countries in transition (about 25 per cent). During the past four years, all activities have been aimed at creating a stable business environment. During the 1990s the domestic economy was characterized by three large deficits: a fiscal deficit, current account deficit (which reflected the maladjustment of the domestic economy to the demands of the world market) and a deficit in the real sector (arising from inter-enterprise arrears). The results of the reforms show that if macroeconomic stability and economic growth is to be achieved, there are no alternatives to privatization, reduction in public consumption to a sustainable level, trade liberalization, attraction of foreign direct investment (FDI), and synchronized fiscal and monetary reforms.
Structural reforms From a systemic viewpoint, these reforms were directed towards establishing an appropriate institutional framework, accompanied by law reform, which was aimed at establishing the rule of law and creating a safe and attractive business environment. Although the non-economic factors (political conflicts, the assassination of Prime Minister Djindjic and cooperation with the Hague Tribunal) slowed down the reforms in 2003, in general, during the past four years, significant progress has been made towards creating a more stable business envi-
1-905050-14-3_P01_19_02/20/2006
Economic Overview
19
ronment for both domestic and foreign investors. The conditions for acquiring title to real estate for foreign citizens were liberalized; the foreign trade regime was liberalized; numerous administrative barriers to investment were removed and additional tax incentives for investors were provided. The corporate income tax is currently the lowest in the region (10 per cent).
Trade liberalization The first steps in trade liberalization in Serbia were made in 2000 by abolishing the compulsory registration for engaging in foreign trade, compulsory reporting on foreign trade transactions and a dual exchange rate. At the same time, the administrative procedure relating to payment for imports was simplified, while the responsibility for transactions was transferred to commercial banks. In 2001, quantitative restrictions (quotas) on commodity imports, as well as on commodity exports, except for a minor number of agricultural products, were lifted. The new customs tariff anticipated only six tariff rates ranging from one per cent to 30 per cent (1, 5, 10, 15, 20 and 30 per cent), while the average weighted customs burden was reduced to 9.37 per cent. As for nomenclature, the current customs tariff already contains about 70 per cent of tariff items that have been harmonized with the Combined Nomenclature of the European Union (EU). Preparations for full membership of the World Trade Organization (WTO) began after achieving the status of an associate member in February 2001. In February 2002, the Memorandum on the Foreign Trade Regime, adopted by the Federal Government, was submitted to the WTO Secretariat. In 2001, within the Stability Pact, Serbia and Montenegro signed the Memorandum of Understanding, Trade Liberalization and Trade Incentives with the countries of South East Europe, in order to speed up trade and its liberalization. On the basis of the signed Memorandum, bilateral free trade agreements with Bosnia and Herzegovina, the Republic of Macedonia, Bulgaria, Moldova and Romania have been concluded and ratified and are already being enforced. Such an agreement has also been concluded with Albania and its ratification in the two countries’ parliaments is expected. The formation of the Free Zone in South East Europe, which is underway, will have a favourable impact on the attraction of investments to this region – a market of 50 million people. The allocation of benefits from trade liberalization within the countries in this region will depend primarily on exchange rate policy over the short term and on the attractiveness of the legal and institutional system, which will influence the allocation of investments over the medium term.
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20
Background to the Market
Capital flow liberalization The area of capital flow liberalization is regulated primarily by the Law on Foreign Exchange Operations, Foreign Investment Law and the Law on Foreign Credit Operations. These laws enabled full liberalization of business activities within current foreign exchange transactions, while within capital transactions, foreign persons were allowed to make direct investments, invest in real estate (based on the reciprocity principle), conclude foreign exchange credit arrangements, and buy and sell securities (excluding short-dated ones). As for capital transactions, there are certain restrictions for residents, including, specifically, opening a foreign exchange account abroad, acquiring title to real estate abroad and buying foreign securities.
Public finance In the area of public finance, the following laws were adopted: the Law on the Budget System, the Law on Tax Procedure and Tax Administration and the Public Procurement Law. These laws enable transparency in the planning and execution of the budget, modernization of the tax administration and equal status for all participants in the public procurement procedure. The Treasury of Serbia was also established. Its basic functions are cash and public debt management. A comprehensive consolidation of public finance on both the revenue and expenditure sides of the budget, had a direct influence on reducing the fiscal deficit. In 2004, the fiscal deficit amounted to 2.5 per cent of GDP and it is expected that over the medium term, it will continue to decline to a level below 1.5 per cent of GDP. In 2004, consolidated public revenue in Serbia amounted to 43.6 per cent of GDP, which is the average for the advanced countries in transition. In the structure of public revenue, the share of tax payable on goods and services, income tax, profit tax and capital gains tax is dominant. In 2004, according to the Memorandum on the Budget and Economic and Fiscal Policies for 2005, the share of domestic and foreign public debt in GDP amounted to 55.3 per cent. Maintaining fiscal sustainability over the medium term implies maintaining the share of domestic and foreign public debt below 60 per cent of GDP.
Tax reform Tax reform, which has so far resulted in the creation of a more transparent and more efficient tax system, as well as in the provision of foreign investment tax credit, will be continued in the coming period. Under the Law on Corporate Income Tax, which came into force on 1 August 2004, the tax rate was lowered from 14 per cent to 10 per cent.
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Economic Overview
21
On 1 January 2005, the tax on financial transactions was abolished, thus reducing the costs of payment operations to a significant extent. The payroll tax, which was assessed on gross wages at 3.5 per cent, was abolished in July 2004. The abolition of this tax unburdened the economy and increased the funds for new employment and investment. In January 2005, the sales tax was replaced by value added tax (VAT) (18 per cent and eight per cent). The expectations that VAT would be more effective than the sales tax in terms of public revenue collection has proved to be correct during the first few months of 2005. The process of combatting the grey economy continued, especially with respect to excise products and employment. In 2004, the process of introducing fiscal cash registers was also completed (the issuing of bills/receipts for cash payments was not previously an obligation/ common practice).
Privatization and restructuring Insofar as enterprise privatization and restructuring are concerned, during the period 2002–2004, 39 enterprises were privatized by tender and 1,028 enterprises by auction. According to the data of the Republican Development Office, the total financial effect was as follows: the proceeds from privatization amounted to €1.2 billion, whereby €797.5 million were earmarked for investments and €272.4 million for the social programme. The proceeds from the sale of the shares of 196 enterprises from the Share Fund’s portfolio amounted to €178.2 million. The ratio between realized and planned privatization at the end of December 2004, based on different privatization tracks, can be observed in Figure 1.2.2. The amendments to the Privatization Law adopted in February 2003 and the adoption of the Bankruptcy Law and Law on the Agency for Licensing Bankruptcy Trustees in 2004, will speed up the privatization process by combining the sale of large enterprises to strategic investors by tender, the auction sale of small- and medium-sized enterprises and privatization through the bankruptcy and liquidation of insolvent enterprises. In the process of restructuring large state and socially owned enterprises in the coming years, priority will be attached to solving the problem of redundancies and total liabilities that exceed total assets. According to the data of the Privatization Agency of January 2005, the restructuring of 87 large business systems is underway. The government took the decision to write off and postpone the payment of a part of the matured obligations arising from public revenue, whereby the tax liabilities of 125 enterprises would be written off by 50 per cent, while the payment of the outstanding debt would be postponed for 12 months. The EU also launched the new Turn-Around Management
1-905050-14-3_P01_22_02/20/2006
22
Background to the Market Total number of enterprises 4600 Sale of minority packages
Accelerated privatisation
3418
2000
2000 236
20
729 0 40
413 480
100 First public sale
Auction Tender
privatised until 31.12. 2004. total for privatisation
Figure 1.2.2 Ratio between realized and planned privatization (TAM) Programme with a view to supporting the recovery and restructuring of 25 potentially good enterprises in Serbia. The basic aim is to prepare these enterprises for privatization through reorganization and status-related changes (eg decomposition of large and non-functional systems and separation of the main activity from the auxiliary one), as well as through financial restructuring, coupled with the recruitment of legal and financial advisers.
Banking reform Banking reform began in May 2001 by defining the strategy of bank restructuring. Banks were classified into four groups: sound banks, banks that require recapitalization, banks that should be restructured and banks against which liquidation or bankruptcy proceedings were initiated. Early in 2002, the decision was made to initiate bankruptcy proceedings against the four largest banks according to the size of their assets (Beogradska banka, Beobanka, Investbanka and Jugobanka). The National Bank of Serbia granted operating licences to reputable foreign banks, which encouraged competition and sped up the revitalization of the banking sector. The results of this reform are reflected in an increase in foreign currency and domestic savings with banks, which strengthened banks’ lending activities and influenced a down-
1-905050-14-3_P01_23_02/20/2006
Economic Overview
23
ward trend in interest rates and interest margins (from December 2000 to February 2005, the average weighted positive interest rate was lowered from five per cent to 1.17 per cent at the monthly level, while the average weighted negative interest rate was lowered from 2.55 per cent to 0.31 per cent). The process of bank privatization, which was initiated in 2003, is being conducted in two phases: pre-privatization restructuring and the sale of shares in state ownership. Pre-privatization restructuring includes banks’ internal restructuring and the cleaning of their balance sheets. The first successful privatization was completed in February 2005 by selling 88.64 per cent of Jubanka’s share capital to the Greek Alpha Bank for the sum of €152 million. During the past four years of democratic government, macroeconomic stability was achieved, trade flows were liberalized and the processes of harmonizing legislation and business standards with the EU were initiated. Deregulation and the removal of administrative barriers also began, including, specifically, the shortening of the procedure for granting a building permit and acceleration of the enterprise registration procedure so as to simplify the initial steps in the enterprise formation procedure as much as possible, thus attracting new investments. Tax reform was aimed at creating a more modern and more equitable tax environment, thus encouraging business activity.
Foreign direct investment (FDI) These efforts brought about an increased flow of foreign capital into the country, although it is still at a low level, which is mostly due to high economic and political investment risks (see Figure 1.2.3). In order to lessen the investment risk more significantly, it will be necessary to continue with judicial reform so as to ensure full protection of property rights and the rights of creditors. A more significant FDI inflow can also be expected parallel to the strengthening of the financial system, including, specifically, the development of the capital market. By initiating reforms at the beginning of 2001, comprehensive measures were taken with a view to improving the investment climate in the country. In 2001, according to the data of the Federal Ministry for Foreign Economic Relations, 1,319 foreign investment contracts were registered, ie four times more than in 2000 (when 373 contracts were registered). The motivation of foreign investors also changed radically (in a positive sense), since the number of their wholly-owned enterprises rose to nearly 50 per cent of the total number of registered foreign investment contracts. A similar trend also continued in 2002 and resulted in US$1.36 billion of FDI in 2003 and US$890 million in 2004. These
1-905050-14-3_P01_24_02/20/2006
24
Background to the Market 1360
1400 1200 890
1000 800 475
600 400 165
200
64
0 2000
2001
2002
2003
2004
Source: SIEPA Figure 1.2.3 FDI in Serbia and Montenegro, 2000–2004 (in US$ millions) investments came mostly through the privatization process. FDI inflow by source country and by sector in which it was invested, is presented in Table 1.2.2. Table 1.2.2 The largest foreign investments, 2002–2004 Investor
Value of investment
Sector
Investment type
Source country
Ball Packaging Europe
€75 million
Packaging industry
Greenfield
Germany
Tarkett Sommer
€67 million
Construction Joint venture materials industry
Holzin
US$52 million Cement factory
Privatization
Switzerland
Lafarge
US$51 million Cement factory
Privatization
France
US Steel
US$40 million Steel industry
Acquisition
United States
Titan
US$35 million Cement factory
Privatization
Greece
Mercator
€33 million
Retail trade
Greenfield
Slovenia
Henkel
€14 million
Chemical industry Privatization
Germany
Philip Moris
US$387 million
Tobacco industry
Privatization
United States
BAT
US$50 million Tobacco industry
Privatization
United States
Germany
1-905050-14-3_P01_25_02/20/2006
Economic Overview Investor
Value of investment
Sector
Investment type
Source country
Lukoil
US$117 million
Oil industry
Privatization
Russia
Tondah
€28 million
Construction industry
Privatization
Austria
Farmacu
€3.5 million
Pharmaceutical industry
Privatization
UK
Interbrew
€430 million
Beer
Acquisition
Belgium
Carlsberg
€72 million
Beer
Acquisition
Denmark
Banca Intesa €277 million
Banking
Acquisition
Italy
€152 million
Banking
Privatization
Greece
Alpha Bank
25
Source: Siepa
As for so-called greenfield investment, as a special type of FDI, its level in Serbia is generally lower than expected. So far, the largest greenfield investment has been made by Germany’s Ball Packaging Europe in the packaging industry (€75 million). Apart from the domestic market, its output is also intended for export. A significant greenfield investment was also made by Mercator – to the amount of €33 million.
Process of harmonization and integration with the EU Serbia’s accession to the EU will be carried out through the stabilization and association process, the basic aim of which is to enable the countries in the region to accelerate the political and economic transformation necessary for making progress in the accession process. In the second half of 2004, in order to revive the association process, which was partly suspended due to the difficulty in harmonizing the economic systems of Serbia and Montenegro, the EU offered the socalled ‘twin-track’ approach. The essence of this approach lies in cooperation with each republic separately in the areas in which the republics regulate by themselves – trade, economic and sectoral policies, as well as the continuation of work with the State Union in the areas falling within its competence, including, specifically, international political relations and human rights. In that sense, Serbia’s activities within the accession process should also be observed through the activities at the level of the State Union of Serbia and Montenegro.
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26
Background to the Market
To achieve its strategic aim – accession to the EU – Serbia initiated institutional changes and adjusted its administration to those needs. In 2002, within the Ministry for Foreign Economic Relations, the Sector for European Integration was established. In 2004, it evolved into the EU Integration Office of the Government of the Republic of Serbia. As a professional body, its basic task is to coordinate the EU accession process of the Republic of Serbia. Pursuant to the decision of the Serbian government the European Integration Council was also set up (2002) as its advisory body for strategic issues in the integration process. At the constituent meeting of the Council it was decided to set up the Commission for Coordination of EU Accession, which should propose measures for the promotion of cooperation between the republican bodies and organizations in charge of adopting and conducting EU accession policy. In addition, it establishes priorities and determines the most favourable methods for harmonization of the Serbian regulations with EU standards. In most republican ministries, special units for European integration have been set up, with a view to enabling those ministries to be adequately and timely included in all activities falling within their competence and relating to Serbia’s accession to the EU. A very important step in Serbia’s activity hitherto towards EU accession was the formation and commencment of the work of the European Integration Committee of the National Assembly of the Republic of Serbia. The first result achieved by this Committee was the preparation and adoption (by the Serbian Assembly) of the Resolution on Accession to the European Union, which is of great significance for further activities towards achieving the ultimate aim – full membership in the EU. Among other things, the Resolution points out that Serbia’s full membership of the EU is its strategic and national aim as a member of the State Union of Serbia and Montenegro, to which the National Assembly will provide full and continuous support. It also expresses Serbia’s readiness to meet all requirements for accelerated integration into the EU, as well as its commitment to observe human and minority rights. The readiness of the Republic of Serbia to fulfil all international obligations is clearly expressed, in addition to its participation in the further development and promotion of all forms of regional cooperation, regional initiatives and good neighbourly relations. The most complex (and most exhaustive) task in the process of EU accession is certainly the harmonization of domestic regulations with EU ones. The scope of this work is best evidenced by the fact that, in addition to formation agreements, it includes about 20,000 regulations within secondary legislation and 400 court decisions. Although it is not necessary to harmonize national legislation with EU legislation prior
1-905050-14-3_P01_27_02/20/2006
Economic Overview
27
to signing the Stabilization and Association Agreement, every country taking this process seriously should initiate it much earlier. To that end, the Serbian government adopted the Action Plan for harmonization of Serbia’s regulations with those of the EU. This is a set of 44 laws, which should be adopted during 2005, and their adoption is an obligation that arises from the Stabilization and Association Agreement. What is important for the implementation of this Action Plan is the fact that it stipulates the obligations of the competent ministries and sets the provisional time limits within which those laws should be drafted. What will also facilitate this work is the obligation of all government bodies and organizations in charge of drafting laws, other regulations or general enactments, to make a statement on the harmonization of draft regulations with EU legislation. In so doing, one should bear in mind the EU’s warning that that the introduction of its legal standards into national legislation is not sufficient. The harmonization process does not end with the adoption of the harmonized regulations, since it is necessary to provide the system for their functional implementation. To that end, the initial steps have already been made. The EU Integration Office of the Serbian government has also drafted Serbia’s National Strategy for Serbia and Montenegro’s Accession to the EU. After a public debate, the Draft Strategy should be sent first to the European Integration Council for consideration and then to the Serbian Assembly for adoption. The Resolution on EU Accession also points to the special significance of harmonizing Serbia’s legislation with that of the EU, emphasizing that the Serbian Parliament will give priority to all activities in this area. This also implies the adoption of special procedures for improving the efficiency of that process. The Serbian government also demonstrated its readiness to fulfil the priority tasks set in the Resolution on EU Accession through a decision to set up the team for negotiations with the EU relating to the conclusion of the Stabilization and Accession Agreement. Special teams will also be set up for specified segments of negotiations and their tasks will be defined. All these activities, coupled with the efforts to carry out economic and political reforms and meet the criteria set in the Stabilization and Association Agreement, resulted in Serbia obtaining a positive Feasibility Study on EU accession in April 2005. For further work on EU accession, it will be important to create a stable political climate and provide professional support to persist in political, legal and economic transformation.
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28
Background to the Market
Main constraints and expectations over the short term (by the end of 2005) At the end of 2004, which was marked by a change of government and periodical meandering in economic policy, there remained many things that should have been done. Despite this, some basic pillars on which macroeconomic policy rests, have been laid over the past four years: ●
Public spending still accounts for a large portion of GDP; it is burdened by the need for enormous transfers from the budget to the social funds and, according to the adopted budget, it is still dependent on the proceeds from privatization to cover the budget deficit – in other words, by the transfer of capital to spending. Over the short term, there is almost no room for a real reduction in public spending, so that a reduction in its share in GDP must be sought in an increase in GDP and simultaneous constraint on an increase in spending, as well as the maintenance of certain items at the level reached. It implies the process being contrary to the previous trend – activation of domestic savings towards investments.
●
The issue of the foreign trade deficit is raised in connection with its size and structure. The latter concerns the ratio of imports intended for investments and spending, on which the future exports and the ability to reduce the deficit depend. As regards the size of this deficit, it is induced by the level of domestic demand. Also, the sustainability of foreign debt servicing depends on its coverage by new loans, or foreign investments. The issue of foreign trade deficit revolves primarily around the question of managing the level and structure of demand, and the reduction of investment prices and risk, rather than the level of liberalization and exchange rate policy (which can only be a corrective factor).
●
As regards prices, domestic economic activities are still monopolized and those monopolies are mostly state-owned and local public companies. In this connection, three key questions arise: a) about their efficiency, b) about the possibility of influencing the prices by macroeconomic policy, and c) about a consistent (harmonized) policy of price disparity elimination. In other words, what are the prospects for privatization and the creation of competition? The main problem in the economic system is the lack of efficient antimonopoly legislation and institutions. This is also a prerequisite for full price liberalization.
●
The decrease in industrial output and imports in the first quarter of 2005 is a result of the increased production and imports for stocks in the last quarter of 2004 before the introduction of VAT (when the
1-905050-14-3_P01_29_02/20/2006
Economic Overview
29
interest payable on loans for financing these stocks was lower than VAT, which would have been paid at the beginning of this year). With adjustments for the estimated effect of changed production time (9.4 per cent of the average monthly output in 2004) and exports (around €400 million), the following conclusions can be reached: – industrial output does not show recessionary tendencies, although its dynamics are significantly slower than the previous year’s. For the time being, no forecast is reliable because industrial results at this point in time will also depend on factors that cannot now be perceived, including the measures to be undertaken regarding the outcome of the fifth IMF arrangement review. As things stand now, the final result (end-year growth rate) could be an increase of between 1.5 per cent and 3.5 per cent; – the concentration of exports is increasing, and its growth is predominantly associated with the sectors that have mostly been privatized – output growth is associated with an increase in exports; ●
Two important conclusions can be derived in connection with economic policy: – First, if this year’s projected 4.6 per cent real increase in GDP is reached, the share of the commodities and services deficit in it will decrease by almost three percentage points (from 29.7 per cent to 26.9 per cent), which will reduce the scope for real growth of total domestic demand to 2–2.5 per cent.1 With an increase in fixed investments of 10–15 per cent, about two percentage points of the growth of domestic demand will be absorbed and no scope (or only a symbolic one) will remain for the growth of total spending. Public spending must be reduced in real terms in order to provide scope for at least a minimum increase in personal spending in this account – Second, the import dynamic itself should not, for the time being, be adjusted downwards by additional restrictive measures.
1 The size of the domestic demand deflator depends on the GDP deflator and foreign trade deflator, so when there is a real depreciation of the dinar, the demand deflator is lower and when there is a real dinar depreciation it is higher than the GDP deflator (in other words, real depreciation proportionately reduces domestic demand growth).
1-905050-14-3_P01_30_02/20/2006
30
Background to the Market
There is a problem of supply shrinkage due to a decrease in the foreign trade deficit and the resulting pressure on prices. ●
If the already realized increase in prices during the first four months of 2005 is taken into account, it is obvious that it is not realistic to expect that this year’s inflation will remain below the ‘magic’ limit of 10 per cent. This would require the average increase in prices to be reduced to 0.3 per cent during the remaining eight months (despite the expected price adjustment of electric power), which would be half the average monthly increase in 2003, in which the inflation rate was the lowest (7.8 per cent). Even if it were possible to achieve this by imposing new, severe monetary restrictions,2 the question is whether economic activity, investments and development would also be ‘killed’ and whether debt servicing should be endangered so as to achieve this aim in two or three years. Therefore, the additional withdrawal of money for the purpose of lowering the inflation rate to the projected level would increase interest rates still further.
●
As for structural reforms, the main reform areas will be: – the acceleration of the privatization process and its expansion to public (monopolistic) companies; – the privatization of two large banks (with the state as a majority shareholder); – the further strengthening of the rule of law; and – the creation of a more investment-friendly environment with the aim of increasing foreign investment, in particular greenfield ones.
2 The option of intensified administrative price control is excluded. The monopoly problem must be resolved by its elimination and antimonopoly legislation.
1-905050-14-3_P01_31_02/20/2006
1.3
Serbian Business Culture Galjina Ognjanov, Faculty of Economics, Belgrade University
Introduction Business culture in Serbia derives from the country’s overall historical, social and cultural heritage as well as its economic development. Although business values are deeply rooted in its culture, many of these have resulted from the communist ideology and central planning that had dominated the country’s economy for four decades in the second half of the last century. Serbia is a former communist country in the process of transition toward a market economy. Its business culture is, in many respects, similar to these of other countries in the region of South East Europe. As in many other former communist countries, collectivism was among the dominant cultural values highly influencing business behaviour. It was reflected by a high respect for authority and a personal need to be accepted in the business community. The working environment was considered one’s second family, to which a person belonged throughout his/her working time. The first employment was usually the one that would last for a working lifetime. This was also supported by the avoidance of uncertainty as another cultural value typical for Eastern Europe at that time. It affected business behaviour through the hesitation to change one’s job, even for better career opportunities. However, contrary to many other Eastern European countries, in which the business values and behaviour primarily resulted from communist ideology, in Serbia these were also highly correspondent with its religious and patriarchal culture. Orthodox Christianity, the dominant religion in Serbia (85 per cent) strongly supports collectivism and patriarchal values. The tradition of joint families and village communities (so called zadruga) based on collective property, contributed to
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Background to the Market
the spirit of collectivism. Consequently, while this particular value has now been diminishing in many other former communist countries, it is still predominant in Serbia and highly influences its business behaviour. On the other hand, contrary to other Eastern European countries (except those of former Yugoslavia) Serbia has always been more Western oriented. Its managers were educated to Western standards and had opportunities to cooperate with Western companies. Consequently, certain Western values have already been accepted here and can be recognized when doing business, even with older managers. Simultaneously, a new process of Westernization was initiated in the 1990s, with the young managers developing new business values and behaviour. Separate processes that have been ongoing both in the past and recently, make generalizations very difficult. Additionally, certain cultural differences exist from the country’s north to its south. Nevertheless, business culture in Serbia relies on several general values affecting some very important issues that should be taken into account when preparing for doing business in Serbia. Therefore, we present below some relevant information on typical business values, behaviour patterns and communication.
Business values The primary business value in Serbia is relationship building. It derives from collectivism as the predominant cultural value. In the business environment, it is reflected by a need to get well acquainted with your business partner and develop a sound and long-lasting relationship. These kinds of relationships are not only limited to business environments but also lead to personal friendships and much less formal contact. Thus, it is usual that the first meeting agreed upon lasts much longer than a Western manager would expect and continues over lunch. In addition, business partners can expect to be invited for a less formal encounter as a guest to a family dinner or party. Many deals in Serbia are made through personal ties and alreadydeveloped relationships. With rather slow administration and high bureaucracy, personal friendships and acquaintances can be of much help. Asking for favours from those who are your friends or your friends’ friends is quite acceptable and doing favours to them is expected. It should be noted however, that this is not considered to be bribery but a way of showing friendship and readiness to help. Thus, it does not necessitate offering anything in return for such favours but it could be followed by the presentation of something of not very high
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Serbian Business Culture
33
value – a bottle of spirits, a box of chocolates or, which is more often the case, taking the person out for a drink. As a part of the relationship building procedure, interpersonal communication is highly respected. While the first contact may be initiated by telephone (emails are also acceptable among the younger generation of managers), it is always advisable to invite the contact for a meeting in person. Only in face-to-face communication, will a Serbian manager be able to judge the potential for relationship building and the confidence of the business partner, with these two aspects highly influencing his/her decision to come to an agreement in business. The second business value, which is very much connected with the previous one, is confidence. Relationship building heavily relies on building trust and loyalty among the partners. While confidence is often judged from the very first meeting, trust and loyalty are measured throughout numerous contacts and on numerous occasions. For example, the practice described above of doing favours is often perceived as showing trust and loyalty to someone. However, though this may imply that in Serbia confidence and trust are usually based on informal agreements among two parties or on a handshake, in a pure business environment, it is quite the opposite. Once everything is agreed upon, in both formal and informal meetings, it is expected that written contracts should be signed. It is, therefore, advisable to make the Serbian party aware of your intention to sign the contract, negotiate over the terms, show a draft and make sure that someone is taking care of the formal part of signing the agreement. This complies with the third business value, which is uncertainty avoidance. As previously noted, this cultural value is best reflected in the need for a life-long job. Additionally, it is also deeply rooted in the need for long-lasting business relationships and in the reliance on friendships when trying to solve many problems. Trust building among partners and loyalty are also in accordance with this need for certainty in doing business. As this is a long-term process, throughout which a first-time partner is patiently judged, it is always better to assure that you are a trust-worthy person by showing your readiness to legally arrange what has been agreed on during meetings. Once a sound relationship and trust are built among the partners, it becomes much easier (and much less formal) to negotiate over new business deals. The fourth business value to be taken into account is the high respect for authority. An international partner is usually expected to make contact firstly with the top managers in the highest positions in a company, no matter of what his/her job position is in the company he/she represents. If a foreign partner fails to contact company top management, the contact person will normally pass on the information and ask the top managers to join the meeting or give their permission for the contact to be sustained among the two parties.
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Background to the Market
Often, the company director or president will take part in the first formal meeting or be the one to invite a foreign partner for lunch/dinner in a restaurant. Though this could be regarded as a part of the muchpraised Serbian hospitality, it also supports a high power distance in the business environment. The company president or director must approve of any contacts and negotiations with foreign partners. Consequently, when negotiating in Serbia it is advisable to make sure that the person, or a team of people, you are negotiating with has been delegated with the authority make decisions over the terms of the agreement. It is possible that though they are given authority to negotiate, it is somebody else from the company’s top management who will need to be consulted prior to signing the agreement.
Behaviour patterns Working hours Working hours in Serbia are mostly from 8am to 4pm, though Western working time from 9am to 5pm is now becoming much more frequent. Small-scale business agencies, international representative offices, foreign banks and NGOs were among the first to accept Western working hours. They are now followed by some private companies and by government and administrative bodies, although to a much lesser extent. A number of administrative offices still open at 8am and close at 4pm or even an hour earlier. On the other hand, managers in Serbian companies are usually available up to 5pm or even after.
Time management Time is well respected in the Serbian business environment. Meetings usually start on time, although five-minute delays are accepted and delays of up to 15 minutes tolerated. On the other hand, this timeefficiency over meetings is often sacrificed for getting acquainted with the other party and relationship building. In particular, first meetings are often very lengthy and usually continue over lunch or diner.
Holidays There are a number of holidays in Serbia, both state and religious. The Serbs have a habit of extending holidays by connecting the to weekends. This means that, for example, if a holiday would normally finish on a Thursday, it often happens that Friday is also considered a day off so that the holiday is actually extended over the whole week.
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Due to the concentration of holidays at the beginning of January, it is often considered a ‘dead month’ in terms of doing business. January 1st and 2nd are celebrated as state holidays, while the Orthodox Christmas on January 7th is also celebrated as a non-working day. The Serbian New Year is celebrated by many Serbs on January 13th and 14th, though they not officially accepted as public holidays. Other state holidays are celebrated on the April 27th and 1st and 2nd of May. Easter holidays cover Orthodox Good Friday, Easter Sunday and Good Monday. In addition to that, almost every Serbian family and individual company worships one of many Serbian Saints, in the honour of which one day a year is celebrated (the so-called ‘Serbian Slava’).
Business meetings and negotiations There is no particular preferred time when business meetings and negotiations are held. They may be conducted at any time of the day during working hours or even after. The best way to ask a business partner in Serbia for a meeting is to make a telephone call directly to him/her or the company secretary, though email correspondence is also accepted. It is not necessary to ask for a meeting much in advance – a week before is usually more than enough notice. Moreover, it is quite usual for business meetings to be arranged only two or three days in advance. Setting a meeting agenda prior to conducting a meeting is rare. The only things agreed upon in advance are the meeting time and place, as well as the general topic that will be discussed. When held, meetings rarely follow any agenda but better resemble an informal conversation in which the partners are combining work and pleasure, whilst trying to build or strengthen their relationships. It is similar with business negotiations in Serbia. The Serbian party is rarely well prepared in terms of having a well-established strategy based on analysing the other party’s strengths and weaknesses or its interests in the negotiations. Serbian negotiators rely more on improvization and base their decisions primarily on their judgement of the level of trust that has been built among the parties. However, it should be noted that the negotiation skills of Serbian managers have been improving, as they have been offered numerous training courses in negotiation. Consequently, you may now expect to meet a well-prepared negotiator who is very much aware of Western negotiation skills and standards.
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Background to the Market
Giving presents Giving presents to business partners in Serbia is very occasional and is usually a result of long-term business cooperation. It is not usual that a present is given at the first meeting and this would certainly not be very much welcomed. However, low value presents are appreciated when a business partner is invited for family dinner or party (eg flowers or chocolates for the lady of the house and/or bottle of wine for the host). Additionally, small gifts are often exchanged in a business environment at New Year or Christmas. The best presents to give on these occasions are advertising materials such as calendars, agendas and diaries, pens, key-chains, mugs and the like. It may also be a more creative gift of low value but gifts of more than €100 in value are legally banned in state institutions, and many companies in Serbia nowadays have their own regulations on what can and can not be accepted as a present in business.
Women in business All legal documents in Serbia grant equal rights to both women and men. Women are granted equal job opportunities and consequently may hold the highest positions in companies. In reality, women holding top managerial positions are much fewer than men, although not rare in Serbia. Foreign investors interested in doing business in Serbia may, therefore, find that the main decision-maker in a company is a woman. However, it is more common for female partners to join business meetings, together with their male colleagues, and participate in decisionmaking on equal basis.
Communication As already noted, face-to-face communication is highly respected in Serbia. It involves both verbal and non-verbal messages, helping to build trust between the communicators. In that respect, Serbia belongs to the so-called southern cultural type, in which non-verbal communication is given priority to verbal. People are often judged based on the non-verbal messages they send as well as the overall behavioural context. A person coming from abroad should therefore be prepared for strong hand shaking, based on which the Serbs are ready to judge the confidentiality of their prospective partner. Physical distance among the communicators is lower than what may be expected from a US, German or British viewpoint, with the Serbian partner keeping a physical distance equal to that from one’s elbow to hand. On the other hand, gesticulation is not very much appreciated. When
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Serbian Business Culture
37
communicating with business partners in Serbia, it is important to keep in mind that strong gesticulations can be perceived as incompetence or an inability to verbally express his/her thoughts. The official language is Serbian. In several municipalities in Vojvodina (the northern autonomous province with a high percentage of ethnic minorities), other languages are also in official use (Hungarian, Slovak and Romanian). The Serbian language recognizes both Cyrillic and Latin alphabets. Official documents should be issued in Cyrillic. The younger generation of Serbian managers speak English fluently, and older ones do not hesitate to hold meetings in English, relying on their companies’ interpreters. As English is the best known foreign language among managers and overall in Serbia, it is certainly the most appropriate language to use when communicating with local partners.
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Part Two Financial Markets and the Investment Environment
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2.1
The Investment Climate Mike Ahern, President, Foreign Investors Council of Serbia and Montenegro
Investing in Serbia In May 2005, Belgrade hosted the 2005 European Bank for Reconstruction and Development (EBRD) annual governors’ meeting. This was a good opportunity to reflect upon and assess Serbia’s recent development. An apt phrase, used at the conference, reflecting current opinion on Serbia is one of ‘cautious optimism’. Another sentiment, discussed in more detail below, is that Serbia and the Balkan Region are as close to failure as to success. While largely agreeing with and understanding both opinions, as a person who has lived and worked in Serbia for close to three years and with a long history of working in emerging markets, I believe that Serbia has unrealized potential and that things could be considerably better. These views are explored in the article that follows. At the outset, it is important to reiterate the obvious. Every investor looking at the Serbian market needs to do his homework thoroughly. Many of those who complain after they have made their investments, failed to undertake appropriate due diligence prior to committing to the country. The devil is in the detail. In other cases, problems often reflect the inexperience of the management team in emerging markets. They do not, for example, anticipate the types of problems that are likely to occur, cannot differentiate clearly between important and inconsequential issues and try to do too much too soon. All too often, such investors blame poor management on the vagaries of the country.
Factors attracting investment in Serbia Serbs, in general, show an extremely positive attitude towards foreign investment. This attitude extends from central government to the population at large. Those at the highest levels in government speak
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Financial Markets and the Investment Environment
eloquently and welcome foreign investment openly. The general population treats foreigners as they treat each other: no special deference but speak to them very openly, exactly as it should be. So-called people skills are among the outstanding features of Serbia. English language skills are higher than they were in Eastern Europe in the early 1990s as that part of the world emerged from communism. A simple example is that the majority of taxi drivers are able to communicate in English. Skill levels, both intellectual and manual, are high. A concern is that these skills reflect an education system that used to be of a higher standard and where higher levels of investment occurred than is the case today. How does this reflect itself in the economy? It is very difficult for most countries to compete effectively with China and India. However, in certain niche areas, Serbia has opportunities. Firstly in sectors where the people-related skills mentioned above (intellectual, language etc) are important, for example software development and call centres. A number of examples exist of multinational companies using or wanting to use Serbia for back-office type activities. The agricultural sector is another area where Serbia has strength, for example, to position itself as a producer of organic products. However, more of the value added (processing) activities need to occur within the country, rather than exporting primary products directly. In sectors where manual skills are important such as making furniture, Serbia also has opportunities. It is important, however, that the country is realistic in assessing where these opportunities lie. The Serbian consumer is remarkably sophisticated. This characteristic originates in the pre-Milosevic era, when Serbs had the opportunity to travel freely. Thus, they were aware of all aspects of modern life and continue to be so today. Brand recognition, for example, is extremely high. Related to this, Serbian business is characterized by an entrepreneurial spirit. Business people are used to making business happen. The sector where the greatest advance has been made is banking. Compliments are due in this area, particularly to the current governor of the National Bank. Privatizations have taken place systematically and smoothly since mid-2004 and it is extremely encouraging to see the number of foreign banks competing in Serbia. The government, too, is to be complemented for largely adhering to the straight-jacket imposed by the IMF in terms of monetary and fiscal policies. It is essential that this continues. Nonetheless, it is disappointing that the government has not used the higher budget revenue arising from inflation and the introduction of VAT more effectively. Serbia is characterized by a low tax regime, both at the corporate and personal levels. The corporate tax rate is 10 per cent. The personal tax rate is 14 per cent on salaries plus an additional 10 per cent on net
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43
income when a personal tax return is filed. Social security contributions for the employer and employee are approximately 17 per cent each, being capped at salary levels of about €1,300 a month. VAT was introduced on 1 January 2005. Low tax rates can be misleading, however. There are a number of non-tax-deductible costs, which, for some companies, increase the effective tax rate very significantly. Additionally, there are significant flaws in legislation as well as in the discretionary powers of tax authorities, which create unnecessary uncertainty. Although exchange controls exist, fees, profit and capital can be remitted with little restriction.
Areas of concern for foreign investors A major impediment to the development of Serbia is the absence of ownership of urban construction land. Currently there is system that involves ‘right of use’ of land. Ownership of the land only arises through registration of ownership of a building subsequently constructed on the land. Due to the fact that there is no ownership of the land per se, raising finance for construction of a building is extremely difficult. Furthermore, the system for obtaining this right of use is open to abuse. To compound the difficulties, there is no defined procedure regarding the permissions etc necessary to construct a building – again, an opportunity for abuse. A comment made by investors in this area is that they would not mind if there were, for example, 100 permits and approvals required, as long as the process (a checklist) was clearly defined. Serbia correctly sees itself as a hub for multinationals operating in the Balkans: such companies can use Serbia as a base for manufacture for the region due to Serbia’s central position. However, this necessarily implies a good infrastructure (roads, rail etc). It also requires that the network of bilateral free trade agreements (FTAs) in South East Europe is both effective and operative. The road and rail networks in Serbia need considerable development. For example, the roads from Nis in southern Serbia towards Macedonia and towards Bulgaria are totally inadequate. In terms of FTAs, while Serbia has a good network, the FTAs with Romania and Bulgaria, for example, allow the latter two countries to impose customs duties on Serbian manufactured household products, which make the products uncompetitive compared with local products. When it comes to imports of food products, the procedures in Serbia need to be updated and simplified. Currently, Serbia does not accept that imported products that meet EU standards can be imported without further detailed veterinary and sanitary checks. Again, the processes are not clearly defined and lead to delays in the release of the products into the Serbian market. For products with a limited
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Financial Markets and the Investment Environment
shelf-life, this can result in reassessment about the merits of exporting to Serbia. A new labour law came into effect in Serbia in March 2005. This was a retrograde step as there was no need for this law. The country already had a law that was modern and allowed flexibility for hiring and firing – essential for any economy wanting to be successful. Far from stimulating employment, the new law will achieve quite the opposite. Many companies have still to feel the effects of the new law, as they are bound by five-year social programmes imposed as part of the privatization process. A new competition law came into effect in September 2005. This law introduced extremely low thresholds for transactions – acquisitions, mergers – requiring the approval of the still to be appointed competition authority. The effect is that some investments will be unnecessarily delayed or, in the worst case, investors will simply turn their backs on Serbia. A disconcerting trend that has emerged more clearly in 2005, is the absence of transparency in the introduction of new laws or amendments to laws. The government seems unwilling to allow any comment on laws prior to their adoption. An example of this is the recent amendments to the financial leasing law. This law was introduced in mid-2003 and has created a vibrant, fast-developing leasing sector, which has played a crucial role in financing the development of Serbia. Amendments to the law were adopted mid-year, with no opportunity whatsoever for comment. A similar process was followed for amendments to the labour law. A consultation process is crucial in developing markets such as Serbia: laws are usually drafted by foreign consultants who have no understanding of the local market. They prepare laws that might be suitable in more advanced Western economies but which are impossible to implement in a country at Serbia’s stage of development.
Is the government doing enough? The challenges facing the government are imposing. To put these in perspective, it is useful to refer to a report released in April 2005 prepared by the International Commission on the Balkans chaired by Giulano Amato, a distinguished former Italian Prime Minister. The Commission also comprised a number of other eminent persons. The Introduction to the Report states the following: ‘The region is as close to failure as it is to success. For the moment, the wars are over, but the smell of violence still hangs heavy in the air. The region’s profile is bleak – a mixture
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The Investment Climate
45
of weak states and international protectorates, where Europe has stationed almost half of its deployable forces. Economic growth in these territories is low or non-existent; unemployment is high; corruption is pervasive; and the public is pessimistic and distrustful towards its nascent democratic institutions.’ The relevance of this quotation in the context of Serbia is that the government does not seem to appreciate that time is against the country. Over 10 years were lost in the 1990s, a decade when the world economy was booming and there was an appetite for, and novelty associated with, Eastern Europe. The pace of reform in Serbia needs be faster to compensate for the events of the 1990s. While the first five months of 2005 were good for Serbia, the foot has again come off the accelerator, the momentum has slowed and opportunities are being lost. The early part of the year saw renewed cooperation with the International Criminal Tribunal for the Former Yugoslavia (ICTY), a positive report from the EU’s feasibility study on Serbia, and Belgrade hosted very successfully over 2,500 high-ranking businessmen at the EBRD’s annual governors’ meeting. By bringing so many decision-makers to Belgrade and letting them see that Belgrade and Serbia are normal places, the poor perceptions so widely held started to be changed for many. However, that opportunity needs to be followed up quickly: ●
Civil service reform and privatization of utilities: The key challenges facing the government at the start of 2005 were the reform of the civil service and the start of privatizing utilities. Both steps require the use of political capital and courage. Neither has happened so far. The tactic of saying that strategies need to be developed and using this as an excuse for non-action is being repeated all too often.
●
Cooperation with the ICTY: The process of sending war criminals to the ICTY needs to be completed so that a line can be drawn under that period of Serbian history. The concern, however, is that the government only acts in response to sticks and carrots.
●
Power of local authorities: A disconcerting trend currently emerging is the exercise of power of authorities at a local level, as distinct from the central government. The government appears to have little or no power over such authorities. This is evident in the control exercised by local authorities in the construction arena. It is also becoming prevalent in taxation, where some local authorities are using discretionary rights to extort funds from multinationals. The government needs to act quickly.
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Financial Markets and the Investment Environment ●
Impressive 2005 Foreign Direct Investment (FDI) statistics: The impressive FDI statistics for 2005 are misleading. The government is forecasting FDI of approximately €2 billion. This target may well be achieved. However, it will basically represent the extremely successful privatization of banks, together with continuing investment already committed from earlier privatizations. The government is using the €2 billion number to avoid facing up to the extremely low level of greenfield investment. A courageous step would be for FDI to be measured openly at two levels, namely privatization proceeds and the remainder.
Unfortunately, the slowing down of reform also plays into the hands of local tycoons, some of whom stand behind different parties in the coalition government. The slower the pace of reform, the longer the window of opportunity is open for them and the more entrenched they become. Ultimately, this means a longer road back to normality for Serbia.
Conclusions Serbia is unquestionably a country where business opportunities exist. However, potential investors need to do their homework very thoroughly to understand fully the local environment. If the country is to take its rightful place among successful emerging economies, the government needs to act on the responsibilities it has to the Serbian public.
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2.2
Foreign Trade and Investment SIEPA
Foreign trade The Serbian economy is experiencing tremendous growth at present, as indicated by the 7.5 per cent boost to real GDP in 2004 and the 52 per cent growth in exports in the first half of 2005. This increase in exports is partly a result of the numerous free trade agreements (FTAs) Serbia has negotiated that give companies in Serbia duty-free access to a total market of over 200 million people. Serbia negotiated the South East Europe Free Trade Agreement, expanding its market potential to 55 million people. In addition, Serbia is the only country outside the Commonwealth of Independent States that has dutyfree access to Russia and its 150 million people. Furthermore, Serbia was granted duty-free access to the EU market and Most Favoured Nation status for exporters to the United States for most products and services. Serbia’s major export markets are Bosnia and Herzegovina, Italy and Germany, while imported goods primarily originate from Germany, Russia and Italy. Serbia’s main exports are refined sugar and steel, with tyres for motor vehicles and fruits – mainly raspberries – trailing closely behind. The primary imports into the country are oil and oil derivatives, natural gas and motor vehicles. While there is a large trade deficit, the quality of Serbian exports has been improving in recent years, making them more competitive in international markets.
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Financial Markets and the Investment Environment
Law on foreign trade operations Goods imported into Serbia are classified in accordance with the following types of import: ●
free import;
●
import on the basis of a special licence.
The regime of special licences applies to only 1.7 per cent of goods classified in the Customs Tariff. Special licences must be obtained for the import of weapons and military equipment, historical works and works of art, certain precious metals and strategic products. The import of dangerous waste materials, as well as of second-hand motor vehicles, tractors, building and mining equipment older than three years into Serbia is not permitted. Goods exported from Serbia are classified into one of the following types of export: ●
free export;
●
export on the basis of a special licence;
●
quota-based export (quotas set by quantities or value).
In practice, the majority of all exported goods are under the free export regime. A total number of 8,538 export products are classified in the Customs Tariff, of which only 94 are subject to the special licence regime. Quota-based exports were introduced with a view to ensuring an adequate supply level in the domestic market and they apply primarily to agricultural products. These include: ●
live animals;
●
cereals;
●
corn;
●
wheat flour;
●
soy kernels;
●
sunflower seeds;
●
sugar and sugar products;
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Foreign Trade and Investment ●
sugar molasses; and;
●
raw beef hide, whole or in patches.
49
In order to perform foreign trade operations, a legal entity must be registered in the Foreign Trade Register. Exemption from this rule is provided in cases where the company in question provides services to foreign nationals in Serbia and Montenegro and services pertaining to assembling exported equipment abroad. The temporary import and export of goods is a special form of foreign trade in which certain goods are temporarily imported or exported without collection of customs duties or other charges, provided that such goods are returned abroad or in the country after a predefined period of time in the same condition or altered. Goods may be temporarily imported in the following cases: ●
refinement of goods (adaptation, finishing and processing);
●
repair of goods;
●
import and export of animals and plants for the purposes of propagation;
●
production intended for export;
●
testing;
●
commission sales;
●
exhibitions at international fairs;
●
export and import of packages and loading and protective tools for packaging;
●
equipment used by foreign diplomatic missions and international organizations;
●
machinery used in the construction of production facilities.
Refinement works include adaptation, finishing and processing of goods. The customs office permits temporary import of goods for refinement for a period necessary for such purposes, though not exceeding six months. In cases where prolongation of pre-set time limits is made necessary through no fault of the importer, the customs office may extend the period for up to two years. Figures 2.2.1 to 2.2.5 illustrate Serbia’s import and export data for the year 2004.
1-905050-14-3_P02_50_02/20/2006
Financial Markets and the Investment Environment 1800 1600 1400 1200 1000
Export Import
800 600 400 200
F
ua eb ry ru ar M y ar ch A pr il M ay Ju ne Ju l A y S ug ep us te t m O ber ct N ob ov er e D mb ec e em r be r
0
Ja n
50
Source: Statistical Office of the Republic of Serbia Figure 2.2.1 Serbian export and import in 2004 (’000 US$)
Germany
1,511
Russia
1,401
Italy
1,065
China
525
USA
425
France
357
Slovenia
337
Hungary
321
Austria
292
Ukraine
275 0
200
400
600
800
1000
1200
1400
1600
Source: Statistical Office of the Republic of Serbia Figure 2.2.2 Serbia’s major import partners in 2004 (million US$)
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Foreign Trade and Investment
Bosnia and Herzegovina
51
650
Italy
486
Germany
373
Macedonia
267
Slovenia
164
Russia
158
France
157
Croatia
154
Romania
124
Hungary
123 0
100
200
300
400
500
600
700
Source: Statistical Office of the Republic of Serbia Figure 2.2.3 Serbian major export partners in 2004 (million US$)
Oil and oil derivatives
891
Natural gas
320 234
Motor vehicles Passengers' cars
198
Coke
186
Aircraft
155
Refined copper
131
Medicines
128
Other products
125
Input and output units
122 0
200
400
600
800
1000
Source: Statistical Office of the Republic of Serbia Figure 2.2.4 Serbia’s major import products in 2004 (million US$)
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Financial Markets and the Investment Environment
Refined sugar
159
Steel
158
Tires for motor vehicles
121
Fruits (mainly raspberries)
113
Other rolled products
75
Floor coverings
73
Hot-rolled products
55
Polyethylene (>0.94)
52
Medicines
48
Polyethylene (<0.94)
46 0
50
100
150
200
Source: Statistical Office of the Republic of Serbia Figure 2.2.5 Serbia’s major export products in 2004 (million US$)
The Customs Law The current Customs Law was prepared in accordance with the basic commitment of the State Union of Serbia and Montenegro to become a full member of the EU and the WTO, as well as the need to facilitate and modernize the customs procedure. To assure this goal is achieved, Serbia’s lawmakers used EU blueprints and the best practice of customs legislation of the EU member countries. Import duties on goods imported into Serbia are set by the Customs Tariff, which is an integral part of the Customs Tariff Law. The Law is fully based on the Harmonized Nomenclature and coordinated with the EU Combined Tariff. Customs duty is collected pursuant to the ‘ad valorem’ principle, whereby set rates of duty are applied to the value of imported goods. The value of goods, which serves as the customs assessment base, is the contract price (transaction value), ie the price paid or to be paid. The average customs rate in Serbia is 7.4 per cent (see Table 2.2.1). Exemptions from customs duties are applied in the following cases: ●
import of goods based on investments made by non-residents, except for import of passenger vehicles and gambling machines;
●
import of goods not manufactured in Serbia and Montenegro (with a certificate issued by the Chamber of Commerce) for one of the following purposes:
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Table 2.2.1 Average customs rates for selected sectors Sector
Average customs rate (%)
Textile industry
12.19
Agriculture
15.69
Wood industry
5.27
Chemical industry
2.97
Printing industry
6.50
Ferrous and non-ferrous metallurgy
5.71
Energy sector
2.01
Construction materials
7.17
Miscellaneous
8.53
Metal processing industry
5.39
Leather and shoe industry
8.20
Glass industry
8.70
Overall average customs rate
7.40*
*However, we should note at this point that, at the time of writing in summer 2005, the new Law on Customs Tariff was adopted in July 2005, which had the effect of raising the average customs rate to 8.69 per cent (agriculture: 16.95 per cent and industry: 6.19 per cent) Source: Ministry of International Economic Relations
– replacement of equipment destroyed by a natural disaster, fire, explosion, armed conflict or traffic accident; – scientific research, education and cultural activities, healthcare, professional training and employment of disabled persons, if such goods directly serve the purpose of such activities; – immediate environmental protection; ●
import of raw materials, semi-finished products, composition parts and finished products for the purpose of long-term production cooperation with a non-resident (this exemption is based on a certificate issued by the Serbian Chamber of Commerce to the effect that such goods are not manufactured in the country or are manufactured in insufficient quantities, or that similar goods manufactured in the country do not comply with quality requirements).
In addition, goods originating from Serbia and exported to the EU customs area are subject to preferential customs regimes. In 2000, and as part of the EU’s Stabilization and Association Process, the European
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Financial Markets and the Investment Environment
Commission introduced Exceptional Trade Measures for Serbia and Montenegro. These measures have been introduced for a period of five years and provide for exports to the EU without customs and quantity restrictions for almost all products originating from Serbia. Quotas have been imposed only for limited number of products such as trout, wine, sugar and baby beef. On 21 December 2004, Serbia and Montenegro signed an Agreement on Textiles with the European Commission, providing for the abolishment of quotas in early 2005. Bearing in mind that, as of January 2005, all WTO members abolished quotas in the trade of textiles, this offers a great opportunity for the Serbian textile industry to enter new markets.
Free trade agreements The basis for the South East Europe Free Trade Area was laid out in the Memorandum of Understanding on Trade Liberalization and Facilitation, signed on 27 June 2001 by the following countries: Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Serbia and Montenegro, Macedonia, Moldova and Romania (see Table 2.2.2). The agreement provides for liberalization of at least 90 per cent of mutual trade by the end of 2008. Table 2.2.2 Free trade agreements with South East European countries and Russia Country
Date of signing
Status
Description
Albania
11/13/2003 Ratified and fully 0% customs rate, with the common active as of June list of food products that can be 2004 traded, made by both parties
Bosnia and 2/1/2002 Herzegovina
Ratified and fully Total liberalization of products active as of April traded, with 0% customs duties 2004
Bulgaria
11/1/2003
Ratified and fully The tax base lower by 80% in the first active as of June year, with proposed total abolition of 2004 customs duties at the beginning of 2007
Macedonia
9/4/1996
Ratified and fully Abolition of customs duties for 97% active of products; new agreement on total liberalization is signed and expected to be ratified in Autumn 2005
Moldova
11/13/2003 Ratified and fully 0% customs duties for all products active traded
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Country
Date of signing
Romania
12/23/2003 Ratified and fully Total abolition of customs duties for active as of July all products, except for four groups 2004 of strategic products
Croatia
12/23/2002 Ratified and fully Total abolition of customs duties for active as of July 70% of products, and lower rates for 2004 food products
Russia
8/28/2000
Not ratified by the Russian Parliament, yet fully active by a Government Decree
Description
Total abolition of customs duties for all products, excluding poultry, glucose, white sugar, champagne, vermouth, ethyl alcohol, cigarettes, cotton fabrics, and motor vehicles
Source: Ministry of International Economic Relations
Foreign direct investment (FDI) The government of Serbia has taken tremendous steps to increase FDI flows into the country. Serbia’s tax incentives, tax credits and subsidies have created an attractive environment for those investors seeking efficiency in the form of lower taxes and productivity costs. At 10 per cent, Serbia’s corporate profit tax rate is the lowest in Europe. Additionally, tax incentives, such as credits for investments in fixed assets of up to 80 per cent of the invested amount and a 10-year tax holiday for investments over €7 million, all help to significantly improve margins. FDI into Serbia has grown significantly over the past few years, primarily as a result of the privatization process. FDI peaked in 2003, with a total of US$1.36 billion being invested. In 2004, there was a slight decrease in FDI, primarily due to a slowdown in the privatization process; however, as the process is ramping up again, 2005 is expected to show record numbers. Sources of FDI come from a variety of sectors, including banking, cement and beverages. The top five foreign investors, which account for over 60 per cent of total dollars invested, are Austria, the Netherlands, Germany, the UK and Greece.
Law on Foreign Investment Serbia’s law equalizes the rights and responsibilities of domestic and foreign investors, with full legal security and protection of rights acquired by virtue of investment. A foreign investor (a foreign legal entity whose seat is abroad, a foreign natural person or national of
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Serbia and Montenegro having domicile or residence abroad for a period exceeding one year) has the right to: ●
control or take part in the management of the enterprise he has founded or in which he has invested his capital;
●
transfer the rights and obligations (set out in the investment contract or the founding act) to other foreign or domestic persons;
●
share and freely dispose of the profit accruing from his investment;
●
inspect the books and business operations of the enterprise in which he has invested;
●
audit the interim and annual financial statements, either personally or through an authorized representative;
●
freely and without delay transfer all financial and other assets related to the foreign investment (profits, dividends, additional payments, property upon dissolution of the enterprise etc) abroad in a convertible currency.
A foreign investor is also allowed to buy real estate – business premises and apartments – provided the reciprocity condition is met. Urban construction land is still state-owned, implying that a foreign investor (as well as a domestic investor) may be given only the right to use it, for which a charge is to be paid. Investment may be made by founding a new enterprise, or by expanding the capital of an existing domestic enterprise. Acquisition of shares in the initial capital of an enterprise, or any other property right through which a business interest in Serbia and Montenegro is realized, is considered foreign investment, as well. A foreign investor may freely found or invest in any enterprise, except for those in the field of production of and trade in armaments, or in certain other areas defined as restricted by law. In these areas, a foreign investor may establish an enterprise, or invest only with a domestic entity, but may not acquire majority rights in the management of such an enterprise. The Ministry of Defence of Serbia and Montenegro must also give its consent. Other restrictions are provided for founding an insurance company, which a foreign natural person or legal entity may found only as a joint venture with a local natural person or legal entity. As an exception to this rule, a foreign legal entity may found a wholly-owned captive insurance company for offshore activities only. An insurance company with foreign capital is not allowed to carry out re-insurance activities abroad.
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All enterprises, including those founded using a foreign person’s assets, are obliged to register through the newly-established Agency for Registration of Businesses.
Concessions regulations Concessions are an additional opportunity for foreign investment and may be granted to foreign investors for exploitation of natural resources or goods in general use (eg roads) or for carrying out activities of public interest, in accordance with the law. Build, operate and transfer (BOT) schemes are also permissible, and regulated by a separate law. Based on the initiative by an interested party (eg foreign company), the ministry in charge of a particular field, the authorized body of an autonomous province or the authorized local government body submits a proposal for granting a concession to the Serbian government. A concession is granted through public tender by governmental decision within 30 days of the receipt of the report. The governmental decision is then verified by the authorized Committee of the Serbian Parliament. If only one candidate participates in a tender, the Commission can decide to repeat the tender or propose to the government that it grants the concession to this candidate. A Concession Contract is signed between the concessionaire and the Serbian government within 60 days after it is awarded, or, if the object of the concession is the construction of communal facilities for performing communal activities, with the authorized local government body. In this case, written consent of the government is mandatory. The Contract is entered in the Central Concessional Registry, kept by the Ministry of Finance. A concessionaire must incorporate the enterprise for performing concessional activities within 60 days of the day of signing the Concession Contract. The enterprise is to be incorporated as a limited liability company (d.o.o.) or a joint stock company (a.d.). The concession fee is determined depending on the type, quality, purpose and market price of the natural resource or assets in question, ie depending on the type of activity, market terms, duration of the concession, estimated risk and expected profit. Major concessions to be granted in 2005 in Serbia are: ●
BOT scheme for the E-80 highway – part of corridor 10, connecting Nis with Dimitrovgrad on the Serbian–Bulgarian border;
●
BOT scheme for the E-763 highway – route connecting Belgrade and Pozega, the first phase of the highway to the South Adriatic Sea;
●
concessions for exploration and exploitation of mineral and ore deposits on the locations of Crni Vrh and Jarandol Basin.
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Latest FDI trends After a record level of FDI reaching US$1,360 million in 2003, 2004 foreign capital inflow in Serbia totalled US$890 million. The decline was primarily due to a slowdown in the privatization process in the first half of the year. The structure of FDI by country of origin remains in line with that in previous years. Investors from the EU top the list, and the top five countries account for more than 60 per cent of the total FDI inflow. With the announced four-year investment plan worth €150 million, German wholesale chain Metro Cash&Carry was the leading foreign investor in 2004, followed by Slovenian automotive component producer CIMOS, as the highest bidder at the privatization tender for the foundry, Livnica Kikinda. The forecast for FDI inflow in 2005, going up to US$2 billion, is based on encouraging early trends (see Figure 2.2.6). In the first eight months it amounted to US$1.1 billion, most of which came through privatization in the banking sector. The Greek Alpha Bank won the tender for the privatization of Jubanka, offering €152 million for 89 per cent of the capital, while the leading Italian bank, Banca Intesa, acquired 75 per cent of the shares of Delta banka in a €333 million deal. In one of the largest recent acquisitions, Coca Cola paid US$21 million for the mineral water and juice producer, Vlasinka, pledging to invest additional US$80 million.
1600
1,500 1,360
1400 1200 1000
890
800 600
475
400 200
165 64
0 2000
2001
2002
2003
* forecast Source: National Bank of Serbia Figure 2.2.6 FDI in Serbia (in million US$)
2004
2005*
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Privatizing the remaining social and state assets is one of the government’s top priorities in 2005. The highlights of the privatization agenda for 2005 are expected to be the sale of domestic banks, as well as more than 30 large companies that have undergone financial and organizational restructuring in recent years. The authorities will also look to spin off non-core operations of state monopolies that have been awaiting privatization. Table 2.2.3 shows the bilateral agreements Serbia has already brought into effect. Table 2.2.4 shows FDI by country and Table 2.2.5 shows recent major investors. Table 2.2.3 Bilateral agreements for mutual promotion and protection of investments Country
Brought into effect
Albania
5/15/2004
Austria
1/26/2002
Belgium-Luxembourg Economic
10/2/2004
Bosnia and Herzegovina
12/28/2003
Bulgaria
1/9/1997
Belarus
1/25/1997
China
9/12/1996
Croatia
11/17/2002
Cuba
8/28/2000
Czech Republic
1/29/2001
France
1975
Germany
1990
Ghana
6/30/2000
Greece
3/14/1998
Guinea
7/15/1998
Hungary
5/15/2004
Israel
2004
Italy
5/19/2001
Korea
8/14/2000
Macedonia
7/22/1997
Netherlands
12/28/2000
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Brought into effect
Nigeria
2/8/2003
Poland
1996
Romania
5/16/1997
Russian Federation
7/19/1996
Slovakia
7/16/1998
Slovenia
4/3/2004
Spain
3/13/2004
Sweden
December 1979
Turkey
7/5/2001
Ukraine
8/14/2001
United Kingdom
5/15/2004
United States
12/1/2001
Zimbabwe
7/22/1997
Source: Ministry of International Economic Relations and the Official Gazette of the Republic of Serbia
Table 2.2.4 FDI in Serbia in 2004 (in ’000 US$) Country
In cash
In kind
Total*
Share (%)
Austria
138,852
4,215
142,767
19.97
Netherlands
101,571
730
102,301
14.31
Germany
48,481
49,416
97,897
13.69
United Kingdom
63,254
651
63,905
8.94
Greece
45,854
5,497
51,351
7.18
Other countries
6,953
39,357
46,310
6.48
Italy
9,228
26,658
35,886
5.02
Switzerland
24,113
1,005
25,118
3.51
France
21,590
2,291
23,881
3.34
Hungary
16,234
1,045
17,279
2.42
United States
8,370
7,496
15,866
2.22
Latvia
15,286
15,286
2.14
Cyprus
14,526
14,526
2.03
Slovenia
12,624
13,539
1.89
915
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Foreign Trade and Investment Country
In cash
In kind
Total*
Share (%)
Bulgaria
9,671
2,212
11,883
1.66
Sweden
720
7,738
8,458
1.18
Croatia
5,808
1,709
7,517
1.05
Denmark
988
3,625
4,613
0.64
Belgium
1,955
1,170
3,125
0.44
Liechtenstein
2,957
2,957
0.41
Israel
2,346
2,504
0.35
Luxembourg
2,427
2,427
0.34
Czech Republic
925
1,199
2,124
0.30
Canada
849
850
1,699
0.24
Japan
1,183
106
1,289
0.18
Total
556,765
158,043
714,808
100.00
158
* Total FDI amount is estimated at US$890 million. The remainder of US$175 million comprises reinvested capital and other forms of investment. Source: National Bank of Serbia
Table 2.2.5 Major foreign investors in Serbia (2002–2005) Company
Country of origin
Philip Morris – DIN Inbev – Apatinska pivara
Sector
Investment type
Investment amount (€ million)
United States Tobacco
Privatization
518
Belgium
Beer
Acquisition
430
Banca Intesa – Delta Italy banka
Banking
Acqusition
333
Mercator
Slovenia
Retailing
Greenfield
240
Lukoil – Beopetrol
Russia
Oil
Privatization
210
Holcim – Novi Popovac
Switzerland
Cement
Privatization
185
Alpha Bank – Jubanka
Greece
Banking
Privatization
152
US Steel – SARTID
United States Steel
Acquisition
150
Metro Cash&Carry
Germany
Wholesale
Greenfield
150
CMV
Austria
Gas stations Greenfield
150
61
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Country of origin
Sector
Investment type
Investment amount (€ million)
Lafarge – Beocin
France
Cement
Privatization
126
Coca Cola – Vlasinka United States Beverages
Acquisition
100
CIMOS – Livnica Kikinda
Slovenia
Foundry
Privatization
100
Airport City
Israel
Business Centre
Greenfield
100
Carlsberg – Pivara Celarevo
Denmark
Beer
Acquisition
100
Source: SIEPA
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2.3
Administrative Barriers to Entry Nikola Fabris, Faculty of Economics and The Economics Institute, Belgrade
Introduction The State Union of Serbia and Montenegro was the last East European country to initiate the process of transition. The inherited system was largely bureaucratized and centralized, with the procedures being incompatible with a market economy. In order to improve and create a stable business environment, the Serbian government launched an ambitious programme aimed at reforming the economy, the legal system, institutions and policies. During the past four years, Serbia has made significant progress in its economic reform and transition to a market economy. The confirmation of the stability it achieved and the success of its reform was the holding of the annual EBRD conference in Belgrade, in May 2005. Despite the progress, some barriers to entry are still present, which are primarily reflected in the acquisition of building land and the granting of a building permit, as well as in competition policy. It should be noted, however, that reforms in these areas are also underway. In addition, the enterprises operating in the Serbian market have optimistic expectations with regard to their future.
Visa and temporary residence permit The procedure for getting a visa is relatively simple and fast. A visa is not required for the citizens of the EU member countries, countries that are candidates for accession to the EU, countries of South East Europe (excluding Albania) and almost all developed countries.
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An application for a visa is processed within a period of 30 days maximum. On average, the processing of an application takes 15 days. To the citizens of developed countries, a tourist pass is issued automatically. Apart from a visa, a person wishing to reside temporarily in Serbia and Montenegro needs a temporary residence permit. Foreign persons who travel to Serbia and Montenegro for study, specialization, scientific research, employment or the performance of a specified professional activity, are obliged to submit an application for temporary residence within a period of three days upon arrival in Serbia and Montenegro. An application is submitted to the competent secretariat of the Ministry of Internal Affairs in whose territory the foreigner resides. A residence permit is issued for a period of three months minimum, while its maximum validity is one year. In cases where the issuance of a business visa is anticipated, temporary residence may be granted for a period longer than one year. Temporary residence may be extended. An application for a residence permit is submitted exclusively in person and such applications, as prescribed by law, are processed within 30 days if an application is submitted for the first time and within seven days if a temporary residence is extended. A foreign person, to whom temporary or permanent residence has been granted, is obliged to notify the competent body of the Ministry of Internal Affairs in whose territory he resides about his residence and the change of his residence address. The procedure regulating one’s residence in Serbia and Montenegro is illustrated in Figure 2.3.1.
Work permit To find employment in Serbia and Montenegro, a foreigner must meet the general requirements specified by law and collective contract (ie aged over 15 and generally fit), as well as special conditions stipulated by the law. These special conditions include the granting of approval for permanent or temporary residence in Serbia and Montenegro, as well as approval for employment. A foreign person may be employed even without approval if he is to be engaged in specialist work under a contract on business and technical cooperation, technology transfer or foreign investment. A work permit for temporary residence is issued for a period of at least three months but for not more than 12. An application for a work permit is submitted by the enterprise. It can be submitted to the Labour Market Office in Belgrade either in person or by post. For granting a work permit, no fee is charged. The law anticipates that a work permit must be granted or rejected within 30 days maximum. In
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Required documents
Diplomatic mission: issuing visa
Temporary residence permit (Ministry of Internal Affairs)
Notification of temporary residence address
Figure 2.3.1 Residency procedure in Serbia and Montenegro practice, the average time required for granting a work permit is two days, while in emergency cases it can be issued immediately. Prior to employment, a foreign person must make a written statement by which he accepts the jurisdiction of Serbian courts, in case of any dispute with his employer. The procedure relating to the renewal of a work permit is identical to that when an application is submitted for the first time. Bearing in mind that certain categories of foreigners do not need a work permit, the validity of a work permit and the fact that, as a rule, a work permit is never denied to persons who have been granted temporary or permanent residence, this procedure does not pose a significant obstacle. However, there is a possibility that Serbia will set annual quotas for the employment of foreigners in the future, but these quotas would not apply to enterprises based on foreign investment.
The registration of enterprises Since the beginning of 2005, the process of enterprise registration has been simplified to a significant extent. As opposed to the previous registration system, which was lengthy, expensive and comprised a large
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number of procedures, the new system is based on the ‘one-stop-shop’ principle. The process of enterprise registration begins with the submission of a registration application. A registration application may be submitted by post, in person or by email. Should an application be submitted by email, the applicant will be obliged to submit the original application to the Enterprise Registration Agency within a period of five days. The Agency will be obliged to bring the decision on the registration of an enterprise, or the decision on its rejection if the legal requirements have not been met, within a period of five days.1 The new regulations have also introduced the consent by silence rule, ie if the Agency fails to bring a decision within a period of five days, it will be deemed that the enterprise has been registered. The process of registration of domestic and foreign enterprises is identical. Table 2.3.1 presents various forms of business enterprise that can be registered in Serbia and Montenegro, as well as their major characteristics. Table 2.3.1 Forms of registered business enterprise General partnership (o.d) Members: Two or more (natural person or legal entity). Investment: No requirements for minimum/maximum contribution. Contribution may be in money, property, rights, labour or services. Characteristics: All partners bear unlimited liability for the obligations of the partnership. Limited partnership (k.d) Members: Two or more (natural person or legal entity). Investment: No requirements for minimum/maximum contribution. The contribution of the limited partner may be in money, property and rights, but not in labour or services. Characteristics: At least one member (the general partner) bears unlimited liability for the obligations of the partnership and the liability of at least one member (the limited partner) must be restricted to the value of the agreed equity. Limited liability company Members: One to 50 (natural person or legal entity). (d.o.o) Investment: Minimum contribution of each partner is at least US$500 in dinar equivalent. Contributions may be smaller only if the company shareholders acquire shares under the privileged terms in conformity with special regulations.
1
The time limit for enterprise registration up to 1 November 2005 is 10 days.
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Characteristics: Members are liable for the business of the company up to the value of their investment, unless the company is accused of some illegal or fraudulent action. Contributions may be in money, property, rights, labour or services. A shareholder may even have only one share in the company and holdings are always expressed in percentages. This is the most frequent form of business enterprise in the Serbian economy. Shares are freely transferable between partners. A share may be transferred to a third party, in which case other shareholders of the company have preemptive rights. Joint stock company
Members: The maximum number of members for closed joint stock companies is 100 (legal entities or natural persons), while for open joint stock companies the number of shareholders is not limited. Investment: Minimum contribution in the case of closed joint stock companies is €10,000 and in the case of open joint stock companies €25,000. The initial contribution of each shareholder cannot be less than US$500 in dinar equivalent. Contributions may be smaller only if shareholders buy shares under the privileged terms pursuant to law. There are higher minimum capital requirements for joint stock companies operating as: Banks: €10 million in CSD Insurance companies: All types of life insurance: €4 million in CSD Voluntary pension insurance: €3 million in CSD All types of non-life insurance: €4 million in CSD Characteristics: There are two types of joint stock company: closed joint stock company and open joint stock company, which may or may not be quoted. This type of company is incorporated by legal entities or individuals whereby the initial capital is set and divided into shares of specific value.
Source: Authors’ compilation based on ‘Free Zones in Serbia’, SIEPA
For the formation of a general partnership it is necessary to submit: evidence of the identity of its founders, the partnership agreement and the authenticated signature of its representative. For the formation of a limited partnership it is necessary to submit: evidence of the identity of the founders, the partnership agreement, the bank certificate of payment of the general partner’s pecuniary contribution into a temporary account (or his authenticated statement
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that he has secured the pecuniary contribution), an authorized appraiser’s report on the value of the general partner’s non-pecuniary contribution, the decision on the appointment of the partnership representative and his authenticated signature. For the formation of a limited liability company, it is necessary to submit: evidence of the identity of its founders, a memorandum of association, articles of association, the bank certificate of payment of the pecuniary contribution into a temporary account (or authenticated statement by the founder that the pecuniary contribution has been secured), an authorized appraiser’s report on the value of the founder’s non-pecuniary contribution, the decision on the appointment of the company representative and his authenticated signature. For the registration of a joint stock company, it is necessary to submit: evidence of the identity of the founders, the memorandum of association, the articles of association, a bank statement on subscribed shares, a bank statement on pecuniary investments deposited in a temporary account, evidence relating to the publishing and content of a public call for subscription to and payment for shares, an authorized appraiser’s report on the value of the founders’ non-pecuniary investments, the decision on the appointment of the company representative and his authenticated signature. The costs of enterprise registration have been significantly reduced and they are different, depending on the type of business enterprise to be registered. For the registration of a limited liability company they amount to 3,000 dinars, for a joint stock company 8,500 dinars and for a general partnership and limited partnership 1,700 dinars. A foreign legal or natural person may open a representative office in Serbia. The representative office does not have the status of a legal entity and cannot be opened for activities involving armaments and military equipment. The organization may engage in market research, business cooperation with domestic enterprises, air transport agency operations, and the performance of the contracts relating to long-term co-production and the like. Representative offices are registered in a special register kept with the Ministry for Foreign Economic Relations and are not allowed to operate on a commercial basis. Foreign enterprises may also conduct business in free zones. At the moment, there are 13 free zones in Serbia. In free zones there are no import and export restrictions. Customs duty is not payable on imports of raw materials, fixed assets, machines and construction materials. The goods imported into free zones are not subject to VAT. Imported goods can be sold on the domestic market upon payment of import duty. If the goods distributed on the Serbian market are manufactured from domestic and imported components in a free zone, customs duty is paid only on the imported components. Goods may temporarily be
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transferred from the zones to the domestic market and vice versa in order to add value.
Acquisition of building land Building land in Serbia can be divided into two broad categories: municipal building land and other land. Under the Constitution of the Republic of Serbia, municipal building land is in state ownership, but it is possible to acquire the right to use municipal building land for up to 99 years. Other types of land may be in private ownership. Under the new law, agricultural land may be converted into building land if it has been included in town plans. The use of individual plots of municipal land is determined on the basis of the decision contained in town plans. The law stipulates that building land is ‘given for use by auction or by inviting tenders, by placing an advertisement in the newspaper’, and ‘... land is given for use to the person who offers to pay the highest amount for that land’ by auction. In exceptional circumstances, the right of use may be acquired through direct bargaining between the municipality in question and the interested party. The buildings constructed on municipal land are in private ownership. Should such a building be sold, the right to use the municipal land will be transferred to the new owner of the building. One of the problems arising from the building land regulations is that state ownership over municipal building land is retained. The user of such land may use it for 99 years, but cannot sell his vested right of land use, or a portion of land if he does not use it. This actually prevents greenfield investment in the cities, assuming investors have crossed the first insurmountable obstacle – acquiring the building land. Insofar as the availability of building land is concerned, the Foreign Investment Council conducted some interesting research. Some of the most important findings of this research are as follows: ●
only 13 per cent of the surveyed firms thought that the supply of building land was sufficient;
●
only six per cent of those surveyed thought that the information on available locations for building construction was highly accessible;
●
only seven per cent of the surveyed firms thought that the price of building land was reasonable and correct.2
2 For more detail see: ‘White Book – Proposals for Improvment of the Investment Climate in Serbia’, FIC, 2005.
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The draft version of the new Constitution of the Republic Serbia anticipates the lifting of all restrictions on private ownership of municipal land. However, bearing in mind that the governing coalition does not have a two-thirds majority in Parliament,3 it is uncertain when the new Constitution will be adopted.
Property registration The process of property registration in Serbia and Montenegro is more complicated than in other countries in the region. According to the World Bank’s research, the average number of days required for property registration is 186, whereas the average number in the region is 133 days and in OECD countries only 34 days. Table 2.3.2 shows the indicators relating to property registration. Table 2.3.2 Indicators for property registration Indicator
Serbia and Montenegro
Regional average
OECD average
Number of procedures
6
6
4
Time (days)
186
133
34
Cost (% of property value)
5.5
3.1
4.9
Source: ‘Doing Business, Explore Economies’, World Bank
Connecting to the power grid and telecoms network The procedure relating to the connection of a new enterprise to the power grid is long and rather complicated. The interested enterprise must apply for approval for connection to the power grid in writing. The application must contain the following data: the registered name and place of business of the enterprise, data on the type, purpose, location, etc of the building for which approval for a connection is applied, data on the time when the connection of the building is anticipated, data on total rated power, peak load, appliances, voltage level
3
The procedure for changing the Constitution of the Republic of Serbia is extremely complicated. Namely, the act on changing the Constitution has to be adopted by a twothirds majority in Parliament, then it has to be endorsed at a referendum, after which new elections will be scheduled and the act will be promulgated by the new Parliament.
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and connection type, data on the purpose of power consumption, data on total annual consumption and data on specific appliances. Thereafter, the competent persons from Public Enterprise Elektroprivreda Srbije (EPS) will come on site and make an inspection. If the power supply and technical conditions for the consumer’s connection to the power grid are consistent with those proposed in the technical report, approval will be granted. If not, the application will be rejected. There is also the possibility that the technical conditions can only be met with the construction of new power-related facilities, so that the new consumer and the electric power authority may conclude a contract for joint construction, financing and use of necessary facilities. The procedure relaring to the granting of approval for connection to the telephone network is similar to that for connection to the power grid. The enterprise must first submit an application for a telephone connection, signed by the authorized person and certified by its seal. Apart from the certified application, it is necessary to enclose the following documents: ●
a photocopy of the registration of the firm with a commercial court;
●
a photocopy of the relevant statistical form from the Bureau of Statistics of the Republic of Serbia;
●
a photocopy of the contract of lease or the document evidencing the ownership of business premises, or a photocopy of the court decision granting the right of ownership or use of business premises.
Upon submission of the application and completed documents, Telekom Srbije will decide on the application and whether the technical conditions for a connection exist. In the case of a new building, they will look at whether the technical conditions exist for laying telephone cables up through the building, as well as the provision of all other technical conditions for a connection. The procedure is much simpler if a connection already exists in the building, regardless of whether the lease or purchase of the business premises is in question. In this case, it is sufficient to submit the document (contract) that regulates the business relationship (ie the purchase or lease of business premises and a telephone connection) between the two parties.
Hiring and firing workers The procedure for hiring and firing workers in Serbia and Montenegro is simpler than in other countries in the region. The difficulties faced
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by employers in Serbia and Montenegro in hiring and firing workers are shown in Table 2.3.3. Three indices measure: ●
how difficult it is to hire a new worker;
●
how rigid the regulations on working hours are; and
●
how difficult it is to dismiss a worker.
The conditions covered by the indices include the availability of parttime and fixed-term contracts, working time requirements, minimum wage laws and minimum conditions of employment. Each index assigns values between 0 and 100, with higher values representing more rigid regulations. Table 2.3.3 Difficulties in hiring and firing for employers Indicator
Serbia and Montenegro
Regional average OECD average
Difficulty of hiring index
28
31.3
26.2
Rigidity of hours index 0
51.5
50.0
Difficulty of firing index
40
42.3
26.8
Rigidity of employment index
23
41.8
34.4
Firing costs (weeks of 21 wages)
38.3
40
Source: ‘Doing Business, Explore Economies’, World Bank
The overall Rigidity of Employment Index is an average of the three indices (see Figure 2.3.2). For Serbia and Montenegro, the overall index is 23, compared to the regional average of 41.8 and OECD average of 34.4 (the lower the value of the index, the lower the degree of rigidity of the relevant regulations). Firing costs are calculated on the basis of the number of weeks’ worth of salary in severance, notification and penalties that must be paid to dismiss a worker.4
4
For more details see ‘Doing Business, Explore Economics’, World Bank.
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45 40 35 30 25 20 15 10 5 0
Serbia
Regional average
OECD
Figure 2.3.2 Rigidity of Employment Index
Competition policy The State Union of Serbia and Montenegro formally has laws and regulations governing competition5 and the institutions in charge of their implementation. However, there is an area where it does not conform with EU policy and regulations. The law does not sanction against monopolistic situations, ie a dominant position, but their abuses. Abuse includes all actions aimed at restricting competition, as well as market disruptions that enable an individual to derive a pecuniary gain and other benefits due to unequal business relations. The law does not regulate the issue of mergers or acquiring a monopoly position in such a way. Bearing in mind the ongoing process of privatization, it opens up many possibilities for acquiring a monopoly position. Some key sectors, such as telecommunications, power generation and distribution, rail transport, public utilities, imports of oil and oil products etc, are characterized by a pure monopoly, while most other sectors are characterized by an oligopolistic market structure. The situation is relatively satisfactory only in the areas of agriculture, trade, and the foodstuffs and textile industries. The Serbian government has recently adopted the draft Competition Law and has submitted it to Parliament for adoption. The Law has been fully harmonized with EU regulations. It is expected that the Law will be adopted by the end of 2005.
5 Antimonopoly regulations are contained in a number of laws and by-laws, the most important being the Trade Law, Antimonopoly Law, Law on the System of Price Control by Society, Decree on the Formation of the Antimonopoly Commission, etc.
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Business climate The business community in Serbia feels that the state of the whole economy is bad (see Figure 2.3.3), but its future expectations are optimistic (see Figure 2.3.4). Those are the most important conclusions of the Economics Institute’s Economic Barometer, which monitors business trends by using a sample of over 400 enterprises whose share in total output is about 20 per cent.
20 0 -20
Bad Good
-40
Indicator -60 -80 -100 8.4.
10.4. 12.4.
2.5.
4.5.
6.5.
8.5.
10.5. 12.5.
Figure 2.3.3 State of the overall economy
50 40 30
Worse 20
Better
10
Indicator
0 -10 -20 8.4.
10.4. 12.4.
2.5.
4.5.
6.5.
8.5.
Figure 2.3.4 Prospects of the overall economy
10.5. 12.5.
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In Figure 2.3.3, the enterprises holding that the state is good are represented by the columns above the X-axis and the enterprises holding that the state is bad, by the columns below the X-axis. The business trend indicator, depicted by the black line, is the difference between the number of enterprises holding that the state of the economy is good and the number of enterprises holding that the state is bad. In Figure 2.3.4, the columns above the X-axis represent the enterprises that hold that the state will improve in the near future, while the enterprises represented by the columns below the X-axis are those that hold that the state will deteriorate. The business trend indicator depicted by the black line is the difference between the number of those enterprises that hold that the state will improve and the number of those that hold that the state will deterioriate. In view of the fact that the business trend indicator has a positive value, this means that optimisim in future expectations is prevalent.
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2.4
The Role of the Privatizaton Agency in Serbian Privatization Activity The Serbian Privatization Agency
The Privatization Agency and the regulatory environment The Privatization Agency of the Republic of Serbia was established by the Law on the Privatization Agency, adopted at the same time as the Privatization Law and the Law on the Share Fund, on 29 June, and it came into force on 7 July 2001. The Privatization Agency is a centrally operating institution for the implementation of the new privatization concept. Its basic field is mediation in the privatization process, by which the Agency is nominated to carry out, as an agent, the sale of socially-owned and state-owned capital on behalf of, and for the sake of, the state. The work of the Agency is supervized by the Ministry of Economy of the Republic of Serbia. The basic activities of the Privatization Agency are preparation of enterprises to be sold by the method of public tender and auction, sale of minority blocks of shares from the portfolio of the Share Fund, control of implementation of purchase and sale obligations in sold enterprises, privatization of large economic systems from the restructuring process and carrying out the duty of a bankruptcy administrator in most of the state-owned and socially-owned entrprises in which bankruptcy procedures are initiated. The Privatization Agency consists of nine centres: 1. Tender Centre; 2. Auction Centre;
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3. Restructuring Centre; 4. Capital Market Centre; 5. Bankruptcy Proceedings Implementation Centre; 6. Control Centre; 7. Legal Centre; 8. Privatization Support Centre; 9. Finance Centre. Within these centres, there are also specific sectors and departments.
Methods of privatization The basic methods of sale within the Agency are tender and auction. Public tender is a method of privatization, that is, the sale of up to 70 per cent of socially-owned and state-owned capital of enterprises by public offer in accordance with stipulated sale conditions. The public tender method is carried out mostly in the privatization of large and some medium-sized enterprises for which a strategic partner can be found. The decision on choosing a partner for such enterprises is important for the enterprises themselves, particular sectors of the economy, and the economy as a whole. The concept, principles and competences have been prescribed by the Privatization Law, and the procedure has been stipulated by the Decree on Public Tender. Since the beginning of the privatization process, up to the middle of 2005, 47 Serbian enterprise were sold by public tender. Amongst the first sold by this method were the large tobacco industries Duvanska industrija Vranje and Duvanska industrija Niš; Serbian cement plants Beoþinska fabrika cementa, Fabrika cementa Novi Popovac, Fabrika cementa Kosjeriü, Beopetrol Belgrade, and many others. Privatization by auction is used for the sale of capital and the sale of small- and medium-sized enterprises (SMEs), which is the largest segment of socially-owned and state-owned enterprises. The auction sale method is implemented in accordance with the public auction procedure, which has been prescribed in detail. The auction method is used for privatization of socially-owned and state-owned capital amounting to 70 per cent of its value, while 30 per cent of the value of the capital to be privatized is transferred to employees free of charge. The employees can also participate in the purchase of the 70 per cent of the capital to be privatized. Auction is implemented in three phases: initiation of privatization procedure, preparation of auction, and implementation of auction. More than 1,100 Serbian enterprises were sold
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by auction between 2001 and mid-2005. These were SMEs, which acquired domestic as well as foreign owners after privatization.
Restructuring The restructuring process is the most complex privatization procedure. Restructuring is implemented in large, debt-burdened enterprises that, in fact, possess no capital, ie whose obligations are bigger than the net assets value. Such enterprises are primarily large state systems (industrial complexes) with large numbers of redundant employees. Such enterprises may be in a strategic crisis, as their financial recovery would be impossible in their present corporate form. Therefore, such enterprises must be radically restructured so that some of their assets can be re-engaged in effective market operations. Other such enterprises are in a so-called tactical crisis. That is, they have market potential but they are in serious financial debt and their future existence will not be possible without radical financial restructuring. The recovery of these enterprises is certainly one of the greatest challenges of the transition process but, at the same time, restructuring itself is a process that will have the longest lasting effect. The Privatization Agency is a central unit of the project realization (workout unit) in the restructuring process.
Navigating through privatization processes Controlling the privatization process and the implementation of the sales contracts includes the implementation of two separated sub-processes: procedure control and contract fulfilment control. Procedure control is feedforward control and comprises the control of and formal accuracy of the essential documents necessary for the privatization to be realized, such as contracts, control and verification of the assessment and programme of privatization, control of the accuracy of applications for participation in auction or tender, control of realization of particular phases of tender and auction sale, as well as the restructuring procedure, enterprise invoicing, etc. This segment of control is aimed at providing quality and professional realization of privatization, but also at minimizing the risks the Privatization Agency is exposed to through contracts with buyers or advisors in which there are provisions for guarantees and indemnities. The control of the privatization process is supported by international financial and donor organizations such as the World Bank, USAID, GTZ and others. These organizations provide the Agency with technical help in
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controlling and recording the processes, which significantly increases the quality of the Agency’s activities. The second segment of the control function of the Privatization Agency is sales contract fulfilment control, which is within the competence of the Control Centre of the Privatization Agency. This includes the control of the means tranfer to the special account of the Budget of the Repuiblic of Serbia, as well as the control of the realization of the obligations the buyer of the capital takes over by signing the contract on the purchase and sale of the capital, which may comprise an investment plan, a social welfare programme, and an environmental protection programme. The control of these contractual obligations relating to investment in privatized enterprises is very complex and includes permanent monitoring of the contract realization by the Agency’s expert offices. Control in this case not only covers the payment of the monies earmarked for particular purposes, but also involves the control of their source and use. For example, if it is stipulated in the contract that an investment programme is to be financed by new investment from the buyer, it will be necessary to control the payment of that investment, check whether the monetary flow of the enterprise has been used for those specific purposes, or whether is derived from credit to the enterprise or the buyer (management), genuine new investment or from the profits of the enterprise, etc. Despite the probability that this control slows down the activities of the Agency, its significance, for an institution such as the Privatzation Agency, can never be overemphasized, bearing in mind the character of its activities, the supervisory authority of the Ministry of Economy, the government and general political implications of privatization.
The role of the Capital Market Centre The Capital Market Centre is also part of the Privatization Agency. Its role is to initiate, promote, implement and control the privatization procedure in enterprises whose shares are within the portfolio of the Share Fund. The Centre performs its role in direct cooperation with the Share Fund and the Interim Register. The goal of the Capital Market Centre is to realize share sale activities, that is, the share of the enterprise to be privatized within legally prescribed time limits, complying with the principles and goals of the Privatization Law (above all, public works, transparency, and non- discrimination). The goals of the capital market are maximizing privatization income, maximizing investments in enterprises intended for privatization, and the development of the financial market. From the begining of privatization in Serbia up until 2005, shares were traded in 356 domestic
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enterprises, and the total income achieved by the sale of blocks of shares amounted to €260 million.
Bankruptcy procedings In July 2004, the National Assembly of the Republic of Serbia adopted the Law on Bankruptcy Proceedings and the Law on the Agency for Bankruptcy Administrators Licensing. The Law on Bankruptcy Proceedings contains strict provisions by which the Bankruptcy Counsel will appoint, in the court, a specialized institution which will be founded in accordance with special regulations, and which will be appointed as a bankruptcy administrator in bankruptcy proceedings implementation in state-owned and socially-owned legal entities. The Law on Bankruptcy Proceedings came into force on 1 February 2005. Since that day, the Bankruptcy Centre within the Privatization Agency has been appointed as a bankruptcy administrator in most of sociallyowned and state-owned enterprises in which bankruptcy proceedings have been initiated. In addition, as a result of transitional provisions and the Law on Bankruptcy Proceedings, each procedure initiated in accordance with the previous Law on Compulsory Settlement, Bankruptcy, and Liquidation, which has not reached a certain phase, will be regulated by new provisions of the new Law on Bankruptcy Proceedings. Since it was established, the Bankruptcy Centre has taken over responsibility for a certain number of bankruptcy proceedings. The government of the Republic of Serbia approved a list of about 67 large and complicated socially-owned and state-owned enterprises that cannot be privatized by tender or auction. During the work on the Law on Bankruptcy Proceedings, the government concluded that there would be, in all probability, many situations in which these enterprises, or parts thereof, would not be in a position to be privatized in the usual way, and that restructuring or bankruptcy proceedings implementation would be necesssary.
Privatization Law amendments The changes and amendments to the Privatization Law were adopted in the Spring of 2005. However, their adoption did not change the basic concept of the Law, as well as the models and methods of privatization. The goal of the amendments is to improve some provisions of the Law or make corrections to the existing solutions. All changes and amendments of the Privatization Law are intended to improve the quality of privatization, increase its efficiency, and solve problems detected
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during the implementation of the effective legal solutions. The main amendment of the Privatization Law concerns a new way of settling debtor/creditor relations in the restructuring procedure, through the creation of the Debt Writing-off Institute. The Law enables debt writing-off in socially-owned enterprises privatized through the restructuring process, 75 per cent of which are debts to the state. In cases of sales contract termination (when an enterprise has not been paid off) the Law’s amendments prescribe the creation of a representative of socially-owned capital who governs it in order to avoid long court procedures for contract termination and the collapse of enterprises. This legal solution protects socially-owned capital in all the enterprises in which contract termination procedures have been initiated, and it is prescribed that the enterprises continue to function until the procedure is concluded. The Institute of Socially-owned Capital Representatives is similar to the Institute of Bankruptcy Administrators, and is appointed by the Share Fund because the majority of the capital which has been the subject of sale is transferred to the Share Fund for the purpose of further sale. Likewise, the amendments of the Privatization Law prescribe increased fines for business offences, and introduce a criminal offence for persons presenting inaccurate or incomplete data in privatization programmes, which will be punished by imprisonment of between three months and five years, as well as by an adequate fine. Along with the changes and amendments to the Privatization Law, the government of the Republic of Serbia has also adopted the Amendments of the Law on the Security Market, as well as the Amendments of the Law on the Share Fund. According to these ammendments, the state shares are provided with governing rights, which means that a state-owned enterprise will not be able to make any decision concerning the structure and value of capital without the approval of the Share Fund. Also, shares in the ownership of the state, that is, the Share Fund, will be able to be sold not only on the stock market, or by takeover, as was the case, but also at tender.
Mature phase of privatization The first phase of privatization in Serbia took place in 2002 and partly in 2003, when the government sold off enterprises in comparatively attractive industries, which,in turn ,attracted significant interest from investors. Such enterprises were effective in preparing tender documents and their management, for the most part, showed initiative in the privatization process. The first phase of privatization was followed, however, by a more difficult phase, which involved the (attempted) sale of the so-called ‘complicated firms’, ie large (state) systems encumbered
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with debts and losses from the past, whose obligations had been growing year by year and which required substantial restructuring in order to attract the interest of investors. Between January and July 2005, 217 enterprises were sold through tenders, auctions, and by the trading of enterprises’ shares. The adopted amendments of the Privatization Law and aforementioned solutions in the existing legal framework should boost the dynamics of the sale of state-owned majority blocks of shares, accelerate auction sales of enterprises and result in the annnouncement of more than 10 tenders for the sale of large Serbian firms. Apart from the activities mentioned above, in the future the privatization process in Serbia will continue to focus on the privatization of public sector enterprises. In July 2005, the Privatization Agency announced the first prospectuses for enterprises with major stateowned capital that had been separated from a public enterprise, that is, from the company Elektroprivreda Srbije. The first prospectuses for enterprises in the media sector were also announced.
www.priv.yu Details on the Privatization Agency can be found at its internet address www.priv.yu. On this website – apart from database of all the enterprises in the privatization process – there are news items, auction announcements, tender announcements, auction reports, reports after sales contract signing, regular statements for the media, and the legal framework comprising laws and decrees according to which the privatization process is implemented. The Agency’s website also enables live broadcasts of public auctions, which can be watched at this internet address. The website is also useful for information helping journalists to prepare their texts on privatization and to be well informed about the Serbian privatization process.
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2.5
Amendments to Serbian Privatization Legislation Karanovic & Nikolic
Introduction The entire privatization legislation was amended in May and June 2005, including not only the Privatization Law and its subordinate regulations, but also the Share Fund Law and Securities Law. It should be noted that the general model of privatization remains unchanged – 70 per cent of state- and socially-owned capital is to be sold by public tender and public auction – but the amended legislation will deal with the rights of the Share Fund.
Amendments to the on Law on Privatization There are three types of amendment introduced to the existing Law on Privatization. The first type introduces material changes in the privatization procedure, resolves some of the most frequent problems that occurred in privatization and sets up new legal institutions. The second closely regulates the procedure of public tender and public auction, which was previously regulated by certain decrees and resolutions. The third type improves the existing provisions in order to make the privatization procedure more efficient. To provide a comprehensive overview, these changes are presented separately below.
Wider competencies of the Privatization Agency The Privatization Agency may be appointed as bankruptcy administrator by the bankruptcy council, in cases where bankruptcy procedure
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has commenced against companies with majority state- or sociallyowned capital. The amendments also clarify the authority of the Privatization Agency in performing inspections over privatization procedures, in order to remove ambiguities relating to this issue that arose from the previous practice. The Agency should verify: the appraised value of capital or property of entities to be privatized; the compatibility of the programme of privatization or the restructuring programme with acting regulations; compliance between the inflow of resources on the ground of the effected sale with the Sale Purchase Agreement and its enforcement, where the Agency is a contracting party, as well as the transfer of shares issued free of charge to employees.
Public tender and public auction innovations A new rule has been added that if during the course of the privatization procedure circumstances make the sale of capital and/or property impossible, the Privatization Agency may halt the procedure for as long as the reasons exist, but only for a maximum of 90 days. During this cessation, the time limits prescribed by the Law shall also cease. New deadlines in the public tender and public auction procedure are added and existing ones are modified in order to speed up the procedure. The Tender Commission is to approve the results of the public tender within 15 days from the day of receipt of the Privatization Agency’s proposal. The Privatization Agency may announce the public invitation for participation in the auction 30 days prior to the date of the auction. The obligations of participants in the privatization procedure are also regulated in more detail. A participant in a public auction, proclaimed as a buyer or the one making the second best offer, who fails to sign the agreement or to make payment within the specified time limit, shall forfeit the capacity of a buyer and the right to a refund of the deposit. Such a participant, its family members and the legal entities founded by the participant will not be allowed to participate in future auctions for the following six months for the same company undergoing privatization or for other companies. Furthermore, such a participant has to indemnify the Privatization Agency and the entity under privatization by paying 30 per cent of the purchase price to the Agency’s account. A bidder participating in a public tender whose offer is proclaimed as the most favourable one, and/or the first subsequent participant with the highest ranking offer, who fails to sign the agreement or pay the stipulated price within the determined time limit, shall forfeit the right to a refund of the deposit. New essential terms and conditions for the Sale Purchase Agreement include: the mode, forms and time limit for investment by the
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buyer into the entity to be privatized for the purpose of performing the registered business activity and the mode of solving employee issues. Also, the Privatization Agency is obliged to dispatch a copy of the Sale Purchase Agreement to the employees and minority shareholders, at their request for the information. Amendments to the provisions relating to payment in privatizations prescribe that payments may not be effected by bonds issued on account of unpaid foreign currency citizens’ savings to citizens of Republic of Serbia and which do not mature on or before the date of the sale of capital or property, if the contracting price is to be paid in six yearly instalments.
Restructuring of a company undergoing privatization Restructuring involves organizational changes relating to the entity to be privatized and its subsidiaries, which enable the sale of its capital or assets. Under the amended Law, the Privatization Agency is authorized to issue a decision and a programme of restructuring for a company undergoing privatization. The Agency can also delegate the authority to issue the programme of restructuring to the company undergoing privatization. In any case, the entity developing a restructuring programme shall be obliged, prior to developing the programme, to make a comprehensive analysis of the business operations (due diligence) of the company to be privatized, within the time limit determined by the Agency. The company undergoing privatization is obliged to submit the restructuring programme to the Privatization Agency within 90 days from the date the Agency approves the due diligence of the company’s business, but the Agency can extend that period if there are legitimate reasons for it. The Agency is obliged to make a decision on that programme within 30 days of receipt. The final restructuring programme is an enforceable document and is an agreement that determines the amount of creditors’ claims, and the means of collecting those claims.
Prohibition of forced execution It shall not be possible to order or carry out a forced execution or any other execution procedure measure against an entity to be privatized (and/or against its property) for which a decision on restructuring is rendered until the date of entering into force of the amendments, for the purpose of settling a claim within one year from the day of their entering into force.
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If a decision on restructuring the entity to be privatized is not rendered by the date the amendments enter into force, a forced execution shall not be ordered or carried out against the entity to be privatized and/or against its property, within two years from the date of rendering the decision on restructuring. Any proceedings of forced execution that are in train should be suspended.
Conditional release of debts toward the state The changes introduced a new option on restructuring – the conditional release of part of or the entire claim of creditors who, in return, can collect their claims from the funds achieved by selling the capital or assets. The Republic of Serbia and state bodies such as the Pension and Disability Fund, Tax Authority, Development Fund etc (state creditors) are obliged to make this release, and other creditors are being encouraged to make such releases and are guaranteed equality with state creditors if they do so. It should be noted that conditional release is possible only with companies undergoing privatization by public tender. The procedure of writing off the claims of state creditors is closely regulated by these amendments. State creditors are obliged to submit written registration of their claims within 15 days of the date of publishing the decision on restructuring in the daily papers. In the case where the company under privatization does not agree with the amount of a registered claim, such a claim could be challenged before the arbitral tribunal within eight days from receiving the registration. The arbitral tribunal consists of three members, and arbitrators are appointed by the state creditor and the company under privatization, with the proviso that the chairman is a representative of the Serbian Chamber of Commerce. The decision on a state creditors’ claim is made within 15 days from an objection to the amount of that claim. If there were no objections, the creditor concludes a Settlement Agreement with the company undergoing restructuring and the Share Fund. State creditors satisfy their mature but unpaid claims from the capital of the company sold in privatization, in the amount of their claims. After they are settled the conditional release becomes final. The instigation of conditional release is expected to contribute to a more speedy privatization of highly indebted socially- or state-owned companies.
Termination of the sale and purchase agreement The changes mean that serious breaches of the Sale Purchase Agreement by the buyer result in immediate and automatic termination of the agreement, whereby all shares held by the buyer are transferred
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to Serbia’s Share Fund. Shares acquired free of charge by the employees in the process remain intact. Serious breaches for non-performance of buyer’s obligations include: ●
failure to pay the stipulated price and/or any of the due instalments;
●
failure to invest into the entity to be privatized in the mode, form and within the time limit stipulated in the contract;
●
handling the property of the entity to be privatized contrary to provisions of the agreement;
●
failure to ensure continuity in performing the registered business activity that was the reason for the establishment of the entity;
●
failure to produce a guarantee for the investment in the mode stipulated by the contract;
●
failure to carry out the provisions relating to the method of solving the issues of employees; and
●
other cases provided for by the Sale Purchase Agreement.
In the event the Sale Purchase Agreement is terminated due to failure of the buyer to fulfil his contractual obligations, the buyer of capital, as the mala fide party, shall have no right to a refund of the amount paid as the purchase price. These amendments have been passed because of the problems faced by the Privatization Agency in enforcing the fulfilment of the terms of the agreements, mostly with domestic buyers.
Temporary representative of the capital For the purposes of protecting the capital of the company undergoing privatization, after the termination of the Sale Purchase Agreement, the Share Fund appoints a Temporary Representative who manages the company under privatization in proportion to the part of capital that is being sold, until this capital is finally sold. The Temporary Representative is compelled to take all necessary measures to protect the company’s assets, to carry out the business of the company under privatization, as well as to prevent damage to the company’s assets and to take all necessary steps concluded in the privatization process. He is personally responsible for bad management resulting in damage to the company provided that the occurrence of such damage is attributable to his intent or gross negligence.
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Transfer of the sale and purchase agreement Upon obtaining consent from the Privatization Agency, the buyer of the capital or assets of a particular company undergoing privatization can transfer the agreement on sale and purchase to a third party who meets the prescribed conditions relating to the buyer of the capital or property. The legal form of this operation is called cession of contract and is regulated by the Privatization Law and the Law on Contracts and Torts. After cession of the sale and purchase agreement, the receiver shall become the holder of all the rights and obligations stemming from the contract. The transferor of the agreement guarantees that the transferee will fulfil all of its obligations under the agreement.
Amendments to the Share Fund Law and Securities Law The Share Fund of the Republic of Serbia is shareholder in over 70 per cent of companies privatized under the old privatization legislation and its portfolio is constantly supplemented by left-over shares of companies that are being privatized under the new Privatization Law (2001). Entry into force of the Securities Law and, recently, the Company Law has blocked or at least slowed down the sale of these shares, ie a significant part of the privatization process. This is why modifications of other laws are called for and necessary. The main amendments are outlined below.
Voting rights of the Share Fund The shares transferred to the Share Fund become regular shares. However, the Share Fund can use management rights only in special cases enumerated by Law, ie when crucial decisions are made by the company: (1) decreasing/increasing the stated capital; (2) reorganizing the company (eg transforming joint stock company to limited liability company); (3) pledging movable property, taking out mortgages or any other case of encumbering property; (4) long-term leasing (renting); (5) settlements with creditors; and (6) acquiring/disposing of real estate and high value property. The Shareholders’ General Assembly is obliged to require a statement from the Share Fund about using its voting rights at least 15 days before the decision is made. In the case where the Share Fund is majority shareholder, it should state its opinion directly, ie through a representative in the Shareholders Assembly appointed by the director of
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the Share Fund. If the Share Fund is a minority shareholder, it should state its opinion in writing, at least three days before the session of the Assembly. If the Share Fund does not make any statement at the time of the decision, it is considered that the Share Fund was present at the meeting and voted against the decision. Any decision made contrary to these rules is deemed invalid. These provisions are accordingly applied to the shares.
Other methods of selling state-owned shares/stocks The connected amendments to the Share Fund Law and the Securities Law essentially introduce the same thing – other methods of selling state-owned shares/stocks. ‘State-owned’ in this context means not only shares transferred to the Share Fund, but also: (1) shares of individual shareholders offered for sale simultaneously with shares of the Share Fund, in conformity with the Share Fund Law (ie creating a majority package of shares); (2) shares whose legal holder is the Republic Pension and Disability Insurance Fund of Employees; (3) shares whose legal holder is the Republic Fund for Development; and (4) shares whose legal holder is the Republic of Serbia on the grounds of conversion of claims into capital. Nevertheless, this provision is aimed at developing a more active role for the Share Fund in the privatization process, since the shares under item (3) are also transferred to the Share Fund and the sale of those under item (2) is within its competence under the Share Fund Law. Alongside Stock Exchange sale, options include some forms of overthe-counter (OTC) sale: public tender, public offer, accepting takeover bids and public auction (for shares). The government of the Republic of Serbia has set forth details of the procedure and the mode of selling the securities in the amended Decree on Public Tender and the new Decree on Public Auction. This adjustment was necessary due to the mandatory provisions of the Securities Law providing that all trading of securities must take place on the organized market, which slowed down this element of privatization and made it more complicated. If a purchaser intends to obtain 25 per cent or more voting shares in a company, the amendments provide for the right to choose between regular Stock Exchange acquisition and a public tender (instead of engaging in the complex procedure of takeover bid) without any consequences (ie loss of voting rights). The elaborated provisions also apply in cases where a decision on the sale of shares by public tender has been rendered prior to these amendments coming into effect. Undisturbed Stock Exchange trade of securities is provided for. The Share Fund or shareholders holding at least 10 per cent of the share capital can demand the signing and delivering the prospectus and concluding the listing and quotation contracts by the company
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management. If they do not comply within a week the Stock Exchange trade will commence without a prospectus and person(s) responsible will be charged for a criminal act (up to five years in prison and up to €10,000 in fines).
State related shares in banks and insurance companies Amendments also include some additional exemptions from the application of the Securities Law in addition to those explained above. Unless otherwise specified by an act of the government of the Republic of Serbia, the provisions of the Securities Law on trading of securities at the organized market and on offers for taking over shares shall not apply: ●
to the trade of shares issued by banks where, in conformity with the law, the legal holder of such shares is the Agency for Deposit Insurance, Financial Rehabilitation, Bankruptcy and Liquidation of Banks;
●
to the trade of shares issued by banks where legal holders of these shares have authorized by a special contract, to be concluded in writing, the Agency for Deposit Insurance, Financial Rehabilitation, Bankruptcy, and Liquidation of Banks to effect, on their behalf and for their account, the sale of such shares to a third party; and
●
to the trade of shares issued by insurance companies where legal holders of these shares have authorized by special contract, to be concluded in writing, the Agency for Deposit Insurance, Financial Rehabilitation, Bankruptcy, and Liquidation of Banks to effect, on their behalf and for their account, the sale of such shares to a third party, in conformity with the law regulating insurance.
The drafters’ intention was to support the creation of larger share packages for trade – Republic-owned shares in banking and insurance companies (already exempted under Securities Law) and shares owned or managed by the Agency for Deposit Insurance, Financial Rehabilitation, Bankruptcy, and Liquidation of Banks. The government of the Republic of Serbia shall regulate details of the procedure and the manner of trading of securities.
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New Regulations for Bankruptcy Procedures Karanovic & Nikolic
Introduction The new Law on Bankruptcy Procedure (hereinafter referred to as the ‘Law’) came into force on 1 August 2004 and became applicable from 1 February 2005. The Law was published in the Official Gazette of the Republic of Serbia, No. 84/04. The new Law creates a modern bankruptcy system in Serbia, based on contemporary international bankruptcy standards, simple and flexible procedures and economic safety for creditors. The new Law is one of many systemic new laws adopted recently in Serbia in order to improve the legal framework for a more effective business environment. Generally, the significant improvements are the following: ●
initiation of bankruptcy proceedings by petition of the creditor or debtor (reduced competency of the state);
●
extended responsibility, compensation and accountability for the bankruptcy administrator;
●
clear rules to resolve a failed business in a predictable and fair manner;
●
significantly shorter time periods in bankruptcy proceedings;
●
introduction of an efficient recovery of business entities with financial difficulties throughout the reorganization process;
●
new mandatory bodies providing an improved legal position of creditors (creditors’ assembly and creditors committee);
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establishment of the Agency for Licensing of the Bankruptcy Administrators of the Republic of Serbia as the competent supervisory body; and
●
the Bankruptcy Unit within the Privatization Agency of the Republic of Serbia, performing functions of the bankruptcy administrator in bankruptcy proceedings that are conducted against a majority socially-owned and majority state-owned legal entities.
In contrast with previous bankruptcy laws giving the state the voluntary power to decide on initiation of bankruptcy proceedings (which often resulted in political abuses), now it is in almost exclusively within the competence of the creditor and/or debtor to commence bankruptcy proceedings. Exceptionally, the public prosecutor and the public attorney’s office for tax authorities can also commence bankruptcy proceedings within their competence. This Law is intended to accelerate bankruptcy proceedings and make it more efficient so that the creditors have a stronger position in the procedure. The Law provides two ways to achieve this aim: ●
bankruptcy (ie settling of creditor’s claims through the sale of property of the insolvent debtor); and
●
reorganization (ie rehabilitation of the debtor carried out in accordance with the reorganization plan – described below).
Bodies The Law introduces the bankruptcy panel, the bankruptcy judge, the bankruptcy administrator, the creditors’ assembly and the creditors committee. However, the administrator and judge play crucial roles in the bankruptcy procedure, due to the redefined relationship of the judge to the administrator under this Law. The administrator takes more responsibility for the business aspects of the case, while the judge has the more traditional role of deciding disputes and supervising the procedure.
Bankruptcy administrator The Law precisely defines the position of the bankruptcy administrator, whose role, in practice, in recent bankruptcy proceedings was one of the main reasons for widespread complaints from both debtors and creditors.
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A person can be appointed a bankruptcy administrator only if he/ she: ●
possesses a licence to practice as a bankruptcy administrator (ie possesses a university degree and has passed the required examinations);
●
is a private entrepreneur (ie has a registered activity);
●
has three years’ work experience (of any type).
The main characteristic of the position of the administrator in the bankruptcy proceedings is that he/she has the rights and duties of a management body or an owner of a company. The administrator performs an economic function and administrator’s goal is not to punish past wrongs, but to maximize the recovery for creditors. The new Law prescribes that the administrator can appoint expert domestic and foreign natural and legal persons to carry out tasks within their competence. The liability of the administrator has been strengthened so that he/she is directly liable with his/her personal property for all damages caused to any of the participants in the bankruptcy proceedings, if damages arose due to malice or gross negligence. The newly-formed Agency for Licensing of the Bankruptcy Administrators, established by a special law, is responsible for enacting, renewing and withdrawing licences from the licensee. Administrator licences shall be renewed every three years if the bankruptcy administrator has fulfilled the defined conditions during that period, and the licence can be withdrawn, even before the end of the determined period. An administrator can also be dismissed, upon the motion of the bankruptcy judge or creditors, for failure to deliver the necessary results or failure to respect defined time periods. The novelty of the new Law is its explicitly stated limitations for the appointment of the bankruptcy administrator for the purpose of elimination of conflict of interest between the administrator, on the one side, and the debtors and creditors, on the other. In bankruptcy proceedings that are conducted against a majority socially-owned or majority state-owned legal entity, a special Bankruptcy Unit within the Privatization Agency will perform the functions of the bankruptcy administrator.
Bankruptcy judge The bankruptcy judge plays a central role in the bankruptcy proceedings, being competent to decide disputes and supervise the case. The bankruptcy judge introduces the bankruptcy administrator to his
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duties, supervises the work of the administrator, approves the draft reorganization plan of the bankruptcy debtor, approves the draft decision on the final distribution of the bankruptcy estate and issues decisions and conducts other activities in matters that are not within the competence of the bankruptcy panel. The bankruptcy administrator, the creditors committee and creditors may file an objection to the bankruptcy panel against the decisions and conclusions of the bankruptcy judge.
Bankruptcy panel The bankruptcy panel consists of three judges, one of which is the president of the panel. The Law prohibits an individual from being a bankruptcy judge and a member of the bankruptcy panel at the same time. In addition to traditional functions, the bankruptcy panel appoints the bankruptcy judge and administrator, rules on objections against the decisions and actions of a bankruptcy judge and administrator, and issues the decision on the initiation of preliminary proceedings or opening bankruptcy case.
Creditors’ assembly The Law introduced a new body in bankruptcy proceedings – the creditors’ assembly, which consists of all the bankruptcy creditors (entities that have an unsecured legal claim against the debtor at the moment of commencing the bankruptcy). Voting at the creditors’ assembly is in proportion to the amount of the claim. At the first hearing, creditors who hold 70 per cent or more of the value of all claims can decide whether the proceedings will be continued in the course of a debtor’s bankruptcy (sale of assets by the administrator) or its reorganization.
Creditors committee The creditors’ assembly elects the creditors committee, which represents the creditors in the proceedings. The basic function of the creditors committee is to monitor the activity of the bankruptcy case and raise objections to any action that would adversely affect the rights of all unsecured creditors. It is very important to note that certain actions of the administrator require the explicit prior approval of the committee (including borrowing by the administrator, consent to defer the deadline for a reorganization plan beyond 90 days, and permission to sell the debtor’s business as a whole).
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Bankruptcy Bankruptcy proceedings are commenced against a debtor unable to pay his debts (insolvent), if: ●
the debtor cannot perform its obligations within 45 days from the date when they fall due;
●
the debtor has ceased all payments for a continuous 30-day period;
●
the debtor shows that it is likely that it will not be able to pay its obligations when they become due (prospective inability to pay debts);
●
the creditor was unable to collect on his claim in the court or tax execution proceedings – Presumption of Insolvency.
The new Law reduces the time of insolvency that must pass before the commencement of bankruptcy proceedings. The initiation of prospective inability to pay debts should enable the debtor to find a way to pay its obligations when they become due, usually by reorganization. A debtor can be a legal entity or an entrepreneur. This is the first time, since 1965, that the Serbian legal system recognizes the bankruptcy of a private entrepreneur. Bankruptcy proceedings are initiated by the petition of authorized petitioners. The Law explicitly states that the bankruptcy proceedings are urgent. A creditor may initiate bankruptcy proceedings if he can prove that the existence of his claim is probable and that the debtor’s insolvency is likely to exist.
Ranking defined Claims of creditors are classified as secured, unsecured, or excluded. Secured creditors are creditors with security rights or a right to satisfy their claims from specified assets or by means of rights that are registered in registries or other public books. Additionally, secured creditors also include creditors with the right of retention of assets who have physical possession of those assets. Unsecured creditors (bankruptcy creditors) are creditors who have a legal claim against the bankruptcy debtor that is not linked to rights in a specific asset, but rather an ordinary obligation of the enterprise. Excluded creditors are persons who, on the basis of his/her property right or personal right, can request a certain asset to be excluded from the bankruptcy estate. The Law states that the excluded creditor is not a bankruptcy creditor.
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Unsecured creditors (bankruptcy creditors) are ranked into categories of priority of settlement. Creditors of lower rank can only be satisfied after creditors of a higher rank. The creditors of the same rank are satisfied in proportion to the amount of their claim. The first rank of claims are claims of the bankruptcy proceedings itself; the second are unpaid salaries of employees of the bankruptcy debtor (in the amount of the yearly minimum wage for the year before commencing the bankruptcy and unpaid contributions for the Pension Fund for two years before the bankruptcy); the third rank are claims based on taxes that became due in the three months before the bankruptcy proceedings were commenced. Finally, the fourth rank are the claims of bankruptcy creditors. What is of interest to note is that the claims from the second and third rank are statute barred, and claims that exceed that limitation are moved to the fourth rank along with other creditors` claims. The Law provides that the holder of financial leases owns the equipment supplied and shall be treated in bankruptcy proceedings in much the same way as secured creditors are treated under the provisions of this Law.
Sale of assets The Law defines the bankruptcy process as being urgent and, accordingly, assets should be disposed of as quickly as a thorough marketing and sales process permits. After the bankruptcy judge has issued a conclusion on the sale of all or part of the property, the sale shall be conducted by the bankruptcy administrator or the person he/she will authorize. The assets shall be sold at a public auction or by public collection of offers or through a direct agreement (only with the prior approval of the creditors’ committee). It is important to note that the Law prescribes that the bankruptcy administrator may offer, with creditors’ committee approval, the entire bankruptcy debtor for sale as one legal entity or the sale of individual parts or units. Except where the entire business is proposed for sale, the Law does not require a formal appraisal before putting an asset up for sale. Nevertheless, the administrator will need to estimate the approximate fair market value of the asset before he develops a sales strategy. The value of most income-producing assets will be based upon the present value of the future cash flow that the asset can generate. Different potential buyers will have different estimates of the future cash flow the asset can generate, and may apply different discount rates, meaning that different buyers will be prepared to offer different amounts for the same asset. Aside from requiring an open and transparent process, the Law also protects buyers of assets in bankruptcies by promoting certainty in the sale – this is done by conveying certain title and by
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providing protection against lingering claims from creditors. The Law states that even where a creditor objection has been raised, the objection shall not disrupt the sale of property to a third-party buyer.
Reorganization Reorganization is another method in the bankruptcy proceedings, which aims to save the debtor from insolvency in cooperation with the creditors. Business continues to be conducted during reorganization. Initially, the administrator’s objective is to preserve the assets, continue operations and preserve the business’ going concern value. Consequently, after the plan is approved, the administrator must ensure that the plan is implemented in the agreed manner, and when it is not, that the creditors are informed immediately, so they can take whatever action is appropriate to protect their interests. In practice, the key to a successful reorganization is winning the trust of the creditors in the preliminary phases of the bankruptcy proceedings, such that they are more inclined to vote in favour of a reorganization plan. The new Law contains a non-inclusive list of the measures, alone or in combination, which may be taken during the reorganization. Measures of reorganization may include retention of all or part of the property of the bankruptcy estate; modification of maturity dates, interest rates, or other terms of a loan or security instrument; closure of unprofitable operations or changing the business activities; termination of unfavourable contracts; deferment of debt payments or providing for repayment by instalments; conversion of debt to equity; termination of employment; credit agreements, etc. The reorganization plan may be submitted by the bankruptcy debtor, bankruptcy administrator, creditors holding at least 30 per cent of the secured claims, creditors holding at least 30 per cent of unsecured claims, as well as persons owning at least 30 per cent of the debtor’s ownership interest, whether in the form of shares, partnership interest or otherwise. However, it should be stressed that the most likely candidate to submit a reorganization plan is the debtor or the administrator. The reorganization plan must be submitted to the bankruptcy court no later than 90 days after the date of the case opening. This deadline may be extended by the court, where appropriate circumstances exist, for an additional 30 days. Any further extension of the deadline for the submission of the reorganization plan can only be approved upon the unanimous consent of the creditors’ committee. If the debtor does not fulfil the conditions of the reorganization plan, the bankruptcy court will pass the decision on bankruptcy.
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A confirmed plan has the force of a court order and shall be considered a new contract for the satisfaction of claims presented therein. A workable reorganization plan putting the enterprise on a solid financial footing is the goal towards which the administrator works.
Conclusion In conclusion, a modern bankruptcy system is a critical and necessary component of a market-based economy. Since the purpose of any bankruptcy law is (or, at least, should be) to establish a collective mechanism through which unsecured creditors can maximize the recovery of amounts owing to them, one may say that, by adopting this Law, that purpose has been achieved.
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2.7
The Securities Market Saša Aleksiü, Sinteza Invest Group a.d., Belgrade
In this chapter, the following topics will be discussed within the context of the securities market in Serbia: ●
the legal framework; – law on securities market; – law on corporations; – changes and amendmends of the Law on Privatization; – changes and amendmends of the Law on Share Fund; – law on takeover; – law on investment funds; – IAS implementation in drawing financial reports;
●
development of institutions; – Commission for Securities; – Central registry, depository and clearing of securities; – Belgrade Stock Exchange; – Share Fund;
●
Belgrade Stock Exchange; – new rules of business; – electronic, distance, continual trading; – first index – BELEXfm;
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– market capitalization; – state bonds market; ●
investment funds;
●
takeovers, recapitalization, integration in 2004 and 2005
●
banking system privatization
●
privatization and restructuring of the big state systems
The legal framework The most significant changes in creating a clear and well-regulated legal framework for the operation of the financial market in Serbia were made by adoption and implementation of the Law on Securities and other Financial Instruments in October 2003. During 2005, changes and amendments of this Law are expected to be adopted, which ought to eliminate its deficiencies and the provisions inapplicable to business practice. In addition, in November 2004 the Law on Corporations, one of the most important system laws, was adopted, which, in practice, proved a huge mismatch with other laws important for the operation of the financial market, even though it resembled modern European solutions for organization, joint stock societies operation and corporate governance. Despite the fact that it is possible to organize joint stock societies as open or closed, the Law retained the supposition of openness of all privatized social companies, which automatically leads towards stock market quotation. In May 2005, the long-announced changes in the Law on Privatization and the Share Fund Law were adopted. The essence of the changes in the Privatization Law was to oblige state bodies and organizations to release the total debt of the subject of privatization and to cover the liabilities from the funds received from the capital or estate sale of the privatized company. These changes should lead to a situation where many large entities, which have not been attractive for investors because of their substantial debts and liabilities to the state, will become attractive for investors and will be privatized during 2005 and 2006. Crucial innovations of the Share Fund Law are, firstly, the use of the right to a voting share on the basis of the shares they have in their portfolio, when making decisions on the most important matters for the company’s business and, secondly, the fact that the companies (ie directors) will have to, within seven days at request of the Share fund, submit the prospectus to the stock market and ensure the
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conditions for the shares trading. All these changes will contribute to the creation of complete trust in the institutions and their efficiency. By January 2006, it is expected that the Law on Takeovers will be adopted, which should regulate two-instance (two-step) takeovers of companies and create a quality link to the Law on Corporations, and also contribute to forming a greater degree of trust in investing in Serbia. The reason for its slow preparation and adoption lay mainly in existance of the financial lobby to which its clear regulation of takeovers did not suit. In a similar way to the Law on Takeovers, there is a fierce fight between experts and professionals regarding the adoption of the Law on Investment Funds, the first draft of which was made in 2002. It is expected that, by the end of this year, the law will have improved the performance of the financial image of Serbia worldwide and encourage larger investment demands. Another of the significant recent changes in the legal framework is the implementation of International Accounting Standards (IAS) for financial reports for 2004 (discussed in Chapter 4.4).
Development of institutions In parallel to the renewed legal framework, it is vital that we point out the growing significance and power of the institutions necessary for the qualitative implementation of the law and operation and transparency of the financial market. In 2004, the Commission for Securities set its activities on a much higher and more efficient level and on several occasions (eg the takeover of Knjaz Miloš), it showed that in future we can certainly count on its professionalism and independence. The Central Registry, Depository and Clearing of Securities House was founded in January 2004 and it is one of the most efficient and well organized links on the financial market. The procedures for ISIN numbers allocation to the securities, ownership registration, clearing and settlement of the transactions on the stock exchange and over-the-counter sales are in accordance with high international standards. Transactions balancing is done in T+3 period. In 2004 and the first half of 2005, the Belgrade Stock Exchange j.s.c. changed its appearance, methods and rules of business, and trading software, as well as its relationship with its members and companies with quotations. Since the very beginning of the Central Registry foundation, different companies’ shares listed in the Central Registry have often participated in shares trading on the Stock Exchange. In the first six months of this year, the Share Fund of the Republic of Serbia achieved the financial result of €57 million through the sale of minor blocks of shares. The total financial outcome of the Share Fund
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from the beginning of privatization equates to €332 million for the sale of minor blocks of shares in 375 companies.
Belgrade Stock Exchange The most significant changes relating to shares trading took place on the Belgrade Stock Exchange. From the beginning of trading in 2004, the system of direct stock exchange order (on the stock exchange broker’s desk) was changed into the electronic input of orders, and from July 2004 most of the brokers had already started distance trading. Following the changes of the Rules of Business in July 2004, everyday trading of shares of all joint stock companies involved in the free stock exchange was introduced. In cooperation with the Athens Stock Exchange, BELEX – the electronic information stock market system – was improved and directly connected with the information system of the Central Registry. On the Belgrade Stock Exchange, a continual method of trading is used as well as auctions. Until October 2004, when Belgrade Stock Exchange changed its method of trading for the first nine joint stock companies, continual trading referred only to the state bonds trade. In spite of numerous doubts about the success of the continual shares trading of Serbian companies and in spite of the comments that the Serbian market is too ‘shallow’ and without depth, practice showed that this move of the Belgrade Stock Exchange was entirely reasonable. A few conditions that the Stock Exchange prescribed for transition to the continual method of trading were: minimum of 25 per cent free float, high frequency of trading, and a large number of stock exchange members participating in trading of a certain share. In July 2005 on the Belgrade Stock Exchange, 21 shares of the best Serbian companies are continually traded. The introduction of the first Serbian company to the A listing and B listing is planned. At mid-2005 on the Stock Exchange, there is a free stock exchange of over 630 companies. The first index of the Belgrade stock exchange, BELEXfm, has been calculated since May 2004. By July 2005, it increased its value by more than 50 per cent to 1.523 points. An historic high was achieved on 29 March 2005 (1.595), when investment demand for shares reached its maximum. Almost identical movements of their indices were recorded in other surrounding stock exchanges (Croatia, Romania, Bulgaria, Macedonia and Bosnia). Recently, the Belgrade Stock Exchange has started to announce information on the participation of foreign investors in share and bond trading. This information is directly related to the fact that the rise in demand for shares has been remarkable. The maximum rise on the market was during the period
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from September 2004 to March 2005, when the increase in share price reached even up to 100 per cent (see Figure 2.7.1). 1.600 1.500 1.400 1.300 1.200 1.100 1.000 900 800 5 5 4 4 4 4 4 4 4 5 4 5 5 5 5 j-0 un-0 jul-0 vg-0 ep-0 kt-0 ov-0 ec-0 an-0 eb-0 ar-0 pr-0 aj-0 un-0 jul-0 j o j j f a ma m a d n s m
Figure 2.7.1 BELEXfm (March 2004 to July 2005) Market capitalization of the Belgrade stock market covers the market capitalization of all issuers involved in the free stock market of the Belgrade Stock Exchange. At the end of May 2005, it amounted to approximately €5.270 million (see Table 2.7.1). Table 2.7.1 Belgrade Stock Exchange statistics (31 May 2005) Number. of trading securities
Monthly turnover, Capitalization, 31 May May 2005 (€ million) 2005 (€ million)
Shares 566
22.22
3,433.89
Bonds 11
8.01
1,836.14
30.23
5,270.03
Total
577
€1 = CSD82.0400 at 31 May 2005
In 2004 and 2005, the state bonds market was remarkably stable and interest in investments did not decrease. Yield rates for these bonds decreased to the annual level of five to six per cent, which was the consequence of the correction of an extremely high yield (10–12 per cent) at the beginning of trading in 2002 (see Table 2.7.2). Although the total volume of the issued state bonds is approximately €4,200 million, so far the effectuated total volume of trading in the Stock Exchange equals €35.677.749.
5.53 5.75 5.78 5.83 5.91 6.05 5.71
A 2010 76.78
A 2011 71.87
A 2012 67.81
A 2013 63.86
A 2014 59.93
A 2015 55.88
A 2016 54.57
Source: Belgrade Stock Exchange
Total
5.34
54.60 54.60
ï
60.00 60.00
ï0.07 55.21 55.89
63.00 63.93
ï0.07
+0.52
67.81 67.81
71.80 71.90
76.75 76.78
81.25 81.60
-0.10
+0.01
+0.08
+0.09
86.00 86.27
54.57
55.21
59.90
63.00
67.81
71.80
76.75
81.25
86.00
231,613
5,113
29,426
143,021
2,092
500
1,912
21,220
6,285
6,552
55.21
55.89
60.00
64.10
70.00
72.52
77.00
81.60
86.40
90.90
A 2009 81.60
-0.02
11,196
5.21
90.65
A 2008 86.27
90.65 90.85
5.17
A 2007 90.84
+0.04
96.60
4,296
ï0.01
4.85
A 2006 95.80
95.71
99.32
ï
A 2005 95.71 95.81
99.35
ï
A 2004
13.25
14.50
16.15
17.00
18.89
22.53
26.65
31.80
36.60
41.85
46.00
60.00
81.00
92.40
35,677,749
32,902,323
32,033,781
28,948,341
27,793,479
25,391,631
25,632,399
26,303,789
25,488,776
24,689,009
27,163,377
27,533,162
16,694,123
3,306,073
Historical high Historical low Total volume
9 Sept 2002 – 4 July 2005
99.50
Open Daily high Daily low Daily volume (€)
ï
Price change
A 2003
Annual yield (%)
106
Series Closing price
Table 2.7.2 The state bond market
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In the Belgrade Stock Exchange there are around 71 broker dealers – member brokers actively trading. In the period from January to June 2005, the broker house with the greatest volume of shares trading is Sinteza Invest Group a.d., with a market share of 8.21 per cent, then M&V Investments with 6.90 per cent and Synergy Capital with a share of 6.37 per cent.
Investment funds Since the middle of 2004, there are 10 significant investment funds actively involved in the Serbian financial market that, due to the lack of domestic regulations, operate as all other foreign legal entities. One of the two major funds from the Baltic region, East Capital Asset Management, invested a total of €50 million in the shares of Serbian companies. Besides funds, the role of the broker houses from Slovenia is significant, as well as the role of the foreign banks that operate in Serbia as domestic banks (Raiffeisen Bank, Hypo Alpe-adria Bank, HVB Bank). The major deficiencies and problems that foreign funds encounter when making investments in Serbia are: first, the fact that ‘blue chip’ companies have not yet gained a listing at the Belgrade Stock Exchange, (eg oil companies, telecoms, transport companies, big banks); second, poor corporate reporting by the issuers of the securities; third, very strict procedures for trading (prefunding) and repatriation of capital after close of position on the Stock Exchange and inadequate training of the shareholders who create the largest part of the securities offer.
Takeovers, recapitalization and integration in 2004 and 2005 When, at the beginning of 2004, the Central Registry of securities was opened, it enabled the takeover of companies. By June 2005, this instrument was used to consolidate the ownership of 68 joint stock companies. In 2004, 29 of them were successful takeovers, whereas during the first six months of 2005 there were 39 effectuated offers. The most important takeovers took place in the sectors of agriculture, food and beverages production and banking (including the following companies: Knjaz Miloš, Soko Štark, Efes Zajeþar brewery, Voda Vrnjci, Žitko, Aleva, Ishrana, Juhor eksport, Sladara Maltinex, Atlas bank, Eksimbank, Volksbank, Sintelon, Tehnogas). Among the total number of takeovers, the greatest number (12) was realized by Sinteza Invest Group a.d.
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The procedure for takeover application was not the only legal framework for ownership concentration and gaining control over companies. A huge number of high-grade Serbian companies acquired a majority shareholding through issuing of new shares (Centroproizvod, Imlek, Brewery ýelarevo, Brewery Panþevo, Bambi, Banat, Dijamant). An interesting example of integration is the way Zemun Dairy j.s.c. was integrated into the system of Imlek j.s.c. Beograd, the company that indirectly, through the management of the Salford investment fund and capital integration with the dairies in Novi Sad and Subotica, holds a near monopoly position on the Serbian market.
Banking system privatization Restructuring of the banking system was initiated in 2001 through the closure of four big state banks. Following this, the foreign banks with an already strong presence in the former-Soviet Bloc likewise entered the Serbian banking market. In 2005, French Credit Agricole bank entered the Serbian banking market by takeover of Meridian bank; the Italian Intesa by purchasing the major block of shares of Delta bank; the Greek Alpha bank became a majority shareholder in Jubank j.s.c. and the German Erste bank a majority shareholder in Novosadska bank. It is expected that, by the end of 2005, tenders for the sale of several big banks with a state majority shareholding will have been published (Vojvoÿanska bank, Panonska bank, Credy bank, Niška bank).
Privatization and restructuring of the big state systems (enterprises) Restructuring of the state systems is now taking place, but there are no indications about the method of their privatization. Experts are heavily in favour of issuing the shares of Telecom Srbija and the national oil company NIS, as well as of the first IPO, which may be conducted on the Belgrade Stock Exchange for these particular shares. Several times during 2005, Serbia and Belgrade were the focus of the financial world. From 21–23 May 2005, the annual meeting and business forum of the European Bank for Reconstruction and Development (EBRD) was held in Belgrade and, in June, the conference of the Economist magazine, dedicated to the development of the financial market. Most certainly an important signal for the big investors is the ranking of Serbia by the leading world agencies. Serbia was ranked B+ by
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Standard & Poor’s estimates in November 2004, whereas it was ranked BB– by Fitch in April 2005. It is expected that in the near future, parallel to the strengthening of the institutions and legal regulations on the financial market, Serbia will gain supremacy in the region as the most favourable country for capital and financial investments. There are many possibilities, wishes and interest – there only remains the question of whether Serbia can utilize its opportunities.
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2.8
The Banking System Raiffeisenbank
Legal framework Following substantial changes in the Law on Banks and other financial institutions in 2002, the Central Bank has recently drafted a new law that will be passed by the end of 2005. The drafted proposal is in line with EU directives and came as a result of the new banking environment in Serbia, which is following a restructuring process and shifting to more advanced reforms (ie more efficient supervision by the Central Bank). The Central Bank’s decision to increase the capital adequacy ratio from 10 to 12 per cent is aimed at making banks maintain equity at an adequate amount that would absorb any potential losses that might arise. However, this measure, coupled with a more restrictive monetary policy, is also intended to restrain credit growth (as explained below) and raise the credit risk awareness of all banks when granting new loans. International Accounting Standards (IAS) were introduced as mandatory accounting standards in the local environment in 2003, making financial statements readable and transparent. The main difference from IAS applied in the EU is the provision requirements, which are more stringent. Therefore, even assets categorized as A or B must be provisioned with two and five per cent respectively.1 The supervision of other financial institutions (leasing and insurance companies) is, as of 2005, covered by the Central Bank, whereas supervision of voluntary pension funds will be in force from 2006.
1
For the purpose of the provisions calculation, assets are classified into five categories (A, B, V, G and D) based on the default principle and the client’s overall financial standing.
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Current environment Following very intensive restructuring and balance sheet cleaning of the state-owned banks over the past two years, 2005 is the turning point for the Serbian banking industry, due to the entrance of Intesa BCI, Erste Bank and Credit Agricole. Prior to the entry of these newcomers, foreign-owned players have exploited market opportunities, increasing their market share in total assets from 20 per cent in 2003 to 54 per cent in 2004. They were the main generators of the lending boost, as well as the increase in the total banking sector. Among them, Raiffeisenbank stands out as the clear leader. In just three years of operation, it has become the largest bank in Serbia in terms of total assets, loans and deposits. Despite the very impressive results in terms of banking sector increase (yoy €1 billion in 2004) and lending growth (yoy €795 million in 2004), the Serbian banking market is still rather undeveloped (in 2004 assets/GDP was 34.18 per, whereas in South East Europe the average was 71 per cent). This means that the local banking market has strong growth potential, especially retail (mortgage lending), which, as in other transition countries, has been neglected for years. As far as retail deposits are concerned, it seems that the Central Bank’s measure introducing a mandatory reserve on retail FCY deposits (currently 43 per cent) had positive impact on retail deposits, which are steadily growing – from €1.44 billion in 2004 to €1.92 billion in August 2005. The high reserve was introduced because of the negative experience retail banking had with bankrupt banks during the 1990s and the undeveloped insurance deposit scheme. As the Law on Obligatory Deposits Insurance was passed recently, which states that banks are obliged to insure retail deposits of a minimum of €3 thousand, the reserve is expected to decrease by the end of 2005. Growth in the banking industry growth will undoubtedly be affected by a more and more restrictive monetary policy from the Central Bank. This policy is a result of the current account deficit problem (driven by increased spending) and inflation growth. As the introduction of the mandatory reserve on foreign borrowings did not result in a decrease of new credits, the National Bank of Serbia has further increased the mandatory reserve.2 Such measures have been introduced to curb credit expansion (which, again, pushed up spending and the current account deficit) and inflation growth.
2 Hence the mandatory reserve on foreign borrowings introduced in early 2005 was increased to 29 per cent for all new borrowings.
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We expect further market consolidation and mergers of niche banks having a market share of one per cent in total assets, as well as a substantial margin decrease. The top 20 largest banks in Serbia by total assets in June 2005 are shown in Figure 2.8.1 and recent privatizatins and acquisitions in Figure 2.8.2 •million
1,200
1,022
1,000
793 742
800 600
476 453
400
348
200
272 234 233 205 172 144 135 132 130 127 123 122 116 107
(A K lp ha oC ) r Po ed šta it ns ka N BG Ku lsk a Ek A sim g r (H o N VB ov P ) os an ad on sk sk a a (E rs te N ) ac io šte Co d nt in en EF ta G l( N LB )
B
Pr
AI
Ju
ba
nk
a
HV
SG
VB
De
R lta BSM (In te sa ) Ko m ec HA AB
-
Source: National Bank of Serbia, June 2005 Figure 2.8.1 Ranking of top 20 banks by total assets, June 2005
Price per 1 % market share in € millions
New owner
Market share in total assets as of 31/12/04
Equity book value as of 31/12/04
Acquisition Delta
Intesa BCI
10.75%
114
333
2.92
31.0
Meridian
Credit Agricole
0.71%
14
54
3.86
76.1
Atlas
Piraeus
0.99%
13
19.5
1.50
19.7
Nacionalna stedionica-banka
EFG Eurobank
1.56%
13
44
3.38
28.2
Purchased bank
Privatization Novosadska
Erste
2.06%
26
73.16
2.81
35.5
Continental
NLB groupa
1.45%
29
49.5
1.71
34.1
Jubanka
Alpha
3.63%
110
172
1.56
41.9
23
1.97
47.92
Forthcoming privatizations Vojvodjanska banka a.d. Novi Sad
7.17%
50
Niska banka a.d. Nis
0.60%
19
Panonska banka a.d. Novi Sad
1.84%
42
Privredna banka a.d. Pancevo
0.80%
32
Cacanska banka a.d. Cacak
0.51%
17
Credy banka a.d. Kragujevac
0.59%
14
0.48%
12
Potential acquisition Nova RBSM
Price in Multiple € millions paid
Findomestic
13.98%
Figure 2.8.2 Privatizations and acquisitions
4.0
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Financial Markets and the Investment Environment
Montenegro Aggregate assets of the Montenegrin commercial banks amounted to just €440 million in 2004, with rather high market concentration (four banks accounting for 70 per cent of the market). The number of banks remained unchanged (10 at the close of 2004), but due to privatization/ sales that have already taken place or are underway, the proportion of state ownership is decreasing. Figure 2.8.3 shows the largest banks in Montenegro.
#RNOGORS -ONTENEG 0ODGORICK %UROMARK !TLASMONT (IPOTEKAR /PPORTUNI +OMERCIJA .IKSICKA 0LJEVALJSK KO RO BANKA A BANKA ET BANKA BANKA NA BANKA TY BANKA LNA BANKA BANKA A BANKA
4OTAL ASSETS
$EPOSITS
%QUITY
Figure 2.8.3 The largest banks in Montenegro (€ millions) At the moment there are two foreign-owned banks present: Opportunity Bank AD Podgorica and New Ljubljanska Bank (which acquired the Montenegro bank and also the Euromarket bank from the Soros Fund). The privatization of Podgoriþka banka, where the state holds 58.94 per cent of the equity and IFC 10 per cent, is ongoing.
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2.9
Privatization Procedures and Practices Raiffeisenbank, Belgrade
Introduction With constitutional reform in 1974, the Yugoslav legal system introduced the unique concept of socially owned capital and selfgovernment. This concept was based on the idea that the socially owned capital is in the ownership of all members of society and that everybody should benefit from it. Employees were to contribute with their work, and society by providing the assets. Socially owned companies were supposed to be managed by their employees. In reality, the system has not been successful and since the beginning of the 1990s, there have been attempts to privatize socially owned capital. The first attempts were based on the idea of ‘insider privatization’ – transfer of the shares to the employees of the socially owned companies or giving them the right of first refusal on the shares. Since privatization was not mandatory, only a small number of socially owned companies underwent the privatization process. Finally, the Privatization Act, enacted in 2001, introduced compulsory privatization of socially owned capital within four years, although this deadline was later extended to 2007. The Companies Act, enacted in 1996, has a number of provisions relating to socially owned companies. However, only those companies with 100 per cent of socially owned capital are considered as socially owned. Companies with any number of privately held shares were incorporated in the form of joint stock companies. Socially owned capital in those companies is divided into pro-forma shares. The 1997 Privatization Act introduced pro-forma shares and required evaluation of the socially owned capital and its value to be expressed in pro-forma
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shares. Pro-forma shares do not have the attributes of real shares – they are not transferable and they are only a formality. The management structure of socially owned companies closely resembles that of joint stock companies, with the same bodies – General Meeting, Management Board, Managing Director and Supervisory Board – but members of these bodies are actually representatives of the employees. In contrast to previous attempts, the 2001 Privatization Law provides for mandatory privatization within the four-year period. Companies are privatized by way of sale of up to 70 per cent of the company’s socially owned capital to investors, and the remainder of the capital is transferred to employees and the Privatization Register. However, the privatization process may also involve the sale of property, in whole or in part, or sale of certain parts of the entities to be privatized. The Law provides that the capital of the company intended for privatization shall be put up for sale by way of either public tender or public auction. Procedure rules are regulated in detail by the Decree on Sale of Capital and Property by Public Tender and the Decree on Sale of Capital and Property by Public Auction issued by the Serbian government. Privatization can be initiated by any of the following: ●
the company concerned (a note to that effect is to be forwarded to the Privatization Agency (PA), together with the prospectus);
●
the Ministry (which notifies the company concerned accordingly);
●
a potential investor (who notifies the PA accordingly).
The decision on the method of privatization to be used is preceded by extensive analysis of the company data and research into interest shown by potential strategic investors. The criteria for selecting the method of sale are established after analysis of the performance shown by the company; its ownership structure; demand; and strategy suited to the company’s further development. Having considered all this, the PA then decides on one of the following methods of sale: ●
by tender;
●
by public auction;
●
on the Stock Exchange through stockbrokers (capital markets/usually minority stakes);
●
by public offer.
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Public tender Sale by public tender is a method of privatization and involves the sale of up to 70 per cent of capital of socially or state-owned companies by the collection of bids submitted in accordance with established sale terms. This method mostly applies to the privatization of large and medium-sized companies for which it is possible to find strategic partner. Having made a careful analysis, in cooperation with the consultants, the PA decides on sale by public tender, taking the following into consideration: ●
size of the company;
●
its strategic importance for the sector concerned and the economy as a whole;
●
interest shown in purchasing it.
The value of capital is expressed in nominal terms (or as percentage share of that capital in the total value of the company concerned). The PA is responsible for the selection of potential investors and passing other recommendations associated with the tender sale. It is the intention of the PA to dispose of 70 per cent of the currently socially owned capital of a company by sale to an investor The remaining socially owned capital is split between: ●
the workers, including former employees (up to 15 per cent to be distributed as gratis shares); and
●
the Privatization Registry (15 per cent plus surplus remaining from employee offer), which will, in turn, distribute this capital as gratis shares to the general public within the Republic of Serbia within two years of completion of the privatization process.
There are four main phases in the tender procedure: 1. preparations for sale by public tender; 2. submission and acceptance of bids; 3. opening and ranking of bids; and 4. closing of Sale and Purchase Agreements. The socially owned capital is to be transformed into ordinary share capital during the transaction process so that the successful potential
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investor in the tender will hold ordinary registered shares in a joint stock company, after all steps have been taken in accordance with the Sale and Purchase Agreement (SPA), the Privatization Law and all other applicable laws and regulations.
Public auction The sale by public auction mainly applies to small- and medium-sized socially owned companies, because of their prevailing orientation to the domestic market and investors from neighbouring countries. However, there are several thousand small- and medium-sized companies and sale by tender would not apply to many of them. Public auction is a privatization method – the sale of capital by public bidding. The procedure for the auction sale is regulated in detail. The PA’s Auction Centre conducts this procedure. Privatization can be initiated by any of the following: ●
the company concerned (a note to that effect is to be forwarded to the PA, together with the prospectus);
●
the Ministry (which notifies the company concerned accordingly);
●
a potential investor (who notifies the PA accordingly).
The company concerned has to send the prospectus to the PA in all cases (in the first case within five days from the date of the note and in the other two cases within seven days from receipt of notification). Both local and foreign legal entities and individuals may bid at auction. Potential buyers can get information on the company concerned and the terms of sale by auction as follows: ●
from the prospectus (basic data about the company), which is also an invitation to potential buyers to send a letter of interest for purchase;
●
from the public invitation for participation at the auction (an invitation to potential buyers to register for participation at the auction);
●
by purchasing the auction documentation; and
●
by visiting the company undergoing privatization and talking with its management.
The auction documentation contains the privatization programme (basic data on the entity undergoing privatization, asset and liability
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status, analyses of previous business results, business projections, capital assessment, etc); the confidentiality agreement; the draft sale agreement; the application form for bidding at the auction; and wording of the bid bond.
The auction process If several people have acquired the status of bidders at the auction, the auctioneer announces the opening price and each higher bid, and calls the bidders to bid by raising their auction cards. If there is an opening price bid, the auctioneer sets the new price, invites bidders to bid for the newly set price, and increases in price are made and announced for as long as bids are made. The auction ends if no bid is made for the last set price after the auctioneer’s second call, he/she calls for the final bid or if no bid is made even after the auctioneer’s third call, he/she declares the auction ended by striking the hammer, and names as buyer the bidder who was the first to make the highest bid. A second auction is conducted if no participant accepts the opening price at the first auction, the first auction is proclaimed unsuccessful and the second one starts immediately or even after the auctioneer’s third call no participant accepts the opening price at the second auction, the auctioneer ends the auction by striking the hammer and the auction is proclaimed unsuccessful and the bid bonds are forfeited. Bid bonds are payable in cash, but Bank Guarantees issued by firstclass banks or matured bonds are also acceptable. In the case of second auction, bid bonds may also be paid in non-matured bonds.
Restructuring The Law on Privatization outlines the methods of privatization of socially owned and state owned companies in Serbia through two basic methods: ●
public tender; and
●
public auction.
Inaddition, it also governs the procedure of corporate restructuring (where needed) prior to privatization by one of the two methods mentioned above. There is a list identifying around 50 companies that cannot be privatized through public auction/tender for various reasons (the list is subject to change). Corporate restructuring in the privatization procedure includes: the statutory and organizational corporate restructuring of companies
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and/or parts thereof; financial restructuring (various modes of debt restructuring); workforce ‘rightsizing’ (preparation and implementation of the social programme); and privatization (sale of capital). The main objective of corporate restructuring is successful privatization – the sale of the company or parts thereof. The PA shall commence the corporate restructuring procedure by rendering the restructuring decision, particularly in the following cases: ●
when it is not possible to privatize the company ‘as is’", in its current statutory and organizational form;
●
when it is not possible to privatize the company due to its existing capital structure;
●
the non-existence of potential buyers of a company within a reasonable term;
●
when the liabilities of the company exceed the value of total assets, decreased by the losses incurred in the current and previous years.
The corporate restructuring procedure is implemented by the PA and its Corporate Restructuring Centre, along with the expert assistance of domestic and foreign consultants and in cooperation with respective companies. Depending on the particular phase, the following parties are directly involved or make decisions in the process of corporate restructuring: ●
the Ministry of Economy (strategy and supervision);
●
the PA (preparation and implementation);
●
the company;
●
the PA’s advisors;
●
creditors.
●
other ministries, courts and other authorities during certain phases of restructuring, in compliance with their competence.
●
international financial institutions (providing financial and advisory assistance).
A successfully implemented corporate restructuring programme means that the company, or as many of its independent business units as possible, has become a viable business unit on the market; certain parts of the company or its assets that can be sold only
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individually, separate from the operating entity (in order to achieve the purpose of selling the company wholly), are identified; and arrangements and solutions for redundant employees have been determined and accepted. The corporate restructuring itself is a very complex and long process. It requires ideas and projections, high expertise, clear strategy and substantial funds.
Capital markets and privatization There was hardly any trading of shares on the Belgrade Stock Exchange in the middle of 2001, when the new privatization legislation was adopted. Only debt securities, consisting mainly of National Bank of Serbia bonds and short-dated securities, were being traded at that time. The capital market in Serbia is a result of many adverse circumstances, among which stand out the country’s long-lived isolation and slow privatization. The primary market institutions and instruments were relatively well developed, but in view of the reasons mentioned above, that was of no big importance for development of the secondary market, ie the financial market. The new Law on Privatization has introduced two novelties of great importance for the capital market. Namely, its Article 59 provides the following: ‘The trading of shares issued in the privatization procedure shall be unrestricted on the secondary market and be carried out through stock exchanges’. The second novelty is the abolition of the right of pre-emption for all of those who had acquired shares in the privatization procedures conducted so far. The grounds for expanding the trading of shares on the Stock Exchange are as follows: ●
free of charge earned shares or paid for at a discount in the privatization procedures conducted so far;
●
shares transferred to the Share Fund in the privatization procedures conducted so far;
●
15 per cent of shares after the sale of capital through public tender.
The Law on Privatization and the Law on the Share Fund have also introduced the institution of Central Registry and the Temporary Registry, pending the establishment of the former. Its function will be dealt with in greater detail by appropriate rules. Since the registers of shareholders by companies are still not in proper order, the Law on Privatization provides that registers of shareholders have to be lodged with the Central and/or Temporary Registry
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within four months. Shares cannot be traded on the Stock Exchange without the Temporary Registry and Ministry of Economy and Privatization’s certificates of compliance. The appearance of shares from the Share Fund in April 2002, followed by occasional auctions on the Stock Exchange, has introduced a new quality on the financial market. Financial and strategic investors appeared as buyers of shares for the first time, causing an increase in demand and price of the shares. The Share Fund includes the minority share blocks of about 900 companies that were privatized in conformity with earlier laws. The total book value of these shares is about €790 million and the book value of the capital of these companies is about €2.6 billion. The following institutions, competent for the trading of shares issued in the privatization procedure, are involved in the sale of minority share blocks: ●
the Ministry of Economy – strategy and supervision;
●
the PA (seller);
●
the Share Fund (seller);
●
the Temporary Registry;
●
the Stock Exchange;
●
stockbrokers.
The Capital Market Centre and the Temporary Registry have been set up within the PA. Together with the Share Fund, they conduct the sale of minority share blocks of the already privatized companies. Laws and regulations define the sale procedure in greater detail. The adoption of the Law on Privatization was paralleled by the adoption of the Law on the Share Fund. The Share Fund is now selling the shares transferred to it and to the Republic Pension and Disability Insurance Fund before the adoption of the new Law on Privatization. The Temporary Registry makes an entry of data about shareholders, kind of shares and number of shares, as well as any changes in this data. The Temporary Registry gives a written document to the company, based on which the book of shareholders is kept. The Rights from the shares are established with the document given by Central Registry. The Temporary Registry also keeps a record of shares of the entities undergoing privatization on the basis of sale by tender or public auction pursuant to the new law.
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The role of the Capital Market Centre, at present, is to initiate, conduct and control the privatization of entities whose shares are in the Share Fund portfolio, on behalf of the PA. The Centre plays this role in direct cooperation with the Share Fund and the Temporary Registry. The objectives set for the capital market are to ensure: maximum proceeds of privatization, maximum investment in entities undergoing privatization, and development of the financial market. The Share Fund includes the shares of the entities whose privatization was commenced under earlier laws. These shares and/or interests are as follows: ●
those remaining on the effective date of the law dealing with privatization in companies that had carried out the privatization of socially or state-owned capital in their possession in conformity with the provisions of the Ownership Transformation Law (1997 and 2001);
●
those of shareholders who have decided not to pay for the shares for which they have subscribed, which are payable pursuant to the Socially Owned Capital Law (1989 and 1990), Law Setting the Conditions and Procedure for Transforming Social Ownership into Other Forms of Ownership (1991) and Ownership Transformation Law (1997 and 2001);
●
those that the Development Fund of the Republic of Serbia transfers to the Share Fund;
●
those left over after the sale of capital in the privatization procedure conducted in conformity with the law dealing with privatization.
The new Law on Privatization has released the market potential created in the earlier privatization procedures. Nearly 1,000 companies are involved. The share trading is unrestricted and is carried out on the Belgrade Stock Exchange. The pre-emption right has also been abolished. The number of transactions conducted per month and the value of the shares traded have been showing a tendency to grow continuously. Thanks in the main to the higher price fetched by the shares of the same company at the Share Fund auctions, the market capitalization (market value times the number of shares) has increased manifold. Only in few cases was the market value of shares from the Share Fund lower than the bookkeeping value, which was a result of the overpriced value of company and a lack of demand. The appearance of financial and strategic investors aroused greater interest in the capital market; the first shocks also took place, as well as the first acquisition attempts.
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The majority of companies whose shares are traded are good rated companies, the privatization of which began way back in 1989, with the distribution of insider shares. However, the trading of shares originating from the privatization procedure is not being carried out at the expected rate, not only because of low demand, but also because of the abovementioned problems encountered in the Temporary Registry and company register of shareholders – namely, shares may be traded only if the Ministry has found that privatization has been conducted in conformity with law and if the company concerned has the Temporary Registry certificate of ownership in relation to shares.
Results and future prospects The main mission of the privatization process in Serbia is to build a strong and efficient private sector. Since the beginning of privatization in 2002 until the present time, a total of 2,237 enterprises have been put up for sale. Out of this number, a total of 1,631 enterprises have been sold, achieving an excellent success rate of 73 per cent. Out of 90 enterprises offered, 50 have so far been sold by way of tender. Total sales amount to €874.87 million; the investment programme amounted to €750.23 million, while €272.44 million has been provided for social programmes. Out of 1,508 enterprises offered, 1,191 have so far been sold by way of public auction. Total sales amount to €534.55 million, while the investment programme amounted to €141.81 million. The Share Fund has sold minority packages in a total of 390 enterprises so far, generating €279.29 million in sales proceeds. Table 2.9.1 summarizes the results of privatization during the period September 2002–2005 The most successful privatizations carried out up until now include: tobacco companies: Duvanska industrija Nis (the most successful privatization in the Eastern Europe during 2003), which was sold to Phillip Morris at the capital price of €387 million for 66.45 per cent stake, with an accepted investment programme to the value of €64.85 million for a five-year period and a social programme of €59.11 million; and Duvanska industrija Vranje, which was sold to British American Tobacco at the capital price of €50 million for a 67.81 per cent stake, with an investment programme of €24 million and a social programme of €13.14 million for a five-year period. In addition, a large petroleum distribution and retail company, Beopetrol, was successfully sold at tender to Lukoil Europe Holdings BV at the capital price of €117 million for a 79.53 per cent stake, with an accepted investment programme to the value of €85 million.
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Table 2.9.1 Privatization results, 2002–2005 Tenders Auctions Share fund Total Number of offered enterprises
90
1,508
639
2,237
Number of sold enterprises
50
1,191
390
1,631
Success rate
56%
79%
61%
73%
Selling price (in €’000s)
874,870 534,546
279,293
1,688,708
Investment programme (in €’000s)
750,228 141,809
5,902
897,939
Social programme (in €’000s)
272,441 -
-
272,441
Number of employees in sold enterprises
45,736
69,060
227,020
112,224
There is an increasing attraction from global multinational firms to invest in Serbia and to make Serbia a centre for their activities in the region of South East Europe. So far, foreign buyers from various countries (the Netherlands, Slovenia, Macedonia, the United States, the UK, Slovakia, Hungary, Greece, Denmark etc) have purchased a total of 108 enterprises. The participation of foreign buyers in total achieved privatization proceeds amounts to 55.55 per cent. The funds from privatization will be used for public works and infrastructure development and improvement, for small- and mediumsized enterprise and local municipality development, the Development Fund of Serbia and the Restitution Fund. Future plans are to continue the existing privatization route and to shift the focus to the state-owned companies (state petroleum company, electric utility company) starting from the end of 2005.
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Part Three Market Potential
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3.1
The IT Sector SIEPA
Reasons to invest The Information Technologies (IT) sector in Serbia has grown significantly over the past decade. This modern industry, especially the business software services segment, has provided many opportunities for business development and entrepreneurial activity. This is a consequence of successful economic reforms and a deep-rooted commitment to education spanning more than five decades. With its intellectual and technological potential reaching the level of developed countries, Serbia now has the attributes to satisfy competitively the needs of IT companies worldwide.
Why invest in Serbia’s IT sector? There are many reasons to invest, including: ●
labour costs are considerably lower than in Western Europe – overall labour costs for a graduate and skilled staff are approximately 30 per cent of Western levels;
●
an excellent skills base is reinforced by good quality universities, where many professors have considerable international experience and are highly regarded throughout the world;
●
good communication networks within the country and externally;
●
fluency in the English language and an educational profile considerably higher than in any other Eastern European country;
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●
companies have key knowledge of emerging markets in the Balkans and Eastern markets;
●
businesses have language and localization skills for Eastern European and Russian markets.
As there is a global spread of the IT sector to developing and transition countries, Serbia has the potential to become one of the top destinations for international companies seeking lower-cost competitive solutions and access to skills. Outstanding intellectual capital, attractive labour costs, excellent skills, a good communications network and high fluency in English are just some of the key competitive advantages that should persuade international companies to spread their business to Serbia. Educational commitment to technology in Serbia spans more than five decades. Because of the openness of the region prior to the 1990s, the education standards in the technical departments of universities in Serbia benefited from greater exposure to Western developments than other countries in Eastern Europe. Each year there are around 1,000 graduate students in Electrical Engineering and Computer Science, which represents seven per cent of total university graduates. Since 1968, students from high schools specializing in in-depth tuition in mathematics, physics and informatics have won an impressive number of prizes at World Olympiads (81 medals in mathematics, 17 in physics and 14 in informatics). There are about 3,000 highly qualified IT engineers currently working on projects for foreign partners, mainly in the field of software product and service development. Total annual revenue in this subsector alone is estimated at almost US$100 million. The IT sector has an annual growth rate of 18.3 per cent and a projected five-year compounded annual growth rate (CAGR) of 16.8 per cent. The value of the Serbian IT market in 2003 was estimated at US$340 million. (source: IDC ICT Sector Market Analysis and Trends in Serbia and Montenegro, 2003–2008). In addition to the major multinationals such as Ericsson and Siemens present in Serbia, a number of smaller European firms have established a presence in the country, both to expand their market reach and to develop products for the region. Over 100 leading private ICT companies, representatives of Universities and research institutes have established an ICT cluster in Serbia. The goal of the cluster is to increase the competitiveness of Serbia’s ICT industry through mutual cooperation and the joint activities of the cluster members. In Serbia, there are 1,408 IT companies (see Figure 3.1.1). The ownership structure of IT companies in Serbia
1-905050-14-3_P03_131_02/20/2006
The IT Sector 10,000
131
9,409
9,000 8,000 7,000
Number companies
6,000
5,409 Number of employees
5,000 3,926
4,000 3,000 2,000 1,000
1,408 617
879
0 2001
2002
2003
Figure 3.1.1 Total number of companies and employees in the IT sector is as follows: 95 per cent are domestic companies, three per cent have mixed ownership and two per cent are foreign companies. The cost of graduate level qualified staff is considerably lower than in Western Europe. Net salary costs vary from €350 to €850 per month for qualified and experienced personnel. The overall salary cost of a programmer/systems expert is in the range €700–1,400 per month (see Figure 3.1.2). Many companies have benefited from the sector being different in attitude, commitment and output than in many traditional industries. Their overall costs are considerably lower in Serbia than in most other countries in Western and Eastern Europe. As a young industry, the IT sector does not suffer from the labour inflexibility of many traditional industries. Companies have confirmed no labour disruptions. The average age of staff is in the early 30s. The IT sector is highly skill-intensive, according to the educational level of employees – 70 per cent have a university level of education. Serbia offers both new and existing investors a range of incentives aimed at enhancing the country’s competitiveness as an investment location. The corporate profit tax of 10 per cent is also the lowest in Europe.
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68,000
Germany 54,000
France
52,000
Austria Belgium
49,000
The Netherlands
47,000
UK
41,000
Poland
25,000
Hungary
18,000
Czech Republic
16,000
Slovakia
13,000
Serbia
12,000 0
10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000
Source: Statistical Office of the Republic of Serbia Figure 3.1.2 Average annual salary for systems analyst/designer in 2003 (€)
The legal framework Since 2002, there has been an increasing awareness that the infringement of intellectual property (IP) rights must be reduced and IP protection brought into line with EU standards. Most domestic legislation in the field of IP rights has been harmonized with the rules of the EU and WTO, ie trade-related aspects of intellectual property rights (TRISP Agreement). Intellectual property is stipulated by laws and regulations that provide a solid ground for IP rights protection; however, in order to fully comply with international standards and provide the necessary enforcement capacity, five new IP laws came into force in late 2004 and early 2005, namely the: ●
Patent Law;
●
Trade Mark Law;
●
Copyright and Related Rights Law;
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Legal Protection of Design Law;
●
Protection of Integrated Circuits Topographies Law.
133
In addition, in 2004 the government of Serbia enacted the Electronic Signature Law, thus bringing IT legislation closer to European standards. The new Criminal Code was also amended and reviewed with a chapter relating to the infringement of copyright and related rights. Additionally, for the first time, t regulation to strengthen customs powers to act against counterfeit and pirated goods was introduced in the Customs Law. Serbia has set a course towards a fully dynamic system of enforcement of IP rights; however, effective law enforcement requires time. On 9 March 2005, the government began a campaign named ‘Zero Tolerance for Piracy’, where an obligatory instruction to all public prosecutors’ offices has been issued on conducting pre-criminal procedures and prosecuting perpetrators of related crimes. Serbia also signed the international Convention on Cyber Crime on 7 April 2005 in a move that will improve Serbia’s cooperation with EU states. In summary, the tide is turning against IP infringers – the legal framework has been set and there is a growing political will to tackle this problem.
Key products and offerings Outsourcing In an IT outsourcing arrangement, Serbian software developers assume either partial or full responsibility for a client’s daily IT needs. In many cases, they manage and improve the client’s entire IT process, which includes applications, data centres and networks. Serbian software development experience and expertise are applicable to a variety of business areas and solutions. Outsourcing allows the customers to focus on their business continuity and expansion, without being preoccupied with technology infrastructure or IT expert recruitment. They can focus on user requirements, product planning and innovation, packaging, marketing and deployment, while Serbian outsourcing companies support the core development of the project’s life cycle and offer services in all phases of the software development process (modelling, implementation, testing, reengineering, integration, maintenance etc). With expertise in creating comprehensive and inventive solutions – from initial strategic planning to the actual implementation of a
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project – they provide custom high-end IT development services for SMEs, corporate clients and high-technology solution providers. Serbian outsourcing companies offer their services in several areas of expertise, applicable to a variety of possible forms of cooperation: ●
pilot project;
●
work on specification basis: – undertake the complete development of a system (complete project), ie designing the database, conducting the implementation, function and system testing; – undertake development of part of a project or system; – take over development of a project that is already under development; – design and implement a new system (application) based on an existing (legacy) system;
●
work on time basis.
Depending on customer’s needs, Serbian software developers may offer onsite or an off-site outsourcing. If a company wants to outsource a software development project under their project management at their site, Serbian software producers can provide developers and analysts experienced in onsite outsourcing and integration with the customer’s team. On the other hand, if a company wants to outsource a part or a complete software project, Serbian IT companies can help with a turnkey solution. Subcontracting work undertaken is wide ranging and includes creative web design development work for European companies, subcontracting of employees to foreign firms for specific web-enabled tasks and the development of technical hardware and software solutions for major international companies such as Philips Semiconductors, Carl Zeiss, Raytheon and NCR. These software and design firms are the core of what could become a much larger specialization in the future. Key locations for Offshore Development Centres in Serbia are Belgrade and Novi Sad. Both are metropolitan centres with strong universities, communications infrastructure and many potential sites. Both are also considered pleasant places to work and live, with good cultural activities and international schools.
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Software development In Serbia, there are 835 companies developing software. They have highly-skilled engineers who are competent in a broad range of methodologies, technologies and tools supporting efficient development of high quality software and systems integration. They have expertise in developing front- end, back-end and middle-ware components, but also are very proficient at listening to client requirements and creating tailored software and systems. Serbian software developers offer consulting services to solve the industry’s most pressing problems in a strategic, accurate, and rapid manner. Several Serbian IT companies have project managers who stand out for delivering Western-style project management to all of their projects as an important component of their quality of service. Project managers hold significant experience in international project management, gained through the execution of IT projects in North America, the EU and Asia. Main products Main products include the following ●
Corporate business solutions represent the informational base of a modern company. When accepting the decision on the implementation of a corporate business solution, the choice of a partner is extremely important. Serbian software developers are experienced and reliable partners with in-depth knowledge of different aspects of operations and expertise in complex business processes. An integrated business solution can provide the company with: – financial management; – accounting; – controlling and business analyses execution; – sales and supply chain management; – warehouse and material flow management; – production management; – customer relationship management (CRM); – human resource management; – office administration and internal documentation; – support for e-commerce.
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●
An e-business solution enables a company to control every step of their e-business. It is an internet commerce solution for setting up online product catalogues and automating order-entry processing via the internet, while maintaining the information on its web pages and processing orders requires virtually no administration. The target group of users is mid-sized companies wishing to automate their business relationship with their business partners and business customers (business to business (B2B) solutions) and mid-sized companies planning to sell directly to consumers (business to consumer solutions (B2C)).
●
A sales management solution is an application system intended for advanced sales – process management for small- to medium-sized companies. The application covers all areas of the standard sale cycle and enables simple and efficient business management. Simple and advanced user interface, fast document creation, and editing with real-time stock effect are just some of the possibilities. This business software model, coming as a result of great experience in developing customized solutions and business consulting, enables all well-experienced sales managers, as well as beginners, a quick start in application usage, along with the opportunity for constant improvement in every-day practice.
●
a document management system is a system used for organizing, creating, distributing and reviewing business documents and documenting processes during a document’s lifecycle – from creating to archiving in electronic form. Besides these, Serbian software developers have expanded the functions of a document management system. The application includes document identification, storing, retrieving, change tracking, versioning, workflow management, and document presentation.
●
A banking information system is an integrated information system for a banking business that covers all important areas of banking operations and banking intranets. Those software applications are made by using an Oracle database and development tools. The deregulation of the banking market in Serbia over the past few years has created a demand for specialized services. This iss an area where a level of specialization is evident, with a few companies developing front and back office banking solutions in addition to 24/7 service support and backup for local and regional banks.
●
e-government – the government has ambitious plans to provide an overall web-accessible service, including all formal registrations, official forms, and bill paying, within the next few years. Several Serbian software developers offer interactive, web-enabled,
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integrated application software for municipalities and government departments. ●
Other services include design and implementation of web portals; web design; internet services providing, hosting, design of maintenance of internet applications; intranet solutions; database development; GPS applications, etc.
Hardware development In Serbia, there are 573 hardware manufacturers. The industry focus to date has been on the development of customized products for specific industry applications for the local market, with the larger companies offering a wider systems integration and full technical service approach. Today, modern hardware (LCD monitors, memory modules, toner cartridges for printers, etc) are made in Serbia. On the other hand, Serbia manufactures a fair amount of telecommunications equipment. Five leading producers of such equipment – Imtel, Iritel, the Mihajlo Pupin Institute, Pupin Telecom and Telefonkabl – formed a consortium named Srbijatel to strengthen their market position: ●
Imtel specializes in digital microwave systems in the 13 GHz and 23 GHz bands;
●
Iritel specializes in digital telephone switches, multiplexers, optical transmission systems, high-speed modems and radio/television transmitters;
●
the Mihajlo Pupin Institute has a long research tradition in communications, automation and robotics, as well as in crystal manufacturing;
●
Pupin Telecom specializes in digital public telephone systems, equipment for radio transmission, systems for data transmission and switching; and
●
Telefonkabl designs telephone networks and electric power plants.
Main products Main products include: ●
memory modules (SDRAM, DDR, DDR2);
●
TFT monitors;
●
graphic cards;
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Market Potential
●
flash;
●
multimedia (USB sticks, MP3 player);
●
toner cartridges for laser printers and mini photocopiers;
●
radio, base-band and industrial modems;
●
transducers;
●
communication converters;
●
electronics equipment and assemblies;
●
digital switching systems; and
●
optical digital systems.
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3.2
The Electronics Industry SIEPA
Introduction Currently, there are 1,319 enterprises registered to carry out activities within the electronics industry and their share in total GDP accounts for one per cent. During the last 10 years, a number of new privately owned and small-sized companies were established within the electronics sector. Most of them are registered for the production of different kinds of electronics products and are currently engaged only in commercial activities. In other words, large numbers of them are distributors or importers of products from worldwide electronics brands. Most of the large electronics producers in Serbia have long-term experience in different types of cooperation (agreements on industrial cooperation, joint ventures etc) with famous international producers (Siemens, Alcatel, Philips, Bull-Honeywell, Sagem, ITT etc). During the UN sanctions, cooperation with foreign partners in many cases was discontinued. Today, a number of famous worldwide producers are, again, present on the Serbian market, mostly through a network of dealers or distributors that are usually small and privately owned companies. Most of the companies within the electronics industry in Serbia today are small and privately owned. Detailed analysis shows that this is a result of dominate trends in the last decade, which saw the establishment of new, small and privately owned companies. These companies were mostly engaged in selling the products of foreign producers and providing a wide range of services (development, installation, design and maintenance of different systems and software, after sales services etc).
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Production by sub-sector Within the electronics industry in Serbia, there are five major representative sub-sectors (see also Table 3.2.1): ●
manufacturing of electrical and optical equipment;
●
manufacturing of office machinery and computers;
●
manufacturing of radio, television and communications equipment;
●
manufacturing of precision and optical instruments;
●
manufacturing of other electrical machinery and apparatus.
Table 3.2.1 Indices of industrial production in the sub-sectors (1999–2003) Sub-sector
1999
2000
2001
2002
2003
82.3 Manufacturing of electrical and optical equipment
102.7
90.2
117.4
88.1
123.8 Manufacturing of office machinery and computers
167.8
63.1
14.2*
2.9*
90.4 Manufacturing of radio, television and communication equipment
84.4
76.2
171.7
76.5
84.4 Manufacturing of precision and optical instruments
109.7
94.2
98.0
72.8
Manufacturing of other electrical machinery and apparatus
104.6
94.1
107.5
93.7
80.9
* Rapid decrease of production of office machines and computer equipment in 2002 and 2003 was due to the corrections in the applied reporting methodology Source: Statistical Office of the Republic of Serbia
Table 3.2.2 shows the breakdown by product of electrical devices and equipment, with the figures representing measurement units acording to the specific product.
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Table 3.2.2 Production of electrical devices and equipment Product
1999
2000
2001
2002
2003
Cables and similar conductors (tonnes)
21,796 20,548 19,566 22,869 24,610
Other isolated electric conductors (tonnes)
3,119
3,753
4,449
4,375
Accumulators (tonnes)
9,810
9,246
9,792
10,579 9,662
Television sets (thousands of units)
13
6
5
5
2
Telephone apparatus (units)
12,239 5,532
5,644
4,667
7,067
2,238
Source: Statistical Office of the Republic of Serbia
Foreign trade International trade data show that the electronics industry in Serbia is highly dependent on imports. Major imported products, accounting for 96 per cent of total imports, are: ●
input-output units;
●
parts of machines;
●
digital monolithic integrated units;
●
digital automatic data processing machines;
●
television sets.
China is the major partner in imports of input-output units and parts of machines, with a share of 25.4 per cent and 31.6 per cent respectively. It is followed by Austria (around 19 per cent in each group) and the United States (around 10 per cent in each group), with suppliers from the Far East (Japan and Taiwan) as well as the UK also having a significant share (see Table 3.2.3). Production of electrical machines and devices, generators and transformers accounts for approximately one half of total exports within the electronics industry, followed by production of orthopaedic appliances and other medical equipment and optical instruments and production of radio, television and telephone sets and other communications equipment (see Table 3.2.4). The institutional framework for exports expansion is in place. The customs regime supports re-export deals, and foreign electronics manufacturers can take advantage of the Serbian geographic position, local
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Market Potential
production capacity, significant industrial tradition and a skilled labour force. Table 3.2.3 Imports of major electronics products, 2002 and 2002 (US$ millions) Product
2002
2003
Office machines and computers
143
222
Other electrical machinery and apparatus
113
147
Radio, television and communications equipment
190
280
Precision and optical instruments
135
202
Source: Statistical Office of the Republic of Serbia
Table 3.2.4 Exports of major electronics products, 2002 and 2003 (US$ millions) Product
2002
2003
Office machines and computers
3
2
Other electrical machinery and apparatus
58
59
Radio, television and communications equipment
7
10
Precision and optical instruments
15
15
Source: Statistical Office of the Republic of Serbia
Serbia has certified Agreements of Mutual Protection and Improvement of Investments with the following countries: Albania, Austria, the Belgium– Luxembourg Economic Union, Bosnia and Herzegovina, Bulgaria, Belarus, China, Croatia, Cuba, the Czech Republic, France, Germany, Ghana, Greece, Guinea, Hungary, Israel, Italy, Korea, Macedonia, the Netherlands, Nigeria, Poland, Romania, the Russian Federation, Slovakia, Slovenia, Spain, Sweden, Turkey, Ukraine, the UK and North Ireland, the United States and Zimbabwe. In addition, Serbia has signed a Bilateral Trade Agreement with the Russian Federation that includes preferential customs treatment of products produced in Serbia (Serbian products are treated as domestic on the Russian market).
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Workforce Skilled employees (26.7 per cent), followed by workers with a high school degree (23.1 per cent) and semi-skilled workers (13.5 per cent) dominate the qualification structure of employees in the electronics industry. Employees with a university and two-year college degree account for 13.3 per cent of the total number of employees. Table 3.2.5 shows the number of employees by sub-sector. Table 3.2.5 Number of employees in the electronics industry by subsector, 2001 to 2003 Sub-sector
2001
2002
Manufacturing of other machinery and equipment
38,777 34,565 36,639
Manufacturing of office machines and computers
3,201
Manufacturing of other electrical machinery and apparatus
19,220 18,010 18,749
Manufacturing of radio, television and communications equipment
7,763
6,245
4,768
Manufacturing of precision and optical instruments
9,748
9,011
8,054
3,158
2003
3,788
Source: Statistical Office of the Republic of Serbia
Table 3.2.6 shows the average monthly net and gross salaries within the electronics sector in Serbia. As shown, the average salaries are way below the EU average. Table 3.2.6 Average monthly salaries in the electronics industry, 2002 and 2003 (€) Sub-sector
Gross salary
Net salary
2002
2002
2003
2003
Manufacturing of office machinery and computers 299.98 335.47 209.79 233.20 Manufacturing of other electrical machinery and apparatus
189.71 201.98 131.67 139.69
Manufacturing of radio, TV and communication equipment
124.44 150.26 85.27
Manufacturing of precision and optical instruments
157.12 144.64 106.83 99.20
Source: Statistical Office of the Republic of Serbia
103.39
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3.3
The Telecommunications Sector Milena Gajovic Shrestha, Associate, Bedminster Capital Management LLC
General overview The market for fixed telephone service is heavily regulated and dominated by a state-owned monopoly, PTT, and has registered a much slower growth in the recent past compared to mobile telecommunications services. The present conditions make it difficult (illegal and unfeasible) for new players to enter this market segment, since the Telecommunications Agency, as a key regulator for the Serbian telecoms sector, is still not fully operational. The government intends to deregulate the market for telephone services as the Telekom Serbia’s landline monopoly expired on 9 June 2005. However, there will likely be resistance to this initiative from PTT. Mobile telecommunications are growing very fast and subscriber numbers are still increasing rapidly in a very competitive market. There are some three million mobile subscribers in Serbia and the penetration rate has reached 40 per cent. Mobile telephone services is also a heavily regulated market that does not allow for competitors to the state-owned or licensed service providers – Telekom Serbia (064) and Mobtel (063). These two companies dominate the mobile phone market, with a 58.5 per cent market share for Telekom Serbia and a 34.9 per cent market share for Mobtel. The number of internet users in Serbia is estimated at 650,000 but the number of internet subscribers is far lower. Internet penetration is very low (6.5 per cent).
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Market Potential
Market players There is one licensed landline operator in Serbia (Telekom Serbia) and two licensed mobile operators: Mobtel (063) and Telekom Serbia (064).
Telekom Serbia Telekom Serbia was incorporated as a joint stock company in June 1997. In a direct sale, 49 per cent of the share capital was privatized – 29 per cent was acquired by Italian STET and 20 per cent by Greek OTE. The remaining 51 per cent at that time belonged to PTT Traffic Serbia (whose founder is the Republic of Serbia), plus a golden share. Back in 2003, the Serbian state-owned PTT acquired the 29 per cent stake in Telekom Serbia back from STET for €195 million. Telekom Serbia was given a 20-year licence to operate fixedline telecommunications with the first eight as a monopoly (until 9 June 2005). The company was also granted a 20-year mobile licence, making it the second mobile operator in Serbia. The company has been developing a new high- speed national internet backbone, the Serbian Multiservice Internet Network (SMIN). In March 2002, the company began offering Virtual Private Network (VPN) services to its business customers. Telekom Serbia is the only fixed-line operator in Serbia, with 2.4 million subscribers, 520,000 with shared lines and 950,000 subscribers connected to analog stations. The digitalization rate of the fixed-line network in Serbia is still rather low (60 per cent) compared with a majority of European countries (100 per cent). By the end of June 2005, the government of Serbia launched a public tender for the selection of the strategic/financial advisor, who will be in charge of creating the general strategy for the restructuring, privatization, and development of the Serbian telecoms sector.
Mobtel Mobtel was founded in 1994 and operates as a limited liability company. It was the first mobile telephony operator in the former Federal Republic of Yugoslavia. The major shareholder of Mobtel was BK Trade, a member of the BK Group, a powerful local industrial consortium controlled by the Karic family, which owned 51 per cent, with the remainder owned by PTT Holdings. PTT disputed the ownership of Karic’s 51 per cent, claiming that the company had not paid the entire purchase price for the shares to date. The government is planning to sell the state-owned share once the ownership issues are resolved.
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Mobtel began NTM operations in December 1995 and, in October 1996 ,introduced GSM operations. The company had 92 per cent of Serbian population coverage and an 85 per cent geographical coverage at the end of 2000. In July 2003, the company introduced GPRS technology to its post-paid customers. GPRS provides mobile access to emails, exchange of audio and visual content and other internet applications.
Legal framework The new Telecommunications Law in Serbia was adopted in April 2003. Prior to this, the Law on Systems of Communications was in force and regulated both areas: telecommunications and postal services. This law is still valid in some of the provisions dealing with postal services and its public provider. The new Law anticipates the creation of a liberalized telecommunications market, with a system harmonized with that of Europe. Fixed-line is an exception, with the state respecting the 1997 contract for the sale of shares in Telekom Serbia to OTE of Greece and Telecom Italia, which guaranteed monopoly status until 9 June 2005.
Regulatory authority The Serbian regulators are the Ministry for Capital Investments (the former Ministry of Transport and Telecommunications) and upon the adoption of the new Law on Telecommunications, the Serbian Telecommunications Agency (TA). The TA is responsible for regulating all key aspects of the telecommunications sector including: ●
defining conditions for offering telecoms services;
●
defining conditions for the development of networks;
●
launching of tenders for granting a licence to operators;
●
supervision of the process of implementation of the new telecoms law;
●
monitoring to make sure the conditions prescribed by the licence are fully respected;
●
pronouncement of penalties;
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Market Potential
●
solving disputes between the owners of networks and their users;
●
issuing of orders to operators to enable the usage of infrastructure to competitors, etc.
Remaining issues Unfortunately, the following issues in the telecoms sector in Serbia are still unresolved.
Adoption of the amendments and revision of the Law on Telecommunications The new Law on Telecommunications was in a preparatory phase for more than two years, but was finally adopted in April 2003. The main goal of the new Law is to provide a legal framework for fundamental reforms in this area. The Law introduced principles for granting licences for telecommunications activities and, for the first time, introduced the ‘universal service’ obligation (‘services of specified quality and scope which are available to all users of the public telecommunication network in Serbia, at reasonable prices’). The objectives of the new Law are to start the process of elimination of monopolies and monopolistic behaviour, regulate and control the telecommunications service tariffs under the conditions of a limited market, and to increase the quality of services and introduce new services to this market. In the course of 2004, the new Law was the subject of further review and amendments, mostly with the aim of further improvements in the area of efficient implementation mechanisms. The remaining issue is when the amendments proposed will be adopted by the Serbian Parliament.
TA established but still not fully operational The Law defines the independent regulatory body, the Telecommunication Agency (TA), which undertakes the role of managing the telecoms sector. It is prescribed by the Law that the TA should be separated from both the influence of the state and the impact of interest groups, mainly telecommunications operators. The TA will be managed by the Managing Board, consisting of five members who were recently proposed by the government and are appointed by the National Assembly. The latest expectations of the Ministry for Capital Investments indicated that the TA might be fully operational by September 2005. However, industry experts believe that the Agency will only start functioning in six to 12 months.
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Adoption of the Telecommunication Policy Document and the Strategy for Development of Telecommunications in Serbia The Ministry for Capital Investments commenced development of the Telecommunications Policy Document, which was expected to be completed by the end of January 2005. Also, in 2004, the Strategy for Development of Telecommunications in Serbia was completed. However, the Strategy requires further revision in order to be fully aligned with the Policy Document. Therefore, it is uncertain when the final adoption of this important document will take place. During June 2005, the government of Serbia launched a tender for the selection of a financial/legal advisor for the telecommunications sector, who will be responsible for creating the general strategy for the development of the telecoms sector in Serbia.
State cross-ownership The Serbian telecoms sector continues to be dominated by the state, which represents a significant obstacle to competition. Serbian authorities indicated the possibility of launching the privatization of major telecoms in 2005, but legal issues make their quick privatization unlikely. Despite much criticism, the state-owned company PTT is an owner of both mobile operators: the majority owner in Telekom Serbia and a minority owner in Mobtel. The settlement over the ownership structure in Mobtel, which represents the major obstacle in solving the issue of state cross-ownership, has not yet been resolved. Despite frequent announcements that the tender for the privatization of Mobtel will be launched soon, it is still not clear when it will happen and whether it will be postponed until the final decision of the arbitration in Switzerland.
Process of deregulation and full liberalization The licences granted for fixed and mobile telephony in Serbia have created long-term monopolies, with no obligations regarding future development or improvement to the quality of service. This creates an obstacle to future market liberalization. According to the Law, the liberalization process of the fixed telephone line market is scheduled to happen in 2005. The restructuring of state-owned companies, including spin-offs of the non-core businesses, and sale of non-core assets, remains as one of the key priorities for the government. The entry of foreign players will boost competition and secure substantial funds for the technological upgrade of the telecoms infrastructure.
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3.4
Marketing Communications and Advertising Media Galjina Ognjanov, Faculty of Economics, Belgrade University
Introduction Marketing communications is not a brand new activity in Serbia. Serbian consumers were exposed to advertising and promotions even in the times of central planning in the socialist economy. Performing marketing communications and organizing a number of educational activities directed at professional development in this field dates back to the 1960s. Thus, unlike other consumers in the countries of the former Soviet Bloc, Serbian consumers along with all those living in the former Yugoslavia have been much better educated about foreign brands and Western consumption habits. However, modern advertising and mass media industry started to develop in the 1990s. A number of local marketing and advertising agencies were established and the biggest international players entered the market. There are now more than 300 officially registered agencies providing advertising and marketing services. They range from full service to specialized agencies. Media buying, media planning, creative work, production, research and consulting are only some of the services provided by the biggest players in the advertising industry. The mass media industry has also faced many changes since the beginning of the 1990s. Formerly state-owned mass media have been privatized, while many new enterprises have been established as private companies. They are now primarily dependent on advertising revenues and thus try to offer media content to meet the needs and expectations of their audience. The quality of production of both
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Market Potential
electronic and print media has also been much improved when compared with earlier times.
Communicating with local consumers Serbian consumers can be reached using all the basic marketing communications tools. The most influential ones are personal selling and advertising. Although promotions and product publicity are now performed by marketers to lesser extent, it is expected that these will be gaining in importance in near future. In addition, public relations is another form of communications that has become more popular over the last few years.
Personal selling This is one of the most important communications tools in Serbia. Though it is particularly important in the business-to-business market, the Serbian business-to-consumers market is also very much dependent on interpersonal communications. Sales representatives’ recommendations are often asked for by local buyers. These recommendations substantially influence purchasing decisions. Self-service stores and hypermarkets, though becoming very popular in Serbia nowadays, are still not a full substitute for small shops in which consumers can ask salespeople for help. Additionally, salespeople are often looked for even in self-services stores and complaints are made if they are not accessible. A company operating in Serbia should also develop other direct ways of communication with both local consumers and opinion makers who they will refer to when searching for product/service information. That is because personal contacts are a very important source of information on products and services. Recommendations obtained from friends, relatives and other reference group members are highly valued in consumer decision making. Positive word-of-mouth communications should thus be created and controlled whenever possible. In addition to the above, fairs and exhibitions make another excellent opportunity for interpersonal communication with Serbian consumers. They have a culture of visiting fairs and exhibitions and very positive attitudes toward them. Therefore, companies operating in Serbia consider fairs and exhibitions very important communications tools. New entrants should, therefore, be prepared to direct an adequate share of their promotional budget to them.
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Advertising Advertising is certainly the most important marketing communications tool for spreading information on consumer goods and services, owing primarily to the influence of television as the dominant mass medium in Serbia. Television advertising thus accounts for the highest share of the overall marketing communications budgets of both local and foreign marketers in Serbia. When preparing advertising campaigns in Serbia one should be careful not to underestimate the knowledge and expectations of local consumers. As already mentioned, advertising practice here is not a brand new. Local consumers have had many opportunities to watch great campaigns both at local and international levels. They expect advertisers to use a commonsense approach in delivering advertising messages. They should be primarily informative. Locally created messages revealing the local mentality and humour are often better accepted than international campaigns translated into Serbian. Local consumers recognize creativity and the quality of production of advertising messages and are very sophisticated in their judgements. Along with low creativity of messages and bad quality of production, the other issue that might influence negative reactions toward an advertising message is high intrusiveness. Therefore, when starting up an advertising campaign in Serbia one should not insist on high frequency as this can lead to the opposite of the desire effect. Neither the mass media scene nor overall advertising practices in Serbia are large enough to make it difficult for a message to reach its audience. The same goals can be achieved with a lower frequency of advertising messages than what would be applicable in United States or other Western countries.
Promotions Sales promotions, though becoming more important nowadays, account for a much smaller share of overall marketing communications budgets than advertising. The most important sales promotions tool in Serbia is the sweepstake. It is usually fully integrated with television advertising. To be successful, sweepstakes should be based on very high prizes, and many companies offer apartments, cars, household appliances, electronic equipment etc. However, even smaller prizes, if cleverly chosen and advertised, can lead to high consumer involvement in a promotional campaign. Local consumers like games of fortune. On the other hand, contests are not as popular as sweepstakes and thus are much less employed by marketers. The other promotions tool frequently used is the point-of-sale promotion, for instance through exhibiting products, offering trials or free
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Market Potential
gifts (something of low value such as kitchen tools, pens, T-shirts, etc) when making a purchase. Other forms of promotion such as price reductions, sampling, premiums and loyalty promotions, are still not greatly used by companies operating in Serbia, while coupons and money-back offers are almost unheard of by local consumers. On the other hand however, these particular promotion tools, based on price reduction or offering more value for same money, could potentially be very successful, as local consumers are quite rational and often base their purchasing decisions exclusively on better price offers.
Publicity Although local consumers perceive advertising as too pervasive and an unreliable source of information, news and reports provided by the mass media are, mostly, seen as objective and trustworthy. As product publicity is not very much present in local media, local consumers are not very adept at distinguishing the news initiated by journalists from that developed as a result of good company media relations. Therefore, they often consider journalist reports and third-person statements as something not connected with a marketer. The problem with implementing product publicity as a marketing communications tool in Serbia is connected with the mass media content, which is dominated by political issues, social problems, public affairs and public scandals. Because of the vibrant political life and social changes in Serbia, the local mass media are far from lacking in news and stories. This and the high dependency on advertising revenues leaves the media with little space for placing press releases or other company information that is not company sponsored. Nevertheless, with recent the development of public relations and media relations it is expected that product publicity will become a much more influential marketing communications tool in Serbia.
Public relations Public relations has gained in importance only in the last few years. There are now dozens of agencies specializing in public relations. Most of them focus on media relations, providing press clipping services, organizing press conferences, distributing press releases or organizing public relations events. There are not many that offer other specialized services in public relations (crisis management, financial relations, etc). Human resources in this field are poor, as public relations has only recently been introduced in the university curricula. There are, however, several professional courses provided by public relations agencies. The Public Relations Society of Serbia, established in 2004, has issued a code of professional ethics that was approved by its members.
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Advertising industry and media Total advertising expenditure was estimated at €80 million in 2004, which is €10.67 per capita. Measured as a percentage of Serbian GDP, in 2004 advertising expenditure was 0.6 per cent. The figures, although much smaller than in the developed Western market economies and many other Eastern European countries, show a positive trend (see Figure 3.4.1).
90 80 70 60 50 40 30 20 10 0
30
50
65
80
2001*
2002
2003
2004
* figures for 2001 are in US$ Source: AGB Strategic Research Serbia Figure 3.4.1 Total advertising expenditure in Serbia, 2001–2004 (€ millions*) The advertising industry in Serbia is quite developed in terms of the number of agencies and the scope of the services they provide. There are about 300 officially registered marketing or advertising agencies, but there are also small businesses offering many kinds of specialized services. Almost all world-famous players have entered the market, either directly or through licensing local agencies. From a regulatory point of view, however, the industry is still underdeveloped. Both legal regulation and self-regulation are weak. The advertising law, although drafted some three years ago, has still not been officially passed. The latest version has been waiting to be considered and approved by the Serbian Parliament since April 2004. Selfregulation is also in its infancy, with only recent attempts by several of the largest agencies to coordinate their pricing strategy and accept codes of professional ethics. Advertising media in Serbia are numerous. While television is still the most important advertising medium, the figures showing advertising expenditures reveal that print is becoming more significant as well as outdoor advertising.
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Market Potential
Television advertising This accounts for the highest share of the total advertising expenditure (65 per cent). There are up to 10 nationally broadcast high ratings television channels. Additionally, there are dozens of local television channels with a lower share of the audience. The cost of advertising seconds differs substantially between the two. Depending on programme ratings, prices per second on national television channels range from €50 to €100, while on local television channels these can be as low as €0.07 to €0.45 per second. There are now several agencies measuring programme ratings, thus making the media planers’ job much easier than it used to be a few years ago. Several big media buyers operate in the Serbian advertising industry. Agency discounts for advertising seconds on national television channels range from 30 to 70 per cent of the above quoted prices. This leaves quite a big margin for agencies to charge for the provision of services to their clients, while simultaneously offering them advertising space at more favourable rates.
Print advertising Print advertising accounts for a much smaller share of total advertising expenditure in Serbia (18.75 per cent). Circulations are not publicly announced and the readership is also not measured. It is, however, estimated that the circulations of print media range from only a few thousand to several hundred thousand (up to 300,000) for Serbian dailies, and much less for periodicals. The most influential dailies and periodicals in Serbia are more recognized by intuition than on real figures. They include not more than seven dailies with national coverage and a dozen periodicals (local and licensed weeklies and monthly papers). Advertising prices in the dailies range from €500 to €1000 for a whole page. A whole page in a periodical will be between €500 and €800. Agency discounts are lower than those for television advertising (between five and 20 per cent). This is certainly another reason why agencies are not very keen to include print advertising in the media plans of their clients. A positive trend, however, should be noted, as the share of print media in overall advertising expenditure has grown from 11 per cent in 2001 to 18.75 per cent in 2004.
Radio Compared with television and print advertising, the share of radio advertising expenditure appears rather insignificant (four per cent). This should not, however, be interpreted as a low influence of this
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medium in Serbia, but rather it is a result of very low prices for advertising seconds on both national and local radio channels. The prices range from only €0.10 to €3 per second. The exact data on radio audiences and programme ratings are not available. Despite this, it is recommended that radio channels should be used for advertising, as there are numerous very popular radio programmes. There are five major national and over 100 local radio channels in Serbia.
Outdoor advertising This accounts for 11 per cent of total advertising expenditure in Serbia. It has become very popular since the mid-1990s. There are about 10 outdoor advertising providers located in Belgrade, and about a dozen more in other major cities in Serbia. Their prices range from €450 to €1,250 for a period of four weeks. In addition, indoor advertising is also becoming popular. Its share of overall advertising expenditure is still not separately measured but is included in the category of other advertising media together with internet and cinema advertising.
Internet advertising Internet advertising accounts for about one per cent of overall advertising expenditure (together with indoor and cinema advertising it reaches 1.25 per cent). The internet is still not widely used by Serbian consumers. The number of those having an access to the internet at home is estimated at about 15 per cent of the population. However, with regards opportunities for advertising on the internet, the situation is satisfactory. There are numerous local websites (web portals, media, entertainment sites, etc) with a high quality of content and high frequency of visits. The price for banner placements on some of these sites are several hundreds of euros a month, depending on position.
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3.5
The Pharmaceuticals Industry SIEPA
Introduction The pharmaceutical industry’s share of total Serbian industry is 3.24 per cent, with annual industrial production at €364 million and an annual growth rate of 15 per cent. The ownership structure of the companies within the sector is dominated by 37 small-sized, privately-owned companies, followed by only four medium-sized companies. However, the leaders in the industry are the eight large companies, capable of deploying sufficient financial means for the expansion of their businesses across borders and the development of new medicines. For the year 2004, the total revenue of the pharmaceutical industry in Serbia was €364 million, with a net profit of €41.6 million, and fixed assets of €172 million.
Legal framework for pharmaceutical manufacturing Manufacturing and trade in medicines and other pharmaceutical products are regulated by the Law on Drugs and Medical Devices (in effect as of 1August 2004). The Law provided for the harmonization of domestic standards with those of the EU and set the grounds for the establishment of the Medicines and Medical Devices Agency of Serbia (www.alims.sr.gov.yu). The Agency is in charge of issuing licences for clinical research, as well as trade in medicines and medical devices; issuing credentials for the implementation of Good Medical Practice (GMP) policies in clinical research, as well as for exports of medicines and medical devices in accordance with the recommendations of the the World Health Organization (WHO); conducting laboratory control and quality inspection of medicines and medical devices; monitoring
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Market Potential
side effects of medicines and medical devices; approving imports of unregistered medicines and medical devices intended for treatment of a specific patient or group of patients, as well as imports of medicines and medical devices for scientific research; and the classification of medicines and medical devices, etc.
The Serbian drug market The Serbian drug market in 2004 was dominated by the three largest drug manufacturers: Hemofarm Concern, Galenika and Zdravlje Actavis (see Figure 3.5.1). After acquiring several pharmaceutical companies (Panfarma, Zorka Pharma and Hemomont), Hemofarm Concern became the market leader accounting for around 45 per cent of total sales of medicaments on the Serbian market in 2004. Leskovacbased company, Zdravlje, was acquired by the Actavis company from Iceland and its market share has been increasing ever since. The current state of affairs for pharmaceutical companies is characterized by the high level of assets utilization and production levels, and a relatively high efficiency in production but still a low level of capital accumulation and investment. Most of the producers are in need of working capital and are keen to find foreign partners for joint business ventures.
ZORKA 12%
SRBOLEK 2%
REMEVITA 2% HABIT PHARM 2%
HEMOMONT 2%
FAMPHARM 0% JUGOREMEDIJA 6%
PANFARMA 17%
SANITARIJA 0% HEMOFARM 15%
GALENIKA 28% SLAVIAMED 1%
ZDRAVLJE 13%
Source: Serbian Pharmaceutical Manufacturers Association Figure 3.5.1 Market share of pharmaceutical companies (% of total annual sales)
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Foreign trade The Serbian pharmaceutical industry exports around 20 per cent of its annual production, while around 40 per cent of local market demand is met by imported medicaments, mainly originating from EU countries (see Figures 3.5.2 to 3.5.5).
35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
Series1
Russian Federation
Bosnia and Herzegovin
FRY Macedonia
Romania
Slovenia
31,311
17,270
5,752
4,005
3,848
Source: Statistical Office of the Republic of Serbia Figure 3.5.2 Major export partners in 2004 (’000 US$) Along with decades of presence in the Russian market and the trust and loyalty to Serbian drugs and medicaments gained from Russian customers, customs-free export largely contributes to the fact that Russia is the most important export partner of the Serbian pharmaceutical industry. A Free Trade Agreement that Serbia enjoys with the Russian Federation, encompasses a long list of drugs and medical devices that are exempt from customs duties when exported to Russia – certain types of infusion solution, penicillines, vitamin preparations, diuretics, analgesics, antibiotics, antihistaminic preparations, antiseptics, etc (the complete list can be obtained from SIEPA). However, medicaments that are comprised of mixed or non-mixed products for medical treatment or prophylactic usage, prepared in strict dosages or shapes or packaging for retail, are exempt from the Free Trade Agreement and are still burdened with export/import duties. Furthermore, based on the Free Trade Agreements with South East European countries, Serbia is entitled to free export of pharmaceutical products to Albania, Bulgaria, Romania, the former Yugoslav Republic of Macedonia, and Bosnia and Herzegovina.
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Market Potential 1,00,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000
co
ts
ts
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M
ed
ic
M
Fi
ni
sh
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en
m
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m
en
ts fo rs nt ed ai w al ni ith e ic ng am di ss in en M su ip ed ts at lin M ic ed ed am con ic do ta en am in sa ts in en ge g c on ts an ta m t i bi in ix M ot in ed ed ic g w s h ic i o t am h r m Su o en M on th bs ed er ts es ta ic co an nc am n t es ib ta en io in an ts tic in H d g s c ae o ad vi n m ta ta he og m i ni si lo in ng ve bi s s, n, al ka st bl er oo lo iliz id d s ed an d d ev gl ob ic es ul in se ru m s
0
Source: Statistical Office of the Republic of Serbia Figure 3.5.3 Major export products in 2004 (’000 US$) As there is no production of Active Pharmaceutical Ingredients (APIs) in the country, except for Galenika’s production of certain pharmaceutical raw materials based on synthesis and biotechnology, these 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
Series1
Switzerland
Germany
Denmark
France
Austria
40,577
31,495
19,132
18,423
15,039
Source: Statistical Office of the Republic of Serbia Figure 3.5.4 Major import partners in 2004 (’000 US$)
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The Pharmaceuticals Industry 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0
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Source: Statistical Office of the Republic of Serbia Figure 3.5.5 Major import products in 2004 (’000 US$) ingredients must be imported. Additional pharmaceutical ingredients such as vitamins, alcohol and cornstarch can be sourced locally, but others must also be imported. In addition to customs duties levied on imports of such items at the rate of one per cent, they are also subject to 18 per cent VAT. Packaging materials, such as cardboard foil for blisters and plastic and rubber packaging materials, can be obtained from local suppliers. Glass packaging, bottles and ampoules that meet EU standards are also imported.
Workforce in the pharmaceutical industry Employees with high school education and university degrees prevail in the qualification structure of employees in the Serbian pharmaceutical sector. In addition to this high educational profile of the workforce, the annual number of new graduates from the Pharmaceutical Faculty in Belgrade will safeguard the quality of potential production in Serbia or a partnership with a Serbian company (see Figure 3.5.6). In addition to pharmacists, labour can easily be recruited from other related branches of the medical sciences. The Medical Faculty in Belgrade produced 977 graduated students in 2004, and 376 students graduated from the School of Dental Medicine in the same year. As for
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Market Potential 275
270
270 265 260 255 250
250 243
245 240 235 230 225 2001
2002
2003
Source: Statistical Office of the Republic of Serbia Figure 3.5.6 Number of graduates from the Pharmacy Faculty in Belgrade, 2001–2003 postgraduate students, medical faculties in Serbia produced 185 specialists, 195 Masters of Science, and 83 new PhDs in 2003. This human capital is available at very low cost, as wages in Serbia are significantly lower than those in the EU. The average gross salary in the sector in 2004 was €472 a month (€326 net), insuring high quality, low cost production.
R&D in the pharmaceutical industry Research and development (R&D) in the pharmaceutical industry of Serbia is mostly concentrated and conducted under the auspices of the three leaders of the industry: Galenika, Hemofarm and Zdravlje. The Galenika a.d. R&D Institute was founded over 30 years ago. Today, Galenika is the only pharmaceutical company in Serbia and Montenegro with an Institute registered with the Ministry of Science and Environmental Protection. The Institute is a centre of knowledge and experience, with a total of 135 employees (61 with university degrees, out of which seven have PhDs, 15 are Masters of Science and four are specialists). The Institute employees are experts in various fields: pharmacy, chemistry, medicine, chemical engineering, biology, veterinary medicine, dental medicine, physical chemistry, languages, and organizational sciences. Key Institute activities include: synthesis/biosynthesis of new pharmaceutical active substances and generics; biomedical screening (in vitro and in vivo); pre-clinical trials (including pharmacology and toxicology studies); formulation development of dosage forms
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(solid, liquid, semi-solid, and modified release forms); development, implementation and validation of analytical methods; stability studies (active substances and dosage forms); scale-up and optimization of technological procedures for synthesis/biosynthesis of substances and dosage forms; organizing and monitoring clinical trials (Phases I–III) and pharmacokinetic studies; preparation of registration dossiers, as well as IND and NDA documentation. Special attention is devoted to intellectual property protection. Today, the company has numerous valuable patents and trade marks: 396 domestic trade marks; 37 WIPO trade marks; trade marks registered abroad (Bosnia 96, Macedonia 30 and Russia 20); 20 patents; and 26 patent applications. The Hemofarm Group’s Research and Development Centre is engaged in developing new products, research and providing registrations within the country and abroad. The activities of the Research and Development Centre are based upon its own capacity, but renowned experts and researchers from numerous scientific institutes, within the country and abroad, are often involved. The process of transforming ideas into a finished product consists of several stages and implies skills in many fields. Therefore, experts from different fields including medicine, technology, biology, chemistry, etc are working at the Research and Development Centre. About 100 employees are involved in mastering and exploring new technologies. As Zdravlje Actavis manufactures generic medicines, the research and development process within the company is at a significantly lower level than that of Hemofarm and Galenika. It mostly pertains to marginal development of already existing generic medicines in terms of dosage and forms. Besides the research and development capacities within pharmaceutical companies, there is an array of research institutions – thinktanks that can easily be deployed in order to achieve the best results. Research laboratories within the aforementioned companies have ongoing cooperation with the following institutes: in Belgrade, the Institute for Chemistry, Technology and Metallurgy; the Scientific Institute Vinca; the Institute for Medical Research of the Military Medical Academy; and, in Novi Sad, the Institute of Pharmacology, and faculties (Medical, Pharmaceutical, Dental, etc) and clinics (Clinical Centre of Serbia, etc).
Contract manufacturing The leading companies of the Serbian pharmaceutical industry have modern technological solutions that enable them to produce over
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Market Potential
95 per cent of current galenical forms. In the majority of companies, the manufacturing process is organized in compliance with modern standards and the specific requirements of the pharmaceutical industry. In Serbia, there are facilities for the production of penicillines, cephalosporines, hormones, sterile block products, cythostatics, mix-ovials, drugs in various dosage forms ie tablets (coated, slow release, effervescent), pellets, powder sachets, hard capsules, oral liquid syrups, ear/eye drops, injectable solutions – LVPs and SVPs, powder for injections, lyophilisates for injection, creams, gels, suppositories, solutions for inhalers, and antibiotic sterile gauze.
Commitment to quality Production in Hemofarm is conducted in compliance with MHRA (UK), PIC GMP, ANM (Romania), NAFDAC (Nigeria), CE, ISO 9001:2000, and ISO 13485:2000. Preparation for acquisition of EU GMP is well underway. The system of quality assurance in Galenika a.d. is accomplished at the level of management, processes and products. The concept of quality assurance is based on valid world requirements and national legal regulations: good manufacturing practice (GMP), good laboratory practice (GLP), good clinical practice (GCP) and the ISO 9000 series standards (introduction of environmental protection system according to ISO 14000 series standards is in process). Zdravlje-Actavis has introduced ISO 14001, while most of other Serbian drug manufactures comply with the ISO 9000 quality system.
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3.6
Agribusiness SIEPA
Overview Characterized by rich land resources and favourable climate, agriculture presents a vital sector of the Serbian economy. The importance of agriculture in the Serbian economy is derived from excellent natural conditions for the development of primary agricultural and the food processing industry. A great variety of different natural conditions gives rise to a high diversity of agricultural production. Serbian terrain ranges from the flat and rich lowlands of Vojvodina in the north, to hilly terrain in the central Serbia and high mountains on east, west and south borders of the country, suitable for cattle breeding and growing of various fruit. Serbia’s diverse climate has created unique opportunities for primary production of different sorts of vegetables. Climate conditions vary from temperate to continental. It is characterized by cold winters, warm and moist springs, yet hot, sunny and dry summers, ensuring good supply of fresh fruit and vegetables. The agricultural sector accounts for approximately 21 per cent of GDP and 26 per cent of total exports. According to the population Census of 2002, approximately 18 per cent of population in Serbia live on income received from activities in the agricultural sector. Within this category, 61 per cent work full time in the sector. The total area of agricultural land in Serbia amounts to 5,115,000 hectares in 2004. The share of arable land in total agricultural land is 85.3 per cent, of which 39 per cent is in the province of Vojvodina. Agricultural production is based on privately owned farms. In the structure of private farms, small private households dominate. Private farms cultivate approximately 85 per cent of agricultural land, or 80 per cent of arable land. Only 5.5 per cent of producers from the total number of 778,891 cultivate over 10 hectares of land.
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Market Potential
Vegetable industry Introduction Vegetables are grown on more than 10 per cent of arable land in Serbia. Vegetable crops for industrial processing and for the mass market are grown on larger areas near large industrial centres. The largest vegetable production centres are Leskovac, Nis, Aleksinac, Kraljevo, Cacak, Ub, the vicinity of Belgrade and Horgos, as well as some other places in Vojvodina. The total annual production of vegetables amounts to over two million tonnes. Potatoes, along with peppers and green peas, are the most extensively grown vegetables in Serbia. Other crops range from more common fresh vegetables with year-round supply, like onions, tomatoes, cabbage, carrots and beans, to seasonal vegetable crops such as lettuce, leeks and spring onions (see Table 3.6.1). Other vegetable crops are also widely grown (spinach, carrots, zucchini, radish, red radish, horseradish, parsley, parsnip and celery). Organic production of vegetable crops in Serbia is still in its early stages. Large ploughed field areas and the present capacity for production of quality seeds and seedlings represent the bedrock for a future increase in the volume of organic production in Serbia. Table 3.6.1 Primary production of vegetables, 2004 Vegetable type
Production (tonnes)
Potato
975,090
Cabbage
304,085
Watermelon
264,988
Tomato
184,090
Pepper
143,649
Onion
142,851
Carrot
70,093
Cucumber
62,478
Peas
33,093
Beans
28,348
Garlic
26,795
Source: Statistical Office of the Republic of Serbia
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The vegetable processing industry in Serbia includes about 25 companies with the capacity for production of frozen, canned and dried vegetables. Large companies like Yucom, Frikom, PIK Becej, Aleva Novi Knezevac and BAG Backo Gradiste dominate the industry. The major processed vegetable crops in Serbia are potatoes (French fries, potato chips and puree), tomatoes (tomato paste products, tomato juices, ketchup) and pepper (pasteurized, dried paprika and ajvar). Other important processed products include mushrooms (pasteurized and dried), cucumbers (pickles) and beans. In 2004, the volume of exports of fresh vegetables reached 39,709 tonnes, with the total value of US$55 million. The EU is the number one trading partner for Serbian fresh, frozen and processed vegetable products, as it imports 42 per cent of Serbia’s overall production. At the same time, export to neighbouring countries (Bosnia and Herzegovina, Slovenia, Republic of Macedonia and Croatia) accounted for over 35 per cent of total fresh, frozen and processed vegetables export in 2004 (see Table 3.6.2 and Figure 3.6.1). In 2004, Serbian vegetable processing exports amounted to over US$12.8 million. With exports of US$10 million, the preserved vegetable sub-sector (especially the production of dried mixed vegetables and spices) takes the leading position in total exports of the vegetable processing industry. Table 3.6.2 Total exports of vegetables, 2004 Vegetable type
Quantity (tonnes)
Value (US$)
Potato
9,012,318
536,057
Pepper
3,826,144
1,067,404
Mushrooms
1,469,411
10,932,620
Onion
1,336,130
239,526
Cabbage
902,789
99,714
Carrot
874,308
52,035
Tomato
739,143
111,384
Radish
525,100
40,610
Aubergine
486,693
43,443
Cucumber (pickles)
320,508
80,546
Source: Statistical Office of the Republic of Serbia
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Market Potential
7%
6%
5%
5%
23%
7% 7% 8%
21% 11%
Romania (23%) Bosnia & Herzegovina (21%) Hungary (11%) Greece (8%) Slovenia (7%) Germany (7%) FYR Macedonia (7%) Italy (6%) Turkey (5%) Croatia (5%)
Source: Statistical Office of the Republic of Serbia Figure 3.6.1 Major export partners, 2004
Potato In 2004, with an average yield of nearly 10.9 tonnes per hectare and total production of 975,090 tonnes, potato is the most widely grown vegetable in Serbia. Potatoes are sown on 89,050 hectares in Serbia, of which the North Serbian region accounts for 41 per cent of the total harvested area. In 2004, Serbia exported 9,019 tonnes of fresh potato with a value of almost US$540,000. The potato industry in Serbia has a wide variety of products: frozen, processed and snack foods. In the main, potatoes are processed into potato chips and frozen French fries. Serbian potato snack food and frozen French fries production was estimated at 540 tonnes in 2004. During the 2001-–2004 period, over 3,000 tonnes of potato food industry products (mostly frozen and potato snacks) worth more than US$6.2 million were exported.
Tomato With good quality tomato seed, land and a favourable climate, fresh tomato production is constantly increasing. In 2004, total production reached 184,688 tonnes, with an increased average yield of 8.9 tonnes per hectare. In the same year, total exports of fresh tomato reached 739 tonnes, with a value of more than US$110,000. The Serbian tomato processing industry includes a large number of small- and mediumsized companies, producing tomato juices, paste products, tomato puree and ketchup. The major product of the tomato industry is ketchup, followed by increasing production of fresh tomato juices for both national and export markets. In 2004, the tomato processing industry in Serbia produced 6,347 tonnes and exported over 25 per cent
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of quality ketchup, worth more than US$1.9 million, mostly for consumers in the EU.
Cucumber Both fresh and pickling cucumber is grown in Serbia. In 2004, the production of fresh cucumber reached around 65 tonnes, with an average yield of seven tonnes per hectare. The cucumber processing industry is considered to be the biggest and most valuable sub-sector of pickled/ pasteurized vegetables in Serbia. The total production of this subsector amounted to 2,955 tonnes in 2004, and this sector boasts some of the largest producers of processed vegetables located in Central Serbia: Budimka (Pozega), Srbijanka (Valjevo) and Vojvodina (Yucom, Tavankut).
Watermelon In 2004, more than 265 tonnes of watermelon were grown on an area of 17,500 hectares. At more than 15.1 tonnes per hectare (in some regions it goes up to 90 tonnes per hectare) watermelon is the vegetable crop with the highest yield. In 2004, only 10 per cent of total watermelon production (US$2 million) was exported.
Cabbage Cabbage production takes place on approximately 21,822 hectares, mostly located in Western Serbia (Ivanjica area) and Vojvodina (Futog). The average yield from open fields during the season is 13.9 tonnes per hectare. Fresh cabbage production, reaching 304,085 tonnes per year, primarily satisfies increasing domestic demand. In 2004, total exports of Serbian cabbage were made up mostly of fresh cabbage and were valued at US$101,000. Fresh cabbage is exported mostly to the neighbouring countries. The largest market for Serbian cabbage is Romania, accounting for 42 per cent of total cabbage exports in 2004.
Pepper Serbia has two well known pepper manufacturing and trading centres: the Leskovac area (production of dried and fresh pepper) and in the north of Vojvodina (production of industrial spice pepper – mild, hot and pounded). In 2004, the pepper processing industry in Serbia produced 941 tonnes of pasteurized and 639 tonnes of processed peppers, which were used to produce ‘Ajvar’ (a Serbian salad). In Serbia, the spice pepper is planted on approximately 3,400 hectares, of which 85.9 per cent is located in the north of Vojvodina (Horgos). In 2004, the
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Market Potential
spice pepper processing sector produced over 551 tonnes of cooked spice pepper and 770 tonnes of dry paprika.
The fruit industry Introduction Blessed with fertile soil and favourable climatic conditions, agriculture has always been an important part of the Serbian economy. The total area of agricultural land exceeds six million hectares, with 85 per cent of ownership belonging to private farms. The total land covered by fruit production exceeds 310,000 hectares. Serbia has ideal climatic conditions for the growing of fruit. The country’s territory is rich in microclimates that are perfectly suited for organic fruit production, making the development of this sector extremely promising. Its soil is still one of the cleanest in Europe, most of the fruit is grown in perfect conditions, hand picked and carefully stored and packaged. Serbian fruit cultivation, which places an emphasis on quality and flavour, contrasts with the large industrialized farms of the West. In fact, most fruit in Serbia is still grown on small, familyowned farms. Table 3.6.3 shows total fruit production in 2004. Table 3.6.3 Total fruit production, 2004 Fruit type
Production (tonnes)
Plums
560,000
Grapes
425,000
Apples
184,000
Cherries
140,000
Raspberries
92,000
Pears
59,000
Peaches
58,000
Apricots
40,000
Strawberries
33,000
Blackberries
25,000
Source: Statistical Office of the Republic of Serbia
Serbia’s fruit processing industry is well developed and poised to lead export growth for the country. Currently, the industry exports
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juices, concentrates, purees, jams, and frozen and dried fruit (see Table 3.6.4). Premium juices have always used high-quality Serbian fruit as a basic ingredient, and now Serbia’s own premium juice brands are some of the country’s fastest growing exports. Table 3.6.4 Total fruit exports, 2004 Fruit type
Export (tonnes)
Frozen fruit
104,000
Fresh fruit
48,000
Juices and fruit concentrate
28,500
Preserved fruit
8,000
Dried fruit
2,300
Cooked and candied fruit
1,500
Stoned fruit
720
Source: Association for Fruits and Vegetables
Demand for Serbian fruit is growing steadily, with exports showing an upward trend not just in quantity, but also in the number of countries importing (see Figure 3.6.2). In 2004, Serbia exported US$163 million in fruit and fruit products. The vast majority of Serbian exports go to the EU, and as the EU’s health standards become stricter, many companies have quickly responded by introducing quality standards such as HACCP.
Germany (48) France (24.5)
12
4.3 3.7 8 5.5
48
Bosnia & Herzegovina (23) Austria (18) Belgium (14.5)
14.5
Netherlands (12)
18
23
24.5
UK (8) Italy (5.5) Sweden (4.3) Croatia (3.7)
Source: Statistical Office of the Republic of Serbia Figure 3.6.2 Major export partners in 2004 (€ millions)
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Market Potential
Plums Plums are considered to be one of Serbia’s most traditional fruits. The fact that there are about 42.5 million plum trees in Serbia is the best single indicator of how popular plums are. Not only are there many plum trees in Serbia, but every tree yields approximately 13.2 kilograms. Apart from being sold fresh, Serbian plums are also often processed. Plums are used in the production of Sljivovica, a traditional Serbian plum brandy. Dried plums are also a speciality of Serbia but most people, and children in particular, would claim that plum jams and preserves are the most delicious type of processed plum product.
Pears With more than five million trees of productive age and with an average yield of 11.4 kilograms per tree, this is one of the most widely grown fruits. Processed pears are most often used in the beverage industry. Apart from juices that preserve the fruit’s true flavour, pears are often used in the production of alcoholic beverages, such as Viljamovka, a type of Serbian brandy.
Apples With almost 15 million trees, apples represent an important sub-sector of the fruit growing industry in Serbia. At the moment, on average 12.3 kilograms of apples are yielded per tree in Serbia. Serbia is also a substantial producer of organic apples. Apple juice concentrate is one of the most important ingredients for the production of many other juices, and, in particular, for those juices that consist of several different fruits. Jabukovaca, or apple brandy, is yet another variety of alcoholic beverage made from fruit well known in Serbia.
Apricots It is hard to find a backyard in Serbia without an apricot tree. Apricot trees are common throughout the country. There are around 1.7 million apricot trees in Serbia. With an average yield per tree of 25.2 kilograms, Serbia produced more than 40,000 tonnes of apricots. In Serbia, apricots are enjoyed both fresh and processed. Processed apricots can be found in jams and various other preserves. Just like with many other fruits, alcoholic beverages made of apricots are well known in Serbia. Juices are another characteristic beverage made of apricots and there is a long tradition of production.
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Cherries Both sour cherries and sweet cherries are well represented in Serbia. With more than 1.8 million sweet cherry trees and almost nine million sour cherry trees, Serbia clearly has the tradition and knowledge for growing cherries. More than 112,000 tonnes of sour cherries and almost 31,000 tonnes of sweet cherries were produced in Serbia in 2004. Apart from fresh, both sour and sweet cherries are consumed as preserves, jams, juices and liqueurs. Both are used in the production of yoghurts, while sour cherries are also used in the sweets industry. Famous for their quality, cherries are suitable for liquor flavoured chocolates.
Peaches Peaches are another favourite fruit in Serbia and are used to produce a wide variety of products. There are around four million peach trees in Serbia with an average yield per tree of 14.7 kilograms. Due to the intense flavour of Serbian peaches, they are highly valued for use in jams, preserves, and other processed peach products.
Strawberries Serbian strawberries are known for their rich red colour and their ability to sustain a fresh flavour even after freezing and processing. Strawberries are grown on more than 8,500 hectares throughout Serbia with an approximate yield of nearly four tonnes per hectare in 2004. Strawberries are most often used for jams and preserves. However, Serbian strawberries have also found use in the sweets industry, as well as in fruit juices. Nevertheless, the market for fresh strawberries still remains one of the most lucrative for producers of this fruit.
Raspberries Raspberries are one of Serbia’s best-known and most widely exported fruits. Serbia is one the biggest producers and exporters of raspberries in the world. They are prized worldwide for their colour, unique taste and firmness. Raspberries are grown on 16,000 hectares throughout Serbia with an average yield per hectare of six tonnes. Almost 90 per cent of Serbia’s raspberry production is frozen in cold storage plants, while around 10 per cent remains in Serbia for use by the processing industry, or is sold in open fruit and vegetable markets and supermarkets.
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Blackberries Blackberries are a local favourite and an important export crop. Blackberries are grown on 5,300 hectares throughout Serbia with an average yield per hectare of 4.8 tonnes. The majority of Serbian blackberries for export are frozen (90 per cent), while a smaller amount is chilled (10 per cent) and exported fresh. Most exports go to the EU.
Grapes There are nearly 70,000 hectares of vineyards in Serbia with a total production of 425,000 tonnes of grapes in 2004. The total number of grape vines is around 350,000, with an average yield of 1.22 kilograms per grape vine. Wine production in 2004 reached 1.55 million litres. The majority of production is accounted for by small, local wineries. The wine produced in Serbia is gaining in popularity worldwide. Most of the local wineries are small but have a lot of potential. Some of them export the majority of their wine to markets in the region and to the EU.
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3.7
Tourism SIEPA
Introduction In the late 1980s, Serbia was one of the leading tourist destinations in the region, with nearly 12 million overnight stays annually out of which approximately 1.5 million were foreigner visitors. The Serbian capital, Belgrade, is host to about 1.4 million guest arrivals and approximately 2.2 million visitors annually. After the break up of the former Yugoslavia and several ill-fated years of economic isolation and sanctions, Belgrade lost its position as the political and economic centre of the region. These unfortunate circumstances significantly damaged both business and leisure tourism in Belgrade and Serbia. Today, Serbia is regaining its rightful position, not only in the political and economic sense, but also as a tourist destination. After the democratic changes in 2000, the number of tourists has been rising steadily year after year (see Figures 3.7.1 and 3.7.2). In May 2005, official statistics recorded 225,618 visitor arrivals and 660,519 overnight stays. The tourism industry’s share in a country’s GDP typically ranges from two to three per cent. In Serbia, local tourists provide a majority of the tourism revenue and account for 80 per cent of total arrivals and 87 per cent of total number of overnights. International tourism is playing an increasingly important role in Serbia’s tourism sector. Companies investing in Serbian tourism can immediately capitalize on the rise of international (inbound) tourism. The number of foreign tourists coming to Serbia in 2004 was nearly 400,000 – representing a 90 per cent increase over 2000. From 2002 to 2004, receipts from international visitors tripled: from US$70 million to US$220 million. The rapidly growing demand from international tourism is a result of both increased political stability and a targeted effort by the government and local companies to attract visitors. Over the last few years, the tourism industry in Serbia has been developing mainly in the context of business-related travel, which
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Tourist arrivals in Serbia ( in 000) 4500 4159 4000 3500 3217
Arrivals
3000 2500
2166
2129
2000 2001 1500
2210 1998
1887
1972
1898 1659
1000
1580
941 500 0
165 1989
...
2000
242 2001
Total 312
339
Domestic
392
Foreigen
2002
2003
2004
Source: Statistical Office of the Republic of Serbia Figure 3.7.1 Tourism arrivals in Serbia (’000s) International tourism receipts in Serbia (mil. US$) 414
53% of 1990.receipts
450 400 350 300
220.8
250 159.7 200 150
77.3 44.3
100
40.3 17.9
28.3
42.7
50 0 1990
...
1997
1998 1999
2000
2001 2002
2003
2004
Source: Statistical Office of the Republic of Serbia Figure 3.7.2 International tourism receipts in Serbia (US$ millions)
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dominates the overall structure of the tourism industry. The high level of business-related arrivals indicates the attractiveness of Serbia as a location for conferences and conventions – an extremely lucrative business opportunity. Statistics show that business travellers are spending three to 3.5 times more than leisure tourists. During the spring and autumn seasons, the number of tourists in Serbia peaks. Independent business travellers account for the largest share of visitors to Belgrade (70 per cent). Of the remaining visitors, 15 per cent come to Serbia for MICE (meetings, incentives, conventions, conferences, exhibitions and fairs) and 15 per cent for leisure-related purposes such as sightseeing, touring, cultural events, sporting events and family. The leisure tourism market remains untapped in Serbia. The potential for growth in the sector is only limited by investment. The number of foreign tourists who visited Serbia during the period of January to May 2005 was 19 per cent higher than in the same period in the previous year (see Figures 3.7.3 and 3.7.4). This increase in demand is a direct result of more international companies doing business with Serbia. In same period, tourism revenues totalled US$101 million – US$30 million more than in the same period in 2004.
3,500,000 3,000,000 2,500,000 2,000,000 Arrivals 1,500,000
Overnights
1,000,000 500,000 0 Total
Foreign
Domestic
Source: Statistical Office of the Republic of Serbia Figure 3.7.3 Total overnights and arrivals in Serbia, January to May 2005
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120,000 100,000
80,000
60,000
40,000
20,000
0 Other Main administrative destinations centres
Mountains
Spa centres
Source: Statistical Office of the Republic of Serbia Figure 3.7.4 Total number of foreign tourists in Serbia by destination, January to May 2005
Workforce The tourism industry directly employs around eight per cent of the active population in Serbia. Compared to other regional economies, Serbia offers very skilled labour at a more reasonable cost, and a higher degree of flexibility in respect of labour relations. The workforce in the tourism and hospitality sectors has a number of years of experience, as Serbia once was one of the leading tourist destinations in the region during 1980s. It is easy to recruit competent and well-trained labour in Serbia. The number of private and public schools specializing in tourism and hospitality is growing due to the expansion of tourism facilities in Serbia. Today, there are 14 high schools in Serbia specializing in the tourism and hospitality field, and they produce around 21,000 graduates per year. Serbia also has 10 universities and higher-level education schools offering three and four year courses in the tourism and hospitality related fields. The average net monthly salary in the period from January to April 2005 in the tourism and hospitality industry was the local currency equivalent of €127.
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Infrastructure Serbia can be reached by road, rail, air or water. Some of the major European transportation corridors intersect in Serbia, connecting Serbia with the rest of Europe and the Middle East. Corridor X links Scandinavia, Western Europe and the Middle East. The road and railway network is very well developed and connects Serbia to all neighbouring countries. Belgrade is located on the confluence of two navigable rivers, the Sava and the Danube, the latter providing freight and transportation links to Western Europe and the Black Sea. The Danube is the most important link for economic cooperation between the East and the West. The costs of transportation on this waterway are much lower than those of any other form of transport. Currently, there are 15 ports on the major rivers in Serbia providing docking, cargo loading and unloading services. Serbia has two international airports – Belgrade and Nis. Belgrade Airport is located 20km from the centre of the city and currently provides services to 17 airlines with scheduled flights to and from major European cities as well as New York and the Middle East. Almost all European and some of the non-European air companies have representative offices in Serbia. The national carrier, JAT Airlines, flies to over 36 countries. According to the statistical data from Belgrade Airport, the number of passengers coming to Serbia in 2004 was approximately 1.85 million and has increased sharply since 2000.
Investment opportunities Hotels and tourist organizations The most common way of investing in the Serbian tourism industry over the past five years has been through the privatization process. Serbia – and Belgrade in particular – has to have a well-developed hotel infrastructure and various types of facility for accommodation. Currently, these facilities are in need of further investment in order to keep up with the demand for quality. At present, around 40 tourist facilities are still waiting to be privatized through the auction procedure. Also, 27 remaining ‘shares’, based on the socially- and state-owned capital in the portfolio of the Share Fund, are yet to be sold. For any additional information regarding the privatization of hotels and tourist organizations in Serbia, please contact the Privatization Agency (www.priv.yu).
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Market Potential
Hunting tourism Serbian hunting grounds are very well known in Europe. There are 323 hunting grounds, spreading across 8,828,588 hectares. From Panonia plain in the north to the mountain massifs in the south, the hunting grounds are easily accessible from the larger cities. Natural conditions are very favourable for breeding all sorts of animals, and the quality of the grounds has been proven a number of times at various European and global competitions. Some of the famous hunting grounds in Serbia are: Karadjordjevo, Morovic, Apatin, Ecka, Tara and Sara.
Fishing tourism There are over 400 fishing organizations and sports clubs in Serbia. This a very well developed branch of tourism in Serbia, with more than 35 fishing centres. The cold waters of the Zlatibor and Timok regions are very well known among fisherman all over Europe.
Ethno tourism Crystal clear air, water from the nearby springs, naturally healthy food and spirit in rural households are proving to be a unique experience. Guests savour home-made dishes, served in traditional village ways – everything served is home made and for hosts and their guests only. They can also enjoy performances, gatherings and dances. Ethno tourism is developed mainly in the western part of the country. Currently, 111 households are engaged in ethno tourism, offering 600 beds in 30 villages. Given the increasing demand for this kind of tourism, practically every village can become a site for providing rural tourism services.
City tourism A rich mixture of history, culture and entertainment in major Serbian cities offers both excitement and relaxation. Practically, all of the major cities in Serbia are able to attract tourists, whether they are travelling for business purposes or just want to feel and experience something new. In 1990, this sector of tourism accounted for almost 70 per cent of the total number of foreign tourist arrivals. Innovation is necessary for the constant rejuvenation of existing tourist products and for endogenous growth – presenting an interesting business opportunity. Major Serbian cities are: Belgrade (1.6 million inhabitants), Novi Sad (300,000), Nis (250,000), Kragujevac (177,000), and Leskovac (156,000).
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Spa tourism Spa tourism in Serbia is the sector of tourism with the longest tradition and history. Spas and climate areas are well known, dating back to the Roman era. The remains of the Roman spas and baths are here today in the majority of the 140 spas in Serbia with more than 1,000 springs of cold and warm mineral water, as well as a wealth of natural medical mud and gas. Spas provide not only therapy, but also plenty of indoor and outdoor sports activities. Spas are also well equipped for conferences, seminars and other big gatherings. Most of them are situated in the foothills of the mountains and near forests, with a mild climate and unpolluted environment.
Mountain tourism Serbia is a country of beautiful mountains. The mountain regions, many of which are designated national parks, with their broad range of facilities are an attractive destination because of their exceptional beauty and untouched purity. Kopaonik, a major tourist attraction, is one of the highest mountains in Europe and includes 44km of ski runs and 20 ski lifts. Zlatibor, Divcibare, Zlatar, Golija, Goc, Jastrebac and Stara Planina are also popular tourist attractions. After climbing these mountains, one could say that one has reached the top of the world, since all these peaks taken together are higher than Mount Everest. All these destinations are within a few hours by car from Belgrade.
Event tourism Cultural events in Serbia reflect the vibrant creative force and spiritual wealth of the nation. Numerous events taking place each year celebrate Serbia’s rich folklore. Festivities, performances, fairs, cultural, sporting and other events, feature a variety of content that enriches Serbia’s tourist offerings. Local and foreign tourists are especially taken with the festivities that cherish tradition, customs, folklore, and handicrafts. The bulk of festivities are held during the summer, being overly dedicated to historic benchmarks – picking, sowing and other summertime events.
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Part Four The Taxation and Legal Environment
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4.1
Business Entities and their Incorporation Karanovic & Nikolic
Legal framework The 2002 Foreign Investment Law provides equal treatment for foreign and domestic investors alike, guaranteeing that foreign investments enjoy complete protection and security and that investments and profits may be fully repatriated. The new Company Law of the Republic of Serbia was enacted on 22 November 2004 and came to force on 30 November 2004 and, by enacting it, the previous Company Law will be no longer be applied, except for those provisions dealing with socially-owned companies and regulating corporate governance of companies that entered the privatization procedure. However, the current Company Law, as well as the previous one, allows foreign investors ownership in domestic companies without limitation. All legal forms of company regulated in the Company Law are also available for foreign investors.
Representation of foreign companies Instead of establishing a company in Serbia and Montenegro, foreign investors may carry on business in Serbia and Montenegro by way of a representative office of a company registered outside Serbia and Montenegro. A representative office is treated as an organizational unit of the foreign company and has no status as a legal entity. A representative office is frequently used by companies that do not yet intend to invest in Serbia and Montenegro but rather want to familiarize themselves with conditions in the market and prepare their future corporate presence. A representative office can perform all noncommercial activities and there are no capital requirements. The representative office must be registered before the Ministry for
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International Economic Relations of the Republic of Serbia or the Republic of Montenegro, depending on the location of the seat of the representative office. The new Company Law introduces the opportunity for foreign companies to form branch offices in Serbia. A branch office is not considered a separate legal entity but a representative of the company that founded it. This means that the branch office will always enter into business relations on behalf of the founder. The branch office is a way of providing a presence for foreign companies in Serbia, without forcing them to establish a subsidiary or to form a representative office. This vehicle can be used to explore a new market before considering the possibility of formation of a subsidiary, which, if needed, can be formed later during the course of business. The advantage of a branch office over a representative office is that though it is not a separate legal entity, it may enter into business agreements and act in the same manner as any local company would (with the limitation in respect of its independence as it simply represents its founder), whereas the activities of a representative office are limited to marketing activities, market research or similar non-commercial activities.
Foreign participation in business entities Foreign investors may participate, together with domestic investors, in the establishment of business entities or cooperatives in Serbia and Montenegro, and may acquire stakes/shares in existing companies. Apart from performing public activities and some financial activities where special approvals from governmental bodies are required, there are no legal limits on the level of investment that a foreign investor may make or any limits as to the percentage of share capital within a company that may be acquired by a foreign investor. In addition, foreign investors may own both registered and bearer shares and they may be Managing Directors or members of management boards of a domestic company, or members of any other company bodies.
Company forms There are two main forms of company that are most frequently established in Serbia and Montenegro – the limited liability company and the joint stock company.
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Limited liability company The status of a limited liability company in Serbia and Montenegro is defined by the 2004 Company Law of the Republic of Serbia and the 2002 Company Law of the Republic of Montenegro. A limited liability company is a separate legal entity, having a minimum of one and a maximum of 50 shareholders, and the liabilities of such a company cannot pass to the shareholders, save in very rare circumstances (eg default of payment of share capital). The shares of a limited liability company are expressed in percentages. In other words, a shareholder may have only one share expressed as a percentage (5, 10, 51, 100 per cent or any other). The share capital may consist of both monetary and non-monetary contributions, such as equipment, goods, know-how, work and services, etc. However, the minimum monetary share capital is €500 in Serbia and €1 in Montenegro. In Montenegro, any ‘in-kind’ (non-monetary) share capital contribution must be valued by an authorized valuer and then confirmed by the company’s Assembly, whereas in Serbia, valuation of these ‘in-kind’ contributions can be carried out by mutual agreement of the shareholders. The organization of a company consists of the: ●
Assembly – all the shareholders of the company;
●
Management Board or the Managing Director; and
●
Internal Auditor or the Board of Auditors, if these bodies are prescribed by the company’s Memorandum of Association, otherwise they are not obligatory.
The Assembly adopts the most important decisions for the company’s business operations such as: amendments of the company’s Memorandum of Association; increase and decrease of share capital; changes to corporate status and legal form; distribution of profit; disposal of assets of significant value; termination of the company and so on. A company is represented by its Managing Director or by the Chairman or by one or more members of its Management Board. The company’s Managing Director or the member of the Management Board may have limited or unlimited powers to enter into legal transactions on behalf of the company, and the Memorandum of Association can prescribe any kind of limitation to their authority. However, only limitations that prescribe that representation of the company is possible only by joint signature of two or more authorized persons can be used against third parties, ie a transaction signed by only one representative would not be valid. In all other cases of violation of internal limitations
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of representative authorities, the concluded transactions would remain valid and the company would be entitled to claim damages from the representative who breached the prescribed limitations. In contrast with the earlier Company Law, the new Company Law does not impose any requirements for participation of the company’s employees on the Management Board. Prior to commencement of any incorporation procedure, the company’s Memorandum of Association must be duly executed. Once drafted, the Memorandum of Association must be signed by a person authorized by the Resolution of a shareholder before the relevant court in Serbia and Montenegro. Besides the Memorandum of Association, a limited liability company can also have a Shareholders Agreement, which regulates more closely the company’s business operations and corporate governance. The Shareholders Agreement is not submitted to any authority during the incorporation procedure and is not an obligatory act. In the event that the Memorandum of Association and the Shareholders Agreement are inconsistent, the Memorandum of Association shall prevail. These documents designate the authorized representatives of the company who must be authorized to manage the company’s bank accounts. The specimen signatures of all these persons must be notarized by the court. The company can engage in all legally permitted activities, however its main business activity must be defined in the Memorandum of Association, and defined according to the Law on the Classification of Activities, which designates the identification code for each activity prescribed therein. There is no need to expressly state any other particular activities that the company shall engage in. In Serbia, prior to registration, a temporary bank account for the company must be opened in a Serbian bank in order to pay the initial portion of the monetary share capital, which cannot be less than €250. The remaining portion of the company’s share capital has to be paid within two years from the registration of the company. The company must also have a designated registered address. There are no general restrictions (subject to the type of activities of the company) on the type of premises that might be used for the purposes of registration. In addition, the documents required for initiation of the registration procedure of a limited liability company in Serbia and Montenegro, are as follows: ●
Certificate of Incorporation of the Founder – notarized and apostilled (Hague Convention, 5 October 1961) – if the founder is a legal entity, and copies of the founders’ passports (if foreign
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nationals) – notarized and apostilled; or copies of their Identification Cards (if Serbian or Montenegrin nationals); ●
the Founder’s decision on establishing a company in the Republic of Serbia – notarized and apostilled;
●
Power of Attorney for a law firm in Serbia and Montenegro, authorizing them to carry out the registration procedure – notarized and apostilled;
●
copies of authorized representatives’ passports (if foreign nationals) – notarized and apostilled; or copies of their Identification Cards (if Serbian or Montenegrin nationals).
In addition, in Serbia the appointed representatives must notarize their specimen signatures in any court, which requires their physical presence in Serbia and Montenegro for at least one day. The incorporation procedure involves submission of all the required documentation to the Agency for Business Registration, which finalizes the incorporation by issuing a Certificate of Incorporation. Once this document is issued it is considered registered and the limited liability company is legally permitted to commence its business activities. After the company is registered at the Agency for Business registration it also needs to register with the tax authorities, and to open a permanent bank account in order to become fully operative. For registration with tax authorities, it is necessary to submit to them a lease agreement for the premises where the company’s seat is registered. According to the Law on Business Registration, after all the necessary documents have been submitted, the Agency for Business Registration has to issue a Certificate of Incorporation within five days (it was 10 days before 1 November 2005). However, in practice it usually takes a few days more than the prescribed term to obtain the Certificate of Incorporation. In addition, registration at the tax authorities takes approximately one week.
Joint stock company The status of a joint stock company in Serbia is defined by the 2004 Company Law and the 2000 Securities Law of the Republic of Serbia (Securities Law) and in Montenegro by the 2002 Company Law of the Republic of Montenegro and the 2000 Securities Law of the Republic of Montenegro. A joint stock company (akcionarsko društvo – a.d.) is a separate legal entity that can be established by both individuals or legal entities. The initial capital of a joint stock company is set and divided into shares of a specific nominal value. The shares may be either ordinary
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or preferential (privileged) shares. Shareholders with ordinary shares may participate in managing the company, sharing profits and liquidated equity. Shareholders with preferential shares have certain priority rights in respect of shareholders with ordinary shares, such as priority in the distribution of profit. The incorporation procedure and the documents to be provided in order to register a joint stock company before the relevant court are almost the same as for the limited liability company. The Company Law of the Republic of Serbia envisages two types of joint stock company: ●
Closed Joint Stock Company – the shares of which are subscribed by its initial shareholders prior to incorporation without issuing a prospectus and invitation to third parties; and
●
Public (Open) Joint Stock Company – where the prospectus and invitation to third parties to subscribe shares is issued when the company is incorporated or after the incorporation. Public joint stock companies can be listed or not listed on the stock exchange.
The Company Law of Montenegro does not classify the types of joint stock company, and generally every emission of shares, except in rare circumstances defined by the 2000 Securities Law of the Republic of Montenegro, is performed by public prospectus and an invitation to third parties to subscribe for shares, which means that in Montenegro only joint stock companies that are public exist, and the legal framework does not provide for the possibility of incorporating a closed joint stock company. The organizational structure of joint stock companies differs significantly between the two different types. Closed joint stock companies have an Assembly and they can have either a Managing Director or a Managing Board. These types of companies can also have either an Internal Auditor or a Board of Auditors, if these bodies are prescribed by the company’s Memorandum of Association. Open joint stock companies have the Shareholders Assembly, Managing Board, Executive Board and a Secretary. These types of companies can have either an Internal Auditor or a Board of Auditors or a Supervisory Board, if these bodies are prescribed by company’s Memorandum of Association, and listed open joint stock companies must have one of these bodies. The minimum monetary share capital of a closed joint stock company in Serbia is €10,000 and €25,000 for an open joint stock company. In Montenegro, the initial share capital of the joint stock company is €25,000. It should be noted that there are some inconsistencies between the Company Law and the Securities Law in Serbia that have not been
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removed even by the recent amendments of the Securities Law. Although the Company Law provides for the possibility of incorporating a closed joint stock company or transforming an open to a closed joint stock company and vice versa, the Securities Law does not provide for the possibility that a joint stock company can be closed. These inconsistencies should be removed as soon as possible by adopting a new Securities Law that will be in full conformity with the acting Company Law. The financial market in Serbia and Montenegro is still undergoing significant organizational and operational changes. These changes should lead to the creation of a stable and effective financial market, which should provide for the greater possibility of the incorporation of the joint stock companies in Serbia and Montenegro and more certainty in the business operations of this legal form of company
Post-incorporation procedures Once a company, regardless of whether it is a limited liability company or a joint stock company, has been registered at the Agency for Business Registration and has obtained the Certificate of Incorporation, every change of registered data relating to the company must be registered at the Agency for Business Registration. These include: ●
increase or decrease of share capital;
●
change of main activity;
●
change of Memorandum of Association;
●
change of the Managing Director of the company;
●
change of other individuals authorised to represent the company;
●
mergers and acquisitions of the company with other companies;
●
division of the company; and
●
bankruptcy and liquidation.
In addition, joint stock companies need to obtain approval from the relevant governmental bodies, ie the Securities Commission, in order to perform such changes and afterwards register the same at the Agency for Business Registration.
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Concluding comments Even though there are some inconsistencies between the Serbian laws, which can lead to legal uncertainty and consequently to a more unfavourable climate for foreign investments in Serbia and Montenegro, it seems that there has been some progress in creating a legal framework that will attract foreign investors. This is primarily the merit of the new Serbian Company Law, which although containing some ambiguities, if applied properly can represent a significant step forward in developing a sound legal environment for investing and doing business in Serbia.
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4.2
Property Legislation and Real Estate Karanovic & Nikolic
Legal framework The legal framework in Serbia and Montenegro regarding the real estate sector is regulated on two levels: legislation enacted by each of the member states and legislation previously enacted at the federal level. The following is a list of key applicable legislation in this sector: ●
Property Law (Law on Basic Ownership Relations), published in the Official Gazette of the FRY no. 6/80, 36/90 and 29/96;
●
Law on Urban Planning and Development, published in the Official Journal of the Republic of Serbia no. 47/03;
●
Law on Trade with Immovable Assets, published in the Official Journal of the Republic of Serbia no. 42/98;
●
Law on Trade with Immovable Assets, published in the Official Journal of the Republic of Montenegro no. 27/75; 35/75; 29/89; 39/89; 7/91; 48/91; 2/92; 4/92;
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Law on Land Registries, published in the Official Journal of the Kingdom of Yugoslavia no 146/30; 281/31;
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Law on Cadastral Registry, published in the Official Journal of the Republic of Serbia no. 83/92; 53/93; 67/93; 48/94; 12/96; 15/96; 34/01; 23/02;
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Law on Cadastral Registry, published in the Official Journal of the Republic of Montenegro no. 55/2000;
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Law on Restitution of Pasture-land, published in the Official Journal of the Republic of Serbia no. 16/92;
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Law on Construction Law, published in the Official Journal of the Republic of Montenegro no. 55/00.
Ownership rights and acquisition of land and buildings Local laws provide for a number of different forms of ownership. The most common and traditional are privately-owned property and stateowned property. Generally, real estate ownership rights are transferred on the basis of a written agreement, which is subject to a mandatory court notarization and registration of such agreement with the relevant public registries. With several exceptions, under the law of Serbia and Montenegro one becomes the owner of a piece of land or a building at the moment of registration. There are two public registries in Serbia maintaining data on immovable assets (land and buildings) as well as changes to such data: (i) Land Registry, and (ii) Cadastral Registry. The Cadastral Registry was originally designated for technical purposes and the Land Registry was designed to be the place for registration of title and encumbrances. Both Registries are frequently not accurate or up to date. Bearing in mind that these registries are kept at the municipality level and that these, for historical reasons, do not exist in all municipalities, in these circumstances the existence of a written notarized agreement and the ‘de facto’ possession of the relevant land or building is conclusive evidence of title. These two Registries are being unified in order to adjust all relevant data related to the immovable properties. Therefore, at the moment the public registries in Serbia are kept in one of the following three manners: ●
unified Cadastral Registry – whereby records from the Land and Cadastral Registries have been unified;
●
existence of both Land and Cadastral Registry – in which case special attention should be paid to the consistency of records in both Registries;
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sole existence of a Cadastral Registry (where the land registry has never been established).
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On the other hand, only Cadastral Registries exist in Montenegro. Such registration of real estate transactions operating in Montenegro enables identification of the ownership rights of any real estate owner and also determines whether there is any dispute, pledge or any other burdens applied to the real estate object in question. The tax charge on real estate transactions in Serbia amounts to five per cent of the market price, which is assessed by the competent tax authority. The general VAT rate (which is 18 per cent of the market price) is applied on the first transfer of the right of disposal with newly erected buildings or economically divisible parts of such buildings: premises, apartments, housing units, etc (hereinafter ‘the buildings’). Pursuant to the VAT law, newly erected buildings are buildings that began construction after 1 January 2005, as well as buildings for which construction began up to 31 December 2004 and was continued after 1 January 2005, for that portion of the building that was constructed after 1 January 2005. In Serbian practice, a lawyer or specialized real estate agency handles real estate transactions, and the customary fee for their services is an additional three per cent of the contractual price. The tax charge in Montenegro for purchase and sale transactions is two per cent.
Foreign ownership of immovable property Pursuant to the Property Law, foreign citizens and legal entities that perform commercial activities in Serbia and Montenegro may, subject to ‘reciprocity’, hold ownership rights in business-related buildings, business-related premises, apartments and housing units as well as on land on which such property rights may exist. As exception to this principle, it is also provided that foreign citizens and legal entities may not own immovable assets located in certain areas of Serbia and Montenegro.
Special legal regime of construction land Due to the specific legislative background regulating the real estate sector in Serbia and in spite of the recent legislative reform that resulted in the enactment of the Law on Urban Planning and Construction, one type of construction land in Serbia is under a special legal regime. Pursuant to the law, a new classification of construction land and procedures for acquisition have been introduced. Accordingly, the land is classified into two categories:
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construction land; and
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agricultural land.
Bearing in mind the potential for further growth and expansion of the construction sector, as well as the increased interest expressed by major foreign investors in the field of real estate development, we will focus on the regime imposed over construction land. Construction land is determined as land on which structures have been built and the land that serves for the regular use of these structures, as well as the land that, in accordance with the law, is designated by the corresponding plan for the construction of structures and their regular use. This type of land is further classified as: ●
public construction land, where public structures of common interest and public areas are located or which shall be determined as such pursuant to the urban development plans; and
●
other construction land, which is determined as developed land and land intended for the construction of structures.
Public construction land is state owned, whilst other construction is transferable and may be of any type of ownership. However, one should note that other construction land located within the city boundaries is subject to a specific legal regime as such land is state owned. As a result, transfer of title over this type of construction land is not free, establishment of mortgage is not possible for undeveloped land and private entities may only have the following rights: ●
Land Use Right is the most extensive right that was previously granted by the public authorities pursuant to former legislation, enabling private entities to use and develop such land. Upon completion of the construction process the user of the land is, at the same time, the owner of the new building;
●
Land Lease Right is the most extensive right that was recently introduced in lieu of the land use right by the new legislation, being the only right that the public authorities may currently grant through public tender, and its duration is limited to 99 years.
The procedure, conditions, manner and the programme pertinent to granting of the lease right over other construction land located within city boundaries is regulated at the municipality level. The fee for using state-owned construction land is paid by the owner of the structure, holder of the land use right, and when the object or a part of it are leased, the fee is paid by the lessee.
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The fee for the use of state-owned undeveloped construction land is paid by the user. The amount of the fee may be significant and dependent on the scope and degree of development, its location within the settlement, road and infrastructure access, business areas and other significant places within the settlement and other benefits that the land offers to its users. On the other hand, agricultural land is classified as cultivable and uncultivable. It should be noted that agricultural land can be reclassified, in other words it may be changed into construction land, subject to the prescribed procedure and formal requirement.
Restitution Serbia After a long delay, the first step towards the denationalization process in Serbia has been taken. The Parliament of the Republic of Serbia adopted the Law on Declaring and Registration of Taken Property (hereinafter referred to as the ‘Law’) on 23 May 2005. The Law was published in the Official Gazette of the Republic of Serbia no. 45/2005 and came into force on 8 June 2005. The Law regulates the procedure for declaring and registering taken property, as the first step in the process of returning property to its owners. The basic intention of the state is to get an idea of the amount of property that was taken by nationalization, expropriation, confiscation or any restrictive measure of a similar kind applied after 1945 in Serbia, in order to establish the appropriate manner of returning it to the owners by enacting the Law on Denationalization. In other words, the state wishes, by this Law, to collect all the relevant documentation prior to defining the legal form of denationalization (returning taken property, monetary compensation, issuing of bonds or some other form). The procedure is straightforward and the documents required for registration are listed below: ●
application form (which is published as an integral part of the Law);
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copy of the document by which the property was taken or other real evidence containing information on the taken property and the legal basis of taking the property;
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evidence that the applicant is a legal successor of the owner, if the applicant is not the person from whom the property was taken;
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other documents and information that the applicant considers relevant for this procedure.
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The application form and other relevant documentation must be submitted before 30 June 2006 to the Property Directorate of the Republic of Serbia (hereinafter referred to as the ‘Directorate’). The Directorate will issue the registration certificate within seven days from the date of submission. The Directorate will organize and manage the Property Register, containing all information and documentation, as a public electronic database. The Law prescribes that submitting the application form shall not be considered as an official claim for indemnity nor as a motion reinstatement, but only as a pre-condition for submitting such claim or motion under the provisions of the particular law that has yet to be enacted (the anticipated Law on Denationalization). According to the draft Denationalization Law, it is provided that the denationalization process will not affect owners who have purchased real estate or land. The Law on Restitution of Certain Types of Agricultural Land was enacted in 1991 and requests for restitution of such land are already time barred as the period was 10 years. With respect to nationalized property that has been privatized, the Serbian Privatization Law envisages compensation of the previous owners whose property has been purchased under the privatization process from the proceeds obtained by the Republic of Serbia. However, this compensation should be determined specifically by an appropriate piece of legislation which, as mentioned above, has not been enacted to date.
Montenegro The Law on Restitution of Taken Property Rights and Compensation was adopted on 23 May 2004 (hereinafter referred to as the ‘Law’), providing for the terms, manner and procedure of restitution and compensation for previous owners, whose property was taken without equitable or market indemnity during the communist era. The Law was published in the Official Journal of the Republic of Montenegro no. 21/04. According to the Law, the previous owner must submit an application form and other relevant documentation within the period of 18 months from the moment of constituting the Restitution and Compensation Committee in the respective competent municipality. Regarding the real estate issue, there are two possible forms of returning property and related rights to previous owners which are provided by the Law: ●
natural restitution of immovable assets that are not the subject of compensation (state-owned undeveloped construction land; housing
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buildings and apartments; business-related buildings, businessrelated housing units and premises); ●
compensation for taken proprietary rights (public construction developed land and the land intended for the construction of structures pursuant to the urban development plans; buildings and structures belonging to the hotel industry and categorized into the first or into the second category of the special significance for the Republic of Montenegro; property that was the subject of privatization).
Pursuant to the Law, compensation shall be performed either in the form of monetary compensation or by issuing state bonds. The authorized body in this process is the Compensation Fund of the Republic of Montenegro. Real estate transactions are free of tax under the provisions of this Law.
Possible improvements – Action Plan The government of the Republic of Serbia adopted the Action Plan for the Removal of Administrative Barriers to Foreign Direct Investments (hereinafter referred to as the ‘Action Plan’) on 27 May 2004 in order to enable ongoing improvements in the business climate. The government set up the Committee on Promotion of Investments in the Serbian Economy in order to monitor the implementation of the Action Plan, the activities of which are coordinated by the Ministry of International Economic Relations of the Republic of Serbia. Committee members have contributed substantially to the relatively successful implementation of the Action Plan, as well in identifying new measures for that purpose. In other words, the state showed a serious intention to make significant improvements in the direct foreign investments sector. Due to the continuation of this policy, there is a new Action Plan for the period 2005/2006 (hereinafter referred to as the ‘new Action Plan’), prescribing precise terms and conditions of future developments in this area, yet to be adopted. Regarding the real estate issue, below are possible improvements provided by the new Action Plan.
Acquisition of construction land Assumptions for a consistent, safe and well-grounded implementation of market principles in the sales of construction land title include elimination of restrictions laid down by the Constitution of the Republic of
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Serbia, prescribing that construction land located within the city boundaries is exclusively state owned (transfer of title over this type of construction land is not free, and establishment of mortgage is not possible over undeveloped land). Pursuant to the new Action Plan, the planned objective of the government is to enable private owners to acquire title to construction land and to create a free market for construction land. For that reason, a deadline is set by the new Action Plan for adopting amendments to the Law on Urban Planning and Development that would enable the sale of rights to use. Furthermore, the new Action Plan intends to determine new time limits for declaration of public construction land (if the municipalities fail to observe the limit, the procedure will be taken over by the Ministry of Capital Investments of the Republic of Serbia), as well as to force the adoption of the Law on Construction Land, in order to liberalize the procedure of acquiring construction land on the basis of anticipated amendments to the Constitution of the Republic of Serbia. The deadline was October 2005.
Lease of real estate In order to remove the ineffective administrative barriers and excessive centralization and to govern by law the procedure of leasing out the state-owned land, the new Action Plan recommends the elimination of mandatory approval issued by the Property Directorate of the Republic of Serbia (hereinafter referred to as the ‘Directorate’) and the introduction of a mandatory contract registration with the Directorate, providing for the possibility for the Directorate to act ex officio if the rule is not obeyed. The deadline set by the new Action Plan was August 2005 and it will be in competence of the Ministry of Finance of the Republic of Serbia. For the same reason, the new Action Plan recommends the adoption of the amendments to the Law on Urban Planning and Development, which will include rules providing leasing out construction land and precise lease terms (binding for local self-government bodies). The deadline is March 2006 and it will be in the competence of the Ministry of Capital Investments as well as the Ministry of Public Administration and Local Self-Government of the Republic of Serbia.
Real estate registration Due to the fact that the registers (both Land and Cadastral) cover only approximately 43 per cent of the Serbian territory because the data are not updated and numerous buildings have not been registered, the new Action Plan intends to establish a clear and unique register of rights to real estate, containing accurate and reliable data, and to force the
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state to create conditions for effective debtor/creditor relations based on mortgage. Pursuant to the new Action Plan, the Ministry of Capital Investments of the Republic of Serbia and the Republic Geodesic Institute will coordinate the preparation of the new Law on State Land Survey and Real Estate Cadastral, which is to be adopted by the end of October 2006. There is a recommendation prescribed by the new Action Plan for the state to start working on improving the records as soon as possible, determining current factual and legal conditions of real estate on the territory of the Republic of Serbia, and developing a registry of real estate and its ownership in accordance with prepared projects. Creation of the unique Real Estate Cadastral Registry will commence in autumn 2005 and will end by 30 April 2010, in accordance with the project, which is financed by the World Bank. Finally, the new Action Plan recommends the adoption of the new Mortgage Law as soon as possible, the preparation of which is in the competence of Ministry of Finance and Ministry of International Economic Relations of the Republic of Serbia. The final deadline for initiating adoption procedures was August 2005.
Construction of projects and permits Municipalities have not complied with the deadlines for the preparation of general urban planning and regulatory plans envisioned by the Law on Urban Planning and Development. Without these plans, the development of infrastructure and the removal of numerous problems in the field of property law are hampered. The municipalities lack financial resources, while the government has no resources available for this purpose, despite being required by law to finance the preparation of those plans. An investor is required to apply to a number of institutions when obtaining the permits necessary for construction: the Urban Planning Institute, the waterworks company, the sewerage company, the Serbian electricity company, the telecommunications company and the gas supply company. This lengthy process slows down the procedure of obtaining building permits and the implementation of the project itself. In order to extend coverage of urban planning and regulation plans to encompass all territory in Serbia and to create simplified procedures for obtaining building permits, the new Action Plan recommends drawing up higher-level spatial plans for wider territorial units (districts) as soon as possible, as well as carrying out ortho-photo shooting at local and global levels. According to the new Action Plan, these actions will be in the competence of the Ministry of Capital Investments of
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the Republic of Serbia and the Republic Geodesic Institute. The final deadline is the end of 2007. Furthermore, adoption of the amendments to the Law on Urban Planning and Development, which would extend the deadlines for the preparation of general planning documents and urban plans, is recommended by the new Action Plan, as well as creating penalties at the same time for failure to observe deadlines. The deadline was October 2005 and is in the competence of the Ministry of Capital Investments of the Republic of Serbia. Finally, the new Action Plan prescribes the establishment of the special municipal service, which will receive the applications for construction permits, collect all necessary documents and issue the permits. The final deadline is July 2006 and is in the competence of Ministry of Public Administration and Local Self-Government of the Republic of Serbia.
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The Taxation System Ernst & Young, Belgrade
The first day of January 2005 inaugurated a great turning point for Serbian taxation, when VAT was introduced into the Serbian legislative system. This new law changed the concept of the tax system (prior to this was Sales Tax), and resulted in an increased number of taxpayers and therefore added more money to the state budget. The three main tax laws for carrying out business are: corporate profit tax; value added tax; and personal income tax. In addition, we also introduce some other important taxes that build up the framework of the tax system in Serbia: excise tax; property tax; and other taxes.
Corporate profits tax Tax payer A resident of Serbia is defined for corporate profits tax purposes as being a company (limited liability, partnership, stock company, etc) that was founded or has a seat of actual management and control in Serbia. A resident company is taxed on its worldwide income, whereas a non-resident company is taxed only on income earned in Serbia. A non-resident is defined as being a company that was founded or has a seat of actual management and control outside of Serbia, but which carries on business in Serbia, with a permanent establishment located on Serbian territory.
Tax base The corporate profit tax base is the taxable profit stated in the tax statement. Taxable profit is determined by adjusting the taxpayer’s profit declared in the income statement.
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Tax rate Taxable income is subject to tax at a rate of 10 per cent.
Calculation of taxable income The amount of taxable income is reached by deducting allowable expenses from income earned. Most expenses, including costs of material used in production and related production services, are fully allowable and deductible for tax purposes. In addition, interest, taxes paid on property, expenses for the wages/salaries, contributions for mandatory social contributions paid by an employer, depreciation and amortization, fees and other public charges and contributions, with the exception of penalties, are all recognized as allowable expenses. However, the level of deductibility for certain expenses is limited in certain cases. For example, the following classes of expenses are limited in the amount that they are considered to be deductible, up to the following maximum percentages of total taxable income: ●
3.5 per cent for medical, cultural, educational, scientific, ecological and sports-related expenses;
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3 per cent of advertising and promotion expenditure, as well as ‘protocol’ expenditures (client-related entertainment expenses and gifts);
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1.5 per cent of investments in culture-related expenses;
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0.1 per cent of amounts paid for membership fees for chambers and unions.
Depreciation Intangible and fixed assets are divided into five groups, with amortization rates prescribed for each. A straight-line method is prescribed for the first group, which includes real estate, and a declining balance method is valid for assets in the other groups. The applicable amortization rates are shown in the table on the facing page. Accelerated depreciation may be claimed at rates up to 25 per cent higher than the normal rates for computer equipment as well as for fixed assets that are used for specified ecological purposes, scientific research or staff education or training.
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Rate (%)
I group
2.5
II group
10
III group
15
IV group
20
V group
30
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Tax incentives The following incentives are considered as instruments of tax relief for entities in order to stimulate certain activities. Tax relief can be total exemption from the tax obligations, and also tax credits on different grounds. Tax exemptions With the latest legislative amendments, the following tax exemptions have been introduced: ●
a 10-year tax exemption has been introduced for a company that invests CSD600 million (or approximately €7.5 million) in its own fixed assets and employs at least 100 new workers during the period of investment;
●
a five-year tax exemption can be applied for (under certain conditions) by a company that performs activities in a region of ‘extraordinary importance’ and that invests CSD6 million and employs five new workers in such regions.
Tax credits Investments made in fixed assets (except cars, furniture, carpets, works of fine and applied arts and other decorative items for office premise furnishing) entitle the investor to a reduction in corporate profits tax of 20 per cent of the investment made in that year, but not more than 50 per cent of calculated tax. For small enterprises the tax reduction is 40 per cent of the investment made in that year, but not more than 70 per cent of calculated tax. Unused tax credits can be carried forward for a period of 10 years. If a company sells the assets within a period of three years after the original purchase, then any tax relief given becomes payable in full, increased by the inflation rate. Certain industries (which include agriculture, fishing, textile and leather manufacture, production of base metal and standard metal products, machines and units, office machines, electrical
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units, radio, television and communications equipment, medical instruments, motor and other vehicles, recycling activities and video and cinema production) are entitled to receive a tax credit of 80 per cent of investments made in purchasing fixed assets up to the total amount of calculated corporate profits tax in the year in which the investment was made. The unused part of any such investment can be carried forward for up to 10 years. A company that employs new workers is entitled to decrease the calculated corporate profits tax in an amount that is equal to 100 per cent of newly employed workers’ gross salaries, enlarged for all liabilities payable by the employer on the gross salaries. The incentive is applicable in the tax period in which new hiring of workers took place, provided that the employer does not decrease the number of employees for at least one fiscal period. If the employer concerned reduces the number of employees, the tax relief is calculated as the difference between total costs of salaries for newly employed people and total costs of salaries that would have been paid out to employees who were released in the given tax periods. A tax credit is granted to any company having its newly established business unit in a non-developed region. The amount of the credit is achieved by pro-rating the contribution of that unit against the entire company profit. This incentive is available for a period of two years.
Capital gains and losses Capital gains can arise in a company from the difference between the sale and purchase prices of assets, shares, long-term securities, real estate, royalties, industrial property rights and rights to use and build on land. If a capital gain should arise, 100 per cent of the gain should be included as taxable income, which would be potentially subject to profits tax. If a capital loss arises on a transaction, then such a loss can be offset against capital gains arising on other transactions. If a capital loss exists at the end of a fiscal year, this loss can be carried forward for a period of up to 10 years for offset against future capital gains. Purchases of bonds for the economic rebirth of Serbia and Republic bonds on ‘old’ foreign currency savings are exempt from withholding tax on capital gains.
Business losses Losses generated from business, financial and non-business activities and determined in the tax return, with the exception of capital losses, may be carried forward for a period of up to 10 years for offsetting against future taxable income. In instances where a company changes
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its status, for example through a merger or takeover, losses can also be carried forward.
Group relief Groups of companies have the right to consolidate their tax results provided that the companies are Serbian residents. A company is considered to be part of a group if another company controls at least a 75 per cent share in that company. Under the group relief provisions, each company should file its own balance sheet and the parent company should also file a consolidated balance sheet. Losses of one or more associated companies can then be offset against profits of related companies in the consolidated tax balance sheet. If a tax liability arises, then each company is liable to pay tax according to the proportion of its own profits to the profits of the entire group. In order to fully qualify for group relief, any company receiving tax relief should remain part of the consolidated group for a period of at least five years after relief has been given, otherwise every company in the group will be liable to pay all of the taxes that would have been payable if there had not been any consolidation.
Transfer pricing In its tax return, a company has to segregate transactions that it has undertaken with related companies and compare the value of these transactions with the same or similar transactions with unrelated parties, in order to see if a price discrepancy exists (the arm’s-length principle). Related parties are considered to be entities where possibility of control or substantial influence on business decisions exists between the parties. Owning more than one-half or the largest single portion of shares or equity, or more than one half or the largest portion of voting rights, is considered as possible control. Large mutually dependent turnover, technological dependence or any degree of control over management are also treated as being substantial influences. The fiscal authorities will examine those operations carried out between related parties, especially if they suspect that these operations were conducted with the purpose of decreasing the taxable base of the taxpayer. Fiscal regulations further stipulate that in the case of transactions between related parties, the value accepted by the fiscal administration will be the market value of the transaction. There are three methods generally used for assessing the market value of a transaction between related parties:
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comparable uncontrolled price method;
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cost plus method;
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resell price method.
Thin capitalization rules The Corporate Profits Tax Law has a thin capitalization rule for the deductibility of loan interest. Interest and related expenses on loans (denominated in CSD) paid to related entities are deductible for tax purposes – up to four times the value of a taxpayer’s own capital, multiplied by 110 per cent of the interest rate approved by the National Bank of Serbia (NBS) for commercial bank loans on 31 December of the preceding year. If the loan is in foreign currency, the applicable rate is 110 per cent of the interest rate applied by the Central Bank governing the relevant currency. Any amount exceeding the prescribed limits may be included in expenditure in the subsequent year. For banks and other financial organizations the applicable limit is 10 times the value of the taxpayer’s own capital, multiplied by the rates described above.
Administration The tax year in Serbia is the calendar year. Corporate profits tax is payable in monthly instalments which are estimated at one twelfth of the previous annual Corporate Profits Tax assessment increased by the inflation rate for a particular month. These instalments are payable by the 15 of the month following the month of assessment. The tax return has to be filed with the tax authorities within 10 days of the deadline for submitting financial statements (currently 8 March). If there is any difference between the amount of cumulative monthly payments and the amount of declared tax at the end of the year, the difference should be paid to the tax authorities simultaneously with the filing of the tax return and tax balance sheet. If the amount of cumulative monthly payments exceeds the declared tax, the company should be reimbursed, or these differences will be treated as prepayments for future monthly instalments. The notice of tax assessment forwarded by a tax authority is based on the tax return submitted to the tax authority by the taxpayer, or on the basis of an audit performed by the tax authority. In the case that the amount of paid tax is less than the tax assessment, a company should pay the difference within eight days from the date it receives the tax assessment.
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Newly established companies are obliged to submit a preliminary tax return to the tax authorities within 15 days of registration with the Serbian Business Registers Agency. In this tax return, the taxpayer estimates total income and expenses for the first year of operations so that potential monthly tax payments can be calculated. If a company does not pay tax by a requisite deadline, then penalty interest on overdue payments is applied at a rate greater by 15 percentage points than the annual discount rate of the National Bank. Further monetary penalties can be levied in respect of failure to report income, failure to report income on a timely basis or the incorrect calculation and reporting of tax liabilities.
Withholding taxes for companies A 20 per cent withholding tax is imposed on payments of dividends, royalties, interest, leasing fees for leasing of real estate and movable property, and capital gains paid to non-residents in accordance with domestic regulations. Serbia does not currently apply withholding tax on payments to non-resident service providers.
Value added tax (VAT) On 1 January 2005, a new law (VAT Law) came into effect for any turnover of goods and services. VAT is payable at all stages of turnover of goods and services, as well on import of goods.
Taxpayer Taxpayers of VAT are all legal entities and entrepreneurs who, in 2004, had a turnover of goods and services in excess of CSD2 million (approximately €25,000) or who predict that they will have turnover higher than the above amount.
Tax base The taxable base for VAT purposes is the fee for sold products and services excluding any VAT in it. The taxable base should also contain customs duties, excise tax paid, transportation and insurance costs or any other cost relating to sale of goods and services. The tax liability arises on the first day of any of the following events occurring:
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sale of goods and services;
●
collection, if the fee or a part of the fee has been collected prior to the sale of goods and services;
●
on the date of the payment of customs duties, in case of the import of goods.
Input VAT is the VAT calculated and paid by a taxpayer to its supplier upon purchase of goods and services. Output VAT is the VAT that a taxpayer calculates and charges on goods and services provided to customers.
Tax rate The tax rates prescribed by the VAT Law are the following: ●
standard VAT rate – 18 per cent;
●
lower VAT rate – eight per cent.
The standard rate is applicable for most taxable supplies. However, the lower rate applies on turnover of the following goods and services: ●
basic food stuffs (bread, milk, sugar, vegetable oil, fresh meet, eggs, fruits and vegetables);
●
computers, computer hardware and software;
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daily newspapers;
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communal services.
In addition to the above tax rates, a zero per cent tax rate is also applicable. A zero per cent tax rate, with the right of deduction of input VAT, applies to turnover of the following goods and services: ●
export of goods;
●
international air transport.
A zero per cent tax rate, without the right of deduction of input VAT, applies to turnover of the following goods and services:
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trading in shares and other securities;
●
insurance and reinsurance;
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turnover of land;
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lease of apartments.
213
Reporting period The VAT Law has determined two reporting periods: ●
each calendar month for taxpayers whose turnover in the previous 12 months was over CSD20 million (approximately €250,000) or who predict that turnover in the next 12 months will be above the CSD20 million threshold; or
●
for taxpayers whose turnover does not exceed the above CSD20 million threshold, the reporting period is three months.
Excise taxes Producers and importers of the following goods are liable to pay excise duties: ●
oil derivatives;
●
tobacco products;
●
alcohol (ethanol);
●
coffee;
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imported refreshing (non-alcoholic) beverages.
Taxpayer The payer of excise duties is a producer and importer of excise products, and also: ●
a person/producer who sells alcohol beverages to another person;
●
an entity/entrepreneur who buys alcoholic beverages from a person/ producer of the alcoholic beverages;
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●
a buyer of excise products bought from the territory of the Republic of Montenegro;
●
an entity who has authorization from a governmental body for sales of confiscated excise products;
●
a buyer of excise products confiscated during the inspection, or during the collection, sold by the governmental body;
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a permanent establishment on the territory of the Republic of Serbia, with headquarters in the republic of Montenegro, that brings the excise products into the Republic of Serbia
Tax base The excise duty base is a product unit of measurement.
Tax rate The tax rate is specific for each type of tobacco product, for example, 70 per cent of full excise for cigarettes, 100 per cent of excise for cigars and cigarillos, smoking tobacco and other tobacco products. For all products other than tobacco, the Law gives a specific amount per unit of measurement.
Tax incentives Tax exemptions Exemptions from payment of excise duty do, however, exist in respect of: ●
products exported by a producer;
●
products destined for consular and diplomatic missions;
●
oil derivatives, and coffee prescribed by the international agreement on donation, with the clause that the excise will not be paid on these products;
●
products that the producer or importer transports for the purpose of selling them on aircraft and ships in international traffic.
Tax credits In addition, where goods are imported for subsequent re-export or where imported goods represent the raw material for another product upon which excise duty should be paid, the amount of duty payable may be reduced or returned.
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Administration The trade of excisable goods between parties in the two Republics in the Union of Serbia and Montenegro is not regarded as being an export transaction and is subject to excise duty.
Personal income tax Taxpayer For personal income tax purposes, it should be determined whether an individual is considered to be ‘resident’ or ‘non-resident’ in Serbia. An individual is considered to be a resident in Serbia if he/she has his/her domicile or centre of business and life interest in the country, or if he/ she spends more than 183 days within a period of 12 months, which begins or ends in the fiscal year concerned, as well as individuals seconded abroad or to Montenegro by the resident employer, or an international organization, to operate in the name of the employer. Non-resident individuals are those who do not qualify under the above definitions for residents. Individuals who are deemed to be residents in Serbia are subject to personal income tax on their worldwide income, whereas non-residents are only subject to personal income tax in respect of income generated in Serbia. However, double taxation treaty provisions may overrule provisions of domestic law. For a list of countries with which Serbia has signed double taxation treaties, please refer to Table 4.3.1 at the end of this chapter.
Taxable base Taxable income is determined by aggregating employment income, royalties, capital gains, income from property and any other income received during a calendar year. For sole traders (entrepreneurs), tax is payable on any net income arising after the deduction of businessrelated expenses.
Tax rates Rates of tax that are applicable on individual income are as follows: ●
10 per cent on the net income of self-employed individuals and sole traders;
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14 per cent on the gross income from employment. Social contributions are 17.9 per cent for both the employer and employee;
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●
20 per cent withholding tax on income from royalties. Standard costs of between 40 per cent and 65 per cent of total income can be deducted when determining taxable income from royalties. The amount of the deduction depends upon the type of royalty income received;
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20 per cent on capital gains (14 per cent for entrepreneurs), interest and dividends, although a 50 per cent taxable base decrease is allowed for dividend receipts by individuals. Interest from government bonds and demand deposits are tax exempted;
●
20 per cent on income from the leasing of property. A standard cost of 20 per cent is deductible from total income when determining taxable income.
Tax incentives The same tax incentives provided in the Corporate Profits Tax Law (mentioned above) are applicable to individual entrepreneurs as well. A tax incentive in the form of a 50 per cent taxable base reduction has been introduced for income received by sportsmen, including income from transfers.
Annual income tax In addition to the above taxes, Serbian residents are annually obliged to pay 10 per cent tax on all types of income earned in the year if the total sum of the income (reduced by income tax and social contributions paid) exceeds in the case of domestic persons for the year 2004, CSD986,640 (or approximately €12,300) and in case of expatriate Serbian residents CSD2,466,600 (or approximately €30,800). When considering the annual tax calculation, additional personal deductions are available from CSD98,664 for the taxpayer and CSD36,999 for every supported family member (for the year 2004). These deductions cannot reduce the taxable base by more than 50 per cent.
Reporting requirements The tax year is the calendar year. Individuals whose annual personal net income is under the threshold of CSD986,640 (or CSD2,466,600 for expatriate Serbian residents) are not required to file an annual income tax return since they are not obliged to pay annual income tax. However, individuals who receive income upon which tax has not been withheld or receive income over the prescribed threshold on an annual level are required to file an annual tax return by 15 March of the year
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following the year of assessment and to pay any taxes due within 15 days of receiving a tax assessment from the tax authorities.
Withholding taxes for individuals Dividends (and share of profits) paid to both residents and nonresidents are taxed by withholding tax at source at the rate of 20 per cent. When dividends are paid to individuals, the taxable base is reduced by 50 per cent. In addition to yields on capital (dividends, interest, etc), withholding taxes are payable on personal receipts (salaries), revenues from royalties and industrial property rights (patents, technical innovations), lottery earnings, receipts from personal insurance, revenues from real estate, from leasing movable property as well as other revenues, if the payer keeps business accounts.
Property tax Property tax is divided into static and dynamic tax. Static property tax is a tax triggered annually and dynamic property tax is triggered upon disposal. These taxes refer to: ●
property tax;
●
tax on inheritance and gifts;
●
tax on transfer of absolute rights.
Taxpayer The taxpayer, within the sense of the Law, is any legal entity or individual who has a right to the property, which is in the territory of Serbia. If two or more legal entities and individuals have a right to the property, then they each pay the share that they own in that property. In the case where the user is using state property, the obliged payer is the user of the property. If the entity that has a right to the property is not known, then the user of the property is the taxpayer.
Tax base For all property, except agricultural and forestry for which the taxpayer does not keep books, the market value is established on 31 December for the year in which the tax due. The amount on which the taxes are paid is determined by the tax authority, less the
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amortization rate of 1.5 per cent, included using the proportional method. The market value is determined by: ●
usable area;
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average market price for a square metre in that county;
●
location of the property;
●
quality of the property;
●
other elements that effect the value of that property.
Tax rates The following rates currently apply: ●
property tax – levied on the market value of immovable property established on 31 December, at rates ranging from 0.4 per cent to three per cent, depending on the type of property being assessed. Registered shares and stakes in a limited liability company (d.o.o.) are taxable at the rate at 0.3 per cent;
●
inheritance and gift (donation) tax – levied on the market value of property at rates ranging from three to five per cent for taxpayers who are second in the statutory order of inheritance in relation to the testator or donor (depending on the value of the taxable base) and five per cent for the taxpayers who are third or are not related to the testator/donor. Tax on gifts and inheritance is no longer payable on shares acquired as part of the privatization process on transfer from an entity being privatized to a new owner of shares;
●
tax on the transfer of absolute (ownership) rights – levied at a rate of 0.3 per cent on stakes in a legal entity and on securities, or at rate of five per cent for other transfers of absolute rights.
Tax incentives The reliefs from property tax are as follows. Tax exemptions The reliefs for property tax are related to state, diplomatic representatives’, and religious communities’ properties. Tax reliefs are also applicable to properties that have been officially declared as cultural or historic monuments and infrastructure. Tax on inheritance and gifts is not payable by the first heir, spouse, or parents of a donor, etc.
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Reliefs on tax on the transfer of absolute rights relate to the transfer of real estate of diplomatic representatives of foreign states under the condition of reciprocity, etc. Tax credits For property tax, credit of 40 per cent is given to the natural person who lives in the building or a flat, and 10 per cent for each member of the family. For inheritance and gift tax, credit is given in the amount of paid taxes on the inheritance or gift, which is calculated on the base that represents combined market value of the rights or things received from the same donor. There are no credits for the tax on the transfer of absolute rights.
Other taxes The following taxes are also levied in Serbia: ●
Taxes on use of goods and on permission to use goods is paid on use of cars, mobile phones, boats, yachts, aeroplanes and registered weapons, in various monetary amounts.
●
There are also various local taxes that are determined differently and at a different percentage of the taxable base in different municipalities (the most significant are the tax for displaying a firm’s name and the tax for using city land aimed for construction), and administrative and court stamp duties.
Penalties and statute of limitations Penalties are calculated on the basis of the annual discount rate prescribed by the NBS, increased by a further 15 per cent on an annual level. Administrative fines and penalties can be applied in respect of severe breaches of tax regulations. For example, any person who creates or submits a forged document of significance for tax purposes to the tax authorities with the intent to evade or decrease a tax liability can be sentenced to between months to five years of imprisonment and a fine. The maximum imprisonment for criminal acts in relation to tax offences is 10 years. The statute of limitations for company tax obligations is currently up to five years prior to the day that an obligation was due. The same rule is applicable to customs infringements.
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Table 4.3.1 Serbia’s double taxation treaties Country
Starting year
Subject of treaty
Belgium
1982
Income and property
Byelorussia
1999
Income and property
Bulgaria
2001
Income and property
Great Britain
1983
Income
Denmark
1983
Income and property
DNR Korea
2002
Income and property
Egypt
1989
Income
Italy
1986
Income and property
China
1998
Income and property
Cyprus
1987
Income and property
Kuwait
2004
Income and property
Hungary
2003
Income and property
Macedonia
1998
Income and property
Malaysia
1991
Income
Germany
1989
Income and property
Norway
1986
Income and property
Poland
1999
Income and property
Romania
1998
Income and property
Russian Federation
1998
Income and property
Slovakia
2002
Income and property
Slovenia
2004
Income and property
Ukraine
2002
Income and property
Finland
1988
Income and property
France
1976
Income
The Netherlands
1983
Income and property
Croatia
2005
Income and property
Czechoslovakia
1984
Income and property
Sweden
1982
Income and property
Sri Lanka
1987
Income and property
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4.4
Accounting and Auditing Ernst & Young, Belgrade
Legal framework Serbian accounting and auditing legislation and practice have been undergoing changes aimed at harmonizing the country’s rules and practice with international financial reporting standards and EU directives on accounting and auditing. The legal framework for auditing and accounting is defined by the Accounting and Auditing Law, published in the Official Gazette of Republic of Serbia no. 71/2002. This Law has been in effect since 1 January 2003. This Law introduced International Accounting Standards as the basis of accounting and preparation of financial statements. This Law governs the requirements for, and manner of, keeping books of account, preparing, presenting, submitting and disclosing financial statements, as well as the requirements for, and manner of, auditing financial statements. The provisions of this Law are applicable to enterprises, cooperatives, banks and other financial organizations, insurance organizations, stock exchanges and stockbrokers, and other persons (hereinafter referred to as ‘legal entities’). The provisions of this Law should be also applied to individuals independently performing an economic activity for the purpose of gaining profit (hereinafter referred to as ‘entrepreneurs’) and reporting profits as required by the Law governing the income tax imposed on the independent activity excluding the entrepreneur paying the lump sum tax. The provisions of this Law should also be applied to enterprises and other forms of organization founded by legal entities abroad where books of account are not required to be kept, and financial statements
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are to be prepared and audited by regulations of the country they have been founded in.
Classification of legal entities Under the Accounting and Auditing Law, all legal entities are classified into three categories: small, medium-sized and large legal entities, depending on the number of employees, total income and value of assets as at the day of preparing financial statements for the previous financial year. Legal entities shall be classified as medium-sized legal entities if, at the day of preparing financial statements, they meet at least two of the following criteria: ● ●
●
average number of employees ranging from 50 to 250; total annual income ranging from €2.5 million to €10 million in dinar equivalent; average value of assets ranging from €1 million to €5 million in dinar equivalent.
Legal entities, with indicators being below the levels specified for at least two criteria referred to above, are classified as small legal entities, whereas legal entities, with indicators exceeding the levels specified for at least two criteria above, are classified as large legal entities. Large legal entities for the purpose of this Law are deemed to include banks and other financial organizations, insurance organizations, stock exchanges and stockbrokers. Small legal entities for the purpose of this Law are deemed to include entrepreneurs.
Books of account Book of account have to be kept in accordance with double-entry bookkeeping principles, and consist of the following: ●
journal – a business record serving to enter transactions in chronological order;
●
general ledger – representing systematic accounting evidence of changes in assets, liabilities, capital, expenses, income and operating results;
●
sub-ledgers – these are set up separately.
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All business transactions should be recorded within a minimum of eight days after the transactions have occurred. Maintenance of accounting records should be performed by a certified accountant. The books of accounts have the nature of public documents. They have to provide accurate entries, be capable of being checked, and maintain and use data, as well as giving an insight into the chronological order of entries and all changes in the accounts of the general ledger and sub-ledgers. Books of account have to be kept precisely and in correct order. They can be kept in loose-leaf format, bound or transferred to one of the electronic or magnetic media, allowing them to be printed or displayed on a screen.
Keeping of books of account The keeping of books of account, preparation and presentation of financial statements is carried out in accordance with the International Accounting Standards and other regulations and guidance published in the Official Gazette of the Republic of Serbia. Books of accounts must be kept, and financial statements of legal entities and entrepreneurs prepared and presented by a qualified person, fulfilling the following criteria: ●
the professional exam for appropriate professional title (accountant, independent accountant or certified accountant) has to be passed;
●
he/she must not have been convicted on criminal charges disqualifying him/her for tasks performed in the area of accounting.
Books of account may be kept and financial statements prepared by another organization or entrepreneur holding a licence, which is a public document issued to an organization or entrepreneur enabling them to provide accounting and auditing services. The organizations and entrepreneurs registered for accounting services must also meet the following special requirements: ●
they must hold the relevant licence;
●
in accordance with the Code, they should not be controlled by any person or interest groups;
●
their Director or Chairman of the Board of Directors or Supervisory Board should be a qualified person referred to in the Law.
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Disclosure, reporting and filing requirements Disclosure requirements The Accounting and Auditing Law defines that the forms of financial statements for the purpose of consistent flow of information and statistical processing, ie the minimum content and form of data therein, shall be prescribed by: ●
The Ministry of Finance for: – entreprises, cooperatives and entrepreneurs; – insurance organizations; – stock exchanges and stockbrokers;
●
The Governor of the National Bank of Serbia for: – the National Bank of Serbia; – banks and other financial organizations.
Financial statements Financial statements should include: ●
balance sheet;
●
income statement;
●
cashflow statement;
●
statement of changes in equity;
●
notes to the financial statements.
By exception to the above-mentioned requirements, small legal entities should prepare a balance sheet and income statement.
Reporting requirements Legal entities and entrepreneurs need to submit their financial statements for the previous year to the authority or other legal entity in charge of the register of financial standing of legal entities in accordance with the Law, by the last day of the first two calendar months of the current year at the latest.
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Legal entities and entrepreneurs have to submit the adopted financial statements for the previous year, accompanied by the auditors’ opinion to the authority or other legal entity in charge of the register of financial standing of legal entities in accordance with the law, by the last day of the first six calendar months of the current year at the latest, unless otherwise required by special regulation. Legal entities that prepare consolidated financial statements should submit such consolidated financial statements for the previous year to the authority or other legal entity in charge of the register of financial standing of legal entities in accordance with the Law, by the last day of the first three calendar months of the current year at the latest. The financial year in Serbia coincides with the calendar year. Exceptionally, legal entities and entrepreneurs engaged in business of a seasonal nature, as well as legal entities associated with a foreign enterprise whose financial year is different from the calendar year, may draft and present financial statements as on the last day of the financial year that is different from the calendar year, based on an approval obtained from the Federal Ministry of Finance. Financial statements should also be prepared in cases of instituted and/or completed liquidation or bankruptcy proceedings in respect of a legal entity.
Filing requirements The following filing requirements apply: ●
journals and general ledgers should be filed for a period of 10 years;
●
supporting ledgers should be filed for a period of five years;
●
payroll slips and analytical records of salaries should be filed indefinitely if they provide important information on employees;
●
documents that are the source of data entered into the books of account should be filed for a period of five years;
●
documents of payment operations in the organizations authorized for payment operations should be filed for a period of five years;
●
sale and control slips, supplementary forms and similar documentation should be filed for two years;
●
financial statements, books of account and accounting documents should be filed as hard copies or by using other means of filing provided by the Law.
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Fundamental concepts and applicable accounting standards International Accounting Standards, as published in the Official Gazette of the Republic of Serbia, represent the accounting standards applicable in the Republic of Serbia. The fundamental accounting concepts and principles used in the preparation of the financial statements are as follows: ●
going concern;
●
consistency;
●
accrual basis;
●
prudence;
●
matching revenues and expenses;
●
individual valuation of assets and liabilities;
●
balance sheet identity.
Audit of the financial statements Once a year, the financial statements of a large and medium-sized enterprises, as well as financial statements of issuers of long-term securities that will be sold by public offer, are subject to an audit. Audited financial statements have to be submitted to the National Bank of Serbia by 30 June. The issuers of securities are obliged to obtain an auditor’s report for the year preceding the year in which the securities are issued. The audit of the financial statements should be performed in accordance with the International Standards on Auditing and the Code of Ethics for Professional Accountants, as issued by the International Federation of Accountants. An audit must be carried out by a registered auditing firm.
Auditing firms An auditing firm is a legal entity registered to perform audits. The auditing firm should be established in accordance with the law governing the status of enterprises.
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The auditing firm must also meet the following special requirements: ●
to hold a licence;
●
in accordance with the Code, certified auditors should not be controlled by any person or interest groups;
●
to have certified auditors holding the position of Director, Chairman of the Board of Directors and Chairman of the Supervisory Board.
The audits of accounts for a medium-sized legal entity may be conducted by an auditing firm if it employs at least one person holding the title of certified auditor and three persons holding the title of certified accountant, and, for a large legal entity, if it employs at least three persons holding the title of certified auditor. The same audit company may audit an entity’s financial statements for a maximum of three sequential years for large companies and five sequential years for medium-sized companies. The audits should be conducted on the basis of a written agreement made no later than three months before the expiry of the financial year. The audits should be conducted against the payment of agreed fee, and such fee in two consecutive years shall not exceed 15 per cent of the annual income reported by the auditing firm. The auditing firm should take out liability insurance against any damage that may be caused by the opinion, as expressed by the certified auditor and contained in the report of audits conducted, by the time such opinion of the certified auditor is presented to the legal entity. The auditing firms and certified auditors should not conduct the audits for legal entities with an existing conflict of interest, as defined by the Code of Ethics for Professional Accountants. The auditing firms should not conduct the audits for a legal entity to which they simultaneously provide the services of keeping books of account and preparing financial statements. The State Accountancy and Audit Council supervises the work of the auditing company.
Responsibilities of company management and auditors The objective and the fundamental principles governing an audit of the financial statements are to enable the auditor to express an opinion as
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to whether the financial statements, in all material respects, comply with the accounting principles of Republic of Serbia. The auditor is responsible for forming and expressing an opinion on the financial statements and the management of the company is responsible for the preparation and disclosure of financial statements. An audit of financial statements does not reduce the responsibility of the management.
Availability of the information to the auditor The auditor has a legal right to access the reports, accounts, evidence and other information as required for the purpose of an audit and issuing the audit report.
Content of an audit report The form and content of the audit report are regulated by the International Standards on Auditing. An audit report contains the report of the certified auditor, together with the financial statements subject to audit and notes to the financial statements. The auditor’s report is signed by a certified auditor.
Certified auditors The certificate of certified auditor may be acquired by a person: ●
with the title of certified accountant;
●
with a university degree;
●
with two years of experience in auditing;
●
who meets the requirements to acquire the certificate as provided bythe national standard specifying the requirements of professional development and titles to be acquired by accountants and auditors;
●
who has not been convicted on criminal charges disqualifying him/ her for tasks performed in the area of auditing.
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4.5
Employment Regulations for Serbian and Foreign Employees Ernst & Young, Belgrade
Serbian employment regulations Introduction Employment relationships, governing rights, obligations and responsibilities between employers and employees, are all regulated in the amended Labour Law (published in the Official Gazette of Republic of Serbia no. 24/2005 and 61/2005), which entered into force on 23 March 2005. This new Law re-introduces some of the principles inherently present in Serbian labour legislation, some of which may appear unusual to modern market economies, yet, at the same time, efforts have been made to harmonize regulations with the labour legislation of the EU. The concept of collective negotiations between the Employer Associations and Labour Unions, as well as the conclusion and execution of collective bargaining agreements, were some of the highlighted aspects in this field.
Structure In addition to the positive Law, which constitutes the primary source that regulates employment relations, the rights, obligations and responsibilities of employer and employee may also be regulated by Collective Bargaining Agreements as stated previously, provided that the terms and conditions set out therein observe the minimum requirements of the Law.
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Collective Bargaining Agreements are arrived at following negotiations between Employer Associations and Labour Unions. These Agreements are divided into three categories (General, Special or Particular), depending on their area of application. In cases where none of the signed Collective Agreements are applicable to the specific employer, then employers themselves, if they employ a minimum of five employees, are required to issue a company internal Employment Rulebook regulating employment relations. Employers define all rights, obligations and responsibilities at their discretion, provided that: ●
the specific employer is not a member of the Employer Association participating in negotiations of a Collective Bargaining Agreement;
●
the General or a Specific Collective Agreement does not apply in the particular employer’s case for various reasons indicated in the Law;
●
the employees are not members of an organized union in the respective company, or none of the organized unions meet the criteria for being the representative union;
●
the process of collective negotiations has not been initiated by either party;
●
the consensus for concluding of a Collective Agreement has not been reached within the period of 60 days from the day of initiation of the respective negotiation process;
●
the union with whom the collective negotiation process has been initiated, did not accept this initiative within the period of 15 days from the day of initiation for negotiation receipt.
Applicability The Labour Law applies to all individuals – nationals and nonnationals – entering into an employment relationship with domestic or foreign legal entities or individuals in the territory of the Republic of Serbia: The Law is also applicable to employees in governmental structures and employees assigned to work abroad.
Working relationships Types of employment arrangements The general conditions of the Law for entering employment are that an employee should be over 15 years of age and fulfil the conditions required for the specific job. Disabled persons can also enter into
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employment agreements to perform work in which they are not hindered by their disability. The employment arrangement may be concluded for a definite or an indefinite term. Definite term arrangements may not exceed 12 months in duration. Definite term employment arrangements are allowable only in specific circumstances explicitly specified in the Law (eg seasonal work, work on specific projects/assignments, in the case of an increased volume of activity and for substitution of absent employee). A definite term employment is converted into an employment of indefinite term ‘ex lege’, if such employment continues for a period of more than five working days after its expiration. Content of the employment contract A valid employment agreement in Serbia needs to contain the following information: ●
name and address of the employer;
●
name and address of the employee;
●
qualifications of the employee;
●
the exact job description;
●
the place of work;
●
the term and type of employment;
●
the date of commencement;
●
the working hours (full-time, part-time or short-time);
●
the basic salary and the assessment criteria for further benefits;
●
the payment date of salary and other benefits;
●
the name of the applicable collective agreement, if one exists;
●
the number of daily and weekly working hours.
Other working arrangements There are several other types of working arrangement that can be entered into under the provisions of the Serbian Labour Law and which are not considered to be employment. These can be, in particular: ●
service agreements;
●
temporary and occasional work arrangements;
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●
agency or mediation agreements;
●
vocational training and internships;
●
supplementary work arrangements.
Trial period Employment arrangements may stipulate a trial period, but with a maximum duration of six months. During the trial period, either party may terminate the employment, provided that notice of termination is given to the other party five working days in advance. If an employee fails to achieve work results or lacks the knowledge and ability to perform the requested work, employment is terminated with expiration of the trial period. Wages and salaries The average net salary in Serbia, as at June 2005, was approximately CSD17,441 (or approximately €210 per month). Foreign companies tend to pay higher wages. Working week and paid leave The standard working week is 40 hours, with five working days (Monday to Friday) with a daily 30-minute lunch break, followed by two resting days (Saturday and Sunday). It is possible for the employer to reduce the full working hours to a minimum of 36 hours weekly. Maximum working hours per week cannot exceed 48 hours, including overtime. According to the Law, overtime work is to be settled by paid leave or a minimum 26 per cent bonus calculated on the base salary. The annual paid vacation is 20 working days, provided that a person has been employed for six months. If the person is employed for less than six months, then the vacation entitlement is prorated accordingly. An employee is additionally entitled to up to seven days paid leave per year for extraordinary events (weddings, childbirth, etc) and, additionally, five days in the case of death of immediate family member and two days for voluntary blood donation. Maternity leave for the first and second child is 365 days, and for the third and fourth child 730 days. This leave should start at a maximum of 45 days and a minimum of 28 days prior to the day of delivery. Termination of employment The termination of an employment agreement entered into for an indefinite or definite term can be effected by either party, with a notice period of at least 15 days. Depending on the party effecting the termination, the requirements differ.
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Termination by the employer requires fulfilment of one of the conditions exhaustively enumerated in the Law, such as: ●
employee fails to achieve work results or lacks the knowledge and ability to perform the requested work;
●
violation of duties by the employee;
●
disrespectful conduct by the employee;
●
committing of criminal offences by the employee;
●
failure of the employee to resume duties after a lapse of 15 days following unpaid leave;
●
abuse of leave rights by the employee caused by his/her temporary impediment to work;
●
refusal of the employee to conclude the annex according to Article 171 of the Law;
●
refusal of the employee to conclude the annex according to the Article 33 of the Law;
●
changes in the technological, economic or organizational environment that lead to a workforce in excess of the company’s needs.
If termination is based on poor work results and inability to perform, an employee is entitled to a dismissal period from one to three months, depending on the number of years in service. In addition, termination of employment initiated by an employer, entitles the employee to unemployment allowance paid by the National Service for Employment. The termination of employment is considered to be unlawful if effected for following reasons: ●
temporary inability to work due to illness, accident at work or industrial disease;
●
use of maternity leave;
●
military service;
●
membership of a political organization, trade union, or other personal characteristic of the employee;
●
activity as a representative of employees;
●
consultation by the employee with the trade union or agencies in charge of protection of employment-related rights.
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The Serbian labour inspection, by virtue of audits carried out, may challenge the employer’s compliance with the labour legislation. Thereby the authorities focus their audits on the obligatory administrative registration and de-registration of employees with the competent social funds and the National Service for Employment, and usually small fines are imposed in cases of noncompliance.
Immigration procedures and work permits for foreigners Introduction Immigration procedures and the residing of foreign nationals in Serbia and Montenegro are regulated by the federal Law on the Residing of Foreign Nationals, issued in 1980. The provisions of the Law and the immigration procedures imposed by it may appear to be rather strict; however, in the recent course of implementation, the competent authorities have shifted their formerly strict approach to a more flexible one.
Registration of arrival Foreign nationals are required to register their arrival in the country immediately upon entering. This registration should be performed regardless of the purpose of their visit, ie whether business or pleasure motivated. The registration of arrivals is usually performed either by hospitality organizations (hotels), domestic lessors or individuals providing accommodation to foreigner nationals during their stay. The registration of arrival has to be done with the competent Police Department (determined by the place of residence of the foreign national) and within 12 hours from either the moment of rendering the service (ie of providing accommodation) or from the moment of arrival. Foreign nationals who are not using services of accommodation should register with the competent Police Department themselves (and inform them of any change of address) the next day following the day of arrival in Serbia (ie within 24 hours from the moment of the change of the place of residency or the change of address). Following the registration process, the competent police authority issues a so-called ‘White Card’, stating the foreign national’s current address in Serbia. This card should be kept along with other travel documents during the stay in Serbia.
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The above procedure, even though defined as obligatory, ceases to be performed on a regular basis (ie for every arrival in the country) once the foreign national regulates his residence status. However, the registration should be performed at least periodically, upon each change of address in the country and before applying for a residence permit extension.
Tourist visit Serbia and Montenegro applies no entry visa regime for certain listed countries (eg Germany, France, Italy, UK, Austria, United States, etc), which implies that nationals of the above countries are allowed to enter and visit the country for 90 days. In case the of visits for business purposes, foreign nationals who have entered the state as tourists should apply for a temporary residence permit for working purposes, as regulated in the domestic legislation.
Residence permits A foreign individual should obtain either a permanent or a temporary residence permit issued by the Ministry of Internal Affairs, and a work permit, in order to work in Serbia. A foreign individual who has obtained a temporary residence permit and work permit, can get an extension of the period of temporary residence and work permit, if necessary, when they are about to elapse. A foreign individual who is employed in a company situated in Serbia enjoys the same rights and privileges that exist under labour legislation as a local employee. No work permit is required if the foreigner is to be employed for the purpose of performing duties set out in a foreign investment agreement. Following registration of their arrival, foreign nationals who wish to reside in the country for the purposes of work should contact the competent Department for Foreign Nationals in order to regulate their residence status. Generally, there are two forms of residence available: permanent and temporary. Permanent residence status is granted to foreign nationals being either married to a Serbian national, having Serbian parents or being of Serbian origin. Temporary residence is granted to foreign nationals for private or for business purposes.
Residence permits for business purposes Residence permits for business purposes are issued based on the following grounds:
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performance of professional activities without employment;
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performance of business activities in Serbia – business visa.
A uniform procedure is applied in both of the above cases and the issuance of the permit usually takes around 30 days. The application to obtain a temporary residence permit based on business purposes should be submitted within three days of arrival into the country if foreign nationals are applying themselves, or within seven days if there is a local employer applying on the foreign national’s behalf. The obligatory documents required in the process of application are the following. For a foreign national: ●
valid passport;
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White Card;
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two photographs;
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completed application form;
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payment of prescribed tax.
For the local employer: ●
employment letter – employment contract;
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opinion of the National Service for Employment.
Where a local company engages foreign nationals on grounds other than employment (professional services): ●
specific contract on business cooperation, service contract or similar deed between a foreign company sending foreign nationals to work in Serbia and a local company (including the court certified translation of the contract); or
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assignment letter of the foreign company providing details on the scope of work to be performed, professionals who are sent, anticipated time for work to be completed, details of the costs etc.
In addition, documents that might be required by the Police Department on a discretionary basis are:
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registration documents of the local entity with the Trade Registry;
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tax clearance certificate of the local entity;
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certified lease contract for the business premises of the company or flat of the foreign national.
A residence permit on employment grounds is usually granted initially for a period of six months and may be extended for an unlimited number of one-year periods. A residence permit on the grounds of performing professional activities (where employment exists) is usually granted for a period of three months, but can be adjusted to specific requirements upon request.
Visas The visas regime and related issues are regulated at EU level. A valid passport and visa are required from a foreign national to enter Serbia. In May 2003, the visa requirement was cancelled for almost all European countries, the United States, Australia, New Zealand and some other countries, if the intention is to visit Serbia and Montenegro for a period of no longer than 90 days. Foreign nationals entering Serbia as transit passengers on transit visas may stay in Serbia for a maximum of seven days and they are obliged to register themselves with the local Police Department (a task which is usually performed by the hotel or place of residence). Foreign businessmen may obtain business visas for an unlimited number of business trips. These visas are usually granted for a period of one year, but do not extend beyond the validity of the passport. To obtain a business visa, foreign nationals are obliged to submit an application and a certificate of registration for their business in Serbia. Foreign nationals who wish to stay in Serbia for more than three months must request authorization for their temporary stay from the local Police Department. A temporary residence permit can be issued and is valid for a period of one year. This permit can be renewed on an annual basis if necessary. Foreign nationals who enter with a business visa do not need to request a temporary residence permit, because they are permitted to stay up to the date of expiry of their visa. Foreign nationals can also obtain a Serbian identity card if they wish to do so. Although an entry visa may not be required for nationals of certain countries, upon entering Serbia (see above) a visa is still required at the moment when residence status is determined.
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The procedure for obtaining such visa takes one day and requires only the submission of a formal request and the proof of taxes having been paid.
Business visas The application for residence permits on grounds of business activities carried out in Serbia (eg setting up of a company, a bank, opening of a representative office etc) is submitted by the foreign nationals who are registered in the Trade Registry with the capacity of founders, directors, managers or persons acting by virtue of power of attorney. The application should be accompanied, in addition to the compulsory documents (valid passport, White Card, two photos, filled out form and tax payment), by: ●
a Resolution (alternatively Request) on the establishment of a company, bank or representative office;
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a Resolution on the appointment as director, manager or authorized persons;
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the Articles of Association and their certified translation; and
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proof of the foreign national’s possession of adequate means.
This type of residence permit includes the visa and is granted for a period of one year, extendable for an unlimited number of times.
Work permits Work permits are required in Serbia only in cases when foreign nationals wish to enter into an employment contract with a local entity. A work permit should be requested from the National Service for Employment and requires the submission of the prescribed application form, passport (or a copy thereof), evidence that a temporary residence permit has been obtained, as well as a company letter stating the specific reasons for employment of the foreign national. The work permit, in the form of a Resolution of the National Service for Employment, should be granted within two to three days from the submission date.
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4.6
Dispute Resolution Karanovic & Nikolic
Introduction In this chapter, we outline some of the outstanding issues crucial for dispute resolution in Serbia and Montenegro. In the first part, we describe the court system in Serbia and Montenegro, its structure and court comptetences. In the second part, we will outline practical procedures with respect to filing a claim in the competent court, and enforcement procedures for debt collection will be outlined. Finally, we will review arbitration as an alternative solution to litigation.
Regulatory framework General proceedings in Serbia and Montenegro are governed by the Law on Civil Procedure and the Law on Enforcement Procedure, which came into force in February 2005. The principal objective of the new law has been to provide a procedural framework that ensures that disputes will be tried within a reasonable period of time, and to impose procedural discipline on the parties by introducing sanctions for failure to comply with procedural requirements. Other relevant laws such as the Law on the Court System, enacted in 2001 and slightly amended in 2002, and the Law on Settlement of Conflicts of Laws in 1982, last amended in 1996. Arbitration rules are governed by the Law on the Commercial Chamber of Yugoslavia (the law is not effective any more but certain provisions apply to the Chamber of Commerce of Serbia) and the Rules of the Arbitration, enacted in 1997. There is now a commitment within the Serbian government to adopt a new law on arbitration. The expectation is that the new law will be based on the UNCITRAL model law. The applicable law provides that the courts are independent in their work.
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The court system in Serbia and Montenegro In Serbia and Montenegro, there are three court instances: ●
Municipal Courts;
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County Courts;
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the Supreme Courts (of the Republic of Serbia and Republic of Montenegro).
Usually, the Municipal Courts are the first instance courts and their jurisdiction encompasses the territory of one or more municipalities. For instance, the city of Belgrade has five municipal courts for approximately 11 municipalities. Municipal Courts are competent to resolve all civil matters, labour and housing issues, damages, compensation etc, on all matters not relating to commercial issues. Generally, with regard to the jurisdiction and competence of particular courts, unless otherwise delegated to a higher court, all lawsuits fall under the jurisdiction of a local court. The County Court is formed for the territory of two or more municipalities. In general, County Courts, in the first instance, have jurisdiction in cases involving: ●
intellectual property;
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copyright actions;
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patent and trade mark issues;
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individual personal protection, including damage indemnification;
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issues relating to strikes;
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issues relating to maternity and fraternity;
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disputes relating to the media.
Furthermore, the second instance County Courts have jurisdiction to decide on appeals filed against the first instance court decisions. The Supreme Courts of the respective Republics are the highest courts in the Republics and represent the courts of second or third instance. For instance, in the second instance, they decide on appeals filed against the County Court rulings, and in the third instance decide on some outstanding legal remedies to the first and second instance courts rulings, such as revision.
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In addition to these so-called courts of general jurisdiction, there are the courts of special jurisdiction such as: ●
Commercial Courts; and
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Higher Commercial Courts.
The Commercial Court is competent to resolve all disputes involving (i) disputes between domestic and foreign legal entities relating to business operations; (ii) intellectual property issues arising between legal entities; (iii) in all disputes arising from the implementation of the Company Law and all status issues; (iv) foreign investment disputes, maritime issues, monopoly and competition issues; (v) company incorporation procedures, liquidation, bankruptcy and the forced settlement procedure. The Higher Commercial Courts decided on appeals filed against the decisions of the Commercial Courts issued in the first instance, as well as on other matters determined by the applicable laws. In addition to these instances, there are Constitutional Courts and the Federal Court based in Podgorica, but these are not very relevant to commercial issues, as they are responsible for constitutional matters (ie if certain acts or rules contravene the respective Constitutions). The application of the Law on the Court System, which introduces Appeal Courts as second instance courts and divides competences between Municipal and Country Courts, has been delayed until 2007.
Litigation The litigation procedure is initiated by filing a lawsuit in the competent court. The law stipulates that the lawsuit must have a determined claim, the facts of the case upon which the claim is requested, evidence that proves the existing facts and other data (names and addresses of the plaintiffs and defendants, etc.). A lawsuit may be filed either directly in the court or by regular post. In the first phase, the pre-litigation procedure, the presiding judge determines whether the lawsuit contains all the prerequisites prescribed by the law and if the respective court has jurisdiction in the respective case and may decide to (i) reject the lawsuit on the grounds of incompetency; or (ii) deliver the lawsuit to the defendant and schedule a court hearing. At this point it is worth mentioning that only the court is authorized to deliver a lawsuit to the defendant. It is not possible, as in other legal systems (ie UK, United States) for a plaintiff to deliver a claim directly to the defendant and notify the court. The presiding judge is responsible for the procedure, and has to manage the procedure in an effective
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and the most economic manner possible. It is the presiding judge who decides what evidence will be examined in the court and what are the facts of the case to be established. The parties are free to introduce any evidence they may find useful, but the final decision is taken by the judge. Usually, in connection with facts that are beyond the knowledge of the judge, an expert witness is engaged to provide the court with specific knowledge. The new Law on Civil Procedure introduces mediation as a dispute resolution mechanism and the process of mediation is governed by the Law on Mediation. After the judge decides that all the relevant facts of the case are determined, he/she will take a decision in the first instance, and usually deliver such decision to the parties by post. If a party is not satisfied with the court decision, they have a right to appeal to a higher court – County or Supreme Court – within 15 days in civil cases, and eight days in labour and commercial issues. The County Court has three possible solutions to the case (i) confirm the first instance decision; (ii) modify the first instance decision; or (iii) annul the first instance decision and instruct the first instance court to re-hear the case and establish any new facts of the case or correct some procedural mistake they may have made, and pass a new decision. Usually, the losing party must refund the other party’s court costs, including the cost of the expert witness and the costs of the legal representatives. So far, even though the previous Law on Civil Procedure provided for the efficiency of the procedure, in practice it takes on average approximately two to four years to complete a litigation proceeding. Whether the improvements introduced by the new Law on Civil Procedure will provide the expected results in practice, is yet to be seen. After the final court decision has been passed, the losing party usually has a period of 15 days to voluntarily act in accordance with the binding decision. In the event that the losing party fails to do this, the other party may initiate an enforcement procedure, whereas the losing party in the enforcement procedure, the debtor, will be forced to act in accordance with the binding decision and bear the additional costs of the enforcement procedure. The enforcement procedure normally does not take longer than one year. The forced collection of debt may be realized by (i) sale of the debtor’s real estate; (ii) seizure of movable property; (iii) removal of the funds from bank accounts; or (iv) any other feasible manner. The new Law on Enforcement Procedure is intended to provide a more efficient system for the enforcement of legal rights and remedies; introduces a new system of conservatory measures that help preserve a creditor’s position in litigation whilst a claim is pending; establishes summary enforcement procedures that enable the swift resolution of
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claims where liability cannot be seriously disputed; and clarifies the method of application of enforcement measures to different types of property (shares, chattels, real estate, etc).
Arbitration Generally, arbitration represents an alternative procedure to litigation and because of its efficiency, it is often used and stipulated between contractual parties. The new Law on Civil Procedure left in force the chapter from previous law regarding arbitration, until a new law on arbitration is passed. These provisions provide the contractual parties with the possibility of stipulating the arbitration procedure in the case of any dispute. Nonetheless, there a number of questions arise, such as which arbitration may be competent, which is the governing law, etc. The first question relates to the eligibility of the parties for arbitration. According to the Law on Civil Procedure and the Law on Settlement of Conflicts of Laws, the parties may take to arbitration issues regarding rights and duties, of which they can freely dispose. Usually, this is the case in commercial matters. For this reason, it is not possible for parties to arrange for arbitration in, for instance, family matters, where imperative norms would apply. Second, arbitration must be stipulated in writing, otherwise there is no arbitration agreement. There can be a separate agreement to the principal one, or the arbitration clause may be incorporated into the principal agreement, which is usually the case. It is important to outline that foreign arbitration and foreign law may be stipulated only in business operations having an international element (ie one legal entity is foreign and one is domestic). In a relationship where the international element does not exist, the foreign arbitration or law cannot be stipulated. In Serbia and Montenegro, there is only one Arbitration system, within the Chamber of Commerce, which was founded in 1947. It existed under the auspices of the Chamber of Commerce of Yugoslavia, but since February 2003, when the constitutional changes occurred, Arbitration now exists and functions under the auspices of the Chamber of Commerce of Serbia. The Arbitration Rules were passed in 1997, and are considered permanent (institutional) and international. It is competent to resolve all cases that can be considered as international, and, in principle, resolve disputes arising from relationships between domestic and foreign entities. Arbiters within Arbitration are domestic and foreign experts and have a mandate of four years. After the expiration of their mandate, an arbiter may be re-elected. Although it is
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carried out under the auspices of the Chamber of Commerce of Serbia, it is independent in its work. Arbitration has jurisdiction to resolve the following disputes: ●
international disputes to which maritime and airline law is to be applied;
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disputes arising from the Memorandum of Association of a company where foreign and domestic share capital exist;
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foreign investment agreements;
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concession agreements;
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intellectual property agreements;
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other disputes having international elements.
The competence of Arbitration has to be arranged in written form. Arbitration also has a mediation function, ie to reconcile the parties in dispute. The final judgement of Arbitration is binding on the parties and enforceable in the domestic courts. In this regard, it is worth mentioning that Serbia and Montenegro ratified the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. As such, an arbitral award made outside Serbia and Montenegro could be enforced directly in Serbia and Montenegro. Nevertheless, this process is time-consuming, as a few months or even a year is required to conclude the process.
Conclusion Finally, we can conclude that litigation in Serbia and Montenegro is time-consuming as it takes two to four years on average to obtain a final and enforceable decision. That the Serbian government is now giving its full attention to the reform of local dispute resolution processes is a positive development. New legislation in this area appears to be well drafted and focused on precisely the issues that needed to be addressed. Time will tell whether implementation will live up to expectation. A new law on arbitration is being prepared. It is hoped that the government will be true to its convictions, maximize the availability of choice in an arbitration context and encourage party autonomy.
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4.7
Intellectual Property Rights Karanovic & Nikolic
Introduction In this chapter, we will present the current situation regarding intellectual property (IP) and the expected outcome regarding reform of the regulatory framework. Presently the Serbia and Montenegro (SCG) legal regime relating to IP consists of five relevant laws that have been harmonized with the respective EU regulations and WTO requirements, and one law that remains be harmonized with these respective regulations and requirements. The Law on Geographical Product Markings (1995), which provides protection for products that are produced by a natural or legal entity in a certain geographical area, needs to be harmonized and the draft of this law is in process. It should be emphasized that the Serbian Customs Law, adopted in 2003, provides solid IP protection at the state border.
Regulatory framework The following laws regulate IP rights in Serbia and Montenegro: ●
the Law on Copyright and Related Rights (2004) regulates copyright of literary, scientific and artistic works;
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the Law on Trade Marks (2004) regulates trade mark registration and protection;
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the Law on Protection of Topographies of Integrated Circuits (2004) regulates the protection of topographies of integrated circuits, inventor’s rights and those of legal entities that invented the topographies;
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the Law on Patents (2004) provides protection for patents;
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the Law on Designs (2004) regulates the protection of the exterior form of the product and drawings that can be transferred into the product;
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the Law on Geographical Product Markings (1995) provides protection for the products that are produced by the natural or legal entity in the certain geographical area.
The following laws are drafted and are still under the public discussion procedure: ●
the Draft Law on Business Secrets;
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the Draft Law on Plant Varieties.
Additionally, SCG has ratified the main conventions relating to IP protection, such as the Madrid Agreement and Protocol Concerning the International Registration of Marks, the Universal Copyright Convention, the Patent Cooperation Treaty, the European Patent Convention, the Berne Copyright Convention, and the Strasbourg Agreement Concerning International Patent Classification. The Intellectual Property Agency (IP Agency) is the competent authority dealing with IP rights. It is an authority of the Ministry of Economy and Internal Trade of the State Union. The Ministry of Culture and Public Information of the Republic of Serbia has established an Anti-Piracy Commission. The Anti-Piracy Commission is responsible for following up the implementation of IP laws, particularly in piracy matters. There are a number of other organizations that exist in the IP sector, such as the Union of Composers’ Organizations in Yugoslavia, the Serbian Interpreters’ Association, the Serbian Copyright Agency, the Serbian Association of Painters and Decorative Artists, the Writer’s Association, etc. Presently, these organizations are not very active with respect to IP protection for their members and do not have a role and position in the policy making process in their respective IP fields. The most reputable non-governmental organization dealing with improvement of IP matters in SCG is the IPR Committee of AMCHAM (American Chamber of Commerce). The IPR Committee gathers all relevant factors about IP business in SCG and has considerable influence on the relevant governmental bodies responsible for the improvement of IP rights and enforcement.
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Copyright Copyright lasts throughout the lifetime of the author and continues for 70 years from the first day of the year following the death of the author. Registration of copyright is not required for establishment of copyright. Although the registration of copyright is not mandatory and does not establish any right, it is advisable. The IP Agency issues a Certificate on Copyright and on related rights. The IP Agency keeps the files of deposited copyright works and related rights. The IP Agency does not review the content of the author’s work, it simply registers the work. In the event that the original work is in a foreign language, a copy should remain in the same language. The filing requirements are as follows: ●
one copy of the work;
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a statement on the legal grounds of copyright over the work;
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a description of the work;
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a power of attorney (if the application is filed by an authorized representative);
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fee payment;
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specific data: (i) name, address, nationality, residence of the applicant; (ii) pseudonym of the author; (iii) title of the work, date of publication, place of publication; (iv) data on a previous work if the work is a new edition or re-arrangement of the previous work; (v) data on the author if the applicant is not the author.
The author is exclusively entitled to the exploitation of the work, as well as to the pertaining moral rights. Copyright lasts throughout the lifetime of the author and continues for 70 years from the first day of the year following the death of the author. In the case of a known author, the term begins from the death of the author. In the case of joint authorship, the term begins from the last death. In the case of anonymous authors and works under pseudonym, the term begins from the date of publishing. If the work has been published in sequence, the term began from the date of the last in the sequence. Performer-related rights last for 50 years from the publication date of the recording of the performance. Producer-related rights on sound and picture recordings lasts for 50 years from the recording publication date. Producer-related rights on broadcasting last for 50 years from the first broadcast. Producer-related rights for a database last for 15 years from the building of the database.
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Foreign authors have copyright protection based on international agreements that SCG has ratified or based on reciprocity. Foreign authors do have moral rights, regardless of their international agreements and reciprocity.
Trade marks Only registered trade marks enjoy protection and the rule ‘first to file’ is applicable. Applications are filed with the IP Agency. A trade mark can be cancelled if its holder does not use the trade mark within a period of five years. Once registered, trade mark protection is granted for a period of 10 years and may be renewed for an indefinite period of time. The IP Agency issues Certificates on Trade Marks once it resolves the registration of the trade mark. To initiate registration the following is required: ●
name and registered address of the individual/legal entity making the application for trade mark registration;
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trade mark to be registered;
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class of goods and services for which the trade mark is used on the market (in accordance with the abovementioned classification);
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information on the type of trade mark – individual, collective or guarantee;
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in the event that the collective or guarantee trade marks are to be registered, certain by-laws on collective and guarantee trade marks have to be provided.
The application form must be signed and sealed by the individual/legal entity that applies for trade mark registration. In addition, the individual/legal entity that applies for trade mark registration shall issue a power of attorney authorizing the attorney to sign, notarize and perform all the necessary activities required for registration of the trade mark. A power of attorney for the authorized representative is required when a foreign individual/legal entity applies for trade mark registration. The owner of the trade mark has the exclusive right to use the trade mark within the scope of the activities for which it is registered. This right lasts for 10 years and may be renewed for an indefinite period. The trade mark may be encumbered or leased. Furthermore, a fee of approximately €60 must be paid to file a trade mark application. An additional fee of approximately €100 is required
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for registering a trade mark for a 10-year period and must be paid at the moment of registering of the trade mark. The use of identical or very similar signs in turnover of goods or services by a non-authorized person, constitutes an infringement. An action should be filed with the competent court.
Patents The procedure for the registering patents should be commenced with the IP Agency. The entity applying for registration of the patent is considered to be the inventor. Upon registration of the patent, the applicant is considered to be the holder of the patent. The following is required for filing the application: ●
request for patent protection;
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description of the invention;
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invention request describing the invention and the inventor’s request on what he/she wants to protect;
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short description of the novelty of the invention;
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draft relating to the description and patent request.
In addition, information on the entity making the application and the inventor, name of the patent, power of attorney, and payment of fees must be submitted. The patent lasts for 20 years from date of filing the application. The dues are payable yearly, commencing from the third year from the date of filing. Once filed, the application will be formally examined. Upon formal examination and payment of the publication fees, the application shall be published but not earlier than 18 months from the priority date. The decision on the acknowledgement of the patent shall be published in the Official Journal of the IP Agency. Since last year, it is now possible to ask for an extension of the European Patent for the territory of SCG. The following will not be considered as an invention: ●
discoveries, scientific theories and mathematical methods;
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aesthetic creations;
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schemes, rules and processes for performing mental acts or for playing games, as well as computer software;
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presentation of pieces of information, determined by the content of the information itself.
Furthermore, the following inventions cannot be protected: ●
an invention, the publication or use of which would be contrary to the law or morality;
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the invention of a surgical or a diagnostic process, being directly applicable to the human or animal body;
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procedures for cloning human beings;
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plant or animal varieties, or mainly biological processes for their production, except the microbiological process.
Designs The new Law on Designs provides solid protection for designs as required under the TRIPS Agreement. The changes relating to the protection of designs have been very dynamic over the last few years and this new Law on Designs was adopted in order to fulfil the requirements relating to EU Directives, The Hague Convention and the TRIPS Agreement. The current law provides priority rights that are covered by foreign natural and legal entities from Paris Union countries and for WTO members as well. Therefore, this new Law on Designs is in compliance with EU Regulations and the TRIPS Agreement. According to the Law on Designs, an image or a drawing, suitable for transformation into an industrial or handicraft product, or its part thereof, and the external shape of a product can be protected as a design. The IP Agency issues the Certificate on Designs. The procedure lasts approximately 18 months. Once registered, the design registration is valid for 25 years from the filing date.
Topographies of integrated circuits An application for topography can be filed within two years from the first use of the topography for commercial purposes. The application can be filed within 15 years from the creation date where the topography has not used for commercial purposes. The application is filed with the IP Agency along with the required enclosures. After the examination of formal compliance of the
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application and the examination of the conditions for granting the protection, a decision will be issued. After publication of the topography, it will be registered in the registry kept with the IP Agency. Foreign persons can obtain protection for their topographies in SCG only on the basis of reciprocity and must be represented by an authorized representative with the IP Agency. An administrative appeals procedure can be initiated against the resolution of the IP Agency on topography. Once registered, topography registration is valid for 10 years from the filing date.
Concluding thoughts As previously stated, SCG is a member of the main conventions related to IP matters. The current laws are new (with exception of the Law on Geographical Product Markings, which provides protection to the products that are produced by the natural or legal entity in the certain geographical area) and were adopted in order to coordinate IP legislation with the relevant EU legislation and TRIPS Agreement. The IP Agency is currently processing files from 2003 and that creates uncertainty in terms of data accuracy. On the other hand, the IP Agency automatically issues certificates for trade marks for SCG that are registered internationally and protected through the World Intellectual Property Organization (WIPO). Intellectual property laws provide that in the case of infringement of IP rights the owner of the IP right can initiate a litigation procedure before the relevant court. Furthermore, violation of any of the IP rights, except the topography of integrated circuits, may constitute a criminal act, laid down by the Federal Law, or by the laws of member Republics. In addition, the Serbian Market Inspectorate is responsible for the inspection of goods and seizing counterfeited goods. However, this Inspectorate lacks equipment, trained personnel and support from customs, the police and judicial authorities.
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4.8
Competition Law Harrisons Solicitors
Introduction Competition is where commercial entities compete with each other in terms of production and exchange of goods and provision of services on the commercial market. It exists: ●
in a free market;
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when commercial subjects are economically independent;
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when there is a balanced ratio between offer and demand.
The right of competition in Serbia is regulated by various regulations such as the Trade Law dating from 2002 (Official Gazette of the FRY no. 37/02) and the Antimonopoly Law dating from 1996 (Official Gazette of the FRY no. 29/96), both endorsed by federal authorities. According to Article 64 of the Constitutional Charter of the State Union of Serbia and Montenegro (Official Gazette of the SCG no. 1/2003 and 26/2005) the two Laws continued to be in effect after the formation of the State Union of Serbia and Montenegro. The Laws deal with distortion of competition by acts and deeds of unfair competition, speculations and limitations imposed on the unique market; abuse of monopoly and dominant position and entering into monopolistic agreements. The Laws forbid the aforementioned activities. The new competition law is about to be endorsed in the Republic of Serbia. It will be harmonized with the competition regulations of the European Union (EU). It will replace the current Antimonopoly Law, which is deemed to be ambiguous and in discord with the EU standards. This new Law on Protection of Competition is based on Article 72, paragraph 1, point 4 of the Serbian Constitution (Official Gazette of Serbia 1/90), according to which the Republic of Serbia regulates ownership and obligation relations and protects all types of ownership, the legal status of the company, financial systems, economic relations
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overseas, markets, planning, labour relations, economic and social relations of general interest, etc. It is also based on Article 64, paragraph 3 of the Serbian Constitution, according to which each action that is aimed towards or supports a monopolistic position or in any other way limits the market is considered to be against the Constitution. The new Law on Protection of Competition should be endorsed by September 2005. However, at this stage it cannot be predicted with certainty whether or not the Law will be endorsed and whether its content will be subject to a change. In line with the current state of affairs in the interim period between the old and the new legislation, this chapter is based on the current legislature and will discuss new ideas to pave the way for the future Law on Protection of Competition.
Current right of competition in Serbia Trade Law Actions and deeds of unfair competition, speculation and limitations imposed upon the unique market are stipulated by the law as distorting the competition. Serbian legislation defines unfair competition under the Trade Law. The Trade Law defines unfair competition as the actions of a commercial entity aimed against good business practice harming another commercial entity or consumer either by causing material property damage, namely real damage and lost profit as well as non-property damage. The offender is the commercial entity, legal or physical entity individually involved in commercial business or a foreign physical and legal entity who commits an offence relating to unfair competition in the territory of Serbia and Montenegro. The offender can also be a domestic commercial entity carrying out business abroad, founded by a domestic physical and legal entity, when the object of the offence (the injured party) is a domestic commercial entity. The activity of the commercial entity is related to turnover of goods and services in Serbia and Montenegro and abroad. Unfair competition is deemed to be advertising, publishing or offering goods using vocabulary that may cause confusion in the market in relation to the goods in question and consequently put the trader in a better position; a stating false facts and defaming the opponent trader; selling goods that are marked and labelled in such a way that may mislead in terms of origin, manner of production, quality, quantity and other traits of the goods; hiding faults or misleading the customer in any other way; taking actions that would lead to the breaking up of ties between other traders or for the purpose of prevention or distortion of
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such relations; announcing false sales or false cuts in prices; the illegal use of insignias of other traders (name, stamp, quality sign, etc), the use of insignias not protected by the law, leading to confusion in the market and damaging another trader who uses such insignias in his operations; the unauthorized use of the sales services, sale representatives or representatives of a different trader; and winning over customers by promising or giving prizes, favours or other material gains that are higher than usual. Unfair competition also includes intentional retention of goods in stock and keeping them off the market by those legal entities or producers who are not registered to carry out commercial activity. Speculating is, in fact, gaining material profit by disrupting the market or by unjustifiable prices rises. It also includes concealing goods, limiting and halting the sale of the goods and other actions causing disruptions in the market; conditional sale of goods by purchase of some other type of goods, or other preconditions in relation to sale and purchase; distorting and obstructing the purchase of goods; executing dummy agreements on sale and purchase and on provision of services and other types of agreements; breaking the delivery deadlines or selling the goods when the delivery deadline has expired and charging the customer a higher price than the price valid on the delivery date set out in the agreement, or when the goods are not delivered at the agreed time when the goods are sold by advance payment. Limiting the unique market means any legal act of a state organ, trader, company or other legal or physical entity aimed at limiting the exchange of goods and free performance in the market, as well as those actions that put a trader in an unequal position by preventing him from expanding the sale of goods or by pressuring him into selling, and also other actions that might distort the competition. Law enforcement inspection is carried out by Trade Ministry and the Market Inspector. Anyone may inform the relevant Ministry about actions causing the abuse of a monopoly or dominant position in the market. The penalties may range from those affecting property (annulment of agreement) to penal ones (commercial offences, breaches). Where a commercial offence has been committed by a legal entity, the fine may range from CSD3,000 to CSD30,000 if the provisions on free competition prescribed by the Law are broken. The individual responsible may be fined between CSD900 and CSD9,000. In both cases, the perpetrators are forbidden to carry out trading activities for a period of five years. Property obtained by illegal activities may be confiscated and the court’s verdict may be publicized. Where there is a breach in implementation of the measures prescribed in order to prevent market distortion, the legal entity may be fined between CSD600 and CSD6,000 and the individual responsible between CSD1,800 and CSD18,000. In the case of breaches, the physical person who fails to
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implement the measures prescribed in order to prevent the imbalance in the market may be fined between CSD900 and 9,000. The sanctions prescribed by the Law are currently too low when compared to the damage inflicted by acts of unfair competition, but this is going to be altered by the legislative reform.
Antimonopoly Law The Antimonopoly Law, dating from 1996, defines the terms of a monopolistic and dominant position, the abuse of monopolistic position and monopolistic agreements. A monopolistic position is where the commercial entity is free of competition in trade, production of certain type of goods or provision of services in the market. A dominant position is where a commercial entity is substantially free of competition in relation to trade, production of certain goods or providing of services. The abuse of a monopolistic or dominant position refers to all the actions aimed against competition and leading to distortions in the market. Where an unequal position exists in business operations, such actions provide material gain and other amenities for the one and loss for the other. The Law explicitly defines abuse of monopolistic and dominant position. These are: increasing prices of goods, services, operational costs and inflating mark-up and import costs when the customs fees have actually been reduces; abuse of tax relief relating to goods of domestic origin exempt from tax; cessation or limitation of production, turnover, technical-technological development; uneven terms for different parties engaged in the same type of business; and preconditions forcing the other party to accept additional terms to the original agreement. Monopolistic agreements are executed between commercial subjects and are related to business terms that may distort or distract competition. These cause in disruption in the unique market of Serbia and Montenegro and harm the consumer. Such agreements can include: closure and separation of the market when goods are sold or purchased; direct or indirect price control; cessation or limitation of production, sale or technological development; sale of goods to one specific commercial entity or through one specific commercial entity; sale of goods only at in specific part of the market. Such agreements also waive, prevent or limit the right of sale, purchase, import and export of the goods solely or prevailingly through a specific commercial entity. The following are not considered to be monopolistic agreements: those which relate to business terms that would contribute to improvement of production or turnover of goods, support development or would be useful to consumers if the additional limitations are not imposed upon the commercial entities.
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Monitoring over the implementation of the Law is carried out by Antimonopoly Commission, which monitors, assesses and analyses the actions and operations of a commercial entity that is in a monopolistic or dominant position in the market, and also analyses potential monopolistic agreements. The Commission is not an individual body but a collective one within the Trade Ministry. Any person may report a commercial entity that abuses a monopolistic or dominant position or enters into a monopolistic agreement. Immediate inspection is carried out by the Market Inspector. The sanctions may vary from protective measures (publicizing the verdict, a ban on business activity), penalty fines (for commercial offences and breaches) and also imprisonment of the authorized person of the legal entity from between six months to five years, if the authorized person has executed a monopolistic agreement or abused a monopolistic position. Where a commercial offence has been committed by a legal entity involving a monopolistic agreement or abuse of a monopolistic position, the fine will be between CSD90,000 and CSD 450,000. An individual responsible will be fined between CSD15,000 and CSD30,000. Protective measures may include publicizing the court verdict, confiscation of the property, or imposing a ban on carrying out the business activity, which can last from six months to 10 years. If a legal entity assuming a dominant position fails to deliver to the Commission the agreements and other documents relating to production, trade or technological development, the fine can be between CSD30,000 and CSD150,000. If an individual is responsible, the fine will be between CSD3,000 and CSD9,000. Protective measures are as same as in the previous case, ie publicizing the court verdict, confiscation of the property, or imposing a ban on carrying out the activities.
Law on Protection of the Competition Territorial and personal implementation of the Law The Law refers to actions committed in the territory of Serbia, as well as to actions arising as a consequence of actions committed in the territory of Serbia and Montenegro or a foreign country, and which may harm the competition in Serbia or may harm the competition thus affecting the trade between the member states of the State Union of Serbia and Montenegro. The Law shall be implemented upon commercial companies, traders, legal and physical entities and the organs of state territorial autonomy and local government if involved in the turnover of goods and services, as well as their respective counterparts, who are operating in the market in a way that one of the parties affects
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and directs the other party. The Law shall not affect those organizations, commercial companies and traders who are involved in the activities in the general public interest or the entities that are empowered by the relevant authority to have a fiscal monopoly.
Commission for protection of the competition Under this Law, the Commission is empowered as an independent and autonomous organization, publicly authorized and instructed by the Serbian National Assembly. The Commission acts publicly. The Commission is responsible for supporting international cooperation protecting competition and for keeping records of reported agreements and participants holding a dominant position in the market, as well as controlling existing mergers. The Commission shall impose measures and other acts in line with the Law in order to protect competition and other matters. The procedure will be initiated by the Commission or at the request of a complainant who may be encountering the distortion or obstruction of the competition as well as other examples envisaged by the Law. Should the Commission find that an agreement, or part thereof, distorts the competition or if the dominant position has been abused, a decision will be issued to enact relevant measures in a specific period of time. The Law defines in detail the incorporation of the Commission, the procedures for its actions, the decisions it endorses and the measures that it may exercise. Violation of the competition is thought to be committed in the following cases: ●
entering into an agreement that prevents, limits or distorts competition;
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abuse of a dominant position;
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forming a merger that prevents, limits or distorts competition by creating or fortifying a dominant position in the market (a new addition from the current law).
Actions that distort, distract or limit the competition include having agreements or contracts (or some of the provisions within these), explicit or implicit dealings, agreed dealings, and decisions of the associations and participants in the market that directly or indirectly affect the sale and purchase prices or trading terms, limit or control production, the market, technical development or investments, part of the market or sources of supply, applying unequal terms with the different participants in the market for the same business, and preconditioning the execution of the agreement with additional liabilities that are not the subject of the agreement according to its nature and commercial
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practice. A new addition contemplated by the Law that was not in the previous Law, is the division between agreements that determine sale and purchase prices on horizontal and vertical levels. A horizontal agreement is executed between participants who operate at the same level of production or supply, while a vertical agreement is executed between parties who operate at different levels of production or supply. The Commission may, upon request of the contractual parties, decide to make an exception and endorse a disputed agreement or part thereof if such agreement or its part contributes to the improvement of production, distribution or technological development and where consumers are satisfied with the portion of profit arising therefrom. Horizontal agreements may be exempt if they are not for a period exceeding seven years. Vertical agreements may be exempt if they are not for a period exceeding five years. Abuse of dominant position in the market is forbidden and it refers to all actions that distort or prevent competition. The Law covers dominant and collective dominant position in the market. A dominant position is where a subject holds a market share exceeding 40 per cent. The subject has the right to argue the percentage. A dominant position may also be attributed to a subject that is in possession of less than 40 per cent of the relevant market. In these cases, the burden of proving charges of dominance shall rest on the Commission or the Authority alleging the dominant position. A collective dominant position is where two or more independent participants in the market are bonded by economic ties and act jointly as one participant in the market. A collective dominant position may or may not be held by the participants whose total share in the market exceeds 50 per cent. In this case the charges of dominance must be defended by the commercial subjects. A collective dominant position may also be assumed when the participants’ share in the market does not exceed 50 per cent, and here the charges of dominance need to be proved by the Commission or the Authority alleging the dominant position. Mergers of participants in the market tend to be formed in the following cases: when changes in status occur; when one of the participants in the market gains direct control over the other; when a new participant in the market is controlled by at least two independent participants in the market where the control is exercised on the basis of ownership status, or the right to use the property or on the basis of authorization. These are examples affecting participants in the market. According to the Law, the Commission shall issue an approval prior to forming a merger. The application for approval shall be submitted within of seven days of publicizing the invitation or of gaining control. The Commission shall endorse merger if it is found that by creating or strengthening the monopolistic position, it shall not consequently jeopardize or distort the competition.
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Sanctions The Law provides protective measures, initiation of misdemeanour procedures against participants in the market, as well as imposing substantive fines for the offence committed by a market participant and the person in charge of the legal entity. The pecuniary penalty can range between one and 10 per cent of total annual income for the offence of executing a forbidden monopolistic agreement; abuse of a monopolistic position; merger; and failing to implement imposed measures. The penalty payment may also be from one to three per cent of total annual income where the agreement, which may be exempt from ban, is not reported, or if the details requested by the Commission are not stated accurately. The case shall become obsolete in the period of three to five years from the date of the offence.
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4.9
Money Laundering Harrisons Solicitors
Introduction The current legislation covering money laundering in Serbia and Montenegro consists of: ●
Money Laundering Act (Official Gazette of the FRY no. 53/2001);
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Decision on the Procedure and the Terms of Notification of the Federal Commission for Prevention of Money Laundering Related to Money Transactions (Official Gazette of the FRY no. 44/2002);
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Decision on Methodology of Performance of Internal Control that is to be executed by the entities prescribed by Article 5 of the Money Laundering Act (Official Gazette of the FRY no. 38/2002).
In accordance with the reform of Serbian Legislation, on 29 November 2004 the Bill of the new Money Laundering Act was entered into the Serbian Assembly’s procedure. However, this Bill has not yet been enacted and it is not certain when it will be enacted or whether or not its contents will be subject to change.
Current legislation According to current Serbian law, money laundering means the depositing of money, including foreign currencies in cash, or other financial assets acquired through illegal activities, in the accounts of banks or other financial institutions, or introducing such money in any other manner into legal financial flows through which domestic and foreign physical and legal persons carry out permissible economic and financial activities. Illegal activities refer to the grey economy, weapons trade, trade in drugs etc. The money acquired through these illegal activities includes cash and cash equivalents in domestic and
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foreign currency, securities and other means of payment denominated in domestic or foreign currency, as well as property (rights and objects) acquired by using such money. The acts through which money laundering arises are: ●
concealment or disguising of the origin of money or the location where the money has been deposited;
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concealment of the purpose of using property and all the rights resulting from the forbidden activity;
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exchange or transfer of property resulting from the forbidden activity;
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acquisition, possession or utilization of the property resulting from the forbidden activity;
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concealment of illegally acquired social property and social capital in the process of ownership transformation of enterprises.
For the purposes of money laundering prevention and detection, the Law prescribes a series of activities and measures that are to be executed by certain institutions and legal entities, as well as responsible persons in the legal entities, during performance of transactions such as receipt, exchange or breaking up of large amounts into smaller ones and depositing the smaller amounts in accounts; acquisition of property or other activities with the money or the property that may result in money laundering. According to current legislation, withdrawal of cash from a current account or giro account, savings account or other account or withdrawal of foreign currencies in cash from a foreign currency account or foreign currency savings account is not considered as a transaction that would be considered a money laundering activity.
The Obligors and the measures to be undertaken The institutions obliged to observe transactions and to undertake the measures for detection and prevention of money laundering are denominated by the Law as Obligors. The following subjects are Obligors with regard to these activities: ●
banks and other financial organizations (Post Office Savings Bank, savings banks, savings and credit institutions, as well as savings and credit cooperatives);
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Post Office units, other enterprises and cooperatives;
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government agencies, organisations, funds, bureaux and institutions, as well as other legal persons, that are whole or part financed from public revenues;
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the National Bank of Serbia;
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insurance companies;
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stock exchanges, stock brokers and other subjects engaged in transactions involving cash, securities, precious metals and jewels, as well as purchase and sale of claims and debts;
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exchange offices, pawnshops, gambling rooms, betting places, slot machine clubs and organizers of lotteries and games of chance;
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other legal and physical persons (entrepreneurs) engaged in transactions related to the purchase and sale of claims and debts, asset management for third parties, leasing and factoring, forfeiting, issuance and conducting of operations with payment and credit cards, real estate business, trade in artworks, antiques and other valuable objects as well as trade in precious metals and jewels.
The Obligor must determine the identity of the client: when he/she opens an account for the client and establishes any other kind of lasting business cooperation; in transactions involving cash, including foreign currency in cash, securities, precious metals or jewels where the value exceeds CSD600,000, or in any transactions concerning life insurance where the value exceeds CSD40,000, or where there are several interconnected transactions the total value of which exceeds the mentioned values. The identification of the client must also be carried out when the value of the transaction is smaller than above amounts if there are reasons to suspect money laundering. The ‘authorized person’, determined by Obligor, notifies the Federal Commission for Money Laundering Prevention (the Commission) about every transaction that exceeds these amounts and reports the transaction if there are any reasons to suspect money laundering. This report has to be done before execution of the suspicious transaction. If this is not possible, the report must be submitted within 24 hours after the execution of the suspicious transaction. The Commission is an independent body, which collects, processes, analyses and keeps data and information obtained from the Obligors, provides competent governmental agencies with information and undertakes the measures for money laundering prevention. If the authorized person finds that there is well founded suspicion of money laundering, it may issue an order for temporary suspension of carrying out the transaction and notify the Commission on suspension. The suspension may not last more than 48 hours. The Commission shall inform the competent judicial and inspection bodies
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as well as the police so that they can undertake measures within their competence. If within 48 hours the Commission determines that there are no reasons for suspicion of money laundering, it shall inform the Obligor without delay. If the Commission fails to undertake any measures within the 48 hours, the Obligor may carry out the transaction immediately. Under the condition of reciprocity, data and information regarding money laundering may be conveyed to the competent bodies of foreign states or to international organizations upon request or on the initiative of the Commission.
Obligations of customs, judicial bodies and other government agencies and organizations The competent customs authorities are legally bound to convey to the Commission data on each transfer over the state border of cash, cheques, securities, precious metals and jewels where the value exceeds CSD30, 000 within three days of the transfer. The competent government agencies are legally bound to provide regularly to the Commission all information containing data on the proceedings in progress in connection with misdemeanours, economic and criminal offences related to money laundering, as well as on the perpetrators thereof (personal data, the stage of the procedure, final decision etc). The judicial bodies provide this data as well, at least once a year. The data are to be delivered for the purposes of combination and analyses. The Obligors, customs authorities, governmental agencies and judicial authorities maintain the registers of data related to money laundering and suspicious transactions. The data on transactions are to be registered by the Obligor at the time of execution of the transaction, with separate registration of the suspicious transactions. The Obligor has to keep the registered data for at least five years.
Internal control The Obligors are legally bound to provide the internal control of activities undertaken for the purpose of money laundering detection and prevention, as well as to provide the data confirming that these activities have been executed properly. In particular, this relates to data confirming that the identity of the person was determined in accordance with the Law; the registers were maintained and kept regularly; the Commission was notified on the transactions exceeding the amounts prescribed by the Law; the report regarding the transactions
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was submitted to the Commission and that other obligations were performed in accordance with the Law. The person in charge of this internal control is determined by the Obligor. The Obligor ensures the availability of all files containing the relevant information and data.
Sanctions The breach of the provision prescribed by the Law is sanctioned as a criminal act, misdemeanour offence or economic offence. The harshest penalty is imprisonment, which may be ordered in the case of depositing dirty money in accounts kept with banks and other financial institutions or introducing such money in any other manner into legal financial flows. The imprisonment may be given to the physical person as well as to the responsible person in the legal entity if he/she knew that the money was acquired through criminal activities, and can range from between six months and years (or between one and eight years if the amount exceeds CSD1,000,000). The Law also holds such persons responsible where there is negligence (if the person knew or may have known or was obligated to know that the money had been acquired through criminal activities) and prescribes imprisonment for up to three years, as well as confiscation of the money acquired by the illegal activity. The legal entity that is perpetrator of the economic offence may be fined between CSD45,000 and CSD450,000 if he/she fails to determine the identity of the party to the transaction or to notify the Commission or if he/she fails to provide the execution of internal control or fails to conduct the registers in the way prescribed by the Law. The authorised person and responsible person in the legal entity may be punished as well by a fine of between CSD3,000 and CSD30,000. An entrepreneur may be fined, in such cases, between CSD900,00 and CSD9,000.
The Bill of the new Money Laundering Act (the Bill) As stated in the introduction, the Bill of the new Money Laundering Act was entered into the Assembly’s procedure on 29 November 2004. The Bill is not yet enacted and it is not certain when it will be enacted or whether or not its contents will be subject to change. It will be passed on the Republican level on the basis of Article 71 of the Constitution of the Republic of Serbia for the purposes of improving the present system of detection and prevention of money laundering in accordance with international standards, as well as for the purpose of adjustment of the
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current legislation with the EU legislation and other international conventions ratified by domestic internal laws. The Bill defines in more detail the duties and authorization of the body competent for money laundering prevention. The body has been nominated as the Administration for Money Laundering Prevention (the ‘Administration’), which operates within the Finance Ministry. The Administration performs a wide scope of activity for the purposes of detection, prevention and observation of money laundering, under the management of the Director, empowered by the government or the Republic of Serbia on the basis of proposals by the Finance Ministry. The novelty introduced by the Bill is the extension of the Administration’s competencies regarding performance of different measures to prevent financing of terrorism and organized crime. The Bill should harmonize the definition of money laundering with international standards, so that various other types of money laundering will be defined in the Bill, such as conversion or transfer of property with knowledge that the property was acquired through illegal activities for the purpose of concealment or falsification of the illegal origin of property; concealment or incorrect presentation of the facts in relation to property; acquisition, possession, utilization of property at the moment of receipt with the knowledge that the property had been acquired by execution of a criminal act; and concealment of property illegally acquired during the procedure of privatization. The ‘property’ relates to all movable and immovable items, money, rights, and securities. The money can be cash, foreign currencies in cash, and deposits in bank accounts in domestic and foreign currency, as well as other means of payment. In relation to the current legislation, the Bill promulgates the wider scope of cases in which the measures for detection and prevention of money laundering are to be executed. This is primarily the case where there is withdrawal from accounts of cash in domestic or foreign currency, which is explicitly excluded and not considered as money laundering in the current legislation. The values of the transactions that are to be reported and their participants inspected have been increased to €15,000 or above (in CSD equivalent) if the transactions are performed in cash or by wire (which is a novelty in relation to the current legislation), or if the transactions are interconnected so that their amount totals €15,000.00 or above (in CSD equivalent). Also the values of transactions concerning life insurance are increased as follows: the value of a single premium or several premiums that are to be paid in one year, is increased to €1,000 or above (in CSD equivalent; when payment of a single premium rate exceeds the amount €2,500.00 (in CSD equivalent); when the value of a single rate of premium or several rates of premium that are to be paid in one year, is enlarged and exceeds €1,000 (in CSD equivalent).
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The Bill also foresees the payment or withdrawal of money derived from games of chance of €1,000 or above (in CSD equivalent) as reason for identification and notification to the Administration. The Bill foresees a wider scope of Obligors. Such a role will also be undertaken by investment funds, broker/dealer companies, custody banks, organizers of games of chance, legal entities and entrepreneurs who sell automobiles, watercraft and other items of great value; travel agencies; mediation of loans; mediation of insurance; organization of auctions, as well as the entities that carry out auditing activities, entitled auditors and legal and physical persons authorized to give tax advice. The Obligor has to notify the Administration about the transactions exceeding the prescribed amounts immediately and not later than three days from the date of transaction. If a suspicious transaction occurs, the Obligor must notify the Administration before the transaction is executed. If that is not possible, he must notify the Administration within 24 hours of the execution of the transaction with written notification of the reasons for such action. The suspicious transaction may be temporarily suspended by the authorized person, but this may not be for more than 72 hours. The transaction may also be temporarily suspended by the Administration, which is a novelty in relation to the current legislation. The customs authorities are legally bound to notify the Administration about each transfer over the state border of cash, cheques, securities, precious metals and jewels where the value exceeds €2,000 (in CSD equivalent), within three days of the transfer. The bodies entitled to initiate the checking of the suspicious transactions are determined more precisely. These bodies are: the Public Prosecutor, the National Bank of Serbia, the Ministry of Internal Affairs, the Privatization Agency, and the Commission for Securities. The competent state bodies have to notify the Administration at least twice a year about data and information concerning any procedures for misdemeanour offences, economic offences or criminal acts related to money laundering. The Court has the special obligation to notify the Administration at least four times a year about the concluded agreements related to the traffic of immovable property. This is especially important because the sale and purchase of immovable property in Serbia is the main way of incorporating money acquired by illegal activities into legal financial flows. While the problems of registration of immovable property and its transfer are still enormous, the data may be properly ensured only by court notification related to the number of the transactions carried out. The Obligors and the customs authorities that maintain the registers concerning the information and data related to money laundering are legally bound to keep the data in the registers for at least five years. The Administration is obliged to do this for at least 10 years. The Bill
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forbids the disclosure of this data to the persons to which they relate, as well as disclosure that the data has been handed over to the Administration and that measures for money laundering prevention have been initiated. This forbiddance is known in international legal practice as the ‘no tipping off rule’. Supervision over the implementation of the Law by the Obligors, auditor companies, legal entities and physical persons responsible for maintenance of business books or giving tax advice, is performed by the National Bank of Serbia, the Ministry for Internal Affairs, the Finance Ministry, and the Commission for Securities, as well as the inspection bodies. They are legally bound to provide reports to the Administration at least once every three months. The sanctions are defined through the provisions on business offences and misdemeanour offences. The fines have been increased as follows: for a business offence committed by a legal entity the fine will be between CSD45,000 and CSD3,000,000. The responsible person in the legal entity and the authorized person of Obligor may be fined between CSD3,000 and CSD200,000. The fine determined for a misdemeanour offence committed by an entrepreneur will be between CSD5,000 and CSD500,000. The criminal act of money laundering is to be defined by the new Codification of the Criminal Law in accordance with current legal reform.
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Part Five Serbia’s Dynamic Companies
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5.1
YUGOIMPORT-SDPR YUGOIMPORT-SDPR is a public company, fully owned by the government of the State Union of Serbia and Montenegro. The nine members of the Board of Directors and the director-general of the company are appointed by the government of the State Union of Serbia and Montenegro. Pursuant to the Special Law promulgated by the Federal Assembly, YUGOIMPORT-SDPR represents the Ministry of Defence and defence industry of the State Union of Serbia and Montenegro in foreign trade of armaments and defence equipment and related services. YUGOIMPORT-SDPR is a complex, well organized and coordinated business system with appoximately 350 employees in the parent company and another 200 employees in subsidiary companies. Also, it spearheads the 22,000 worker-strong defence industry and 3,000 highly skilled specialists in military related research and development institutions. The company is organized along the lines of a holding structure, with clearly defined fields of competence and activities within the business system of YUGOIMPORT-SDPR. The parent company deals in foreign trade in armaments and defence equipment and renders engineering services. The seven subsidiary companies in which the parent company is major share holder, deal in foreign trade, wholesale and retail of consumer goods, project management, contracting and consulting, as well as production of foodstuff, hunting and sporting ammunition, rendering of engineering and other services. The main activities of YUGOIMPORT-SDPR include the following: ●
import and export of armaments and defence equipment;
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overhaul and modernization of armaments and defence equipment and its systems;
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engineering;
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scientific, technical and industrial cooperation;
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technology transfer;
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training and education;
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technological support; and
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research and development.
For nearly 60 years, YUGOIMPORT-SDPR has successfully responded to the challenges of the world market to provide the most advanced defence technology and high quality products and services. Wide experience acquired through continuous struggle with competition to attain strategic superiority on the international market in sales of armaments and defence equipment has been successfully put to use in capital investment projects and transfer of state-of-the-art defence technologies. By introducing the quality standards JUS ISO 9000 and 14000, the YUGOIMPORT-SDPR business system keeps pace with trends on the international market in military and consumer products. Customers and business partners from more than 100 countries worldwide appreciate the dynamic and flexible organization of YUGOIMPORT-SDPR that has earned the company a turnover worth US$22 billion in the period from the early 1970s up to the early 1990s. This is the best evidence of the high quality of YUGOIMPORT-SDPR’s services, both on the domestic and global markets and its finest reference for the potential clients. Cooperation with the company’s partners from the United States, Russia, India, China, Latin America and various countries from the Near, Middle and Far East has been revived and intensified. Market conditions and great interest in the company’s tank upgrade programme have raised possibilities for technological reintegration of the West Balkan country. To that effect, YUGOIMPORT-SDPR welcomes all partners capable of implementing favourable terms of cooperation. Even in the changing global and regional environment, YUGOIMPORT-SDPR is determined to join the leading companies and become their partner in engineering operations and in the development of modern construction systems and products for the world market. For further details, please contact: YUGOIMPORT-SDPR PR Advisor Tel +381 11 143 933; Fax: +381 11 311 29 92; Email:
[email protected].
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5.2
Masinoprojekt Overview Masinoprojekt is a joint stock company for designing, consulting and engineering services for public and industrial facilities. The company’s main scope of work includes the following: 1. Designing: – architecture: public and industrial facilities; – steel and reinforced concrete structures (building construction and civil engineering); – roads, gas pipelines and heating pipelines; – hydro-construction facilities, water supply and sewage systems; – thermo-technical and thermo-energy installations and plants; – electro-technical installations and plants; – automatization, remote control systems; – information systems; – technological processes and installation (industrial production, preparation of raw materials, recycling, storage, purification of waste materials); – fire detection installations and alarm systems; – reconstructions and revitalization of existing industrial facilities, from the environmental and energy saving aspects. 2. Consulting & Engineering – studies, analyses, plants and development projects; – feasibility studies and investment programmes; – collection of the concordances on technical documentation and obtaining construction licences;
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– bidding documentation; – organization and execution of the procedure for selection of the best contractors, equipment, materials and installation systems suppliers; – supervision of the construction, assembly, equipping and commissioning of facilities; – organization and conducting of the construction, coordinating contractors and suppliers of materials and equipment up to trial runs and licences; – organization of trial runs and personnel training; – contracting and realization of the construction of all types of facilities on a ‘turn-key’ basis. The company presently performs a range of designing services for foreign investors in Serbia, including multinationals of the calibre of La Farge Cement (France), US Steel, TITAN, TARKETT and AFRICA ISRAEL. Masinoprojekt was a well known Yugoslav state-owned enterprise that designed industrial facilities and public buildings, and which is currently seeking to reassert its market position as a privatized company operating in a competitive business environment.
Corporate history in brief The company was formed in accordance with the decree of the government of the Federal People’s Republic of Yugoslavia of 5 October 1950 and given the name of ‘Masinoprojekt’, with the task to elaborate projects for technological processes and new machine plants. In early 1958, the enterprise employed 200 people and relocated into the office building, which it had designed itself and where it is located at present. The company developed large-scale projects at the time, such as the projects for the steel mills Zenica, Jesenice, Store and Ravne. In the 1960s, a number of designs were made for sugar plants. The 1960s–1980s was a period of intensive designing of industrial buildings and plants by the company, such as the mining and metallurgical combines in Zenica, Trepca and Bor, the chemical industry in Sabac, Veles and Mitrovica, and thermo-electric power plants in Obrenovac and Kostolac. During that time, the enterprise expanded its activities into the sphere of public buildings. Most of these were hospitals, the major ones being the Military Medical Academy in Belgrade, and clinical centres in Novi Sad and Belgrade. In the 1980s and 1990s, the enterprise ventured into the world market by designing the
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Congress Centre in Ulan Bator, the International Trade Centre in Moscow, the State Library ‘Lenin’ in Moscow, and a great number of different buildings in central Africa, from National libraries to Telecom Switch Exchanger facilities. The company was privatized within the framework of the Serbian privatization programme and, today, Masinoprojekt is a 100 per cent private joint stock company. There is no significant difference in the management of the company between the time it was owned by government and as it operates as a private company today. In fact, privatization did not alter the structure of managerial appointments at the company, with the same management team largely remaining in place after the company was privatized (the company was privatized predominantly to its employees, not to outside strategic investors).
Business development at present Masinoprojekt’s legal status is that of an open joint stock company, with an annual income of some €3 million at present. The company began to apply international accounting standards for the first time during 2005, with a reputable auditing company engaged to perform the task of managing the company’s accounts. Masinoprojekt is one of the major companies in its sector in both Serbia and Montenegro, as well as in the Balkan region as a whole. Its main competitor is the state-owned engineering firm, Energoproject, followed by a range of smaller, less established local companies. The company is seeking to become involved in bigger projects in industrial and public facilities, both as designers and project managers. According to its management, one of the main competitive advantages of the company is that it employs, on a permanent basis, all branches of engineers, so that complete design documentation can be produced within the company relatively quickly and qualitatively. Furthermore, during construction, Masinoprojekt’s site engineers have constant backup support from designers for modifications and improvements on the construction site. Masinoprojekt is capable of competing effectively with some of its foreign competitors on the basis of the quality of its engineering services. However, a weakness of the company relates to backup support from Serbian banks or insurance companies concerning guaranties and professional indemnity insurance. As regards the investment climate within Serbia and Montenegro, Masinoprojekt’s management suggests that, in recent years, there has been tremendous improvement in the legislative framework concerning the construction business. There are still, however, some bylaws due to come into force, which are expected to provide easier practice in this type of business.
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Masinoprojekt is very active on the Russian market, and this country constitutes the main destination of Masinoprojekt’s export business. The company has been active in Russia (ex-Soviet Union) since the 1980s, when it worked on the design of the international trade centre in Moscow. The company previously had substantial volumes of designing business in central Africa. Masinoprojekt has very good relations with similar companies to itself in Europe, Israel and the United States and, depending on the nature of the project being developed, has had cooperation agreements with compatible companies with a good record concerning experience and knowledge. Possible future membership of Serbia and Montenegro with the European Union (EU) would be of major benefit for Masinoprojekt, as this will make possible the company’s presence on the EU market where Masinoprojekt believes that it can offer the same level of quality services as EU companies. Masinoprojekt currently has 198 permanent employees and a large number of collaborators from Belgrade University and other prominent Institutes in Serbia and various consultants from all around Europe. Masinoprojekt is located in the very centre of Belgrade, where all its employees are situated, except those who are temporarily engaged on different construction sites. All of the company’s employees are local staff and receive their training through local training courses and from literature concerning management and engineering.
Future business development In conclusion, it can be said that company management’s strategic vision for the future of the enterprise is to maintain its presence on the local market and to spread into the EU market, either through cooperation or directly. Furthermore, Masinoprojekt is planning to increase its activities for project management services and ‘turn-key’ projects as well. Company contact details and further information: Website: www.masinoprojekt.co.yu Email:
[email protected] Fax: +381 11 643 995 Mr Radomir Laliü, General Manager Tel: +381 11 3635724; +381 11 3635720 Mr Dušan Kovaþeviü, Technical Manager Tel: +381 11 3635767; +381 11 3635770 Email:
[email protected]
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5.3
Termoelektro a.d. Introduction Termoelektro a.d. is one of Serbia’s leading companies and is concerned with manufacturing, construction, revitalization and maintenance. TERMOELEKTRO was founded in 1948, has its Head Office in Belgrade, and has based its successful operation on the knowledge and experience acquired in the course of the past 55 years. Termoelektro has erected over 1,200,000 tonnes of equipment, piping and steel structures to date and constructed tens of thermal and hydroelectric power stations, with total power of over 7,000MW (megawatts), of which 1,500MW is produced abroad, and constructed five refineries, with a total processing capacity of more than 12 million tonnes of petroleum. The company has also developed hundreds of other projects within the fields of ferrous and non-ferrous metallurgy, as well as for industrial plants of all kinds, including the cement industry, the pulp and paper industry, the chemical and foodstuffs industries and others. Termoelektro employs some 1,500 individuals, including around 200 engineers and technicians, 500 highly-skilled and qualified welders and about 1,000 other specialists, capable of executing even the most complex operations within the scope of their activities. The company owns mobile cranes and the equipment and facilities necessary for the execution of all kinds of construction and commissioning, in line with current standard specifications and norms accepted worldwide. With regard to construction works abroad, Termoelektro has partnered many renowned firms from Germany, France, Austria, Belgium, the Middle East, North Africa, the Russian Federation, Czech Republic, Japan and the United States; and has also been engaged as a contractor (and subcontractor) for West European, Japanese or American companies on the construction of capital projects. Through the process of permanent on-the-job training, education and specialization, this organization has created a large team of specialists and experts who, today, provide a guarantee of successful and high-quality performance of construction works according to mutually agreed work schedules. Good organization, expert personnel, good workmanship and adherence to contractual terms and a minimum construction period, are the basic features of this company, whilst
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competing with other international companies engaged in this field of business. Termoelektro, today, has up-to-date knowledge and capabilities. It has both well-qualified staff and modern equipment, and uses up-todate procedures and construction technologies, whilst also developing technologies of its own. The lifting and transportation of heavy loads of several hundred tonnes do not represent any problem to this firm. The expert teams of Termoelektro have lifted hundreds of columns and reactors heavier than 250 tonnes in the chemical industry, and tens of turbines and generators of great weight. Reconstruction, revitalization, maintenance and overhaul of plant, are the areas where Termoelektro has achieved the greatest results. For that purpose the Technical Centre, with laboratories, workshops and a school for welders, has been developed. Quality assurance, quality control, commissioning of equipment and plant, start-up and operation of plants, are the fields for which Termoelektro acquired the licences from the competent domestic and foreign institutions and companies. Termoelektro has plenty of experience and can perform the following professional activities in the following fields:
1. Engineering ●
project management;
●
detailed engineering (design, equipment procurement);
●
construction engineering.
2. Erection ●
projects and plants; – boiler plants; – turbine-generator plants (steam and hydro); – switchyards and auxiliary facilities; – oil treatment plants (refineries, petrochemical and chemical plants); – metallurgical complexes (ferrous and non-ferrous), – steel plants and rolling mills
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– industrial plants (cement plants, pulp and paper mills, sugar factories, edible oil plants, agricultural products plants, compressor stations and other industrial plants); ●
activities; – mechanical erection/construction; – installation of electrical equipment and instrumentation (measuring, regulation, automation and control); – installation of thermal insulation (hot and cold); – painting; – refractory bricklaying; – testing and commissioning of the plants.
3. Overhaul and maintenance ●
permanent and preventive maintenance;
●
overhaul of equipment and plants;
●
reconstruction of plants;
●
revitalization of plants.
4. Design ●
projects and plants; – thermal power and heating; – process industry; – metallurgical complexes.
●
activity; – investment programmes – tender documentation – preliminary and final (main) designs – design supervision and ‘as built’ drawings.
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5. Equipment manufacture ●
fabrication of steel structure;
●
manufacture of conventional and non- standard equipment (for thermal power plants, processing plants and industrial projects);
●
manufacture of expansion joints.
6. Quality control ●
welding technologies;
●
testing with destruction of samples;
●
non-destruction testing;
●
pre-weld and post-weld heat treatment;
●
welders’ training and certificate issuing.
7. Trade and transport ●
wholesale and retail trade;
●
transport.
TERMOELEKTRO: Basic company information Termoelektro a.d. is a joint stock corporation with head offices at Uralska 9, Belgrade. The company is working continuously on sites throughout the country and occasionally on sites resulting from new contracts outside Serbia. Most of the latter are more specialized workshops, such as: ●
workshops in Obrenovac and Ub, with mechanical-locksmith manufacturing and equipment of 300 tonnes per month;
●
the Technical Centre with full equipment for non-destruction and destruction testing;
●
valve division – a specialized workshop for valve repair and removal;
●
the welder training centre, for training, education and certification of all kinds of welders, including 120 certificated welders with qualifications 141 T W W02;
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a project and design department, with 22 highly-educated engineers of different profiles, possessing relevant project and design licences.
All these Termoelektro departments have the international ISO 9001 certificate. HEADQUARTER ORGANIZATION CHART
GENERAL MANAGER
ASSISTENT TO GENERAL MANAGER FOR COMMERCIAL AND TECHNICAL MATTERS
COMMERCIAL DEPARTMENT
CONSTRUCTION AND MANUFACTURE
COMMERCIAL DEPARTMENT MANGER
MANAGER OF CONSTRUCTION AND MANUFACTURE
FOREIGN MARKET SALES SECTION
DOMESTIC MARKET SALES SECTON
TECHNICAL MANAGER OF CONSTRUCTION AND MANUFACTURE TECHICAL SUPPORT DEPARTMENT TECHNOLGY SUPPORT SECTION
MARKETING SECTION
FOREIGN TRADE AFFAIRS SECTION
GENERAL SERVICE SECTION
ESTIMATION SECTION WELDING WORKS SECTION PERSONNEL TRAINING CENTER
ASSISTENT TO GENERAL MANAGER FOR FINANCE AND ECONOMY
AUTOMATIC DATA PROCESSING DEPARTMENT SAFETY AND FIREFIGHTING DEPARMENT
ECONOMIC AND FINANCE MATTERS DEPARTMENT
LEGAL, HUMAN RESOURCES AND GENERAL MATTERS DEPARTMENT
DEVELOPMENT AND INVESTMENT DEPARTMENT
QUALITY CONTROL DEPARTMENT
MANAGER OF ECONOMIC AND FINANCIAL MATTERS DEPARTMENT
MANAGER OF LEGAL, HUMAN RESOURCES AND GENERAL MATTERS DEPARTMENT
MANGER OF DEVELOPMENT AND INVESTMENT DEPARTMENT
MANAGER OF QUALITY CONTROL DEPARTMENT
FINANCE SECTION
FINANCIAL OPERATIVE OFFICE WAGE CALCULATION OFFICE
ACCOUNTING SECTION
OPERATIVE SUPPORT SECTION WORK TOOLS SECTION PURCHASING DEPARTMENT CENTRAL WAREHOUSE CS/DIVISION FOR CONSTRUCTION EQ. MANUFACTURE DIVISION FITTINGS AND VALVES OVERHAUL DIVISION DIVISION FOR TRANSPORT, MECHANIZATION AND MAINTENANCE
FINANCIAL BOOKKEEPING OFFICE FOREIGN CURRENCY BOOKKEEPING OFFICE MATERIAL BOOKKEEPING OFFICE OPERATING UNIT BOOKKEEPING OFFICE
DIVISION TRADE
LEGAL MATTERS SECTION
DEVELOPMENT
RECEPTION CONTROL
INVESTMENT
INTERNAL INSPECTON
HOUSING AND LEGAL PROPERTY OFFICE HUMAN RESOURCES AND GENERAL MATTERS SECTION
TECHNICAL CENTER DIVISION
WORK RELATIONS OFFICE
GENERAL MATTERS OFFICE
ARCHIVE OFFICE
SECURITY SECTION
ACCOMODATION AND CATERING DIVISION
ANALYSIS AND PLANNING SECTION
TRANSPORT MAINTENANCE REFRACTORY LINING, INSULATION AND PAINTING DIVISION ELECTRICAL INSTALLATION DIVISION
Figure 5.3.1 The Termoelectrico organization
Human resources and qualification structure Termoelektro a.d. is one of the leading companies that deals with manufacturing, construction, revitalization and maintenance in Serbia. At the moment it employs 1,494 workers in Serbia and abroad (see Figures 5.3.2 and 5.3.3).
Transportation and machinery resources The company acquired a new 60 tonne ‘Liebherr’ crane in 2004, equipped with modern technical and transport equipment. This machinery covers a great range, from 7–136 tonnes, which makes Termoelektro one of the best-equipped and mobile enterprise in this line of business in Serbia and Montenegro.
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60+ 1.07% 51- 60 18.86%
- 25 8.90%
26- 30 13.78%
31- 35 12.31% 46- 50 18.46% 36- 40 11.71% 41- 45 14.92%
Figure 5.3.2 Employee age structure
Company history in brief The following provides a chronological history of the company: ●
1948: Termoelektro was founded; for the first few years the company performed erection works.
●
1961: It became an erection/manufacturing company, employing about 3,000 workers. Special economic divisions were formed in their lines of business. The erection department, with 1,600 workers, was formed and was responsible for the erection of power and industrial plants. This department is now active at 17 different sites.
●
1970: The companies Termoelektro and ElektroSrbija were incorporated into Minel company. The erection department worked within Minel as working department EIP.
●
1972: The 22nd of May became the ‘company’s day’ because on that date WD EIP became the legal entity OOUR Termoelektromontaža within the Minel company. The company worked across the whole of ex-Yugoslavia, but also in Libya, Guinea, Iraq and other foreign countries
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Termoelektro a.d. 1 4 1 /1 1 1 T B W W 11 2.36% 1 4 1 /1 1 1 T B W W 02 16.93%
135 P B W W 01 1.57%
111 P B W W 01 7.09%
283
111 T B W W 01 20.08% 141 T B W W 11 1.57%
141 T B W W 02 29.92%
111 T B W W 02 14.57% 111 T B W W 11 0.39%
311 T B W W 02 2.76%
311 T B W W 01 2.76%
(a) Percentage of qualified welders in each category 76
80 70 60 50 40 30 20 10 0
51
43
37 18
6
7
4
141/111 T BW W 11
141/111 T BW W 02
7
4
1
141 T 141 T 311 T 311 T 111 T 111 T 111 T 111 P 135 P BW W 11 BW W 02 BW W 02 BW W 01 BW W 11 BW W 02 BW W 01 BW W 01 BW W 01
57
60 50 40 30 20 10 0
0
1
1
141/111 T BW W 11
141/111 T BW W 02
141 T BW W 11
141 T BW W 02
0
0
0
1
0
0
0
311 T BW W 02
311 T BW W 01
111 T BW W 11
111 T BW W 02
111 T BW W 01
111 P BW W 01
135 P BW W 01
(b) Number of welders in each category
Figure 5.3.3 Certificated welders and training schools
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●
1978: OOUR Termoelektromontaža was dis-incorporated from Minel and started working independently under the name of Termoelektro. The line of business spread over the borders to the Czech Republic, Algeria and Russia, and business progressed in Libya and Iraq. Within the borders of the Federal Republic of Yugoslavia, Termoelektro was far ahead of its competition and was involved in the most important contracts. Competition from companies such as Monting (Zagreb) and Hidromontaža (Maribor) did not continue during the years of Yugoslavia’s disintegration.
●
1992: The imposition of sanctions against Serbia (Federal Republic of Yugoslavia) shook Termoelektro deeply, at a time when the company was at its prime. However, the company’s businesses spread to the maintenance and overhaul work on plants it had already constructed earlier, and also to the manufacture of non-standard equipment and spare parts. The company’s Technical Centre was also founded. The company managed to retain its business in the Czech Republic, Nigeria, Russia, and to keep its best personnel.
●
1999: Termoelektro was partly privatized under the following model: 65 per cent of shares were given to the employees and retired workers, while 35 per cent of shares remained in government ownership.
●
2001: The European Agency for Reconstruction (EAR), in charge of tender organization for thermal power plants revitalization in Serbia, was founded. However, due to the unfavourable financial terms the contracts are given only to foreign companies. However, Termoelektro tends to be the leading local partner for all the companies involved in EAR tenders on the revitalization.
●
2003–2005: The company has contracted jobs that increased Termoelektro’s operation by more than 30 per cent and has successfully regained its German market.
Partial privatization It is difficult to analyse the influence of partial privatization on the company’s business and compare this to the pre-privatization period, because at the moment of privatization the company was part of a market practically devastated during the NATO bombing and the war in 1999, while in the period beforehand it was a state monopoly without any serious competition. However, some of the structural problems ailing the company were somewhat alleviated by the partial privatization. Primarily, and in cooperation with the government, a programme of unconstrained redundancy of excessive labour was
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implemented. More than 400 employees left the company, taking adequate dismissal wages. This process has helped to make the company more efficient and compatible with the requirements of a market economy. Also, the company has stabilized and adapted to the business environment and market conditions, and the imperfections of the partial privatization module should be resolved by the end of the 2005 at the latest, during the process of total privatization and the search for a strategic partner.
Competition and market share Termoelektro’s share of the local market in the line of erection works varies between 25 and 30 per cent, and is rising. Its main competition includes the companies: Goša Montaža, Smederevska Palanka, Invest Import Beograd, Mostogradnja Beograd, and dozens of small enterprises, which mainly perform their work illegally and give inadequately low prices for services (which is one of the basic problems of the rather chaotic situation in this market in Serbia in general). The advantage this company has is the unbeatable experience and excellent references, since all strategic plants in Serbia and Montenegro and all over former Yugoslavia were built by Termoelektro. The overhaul of such plants is considerably faster and more professional, due to the fact that the people working on the overhaul are the same that participated in building those plants. Furthermore, the price for such services is very favourable and commensurate to the Western market. The weaknesses arise from the system in which over 3,000 small shareholders with their associations represent the governing structure, often causing internal problems. This is why Termoelektro has started the process of placing shares on the market in an attempt to solve this problem. Serbia’s return into the international community has been of great assistance to Termoelektro’s business, especially in giving it the opportunity of working on projects in Germany, where some 345 of the company’s workers are engaged on four projects during this current year.
Export markets The company’s exports during 2004 amounted to 17 per cent of total turnover, which represents the largest percentage since 1999, when the company was partially privatized. Termoelektro has been present for decades in the markets of Europe, North Africa, the Middle East and Asia, but this cooperation ceased due to the war in the former Yugoslavia. However, since 2003 the company has been active in the
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German market and the negotiations for works in the Middle East and North Africa for the autumn/winter season 2005/2006 have resumed. Termoelektro imports personal protective equipment, tools, and other equipment mostly from Western Europe, mainly Germany, and, in December 2004 a 60 tonne Liebherr auto crane to the value of €500,000, was imported.
Workforce, education and training There are no foreign expatriates working for the company. The company’s top management is involved in programmes on contemporary communication and management, and learning of foreign languages. The main educational resource connected with Termoelektro’s direct line of business is the Technical Centre for welder training in Obrenovac. The Technical Centre operates throughout the whole year, having three types of training. The first type is the basic training for the unemployed in cooperation with the National Employment Service and for the needs of Termoelektro. The second is for further specialization of its own staff, and the third involves training for third parties. Welding procedures as well as welder certification, depending on the basic material and procedure for which the welders are being trained, is given in Table 5.3.1. Table 5.3.1 Welder procedures and certification Welding procedure
Material for the certification
Gas shielded magnetic flux arc welding 111 P BW W01 – unalloyed and low alloy (w.p.111) steel plates. 111 T BW W01 – unalloyed and low alloy steel pipes 111 T BW W02 – alloy steel pipes, resistant to creep. 111 T BW W11 – stainless, austenitic and aust.-ferrous pipes. Active gas shielded metal arc welding (w.p.135)
135 P BW W01 – unalloyed and low alloy steel plates.
Inert gas tungsten arc welding (w.p.141) 141 T BW W01 – unalloyed and low alloy steel pipes 141 T BW W02- alloy steel pipes, resistant to creep 141 T BW W11stainless, austenitic and aust.-ferritic pipes.
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Welding procedure
Material for the certification
Gas (oxy-acetylene) welding (w.p.311)
311 T BW W01 – unalloyed and low alloy steel pipes 311 T BW W02 – stainless, austenitic and aust.-ferritic pipes.
Combined procedures
141/111 T BW W02 – alloy steel pipes, resistant to creep. 141/111 T BW W11 – stainless, austenitic and aust.-ferritic pipes.
Apart from the above mentioned types of training, special training for particular needs and investors’ demands is also organized by the company (including non-metal welding, special metals welding, combined welding procedures, non-ferrous metal welding etc.) The Technical Centre consists of 30 training stations, furnished with power supply sources necessary for welding and adequate auxiliary equipment. Also, Termoelektro provides a constant supply of base, additional and consumable material, as well as the tools necessary for continuous training. The maximum capacity of the Technical Centre comprises training for 120 participants (in two shifts), while the average number is between 50 and 70 participants. At the moment the number of fully-employed individuals at the Centre is 106 (88 welders, 12 welding instructors and two international welding engineers). The Technical Centre also performs inspections of the operative capacity of the equipment and filler material, the checking of welder qualifications for purposes of their full employment or any other reasons, and renders services on repair works for the needs of other enterprises or third parties.
Financial indicators and legal status The company is mainly financed from its own sources, except in wintertime, when the company cannot obtain sustainable operative capacity due to the lost position on foreign markets with a warmer climate (negotiations tend to take place during this time). During winter, the company is forced to use credit from the banks, which are paid back regularly during the working season when the number of people employed in Termoelektro is 30 per cent higher than usual. Termoelektro is an open joint stock company and it is in the process of listing its shares on the capital markets. Auditing for the past three years has been carried out by Ernst & Young. From 1 January 2004, Termoelektro has applied International Accounting Standards (IAS). The company’s investment budget is over €1 million per year.
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Turnover in 2003
€11.3 million
Turnover in 2004
€12.5 million
Turnover in 2005 (expected)
€15.4 million
TERMOELEKTRO A.D. 2004 160 TURNOVER GROSS SUB-CONTRACTORS
140
136.16
MILLIONS OF DINARS
119.63 120
107.23
105.34
100
100.77
85.11
80
77.94 67.86
66.60 60
59.80 41.88
60.14 50.33
49.72
43.30
40.01
40.25
12.66
14.91
40
39.34
39.72
42.05
42.59
44.82
30.52
40.18 21.94
19.55
20
22.12 14.47
16.47 8.18
4.89
46.42
9.08
7.99
0 January
February
March
April
May
June
July
August
September
October
November December
MONTH
Figure 5.3.4 Turnover 2004
Sub-contractors 18%
Net turnover 32%
Wages 50%
Figure 5.3.5 Sub-contractors and gross wages
Doing business with Serbia Due to the specific situation in Serbia and Montenegro, the establishment of institutions that are crucial for the business environment are predominantly the responsibility of the government. The Serbian
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business environment could be evaluated in two ways: in comparison with the Western market, the business environment created by the Serbian government of is unstable, unpredictable, and quite inconceivable for the modern business. It is not unusual for the government, through the random and careless passing of new laws, to cause serious damage to companies with business interests in the Serbian market. For example, in September 2004, the government suddenly changed the amount of contributions and income tax for workers from Serbia working abroad, which resulted in Termoelektro losing more than several hundreds of thousands of euros. Further, insufficiently developed inspection services allow foreigners to perform illegal business, resulting in the formation of an unfair market environment, as law abiding firms are constrained in comparison to firms engaging workers without abiding by legal rules. As Serbia is in the process of adjusting its legislation with the EU, which requires the passing of a great number of laws, it is often the case that such legislation is not fully analysed and sometimes does not pay off. One of the chief pre-requisites for survival in this market is constant lobbying of the government, especially in the current period when it is possible for up to 400 laws being passed in just one month. The monopolistic enterprises owned by government still work by inertial force inherited from the socialist period, which makes running a business according to market principles even more difficult. Furthermore, there is also the problem of the out-of-date and slow Serbian bureaucracy. On the positive side, the government is determined to implement structural reforms in the economy and downsize the volume of stateowned business. As prescribed by the International Monetary Fund, this should result in a far sounder business environment without the presence of favoured or monopolistic enterprises. Some governmental measures are being taken in order to stimulate export-oriented business and a certain flexibility exists, since the government has corrected mistakes that had appeared during adopting of new laws. Privatization has been hastened, which additionally improved the situation of the business environment in Serbia and brought it closer to the EU business environment. The business environment in Serbia is adopting change, but rather slowly, sometimes too slowly, but still changing for the better and is bound to make successful business in the years ahead quite possible. Examples of large-scale investors and their successful businesses already operating in Serbia include Lafarge, US Steel, Henkel, BAT and others, indicating that business success in the Serbian market is not impossible. On the contrary, with adequate investment it is quite feasible.
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Main benefits of operating an enterprise of our type in Serbia The main benefit is that Serbia, after 15 years of infrastructural devastation, is greatly in need of the services of companies in the same line of business as Termoelektro’s. Not only is this the case for large infrastructural facilities such as refineries, thermal power plants and hydro power plants, but also for privatized cement factories, breweries, pharmaceutical factories, steel mills etc. The potential for business cooperation certainly exists, and our references and experience with the largest companies guarantee that a bright future is ahead of us.
Termoelektro: a strategic vision Termoelektro is a company with the potential to become a major European company in its line of business. With a proper investment policy and modernization, as well as with an adequate solution to the status of its property, the scope of work could inevitably be expanded, and the price for services increased significantly. That is why the company’s management is endeavouring to put the company on a firm market footing by finding a strategic partner, which is a key long-term strategy of the company. In the former Yugoslavia, Termoelektro has been, despite all the deficiencies of the socialistic economy, one of the largest European companies in its line of business. That is why the vision of a modern, market-oriented company successfully dealing with business all around the world is not an impossible dream.
Appendix Below is a summary of Termoelektro’s most successful projects in Serbia and abroad during 2004 and 2005, as well as the list of major strategic sites built by Termoelektro.
Major contracts in 2004 Erection of a new boiler B-1 in TE Bremen: the waste processing plant ‘Sever’. Contract value €679,000. KHD Humboloh Wegad AG Keln: system for raw material crushing and drying in Lafarge Beocin Cement Factory. Contract value €1.111.000.
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TE Morava Svilajnac: pipe system overhaul. Contract value €360 000. TENT A5: major ovehaul and rehabilitation of RA and RB lines. Contract value €614,000. US Steel Serbia Smederevo: delivery of the equipment for automatic firefighting system in cold mill and steel-mill. Contract value €800,000. Contracts in Serbia
Project
Contract value
1. EPS RB Kolubara
Pipe line system Vreoci – Lazarevac
€365,000
2. Djerdap I Hydraulic power plant
revitalization
US$7,225 871
3. US Steel Serbia Smederevo
Firefighting system for hot mill €1,102,000
4. Alstom Power
Design, manufacture and erection of the gas boiler for US Steel Smederevo
€315,521
5. TE Kostolac Unit
A1 Revitalization
€1,830,000
6. TENT B Ušüe - Obrenovac
Erection of economizer on Unit €803,293 B1
Contracts abroad 1. Borsing GmbH Berlin Lippendorf Block S
Exchange of evaporators
€403,951
2. Frimersdorf, Weisweiler, Duren
Overhaul works
€2,700,000
Expected turnover in 2005 Serbia Dinar 1.
Valve division
20,000,000
2.
Gr. Beograd
50,000,000
3.
Gr. Kolubara
70,000,000
4.
Gr. Kostolac
500,000,000
5.
Gr. Novi Sad
100,000,000
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6.
Gr. PanĀevo
70,000,000
7.
Gr. Remont
200,000,000 1,010,000,000
Total
Foreign market Euros 1.
Frimersdorf
1,500,000
2.
Weisweiler
1,000,000
3.
Lippendorf
400,000
4.
Other
200,000
Total
3,100,000
Total Serbia and abroad
1,264,200,000 dinar (€ 15,417,073)
Major plants Power plants
TPP NIKOLA TESLA (2x210 MW, 4x308 MW, 2x618 MW),
OBRENOVAC, Serbia
TPP TUZLA (1x100 MW, 3x210MW),
TUZLA, Bosnia & Hercegovina
TPP UGLJEVIK (1x330 MW),
UGLJEVIK, Bosnia & Hercegovina
TPP KOSTOLAC (1x110MW, 1x200MW, 2X350 MW),
KOSTOLAC, Serbia
TPP PLJEVLJA (1x210MW),
PLJEVLJA, Montenegro
TPP KOLUBARA (1x110MW),
VELIKI CRLJENI, Serbia
TPP MORAVA (1x125MW),
SVILAJNAC, Serbia
TPP NOVI SAD (2x125 MW),
NOVI SAD, Serbia
TPP ZRENJANIN (2x135 MW),
ZRENJANIN, Serbia
TPP HARTHA (2x208MW),
BASRAH, Iraq
TPP DAURA (2x200MW),
BAGHDAD, Iraq
TPP WEST TRIPOLI (5x65MW)
TRIPOLI, Libya
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Termoelektro a.d. TPP BENGHAZI (3x20MW),
BENGHAZI, Libya
TPP M’SILA (22x25MW),
M’SILA, Algeria
TPP RAS DJINET (4x176MW),
RAS DJINET, Algeria
TPP BARAUNI (3x25MW),
BARAUNI, India
HPP DJERDAP (10x30MW),
DJERDAP, Serbia
HPP ZAVOJ (2x40MW),
ZAVOJ, Serbia
Refineries, petrochemical & chemical plants
REFINERY 5,500,000 t/y, Atmospheric & Vacuum distillation, Platforming, FCC, HDS, Sulpholanes, etc Aromatic extraction 500,000 MTA
PANýEVO, Serbia
REFINERY 2,500,000 t/y, Atmospheric & Vacuum distillation, Platforming, etc
SKOPJE, Macedonia
REFINERY 2,500,000 t/y, Atmospheric & Vacuum distillation, Platforming, etc.
NOVI SAD, Serbia
PETROCHEMICAL COMPLEX
PANÿEVO, Serbia
Ethylene Plant, HD Polyethylene: 200,000 t/y; 50,000 t/y LD Polyethylene, VCM, PVC: 50,000 t/y; 100,000 t/y; 50,000 t/y POLYPROPYLEN PLANT 30,000 t/y,
ODŽACI Serbia
CHEMICAL COMPLEX
BARIÿ, Serbia
LAB/LABS & TDI Plant 40,000 MTA/30,000 MTA AMONIA PLANT
PANÿEVO, Serbia
Ammonia Plant, Nitric Acid Plant, 300,000 t/y; 180, 000 t/y Ammonium Nitrate Plant, 220,000 t/y Urea Plant, NPK Plant 100,000 t/y; 300,000 t/y CHEMICAL COMPLEX
ZORKA ŠABAC, Serbia
METHANOL ACID PLANT
KIKINDA, Serbia
SYNTHETIC RUBBER FACTORY
ZRENJANIN, Serbia
SULPHURIC ACID FACTORY
PRAHOVO, Serbia
PHOSPHATIC ACID FACTORY
K. MITROVICA, Serbia
REFINERY Vacuum distillation, 2,500,000 MTA
LITVINOV, Czech Republic
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Fluid Catalytic Cracking Plant, 1,000,000 MTA PETROCHEMICAL COMPLEX Ethylene Plant, 500 000 t/y
LITVINOV, Czech Republic
PETROCHEMICAL COMPLEX Linear Alpha Olefin Plant, 120,000 t/y
NERATOVICE, Czech Republic
REFINERY Petrochemical Plants LAB/LABS, 50,000,MTA/60,000 MTA
KIRISHI, Russian Federation
OIL FIELD DEVELOPMENT KHABAZ/KIRKUK, Iraq Degassing Station & Flow lines, 40,000 BPD CHEMICAL COMPLEX
ANNABA, Algeria
PETROCHEMICAL COMPLEX
ABU KAMMASH, Libya
SHAMPOO FACTORY
VLADIVOSTOK, Russian Federation
Metallurgical plants
METALLURGICAL COMPLEX US STEEL
SMEDEREVO, Serbia
METALLURGICAL COMPLEX TREPýA Plumb & Zinc Factory
K. MITROVICA, Serbia
ALUMINIUM COMPLEX
PODGORICA, Montenegro
ALUMUNIUM OXIDE FACTORY
ZVORNIK, Bosnia & Herzegovina
MINES & STEEL WORKS
NIKŠIý, Montenegro
METALLURGICAL COMPLEX Ferronickel Plants
KAVADARCI, Macedonia
BAUXITE MINE
Guinea Republic
PHOSPHATE MINE
AKASHAT, Iraq
Industrial plants
CEMENT FACTORY 2,000 t/day
POPOVAC, Serbia
CEMENT FACTORY 1 x 600,000 t/year,
PLJEVLJA, Montenegro
CEMENT FACTORY 4 x1,000,000 t/year, BENGHAZI, Libya I, II, III & IV phase CEMENT FACTORY 2 x 1,000,000 t/year, SOUK EL KHAMIS, Libya PULP AND PAPER FACTORY INCEL
BANJA LUKA, Bosnia and Herzegovina
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PULP AND PAPER FACTORY
MOSTAGANEM, Algeria
PULP AND PAPER FACTORY
SONIC SAIDA, Algeria
PULP AND PAPER FACTORY
BASRAH, Iraq
PULP AND PAPER FACTORY
MISAN, Iraq
PULP AND PAPER FACTORY
PASKOV, Czech Republic
LIME FACTORY 1 x 400,000 t/year,
SOUK EL KHAMIS, Libya
TRANSFORMER S/S 5 x 50 MW
TRIPOLI, Libya
EDIBLE OIL FACTORY
ZRENJANIN, Serbia
SUGAR FACTORY
ŠID, Serbia
SUGAR FACTORY
VRBAS, Serbia
SUGAR FACTORY
ZRENJANIN, Serbia
TRANSONIC WIND TUNNEL
BELGRADE, Serbia
COMPRESSOR STATIONS (5 comp. stations)
TIN FAUYE TABANCORT, Algeria
COMPRESSOR STATIONS (2 stat. gaspipeline)
GORNJOZAVODSK, Russian Federation
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5.4
Alfa Plam The company Alfa Plam is a metal-ware company located in the south of Serbia close to the Macedonian and Bulgarian border. The company was founded in 1948, when it functioned like a small workshop and had just a few workers. The main activity of the company is of a metalworking nature – primarily the production of household appliances. In fact, Alfa Plam is one of the largest producers of heating appliances in the entire Balkan region. Annual production totals more than 150,000 product units, operating on solid, liquid and gaseous fuels, and electric cookers, fireplaces and stoves for floor heating (which are very popular in the region).
Development The company employs nearly 1,100 workers within its own sector for technical and technological development. Its range of production is expanding constantly through the introduction of a variety of new products and investments into new technologies. Such investments total some €3–4 million per annum and are not dependent on external credit lines. In this manner, the company is able to meet all of its market requirements and develop further business opportunities.
Exports The company exports some 60 per cent of its production, equating roughly to €17 million per annum. The main destination countries for Alfa Plam exports include neighbouring states such as Bosnia, Croatia, Bulgaria, Macedonia, Albania, Slovenia, and several West European countries such as Austria and France. Alfa Plam is currently seeking to further penetrate and expand into other markets in the European Union.
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Cooperation For further information and opportunities for mutual cooperation in business, Alfa Plam management welcomes visitors to its factories and plants in Serbia, and invites them to visit the company website at www.alfaplam.co.yu, where it is possible to find all necessary information about the company and all of its products. AD Metalna industrija Vranje sa p.o. sa p.o 17000 Vranje Tel:Vranje (017) 21 121 Telex: 16761 YU ALFA Telegram: 24-808 Po[tanski fax 85 Fax: 21 552
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5.5
Velefarm Joint Stock Holding Company Velefarm is a modern, organized wholesaler of pharmaceutical products, securing a continuous quality and rational medical supply of pharmaceutical products and other medical supplies for private and public healthcare institutions. The company also imports products for supply to the healthcare sector, acting as an agent and representative of foreign companies, registering products, conducting market surveys, following trends of modern pharmacy, medicine, stomatology and veterinary science, as well as assistance in technical equipping of offices and warehouse facilities. With the objective of better efficiency, the Company is organized according to the functional, project and technical principles. According to the technical principal, Joint Stock Holding Company Velefarm is a complex holding company. It consists of the parent company, Joint Stock Company Velefarm, and the following companies: ●
Velefarm – Lekovi Ltd;
●
Velefarm – Medicina Ltd;
●
Velefarm – Sitra Ltd;
●
Velefarm – Prolek Ltd;
●
Sanitarija AD Novi Sad;
●
Velefarm – Invest Ltd;
●
Velefarm – Agency Ltd;
●
Velefarm – Bijeljina Ltd.
Velefarm has over 10,000 products in its assortment, covering the needs of the majority of pharmacies and healthcare institutions. The changes on the market, new achievements in the treatments of patients and the positive attitude the Company has towards this, has created the need to divide the assortment of products into product groups and programmes as follows:
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●
Domestic Medications Programme;
●
Imported Medications Programme;
●
Programme of Parapharmaceuticals;
●
Medical Devices;
●
Medical Equipment;
●
Laboratory Diagonostics;
●
Dental Programme;
●
Veterinary and Plant Protection.
The territorial organization encompasses 11 business centres throughout the territory of Serbia and Montenegro: ●
BC Belgrade;
●
BC Uzice;
●
BC Subotica;
●
BC Vranje;
●
BC Nis;
●
BC Valjevo;
●
BC Kragujevac;
●
BC Novi Sad;
●
BC Zajecar;
●
BC Kosovska Mitrovica;
●
BC Pristina.
The head office is in Belgrade, where, in the year 1989, a new building was constructed in which the Business Centre Belgrade is situated. This well developed distribution network enables Velefarm to reach the furthest customer in one hour. All the business centres work at their own specialized facilities and are organized as regional wholesalers of pharmaceutical products, responsible for the complete quality supply of the territory in which they are situated.
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The common functions (development, financial affairs, purchasing, importation, legal affairs, organization and representation) are conducted at the central company level for all the companies. Velefarm is technically equipped with over 50,000m2 of office and warehouse space, with specialized storage facilities (cold chambers and narcotics storage) and separate warehouses (for dental and veterinary products and inflammable material), which are in full compliance with all the modern principles of receipt, storage and transport of products. The vehicle park consists of over 200 transport vehicles and cars, enabling the delivery of goods to over 5,700 delivery posts. In Velefarm, there are private bonded warehouses of major global pharmaceutical companies: Novo Nordisk, Pfiyer, Shering AG, Boehringer Ingelheim, GSK Organon, Agfa, MSD, Altana, Baxter, etc. Velefarm is not only the leader in its field, but is, and has been, the leader in the implementation of the quality system. Starting from the year 1999, Velefarm has implemented the quality system ISO 9000, and today holds the following certificates for quality systems and systems of environmental protection management: ●
domestic certificates: – YUS ISO 9001:2001 – YUS ISO 14001:1997
●
international certificates: – RW TUV; TUV CERT – EN ISO 9001:2001 – EN ISO 14001:1996
Joint Stock Holding Company Velefarm was established 26 years ago and during its development has held different organizational forms, adapting itself to the legal requirements regulating this area. It started as a work unit of the company Farmes from Sarajevo. In November 1998, it had grown into a holding company, which now encompassing nine companies, including the parent company. Since 2004, it has been fully privatized. The governing bodies of Velefarm consist of the Assembly of Shareholders, Management and Supervisory Boards and General Manager. The Management Board of Velefarm has seven members. Five of the members are employees and managers of Velefarm, while two are external members. The Supervisory Board has three members. Two internal and one external.
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Velefarm has also been a leader in ownership transformation. In the ownership structure, Joint Stock Holding Company Velefarm with its companies has a 55 per cent share of the stock, Hemofarm has 24 per cent of the shares, Galenika AD 11 per cent and other, smaller shareholders 10 per cent of the shares. Velefarm sells the products from its range to the markets of Serbia, Montenegro and the Republica Srpska. The company has extremely good business relationships with all of the major domestic pharmaceutical producers (Galenika, Hemofarm Koncern, Zdravlje, Jugoremedija, Srbolek, etc). In the sales mix, the dominant position is held by the programme of domestic medications and imported medications, which significantly affects the total position on the market. Velefarm has, on average, a 35 per cent share of the market. In the entire Serbian market, bearing in mind the whole assortment of products, the major competitors are the Belgrade companies Vetfarm, Vetprom, Sebolek, Unifarm and Medifarm. Velefarm, due to its competence in key areas, such as logistics, a good distribution network, purchasing ability and sales, holds a dominant position in the market, attaining an advantage over its competitors. This enables quicker and cheaper delivery of products, better purchasing conditions, a wider (complete) range of variety and quality of products, as well as training of personnel, which, in turn, enables Velefarm to grant more flexible payment conditions to its customers (discounts, rebate, etc) Velefarm is investing in the modernization of the work environment in healthcare institutions, and expert training etc, with the aim of longterm links with the market of mutual interest. With regard to customers, public institutions hold a dominant position in the total sales of Velefarm, with a share of 60 per cent. At the same time, sales from the part of the market not covered by the public financing regime (private healthcare institutions, commercial sale to pharmacy chains, veterinary pharmacies) have a tendency towards growth. Annual turnover, over the last three years, was as follows: ●
2002 – €85 million;
●
2003 – €100 million;
●
2004 – €140 million.
Laws of business are clear and transparent, but high interest rates, due to the unstable currency, still present a problem and lead to higher costs and the difficulty of realizing higher profits. The greatest wealth and power of Velefarm are its employees. Out of its over 700 employees, more than 50 per cent are university
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graduates. Teams at all levels of function present the organizational core of the company, enabling quicker reaction and easier realization of each objective. A specific characteristic of Velefarm is reflected in its sponsorship of future experts and continuous education of all the employees of Velefarm, which is provided by Velefarm School. Each year, numerous lectures are organized on new methods and techniques, as well as creative workshops with internal and external experts. At the beginning of the 21st century, Velefarm is the biggest wholesaler of pharmaceutical products in the country, with a 25-year long tradition and an established image of successful and stable company, who’s main aim is to provide ‘the right product at the right place at the right time at minimal cost and in continuity, because medications are a product that must not arrive late’. For further information contact: Joint Stock Holding Company Velefarm Vojvode Stepe 414a Belgrade Tel: 011 30 90 100 Fax: 011 406 422 Website: www.velefarm.co.yu
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5.6
FAP KORPORACIJA a.d. Priboj The company FAP KORPORACIJA a.d. Priboj was established 52 years ago as a company specializing in the manufacture of heavy-duty trucks with GVW capacity of 10–30 tonnes and engines power outputs of 130–480 HP. Production capacity of the factory was then upgraded to enable the production of 7,000 various models of trucks, components and parts. There are now 69,997m2 of production area and 44.864m2 of storage space, where there are over 2,000 units of various machines (small, middle and large press machines, CNC and similar machines for processing by cutting, equipment for thermal treatment, test benches, laboratories etc). In addition, FAP KORPORACIJA a.d. employs highly qualified staff for design, manufacture, quality control, servicing and selling of vehicles. It has 150 domestic suppliers and another 50 suppliers from abroad. The level of faults and claims has decreased to 1.5 per cent, thanks to the attention paid to its quality control system. There are quality control units at the purchasing, manufacturing and development stages. These units are equipped with all the tools, devices and laboratories required for performing tests. Presently, the company is a joint stock company, applying all international standards and regulations on accounting and bookkeeping.
History In 1953, FAP extended its plant and production capacities by concluding a licensing agreement with Saurer. Production at that time was based on the so-called families of vehicles 4G and 6G and their different models. The Agreement concluded with Saurer expired in 1964.
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In 1965, the factory launched the first vehicles with its own brand, FAP 10B and FAP 15. Later, FAP developed another class of vehicles, FAP 1314, several versions of which have been produced. After a period of analyses and strategic considerations, an agreement on commercial, technical and financial cooperation was signed in 1970 between Daimler–Benz and a joint venture company, FFB– Beograd. FAP was one of the founder members of this joint venture company. In spite of many difficulties, FAP managed to grow, within half a century, into a modern and up-to-date factory, and transformed itself into the biggest producer of heavy-duty vehicles in the Balkan region. FAP’s vehicles of are available with powering systems that meet the latest environmental requirements of EURO II and EURO III.
Products The equipment and machining capacity of FAP KORPORACIJA enables the production of 7,000 vehicles per year. The production programme consists of: ●
Trucks and truck chassis – trucks – lorries, tractors, dump trucks; – chassis for special body equipment. GVW ranges from 12 to 32 tonnes, and engine power ratings range from 95 to 340 KW (or 130 to 460 HP), manufactured by Mercedes Benz, Cummins, Famos and Man, with drive line formulations such as 4×2; 4×4; 6×2; 6×4; 6×6; 8×2; 8×4; 8×8.
●
Haulage units – trailers for transportation of packaged and other types of goods, and trailers with tilting platforms (GVW of 8 to 24 tonnes); – semi-trailers for various applications (GVW of 18 to 60 tones).
●
Buses and bus chassis – city buses; – intercity buses; – coaches;
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– different types of chassis. ●
Special body equipment – concrete mixers, equipment for transportation of bulk freight and livestock, water tankers, vans, container lifters, equipment for municipality utilities, equipment for forestry works etc.
●
Special vehicles – military or similar vehicles
●
Transmissions – 5 MS – 60, 6 MS – 80 and 12 MS – 80 – integrated with a wide range of auxiliary units
●
Axles – axles installed on trucks, buses, trailers and semi-trailers
●
Cabins – short cabins for trucks – long cabins for trucks (sleepers with beds)
●
universal joint shafts – under licensing agreement and own design (for torques ranging from 350 to 2200 Nm)
●
Wheels – wheels 7.00–20; 7.50–20; 8.00–20; 8.5–20; – wheels (tubeless) 8.25–22,5;9,0–2,5;11.75–22.5; – special wheels 11.25–21;
●
Spare parts and components – for trucks, buses and haulage units – assemblies and sub-assemblies and parts manufactured for the particular requirements of customers – manufacturing of various parts and components by machining, drop pressing, forming, and cutting; thermal treatment and surface protection services
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Overhauling – repairing of vehicles, redesigning upon customer request, repairing of machinery and tools
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Tools and devices – tooling (pressing, clamping, machining, controlling etc)
●
‘FABRO’ applications in shipbuilding – helm driving devices BPU 50–400 KW – propulsion BPP 50–500 KW – winches RPV – 15 – dry plate clutches BSLS 380–420 – safety clutches CC–15
●
Components for the milling industry – FAP has developed many components, which are manufactured and assembled at its own factories
●
Testing – FAP is able to test static and dynamic features of components, assemblies and various elements, as well as testing their operating functions – there is verified laboratory for the testing of physical features and the chemical composition of materials and protected surfaces – there are also stations where measurements of parameters of even the most complicated parts are conducted
Workforce FAP KORPORACIJA a.d. has 1,680 employees, of whom 154 have various university degrees, 108 are high school graduates, with other qualifications and skills directly related to the production process of trucks and buses. Its staff and managers regularly participate in organized professional seminars. Foreigners (citizens of Bosnia and Herzegovina) make up 10 per cent of employed personal at present. In the designing of vehicles FAP. employs: ●
1 × Master of Science in Engineering;
●
15 × Mechanical Engineers;
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FAP KORPORACIJA a.d. Priboj ●
2 × Electrical Engineers;
●
1 × Chemical Engineer;
●
9 × High School graduates;
●
19 × Mechanical Technicians.
309
In addition, the R&D Department employs 154 people with a variety of qualifications and knowledge. The designing process of buses and trucks in FAP is supported by the ‘VINCA’ Institute’s Centre for Engines and Vehicles. Here, one Doctor of Science, one Master of Science in Engineering and one Mechanical Technician are engaged.
Market Vehicles of the FAP brand can be seen on the roads of many countries in Europe, Asia, Africa, and South America. Of the 150,000 vehicles sold, 8,000 units have been placed on foreign markets. It has, traditionally, exported its products to customers in Africa and Middle East countries. Exported goods are estimated at 25 per cent of the total volume of sales. In last few years, its vehicles have become more attractive to customers from the Former Republics of Yugoslavia. The company hopes that it will be able to expand the production volume of its vehicles to be sold on these markets. The company’s share of the domestic market is estimated at 30 per cent. The difficulty with the domestic market is that the company is exposed to much competition regarding its products, resulting from the importation of an unlimited number of vehicles. This has arisen because of: ●
inadequate duty protection and stipulations that regulate imports of new and, in particular, second-hand vehicles;
●
the impossibility of the domestic industry becoming competitive against manufacturers from abroad after a period of long-term economic stagnation and recession.
Local producers are not protected in the domestic marketplace due to the liberalization of import regulations, and, at the same time, duty rates have been drastically decreased by revoking some of the taxes. The company believes that the following conditions will be necessary for it to conduct its business properly:
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●
In arrangements such as Invitations for Bidding (or Tenders), technical requirements that restrict the participation of domestic manufacturers in such arrangements, should not be permitted. This has lead to much damage to domestic manufacturers, the national balance sheet, and even to users of imported goods.
●
Another issue that needs to be addressed is the respect for the acts by which the purchasing and procurement activities of public and state-owned sectors are regulated, especially in the areas of prices, costs, duties etc.
●
In summation of proposals during the tendering process, commercial groupings of companies should be forbidden, so that domestic producers will not be unfairly eliminated.
●
The stipulations that regulated information regarding terms at tendering activities should be dropped – there is often an absence of information about who has been awarded what in the bidding.
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The purchase of second-hand vehicles by state-owned enterprises should not be allowed.
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The state should provide funds to public sector organizations only if they purchase domestic products.
●
Anti-dumping measures should be taken in order to avoid the entry of low cost foreign products into the country.
●
The Serbian government should revoke regulations that permit approval of imports with a duty rate of only one per cent.
●
Leasing companies of foreign origin, dealing in Serbia, should provide funds to domestic producers under the same terms and conditions as they have for to producers from abroad. Serbian officials should take all required measures to make sure that this process is controlled through approvals and licences for such companies to operate in the country.
●
Introduction of rules regulating minimum technical requirements upon which second-hand vehicles can be registered for road use.
●
Prices upon which tender documents are offered should be significantly reduced.
The future Currently, FAP does not have any arrangements, such as a joint venture, with any strategic partner. However, there are some discussions in progress with companies interested in this possibility.
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The Serbian government is fully supportive of the company in its transformation processes regarding its social programme, number of employees, settlement of debts and in its search for strategic partners.
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5.7
AD Imlek The company AD Imlek, the largest company in the domestic dairy industry, combines knowledge, a long tradition and the most modern technology with world standards of quality. The company collects milk of the highest quality from 30,000 producers, covering 50 per cent of the territory of Serbia, and processes about 650,000 litres of milk a day. It employs 1,500 people in 15 specialized dairies, where the world’s top technology is applied. All this enables the wide range of high quality dairy products, after being processed and packed, to always be delivered fresh and of good quality to consumers throughout the country. Whether it is milk, cheese, yoghurt, cream cheese or fruity beverages, AD Imlek has set the highest criteria of quality. Because of this, the symbols of its quality and reliability – the recognizable products Moja Kravica, Roze Jogurt, VIVA PLUS, JOGOOD and ýokoladno mleko – have found their way to almost every table in the country. Within its diverse production programme, Imlek offers consumers around 80 different dairy products that satisfy the daily needs of several million consumers.
History 1945: The farm, Panþevaþki Rit, which later developed into the famous company PKB, was founded. The swamp on the outskirts of Belgrade was turned into fertile plough land by draining and melioration to provide food for the capital. 1950: The food requirements of Belgrade could no longer be met by crop and vegetable production. The first high quality in-calf heifers were imported from Denmark and Holland, and, later on, from Germany and Sweden, too. 1953: The first auxiliary dairy in PKB was established in ‘Lepušnica’ farm in Glogonjski Rit. Thus, the dairy company, Imlek, was formed.
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About 800 cows provided between three and five thousand litres of milk daily. This milk was sent to the Belgrade market in metal containers by horse-harnessed wagons and tractors.
1957: UNICEF awarded the line for pasteurizing and bottling 30,000 litres of milk a day. 1963: Production exceeded 21 million litres a year.
1972: The City of Belgrade Dairy Industry was integrated into Imlek. Dairies from Kraljevo, Požarevac, Gornji Milanovac, Velika Plana, Šid and Belgrade joined the Imlek system. 1977–1982: The plants of Imlek refined between 140 and 160 million litres of milk a year.
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1992: AD Imlek and the Alfa Laval company from Vienna form an agreement on business and technical cooperation. From that moment on, the partners appeared jointly on the world market in the planning and construction of dairies and the equipping of technological lines, and, in 1987[97?], they establish a dairy in Krasnodar, Russia. 2000–2003: AD Imlek is responsible for 50 per cent of the overall production of milk in Serbia. The milk is collected from 30,000 producers from half the territory of Serbia. Fifteen specialized dairies within AD Imlek nationwide collect and process over 235 million litres of milk a year. There are over 1,500 employees within the system. AD Imlek sells 80 per cent of its production to the domestic market and 20 per cent to the foreign market.
2003–2005: During 2003 and 2004 Salford became the majority owner of the five largest dairies in Serbia, Imlek, Novi Sad Dairy, Subotica Dairy, IMPAZ (Zajeþar) and Zemun Dairy, which now form the market leader in the dairy industry of Serbia and Montenegro – Danube Foods Group.
Vision Imlek will dominate the market, with strong brands supported by excellent sales organization and innovative communication with consumers. It has created a highly motivated, expert group of employees who will share in the success Imlek achieves through hard work, knowledge and top internal standards of quality for its products.
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The company is realizing investments that are enabling the necessary modernization of production, improvements in the quality and quantity of raw milk, and most importantly, are a guarantee of the highest quality of product that appears on the market. The first stage of investment was in primary agricultural production, thus achieving improvements in quality and quantity in the purchasing of raw milk. By expansion and modernization of the raw material base and reorientation of production from small country farms that own one or two cows to developed industrial farms that own 50 to 100 cows, the company has achieved the production of quality controlled milk, which will ensure it will occupy a major place in the market. For further information contact: Imlek 11213 Beograd - Padinska Skela Industrijsko naselje bb Tel: (++381) /0/11/8871 – 573 Fax: 8871 478 Website: www.imlek.co.yu
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5.8
SRPSKA BANKA a.d. SRPSKA BANKA a.d., formerly the YU GARANT BANK a.d,. is a bank that offers excellent customer service and a wide range of banking products. Perfect banking credit solvency, steady liquidity in local and foreign currency, expert and experienced, as well as young and inventive staff, provide customers with services of the highest standard. SRPSKA BANKA a.d. provides the full range of commercial and investment banking services to all customers.
Opening statement SPRSKA BANKA a.d. is an eminent, modern and successful bank, and a strong and reliable financial institution. It carries out the same banking operations as other business banks, in accordance with the Law on Banks and Other Financial Institutions. The Bank has the authorization to perform international payment operations and payment transactions, credit line and guarantee arrangements. It also provides all types of retail services – maintenance of current and giro accounts, both in local and foreign currency. SRPSKA BANKA a.d looks after domestic and foreign currency savings and provide consumer loans to clients who have opened current accounts with the bank. It issues VISA payment cards. The Bank will take care its customers’ business in the most efficient manner, and is a guarantee for the safety of their deposits and their business success. The Bank is equipped with modern technology for bank operations and qualified personnel, in order to create an enjoyable and efficient working atmosphere and to ensure that its customers receive the most competent possible service. Its General Manager is Milan Blagojeviü.
Retail banking Retail banking services include: ●
current and giro accounts;
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●
dinar and foreign currency savings;
●
foreign payment transactions;
●
consumer loans;
●
exchange business;
●
safe-deposit boxes;
●
payment cards; and
●
cheque collection.
Corporate banking Corporate banking services include: ●
domestic payments;
●
international payment;
●
terms and conditions;
●
corporate loans.
Savings Dinar savings deposits are offered to domestic and foreign private individuals. The Bank looks after local currency funds for private individuals under the following conditions and at the interest rates given below:
Instant access deposit savings:
0.5% per month
Fixed-term deposits:
one month term – 1% per month three month term – 1.3% per month six month term – 1.5% per month one year term – 1.7% per month
Foreign currency savings and foreign currency accounts are also offered to domestic and foreign private individuals. The bank maintains foreign currency accounts of domestic and foreign private individuals and receives foreign currency payments for savings.
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Payment cards SRPSKA BANKA a.d. has a licence from National Bank of Serbia for issuing the Dina Card payment card. There is ATM available 24 hours a day for Dina Card users at the entrance to the Bank and it is possible to withdraw a maximum CSD20,000 in cash from all ATMs in Serbia. Types of card available include: ●
VISA;
●
VISA ELECTRON;
●
VISA CLASSIC;
●
VISA GOLD;
●
VISA BUSINESS.
Network SRPSKA BANKA a.d. also provides payment transaction services through the business units of its agents in over 50 towns in Serbia.
Agents Nacionalna stedionica banka a.d. Nacionalna stedionica banka a.d. has units in the following regions: Belgrade; Novi Sad; Kragujevac and Niš. JP PTT Srbija JP PTT Srbija has units in the following places: Valjevo; Požarevac; Smederevo; Šabac; Kragujevac; Kraljevo; Kruševac; Jagodina; ýaþak; Užice; Bor; Vranje; Zajeþar; Leskovac; Pirot; Prokuplje; Zrenjanin; Kikinda; Panþevo; Sombor; S.Mitrovica; Subotica; Priština; Beograd Centar; Beograd Venac; Zemun; Niš; and Novi Sad.
Offices SRPSKA BANKA a.d. Beograd Savska 25 Belgrade, Serbia and Montenegro Tel: 3607 200 Fax: 2644 854; 2646 855 Email:
[email protected]
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Operating units Novi Beograd Narodnih heroja 63/blok 38 Tel: 143 736 Fax: 143 745 Novi Beograd Dr Ivana Ribara 91/blok 61 Tel: 162 494; 162 494 Fax: 162 428 Novi Beograd Zgrada ‘Aeroinženjering’ Bulevar Nikole Tesle 42 Tel: 670 522/lok.660 Fax: 301 37 05 Kraljevo Trg srpskih ratnika 1 Tel: 036 334 164 Tel-Fax: 036 334 164
Branding The national symbol is taken from the Serbian tradition – five identical calligraphic ‘s’ from Miroslav’s gospel form a circular combination of parts into rosette. The circular form symbolizes movement, meaning efficient banking open to Europe. The dominant blue colour continues the previous symbol and presents a reliable Bank. There is a fine harmony between the logo and the elegant semi-serif typography (see Figure 5.8.1).
Figure 5.8.1 SRPSKA BANKA logo
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E-banking SRPSKA BANKA a.d. enables the following payment transaction operations directly from the customer’s account: ●
to create and issue payment orders,
●
to review and print account balance sheets,
●
to review the status of the issued orders,
●
to give notice for cash withdrawal,
●
to review, accept and print statements.
Contact by divisions General Manager Milan Blagojeviü Tel: 645 123
Sector for funds and loans Email:
[email protected] Assistant General Manager Milorad Lapþeviü Tel: 642 342 Fax: 642 268
Sector for foreign exchange transactions Email:
[email protected] Assistant General Manager Radmila ûosiü Tel: 3607 368 Fax: 2688 450
Sector for retail banking Assistant General Manager Svetislav Trifunoviü Tel: 3607 465; 683 450 Fax: 3618 393
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IT sector Assistant General Manager Nenad Stankoviü Tel: 3607 412
Sector for development, control and business analyses Assistant General Manager Slobodanka Surla Tel: 3607 316
Sector for payment transactions and financial-accounting operations Assistant General Manager Vladimirka Careviü Tel: 684 726
Sector for legal, personnel and common affairs Assistant General Manager Snežana Ristoviü Tel: 3607 314; 656 855
Sector for risk management Assistant General Manager Branko Vuþetiü Tel: 36 07 293
Sector for payment cards and e-banking Assistant General Manager Petar Matijaševiü Tel: 685 313 © 2006 Srpska Banka Savska 25, 11000 Belgrade, Serbia & Montenegro Tel: +381 11 3607 200; Fax: +381 11 2644-854 Our counters are open from 8:00 to 17:00 Monday to Friday, 8:00 to 14:00 Saturday
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5.9
Metals-Banka a.d. Background information Metals-Banka a.d., Novi Sad was incorporated by the Articles of Association and Business Operations of Metals-Banka Joint Bank d.d., Novi Sad and was concluded on 7 November 1990, with 37 founders (all legal entities). The Bank obtained the Licence for Incorporation by the Decision of the National Bank of Yugoslavia 0178 dated 26 July 1990. The Bank became a legal entity by the registration in the District Court in Novi Sad (File No. 3048/90) on 7 November 1990. In June 2001, the Assembly of Metals-Banka a.d., Novi Sad made the Decision to accept the acquisition of DTD Banka a.d., also from Novi Sad, and in March 2005, the Assembly of Metals-Banka a.d. made the Decision to accept the acquisition of DDOR Banka a.d., Novi Sad.
Basic activities In compliance with the Law on Banks and Other Financial Organizations, the Articles of Association and the Statute, the Bank is registered to perform the following activities: ●
accepting all types of money deposits (deposit operations);
●
extending and taking credits (credit operations);
●
foreign exchange, foreign currency transactions and exchange operations;
●
issuing securities and payment cards (issuing operations);
●
safekeeping resources and securities and their management (safekeeping operations);
●
buying and selling of securities (operations with securities);
●
issuing of sureties, guarantees, pledges and other forms of assurances (guarantee operations);
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●
brokerage and trading with securities;
●
buying and collection of debts;
●
offering of other financial services.
The National Bank of Yugoslavia issued a Licence to the Bank in 1996, authorizing the Bank to perform international payment operations and credit activities.
Organization of management The bank is managed by shareholders, depending on their stake in the shareholder’s equity. The management bodies of the bank are the Assembly, the Management Board and the Supervisory Board. The members of the Management and Supervisory Boards are appointed by the bank’s Assembly from the shareholders of the bank. The bank’s General Director manages the Bank’s operations and is directly responsible to the bank’s Assembly and the bank’s Management Board.
The bank’s capital The bank’s capital is shareholders’ equity, strictly standardized and without any elements of socially- or state-owned capital. As of 30 June 2005 the pecuniary part of the shareholders’ equity amounted to 2,086 million dinars or €25,201,000, which is 2.5 times more than the prescribed census – the minimum capital requirement for banks set by the National Bank of Serbia (currently €10 million). The shareholders’ equity is owned by 710 shareholders, amongst which the biggest shareholders are as follows: DDOR Novi Sad a.d., Novi Sad; Triglav Insurance, Ljubljana; ABS Holding, Beograd; Publikum, Ljubljana; Milan Vidak, Futog; and Produktiva, Novi Sad.
Organization of business operations The bank directly performs the banking operations for which it has been established. The banking operations are carried out at the Head Office level and at the level of separate organizational units of the bank.
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325
Today, the bank operates through eight branches and 32 branch offices in 28 towns in the territory of Serbia. The bank is organized into 10 divisions according to the nature and type of activities performed in each. Taking into consideration the fact that the bank is facing rapid growth and development in the near future and that it will take on new banking products and services, which will inevitably increase the volume of business operations, it is certain that the present organization of the bank will have to be modernized and become more efficient and rational.
Business operations indicators Ever since its beginnings, the bank has been successful in its business operations. Its growth and development have been very dynamic, which has been influence, amongst other things, by the acquisition of DTD Banka and DDOR Banka a.d. Today, the bank is an important factor in the Serbian banking market, with clearly defined dynamics of increased volume and quality of business operations. The financial results for the year 2004 and for the first half of the year 2005, show the continuation of positive trends, indicating the stable development of the bank. Taking into consideration the results of its business in the first half of 2005, it is conclusive that the bank is continuing its successful and stable growth of business operations. This assertion can be supported by the figures that follow showing the growth in business in comparison to the figures at the end of the year 2004: ●
growth of balance sheet assets: 16.75 per cent;
●
growth of total deposits: 36.00 per cent;
●
growth of loans to clients: 25.00 per cent;
●
growth of CSD savings: 40.00 per cent;
●
growth of foreign exchange savings: 38.08 per cent;
●
growth of profit in relation to the first half of the year 2004: 77.00 per cent.
All this has been accompanied by the bank’s permanent and stable liquidity, which has enabled undisturbed operations of the bank’s clients.
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At the same time, the bank has regularly serviced its obligations and commitments.
Management The bank’s management is responsible for the implementation of primary and operational business tasks. It is headed by the General Director, Ananije Paviüeviü dipl. ecc., and the management team also comprises Slobodan ûoroviü, dipl. ecc., Deputy General Manager; Joakim Holik, dipl. ecc., Deputy General Manager; and Eduard Šegec, dipl.ecc., Assistant General Manager.
Development strategy The development strategy of Metals – Banka a.d. is directed toward market profiling of the bank as a universal financial institution with a recognizable corporate image and with leading ambitions in certain sectors and in certain territories. In other words, the bank’s development strategy implies the creation of a bank with the following characteristics: ●
a high degree of adaptability towards changes in its immediate surroundings;
●
providing clients with not only banking services but also with solutions for their financial problems;
●
flexibility towards market requirements and recognition and utilization of market opportunities, whilst avoiding any conflicts of interest;
●
a predominant orientation towards banking services for small- and medium-sized enterprises (SMEs), as well as towards retail banking services;
●
creating a system with an organizational and personnel structure that is open for further professional advancement with corresponding economic incentives;
●
the introduction of information technologies in order to meet the requirements of technologically-developed economic entities.
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327
The basic objectives of the adopted development strategy will be accomplished by meeting the operational goals through: ●
a realistic increase of the overall balance sheet potential of the bank;
●
the provision of stable and secure deposits, with an accent on the dynamic growth of deposits from SMEs and entrepreneurs and the savings deposits of citizens;
●
the promotion of loans, particularly in the field of providing loan facilities for SMEs and citizens;
●
the improvement of existing and the introduction of new banking products and services;
●
the expansion of the bank’s market and relevant territory;
●
an increase in the number of clients and users of payment operations services by improving the efficiency of these services;
●
the introduction of marketing as a business philosophy;
●
the optimization of the organizational and personnel structure;
●
the improvement of the internal control system and risk management system;
●
improvements in technology (IT) for providing services to clients.
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5.10
Sinteza Invest Group a.d. Stock exchange intermediary Sinteza Invest Group a.d. Belgrade was founded in December 2002 and specializes in shares trading. Its business is performed fully in accordance with the Federal Law on Securities and the company is a member of the Belgrade Stock Exchange as well as being a member of the Central securities depository and clearing house. Sinteza Invest Group a.d. is a privately-owned open joint-stock company with quoted shares on the Belgrade Stock Exchange. With regards to its professional experience and corporate achievements, it can certainly be said that Sinteza Invest Group is a very efficiently run and successful company. The company’s core business invloves: ●
trading of equities and bonds;
●
consulting in take-over procedures; and
●
corporate agent services.
It also provides high quality services to its clients including: ●
tender and auction privatization consulting;
●
M&A and advisory services;
●
new equity issues; and
●
financial analysis.
Sinteza Invest Group is based in Belgrade and has a subsidiary company in Novi Sad. The company employs 19 individuals who represent an effective stock exchange intermediary with an efficient internal organization. Company management is aware that a high-quality and reliable team is the basis for successful business results and achieving the business goals of its clients. Sinteza has therefore paid significant attention to its organizational and human resource structure from the very begining of the company’s establishment by developing a team
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able to adapt to a dynamic environment, high market standards and to the satisfaction of the company’s clients. Sinteza’s organizational structure consists of a number of business units, predominantly: ●
Equity Securities Department;
●
Debt Securities Department;
●
Auction and Tender Privatization Department;
●
Legal Department; and
●
Finances and Accounts Department.
The company’s staff are employed in the following departments and business units: ●
Director – one employee;
●
Broker Department – six employees with broker’s licence;
●
Analytic Department – two employees;
●
Back-office – seven employees;
●
Finances & Accounts Department – one employee;
●
Legal Department – one employee;
●
Business Administration – one employee.
This organizational structure has proven itself to be highly conducive for the development of market operations in Serbia, which is demonstrated further by the excellent financial and operational results achieved by Sinteza Invest Group. To demonstrate this point further, it should be mentioned that following the first six months of 2005, Sinteza Invest Group a.d. occupies the leading position in shares trading on the Belgrade Stock Exchange (see Table 5.10.1). Company management expects to maintain the same market share in the near future. The total turnover of Sinteza Invest Group a.d. during the first quarter of 2005 was equal to €34.5 million, out of which €7.5 million related to takeovers. Among the total number of takeovers entered in the Central Registry of Securities for the years 2004 and 2005, the greatest number (12) were successfully carried out by Sinteza Invest Group a.d. for its clients (see Figure 5.10.1).
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331
Table 5.10.1 Contribution of the Serbian brokerage houses to the shares trading on the Belgrade Stock Exchange for the period 1 January to 30 June 2005 Brokerage house
Turnover value
No of transactions
Sinteza Invest Group a.d. Beograd
8.21%
7.97%
M&V Investments d.o.o. Novi Sad
6.90%
7.39%
44,577,544.96
43,584,173.76 34,588,254.28
Turnover (in EUR)
45,000,000.00 40,000,000.00 35,000,000.00 30,000,000.00 25,000,000.00 20,000,000.00 15,000,000.00 10,000,000.00 5,000,000.00 0.00
2003
2004 Period
1Q 2005
Figure 5.10.1 Turnover for 2003-2005: Sinteza Invest Group In 2004 and 2005, Sinteza substantially increased its client base, which included new business for three investment funds: Ashmore Investment Management Limited London, UK and its funds (www.ashmoregroup.com), Poteza Fund Ljubljana, Slovenia (www.poteza.si) and Terra Partners, Ltd. New York, USA (www.terrapartners.com). The new business resulted in Sinteza taking the leading position in stock trading amongst 70 members of Belgrade Stock Exchange.
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5.11
Kopaonik Insurance Company Introducing Kopaonik insurance company Kopaonik insurance company has a long tradition that originates from the Slovenian Insurance bureau, Sava, which opened its branch office in Belgrade in 1972. In 1990, Kopaonik insurance company was registered as independent company with permission to perform all current insurance activities. The company headquarters are in Belgrade, and the company operates throughout Serbia via network of branch offices in the following cities: Vranje, Arandjelovac, Bor, Valjevo, Jagodina, Kikinda, Kragujevac, Kraljevo, Krusevac, Leskovac, Negotin, Nis, Cacak, Sabac, Mladenovac, Subotica, Novi Sad. With its 179 employees, the company has achieved significant growth in many of its activities during 2004, by many indicators such as premium volume, collection of written premiums and solvency. There was increase in productivity and efficiency as well. According to the new Insurance Law, from 21 May 2004, engaging simultaneously in life and non-life insurance activities will not be permitted after 2005, and there is a significant change in the amount of initial capital required, so Kopaonik’s activities are currently being harmonized with these new legal requirements. All its business processes are supported by a quality information system that meets demands of supervisory institutions, competitive market conditions and helps to achieve its planned aims. The company is applies International Accounting and Financial Standards. Kopaonik is currently registered for following insurance operations: ●
life insurance activities;
●
non-life insurance activities (accident insurance, obligatory insurances, property insurance, etc.)
The company is provides services to a large range of clients: big public and government enterprises, holding companies, small- and medium-
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sized enterprises (SMEs), financial and educational institutions, and individual persons. Kopaonik’s 2004 results are shown in Table 5.11.1. Table 5.11.1 Kopaonik’s 2004 results (in CSD thousands) 2004
2003
Change (%)
Gross written premiums
429,700
390,555
10.02
Settled claims
159,544
186,214
ï14.32
Guarantee reserve
387,890
266,536
45.5
Capital
374,956
288,294
30.06
No. of employees
179
186
ï3.76
The company operates its business activities with economic principles and professional loyalty: ●
it aims to protect its capital and protect shareholders’ interest;
●
the company has guarantee reserves amounting to more than the amount specified by law;
●
it aims to maintain its financial stability and solvency.
The Serbian insurance market Kopaonik is insurance company that performs its business activities in a relatively undeveloped insurance market. According to data from 2003, there were some 40 insurance companies operating in Serbia and Montenegro. This data indicates that Serbia and Montenegro is country among those with the highest number of insurers per capita. In 2003, insurance companies achieved growth in the volume of written premium to the amount of CSD25.032 million (€317.3 million). In 2003, the two largest insurance companies had approximately 56 per cent of the total written premiums, while the top ten insurance companies had 87 per cent. Non-life insurance amounted to 96 per cent of the total insurance market in 2003, with property insurance making up 64 per cent, and industry insurance and MTPL insurance approximately the same with 32 per cent each. Life insurance has increased from one per cent in 2002 to four per cent in 2003. This low take-up is still under not only the world average, but also under the average of other countries in the transition process. This reflects the stability of
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335
the national currency, as well as the increase in the quality of insurance services. Table 5.11.2 Results of the Serbian insurance market, 2003 (in CSD millions) Insurance Gross written premiums
Change in relation to 2002 (%)
Claims settled and reserved
Change in relation to 2002 (%)
Non-life
24,031
+7.6
13.830
+13.18
Life
1,002
+270.2
147
+79.36
Total
25,033
+10.7
13.977
+13.62
A very important event in the insurance market in Serbia and Montenegro in 2004 was that a new insurance law was introduced on 24 May 2004. The insurance law was synchronized with EU directives and international standards. The most important new items are the tightening of conditions for forming insurance company; the protection of shareholders’ interests and the rights of policyholders; continual control of the performance of business activities and the money investment process; the regulation of insurance broker and agent activities; the regulation of supervision of insurance companies by the National Bank of Serbia; the establishment of a privatization process for insurance companies in Serbia; and the intensification of responsibilities. At the end of February 2005, the National Bank of Serbia carried out a control process over insurance companies and revealed that many disregarded the law. The result was that 15 insurance companies were left without working licences and liquidation processes were initiated, and three insurance companies halted their business activities.
Results of insurance activities In the portfolio of Kopaonik insurance company, three per cent are life types of insurance and 97 per cent are non-life insurance. In 2004, total premiums increased by 10 per cent and amounted to CSD429.7 million. The increase in the portfolio is presented in Figure 5.11.1. In 2004, the most significant non-life type of insurance was MTPL with 36 per cent, followed by industrial property insurance with 23 per cent, and accident insurance with 13 per cent. The development and quality of insurance services is being adjusted to the demands of clients and the specific needs of the market.
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2004
160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 0 Civil
Crops
Industry Transport and credit
Casco
MTPL
General Accident TPL
Life
Figure 5.11.1 Increase in Kopaonik’s portfolio in 2004 (CSD thousands) The structure of claims is in accordance with premium structure, ie the highest being MTPL insurance (51 per cent), Industry (15 per cent) and Casco (compulsory car) insurance (14 per cent). The basic principles of Kopaonik in settling claims is for rapid, equitable and uniform settlement and payment of damages, so that paid claims make up 96 per cent of total claims. The main aim of Kopaonik is to protect the company from the unexpected risk fluctuations and large losses that could have a noticeable impact on business results. The portfolio of Kopaonik insurance company is, therefore, protected by reinsurance contracts with DUNAV-RE, a domestic reinsurer.
The strategic vision of the company Kopaonik will strive, according to its basic business vision, mission, aims and strategy, to meet all requirements set internally by shareholders and management, and externally by law and its clients. Because of the strength of domestic competition and the entry of foreign competition, Kopaonik will reorganize its business philosophy and activities, and the company plans to develop new insurance products such as voluntary health insurance and annuity life insurance products. In the non-life type of insurance sector, the company will strive to be more engaged in the insurance of SMEs. The company plans to increase total written premiums by 67 per cent in 2005, to strengthen its funds and enlarge capital, to increase the number of employees up to 255, with increased productivity, and, finally, to obtain a larger share of Serbian insurance market.
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Kopaonik Osiguranje Dragisa Kecojevic, Director of Kopaonik Osiguranje Kopaonik Osiguranje is a company that has been operational for 34 years in the territory of Serbia. It began in 1971, as a representative of Slovenian insurance companies, becoming a part of Triglav Osiguranje in 1977, and the main branch office in Serbia. Following the disintegration of former Yugoslavia in 1990, the company was renamed Kopaonik. When all funds were frozen and made void in 1993, the company was forced to start from square one. For many years, the company has been the third most important insurance company in Serbia, after Dunav and DDOR. Today, the 34-year-old tradition guarantees high-quality service, a dedicated approach to every customer, and rapid allocation of damages – and all this via a network of 16 branch offices throughout Serbia. Nowadays, we offer all kinds of insurance cover, except health and provident funds because, for the moment, we lack the capacity for these two insurance types, which require exceptionally high funds in order to provide a high-quality service. Moreover, until health insurance reform has been implemented, we believe that we do not have the conditions required for the development of private health insurance. However, we offer all sorts of ‘non-life’ insurance and we cover all domains of business and private insurance. One thing we have been putting a special stress upon lately is classical loans cover. Naturally, we also offer life insurance for potential accidents in the workplace, as well as individual accident cover upon request, for instance that typically required by sports people. We are also expanding in the direction of transport insurance, with conditions improving in the domains of traffic, transport of people and goods. Previously this had been a domain of vital significance to insurance companies and is now becoming a booming sphere of the economy, and it is only logical that we should follow suit. Another area of expansion is in the direction of business insurance. For example, foreign banks refuse to sign agreements and contracts for the provision of services in the domain of physical or technical safety if the service provider in not in possession of valid insurance cover, covering all risks that could possibly damage the interests of the bank. Projects funded by foreign investors are also covered. Contractors in construction work, for example, insure their professional liability in advance for all possible faults arising from their professional activity during construction, because foreigner investors want to be sure that the contractors’ insolvency does not become an obstacle for the allocation of any eventual damages that may be incurred.
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Serbia’s Dynamic Companies
We hope to finalize negotiations around the choice of strategic foreign partner, as there are several foreign insurance companies interested. We would, in turn, benefit from such a partnership because we would be able to offer additional insurance packages and products. This will also mean a lot in terms of our own protection and, of course, in the case of any possible recapitalization. New legislation foresees that one third of any guaranteed capital must be available in currency, so, naturally, we must take that into account. When we talk about making insurance solutions available, we must admit that the choice is not that great. Our best option is to invest the premium bonds of old foreign currency savings funds, and treasury bonds that are being made available from time to time, in order to fill in the budget, and we would also like to invest in business premises for later sale, but the situation in the construction sector is still too unstable. To date, we have always made a point of investing in commercial bills and estate property for the construction of business premises. In 2002, insurance companies in EU countries had a total of €850 billion in premiums, and €520 billion of this was attributed to life insurance premiums. This is a lucrative business, as life insurance cover is a long-term policy and the funds are constantly replenished. This is big business in the West. The insurance market is not very developed in our country, and two thirds of all insurance policies are made up of industrial and vehicle cover. The situation is improving slowly but steadily, an improvement on the situation prior to the adoption of the new legislation, when many things lacked regulation. The closing down of insurance companies was an indication of one thing – that the insurance market genuinely needed to be put in order and that the insurers’ duties needed to be clarified and, above all, respected. A monitoring agency is exactly what we needed because control is an absolute necessity. The options available are few and this should also be developed. The development of insurance must proceed in the direction of expansion, encompassing loan and life insurance, voluntary health cover, provision funds, transport insurance and the cover of professional liabilities. We are experienced in only a handful of types of cover. At the same time, there are many new insurance types coming from the West, so it is natural that we should follow that course. At present, there are 22 insurance and reinsurance companies operational in Serbia and the number is decreasing. It is expected that the National Bank of Serbia, which is the official body overseeing the work of insurance companies, will also take away licences from some other insurance companies because of past irregularities and misuse.
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Part Six Appendices
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Appendix I
Useful Business Contacts Serbia Investment and Export Promotion Agency 3 Vlajkoviüeva St 11000 Belgrade Tel: +381 11 3398 550 Fax: +381 11 3398 814 Email:
[email protected] Website: www.siepa.sr.gov.yu
Ministries and governmental bodies Government of the Republic of Serbia Website: www.serbia.sr.gov.yu Office of the Prime Minister 11 Nemanjina St 11000 Belgrade Tel: +381 11 361 7719 Fax: +381 11 3617 609 Email:
[email protected] Office of the Deputy Prime Minister 11 Nemanjina St 11000 Belgrade Tel: +381 11 361 7580 Fax: +381 11 3617 597 Email:
[email protected] Foreign Media Department 11 Nemanjina St 11000 Belgrade Tel: +381 11 361 7642 Fax: +381 11 361 7471 Email:
[email protected]
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Ministry of Finance 22–26 Nemanjina St 11000 Belgrade Tel: +381 11 361 6361 Fax: +381 11 361 6535 Email:
[email protected] Website: www.mfin.sr.gov.yu Ministry of International Economic Relations 10 Vlajkoviüeva St 11000 Belgrade Tel: +381 11 361 7583 Fax: +381 11 363 3142 Email:
[email protected] Website: www.mier.sr.gov.yu Ministry of Economy 16 Kralja Milana St 11000 Belgrade Tel: +381 11 361 7599 Fax: +381 11 361 7640 Email:
[email protected] Website: www.mpriv.sr.gov.yu Ministry of Agriculture, Forestry and Water Management 22-26 Nemanjina St 11000 Belgrade Tel: +381 11 306 5038 Fax: +381 11 361 6272 Email:
[email protected] Website: www.minpolj.sr.gov.yu Ministry of Energy and Mining 36 Kralja Milana St 11000 Belgrade Tel: +381 11 363 1595 Fax: +381 11 361 6603 Email:
[email protected] Website: www.mem.sr.gov.yu Ministry of Capital Investment 22–26 Nemanjina St 11000 Belgrade Tel: +381 11 361 6426 Fax: +381 11 361 7486
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Useful Business Contacts
Email:
[email protected] Website: www.mki.sr.gov.yu Ministry of Trade, Tourism and Services 22-26 Nemanjina St 11000 Belgrade Tel: +381 11 361 8852 Fax: +381 11 361 0258 Email:
[email protected] Website: www.minttu.sr.gov.yu Ministry of Labour, Employment and Social Affairs 22–26 Nemanjina St 11000 Belgrade Tel/Fax: +381 11 361 6253 Email:
[email protected] Website: www.minrzs.sr.gov.yu Ministry of Science and Environmental Protection 22-26 Nemanjina St 11000 Belgrade Tel: +381 11 361 6516 Fax: +381 11 361 6584 Email:
[email protected] Website: www.mntr.sr.gov.yu Ministry of Health 22-26 Nemanjina St 11000 Belgrade Tel: +381 11 361 6251 Fax: +381 11 656 548 Email:
[email protected] Website: www.zdravlje.sr.gov.yu
Agencies of the Republic of Serbia Privatization Agency 23 Terazije St 11000 Belgrade Tel: +381 11 302 0800 Fax: +381 11 302 0828 Email:
[email protected] Website: www.priv.yu
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Business Registration Agency 5 Nikola Pašiü Sq 11000 Belgrade Tel: +381 11 333 1444 Fax: +381 11 333 1410 Email:
[email protected] Website: www.apr.sr.gov.yu Bank Rehabilitation Agency 2 Knez Mihailova St 11000 Belgrade Tel: +381 11 328 7738 Fax: +381 11 328 7741 Email:
[email protected] Website: www.bra.gov.yu Agency for the Development of Small and Medium-sized Enterprises and Entrepreneurship 19 Topliþin venac St 11000 Belgrade Tel: +381 11 334 6107 Fax: +381 11 334 6601 Email:
[email protected] Website: www.sme.sr.gov.yu
Other state institutions National Bank of Serbia 12 Kralja Petra St 11000 Belgrade Tel: +381 11 3027 194 Fax: +381 11 3027 394 Email:
[email protected] Website: www.nbs.yu Statistical Office of the Republic of Serbia 5 Milana Rakiüa St 11000 Belgrade Tel: +381 11 241 2922 Fax: +381 11 241 1260 Email:
[email protected] Website: www.statserb.sr.gov.yu
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Useful Business Contacts
Share Fund of the Republic of Serbia 5 Nikola Pašiü Sq 11000 Belgrade Tel: +381 11 333 1800 Fax: +381 11 333 1831 Website: www.share-fund.co.yu Belgrade Stock Exchange 1 Omladinskih brigada St 11000 Belgrade Tel: +381 11 311 7297 Fax: +381 11 311 7304 Website: www.belex.co.yu Republic Development Bureau 4 Makedonska St 11000 Belgrade Tel: +381 11 334 5233 Fax: +381 11 334 5531 Email: rzr@ razvoj.sr.gov.yu Website: www.razvoj.sr.gov.yu Intellectual Property Office 21 Zmaj Jovina St 11000 Belgrade Tel: +381 11 630 499 Fax: +381 11 311 2377 Email:
[email protected] Website: www.yupat.sv.gov.yu
Chambers of commerce Serbian Chamber of Commerce and Industry 13–15 Resavska St 11000 Belgrade Tel: +381 11 330 0902 Fax: +381 11 323 2188 Email:
[email protected] Website: www.pks.co.yu Chamber of Commerce and Industry, Belgrade 12 Kneza Miloša St 11000 Belgrade Tel: +381 11 264 1355
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Fax: +381 11 264 2029 Website: www.kombeg.org.yu Chamber of Commerce and Industry, Vojvodina 25 Blvd. Mihajla Pupina 21000 Novi Sad Tel: +381 21 557 433 Fax: +381 21 557 364 Email:
[email protected] Website: www.pkv.co.yu
Foreign chambers of commerce and institutions in Serbia Foreign Investors Council 5 Milentija Popoviüa St 11000 Belgrade Tel: +381 11 301 1155 Fax: +381 11 301 1242 Email:
[email protected] Website: www.fic.org.yu World Bank Country Office 86 Blvd. Kralja Aleksandra 11000 Belgrade Tel: +381 11 302 3723 Fax: +381 11 302 3732 Email:
[email protected] Website: www.worldbank.org Office of the Resident Representative of the IMF in Serbia and Montenegro 12 Kralja Petra St 11000 Belgrade Tel: +381 11 302 7369 Fax: +381 11 328 3843 Website: www.imf.org.yu European Agency for Reconstruction 2-4 Vasina St 11000 Belgrade Tel: +381 11 302 3400 Fax: +381 11 302 3455
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Email:
[email protected] Website: www.ear.eu.int United Nations Development Programme 69 Internacionalnih Brigada St 11000 Belgrade Tel: +381 11 204 0400 Fax: +381 11 344 4300 Email:
[email protected] Website: www.undp.org.yu American Chamber of Commerce in Serbia and Montenegro 30 Vlajkoviüeva St 11000 Belgrade Tel: +381 11 334 5961 Fax: +381 11 324 7771 Email:
[email protected] Website: www.amcham.yu Italian Institute for Foreign Trade 6 Vladimira Popoviüa St 11000 Belgrade Tel: +381 11 311 4923 Fax: +381 11 311 1602 Email:
[email protected] Website: www.ice.it German Chamber of Industry and Commerce 61 Kralja Petra St 11000 Belgrade Tel: +381 11 633 062 Fax: +381 11 625 197 Email:
[email protected]
Foreign banks Continental banka (Nova Ljubljanska banka) 1-3 Mladenci Sq 21000 Novi Sad Tel: +381 21 616 500 Fax: +381 21 616 560 Email:
[email protected] Website: www.cont.co.yu
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Delta banka (member of Gruppo Banca Intesa) 7b Milentija Popoviüa St 11070 Belgrade Tel: +381 11 201 1441 Fax: +381 11 201 1201 Email:
[email protected] Website: www.deltabanka.co.yu Eksimbanka (HVB) 10 Nikola Pašiü Sq 11000 Belgrade Tel: +381 11 302 8686 Fax: +381 11 323 1935 Email:
[email protected] Website: www.eksim.co.yu EFG Eurobank 20 Durmitorska St 11000 Belgrade Tel: +381 11 202 2120 Fax: +381 11 362 0609 Email:
[email protected] Website: www.efgeurobank.co.yu HVB banka Srbija i Crna Gora 27-29 Rajiüeva St 11000 Belgrade Tel: +381 11 320 4500 Fax: +381 11 334 2200 Email:
[email protected] Website: www.hvb.co.yu Hypo Alpe-Adria-Banka 8a Blvd. AVNOJ-a 11070 Belgrade Tel: +381 11 302 6500 Fax: +381 11 302 6501 Email:
[email protected] Website: www.hypo-alpe-adria.co.yu Jubanka (Alpha Bank) 11 Kralja Milana St 11000 Belgrade Tel: +381 11 323 4931 Fax: +381 11 324 2687
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Useful Business Contacts
Email:
[email protected] Website: www.jubanka.com LHB banka 9 Kralja Petra St 11000 Belgrade Tel: +381 11 302 0300 Fax: +381 11 302 0333 Email:
[email protected] Website: www.lhb.co.yu Meridian Bank (Credit Agricole) 42-44 Futoški put 21000 Novi Sad Tel: +381 21 487 6876 Fax: +381 21 487 6976 Email:
[email protected] Website: www.bankmeridian.com Nacionalna štedionica – banka (EFG Eurobank) 3 Kolarþeva St 11000 Belgrade Tel: +381 11 302 7500 Fax: +381 11 302 8941 Email:
[email protected] Website: www.nsb.co.yu National Bank of Greece 113 Blvd. Mihaila Pupina 11070 Belgrade Tel: +381 11 301 9900 Fax: +381 11 301 9936 Email:
[email protected] Website: www.nbgbanka.co.yu Novosadska banka (Erste Bank) 3 Blvd. Mihaila Pupina 21000 Novi Sad Tel: +381 21 527 733 Fax: +381 21 529 507 Email:
[email protected] Website: www.novban.co.yu ProCredit Bank 68c Blvd. Despota Stefana 11000 Belgrade Tel: +381 11 207 7906
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Fax: +381 11 207 7905 Email:
[email protected] Website: www.procreditbank.co.yu Raiffeisenbank 64a Blvd AVNOJ-a 11070 Belgrade Tel: +381 11 320 2100 Fax: +381 11 320 2119 Email:
[email protected] Website: www.raiffeisenbank.co.yu Societe Generale Yugoslav Bank 6 Vladimira Popoviüa St 11070 Belgrade Tel: +381 11 311 1515 Fax: +381 11 328 2230 Email:
[email protected] Website: www.socgenyu.com Volksbank 16a Blvd. Umetnosti 11070 Belgrade Tel: +381 11 201 6969 Fax: +381 11 201 3270 Email:
[email protected] Website: www.volksbank.co.yu
Foreign leasing companies HVB Leasing 13 Jovana Popoviüa St 11000 Belgrade Tel: +381 11 309 3500 Fax: +381 11 309 3501 Website: www.hvb-leasing.co.yu Hypo Leasing 8a Blvd. AVNOJ-a 11070 Belgrade Tel: +381 11 201 6100 Fax: +381 11 201 6199 Email:
[email protected] Website: www.hypo-leasing.co.yu
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Useful Business Contacts
LB Leasing 1 Palmira Toljatija St 11000 Belgrade Tel: +381 11 319 1113 Fax: +381 11 222 0102 Email:
[email protected] Website: www.lbleasing.co.yu Porsche Leasing 21 Proleterske solidarnosti PO Box 10 11077 Belgrade Tel: +381 11 304 2440 Fax: +381 11 304 2449 Website: www.porscheleasing.co.yu ProCredit Leasing 29 Goce Delþeva St 11070 Belgrade Tel/Fax: +381 11 319 4200 Email:
[email protected] Website: www.procreditleasing.co.yu Raiffeisen Leasing 45a Blvd. AVNOJ-a 11070 Belgrade Tel: +381 11 301 6580 Fax: +381 11 313 0081 Website: www.raiffeisen-leasing.co.yu TBI Leasing 7 Kolarþeva St 11000 Belgrade Tel: +381 11 322 7955 Fax: +381 11 324 8515 Email:
[email protected] Website: www.tbileasing.co.yu VB Leasing 8 Vladimira Popoviüa St 11070 Belgrade Tel: +381 11 2016 501 Fax: +381 11 2015 560 Email:
[email protected] Website: www.vbleasing.co.yu
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Consulting firms BDO BC Excel 10 Knez Mihailova St 11000 Belgrade Tel: +381 11 328 1299 Fax: +381 11 328 1808 Email:
[email protected] Website: www.bcexcel.co.yu Deloitte & Touche 16 Kralja Milana St 11000 Belgrade Tel: +381 11 361 3457 Fax: +381 11 361 3106 Email:
[email protected] Website: www.deloittece.com Ernst & Young 5 Republic Sq 11000 Belgrade Tel: +381 11 328 4616 Fax: +381 11 328 4559 Email:
[email protected] Website: www.ey.com KPMG 4 Students Sq. 11000 Belgrade Tel: +381 11 328 1194 Fax: +381 11 328 1193 Email:
[email protected] Website: www.kpmg.co.yu PricewaterhouseCoopers 30 Makedonska St 11000 Belgrade Tel: +381 11 3302 100 Fax: +381 11 3302 101 Email:
[email protected] Website: www.pwcglobal.com
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Useful Business Contacts
Travel and accommodation Tourist Organization of Serbia 8a/5 Deþanska St 11000 Belgrade Tel: +381 11 334 2521 Email:
[email protected] Website: www.serbia-tourism.org Tourist Organization of Belgrade 1 Deþanska St 11000 Belgrade Tel: +381 11 324 8404 Fax: +381 11 324 8770 Email:
[email protected] Website: www.tob.co.yu Belgrade Airport Tel: +381 11 601 555 Website: www.airport-belgrade.co.yu
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Appendix II
Contributor Contact Details Mike Ahern c/o PricewaterhouseCoopers Makedonska, 30 Belgrade11,000 Serbia Email:
[email protected] Bedminster Capital Management LLC/SEEF Representative Office, Belgrade Prizrenska 4a 11000 Belgrade Tel: + 381 11 306 75 95 Fax:+ 381 11 306 75 96 Contact: Milena Gajovic Shrestha, Associate Email:
[email protected] Ernst & Young Beograd d.o.o. Contact: Ivan Rakic, Tax Supervisor Taxation & Legal Services Trg Republike 5/VII 11000 Belgrade Tel: +381 11 2183 317 Fax: +381 11 186 948 Mobile: +381 63 635 690 Website: http://www.ey.com/eyse Lotus notes: Ivan Rakic/TAX/ErnstYoung/YU Email:
[email protected] Harrisons Solicitors Terzije 34 1000 Belgrade Tel: +381 11 3615 918 Fax: +381 11 3615 030 Email:
[email protected] Website: www.harrison-solicitors.com
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Institute for European Studies Trg Nikole Pasica 11 11000 Belgrade Tel. +381 11 3398891, 3398918 Fax. +381 11 3398797 Website: http://www.ies.org.yu/ Karanovic & Nikolic Lepenicka 7 11000 Belgrade Tel: +381 11 3976114 Fax: +381 11 3976115 Email:
[email protected] Website www.karanovic-nikolic.co.yu Contact: Patricia Gannon Galjina Ognjanov Faculty of Economics Belgrade University Kamenicka 6 11000 Belgrade Raiffeisenbank a.d, Beograd Bulevar AVNOJ-a 64a 11070 Novi Beograd Call Centre: +381 11 32 02 100 Email:
[email protected] Website: www.raiffeisenbank.co.yu Raiffeisen Investment AG Representative office, Belgrade Obiliüev venac 27/II Belgrade Tel: +381 11 32 81 638 Fax: +381 11 26 23 542 Email:
[email protected] Serbia Investment and Export Promotion Agency (SIEPA) 3, Vlajkoviceva St 11000 Belgrade Tel: +381 11 3398 550 Fax: +381 11 3398 814 Email:
[email protected] Website: www.siepa.sr.gov.yu Serbian Privatization Agency 23, Terazije St
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Contributor Contact Details
11000 Belgrade Tel: +381 11 302 0800 Fax: +381 11 302 0828 Email:
[email protected] Website: www.priv.yu Sinteza Invest Group a.d. Belgrade Blvd. Mihajlo Pupin 10A 11070 Belgrade Serbia and Montenegro Website: www: www.sinteza.net Contact: Dejan Tufegdzic, Founder & Broker Tel/Fax: +381 11 3018 740, 3018 747, 3018 748 Mobile: +381 63 366 993 Email:
[email protected] Contact: Sasa Aleksic, Head broker Tel: +381 11 3018 740 Fax: +381 11 3015 240 Mobile: +381 63 433 307; +381 65 600 700 6 Email:
[email protected]
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