Transcript SERBIAN ECONOMY AND PROSPECTS FOR JOINING THE …

SERBIAN ECONOMY AND ITS PROSPECTS
FOR ACCESSION TO EUROPEAN UNION
Prof. Vladimir Grečić
Institute of International Politics and Economics
Selected Economic Indicators/1
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Population: 7.365.507 (Estimated population number of the Republic of Serbia
on 1 January 2008 (without data for Kosovo and Metohia)
GDP (purchasing power parity): $80.72 billion (2008 est.)
GDP (official exchange rate):
$52.18 billion (2008 est.)
GDP - real growth rate:
7.5% (2008 last est.)
GDP - per capita:
$7,054 (2008 est.)
GDP - per capita (PPP):
$10,911 (2008 est.)
GDP - composition by sector:
agriculture:
12.3%
industry:
24.2%
services:
63.5% (2007 est.)
Labor force: 3.26 million (2008 est.)
Labor force - by occupation:
agriculture:
24.1%;
industry:
27.2%;
services:
48.7% (2008 est.)
Unemployment rate: 14.0% (October 2008 Survey)
Investment (gross fixed): 20.1% of GDP (2007 est.) $80.717 billion which is $10
911 per capita
Selected Economic Indicators/2
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Main industries: pharmaceuticals, agricultural machinery, electrical and
communication equipment, paper and pulp, lead, transportation equipment,
food
Exports:
$10,973bn (2008)
Export goods:
iron and steel ($1.4bn), non-ferrous metals ($0.7bn),
clothes ($0.6bn), fruit and vegetables ($0.5bn) and metal products, n.e.c
($0.5bn)
Main export partners: EU countries (54.2%), Central European Free Trade
Agreement (CEFTA) countries (33%), The Commonwealth of Independent
States (CIS) (7.3%).
Imports:
$22,999bn (2008)
Import goods:
oil ($2.9bn), road vehicles ($1.8bn), natural gas
($1.2bn), iron and steel ($1.1bn), industrial machinery ($1.1bn)
Main import partners: EU countries (52.9%), CIS (18.5%), CEFTA
countries (7.8%)
Public finances
Public Debt:
$11.4bn (December 2008)
Revenues:
$9.7 bn (2009 budget)
Expenses:
$10.4 bn (2009 budget)
The impacts of the disintegration
and sanctions on Serbian economy
• In the late 1980s, Serbia started the process of economic transition
from the planned economy to the free market.
• Serbia experienced two disintegrations - in 1992 and 2006.
• Following the disintegration of the Socialist Federal Republic of
Yugoslavia and the violence that ensued in Croatia and Bosnia and
Herzegovina, was founded the Federal Republic of Yugoslavia
comprising of Serbia and Montenegro.
• Serbia's economy had a favorable position, but it was gravely
impacted by UN economic sanctions 1992-1995, as well as
excessive damage to infrastructure and industry during the NATO
bombing in 1999.
• Total damage of NATO bombing is estimated at $30 billion in a
detailed study done by 17 renewed economists.
• After the changes in October 2000, the country went through the
economic liberalization, and experienced fast economic growth.
• The end of the State Union of Serbia and Montenegro was in 2006.
National development
framework and strategies
• In May 2008, the government adopted the National Sustainable
Development Strategy (NSDS) of Serbia, which is a
comprehensive framework for addressing the main areas of
economic and social development of Serbia.
• It complements the priorities set out by:
• i) the Poverty Reduction strategy (PRS), which is centred around
economic growth and job creation objectives;
• ii) the National Strategy for Economic Development (2006-2012)
geared to increase the competitiveness of the Serbian economy and
to align economic development with social equity objectives;
• iii) the National Employment Strategy that aims to achieve full
employment, improve quality and productivity of labour and strength
social and territorial cohesion; and
• iv) the Strategy for Regional Development (2007-2012) that seeks
to redress regional development disparities and develop human
capital through knowledge and skills.
The current situation in Serbian
economy: The socio-economic context
• Since 2001, the Republic of Serbia has
undergone major economic and political
changes to catch-up with a late start of its
transition to a market economy.
• These changes revolve around the reform of the
institutional framework, the privatization of
productive and financial assets, the liberalization
of the trade regime and the improvement of the
business environment,
• as well as the development of a new system of
industrial relations, social security, and
employment and social policies.
The current situation in Serbian
economy: Employment
• The key indicators of the labour market of Serbia.
• The number of employed persons has been decreasing over the till
2006. Between 2004 and 2006, the level of employment decreased
by 300,000 jobs.
• Almost a half of the employed are working in the service sector,
approximately 30 per cent in manufacture and more than 20 per
cent in agriculture.
• Part-time employment increased after 2002.
• Temporary employment is going up.
• A significant share of total employment in Serbia is in the informal
economy (one third of total employment).
• Open unemployment remains high, with an overall rate of 14.0 per
cent of the labour force
Unemployment and employment
rates by Labor Force Survey
October 2007
October 2008
Unemployment
rate
18.1
14.0
Employment
rate
41.8
44.2
The current situation in Serbian
economy:Social Dialogue
• The status and recognition of employers’ and workers’ organizations
has been hindered by a volatile political and economic environment,
affecting disadvantageously their roles in (supposedly tripartite)
decision-making about the key measures of structural reforms.
• The Government has recently renewed its dialogue with the social
partners through a reinforcement of the Social-Economic Council
(SEC).
• Despite this recent refocus on revitalising the SEC, both the trade
unions and the Serbian Employers’ Association (SEA) have
underlined the need for direct support and capacity building of the
SEC to enable the latter to play its role of an effective forum for
tripartite deliberations on the country’s most pressing challenges
such as youth employment promotion, poverty alleviation and
addressing the problem of undeclared work.
The poverty reduction
• According to latest results based on 2002 and 2007 LSMS data –
Living Standards Measurement Study (Krstić, 2008), poverty
declined by around 50%, from 14% in 2002 to 6.6% in 2007.
• Thus, the main goal set out in the PRSP, which was to reduce
poverty by half by 2010, was already achieved in 2007. However,
this percentage will probably go up this year, because of crisis.
• The figure of poverty in both years considered was certainly worse
than presented here, as survey data do not fully cover refugees,
internally displaced persons and Roma.
• Poverty decreased more among refugees than among internally
displaced persons.
• A poverty rate for IDPs in 2007 remained much higher than that of
the rest of the population (14.5% and 6.5%).
• Nearly half of the Roma population (49.2%) was poor and 6.4% of
them were extremely poor.`( poverty line - 2 USD per day)
The poverty reduction/2
• The main factors which contributed to a considerable
poverty reduction, between 2002 and 2007, were a
significant and continuous economic growth since 2000,
along with a growth of real earnings and other income
sources, particularly of remittances from the abroad.
• However, overall unemployment rates in Serbia
remained quite high over this period and have
diminished the impact that robust growth may have on
the poverty reduction.
• Although absolute poverty is accepted as a national
standard, a relative poverty measure is also used in
some studies.
Macro-economic results,
2000-2007
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Serbian economy has experienced high and stable growth since 2000 – an annual
average of about 5,5%, and 7,1 % in 2007 and 6.1% in 2008; Expected GDP growth
in next year is projected to be between 1 and 3%, as result of economic crisis.
Total FDI in Serbia during 2006 amounted to 4.3 USD billion, one of the highest in the
region. A great decline in FDI was in 2007, reaching only 2.0 USD billion.
Nevertheless, Serbia has increased FDI, reaching 3. USD billion.
The process of privatization in Serbia has been in progress for more than 7 years; big
public enterprises from telecommunication, transport and energy sectors are awaiting
privatization in the next years.
After the changes in October 2000, the country went through the economic
liberalization, and experienced fast economic growth (GDP per capita went from
$1,160 in 2000 to $7,054 in 2008. Furthermore, it has been preparing for the
membership in the EU, its most important trading partner. Estimated GDP (PPP) of
Serbia for 2008 is $80.717 billion which is $10 911 per capita.
At present, main economic problems are high unemployment rate (14%) and large
trade deficit ($11 billion). Being the only European country with free trades
agreements with both the EU and Russia, Serbia expects more economic impulses
and high growth rates in the coming years.
Macroeconomic Trends: GDP (IMF World economic
outlook, October 2008)
Year
2000
2001
GDP (US$ GDP
billions)
growth
rate (%)
8.7
4.5
11.5
4.8
GDP per
capita
(US$)
1,160
1,536
GDP
(PPP) per
capita ($)
5,713
6,177
2002
2003
2004
15.3
19.8
23.8
4.2
2.5
8.2
2,036
2,640
3,186
6,512
6,857
7,638
2005
2006
2007
2008
25.3
29.7
39.9
52.2
6.0
5.6
7.1
7.5
3,408
4,009
5,387
7,054
8,357
9,141
10,071
10,911
Foreign direct investments to
Serbia
• Serbia is open to foreign direct investment, and
attracting FDI is set as a priority for the government of
Serbia, which provides both financial and tax incentives
to companies willing to invest.
• Today, leading investor nations in Serbia include:
Norvey, Germany, Austria, Greece. In recent years,
Serbia has seen an increasingly swift foreign direct
investment trend, including many blue-chip companies
(US Steel, Philip Morris, Microsoft, FIAT, Lukoil, CocaCola, Gazprom, Lafarge, Simens, Carlsberg).
• By countries, most cash investments in 2000-2007
period came from Austrian companies ($2.2bn), followed
by those from Greece ($1.6bn), Norway ($1.6bn), and
Germany ($1.4bn).
• Companies from these four EU countries account for two
thirds of all cash investments in that period.
Foreign Direct Investments in cash –net by
country (in thousand)
Country
2000
2005
2006
2007
Total
Austria
0,183
201,189
520,356
1,161,096
2,157,972
Greece
0,334
249,536
923,698
336,401
1,638,081
Norway
0,000
0,029
1,546,993
3,187
1,550,565
Germany
6,152
187,320
905,824
69,530
1,389,108
Other
6,669
802,632
389,508
434,083
3,236,563
11,252 1,440,706
4,286,379
2,004,297
9,972,289
Total
Foreign direct investments to
Serbia/2
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Blue-chip corporations making investments in Serbia include: US Steel, Philip
Morris, Microsoft, FIAT, Coca-Cola, Lafarge, Siemens, Carlsberg and others. In the
energy sector, Russian giants Lukoil and Gazprom have made large investments.
The banking sector has attracted investments from Banca Intesa (Italy), Credit
Agricole and Societe Generale (France), HVB Bank (Germany), Erste Bank (Austria),
Eurobank EFGand Piraeus Bank (Greece), and others . U.S. based Citibank, opened
a representative office in Belgrade in December 2006.
In the trade sector, biggest foreign investors are France's Intermarche, German
Metro Cash & CArry, Greek Veropoulos, and Slovenian Mercator.
Gazprom Neft gets a 51% stake in state-owned Petroleum Industry of Serbia for 400
million euros in cash and 550 million euros in investments. As a part of the deal, a
400-km (248-mile) leg of the South Streamgas pipeline will be built through Serbia,
an investment valued at another 2 billion euros.
On September 25, 2007, the Government of Serbia and Indian firm Embassy Group
signed an memorandum of understanding on information technology park
construction. Embassy Group plans to build their first Technological Park in
Europe at an area of 280ha in the town of Indjija near Belgrade.
The five year plan predicts building a business area of 250,000 square meters and
employing around 25,000 people. This is planned as the largest Greenfield
investment in Serbia, accounting for a minimum of $600 million.
Why Serbia attracts foreign
direct investors?
• People strengths and capabilities: competitive workforce
(skilled, relatively inexpensive, English speaking and
with a traditional external exposure).
• Central location in Southeast Europe and good market
access via EU accession process, regional free trade
agreements and a free trade agreement with Russia.
• Lower cost salaries particularly for qualified and trainable
workers
• Industrial/research tradition and background in
engineering/production skills.
• Supply base of agricultural raw materials and other
natural resources.
• Improved and improving investment climate.
External trade
2000 2005
2006
2007
2008
Export (mil.
US$)
1,558
4,553
6,428
8,825
10,973
Import (mil.
US$)
3,330
10,575
13,172
18,554
22,999
Trade
Balance (mil.
US$)
-1,772
-6,022
-6,744
-9,729
-12,026
41.1
48.8
47.6
47.7
office
Republic
of Serbia
2008
Export/Import 46.8
(%)
Source:
Statistical
Relations between Serbia and EU
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With the victory of a wide coalition of Serbian democratic forces at the
federal elections in 2000, relations with the then Federal Republic of
Yugoslavia were raised to the formal level already achieved by it's Western
Balkan neighbours and Belgrade and Podgorica embarked on the road of
European integration that should eventually offer an opportunity to become
a full member of the EU.
This opportunity has been formalised on the basis of decisions taken at the
Thessaloniki Summit in June 2003 and confirmed on several occasions by
the EU, Serbia is a potential candidate country for the EU accession.
Since 2001 Serbia has benefited from the EU policy advice provided
through the EU-FRY Consultative Task Force (CTF), later replaced by the
Enhanced Permanent Dialogue (EPD).
The task of EPD is to encourage and monitor reforms on the basis of the
European Partnership adopted by the EU Council in June 2004 and
updated in January 2006.
Several sectoral groups have been set up to deepen technical discussions.
After the end of the State Union, the Enhanced Permanent Dialogue has
continued separately both with Serbia as well as with Montenegro.
Stabilization and Association
Process (SAP)
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The Stabilization and Association Process (SAP) is the EU’s policy
framework for the countries of the Western Balkans.
The main elements of this long-term commitment to the region were
proposed in one Commission Communication (1999). The Zagreb Summit,
of 24 November 2000, set the seal on the SAP, by gaining the region’s
agreement to a clear set of objectives and conditions.
The SAP supports the Western Balkan countries’ development and
preparations for future EU membership by combining three main
instruments: the Stabilization and Association Agreement, autonomous
trade measures and substantial financial assistance. Regional co-operation
constitutes a cornerstone of the SAP.
In May 2003, a Commission Communication in “The Western Balkans and
European Integration proposed to enrich the EU policy towards the region
with elements taken from the Enlargement process, reinforcing the ultimate
goal of extending membership to the Western Balkans.
The European Council of Thessaloniki (19-20 June 2003) confirmed the
SAP as the policy framework of the EU course of the Western Balkan
countries all the way to their future accession and endorsed the
Thessaloniki Agenda.
Stabilization and Association
Process/2
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The Thessaloniki Agenda strengthened the SAP so that it can better meet
the new challenges.
It established the European Partnerships with the Western Balkan
countries, which identify short and medium term priorities which each
country needs to address on its way to the EU.
The first European Partnership for the then State Union of Serbia and
Montenegro was adopted in 2004 and the current revised European
Partnership valid for Serbia was adopted on 30 January 2006.
The EU – Western Balkans Summit of Thessaloniki (21 June 2003), which
was a follow-up to the Zagreb Summit of 2000, provided an opportunity for
the EU and the Western Balkan countries to assess three years of work in
stability, democracy and economic recovery in all countries of the region
and saw the adoption of the Thessaloniki Declaration.
On the basis of decisions taken at the Thessaloniki Summit in June 2003
and confirmed on several occasions by the EU, Serbia is a potential
candidate country for the EU accession.
Stabilization and Association
Agreement (SAA)
• Serbia signed the Stabilisation and Association Agreement (SAA)
and an Interim Agreement covering trade-related matters on 29 April
2008.
• The Council however decided that the implementation of the Interim
Agreement and the ratification of the SAA are subject to Serbia fully
cooperating with the International Criminal Tribunal for the former
Yugoslavia (ICTY).
• Serbia may gain EU candidate status in 2009. I believe that, if
conditions are met, Serbia could get candidate status this year. The
EU's ratification of the SAA - a pre-accession treaty - is on hold over
Dutch objections that Serb war crimes fugitive general Ratko Mladic
and Goran Hadzic remain at large.
• Serbia was told that, in the October 2008 best scenario and with full
cooperation over tracking down war crimes suspects, it might be
able to start EU membership talks by the end of 2009.
Stabilization and Association
Agreement: Political criteria
• Serbia has been increased stability in government and greater
consensus on European integration after the last election last year.
• Serbia made significant progress on cooperation with ICTY,
including the arrests of Radovan Karadzic and Stojan Zupljanin.
Parliament ratified the SAA in September 2008 and began work on a
package of laws.
• Serbia has good capacity in its public administration.
• European integration structures were strengthened and the National
Programme for EU Integration was adopted.
• Regulatory bodies performed well under difficult conditions.
• Further efforts need to be taken to ensure the independence,
accountability and efficiency of the judicial system. Corruption
remains widespread and constitutes a serious problem.
• Civil and political rights in Serbia are generally protected.
• Relations between the EU and Serbia have been affected by the
declaration of independence of Kosovo.
Stabilization and Association
Agreement: Economic criteria
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The Serbian economy continued to grow strongly and the country made
progress towards establishing a functioning market economy.
Good growth rates were accompanied by widening external imbalances and
the vulnerability increased also in the light of the global financial crisis.
Fiscal policy remained expansionary, contributing to the resurfacing of
inflationary pressures in 2008.
Despite recent high economic growth rates, unemployment remains a major
challenge.
There was some progress in privatisation, but structural reforms in general
slowed down.
The country continued to attract the FDI, however, some foreign investors
have been affected by the unstable political climate.
A competitive and dynamic private sector has not yet been fully established.
Further efforts are needed to enable Serbia to cope in the medium term
with competitive pressures and market forces within the Union.`
Stabilization and Association
Agreement: European standards
• Serbia is well placed to implement the SAA and the Interim
Agreement, thanks to its good administrative capacity.
• There has been progress in the field of free movement of goods and
continued improvements in customs and taxation administrations.
• However, there was little legislative output on European standards
and weak enforcement capacity in competition.
• Little progress has been made in the area of information society and
media.
• A comprehensive and effective system of public internal financial
control is still not in place.
• Money laundering and organised crime continue to be a serious
problem in Serbia.
Prospects for joining the EU
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Serbia may gain EU candidate status in 2009 but must crack down on
corporate corruption.
In the legal vacuum that followed the collapse of former Yugoslavia,
corruption, organised crime, tax evasion, financial fraud as well as the grey
economy emerged as serious problems.
Justice, freedom and security, including the fight against corruption and
organised crime are therefore EU priorities in Serbia.
It is very dificult to provide the answer to following question: What are the
prospects for the Western Balkan countries as a whole? The stability which
EU membership would bring to the region would open the door for foreign
investment, knowledge transfer, tourism development, competitive
economies and a reversal of the ‘brain drain’ of talented young people and
would lead to faster economic growth. It is obvious that EU membership is
the most favourable outcome, but it will take years, may be 8-9, till 2018.
Even if the EU accepts all the Western Balkan countries as members,
difficult reforms will still need to be carried out, especially those regarding
the rule of law.
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