Business Opportunities in Serbia

Serbia is located at the crossroads of Europe, the Middle East, and Africa. Serbia and its neighbors Bosnia and Herzegovina, Bulgaria, Croatia, Hungary, Kosovo, Macedonia, Moldova, Montenegro, Romania, and Slovenia represent a market the size of Texas, with 60 million inhabitants and a GDP of USD 523 billion. Following the war, economic crises, and related social and political difficulties of the 1990s, Serbia remains a country in transition. In recent years, the government has made important progress on the political front, culminating in the official opening of accession negotiations with the European Union (EU) in January 2014. Installed in April 2014, the current government won a landslide victory after campaigning on promises of economic, social, and political reforms. Economic issues are the priority for the new government, which announced plans and has made some progress on developing a modern labor code, privatizing struggling state-owned enterprises, streamlining bureaucratic processes for construction permitting and inspections, and establishing a competitive investment incentive program. With unemployment above 20 percent and the deficit ballooning to an amount equal to more than eight percent of the gross domestic product (GDP), the government aims to both stimulate job creation and tighten its finances. After several years of slow growth and even economic contraction, the Serbian economy performed slightly better in 2013. According to the National Bank of Serbia (NBS) findings, GDP growth for 2013 was 2.4 percent. Strong performance in exports (mainly automobiles, auto parts, and oil derivatives) as well as a 26.4 percent increase in agricultural production drove this growth. Expectations for 2014 are weak based on decreased consumer demand and a drop off in investments, as well as the costs of recovery following the devastating floods that hit the region in May 2014. Local economists forecast a 1.5 percent decrease in GDP for 2014. Inflationary pressures weakened throughout 2013 and the first quarter of 2014. Primary reasons included weak consumer demand, favorable effects on food prices following a good agricultural season, and the relative stability of the Serbian currency, the dinar. Average monthly inflation in 2013 registered at just 0.2 percent, and the annual inflation rate stood at 2.2 percent. Following the floods, however, the NBS expects year-on-year inflation in 2014 to approach the top limit of the target band (four percent plus/minus 1.5 percent). The dinar remained virtually unchanged against the euro in 2013. In 2014, the NBS intervened on the foreign exchange market to curb additional depreciation depreciation by the intervening of the NBS on the foreign exchange market, which sold a total of USD 1 billion in foreign currency since the beginning of 2014. In August of 2014, the dollar/dinar exchange rate was USD 1.00 = RSD 88.