SIEPA NEWS

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Sector Close Up

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Q & A

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Monthly Reporting

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Arts & Entertainment

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The Other Home

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Must See

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Highlights of the Month

Serbia Only Country in the World with Improved Rating

Bozidar Djelic, Deputy Prime Minister for European Integration, said that Serbia's official rating by the Organization for Economic Co-operation and Development (OECD) had increased, moving up from the sixth category into the fifth. According to the OECD's report, Serbia was the only country in the world whose rating has been improved. The improved rating will result in lower credit insurance prices for companies interested in doing business in Serbia, interest rates may be lower by about 0.2%. This has direct financial effects on the business risk insurance agencies whose clients collaborate with Serbia.

French Investments in Transportation Sector

The Deputy Prime Minister for European Integrations Bozidar Djelic and French State Secretary of Foreign Trade Anne-Marie Idrac stated that France will offer Serbia know-how and invest in the transportation sector. "We discussed matters of joint interest, including the purchase of an Airbus plane for Jat Airways. The Serbian government has formed a working group to examine this issue and we expect that a decision will be reached soon", said Djelic. The construction of road and rail Corridor 10 was also discussed as France has expertise in this field, as well as the transportation potential of the Danube River. France is interested in building river port infrastructure as well as water cleaning projects in Belgrade and other places around Serbia.

Pompea invests €4 million in New Units

Underwear and socks factory Modital, owned by Italian Pompea, plans to invest €4 million in a production unit in Zrenjanin, north Serbia. The facility construction has already started and will be put into operation in April. "That is our most demanding project in Serbia as we want to unite most of our production here. Currently we are negotiating with Zrenjanin's city officials to rent additional land to construct a logistics center" said Aleksandra Jaksic, Head of the company's HR department. The plan is to employ 25 people in the new production unit, while another 70 will be employed in a few months' time. The factory in Zrenjanin currently has 176 employees and produces 63 million socks per year. 

Low Cost Cimber Sterling to Start Flying Belgrade - Copenhagen

Denmark-based Cimber Sterling will start flying a Belgrade-Copenhagen route on March 29^th twice a week, on Mondays and Fridays. Cimber Sterling will fly the route using the Boeing 737 series 300.

Hydroelectric Power Plants on the Lim River

Canadian Reservoir Capital Corp. and its Serbia-based company REV have opened an office in Prijepolje. Their plan is to start constructing two hydroelectric power plants of about 50 MW on the Lim River in that town. It was announced that an annual production of electricity will be about 180 GWh and that the estimated value of the investment is about €12 million. Two power plants will have so-called fish paths and will not endanger the environment. The CEO of Reservoir Capital Corp. Miles Thompson said that the project will last between 2.5 and 3 years. He added that 70% of the investment is the cost of construction works, which will be carried out by companies from Serbia.

Carrefour in Serbia

Global supermarket chain Carrefour and Greek company Marinopoulos have decided to develop hypermarkets and supermarkets under the Carrefour franchise in the Balkans. "We plan to expand in Serbia, Albania, Bosnia, Croatia, Macedonia, Montenegro, and Slovenia. By opening a new branch, we would take a step forward in the Balkan market, which is quite promising" stated Carrefour's representatives. They could not specify the starting day for launching their operations, but pointed out that the new company would be 60% owned by the French company, while the rest would be in the hands of Carrefour-Marinopulos. Carrefour has more than 495,000 employees in 15,500 stores in 35 countries.

Telenor Gets Serbia's Second Landline License

The Republic Telecommunications Agency (RATEL) issued a second license for the provision of fixed telephony services in Serbia to Telenor. The company paid €1.05 million for the license and has one year to start providing fixed telephony services, namely fixed telephony and ADSL access to Internet. Telenor is the seventh largest global mobile operator with 172 million subscribers in 14 countries, including 2.8 million subscribers in Serbia. 

New Cord Blood Stem Cell Bank

The Nottingham-based umbilical cord blood stem cell bank Future Health recently opened a branch office in Serbia. Future Health's laboratory meets all the necessary, internationally-recognized standards, including the guidelines of the Code of Practice for Human Tissue Banks. Since September 2008, blood stem cells in Serbia have been collected in accordance with guidelines issued by the Serbian Ministry of Health. Numerous maternity wards are already authorized to collect and preserve umbilical cord blood stem cells.

SIEPA NEWS

The Economist’s Eighth Business Round Table with the Government of Serbia

The Economist and SIEPA invite you to join us at the Eight Business Round Table with the Government of Serbia - New directions for growth on March 24^th, 2010 in Belgrade. This is an exclusive opportunity to explore the key issues and more with Serbia's political and business leaders and experts. Our speakers include Prime Minister Mirko Cvetkovic and other key government ministers. Experts from the Economist Intelligence Unit and leading business figures will engage in heated debate, raise the issues that matter and search for possible solutions.

We'll be exploring issues such as:

• The impact of IMF-backed austerity measures
• Policy priorities for boosting the economy
• Cutting red tape and upgrading infrastructure to attract foreign investment
• The potential effect of European integration
• Foreign policy priorities for the year ahead

Why you should attend:

• Join an open and stimulating discussion with decision-makers from the highest levels of government, including Prime Minister Mirko Cvetkovic.
• Benefit from an in-depth briefing by EIU experts on the economic and business prospects for Serbia.
• Network with an audience of international executives in a rewarding and high-powered setting.

Serbian Agriculture Exporters Knocking on Russia’s Door

SIEPA assisted the Serbian Chamber of Commerce in leading 12 Serbian companies to the 17^th annual PRODEXPO food product fair in Moscow, Russia. Participating Serbian companies are involved in the production of fruit, vegetables, pasta, confectionary products, meat products, edible oils, and wine. A lot of traffic flowed to Serbia's stand, highlighting the strong interest of Russian companies in importing Serbian agricultural products while taking advantage of the Russia-Serbia free trade agreement. For SIEPA, this was a prelude to a much more ambitious effort that will be organized for the World Food Moscow fair in September, which will be jointly organized by SIEPA and the Serbian Ministry of Agriculture. 

Sector Close Up

Food and Beverage Sector – CHANGE OUT “EURO” with €

In a country that has considerable natural resources at its disposal for primary agricultural production and the exploitation of water springs, where the GDP share of agriculture is higher than 10%, the food and beverage production sector is bound to have major significance to Serbia's economy. Thanks to the country's natural predispositions, inherited developed customer awareness and relative resistance to the affects of the crisis, Serbia's food and beverage producers managed to record 13.6% growth in 2008 (more modest than the previously recorded 24%). The combined revenue of all 39 listed companies from this sector amounts to €3.4 billion. The profitability of this sector is better than the average of all companies on the list, albeit with a slight decrease in the preceding year.

Data for 2008 only partly reflect the affects of the crisis, which first hit liquidity of food and beverages producers, due to extended payment collection periods for goods delivered from distributors and traders - bridging these difficulties with new short-term indebting was not uncommon in 2008 - if we note that the combined net debt of the sector increased by about 15% and the EBITDA/net debt ratio amounts to a not-so-problematic 1.8. Of course, oscillations are far higher when individual companies are analyzed. Sojaprotein is the new sector leader, while results recorded in 2008 propelled Imlek, the leading domestic producer of milk and dairy products, into second place for the first time.

The top spot for operating revenues is occupied by the leading soya processor in the region - Sojaprotein, with recorded revenues of about €260 million. Sojaprotein is also noteworthy for its extremely high growth rate - exceeding 30% (among the sector's leaders, followed closely by cooking oil producer Dijamant and leading meat processor Matijevic), as well as the highest net debt of all observed companies - as high as €119 million, i.e. 4.2 x EBITDA, twice that of 2007. The remarkably high growth of Imlek is related to the merging of other dairies under the control of the same owner, as well as the organic growth recorded in 2008. Imlek recorded operating revenue of €247 million, with the EBITDA margin of 8.3% and a sustainable indebtedness level equal to the sector's average. The former leader, evermore diversified concern Swisslion Takovo, managed to record 16% growth last year, but it did so with one of the lowest operating revenue rates in the sector (EBITDA margin of only 3.3%), a high indebtedness level (7.5 x EBITDA) and net losses of €5.3 million. The consequences of the slightly changed relations between related company Eurolion on the results recorded by Swisslion Takovo are not completely clear. The sector's last company with operating revenues exceeding €200 million is Grand Prom, the leading processor and distributor of coffee on the domestic market and part of Slovenia's Droga Kolinska. The company's brilliant growth of 28% wasn't mainly financed by indebting from third sources (net debt of only €6.4 million), which could serve as an introductory illustration for more drastic examples of enterprises; subsidiaries of foreign conglomerates (Coca Cola, Apatin Brewery - InBev, Celarevo Brewery - Carlsberg) that are not formally indebted, though in these cases offering a completely realistic conclusion that indebting is carried out and registered at the level of the parent companies under foreign jurisdiction.

The sector's top performers for EBITDA margins are Rubin Krusevac (outstanding 35%), Apatin Brewery (26.5%) and Matijevic (24.5%), while the only operating loser, Fidelinka, holds last place on the list. Its poor results in 2008 are an indication of deeper problems that occurred in the first half of 2009.

As many as nine companies ended the year with negative net results. With the exception of Agroziv, which declared bankruptcy last year, the biggest net loss was recorded by Swisslion Takovo. Now for indebtedness. Considering the net debt/OIBDA (operating revenues before depreciation and amortization) ratio as the most certain relative indicator and disregarding the already problematic Fidelinka, the most indebted companies in the sector, relatively, are Pionir Subotica (net debt of 13.6 x EBITDA), Swisslion Takovo (7.5 x EBITDA) and Yuhor (7.3 x EBITDA).

Q & A

Mr. Djordje Vukotic, Head of Commission for carrying out regulatory reform

In December of 2009, the Serbian government came to a decision to annul 431 legal acts. This decision formally kicked off the enactment of the 'regulatory guillotine.' The strategy of this wide-ranging effort, popularly known as the 'guillotine,' is to modify or annul unnecessary regulations in order to improve the business environment, reduce legal obstacles, and increase Serbia's overall competitiveness. Mr. Djordje Vukotic is the head of the Group for enforcing the all-encompassing regulatory reform.

This reform is envisioned as a very ambitious project for the Serbian business environment: How would you describe the goals of this project and the results that it hopes to achieve?

One of the main goals is to reduce the administrative costs of doing business in Serbia by 25%, which is in line with the policies of the European Union (EU). This project follows the lead of EU members who are also trying to reduce administrative costs by 25% by 2012. So, we are carrying out this initiative not only to reduce costs, but also to bring Serbia more in line with EU standards. If all of our recommendations are adopted, over €200 million would be saved each year. This figure is a result of multiplying the cost of each procedure by the average salary in Serbia, which was provided to us by the Statistical Office of the Republic of Serbia.

Can you describe for us in some detail how this project is being carried out?

After we finished the information-gathering phase, we looked at which regulations directly or indirectly impact commerce in Serbia. When we talk about regulations which 'directly impact' commerce, we looked at absolutely everything that might affect any aspect of doing business. To give an example, this even included examining regulations regarding long-term stays for foreigners.

Regulatory bodies had until May 15th to analyze their procedures and fill out an online form where they listed information such as how much the procedures costs or data about filling out forms. These bodies even had an opportunity to justify or give their honest opinion about the usefulness or necessity of each regulation or regulatory procedure. The private sector and the public had until June 15th to turn in their recommendations; commissions formed to analyze particular fields were given until July 15th to submit their recommendations. However, we kept receiving recommendations all the way through November. Given the sincere, hard effort that everyone put in, we analyzed each recommendation very seriously, even in spite of receiving them past the stated deadline. We also published all recommendations we received on our website.

According to the opinions that you received, what administrative problems would you highlight as the biggest for the business environment?

We received a lot of complains about the work travel documentation, which is apparently a big hassle for businesses. According to our estimates, the extension of travel permissions for businesses from 7 to 30 days would bring savings of €20.7 million. Complains were also made in relation to procedures for registering employees, which has to be done in three different places: the Republic Fund for Pension and Disability Insurance, the National Health Insurance Fund, and the National Employment Service.

Abolishing the "work book" and implementing a one-stop-shop system for registering and letting go employees would save about €20 million. One recommendation also applies to inspections; that would result in savings of around €3.6 million. At the very begging of this process, we recommended forming one joint body - the Inspectorate of the Republic - to handle all inspection work and achieve these savings.

We will talk with the Ministry of Environment and Spatial Planning about the possibility of establishing the one-step registration system for submitting construction permit applications.

Which institutions and organizations participated in giving recommendations for the modification or abolition of regulations?

The Serbian Chamber of Commerce participated in the effort, as did the Association of Accountants and Auditors of Serbia, which contributed many recommendations. USAID's MEGA project also leant its support. But, I would like to particularly call out the role of the Foreign Investors Council which gave a lot of good recommendations and pointed out the key issues in the business environment. They practically coordinated the working group for tax and customs procedures and they sent recommendations that were very precise, so it was easy for us to finalize them.

When do you think this project will be completed? According to your opinion will the initial deadlines be met?

Definitely, yes. 431 recommendations were adopted by the government in 2009. If the third package is formed and goes to regulators in January 2010 it will result in a further 122 changes. Thus, there is real possibility for the project to be finished by the middle of next year. Even if that does not happen, it is better to include some initiatives that have been delayed.

This is the first reform in which the economy and companies have been actively involved. We are implementing reforms to help our economy, and to satisfy regulatory bodies and other state authorities.

Monthly Reporting

Belt-tightening during the economic crisis

GfK Belgrade decided to once again turn its attention to revealing the current problems in the domestic market: at its January 28th conference, GfK took a look at the main issues facing Serbia's consumers, as well as what is ahead of the market in 2010.  

When we asked consumers what their expectations were for the upcoming period, we learned that they expect to change their spending on food and drink in 2010 more than on any other portion of their household budget.

This time last year, the biggest concern for most of us was whether or not we would have enough money to pay the bills: rent, electricity, heating - we feared that the crisis would prevent us from paying for these services. This year, however, this particular concern has been pushed into second place. Instead, our basic existential need, food and drink, has taken the top spot. A majority of the people surveyed in our study believe they will have to change their spending habits in this area this year.

Respondents indicated that the upcoming period will least affect clothing and housing upkeep, with the former being a bit more crisis-sensitive than the latter. Of course, this does not mean that consumers will be able to spend as much as they would like in these categories, but rather that there is very little that consumers could actually save money on. In other words, it is difficult to reduce costs in these areas. 

When asked if and how they would change their consumption behavior in any particular food/drink category, the greatest number of respondents (60%) noted that they would change their spending habits on meat and meat products. The most common ways in which the respondents plan on saving their money is buying lesser quantities or simply by buying meat less frequently.

Evidence shows that the tobacco industry should have nothing to worry about; only a small number of respondents indicated they would change their tobacco consumption, and some 80% of people surveyed noted they would not change their smoking habits. Of the remaining fifth, 7% plan on switching to a cheaper brand and 7% plan to stop purchasing cigarettes. 

Aside from cigarettes, the fruit and vegetables category is also fairly stable; 78% of respondents claim they will maintain their spending habits. The remainder will either buy fruits and vegetables less frequently or in lesser quantities.

On the other hand, sweets and non-alcoholic beverages may experience decreased sales in 2010. About two thirds of these items' consumers believe they will change their spending habits by either buying these items less frequently or in smaller quantities. Some will also switch to cheaper brands.

Of the categories observed, alcoholic drinks are at the greatest risk of losing all of their customers. About 10% of respondents indicated they would stop purchasing alcoholic drinks altogether. Only 6%-7% of people indicated they would completely stop purchasing any other product.

Outside of food product categories, personal cosmetic and hygiene products might be at risk of losing customers: 78% of people surveyed noted they are planning on changing their spending habits in this area, notably by either switching to more affordable brands or spending less on these products.

It appears as though consumers would not stop using household maintenance products altogether, though many are considering switching to cheaper brands.

GfK group offers market research to industry, consumers, services companies, and media outlets to help these segments make market decisions. It has a wide spectrum of information and services in three areas : Custom Research, Retail, and Technology and Media. GfK is the 4th largest research company in the world, has offices in over 100 different countries, and employs more than 10,000 people. GfK's sales in 2008 totalled €1.2 billion.

Source:  Growth From Knowledge - GfK

Arts & Entertainment

Davis Cup Tennis – Sporting Event – March 5 – March 7

The world's biggest Serbian and American tennis stars will light up the Belgrade Arena for a weekend this March. Come see Novak Djokovic, Janko Tipsarevic, and Viktor Troicki take on James Blake, Andy Roddick, Mardy Fish, and Bob and Mike Bryan for a chance to advance to the next round of Davis Cup play. More info: www.arenabeograd.com.

Rammstein – Concert – March 20

The hit German metal group, whose fans have been known to describe their concerts as mind-blowing and awe-inspiring, will grace the Belgrade Arena this month as part of their European tour. Rammstein's shows are equally known for their sensational pyrotechnics. Come feel the energy as we say goodbye to winter and welcome in the spring season. More info: www.arenabeograd.com.

Mikis Theodorakis’ Zorba the Greek – Ballet – March 26

Zorba the Greek is one of the world's most festive, well-known performances. This March, the Cretan piece that inspired audiences around the world to dance like the Greeks will be showcased in Belgrade. Come enjoy this timeless performance in the truly unique setting afforded by the Sava Centar. More info: www.savacentar.net.

Cities ReImagined – Film Exhibition – March 5

The cities ReImagined exhibition presents a selection of Norwegian artists' films and other visual media that is used to highlight their relationship to the architectural and urban environment around them. The city is a limitless subject of a contemporary art and this distinctive exhibition at the Vojvodina Museum of Contemporary Art draws from this boundless artistic source by framing everyday scenes and cityscapes in unique ways, thus leaving a lasting impression on its audiences. More info: www.msuv.org.

The Other Home

Mr. Calvin D’souza, Analyst, Singapore

As I have a lot of Serbian friends, I probably had a fairly different experience from what most tourists would encounter in Belgrade. Serbs perhaps have a bad reputation internationally, especially propagated through films where they are portrayed as streotypically ruthless gangsters. I think this is entirely unjustified. I loved the people I met, mainly because they are not superficial. Nobody says something that they do not believe or want to say no matter how inappropriate it may be. I was also amazed at how cosmopolitan and globalised the city is despite the country's history and the wars and this has clearly influenced the manner in which people carry themselves.  What I loved most was the customer service, which was charming and gives a new meaning to customer service: while there may be a few frowns, you know you are never going to get asked if you want "fries with that."

Must See

Restoran Sindjelic

Restoran Sindjelic, one of the most recognized restaurants in the capital, is a true institution: Housed in a cavernous yet welcoming space adjacent to a local football stadium, Sindjelic, as it is more commonly known, offers an extensive menu of Serbian and European continental food as well as a selection of wines from about 12 different countries. It's the perfect place to enjoy Serbian cuisine and hospitality as it fits the bill for just about any occasion. More info: www.restoransindjelic.com.