Serbia 2009Economic outlook and

perspectives

Lisbon, July 2nd 2009

Vesna Arsic State Secretary

SERBIA – The Heart of SEELocated in the very heart of SEE region, at the crossroads of 2 Pan-European transportation axes-corridors X and VII.

Clearly determined to become leader in the region – “The Balkan Tiger”

ENHANCED INVESTMENT AND POLITICAL STABILITY

The SAA with the EU signed in April 2008; membership candidacy planned for 2009/2010; accession preparations to be over by 2012

Serbia’s application for the WTO accepted; accession planned for 2009/2010

Credit rating: - Standard & Poor's: BB-

- Fitch: BB-

PwC EM20 Index–Serbia as the 3rd most attractive manufacturing and 7th Shared Services location among emerging markets

E&Y European Investment Monitor–over 100 new projects in Serbia in 2007, 2008; Serbia ranked 2nd in South East Europe

Top Five Manufacturing Destinations in the World

Source: The PricewaterhouseCoopers EM20 Index, July 2008

Serbia is ranked 3rd

SEE – The most Attractive Region in Europe for Manufacturing activities

Which region is the most attractive for manufacturing activities?

SEE 38% in 2008 Vs. 32% in 2007Source: Ernst & Young Southeast Europe, Attractiveness Survey 2008, 216 International executives

SEE – Clear leadership on costs and productivity

Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 – 216 international executives

49

21

3

14%

49%

10%

Labour cost Flexibility of labour legislation

21

3

15%33%

13%

Productivity increase

Western Europe

Southeast Europe

Central Europe

Central Europe

Southeast Europe

Russia Ukraine Belarus

21

3

Western Europe

Southeast Europe

Central Europe

18%

36%

16%

Which region in Europe is most attractive in terms of labour and productivity?

Serbia and SE EuropeNet FDI Inflow in SE Europe 2000-2007

mln Euros

Foreign Direct Investments in Serbia: 2000 – 2008 (mln US $)

50165

475

1,360

987

1,616

4,350

3,460

2,994

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

2000 2001 2002 2003 2004 2005 2006 2007 2008

The largest greenfield investments in SEE awards by OECD went to Serbia 3 years in a row: Ball Packaging 2004, Metro cash & carry 2005, Airport City Belgrade 2006.

GDP Growth Rate and GDP per capita, 2000 – 2008GDP Growth Rate and GDP per capita, 2000 – 2008

829

1,574 2,1122,720

3,2853,526

4,207

5,6416,000

4.5%

4.8% 4.2%

2.5%

8.4%

6.2%

5.7%

7.5% 6.0%

2%

3%

4%

5%

6%

7%

8%

9%

10%

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 est

GDP per Capita Growth Rate

in USD

Unemployment Rate, 2000 - 2008

12,1 12,213,3

14,6

18,5

20,8 21,6

18,8

14,7

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008*

* Unemployment rate of 14,7% is the result of harmonizing the methodology with EU standards. If old methodology was used, unemployment rate would have been 17,5% in 2008

Public DebtPublic Debt 2000 – 20082000 – 2008 (in % of GDP) (in % of GDP)

SERBIA AND THE GLOBAL ECONOMIC CRISISThe effects of the crisis: GDP growth rate contracting negative impact on internal & external liquidity the downfall of the market price of stocks outflow of capital decline in industrial production decline in budget revenue decrease in imports and exports

Faltering economic activity is due to: falling domestic & world aggregate demand decline in FDI contracted lending activity

However Serbia is in a more advantageous position than other countries in the region due to its stable and liquid financial sector.

SERBIA AND THE CRISIS – GOVERNMENT MEASURES

1. package of incentives to boost economic activities,export, investment - subsidizing interest rate for liquidity & consumer loans (1,1 billion

EUR of loans)2. reduction in public spending and bureaucracy

3. reprogramming of private debt due in 2009 and 2010

4. planning of capital infrastructure projects

5. conclusion of new arrangements with IFIs (IMF, WB, EIB, EBRD...)- Agreement with IMF worth 3 billion Euros

Investments in Transportation Infrastructure

Major part of Corridor X motorway is already built. Three main sections to be completed in the next 3 years

- 120 km towards Macedonia and Greece

- 100 km towards Bulgaria

- 110 km towards Hungary

- and Belgrade bypass – major bottleneck on the Corridor X and a huge urban transportation problem in Belgrade

Total Investment of almost 2 billion EUR (financed through EIB, WB, EBRD, Hellenic plan and budget)

Reconstruction and modernization of railway network on Corridor X

Blue line – existing motorways

Red Line – planned motorways

Corridor X

LOOKING BEYONDTHE CRISIS

TRADE LIBERALIZATIONa key to stronger integration of Serbian trade in the European &

world market

EU – customs free export to the market of 490 million consumers• Serbia's Nº1 trade partner (53% of the trade with the world)• SAA with EU signed in 2008

FTA`s – RF CEFTA Belarus Turkey

WTO – accession expected in 2009/10

EFTA – ongoing negotiations

USA – preferential trade regime for most products & services

██ EU member states ██ EFTA member states ██  CEFTA member states

EXCELLENT TRADE POTENTIALS

In 2008 total trade exchange with world reached 23 bill EUR ( an increase of 15.4% in comparison with 2007)

FTA with RF • around 150 million consumers market• Serbia only country outside CIS with FTA with RF• Around 98% of mutual trade is duty free – 50% rule of national origin• Continuation of negotiations for further liberalization expected for passenger vehicles, sugar, cigarettes, woven fabrics of cotton, carpets, some furniture etc.

CEFTA• 30 million consumers market• 2nd major trade partner of Serbia• Average share of trade with CEFTA represents 16% of Serbia's total trade with the world• Serbia's substantial trade surplus in trade with CEFTA

Favourable investment climateInvestment incentives provided by the government

• cash grants for investment in virtually all sectors• special incentives for large scale investments

Over 15 bil. $ of FDI since 2001. EU member states accounted for more than 70% of FDI inflow.

Significant investment opportunitiesInfrastructure development

• Pan-European Corridor X (highways & railways)• Energy (new thermal & hydro power plants & renewables)

• cargo terminal at the Belgrade airport

Industry Total (2004-2008)

Financial sector 5081,01

Manufacturing 2615,55

Transport and telecommunications

2477,31

Wholesale and retail trade 1780,29

Real estate 1748,13

Hotels and restaurants 331,85

Construction 309,2

Agriculture 110,5

FDI by Branch of Activity in Serbia FDI by Branch of Activity in Serbia 2004 –2004 – 2008 2008million of $

Privatization & strong economic growth in recent years have attracted FDI.At the same time there has been increase of other capital inflows.

LEADING FOREIGN INVESTORS

Foreign - Owned Enterprises’ Share in Exports of 25 Top Serbian Exporters

Significant foreign enterprise share in Serbian export is a result of privatization process, restructuring and greenfield investments

Significant privatization opportunities

Major real sector privatizations in the pipeline• Galenika pharmaceutical company• Porecje,Vucje (fruits and vegetables processing)

• JAT Hotels, Belgrade• Cable industry, Jagodina• Inex Hotels, Belgrade• Jumko, Vranje (textile)

• Simpo, Vranje (furniture)

• Severtrans Sombor (transportation)

Detailed information provided by the Privatization Agency of the Republic of Serbia, www. priv.yu

Privatization – 2500 companies sold so far with the total sales proceeds of 3 billion Euros and additional 1,5 billion of investment obligation.

Until now 377 foreign investors participated in the privatization process generating 1,6 billion Euros in sales proceeds

Basic methods: tender, auction, restructuring, sale of shares from the share fund portfolio, bankruptcy/liquidation.

THANK YOU FOR YOUR ATTENTION!

Contact us:

Ministry of Economy and Regional DevelopmentBulevar kralja Aleksandra 15, Belgrade

www.merr.gov.rs