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News 27 Nov 15

Serbia’s ‘Institutional Chaos’ Deters Investors

Belgrade’s failure to implement reliable business regulations and judicial reform is damaging the country’s chances of economic recovery, warn experts.

Sasa Dragojlo
 Staff from the Inos Napredak company, which has been investing internally in Serbia | Photo: Beta

Serbia’s lack of progress in establishing robust business regulations and independent state institutions, combined with insufficient investment in the manufacturing sector, are key barriers to the country’s economic recovery, say economists.

Mahmud Busatlija, a consultant development investment adviser, told BIRN that the Serbian government needs to do more to regulate the business environment and tackle “institutional chaos”, especially in the judiciary, to attract investors to Serbia.

“We need to finally reform the judiciary and legislation. In Serbia, business and property dispute cases before the courts are lasting forever. Also, you cannot change laws so frequently. Companies cannot work in those kinds of conditions,” he said.

Busatlija’s comments come as the head of the EU delegation to Serbia, Michael Davenport, warned that judicial reliability and transparency were vital in order to secure high-level investment.

“When I talk with potential investors in Serbia, and I do it very often… they are interested in the predictability of the judicial system in Serbia and the general openness of society,” he said during a press conference held on Thursday.

Serbia was the only country in the Western Balkans to register negative economic growth in 2014, with GDP falling 1.8 per cent, according to the World Bank. The bank predicts Serbia’s economy will grow by just 0.5 per cent during 2015, according to its latest analysis published in September.

Mijat Lakicevic, deputy editor of the Serbian economics weekly Novi Magazin, told BIRN that there has been a notably low level of investment in Serbia in recent years and said that the government needs to urgently invest in manufacturing to compete in a globalised economy.

“There is more domestic investment than foreign, but all together it is not enough to achieve an economic recovery. We need investment in production which will generate in total at least 25 per cent of our GDP,” Lakicevic said.

Kosovo, Bosnia outperforming Serbia

He added that Serbia must record a minimum of five per cent growth in order to make significant economic progress, since the global GDP average is around three per cent. Anything under five per cent would mean Serbia remains among the world’s poorest performing economies in Europe.

According to the World Bank report, Serbia is currently trailing some of the region’s poorest countries in terms of economic growth.

The region’s faster growing economies – Albania, Kosovo, Macedonia and Montenegro – are expected to see growth of roughly three per cent or higher from 2015 to 2016.

In the Western Balkans, Serbia will likely record the lowest level of growth in 2015. Neighbouring Bosnia is expected to outperform Serbia, with its economy predicted to grow by 1.9 per cent next year.

The latest report by the European Commission measuring Serbia’s progress in terms of EU candidate status, published on November 10, underlined recent reforms have failed to ensure judicial independence.  

According to the authors, there is still scope for political interference in the recruitment and appointment of judges and prosecutors while the administration of justice is slow with a significant backlog of cases.

In addition, the report noted that frequent changes to legislation and insufficient training have made the legal environment “challenging”.

The Serbian Prime Minister Aleksandar Vucic is currently attending a trade summit in China in an attempt to encourage Chinese businesses to invest in Serbia.

BIRN contacted the Serbian Ministry for the Economy for comment but did not receive a response by the time of publication.

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