Serbian 2012 Elections May Hamper Foreign Investment Inflows

Serbia may attract less foreign direct investment this year, after luring at least $2.5 billion in 2011, as investors may be more wary until after elections that will take place no later than early May.

The 2011 total could be as much as $3 billion if the equipment purchased and installed by Fiat SpA (F) at its factory in Kragujevac in central Serbia is entered in the books for last year, said Aleksandar Miloradovic, a spokesman for Serbia’s Investment and Export Promotion Agency, or SIEPA.

“We, in SIEPA, know that repeating such a result in 2012 would be a great success because of the election year, when investment activities typically decline by 50 percent or more and when decision-makers do not want to take any risk ahead of the vote,” Miloradovic said in a phone interview.

Elections, rather than Europe’s debt crisis, will be the main risk for new investment, Miloradovic said, referring to a vote for parliament due by early May. A decision by the European Union leaders in March on Serbia’s candidacy for the membership of the bloc could turn into an “investment booster,” he said.

European Union leaders declined to grant Serbia candidate status in December, citing insufficient progress in resolving outstanding issues with its former breakaway province of Kosovo. They next meet in March to look into the progress before approving Belgrade’s bid.

EU Ties

Shunned by western investors under former President Slobodan Milosevic, Serbia has made progress in overhauling its economy and stabilizing the political system, and has been counting on closer ties with the EU and working to tear down political, economic and legal obstacles to entry as it seeks investment to keep the economy from falling back into recession.

Miloradovic said it will be more difficult this year to attract the “number of brands that entered the market in 2011,” referring to investors such as Robert Bosch GmbH (RBOS), Cooper Tire & Rubber Co. , Swarovski International AG, ContiTech AG (BTR), a unit of Continental AG (CON), Panasonic Corp. (6752) and Benetton Group SpA. (BEN)

SIEPA, which handles small-to-medium investments of as much as 100 million euros ($128 million) each, sees further interest this year in the car supplying industries, agriculture and food, electronics and an increased investor interest in tourism, and depending on market conditions, there could be a “return of real estate investors,” Miloradovic said.

Biggest Greenfield Investment

While investor interest in renewable energy sources has not declined, time-consuming regulatory and licensing procedures weigh on the pace and volume of investments, he said.

SIEPA’s annual pipeline “typically consists of 80 projects, but in 2011, 48 were realized,” he said.

“Talks are under way on probably the biggest greenfield investment ever in Serbia, worth around 500 million euros in the metallurgy sector,” Miloradovic said, declining to unveil the identity of the “Italian investor.” Belgrade-based Beta news agency wrote on Dec. 13 that Danieli SpA (DAN), Italy’s biggest maker of equipment for steel production is considering a 500 million- euro investment in Serbia.

The type of investment in Serbia has been undergoing a change, as the Western Balkan nation no longer relies “on cheap, but rather skilled labor” to boost appeal among investors who are now seeking opportunities in high technology and services, rather than “traditional industries where they’d buy land or equipment,” he said.

To contact the reporter on this story: Gordana Filipovic in Belgrade at gfilipovic@bloomberg.net

To contact the editor responsible for this story: James M. Gomez at jagomez@bloomberg.net

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