Transmission on Friday 06 February at 21.30 CET, with a retransmission on Saturday 07 February at 9.30 CET ON EUROPE BY SATELLITE

Invest in the Balkans : high risk, high profit

It was hard to find a free seat at the Conference on Investment in the Balkans last month in Brussels. Does it mean that the Balkans are “the” place for business? The crowded conference hall doesn’t completely reflect the reality on the ground. The region is still way below expectations as far as foreign investment is concerned. One of the main reasons is corruption.

Miklos Marshall, Regional Director Transparency International:

As you know, Transparency International does every year an international comparative survey, the “corruption perception index,” in which we rank countries according to the perceived level of corruption, and that index is, basically, the reflection of the opinion of the business community and that opinion is still pretty bad, I would say. None of the countries in the region scored very well.

Ana S. Trbovic, Assistant Minister, Department for European Integration, Serbia

Many still associate the former Yugoslavia with war, and don’t perceive it as a potential market. However, our best advocates are the investors who have already come and who are very successful. We need to take advantage of them, because they are showing to other investors that our country is a good place to invest.

But is Serbia really a good place for investment? If you screen all the parameters, apart from a bad image and corruption, you will also come across another, even more disturbing factor: political instability. An American company recently gave up its plan to invest in the Zastava car factory because of bad political climate. Privatization brought some results, but direct investments are still on hold. Vladimir Filipovic, Manager of the Consulting Firm Ernst and Young says that in business one can’t afford to wait for too long.

Vladimir Filipovic, Ernst&Young, Belgrade

The investors know that the timing of investment represents an important advantage. In the sense of seizing the right opportunity, even if the climate doesn’t look so favourable. It is an advantage over someone who will want to invest later when the environment is much better.

Being the first, in a good location – this is the motto of the Slovenian company Merkator. The Merkator shopping mall in Belgrade is the biggest foreign investment in Serbia. It opened just one year ago, and is already generating a profit which was not expected before three years. Is there something that Slovenians know and their competitors don’t? Why aren’t other supermarket chains following? We asked Merkator’s top manager in Ljubljana.

Zoran Jankovic, CEO Mercator, Ljubljana:

I think that other foreign investors have underestimated the advantages and that they have focused more on the weaknesses and dangers of these markets – the grey economy, inadequate legislation or, for instance, what is happening in Serbia after the lastt elections. In general, investors are looking for security. A good example is what late Prime Minister Djindjic has said at an investors conference – who wants one hundred percent security can go to Switzerland and who is looking for opportunities can come to Serbia. We think that this market will sooner or later be part of the EU.

Taking advantage of its good connections from the former Yugoslavia, Merkator invested a lot in the Balkans. However, still not in Kosovo. Fresh memories of the war and a precarious final status are not likely to attract investments in the short term. The southern part around Urosevac is very active today, but merely in trade of imported goods. The conditions for local production aren’t there, says the owner of a pipe factory. Due to high taxes, it is more cost-effective to import than to produce in Kosovo.

Baskhim Krasniqi, Ferizaj, Kosovo:

“Foreign investors or manufacturers have no possibility to come and invest in Kosovo because of the legal framework here. For example: if a foreign investor comes with machinery worth 2 million euro, he will pay more than 500.000 for customs and taxes. “

Even before the war Kosovo was lagging behind economically – the conflict only worsened the situation. This plant is still empty after it was damaged during the bombing. The legal confusion about property rights and privatization and the final status of the province are putting off potential investors.

Nicolas Lamsdorf, UNMIK, Economic Development:

“In some cases the missing final status is just a convenient excuse not to even bother about Kosovo, not to even look at the possible oportunities in Kosovo. That is wrong, because there are oportunities here, not only through the privatization. And, of course, we do have some direct investment here in Kosovo”.

In spite of all obstacles, the level of foreign investment is growing in Southeastern Europe as a whole, with Croatia topping the list. With 4%, the growth rate is much higher in the Balkans than in Western Europe. But the markets of the region are small and fragmented. To make the region more attractive as a whole, the Stability Pact helped the countries establish a free trade zone, to become a market of 55 million consumers. Realizing this enormous potential of an enlarged market , Procter & Gamble built a plant in Timisoara.

The message from the Stability Pact goes in two directions: To businessmen, it says that the Balkans present opportunities. To regional governments, it says a lot remains to be done reach their full potential.

Bernard Snoy, Stability Pact, Director Economics working table :

There is surely an image problem but there are also some other significant problems which have to be solved. For instance, in one country which I will not mention it still takes four months to register a company whereas in another one it takes only four days. Those are very important differences. We work on making sure that when they decide on legislative changes and regulations, that they have in mind what it means for investors, that the regulations are really relevant to their objectives.

The country where you can register your company in four days with the lowest income tax is Serbia. But the small good steps taken in the Balkans remain overshadowed by the persisting image of an unstable environment. But if those who have better understanding for the local ambiance step in the market today, tomorrow they might well have a reason to celebrate.