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DE RUEHBW #0108/01 0211515
ZNR UUUUU ZZH
R 211512Z JAN 10
FM AMEMBASSY BELGRADE
TO RUEHC/SECSTATE WASHDC 0638
INFO RUCPCIM/CIM NTDB WASHINGTON DC
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RUEHBW/AMEMBASSY BELGRADE

UNCLAS BELGRADE 000108 
 
SIPDIS 
STATE PASS TO USTR 
DEPT FOR EB/IFD/OIA DJAHN AND TJWALSH 
 
E.O. 12958: N/A 
TAGS: EAID ECON EINT OPIC KTDB EFIN PGOV SR
SUBJECT: SERBIA: INVESTMENT CLIMATE STATEMENT 2010 
 
REF: 09 STATE 124006 
 
¶1.  The following is Post's submission for the 2010 Investment 
Climate Statement: 
 
 
 
Openness to Foreign Investment 
 
------------------------------ 
 
 
 
Serbia is open to foreign direct investment (FDI), and attracting 
FDI is increasingly a priority for the government of Serbia (GoS). 
Serbia has a long history of international commerce, even under 
communism, and it once attracted a sizeable foreign company 
presence. 
 
 
 
Serbia has enacted specific legislation outlining guarantees and 
safeguards for foreign investors.  The current Law on Foreign 
Investments establishes the framework for investment in Serbia. 
The law eliminates previous investment restrictions; extends 
national treatment to foreign investors; allows the 
transfer/repatriation of profits and dividends; provides guarantees 
against expropriation; and allows customs duty waivers for 
equipment imported as capital-in-kind.  In order to attract FDI, 
Serbia developed a range of incentives for investors in 2006, 
including cash grants to investors that create significant new 
jobs, as well as tax incentives in the form of credits, cuts in 
payroll contributions and reduced corporate tax rates.  The 
Government expanded these programs in July 2008. 
 
 
 
These and other legislative changes designed to bring Serbia in 
compliance with European Union requirements were largely adopted on 
a piecemeal basis.  In December 2009 the Government implemented the 
initial steps of a long sought "regulatory guillotine" project with 
the intent to remove one third of Serbia's unnecessary, outdated 
and often contradictory regulations. 
 
 
 
The privatization process for the approximately 150 remaining 
socially-owned companies (a Yugoslav-era definition for 
"worker-owned" firms, not larger state-owned firms) is wrapping up, 
with tenders and auction procedures started underway. Serbia 
welcomes foreign participation in privatization. 
 
 
 
A foreign investor or entity may not establish an enterprise in the 
defense sector or in areas defined as restricted zones by law.  A 
foreign investor may establish an enterprise in the above-mentioned 
field or areas, or invest in it together with a domestic entity, 
but without acquiring the majority rights to manage such an 
enterprise, and only with the consent of the Ministry of Defense. 
 
 
 
The Serbian Investment and Export Promotion Agency (SIEPA) provides 
direct assistance to investors.  In addition, the Privatization 
Agency provides information and works with potential investors to 
educate them about the privatization program and related 
opportunities.  In early 2010, Serbia will dispatch "Economic 
Diplomats" to several of its foreign missions to promote foreign 
investment.  One of these offices will be in Chicago. 
 
 
 
Serbia??????s ranking by key indices is as follows: 
 
 
 
Index:                                Most Recent Ranking 
 
Transparency International Corruption Index  3.5 
 
Heritage Economic Freedom:                 56.6 (109th of 183 
countries) 
 
World Bank Doing Business                  88th 
 
*MCC Government Effectiveness:             -0.28 
 
* MCC Rule of Law                         -0.46 
 
* MCC Control of Corruption                -0.16 
 
MCC Fiscal Policy                          N/A 
 
MCC Trade Policy                           N/A 
 
*MCC Regulatory Quality                    -0.21 
 
* MCC Business Start Up                         73rd 
 
MCC Land Rights Access                     N/A 
 
MCC Natural Resource Mgmt                  N/A 
 
 
 
*As reported by the World Bank 
 
 
 
Conversion and Transfer Policies 
 
-------------------------------- 
 
 
 
The Serbian Foreign Investment Law guarantees the right to transfer 
and repatriate profits from Serbia. 
 
 
 
Serbian law allows capital flows, including: 
 
 
 
(1) Payment and transfer of capital related to direct investments 
of residents and legal entities, entrepreneurs and physical 
entities, as well as non-residents in Serbia; 
 
 
 
(2) Payments for the purpose of acquiring real estate by residents 
abroad and non-residents; 
 
 
 
(3) Payment for the purpose of purchasing equities abroad which do 
not represent direct investment, as well as long-term debt 
securities issued by OECD member countries and international 
financial organizations, or securities whose level of risk rating 
and issuer country may be prescribed by the National Bank of 
Serbia; 
 
 
 
(4) However, non-residents may not transfer capital for the purpose 
of purchasing domestic short-term securities. 
 
 
 
Serbian law permits non-residents to keep foreign exchange and 
dinar accounts without restrictions.  These accounts can be used to 
make or receive payments in foreign currency. 
 
 
 
Payments, collections and transfers on current transactions between 
residents and non-residents are executed freely. 
 
 
 
Foreign exchange is readily available and may be purchased through 
exchange bureaus by physical persons and through commercial banks 
by legal persons. 
 
Expropriation and Compensation 
 
------------------------------ 
 
 
 
In March 2009 the Serbian Parliament approved changes to the 2001 
Law on Expropriation.  These amendments were enacted in order to 
harmonize the law with the Constitution, expand the definition of 
"public interest" which permits expropriation, and clarify 
compensation amounts.  The Finance Ministry presented the amended 
law as a "temporary and transitional measure" that will be changed 
after adoption of a Restitution Law. 
 
 
 
The law defines various economic and security justifications in 
which expropriation is permitted and lays out procedures that must 
be followed.  Previously, expropriation was possible for reasons 
including: education, public health, social welfare, culture, water 
management, sports, transport, power and public utility 
infrastructure, national defense, local/national government needs, 
environmental protection, protection from weather related damage, 
exploration for or exploitation of minerals, and housing 
construction for the poor.  The 2009 amendments additionally permit 
expropriation of land needed for re-settlement of people holding 
mineral rich lands and property needed for certain joint ventures. 
Finally, the law clarifies that the competent subject matter courts 
have jursidiction over expropriation claims. 
 
 
 
Following this determination, a proposal for expropriation may be 
filed with the competent local authorities.  The authorities are 
obliged to hold proceedings and issue a decision.  The Ministry of 
Finance is designated to resolve complaints filed against 
first-instance decisions. 
 
 
 
In the event of an expropriation, Serbian law requires compensation 
in the form of similar property or cash approximating the current 
market value of the expropriated property.  The law stipulates 
various criteria for arriving at the amount of compensation with 
respect to different types of land (agricultural, vineyards, 
forests) or easements that affect land value.  The local municipal 
court will intervene and decide compensation if there is not an 
agreement within two months of the expropriation order. 
 
 
 
The Law on Foreign Investment provides safeguards against arbitrary 
government expropriation of foreign investments.  There have been 
no cases of expropriation of foreign investments in Serbia. 
 
 
 
Serbia has outstanding claims, however, related to property 
nationalized under the Socialist Federal Republic of Yugoslavia. 
Serbia has not passed a comprehensive law on restitution despite 
repeated promises to enact such legislation in 2009.  According to 
Serbia's Property Directorate, some 78,000 claims concerning 
nationalized property have been filed. 
 
 
 
Dispute Settlement 
 
------------------ 
 
 
 
Like most of Europe, Serbia's judicial system is based on European 
civil law.  However, higher court decisions can be used as 
??????guidance?????? by lower courts.  Serbia??????s judiciary lacked 
independence 
and was subject to political manipulation during the communist and 
Milosevic eras.  The Government of Serbia is working to overhaul 
the court system in order to create an independent, efficient, 
responsible and transparent judiciary.  The U.S. Government, 
through USAID and the Department of Justice, is providing 
assistance on improving criminal justice procedure and court 
reform. 
 
In December 2008, the Parliament approved a package of judicial 
reform laws including laws on the High Judicial Council, on the 
State Prosecutors?????? Council, on the Public Prosecution, on 
Judges, 
and on the Organization of Courts.  The laws create a new network 
of courts designed to improve the efficiency of the judiciary. 
They also created High Judicial and State Prosecutors?????? Councils, 
which are now responsible for selection, discipline, and dismissal 
of judges and prosecutors in accordance with EU standards, and for 
administrative oversight of the courts. In December 2009, the 
Councils selected prosecutors, deputy prosecutors, judges and 
magistrates for the new court system and nominated first-time 
appointees for confirmation.  Those appointments took effect on 
January 1, 2010. 
 
 
 
The Agency for Business Registers reduced the average time to 
register a new business from 51 days in 2005 to 2 days in 2008. 
The law stipulates that this timeframe should not exceed five days. 
In December 2009, Parliament approved a new Bankruptcy Law that 
brings Serbian bankruptcy procedures closer to international 
standards.  Under the 2005 law, the average bankruptcy procedure 
lasted for three years.  The new law introduces ??????automatic 
bankruptcy?????? for legal entities whose accounts have been blocked 
for 
more than three years, and allows debtors and creditors to initiate 
bankruptcy proceedings.  The law aims to provide faster and more 
equitable settlement of creditors, lower costs, and more rules 
regarding the roles of bankruptcy trustees and creditors councils. 
According to the law, foreign creditors have the same rights 
regarding the commencement of, and participation in, a proceeding 
under this law as Serbian creditors.  Claims in foreign currency 
are included in the bankruptcy estate in that currency, but they 
are calculated in the dinar at the dinar exchange rate on the date 
the bankruptcy proceeding starts. 
 
 
 
In May 2006, Serbia enacted its first Law on Arbitration permitting 
the use of institutional and ad hoc arbitration in all kinds of 
disputes (commercial, labor, etc.).  The law is based on the UN 
Commission on International Trade Law (UNICTRAL) model law. 
International arbitration is accepted as a means for settling 
investment disputes between foreign investors and the state.  The 
Foreign Trade Court of Arbitration (founded in 1947) is located 
within the Serbian Chamber of Commerce and is a domestic 
arbitration body.  Arbitration is voluntary and conforms to the 
UNICTRAL model law. 
 
 
 
Serbia is a signatory to the following international conventions 
regulating the mutual acceptance and enforcement of foreign 
arbitration: 
 
 
 
-- 1923 Geneva Protocol on Arbitration Clauses; 
 
-- 1927 Geneva Convention on the Execution of Foreign Arbitration 
Decisions; 
 
-- 1958 New York Convention on the Acceptance and Execution of 
Foreign Arbitration Decisions; 
 
-- 1961 European Convention on International Business Arbitration; 
and, 
 
-- 1965 Washington Convention on the International Center for the 
Settlement of Investment Disputes (ICSID). 
 
 
 
 
 
Performance Requirements and Incentives 
 
--------------------------------------- 
 
 
 
In order to provide further financial incentives for foreign and 
 
domestic greenfield and brownfield investment in specific 
industries, the Serbian Government adopted a decree in 2006 to 
permit cash grants to investment projects in all areas, except for 
trade, tourism, hospitality and agriculture.  Eligible companies 
must establish new ventures in manufacturing, in services, or in 
R&D.  The incentives and conditions are: 
 
 
 
Investments in manufacturing: 
 
--  Available incentive: starting at ??????2,000, up to ??????5,000 
for each 
new employee, 
 
--  Minimum investment: between ??????1 million and ??????5 million, 
depending on the unemployment rate in the local municipality, 
 
--  Minimum number of new positions: 50. 
 
 
 
Investments in international services: 
 
--  Available funds: starting at ??????2,000, up to ??????10,000 per 
new 
employee, 
 
--  Minimum investment: ??????1 million 
 
--  Minimum number of new positions: 10. 
 
 
 
Investments in the R&D sector: 
 
--  Available funds: starting at ??????5,000 up to ??????10,000 per 
new 
employee, 
 
--  Minimum investment: ??????1 million, 
 
--  Minimum number of new positions: 10. 
 
 
 
Serbia??????s tax law offers several tax incentives to new investors. 
Corporate profit tax is levied under the current law at the uniform 
rate of 10%, with non-residents taxed only on income earned in 
Serbia.  Companies are exempt from corporate profit tax for up to 
10 years, from the first year in which they realize profit, if: 
 
 
 
1) they invest in fixed assets in an amount exceeding 600 million 
dinars (approximately $11 million), and 
 
 
 
2) during the investment period employ at least 100 additional 
employees. 
 
 
 
Companies that do not meet the requirements for the 10-year 
exemption still may use an investment tax credit that permits a 
reduction in tax due equal to 20% of the amount invested in fixed 
assets for the respective tax period.  This reduction may not 
exceed 50% of the total tax liability.  If not used entirely in the 
course of one year, this tax credit can be carried forward for up 
to 10 years. 
 
 
 
A number of sectors (agriculture, production of yarn and fabrics, 
garment manufacture, leather processing, production of base metals 
and standard metal products, production of any sort of machinery, 
electronic goods, medical instruments, or motor vehicles, 
recycling, and video production) may obtain a tax credit in the 
amount of 80% of investments made in fixed assets, with the unused 
portion carried forward up to 10 years.  Small enterprises outside 
of these sectors may receive tax credits equal to 40% of the amount 
invested in fixed assets in the current year (credit cannot exceed 
70% of the total tax liability). 
 
In addition, the tax law offers incentives for employing new 
workers.  An employer that employs new workers is entitled to a tax 
reduction equal to 100% of the gross salary.  This tax credit is 
available for two years from the date of employment of new workers, 
provided that employment is not reduced during that period. 
 
 
 
The tax law also provides for accelerated depreciation of fixed 
assets, tax exemptions for concession-related investments, 
exemptions from social insurance contributions, income tax credits, 
and customs duty exemptions for certain goods and equipment 
imports. 
 
 
 
In addition, in July 2008 the Government expanded its 2006 
investment incentives.  The GoS will refund 25% of investments to 
each greenfield investor that invests at least ??????200 million and 
creates 1,000 jobs in the automobile, electronics, information and 
telecommunications technology industries.  These funds are 
available through 2010. 
 
 
 
Right to Private Ownership and Establishment 
 
-------------------------------------------- 
 
 
 
Private entities can freely establish, acquire and dispose of 
interests in business enterprises.  Private companies compete 
equally with public enterprises in the market, and in access to 
credit, supplies and licenses.  However, the Public Procurement Law 
adopted in December 2008 gives preference to domestic suppliers 
over foreign companies in public purchases if a foreign 
company??????s 
offer is not more than 20% better than the domestic offer (in price 
and other scored characteristics). 
 
 
 
 
 
Protection of Property Rights 
 
----------------------------- 
 
 
 
According to the World Bank Doing Business 2010 report Serbia ranks 
97th among 183 countries with 635 days needed to enforce a 
contract, while it ranks 105th with 111 days needed to register 
property.  The property register exists in cadastre and in land 
books.  Approximately 88%  of all immovable property in Serbia has 
been registered with the cadastre, under the auspices of the 
ongoing WB project, while the remaining property should be 
registered by the end of 2010.  The register of movable goods has 
existed in the Agency for Business Registers since 2005. Serbia has 
an adequate legal system to protect property. 
 
 
 
2009 brought changes to real property laws, but failed to clarify 
several key issues.  In August 2009, Serbia's parliament passed a 
Planning and Construction Law that focuses on zoning and urban 
planning, property rights on construction land, construction 
permitting procedures, and legalization of property titles.  In 
addition, it envisions allowing current leaseholders of 
construction land to convert their lease and usage rights into 
ownership rights.  The new law would require the land use rights 
holders to pay the difference between the acquisition price and a 
yet undetermined current market price to convert to ownership 
rights.  As of January 1, 2010, the government had not yet enacted 
implementing regulations. 
 
The proceeds from the conversion cost are to be shared equally 
between local government budgets and a ??????national restitution 
fund??????; 
however, Serbia has failed to enact a restitution law addressing 
how property nationalized under the Socialist Federal Republic of 
Yugoslavia will be compensated.  Approximately 78,000 restitution 
 
claims have been filed by domestic and international claimants. 
Serbia needs a clear and transparent restitution law to clarify and 
resolve land ownership issues. 
 
 
 
In December 2005, Serbia adopted a Law on Mortgages that allows 
banks to issue mortgages on buildings under construction.  The 
previous law did not permit the registration of unfinished 
buildings in land registries, making the securing of loans during 
construction difficult. 
 
Following adoption of these laws Serbia has seen strong growth in 
housing loans from almost zero to over $2.7 billion by the end of 
September 2009. 
 
 
 
Serbia is making progress on Intellectual Property Rights (IPR) 
protection with a legal framework in place and with improved state 
control over pirated goods.  The estimated rate of software piracy 
rate dropped by 6% in 2008 to the overall rate of 74% giving Serbia 
a 6th place ranking of countries with the most improved piracy 
rate, according to the Business Software Alliance Global Software 
Piracy Study issued May 2009. 
http://global.bsa.org/globalpiracy2008/studie s/studybrief.pdf. 
 
 
 
Serbia adheres to several key international agreements on IPR. 
Serbia is a WIPO member and signatory to all key agreements 
administered by WIPO.  Protection for patents, copyrights, 
trademarks, semiconductor chip layout design, geographical 
indications and designs is adequate.  The Law on Copyright and 
Related Rights, the Law on Trademarks, the Law on Legal Protection 
of Designs, the Law on Protection of Integrated Circuit 
Topographies and Law on Geographical Indications were all updated 
in 2009 and the Law on Patents was most recently amended in 
December 2006. All of these laws are compliant with the WTO 
Trade-Related Aspect of Intellectual Property Rights 
(TRIPS)agreement.  Serbia does not have an Optical Disc Law to 
combat DVD, CD and software piracy. 
 
 
 
Adequate steps have been taken to implement and enforce the WTO 
TRIPS agreement with TRIPS provisions included in Serbia??????s IPR 
laws 
and enforced by courts and administrative authorities.  The Serbian 
government signed and ratified the WIPO internet treaties on June 
13, 2003. 
 
 
 
Although pirated optical media (DVDs, CDs, software) as well as 
counterfeit trademarked goods, particularly sneakers and clothing, 
are still available, the GoS has stepped up its actions to deal 
with IPR violations. 
 
 
 
The Serbian government continues to pursue membership in the WTO. 
The government has publicly stated the desire to join the WTO in 
2010 and is working to achieve that goal. 
 
 
 
As of December 19, 2006 Serbia is a member of the Central European 
Free Trade Agreement (CEFTA) - a multilateral free trade agreement 
between Southeast European countries including: Croatia, Macedonia, 
Serbia, Montenegro, Bosnia-Herzegovina, Albania, Moldova and UNMIK 
(representing Kosovo).  CEFTA aims to facilitate trade and 
investment in the region with almost 30 million customers. Serbia 
will serve as CEFTA Chair in 2010. 
 
 
 
 
 
Transparency of Regulatory System 
 
--------------------------------- 
 
According to the World Bank Doing Business 2010 report, which 
measures business regulation across 183 economies, Serbia was 
ranked 88 in 2009.  This was a weak improvement from its 2008 
ranking of 90 and reflects a mixture of major improvements for 
starting a business and obtaining credit and a slight worsening in 
dealing with construction permits, employing workers, registering 
property, protecting investors, paying taxes, trading across 
borders and slow processes for closing a business. 
 
 
 
In 2008 the Government announced  a "regulatory guillotine" 
initiative.  The goal of the initiative is to remove one third, or 
15,000, of Serbia??????s unnecessary and outdated regulations in 
order 
to make the regulatory system more efficient, increase 
competitiveness, and attract private investment.  The initiative is 
led by the Economy and Regional Development Ministry and the 
business community has taken an active role in making suggestions 
about regulations that should be changed or eliminated.  In 
December 2009, the Government approved a first package of 
improvements that annul 208 by-laws.  A second package of 600 
regulations to be annulled, changed or amended is planned for 2010. 
This initiative is projected to reduce the cost of doing business 
by more than $300 million per year. 
 
 
 
To establish transparent rules and regulations, foster competition 
and attract investments, the Government of Serbia has established 
most of the necessary independent agencies and bodies, including 
the State Auditing Institution, Anti-Monopoly Commission, Energy 
Regulatory Agency and Regulatory Agency for Telecommunications. 
 
 
 
 
 
Efficient Capital Markets and Portfolio Investment 
 
--------------------------------------------- ----- 
 
 
 
The banking sector comprises 90% of the total assets of the 
financial sector in Serbia.  By the end of September 2009, 
consolidation had reduced the sector to 34 banks with total assets 
of $31 billion (about 66% of GDP), with 75% of the market held by 
foreign-owned banks.  After several years without issuing new 
licenses, meaning foreign banks could enter the Serbian market only 
through the acquisiton of a local bank, the National Bank of Serbia 
issued a new banking license to the Bank of Moscow in 2008. 
 
 
 
The banking sector successfully managed the recent economic crisis, 
largely due to conservative monetary policies over the past several 
years which required high capital adequacy ratios and high 
liquidity.  The banking sector has recovered from panic withdrawals 
in October 2008 when over $1.4 billion, representing 20% of total 
deposits, was withdrawn.  These withdrawals were triggered by 
consumer fears of the current global economic crisis and their 
experiences in the recent past.  The banks honored all deposits and 
appear to have regained consumer trust, as evidenced by the gradual 
return of all the withdrawn deposits to the banks during 2009.  In 
November 2009 savings in the banking sector reached $8 billion, 
exceeding the pre-crisis October 2008 level. 
 
 
 
Serbia has a capital market infrastructure, but the equity and bond 
markets are underdeveloped.  Securities are traded at the Belgrade 
Stock Exchange (BSE).  Out of 1,750  companies listed on the 
market, only about 100  companies trade regularly (more than once a 
week).  Total annual turnover at the BSE was halved in 2008 to $1.2 
billion.  This drop is generally attributed to the global economic 
crisis. 
 
 
 
The Securities Commission (SC), established in 1995, regulates the 
securities market.  The SC supervises investment funds in 
accordance with the Investment Funds Law that came into force in 
January 2006 and was amended in July 2009.  As of January 2010 
there were 19 registered investment funds. 
 
Competition from State-Owned Enterprises 
 
--------------------------------------- 
 
 
 
Serbia maintains State Owned Enterprises (SOE) in select sectors of 
the economy.  In accordance with the 2007  Law on Public Companies 
and Public Interest Activities, public companies can be established 
by the national, provincial or local governments to offer services 
of "public interest." Any other company (including those with a 
foreign ownership) or entrepreneur  may offer public interest 
services as long as it receives the appropriate permission from the 
authorized institution, usually the relevant national ministry. 
Such private companies are entitled to equal treatment with the 
SOE, unless the law states otherwise. 
 
 
 
Serbian law clearly establishes SOE in the following sectors: 
production, transmission, distribution of electricity; production 
and processing of coal; R&D, production, processing, transport and 
distribution of crude oil, natural gas and LNG; trade of crude oil 
and oil derivatives; railway; postal and air traffic services; 
telecommunication; issuance of the official gazette of the Republic 
of Serbia; information; publishing of school books; usage, 
management, protection and development of public interest goods 
(including water, roads, mineral resources, forests, rivers, and 
lakes); and utility services. 
 
 
 
In some public sectors Serbia has started opening or preparing for 
the opening and liberalization of markets for competition.  For 
instance, most recently, in November 2009, Serbia's 
Telecommunications Agency (RATEL) invited offers for a 10 year 
renewable license for a new landline operator, seeking to end state 
telecom operator Telekom Srbija's landline monopoly.  In early 
2010, mobile provider Telenor submitted the sole bid for the 
license.  Serbia is expected to decide on the license in February 
¶2010. 
 
 
 
SOEs in Serbia have both a Managing Board and Director which manage 
the operation of the SOE.  The SOEs may also have a Supervisory and 
Executive Board of Directors.  All members of the Managing Board 
and the Director are appointed by the government at either the 
national, provincial or local level.  The Director reports to the 
Managing Board, which then reports to the authorized ministry.  In 
practice, the appointment of these positions tend to fall to the 
political parties that compose the government in power.  SOEs have 
an obligation to submit annual reports to the appropriate 
government. 
 
 
 
 
 
Corporate Social Responsibility 
 
------------------------------- 
 
 
 
Corporate social responsibility (CSR) is a relatively new concept 
in Serbia and is still poorly understood by the wider audience. 
The business sector is mostly acquainted with the concept of CSR 
although a number of companies in Serbia view CSR only as a public 
relations tool which helps improve their image or reputation. 
Although the largest Serbian companies have a high awareness of the 
importance of CSR, the practice is mostly employed by multinational 
companies that already possess wider experience in this field. 
 
 
 
In general, companies that pursue CSR are viewed favorably; 
however, the wider population remains unaware of CSR principles and 
there is at times skepticisim  of the intentions of the business 
sector.  During the past year, many organizations in cooperation 
 
with the corporate sector organized a number of events and 
conferences to raise awareness of CSR and to identify CSR as a 
competitive advantage. 
 
 
 
Since its launch in Serbia in 2007, the UNDP initiative Global 
Compact has organized a number of awareness raising and educational 
events aimed at strengthening  capacity and facilitating 
interaction among participants. ??????Global Compact?????? is a 
voluntary 
international network of companies and non-corporate actors 
gathered around ten principles in the areas of human rights, labor, 
the environment and anti-corruption. All UNDP Global Compact 
members are obliged to follow those principles and incorporate them 
in their business processes.  In Serbia, this organization has 
created a Steering Committee comprised of five members, a 
Secretariat maintained by UNDP Serbia and the National Bank of 
Serbia, and five working groups. 
 
 
 
 
 
Political Violence 
 
------------------ 
 
 
 
Since October 2000, Serbia has been led by democratically-elected 
governments that have publicly committed to supporting stability 
and security in the region. 
 
 
 
There is continuing localized violence between competing political 
groups in the Sandzak region of Serbia.  This violence is usually 
directed at opposing party figures and has not targeted unrelated 
civilians or businesses. 
 
 
 
Immediately following Kosovo's February 17, 2008 declaration of 
independence from Serbia, groups twice broke away from larger 
demonstrations and attacked embassies of countries that had 
recognized Kosovo.  Since these attacks in February 2008 there have 
been no additional incidents. 
 
 
 
Following the assassination of Serbia??????s prime minister in the 
spring of 2003 by a criminal group, the government launched a 
crackdown on organized crime. Starting in 2008, the government 
passed and began implementing new legislation that strengthens the 
tools available to law enforcement and prosecutors to combat 
organized crime.  The government has also increased cooperation 
with other governments in the region resulting most notably in the 
April 2009 arrest by Serbian police of a leading Serbian organized 
crime figure wanted by Croatian police on charges related to the 
murder of a prominent Croatian newspaper owner. 
 
Organized crime in Serbia is frequently linked to sports 
hooliganism.  In 2009, sports hooligans in Serbia attacked and 
killed a visiting French national.  The government responded with a 
renewed crackdown on organized crime and sports clubs promoting 
hooliganism. 
 
 
 
 
 
Corruption 
 
---------- 
 
 
 
In October 2008, the Serbian Parliament approved the creation of 
the Anti-Corruption Agency (ACA), changes to the Law on Financing 
of Political Parties, the Law on Confiscation of Property from the 
Criminal Acts, and the Law on Responsibilities of Legal Entities 
for Criminal Acts. 
 
The ACA, which became fully operational effective January 1, 2010, 
is an independent government body accountable to the Serbian 
Parliament, charged with unifying current anti-corruption 
activities, including:  enforcing the National Strategy to Fight 
Corruption, monitoring conflict of interest settlement, tracking 
politicians?????? property and assets, monitoring political party 
financing, and facilitating international anti-corruption 
cooperation. 
 
 
 
Serbia is a signatory to the Council of Europe Civil Law Convention 
on Corruption and has ratified the Council's Criminal Law 
Convention on Corruption, the United Nations Convention Against 
Transnational Organized Crime, and the United Nations Convention 
Against Corruption.  It is also a member of GRECO (the Group of 
States against Corruption), a peer monitoring organization that 
allows members to assess anti-corruption efforts on a continuing 
basis. 
 
 
 
In Serbia, both giving and receiving a bribe is a crime.  Bribes by 
local companies to foreign officials are also criminal acts 
punishable by law. 
 
 
 
The Serbian Parliament passed an Anti-Money Laundering and 
Counter-Terrorism Law in 2009 that requires information on 
financial transactions to be reported to the Anti-Money Laundering 
Unit of the Ministry of Finance.  Financial institutions, 
attorneys, and accountants are obligated to report information to 
the Unit that may be linked to money laundering. 
 
 
 
In the 2009 Corruption Perception Index survey compiled by 
Transparency International (TI), an international anti-corruption 
watchdog organization, Serbia received an index score of 3.5 out of 
10 (10 being best).  This is a 0.1 point improvement over 2008. The 
survey ranks Serbia 83rd out of 180 countries. 
 
 
 
Bilateral Investment Agreements 
 
------------------------------- 
 
 
 
Serbia has 45 investment protection treaties/agreements with the 
following countries:  Albania, Austria, Belarus, Belgium and 
Luxemburg, Bosnia and Herzegovina, Bulgaria, Russia, China, Cyprus, 
Croatia, Cuba, Czech Republic, Democratic People??????s Republic of 
Korea, Denmark, Egypt, Finland, Macedonia, France, Germany, Ghana, 
Greece, Guinea, Hungary, Holland, India, Iran, Israel, Italy, 
Kuwait, Libya, Lithuania, Nigeria, Montenegro, Poland, Romania, 
Portugal, Slovakia, Slovenia, Spain, Sweden, Switzerland, Turkey, 
United Kingdom, Ukraine, Zimbabwe. 
 
 
 
The United States does not have a Bilateral Investment Treaty (BIT) 
with Serbia. 
 
 
 
In April 2008, the Government signed the Stabilization and 
Association Agreement with the EU, however, the EU put on hold 
implementation of the SAA's interim trade agreement with Serbia 
pending fulfillment of cooperation with the International Criminal 
Tribunal for the Former Yugoslavia (ICTY).  Serbia unilaterally 
applied the interim trade agreement beginning February 1, 2009.  In 
December 2009, the EU Council of Ministers decided to implement the 
interim trade agreement following a positive report from the ICTY 
prosecutor on Serbia's cooperation. 
 
 
 
OPIC and Other Investment Insurance Programs 
 
-------------------------------------------- 
 
Serbia and Montenegro signed a Bilateral Agreement with the U.S. 
Overseas Private Investment Corporation (OPIC) in July 2001 and 
became eligible for OPIC programs in November 2001 with 
ratification of the Agreement.  OPIC products include: 
 
 
 
--(1) insurance for investors against political risk, 
expropriation, damages due to political violence and currency 
convertibility; and 
 
 
 
--(2) insurance for certain contracting, exporting, licensing and 
leasing transactions. 
 
For more information see: http://www.opic.gov 
 . 
 
 
 
Since July 2009, OPIC has suspended further activities in Serbia 
involving either the Government of Serbia or the Privatization 
Agency as a result of the Privatization Agency??????s failure to 
comply 
with an April 2007 International Chamber of Commerce (ICC) ruling 
in a case in which OPIC has an interest.  The suspension also 
extends to projects in which the investor is required to post an 
on-demand guarantee and projects as to which the parties have 
agreed to a dispute resolution procedure. 
 
 
 
Serbia became a member of the Multilateral Investment Guarantee 
Agency (MIGA) -- a World Bank affiliate ?????? in April 2002. 
 
 
 
Labor 
 
----- 
 
 
 
Serbia has a total labor force of approximately 3.1 million people, 
with 2.6 million employed and 517,369 unemployed or 16.6%, 
according to ILO 2009 methodology.  Approximately 540,000 work in 
the agriculture sector. 
 
 
 
The private sector employs approximately 69% of workers in Serbia, 
while 27.4% are employed in the state-owned sector including the 
government and state-owned companies.  As a result of 
privatization, only 2% remain in socially-owned companies. The 
public payroll is heavy and government job cuts are scheduled in 
¶2010.  At the national level, approximately 7% of positions are to 
be eliminated (from 30,500 to 28,400 employees).  On the local and 
provincial level, the goal is the reduce the numbers by roughly 
15%, or 5,600 of 38,000 employees. 
 
Labor costs are relatively low in Serbia.  The minimum wage for the 
period July-December 2009 was set by the Social Economic Council at 
approximately $230 per month.  According to figures released in 
December 2009, the average take-home salary in November 2009 was 
approximately $470. 
 
 
 
Foreign-Trade Zones/Free Ports 
 
------------------------------ 
 
 
 
Four trade zones, in the cities of Pirot, Novi Sad, Zrenjanin and 
Subotica, have government approval under the 2006 Law on Free 
Zones. 
 
 
 
The law allows up to 100% foreign ownership of the managing company 
of the free trade zone.  Companies working in the free trade zone 
 
do not have customs or tax incentives for export but have customs 
and tax incentives for work within the zone.  Goods intended for 
processing in the zone are exempt from customs duty and other 
import duties. 
 
 
 
 
 
Foreign Direct Investment Statistics 
 
------------------------------------ 
 
 
 
Total foreign direct investment (FDI) in 2009 is estimated at 
approximately $2 billion.  SIEPA reports that FDI for the first ten 
months of 2009 was $1.6 billion. 
 
 
 
The largest 2009 FDI transaction involved the Russian entity 
Gaspromneft which paid $550 million for 51% of the state owned 
Nafta Industria Serbia (NIS) petroleum industry.  Other main FDI 
vehicles in 2009 related to greenfield investments, which accounted 
for 90% of FDI transactions in 2009.  Excavation of ore and stones, 
real estate and trade were the leading FDI sectors, followed by 
manufacturing, energy, car spare parts production and textiles. 
 
 
 
According to SIEPA, the leading investor country in Serbia in 2009 
was Russia, followed by Austria, Netherlands, Italy, and 
Switzerland.  Many U.S.-based firms invest through subsidiaries in 
the Netherlands. 
 
 
 
The following were some major FDI transactions announced in Serbia 
in 2009: 
 
 
 
Company: Gazprom 
Country: Russia 
Investment: $550 million for 51% of state-owned oil industry NIS 
with $670 million of additional investment promised by 2012. 
 
 
 
Company: MPC Properties and Merrill Lynch Country: Serbia and U.S. 
 
Investment: $215 million to build a 130,000 square meter shopping 
mall in Belgrade (Usce) 
 
 
 
Company: Fiat 
 
Country: Italy 
 
Investment: $143 million in a joint venture Fiat Automobiles Serbia 
Company: Kika 
 
Country: Austria 
 
Investment: $42 million in opening furniture shopping center 
 
 
 
Company: Calzedonia 
 
Country: Italy 
 
Investment: $28 million in opening a textile factory 
 
 
 
Company: Leoni 
 
Country: Germany 
 
Investment: $28 million in car spare parts facility 
 
Company: Grah Automotive 
 
Country: Slovenia 
 
Investment: $16 million in car spare parts facility 
 
 
 
Company: Reum 
 
Country: Germany 
 
Investment: $14 million in car spare parts facility 
PEDERSON