There are growing risks to social and political stability in Serbia. This is due to the slowing economic growth, impending austerity measures, and persistent tensions with neighbouring Kosovo. However, Serbia’s government's credible fiscal consolidation measures and pending IMF deal will anchor investor confidence from 2015 onwards, underpinning the improvement in the country's fiscal and debt metrics.

Our coverage, using our unique Total Analysis model, ensures that our clients make sound business decisions in Serbia. Our teams keep our clients informed of the latest market moves and political developments as part of our 'top-down' and 'bottom-up' perspective. We also provide in-depth analysis on 13 of Serbia's most important industries. Combining interactive data and forecasting with our expert research gives our clients the complete picture. We are confident that you will find doing business in Serbia is made easier.

Country Risk

Serbia Country Risk

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Core Views

  • The Serbian economy will see tepid growth in 2015-2016, as households bear the burden of the government's austerity push. External demand will offset to a degree the contraction in domestic demand, underpinning our forecast for real GDP to return to stronger growth in 2016 from a contraction in 2014, and growth of just 0.3% in 2015.

  • The social stability outlook for Serbia remains grim due to a heightened risk of public opposition to the government's austerity measures. In an effort to mitigate public dissatisfaction with austerity, Prime Minister Alexandar Vucic is likely to take a more populist hardline stance on foreign policy with respect to Kosovo, which however, will further diminish Serbia's chances of joining the EU any time soon.

  • While the National Bank of Serbia is in the midst of an easing cycle...

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Serbia Operational Risk Coverage (9)

Serbia Operational Risk

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BMI View: Serbia represents an increasingly attractive location for FDI due to a wide-ranging reform-drive aimed at achieving the requirements of EU membership. The country offers a strategically located and diverse economy with attractive investment opportunities in the manufacturing, IT, agriculture and business services sectors in particular, which are bolstered by the availability of generous incentive programmes. Having said that, a number of risks continue to undermine the operating environment, including widespread corruption, complex bureaucratic procedures, inefficient legal processes and limited credit availability. A weak macroeconomic growth outlook due to austerity measures and...

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Serbia Crime & Security

Serbia Labour Market

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BMI View: Investors in Serbia are exposed to elevated labour market risks due to a severely inadequate education system, which has diminished the country's skilled labour pool, and high labour tax and contributions that increase the overall costs to business. A widely available unskilled labour pool and reforms throughout the educational system are going some way to mitigate some of these risks. Overall the country fares moderately in the Labour Market Risk pillar of the BMI Operational Risk Index, in 12th place out of 31 Emerging...

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Serbia Logistics

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BMI View: Supply chains in Serbia must traverse an uneven transport network in terms of quality and overcome the lack of immediate port access, but businesses will benefit from cheap and reliable utilities availability. In addition, the export-driven manufacturing sector is boosted by relatively quick trade lead times, which reduces costs and the risk of delays. However, extensive bureaucracy as well as relatively expensive fuel costs adds to the logistics burden. As a result, Serbia receives an overall BMI Logistics Risk Index score of 50.4 out of 100. This places the country in 18th position out of 31 Emerging Europe countries.

Businesses in Serbia benefit from an extensive, low-cost and generally reliable utilities market, which...

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Serbia Trade & Investment

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Investors in Serbia are exposed to avid promotion of foreign direct investment and minimal red tape, which expedites the process of starting and locating a business. The country's weak and considerably corrupt legal system, however, poses a pronounced risk to investors and depresses Serbia's Trade & Investment Risk score. As a result, Serbia is a regional underperformer for Trade & Investment Risk in BMI's Operational Risk Index, with a score of 57.7 out of 100, which ranks it 17th out of 30 countries in Emerging Europe compared to its neighbours Hungary in third place, Bulgaria in 11th place and Bosnia-Herzegovina in 25th position regionally.

Serbia's well-developed international ties, which have encouraged foreign direct investment (FDI), and strong banking sector penetration mitigate investor risk and boost its economic openness. These factors contribute towards the country's strong score of 72.0 out of 100...

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Serbia Industry Coverage (13)

Autos

Serbia Autos

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Over the past quarter, BMI has become more pessimistic on the near-term outlook for auto sales in Serbia. We are now targeting an 8.6% drop in new vehicle sales over 2015, with the passenger car segment (-10%) underperforming what may be a 5% rise in commercial vehicle sales over the full year.

The main reason for our downbeat stance towards Serbian auto sales at present remains the country's worsening macroeconomic backdrop. Serbia's real GDP contracted by 1.8% in 2014, close to our estimation of -2.0%. Economic activity was dragged down by the spring and summer floods, which damaged infrastructure, housing and production facilities. Looking forward, the standby credit line arrangement with the IMF, which entails harsh austerity measures, will further exacerbate the outlook for domestic demand in 2015 and 2016.

Unfortunately for the autos sector, we believe that private...

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Commercial Banking

Serbia Commercial Banking

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...
Commercial Banking Sector Indicators
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Serbia Consumer Electronics

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BMI View: The Serbian consumer electronics market is one of the least lucrative in per capita terms in the region, but the low penetration rate in key device categories has nonetheless attracted global vendors. Growth rates will remain moderate over the medium term due to the challenging economic environment and continued negative GDP growth in 2015 will weigh heavily on this sector. We forecast Serbian consumer electronics spending will grow just 0.6% in US dollar terms in 2015 to USD1.25bn, and reach USD1.44bn in...

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Defence & Security

Serbia Defence & Security

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We expect Serbia to spend up to USD988mn on defence in 2014. On average, since the start of this decade, between the years 2011 and 2013, Serbia has spent an average of USD918.3mn on defence annually. We expect defence spending to fluctuate for the remainder of our forecast period, up to and including 2019, with Serbia spending an average of USD1bn on defence throughout this period. Defence spending in Serbia is expected to reach USD1bn by 2019.

Serbia maintains a significantly sized defence industry, considering the size of the country. This is a legacy from Yugoslavia's status as a non-aligned power during the Cold War, when a policy of self-sufficiency in armaments product was maintained. The country's defence industry makes significant exports of materiel around the world. In particular, it is a supplier of reliable yet comparatively inexpensive small arms and light weapons to many countries throughout Africa, and also in the Asia-Pacific...

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Food & Drink

Serbia Food & Drink

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BMI View: A series of planned austerity measures and high unemployment will continue to weigh on domestic demand in Serbia during 2015. The austerity measures entail reducing the size of the public sector (which accounts for close to one-fifth of the workforce), together with public sector wage and pension cuts, which will severely reduce disposable income and weigh on households' consumption sentiment. A sputtering recovery in the eurozone, and a looming recession in Russia will suppress exports, prompting us to forecast economic contraction for Serbia for 2015 of 0.4%. We are forecasting overall household consumption to contract by 1.0% in 2015 and also forecast total food consumption in Serbia to expand by only a modest 1.1% in local currency terms over the same period.

Headline Industry Data (local currency):...

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Freight Transport

Serbia Freight Transport

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Following a year in which BMI believes saw mixed trends in different freight modes, 2014 will signal slow to moderate growth across all freight modes.

Total trade is projected to pick up with our Country Risk desk forecasting a y-o-y increase of 6.15% in 2014 following an estimated growth of 7.15% in 2013.

Road freight is to grow at a highest pace, with 7% increase predicted, although rail freight is to continue to dominate the sector and is projected to grow by 1% in 2014. The sector did not manage to defy the downturn but quickly recovered its pre-2009 freight volumes, only to lose a quarter of them in 2012. However, it will be boosted by a large number of railway infrastructure upgrades.

The country finally found strategic partner for the national airline and rebranded Jat Airways as Air Serbia.

...

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Information Technology

Serbia Information Technology

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BMI View:  Serbia's EU candidacy will be the key driver of the IT industry over the next five years, as it brings its business environment and infrastructure in line with the rest of the Eurozone region. The landslide election of the pro-EU Progressive Party in March 2014 should help this transition and boost market growth, in particular, with the privatisation of Telekom Srbija, lowering tariff barriers for hardware and the reduction of software piracy. Serbia's strategic location in Europe and high level of technical education will also benefit the market, as it could become a regional hub for business process outsourcing. However, Serbia's economy has come under pressure as a result of devastating floods, causing a widening budget shortfall. Combined with the depreciating dinar, this could pose a major risk in the short-term as government spend on IT will be curbed. ...

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Insurance

Serbia Insurance

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BMI View: Serbia's insurance sector is small and relatively underdeveloped, compared with other markets in the region. Relatively low household incomes compared with other countries have slowed the growth of the sector, with penetration currently estimated at around 1.8% of GDP. Nevertheless, some areas of the market have expanded significantly over recent years, particularly the life insurance segment which has enjoyed double-digit increases in written premium over the past few years as a plethora of...

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Medical Devices

Serbia Medical Devices

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BMI Industry View: We expect the Serbian medical device market to grow by a CAGR of 0.9% over the 2013-2018 period, hindered by relatively slow GDP growth. The majority of medical devices are imported as local manufacturers focus on disposables such as bandages and syringes, and low-tech equipment. The government is continuing to reform the healthcare system, however. In recent years, an extensive programme of renovation has...

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Pharmaceuticals & Healthcare

Serbia Pharmaceuticals & Healthcare

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BMI View: A focus on reining in Serbia's bloated public sector following an agreement with the IMF will inevitably lead to cuts in healthcare spending. Furthermore, Serbia's healthcare authorities will continue to cut prices to reduce their pharmaceutical expenditure as a means to contain healthcare costs. We expect the growth outlook for the Serbian pharmaceutical market to worsen in the short-term as household and government consumption decline.

Headline Expenditure Projections

Pharmaceuticals: RSD92.43bn (USD1.05bn) in 2014 to RSD97.15bn (USD872mn) in 2015; +5.1% in local currency terms and --16.6% in US dollar terms. Forecast unchanged from Q215.

...

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Retail

Serbia Retail

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BMI View: Compared with the other countries in Central and Eastern Europe, Serbia has a relatively poor economic growth outlook. A large budget deficit and increasing public debt made the government respond with austerity measures, which will inevitably delay a faster expansion of the Serbian economy. Despite that, retailers continue to invest and expect to capitalise on the country's potential in the medium term.

Poor public finances paired with underdeveloped financial and legal systems are taking a toll on the Serbian economy. Real GDP contracted by 2.0% in 2014 as a result of high unemployment and weak economic activity of the country's main trade...

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Telecommunications

Serbia Telecommunications

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BMI View: Serbian market is not as developed as many of its Eastern European peers despite its high level of saturation. Serbia's mobile penetration peaked in 2008 at 142.9% and has been in decline since. BMI does not believe that the market has much scope in terms of new customers, instead value-added services, such as access to high speed mobile data can raise the average revenue per user for mobile operators. This is already evident by an increasing ARPU in 2014. BMI has identified mobile data as a potential area for growth, but the lack of legal framework has meant that Serbia is still taking its first steps in developing 4G. The introduction of fixed number porting option in 2014 will increase competition in the fixed-line segment. 

Key Data:

  • The  mobile  market returned to growth in 2013...

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Water

Serbia Water

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BMI View: There have been limited developments in the Serbian water sector. This is predominantly due to the country still suffering from the effects of severe flooding in April and May 2014. We remain of the view that Serbia's water sector is underdeveloped and in need of investment, particularly with regards to water treatment and sanitation. However, we expect substantial improvements in the water supply sector over the longer term as a result of the government decision to include water sector improvement in their national defence strategy.

The Serbian water sector is extremely complicated with a number of government bodies in charge of different aspects of the sector, leading to confusion and inefficiency. Moreover, poorly enforced legislation and obsolete, or broken equipment, under-investment and a lack of wastewater treatment plants and rural sewage connections has inhibited the...

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