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

Serbia Operational Risk Coverage (9)

Serbia Operational Risk

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Serbia is a relatively risk-intensive country by both regional and global standards, but does present an attractive environment for investors because of its strong economic openness, extensive regional transport links, promotion of foreign direct investment and widely available unskilled labour pool. Despite this positive outlook, there are some risks that need serious consideration, including the rise in burglaries, shaky diplomatic relations, weak and corrupt legal system, poor quality transport network and a limited skilled labour pool.

With regards to overall Operational Risk, Serbia sits in the lower third of our regional ranking, in 20 th place out of 29 countries covered in Emerging Europe. Its score of 48.7 out of 100 places the country in between Georgia and Macedonia.. Serbia's score is based on a number of indicators across various segments that contribute to the overall risk ranking. These...

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Serbia Crime & Security

Serbia Labour Market

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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 labour 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 well in the Labour Market Risk Pillar of the BMI Operational Risk Index, in 13th place out of 29 Emerging Europe countries, with a score of 55.5 out of 100. In comparison to its neighbouring states, Serbia ranks above Bosnia in 29th place and Macedonia in 25 th place.

The higher education system in Serbia is inhibited by underfunding, which means that investors are exposed to limitations with regards to a highly skilled labour force and consequently must import foreign labour to make up the...

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Serbia Logistics

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Supply chains in Serbia must traverse an uneven transport network in terms of quality and overcome the lack of immediate port access, but will benefit from cheap and reliable utilities availability in addition to a strong trade growth outlook. 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 47.7 out of 100. This places the country in 18th position out of 29 emerging European countries, between Cyprus and Ukraine.

Serbia has an impressive trade outlook, emphasised by regionally outperforming export growth. The country is poised for strong growth in the medium term as demand for its manufactured goods increases, particularly from eurozone countries....

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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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In 2014, Serbian new vehicle sales fell by 10% year-on-year (y-o-y), to 20,240 units, according to figures from the Serbian Association of Vehicle and Part Distributors as cited by the CEAuto website in February 2015. This was very much in line with BMI's forecast of a 10.8% annual fall.

Weighing on new car sales over the past 12 months were a combination of factors, including heavy flooding in H114, ongoing government austerity measures and a broader slowdown in the economy, which weighed on consumer sentiment and household income levels. The worsening domestic sales outlook led to the country's main producer, Fiat, temporarily suspending its operations in September 2014 ( see below).

Looking forward, BMI remains pessimistic on the near-term outlook for auto...

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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 USD1.39...

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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 0.7%. 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):

  • Total food...

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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: Small and, by many metrics, underdeveloped, Serbia's insurance sector is unlikely to expand rapidly through the forecast period. Nevertheless, its strengths are considerably greater than its weaknesses.

As of late 2014, the most recent data from the regulator supports our view that the fortunes and prospects of the life and non-life segments of Serbia's insurance sector diverge quite markedly. The life segment continues to grow quite rapidly from a low base. The small increase in premiums that we expect in USD terms for 2015 is largely the result of currency movements. Low household incomes and a lack of understanding of the benefits of insurance mean that the segment will still be underdeveloped by most metrics at the end of the forecast period: nevertheless, trends are positive.

Conversely, the non-life segment...

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Medical Devices

Serbia Medical Devices

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BMI Industry View: The Serbian medical device market is expected 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 been undertaken, with...

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Pharmaceuticals & Healthcare

Serbia Pharmaceuticals & Healthcare

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BMI View: The combination of a deteriorating economic outlook, rising political risks and industry-specific challenges place downside pressure on prospects for Serbia's pharmaceutical market. In light of this situation, we do not expect any meaningful investments by foreign firms. The key commercial opportunity is locally-made generic drugs.

Headline Expenditure Projections

Pharmaceuticals: RSD90.46bn (USD1.06bn) in 2013 to RSD99.03bn (USD1.13bn) in 2014; +9.5% in local currency terms and +6.1% in US dollar terms. Forecast revised slightly upwards since Q414.

Healthcare: RSD376.28bn (USD4.42bn) in 2013 to RSD398.91bn (USD4.54bn) in 2014; +6.0% in local currency terms and +2.7% in US...

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Retail

Serbia Retail

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BMI View: The Serbian economy struggles to sustain a healthy growth rate as it is set to contract by 2.5% in 2015 on the back of falling exports and decreasing household spending. The outlook for the retail sector is equally negative for the first half of BMI's forecast period: strict cuts on government's spending in 2015 will result in falling total household spending in 2015-2016 posing threats for the growth of retailers' sales. Population will decline slightly, and unemployment will remain high; however, this will not prevent the consistent rise of household income and steady growth of the middle class.

At the crossroad of regional geopolitical interests, Serbia struggles to choose decisively the direction of its economic integration. As one of the five official candidates to join the EU, the country fails to demonstrate rapid economic development and willingness to adapt to Western European...

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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...

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Water

Serbia Water

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BMI View:  Over the past quarter, 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, with floods having damaged existing water infrastructure and irrigation systems, repair will be prioritised over expansion.

Serbia's water sector is underdeveloped and the country suffers from poor quality water infrastructure and severe problems with industrial water pollution and wastewater management. In order to rectify this, Serbia's objectives are to increase available clean water, increase the number of connections to the public water supply system, increase overall water quality and improve water treatment plants by constructing new...

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