While European investors lead the charge into Serbia’s banking sector, companies from across the Atlantic are taking a leading role in the real sector. “Americans are by far the biggest investors,” says Jasna Matic, director of SIEPA, the investment promotion agency. US companies have brought roughly one-third of the €3.5bn in foreign investment that Serbia has reeled in since 2002.
The floodgates opened with two deals during the real sector privatisation boom of 2003, a season of sell-offs that exceeded reformers’ expectations and made Serbia’s privatisation revenues the envy of the western Balkans.
Philip Morris International and British-American Tobacco (BAT) bought controlling stakes in Serbia’s leading cigarette rolling plants. Philip Morris bought the biggest, Duvanska Industrija Nis (DIN) for €518m, while BAT paid €87m for Duvanska Industrija Vranje (DIV).
Myriad approach
Other investors include US Steel, the biggest American steelmaker, which seized an opportunity to take on Sartid, a sprawling steelworks east of Belgrade, as it underwent bankruptcy proceedings. The Pittsburgh-based company subsequently reached a deal worth $250m.
US-based Galaxy Tire & Wheel meanwhile has entered without an expensive purchase, outsourcing tyre production to Serbia’s state-owned Trayal since 2002. The plant now manufactures Galaxy-mark tyres, a decision that boosts Trayal’s revenue while proving its viability in advance of an anticipated privatisation process, known to have interested some of Galaxy’s US-based competitors, such as Goodyear.
Ball Corporation, the US manufacturer of tins and aluminium cans, this month commences full-scale production at a new plant, built from scratch in Zemun, near Belgrade. “Everything is running to schedule,” says Dragisa Antic, the operations manager. Valued at €75m, this is Serbia’s largest greenfield investment. Ball Corporation’s project, handled by Ball Packaging Europe, aims to provide Balkan beverage companies, for the first time, with a local source of aluminium cans.
Serbian government officials say the growing presence of US companies reinvigorates the economy while bolstering Belgrade’s ties to Washington. US diplomats looked on with approval last month when the European Commission sent signals that Serbia and Montenegro can soon enter early stages of the EU’s accession process. Barring turmoil over unpredictable Kosovo, advancing commercial and political interests look sufficient to prevent a Serbian “black hole” from opening up in the Balkans.
However, foreign investors cannot dig Serbia out of the hole it already finds itself in, attributable to both current political risk and recent economic woes. American companies are swiftly climbing the list of Serbia’s leading exporters; US Steel is already the leading exporter and Galaxy one of the biggest. But the country’s debt-to-export ratio still stands near 300%. Moreover, despite the growing presence of foreign investors, Serbia’s unemployment rate has only begun a tentative descent from 20%.
Needs must
Ms Matic says Serbia needs to attract foreign investors whose needs match the workforce’s skill set, because a high average education level pushes labour costs above those found in some neighbouring countries. “Salaries are higher than in Romania and Bulgaria, but then qualifications are higher, too, because we have a long tradition of multinational companies operating here,” she says.
Investors like US Steel appear to have hit the mark, but not without difficulty. The steelmaker Smederevo’s operation initially registered heavy cash losses under pressure from employees demanding higher wages. Workers downed tools and at one point US Steel executives opted to work from home rather than entering the hostile setting of the steelworks. But higher salaries, paid on time and in cash, a new profit-sharing deal and visible progress in the company’s once-ailing facilities, soon turned the tide. US Steel Serbia last year surpassed Sartid’s highest ever production levels and moved from loss to profit.
“Cooler heads always prevail,” says Thomas Kelly, US Steel Serbia’s general director. Other American firms in Serbia should hope so. Like US Steel, caught off guard by workers’ initial dissatisfaction, Philip Morris last month faced an unanticipated dispute when tobacco farmers blocked entry to its DIN facility. Ringing the factory with tractors and cars, they accused Philip Morris of paying unfair prices for raw tobacco and declared their intention to “save thousands of tobacco growers from bankruptcy”. Bewildered, DIN’s head office released a statement explaining that DIN pays “by far the highest” price in Serbia. The crowd dispersed, but more could follow.
