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Serbia

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Development potential in Serbia
Priority areas of German cooperation with Serbia
Infrastructure: energy, water
Sustainable economic development and promoting employment
Democracy, civil society and public administration

Situation and cooperation

Legislative building in Belgrade. Copyright: GTZ BelgradeAll the activities of German develop­ment cooperation in South Eastern Europe are based on a "three-pillar concept": coop­era­tion aims to improve the living conditions of the population, pro­mote small and medium-sized enterprises and support the tran­si­tion from a socialist planned economy to a market economy. In this way a stable framework is to be created for the peaceful, democratic development of the region.

Serbia has undergone significant political and economic change since Slobodan Milosevic was toppled in 2000. Over the past few years, continuous economic growth was initially achieved and inflation fell. However, whereas socialist Yugoslavia was one of the most important industrialised countries in the Eastern Bloc, economic development today is centred on agriculture. According to the International Labour Organization (ILO), unemployment stood at around 15 per cent in Serbia in 2008, but unofficially, it is estimated to be in the region of 30 per cent. Investment is desperately needed to create jobs. However, bureaucratic obstacles, corruption, a still ineffective legal system, inadequate protection of competition and a lack of skilled workers mean that foreign investors are slow to step up their engagement in Serbia.

As a consequence of the global economic and financial crisis, there was a massive slump in Serbia’s external trade in 2009. In order to ease companies’ liquidity problems and stimulate demand for consumer goods, the government adopted an anti-crisis programme which is continuing in 2010. After gross domes­tic product (GDP) fell by three per cent in 2009, the International Monetary Fund (IMF) is predicting an upturn with a slight increase in growth for the current year, which should accelerate considerably in the coming years.

After the assassination in 2003 of Prime Minister Zoran Djindjic, who was viewed as a political beacon of hope, the political situation in Serbia was tense and complicated for years. Frequent changes of government, power struggles in Parliament and lack of coordination between the country’s 24 ministries impeded the implementation of the reforms that are necessary for Serbia’s progression towards the EU. Although the ultra-nationalist party of the former president Slobodan Milosevic achieved major election successes during this period, since July 2008 a pro-European coalition government has been in office, led by the Democratic Party, bringing some calm and continuity to Serbian politics.

If a new political order is to emerge peacefully and successfully in the region, Serbia’s close integration in Euro-Atlantic structures is essential. Serbia’s unsatisfactory cooperation with the Inter­national Criminal Tribunal for the former Yugoslavia (ICTY) in The Hague led, however, to the suspension of negotiations on a Stabilisation and Association Agreement with the European Union in 2006.

After the extradition of two hunted suspected war criminals to the Tribunal in The Hague, the suspended negotiations on a Stabilisation and Association Agreement with the European Union were resumed, culminating in the signing of the Agreement by Serbia in April 2008. However, the Agreement can only enter into force once it has been ratified by the European Union, which the EU has stated will be contingent on the Serbian government fully cooperating with the Tribunal.

Development potential in Serbia

Despite the difficulties posed by its domestic political situation, Serbia is continuing to pursue its reform-oriented economic and financial policies. This is an important point of departure for cooperation between Germany and Serbia. If success is achieved in noticeably improving people's living conditions through economic reforms, this may lead to political stabilisation in the region. More than anything else, what is needed is foreign investment. In key areas of economic and financial policy, Serbia has passed new laws to improve the general climate for such investment. Moreover, the government has adopted a Poverty Reduction Strategy Paper (PRSP) and an ambitious European integration programme (National Programme for Integration of the Republic of Serbia into the EU) under which the amendment and harmonisation of national laws with EU legislation will also be driven forward.

Priority areas of German cooperation with Serbia

The situation has changed since cooperation with Serbia began at the end of 2000. Whereas after the wars the main emphasis was initially on emergency aid measures, cooperation is now focused on the region’s long-term stabilisation and its growing ties with the EU. In this connection, an important role was played by the process of donor coordination through the Stability Pact for South Eastern Europe, which handed over to a Regional Coopera­tion Council (RCC) in 2008. The aim of this restructuring is and always has been to bolster the region’s ownership of its own affairs. Apart from promoting regional cooperation, the most important tasks assigned to the Council include responsibility for European and Euro-Atlantic integration. The priority themes are economic and social development, infrastructure and the environ­ment, security cooperation, justice, education and research, and parliamentary cooperation.

The following priority areas for bilateral cooperation have been agreed between Serbia and Germany:

  • Infrastructure: energy, water

  • Sustainable economic development and promoting employment

  • Democracy, civil society and public administration (administrative and legal reform)

At government negotiations held in June 2011, 122 million euros were pledged to Serbia for the year 2011.

In addition, the Federal Ministry for Economic Cooperation and Development (BMZ) draws on regional funds to provide Serbia with resources for cross-border measures. The money in these funds is used to finance projects in the western Balkans aimed, for example, at promoting foreign trade and improving energy efficiency.

The goal of advancing Serbia’s economic and social development is closely linked with the country’s growing ties with the Euro­pean Union. This is happening through adaptation to the social, economic, environmental and security standards that apply in the EU. The Federal Government emphasised in the negotiations between the two countries that good governance and combating corruption are important preconditions for the country’s pro­gression towards membership of the EU. At the same time, it expressed appreciation for the pro-European course adopted by the Serbian government and signalled its support for the stabili­sa­tion and association process with the EU.

Infrastructure: energy, water

Novi Sad. Copyright: Friederike KärcherThe infrastructure in Serbia is obso­lete, having suffered greatly from war and lack of investment. For this reason, the energy sector is a priority area of German coopera­tion with Serbia. Older thermal power stations have been modernised in order to secure supplies to the population. At the same time, greater use of renewable energy sources and energy efficiency measures are being promoted. The district heating grids in the three largest cities, Belgrade, Novi Sad and Nis, are being modernised in order to achieve more efficient and cleaner use of energy.

In addition, the water supply and sanitation systems are being modernised and upgraded. Initially, the supply of water to major towns and cities took priority and is now being extended to medium-sized towns, with the aim of providing inhabitants with improved access to clean drinking water. Cost-covering charges are to guarantee the further modernisation and funding of municipal utilities. By modernising water treatment plants and improving sanitation, the aim is to improve hygiene in the munici­palities and help to protect the environment at the same time.

Sustainable economic development and promoting employment

Small and medium-sized enterprises (SMEs) play an important role in the creation of jobs. However, in Serbia they have so far had hardly any opportunity to finance their investments through loans. This has severely limited their room for manoeuvre. Via KfW Entwicklungsbank, BMZ and other donors have set up the European Fund for Southeast Europe (EFSE), which is active in the entire region.

The purpose of the Fund is to make small and micro loans available to SMEs at preferential rates through local partner institutions. Repaid loans are used to grant new loans. Thus, the Fund will stay in existence over the long term and will be able to promote additional enterprises until such time as appropriate structures have been established and consolidated in Serbia. In addition, ProCredit Bank, an institution specialising in micro­finance, has been set up in Serbia.

Through a financing mechanism supported by BMZ, KfW Entwicklungsbank is providing investment for infrastructural projects involving various Serbian municipalities. Support is also being provided for small and medium-sized enterprises as well as for private households which invest in measures to boost energy efficiency and thus make a contribution to protecting the climate.

Under the Programme to Promote Employment and the Economy in Serbia, GIZ, on behalf of BMZ, is providing support for small and medium-sized enterprises in Serbia. With targeted in-house training and specialist advice, the companies’ competitiveness can be increased on a lasting basis, thereby reducing unemploy­ment. To that end, it is important for young Serbs to receive training which adequately prepares them for working life. BMZ is therefore promoting the development of new recognised occupations and supporting efforts to improve the learning environment in local institutions. In a further project, advisory services are being provided to the Standing Conference of Towns and Municipalities of Serbia, with a particular focus on the modernisation of municipal services, especially in smaller munici­palities. To that end, support is being provided for the necessary infrastructural measures and better delivery of municipal services.

In 2009, BMZ was a driving force behind the establishment of a Danube Competence Center with a view to improving the tourism offer in the Lower Danube riparian states: Croatia, Serbia, Romania, Bulgaria, Ukraine and the Republic of Moldova. Until now, tourism has suffered from sometimes ineffective public structures which have impeded economic development. The goal of the Danube Competence Center is to integrate activities in the field of tourism development. The project will have a positive impact on employment, especially benefiting workers in smaller and medium-sized companies in the tourist industry, poorer groups, and disadvantaged ethnic minorities (e.g. Sinti, Roma).

Democracy, civil society and public administration

Cooperation in this priority area is aimed at developing efficient administrative structures in Serbia at all levels, particularly at the local municipal level in the area of decentralisation. This also involves developing a corresponding legal framework and well functioning institutions. These are important not only for the development of democracy but also for the country’s economic development: only when legal certainty is established will Serbia become attractive to foreign investors.

GIZ, on behalf of BMZ, is advising the Serbian government on adjustment to the principles of a market economy and to the legal foundations of the EU. Activity areas include the reform of the tax system and the decentralisation of financial policy. Germany is also engaged in the area of land management, as efficient and transparent administration of land areas is a pre­requisite for sustainable economic, social and ecological develop­ment at local municipal level. Within the framework of technical cooperation, for example, support has been provided for the development of a land registry system. With support from GIZ, the institutional and legal environment is improving and initial and further training in municipal land management is being updated.

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