Country Profile — Serbia

New opportunities for British exporters are emerging in Serbia, in the heart of the Balkans region, in the wake of a brand-new trade pact.

Serbia in the spotlight

Home to around seven million people, Serbia is a landlocked country in south-eastern Europe, formerly a part of Yugoslavia.

Famous Serbs, past and present, include world number one tennis ace Novak Djoković and also Nikola Tesla, the inventor best known for his contributions to the design of the modern alternating current (AC) electricity supply system.

The country is bordered by Hungary, Romania and Bulgaria to the north and east, and a host of other former Yugoslav states to the south and west (Croatia, Bosnia and Herzegovina, Montenegro and Macedonia).

The former Socialist Republic of Yugoslavia disintegrated during the 1990s amid a series of devastating conflicts. The legacy includes a dispute over Kosovo, which declared independence in 2008, but a move not recognised by Serbia itself.

Since then, the country has painstakingly rebuilt its economy, infrastructure and international profile. And it has come through the past year or so relatively unscathed after the Covid-19 crisis.

Its economy only contracted 1.1 per cent last year — less than its regional peers — due to a substantial policy response to the pandemic, according to the International Monetary Fund (IMF), a measure of Serbia’s resilience. The IMF expects to see robust GDP growth of five per cent in 2021. And the country is ready to do more business with the UK after signing a new trade deal in April to capitalise on post-Brexit opportunities.

Unlike some of its near neighbours, Serbia remains outside of the European Union (talks to join the group were initiated 2014, but the EU wants Serbia and Kosovo to normalise ties before either can join), and maintains its own currency, the dinar. For UK exporters, the new deal represents an opportunity to close the gap on Serbia’s current main trading partners, notably Germany, Italy and neighbouring Balkan countries, as well as Russia and China.

There are plenty of potential tie ups and possibilities too, with ample scope to elevate exports given the country’s diverse and developed economy. This is dominated by a large and growing services sector, but also with a solid industrial and manufacturing base built around key sectors such as energy, machinery, mining, agriculture and automotives.

Bilateral trade

An estimated 100 British firms, large and small, are already active in Serbia with many more represented indirectly through local agents and distributors. Famous UK names include the likes of Unilever, AstraZeneca, JCB, Rio Tinto and Jaguar Land Rover, which are already thriving in Serbia.

In the retail sector, The Body Shop is a familiar brand accepted locally on the strong of its global popularity. And hopes are high for a surge in bilateral business in the wake of the new Partnership, Trade and Cooperation Agreement signed this year, which will ensure that the current £682 million (US$949 million) of joint trade can continue to grow and prosper.

The new pact will enable British businesses to trade as they did before 1 January 2021, securing continued preferential trade access which is expected to yield savings for firms and to support jobs and the wider economy on both sides. Top UK exports to Serbia include scientific instruments, medicines and pharmaceutics, machinery and clothing.

On a broader level, the new agreement also sets out how the two sides will strengthen their political, economic, security and cultural ties. This includes reaffirming the UK’s support for governance reform in Serbia in order to safeguard its competitive business environment and open, democratic society.

Money is on the table too with UK Export Finance now establishing its presence in the region. It has over £3.5 billion (US$4.8 billion) available to back projects in Serbia, to boost UK supply chains and assist in making large infrastructure projects more competitive.

The trade agreement was signed in the capital, Belgrade, by Her Majesty’s Ambassador to Serbia, Sian MacLeod, and Serbian Minister of Trade, Tourism and Telecommunications, Tatjana Matić. Firms are also able to draw on the support and local expertise of an active British-Serbian Chamber of Commerce (BSCC), which has a presence in both London and Belgrade.

Major investments

There are some high-profile projects in play that may well showcase Serbia to other UK investors. London-listed Rio Tinto’s investment in Serbia’s mining sector is an example of the potential that exists.

Its Jadar project will mine lithium and borates, with around US$450 million to be invested. The Jadar site has been ranked as one of the most significant lithium deposits in the world.

In February 2020, Rio Tinto completed its detailed geological exploration of the jadarite deposit, and then, last summer, approved an additional investment of almost US$200 million to progress to the next stage of development, with a detailed feasibility study expected to be completed by the end of 2021. It is a strategically significant project, both for Serbia, the UK and indeed the rest of Europe.

As a critical mineral used in batteries for electric vehicles and in energy storage, lithium will play a critical role in the transition to the low carbon economy, a central theme of government policy worldwide right now. It is estimated that Serbia could supply 10 per cent of the global demand for lithium.

Borates are also used in household products such as detergents and cosmetics, as well as in insulation fibreglass, glass for cell phones, solar panels, and fertilisers. The mine site is located near the town of Loznica, in western Serbia, and on the doorstep of the EU, one of the fastest growing electric vehicle markets in the world.

Serbia’s own auto industry — which accounts for about 10 per cent of its total exports — dates back some 70 years with local manufacturer Zastava. The mining sector will also see a boost from the Serbia Zijin Copper company, operator of Serbia’s sole copper complex — part of China’s Zijin Mining — which plans to invest over US$400 million this year to overhaul and expand its four mines and a smelter.

In addition, Serbia is also in receipt of sizeable transitional funds from the EU that could boost infrastructure and other investment projects, with associated spin-off opportunities for UK firms and consultants. By the end of 2020, it had received around €1.5 billion (US$2 billion) in financial assistance from the EU, according to the European Commission, as it moves forward with accession talks.

The nation’s geographic position on major road, rail, air and river routes at the crossroads of central and south-eastern Europe make it hugely attractive to international traders. The World Bank and the French Development Agency announced a US$125 million package of support for the modernisation of Serbia’s railway system earlier this year, with half the funds going towards green transport and regional integration. The cash is part of the Balkan country’s plan to upgrade 3735 kilometres (2320 miles) of rail and increase safety and efficiency, the bank said.

Future opportunities

There are other opportunities too, including the development of Serbia’s nascent tourism industry, once international travel is allowed to resume. According to credit ratings agency, Fitch Ratings, the nation’s economic resilience to the coronavirus shock was, at least in part, supported by its minimal exposure to tourism.

Bustling Belgrade never quite made it onto the weekend getaway map in the same way as other regional cities, yet it has much to offer. That includes a unique architecture contrasting historical relics from the Habsburg, Ottoman and communist Yugoslav eras to a world-class nightlife scene.

Another ratings agency, Moody’s, upgraded its Serbia economic outlook in March — an impressive vote of confidence at what remains a difficult time for many countries around the world. It also cited the country’s relative economic resilience to the coronavirus crisis and its “solid medium-term growth prospects”.

Moody’s noted that the structure of the Serbian economy adds to its resilience, including the relatively low reliance on sectors particularly affected by the pandemic, such as tourism, and the favourable performance of its agriculture sector.

Despite lingering tensions between Serbia and some of its near neighbours, including the ongoing situation with Kosovo, and no end in sight to EU accession talks, belief in the economy is strong. One downside risk may be the pace of the recovery in the EU, which remains Serbia's single largest trade partner — but this could prove beneficial for British exporters, with the UK tipped to enjoy an early economic rebound as it emerges from the pandemic after the success of its vaccination programme.

One flagship infrastructure project under consideration for support by UK Export Finance is the 112 km dual-carriageway motorway that runs east/west in the West Morava River valley in Serbia. Construction of the project will be undertaken by Bechtel ENKA UK Limited, underlining the growing depth of British involvement. Preliminary design started in 2019 with actual construction due to be completed in about four years. The project is expected to generate work for as many as 10,000 people during the construction phase.