CHECK AGAINST DELIVERY
Speech by Mr Johannes Hahn, Commissioner for European Neighbourhood Policy and Enlargement Negotiations
Reality Check Conference organized by Foreign Investor Council
Belgrade 7 May 2015
Prime Minister, Ministers, President Fredheim, Ladies and Gentlemen,
I would like to thank the Foreign Investors’ Council for organising this conference. I would like also to take this opportunity to pay tribute to the Council’s work which is of great value for building a better business environment in Serbia. The figures speak for themselves. The Foreign Investors’ Council gathers 130 foreign firms. These firms have invested more than 22 billion euro in Serbia and contribute to 18 % of Serbia’s Gross Domestic Product. This shows that Serbia has the potential to attract foreign investment.
Yet, since the beginning of the global economic crisis, the level of foreign investment in Serbia was reduced by half on average every year. It is clear that reforms are needed to return to growth.
You have discussed possible concrete measures to improve the business environment during this morning’s session. Prime Minister Vučić, I know that your government is strongly committed to put Serbia’s economy back on track. Today, I would like to stress that the European Commission and the European Union is here supporting your efforts.
The EU stands by Serbia
Improving economic governance and competitiveness to support long-term growth is one of the “fundamental pillars” of EU’s enlargement policy. It is easy to see why. We want to ensure that new members are competitive inside the EU. Today, Western Balkan countries import much more than they export. Unemployment across the region is very high. Poverty has increased significantly. This state of economic development makes the fulfilment of the economic accession criteria more difficult to meet.
To tackle these challenges head on, we have engaged, jointly with the countries of the Western Balkans, in a thorough analysis of their Economic Reform Programmes. The aim is to find agreement on what needs to be done and when it needs to be done. This approach very much reflects how similar challenges are treated by Member States in the “European Semester”.
As with the Member States, our review of the enlargement countries’ Economic Reform Programmes is not just a theoretical exercise: implementation of the agreed reforms is key. Of course, the Commission can provide financial and technical assistance to facilitate the implementation of these reforms.
Serbia, the EU Member States and the Commission have now conducted the technical analysis of Serbia’s first Economic Reform Programme. Together, we have agreed on the necessary reforms. They will be formally endorsed by the EU Finance Ministers on 12 May. I can already share with you some insight on their conclusions.
Joint country specific recommendations to be adopted
The EU welcomes Serbia’s comprehensive programme of economic reforms. This first set of measures has already produced encouraging results. Macroeconomic stability appears to be in place now and is backed up by the agreement concluded with the International Monetary Fund.
Budget consolidation should be reinforced by the much necessary Public Administration Reform. It will not only save public money, but also contribute to a more effective implementation of reforms.
Part of the current reform of the public finances should generate savings which can be used for investments which stimulate economic growth. In this regard, our recommendation is to focus investment on the energy and transport network and support the Western Balkans and EU interconnectivity agenda. Just two weeks ago, the Prime Ministers of the region agreed that they would build a regional core network by 2030, linking all capitals and main economic centres.
If properly implemented, these infrastructures have the potential to boost competitiveness and growth in the whole Western Balkans and in Serbia in particular.
One of the main reasons why generating savings is so difficult in Serbia is the excessive influence of the State in the economy. The huge number of State owned enterprises consumes a large share of the budget. Prime Minister Vučić, I know you are fully aware of this situation and this is the reason why your government is engaged in an ambitious programme of restructuring and privatisation of more than 500 State owned companies. The finalisation of this process is a key priority which the ECOFIN Council will underline next week.
There are other factors that are putting a lid on growth and competitiveness. For instance, support to large foreign investments through subsidies has its limits. It can be very costly and result in an excessive dependence on a few companies.
Private sector especially is key for growth and jobs
In turn, our assessment is that the private sector has the greatest potential in terms of sustainable jobs and growth. Though big companies are more often in the spotlight, one should not underestimate the importance of small and medium size enterprises. They are the backbone of the economy and for a successful, thriving and competitive environment you need to have the right mix of small and big companies in the different sectors of your economy. This is why it is important that these “ordinary” companies should be encouraged, at a minimum cost to the State budget.
This can be done, for instance, by facilitating access to loans, reducing red tape, or speeding up and simplifying the construction permit process.
Putting in place measures with the potential of benefiting the whole economy is likely to take more time than individual measures, but it will lead to robust and sustainable growth, benefiting a large share of the population. With this in mind, the EU recommendations will focus on other areas as well.
For example, we want to encourage the state and municipalities to better control the many charges that businesses must pay in addition to taxes. I hear from the Foreign Investment Council members that these charges are high and unpredictable.
We are encouraging you to work with the private banks to increase their lending to companies, especially SMEs.
Businesses need the right skills so it is very appropriate to associate them closer with vocational training schools.
Finally, law abiding businesses complain about the unfair competition from the informal sector. I know that the government already achieved some result in fighting the grey economy and should be encouraged to pursue its efforts.
In this context, I would also like to underline the importance of the rule of law. A stable and independent judicial system is not only a fundamental principle for democracy but it is also a necessary pre-condition for attracting foreign investors. It provides the necessary credibility and predictability that institutional investors are looking for.
Some of the necessary reforms are socially and technically difficult; this is why all stakeholders need to be involved at an early stage. I cannot stress enough the importance of social dialogue in this process.
There is also a role for you – investors -, and it is a significant one.
As a key stakeholder, the business community is a natural interlocutor with the Serbian government. You know the situation on the ground and can provide valuable inputs to improve economic governance.
I am confident that the measures currently being put in place will improve predictability of the business environment, the rule of law and the transparency of public policy. And I am looking forward to seeing you investing in Serbia and contributing to its recovery and to its accession path.
Thank you
