Serbia has emerged as a magnet for automotive companies over the last decade. The country’s 70-year-old automotive manufacturing industry has attracted 1.4 billion euros of foreign direct investment since 2000.
According to the Serbia Investment and Export Promotion Agency (SIEPA), the country is attractive for automotive OEMs due to its pool of highly skilled yet inexpensive labour. Moreover, Serbia’s free trade agreements with a number of countries means that quality products can be manufactured at a low cost.
Currently, 30% of all FDI in Serbia is in the auto sector, and the country expects to attract a total of four billion euros in FDI in 2011. According to the director of SIEPA, Bozidar Laganin, Italian, German and South Korean auto companies are eager to set up shop in Serbia. This is partly due to Fiat’s good experience in doing business in Serbia.
Fiat Automobili Srbija (FAS) was launched in September 2008 by a joint venture agreement between Fiat Group Automobiles (67%) and the Republic of Serbia (33%). A few years ago, Serbia set up a program to boost automotive manufacturing which resulted in an agreement between Fiat Group and the Serbian government for Fiat to take over Zastava Automobili plant. Based on the subsequent agreement, signed in December 2009, the government handed the land and the property of Zastava plant in Kragujevac, as well as a building in Belgrade, to FAS. In return, Fiat Group agreed to invest 940 million euros in the Serbian automotive industry.
Since February 2010, FAS has employed 1,000 workers. During the first 10 months, FAS manufactured 16,000 units of its Punto Classic, and positioned itself as the leader in the national market with 39% of the total share and 60% of B segment car sales. In October 2010, production increased by 30,000 units, destined for various export markets. FAS also started the restoration of plant facilities stretching across 1.4 million square meters.
From 2011, FAS will implement modern machinery intended for production of two new car models (Fiat Idea and Lancia Musa) projected to reach the global market with 200,000 units annually. Also part of the agreement is the establishment of a 67 hectare park which will feed Fiat’s plant with a regular supply of components and potentially contribute to increased production for export. The Serbian government and local authorities have also played a role in the FAS project by improving road and rail infrastructure adjacent to the plant.
Another automotive success story in Serbia comes from the South Korean Yura Corporation. The leading Korean supplier of automotive electrical and electronics distribution systems first visited Serbia with the idea to establish a manufacturing site in January 2010. Only a year later, Yura Corporation had one operating plant in Serbia, with the second one nearly complete and the construction of the third one on the way. Yura Corporation is investing more than 30 million euros in their factories in Serbia that will employ more than 3,000 workers and supply the growing production of Hyundai and KIA cars in Europe.
“We were delighted to find such abundance of highly qualified workforce at such proximity to the European Union market. Serbia has invested a lot of attention to the road and industrial infrastructure as well as the customs system making it possible to establish manufacturing operations and OEM supply at a very fast rate. This was essential to us since the production of our clients in Europe was also growing rapidly and we needed to maintain our position as key supplier. The Serbian government supports the industrial development of the country, making it very easy and profitable for foreign investors to locate there,” says Jongwoo Nam, general manager Yura Corporation.
Automotive Industries (AI) asked Laganin what makes Serbia an attractive destination for automotive manufacturers?
Laganin: It seems that in the endless race for price, time and quality in the automotive industry, Serbia is the winning ticket given its strong industrial background and low cost environment. Serbia is the only location in Europe where one can acquire a highly skilled workforce of blue collar workers and engineers at low cost.
AI: What are some of government initiatives in promoting automotive investments into the country?
Laganin: The Government declared the automotive industry as one of the sectors of special interest for the future development of the country and prepared a package of generous incentives for the investors in automotive industry. This does not just contain cash grants and tax exemptions, but a possibility of infrastructural developed land free of charge and customs free access to other markets.
Cash grants can consist of up to 20% of investment value for capital intensive projects or a grant of up to 10,000 euros per job created for labor-intensive projects. The program for labor-intensive projects is the one used most, as these are investment projects ranging between 0.5 and 50 million euros. This program does not have a maximum limit for grant amount, and the state can actually cover up to 100% of investment value. Some of the automotive investors supported by this program include Michelin, Leoni, Grammer, Norma Group, and the Yura Corporation.
AI: What are some of the future investments you expect in the Serbian auto sector?
Laganin: It is certain that one of the largest brands will be the key supplier of all Fiat projects – Magneti Marelli. They will produce exhausts, bumpers and other parts for Fiat in Serbia. Next door to Magneti Marelli will be another automotive giant – Johnson Controls, supplying car seats and interior parts for a new Fiat model. All in all, the Fiat supplier park in Kragujevac will house seven key OEM suppliers, which will invest around 100 million euros and create around 1,000 new jobs. Finally, there are many other well-known automotive brands that SIEPA is working with to establish factories in Serbia. These projects are not related to the Fiat project, but they wish to establish themselves in Serbia because they see it as the new manufacturing hub in Europe.
AI: Tell us about the Serbia’s infrastructure and education facilities that help attract investment.
Laganin: Serbia offers good road, rail and river transport to investors as well as an excellent customs system that does not allow for any delays in shipment. With an average of 0.05 euro/kWh, our electricity cost is the lowest in Europe, while half of the major cities in Serbia are supplied with a gas pipeline. The government is investing more than 1.5 billion euros in the development of highways in the next three years; while the South Stream gas pipeline from Russia will further add to the gasification of Serbia and decrease the price of gas. The South Stream is due to be completed by 2015.
Because of the extensive tradition in industry, and automotive industry in particular, the education system in Serbia was built to accommodate the particular needs and trends. This means that we have 12 technical faculties in Serbia and numerous secondary technical schools.
Moreover, we are also counting on companies that are interested in our engineers for research and development. In the Western world, engineers are already mostly occupied, so we would like to invite companies to consider building their R&D centers in Serbia where there is plenty of availability.