Changes insufficient for progress - Foreign investors in Serbia still point to unsatisfactory application of laws and lack of progress in real estate and construction industries

According to the representatives of the Foreign Investors Council (FIC) in Serbia, some changes have been made in the country but there was no critical improvement of the business climate. Poor implementation of the laws remains the key problem in the business environment in Serbia. Some progress is marked in the areas of overall legal framework, tax, illicit trade, telecommunications and IT, food & agriculture, leasing and insurance; while almost no progress is marked in the areas of human resources and real-estate,

At the same time, FIC acknowledges existing Government activities on bankruptcy, labour and real estate regulations and notes that current draft Labour Law responds to 65% of FIC White Book recommendations.

All this was stated by the Foreign Investors Council today, at the fourth "Reality Check" Conference that FIC organized with the aim to discuss with the new Government how to create sustainable business framework conductive to growth. In an open dialogue with the Serbian Prime Minister Aleksandar Vucic and ministers, representatives of the Foreign Investors Council discussed status of reforms and ways towards obtaining sustainable business environment.

Members of the Serbian government and the Foreign Investors Council held three sessions today. The first session focused on the legal framework and labor regulations, the second was dedicated to taxation, illicit trade, leasing and insurance, whereas the third saw attendees discuss the issue in the field of real estate, food and agriculture, telecommunications and information technologies.

Here is what the largest foreign investors in our country think about the situation in each of the respective fields.

Legal Frameworks and Labor Regulations

Free movement of capital and labour represent key freedoms which are fundamental for functioning of the market. In that regard, changes of Labour and Bankruptcy laws are main preconditions for introduction of level playing field and raising competitiveness. Any delay in planned changes negatively effects business climate.

Bankruptcy: Planned immediate and prompt changes of the Bankruptcy Law are expected to increase transparency and efficiency of the bankruptcy procedure and they to the large extent endorse the recommendations of the Foreign Investors Council. Improvements are especially noted in the part related to protection of creditors` rights and minimizing possibility for abuse by debtors. Regulation of automatic bankruptcy is positive, but it is questionable whether the proposed solution is fully in line with the Constitution. Also, it remains necessary to more precisely define the position of the banks in the bankruptcy procedure, as well as to facilitate mediation in view of building efficacy and efficiency. We expect that the remaining issues will be resolved through planned overall changes of the Law planned for autumn and the Foreign Investors Council is ready to provide active support in this process.

Labour regulations: From 2005, The Foreign Investors Council has been calling for more flexible labour regulation and now with pleasure notes that expected changes of the Law will endorse 65% of last years` FIC White Book recommendations, including the key ones: extending duration of fixed-term employment contact, method of calculation of severance payment with the last employer and annulling extended application of industry-wide collective agreements. However, some key issues remain unresolved, such as regulation of staff leasing and change in method for calculation of compensation of salary during vacation and sick leave. These changes are especially significant in order to better protect right of employers and employees, and to bring closer Serbian labour market to
modern global standards and practices.

Taxes, Illicit Trade, Leasing and Insurance

Second work session has been devoted to dialogue on four topics, two which highlight necessity to improve law implementation, and those are tax policy and illicit trade, and two which point out to the need to change regulations, and those are leasing and insurance.

Taxation: It is necessary to more vigorously work on better and more consistent application of tax regulations. Changes of regulations will not lead to predictable and transparent business environment, nor legal certainty, if they are not followed by adequate implementation. Moreover, we need predictable tax policy which will not change the rules of the game in the middle of the business year, but will leave enough time to the business to adapt to the new regulations in the new business year. Session participants gave concrete suggestions how to increase predictability and transparency, such as: efficient issuing of binding opinions by the Ministry of Finance, introduction of one overall act for each tax form to facilitate implementation, full disclosure of instructions and procedures of the Tax Administration and more consistency in work of tax inspectors.

Illicit Trade: Illicit Trade destroys the market, creates un-equal conditions, threatens safety of consumers and negatively effects Serbian budget. Fight against illicit trade should remain one of key priorities in the Government programme and special capacities need to be allocated to ensure strict application of the laws and improvement of existing regulatory framework. This includes following goals: adoption of a Law on inspections, forming of special bodies to fight illicit trade, identifying this type of trade as organized crime, introducing risk assessment system, strengthening capacities of the public administration and ensuring better coordination of competent institutions.

Leasing and insurance: Potential carried by leasing and insurance currently is not sufficiently utilized having in mind significant role these financial instruments could play in triggering new investment cycle. Regulatory framework should be improved to accommodate better business conditions, greater availability of capital and stronger competition on the market.

In field of insurance, market players understand the position of the regulator that it is necessary to introduce current legal solutions from European regulation and practice regarding division of insurance companies to life and non-life insurance, but believe that, in view of the size of the Serbian market, the new Law should insurance companies to simultaneously practice life and non-life insurance. In the field of leasing, the Foreign Investors Council believes that it would be important to enable operations of finance lease and operate lease in a single company. FIC deems these two recommendations as key to cutting the cost of doing business and instigate further development of leasing and insurance.

Real Estate, Food and Agriculture, Telecommunications and Information Technologies

Although many regulations have been changed and improved, still a lot remains to be done, first and foremost on ensuring their consistent implementation. We need substantial breakthrough in creating applicable and transparent regulatory framework and mechanisms for further market development, which together with strengthening capacity of the state administration would lead to attracting new and retaining existing investments. Poor law implementation remains one of the key problems of foreign investors.

Real-Estate: Urgent, but implementable, changes of the Construction Law and solution for conversion are needed to eliminate existing barriers and enable development of the real-estate sector. Government should put as a priority improvement of the work of public administration in order to facilitate better investment conditions.

Food and agriculture: Changes of Food Safety Law, adoption of the Law on Inspections, and moreover proper application of existing regulations and coordinated work of inspections are important both for protection of consumers and the market itself, as well as for limiting the grey economy and leading the fights against corruption.

Telecommunications and IT: progress can be achieved through continuous dialogue and precisely defined plan of activities, most notably through making available frequencies to operators in a timely and transparent manner, as well as through development of new services to accelerate market improvement.

Open consultations between the state and the businesses when changing regulations are of utmost importance for formulating quality and implementable new legislative solutions.

FIC-Savet stranih investitora

Ministarstvo finansija Republike Srbije

Ministarstvo privrede Republike Srbije

Ministarstvo za rad, zapošljavanje, boračka i socijalna pitanja Republike Srbije

Poreska uprava Srbije

Realty Check

FIC conference

Labor Law

Bankruptcy Law

Aleksandar Vucic

bankruptcy

privatization

reorganization

White Book

financial leasing

operational leasing

Law on Planning and Development

Food Safety Law

life insurance

non life insurance

corruption

grey economy

black market