BUSINESS/INVESTMENT

Serbia turns EU investors into scapegoats

EU investors seem to be paying a price for economic or political difficulties in Serbia, which officially applied for European Union membership two years ago. The European Commission and Parliament are keeping a close eye on developments, but recent examples show continuing risks for foreign investors.

Background

Serbia is extremely dependent on trade relations with the EU. According to EU statistics over half of Serbia's trade in goods is with the EU, valued at €11.5 billion. In comparison, Serbia’s GDP is estimated at €29.4 billion. EU foreign direct investment in Serbia totals €1.5 billion in 2008.

The country applied for EU membership in December 2009. The Serbian government has made a priority of joining the EU and in particular of achieving EU candidate status by the end of 2011.
Serbian President Boris Tadić has recently called EU membership the country's "natural destiny" and said it would be a "tragic failure" if candidacy was not achieved by the end of the year.

The experience of a Dutch company was recently showcased in Brussels as an example of persistent difficulties faced by foreign investors in the Balkan country. In 2003, Dutch firm the Danube Food Group (DGF) began aggressively pushing to penetrate the milk and dairy market of the former Yugoslavia.

Seeing it as the "last frontier in Southeast Europe," DFG bought and consolidated over 10 local dairy companies – many of them well-known brands in the area – quickly establishing itself as the market leader in Serbia, Macedonia and Bosnia, and gaining over a third of the milk and dairy market in those countries.

DFG claims it has brought efficiency and safety to Serbian milk production, which still has a very large 'informal' market with small producers delivering uneven quality products. They claim to have drastically improved productivity on their farms and introduced quality control in the supply chain, as well as 100% traceability of their products.

These gains have also come at a social cost. Higher profits and productivity were achieved in part through a massive redundancy plan, firing 500 blue-collar workers over a two-year period. Serbia's unemployment rate, which officially stands at 19%, is particularly high.

Blame the foreigners

There were no serious problems until a major crisis hit Serbia's dairy sector last summer, when 35,000 cows were slaughtered as a result of a combination of recession-driven milk subsidy cuts and low prices.

A severe milk shortage put Serbia under strain and the country's Agriculture Minister Saša Dragin blamed DFG. In a thinly-veiled reference to the firm he claimed that the "extremely difficult situation during last several months" faced by the dairy sector was "due to the monopolistic position of a single company".

It was in this politicised climate that the Serbian Competition Commission, which had long been investigating the DFG case, decided to fine the company almost €3 million for abusing its market position. DFG refused to pay the fine and appealed against the verdict. The case is currently in the hands of Serbia's Administrative Court, which should come to a decision within two months.

Given the difficult political and economic climate in which the verdict was delivered, some question whether the Competition Commission's judgement was truly independent.
The issue is all the more serious given that the rule of law, transparency and the independence of governmental authorities are still to be consolidated in Serbia.

Asked to comment on the case, a Transparency international Serbia officer told EurActiv that "the commission is legally independent, but it was exposed to the pressure of politicians and interested businessmen".

The former head of the Serbian Competition Commission, Dijana Marković-Bajalović, slammed the fine for being in his eyes illegal. The law mandating fines for monopolistic behaviour entered into force after the alleged misdeeds of DFK, and as such it represents retroactive punishment for a crime, something that is normally considered incompatible with the rule of law, she claimed.

Eight months in jail without a sentence

Another case presented in Brussels concerns Tomislav Djordjevic, a Serbian entrepreneur and UK citizen who bought a fisheries company, Ribarsko Gazdinstvo. Djordjevic has been detained in a Belgrade jail for eight months now, without a sentence. The entrepreneur is charged with siphoning €2.5 million from that company.

Apparently, before becoming a target for the Serbian judiciary, Djordjevic had tried to sue the state for problems he had encountered in the privatisation deal.
In response, he was thrown into jail in an apparent collusion between the privatisation agency, the prosecution, the police and the media.

Slovenian liberal MEP Jelko Kacin responded to the case by saying "I think it may be noted that the premises of the initial investigation were not entirely sound".

Kacin, who is the European Parliament's rapporteur on Serbia, said he was closely monitoring all cases that indicate the extent to which Serbia's judicial institutions were guaranteeing the rule of law, and that included the Djordjevic case.

Contacted by EurActiv, the Serbian privatisation agency replied by sending a statement with no clear answer to questions asked. The Serbian Ministry of Justice similarly failed to answer EurActiv's questions, including one on the case representing a breach of the presumption of innocence.

The European Commission will examine Serbia's case for candidate member status and publish its formal opinion on the subject next October.

SOURCE:www.euractiv.com/en