Fiat coming to Serbia

02/07/2008

A well-known carmaker is investing in Serbia, maybe presaging a surge of foreign investment as President Boris Tadic nominates an EU-friendly prime minister.

By Davor Konjikusic for Southeast European Times in Belgrade -- 02/07/08

Fiat will create 10,000 jobs and plans to assemble complete cars in Serbia by the end of 2009. [Getty Images]

With confirmation of a pro-EU government in Belgrade expected this week, the announcement in May that the Italian automaker Fiat is coming to Serbia may foreshadow a surge in western investment.

President Boris Tadic's nomination of Finance Minister and fellow Democrat Mirko Cvetkovic to be prime minister indicates a Serbian effort, predicted by numerous observers, to attract sceptical foreign investors and raise living standards. Long blocked by wars and international sanctions, Serbia now trails Romania and Bulgaria in per capita GDP and greenfield investments.

Fiat reached an agreement with the Serbian government before the May 11th elections about investing in Zastava, an existing auto plant, in the city of Kragujevac.

Under the deal, Fiat plans to invest around 700m euros in Zastava and acquire a 70% stake in the factory, while Serbia controls the remaining 30%. Most of the investment will come through Fiat's partners, which plan to build new factories for auto parts. The Fiat move will create 10,000 jobs, and Fiat plans to assemble complete cars in Serbia by the end of 2009.

This is the "job of the century" for Kragujevac, a city in central Serbia, where economic transitions cost many workers their jobs.

Next year Fiat plans to produce around 200,000 cars in Serbia, and by the end of 2010 that number should grow to 300,000. Observers expect Fiat in Kragujevac to produce one A model and one B model each. These cars will debut soon on the world stage.

Minister of Economy and Regional Development Mladjan Dinkic attributed the success in attracting Fiat to Serbia's signing of a Stabilisation and Association Agreement with the EU. The treaty allows duty-free export of cars made in Serbia. Fiat plans to export almost 95% of what it makes in Serbia.

Dinkic noted that the entire town of Kragujevac, not just the Zastava factory, would become a customs-free zone. The status would allow all its factories to import materials without paying customs duties or value-added tax if they manufacture export goods from those materials.

"Everyone who speaks against [the SAA] forgets that EU can lift duties not only for exporting cars but also for all other groups of products. At the moment about 60% of our exports go to the EU market," says Dinkic.

After signing this memorandum, the city of Kragujevac will exempt Fiat from local taxes and will provide free land for any additional buildings.