Minister of Finance, Republic of Serbia - Yugoslavia
The former Yugoslavia was ranked amongst the 'middle developed' countries. Within the country there were large regional differences, but the territory of the Federal Republic of Yugoslavia was, according to the Gross Domestic Product (GDP) per capita, at the level of the country as a whole.
At the beginning of the 1990s, secession of four of the six Yugoslav republics took place, resulting in the country's diminution to the Federal Republic of Yugoslavia, comprising of Serbia and Montenegro. The market dissolution of the former Yugoslavia and the United Nations (UN) economic sanctions provoked a drastic downward trend in economic activities. In 1993, the GDP of the country amounted to only 40 per cent compared to the 1989 level.
Upon lifting of the economic sanctions, the Federal Republic of Yugoslavia experienced gradual revival of economic activities. The average rate of growth from 1996-97 amounted to 6.6 per cent, consequently the GDP per capita in 1997 reached the level of about 50 per cent of 1989.
The present economic situation in Yugoslavia is most unusual. Economic activity in the middle developed country has been reduced to the GDP level per capita characteristic of a group of underdeveloped countries. This is the reason why the answer to the question of how Yugoslavia will continue its development is neither a typical nor an usual one. Considering the origin of the actual economic difficulties, investments in Yugoslavia could be efficiently placed in a very short time, providing high rates of growth (not typical), and quickly arriving at the GDP level achieved in the preceding period. Such growth trends are possible due to the following factors:
In addition to the generally described economic investment environment, the foreign investors in Yugoslavia have the following (concrete) facilities:
Actual foreign investments (foreign direct investments - FDI)
Following the lifting of economic sanctions, the revival of foreign investors' interest in the Yugoslav economy occurred. During 1996 and 1997, contracts were concluded and the realisation of 2.307 foreign investments totalling 1.941 million Deutsche Marks began.
From the total number of investments (2.307) the largest numbers were from the following countries:
Countries - the largest investors based on invested assets
Related to the structure of foreign investments, some characteristic trends could be observed.
Investments in infrastructure activities
These are achieved through special arrangement, combined with the active participation of the State. Between 1996-97 such was the purchase of 49 per cent of Serbia Telecom - totalling 1.568 million Deutsche Marks - from the Italian STET (29 per cent) and Greek OTE (20 per cent). Further investments may be expected in the communication and public utility infrastructure, although they shall be realised as concession arrangements. Such arrangements shall also provide investments in mines and other types of natural resource utilisation.
Investments in small businesses and the elimination of bottlenecks
These tend to be the most popular investments. In the last two years most of the foreign investments dealt with such activities. For the Yugoslav economy such investments are of particular interest, as they contribute to the diversification of economic structure. For foreign investors such investments are of minimum risk, with fast recovery of capital.
Investment in food products, pharmaceutical, textile and similar industries
Here, foreign investors consider the relatively high absorptive strength of the Yugoslav market. These investments amount to 30-40 million Deutsche Marks. Most of them have been realised with partners from neighbouring countries (particularly Greece).
According to the domestic consulting company, Factis Consulting, which provides services to foreign investors, (in addition to small investments in bottlenecks), foreign investors are interested in two forms of direct investment:
Forms and conditions for FDI
As per the Yugoslav Law on Foreign Investments, the foreign investor can:
Foreign investors can invest their capital in all activities, although certain activities are governed by prescribed restrictions. When dealing with the production and trade of arms, the public, the media, and the communications system (of regional and international importance), a domestic co-founder is necessary; the foreign investor cannot gain majority ownership, and approval of the competent Federal Ministry must be obtained.
As regards the amount of the nominal stake, this varies from $5.000-20.000. The concession is defined by regulations as a right to utilise the natural resources (eg, mines) or public welfare goods (roads), which are sublet to the foreign entity by the competent State Authority under specially prescribed conditions, against determined compensation. Concession also means the issuance of approval for activities of common interest (electric power generation, public utilities, medical care). A particular form of concession is the subletting of structures construction by the Build-Operate-Transfer (BOT) system.
In addition to the Federal Law on Foreign Investments, the concessions field is also regulated by the Republic Laws on Concessions.
The Law on Enterprises does not stipulate any difference between domestic enterprises and those with foreign capital.
Tax and other incentives for foreign investments are regulated by laws at a federal and republic level. The foreign trade and foreign exchange system are regulated by provisions for the Federal Republic of Yugoslavia. There are separate tax laws in Serbia and Montenegro, although the tax system is harmonised.
According to the legislation of the Republic of Serbia, the following tax incentives for foreign investments are in existence:
With respect to the export-import regulations, when the foreign entity imports new equipment based on its stake, no customs duties is paid on such equipment. This is not only valid for joint venture foundation, but in stake increase or re-investment of profit of the foreign entity as founder, as well as for other forms of investment in domestic companies.
Each enterprise (not only on a foreign investment basis) is entitled to open a foreign currency account for the purpose of payments abroad. According to the prescribed regulations, and with special approval from the National Bank of Yugoslavia, the enterprise can open a foreign currency account abroad. Regardless of the dinar non-convertibility and the difficulties in obtaining hard currency, this enables smooth payments abroad and the remittance of profit (expatriation of profit abroad).
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