AUTOMOTIVE INDUSTRY IN SERBIA

AUTOMOTIVE INDUSTRY IN SERBIA

AUTOMOTIVE INDUSTRY IN SERBIA Serbia welcomes all investors in Automotive Industry. Serbian government is dedicated to promotion of Serbia as an attra...

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AUTOMOTIVE INDUSTRY IN SERBIA Serbia welcomes all investors in Automotive Industry. Serbian government is dedicated to promotion of Serbia as an attractive investment destination for worldwide companies, as well as to creating business-friendly environment for foreign investors. Serbia guaranties equal opportunities for business as for domestic as for foreign investors. National strategy promotes specific economic sectors as automotive industry, information and communications technologies (ICT) and electronics. Main aim of our industrial policy is to attract FDI in “high value” areas such as new technologies, automotive industry, renewable energy, logistic centers, customer centers, and chemicals.

Serbia – basic info  Serbia is a landlocked state situated in the Southeast Europe, at the crossroads of the Pan-European Corridors (VII - the River Danube and X - the international highway and railroad, intersect on the Serbian territory, providing excellent connections with the Western Europe and the Middle East).

 Parliamentary Republic o Population: 7.1mn o Territory: 88,499 km2 o Capital city: Belgrade (1.7mn) o Currency: RSD (EUR/RSD average 123.29, September 2016)  One of the main advantages is political stability.

Page 2 of 9

 The main political goal of Serbia is to become a full member of the European Union. Currently, Serbia has a candidate status and, so far, Serbia has opened six Chapters out of 35 and closed one.  Serbia has an open market economy and in comparison with the rest of Western Balkans countries has the largest market in terms of population and territory.

 According to the World Bank statistics, Serbia is an upper middle income country, total nominal GDP amounts to EUR 33.5 bn, while GDP pc is EUR 4,720.  Serbia has signed several agreements that can simplify your business and provide you with some benefits regarding export and import, so one can accomplish some reductions or even total exemption from paying custom duties (SSP, CEFTA, EFTA and agreements with Turkey Russia, Belarus and Kazakhstan).  Serbia is the only country beyond the Commonwealth of Independent States that has a Free Trade Agreement with the Russian Federation.  Alongside with these agreements, Serbia also benefits from Generalized System of Preferences of USA and Japan for some goods from Serbia.  Therefore, companies from Serbia have preferential status when placing their goods and services to the market of more than 1.24 bn people.

 On the WB Doing Business List, Serbia has moved up by 7 places in 2017 and now is ranked as 47th country.  Serbia has highly skilled and easily trained workforce. Serbia is ranked as the best in the region and the 17th of 72 countries in the world with high proficiency in English language (“Education First” list).  Serbia has competitive labor policy, as taxes and contributions are competitive and therefor for average net salary which is 364 EUR, total cost (gross2) for the employer is 597 EUR, while average Gross1 salary in 2015 is 506 EUR.

Gross1 salary in EUR in 2015

1200 1000

800

883

932

970

Poland

Czech Republic

800 600

506

400 200 0 Serbia

Hungary

Slovakia

 Serbia also has favorable tax rates. Corporate Tax and VAT are among the lowest in the Central and Eastern Europe 15% and 20% respectively. Corporate Tax Serbia Romania

15% 16%

VAT Serbia Slovakia

20% 20%

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Czech Republic Poland Hungary Croatia Slovakia

19% 19% 19% 20% 22%

Romania Czech Republic Poland Croatia Hungary

20% 21% 23% 25% 27%

Serbia – macroeconomic framework  In 2015, the Republic of Serbia recorded 0.8% growth, while the estimated growth for 2016 has been revised up to 2.7%.  The Government has implemented the economic reforms in order to achieve fiscal consolidation. In 2015, the reforms gave positive results and Serbia`s budget reduced deficit (consolidated fiscal balance) to the record level since 2008 (estimated -2.1% in 2016).  Current account deficit is also decreasing since 2013.

Key macroeconomic indicators, (%) 6,0%

4,0% 2,0% 0,0% -2,0% -4,0% -6,0% -8,0% 2013

2014

Real GDP growth

2015

2016e

Budget deficit (consolidated)

2017p

2018p

2019p

Current account deficit

 Serbia has concluded a precautionary agreement with the International Monetary Fund in order to increase credibility of undertaken reforms.

 In their latest reports credit rating agencies confirmed its credit rating (S&P BB-/stable; Fitch B+/positive; Moody’s B1/positive) and improved their expectation on Serbia`s outlook with further perspectives to improve.  Inflation has been moving below the target tolerance band of 4% ± 1.5 %. Central Bank of Serbia announced to narrow the target rate interval for the next year on 3%±1.5%.

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Inflation rate 15%

12,2%

10% 05%

2,2%

1,7%

1,5%

2013

2014

2015

00% 2012



Serbia has relatively stable FX rate.

FX rate EUR/RSD in 2016 125 124 123 122 121 120

 Since 2000 Serbia has attracted over EUR 28.1 bn of inward foreign direct investment.  Net FDI in 2015 reached the level of more than EUR 1.8 bn and fully covered the current account deficit. Estimated level of NFDIs in 2016 is EUR 1.8 bn. In 2015, net FDIs were mainly from the Netherlands (20.1%), Austria (19.5%), Luxembourg (9.4%), Italy (8.0%) and the United Arab Emirates (6.7%).

Net FDI in bn EUR 2,0

1,5 1,0

1,3

1,2

2013

2014

1,8

1,8

2015

2016e

0,8

0,5 0,0 2012



Many world-renowned global companies companies recognized Serbia’s potential and decided to locate operations in Serbia. Some of them are FCA, Gasprom, Bosch, Michelin, Siemens, Microsoft, Ball Packaging, Panasonic, NCR, Stada…

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Serbia and the Western Balkans  Based on the remarkable economic potential and political stability, Serbia shows better economic performances than other countries in the Western Balkans Region. In 2015, total surplus in commodity trade with CEFTA countries amounted to EUR 1.9 bn.  Cooperation with the People`s Republic of China is increasing. Companies from the Western Europe and the United States are mainly interested in energy sector and telecommunications, as well as mining and agriculture. Serbia intends to pave the way to new markets for its goods and services.

Trade surplus with CEFTA countries, 2015 (EUR mn) 800

670 555

600 400

306

289

200

74

0

-22

-200 BIH

MKD

MNE

MDA

ALB

UNMIK

Automotive Industry  Automotive industry of Serbia has long tradition, which has been fuelled by re-emerging process of privatization since 2000. Serbian automotive industry dates back from 1939 when Zastava, the Serbian manufacturer of motor vehicles, produced automobiles under the license of Fiat. Zastava's suppliers manufactured under strict, high-quality production standards that enabled them to work with other western car manufacturers such as Mercedes, Ford, PSA and Opel.  Today, the automotive industry is one of the most prominent sectors in Serbia. Experience and knowledge in automotive industry attracted foreign capital and a significant number of foreign investors in manufacturing and whole supply chain of automotive industry. Around 60 international investors have invested over €1.7 billion in the sector, creating more than 27.000 jobs.  The leading foreign investors in automotive industry are from Italy (Fiat, Proma-MA, Magneti Marelli, Sigit), France (Michelin, Le Belier), Germany (Robert Bosch, Leoni, Dräxlmaier), the United States (Cooper, Johnson Controls), South Korea (Yura) and other counties. The Serbian automotive industry supplies almost all major European and some Asian car manufacturers.  The manufacturing of vehicle chassis system parts, especially tires and suspension parts is the most prominent activity in the industry. Electrical system components are another dominant product group with car batteries and wiring installations as the most important products. Also, the production of engine components, mostly casted, is very significant, along with forged and machined parts like camshafts, brake discs, valves and flywheels.  The largest and the most important investment in the automotive sector is the FIAT project, not only because of the high value of investment, but because it helped in attracting several automobile components producers to Serbia. FCA (Fiat Chrysler Automobile) produces every year over 100,000 vehicles of 500L model, majority of which is exported to US and EU markets.  From 2005 till now the biggest investments in automotive industry were:

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 Automotive Industry has the largest stake in the export of Serbia since 2013 Importers Fiat Crysler automobili Srbija-Kragujevac Tigar Tyres-Pirot Leoni Wiring System Southeast-Prokuplje Dad Draxlmaier Automotive-Zrenjanin Johnsons Controls Automotive Grošnica PMC Automotive-Kragujevac Yura Corporation-Rača Streit Nova-Stara Pazova IGB Automotive Comp-Inđija Eaton Electric-Sremska Mitrovica Lames-Sremska Mitrovica Contitech Fluid Serbia-Subotica Livnica Kikinda AI-Kikinda Magneti Marelli-Kragujevac

mln USD 776 68 62 55 44 42 39 33 32 22 21 15 15 10

Exporters Fiat Crysler automobili Srbija-Kragujevac Yura Corporation-Rača Leoni Wiring System Southeast-Prokuplje Dad Draxlmaier Automotive- Zrenjanin Contitech Fluid Serbia-Subotica IGB Automotive Comp-Inđija Livnica Kikinda AI-Kikinda Eaton Electric-Sremska Mitrovica Streit Nova-Stara Pazova Lames-Sremska Mitrovica Knott-Autoflex Yug-Bečej Tisza Automotive-Senta Grah Automotive-Batočina

mln USD 1,231 194 94 84 55 53 46 40 37 26 19 18 14

 For the first seven months in 2016 automotive industry contributed to Serbia export with 15, 9% and made surplus of 113 billion EUR in the balance of trade. The export of automotive industry rose for 7,2% in comparison to the same period in 2015.  The number of road motor vehicles registered in 2015 was 2.260.308 (81% of that number regards to passenger cars) which is an increase by 2.19% in comparison to the number of registered vehicles in the previous year.  Regarding trademarks, the following manufacturers were the most notable: Volkswagen, Opel, Zastava, Ford, Fiat, Renault, Mercedes, Peugeot and Skoda.  The number of first time registered passenger cars in 2015 in the Republic of Serbia increased by 6.9%, relative to the previous year, the number of buses by 53.8%, motor vehicles of special purpose by 278.6%, trucks by 36.2% and the number of trailers by 18.9%, while the number of mopeds and motorcycles noted fall.  For the first five months of this year 10.459 new cars were sold, which is for 22% more than in the same period last year.

Number of new cars sold 22.508 21.956

23.000 22.000 21.000

19.688

20.000 19.000 18.000

2013

2014

2015

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Labor Market

Average salary (Gross 1) in Automotive Industry (EUR) 427 407 398

395 383 368

2011

2012

2013

2014

2015

I-VIII 2016

Number of Employees in Automotive Industry 25.002 22.219

24.209

25.658

24.943

19.551

2011

2012

2013

2014

2015

Q1 2016

Free Zones  There are 14 free zones in Serbia in which operate more than 200 international companies with more than 20.000 people employed.  In 2015 total value of exchanged goods and services within the zones reached 4.6 bn EUR.  Companies from Automotive Industry that operate in free zones are: Free Zone Kragujevac

Free Zone Pirot

Free Zone Subotica Free Zone Novi Sad Free Zone Zrenjanin Free Zone Šabac Free Zone Užice Free Zone Smederevo Free Zone Kruševac

FIAT Automobiles Serbia – production of automobiles Magneti Marelli Magneti Marelli Automotive Sigit Johnson Controls Automotive JCMM Automotive PMC Automotive Tigar Tyres, production of pneumatics Tigar Rubber Footwear, production of rubber footwear Tigar Technical Rubber, rubber products Contitech fluid Serbia - components for automotive industry Belarus-Agropanonka, assembly and storage tractors Draexlmaier Automotive, production of parts for automotive industry SBE Srbija (Vescovini Group), production of car parts Impol Seval Aluminium Rolling Mill a.d. Sevojno Metech, production of sheet metal Trayal Corporation, production of rubber and chemical products

Production of automobile filters and available inputs  Production of Aluminum in Serbia in 2015 reached 65.957 t and net import 249 million USD.  Processing of Aluminum: net export reached 22 million USD.  Main producers of cardboard/paper are Umka ad, DS Smith Packaging, Kartonval, Fabrika hartije, Avala Ada i Bosis.

SWOT analyses Strengths Opportunities  Economic and political stability  Sufficient capacity for even larger volumes of production  Location and infrastructure  Top technical education at all levels  Educated and skilled workforce  Low operating costs  Favorable tax rates and investment incentives Weaknesses Threats  Legal framework in the process of adjustment  Economic crisis in the EU as the main trading with EU partner  Relatively small number of certified companies for standard ISO TS 16949