CEFTA

2007-2010

EXPERIENCES, POTENTIAL AND PERSPECTIVE

Belgrade, February 2011

2

New Policy Centre

Vasina 3, Belgrade, Serbia

www. cnp.rs

office@cnp.rs

Authors:

Goran Nikolic

Nikola Jovanovic

Vladimir Todoric

We are grateful for assistance and cooperation of the Balkan Trust for Democracy

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SUMMARY

Balkan countries, including Moldova, have signed the Central European Free Trade

Agreement (CEFTA) on December 19, 2006, which replaced a network of bilateral free

trade agreements. The countries which remained members of the agreement - Serbia,

Albania, Bosnia and Herzegovina, Macedonia, Croatia, Montenegro, UNMIK-Kosovo

and Moldova – presently form a joint market of approximately 27 million consumers.

CEFTA provides conditions for harmonized commercial trade within the region and

indirectly brings significant benefits which are primarily related to the possibility of

easier entrance in neighbouring markets which were difficulty available (Croatian market

for Serbia, for example) and increased participation in other markets within this

Agreement. The advantage of CEFTA, as a market not too small for Europe, is also the

fact it makes each of the countries of the region a more attractive destination for foreign

capital, which significantly increases investors' interest. More than one hundred types of

non-customs barriers are the biggest problem, such as complicated border-crossing

procedures, extensive administrative work, insufficient number of internationally

recognized accreditation and certification bodies.

In a way, CEFTA is a small playroom for joining the EU, in which all countries of West

Balkans should prepare themselves for obligations implied by EU membership. Joint

market of similar countries may serve as a test range for readiness to join the open trade

game which is governing the EU market.

One should consider the political significance of the free trade zone in Southeast Europe,

and the fact that it is mostly an EU project, whose goal is to improve cooperation among

the said countries and pacification of the region. Thus, receipt of financial assistance and

the speed of approaching the EU, and the World Trade Organization as well shall mostly

depend on the economical cooperation of Serbia with its neighbouring countries.

***

Economic leader in the region of West Balkans is certainly Croatia. Nevertheless, Croatia

shall soon join the EU (2013 seems to be the most probable year), so Serbia, as a central

CEFTA country (although, strictly geographically speaking, it is Bosnia and

Herzegovina) is to become the new leader. Namely, Croatia has the most competitive

processing industry (where the most of commercial export trade originates from), but

Serbia is slowly catching-up (which can be seen in the decrease of Serbia's deficit in the

trade with Croatia, which should turn into a surplus in next several years, especially when

Serbia joins the European customs union and when Serbia adopts asymmetrical tariff

ratio in favour of our Country). In any case, there is no doubt that Croatia and Serbia are

the two countries with greatest economic potential and political significance.

On grounds of theoretical and empirical research, and based on the data on the relative

significance of the countries in West Balkans as well, Croatia (and then Serbia) should

have the greatest benefits from implementation of CEFTA agreement. Its relative

4

significance is "dominant" and the easiest profit from free business activities at the single

market shall be gained by companies from Croatia. On the other hand, the share of Serbia

in all economic indicators increased in the period after the year 2000.

By far the biggest merchandise exporter in the region of West Balkans is Croatia,

although its relative importance is decreasing, in favour of the countries which have

significantly improved their export in the given period, first of all Serbia, observed

through absolute figures (commercial export nearly doubled). Surely, if one takes the

trade or export of services into account, the advantage of Croatia is by far greater given

that the prospects indicate that the export of services by the said country increased by as

much as 8.4b billion euros in 2010 (imports amounted to 2.7 billion euros), while the

relative significance has fairly improved in case of Montenegro (export of services 0.7

billion euros, import 0.3 billion euros in 2010). Bosnia and Herzegovina had exported

services of approximately 1.9 billion and import of almost 0.9 billion euros in 2010)

Serbia, as well as the remaining countries of West Balkan, had a relatively modest trade

in services; export of approximately 2.6 and import amounting to 2.6 billion euros in

2010. It is clear that there is a great potential for growth of bilateral trade in most

countries of West Balkans. Since the region of West Balkans is heavily affected by the

world economic crisis, its recovery shall mostly depend on the economic trends in the

EU. There are three exit strategies, among numerous possible, which the countries of WB

might apply, or which they already apply partially, in order to achieve economic recovery

as quick as possible: (1) improvement of bilateral trade, (2) attraction of production-

oriented investments and (3) finding bilateral financial assistance from friendly countries

in case of withdrawal of banks from their markets (presently a less probable option)

There are more than one hundred different types of non-customs barriers (complicated

border-crossing procedures; extensive administrative work and mutual non-compliance of

customs activities and inspection departments; insufficient number of internationally

recognized accreditation and certification bodies, as well as authorized laboratories and

institutions; non-recognition of quality assurance certificates; complicated visa regime;

corruption and smuggling. It is necessary to improve the infrastructure of quality up to a

level at which Serbian certificates, and certificates for products of other WB countries,

would be recognized in all countries of the EU and CEFTA. In this area, a certain

progress has been achieved in 2009 and 2010 by passing certain laws which regulate it.

There is a lack of institutionalized accreditation bodies, which is the reason why

consistent implementation of CEFTA agreement is not possible.

With the amount of 0.5 billion euros, Croatia is, among CEFTA members, the biggest

investor in Serbia (Croatian FDI in Serbia represent more than 19% of total Croatian FDI,

positioning Serbia on the second place in Croatian foreign investments, and Croatia holds

the 6th

place as the foreign investor in Serbia). On the contrary, Serbian investments in

Croatia amount only to 45 millions of euros.

The structure of trade of WB countries is mainly based on the products from early

processing stage (raw materials, semi fabricates) and to a lesser degree final products

with low added value. The trade mainly consists of food products (vegetables, fruit,

5

confectionery, cereals), agricultural raw materials, electricity, gas, oil derivatives, paper,

cardboard and cellulose products, basic metals (steel plates, aluminium profiles, copper

cathodes), chemical and textile products. Significant improvement of mutual trade in near

future is not realistic, and the last decade in which we noted stagnation of the trade

structure within CEFTA shows it.

Bosnia and Herzegovina is the most important importer of products from other countries

of the trade agreement CEFTA and it has a high deficit in trade with Croatia and Serbia

(although for the most part, these deficits are related to cantons with Croatian majority,

and with Republic of Srpska and Brcko district, referred to in scientific literature as

"ethnic trade"). In its trade with CEFTA, Bosnia and Herzegovina have the same sum

value of export and import as in the trade with Germany, Italy or Slovenia. Considering

the high trade deficit, economic crisis affected Bosnia and Herzegovina to decrease the

trade deficit with CEFTA countries by even higher decrease of exports in 2009. In 2010,

Bosnia and Herzegovina achieves growth of exports to CEFTA countries which is much

faster than the growth of imports, thus continuing to decrease the imbalance in trade.

Gravitational model, which measures the difference between potential and actual trade,

shows that Serbia has a possibility to increase the trade with Croatia and Albania, while

the trade with Bosnia and Herzegovina, Macedonia and Montenegro are significantly

above the potential. It is clear that trade with countries from former Yugoslavia cannot be

nearly as high as within their once common state, but due to cultural similarities, old

economic ties and recognition of trademarks by consumer, the trade shall be easier. The

greatest barriers for trade are numerous non-customs barriers. Apart from them, many

"sensitive" industrial products have not been covered by the CEFTA agreement (customs

duties are decreased in phases for such products), neither are agriculture or services

(efforts are made to change this).

Regional economic integration is a particularly good solution for small and middle sized

countries (such as Serbia), which are highly dependent on international trade. Short-term,

and to a lesser extent mid-term costs can be higher than benefits, but benefits arrive as

smaller "meals". Long-term benefits from economic integration are higher than costs.

Total effects of integration are more important than measurable economic indicators and

they can be construed as expansion of possibilities and development potentials.

One should not expect CEFTA to provide a strong stimulus for economies of West

Balkans, especially not in comparison to connecting with the EU which is of crucial

importance for all these states, but in the mid-term and in the long-term the benefits

(lower prices, economy of scale, commercial supply of higher quality, savings due to

short spatial distance) shall be higher than costs. Countries in the region have

technologically obsolete industries, they are mutual competitors for exports to the EU and

they practically do not have much to offer to each other. Companies with supply of

moderate quality shall get the most benefits from non-customs space, by being able to

reach new consumers more easily, while the companies which survived due to difficult

appearance of surrounding competitors at the domestic market shall be the main losers.

Anyhow, unification due to EU competition has little sense, considering that all WB

6

countries are to join the EU in relatively near future, as well as their mutual competition

in exports to the EU market.

Officials of WB countries are aware that faster joining with the EU demands regional

economic cooperation and market reforms. Long, complicated and non-transparent

procedures at border-crossings, expensive and large-scale testing and controls and lack of

accredited laboratories for control of merchandise which crosses the border are the

biggest non-customs barriers which slow the economic cooperation in the region down.

There still are numerous obstacles for implementation of regional economic integration,

creation of powerful regional retail companies, regional trade balance, and big investors'

influence.

In 2011, further liberalization of trade by agricultural and food products in the region

should come into force. Non-customs barriers, especially those related to technical

barriers and phytosanitary measures are to be withdrawn in 2011. It is expected that

measures shall be adopted in near future, which would make some of the barriers,

primarily mutual non-recognition of quality assurance certificates (sanitary,

phytosanitary, veterinary) of agricultural manufacturers, void. Agreements in principle

were made regarding coordinated utilization of pre-joining funds from the IPA

programme, especially components III, IV and V, which provide possibilities for

dynamisation of economic growth and cooperation.

It should be concluded that in the West Balkan, intensification of economic ties is done

only to serve carrying-out of national policy. Therefore, significant presence of Serbian

products in Montenegro and Bosnia and Herzegovina, primarily in Republic of Srpska,

should not be surprising, nor should the very distinct foreign trade surplus with these

countries. In Bosnia and Herzegovina, that is, Republic of Srspka, Serbia has significant

presence in the area of foreign direct investments as well, although it is few bigger

investments. CEFTA is an example of how interests of Serbia, countries of the region and

international community can be optimally made more coherent. Namely, it is clear that

CEFTA is primarily a political project of the EU, whose goal is pacification of the region

and its preparation for EU membership.

Economic cooperation of the countries of West Balkans is surely a strategic interest of

Serbia, and therefore advocacy by our country's political leaders, but also by academic

circles (particularly economists) and businessmen in its favour is fully expected.

Economic cooperation is followed by renewal of cultural ties, which is rather successful,

namely due to practically common language and similar cultural matrix, which is a

legacy of Ex Yugoslavia (although it had been present even before its foundation)

***

By far the most economic partner of Serbia in the EU, and then in CEFTA, to which

more than nine tenths of Serbian export and approximately three thirds of domestic

7

import is related (considering the fact that CEFTA countries, excluding Moldavia, shall

probably join the EU in next 10 or 15 years, it is obvious that importance of the trade

with EU shall increase additionally).

Notwithstanding the thesis that sub regional arrangements may have a complementary

role in the process of pan European bonding (CEFTA, Free Trade Agreements with

Russia, Turkey, Belarus, joining the World Trade Organization in near future), things

could be observed differently from Serbian perspective. The market of CEFTA, that is, of

the WB countries is of major significance for economy of Serbia, primarily due to the

fact that Serbia has a continuous surplus at it, whose continuance of growth is expected in

2011, judging by the present monthly export and import trends (in 2010, surplus shall

exceed 1.3 B euros, having been somewhat below one billion of euros in 2007).

Secondly, which is even more important, EU share in total export and import is between

53% and 57%; while share of the West Balkans countries in Serbia's export is about one

third and in its import approximately 8%. When we compare data on the number of EU

citizens (500 million) and West Balkan without Serbia (16 million), with data on relative

importance for export expansion, we get data on intensity of merchandise trade. Anyhow,

it was empirically proven that strong ties exist between the countries' mutual borders and

several times increased trade in comparison with the trade among the non-bordering

countries. In case of Serbia, additional factors exist, such as common language, mentality

and habits.

For Serbia, the WB region has significance as an export market more than four times

greater then as an import market. Serbia has a trade deficit with Croatia (coverage of

import by export increased from somewhat more than two fifths in 2007 up to two thirds

in 2010), while it has high surpluses with other observed countries. While in trading with

the countries of West Balkans, or CEFTA (Moldova can be practically excluded from the

analysis due to its marginal share in Serbian trade) it has surplus, in trading with the rest

of the world, Serbia has several times higher trade deficit. Considering that it has the

highest population and a central position, it is possible that Serbia, if it attracts FDI into

its industrial sector, may have high benefits from the integration. CEFTA countries are

therefore very important market for out country, especially Bosnia and Herzegovina,

Montenegro and Macedonia, with whom the most part of the trade is done, and which are

"responsible" for the achieved surplus (marginal trade exists with Albania and Moldavia,

while a constant surplus is achieved with the territory of Kosovo-UNMIK).

The structure of merchandise trade of Serbia with these countries did not change, for the

most part, in previous years. Serbia's trade with WB countries mostly resembles the trade

among the developing countries and is far from the trade models among more developed

countries in transition. Serbia's export to WB countries is primarily composed of final

food products, but also agricultural raw materials, electricity, non-ferrous metals, and

chemical and textile products. As for imports, oil and derivatives, natural gas, paper,

cardboard and cellulose products, vegetables and fruit, iron and steel represent their

greatest share. In contrast to other markets where we participate with relatively small

number of products, such as iron, steel, raspberries, corn, tires, here we have a wide range

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of products, and at the exact instances where we are not qualified to join the EU market

due to certain high standards, here our companies survive.

For Serbia as well as the other WB countries, the potential of economic cooperation with

neighbouring countries is of significance, but great limitations also exist. This primarily

refers to unfavourable structure of Serbian export and a low number of large exporters.

While it is possible to solve the second problem by means of a good export strategy,

stimulating measures and attraction of large export companies' investments, the first

problem is difficultly solvable in short-term.

The advantage of Serbia is that since the beginning of crisis in September 2008 until the

end of 2010 it had depreciation of dinar amounting to 27% (actually about 10%), while

other countries of WB practically had unchanged currency exchange rates (Bosnia and

Herzegovina has a fixed regime due to monetary board, Kosovo and Montenegro use

euro, and Albanian, Macedonian and Croatian currencies practically remained unchanged

in previous years). This stimulated Serbia in the context of price competitiveness growth

in comparison with the neighbours (and the EU), and the improvement of foreign trade

balance was more distinct in the last couple of years.

Considering the relatively low level of Serbia's foreign trade with some of the

surrounding countries and the expected continuance of growth of total domestic foreign

trade (which was striking in 2010; 22% in euros), it is realistic that in 2011 and in the

years to follow, growth trend shall continue with the countries in the region (IMF-

October 2010- projects growth of export and import of countries in the region in 2011

amounting to 9-10%, since Serbia was much more successful in 2010 than the average

export growth of the countries in the region, in 2011 one could expect a growth rate of

total merchandise export in euros amounting to 11-16%). This will be, among other

things, conditioned by an increased inflow of foreign capital (that is, by arrival of

transnational companies, most of which have plans for expansion of export in the

surrounding areas near). Considering the projections from MAT and FREN studies,

which indicate that export should have two-figure growth rates in the second decade of

the 21st century, while growth of exports to CEFTA market should be approximately two

percentage points lower on average, it is realistic to assume that there will be a light

decrease of trade participation of WB region countries. This is not unexpected, since a

certain saturation of markets exists, particularly those at which Serbia achieves the

highest export rate. Import growth rate of WB countries could also be a somewhat lower

than the growth rate of sum of imports in the following table.

Since Serbia has very diversified supply of products in small quantities, transport costs

have a limiting effect on exports to distant markets. In trade with CEFTA countries –

Serbia achieves surplus (due to good position at the market of Bosnia and Herzegovina,

Montenegro, Macedonia and UNMIK-Kosovo), while the level of coverage of imports by

exports decreases as geographical distance from Serbia increases.

Until 2020, one should not expect more significant changes of export destinations. Truly,

share of EU and CIS ought to increase, and to decrease in CEFTA countries. Growth of

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export share in EU shall be a result of intraindustrial trade growth, and in CIS it shall be a

result of utilisation of favourable trade approach to markets of the countries. Decrease of

share of CEFTA countries, with expected high growth of export value, shall be a result of

relative saturation of markets by the existing level of trade. The absolute growth of export

value shall be a result of intensification of merchandise trade between countries where it

is below potential level (Serbia-Croatia, Federation of Bosnia and Herzegovina – Serbia,

Republic of Srpska – Croatia... ), and as a result of renewal of cooperation at the

production level.

During the second decade of the 21st century, due to joint exposure to external risks,

Serbia should, with WB countries, develop as close economic cooperation as possible,

renewing old and forming new production-processing ties. Arrival of, for example,

German, Slovenian or Italian manufacturers in Serbia, in order to retain their market

positions in the EU by means of price competitiveness, and to win third markets, is an

example of positive events in the direction of normalization of economic relations and

creation of new foreign trade potentials. Development of economic cooperation with

UNMIK-Kosovo is necessary in order for companies from Serbia to retain market

positions which they are already holding at this territory. Bad political relations

influenced Macedonia and Germany to become bigger exporters than Serbia, and Serbian

share in total import of UNMIK-Kosovo to decrease from 22% in 2002 to half of its

amount in 2010.

Estimates contained in the "Post-crisis model of economic growth and development of

Serbia 2010 - 2020‟‟ study indicate possible growth rates of export to countries which

presently form the CEFTA agreement, in the next decade. Namely, at an annual

merchandise export growth rate of 10.6% in the 2008-2020 period, merchandise export to

CEFTA would grow somewhat slower, 8.6% (to the EU 11.1%, somewhat faster),

decreasing the CEFTA share from one third in 2008 to 27% in the year 2020.

10

Economic cooperation of CEFTA countries (West Balkan): A view from Serbia1

Economic connections of Balkan countries have led to signing of Central European Free

Trade Agreement (CEFTA) on December 19, 2006. After they joined the EU on January

1, 2007, Romania and Bulgaria left CEFTA2. Countries which remained in the

agreement: Serbia, Albania, Bosnia and Herzegovina, Macedonia, Croatia, Montenegro,

UNMIK-Kosovo3 and Moldova, presently form a joint market of approximately 27

million of consumers. Since these countries, excluding Moldova (which, due to its

marginal share in CEFTA trade, as in foreign trade with Serbia, shall not be analysed in

this study) are the more and more often referred to as West Balkan (WB), we shall use

this term as an alternate one.

Serbia was the last to ratify the CEFTA agreement (24.9.2007), and two months later it

started to be officially implemented in all countries signatories. Ban of discrimination of

products from various member countries, free flow of merchandise and services over

1 Goran Nikolic, economist in CNP

2 Similar structure of economy, population habits and needs in Bulgaria and Romania represent a key

trump-card for better marketing of Serbian products at those markets, and through them in the EU. 3 By means of Resolution 1244 SB UN dated 10.6.1999, mechanisms were created for activities of

UNMIK, KFOR, and in late 2008, EULEX..

11

administrative borders and a strong competition are the basic economic principles of the

EU. Reaching these criteria at a smaller, more homogenous market shall assist countries

which are CEFTA members to prepare as well as they are able for the market economy

and competition within the EU.

CEFTA agreement has replaced a network of as much as 32 free trade arrangements in

the Southeast Europe region, which had been applied since 2001. CEFTA has positively

influenced intensification of mutual trade, which is indicated by the reference statistical

data, which will be shown in the next chapters of this Study. Naturally, the last three-

month period of 2008 and 2009 should be treated in a specific manner, by taking into

consideration a strong decrease of total domestic and global trade, which influenced the

rapid decrease of trade among countries in CEFTA agreement.

CEFTA provides conditions for harmonized commercial trade within the region and

indirectly brings significant benefits which are primarily related to the possibility of

easier entrance in neighbouring markets which were difficulty available (Croatian market

for Serbia, for example4) and increased participation in other markets within this

Agreement. The advantage of CEFTA, as a market not too small for Europe, is also the

fact it makes each of the countries of the region a more attractive destination for foreign

capital, which significantly increases investors' interest. In order to have mutual

investments, administrative and other barriers should be removed, and the final goal is to

form a joint investment market with coherent investment politics

CEFTA agreement has nine annexes. Among them, one can find lists of industrial and

agricultural products, which have not been fully liberalized by going into effect. Most

important novelties of CEFTA agreement in comparison to previous bilateral agreements,

which are of special interest for economy are the following: possibility of utilization of

diagonal cumulation of merchandise origin5, introduction of gradual liberalization of

trade in services, obligation of treatment equalization for domestic and foreign investors

of the region, gradual opening of public procurement market and equal treatment of

domestic suppliers and suppliers from countries in the region. Besides, it is important to

ensure protection of intellectual property rights in accordance with international

standards, improved mechanism for resolution of disputes which occur in the course of

Agreement application, obligation of compliance with WTO rules, regardless of whether

the country is or is not its member. CEFTA agreement directs to eliminate all quantitative

limitations, customs duties and other levies among the countries of the region, which is

4 It is easier to make pressure in order to open neighbouring markets by means of CEFTA agreement than

in a bilateral manner. 5 As in bilateral agreements, liberal or non-customs trade with CEFTA is possible only for merchandise

which has domestic origin status. Contrary to the bilateral agreements, where only bilateral cumulation of

merchandise origin is applied, which means that a raw material imported, for example, from Bosnia and

Herzegovina and included in a final product manufactured in Serbia, can be exported without customs

duties only to Bosnia and Herzegovina, but not to other countries of the region. CEFTA enables diagonal

cumulation, that is cumulation (adding) of origins of merchandise from several countries in the region,

which shall have a domestic origin status. Possibility of application of diagonal cumulation of merchandise

origin in trade among countries in the region and whole region with EU, as well as with EFTA and Turkey,

should benefit the non-customs trade of greater range of merchandise.

12

expected to occur in the years to come (and to stop introducing new barriers). There are

certain limitations regarding the list of products which may be imported in non-customs

manner, that is, the list of products to which rules of preferential trade do not apply.6

Nevertheless, the biggest problems are probably more than one hundred non-customs

barriers (such as complicated border-crossing procedures, extensive administrative work,

insufficient number of internationally recognized accreditation and certification bodies).

Political aspect of CEFTA and importance of CEFTA for positioning of Serbia in Europe

CEFTA agreement enables its signatories to prepare in order to join the EU. Namely,

only since 2007 until late 2010, EU invested more than a billion euros in improvement of

regional cooperation in Balkan. Cooperation of countries in the region considerably

improved, but the region still did not, nor shall it improve in 2011; in all likelihood, it

shall not achieve the growth rates which it had before crisis in 2012 as well, so it is

necessary to assure investors that there is a rule of law at the market. In any case, EU

shall continue to politically and financially support CEFTA agreement, and the reforms

which are important for WB countries in order to join EU.

In a way, CEFTA is a small playroom for joining the EU, in which all countries of WB

should prepare themselves for obligations implied by EU membership. Joint market of

similar countries may serve as a test range for readiness to join the open trade game

which is governing the European market.

Economic cooperation of the countries of West Balkans is surely a strategic interest of

Serbia, and therefore advocacy by our country's political leaders, but also by academic

circles (particularly economists) and businessmen in its favour is fully expected.

Economic cooperation is followed by renewal of cultural ties, which is rather successful,

namely due to practically common language and similar cultural matrix, which is a

legacy of Ex Yugoslavia (although it had been present even before its foundation). It

It should be concluded that in the West Balkans, intensification of economic ties is done

only to serve carrying-out of national policy. Therefore, significant presence of Serbian

products in Montenegro and Bosnia and Herzegovina, primarily in Republic of Srpska,

should not be surprising, nor should the very distinct foreign trade surplus with these

countries. In Bosnia and Herzegovina, that is, Republic of Srpska, Serbia has significant

presence in the area of foreign direct investments as well, although it is few bigger

investments.

Economic leader in the region of West Balkans is certainly Croatia. Nevertheless, Croatia

shall soon join the EU (2013 seems to be the most probable year), so Serbia, as a central

CEFTA country (although, strictly geographically speaking, it is Bosnia and

6 Based on a tariff number, these lists can be checked and one can determine whether limitations exist for

any of the selected products.

13

Herzegovina) is to become the new leader. Namely, Croatia as the most competitive

processing industry (where the most of commercial export trade originates from), but

Serbia is slowly catching-up (which can be seen in the decrease of Serbia's deficit in the

trade with Croatia, which should turn into a surplus in next several years, especially when

Serbia joins the European customs union and when Serbia adopts asymmetrical tariff

ratio in favour of our Country). In any case, there is no doubt that Croatia and Serbia are

the two countries with greatest economic potential and political significance.

For Serbia as well as the other WB countries, the potential of economic cooperation with

neighbouring countries is of significance, but great limitations also exist. This primarily

refers to unfavourable structure of Serbian export and a low number of large exporters.

While it is possible to solve the second problem by means of a good export strategy,

stimulating measures and attraction of large export companies' investments, the first

problem is difficultly solvable in short-term.

The greatest share in Serbia's export to WB belongs to products in early processing

phase. The added value of foreign trade of such products is low. 7Change of structure of

export products is a time-demanding process, faced by all countries in transition. Those

which succeeded are today able to boast of high growth of competitiveness, export and

whole economy (Czech Republic and Hungary each have merchandise export

approximately ten times higher than Serbia). Nevertheless, Serbia still has not found an

adequate solution for this problem. Interesting thing, if you observe the structure of

export of Serbian economy in the period before and after the World War One, is that you

shall see that it is dominated by cereals, meat, basic metals and wood; not very different

from reading a statistical report about the structure of export in 2010.

One should consider the political significance of the free trade zone in Southeast Europe,

and the fact that it is mostly an EU project, whose goal is to improve cooperation among

the said countries and pacification of the region. Thus, receipt of financial assistance and

the speed of approaching the EU, and the World Trade Organization as well shall mostly

depend on the economical cooperation of Serbia with its neighbouring countries.

Main economic parameters of CEFTA or WB countries

Indeed, WB states with greatest economic potentials are Croatia and Serbia, and IMF

projects that Serbia's GDP is expected to grow faster than the Croatian.8 Table 1 contains

GDP indicators per capita for countries of West Balkan and estimates of their trends until

2015. Crisis hit all countries, but recovery (measured as current dollar GDP pc) is already

significant in 2011. Although GDP growth of 1.5% is noted in Serbia in 2010, due to

actual depreciation of dinar, GDP per capita actually decreased in the said year as well.

7 i.e., if one uses wood as raw material, you process it and export building material, the value of that wood

is doubled. Nevertheless, if you export final products, value of the wood is increased as much as seven

times. If an exporter is also a big importer of raw materials, which is common in Serbia, his effect on the

final balance of foreign trade can be very low. 8 Differences in GDP PPP are gradually decreasing and Serbia is to outrun its western neighbour as for the

said indicator.

14

As expected, Croatia has by far the highest GDP pc, Serbia is in the middle, while

Kosovo and Albania are at the tail.

Table 1

Current dollar GDP per capita 2010 2011 2012 2013 2014 2015

Albania 3616 3730 3932 4165 4437 4764

BIH 4158 4275 4585 4929 5263 5623

Croatia 13528 13872 14572 15381 16238 17146

Kosovo 2604 2776 2925 3058 3151 3268

Macedonia 4635 4868 5204 5532 5885 6242

Montenegro 6117 6197 6530 6883 7163 7443

Serbia 5262 5574 6421 7007 7655 8257

IMF World Economic Outlook database October 2010.

If we observe GDP per capital from the angle of purchasing power (in billions of dollars),

the image is somewhat different, since it includes levels of prices in each country. In

2010, Serbia is the biggest economy of WB according to this indicator (according to the

GDP level, it shall become one only in about ten years, when it outruns Croatia). Poorer

countries have lower prices and one can see, if one divides the figures in the Table with

the number of citizens, that GDP pc is roughly double than that of most WB countries,

while this difference is smaller in case of Croatia (Table 2).

Table 2

GDP PPP (per purchasing power) of West Balkan countries, in billions of dollars

2008 2009 2010 2011 2012 2013 2014 2015

Albania 21.9 22.8 23.6 24.7 25.9 27.4 29.2 31.2

BIH 30.5 29.8 30.2 31.5 33.5 35.8 38.1 40.5

Croatia 82.5 78.4 78.0 80.3 83.4 87.2 91.3 95.7

Kosovo 4.0 4.2 4.4 4.7 5.0 5.4 5.7 6.0

Macedonia 18.9 18.9 19.3 20.2 21.4 22.5 23.8 25.2

Montenegro 6.9 6.6 6.5 6.9 7.4 7.9 8.3 8.8

Serbia 79.8 78.1 79.9 83.3 88.7 95.0 101.9 109.0

IMF World Economic Outlook database October 2010.

According to IMF, in 2010 all countries but Croatia shall have positive growth rates

((Albania 3,1%, Croatia -1,5%, Montenegro 0,3%, Macedonia 1%, Kosovo 4,6%, BIH

0,5%).9 The following Table contains IMF estimates for the next five years, and one can

see that the highest growth rates shall be achieved by Serbia, Kosovo and Albania, while

most modest growth is expected in Croatia, which is also in accordance with the rule that

economies at the higher level of development progress more slowly.

9 http://www.cnbc.com/id/40469379

15

Table 3

Estimated growth rates of GDP PPP 2011 2012 2013 2014 2015 2015/2008

Albania 4.5 5.0 5.8 6.5 6.9 42.5

BIH 4.3 6.4 6.8 6.3 6.4 33.0

Croatia 3.0 3.9 4.5 4.7 4.8 16.0

Kosovo 7.2 6.8 6.6 5.6 6.4 52.0

Macedonia 4.4 5.9 5.5 5.7 5.9 33.5

Montenegro 5.9 6.9 6.6 6.0 5.8 27.5

Serbia 4.3 6.4 7.1 7.3 6.9 36.7

IMF World Economic Outlook database October 2010.

Until 2008, Serbia had a very high deficit of balance of payments current account (almost

18%), and then it strongly decreased during the crisis, with estimates that it could amount

to approximately 8-9% of GDP in 2010. Countries in the region have also decreased their

relatively high deficits of balance of payments; in 2010, deficit of balance of payments

current account of BIH amounts to 6%, Croatia 3%, Albania approximately 11%,

Montenegro 29%. Also, Montenegro and Kosovo have exceptionally high deficits of their

balances of payment, which is a consequence of very large capital inflows (in comparison

with the GDP of those territories) to those countries in previous years and of undeveloped

export sector as well.

Fiscal deficits in general are not so high and are significantly lower than EU average.

Nevertheless, considering the fact that it is very difficult for these countries to become

indebted at financial markets, deficits of public consumption are not a small problem. In

Serbia in 2010, consolidated budget deficit amounts to 4.8% of GDP; it is projected to

4.1% of GDP in 2011, which is an encouraging drop, conditioned by adoption of so-

called fiscal rules under the patronage of IMF (fiscal deficit in 2010 shall amount 4.2 %

of GDP in Croatia, 3% in Albania, 4.5% in BIH, 7.2% in Montenegro, 2.5% in

Macedonia). Public debt is also low for EU standards, but its rapid growth (in last two

years it increased almost up to 39% of Serbia's GDP, which represents growth of as much

as 14 percentage points) creates potential problems for these states. Foreign debt is a

bigger problem in case of Croatia and Serbia, since these countries are highly indebted

according to standards of the World Bank, or are on the border of highly indebted

countries (Serbia with almost 80% of its GDP).

As for the changes in currency exchange rates, from the beginning of crisis in September

2008, until late 2010, Serbia had depreciation of dinar amounting to 28% (actually about

10%), while other countries of WB practically had unchanged exchange rates (BIH has a

fixed regime due to a monetary board, Kosovo and Montenegro use euro, and Albanian,

Macedonian and Croatian currencies practically remained unchanged in previous years).

This stimulated Serbia in the context of price competitiveness growth in comparison with

the neighbours (and the EU), and the improvement of foreign trade balance was more

distinct in the last couple of years.

On grounds of theoretical and empirical research, and based on the data on the relative

significance of the countries in West Balkans as well, Croatia (and then Serbia) should

have the greatest benefits from implementation of CEFTA agreement. Its relative

16

significance is "dominant" and the easiest profit from free business activities at the single

market shall be gained by companies from Croatia. On the other hand, the share of Serbia

in all economic indicators increased in the period after the year 2000.

Foreign trade performances of CEFTA or West Balkan countries

Before the global crisis 2007-2010, countries of West Balkans had higher growth rates of

mutual merchandise trade in comparison with the growth of trade with the rest of the

world, which influenced the growth of mutual relative foreign trade significance. Mutual

trade was hit much stronger than trade with the rest of the world by the Crisis, while post-

crisis recovery of export is based on demand from the rest of the world, with stagnation

or mild growth of import. The following tables present mutual merchandise trade of all

West Balkan countries (and growth rates in the 2000-2010 and 2005-2005 periods), sum

of their trade, their total export and import as well as trade with most important partners

of the region: Germany and Italy, and with most important partners from the surrounding

area: Slovenia, Turkey and Greece, as well as with Russia, which is an important import

partner of certain countries.

In foreign trade, and in many other economic performances, there are a lot of similarities

among the countries of West Balkans. Those are primarily: very low merchandise export

– absolute and relative (in relation with GDP, import, per capita...); high foreign trade

deficit (which are financed by money orders, loans, external loans and donations). World

economic crisis made it much more difficult for these states to finance the imbalance of

trade balance significantly more difficult. Namely, export value of the West Balkan

countries is relatively low, while import value is much higher (although import is also at

low level in comparison with more advanced countries in transition), so these countries

have high trade deficit. Deficit was, due to decreased inflow of foreign currency for

financing from 33.4 billion euros in 2008 to only 23.8 billion euros in 2009. In 20101,

further slight decrease of trade deficit continued, but with much higher growth rate of

export in comparison with import growth (it is estimated that the foreign trade deficit

shall amount approximately to 21.1 billion euros).

Share of seven observed countries and territories of West Balkans mostly amounts to

about 0.16% of global export in the 2005-2010 period. As for the merchandise import of

seven observed countries, their share in global import is also low but significantly higher

and it most commonly amounts to somewhat over 0.3% in years from 2005 to 2010. The

estimate for 2010 was prepared on grounds of growth projections of global merchandise

trade: 23% in USD (based on the trends in first nine months of 2010).10

10

In "dollars with constant exchange rate” with inflation taken into account, growth of 13.5% was

projected for 2010 (WTO projections dated 1.12.2010).

http://www.wto.org/english/news_e/news10_e/stts_01dec10_e.htm

Note: Differences in booking value of export of a certain coutry and value of import of another country

from the first one exist almost always (that is why values of global export and import are not identical).

Part of the difference is "money laundring", which, according to estimates, amounts approximately to 5%

of the world trade. Part of the difference can be a result of the fact that trade with Kosovo can be registered

separately or as a part of trade with Serbia.

17

In the two following Tables, a relatively modest value of merchandise export is visible

and, to a lesser extent, import of the West Balkan countries. Cumulative growth of

merchandise export amounted to 57%, and of import 26%, i the second half of the first

decade in the 21st century (average discreet growth rate of export amounted to 9.5%,

while it amounted to 4.7% for collective import).

By far the biggest exporter of merchandise in the region of West Balkans is Croatia,

although its relative importance is decreasing, in favour of the countries which have

significantly improved their export in the given period, first of all Serbia, observed

through absolute figures (commercial export nearly doubled). Surely, if one takes the

trade or export of services into account, the advantage of Croatia is by far greater given

that the prospects indicate that the export of services by the said country increased by as

much as 8.4 billion euros in 2010 (imports amounted to 2.7 billion euros), while the

relative significance has fairly improved in case of Montenegro (export of services 0.7

billion euros, import 0.3 billion euros in 2010). Bosnia and Herzegovina had exported

services of approximately 1.9 billion and import of almost 0.9 billion euros in 2010)

Serbia, as well as the remaining countries of West Balkan, had a relatively modest trade

in services; export of approximately 2.6 and import amounting to 2.6 billion euros

in 2010.

Table 4

Total export of West Balkan countries

In millions of euros

2005 2006 2007 2008 2009 2010

Montenegro 369,000 441,000 455,000 416,000 276,982 330,300

Croatia 7,044,027 8,260,448 9,017,165 9,599,212 7,510,067 8,902,000

Serbia +

shipping to

Kosovo 3,750,958 5,307,893 6,660,427 7,637,751 6,172,201 7,632,200

Macedonia 1,639,058 1,911,058 2,448,487 2,714,435 1,929,923 2,426,000

Albania 528,536 630,963 786,208 920,878 780,074 1,252,000p

BIH 1,917,861 2,728,641 3,028,987 3,412,599 2,817,392 3,629,000

Kosovo 48,939 110,774 165,112 198,463 165,328 279,339p

Collective

merchandise

export of WB 15,298,379 19,390,777 22,561,386 24,899,338 19,651,967 24,450,839

Official national statistics; www.trademap.org

The lowest trade is achieved by Kosovo and Montenegro, but Kosovo marks a dynamic

growth thanks to partial transfer of foreign trade from the grey zone to the official

statistics as well. Anyhow, it is probable that the growth of merchandise export of

Kosovo shall be the highest in the region in the years to come, considering their low

basis, in comparison with the number of citizens in the province.

18

Table 5

Total import of West Balkan countries

In millions of euros

2005 2006 2007 2008 2009 2010

Montenegro 1,043,000 1,457,000 2,073,000 2,530,000 1,654,044 1,654,600

Croatia 14,903,270 17,116,782 18,843,392 20,883,720 15,203,053 15,127,000

Serbia 8,400,014 10,485,662 13,535,431 16,478,100 11,504,700 12,621,900

Macedonia 2,591,960 2,995,261 3,813,679 4,681,581 3,616,095 4,333,000

Albania 2,099,221 2,433,810 3,064,661 3,568,517 3,261,286 3,616,700p

BIH 5,663,910 6,017,448 7,091082 8,284,037 6,290,796 6,965,000

Kosovo 1,180,022 1,305,879 1,576,186 1,928,236 1,935,541 1,970300p

Collective

merchandise

export of WB 35,881,397 41,811,842 49,997,431 58,354,191 43,465,515 46,288,500

Official national statistics; www.trademap.org

Trade deficit is a rule in trade of all these countries. None of the 7 WB countries in 6

observed years did not have a trade surplus in foreign trade. The highest summed deficits

in the 6 observed years are: Croatia, as much as 51.5 B euros, Serbia 35.9 B euros, BIH

22.7 B euros, Albania 13.1 B euros, Kosovo 8.9 B euros, Macedonia 8.5 B euros,

Montenegro 8.2 B euros (which is a very large amount for a country of that size,

coverage of imports by export is extremely low, on average only 23.3%; the situation is

even worse in case of Kosovo: only 9.4%). In the period 2005-10, Serbia has the 50.7%

coverage by export, Croatia 49.7%, Macedonia 60.7%, BIH 43.4%, and Albania 26.8%.

The average coverage for all 7 countries in observed 6 years is at low 45.9%, but with a

trend of slow growth if import, especially for last three years.

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

2005 2006 2007 2008 2009 2010p

Montenegro

Serbia

WB

19

Chart 1

Coverage of import by export in the selected countries 2005-2010

Official national statistics; www.trademap.org

Merchandise export per capita shows that Croatia has the best position, while Macedonia,

BIH and Serbia have half the export pc. Kosovo hold the last position, behind Albania

and Montenegro. Croatia holds the pole position in case of import per capita as well, but

in this instance Montenegro is very well ranked. Kosovo also has the lowest import pc,

while Serbia stands somewhat below average. Namely, more advanced countries in

transition most commonly have merchandise export and import per capita of over 6000

euros in the observed years, and that speaks in favour of their far greater integration in

international division of labour. In last few years, neighbouring Bulgaria had double the

merchandise export per capita than that of Serbia, while the difference in favour of

Romania is less distinctive. 11

Table 6

Merchandise export and import of West Balkan countries per capita, in euros

Export pc

2009

Export pc

2010

Import pc

2009

Import pc

2010

Montenegro 447 533 2668 2669

Croatia 1707 2023 3455 3438

Serbia with shipping to

Kosovo 834 1031 1555 1706

Macedonia 941 1183 1764 2114

Albania 257 417 1076 1206

BIH 854 1037 1906 1990

Kosovo 75 140 880 985

Collective merchandise

export of WB pc 854 1061 1890 2002

Official national statistics; www.trademap.org

The following Tables show the importance of foreign trade in the region of ZB for each

of the 7 observed countries. Additionally, data is provided on total trade of WB countries

with other countries of West Balkans. BIH is the most important country for mutual

economic flows and it generates high trade deficits with Croatia and Serbia, which

highest surpluses in mutual trade of 7 observed countries. Nevertheless, it is interesting

that Macedonia, due to its high surplus with Kosovo, also achieves surplus. Albania, BIH,

Montenegro and Kosovo have a trade deficit in their trade with CEFTA. All countries

have high trade deficits with the rest of the world and as a sum.

If observed collectively or on average, export to other countries of WB consists mainly of

approximately 26%-30% of total export, while relative significance of collective or

average import from other WB countries is much more modest (cca 15%). Average

11

Bulgaria and Romania have a greater amount of lohn actuvutuesm and Romania a greater production of

components for automotive industry.

20

discreet growth rate of collective export amounted to 9.4% (cumulatively 56%), and of

collective import WB 5.9% (cumulatively 33%) from 2005-2010, which is somewhat

faster than the growth of total merchandise import of the same countries. If observed in

absolute figures, Serbia has the highest export and has outran Croatia already in 2006,

BIH holds the third position, and it is followed by Macedonia, Albania, Montenegro and

Kosovo. As for the merchandise export from WB countries, the list is somewhat

different. Kosovo and BIH are without match, and Serbia and Croatia have roughly half

of their import. Macedonia, Montenegro and Albania are the next on the list. In further

analysis, trade flows in the region for each of the observed countries.

Table 7

Export of West Balkan countries to other WB countries

In millions of euros

2005 2006 2007 2008 2009 2010p

Croatian export to WB 1,406,917 1,577,534 2,010,053 2,263,659 1,604,746 1,652,888

Serbian export to WB 1,133,605 1,742,181 2,294,305 2,675,024 2,090,075 2,360,700f

BIH export to WB 713,229.0 897,585.0 1,084,012.0 1,262,929.0 1,010,051.0 1,213,717 Macedonian export to

WB 508,034 642,345 723,466 963,385 717,270 750,122 Montenegrin export to

WB 158,513 141,114 131,590 147,432 127,946 126,500 Albanian export to

WB 53,591 70,691 113,332 185,019 109,041 174,466

Kosovar export to ZB 29,308 51,743 66,782 61,527 53,433 67,095

Total 4,003,197 5,123,193 6,423,540 7,558,975 5,712,562 6,345,488

in % of total export 26.2 26.4 28.5 30.4 29.1 26,0

Official national statistics; www.trademap.org

Table 8

Import of West Balkan countries to other WB countries

In millions of euros 2005 2006 2007 2008 2009 2010p

Croatian import from WB 616,854 817,290 944,596 1,045,443 778,447 822,818

Serbian import from WB 587,137 842,131 1,115,415 1,228,675 924,455 1,085,100f

BIH import from WB 1,579,711 1,682,156 2,060,364 2,392,410 1,683,200 1,824,480 Macedonian import from

WB 300,309 330,237 464,966 537,728 445,949 447,152 Montenegrin import from

WB 368,306 502,418 696,291 883,076 648,702 671,900

Albanian import from WB 79,292 125,835 227,558 317,901 218,484 242,200

Kosovar import from WB 1,180,022 1,305,879 1,576,186 1,928,236 1,935,541 1,970,325

Total 4,711,631 5,605,946 7,085,376 8,333,469 6,634,778 7,063,975

in % of total import 13.1 13.4 14.2 14.3 15.3 15.4

Official national statistics; www.trademap.org

21

In 2009, countries with surplus in mutual trade had decreased surplus, and those with

deficit have decreased their deficit. In 2009, recovery of export of West Balkan countries

was directed to the rest of the world, while recovery of import was modest and has been

growing at the same rates in trade with the world and with West Balkans. Improvement

of trade balance in mutual trade was noted in: Kosovo, Montenegro and BIH. Thus, we

are witnessing a slow recovery of mutual trade; recovery of total trade is highly

dependent on import of Italy, Germany and Slovenia.

The following charts show export and import growth rates of ex SFRY republics

(Albania is excluded due to lack of data, but Slovenia is included) divided in mutual trade

and trade with the rest of the world. Before the crisis, until October 2008, trade growth

was faster in mutual trade in comparison with the trade with the rest of the world.

Decrease of the level of trade was higher in mutual trade in comparison with trade with

the rest of the world. Positive interannual export growth rates have started to appear in

January 2010. In mutual trade, positive growth rate of export was reached in April. The

Chart clearly shows lagging of export and import recovery in ex SFRY.

Chart 2

Total growth of merchandise export of former SFRY republics, and the growth of export

to the markets of former SFRY republics.

Based on data from: www.trademap.org

Since the financial crisis has decreased possibilities for financing of a high trade deficit, a

decrease of import much higher than that of export has occurred. Consequently, import

recovered much slower than export in 2009 and 2010. Anyhow, a decrease of import

deeper than that of export is not characteristic only for WB or ex SFRY; it happened in

Growth of merchandise export of Ex YU republics (2008-10), Interannual rates

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2008 Jan

08.07 08.09 08.10 08.11 08.12 09.01 09.03 09.04 09.07 09.10 09.12 10.01 2010 Jun

2010 Dec

Total

Ex Yu

Rest of the world

22

most of countries which had a trade deficit. Since 2010, positive three-month growth

rates are noted in almost all countries of WB. Light three-month growth of import for

WB countries has started in 2010; similar tendencies have been reported in most

countries of the world.

Chart 3

Total growth of merchandise import of former SFRY republics, and the growth of import

from the markets of former SFRY republics.

Based on data from: www.trademap.org

It is clear that a large potential exists for growth of bilateral trade in most WB countries.

Since the region of West Balkans is heavily affected by the world economic crisis, its

recovery shall mostly depend on the economic trends in the EU. There are three exit

strategies, among numerous possible, which the countries of WB might apply, or which

they already apply partially, in order to achieve economic recovery as quick as possible:

(1) improvement of bilateral trade, (2) attraction of production-oriented investments and

(3) finding bilateral financial assistance from friendly countries in case of withdrawal of

banks from their markets (presently a less probable option)

Growth of merchandise import of Ex Yu republics (2008-10),

Interannual rates

-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2008 Jan

08.07 08.09 08.10 08.11 08.12 09.01 09.03 09.04 09.07 09.10 09.12 10.01 2010 Jun

2010 Dec

Total

Ex Yu

Rest of the world

23

Dynamics and importance of merchandise trade of Serbia with CEFTA and West Balkan countries

By far the most economic partner of Serbia in the EU, and then in CEFTA, to which

more than nine tenths of Serbian export and approximately three thirds of domestic

import is related (considering the fact that CEFTA countries, excluding Moldavia, shall

probably join the EU in next 10 or 15 years, it is obvious that importance of the trade

with EU shall increase additionally). Notwithstanding the thesis that sub regional

arrangements may have a complementary role in the process of pan European bonding

(CEFTA, Free Trade Agreements with Russia, Turkey, Belarus, joining the World Trade

Organization in near future), things could be observed differently from Serbian

perspective. The market of CEFTA, that is, of the WB countries is of major significance

for economy of Serbia, primarily due to the fact that Serbia has a continuous surplus at it,

whose continuance of growth is expected in 2011, judging by the present monthly export

and import trends (in 2010, surplus shall exceed 1.3 B euros, having been somewhat

below one billion of euros in 2007). Secondly, which is even more important, EU share in

total export and import is between 53% and 57%; while share of the West Balkans

countries in Serbia's export is about one third and in its import approximately 8%. If we

compare data on the number of EU citizens (500 million) and West Balkan without

Serbia (16 million), with data on relative importance for export expansion, we get data on

intensity of merchandise trade. Anyhow, it was empirically proven that a strong tie exists

between the countries' mutual borders and several times increased trade in comparison

with the trade among the non-bordering countries. In case of Serbia, additional factors

exist, such as common language, mentality habits and propensities.12

After the decrease of Serbian GDP, industry, export, import since the last three-month

period of 2008, growth of main macroeconomic indicators was restarted and then

speeded up in 2010, with continuance of the trend to be expected in 2011 (GDP growth

rate shall probably be doubled). Finally, since the fourth three-month period of 2009,

Serbia has finally started to achieve positive interannual growth rates, which gained

speed in 2010. As for the import, three-month growth started in the second three-month

period of 2010.

For Serbia, the WB region has significance as an export market more than four times

greater then as an import market. Serbia has a trade deficit with Croatia (coverage of

import by export increased from somewhat more than two fifths in 2007 up to two thirds

in 2010), while it has high surpluses with other observed countries. While in trading with

the countries of West Balkans, or CEFTA (Moldova can be practically excluded from the

analysis due to its marginal share in Serbian trade) it has surplus, in trading with the rest

of the world, Serbia has several times higher trade deficit.

12

Trade among countries should be balanced. If that is not the case, the difference is financed by loans,

investments, money orders etc. Differences in most countries should not influence the differences in the

value of export and import. Disperisty of production structure, relative production costs corrected for the

costs of shipping and similar factors should explain trade imbalances, and export-related and industral

restructuring..

24

The following two tables show the geographic structure of merchandise trade of Serbia

with West Balkan countries, as a sum and individually, and the most important trade

partners as well: Germany, Italy and Russia, and with the three non-bordering countries

from "former" neighbourhood (which are considered Balkan countries), with whom

Serbia, and other countries of West Balkans have high level of trade (Greece, Slovenia

and Turkey). 2005 is taken as the base year, before of CEFTA agreement signing,

although the agreement became effective upon ratification in 2007 (but has been applied

through bilateral agreements in several previous years).

Table 9

Merchandise export from Serbia to CEFTA countries and other big export partners

2005-10, in thousands of euros

Serbia's export to individual

markets 2005 2006 2007 2008 2009 2010

Serbia's merchandise export 3,598,701 5,116,840 6,437,893 7,428,800 5,961,300 7,393.400

Serbia's export + shipping to

Kosovo 3,750,958 5,307,893 6,660,427 7,637,751 6,172,201 7,632.200

Croatia 157,319 199,815 241,339 295,312 199,300 231.600

BIH 597,435 596,202 760,271 909,883 724,800 822.100

Macedonia 209,500 238,000 318,100 334,000 306,400 359.800

Montenegro / 490,622 693,658 874,840 598,600 609.200

Kosovo 152,257 191,053 222,534 208,951 210,901 238.800p

Albania 17,094 26,489 58,403 52,038 50,074 99.200

Total for observed territories 1,133,605 1,742,181 2,294,305 2,675,024 2,090,075 2,360.700

in % of total export 31.5 34.0 35.6 36.0 35.1 31.9

In % of total export with

Kosovo 30.2 32.8 34.4 35.0 33.9 30.9

Germany 349,335 507,044 683,929 775,728 623,800 760.200

Italy 524,328 737,168 798,303 766,968 586,100 843.900

Turkey 40,402 30,857 42,691 30,814 32,354 66.500

Greece 97,669 121,809 132,886 143,469 96,400 137.500

Slovenia 151,600 201,704 298,368 341,179 246,531 321.200

Russia / / / 374,100 249,300 403.400

http://webrzs.stat.gov.rs/axd/dokumenti/saopstenja; www.trademap.org

Note: estimate for 2010 was made based on the trend in first 10 months of 2010.

What can be easily seen in the previous and the following table is a significant growth of

total Serbian trade, as well as of total trade with the countries of West Balkans and with

other observed countries until late 2008. Afterwards, along with the global crisis, a strong

slowdown of trade flows occurs, but recovery can be observed starting from the last

trimester of 2009 in the export area, and the growth of import can be observed in the

middle of 2010. In the pre-crisis period, Serbia's growth of export to the WB region was

faster than export to other countries; then a stronger decrease of export occurred in 2009,

and the recovery in 2010 was slower than the growth of export to the rest of the world.

One could make a contrary conclusion as for import dynamics. While import from WB in

2007 had a much higher growth than import from the rest of the world, its growth was

25

much slower in 2008, and it started decreasing in August of the same year. In the second

half on 2009, decrease of import from WB was significantly lower than the total

decrease, and in early 2010, a certain growth of absolute value of import from WB

occurred.

Table 10

Merchandise import from Serbia to CEFTA countries and other big import partners

2005-10, in thousands of euros

Serbia's export to individual

markets 2005 2006 2007 2008 2009 2010

Serbia's merchandise export 8,400,014 10,485,662 13,535,431 16,478,100 11,504,700 12,621.900

Serbia's export + shipping to

Kosovo 8,408,172 10,506,572 13,554,711 16,487,993 11,508,204 12,627.300

Croatia 207,298 266,137 387,393 376,340 304,900 323.100

BIH 234,345 273,042 377,845 438,034 318,800 421.400

Macedonia 134,837 159,560 225,455 257,817 164,600 205.800

Montenegro / 118,742 97,114 137,473 128,400 123.500

Kosovo 8,158 20,910 19,280 9,893 3,504 5.400p

Albania 2,499 3,740 8,328 9,118 4,251 5.900

Total for observed territories 587,137 842,131 1,115,415 1,228,675 924,455 1,085.100

in % of total export 7.0 8.0 8.2 7.5 8.0 8,6

In % of total export with

Kosovo 7.0 8.0 8.2 7.5 8.0 8,6

Germany 875,882 995,929 1,600,990 1,836,329 1,407,579 1,334.200

Italy 729,762 875,454 1,311,466 1,483,373 1,111,308 1,078,800

Turkey 169,678 203,543 288,238 296,757 210,702 244,300

Greece 126,004 158,989 204,591 195,475 165,900 172.000

Slovenia 229,071 244,968 510,807 426,187 377,199 383.500

Russia / / / 2,391,300 1,415,700 1,630.500

http://webrzs.stat.gov.rs/axd/dokumenti/saopstenja; www.trademap.org

Note: estimate for 2010 was made based on the trend in first 10 months of 2010.

Table 11

Cumulative growth and average discreet growth rate of Serbian trade 2000-10 Cumulative growth Growth rates

export import export import

Serbia, total 4.3 3.5 15,7 13,2

CEFTA 3.4 2.7 13,0 10,5

BIH 3.4 2.1 13,2 7,7

Montenegro 3.9 3.7 14,5 14,0

Macedonia 1,7 1.3 5,2 2,6

Croatia 16,1 12.6 32,0 28,8

Albania 6,5 1,3 20,5 2,1

Kosovo 4,6 54,0 16,5 49,0

Germany 4.2 2.7 15,5 10,4

Italy 3.3 2.8 12,8 10,8

26

Turkey 3.7 2.9 13,9 11,1

Greece 1.5 1.9 4,3 6,4

Slovenia 16.8 19.5 32,6 34,6

Russia 3.4 5 13,0 17,1

http://webrzs.stat.gov.rs/axd/dokumenti/saopstenja; www.trademap.org

It is analytically useful to separate the dynamics of total trade from the trade with

observed countries in the first decade of the 21st century. By analysing data from the

previous table, and data from the period 2000-05, it can be seen that Serbia had lower

trade growth rates with Balkan countries then in case of total trade. If we correct the

value of Serbia's trade for the estimated share of Montenegro13

and Kosovo in 2000, and

if we add shipping to and delivery from Kosovo in 2010 to the total export and import of

Serbia, we shall get relatively high average annual growth rates of domestic export and

import in that period. Merchandise export has been growing at the average rate of 15.7%

and import at the rate of 13.2%; cumulatively, growth amounted 4.3 times for export and

3.5 times for import (Serbian export to CEFTA has been growing at the average rate of

13%; Serbian import from CEFTA has been growing at the average rate of 10.5%).

Relatively high share of merchandise trade with BIH and Macedonia in 2000 primarily

contributed to this, at the time when we had a practically free trade with these countries,

and when the country was practically isolated from the most countries.

Similar trend continued in the 2005-10 period, and once again, the main reason was

relatively high saturation of the regional markets, that is, their competitive supply (this,

for example, is not related to the trade potential of Serbia with Croatia and Albania,

which, due to underdeveloped political relations, is still suited for stronger growth).

Merchandise export growth rate of Serbia in 2005-2010 period amounted to 12.1%

(slowdown in the second half of the decade), and 7.9% in case of import (cumulatively

77%, and 41%). At the same time, trade growth with the countries of West Balkans was

slower (average growth rate of export 2005-10: 7.5%; of import: 7.1%; cumulatively 44%

and 41%). Observation of Serbian trade per countries of CEFTA makes a similar

impression; growth is mostly lower than the average trade growth. I.e. growth of export

to BIH 2005-10 amounts to 32%, import 42%, to Croatia 38% and 54%, to Macedonia

59% and 27%.

Serbia has the greatest deficit with EU countries, where Germany is of special

significance, with whom a continuous low coverage of imports by export exists. In case

of Italy the image is somewhat different, since merchandise deficit is slowly decreasing,

primarily thanks to foreign direct investments from Italy, which have triggered exports to

that country. Tendencies are somewhat similar with Slovenia and Greece. With Turkey,

Serbia enjoys a privileged, asymmetrical treatment in the free trade zone since September

2010, which should trigger the balanced trade tendencies.

13

Since trade with Kosovo was of a very low intensity after the end of the war, the first data about it are

entered in analysis starting from 2005.

If discovered, it can be included for the previous period; it can be assumed that in 2000-2004 period the

trade with Kosovo was on average somewhat above 100 million euros, with tendency to grow.

27

It is indicative that total trade in the first decade of the 21st century, and trade with EU,

grew faster that export and especially import from West Balkan countries. This can,

naturally, be explained by a higher trade potential with EU countries, which have a much

wider merchandise supply and demand (the problem is complementarity of West Balkan

economies). Export to Germany grew faster than total, and import grew slower. Trade

with Italy grew slower than total trade, as was the case with Turkey and Greece (in case

of import, this can be explained by penetration of China into Serbian market, which

decreased the share of most other countries). Rapid growth of import is characteristic for

trade with Russia (growth of fuel import due to price increase, and effects of free trade

zone). A strong growth of trade was achieved with Slovenia (there truly great potentials

due to former relations within SFRY, but due to arrival of a retail company which

significantly increased the trade, and primarily, export to Serbia).

In 2010, Kosovo, BIH and Montenegro have the highest growth rates of export to the

region, which is good since they also generate the highest deficit in the trade with other

WB countries. As a sum, a recovery of mutual merchandise trade occurs among WB

countries; regardless of the fact the export growth is much lower than the growth of

export to larger markets.

It is indicative that before the break of SFRY, its federal units had value of marketing to

other republics more than two times higher than to abroad. Thus, the effects of sanctions

upon Serbian economy were of intensity lower than that of breakup of production-trade

relations with other republics. Presently, export without ex "YU" republics is double the

level of the export value to ex SFRY republics, which indicates four times weaker

relative position of trade with ex SFRY states. When trade liberalization in 2001 came to

Serbia, it had exceptionally strong economic ties with Macedonia and BIH (Republic of

Srpska), and totally severed ties with Croatia. It was indeed logical to have the fastest

growth of trade with Croatia (as well as with Albania, with whom we also started from a

low starting point), while, as a consequence, a drop in share of the two previously

mentioned countries has occurred in the total foreign trade. In 2010, Croatia represented

3% of Serbian export, BIH 11.3%, Montenegro 8.6%, Macedonia 4.9%, UNMIK-Kosovo

cca 4%, Albania 1.4%. In 2010, Croatia represented 2.4% of Serbian import, BIH 3.4%,

Montenegro 1%, Macedonia 1.6%, while shares of Kosovo and Albania were marginal.

Collective share of export to WB in Serbia's total export was decreased in previous five

years and especially due to crisis outbreak, which indicates a drop of demand in these

countries which also affects export of our companies (on the import part it had practically

a stagnating share in 2006-2010 period, namely and primarily, of iron and aluminium

ore). For Serbia, BIH and Montenegro are of primary importance for export dynamics, in

case of WB countries, while no "dominant" partner exists on the import side.

28

Analysis of the trade structure of Serbia with CEFTA countries and political problems in trade with UNMIK-Kosovo

Since it has the highest population and a central position, it is possible that Serbia, if it

attracts FDI into its industrial sector, is to achieve high benefits from integration. In the

total exchange with the observed countries, Serbia has a surplus (which is to amount to

more than 1.3 billion euros in 2010). Surplus is, for the main part, a result of export of

agricultural products (cereals and their products, and various kinds of drinks). Surplus is

primarily a result of higher export of agricultural products to those countries. Share of

agricultural products in Serbia's export to markets of CEFTA members is approximately

30%, while their share in import amounts to 24%. Therefore, Serbia has surplus only at

CEFTA market, excluding surpluses with smaller economic partners. As opposed to other

markets where it participates with a relative small number of products, such as iron, steel,

raspberries, corn, tires, here we have a wide range of products, and at the exact instances

where we are not qualified to join the EU market due to certain high standards, here our

companies survive. Serbia is a most competitive country in WB after Croatia.

The structure of merchandise trade of Serbia with these countries did not change, for the

most part, in previous years. Serbia's trade with WB countries mostly resembles the trade

among the developing countries and is far from the trade models among more developed

countries in transition. Serbia's export to WB countries is primarily composed of final

food products, but also agricultural raw materials, electricity, non-ferrous metals, and

chemical and textile products. As for imports, oil and derivatives, natural gas, paper,

cardboard and cellulose products, vegetables and fruit, iron and steel represent their

greatest share.

CEFTA countries are therefore very important market for out country, especially Bosnia

and Herzegovina, Montenegro and Macedonia, with whom the most part of the trade is

done, and which are "responsible" for the achieved surplus (marginal trade exists with

Albania and Moldavia, while a constant surplus is achieved with the territory of Kosovo-

UNMIK).

Trade structure of Serbia with BIH in 201014

per merchandise departments shows that

most important products we export to this market are: cereals and cereal products 9.1%,

drinks 7.8%, steel plates 7%, live animals 3.5%, various metal products 3.9%, various

final products 3.9%. Heavy vehicles and electric machines and devices held an important

position. As for import, most common are: stone coal and coke 25.4%, cork and wood

6.9%, oil and oil derivatives 9.4%, electricity 7.2%, steel plates 11%. In the previous

2009, paper, cardboard and cellulose products had a large share as well, a 5.2%. In

general, it is clear that primary and secondary products (raw materials) are dominant bot

in export and import.

Most important merchandise departments in Serbian export to Albania in 2010 were:

mineral ores and scrap metal 39.4%, electricity 19.2%, cereals and products 8.2%, sugar

14

Prema podacima Uprave carina Srbije za prvih deset meseci 2010.

29

4.7%. On the side of relatively low import from Albania, the most common merchandise

department in 2010 were: iron and steel 33.8%, furniture 10.1%, footwear 10.7%, raw

hides (and non-processed furs) 8.9%, vegetables and fruits 8.4%.

With Montenegro, most of the export consists of food products (meat and dairy products,

cereals, drinks), electricity 7.8% as well as bituminous substances 9.4%. On the side of

several times smaller import from Montenegro, the following are important: bituminous

substances 55.9%, drinks 5.5%, medicinal products 6.1%, and basic metals 16.5% (steel

plates and aluminium profiles)

Most important merchandise departments in 2010, in Serbian exports to Macedonia were:

Cereals and products 7.9%, sugar 6.3%, mineral ores and scrap metal 7.3%, electricity

5.4%, iron and steel 6.5%. The import part was dominated by: vegetables and fruits

20.1%, iron and steel 27.5%, drinks 6.6%, medicinal products 6.3%.

Most important merchandise departments in Serbian export to Croatia in 2010 were:

paper, cardboard and cellulose products 8.1%, vegetables and fruits 4.2%, iron and steel

5.8%, coloured metals 4.3%. Export of heavy vehicles and general purpose industrial

machines was of significance in the previous year. On the export side in Croatia, most

common merchandise departments in 2010 were: non-metallic mineral products 10.1%,

various food products 4.8%, oil and oil derivatives 5%, gas, natural and industrial 7.8%,

plastic substances in primary forms 5.8%, fertilizers 3.9%, paper, cardboard and cellulose

products 6.3%, electric machines, appliances and devices 4.7% (twice as much in 2009),

various final products 4%. When observed as a sum, it can be seen that primary and

secondary resource products (raw materials) are dominant, on both trade flows. This is

the case with trade among all WB countries. Naturally, there are exceptions such as

export of heavy vehicles, furniture, various industrial machines, while in case of chemical

products; those with a high resource component are predominant.

In case of shipping to UNMIK-Kosovo in 2010, the most important merchandise

departments were: cereals and products 8.9%, various food products 4.4%, non-metallic

mineral products 9.5%, oil and oil derivatives 11%, electrical energy 4.9% (twice as

much in 2009), electric machines, appliances and devices 5.3%, heavy vehicles 4.6%. As

for the modest supply from Kosovo, most common merchandise departments in 2010

were: electricity as much as 68%, vegetables and fruits 13.5% as well as non-ferrous

metals (led and zinc) 9.4%. In the previous year-2009, import products of significance

were also drinks 12.1% and iron and steel 12.1%. In general, trade with Kosovo is based

on import of led, zinc, trade in electricity, while food products and products such

ceramics and bricks are very important for export. Export to Kosovo also represents

about 4% of the total export of Serbia, but with marginal import, as in case of import by

Serbia and Albania.

Merchandise turnover is pretty much the only form of economic cooperation between

Serbia and Kosovo. Not all merchandise turnover is recorded, there are also non-

registered products and trade at the "grey market" (cigarettes, petrol, medicinal products,

food, cement and other products which are highly valued in small quantities). Besides,

30

economy of Kosovo has a highly liberalized trade. VAT amounts to 15% for all goods,

except for imported pharmaceutical products and merchandise for humanitarian needs.

Not VAT is paid for merchandise from Serbia, but an UNMIK-tax. Merchandise from

Serbia has a so-called registration paper, which is stamped at the administrative border,

thus releasing the merchandise from VAT, in order to avoid double taxation. UNMIC has

de-facto introduced customs duties in September 1999. Turnover of merchandise with

Serbia and CEFTA countries is free. If merchandise is to be imported to Kosovo from

third countries, which was cleared through customs in Serbia, a 10% customs duty is to

be paid (and if it was only in transit through Serbia, appropriate customs duties are to be

paid).

A problem appeared when Veterinary and Food Agency of Kosovo issued a memo in

July 2008 to tradesmen from Kosovo, and they to their suppliers, Serbian manufacturers

and suppliers of merchandise, whose subject is "correct" manner of declaration of

packaged groceries which are sold on the territory of Kosovo. Namely, it is strictly

requested that, aside from the usual data, declarations must state the full importer's

address (Kosovo) and that this information is strictly to be printed on the packaging. Due

to this request, delivery of milk and dairy products, turnover of medicinal products of

domestic origin was stopped; edible oils to the market of Kosovo became more difficult.

Afterwards, in December 2008, the government of Kosovo ceased to mark the documents

which are necessary for the turnover of merchandise between Kosovo and other parts of

Serbia, with marks UNMIK CUSTOMS and started to use the mark KOSOVO

CUSTOMS, which could not be accepted by the Serbian side due to political reasons and

it considers such act to be a breach of CEFTA agreement.

(Political) problems in implementation of CEFTA agreement

During the previous years, numerous problems in implementation of CEFTA agreement

have appeared. Until the beginning of 2010, Serbia kept the monopoly on the import of

oil derivatives (except euro diesel), and Croatia tried to protect domestic tobacco industry

by means of discriminatory policies. BIH breached boundaries of the agreement by

limiting import of dairy and other food products from Serbia and Croatia

During 2010, Serbia was chairing CEFTA, and in that period numerous initiatives for

additional liberalization in the domain of public procurements, services, for increased

protection of intellectual property... Also, Serbia is relatively liberal, since it had, except

for iron and steel, small number of quantitative limitations, as opposed to some other WB

countries, which protected a greater number of products. Due to a relatively liberal

approach to trade, Serbia outran Croatia since 2006, as for the value of total trade within

CEFTA, and it became the biggest exporter within this free trade zone in the same year.

There are more than one hundred different types of non-customs barriers (complicated

border-crossing procedures; extensive administrative work and mutual non-compliance of

customs activities and inspection departments; insufficient number of internationally

recognized accreditation and certification bodies, as well as authorized laboratories and

31

institutions; non-recognition of quality assurance certificates15

; complicated visa regime;

corruption and smuggling. It is necessary to improve the infrastructure of quality up to a

level at which Serbian certificates, and certificates for products of other WB countries,

would be recognized in all countries of the EU and CEFTA. In this area, a certain

progress has been achieved in 2009 and 2010 by passing certain laws which regulate it. 16

There is a lack of institutionalized accreditation bodies, which is the reason why

consistent implementation of CEFTA agreement is not possible.

In any case, it is necessary for Serbia to reach the level of full European and international

recognition of the quality and accreditation infrastructure, as the principal and the only

approved mechanism. Only then shall sufficient conditions exist to obtain certificates for

domestic market which would be valid in the inner EU market and are designed for the

CEFTA region market. Notwithstanding the difficulties (at start), excluding 2009, the

year of crisis, scale of trade in the region is continuously increasing.

Until late 2010, CEFTA members invested approximately 0.7 billion euros in Serbia, and

Serbia invested in these members more than 1.1 billion euros. Serbia has more significant

FDI in BIH (over 0.9 billion euros, net), while FDI of Montenegro in Serbia are almost

0.3 billion euros. In Montenegro, Serbia has invested more than 280 million euros, and

Montenegrin investments in Serbia practically do not exist. Serbian investments in

Macedonia amount to 30 million euros, and Macedonian investments in Serbia only

about 0.6 million euros. Until now, Serbian companies invested only approximately 3

million euros in Albania.

With the amount of 0.5 billion euros, Croatia is, among CEFTA members, the biggest

investor in Serbia (Croatian FDI in Serbia represent more than 19% of total Croatian FDI,

positioning Serbia on the second place in Croatian foreign investments, and Croatia holds

the 6th

place as the foreign investor in Serbia). 17

On the contrary, Serbian investments in

Croatia amount only to 45 millions of euros. "Swisslion-Takovo" is the only Serbian

company which succeeded to buy a Croatian company (in 2008, the factory "Eurofood

market" from Sisak was bought for 20 million euros). The companies "Galeb grupa" and

"Delta" did not succeed in their attempts, regardless of the most favourable bids at the

tender. Apart from that, Serbian companies come across numerous obstacles in their

attempts to market their merchandise at the Croatian market. Opinion of the only investor

from Serbia at the market of our western neighbour, and of some other domestic

businessmen is that without the support of politics, domicile states cannot become free of

15

Agreements were still not made regardin mutual acceptance of these documents among countries in the

Region, so this kind of control is performed by each country for itself. 16

It is necessary to issue a line of sublegal acts, which suitable EU directives of the "new" and the "old"

approach are to be included in, as well as to sign appropriate agreements with individual countries. 17

Biggest Croatian investments in Serbia: „Agrokor grupa“ bought „Frikom“ in 2003 at a tender for

10.2 million euros, with planned investment and social programme of 33 million euros; „Agrokor“

bought 67% of shares of oil industry "Dijamant" with value amounting to 30 million euros; „Pevec“

opened a retail sale centre in December 2008 in Belgrade, in which 40 million euros were invested;

„Atlantik grupa“ bought for 382 million euros the Slovenian company "Droga Kolinska". Part of

"Droga Kolinska" are also the Belgrade based companies "Grand prom", "Soko Stark" and "Palanacki

kiseljak".

32

the political barrier of entrance to the Croatian market. Recent appeal (November 2010)

of Josipovic is a grain of optimism.18

Even the EC 2009 Report emphasized the progress

of Serbia and its openness for Croatian investments, with a remark that Serbian

investments in Croatia are very limited. The Problem the Serbian companies face is that it

is very difficult for them to obtain licenses for transit through Croatia. Having said that,

EU entrance from Croatia is very important for Serbian companies, simply because they

expect removal of all administrative barriers.

Nevertheless, Serbia's deficit in trade with Croatia decreased after 2007 and such trend is

expected to continue and that it shall change to Serbia's surplus in few years. In future,

initiatives of companies for joint entrance to third markets would be of highest

significance.

Analysis of the trade of Croatia, BIH, Macedonia, Kosovo and Albania with CEFTA

The structure of trade of WB countries is mainly based on the products from early

processing stage (raw materials, semi fabricates) and to a lesser degree final products

with low added value. The trade mainly consists of food products (vegetables, fruit,

confectionery, cereals), agricultural raw materials, electricity, gas, oil derivatives, paper,

cardboard and cellulose products, basic metals (steel plates, aluminium profiles, copper

cathodes), chemical and textile products. Significant improvement of mutual trade in near

future is not realistic, and the last decade in which we noted stagnation of the trade

structure within CEFTA shows it.

Bosnia and Herzegovina is the most important importer of products from other countries

of the trade agreement CEFTA and it has a high deficit in trade with Croatia and Serbia

(although for the most part, these deficits are related to cantons with Croatian majority,

and with Republic of Srpska and Brcko district, referred to in scientific literature as

"ethnic trade"). In its trade with CEFTA, Bosnia and Herzegovina have the same sum

value of export and import as in the trade with Germany, Italy or Slovenia. Considering

the high trade deficit, economic crisis affected Bosnia and Herzegovina to decrease the

trade deficit with CEFTA countries by even higher decrease of exports in 2009. In 2010,

Bosnia and Herzegovina achieves growth of exports to CEFTA countries which is much

faster than the growth of imports, thus continuing to decrease the imbalance in trade.

18

Until now, Croatia did not react to the proposal for creation of a new work group which would be

engaged in this matter. Anyhow, Serbia has alarmed all competent institutions in CEFTA (the main

problem are numerous standards and obstacles). Nevertheless, incidence of Serbian products in Croatia is

growing.

33

Chart 4

Share of BIH export and import to CEFTA countries and other large trade partners 2009

http://www.bhas.ba/Arhiva/2010/sao/ETS_2010M10_001_01-bh.pdf

As BIH had to start almost from level zero, after the devastating war in the first half of

'90 decade, its growth of principal macroeconomic aggregates was naturally high. That is

why it is not strange that in the period from 2000 to 2010, it had an average annual

merchandise export growth amounting to 33.3% (increase by almost 18 times!). At the

same time, import strongly increased, annually 25.4% on average, that is, as much as 9.6

times. In the 2005-2010 period, growth rates are significantly lower, but still at a high

level. Average export growth amounted to 13.4% (cumulatively, an 88% growth), while

import grew at a slow rate (3.8%) and was cumulatively increased for 20.6%. In that

period, export to CEFTA countries amounted to70% cumulatively (11.2% per annum on

average), and merchandise import amounted to 15.4% (2.9% per annum on average).

Table 12

Geographic distribution of merchandise trade of BIH, 2005-10.

In thousands of euros

BIH export markets 2005 2006 2007 2008 2009 2010p

World 1,917,861 2,728,641 3,028,987 3,412,599 2,817,392 3,597,810

Croatia 393,080 510,010 556,176 588,067 480,892 527,539

Serbia 234,000 360,221 415,909 515,580 374,838 468,548

Montenegro 64,080 / 79,446 117,560 116,822 157,476

Macedonia 17,990 21,675 24,842 33,499 31,280 34,470

Albania 4,099 5,680 7,639 8,222 6,219 25,684

total CEFTA 713,229 897,585 1,084,012 1,262,929 1,010,051 1,213,717

in % of total

export 37.2 32.9 35.8 37.0 35.9 33.7

Import to BIH 2005 2006 2007 2008 2009 2010p

World 5,663,910 6,017,448 7,091,082 8,284,037 6,290,796 6,831,804

0.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0

Croatia

Serbia

Montenegro

Macedonia

Albania

Germany

Italy

Turkey

Greece

Slovenia

Export Import

34

Croatia 955,607 1,028,684 1,249,576 1,413,132 944,161 1,013,085

Serbia 530,000 589,840 722,116 880,597 652,744 715,407

Montenegro / / 14,466 20,130 19,753 24,691

Macedonia 46,731 59,401 70,678 76,768 65,696 68,323

Albania 1340 4232 3527 1783 847 2,973

total CEFTA 1,579,711 1,682,156 2,060,364 2,392,410 1,683,200 1,834,457

in % of total

export 27.9 28.0 29.1 28.9 26.8 26.8

www.trademap.org; http://www.bhas.ba

Region of CEFTA countries (ex SFRY, excluding Slovenia and Albania) is relatively

most important for Montenegro, with 40% of total export and 45% of total import in

2010. Due to surplus and export of services, Montenegro has a high deficit in

merchandise trade. Serbia is the most important partner, and BIH, Croatia and Slovenia

are also of high significance.

Chart 5

Most important foreign trade partners of Montenegro in 2009

(in % of total export and import)

http://www.monstat.org/userfiles/file/spoljna%20trgovina

From 2005 to 2010, due to strong economic crisis, Montenegro had an average annual

decrease of merchandise export of 3.1% (14.4% cumulatively). At the same time, import

still increased for 10.1% (62% cumulatively), which was related with the strong inflow of

capital into the country until mid-2008. Export to CEFTA countries was decreased at the

same period for 20% cumulatively (-4.4% per annum on average), and merchandise

export increased for 82.4% (12.8% per annum on average).

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

Croatia Serbia BIH Germany Italy Greece Slovenia

Import Export

35

Table 13

Merchandise export and import of CG to CEFTA countries and other big

Export partners, 2005-10.

In thousands of euros

2005 2006 2007 2008 2009 2010p

Total export 369,000 441,000 455,000 416,000 276,982 316,036

CEFTA 158,513 141,114 131,590 147,432 127,946 126,500

in % of total

export 40.5 34.0 35.2 38.9 46.2 40.0

Albania 2,440 4,145 6,429 5,666 6,085 7357

BIH 16,987 18,410 16,473 19,841 17,816 16,115

Macedonia 655 1,190 747 878 1,364 1,023

Croatia 5,904 7,488 5,815 4,911 9,124 4,200

Serbia 132,527 109,881 98,270 101,454 77,295 79,500

UMNIK

Kosovo 0 0 3,856 14,681 16,262 17,890

Total import 1,043,000 1,457,000 2,073,000 2,530,000 1,654,044 1,687,125

CEFTA 368,306 502,418 696,291 883,076 648,702 671,900

in % of total

import 36.7 35.2 54.5 55.6 44.5 45.2

Albania 2,007 3,957 10,701 17,947 8,802 8,362

BIH 26,140 42,823 76,960 114,558 91,123 136,685

Macedonia 12,156 16,704 22,949 29,279 20,439 23,484

Croatia 36,521 64,013 83,984 109,826 80,916 78,489

Serbia 291,403 374,816 500,699 609,149 446,088 423,784

UMNIK

Kosovo / / 961 2,175 1,219 1,158

http://www.monstat.org/userfiles/file/spoljna%20trgovina

Croatia is the second biggest exporter in CEFTA region after Serbia, and the third biggest

importer (after BIH and Serbia). Decrease of BIH import affected the decrease of

Croatia's surplus in 2009. Croatia has surplus in trade with all CEFTA countries except

with Macedonia. For Croatia, CEFTA is three and a half times more significant for

import (almost 19% of total export in 2010) than it is for import.

36

Table 14

Merchandise trade of Croatia with WB countries and the world, 2005-10.

Thousands of euros

Export from Croatia 2005 2006 2007 2008 2009 2010p

World 7,044,027 8,260,448 9,017,165 9,599,212 7,510,067 8,809,309

total CEFTA 1,406,917 1,577,534 2,010,053 2,263,659 1,604,746 1,652,888

in % of total

export 20.0 19.1 22.3 23.6 21.4 18,8

Croatia's import 2005 2006 2007 2008 2009 2010p

World 14,903,270 17,116,782 18,843,392 20,883,720 15,203,053 14,792,571

total CEFTA 616,854 817,290 944,596 1,045,443 778,447 822,818

in % of total

import 4.1 4.8 5.0 5.0 5.1 5,6

www.trademap.org

Since Croatia was already an open country as for the trade in 2000, it could not have

strong growth rates such as Serbia or BIH. In the first decade of the 21st century,

merchandise export annually increased in euros 6.2% (cumulatively 83%), while import

increased for 5.7% on average, and cumulatively for 75%. If one observes the 2005-2010

period, growth rates are more modest, average export growth amounted to 4.6%

(cumulatively, growth amounts to one fourth), and import in 2010 was almost equal to

the import of 2005. Export to CEFTA countries in the same period amounted

cumulatively 17% (3.3% per annum on average), and merchandise import 33.4% (5.9%

per annum on average).

Chart 6

Geographic structure of export of Croatia in 2009

www.trademap.org

37

Albania is the least (excluding the minor participation of Moldova) included in CEFTA

trade, but importance of those countries for its export is also two times greater (14% in

2009) in comparison with its import (namely, Italy and Greece are the most trade partners

of Albania; on the export end, Kosovo becomes more and more important partner). In the

2005-2010 period, merchandise export had an average annual growth in euros 18.8% (2.4

times growth increase), and an import of 11.5% on average, or cumulatively 172%.

Export to CEFTA countries cumulatively increased for 104% in 2005-2009 period, and

import from countries of CEFTA agreement increased for 175% in the same period.

Table 15

Trade of Albania with CEFTA and with other big trade partners, 2005-09

In thousands of euros

2005 2006 2007 2008 2009

Total export of

Albania 528,536 630,963 786,208 920,878 780,074

Export to CEFTA 53,591 70,691 113,332 185,019 109,041

in % of total

export 10.1 11.2 14.4 20.1 14.0

Export to Germany 17,582 19,922 19,201 24,671 26,603

Export to Italy 382,854 458,170 535,191 569,420 489,931

Export to Turkey 9,094 7,996 17,735 17,704 4,314

Export to Greece 55,326 60,596 65,468 81,021 57,603

Export to Kosovo 18,075 23,107 35,262 59,633 58,438

Total import of

Albania 2,099,221 2,433,810 3,064,661 3,568,517 3,261,286

Import from CEFTA 79,292 125,835 227,558 317,901 218,484

in % of total

import 3.8 5.2 7.4 8.9 6.7

Import to Germany 114,119 137,832 168,087 216,787 210,758

Import to Italy 615,566 683,376 830,809 945,234 850,883

Import to Turkey 157,333 185,437 222,323 212,905 209,749

Import to Greece 345,260 382,637 446,813 522,043 505,581

Import to Kosovo 5,240 12,643 20,081 21,106 26,133

www.trademap.org

Macedonia entered transition in the first half of the '90s decade, which means that it was

a relatively open country in 2000, so the high growth rates, as opposed to Serbia and

BIH, were not realistic. In the first decade of the 21st century, merchandise export grew

annually on average in euros 5.2% (cumulatively 66%), and import grew for 5.9%, or

77% cumulatively. In 2010, growth rates are more modest, average export growth

amounted to 7.7% (cumulatively 49%). Export to CEFTA countries in the same period

amounted cumulatively 48% (8.1% per annum on average), and merchandise import 49%

(8.3% per annum on average).

38

Table 16

Merchandise trade of Macedonia with the world and CEFTA countries

In thousands of euros

2005 2006 2007 2008 2009 2010p

Total export from

Macedonia 1,639,058 1,911,058 2,448,487 2,714,435 1,929,923 2373805

CEFTA 508,034 642,345 723,466 963,385 717,270 750122

in % of total export 31.0 33.6 29.5 35.5 37.2 31.6

Total import from

Macedonia 2,591,960 2,995,261 3,813,679 4,681,581 3,616,095 3854757

CEFTA 300,309 330,237 464,966 537,728 445,949 447152

in % of total import 11.6 11.0 12.2 11.5 12.3 11.6

www.trademap.org

Relative importance of CEFTA countries is about three times higher for export than for

import. High trade surplus in 2009 (272 million euros) can be fully explained by the

surplus with Kosovo (275 million euros). Surplus in merchandise trade of Macedonia

with the countries of West Balkans was slightly increased in 2010.

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

izvoz 5.7 9.1 3.2 0.9 3.1 15.1 16.7 8.1 1.5 0.7 10.8

uvoz 2.3 8.1 0.9 0.4 0.5 0.5 10.3 7.2 5.0 10.6 8.7

HRV SRB BiH CG ALB KOS NEM ITA TUR RUS GRČ

Chart 7

Structure of merchandise trade of Macedonia in 2009

(Main partners and all countries of West Balkans)

www.trademap.org

UNMIK Kosovo makes one third of its total foreign trade with CEFTA countries. This

indicates that Kosovo has equally low level of coverage of import by export with CEFTA

as with the rest of the world. Incidentally, Kosovo is one of the rare territories with

import growth in 2009; also, Kosovo had a strong growth of export at the same time.

Macedonia is the biggest exporter to Kosovo, but Germany also has a strong growth of

export to Kosovo, and it is very probable that it is to become the biggest exporter to this

39

territory in 2011. Although Serbia has a slight growth of export to this territory,

percentages show that it has a decreasing importance in supplying of Kosovo.

In the second half of the first decade of the 21st century, merchandise export of Kosovo

grew annually on average in euros for as much as 41.7% (5.7 times higher), but the fact is

it started from a very low position and that its amount per capita is modest, that is, far

lower than in case of almost all European countries. Import had an average growth of

10.8%, and cumulative growth of 67%. Merchandise export to CEFTA countries

cumulatively amounted in the same period to 129% (18% per annum on average), and

merchandise import amounted to 63.6% (10.3% per annum on average).

Table 17

Merchandise export and import of Kosovo to CEFTA countries and other big export

partners, 2005-10.

In thousands of euros

Export of UNMIK-Kosovo 2005 2006 2007 2008 2009 2010p

World 48,939 110,774 165,112 198,463 165,328 279,339

Croatia 928 1,123 1,837 793 2,151 2,654

Serbia 8,158 20,910 19,280 9,893 3,504 2,894

BIH 3,411 5,126 5,287 5,919 1,206 2,719

Macedonia 10,828 9,734 17,384 20,046 17,355 24,441

Montenegro 743 2,207 2,913 3,770 3,084 2,974

Albania 5,240 12,643 20,081 21,106 26,133 31,414

total CEFTA 29,308 51,743 66,782 61,527 53,433 67,095

in % of total import 59.9 46.7 40.4 31 32.3 24

Germany 3,222 3,878 15,165 5,122 7,512 10,034

Italy 5,608 10,102 8,177 46,012 7,512 87,447

Turkey 1,037 1,668 2,018 3,108 6,511 9,957

Greece 5,445 3,918 7,826 10,836 240 67

Slovenia 1,231 4,515 4,290 6,304 2,857 6,063

Import to UNMIK-Kosovo 2005 2006 2007 2008 2009 2010p

World 1,180,022 1,305,879 1,576,186 1,928,236 1,935,541 1,970,325

Croatia 24,975 28,074 38,982 49,985 58,544 53,760

Serbia 152,257 191,053 222,534 208,951 210,901 224,325

BIH 18,450 18,465 29,838 38,747 59,739 79,889

Macedonia 220,148 257,754 237,895 346,536 291,837 286,661

Montenegro 6,411 17,800 15,063 13,789 13,059 9,727

Albania 18,075 23,107 35,262 59,633 58,438 66,038

total CEFTA 440,316 536,253 579,574 717,641 692,518 720,399

in % of total export 37.3 41.1 36.8 37.2 35.8 36.6

Germany 129,892 123,540 155,411 196,594 239,328 267,483

Italy 50,411 56,132 57,654 74,322 86,818 81,794

Turkey 85,438 97,076 101,855 128,463 141,134 139,618

Greece 47,572 37,616 63,902 81,403 78,958 107,016

Slovenia 54,998 56,001 62,420 66,762 90,549 67,473

www.trademap.org and Statistical office of Kosovo

40

Gravitational model and reference studies

of the effects of free trade zones

Gravitational model, which measures the difference between potential and actual trade,

shows that Serbia has a possibility to increase the trade with Croatia and Albania, while

the trade with Bosnia and Herzegovina, Macedonia and Montenegro are significantly

above the potential. It is clear that trade with countries from former Yugoslavia cannot be

nearly as high as within their once common state, but due to cultural similarities, old

economic ties and recognition of trademarks by consumer, the trade shall be easier. The

greatest barriers for trade are numerous non-customs barriers. Apart from them, many

"sensitive" industrial products have not been covered by the CEFTA agreement (customs

duties are decreased in phases for such products), neither are agriculture or services

(efforts are made to change this).

One should mention numerous studies, which indicate that due to relatively small

industrial base and high import limitations (before integration) the effects of integration

of undeveloped countries are negative. These effects are most commonly empirically

determined, since due to influence of economic geography (economy of scale) industrial

production tends to concentrate in the biggest or the most developed country in

integration, with negative consequences for other countries in integration. This may be

the main reason why most of regional economic integrations among undeveloped

countries failed, and lasted for a relatively short time. According to Venables19

,

experiences from the large number of free trade agreements among the developing

countries, shows certain examples in which integration promotes divergence, that is,

turning of trade (such as East-Africa joint market20

). Examples closer to present time

include concentration of industry, trade and services around Guatemala City and San

Salvador in the Central American joint market, and Abigan and Dakar in the Economic

Community of West Africa.21

Regional economic integration of the countries with low income shall, according to

Venables, most probably lead to divergence in the development of included countries, for

at least two reasons: (1) usually a country which is a signatory of a free trade agreement,

and which have comparative advantages which are the furthest from the world average, is

under the greatest pressure to redirect trade flows. Therefore, if a group of countries with

low income form a free trade zone, a tendency of member countries with the lowest

income to have a real loss of income due to redirection of trade shall exist; (2)

19

Venables A.J. “Regional Integration Agreements: a force for convergence of divergence” (1999) World

Bank WP 2260, str. 3. 20

Probably the best documented example of the industry process concentration in the old East-African joint

market. Uganda and Tansania have determined that Kenya gets all of the benefits from the joint eastern-

African market, which produced more than 70% of industrial products and exported a growing number of

industrial products, in comparison with its two relatively less developed partners. Joint market collapsed in

1997 since it failed to satisfy poorer member countries through receipt of the expected share in benefits. 21

Guatemala and El Salvador now have more than 80% of industry added value in CACM, in comparison

with 68% in 1980. In the Economic Community of West Africa, combined share of the Ivory Coast and

Senegal in the added value of the industry increased from 55% in 1972 to 71% in 1997.

41

(2) Agglomeration forces tend to lead to spatial clusterisation of activities. The tendency

of these forces to lead to high concentrations of economic activity shall be more

distinctive in free trade zones formed by poor countries, in comparison with integrations

of developed countries. This will represent an additional strength of divergence at levels

of development present in free trade zones of the developing countries, with the relatively

richer countries profit at the expense of the poorer ones. This process of divergence in

development should be temporary and it usually occurs due to influence of agglomeration

economies. Upstream and downstream ties are sufficiently strong, and companies in

poorer countries decide to base their business close to one another, in a single country.

One should consider the fact that numerous empirical analyses which show that free trade

zones among small economies lead to redirection and decrease of trade (negative

experience of MERCOSUR, the free trade zone of Atlantic countries of South America is

indicative). Apart from that, increase of trade might lead to increase inequality among the

countries of the region, since richer countries would find themselves in a more favourable

position. Findings which are indicative of experiences of recent free trade zone in the

regions of Central Europe and Baltic should also be mentioned, as they assisted the

growth of regional trade, but had a very limited effect on the decrease of their

dependence of the EU, that is, on mitigation of the centre-periphery relations in trade.

Regional economic integration is a particularly good solution for small and middle sized

countries (such as Serbia), which are highly dependent on international trade. Short-term,

and to a lesser extent mid-term costs can be higher than benefits, but benefits arrive as

smaller "meals". Long-term benefits from economic integration are higher than costs.

Total effects of integration are more important than measurable economic indicators and

they can be construed as expansion of possibilities and development potentials.

One should not expect CEFTA to provide a strong stimulus for economies of West

Balkans, especially not in comparison to connecting with the EU which is of crucial

importance for all these states, but in the mid-term and in the long-term the benefits

(lower prices, economy of scale, commercial supply of higher quality, savings due to

short spatial distance) shall be higher than costs. Countries in the region have

technologically obsolete industries, they are mutual competitors for exports to the EU and

they practically do not have much to offer to each other. Companies with supply of

moderate quality shall get the most benefits from non-customs space, by being able to

reach new consumers more easily, while the companies which survived due to difficult

appearance of surrounding competitors at the domestic market shall be the main losers.

Namely, regional economic integration is a particularly good solution for small and

middle sized countries (such as Serbia), which are highly dependent on international

trade. Short-term, and to a lesser extent mid-term costs can be higher than benefits, but

benefits arrive as smaller "meals". Long-term benefits from economic integration are

higher than costs. Total effects of integration are more important than measurable

economic indicators and they can be construed as expansion of possibilities and

development potentials. As for the EU, the future of integration swings strength shall be

dependent on the increase of efficiency and international competitiveness of European

economy, convergence in productivity and income among countries, political unity of

42

countries, and harmonization of opposed interests.22

EU, although without army, it has

numerous instruments of soft power: trade concessions, assistance in development, and

preferential indebtedness with EIB. The primary goal of economic politics of EU is to get

the best conditions in favour of their manufacturers and consumers, by getting access to

markets of third countries, while occasionally protecting its own market (creators of EU

policies would never admit to be protectionists, though). The goal of development policy

is to aid the poor countries, particularly to those which have historical ties with the EU

member states, in their economic growth, but not at risk of exposure of European

politically sensitive sectors to a greater level of competition.23

Prospects of foreign trade in the West Balkans region:

possible quantitative and qualitative changes

Considering the relatively low level of Serbia's foreign trade with some of the

surrounding countries and the expected continuance of growth of total domestic foreign

trade (which was striking in 2010; 22% in euros), it is realistic that in 2011 and in the

years to follow, growth trend shall continue with the countries in the region (IMF-

October 2010- projects growth of export and import of countries in the region in 2011

amounting to 9-10%, since Serbia was much more successful in 2010 than the average

export growth of the countries in the region, in 2011 one could expect a growth rate of

total merchandise export in euros amounting to 11-16%). This will be, among other

things, conditioned by an increased inflow of foreign capital (that is, by arrival of

transnational companies, most of which have plans for expansion of export in the

surrounding areas near). Considering the projections from MAT and FREN studies,

which indicate that export should have two-figure growth rates in the second decade of

the 21st century, while growth of exports to CEFTA market should be approximately two

percentage points lower on average, it is realistic to assume that there will be a light

decrease of trade participation of WB region countries. This is not unexpected, since a

certain saturation of markets exists, particularly those at which Serbia achieves the

highest export rate. Import growth rate of WB countries could also be a somewhat lower

than the growth rate of sum of imports in the following decade.

One should not expect CEFTA to provide a strong stimulus for economies of West

Balkans, especially not in comparison to connecting with the EU which is of crucial

importance for all these states, but in the mid-term and in the long-term the benefits

(lower prices, economy of scale, commercial supply of higher quality, savings due to

short spatial distance) shall be higher than costs. Countries in the region have

technologically obsolete industries, they are mutual competitors for exports to the EU and

they practically do not have much to offer to each other. Companies with supply of

moderate quality shall get the most benefits from non-customs space, by being able to

reach new consumers more easily, while the companies which survived due to difficult

22

Antevski M, 2008, Regional economic integration in Europe, Belgrade. 23

Dinan D, 2009, The ever nearing Union, - Introduction to European integration, Official Gazette,

Belgrade, page 490.

43

appearance of surrounding competitors at the domestic market shall be the main losers.

Anyhow, unification due to EU competition has little sense, considering that all WB

countries are to join the EU in relatively near future, as well as their mutual competition

in exports to the EU market.

During 2010, Serbia was chairing CEFTA. Most of its activity was related to

liberalization of services, creation of equal investment conditions, opening of public

procurement markets, and to better protection of intellectual property rights. In 2009,

while Montenegro was chairing, Serbia achieved progress in bilateral negotiations on full

liberalization of trade in agricultural products (since 2011, as much as 72% of products

shall be exempted from customs duties, while products to be imported on grounds of

agreed quotations shall have considerably lower customs duty rates).

Officials of WB countries are aware that faster joining with the EU demands regional

economic cooperation and market reforms. Long, complicated and non-transparent

procedures at border-crossings, expensive and large-scale testing and controls and lack of

accredited laboratories for control of merchandise which cross the border are the biggest

non-customs barriers which slow the economic cooperation in the region down. There

still are numerous obstacles for implementation of regional economic integration,

creation of powerful regional retail companies, regional trade balance, and big investors'

influence.

In 2011, further liberalization of trade by agricultural and food products in the region

should come into force. Non-customs barriers, especially those related to technical

barriers and phytosanitary measures are to be withdrawn in 2011. It is expected that

measures shall be adopted in near future, which would make some of the barriers,

primarily mutual non-recognition of quality assurance certificates (sanitary,

phytosanitary, veterinary) of agricultural manufacturers, void. Agreements in principle

were made regarding coordinated utilization of pre-joining funds from the IPA

programme, especially components III, IV and V, which provide possibilities for

dynamisation of economic growth and cooperation.

Zdravkovic (2006, 2010) shows that countries of Southeast Europe (CEFTA with

Bulgaria and Romania) are falling behind Central European countries (EU members since

2004) for about a decade, in the process of adaptation of their production-export

structures to the needs of the EU markets, measured by the export similarity index and by

the index of the trade complementarity.24

Those countries are dominantly oriented to

trade with the EU (mostly with Germany and Italy) and they have a high degree of

similarity of export offers, so they have nothing to offer to each other. Results of

calculation of export similarity index confirm the thesis about absence of products which

could be offered by countries one to another. The lowest degree of similarity exists in

case of Macedonia with BIH, and Serbia with Albania. Main reason is the excessive

24

Osnovni ekonomski razlozi za CEFTA sporazum su očekivanje koristi od ekonomije obima usled

opsluživanja uvećanog zajedničkog tržišta. Ipak, mnoštvo je radova koji ukazuju na relativno ograničene

mogućnosti za postizanje pozitivnih ekonomskih efekata integrisanja usled niskog stepena razvijenosti,

mereno per capita dohotkom.

44

specialization of Macedonia and Albania in import of labour-intensive products on one

end, and specialization f BIH and Serbia in import of resource-oriented products on the

other. Serbia has the highest degree of export similarity with Bulgaria, while it has rather

similar export structures with other four countries, excluding Albania.

Main goals of recently promoted25

, export-oriented growth of Serbia until 2020 (2008

was taken as the base year) are: to achieve average annual growth rate of merchandise

and service export for 13.5%, reaching the share of 65% in the export of merchandise and

services in GDP (which implies growth of export of merchandise and services from 8.5

billion euros in 2009 to 34.2 billion euros at constant exchange rate in 2020); to increase

the share of tradable sectors in GDP by means of export growth; to reduce the foreign

trade deficit from 15.5% in 2009 to 12% in 2020; to increase the share of tradable

merchandise in the structure of export, with higher share of newly added value. To reach

the share of 65% of exports of merchandise and services in GDP, from the present

percentage lower than 30%, a thorough change in macroeconomic policy is necessary. An

important prerequisite for such change is evasion of strong and real appreciation of dinar.

Main principles for achievement of the export-oriented economy goals are: continuance

of EU integrations and intensification of economic cooperation within the CEFTA region.

Since Serbia has very diversified supply of products in small quantities, transport costs

have a limiting effect on exports to distant markets. In trade with CEFTA countries –

Serbia achieves surplus (due to good position at the market of Bosnia and Herzegovina,

Montenegro, Macedonia and UNMIK-Kosovo), while the level of coverage of imports by

exports decreases as geographical distance from Serbia increases.

Until 2020, one should not expect more significant changes of export destinations. Truly,

share of EU and CIS ought to increase, and to decrease in CEFTA countries. Growth of

export share in EU shall be a result of intraindustrial trade growth, and in CIS it shall be a

result of utilisation of favourable trade approach to markets of the countries. Decrease of

share of CEFTA countries, with expected high growth of export value, shall be a result of

relative saturation of markets by the existing level of trade. The absolute growth of export

value shall be a result of intensification of merchandise trade between countries where it

is below potential level (Serbia-Croatia, Federation of Bosnia and Herzegovina – Serbia,

Republic of Srpska – Croatia... ), and as a result of renewal of cooperation at the

production level.

During the second decade of the 21st century, due to joint exposure to external risks,

Serbia should, with WB countries, develop as close economic cooperation as possible,

renewing old and forming new production-processing ties. Arrival of, for example,

German, Slovenian or Italian manufacturers in Serbia, in order to retain their market

positions in the EU by means of price competitiveness, and to win third markets, is an

example of positive events in the direction of normalization of economic relations and

creation of new foreign trade potentials. Development of economic cooperation with

25

„‟Post-crisis model of economic growth and development of Serbia 2011-2020‟‟. A group of authors

gathered around the "MAT" magazine, Institute of Economic Sciences, Belgrade; „Quarterly monitor“;

FREN, Faculty of Economics, Belgrade.

45

UNMIK-Kosovo is necessary in order for companies from Serbia to retain market

positions which they are already holding at this territory. Bad political relations

influenced Macedonia and Germany to become bigger exporters than Serbia, and Serbian

share in total import of UNMIK-Kosovo to decrease from 22% in 2002 to half of its

amount in 2010.

Estimates contained in the "Post-crisis model of economic growth and development of

Serbia 2010 - 2020‟‟ study indicate possible growth rates of export to countries which

presently form the CEFTA agreement, in the next decade. Namely, at an annual

merchandise export growth rate of 10.6% in the 2008-2020 period, merchandise export to

CEFTA would grow somewhat slower, 8.6% (to the EU 11.1%, somewhat faster),

decreasing the CEFTA share from one third in 2008 to 27% in the year 2020. 26

26

http://www.fren.org.rs/attachments/074_003%20Restrukturiranje%20i%20Izvozna%20Orijentacija%20Pr

ivrede.pdf

46

Sources:

Antevski M, 2008, Regional economic integration in Europe, Belgrade.

Dinan D, 2009, The ever nearing Union, - Introduction to European integrations, Official

Gazette, Belgrade, page 490.

IMF, World economic outlook statistical database

’’Post-crisis model of economic growth and development of Serbia 2011-2020’’; A group

of authors gathered around the „Macroeconomic trends and analyses" magazine,

Institute of Economic sciences in Belgrade and „The Quarterly Monitor of Economic

Trends and Policies“; Fund for Development of Economic Sciences at the Faculty of

Economics, University of Belgrade.

Customs administration of Serbia; data base excerpt;

Venables A.J. “Regional Integration Agreements: a force for convergence of divergence”

(1999) World Bank WP 2260, page. 3.

Zdravkovic M, 2006, Degree of similarity and complementarity of export supply of Serbia

with countries of South East Europe, countries of Central Europe and import demand of

the EU

http://www.ekonomija.org/index.php?mact=News,cntnt01,detail,0&cntnt01articleid=502

&cntnt01origid=83&cntnt01returnid=54

Zivojinovic D, ’’In search for patron –A Study of Serbian-American ties 1878-1920’’

Albatros, Beograd, 2010.

http://webrzs.stat.gov.rs/axd/index.php (RZS)

www.trademap.org

http://www.fren.org.rs/attachments/074_003%20Restrukturiranje%20i%20Izvozna%20O

rijentacija%20Privrede.pdf

http://www.wto.org/english/news_e/news10_e/stts_01dec10_e.htm