SERBIA AND MONTENEGRO: INVESTMENT CLIMATE STATEMENT 2006

UNCLAS SECTION 01 OF 26 BELGRADE 000220



SIPDIS



STATE PASS TO USTR

DEPT FOR EB/IFD/OIA



E.O. 12958: N/A

TAGS: EINV, EFIN, ETRD, KTDB, PGOV, SR, MW, Economic Development, USTR

SUBJECT: SERBIA AND MONTENEGRO: INVESTMENT CLIMATE

STATEMENT 2006



1. The following is Post's submission for the 2006

Investment Climate Statement:



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A.1. Openness to Foreign Investment

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Serbia and Montenegro is quickly establishing a liberal

investment regime. Although the continuing transition has

not yet eliminated all structural barriers, both republic

governments, in Serbia and in Montenegro, recognize the

need to remove impediments, reform the business environment

and open the economy to foreign participation. For example,

in June 2004 the Serbian government launched an Action Plan

(together with the World Bank) identifying barriers and

working with the business community to eliminate these

barriers. Montenegro is implementing a comprehensive

Economic Reform Agenda, led by the Prime Minister and

supported by the USG and other international donors. The

attitude towards foreign investors is generally favorable.

Serbia and Montenegro has a long history of international

commerce, even under communism, and it once attracted a

sizeable foreign company presence.



Already, the country has attracted considerable interest.

Although cumulative levels of foreign direct investment

(FDI) are still low compared to elsewhere in the region,

Serbia and Montenegro could easily overtake other countries

in Southeast Europe. In 2003 alone, foreign direct

investment in Serbia and Montenegro amounted to around $1.3

billion, outperforming other countries in Southeast Europe.

FDI for 2004 was somewhat lower at an estimated $947

million, primarily due to a slowdown in privatization in

Serbia and political uncertainty following a change in

government in Serbia in March 2004. But 2005 witnessed a

rebound in investor interest, with FDI in Serbia estimated

to have reached USD 1.5 billion, much of that banking

sector. Serbian firms invested USD 59 million abroad in

2005.



Leading investor nations in Serbia and Montenegro include:

the United States, Greece, Germany, Austria, Slovenia,

Netherlands and Cyprus. The banking sector has attracted

investment from Intesa (Italy),Credit Agricole (France),

HVB Bank (Germany/Austria),Erste Bank (Austria),Nova

Ljubljanska Banka (Slovenia),EFG Eurobank (Greece),

Findomestic Bank (Italy),Pireus Bank (Greece),OTP Bank

(Hungary),and others. In the trade sector, France's

Intermarche opened its first retail outlet in Nis and plans

to develop operations throughout Serbia. German Metro Cash

and Carry has invested some EUR 60 million in Serbia.

Privatization of the two refineries owned by one of the

largest state-owned companies, the Oil Industry of Serbia

(NIS),and the government is placing other well-regarded

industrial companies up for sale. Privatization also is

reaching the tourism industry, with the sale or attempted

sale of several Belgrade hotels in 2005. This trend

should accelerate as the Agency for Privatization begins to

sell off some 100 non-core assets, that were spun off by

major state-owned companies during 2005, including many

hotels. For instance, the Agency just published the

prospectus for sale of a 135-suite hotel at Serbia's

premier ski resort that was owned by JAT Airways.



So far, Montenegro has achieved greater relative success in

attracting FDI. In the five-year period from 2000-2004,

inflows reached EUR 904 million, or USD 1,600 per capita,

compared to USD 400 per capita for Serbia during the same

period. To increase the inflow, the Government of

Montenegro established the Montenegrin Investment Promotion

Agency (MIPA) in 2005. According to MIPA, investment in

2005 reached EUR 315 million, or three times more than the

year before.



Since 2003, the United States has emerged as the single

largest investor nation in Serbia and Montenegro,

accounting for approximately USD 1 billion. The largest US

investors are:



-Philip Morris International (a subsidiary of the U.S.

diversified Atria Corporation),which purchased the Nis

Tobacco Factory through privatization for EUR 518.5 million

in 2003, becoming the largest foreign investor in Serbia;



-U.S. Steel Serbia, which acquired Serbias only steel

producer, Sartid, through bankruptcy in 2003, with

investment to date exceeding USD 150 million;



-Galaxy Tire, which purchased specialty tire producer Ruma

Guma through privatization in February 2003 with a total

investment of about USD 10 million;



-Ball Corporation, which constructed a major greenfield

production facility to manufacture beverage containers,

with investment expected to reach USD 75 million in Phase I

of the project;

-Coca-Cola Co., which joined forces with Greek Coca-Cola

Hellenic Bottling Co. (CCHBC) to acquire 100 percent of

water bottler Vlasinka from Serbian furniture maker Simpo

in February, 2005, for EUR 21.5 million. The estimated

value of the entire transaction, which also includes

investment for development projects, is expected to reach

EUR 100 million.



Other projects of interest include a planned USD 60 million

air cargo and logistics terminal that Dyncorp International

will build at Belgrade Airport, based on a USTDA

feasibility study. Microsoft opened a Development Center

in Belgrade during 2005, its fifth of this type in the

world, to continue expanding language support for

handwriting recognizers within Microsoft Tablet PC

technology and develop recognizers for the languages of

Central and Eastern Europe (CEE).



Serbia and Montenegro has enacted specific legislation

outlining guarantees and safeguards for foreign investors.

The former Yugoslav Law on Foreign Investments (January

2002),amended and formally incorporated into Serbian law

(2003),establishes the framework for investment in the

republic. The law eliminates previous investment

restrictions; extends national treatment to foreign

investors; allows for the transfer/repatriation of profits

and dividends; provides guarantees against expropriation;

and allows customs duty waivers for equipment imported as

capital-in-kind. In late 2002, the Government of Serbia

promulgated new tax incentives for foreign investors.

Montenegros Foreign Investment Law (November 2000)

provides the same rights and protections for foreign

investors.



Neither Republic employs screening mechanisms, and foreign

participation is welcomed in ongoing privatization

campaigns. However, a foreign investor or entity may not,

alone or with another foreign investor, establish an

enterprise in the production of and trade in armaments, or

in areas defined as restricted zones by law. A foreign

investor may establish an enterprise in the above-mentioned

field and areas, or invest his capital in it together with

a domestic entity, but without acquiring the majority

rights in the management of such an enterprise and only

with the consent of the Ministry of Defense of Serbia and

Montenegro.

The Republics' economic teams view foreign capital as vital

to the restructuring of the real sector and, as a result,

have fully expressed their commitment to remove barriers

and facilitate investor interest. Thus, reform efforts have

not been limited to the promulgation of the two foreign

investment laws. Rather, the governments understand the

need to reform a wide body of laws to improve the overall

business regulatory environment and thereby enable private

sector companies to grow and to compete.



To promote investment, the two republics offer various

resources. The Serbian Investment and Export Promotion

Agency (SIEPA) was established to provide direct assistance

to investors in Serbia. SIEPA works closely with

individual donors on various activities. In addition, the

Agency for Privatization provides information and works

with potential investors to educate them about the

privatization program and its potential opportunities.

Contact information for SIEPA is as follows:



Serbian Investment & Export Promotion Agency (SIEPA)

Vlajkoviceva 3/V

11000 Belgrade Serbia

Tel: (381)(11) 3398-510; 3398-550

Fax: (381)(11) 3398-814

[www.siepa.sr.gov.yu]



The Agency of Montenegro for Economic Restructuring and

Foreign Investments was established in 1990. However, this

agency's primary task was privatization and restructuring.

To place a greater emphasis on investment promotion and

fostering economic development, the Government of

Montenegro established the Montenegrin Investment Promotion

Agency (MIPA) in 2005. It seeks to bring Montenegro to the

attention of the international community as a competitive

investment destination by actively facilitating investments

in the country.



Inquiries on investment opportunities in Montenegro can be

directed to:



Petar Ivanovic, Director

Montenegrin Investment Promotion Agency (MIPA)

Atinska 36

81000 Podgorica, Montenegro

Tel/fax: +381 81 655 583, 655 584, 655 586, 655 479

Website: www.mipa.cg.yu

E-mail: info@mipa.cg.yu



Montengrin Agency for Economic Restructuring

Jovana Tomasevica bb

81000 Podgorica Montenegro

Tel: (381)(81) 242-640 or 246-411

Fax: (381)(81) 245-756



Both agencies are relatively small and lack resources to

shepherd investors through the process from start to

finish. Potential investors should discuss specific

projects/interests with relevant line ministries to obtain

the necessary support from the government.



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A.2. Conversion and Transfer Policies

--------------



The republics foreign investment laws guarantee the right

to transfer and repatriate profits in Serbia and

Montenegro, respectively.



Serbias Law on Foreign Exchange (enacted originally as a

federal law in May 2002) establishes a foreign exchange

market and provides for current account convertibility. In

May 2002, the National Bank of Yugoslavia (now the National

Bank of Serbia) notified the IMF that it accepts the

obligations of Article VIII (2),(3) and (4) of the IMF

Articles of Agreement. IMF members undertaking these

obligations commit to refrain from restrictions on payments

and transfers for current international transactions, and

from engaging in discriminatory currency arrangements or

multiple currency practices without IMF approval. The

Foreign Exchange Law also permits local and foreign

companies to hold a foreign exchange account in one or more

banks authorized for international operations. These

accounts can be used to make or receive payments in foreign

currency.



The National Bank of Serbia and the Ministry of Finance

have proposed a new Law on Foreign Exchange that would ease

restrictions on foreign transactions; it should be

presented to Parliament early in 2006. Some of the major

changes proposed: 1) Provisions on foreign credit

transactions will be included, thereby nullifying the

existence of the separate 1992 Law on Foreign Capital

Transactions, which is currently in force; 2) new forms of

foreign trade financing will be introduced to assist

companies in obtaining working capital; 3) the period by

which exporters must repatriate export earnings and

importers must proceed with importation after payment will

be extended from 90 to 180 days; and 4) provisions for

secured transactions are outlined more thoroughly to

promote a modern financial market and to attract foreign

investors.



Montenegro uses the Euro as its domestic currency. There

are no difficulties in the free transfer of funds exercised

on the basis of profit, repayment of resources or residual

assets.



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A.3. Expropriation and Compensation

--------------



Serbia and Montenegro provides legal safeguards against

expropriation. Protections are codified in laws adopted by

the republic governments. There have been no cases of

expropriation of foreign investments in either republic.



However, both republics have outstanding claims related to

property nationalized under the Socialist Federal Republic

of Yugoslavia. On May 30, 2005, Serbia adopted the Law on

Reporting and Registration of Nationalized Property that

sets out two phases for restitution. The first allows

citizens whose property was nationalized after March 9,

1945 to register their claims by June 30, 2006. Churches

and religious organizations are not obligated to register

their property claims because a separate law being drafted

will address their claims. After the registration deadline,

the Government of Serbia will then determine which

compensation model to use to best address these claims,

given budgetary constraints. The total value of

nationalized property is estimated at between USD 60-150

billion, according to Finance Minister Dinkic.



In 2004, Montenegro's Law on Replacement and Settlement of

Restitution Rights was ratified. In the last year,

municipalities formed restitution committees, and the

government established the Restitution Fund from which

compensation is already being made to claimants.



The Law on Foreign Investment provides safeguards against

arbitrary government expropriation of foreign investments.

Serbias Law on Expropriation (2001) defines justifications

for possible expropriations and procedures that must be

followed under law. The law enumerates various economic

and security circumstances affecting Serbias common

interests in which expropriation is permitted: education,

public health, social welfare, culture, water management,

sports, transport, power and public utility infrastructure,

national defense, local/national governments needs or

or

territorial autonomy agencies, and the

exploration/exploitation of mining and other resources.

Special procedures are outlined for expropriations related

to major natural disasters. The Government of Serbia

issues a determination on common interests; the law

designates Serbias Supreme Court as the appellate

mechanism.



Following this determination, a proposal for expropriation

may be filed with the competent local authorities. The

authorities are obliged to hold proceedings and issue a

decision. The Ministry of Finance is designated to resolve

complaints filed against first-instance decisions.



In the event of an expropriation, Serbian law requires that

compensation be provided in the form of similar property or

cash approximating the current market value of the

expropriated property. The law stipulates various criteria

for arriving at the amount of compensation with respect to

different types of land (agricultural, vineyards, forests)

or easements that affect the value of the land. If a

a

compensation agreement is not reached within two months of

the expropriation order, the local municipal court will

intervene and decide the compensation.



Republic of Montenegro

--------------



Montenegro provides safeguards from expropriation actions

through its Foreign Investment Law. Article 29 states that

the government cannot expropriate property of a foreign

investor unless there is a compelling public purpose

established by law or on the basis of the law. If an

expropriation is executed, compensation must be provided at

fair market value plus one basis point above the LIBOR rate

for the period between the expropriation and the date of

payment of compensation.



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A.4. Dispute Settlement

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Arbitration

--------------



The Foreign Trade Court of Arbitration (founded in 1947) is

located within the Serbian Chamber of Economy. Arbitration

is voluntary and conforms to the U.N. Commission on

International Trade Law (UNICTRAL) model law. The court

focuses on foreign trade or international commercial

disputes (including investment) involving domestic and

foreign parties. The courts arbitration rules promote a

speedy and efficient process (no more than one year).

Arbitration commences when the parties have mutually

requested arbitration and accepted the courts

jurisdiction. Its decision is final and binding.



Once an issue has been decided, the arbitration award must

be executed upon notice from the court to the losing party,

which is given a deadline to comply. If no payment is made

within the time allotted, then the party benefiting from

the decision notifies the local commercial court. The

commercial court then orders payment. The same procedure

applies for decisions of foreign arbitration courts (as per

the 1958 New York Convention). Complaints against the court

of arbitration are not recognized unless a procedural flaw

is alleged.



Serbia and Montenegro is a signatory to the following

g

international conventions regulating the mutual acceptance

and enforcement of foreign arbitration: the 1923 Geneva

Protocol on Arbitration Clauses, the 1927 Geneva Convention

on the Execution of Foreign Arbitration Decisions, the 1958

New York Convention on the Acceptance and Execution of

Foreign Arbitration Decisions; the 1961 European Convention

on International Business Arbitration; and, the 1965

Washington Convention on the International Center for the

Settlement of Investment Disputes (ICSID).



Arbitration has not been employed to a large extent during

the last 10 years given the absence of foreign companies

from the market. Additionally, although the Courts

arbitral decisions may be enforceable in Serbia, they may

not be recognized in Montenegro. Consequently, many foreign

companies include a clause in contracts that requires

third-country arbitration if disputes arise. Foreign

arbitral decisions would be enforceable in both the Serbian

and Montenegrin court systems.





A new Law on Arbitration is currently in the drafting

process. A new working group has been formed and a second

draft version is complete. The second version covers

International and Domestic Arbitration. The draft is

clearer and follows the UNCITRAL Model Law more closely.



In November, 2004, the International Court of Arbitration

in Paris issued a ruling in favor of U.S. company Valeant

Pharmaceuticals (formerly ICN Pharmaceuticals),ordering

that the U.S. company be permitted to repatriate USD 50

million in the dissolution of a joint venture. At this

time, it appears that the Government of Serbia and Valeant

are near a settlement.



Legal System

--------------



The union and republic constitutions serve as the

foundation of the legal system and create independent

judiciaries in Serbia and Montenegro. Unlike the United

States and the United Kingdom, which use common law, Serbia

and Montenegro has adopted European civil law. However,

higher court decisions can be used as guidance by lower

r

courts.



Serbia and Montenegros judiciary historically lacked

independence and was subjected routinely to political

manipulation during the socialist and Milosevic periods.

Judges were appointed based on party affiliation. During

the Milosevic regime especially, the court system was

severely undermined, with judges often rubber-stamping

regime actions. Judges who challenged the regime were

simply removed. Officials are now focusing on a range of

issues to overhaul the court system: accountability, salary

levels, training, selection/appointment process,

execution/enforcement of judgments, budget, court

organization and responsibilities, and ethics. The U.S.

Government, through USAID, is providing assistance on

reform of the court system, primarily commercial courts but

also general jurisdiction courts and magistrates.



Union Judicial System

--------------



There is only one court of the State Union, the Court of

Serbia and Montenegro, and its jurisdiction is set forth in

the Constitutional Charter: disputes between institutions

of Serbia and Montenegro on questions on their jurisdiction

pursuant to the Constitutional Charter, disputes between

the state union and its member states regarding the

question of their jurisdiction over citizens' complaints

for violations of rights guaranteed by the Constitutional

Charter, issues of consistency of member states

Constitutions with the Constitutional Charter, and similar

issues.



The Constitutional Court is a separate court of the

Republic of Serbia, with its jurisdiction set forth in the

Constitution of the Republic of Serbia. It mainly decides

the constitutionality of certain laws. Montenegro's

Constitutional Court has a similar function.



Republic of Montenegro Judicial System

--------------



Montenegros Law on Courts defines a judicial system of

three levels: basic courts, superior courts and the Supreme

Court. It also establishes two courts with special

jurisdiction for commercial matters. Two new courts were

established in 2005: appellate and administrative Courts.

While the administrative courts are operational, start-up

of the appellate courts is awaiting appointment of judges.



The basic courts exercise original jurisdiction over civil

and criminal cases. There are 15 courts for 21

municipalities. Two superior courts in Podgorica and Bijelo

Polje have appellate review of municipal court decisions.

Superior courts also decide on jurisdictional conflicts

between the municipal courts.



The two commercial courts (which also handle economic

crimes) have been established in Podgorica and Bijelo

Polje. Their jurisdiction: shipping, navigation, aircraft

(except passenger transport),intellectual property rights,

bankruptcy, and unfair trade practices. The superior courts

hear appeals of commercial court decisions, and superior

court decisions may be appealed to the Supreme Court. The

Supreme Court is the court of final judgment for all civil,

criminal and administrative cases.



The commercial court system faces challenges. Some reform

proposals have suggested the creation of a High Commercial

Court or dedicating a chamber of the Supreme Court to

commercial cases. Some judges have also suggested

designating a particular court with assigned competency for

specific areas in order to streamline caseloads and develop

specialized expertise for complicated economic

crimes/matters.



Republic of Serbia Judicial System

--------------



Serbia's court system consists of: municipal courts (138),

district courts (30),commercial courts (17),the High

Commercial Court (1),the Supreme Court (1) and the

Constitutional Court (1). Municipal courts are the court of

first instance for civil and criminal matters. District

courts hear appeals from the municipal level but also serve

as courts of first instance for serious civil and criminal

cases.



The Supreme Court is the highest court in the republic,

with jurisdiction over all civil and criminal cases,

uniform implementation of law, equal protection, questions

pertaining to judiciary practice, and jurisdictional issues

between lower courts. The court hears appeals from the

District Courts and the High Commercial Court. The Supreme

Court also has a division that reviews decisions of

administrative bodies. The Constitutional Court, which is

distinct from the Supreme Court, issues binding

interpretations of the constitution and rules on challenges

regarding the constitutionality of laws and regulations.



The new Law on the Organization of Courts establishes

(valid from January 1, 2007) new Courts of Appeals to

review District Court decisions; decisions of those courts

may be appealed to the Supreme Court. The Courts of

Appeals will be located in Belgrade and three other cities.

The new law also establishes an additional court, the

Administrative Court, with original jurisdiction in cases

arising from decisions of administrative bodies. The

Supreme Court will hear appeals from the Administrative

Court's decisions. In addition, Courts for Misdemeanors and

a High court for Misdemeanors of the Republic of Serbia

will be established as of January, 2007.



Most commercial cases are heard by 17 regional commercial

courts of first instance. The commercial court system has

four divisions: litigation; commercial law offenses;

bankruptcy/liquidation, and execution of decisions.

Approximately 240 judges sit in the commercial courts, 65

of them in Belgrade. The High Commercial Court reviews

decisions of the first instance commercial courts, and its

rulings may be appealed to the Supreme Court.



Execution of Judgments

--------------



Serbia has a new Law on Execution, approved in November,

2004, which establishes procedures for the execution of

claims. Generally, to execute judgments, a final judgment

is required so that the court can order payment, seizure of

goods/property or direct that action be taken or cease. If

a lower court's decision is confirmed on appeal, the case

is returned to the first-instance court for the final

judgment. The judgment holder must then proceed to the

competent court and submit a petition for execution. The

court order is actually carried out by officers of the

court, who may seek police assistance in executing the writ

(e.g., seizing property). A separate expedited enforcement

procedure has been enacted that allows claimants to submit

certain types of authenticated documents to the court and

initiate the execution phase without a first instance court

procedure to obtain a judgment.



Foreign judgments are recognized in Serbian and Montenegrin

courts, based on an application for recognition/enforcement

to the relevant SAM court. Enforcement of foreign judgments

in both Serbia and Montenegro is governed by a single law,

now applicable in the Union, which dates from the former

Yugoslavia (Official Gazette no. 32/82 72/81 and 46/96,

,

Articles 86-101). Under this law, the court does not review

the decision but decides on whether the requirements for

recognition are fulfilled, based on the following issues:

whether defendants were duly apprised of the complaint and

allowed to present their case in the original proceeding;

whether the same matter is neither pending nor has not been

decided in local courts between the same parties; whether

the foreign judgment pertains to matters that are the

exclusive jurisdiction of SAM courts (e.g., real estate);

whether execution of the foreign judgment contravenes SAM

law; whether SAM decisions are recognized by the foreign

country's court; whether the decision is final and

conclusive, and whether the decision is clear.



Law on Business Companies

--------------



On November 15, 2004 the Serbian Parliament adopted a new

Law on Business Companies. The law provides greater clarity

both in organizing and operating a company and in settling

disputes in both small and large firms. The law is more

consistent with international business practices and adds

modern provisions for corporate governance and protection

of investors.



Limited liability Company (LLC) provisions of the law were

made more flexible, and a new provision for closely-held

(closed) joint stock companies was added. The minimum

capital requirement for establishment of a Serbian LLC is

only 500 Euro or its equivalent, which is much less than

that required for large companies.



The new law provides for two types of joint stock

companies: closed and open. This is a change from the

existing law, and it follows other European company laws.

A closed joint stock company is much like an LLC, but it

can be easily converted to an open joint stock company if

it wishes to go public.



The new Serbian closed joint stock company will have

required minimum capital of 500 Euro equivalent (like an

LLC),and it will be free to impose restrictions on

transfer of its shares for example, a requirement of

board approval, or a right of first refusal in favor of

other shareholders, whenever a shareholder wishes to sell

to a third party. It may not, however, offer its shares

publicly and it may not have more than 100 shareholders.

In most other respects a closed company will resemble an

open company, and a closed company may become an open

company at any time so long as it adopts and agrees to

follow the rules and requirements for an open company.



An open company, by contrast, is subject to detailed

capital maintenance requirements, may sell its shares to

the public, and may not impose any restriction on the

resale of its shares.



Under the new law, a joint stock company is permitted to

issue only one class of common stock, which may have only

one vote per share. Preferred stock must be non-voting,

with certain exceptions, and preferred stock always has

preference over common stock with respect to dividends and

distributions on liquidation of the company.



A number of other changes encourage good corporate

governance and protect investors, mirroring current

international best practices:



-A legal duty of care and duty of loyalty to the company,

including provisions on personal conflict of interest, have

been added. Changes also hold directors (and in some cases

other control persons) more accountable to shareholders.



-Directors can be elected only by shareholders.

-Cumulative voting is specifically permitted and is

required in large joint stock companies.



-The structure of the board is simplified, making a

supervisory board optional. The distinction between and

roles of directors (who are elected by the shareholders)

and the management team (who are appointed by the

directors) is spelled out more clearly.



-Directors will have only one-year terms and will always be

up for election or re-election at each annual shareholder

meeting.



-Also, shareholders can remove a director at any time

without proof of cause.



Small and closely-held companies (whether partnerships,

LLCs or joint stock companies) may be able to mix

shareholding, directing and management. However, large

joint stock companies are required by the new law to have a

number of independent directors, and the new law contains a

definition of the term independent director that follows

current precedents in Europe and the United States.



The changes also expand the rules for lawsuits against

directors and other persons in control of a company of any

type (partnership, LLC or joint stock company) including

controlling shareholders in some cases - based upon

international models. Under the new law, a separate

supervisory board is no longer required in a joint stock

company. Instead, a company may have a supervisory board,

internal auditor or audit committee that acts as an

independent body with specific legal power to provide

financial and legal oversight and supervision, including

ding

oversight of the companys outside audit firm and of the

companys legal compliance.



The changes add new detail to the procedural rules for

convening and conducting shareholder meetings. More

detailed restrictions are placed on proxies (voting

representatives) to prevent the abuse of managers voting

shares of employee-shareholders. Under the new law, a proxy

must be in writing and can be revoked by the shareholder at

any time including at the shareholder assembly. The new

law also expands the prohibition against managers voting

employees shares.



Regarding court action, the new law specifies the courts

powers, and the types of orders it can issue, in more

detail than is found in other laws.



Finally, the new law contains a number of provisions to

comply with requirements of the European Union Company Law

Directives.



--------------

A.5 Performance Requirements and Incentives

--------------



---



Neither the union nor republic governments impose any

performance requirements as a condition for establishing,

maintaining or expanding an investment.



Limited incentives are offered to foreign investors. In

Serbia, tax holidays are available (based on size of

investment and jobs generated) along with customs relief on

in-kind imported equipment. In Montenegro, the government

offers both duty exemptions for imported equipment.



Law on Concessions

--------------



The Law on Concessions was adopted by the Serbian

Parliament in May 2003. It eases the process of obtaining

and utilizing concession licenses. It also regulates the

conditions and procedures for obtaining a concession to

exploit natural resources, use property in the public

domain and or conduct activities of general interest.



The law defines a concession as the right to use natural

resources, assets of general use or to perform activities

of common interest, which a competent state body (Grantor)

concedes to a domestic or foreign person (Grantee) for a

limited period of time, under the terms prescribed by the

law and upon the payment of a concession fee.



The object of a concession may be: 1) researching and

exploiting raw materials (minerals); 2) constructing,

renovating, maintaining and utilizing of: various water

supply facilities; roads; public railway infrastructure;

air traffic facilities; river traffic facilities and ports;

telecommunication facilities; oil pipelines, gas pipelines

and other gas and oil facilities; public utilities; power-

generating and heating facilities; river and lake banks;

medical institutions; sports and recreation facilities,

sports fields and areas; tourist facilities and

infrastructure; 3) using thermal springs; 4) other

activities specified by the law as activities of common

interest.



A foreign physical or legal person cannot be granted a

concession for specific activities in Serbia where, in

accordance with the law regulating foreign investments, a

foreign entity may not establish a company. A concession is

granted by a public tender. By exception, if a public

tender could endanger national security, the government may

proceed without a public tender. A concession may be

granted for up to 30 years. The concession fee is

determined depending on the type, quality, purpose and the

market price of the natural resource or assets in question,

i.e., depending on the type of activity, market terms,

duration of the concession, estimated risk and expected

profit.



-------------- --------------

A.6. Right to Private Ownership and Establishment

-------------- --------------



The union and republic constitutions guarantee the right to

ownership and establishment, although private ownership of

urban land is not yet permitted. A foreign physical or

legal person incorporated pursuant to the laws of either

republic is considered to be a legal person. Foreign

investors may acquire property rights for buildings and

rights for other immovable assets to be used for their

business activities. They may acquire residential property,

such as apartments, but not ownership rights over the land

itself (unless the land is in rural areas). Foreign

investors are permitted to hold land-use rights for up to

99 years, and such rights can transfer with the sale of

buildings on such sites. By law, urban lands are held by

the municipal governments. Rural lands are regulated

differently and investors may acquire the land rights.

Serbia is now drafting a new constitution, but political

developments could further delay the process. It is

expected that the new constitution will permit ownership of

urban lands.



In Montenegro, a foreign investor, foreign legal person or

foreign individual may acquire property. Article 12 of the

Montenegrin Foreign Investment Law specifically permits

foreign investors to purchase real estate through a

contract. This right is explicitly reinforced by the Law on

Property and Law Relation. The Act states that foreign

natural and legal persons carrying out activities in

Montenegro can, based on reciprocity, acquire real estate

in order to perform the activities related to the

investment. This same law also permits the acquisition of

property (houses and apartments) by foreign persons even if

they do not have any investment or business activity in

Montenegro.



--------------

A.7. Protection of Property Rights

--------------



Mortgages/Secured Transactions

--------------



The mortgaging property and chattels was formerly regulated

by Chapter XXVIII of the Yugoslav Law on Contract and

Torts. The two republics have now passed separate laws on

secured transactions to establish a clear, transparent

framework.



In July 2002, Montenegro enacted its Law on Secured

Transactions and established a collateral registry at the

Commercial Court in May 2003. The registrys operational

guidelines have been drafted and approved by the commercial

court.



In June 2003, Serbia passed a secured transactions law, the

Law on Registered Charges on Movable Assets. A Business

Services Agency was established in January 2005, which will

maintain a collateral registry in addition to registering

new businesses.

In December 2005, Serbia adopted a new Law on Mortgages

that will allow banks to mortgage buildings under

construction. The previous law did not permit the entering

of unfinished buildings into the land registries, making

securing of loans during construction very difficult. In

the event a debtor is unable to repay the loan, the new law

permits sale of the mortgaged property within six months

instead of the former three- to five-year period. This new

law should provide incentives for housing construction, by

ensuring better legal protections for creditors and

debtors. The law also broadens the availability of

mortgages through more flexible conditions for such loans,

which are now permitted not only for completed construction

but also for projects under construction, including

subdivisions of a property, unregistered objects and land.

The GOS hopes that this law will lower interest rates, by

better protecting creditors. An owner who grants a mortgage

to a lender will not be able to change the physical

structure of the property without the creditors consent,

but is allowed to rent it or sell it. If the pledged real

estate is subject to bankruptcy, the law states that the

creditor has priority in any distribution. The law also

will permit establishment of a Central Mortgage Register.



These laws substantially improve the inadequate scope of

previous Yugoslav law. Unlike that law, these new laws

address non-possessory pledges on moveable property. The

law also prioritizes claims based on possession. With

respect to land, central registries are typically not

completely current. Both republic governments are making an

effort to modernize their cadastral systems. The World Bank

is providing assistance in this area.



Intellectual Property Rights



The acquisition and disposition of intellectual property

rights are protected by laws at the Union level. It is the

responsibility of the two member states (republics) to

implement and enforce these laws. The legal regime for IPR

protection has improved substantially in recent years as

SAM has revised laws to meet WTO TRIPs standards. In

practice, however, enforcement is weak and actual

protection, insufficient. Sale of pirated optical media

(DVDs, CDs, software) as well as counterfeit trademarked

goods, particularly sneakers and clothing, is fairly

widespread. Enforcement is slowly improving as customs,

police and judicial authorities obtain the necessary tools,

but institutional capacity is still limited. Strengthening

IPR protection will continue to be a challenge.



Intellectual property rights are covered by a series of six

union laws that are enforced by the republic governments.

The Law on Copyright and Related Rights, the Law on

Patents, the Law on Trademarks, the Law on Legal Protection

of Designs, and the Law on Protection of Integrated Circuit

Topographies were passed in June and December 2004, and are

fully WTO-TRIPs compliant. A new Law on Geographical

Indications that is WTO-TRIPs compliant will replace the

1995 law and should be adopted in early 2006.



Enforcement

--------------



Complaints of IPR infringement must be brought before the

relevant republic commercial or district courts (depending

on the legal status of parties involved). Procedures for

enforcement of intellectual property rights are governed in

both Serbia and Montenegro by their respective Laws on

Civil Procedures (recently enacted),based on the

substantive Union-level laws for each area of intellectual

property.



Laws on Civil Procedures meet the procedural requirements

of TRIPS Article 42 (written notification regarding a

dispute and protections for evidence and the rights of the

parties involved). With respect to providing evidence that

is under the control of the opposing party (referenced in

TRIPS Article 43),the laws allow the Court to compel

production of documents or things within a given time

limit. The laws regulating specific areas of intellectual

property rights (Law on Copyright and Related Rights,

Patent Law, Trade Mark Law, Law on Legal Protection of

Designs, Law on Geographical Indications and Law on

Protection of Topographies of Integrated Circuits),provide

specific legal remedies to rights holders.



Criminal sanctions, including in some cases imprisonment,

may be imposed in cases where IPR infringement is found. In

April, 2003, Serbia amended its Penal Code to improve

enforcement efforts, instituting stiffer penalties,

including prison sentences, for piracy. In June 2003, a

subsequent amendment to the Criminal Code was adopted

enabling the police to seize or destroy pirated goods and

production equipment and materials. However, in practice,

courts have typically imposed only weak penalties.



The new Penal Code for Serbia, adopted by the Parliament in

September, 2005, has a specific chapter on criminal

offences committed by infringement of IP Laws; it provides

adequate penalties for the infringement. It also provides

for ex officio prosecution without the filing of a private

complaint of a rights holder. A new draft Law on the

Enforcement of Intellectual Property Rights (adoption by

the Serbian Parliament is expected by March 2006) will make

legal entities, such as corporations, culpable for IPR

violations and provide for fines up to three million dinars

(approximately EUR 35,000). It also will provide ex officio

authority for inspectors in areas such as trade, medicines

and medical supplies, and electronic media and

broadcasting, among others.



Montenegro made progress in 2005 in strengthening its

legislative framework. In July 2005, the Montenegrin

Parliament passed a law similar to Serbias law on the

enforcement of intellectual property rights that entered

into force January 1, 2006. The law provides for fines for

legal entities of up to EUR 30,000 for selling pirated

and/or counterfeited goods. It also provides ex officio

authority for market inspectors in the areas mentioned

above. In April 2005, the Montenegrin Parliament adopted

the Regulation on (TRIPs) Border Measures that provides

powers to the customs authorities to suspend customs

procedure and seize pirated and counterfeit goods.



In early 2006, Montenegro's Parliament is expected to amend

the Penal Code to include criminal offences with respect to

infringement of all IP rights, ex officio prosecution and

stricter criminal penalties. A new Law on Optical Disks

also should be approved in both Serbia and Montenegro,

which will regulate the production of optical disks,

require the registration of the business activity of

reproducing optical disks for commercial purposes, provide

for surveillance of optical disk imports and exports and

imports and exports of polycarbonates (the material used in

production of optical disks) and production equipment for

the production of optical disks.



International Agreements

--------------



The following conventions and agreements in the field of

intellectual property are binding on SAM and thus on the

Republics:



- Convention Establishing of the World Intellectual

Property Organization (1967) (member since October 1,

1973);

- Paris Convention for the Protection of Industrial

Property (1883) (member since February 26, 1921);

- Berne Convention for the Protection of Literary and

Artistic Works (1886) (member since June 17, 1930);

- Madrid Agreement Concerning the International

Registration of Marks (1891) (member since February 26,

1921);

- Protocol relating to the Madrid Agreement Concerning the

International Registration of Marks (member since February

19, 1997);

- Patent Cooperation Treaty (1970) (member since February

1, 1997);

- Hague Agreement Concerning the International Deposit of

Industrial Designs (1925) (member since December 30, 1993);

- Universal Copyright Convention (1952) (member since

1966);

- Nice Agreement Concerning the International

Classification of Goods and Services for the Purposes of

the Registration of Marks (1957) (member since August 30,

1966);

- Locarno Agreement Establishing an International

Classification for Industrial Designs (1968) (member since

October 16, 1973);

- Convention Relating to the Distribution of Program-

Carrying Signals Transmitted by Satellite (1974) (member

since August 25, 1979);

- Budapest Treaty on the International Recognition of the

Deposit of Microorganisms for the Purposes of Patent

Procedure (1977) (member since February 25, 1994);

- Trademark Law Treaty (1994) (member since September 15,

1998);

- Lisbon Agreement for the Protection of Appellations of

Origin and their International Registration (1958) (member

since June 1, 1999);

- Madrid Agreement for the Repression of False or Deceptive

Indications of Source on Goods (1891) (member since May 18,

2000);

- Nairobi Treaty on the Protection of the Olympic Symbol

(1981) (member since March 18, 2000);

- Treaty on Intellectual Property in Respect of Integrated

Circuits (1989) (signed, not ratified);

- International Convention for the Protection of

Performers, Producers of Phonograms and Broadcasting

Organizations (member since December 20, 2002);

- Convention for the Protection of Producers of Phonograms

Against Unauthorized Duplication of their Phonograms

(member since December 20, 2002);

- WIPO Copyright Treaty (member since December 20, 2002);

- WIPO Performances and Phonograms Treaty (member since

December 20, 2002);



WTO Accession

--------------



Serbia and Montenegro, as a successor in rights of the

former FRY, has been in the process of accession to the

World Trade Organization since 2001. Following the example

of the EU's twin track approach, both Serbia and

d

Montenegro withdrew their joint application and submitted

separate applications for WTO accession in December, 2004.



At the February 15, 2005 meeting, the General Council

accepted separate membership applications from the

Republics of Serbia and Montenegro and agreed to establish

independent working parties to continue the accession

process. The first independent meetings of the countries'

working parties were held in October, 2005.



The U.S. Government, through USAID, has been providing

technical assistance to Serbia and Montenegro on

preparation for the WTO accession process.



--------------

A.8. Transparency of Regulatory System

--------------



Commercial Code & Contract Law

--------------



The former Federal Law on Contracts and Torts (1978)

embodies contract law in Serbia and Montenegro. No laws

have been passed in either Serbia or Montenegro that

replace or amend this law because, on the whole, experts

view the law as essentially sound. Still, some problems

have been noted. In contract disputes, the law provides

judges with the discretion to reduce damages. This law, for

instance, also addressed secured transactions; new secured

transactions laws have been enacted in both republics that

correct weaknesses in the 1978 law. Additionally, in May

2003, the Republic of Serbia adopted a new Law on Financial

Leasing, which has provided the framework for significant

development of leasing arrangements and contracts. The law

establishes a public register in the form of an integrated

electronic database that documents leasing contracts.



The permitting processes that control both the acquisition

of land (rights of use, in municipalities) in Serbia and

subsequent decisions related to use of such land generally

are considered a significant barrier to foreign investors.



Bankruptcy Law

--------------



For the most part, bankruptcy legislation has never been

enforced in Serbia and Montenegro, and the courts have

little or no experience in adjudicating bankruptcy cases.

Bankruptcy was always equated with liquidation and

consequently avoided. During previous governments,

socially-owned companies were not permitted to fail. That

situation is changing. The faltering economy has left many

insolvent companies. The governments are moving to overhaul

legislation and practices so that these companies can be

restructured or liquidated. New bankruptcy practices should

also spur companies to pay more attention to sound

financial practice to avoid insolvency.



The former Federal Bankruptcy Law regulated bankruptcy

actions in Serbia. This law was deficient in many respects;

most notably it provided excessive protections for debtors.

Another feature is the lack of a reorganization clause

(e.g., U.S. Chapter 11). The law was rarely applied.

In July 2004, the Serbian parliament adopted a new

bankruptcy law that incorporates international concepts and

practices. USAID and the World Bank assisted in drafting

the law. The government will also receive international

assistance in training trustees and judges and the

establishment of an agency to regulate bankruptcy trustees.



Serbia's new law contains modern provisions similar to

those that have been adopted by other countries seeking to

modernize their bankruptcy systems. It provides enhanced

creditor involvement; improved debtor eligibility criteria

to filter inappropriate petitions; an improved claim

resolution procedure and penalties for submitting false

documents and claims. It also expands the role of private

bankruptcy trustee-administrators. The new law provides

greater flexibility in developing a plan of reorganization,

but also requires adherence to strict deadlines and the

affirmative vote of creditors for acceptance. The new law

also features international bankruptcy provisions,

incorporating the UNCITRAL Model Law on Cross-border

Insolvency.



Montenegros Law on Business Organization Insolvency

(February 2002) provides the regulatory framework for the

bankruptcy process. Insolvency exists and bankruptcy may be

initiated if various conditions are met: an entity has

stopped payments for 30 days; the debt exceeds a

statutorily defined amount; the debt is not contingent;

and, the debtor has an established pattern of non-payment.



The Commercial Court has exclusive jurisdiction over

bankruptcy matters. A written petition must be submitted.

The court decides on acceptance of the petition, acceptance

of the petition, selects an administrator (trustee),

reviews creditor complaints, approves the settlement for

creditors, and decides on the closing of proceedings. The

bankruptcy judge supervises the administrator. The trustee

represents the debtor, managing assets subject to the

bankruptcy and preparing requisite information for the

bankruptcy proceedings.



The creditors committee consists of up to nine unsecured

d

or partially-secured creditors. The committee is convened

to protect the interests of all creditors during the

proceedings, to oversee the administrators work and to

report to the creditors on the proceedings. Creditors must

declare all claims by a fixed deadline. The law establishes

the priority of creditor claims, assigning higher priority

to taxes and other revenues of both the central and local

governments.



Chapter VIII of the Law addresses reorganization, an

alternative to liquidation whereby attempts are made to

maximize asset recovery and provide for fair and equitable

distribution among all creditors. Article 66 lists various

methods of reorganization. Either the trustee or debtor may

file a reorganization plan.



In 2005, two new agencies were created to foster

implementation of the new bankruptcy law in Serbia: the

Bankruptcy Unit within the Privatization Agency, which acts

as the bankruptcy administrator for all majority state or

socially-owned companies in bankruptcy proceedings; and the

Bankruptcy Licensing Agency, which exercises regulatory

power over bankruptcy administrators, including the conduct

of professional examinations and the issuance of licenses

to practice. Two licensing examinations, containing both

written and oral components, were conducted in 2005,

and more than 180 administrators are now licensed to

practice in Serbia.



Alternative Dispute Resolution (ADR) - Mediation Law

-------------- --------------



A new Law on Mediation was adopted February 24, 2005 and

came into force on May 26, 2005. This Law introduced

mediation as a new practice in the Serbian legal system. It

presents a mechanism for alternative dispute resolution,

and it is expected that its implementation will decrease

the backlog of court cases. According to this Law,

mediation is voluntary, and may be initiated prior to or

during a proceeding before the court or other body.



Law on Competition/Anti-Monopoly

--------------



Serbia's Parliament approved a new competition law on

September 16, 2005. The law contains a pre-merger

notification turnover threshold of alternatively 10 million

Euros in Serbia or 50 million Euros worldwide. This low

threshold likely will be problematic for foreign investors.

Most foreign companies buying even a small company in

Serbia will be forced to obtain approval from the Antitrust

Commission prior to the purchase, which can take as long as

four months. Another problem is the penalty provision,

which permits low-level courts to impose severe penalties

(up to 10 percent of total worldwide turnover). In

addition, the deadline for the nomination of Commission

members already passed, without Government action. It also

is unclear how this law and the existing takeover rules

will interact.



The Montenegrin Parliament also has adopted a competition

law, which went into force January 1, 2006. This law is

regarded as an improvement to the investment climate in

Montenegro.



On May 23, 2005 the Parliament of Serbia established an

Energy Regulatory Agency by appointing the first members of

the Council. The Agency Council consists of the president

and four members nominated by the GoS and appointed by the

Parliament. The Council is accountable only to the

Parliament for the Agency's work. This Agency will have

authority over the electricity, gas, oil and heating energy

sectors. Its main tasks are approval of pricing,

development of a model for determining allowable business

costs for energy sector entities, issuance of operating

licenses for energy companies and for construction in the

energy sector, and monitoring of public tenders. The energy

law prescribes that in those energy sectors where prices

are affected by the monopoly positions of some

participants, business costs will be set at levels approved

by the Agency. In those areas deemed to function

competitively, the market will determine prices.



The Regulatory Agency for Telecommunications was formed

according to the Serbian Telecommunications Law adopted in

April 2003. Serbias Parliament elected the President and

the members of the Agency's Management Board in May 2005.

The agencys mission is to raise the efficiency of existing

providers, introduce new and improve old services to

modernize the telecom infrastructure, and create conditions

for the sectors further development.



The regulatory function of the Agency is to set rules for

participants on the open market. Issuance of licenses is

one of the main competencies of the Agency. The license

gives the individuals or legal entities the right to

operate on the telecommunication market. Other competencies

of the Agency are interconnection or mutual connection of

networks of the different operators; responsibility for

overall network service, its maintenance and financing; and

line leasing, which means that the public operator with

th

dominant market share has the obligation to offer its lines

for leasing under certain conditions. In those

telecommunications sectors where prices are affected by the

monopoly positions of certain participants, prices will be

set at levels approved by the Agency. In those areas

deemed to function competitively, the market will determine

prices.



In addition to its regulatory function, the Agency has

controlling and monitoring functions. It is responsible for

implementing relevant laws and has the authority to issue

penalties according to the law.



Taxation

--------------



Republic of Serbia



The Ministry of Finance has implemented three phases of

reform to modernize Serbias tax system in an attempt to

simplify taxation and increase revenues. The components of

the Serbian tax system are: Value Added Tax (VAT),personal

income tax, corporate profit tax, excise duties, property

taxes, payroll tax and taxes on use of goods and on

permission to use goods.





The standard VAT rate on most goods and services is 18

percent, with a limited list of staple foods, medicines and

other products assessed a lower 8 percent rate.

Humanitarian aid, grants, and orthopedic equipment for

persons with disabilities are exempted from VAT, while

traditional religious organizations are entitled to VAT

refunds.

The applicable personal income tax rate is 14 percent for

salaries and 10 percent for net income from self-

employment. Other personal income is primarily taxed at a

rate of 20 percent, although deductions are allowed for

some types of income. The taxable base is equal to gross

income without deductions for income taxes and social

contributions. Foreign residents are subject to an

additional tax at the rate of 10 percent if their income

from salary exceeds 10 times the average annual salary in

Serbia. (Serbian residents are subject to an additional

tax at the rate of 10 percent if their total income exceeds

four times the average annual salary in Serbia.)



In 2004, the government lowered the corporate profit tax

rate from 14 percent to 10 percent, making it one of the

lowest in all of Europe. Tax credits and holidays of up to

10 years are available for investment in fixed assets and

employment of new workers, particularly in underdeveloped

regions. Serbia introduced a VAT on January 1, 2005.



Excise taxes are levied on luxury goods and other

products such as oil derivatives, beverages (alcoholic,

soft drinks),cigarettes, coffee, salt and ethanol

alcohol. Excise taxes are flat rates based on the volume

of the product and are in addition to VAT. In July 2003,

the Parliament adopted amendments to excise taxes, which

will strive to bring Serbia in line with EU and WTO

requirements after a transition period.



For all taxpayers, the property tax rate is set at the rate

of 0.4 percent of the taxable base, but the base varies

with the type of taxpayer. Businesses pay on all assets,

including machinery and other non-real estate property,

,

whereas inviduals pay only on the market value of their

real estate holdings. A 5 percent tax rate is applied to

the transfer of ownership rights of real estate and other

taxable property, except for the transfer of rights over

agricultural and forest land and used motor vehicles, for

which the rate is set at 2.5 percent. A tax rate of 0.3

percent is imposed on the transfer of securities and shares

in legal entities.



Profit tax is not withheld on dividend payments between

Serbian entities. For non-residents tax is withheld as

follows:



- Income tax is calculated and withheld on salaries at the

rate of 14 percent and on certain other income (dividends,

royalties, interest, capital gains, lease payments) at the

rate of 20 percent.

- The provisions of applicable double tax treaties

regarding withholding will apply.



Republic of Montenegro



Montenegros Profit Tax is proportionate and amounts to 9

percent. Foreign investors cannot obtain an exemption from

the corporate profit tax, since the principle of national

treatment was adopted. Turnover taxes are excise taxes and

are determined as fixed Euro amounts or percentages in

complicated ways for various products (alcohol and alcohol

beverages, tobacco products and mineral oils, mineral oil

derivatives and their substitutes.). A Value-Added Tax

(VAT) on products and services, implemented in April 2003,

is assessed at 17 percent. Amendments to the VAT law

reduced the tax rate from 17 percent to 7 for accommodation

services (hotels and pensions) in tourism, additional

taxation of medicines that are not on the authorized list

of the Health Fund, communal services, transport services

and authorial services, etc. Reducing the tax rate in

tourism should improve competitiveness and promote economic

development



Montenegros progressive personal income tax ranges up to

23 percent. The aim of the Government of Montenegro is to

institute a single, low proportional rate. The real estate

tax rate is proportional, ranging from 0.08 percent to 0.80

percent of the property's market value. Local self-

government units can determine real estate tax rates

according to types of real estate. A local self-government

unit can increase the tax rate for agricultural land not

cultivated to 50 percent in relation to the tax rate for

cultivated agricultural land. The international community

is providing assistance to improve the capabilities of the

tax administration.



-------------- --------------

A.9. Efficient Capital Markets and Portfolio Investment

-------------- --------------



Capital Markets

--------------

Serbia has been successful in establishing a capital

markets infrastructure, but, as yet, neither the equity nor

bond markets serve as a source of long-term capital for

enterprises. Capital markets are typically vehicles whereby

various entities, both public and private, raise long-term

capital to finance activities and/or investments. The

companies normally supplying funds to the markets are

insurance companies, pension funds, banks and private

investors. In Serbia and Montenegro, the capital markets

suffer from a lack of fixed-income instruments - the only

bonds are issued either by the central government or the

central bank. The equity market in Belgrade is quite

lively, but the main activity is takeovers of existing

publicly traded companies. Sources of long-term capital are

only now developing, with the recent introduction of

voluntary pension funds. The insurance sector is still

dominated by state-owned insurers that are being

restructured for privatization, and the companies are not

yet a source of long-term financing for the capital

markets. The United States, European Union, World Bank and

other donors are providing assistance in several areas to

develop the necessary legal and institutional framework to

enhance the role of local capital markets.





Republic of Serbia

--------------



In 1989, the Yugoslav Capital Market was formed in

accordance with the Capital and Money Market Law and was

renamed the Belgrade Stock Exchange (BSE) in 1992. BSE

operations are defined in the 1994 Act on the Exchange,

Exchange Operation and Exchange Intermediaries. The BSE has

48 shareholders (30 banks, seven broker and dealer

companies, seven companies, two insurance companies, the

State Union Republic of Serbia and Montenegro and the

Republic of Serbia) and 74 members (64 brokers and 10

banks). The BSE is governed by its Assembly, the Board of

Directors, a Director and the Supervising Board.



Short-term securities traded on the BSE include securities

issued by the National Bank of Serbia (central bank),

Serbian Ministry of Finance short-term treasury bonds,

company and bank bonds, bankers' acceptances, company

commercial paper and CDs. In 2005, there were 166,700 total

transactions executed through the BSE at a value of CSD

48.6 billion or EUR 570 million, an increase of nearly 2

percent and 20 percent over the previous year,

respectively. The average daily trade volume was

approximately CSD 190 million or EUR 2.5 million. Most of

the 2005 trade volume, 81 percent, was in equities; bonds

accounted for 19 percent. The Belgrade stock market index -

BELEXfm - increased by 451.54 index points, or 39.5

percent, during the year. During 2005, foreign investors

accounted for 42.58 percent on average of the Belgrade

stock market's total volume, with 51.18 percent in equity

volume and 15.8 percent in fixed-income. The BSE has been

utilized by the Serbian government for privatization

auctions and the sale of shares from the Privatization

Share Fund.



The 1995 Union Securities Act provides the regulatory

framework for the capital market and 1995 government decree

established the Federal Commission for Securities and

Financial Markets. In November 2002, the former Federal

Assembly enacted a new Law on Securities, which was

implemented in October 2003. The law seeks to improve upon

previous legislative shortcomings (disclosure requirements,

distinction between private placements and public

offerings, minority shareholder rights, ownership

disclosure, accounting/auditing standards, minimum entry

standards for market intermediaries, etc.). The new law

draws upon standards of the International Organization of

Securities Commissions (IOSCO),the OECD Principles of

Corporate Governance and the EU Directives on Stock

Exchanges. There are still some remaining issues related to

the law: open and closed corporate entities; obligatory

trade of securities on the BSE; mutually affiliated

companies, takeover provisions, and supervision.



All registration of securities and clearing of trades is

handled through the Central Securities Depository and

Clearing House, a joint-stock company organized in December

2003. The Depository, which is owned by its members and

government institutions, is the sole register for all

securities issued in Serbia, whether bonds or equities. The

Depository also acts as the clearing mechanism for all

trades involving its registered securities, with clearing

actually carried out through some 100 members, mostly

brokers, dealers and banks. Efficient functioning of the

Central Securities Depository and Clearing House provides

for a safe financial environment for all investors; for

instance, one key function of the depositary is temporary

custody of shares tendered pursuant to takeover bids.

During 2005, securities valued at more than EUR 10 billion

were entered into the registry, while the value of cleared

transactions reached EUR 3 billion. Among the transactions

were some 50 takeovers with a total value of EUR 568

million.



Takeovers on the Belgrade Stock Exchange have become a more

and more important method of acquisition. Current law

foresees two procedures: In the first, an investor may

quietly amass a stake of up to 25 percent of a company, but

then must formally launch a takeover with notification to

the Serbian Securities and Exchange Commission (SEC). Or,

the would-be purchaser may simply initiate the notification

without any holding in the target company. The SEC then

approves publication of the public offer and mailing of a

solicitation to all holders of record. This tender remains

open 21 days; rival suitors may launch counter-offers

within the first 14 days of this period, which then may

trigger an extension of the period. No further bids are

permitted in the last seven days of the period, after which

sell orders are tallied, and a winner declared. However,

this timetable conflicts with the timetable set out in the

new competition law, which permits the Commission for the

Protection of Competition four months to decide on a

takeover.

Takeovers have not been without controversy. In 2005, a

Slovenian company attempted a takeover of retail chain C-

Market, the shares of which had not been fully registered.

After the takeover bid was launched, employee shareholders

obtained a court injunction blocking the takeover. When the

would-be acquirer was unable to overturn the court's

injunction, it withdrew its offer. The company was

subsequently taken over by interests connected to C-Market

management.

Other sectors of the financial markets, specifically,

insurance and voluntary pension funds, are consolidated

with bank supervision under the National Bank of Serbia in

order to facilitate more effective supervision and

development of the capital market.



Banking law

--------------

On November 11, 2005 the Serbian parliament adopted a new

banking law, reaffirming the role of the National Bank of

Serbia in supervising much of the financial sector. The law

requires that a buyer of more than 5 percent of a banks

capital seek approval from the central bank, and sets the

required initial capital for a bank at EUR 10 million. The

new law stipulates that banks are no longer to be run by a

general manager but rather by a two-member executive board;

introduces more responsibilities for auditors, and calls

for setting up a risk management unit within every bank.



By the end of September 2005, there were 40 commercial

banks and one savings bank, whose assets totaled CSD 672

billion (USD 9.46 billion). Raiffeisenbank (14%),Delta

Banka/Banca Intesa (11%),and Komercialjna Banka (10%) are

the three largest banks by total bank assets in Serbia.



Amendments on Law on Financial Leasing

--------------

Amendments to the Law on Financial Leasing were adopted on

July 15, 2005. They authorize the National Bank of Serbia

to supervise leasing companies and establish financial

leasing controls. A registry in the Agency for Registration

of Business Entities keeps a record of all leasing

contracts.



Republic of Montenegro

--------------

The capital market in Montenegro was established largely

for facilitating the mass voucher privatization program.

Three components that comprise the formal institutions of

the capital market:



1. Central Depository Agency (CDA): Pursuant to the

Securities Law, all securities must be issued in

dematerialized form (there are no bearer shares).

Registration and transfer of these shares is executed

through the CDA.

2. Stock Exchanges and Brokers: There are two exchanges:

Montenegro Stock Exchange and NEX Montenegro. Ten brokers

and one dealer operate on the Montenegrin stock exchanges.

3. The Securities Commission of the Republic of Montenegro

(SCMN): Provides regulatory oversight of the exchanges and

industry activities.



Three types of securities are traded: shares of companies,

shares of privatization -investment funds and old currency

saving bonds.



By the end of September 2005, there were 10 commercial

banks, whose assets totaled EUR 595 million (USD 715

million). Crnogorska Komercialjna Banka (38%),NLB

Montenegro Banka (13%),and Podgoricka Banka (12%) are the

three largest banks per percentage of total bank assets in

Montenegro.



Index values give a good picture of the situation on the

Montenegrin Stock exchanges. High index growth rates

demonstrate that the Montenegrin capital market is

developing. The total volume of trade on both Montenegrin

stock exchanges in the first eight months of 2005 was over

EUR114.6 million, more then twice the total volume in 2004.

The number of transactions is growing. In the first eight

months of 2005, transactions totaled 66,770.



--------------

A.10. Political Violence

--------------



Since October 2000, Serbia and Montenegro has been led by

democratically-elected governments that are implementing

new policies contributing to stabilization of the region.

The union and two republic governments, along with the

majority of the public, support integration into the

European Union and the reforms necessary to achieve this

goal.



The assassination of Serbias Prime Minister in the spring

of 2003 by a criminal group threatened to be a setback for

not only Serbia but the entire country. The government

exercised responsible crisis management and launched a

crackdown on organized crime, resulting in the solving of

previous political murders perpetrated by the former

Milosevic regime; the disbanding of a Milosevic

paramilitary group; and, the removing of corrupt judges,

prosecutors and other officials.



In March 2004, violence in the U.N.-administered province

of Kosovo, largely directed by the majority ethnic Albanian

population directed against minority ethnic Serbs

heightened tension within Serbia. Mosques were damaged in

Belgrade and Nis. However, the Serbian government responded

constructively and worked with the international community

to calm the situation. The Serbian government also publicly

condemned the damage to the mosques and is providing

assistance for their repair. Serbia continues to work

within the international framework on Kosovos future

status.





There is no sustained anti-American sentiment in the

general public despite U.S. involvement in the NATO

intervention against Yugoslavia (Serbia and Montenegro) in

1999. Bilateral relations have normalized since the ouster

of Milosevic, and Serbia and Montenegro and the United

States share many policy goals and cooperate productively

in many areas. There is broad support for a strengthening

of ties with the United States, especially in the

economic/commercial sphere. There is, however, a pervasive

skepticism among the general population over U.S. foreign

policy in Serbia and Montenegro as well as globally. There

remain serious tensions and deep suspicion within the

Government and public related to the strong USG focus on

Serbia and Montenegro's as yet unfulfilled obligation to

turn over for trial those indicted by the UN International

Criminal Tribunal for the former Yugoslavia (ICTY) for war

crimes during the conflicts of the 1990s in Croatia, Bosnia

and Kosovo. There have been no incidents involving

politically motivated damage to American projects and/or

installations in Serbia and Montenegro.



--------------

A.11.a. Corruption

--------------



Corruption is a critical problem in Serbia and Montenegro.

It ranges from the petty expectation that bribes are to be

paid at any and all stages of a business transaction to

money laundering and attempts to siphon-off assets by

previously politically-connected tycoons and organized

crime groups. The imposition of international sanctions

from the early 1990s until 2001 had the unfortunate effect

of stimulating illicit trade/smuggling and a burgeoning

black market in both republics. The Milosevic regime

effectively used this situation by actively facilitating

and exploiting this illegal economic activity. By the

latter half of the 1990s, the former Yugoslavia developed a

reputation for being a lawless state at the center of

international criminal rings in drugs, auto theft,

,

cigarette/arms smuggling, human trafficking, etc.



There is now increased acknowledgement of pervasive

corruption. Increased independence and assertiveness of the

media since the ouster of Milosevic have heightened

scrutiny over the transparency of government and business

dealings as well as public pressure to combat corrupt

practices. In early 2003, the assassination of the Serbian

Prime Minister galvanized the new government to launch a

crackdown on organized crime and begin a more thorough

house-cleaning of the judiciary, security services,

military, etc. Nonetheless, after some initial positive

steps, many perceive that most of this momentum has been

lost under the current government, elected in December

2003. The widely-perceived high level of corruption in the

government and its sporadic, and sometimes politically-

motivated, efforts to combat this problem raise questions

with regard to the near-term prospects for significant

progress. Additionally, the deeply rooted practice of

f

favoring certain parties based on "veze," or connections,

in lieu of more transparent practices, will require

significant time and resources to change.



In the 2005 Corruption Perception Index survey compiled by

Transparency International (TI),an international watchdog

organization for corruption, Serbia and Montenegro received

an index score of 2.8 out of 10 (ten being "highly clean"),

reflecting a slight increase from the rating of 2.7 in

2004.



Both republic governments face the challenge of

rehabilitating how business is performed and legitimizing

much of the informal economy through the creation of a

transparent legal and regulatory framework. During the past

couple of years, there have been important steps in

creating the foundations to fight crime and corruption.

Since 2002, Serbia and Montenegro has been an active

participant in the Stability Pact Anti-Corruption

Initiative, adopting guidelines recommended within the

Pact. Additionally, the republic governments joined other

r

regional finance ministers in an initiative to combat

cross-border cigarette smuggling.



Serbia and Montenegro is a signatory to the Council of

Europe Civil Law Convention on Corruption and has ratified

the Council of Europe Criminal Law Convention on

Corruption, the United Nations Convention against

Transnational Organized Crime and the United Nations

Convention against Corruption. It is also a member of

GRECO (the Group of States against Corruption),a peer

monitoring organization that allows members to assess anti-

corruption efforts on a continuing bases.



In Serbia and Montenegro, both giving and receiving bribes

are crimes which carry prison sentences up to five and 12

years respectively. Bribes by local companies to foreign

officials are also considered criminal acts punishable by

law.



Republic of Serbia

--------------

Corruption in business and other aspects of life is

generally regarded as a critical problem in Serbia. In

December 2001, the Serbian government announced a National

Anti-Corruption Strategy focusing on: institutional

development; public administration reform; economic

reforms; civic participation; and promotion of a political

environment conducive to fighting corruption. The

government subsequently formed the Anti-Corruption Council

(an advisory committee of prominent experts with little

authority) to steer the efforts of the Serbian government.

In the past couple of years, the government has passed key

legislation to develop an anti-corruption legal framework.

Twenty-one anti-corruption teams were made operational in

26 municipalities with hotlines; the teams include a local

police officer, a state prosecutor and a state security

officer. Following the assassination of Serbias Prime

Minister and corruption scandals that rocked the previous

government, the governments efforts to combat organized

crime and corruption intensified. In March 2004, the new

government immediately pushed through a new Law on Conflict

t

of Interest to eliminate questionable activities of

government officials in response to rising public

sentiments over perceived corruption by government

officials. However, although there have been a smattering

of investigations and arrests of public officials, there

are serious questions about the government's commitment to

make these measures effective by sustained implementation.

Moreover, many observers claim that the vast majority of

corruption investigations launched by authorities have been

motivated by political considerations.



Republic of Montenegro

--------------

In 2001, the Government of Montenegro established an Anti-

Corruption Agency responsible for preparing anti-corruption

legislation, improving the transparency of financial and

business operations, coordinating activities with NGOs, and

promoting awareness in combating corruption. While solid

progress has been achieved over the past year through

passage of important legislation on public procurement, the

treasury and budget system, and courts, implementation of

these laws is now the key.



A.11.b. Bilateral Investment Agreements

--------------

Serbia and Montenegro has 41 investment protection

treaties/agreements in force with the following countries:

Albania, Austria, Belarus, Belgium and Luxemburg, Bosnia

and Herzegovina, Bulgaria, Russia, China, Cyprus, Croatia,

Cuba, Czech Republic, Egypt, Finland, FYR Macedonia,

France, Germany, Ghana, Greece, Guinea, Hungary, Holland,

India, Iran, Israel, Italy, Kuwait, Libya, Lithuania,

Nigeria, Poland, Romania, Slovakia, Slovenia, Spain,

Sweden, Switzerland, Turkey, UK, Ukraine, Zimbabwe.



Several BITs initiated in 2005 are expected to be signed in

2006, with the following countries: Denmark, Ethiopia,

Jordan, Pakistan, Qatar, Tunis and South-African Republic.



The United States does not have a Bilateral Investment

Treaty (BIT) with Serbia and Montenegro. It is possible

that, given the presence of U.S. investors, Serbia and

Montenegro could be a BIT candidate in the near future.



Serbia and Montenegro is in the center of the Southeast

Europe Free Trade Area, which was ratified and fully

functional as of 2004. It includes the following countries:

Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Serbia

and Montenegro, Macedonia, Moldova and Romania. The

agreement liberalizes at least 90 percent of mutual trade

by the end of 2008. In addition, a free trade agreement

with Russia is fully in force, offering access to a market

of 150 million people. In 2000, the European Commission

introduced Autonomous Trade Measures for Serbia and

Montenegro. These measures permit exports to the EU without

customs and quantities restrictions for almost all products

originating from Serbia and Montenegro. In addition, trade

with Kosovo, which is under UN administration, proceeds

duty free, although goods are assessed relevant taxes.



Under the Law on Free Zones, it is possible to establish a

free zone only if 30 percent of goods produced or services

supplied annually in the zone are intended for export.

Furthermore, the government has the authority to cancel the

operating license for the zone if the value of goods and

services exported from the zone is less than 50 percent of

the total value of production (goods and services) in the

zone in three consecutive years.



These provisions are contrary to Article 3 of the WTO

Agreement on Subsidies and Countervailing Measures, which

expressly prohibits subsidies contingent on export

performance. According to available information, the new

Law on Free Zones, which likely will be enacted later in

2006, will not contain such provisions. Both Serbia and

Montenegro are negotiating WTO accession.



Following the Belgrade Agreement of 2002, Montenegro and

Serbia agreed on an action plan to bring the two economic

systems together as they move jointly toward EU accession.

In practice, however, the harmonization of tariffs and

d

trade policy proved difficult. As a result, the EU proposed

a two-track approach to EU accession in October 2004. The

twin-track approach allows the EU to deal with Serbia and

Montenegro separately on issues relating to trade, customs

and economic and sectoral policies, while seeking to reach

an agreement with the union on international political

obligations and human rights.

All customs rates, previously determined by federal

legislation, are now set separately either by Serbian or

Montenegrin authorities. The trade reform has significantly

simplified both republics' trade regime by substantially

reducing and simplifying licenses, quotas, tariff rates and

structure. Both republics' customs tariffs are in

compliance with EU tariff nomenclature. There are no

tariffs for most of the products that are imported from

countries in the region. There are also no tariff rates for

products originating in Serbia and imported into

Montenegro, and there are no export duties in either

republics.







A.11.c. OPIC and Other Investment Insurance Programs

-------------- --------------

Serbia and Montenegro signed a Bilateral Agreement with the

U.S. Overseas Private Investment Corporation (OPIC) in July

2001 and became eligible for OPIC programs in November 2001

with ratification of the Agreement by the SAM Assembly.

OPIC's activities include: (1) insurance for investors

against political risk, expropriation of assets, damages

due to political violence and currency convertibility; (2)

insurance coverage for certain contracting, exporting,

licensing and leasing transactions.



OPIC also supports a USD 90 million regional equity

investment fund for Southeastern Europe managed by

Bedminster Capital Management, and it provided USD 30

million in term financing to ProCredit Holding to expand

microfinance lending in Serbia and 18 other countries. To

date, the Southeast Europe Equity Fund II has invested in

Serbia, among other countries. For more information see:

http://www.opic.gov.



Serbia and Montenegro became a member of the Multilateral

Investment Guarantee Agency (MIGA) -- a World Bank

affiliate in April 2002. MIGA also provides political

risk insurance for investors.



In the event that OPIC should pay an inconvertibility claim

under its political risk coverage, the local currency

accepted by OPIC in any subsequent recovery would be made

available to the Embassy on a priority basis for U.S.

Government expenses. The estimated annual value of local

currency used by the Embassy is approximately USD 7

million.



A.11.d. Labor

--------------

Serbias total labor force is comprised of approximately

2.93 million people, of which around 890,000 are unemployed

(Note: this translates to an official unemployment rate

reaching nearly 28 percent. However, a separate measure of

unemployment compiled by the Statistical Office, which

follows ILO methodology, estimates the actual rate of

unemployment rate closer to 19 percent.) The major

r

employment generating sectors are: manufacturing (480,000),

trade (200,000),health and social work (164,000),

education (130,000),transport/communications (119,000),

construction (88,000),and agriculture, forestry and water

industry (70,000). There are an estimated 1.2 million

people employed by state-owned or socially-owned

enterprises. (Socially owned means much of the voting

interest is held by workers.) While illiteracy is low (7

percent),Ministry of Education statistics indicate that

48.4 percent of the population has completed primary

school; 32 percent have completed secondary school; and

only 5.5 percent have a university education.



Labor costs are relatively low in Serbia and Montenegro.

In Serbia, the minimum wage (monthly) for the period July-

December 2005 is set at around CSD 7,400 (equivalent to

about USD 100). The average salary in December 2005 in

Serbia amounted to CSD 22,079, or approximately EUR 260.

The average salary in 2005, compared to the average salary

in 2004 is higher by 23.64 percent in nominal terms, and

6.40 percent in real terms. However, these are net

salaries; actual costs to employers, gross salaries, also

include personal income, social security and other

contributions that can amount to 100-120 percent of the net

salary. Calculation, deduction, and payment are the

responsibilities of the employer. The payroll contribution

for pension and disability insurance is 22 percent (11

percent paid by the employer and 11 percent by the

employee); for health insurance, 6.15 percent (3.075

percent is paid by the employer and 3.075 percent by the

employee),and for unemployment insurance, 1.5 percent

(0.75 percent is paid by the employer and 0.75 percent by

the employee). In effect, the employer pays these costs.



In Montenegro, labor costs are slightly higher but still

relatively inexpensive. The total workforce is estimated to

be 225,000 with an unemployment rate of roughly 19 percent

at the end of 2005. The latest data shows that employment

in private companies has increased, and total employment in

the social sector (including socially and state-owned

companies) has decreased. Major sectors generating

employment in Montenegro are: tourism, port/shipping and

manufacturing (aluminum, etc).



Serbias Law on Labor Relations (amended in December 2001)

and Montenegros Labor Law (adopted in 2003) regulate

employee and employer relations through employment

contracts. Previous labor legislation provided overly

generous benefits to workers. For example, excessive

severance packages (two years) were required for employees

that were terminated. More frustrating for employers was

that former laws essentially prevented terminations for

non-performance. The World Bank, in particular, worked

closely with the republic governments to seek major

amendments to these laws. As a result, both laws improved

companies ability to remove non-performing workers without

entailing excessive severance costs. Costly maternity

nity

benefits were reduced and brought in line with European

norms. Both republic laws permitted collective bargaining.

The laws reaffirm employees' right to strike but also set

out obligatory procedures for organizing a work stoppage.



However, a new Serbian Labor Law adopted in March 2005 and

amended in July 2005 was viewed by many in the foreign

investment community as a step back towards labor market

inflexibility, which poses an obstacle to investment and

the shift of employment from the gray to the formal

economy. Foreign investors believe that the implementation

of this law is greatly increasing labor costs, and that

many of its provisions represent a great burden for the

employer. For example, amendments to the new law double the

severance payment for redundant workers. Given the concerns

of foreign investors, the government of Serbia is

considering amendments to the Labor Law in 2006.



Montenegro has amended its labor law to eliminate labor

market rigidities and permit direct negotiations between

employees and employer. Labor relations are governed by

national, sector and company collective bargaining

agreements. There are concerns that the reforms envisioned

in the law could be circumvented through the

sector/company-specific agreements.



A.11.e. Foreign-Trade Zones/Free Ports

--------------

Serbias current Law on Free Trade Zones, the former

Yugoslav law promulgated in 1998, permits the establishment

of free-trade zones which provide customs duties benefits

to companies operating out of these zones. There are

currently 14 designated free-trade zones in Serbia:

Belgrade, Smederevo, Kovin, Novi Sad, Sabac, Subotica,

Sremska Mitrovica, Senta, Prahovo, Sombor, Lapovo, Vladicin

Han, Backa Palanka and Pirot. However, only five of them

are functioning at present: Belgrade, Novi Sad, Subotica,

Sabac and Pirot. Free trade zones in Pirot and Subotica

have been the most successful. Imports into the zones and

exports from the zones are not subject to quotas, permits,

licenses, or other foreign trade restrictions. Fixed

assets, machines, and construction materials can be

imported duty-free. Goods that are imported from the zones

into the domestic market are subject to standard customs

procedures; however, if the goods are produced from at

least 50 percent domestic components, they are considered

to be domestic goods. Moreover, the profit from

investments over EUR 8 million is tax-free for 10 years.



A new Law on Foreign Trade Zones is being drafted as of

early 2006. The new law will require shutdown of non-active

free trade zones, while active and newly-formed ones will

be required to submit their reports at the end of each

fiscal year to the future Directorate for Free Trade Zones.

This Directorate would be authorized to issue or cancel

licenses to operate the free trade zones. In addition, the

new law would allow the establishment of the free trade

zones within business parks.

In June 2004, Montenegro passed its own Free Trade Zone

Law. There is currently only one free trade zone: Port of

Bar. The Free Zone offers to businesses benefits and

exemptions from customs duties, taxes, and other duties.



A.11.f. Foreign Direct Investment Statistics

--------------

The source of data on FDI flows into Serbia is the National

Bank of Serbia and Customs Administration; however, there

are technical problems with reconciling this data. The NBS

takes into account only cash, mainly balance of payments

transactions, while Customs records imports of equipment.

The Serbian Investment and Export Promotion Agency tries to

combine these two sources and calculate accurate FDI data,

but only from 2004.



A second issue with the FDI data arises with regard to the

country of origin. Cash-based data recorded by the central

bank reflects the last financial center from which the

transfer to Serbia was made, but many companies use

offshore banks or subsidiaries. For instance, much of the

U.S. investment actually is recorded as originating from

the Netherlands. However, Embassy calculations show that

total US FDI from 2000 till 2005 in Serbia is USD 1.3

billion, which means that the U.S., overall, has been the

largest investor into Serbia.



Total FDI for the period 2000-05 is about USD 4.5 billion.

Assuming estimated Serbian GDP for 2005 of around USD 25

billion, the cumulative stock of FDI, as a percentage of

GDP, is more than 17 percent for the period of 2002-05 and

more than 18 percent if we include 2000 and 2001. The

inflow of FDI for 2005, as a percentage of GDP, reached 6

percent; looking back to 2001, inflows ranged from 3-6

percent of GDP in the observed period.



Foreign Direct Investment in the Republic of Serbia

(by country, in thousands of USD)



Country Total (annual): Total



2002200320042005Cumulative

-------------- --------------

Totals: 475K 1,360K 950K 1,500K 4,285K

4,285K

Netherl2,248598,963102,30191,028794,540

Germany82,80175,70897,897199,702456,108

Austria33,87693,747142,767138,245408,635

Greece12,49662,26851,351237,527363,642

Sloveni9,56129,03613,539173,734225,870

France87,4897,85823,88133,997153,225

Cyprus41,71731,58114,52663,787151,611

UK6,61820,63163,90549,957141,111

Italy7,55321,32535,88634,09798,861

Switzer2,91312,55925,11852,50393,093

USA18,09915,06815,86625,57574,608

Croatia5,24334,4467,51716,06863,274

Hungary1,1674,22417,27927,23249,902

Latvia3515,33015,286 30,651

Russia2,5563,359 14,41120,326

Belgium3441,9253,12512,39417,788

Israel2602072,50414,50317,474

Denmark7,8184,6131,04013,471

Bulgari13312911,8831,06413,209

Sweden312948,4583,58612,369

Luxembu3,6194,1082,427 10,154

Bos/Her2,9515,056 2,12110,128

Czech 2651,0042,1248474,240

Canada1113591,6991,5573,726

Japan 31,2891691,461



Montenegro



056 2,121 10,128

Czech 265 1,004 2,124 847 4,240

Canada 111 359 1,699 1,557 3,726

Japan 3 1,289 169 1,461



Montenegro



A similar issue with data arises with regard to FDI data

for Montenegro. The Central Bank of Montenegro misses much

FDI connected to privatization transactions. And since

Montenegro uses the Euro, inflows are less transparent.

For example, the Central Bank likely will not record

inflows related to the 2005 sale of Telekom Montenegro to

Hungarian Matav, because it occurred via a stock purchase.

The data coming from the Government's Montenegro Investment

Promotion Agency (MIPA) is more complete.

Estimated Montenegrin GDP for 2005 is around USD 2 billion.

The FDI stock as a percentage of GDP is 52.2 percent for

the observed period, although the FDI stock rises to almost

USD 1.5 billion, or roughly 75 percent of GDP, for the

entire period 2000-05. FDI inflow as a percentage of GDP

was almost 19 percent for 2005; annual flows during 2000-05

ranged from 16 to 19 percent.



Foreign Direct Investment in the Republic of Montenegro

(by country, in thousands of USD)



CountryTotal (annual):Total



al



2002200320042005Cumulative

-------------- --------------

Totals:169,839302,386138,525433,7501,044,500

Hungary1,0383,636 5,125.0239,375249,174

Greece16,50996,5909381,750115,788

Luxembu8,77467,0466,6255,37587,819

Sloveni7,97218,75022,00026,25074,971

Russia3,2555,28410,87552,25071,664

Germany22,6428,52314,37511,87557,414

UK30,66013,3526,8754,50055,388

Switzer6,17910,00011,75022,00049,929

Austria2,2264,8295,62521,62534,306

Belgium8,2084,886-2,12515,219

USA1,6042,1592,8756,87513,513

Serbia3,0751,9893,8754,37513,314

Italy3,4911,4208132,6258,349

BIH-1,8759384,3757,188

Croatia2,0767051,3751,5635,718

Netherl1,8491,4208756874,832

Israel1,6511,5341,0004,185

Denmark2,1791,704-3,884

Sweden8218304381,1253,213

Japan-2,898--2,898

France8219664501252,362

Slovaki--450-450

Other44,81151,98942,25023,875162,925







Following are some major FDI transactions of interest:





Slovaki - - 450 - 450

Other 44,811 51,989 42,250 23,875 162,925







Following are some major FDI transactions of interest:



Company: Bank Intesa

Country: Italy

Investment: 90 percent of Delta Banka for USD 399.6 million

- Retail Banking (Serbia)



Investing Company: Alpha Bank

Country: Greece

Investment: 88.64 percent of Jubanka for USD 185 million

- Retail Banking (Serbia)



Investing Company: Credit Agricole

Country: France

Investment: 71 percent of Meridian Banka for USD 96 million

- Retail Banking (Serbia)



Investing Company: Erste Bank

Country: Austria

Investment: 83.3 percent of Novosadska Banka for USD 87.84

million - Retail Banking (Serbia)



Investing Company: EFG Eurobank

Country: Greece

Investment: 52.2 percent of Nacionalna Stedionica - Banka

for USD 49.2 million - Retail Banking (Serbia)



Investing Company: Nova Ljubljanska Banka

Country: Slovenia

Investment: 98.4 percent of Kontinetal Banka for USD 59.4

million - Retail Banking (Serbia)



Investing Company: Findomestic Bank

Country: Italy

Investment: Nova Banka for USD 28.44 million - Retail

Banking (Serbia)



Investing Company: Pireus Bank

Country: Greece

Investment: 88.23 percent of Atlas Banka for USD 32.4

million - Retail Banking (Serbia)

Investing Company: OTP Bank

Country: Hungary

Investment: 89.39 percent of Niska Banka for USD 17.05

million - Retail Banking (Serbia)



Investing Company: Coca Cola Co.

Country: USA

Investment: 100 percent of Vlasinka Vranje for USD 25.8

million - Food Processing Industry (Serbia)



Investing Company: British-American Tobacco (BAT)

Country: UK

Investment: USD 36 million in new factory in Vranje

(Serbia)



Investing Company: Merkator

Country: Slovenia

Investment: USD 27.6 million in a new store in Cacak -

Retail Trade (Serbia)



Investing Company: Merkur

Country: Slovenia

Investment: USD 12 million in the first store in Belgrade -

Retail Trade (Serbia)



Investing Company: METRO Cash&Carry

Country: Germany

Investment: USD 72 million - Gross and Retail Trade

(Serbia)



Investing Company: Worldfin Fund

Country: Luxemburg

Investment: 70 percent of Port Belgrade for USD 48 million

- Transport (Serbia)



Investing Company: Gorenje Group

Country: Slovenia

Investment: USD 48 million in the new factory in Valjevo -

Home Appliances (Serbia)



Investing Company: Agrokor

Country: Croatia

Investment: 60 percent of Dijamant Zrenjnin - Food

Processing Industry (Serbia)



Investing Company: Interbrew

Country: Belgium

Investment: Acquisition of Niksic Brewery for USD 25.2

million (Montenegro)



Investing Company: Societe Generale

Country: France

Investment: Acquisition of 64.45 percent of Podgoricka Bank

for USD 16.8 million (Montenegro)



Investing Company: Hellenic Petroleum

Country: Greece

Investment: Acquisition of the 54.4 percent of Jugopetrol

Kotor petroleum refinery for USD 120 million (Montenegro)



Investing Company: Telenor

Country: Norway

Investment: Acquisition of Promonte mobile operator for USD

108 million (Montenegro)



Investing Company: Matav (with Deutche Telecom)

Country: Hungary

Investment: Acquisition of 51 percent of Telecom

Montenegro for USD 136.8 million (Montenegro)



Investing Company: Rusal

Country: Russia

Investment: Acquisition of aluminum plant for USD 58.2

million (Montenegro)



Investing Company: HIT Nova Gorica

Country: Slovenia

Investment: Acquisition of the Hotel Maestral for USD 48

million (Montenegro)



Investing Company: Beppler & Jacobson

Country: England

Investment: Acquisition of Hotel Bianca for USD 10.8

million (Montenegro)



Investing Company: Njega Tours

Country: Russia

Investment: Acquisition of Hotel AS for USD 18 million

(Montenegro)

Moore