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€800 mln in foreign investment to enter Serbia by end of 2003

Belgrade, Aug 18, 2003 Minister of Economy and Privatisation Aleksandar Vlahovic told the magazine Ekonomist that a total of €800 million will enter Serbia by the end of the year, of which €550 million will come from the sale of tobacco producers from Nis and Vranje. The official web site of the Serbian government carries excerpts from this interview:

On the privatisation of Duvanska industrija Nis (DIN) and Duvanska industrija Vranje (DIV)

By privatising tobacco companies from Nis and Vranje, we attracted two multinational companies which had never invested in this part of Europe before. I expect that Philip Morris and the British American Tobacco (BAT) will make Nis and Vranje the centers of production and distribution of cigarettes not only for the Serbian market, but for the whole of the Balkans, and that that will directly influence Serbia's foreign trade deficit. According to some data, in the first half of the year, Serbia imported cigarettes produced by Philip Morris and BAT, worth €15 million. Since we haven't exported cigarettes so far, I expect that when we start exporting cigarettes, we will reduce the foreign trade deficit by €45 million. The privatisation of these companies was a good step because it will guarantee that the companies will have steady development in the future, and it will create conditions for intensive growth of the raw tobacco production.

On the influence of the excise policy on strategic partners

The proposed amendment to the Law on excise, which clearly defines ways of conducting the excise policy in the tobacco industry in the long term, opens the possibility for potential strategic partners to produce their brands in Serbia as well, after the privatisation of DIN and DIV. A clear excise policy stimulates the production of domestic brands, as well as brands of foreign companies who work in Serbia. If the excise policy had not been changed, it would have been more convenient for strategic partners to import cigarettes than to invest in the production in Serbia.

On the effects of DIN and DIV's privatisation on the economy as a whole

The privatisation will have a direct impact on Serbia's balance of payments during this year. On the basis of the sale of tobacco companies only, some €550 million will enter Serbia by the end of the year, as part of the investments which should be realised during the year and as the price to be paid for the 70 percent of the capital. With the above mentioned €550 million, and some other projects which are currently in preparation, I expect that Serbia will attract at least €800 million in foreign investment. Direct effects of the privatisation will be visible in the tobacco industry's production capacities, and on the development of local self-government. More than €19 million from DIN's privatisation will go into the budget of the city of Nis, and €2.5 million from DIV's privatisation will go to the budget of Vranje.

On the money that will flow into republican budget

The money goes straight to the budget, except for money which goes to the local government and restitution fund, and will be used for covering the deficit. A substantial sum of money will remain; it will be placed for development of infrastructure, i.e., repair and construction of new roads and railways, whilst around ten million dinars will be streamed through the Development Fund to small and medium-sized enterprises.

On potential foreign investors

Transactions in the tobacco industry will impact the reduction of risks for foreign investments. I am sure that Philip Morris will draw in other giant American investors, whilst BAT will do likewise with those from Europe. Already here are Lafarge, Titan, Hellenic Sugar... All this shows that we are on the right track. However, some laws, which would improve the business environment, are missing. One of them is the law on bankruptcy, the adoption of which is expected in September. The idea of bankruptcy procedure is for the companies to become efficient so that the part of the economy that can be privatised could become healthy. Also, there is a reform of the registration system that would open the possibilities for companies to register for seven days at the most, while registration would be dealt with by an independent agency. Laws for the jurisdiction of other ministries will also be passed, which will round up the economic and legal climate.

On privatisation so far and this year's incomes

The privatisation plan so far has been exceeded several times over. Instead of the planned 13 billion dinars, we will collect around 28 billion dinars, including the tobacco companies. This money will go directly into the budget, without the restitution fund and local government. Smaller transactions have already brought some five billion dinars, and we expect another seven billion by the end of the year. 850 enterprises have been privatised thus far. Around 400 small and medium-sized enterprises are planned to be privatised by the end of this year. Auction privatisation of somewhat less than 1,000 enterprises is planned for the next year. In 2004, the Privatisation Agency will deal with restructuring of big socially-owned companies and I expect that by the end of next year we will start the process of privatising some of state companies.

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