Serbia jumped to top ranking of attractive emerging markets

Recently I wrote here an article named ”Competitiveness of Balkans” where I sited a comprehensive annual survey “Global Economic Competitiveness Report 2008-2009” published by the World Economic Forum. (Article and report can be found from here). The report has calculated sc. “Global Competitiveness Index Rankings” (GCI) 134 countries poled. Now I was reading a report of PricewaterhouseCoopers LLP about a ranking of attractive emerging markets, which approach some Balkan countries from different angle.

PricewaterhouseCoopers – one of the leading global companies on its field of activities – published now the second year of its EM20 Index (‘the PwC EM20 Index’) generated by PwC’s innovative Risk & Reward Model. Report can be found from here.

PwC EM20

In order to be considered for inclusion in the PwC EM20 Index, countries needed to meet certain criteria associated with emerging market status. These were as follows:

• GDP per capita in 2007 less than $13,500 at market exchange rates;
• population greater than 5m people in 2007; and
• GDP at purchasing power parity in 2007 greater than $50m.

These criteria were set to identify countries with populations and resources of sufficient size to meet the needs of inward investors, while also having an appropriately low cost base. The criteria yielded a list of 50 countries.

Bulgaria and Serbia top three in Manufacturing index

The results for Bulgaria and Serbia – the second- and third-placed countries in the Manufacturing Index – illustrate the impact that significant changes in country risk premia can have on index rankings.

The two countries are similar in terms of wealth, population size and location –both being physically close to Germany. However, Serbia was placed 25th in 2004 whereas Bulgaria held the top ranking. At the time, Bulgaria was a candidate for membership of the European Union (which it joined in January 2007), while Serbia was emerging from a period of conflict and economic isolation. Thus Serbia’s move up the rankings to third place this year essentially reflects the fact that its political risk – an element contained within the country risk premium applied in the model – has more than halved over the intervening years. Another point to note is that Serbia’s corporation tax is set at a low level of 10%. For comparison, the corporation tax rate in Bulgaria is 15%.

Serbia jumped up 7^th in Services index

Serbia was ranked outside the top 20 in 2004, but achieved seventh place in 2008. Its improvement largely reflects increasing GDP per capita, although its country risk premium remains relatively high. The country risk premium reduction reflects the improvements in political and economic stability as the country moves towards EU admission.

Surprising Serbia

PricewaterhouseCooper analyses the factors for Serbia’s success and concludes following:

One country that features prominently in this year’s PwC EM20 Index, both in the Manufacturing and Services Indices, is Serbia. This may be surprising given that the country is only starting to appear on many investors’ radars as it recovers from the conflicts of the 1990s. Nonetheless, GDP has grown by 5.5% on average since 2000 and FDI (Foreign Direct Investments) is growing as the government opens up the economy and international buyers overhaul recently privatised Communist-era manufacturing facilities. The level of annual FDI inflows has grown steadily in recent years.

PwC continues, that “one of the drivers behind Serbia’s growing potential attractiveness to foreign investors is the falling risk of investing in the country. Political risk is considerably lower than at the start of the decade, while improved legal and financial institutional frameworks make capital invested in Serbia more secure. As a result, investors are willing to accept lower returns on their capital, making viable greater numbers of potential Serbian investment opportunities. Of course, Serbia still experiences some underlying political uncertainty, its accession to the EU is not imminent and further investment in infrastructure is necessary, but many international investors show confidence in the market’s potential.

Different aspects of different reports

While reading different reports it is reasonable also think a little bit which are the motivations behind their statements. EU for example is making regularly their reports about development in western Balkan countries. The point of view with these reports is, how non-member-states of EU are developing their institutions and practices towards better integration with EU practices. So these political reports are same time reflecting the values, priorities, top level statements and ideals of EU.

Whit business orientated reports the angle is different. Statements, ideals and other diplomatic small-talk is on background, the core of reports is the value for companies and potential investors. When users of political reports are playing in their virtual sandbox the business is playing with their own hard currency and when making decisions they must rely so much as possible to real facts.

Regarding Serbia last year has showed increasing trust by investors to this country. US Steel has put their money to metal processing, last Summer Fiat started to invest manufacturing of motor vehicles and Gazprom is investing oil and gas. In service sector Telekom Austria is coming to telecommunications, Merrill Lynch real estate business and News Corporation to media sector.

Political development and events are catching many headlines but real progress can be found from the ground. After many negative news and reports it is promising to see this Serbia's development gaining speed in real world.

More my articles about Balkan and Caucasus one may find from my Archives:Blog