Abstract
In BMI' s revised Food and Drink Business Environment Ratings for Q209, Serbia
remains firmly at the
bottom of the table profiling 14 main markets within
Central and Eastern Europe (CEE). Investors
continue to be wary of
unresolved political and economic issues, which notably include widespread
corruption and large-scale ' grey economy' activities. In terms of the wider
economic environment, we
now anticipate lower rates of growth than
previously projected for both 2008 and 2009. We estimate that
the Serbian
economy grew by 5.7% in 2008, down 1.3 percentage points (pp) from our
previous
projection of 6.5%, and forecast an outturn of 3.4% in 2009, down
from our previous forecast of 6.3%.
The slowdown in economic growth is
attributable to a combination of both external and domestic factors,
which
cannot be completely counterbalanced by the recent government' s decision to
lower the planned
budget deficit to 1.5% of GDP in 2009 by reducing social
spending. Concern remains that Serbia' s plans
to cover a portion of the
deficit through revenues from privatisations is overambitious in the face of
the
current financial crisis.
Nevertheless, the market continues to
offer some positives, such as the already high per-capita
consumption of
beverages. This has been recognised by a number of foreign players in the beer
market,
for example, the Dutch companies Heineken and Efes Breweries
International (EBI), which recently
formed a joint venture - United
Serbian Breweries (USB). However, the past three months have
witnessed no
major food and beverage deals involving foreign companies, indicating a wider
slowdown
in industrial activities owing to the adverse economic
conditions, although mass grocery retail (MGR)
operators Intermarché (France) and Metro Group (Germany) announced modernisation and expansion
of their outlets in Serbia.
On the other hand, leading domestic players
are continuing to consolidate their position in the market. In
December
2008, Serbian juice maker Nectar announced the acquisition of compatriot
mineral water
manufacturer Heba, in a US$3.22mn transaction. Around the
same time, Nectar revealed its intention to
expand further across the CEE
region, backed by the European Bank for Reconstruction and
Development
(EBRD), which is to provide financing. The EBRD had already lent Nectar
US$13mn,
indicating its confidence in the company' s performance. On the
back of rising disposable incomes, we
believe that Nectar' s product range,
experience of operating in CEE countries and strong distribution
network
should allow it to enlarge its market share at a reasonable pace once it
enters Romania.
The above decision is supported by the figures published
recently by beverage researcher Canadean. The
data show that, while the
growth of the European soft drinks market is experiencing a significant
slowdown, primarily owing to the minimal development of Western Europe, soft
drinks values in
Romania as well as Poland have grown strongly, while
Serbia also posted mild improvements. Overall,
Eastern Europe recorded a
2% value increase in Q308, will full-year growth expected to come in at
3%,
which bodes well for Nectar' s strategy.
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