Abstract
Fiat’s move into Zastava (the largest foreign investment to date in
Serbia) affords a massive boost of
confidence in the potentially
struggling Serbian car industry – an industry which is faced with a
possible
slowdown in foreign interest, drops in FDI and the generally
non-conducive global credit climate. BMI
forecasts that in 2009 car sales
growth will stand at 4.365 , which is a significant decline considering
the
rapid expansion seen in the sector in recent years (in 2007 passenger
car sales increased by 20% y-o-y).
However, a rapid recovery is envisaged
for 2010, with passenger car sales growing 11.2% to US$1.2bn.
Meanwhile,
total automotive production will increase to 116,425 units, driven by the Fiat
investment at
the Zastava plant.
The domestic car sector will very
likely emerge in good shape in 2010, which is illustrated by Fiat’s
obvious vote of confidence. The company has pumped about EUR 1.5mn into the
Zastava plant to date, a
small part of the investment target of EUR200mn
and EUR700mn for 2009 and 2011 respectively –
although this may be
subject to downgrading due to unseen effects of the global crisis.
Fiat
has said its decision to invest in Serbia is part of its way of adapting to
changing global realities and a
changing global market. The investment, in
turn, has helped to enhance Serbia’s competitive advantage,
which is
based around: a relatively highly skilled workforce, its reputation as a cheap
production base,
and it advantageous location between the markets of
Russia and the EU. Export potential will obviously
depend to some extent
on exchange rate movements, which will have an obvious impact on the
competitiveness of cars made in Serbia and exported.
Meanwhile,
Fiat’s decision to raise production comes after the government initiated
a EUR 1,000 car
scrapping scheme on April 15, in which people can replace
cars more than 10 years old for new Puntos.
The buyer pays EUR 5,999 for a
new car and the state subsidises the remaining EUR 1,000 of the price.
The
programme is reportedly doing well so far as public interest currently far
exceeds Zastava' s
production capacity.
The election of a more
pro-Western government has also clearly helped, although some of Fiat’s
parts
suppliers – a key element for the local and regional economy
and community – are waiting to see when
the government will decide
to sell its 30% stake in the company before investing in the country and
setting up plants. The government is also set to invest EUR300 million in new
infrastructure projects
which will include the rejuvenation of the road
and railway network in the Kragujevac region – where the
Zastava
plant is located.
In July, the IMF upped its financial support to EUR
2.94bn for Serbia, about 560% of the country’s quota
or almost 10%
of GDP. It also extended the deadline of the programme by a year – to
mid-April 2011.
The sharp deterioration in the external environment and
trade flows (in particular), as well as in output,
domestic demand and
fiscal revenues, drove Serbia to ask for more help. In turn, Serbia has
revised its
2009 budget, cutting spending and guaranteeing a general
government deficit of, at most, 3% of GDP,
also agreeing with the main
foreign banks to re-finance all private sector debt due in 2009.
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