Normative regulations

The Historical Development of Normative Regulations

December 2, 2017 by Nebojša Stanković

Law regulations regarding foreign investments were not always in the same form in Serbia as they are now. They were written and rewritten many times up to this day. This was partially because Serbia has transitioned from being a republic in former Yugoslavia, to Serbia and Montenegro and in the end Republic of Serbia. These law regulations have also been changed and updated over time in order to attract more investors into our country.

As part of Yugoslavia, Serbia, among other confederative republics, was the first socialist country completely open for investments coming from foreign countries. The financial transactions originating from foreign investments were not regulated by law up until 1967. Twenty years after that, Yugoslavia’s government had passed the Act of Common Banks, a legislation that enabled banks to receive foreign investments. In the following years, a lot changed.

Brief Overview of Normative Regulations

Firstly, in 1988, the government passed many legislations and allowed foreigners and domestic legal persons to invest into Yugoslavian businesses. In 1989, the government passed the first Act of Privatization. This had a positive effect on the opening of small- and medium-sized businesses in Serbia.

Only during 1991 there were more than a thousand newly opened businesses powered by cash coming from private investments. Unfortunately, the war that followed a few years after had significantly slowed down and derailed the process of privatization in this region.

The region has always attracted many foreign investors, but in the past, the only model of common investing that has worked flawlessly in the Balkans was the joint-venture one. One of the many that have happened over the years took place back in early 1960s between the Italian factory “Fiat” located in Torino and the Yugoslavian factory “Zastava” located in Kragujevac.

During the period of Zastava-Fiat joint-venture cooperation, the investments were regulated by the Act of Foreign Direct Investment, which was passed in 1967. This act contained many benefits for the foreign investors should they decide to bring their money to Yugoslavia.

One of the main reasons why there were many joint-ventures in Yugoslavia back in the day was its high economic stability. Besides, the living standards and business ecosystem were also highly developed during this period, which also had a positive impact on investment decisions of foreign investors.

The next legislation regarding this matter was passed in 1978. This new Act of Foreign Investments was designed to extend the investors’ options even further. Thanks to this legislation, foreign investors were allowed to invest their cash in even more business sectors than before.

But this law came with a few restrictions too. This caused some concern with the investors, which led to somewhat of a pause. These issues were quickly resolved and the foreign investors continued their financial and business operations in this region.

The government decided to address this act in the late 1980s. After assessing the current situation, the government decided to change both the act and the constitution of the Socialistic Federative Republic of Yugoslavia. This new legal ecosystem enabled direct investments to be made in both the business and banking sector. Thanks to these new changes and legislations, new investors started arriving. Banks and the industry were equally attractive to investors.

The Role Model of Direct Investing: Galenika and ICN

Galenika pharmaceutical company

One of the biggest direct foreign investments that took place immediately after these changes were made was when the American company ICN invested in the Serbian pharmaceutical company Galenika. Basically, ICN invested so much money in Galenika that this transaction was considered the biggest one at the time and it remained the biggest one until 1996.

The law regulating foreign investments from those days is different than the ones we have today. Let’s take investing in banks as an example. According to the law that dates back to the late 1980s, a foreign investor had the right to invest 99% of capital at maximum, while the local business had to invest 1% of capital at minimum.

After the war and sanctions had ended, the investments started to arrive again, and started to peak after the year 2000. During this period, there were a lot of common business that entered the process of privatization. Privatization took a lot of time and, in the end, it didn’t provide satisfying results for either the government or new owners. Regardless, Serbia remained the leader in the region when it comes to attracting foreign investors.

These foreign investments were very beneficial to Serbia and the Serbian economy. Labor force, managers and CEOs in these factories had the chance to see and use new technologies, learn new skills, strategies and work ethics. Serbian economy started to flourish, as new job openings were created on a regular basis.

Modern Way of Dealing with Foreign Investors

Foreign investors

In 2011, the Serbian government passed the Act of Conditions and Methods of Attracting Direct Investments. This act specifies the methods and conditions in great detail. The Serbian government has made attracting foreign investors one of its top objectives.

Investors can also consult this act to make sure that they meet the criteria to become an investor in Serbia, and see which government funds they can tap into, should they meet those criteria. By attracting more and more foreign investors, the Serbian government is planning to make the Serbian economy more competitive.

The amount of subventions the Serbian Government is giving to foreign investors depends on how many jobs that investment will create, where it is going to be located and other factors covered by the Act of Conditions and Methods of Attracting Direct Investments.

For instance, if the investor has to build an additional infrastructure (road, electricity, plumbing) in order to make the facilities operational, he holds all the rights to place a request for a refund. After the investor makes such a request, the government special committee assesses the situation and, according to the abovementioned act, decides on the amount that is going to be refunded.

Normative regulations regarding foreign investments were always one of the priorities of both past governments and the current one. Serbia is still a country in the transition period, meaning that there is a great chance that this law is going to be changed further, in order to make Serbia more attractive to foreign investors.