Annexes to the Territorial Marketing Strategy / Danube Serbia Region

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY DANUBE SERBIA REGION

26.12.2014, Belgrade

Prepared by:

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION

Contents 1. Global and national trends of foreign direct investments ...... 3 2. Aspects of Perception of Danube Serbia as an Investment Destination ...... 12 2.1. Overall climate for doing business in the Danube Serbia region ...... 12 2.2. Corruption Perception Index ...... 14 3. Detailed analysis of target sectors ...... 15 3.1. Agriculture and rural development...... 15 3.1.1. SWOT of the ARD sector in the Danube Serbia region ...... 20 3.1.2. Conclusions ...... 22 3.2. Small and medium enterprises development ...... 24 3.2.1. SWOT the SME sector in the Danube Serbia region ...... 34 3.2.2. Conclusions ...... 36 3.3. Environment...... 40 3.3.1. SWOT of the Environment sector in the Danube Serbia region ...... 41 3.3.2. Conclusions ...... 44 3.4. Culture ...... 45 3.4.1. Conclusions ...... 51 3.5. Transport ...... 53 3.5.1. Utilization of existing network and infrastructure (soft measures) and potentials of transport modes ...... 59 3.5.2. SWOT of Transport sector in the Danube Serbia region ...... 62 3.5.3. Conclusions ...... 64 3.5.4. Key Assets, value propositions and possible development ...... 65 3.5.5. Key areas of transport development ...... 68 4. Questioner used in process of research ...... 70 5. List of workshop participants and interviewees ...... 77

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1. Global and national trends of foreign direct investments

The general definition of FDI, based on OECD, Detailed Benchmark Definition of Foreign Direct investment, third edition (OECD, 1996) and International Monetary Fund, Balance of Payments Manual, fifth edition (IMF, 1993), describes Foreign Direct Investments (FDI) as an investment involving a long-term relationship and reflecting a lasting interest and control by a resident entity in one economy (foreign direct investor or parent enterprise) in an enterprise resident in an economy other than that of the foreign direct investor (FDI enterprise or affiliate enterprise or foreign affiliate).

Empirical evidence suggest that most of countries are competing to attract as much as possible FDI`s in order to boost their economic growth, where countries with less developed financial markets and economies in general, tend to use different systems of subsidies and related public policies to attract FDI`s in order to counter costs generated by their own inefficiencies in economic, legal or political systems like corruption, ineffective public administration, rule of law, etc.

GRAPH 1

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Source of data: OECD, Foreign Direct Investment (FDI) Statistics - OECD Data, Analysis and Forecasts

The Graph 1 clearly indicates that paste of growth of FDI inward stock was increasing worldwide, in OECD and EU countries throughout the period, with only one exception – the crises period (2008). Also, the graph suggests that crises period has equally affected all target markets for FDI, irrelevant of their geographical or economic area.

However, although we can observe similar trends of growth before the crises period, it is obvious that paste of growth of FDI inward stocks is starting to differ pending of the regions and economic areas, resulting that EU is facing substantial slowdown compared to total world and OCED countries. It may be further expected that, due to recent developments in Eastern Europe, particularly the conflict in Ukraine, EU will continue to slow down in paste of growth of FDI inward stock, further affecting its economic growth rates. Similar patterns of slowdown both in FDI and economic growth could be expected in Russian Federation, with overall stronger negative effects.

Having in mind that more than 85% of all foreign trade of Serbia and almost 90% of all FDI to Serbia come from Europe, be it EU, the region or other European countries (Russia, Norway) it is expected that slowdown in these markets (FDI and economic growth) will directly reflect on Serbia and the Danube Serbia region.

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GRAPH 2

Source of data: OECD, Foreign Direct Investment (FDI) Statistics - OECD Data, Analysis and Forecasts

Graph 2 reflects the volatility of FDI in certain years, with two sharp declines, after the 2000 and after 2008. The trend lines clearly show the difference in paste of growth of the received FDI between total world, OECD countries and EU countries in the observed period, with EU countries having the slowest growth rate. Although none of the observed groups of countries, reached pre crises levels of FDI inflow, it is clearly visible that both OECD and EU countries are lagging behind if compared to trend of the total world.

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GRAPH 3

Source of data: The World Bank

Danube countries have experienced severe decline in net FDI inflow measured in per capita terms after 2008. Most of countries, except Germany, belong to more or less developed “developing countries”, as defined by the World Bank, of which Germany is and “old” EU member, Slovakia and Hungary (2004), Romania and Bulgaria (2007) and Croatia (2013) are new EU members, while Serbia is a candidate country.

Graph 4 indicates strong volatility in FDI net income per capita in case of Hungary and to some extent in Germany, with both countries have positive and negative net inflows of FDI per capita.

Graph 5 suggests that only Hungary had significantly above average net FDI per capita inflow in the observed period, and Bulgaria to a certain extent, while all other observed countries had bellow average net FDI per capita inflow compared to the Danube countries.

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GRAPH 4

Source of data: The World Bank

GRAPH 5

Source of data: The World Bank

Most of countries of southeast Europe have developed significant policies mechanism to attract investments and push their economic growth.

In Serbia particularly, the pattern of promotion and subsidizing FDI was followed by almost all Governments after the democratic changes from October

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2000, irrelevant of their political background. Special Government agency – Serbian Exports and Investment Promotion Agency (SIEPA) was founded to facilitate Government efforts to attract investments, while several regional and local agencies were also established. According to SIEPA web site,” Serbia Investment and Export Promotion Agency (SIEPA) is a government organization dedicated to effectively helping foreign investors and buyers, while raising Serbia's profile in the minds of international business decision-makers. Created in 2001 by the Government of the Republic of Serbia, our mission is to support foreign companies seeking to set up or expand in Serbia and Serbian companies when doing business worldwide.“

GRAPH 6

Source of data: National Bank of Serbia

It can be noticed from graph 6 that Serbia still has not recovered from the 2008 crisis in terms of total FDI net inflow. Not only that it didn’t reach the pre-crises levels, but also it is still far below the average of the observed period.

Thus, it can clearly be observed that external factors have heavily influenced the net level of FDI in all of the observed countries. However, it is also clear that within the overall trend that shaped the net FDI inflow, some countries have managed to perform better than others. Thus, it remains to be investigated in further analysis how to enhance the competitiveness set of Serbia and in more particular, Danube Serbia to attract more FDI and generate economic growth and new jobs.

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GRAPH 7

Source of data: National Bank of Serbia/SIEPA

The inflow of FDI to Serbia in 2005-2013 primarily came from European countries, mostly EU members. However, according to SIEPA, the actual amount of U.S. investment is significantly higher than the official figure due to their companies investing primarily through European affiliates. This also holds for Belgium, Denmark, Israel, and a number of other countries. It should be noted that almost 34% of all FDI`s, as per available data, came to Serbia from the Danube countries.

TABLE 1 Investment value (EUR mil.) Industry (2004-2013) % of total

Financial intermediation 4,968 25 Manufacturing 4,766 24 Wholesale, retail and repairs 3,167 16 Real-estate activities 2,459 12 Transport, storage and repairs 2,456 12 Construction 586 3 Mining and quarrying 544 3 Agriculture, forestry and fishing 194 1 Other utility, social and personal services 136 1 Professional, scientific and technical services 119 1 Accommodation and food service activities 97 0.49 Public administration and social insurance 83 0.42 Electricity, gas and water 73 0.37 Administrative and support service activities 26 0.13 Education 4 0.02

Total 19,678

Source of data: National Bank of Serbia / SIEPA

Almost two thirds (66%) of all FDI`s in Serbia, in period 2004-2013, went into financial intermediation sector, manufacturing and wholesale, retail and repairs

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION sectors, while transport attracted around 12% and agriculture attracted roughly 1% of all FDI`s.

TABLE 2 City/municipality Number of projects Percentage Value (eur million) Percentage Jobs Percentage Belgrade 76 21.30% 5743.2 27.50% 40657 25.90% Novi Sad 22 6.10% 2196 10.50% 17804 11.40% Zrenjanin 13 3.60% 890.7 4.30% 4969 3.20% Inđija 10 2.80% 693.1 3.30% 4737 3.00% Stara Pazova 9 2.50% 251.1 1.20% 3441 2.20% Vršac 9 2.50% 248.4 1.20% 3054 1.90% Bačka Palanka 7 1.90% 180 0.90% 2885 1.80% Pećinci 7 1.90% 174.5 0.80% 2424 1.50% Sremska Mitrovica 7 1.90% 169.6 0.80% 2283 1.50% Ruma 6 1.70% 163.8 0.80% 1838 1.20% Novi Bečej 4 1.10% 135 0.60% 1307 0.80% Bečej 3 0.80% 77.2 0.40% 939 0.60% Koceljevo 3 0.80% 70 0.30% 900 0.60% Loznica 3 0.80% 62.5 0.30% 890 0.60% Pančevo 3 0.80% 60 0.30% 727 0.50% Smederevo 3 0.80% 60 0.30% 708 0.50% Zaječar 3 0.80% 52.8 0.30% 635 0.40% Apatin 2 0.60% 52.4 0.30% 618 0.40% Kovin 2 0.60% 40.7 0.20% 510 0.30% Nova Crnja 2 0.60% 34 0.20% 480 0.30% Odžaci 2 0.60% 31 0.10% 450 0.30% Šabac 2 0.60% 30.5 0.10% 400 0.30% Sečanj 2 0.60% 28 0.10% 376 0.20% Sombor 2 0.60% 27.5 0.10% 340 0.20% Alibunar 1 0.30% 22.3 0.10% 300 0.20% Bač 1 0.30% 21.2 0.10% 300 0.20% Bački Petrovac 1 0.30% 21 0.10% 226 0.10% Bela Crkva 1 0.30% 18 0.10% 177 0.10% Beočin 1 0.30% 17 0.10% 150 0.10% Knjaževac 1 0.30% 9.9 0.00% 120 0.10% Kovačica 1 0.30% 8 0.00% 82 0.10% Šid 1 0.30% 3.2 0.00% 38 0.00% Smederevska Palanka 1 0.30% 3 0.00% 25 0.00% Titel 1 0.30% 1.5 0.00% 0 0.00% Vrbas 1 0.30% 0.2 0.00% 0 0.00% Žitište 1 0.30% 0 0.00% 0 0.00% Total 359 20858.4 156636 Source: Horwath HTL

The data in the table 2 suggest strong correlation of FDI with major population and economic centers in Serbia. Thus, looking at the Danube Serbia region, measured by number of projects, value of FDI or number of jobs created, Belgrade and Novi Sad have attracted most significant number of FDI`s.

Furthermore, two relatively smaller municipalities in population terms, Indjija and Stara Pazova, have heavily utilized the fact that are geographically located in close vicinity of Belgrade, while enjoying relatively good transport connection to both northern and western part of Corridor X (Belgrade-Zagreb and Belgrade- Novi Sad-Budapest highway).

In general, we can presume that potential demand or vicinity to biggest markets in country (including goods, services and labour markets), as well as existing production capacities (privatization of existing companies) have strongly influenced targeted cities / municipalities for FDI inflow.

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However, direct access to Danube seem not to have influenced significantly the decisions where to invest, although it is noticeable that municipalities / cities north or west from Belgrade, have been more successful in attracting FDIs, compared to cities / municipalities to the east and south from Belgrade, which can partially be explained with proximity of EU markets, access to national markets, especially labour market and access to general infrastructure.

It can be further noted that within Serbia, different regions have substantially different capacity and ability to attract FDIs. According to Vojvodina Government web site: “At the prestigious Financial Times’ competition, ranking “European Cities and Regions of the Future”, Vojvodina was proclaimed the first among 54 mid-sized regions in effectiveness of foreign investments, competing with the Italian, Spanish and Slovenian regions. In addition, Vojvodina was, based on the same criterion, ranked fourth among all European regions and cities, and was ranked fourth in the South Europe for its strategy for the attraction of foreign investments.”

In general, some of the basic factors influencing FDIs-whereabouts decision, like geographical position, natural resources, size of local markets, access to other markets etc. are beyond influence of national or local governments.

In Serbia, particularly, most of FDI subsidies and related public policies are formulated at national level, of which some directly stimulate FDI inflow to certain underdeveloped municipalities or regions. According to SIEPA, following national policies are in place to attract FDIs (http://siepa.gov.rs/en/index- en/invest-in-serbia/investment-incentives/ - Local):  State Grants  The National Employment Service Grants  Corporate Profit Tax Holiday  Corporate Profit Tax Credits  Carrying Forward of Losses  Avoiding Double Taxation  Salary Tax and Social Insurance Charges Exemptions  Annual Income Tax Deductions  Value Added Tax Exemptions in Free Zones  Customs-Free Imports

Local governments/municipalities in Serbia have very limited options, including policy options, to attract FDIs. Most important, according to SIEPA, are:

 City construction land lease fee exemptions or deductions, including the option of paying in instalments, with the prior consent of the Serbian Government;  City construction land development fee relief such as fee exemptions or discounts for one-off payments;

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 Other local fees exemptions or deductions (e.g. the fee for displaying the company's name).

However, it should be kept in mind, that these specifically targeted municipalities / regions, have the support of the national government, as they alone would not be able to attract FDI`s due to extremely bad infrastructure and geographic location, low human capacity or other deterring factors.

At the same time, we have witnessed that certain municipalities have managed to use local policies to stimulate strong inflow of FDI`s, among which, Indjija Municipality could be a good example.

2. Aspects of Perception of Danube Serbia as an Investment Destination

2.1. Overall climate for doing business in the Danube Serbia region

According to 2015 "Doing Business Report", the twelfth edition, Republic of Serbia (and, thus, the Danube Serbia Region) has experienced a significant setback in terms of overall ranking. The document represents a World Bank Group Flagship Report that compares Business Regulations for domestic firms in 189 economies and selected cities at the subnational and regional level.

Based on adjusted figures and findings from 2014, in 2015 Serbia has worsened its relative rank position from being 77th to 91st among the compared economies.

The following table, taken from the report, shows that none of the observed indicators have improved, with only two of them remaining unchanged. The data show that most significant deterioration of business environment happened within the Registering Property indicator.

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TABLE 3

Source: http://www.doingbusiness.org/data/exploreeconomies/serbia

Further investigation within the “registering property” indicator shows that Serbia is most significantly lagging behind OECD countries and its regional peers in “number of days” needed to register property, as can be observed in the following table:

TABLE 4

Source: http://www.doingbusiness.org/data/exploreeconomies/serbia#registering-property

The data indicates that Serbia’s relative position has worsen over the last year, and the problem should be adequately addressed within the Territorial Marketing Strategy of Danube Region in order to avoid potential misunderstandings or lose credibility within the investment community.

On the other hand, the measures proposed with Territorial Marketing Strategy can be used to mobilize key stakeholders in order to raise the awareness of the importance of tackling the problem, in order to enhance the quality of overall business environment.

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2.2. Corruption Perception Index

Participants at the workshops, as well as several interviewed representatives of associations representing foreign investors, pointed out at corruption as a great challenge to be addressed in order to raise credibility of Serbia within investment community.

Looking at the progress that Serbia made on the list of Transparency International, an increase of index in 2013 from 39 to 42 was recorded, and therefore, Serbia shifted from 80th to 72nd position. However, the index is still rather low and places Serbia among countries with widespread corruption. On the other hand, this progress should be used as an incentive to initiate reforms that will ensure systemic curbing of corruption.

It seems that severe rhetoric against corruption and certain activities of law enforcement bodies certainly influenced to somewhat decreased corruption level in public services that potential investors whose estimation is used to establish the Index, get in contact with. However, progress won’t be sustainable if based solely on fear instead of removing the corruption causes.

This means that significant reforms in public sector, serious commitment to prevention, active prosecution and accountable judiciary are needed. In that respect, one of the actions within the framework of this strategy is to contribute to improving the business climate and better position regarding perception of corruption within target investment communities.

Looking at the other components of the investment environment, the region can become favorable location for expanding / starting a business, utilizing a good geo-strategic position, providing accessibility to a relatively good workforce and comparable tax policies and available incentives.

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3. Detailed analysis of target sectors 3.1. Agriculture and rural development

As stated in “National priorities for international assistance (NAD) 2014-2017 with 2020 projections”, the importance of agriculture for the Serbian national economy is high, which is confirmed by data on the sector's share in GDP, employment and exports.1 This state of affairs is the result of two basic factors: firstly the rate of restructuring in other sectors has been slow, resulting in low investment activity and consequently low employment opportunities in non- agricultural sectors; secondly, the high availability of rich natural resources for agricultural production in Serbia2.

Less than 1% of all FDI inflow to Serbia was absorbed by agriculture sector. Having in mind that agriculture represents one of the few chosen pillars for Serbian future economic development, the recorded FDI levels in the sector remains low and inadequate to substantially modernize the sector and boost the growth. According to prof. dr Danilo Tomić and prof. dr Miladin M. Ševarlić3, reasons for such a minor share of agriculture in total receiving’s of FDI in Serbia are:  low profitability of the sector  unstable economic and climatic conditions for the agricultural production  unfavourable agrarian structure  the absence of quality standards and government subsidies necessary for the placement of agro- food products in foreign markets

According to the Census in Agriculture 2012, done by Serbian Statistics Office, there were 631.552 agricultural holdings and 108.230 Households with 45.002 ha of agricultural land and livestock registered in Republic of Serbia. Of the total number of holdings, 0.5% are holdings of legal entities and unincorporated enterprises. Observing the legal form, limited liabilities companies make the largest share, i.e. 34%; unincorporated enterprises have the share of 16%, and farm cooperatives 13%.

According to the same source, following are the main indicators of the structure of holdings:  agricultural land covers the total area of 3.861.477 ha, of which 89% was utilized in 2011/2012. Of the total utilized agricultural area, 30% is rented land;  the average utilized agricultural area per holding extends over 5.4 ha;

1 “National priorities for international assistance (nad) 2014-2017 with 2020 projections agriculture and rural development”, Internet, http://www.evropa.gov.rs/Documents/Home/DACU/12/74/NAD%202014- 2017%20with%20projections%20until%202020%20(English).pdf 2 Berkum Siemen Van and Natalija Bogdanov (2012): Serbia on the Road to EU Accession: Consequences for Agricultural Policy and the Agri-food Chain, CABI, Oxfordshire, UK 3 prof. dr Danilo Tomić, Visoka poslovna škola strukovnih studija, Novi Sad and prof. dr Miladin M. Ševarlić, Institut za agroekonomiju, Poljoprivredni fakultet Univerziteta u Beogradu

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 the average number of separate lots of utilized agricultural area per holding is six, and the average separate lot covers 0.98 ha;  agricultural holdings raise 908.102 heads of cattle, 3.407.318 pigs, 1.736.440 sheep and 26.711.220 hens;  the number of own tractors (with one axle and with two axles) is 597.816, of which the major part, i.e. 583.723 were used in 2011/2012;  the average age of holders of family agricultural holdings is 59 years.

Serbia’s farm structure state of affairs is as follows: farms above 20 ha represent less than 1% of the holdings and use 7% of the total agricultural area. Primarily, Serbia's farms are fragmented, with a large part of the farm holdings being (semi-) subsistence. World Bank researches show that 60% farms do not have surplus production to sell. There are also substantial regional differences, where Vojvodina, especially northern part, has large farms, with modern equipment and management structures.

The agriculture production is extensive, with crop production as the main value (cereals).

Affection of weather conditions is high, but there is a growing trend of modern irrigation and anti-hail systems in the last 2 years.

Floods in 2014, which made serious damage to agriculture and rural development sector, raised awareness and urge to address these issues in more structured manner.

Livestock production is declining.

Agri-food supply chain suffers a lot of limitations in Serbia. Direct sales of food is highly significant, and with growing trend.

There is a growing trend in Serbia in organic farming sector. One of the reasons for this is consequence of farmers not having enough financial resources to use synthetic inputs, which would otherwise use (this is important for conversion period). On the other hand, organic farming sector cannot overcome obstacles of inefficient production, processing and marketing, until interwoven processes are resolved, such as national agriculture budget for organic production, poor supply chain organization.

There is an increased interest in in raising plantations with high quality and authentic regional varieties (Prokupac, Muscadine, Skadarka and others) and locally created varieties (Probus, Sila, Morava and others), which all contribute to the improvement of viticulture in Serbia.

One of the main tools available to regional agriculture comes from available EU funds, and primarily Instrument for Pre-accession Assistance priority area d) agriculture and rural development –IPARD-, as integral part of IPA. The main objective of the IPARD program is to contribute to solving of the problems of

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION structural adjustment in agricultural sector and rural areas in order to strengthen competitiveness in relation to European Union market, as well as increasing the quality of life in rural areas.

Rural areas, directly linked to agriculture production and processing, suffer from two important negative trends in Serbia: declining population and in parallel, decline of women in rural areas.

Level of education (formal and informal) additional skills and knowledge are assessed as low by focus group and by competent public, including university professors and experts.

Rural infrastructure needs investments, which cannot be done by local self- governments without proper additional financial support. The fact that local infrastructure is not included in IPARD Programe 2014-2020 for Serbia, strikes as worrying.

LEADER (Liaison Entre Actions de Développement de l'Économie Rurale) is a powerful tool for linking different sectors at sub-regional level, and for creating active partnership between these sectors. Through the local development strategies prepared by the Local Action Groups, it can achieve an integrated and inclusive approach to local development. LAGs make development processes visible and accessible to stakeholders, and can build the capacity of stakeholders to grasp opportunities for development. In Serbia there are 26 potential Local Action Groups (LAG), established by the EU rules for LEADER. Budget support is expected to follow, in order for Serbia to exploit full social capital and potential gathered around LAGs. More on LAGs in Serbia: http://www.leader.org.rs/next/en/ipard202

According to the Analysis of trends in production and trade of agricultural products in Vojvodina, compared to production and trade in Serbia, region, EU and world, done by SEEDEV for the Program: „Fond za promociju izvoza poljoprivrednih proizvoda“, the main long-term trends that characterize the current level of agricultural development worldwide are:

1. Global distribution of competitiveness 2. Reduction of rural and agricultural population 3. Increasing productivity in agriculture 4. Climate change

In addition, according to the same source, two recent events will continue to significantly have impact on agricultural production; the global economic crisis, including the crisis in the EU and increase in food prices around the globe. Furthermore, changes in consumer habits and their concern for food safety and the quest for quality will strongly continue the producers to meet these specifics of demand. It can also be expected that recent developments in eastern Europe, primarily the Ukrainian conflict, and exchange of economic sanctions between EU and Russia, especially in agriculture sector, will further influence the volatility of agriculture products prices and thus will increase the risk associated

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION with the agro sector. In following period more interventionism from both sides is expected, in order to manage the losses of their respective markets.

As for the region, according to the same source, the following are the main characteristics of the agriculture production:

1. Increase in output productivity and adjustment of production 2. Increase in regional trade, especially with-in CEFTA 3. Further depopulation of rural areas 4. Croatian EU accession 5. Fulfillment of the requirements for obtaining EU funds for agriculture (IPARD)

Regional characteristics, as listed above, suggest that regional tendencies correlate with world trends to a large extent. Increase of output and adjustment of production to better meet demand, with increase of regional trade in agriculture products, suggest that distribution of competitiveness is happening within the region. Growth of output along with further depopulation of rural areas suggests increase of productivity. At the same time, as suggested by available data, the process of agglomeration is occurring, that should result in enhanced ability to apply and successfully withdraw available public (national and EU) and private funds and thus to reduce the technology and human capacity gap.

Without further investigation, we will here point out key findings of the SEEDEV analysis, in respect to agriculture production in Serbia, key problems and recommendations in different sectors (see table 3). It is obvious that, in general, agriculture sector in Serbia had achieved certain progress, but still is experiencing systemic challenges that need to be addressed. In order to achieve significantly higher competitiveness in relation to EU and the region, the reforms and more innovative approach need to be implemented by key stakeholders. Ability to use EU funds may be a key success factor in the future.

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TABLE 4 Main ssector characteristics Key problems Recommendations Strong growth of production of - Continue development of the land market , which leads - Quality of seeds and fertilizers corn, and stagnation and decline to enlarging and improving production Grain - Unreformed stockpiles and state of production of wheat and - Improve forward sale production intervention barley. At the same time, export - Separate the grains by quality groups - Lack of adequate storage space of corn shows strong growth. - Improve the quality of seeds

- Reform of education in agriculture and the development of Quality advisers in primary production and marketing - Pressure on the government to establish phyto-sanitary Strong growth of apples - Lack of functional phyto-sanitary system system to enable faster introduction of standards Fruit production and exports, while - Lack of knowledge about modern - Establishment of a system for certifying IP prodcution production of other fruits technologies - Increase the budget funds for investment in this sector stagnates or declines. - Orientation to only one ( Russian ) market as the primary production and storage, preparation for market and processing - Revitalization and/or removal of unproductive plants that are sources of disease or pests

Difficulties in achieving competitiveness with countries in the southern hemisphere in “easy Strong growth of production of perishable” vegetables and in northern in carrot and decline of peppers and “harder perishable” vegetables potato production. In 2011, the - Facilitating the certification system , the Establishment - Outdated technology of cultivation highest growth of exports of IPM and phytosanitary system Reform (primarily equipment , machinery , and food) recorded peppers , carrots and - Increase the investment in the sector along the entire and preparations market Vegetables potatoes, while the largest supply chain - Insufficient and inadequate storage facilities production decrease for the second year in a - Improving the organization of producers for the sake of for perishable vegetables row recorded cucumber. After unifying and harmonizing offers - A small processing capacity that would be significant growth in 2010, when - Quality in response to the processes of liberalization capable of processing vegetables of lower exports more than tripled, tomato and “supermarketization” classes exporters experienced slight - Incommensurate policy incentives for decrease in exports in 2011. producers of vegetables

- Adapting policies to small producers , which prevents the development of the sector Meat production in generals - Weak cultivating organizations and stagnates or slightly grows. Milk inefficient selection service - Establishment of veterinary system that will be Meat and production declines since 2006. - Inability to export to the EU market due to recognized by the EU milk While export of other varieties of inadequate veterinary system - Registration by the EU model production meat incrementally oscillates, - inadequate subsidies to livestock - Improving the racial composition of the import of high exports of beef strongly declines - Too high variations of prices Quality cattle and building a chain of reproduction since 2007. - the Lack of an independent Quality control of Milk - Continuously reduction of livestock

- Opening the sector to competition steady growth of sugar beets since Steady growth of sugar beets since 2008, - investment in irrigation systems especially for soybeans 2008, weak growth of soybeans weak growth of soybeans and weak decline of and sugar beets Industrial and weak decline of sunflower sunflower production in Serbia. However, all - Attracting major international companies in to crops production in Serbia. However, all three plants show strong growth of exports processing sector of industrial plants in Vojvodina, with three plants show strong growth from Serbia since 2009. strong access to markets, technology and management of exports from Serbia since 2009. know-how Source of data: SEEDEV

The additional tasks in front of the main actors of Serbian ARD sector is highly demanding process of Serbia and EU negotiations on agriculture and rural development, with major challenge for the agriculture and rural development sector is to meet EU requirements and standards. At the moment Serbia is waiting for official report from Bilateral screening of European Commission for Chapter 11, where there will be stated the state of affairs in this sector, along with gaps to be bridged.

The result of the harmonization of the Republic of Serbia with the European Union in the field of agriculture and rural development will be the access to the EU market with over 500 million consumers, the arrangement of production, processing and sale of agricultural products in the common market and with third countries. Membership in the European Union will enable farmers use the

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION funds from the agriculture and rural development, improve product quality and thus significantly increase their competitiveness in the EU market.4

The complexity of harmonization, and its implications to trends in Serbian ARD sector overcome the scope of this document.

Finally, a very resourceful document regarding rural stakeholders in Serbia, and challenges that face them, is “ Empowering the rural stakeholders for EU integration” (Source: Report on travelling workshop in the countries of Western Balkans, European Commission, 2014). In order for rural stakeholders to improve situation in rural Serbia, the following 11 main elements are suggested:  Clarity about the role of different levels of governance  Integrated approaches to development  Support to marginal areas and small-farming communities  Clear and open processes of information, consultation and participation  Review of systems and programmes where necessary  Versatile extension services  Collective action by stakeholders  Village leadership  Expansion of the LEADER approach  Continued and strengthened networking at all levels  Capacity-building  Time, and persistence

3.1.1. SWOT of the ARD sector in the Danube Serbia region

Strengths  Rich land resources, favorable ratio of available land per capita and per an employee in agriculture;  Richness in biodiversity;  Good quality and structure of the agricultural land;  Favorable climate conditions for agricultural production;  The potential for the production of high value products, including growing organic production  Well positioning and competitiveness on the regional market and to Russia and CEFTA countries  Export of corn shows strong growth  Potential for direct marketing and creation of value added products in farm households  Progress made with Leader implementation in Serbia: 26 potential Local Action Groups (LAGs), including 605 rural stakeholders, and covering 15% of the national territory  Progress with regard to alignment with the CMOs, rural development policy, as well as food safety, veterinary and phytosanitary policy  Diversification of rural economy: rural tourism

4 Vodič kroz pregovore Srbije i Evropske unije, Internet, http://kurs-pregovori.seio.gov.rs/?page=17, 02/11/2014

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 Significantly improved technology in some sub-sectors (mill industry, oil production companies, meat and milk processing facilities, freezing and processing facilities for fruit, grapes and vegetables);  Accessibility of the raw materials produced in the country;  Significant areas of High natural value fields;  Significant biomass production, possibility of production of energy crops and usage of renewable energy sources;  Multi-ethnicity and multi-culturality in Serbian rural areas/villages  Danube and Sava waterways  Increased interest in in raising plantations with high quality and authentic regional varieties (Prokupac, Muscadine, Skadarka and others) and locally created varieties (Probus, Sila, Morava and others).

Weaknesses  Unfavourable agrarian structure  The absence of quality standards and government subsidies necessary for the placement of agro- food products in foreign markets  Technical and technological obsolescence (out-dated mechanisation and technology, insufficient storage facilities)  Inefficient system of agricultural knowledge transfer  Low quality of seeds and fertilizers  Insufficient number of cattle;  Low awareness concerning environmental issues and food safety standards  Weak human resource capacities – lack of educated, trained and skilled labour force in sector  Large part of the agricultural sector is not integrated in the agri-food supply chain  Lack of interest in cooperation among local entrepreneurs  Unused natural resources and cultural heritage of rural areas  Low administrative capacity on the national level, in terms of number of people and in terms of knowledge  Weak monitoring of effects of policy implementation  A lot of EU framework legislation to be transposed  Weak national administration and decision makers capacities for innovative and up-to-date rural development policy planning and implementation  Insufficient cooperation between state and CSO  Inexistence of producers’ groups and, as cause for that, lack of national policy to support their establishing and development  Lack of timely information towards nonstate actors  Quality of life in villages is low (absence of basic institutions such as ambulance, pharmacy, school, cultural institutions)  Agriculture and rural development policy frequent discontinuity  Monopoly or near-monopoly situations  Continuing outmigration of young people and the further weakening of rural economies and communities.

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Opportunities  The possibility of export growth, especially of products of higher added value  The possibility of attracting FDIs  Increasing market of existing upstream and downstream industries  Ability to generate new jobs and growth of employment through diversification of goods and services provided by farms  Availability of financing from EU and bilateral funds  IPARD Programme 2014-2020  Strong CSOs willing to support the sector with skills, knowledge and time  Demand for high quality top segment products

Threats  The absence of an adequate response to the challenges of climate change and global warming  Increased competition on the domestic and regional markets  Continuation of the intensive depopulation of villages and its consequences  Lack of stability and often changing sector’s policy and administration responsible for its implementation

3.1.2. Conclusions

Agriculture and rural development in Serbia has significant resources, both in terms of their scope and diversification, providing significant potential for production growth, products and services diversification and creation of the new and innovative products and practices. On the other hand, it is necessary to invest significant efforts in structural reforms in the sector and rural areas, in terms of strengthening their economic efficiency and competitiveness. Special emphasis should be given to education and trainings for relevant actors in ARD sector.

Newly adopted Strategy for Agriculture and Rural Development 2014-2020 points out the directions of future reforms of agricultural policy and institutional framework: 1. “Agricultural policy reform to enable a dynamic restructuring of the sector, the efficient EU accession through gradual adjustment of the policy with CAP and a modern role of the state in agricultural development management in rural areas; 2. Adoption and full implementation of the legal framework which provides the legal basis for both implementation of the Strategy itself and for adjustment of the national laws with EU legislation – Аcquis communautaire;

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3. Institutional reforms that would enable meeting the strategic goals, efficient implementation of the selected policy and adjusting the administrative structures with EU requirements”.5

Following these directions of desired reform set up by State; having in mind needs of and processes initiated by CSOs; and respecting private sector, we can say in conclusion that Danube Serbia Region should concentrate future efforts on the following three levels:

1. Keep up the good job: a. Corn export b. Orchards (especially apples) with new modern technologies c. Introducing vineyard geographic origin system, wines with geographical indications d. LEADER methodology for rural development: Local Action Groups (LAG) to be fully supported by national budget, and from 2017 to become fully operational under IPARD Program e. Foster rural tourism

2. Significantly improve most promising aspects: a. Foster produce of higher processing phase b. Professionalization of promotion and marketing of agricultural products c. Increase high value added products d. Increase support for biomass production, and energy from crops waste and usage of renewable energy sources e. Develop domestic market for organic products (educating and promoting) f. Beekeeping and honey production: growth in the number of households and number of hives. Quality honey in Danube Serbia Region (for instance Deliblatska Pescara acacia honey, etc.) can be competitive on the foreign market.

3. Mitigate the risks as much as possible

Risks stated in SWOT should be mitigated by carefully designed measures. Civil Society Organizations will be important actors, representing the interests of the society and monitoring the public administration work.

5 Strategy for Agriculture and Rural Development 2014-2020, Official Gazette of the Republic of Serbia, no. 85/14, August 12th, 2014

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3.2. Small and medium enterprises development

SME sector represents one of the most important pillars of the EU economy, where micro-enterprises in 2012 employed approximately 86.8 million people. This represents 66.5% of all European jobs for that year. Micro-enterprises provide just under a third of that total employment figure. The SME sector as a whole delivered 57.6% of the gross value added generated by the private, non- financial economy in Europe during 2012 according to European Commission Annual Report on EU SMEs 2012/2013.

Although national Governments in South-East Europe see SME sector as an important part of national economies, they have so far mostly failed to develop systematic support and boost its economic performance. Most of subsidies offered to investors target large investments, brining large number of employees. This is particularly case in Serbia, where Regulation on terms and conditions of attracting direct investments6, specifically targets large investors.

However, this leaves regional governments a lot of free space to find the ways to support the development of local SME potential and enhance the local economic growth, but also to directly approach SME sector of more developed economies like Germany and Austria and market their local investment opportunities. In terms of total number of companies in Serbia, micro, small and medium enterprises represent absolute majority, with more than 99%.

GRAPH 8

Source of data: Statistical yearbook of the Republic of Serbia, 2013

6 http://www.siepa.gov.rs/files/pdf2010/Uredba_o_uslovima_i_nacinu_privlacenja_direktnih_investicija_2012.pdf

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Table 5 Data for 2011 Micro (0-9) % Small (10-49) % Medium (50-249) % Large (250+) % total

Mining and quarrying 241 0 39 0 17 1 9 2 307.5711

Mnufacturing 13482 18 2634 29 866 41 217 45 17287.88

Electricity, gas, steam and air conditioning supply 344 0 42 0 26 1 15 3 429.1729 Water supply; sewerage, waste management and remediation activities 490 1 151 2 124 6 30 6 803.2406

Construction 6118 8 887 10 223 11 52 11 7308.829 Wholesale and retail trade; repair of motor vehicles and motorcycles 30034 41 2758 31 407 19 71 15 33361.1

Transportation and storage 4179 6 580 6 111 5 31 6 4918.441

Accommodation and food service activities 2077 3 317 4 80 4 6 1 2490.168

Information and communication 3411 5 422 5 73 3 18 4 3936.828

Real estate activities 730 1 41 0 9 0 0 0 781.8821

Professional, scientific and technical activities 9554 13 869 10 110 5 8 2 10568.96

Administrative and support service activities 2448 3 250 3 59 3 30 6 2795.932 Source of data: Statistical yearbook of the Republic of Serbia, 2013

The data show that majority of the SME companies were working in wholesale and retail trade and repair of motor vehicles and motorcycles sector, 41% in micro, 31% in small and 19% in medium enterprises. It should be noted that medium enterprises represent 41% of manufacturing companies in Serbia.

GRAPH 9

Source of data: Statistical yearbook of the Republic of Serbia, 2013

SME sector is Serbia creates roughly 60% of total labour demand in Serbia, and it is suspected to be the most disbursed sector of economy, operating in both large industrial and population centers, but also reaching the most rural areas of Serbia.

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Table 6 Serbia - Basic Figures - 2013 Number of Number of Value added enterprises employees (Billion €) Micro 72,995 210,101 2 Small 8,984 181,033 3 Medium-sized 2,103 223,367 3 TOTAL SMEs 84,082 614,501 7 Source of data: European Commission "SME Performance Review"

Within the SME sector in Serbia, micro segment represent most of registered businesses in Serbia. However, the share of labour demand and value added is almost equally distributed between the three segments of SME sector, with medium size businesses being the strongest segmenting both indicators.

According to EC The European Comission Annual Report on European SMEs, Serbia has implemented 12 new policy measures addressing seven out of the ten policy areas under the Small Business Act.

European Comission generally follows ten policy areas in order to understand dynamics in the SME sector of Serbia. As giving in the cobweb diagram bellow, Serbia significantly fails to meet EU average in almost all of the observed policy areas.

GRAPH 10

Source: European Commission "SBA Fact Sheet 2013, Serbia"

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GRAPH 11

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

Serbian society seems to be more entrepreneurial compared to EU average, with higher percent of adults intending to start a business within three years, as recorded in 2009, and seem to be happier with media attention for the sector. However, Serbian society provides relatively lower status to successful entrepreneurship. Furthermore, SME sector in Serbia feels relatively more burden of Government regulation compared to EU average.

GRAPH 12

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

According to European Commission European Commission Annual Report on EU SMEs 2012/2013, “Serbian SMEs grew steadily in number during the period 2008 – 2011. Nonetheless, the job losses by Serbian SMEs were more pronounced than for SMEs in the European Union. In 2010, Serbian SME value added was over 18% lower compared to 2008. The following year Serbian SMEs

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION experienced an increase of 8.6% in value added. The reasons behind Serbian SME performance can be attributed to the volatile business environment characterised by an unstable financial sector - the credit market for SMEs is heavily subsidised - and low demand. Although the pre-election expansive fiscal and industrial policies breathed some life into the economy, key sectors still performed poorly, with the exception of the information and communication service sectors that demonstrated a large increase of +10% since 2011, which continued into 2012.”

GRAPH 13

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

SMEs in Serbia seem to be significantly lagging behind EU average when innovations are in question, either in terms of product/process or marketing and organizational innovations. Furthermore, we can assume that due to relatively uneasy access to financing and relatively inadequate capital levels, Serbian SMEs tend to relay more on “in-house” innovations. The figures clearly show the gaps of Serbian SMEs and should be used as a guideline for policy makers in Serbia how to help the SME sector.

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GRAPH 14

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia" However, when compared in on-line sales and purchasing, Serbian SMEs sector does not significantly lag behind EU average.

GRAPH 15

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

However, Serbian SME`s lack significantly in participation in EU funded research, if compared with EU average in 2010.

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GRAPH 16

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

It can be concluded from the available data that Serbia SMEs are lagging behind EU average in terms of offering green products and benefiting from public support measures targeting green products and services.

GRAPH 17

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

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GRAPH 18

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

GRAPH 19

Source of data: European Commission, "SBA Fact Sheet 2013, Serbia"

If compared in number of days to import/export, cost of import/export and number of documents needed for import/export Serbian SMS`s face much harder environment compared to EU average.

EU funds available for SME sector in Serbia are covered in details in “EU FUNDING opportunities SMEs in Serbia for 2013 and beyond” analysis prepared by European Project Center - EPC, Belgrade. We will here pinpoint key findings of Eu funds available for SME sector in Serbia.

At first, it is very important to understand the key difference between “EU Programmes” and Instrument for Pre-accession assistance, where the “latter is

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION focused exclusively on pre-accession countries and supports their accession path towards the EU, while EU Programmes are focused on EU Members States, with the possibility for pre-accession countries to participate in selected Programmes, for implementation of EU policies in different areas.”7

Some of the IPA funded projects in Serbia relevant for SMEs are: 1. Support to Enterprise Competitiveness and Export Promotion - SECEP 2. Improved Serbian SME Competitiveness and Innovation - ICIP 3. Innovation Serbia Project

Support to Enterprise Competitiveness and Export Promotion – SECEP, “seeks to improve the competitiveness of Serbian small and medium sized enterprises (SME) through three related but different components: - Cluster development (including cluster mapping and analysis) - Supply chain development - Internationalization – promoting Serbian small and medium enterprises (SMEs) and developing their ability to export”

“The key objective of the SECEP Project is to support the development of market economy and socio-economic cohesion in Serbia by improving the international competitiveness and export performance of small and medium sized enterprises. The SECEP Project is supported by the Ministry of Economy and Regional Development, the National Agency for Regional Development, Chamber of Commerce of Serbia and Serbia Investment and Export Promotion Agency (SIEPA), and it is funded by the European Union. The process of cluster development will be realized with six Serbian clusters among which quantitative and qualitative mapping will be conducted. Initially, each of the six clusters will be required to develop a Cluster Action Plan (commonly referred to as cluster road mapping). The Cluster Road Map will identify objectives of each cluster, along with the Action Plan development which should lead to achievement of these objectives. The SECEP Project will then start working with each of the selected clusters and will assist them in the Action Plan implementation. It is expected that the activities will vary from cluster to cluster, depending on industrial sector, needs of the cluster, as well as its members (such as technology transfer, innovation, export assistance) along with assistance in cluster coordination and management requirements. The second component of the SECEP Project is the Supplier Development Programme that seeks to improve the performance of Serbian companies (SMEs) by improving product quality and business environment so that the companies would become more efficient and better prepared suppliers of multi-national companies operating in Serbia. It is intended that at least 15 multi-national companies take part in this program. The program will enhance innovation, technology transfer and improved quality certification among Serbian SMEs. The primary goal of this part of the SECEP Project is to achieve new supply chain contracts for Serbian companies with multi-national companies operating in Serbia and the region of South East Europe, thereby seeking to boost direct and indirect Serbian exports. Reduction of imports, increased employment and

7 “EU FUNDING opportunities SMEs in Serbia for 2013 and beyond”, EPC Belgrade

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION higher value of exported goods – are the key goals that connect the SECEP Project and Serbian economy development strategy. For the participation in the Supplier Development Programme 80 SMEs were selected from automotive, metal, electrical, IT and the packaging sector, and according to the methodology of the European Foundation For Quality Management (EFQM), evaluation of the entire business operation was organized for them. After the implementation of the Action Plan for improvement, which was proposed by the SECEP Project consultants, 50 most successful enterprises were chosen to receive intensive support for their further business improvement. By the end of 2011, the experts for those areas in which the need for additional improvement was identified will be working with them. The SECEP Project organizes business exhibitions ‘Meet the buyer’ (May/October 2010 and 2011) at which precisely these companies are given a chance to present themselves as potential suppliers of big companies to potential buyers of their products and services. During 2011, the SECEP Project will provide support for the initiative of the exporters interested in establishing the association of exporters, and it will also organize training for the interested export-oriented enterprises. The SECEP Project also includes the implementation of a programme of internationalization for the six prioritized clusters. Through the internationalization component, the project seeks to improve the ability of Serbian clusters not only to export, by means of activities such as market analysis and partner search, but also to build a network outside of Serbia with clusters in other countries (like exchange of experience and joint market activities), along with strengthening links with member countries of CEFTA.”8

According to World Economic Forum Report “Enhancing Europe’s Competitiveness Fostering Innovation-driven Entrepreneurship in Europe”, Europe needs to reinvent itself as it is facing growing global competition and its own high labour costs. Thus, according to the same source, Europe will be able to generate sustainable and significant growth only through a relentless focus on a knowledge economy and on enhancing the environment for high value-added innovation-driven entrepreneurship.

As a result, a Component 2 of the ICIP competitiveness through innovation for economic growth was developed with main focus “on supporting competitiveness and innovation through capacity building of both government institutions and specialist Business Innovation Support Organizations (BISOs). The purpose of Innovation Serbia Project is to foster the competitiveness of the Serbian economy by improving the link between R&D and economic development through the capacity building of the Innovation Fund, implementation of financial instruments supporting enterprise innovation by the Innovation Fund and provision of technical assistance to selected research and development institutes.”9

8 National Agency for Regional Development, Republic of Serbia 9 “EU FUNDING opportunities SMEs in Serbia for 2013 and beyond”, EPC Belgrade

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According to the “EU FUNDING opportunities SMEs in Serbia for 2013 and beyond “analysis: “The purpose of Innovation Serbia Project is to foster the competitiveness of the Serbian economy by improving the link between R&D and economic development through the capacity building of the Innovation Fund, implementation of financial instruments supporting enterprise innovation by the Innovation Fund and provision of technical assistance to selected research and development institutes.”

3.2.1. SWOT the SME sector in the Danube Serbia region

SME sector in the Danube region is not different to the rest of the country.

Strengths

  Infrastructure integration with the EU as a key market - rail, road, river corridors  The existence and use of agreements on free trade - primarily the CEFTA agreement, depending on the industry contracts with Russia and Turkey in focus  Cost competitive workforce in relation to the quality that provides  The availability of quality manpower in the areas of services, which can provide great added value

Weaknesses

 The current state of the overall infrastructure  River and railway infrastructure is in a very poor condition  Infrastructure incoherence - river infrastructure, regulation of river banks, connections to other means of transport into intermodal transport, which potential is far below optimal exploitation  Weak institutional system  Inconsistencies in the implementation of legislation at both the national, regional and local governments level  Efforts of local governments are not sufficient to take advantage of law to the level of competence that are received during the process of decentralization  Business environment - regulation and support enterprises, taxation and bureaucracy, tax incentives are not particularly prone to the development of SMEs  High administrative barriers  The inefficiency of the judiciary - the slowness in the implementation (law enforcement) process  The problems of collecting overdue debts (receivables), as a result of ineffective judiciary system (legal protection)  The unpredictability of the market  Height of bank interest rates, rigid banking business policies  Unregulated assets and property relations  Political (in) stability

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Threats

 The lack of coordination of representatives of different institutions  The adoption of shortsighted decisions at the local level that are inconsistent with the marketing plan. Some decisions at the city level (local governments) to significantly alter the business environment. Example - irresponsibly rising of local taxes or compensation to companies, with the aim of filling the budget gap in short-term. In the long run, such decisions have completely opposite effects.  The limited capacity of marketing plan implementation at local level  Discontinuity in the context of public policy or political environment  Incompetence in the process realization of accreditation, standardization and implementation of projects  The tendency of representatives of the state administration and local self- government to follow legal procedures, which failure may harm reputation of institutions  The inefficiency of the administration  Stopping the process of EU integration and adverse consequences for the economy and society as a whole  Abandonment of organized national approach in attracting large foreign investment at a time when the entire world is fighting for them  Abandoning the reform of state administration, which includes the elimination of complicated bureaucratic procedures and the fight against corruption at any level

Opportunities

 Improving all types of infrastructure  Agriculture can be a chance if the government seriously addresses the implementation, i.e. application of the law on food safety, and in a broader sense of quality infrastructure (development of an institutionalized system for quality control)  The existing network of institutions - chamber system, regional and local development agencies, associations and similar  The possibility of further development of intermodal transport  The strategic position of the region Danube Serbia  The process of European integration, with the idea to use it in order to accept a higher value system and make government administration more efficient  A different approach to SME&FDI marketing - both institutional and at the level of the relevant associations, established pursuant to the examples of international associations  Development of franchising in order to secure faster transfer of knowledge and technology onto domestic SMEs  Danube Strategy as the basis for project preparation and withdrawal of funds from European and regional funds  Lowering the jurisdiction of the local government - the full implementation of all the laws in the process of decentralization to local government, particularly law on public property  Political stability  Implementation of planned reforms to improve the business environment  Vast spaces and resources privatized and debt-ridden to the state and the public sector can be freed after the completion of privatization, i.e. insolvency

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proceedings. Example - unused office space in major cities in the context of the development of ICT (incubators, start-up's etc.)

3.2.2. Conclusions

GCI Global Competitiveness Index rightly puts Serbia in a very bad place – ranked 95 out of 144 listed countries for the period 2012/2013.

While there are areas in which Serbia ahead of the countries in the region, an area in which it is necessary to make a serious effort, in which Serbia is at the very bottom of the list are legal certainty, the overall quality of infrastructure, training of the labour force, availability of new technology.

Table 6 T a b l e 2 D i s c r e p a n c i e s b e t w e e n Q u a l i t a t i v e a n d Q u a n t i t a t i v e G C I I n d i c a t o r s s e l e c t i o n 2 0 1 2 - 2 0 1 3 1st pillar: Institutions Rank/144 7th pillar: Labour market efficiency Rank/144 1.01 Property rights 130 7.01 Cooperation in labour-employer 139 1.02 Intellectual property protection 116 relations 1.22 Strength of investor protection* 65* 7.04 Redundancy costs* 21* 2nd pillar: Infrastructure 7.06 Reliance on professional management 135 2.01 Quality of overall infrastructure 120 7.09 Women in labour force, ratio to men* 77* 2.08 Mobile telephone subscriptions/100 pop* 38* 8th pillar: Financial market development 2.09 Fixed telephone lines/100 pop* 31* 8.01 Availability of financial services 97 5th pillar: Higher education and training 8.06 Soundness of banks 119 5.02 Tertiary education enrolment rate* 52* 8.08 Legal rights index* 24* 5.08 Extent of staff training 138 9th pillar: Technological readiness 6th pillar: Goods market efficiency 9.01 Availability of latest technologies 127 6.02 Extent of market dominance 142 9.02 Firm-level technology absorption 142 6.04 Extent and effect of taxation 122 9.04 Individuals using Internet* 67* 6.05 Total tax rate, % profits* 50* 9.06 Internet bandwidth* 20* 6.07 No. days to start a business* 59* 9.07 Mobile broadband subscriptions* 32*

Source: WEF, Global Competitiveness Index (GCI) for 2012-2013 As a measure for reducing the negative impact of the current economic crisis, the Government has increased a package for foreign companies interested in setting-up their businesses in InSe r thebia. B contextesides h a ofvin SMEsg one o andf the innovationlowest corpor a andte ta x ICT, rate sthe in E poorurope economic(10%), the S situationerbian influencedGovernment is the giv in attitudeg non-refu n ofda b SMEsle gran ts towards that can b e innovation. up to €10.000 It p er is e m evidentployee. R ec thatently , the communicationthese measures ha v betweene also bec o SMEsme av a andilable researchto Serbian institutionscompanies wi lli isng ratherto inve st poor. in ne w The majorityfactories. of SMEs is characterized by indifference to innovations. Partly this might be a rational choice of SMEs themselves, because in times of crisis their Where is Serbia on EU Technological Map? focus is on investments in those tasks and activities that provide instant effects.Econom icThey com pdoeti tnotiven ehavess as thewell spaceas the forsoc ilongety o-rtermganisa tplanningion and t randansp ainvestment,rency are bes tand illustrated with the diagram of IT investments according to the economic strength (GDP). especially not for innovation. F i g u r e 1 I T I n v e s t m e n t a c c o r d i n g t o E c o n o m i c S t r e n g t h ( G D P ) .

1400

Sweden 1200 United Kingdom Netherlands Finland 1000 France

]

€ Belgium Austria

[ Germany

a 800

g 600

i mediana

s Italy

T I 400 36 Spain Slovenia Czech Republic Portugal

200 Hungary Greece Croatia Slovakia Estonia Poland Latvia Serbia Lithuania Montenegro MacBeudlognairaia Romania Albanija B i H 0 0 5 10 15 20 25 30 35 40 GDP per capita [000 €]

Source: Eurostat, EITO 2007, Mineco 2010

12 T a b l e 2 D i s c r e p a n c i e s b e t w e e n Q u a l i t a t i v e a n d Q u a n t i t a t i v e G C I I n d i c a t o r s s e l e c t i o n 2 0 1 2 - 2 0 1 3 1st pillar: Institutions Rank/144 7th pillar: Labour market efficiency Rank/144 1.01 Property rights 130 7.01 Cooperation in labour-employer 139 1.02 Intellectual property protection 116 relations 1.22 Strength of investor protection* 65* 7.04 Redundancy costs* 21* 2nd pillar: Infrastructure 7.06 Reliance on professional management 135 2.01 Quality of overall infrastructure 120 7.09 Women in labour force, ratio to men* 77* 2.08 Mobile telephone subscriptions/100 pop* 38* 8th pillar: Financial market development 2.09 Fixed telephone lines/100 pop* 31* 8.01 Availability of financial services 97 5th pillar: Higher education and training 8.06 Soundness of banks 119 5.02 Tertiary education enrolment rate* 52* 8.08 Legal rights index* 24* 5.08 Extent of staff training 138 9th pillar: Technological readiness 6th pillar: Goods market efficiency 9.01 Availability of latest technologies 127 6.02 Extent of market dominance 142 9.02 Firm-level technology absorption 142 6.04 Extent and effect of taxation 122 9.04 Individuals using Internet* 67* 6.05 Total tax rate, % profits* 50* 9.06 Internet bandwidth* 20* 6.07 No. days to start a business* 59* 9.07 Mobile broadband subscriptions* 32*

Where is Serbia on EU Technological Map? Economic competitiveness as well as the society organisation and transparency are best illustrated with the diagram of IT investments according to the economic strength (GDP). GRAPH 20 F i g u r e 1 I T I n v e s t m e n t a c c o r d i n g t o E c o n o m i c S t r e n g t h ( G D P ) .

1400

Sweden

1200

United Kingdom Netherlands Finland 1000

France

]

€ Belgium Austria

[

Germany

a 800

g 600

i mediana

s Italy

T I 400 Spain Slovenia Czech Republic Portugal

200 Hungary Greece Croatia Slovakia Estonia Poland Latvia Serbia Lithuania Montenegro MacBedulognairaia Romania Albanija B i H 0 0 5 10 15 20 25 30 35 40 GDP per capita [000 €]

Source: Eurostat, EITO 2007, Mineco 2010

12 ICT industry, without any tradition, but with strong scientific and educational centers, includes 2500 companies and recorded more than 15,000 jobs in 2011. Although the majority represents micro businesses (under 10 employees), with a growth rate of 10% per annum, it is part of the Serbian economy with the greatest potential and stable growth.

Bearing in mind that each year more than 5000 students at different levels begin studies directed towards information technology, and that the industry itself is already a net exporter - there is great potential in further promoting Serbia as a destination suitable for outsourcing, which is a global trend in which Serbia must find its place.

Some of the success stories are companies on the global market are Nordeus Belgrade, Novi Sad HINTTECH.

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Table 7

Organization of SME in clusters or business associations is at a very low level. The main reason for this is the lack of motivation among SMEs themselves. The entire SME sector in average when one looks, has a fear of losing competitive advantage on domestic market and is afraid of sharing their own work and experience among similar companies. From the perspective of the average companies in Serbia, the association also represents a fairly risky business, because in the event of a dispute there is no adequate legal support. Litigations are too long and complex, and require significant financial costs that the average company cannot sustain.

All this affects negatively on the relationship between international associations, companies and individuals themselves, which is at a relatively low level, providing long-term negative impact on the perception of Serbian Danube region and the whole country as an investment destination. Taxes that the SME sector pays would have to be given back through some system implemented in the promotion and sale of their products. One way would be to support organizing and joining professional associations and their links with international associations, which would contribute to the realization and strengthening business relationships in order to develop the business.

In the context of the promotion of the Danube Serbia region, it is logical that Danube represents a positive brand in the field of tourism and services (e.g. the entertainment industry). Although perceived more positively than spa resorts, Danube itself as a brand has certain limits.

However, the image about the Danube area is not only food, but also the image of Central Europe, the tradition of technical standards, and the industrial sector.

Territorial marketing is not just branding, but also sale of products and services. Therefore, in this segment is very hard to come up with a precise answer. The SME sector in Serbia has a very low capacity, a step down compared to developed countries. Data show that 300,000 registered businesses (enterprises and entrepreneurs) only 500 are big companies. Even 90% of those 500 in the developed countries would belong to the category of small and medium enterprises.

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Examples of good practice (successful investment and generally successful companies) should be promoted, and on the other side of a territorial marketing strategy integrated into the company's plans.

Successful investment can easily influence the formation of brand perception. E.g. large multinational companies can engage in the supply chain a large number of SMEs and thus promote the region as a destination for investment. Such activities, through a vertical chain of energy production in a very short time give excellent results. On the other hand similar channels (the multinationals) open up a whole new space for SMEs – manufacturing of private label for known buyer. Used in this field of business it can be a multiple of domicile SME – apart from secure sale, it is possible to integrate into larger and stronger market, supply chains, transfer of new technologies and for new products etc.

Current reputation of Serbia and Danube Serbian region is contradictory. On the one hand, it increases, because investment community feels the concentration of power through consolidation and enlargement of ruling parties on the political scene, which provides them with optimistic outlook in terms of predictability and political stability. On the other hand, the economic situation is difficult, and implemented reforms do not produce the expected results in terms of a significant improvement of the business climate, and companies over the years are facing falling business activity as a result of the fall in aggregate demand.

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3.3. Environment

Protection and improvement of working and living environment, rational and ecologically acceptable exploitation of resources, preservation of non-renewable natural resources, improvement of environment protection systems, reduction of pollution (air, water, soil, wastes, noise, etc.) and pressure on environment as a whole represent the priorities of the Strategy of Sustainable Development of Serbia. The strategy has eight parts from which part five are dedicated to the environmental protection issue and to the sustainability of natural resources in the Republic of Serbia together with the impact of economical development on the environment.

Economic potential of the environment sector in Serbia is increasingly recognized both by domestic and foreign investors. Investments into clean technologies, energy efficiency, development of new and ecologically acceptable and innovative products and investments in recycle plants for products that after use become special wastes will enable increased employment, business competitiveness and improved quality of life of the citizens.

Green economy and investments into environment can become one of the strategic directions for the development of the Danube Serbia region economy in future. It is a big opportunity for new employment and drawing of financial resources from pre accession funds of the EU with the aim to build the sustainable system of environment protection.

The environmental sector is highly complex, being comprised of a diverse set of activities. These activities range from segments such as carbon emissions reductions, waste management and natural resources, with high influence on economic development and investment trends. Within each domain of the environmental sector, there are sub-sectors.

The environmental protection domain includes protection of ambient air and climate, water protection, treatment, supply and conservation, waste management, remediation, protection of biodiversity and landscape, noise abatement, and other environmental protection segments. I

The resource management domain is divided into management of natural resources, management of energy resources, and other environmental resource management activities.

In addition, there are some segments existing across both domains. These include environmental education and training, environmental policy and legislation, environmental research and development, eco-innovation, environmental health and safety, environmental communications and public awareness, and other environmental segments.

Environmental development is local, but at the same time it has important regional dimension and influence. Therefore, environment becomes one of the strategic directions for the development of the Danube region economy in future,

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3.3.1. SWOT of the Environment sector in the Danube Serbia region

Strengths

 Environmental protection recognized among national priorities;  Presence of sound EU policy in environmental protection actions;  Increased awareness of the need for development of the environment sector;  Actual reform and strategic planning processes in environment sector;  Human resources - a stable size of the total population and its educational structure;  Improved water quality in the Danube flow through Serbia;  Reserved quality of the environment in areas that are not industrial develop;  Preserved and good valued status of protected areas and nature resources;  International importance of the protected nature and of the planned areas for protection;  Nature resources, particularly in protected areas;  High level of biodiversity;  Diversified natural resources

Weaknesses

 Strong differences in regional and local development;  Lack of planning and projects approach to the sustainable use of natural resources;  A low share of GDP invested in environment protection;  Low level of citizens participation;  Excessive pollution of the water, air and soil;  Inadequate waste management practice;  Lack of incentive measures to reduce pollution.

Opportunities

 Further development and strengthening of institutions for the increased responsibility in the sector of environment;  Integration in the EU;  Utilization of EU funds;  Cooperation with the Danube region countries;  Introducing EU standards and norms to provide quality of the environment;  Establishing a system of sustainable nature protection management in order to improve the current situation;

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 Multifunctional protected areas of nature and culture heritage, whose resources support the public interest in science, education and culture and at the same time provide the basis for sustainable development;  Introducing and acceptance the concept of cleaner production;  Increasing energy efficiency and rational use of nature resources;  Inter-regional and cross-border cooperation and implementation of joint projects through partnerships and European funds;  Joint environment investment of the Danube countries.

Threats

 Industry with obsolete technology and its influence as the big polluters;  Increased unemployment, poverty and slowed economic growth;  Unstable economic situation;  Lagging behind the region due to unresolved legal, strategic and planning issues;  Vulnerability of water resources from pollution;  Uneven spatial distribution of the population and its strong concentration in regional centres;  Insufficient protection, conservation and development of nature;  Insufficient presentations and undeveloped interpretation of nature heritage;  Possible lack of stakeholders willing to implement environment legal reforms;  Possible lack of institutional support for acquisition of latest environmental technologies;  Insufficient public information and insufficient public awareness;  Lack of investments for environment;  Starting industrial production with obsolete technologies.

For economic potentials in Serbia, as well as of affirmation of environmental protection and sustainable development of Danube Serbia region, it is important to reach quality parameters of the environment concerning its resources and potentials: maintaining and improving the water quality of the Danube; improvement of the air quality; the possibility of funding the projects from pre- accession EU funds for the establishment of integrated air quality monitoring in all municipalities of the Danube Serbia region, particularly in the area of industrial zones, energy facilities, shipyards and harbours; conditionally favourable environmental quality in most urban and industrial part of the region; quality of the environment in the nature protected areas; increasing environmental awareness of citizens; active CSOs in the field of environment; the possibility of establishing an integrated management of ecological status of the Danube to achieve higher degree of cooperation of all Danube Serbia communities in the implementation of national and international legislation, conventions, strategies and plans.

Identification of environmental objectives for Danube Serbia region are based on general and operational strategy priorities.

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The general priorities of environmental development in the Danube Serbia region are: monitoring and managing the impacts on the environment; implementing the measures for the protection and improvement of the environment, in particular for the prevention of water pollution (from industry, households and agriculture), soil, air, noise impacts (industrial plants, ports and harbours), collection and disposal of solid municipal and industrial wastes; prevention against accidents and pollution by hazardous substances; providing conditions for environmentally sustainable socio-economic development through the rational use of land, energy, water and resources implementing proposed measures for environmental protection and nature conservation.

According the general priorities of environmental development in the Danube Serbia region, the operational environmental priorities are:  Achieving a "good ecological potential" of the Danube Serbia region;  Limiting and controlling impact of the activities without conflict with Danube environmental protection;  Reducing emissions of harmful substances into the air from industry, energy, heating system and transport;  Development of plant systems for primary and secondary treatment of wastewater;  Implementation of the Waste Management Strategy (2010-2019);  Reducing emissions of noise from ports, harbours, industrial facilities and traffic;  Reducing the use of agro technical treatment which adversely affect the environment;  Increasing investment for environmental protection, through investment funds;  Improving information and environmental protection education for the population;  Increasing a public participation in decision making about a quality of life and environment.

In addition, identification of objectives of nature values for Danube Serbia region are based on general and operational priorities.

The general priorities of nature protection are: protection and development of nature values, biological diversity, beauty and diversity of landscapes, objects and phenomena of geological heritage at national, regional and local level; implementing a measures to protect nature values, based on adopted international regulations by the Republic of Serbia relating to the nature protection; sustainable use of nature resources with minimizing adverse impacts.

According the general priorities of nature protection in the Danube Serbia region, the operational nature values protection priorities are:

 Activation a potential of nature heritage as a development factor;

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 Protection and development of nature reserve areas;  Preservation and valorisation of the diversity of Danube wild life: flora and fauna and its increase by reintroduction of missing indigenous species of animals and plants;  Identification and protection of ecological important areas or habitats, wild flora and fauna through the program Natura 2000;  Conservation of nature protected areas in conditions to protect and present its phenomenon;  Integrally preserving the authenticity of nature heritage and its environment;  Presentation and interpretation of nature heritage, creating the conditions for the regional and international integration of Danube nature heritage identity.

3.3.2. Conclusions

The environment is an under-pinning element of all human activities. As such it is taken into account in many sectors, either voluntarily or, when that is not the case, through legislative requirements, strategies and investments.

The general priorities of environmental development in the Danube Serbia refer to rational and ecologically acceptable exploitation of resources, preservation of non-renewable natural resources, development of environment protection systems, reduction of pollution (air, water, soil, wastes, noise, etc.), protection and valorisation of the biodiversity of Danube wild life.

Also, the natural heritage of the Danube Serbia region is of wider - European importance. The region contains a large share of remaining great wilderness areas, as well as rich nature heritage sites. The Danube Serbia region with Danube river and its tributaries are vital to the wildlife ecosystems and indeed provide ecological connections that are essential for environmental health.

The environmental situation in the Danube Serbia region enjoys a relatively clean natural environment, however certain environmental issues, such as pollution of river by industry sites are areas of concern. Air pollution is relatively low, but with regard to pollution of waterways, environmental protection and collaboration in region is a priority.

The priorities of environmental development of the Danube Serbia region have to be considered with other policy fields and sectors and require an integrated approach. For example: improving transport infrastructure has a positive impact on the business environment, on the attractiveness of cities and regions or on the mobility of citizens, but it can also have negative impacts on landscapes, biodiversity, quality of air, soil and water. All these matters require integrated approach, viewing all relevant sectors together, with imperative to find the most sustainable solution as joint investment for the future.

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3.4. Culture

Serbia has been accelerating its EU accession as a fullflaged member, thus there are many priorities to consider as well as to support the implementation of foreseen EU standards, policies and programmes. The focus is certainly on the fields where the existing assets and resources gain comparative advantages. Yet, as battling with negative international image and poor perception for many years, mostly as consequences of the conflicts and transitional (political) instabilities, the supporting fields that shift perceptions, and more essential facilitate the new (positive) image, adding value on living and working ambience are untapped potential.

Culture represents one of those untapped potential which with coordinated and strategic approach successfully response on polycentric urban and sustainable rural development, encourage entrepreneurship, especially in the frame of creative industries, allows meaningful work on communication corridors and enhance marketing of destinations and regions, including the Danube region in Serbia.

Therefore, taking cultural context into account and including recognition of diverse local values, conditions, resources, skills and limitations should lead to transformative and sustainable change in the Danube Serbia region too. A people-centred and place-based approach integrated into development programmes and strategies which contribute to empowerment of communities, enabling them to take ownership of the development processes, contribute to growth of the creative economy in general and the creative and cultural industries in particular, increase the production of new creative ideas or technologies, and the creation of a non-monetized social benefits are crucial according to the opinion of stakeholders interviewed in the frame of the project on “Socio-economic development of the Danube region in Serbia” run by the Danube Competence Center and Horwath HTL.

Identifying sectoral breadth was necessary for measuring the cultural domain and defining categories taken into consideration. The pragmatic definition of culture used in UNESCO Framework for Cultural Statistics (FCS) is based on the representation of culture by domains for which the purpose is to measure cultural activities, goods and services that are generated by industrial and non- industrial processes. The characteristics of cultural goods and services must differ from other products because their system of valorisation, which includes a characteristic irreproducible, is linked to its appreciation or pleasure (Throsby, 2001).

The FCS cultural domains, represent a common set of culturally productive industries, activities and practices that can be grouped under the following headings:

A: Cultural and Natural Heritage; B: Performance and Celebration; C: Visual Arts and Crafts;

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D: Books and Press; E: Audio-visual and Interactive Media; F: Design and Creative Services and G: Intangible Cultural Heritage (transversal domain)

GRAPH 21

UNESCO Framework for Cultural Statistics Domains

Source: 2009 UNESCO Framework for Cultural Statistics, p. 24.

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The findings of our researches guided us toward the perspective that centers on the interplay between following FCS categories:

A. Cultural and Natural Heritage; B. Performance and Celebration; F. Design and Creative Services.

Those categories are important because since they encompass the broader ways of understanding of the role and potential of culture in the Danube Serbia region and revealing how identities and lifestyles are intertwined with the production, distribution and consumption of cultural goods and services.

The contribution of creative services/creative industries to the Serbian economy and job creation can be seen as an inevitable part of priorities in process of future Danube Serbia region development and sustainable growth. In Serbia in 2009, the direct the economic impact (primary and secondary economic impact) as well as induced economic impact of the creative industries were 7.2% of total employment and 9.89% of total Gross Value Added (GVA). Depending on sub-sectors in the creative industries, the average growth rate of employment was between 1% to 6.4%, while the GVA growth rate was between 0.2% and 10.8%.

Table 8: Preliminary results on economic impacts of Creative industries in Serbia, in ERU, 2009 Total economic Primary Secondary Economic indicator impact of creative impact impact industries Turnover 2.1 billion 7.72 billion 9.82 billion (16.8%) Formal employment full time 76.035 73.724 149.759 (7.28%) Contribution to Gross Value 2.94% 6.95% 9.89% Added (GVA), real price 2002 Induced economic impact of creative industries -Private consumption 634 million 385 million 1.019 million -Public consumption 172 million 248 million 420 million -Tax revenues 22.4 million 138.9 million 161.3 million Source: Mikić, H. (2011) Expert report on economic analysis of creative sector in Serbia, SFBC-Creative Economy Group, Belgrade.

In 2009, the creative industries (core, partially and independent) accounted for 9.8 billion EUR of turnover, while the average annual turnover growth between 2004 and 2009 was 25%. The average productivity of the creative industries was 12 000 EUR and it was 35% higher than the economy average. Each job in the core creative industries created 1 job in the partially and independent creative industries, while 1 job in the supporting sectors is created per each 5 jobs in the creative industries. Each enterprise in the creative industries engaged about 70- 100 freelancers, which is about 570,500 freelance contracts per year. The export potential of the creative industries is also evident: the emerging export

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Cultural and natural heritage is one of the basic elements of a community identity; it provides people with the cultural memories, knowledge and skills vital for the forging of sustainable relationships with natural resources and ecosystems. Safeguarding that heritage at the same times means safeguarding the differences that are common to specific communities. Those cultural differences are very often and easily promoted through tourism activities when larger markets are allowed to learn about specific heritage, enjoy in it but also gain competitive advantages at the markets. In the immediate surroundings of the Danube, there are 1,186 material remains and sites that are confirmed as or are presumed to be cultural attraction of general importance. So far, only a relatively small amount of cultural heritage has been registered, about 43% (140 categorized and 374 registered immovable cultural goods), having in mind that the categorized cultural goods are only 11%. In line with this, the part of registered goods, that is – goods that have previous protection is 58%. The degree of endangerment and damage of cultural heritage and other material goods on the whole area has not been systematically researched so far. Maintenance of cultural goods is a particular problem, due to lack of management planning which would specify the conditions of their use and presentation, so after the research and conservation work, the cultural goods are usually quickly forgotten and neglected. Also the cultural institutions in charge of maintained of heritage sites have no specialized marketing and PR services, animators and professional cultural managers nor legislative support to involve for example the public-private partnership when in comes to valorisation and marketing of heritage sites. That is another reason why the broader public remains insufficiently aware of the value and significance of their heritage.

Having in mind the number and diversity of cultural heritage and the differences in approach and treatment of specific types of goods, a classification and grouping according to the type of goods has been established. It is, as follows: archaeological heritage, historical settlements or parts of settlements, religious buildings and other religious monuments, fortification buildings, residential complexes, public buildings and civil structures, folk construction building – rural settlements, industrial and technical facilities, historical and memorial areas, garden and park architecture, individual monuments, historical records and sunken goods.

In order to present the existing condition and for the purposes of further analysis, following areas have been selected: 1. Danube region in western Backa (riverside part of Western Backa region, that is – riverside towns in municipalities of Sombor, Apatin, Odzaci i Bac – zone 1); 2. Danube region of Novi Sad (includes riverside towns in municipalities of Backa Palanka, Beocin, Novi Sad and towns downstream to municipality of Stara Pazova – zone 2); 3. Belgrade Danube region (includes riverside towns in municipalities of Stara Pazova, Belgrade municipalities along the Danube banks, Pancevo,

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Gorcka and Smederevo, to the confluence of Velika Morava and Danube – zone 3); 4. Danube region in Branicevo (includes riverside towns in municipalities of Pozarevac and Veliko Gradiste – zone 4); 5. Djerdap (includes riverside towns in municipalities of Golubac and Donji Milanovac – zone 5); 6. Timok Danube region (includes riverside towns in municipalities of Kladovo and Negotin – zone 6).

Table 9: Systematization of the number and condition of categorized and registered goods and previously protected goods, according to the stated zones*

Locality – categorization of protection Categorized cultural goods Zone Type of goods Cultural goods of Previously protected Cultural goods of great Registered goods extraordinary goods importance importance archaeological sites - - - (1) fortification buildings - - - - (1) cultural historical settlements or parts of - - historical site, (1) settlements center of Apatin (1) cultural monument of Roman Catholic church of religious buildings - (3) - Saint Petar and Paul, Backi Monostor Zone 1 (1) cultural monument residential complexes - (1) - Bodjani monastery folk construction building – rural - - - - settlement public buildings and residential - - (2) - buildings in urban areas industrial and technical facilities - - (2) - (1) significant site of historical and memorial areas and battle of Batina, - - - individual monuments Bezdan (2) Cil forrest, (4) “Turski sanac” Backa Celarevo-Kalvarija, Palanka; “Gradina” near Novi Titel plateau archaeological sites Rakovac; “Kalakaca” near (4) (61) Beska; “Mihaljevacka suma” near Cortanovci (2) cultural monument Stari Slankamen and spatial, cultural fortification buildings - - - and historical entityPetrovaradin (1) spatial cultural and (2) spatial cultural and historical settlements or parts of historical entity, city historical entity, Jodna banja, - - settlements center of Sremski Novi Sad and Jewish complex Karlovci of sites in Novi Sad Zone 2 (4) cultural monuments: Almaska church and Uspenska church, Novi Sad, religious buildings (12) (5) (25) Saborna curch, Sremski KArlovci and St. Nikola’s church, Stari Slankamen 2) cultural monuments Kovilje (3) cultural monastery, spatial cultural monuments Beocin residential complexes historical entity Mardzibanji- - - monastery, Rakovac, Karaconji castle, Sremska Patrijarsija castle Kamenica folk construction building – rural 1 2 1 3

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settlement public buildings and residential - (14) (30) (149) buildings in urban areas industrial and technical facilities - - (2) (8) historical and memorial areas and (3) (2)/(3) individual monuments (1) “Belo brdo” near archaeological sites - (10) (112) Vinca (2) cultural monument Belgrade fortress and (1) cultural monument Kovin fortification buildings 2 - cultural monument fortress Smederevo fortress (2) spatial (4) spatial cultural and (3) spatial cultural and cultural and historical entity old center of historical entity historical entity Zemun, Belgrade, Stara carsija, Topcider, Belgrade, Skadarlija and historical settlements or parts of Grocka and old city center of Knez mihajlova street, Kopitareva (2) settlements Pancevo Belgrade and the area gradina around Dositej Lyceum, Belgrade

(2) cultural monuments Saborna religious buildings church, Stari grad, (6) (23) (45) Sv.Preobrazenje church, Pancevo

(3) cultural monument

Konak kneza Milosa

nad konak kneginje Zone 3 residential complexes - (5) - Ljubice, Belgrade and Vojlovica monastery, Pancevo folk construction building – rural - - - (7) settlement public buildings and residential (1) (33) (158) (47) buildings in urban areas (1) cultural monument industrial and technical facilities Ilegalna partijska (4) (9) (28) stamparija, Belgrade historical and memorial areas and (4) individual monuments (1) Viminacijum, archaeological sites (1) Lederata, Roman fort (2) (25) Kostolac (1) cultural monument, fortification buildings - - (1) medieval town Ram historical settlements or parts of - - (1) (2) settlements religious buildings - - (4) (2) Zone 4 residential complexes - - - - folk construction building – rural - - (1) (40) settlement public buildings and residential - - (1) (18) buildings in urban areas industrial and technical facilities - - - - historical and memorial areas and - - - - individual monuments archaeological sites (1) Lepenski vir - (16) (13) (1) cultural monument fortification buildings - - - Golubac fortress historical settlements or parts of - - - (1) settlements Zone 5 religious buildings - - (3) (2) residential complexes - - - - folk construction building – rural - - (1) (11) settlement public buildings and residential - - (2) (17) buildings in urban areas

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industrial and technical facilities - - - (1) historical and memorial areas and (1) cultural monument - - - individual monuments Tabula Traiana, Tekija (2) Pontes, Kladovo archaeological sites - (7) (1) and Karatas, Novi Sip (1) cultural monument, fortification buildings - - - medieval fort Fetislam (1) spatial cultural and historical settlements or parts of - - historical entity, - settlements Marsala Tita street, Kladovo Zone 6 religious buildings - - (1) (4) residential complexes - - - - folk construction building – rural - - - - settlement public buildings and residential - - (1) - buildings in urban areas industrial and technical facilities - - - (3) historical and memorial areas and - - - - individual monuments

* In addition to sunken archaeological sites which are considered as a part of this group, this also includes locations of sunken ships, airplanes and other objects, from different historical periods. There are 19 identified locations in the whole areas, in the sense of goods which are previously protected, for which measures of protection and conditions of use are being defined

**Types of goods are classified according to the following system: 1. archaeological sites, 2. urban areas, 3. religious buildings, 4. fortification buildings, 5. residential complexes, 6. industrial and technical facilities, 7. folk construction building, 8.individual monuments and significant sites

Performance and celebration – the organization of events and festivals can meet a number of objectives such as offset seasonal imbalance, improving international perception and image such as EXIT festival, and attracting visitors segments to whom the territories other attractions do not appeal – for example open air music events at Roman heritages sites such as Viminacium and Felix Romuliana. It is clear that such events reflect the spirit and sense of peculiar place within Danube Serbia.

3.4.1. Conclusions

In the past years, numerous projects on national, regional and local level have been focused on the culture and cultural-historic heritage in Danube Serbia region, covering two development aspects. First is infrastructural development and include various “hard” elements (in the field of construction, reconstruction and building). Second are activities, focused on the market valorisation of the cultural heritage, through tourism. In addition, several development and investment teasers along the Danube Serbia region have been developed under the auspices of Ministry of Tourism, Trade and Communication (former Ministry of Economy and Regional Development), but rare of them some of were implement.

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Despite the existing potential, there is a lack of (political) understanding as well as professional determination to organize and direct the development of cultural products and creative industries in the Danube Serbia region.

The challenges are as follows:  Cultural sector lacks knowledge and awareness of its own potentials and strength;  There are no investments in the systematic production of contemporary (local) cultural / creative products nor in the promotion and export of the existing cultural products;  Culture is treated in a static way while the concept of "industry" linked to culture is almost totally rejected;  Lack of key institutional and regulatory conditions – no systematic reforms which encourage entrepreneurship and investments;  Cultural identity of the Danube region is not (yet) clearly designed therefore the actions are fragmented, dispersive and usually linked to a very few assets mostly to different forms of cultural tradition and ethno products, while the other assets are not utilized;  Understanding of the concept of territorial development via cultural / creative industries should be visible on several levels: from local government, professional cultural associations, cultural creators to key stakeholders for development and promotion of territories.

Therefore, cultural products need to be extracted from the environment of the cultural sector and matched with the industry sector. Secondly, the product will not be recognized nationwide or even internationally if not properly marketed. Openness to the private sector’s views and opinions, knowledge and experience, both in product and market development strategies and initiatives, also a practical assistance and support to public-private partnership need to be continuously ensured.

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3.5. Transport

The transport system and connectivity within the Danube region in Serbia have been analysed in details in Main Study and Measures of the Danube-Serbia: Building a European Gateway, Challenges and Opportunities study, from January 2014.

MAP 1

Source: Source: Danube-Serbia: Building a European Gateway, Challenges and Opportunities

Current situation by transport modes

Inland waterway transport

Infrastructure - Waterways

The total length of inland waterways in Serbia is, at a medium level of water, 1,680 km. Most of the waterways are: River Danube, Sava River, Tisza River (total 960 km) and the Danube-Tisa-Danube Canal (about 650 km).

All these parts of the system of inland waterways mostly belong to the region of the Danube-Serbia.

The Danube River as a priority axis of TEN-T network has the greatest potential (opportunities), and requirements in terms of reaching the standards of navigability. Priority projects on a system of inland waterways in Serbia are:

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 Arrangement of the Danube waterway upstream from Belgrade  Removing sunken remains of the German fleet from World War II in Prahovo  Removing unexploded bombs from NATO bombing  Construction of Zezelj Bridge in Novi Sad  Reconstruction of the locks on the Danube River (Djerdap) River Information System (RIS) has been implemented and with 15 base stations on the Danube and 3 on Sava, with electronic navigational charts, the system provides precise tracking of ships.

Infrastructure – Ports

From 9 ports as there are in the region of the Danube-Serbia, all except Novi Sad port, were privatized. The used capacity of all ports is on average about 30%. The most important ports on the Danube are the Port of Novi Sad, Belgrade Port and Danube Port Pancevo. The connection between ports and road and rail infrastructure exists but at the most important ports is not on satisfactory level.

Operations and facilities

The total volume of transport by inland waterway was in decline until 2010, which was the most significant decline in domestic transportation (more than 5 times in the last 15 years) and long-haul transport. However, in the last few years, the quantity of goods in transit UVP have increased slightly, while the transport performance continues to decline, indicating a shorter distance transport. The total number of vessels in the last few years slightly increases and currently has 495 vessels with an average age of over 40 years. The total carrying capacity of all registered vessels is slightly less than 200 thousand tons. The share of passenger transportation by inland waterway is practically non-existent (except for transit flows and tourist cruisers’ short stops), while the share in transportation of cargo is at a level of about 10%.

The capacity of the shipyards and maintenance

One of the possible areas of investment are the shipyards, and there are several of them for the so called "Dirty phase of the work" in the construction of ships, but a high-tech upgrade or repair of the vessels’ sophisticated equipment cannot be performed in Serbia. In addition to the above mentioned shipyards which are functional, there are a number of shipyards operating in hard conditions or are bankrupt.

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Rail transport

Rail transportation infrastructure The average density of the railway network is in the average level of the EU-27, but a large part of the railway is far below EU standards, as a result of many years of lack of maintenance. The total length of railways is 3,809 km, of which 1,768 km are main railways. The most important railway lines in the region of the Danube-Serbia are certainly the main axis of Corridor X, Route 4 (Belgrade-Bar) and connection arm of the Corridor Xb and Xc. The south-eastern part of the region of the Danube-Serbia is characterized by low density lines, where there is practically only one track connecting the mining basin Bor. Railway infrastructure is in very poor condition, which is characterized by a large number of stocks with the regime of slow driving and low axial pressure. About a third of the network is electrified, while only 7% have a double track. In addition, the infrastructure is characterized by the poor state or lack of a system of signalling on the lines, as well as the lack of information system that would provide tracking trains and shipments. Estimated resources required for achieving a satisfactory level of railway infrastructure and equipment amounted to about 4 billion euros.

Operations and facilities

The share of rail transport in sectoral distribution has a decreasing trend, in line with the industrial production and mobility of the population due to economic crisis. In cargo transport, railways participated officially over 50%, but this figure should be interpreted with caution due to the discrepancies in statistical methodology. In passenger transportation, railways participation is at an extremely low level of about 6%, which is practically very low number of passengers in international traffic. Due to the inefficiency of the national operators in the implementation of transport, obsolete fleet and the poor state of infrastructure, rail transport has become unreliable transport service where clients can not rely on time delivery, even for goods for which transport speed is not crucial qualitative characteristics.

Air Transport

Infrastructure

In Serbia there are 31 airport, of which 2 are capable for international air traffic ("Nikola Tesla", Belgrade and "Constantine the Great" Nis), while the four military airports, some of which are suitable for re-appropriation for civilian purposes. Other airports are small sport and agriculture airports.

Operations and facilities

Air Serbia has 14 aircrafts with capacity of 128 to 155 seats and five planes with 66 seats. It flies to 39 destinations in 29 countries worldwide.

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In addition to “Air Serbia”, at the airport "Nikola Tesla", operations are performed by another 24 foreign airlines, including some low-budget, so-called "Low cost" companies.

Belgrade "Nikola Tesla" Airport has a capacity of about 5.6 million passengers a year. Capacity in the transport of goods is around 35,000 tonnes per year, which in 2013 was used at the level of about 22%. It is possible to upgrade capacity up to 70.000 tons.

The second largest airport is "Constantine the Great" near city of Niš. Airport capacity is around 200,000 passengers per year, which in 2013, with 21,700 passengers were less than 11% utilization rate. Cargo Transport of this airport was around 350 tonnes, which is almost twice less than in 2011. The low level of utilization rate is the main cause of unprofitable work of airport "Constantine the Great".

Road Transport

Infrastructure Road Infrastructure of Serbia is characterized by good branching and density of the road network, at the level of the average of EU-27. The road network of the Republic of Serbia makes 40,845 km of roads, of which 24,135 km are local roads and 16.710 km of state roads, as follows:  State roads of I A order (high-ways): 667,36 km  State roads of I B order: 4.627,78 km  State roads of II A order: 8.514,48 km  State roads of II B order: 2.900,86 km On a total road network there is 2,638 bridges and 78 tunnels. Two-fifths of the total network consists of macadam and dirt roads. The basis of the network makes the Pan-European Corridor X with its branches Corridor Xb and Xc, which extends to East direction (SE) - West (SW), as well as cross-link from the north (NE) to the south (SW), which is “Route 4” or so-called "Corridor XI". The works on the road network that needs to be done, and are of importance to the region of the Danube-Serbia, are the completion of the Belgrade bypass and reconstruction of the old bridge over the Danube (half profile of the highway) at Beska and construction and completion of Route 4 on the part from Romanian border via Belgrade and further on south to Montenegro. In the eastern part of the Danube region in Serbia, in the longer term, is important direction along the eastern border of Serbia (Kladovo -Negotin Zajecar-Nis), which is the link with Romania and Bulgaria, connecting this part of region with Corridor X.

Operations and facilities

Number of registered vehicles in Serbia is around 150,000, where a heavy goods vehicle takes about one-fifth. Number of registered goods vehicles for road traffic is about 9,500. The total number of buses is around 9,000. The road freight transport market is practically the only market that operates as a completely free, without any influence of the state, because state-owned enterprises in the industry practically not exist. One of the limiting factors to the development of this part of the transport economy is limited access to the EU market, due to the limitations that exist in order to protect the national markets especially of Austria, Italy and Czech Republic.

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Intermodal Transport

Infrastructure

Intermodal transport in Serbia for decades is in its infancy. As a bond, represents the potential in the development of each of the main modes of transport. The existing infrastructure consists at road-rail terminal ŽIT in Belgrade and three ports on the Danube: Port of Novi Sad, Port of Belgrade and Port "Danube" in Pancevo. On navigability aspects, Port of Pancevo and Belgrade are in a better position, but due to bad connections with railway and Corridor X, and its positions, the development of intermodal transport is questionable. Rail-road terminal “ŽIT” is completely compromised by project "Belgrade Waterfront," which endangers also the Port of Belgrade and its rail link. Potential development of container transport is possible in all three ports, but the expansion of the capacity of the Port of Belgrade is practically limited by the city and above mentioned project. Ro-Ro technology can be implemented in the Danube ports of Novi Sad, Belgrade, Pancevo, Smederevo and Prahovo. Planned infrastructure is defined by the project "Enabling intermodal transport in Serbia" funded by the EU and which proposing the new intermodal terminal in Batajnica near Belgrade. The planned investment is EUR 15.5 million.

Operations and facilities

The total turnover of intermodal transport in Serbia is around 20,000 TEU (twenty-foot equivalent unit) annually. Practically all containers in international transport are foreign-owned. In Serbia, there are about 500 containers, open-top, intended for local transport. Capacity of Serbian railways is around 200 railway wagons for transport of containers, mostly of series of R. Road transport capacity is about 100 semi-trailers for the transport of containers owned by private transport companies. In the river transport, there is one dedicated vessel that can transport 60 containers owned by JRB Ltd.

Characteristics of Danube region in Serbia

The Danube region in Serbia cannot be observed in monolithic terms in relation to access to efficient transportation. Measured by its transportation connectivity and accessibility to main transport arteries, it can clearly be divided in two major parts:

1. The region north-west from Belgrade and municipalities south-east of Belgrade with direct access to Corridor X and 2. The region south-east of Belgrade, without direct access to Corridor X Northern and western parts of the Danube region in Serbia are intersected by highways (To Budapest - HU and Zagreb – CRO) and railway Corridor X as well as by Danube - the Corridor VII. Furthermore, these parts of Danube region in Serbia host most of Serbia`s population, and are relatively easily accessed from both rest of Serbia and abroad.

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On the other side, mostly mountainous regions east and south-east from Belgrade, apart from municipalities with access to highway (corridor X), have challenging transport connection both to Serbia and rest of the region. Even though most of these municipalities have access to Danube, it is still heavily underutilized as transport potential in these municipalities.

For example, the shortest distance by road from the municipality of Kladovo is via Golubac - Veliko Gradište - Požarevac - Corridor X (E-75), a journey that takes on average just over 3 hours.10

The MAP 2, given bellow, clearly shows the difference in land transportation infrastructure availability in different regions of Serbia, with obviously dense and relatively more developed infrastructure in region north and west from Belgrade, compared to the region south-east from Belgrade.

Overall, we can conclude that transportation infrastructure and access to main corridors and airport (Nikola Tesla), does not hamper the attractiveness of regions north and west from Belgrade nor for municipalities south-east from Belgrade with direct access to Corridor X.

On the other hand, we can assume that for the rest of the Danube region, especially the municipalities south-east from Belgrade without direct access to Corridor X, limited access to efficient transportation system, be it highways, railways or air transport, significantly hampers the attractiveness.

10Danube-Serbia: Building a European Gateway, Challenges and Opportunities

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MAP 2

Source: Source: Danube-Serbia: Building a European Gateway, Challenges and Opportunities

3.5.1. Utilization of existing network and infrastructure (soft measures) and potentials of transport modes Inland waterways

Soft measures Organization of the customs, the police, and the port authorities and inspection services should be improved, in order to avoid repeated practice of waiting a few days for completion of the procedures required for customs clearance and control of goods.

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Basic Resources

 Close to Port of Constanta (Romania) and Reni (Ukraine)  Close to Central Europe  The Danube Strategy (program)  New EU transport policy - Rhine-Danube corridor  The ability to export steel, wheat, copper ...  Tourism and nautical tourism

Rail Transport

Deregulation and soft measures

Enabling more efficient rail transport Railway law provides for the separation of railway infrastructure management of the transport, i.e. operations, however, the lack of bylaws and weak implementation of existing laws still prevents effective involvement of private railway operators in transport operations. Several small domestic private companies, as well as “daughter” companies of larger systems, have a license for the performance of rail transport in Serbia, but due to the lack of regulations that define the use of national railways, their activity is limited to manoeuvre the internal tracks within larger economic systems or are at service to "Railways Serbia "where there is a lack of capacity. Facilitating the entry of private operators into the market of railway transport in Serbia will create conditions for market operations, which will lead to a drop in price of rail transport, improved efficiency and capacity utilization and will "force" the national operator to be more efficient and with better conditions. Just as with the construction and reconstruction of railway infrastructure must take account of the organizational measures, particularly in the area of border crossings. If the raise of the average speed on the lines is not accompanied with shortening time delays at border crossings, investing in infrastructure practically loses its meaning. Organization of customs, police and inspection services must be coordinated, as an international border co-operation on both sides of the borders.

Basic resources

 Corridor X and Route 4 (Belgrade-Bar)  Intermodal transport  Modernization and Reconstruction of Railways  New Law on railway and the establishment of market principles

Air Transport

Basic resources  Modernization of airports, air traffic control and regulation  Activation of the military and other small airports in civil-commercial purposes  Intermodal transport of goods

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Road Transport

Soft measures

The construction of the road network improves the quality and reduces travel time, but of great importance are also organizational measures, primarily at border crossings, and at tollbooths where in the summer season waiting time is for several hours.

Next measure that can greatly contribute to the reduction of lost time on the highways is modification of toll collection system, where the existing toll booths and manual toll collection slows down traffic. Furthermore, the loss in the percentage of toll especially on the branch of Corridor Xb from Novi Sad to Hungary border can be solved.

Basic resources  Road network  Role in the Supply Chain  Intermodal transport  Low utilization rate – about 50%  Transport demand Management  Renewal of the fleet

Intermodal Transport

The main limitation of intermodal transport, which also represents the development potentials are:  Lack of a critical quantity of goods that can be containerized and mass- transported by inland waterways  The trade deficit, which causes a large number of empty containers that are pulled into the depots in Europe  Relatively poor connectivity of river ports with road and railway Corridor X  Low efficiency of rail and river transport  The unreliability of rail and river transport (the poor condition of the railways and waterways, the impact of water levels in rivers)  Intentedness and the fragmentation of industrial production  Lack of equipment at ports that would ensure the collection and consolidation of cargo (e.g., hubs or aggregation stations)  Lack of "environmental taxes" for transport modes that are biggest polluters, and therefore no possibility of subsidizing intermodal transport

Soft measures

Intermodal transport has no support in national legislation, except for a portion which is treated in the framework of regulations on railway transport. Strategy for intermodal transport development does not exist, nor hint of subsidizing this mode of transport which contributes most to the reduction of negative impacts of road transport pollution and CO2 emissions. For the operation it represents indirect savings, but the state saves directly to the means necessary for the elimination of the consequences of pollution.

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3.5.2. SWOT of Transport sector in the Danube Serbia region

Strengths

 The favorable geographic position (apart from the traditional approach of linking the east and west, Serbia is located in the territory that belongs to the Danube and the Adriatic-Ionian macro-regions of Europe and officially participate in both strategies) MAP 3  The level of development of the transport network (branching and density)  There are infrastructural resources  Large resource potential of inland waterways (Danube - Corridor VII, Sava, Tisa and Duct DTD)  The defined frameworks of regional cooperation (SEE, the Danube and the Adriatic-Ionian Strategy) in accordance with the new European transport policy  The existence of professional and technical resources in the Republic of Serbia

MAP 3

Source: European Commission – Macro-regional strategies

Weaknesses  The political situation of the country and its instability

 Transport infrastructure on corridors through the region of the Danube-Serbia is not fully developed and is not equipped with modern technical and technological systems

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 Lack of trust due to a series of political and economic discontinuities in the past (war, sanctions, NATO bombing, unresolved relations with Kosovo *)  Modes of transportation systems are not integrated (lack of mutual connections and interchanges - intermodality)  Lack of capacity of institutions and lack of mutual coordination  Lack of motivation of experienced managers, administrative and technical staff  Inertia changes in administrative procedures (even when the rules changed, they are usually difficult to implement)  Lack of stable funding sources  Lack of supporting action plans along with strategies

Opportunities  Defining the region as a "hub" -a at junctions of primary corridors (Corridor X, Corridor VII, Route 4 which connects Corridor IV of the foregoing and the Adriatic Highway)  Corridor VII (Danube river) is one of the priority axis TEN-T network of the EU  The interests of countries in the region for the development of basic regional transportation network and the ability to influence the development plans of the European Networks for Serbian Development Goals (SEE, European macro- regions)  Shorter travel distances Corridor X in comparison to the TEN-T priority axes southeast (Corridor IV), in a better, more comfortable and more pleasant environment  New models of investment in the transportation sector (concession, PPP, use of European funds)  The development of a multimodal transportation system that is cost-effective and "greener"  Preservation of the environment, potentials of the tourism offer and intensification of tourist flows Threats  Fragmentation of interests within the state  Resistance to change and lack of institutional reorganization in the previous period  Ineffective implementation of strategic and development projects  Pan-European Corridors IV, IVa and Vc in the immediate vicinity, that with the entry of Turkey into the NCTS (New EU Transit System) threaten to distract transit traffic if Serbia not rapidly enters the NCTS and not tempt bilateral cooperation in the field of VAT refund on fuel to foreign carriers  Possible development strategies of neighbouring countries which are not complementary to the Transport Strategy of the Republic of Serbia  Unresolved problems of financial accountability, debt repayment, sustainable financing and guarantees for loans  Unstable and inadequate funding for the development and maintenance of the transportation system

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 The non-harmonized education system with the needs of the transport industry and emigration of professionals

3.5.3. Conclusions

In short, the current situation in terms of infrastructure is poor due to long periods without maintenance. On the other hand, there is an infrastructure network, well branched with an average density of EU-27.

Traditional transport flows across the Danube region are still active, especially in transit by road and railway transport.

Certain areas and municipalities have access to basic network problem and there is a need to build local and regional road network aiming to increase the attractiveness of these areas. This concerns the eastern parts of Danube region in Serbia, although the small number of inhabitants and the very low level of current traffic.

The main transport network is in good condition. Construction works on major transportation routes are intensive in order to better cohesion of the Danube region and the whole of Serbia with the surrounding in accordance with the plan documents for development of infrastructure of South East Europe.

Great resources and efforts are specifically in the completion of Corridor X and its branch to Bulgaria and Belgrade bypass.

An especially interesting are rail, river and intermodal transport, given that require urgent investment in basic infrastructure, where intermodal transport is potential of all modes of transport aggregating functions and advantages of each of the modes in unique transport system.

In the coming period, in addition to investments in infrastructure, particularly railways, water and intermodal transport - which would reduce transportation costs, special attention should be paid to the so-called “Soft measures” and deregulation of transport markets, in order to simultaneously, meanwhile investing in infrastructure, improve the efficiency of the transportation system, and with minimum investments achieve the greatest effect and savings in transportation.

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3.5.4. Key Assets, value propositions and possible development

Key assets and values

Key Assets of transport industry of Danube region in Serbia are geographic position and natural resources, but also existing infrastructure, means of transportation and educated workforce.

Big potential in means of geographic position is that Danube region in Serbia is point of connection of Danube Macro-region and Adriatic-Ionian Macro-region and its hinterland. Those two Macro-regions represents strong strategies and future programs in the framework of new EU transport policy.

In the past 10 years, investment in transport infrastructure in the countries of South Eastern Europe (5 countries) in total were at a level below 2 billion euro per year, comparing with e.g. Austria (over 2 billion), Romania (about 3 billion) and Poland (up to 10 billion per year), certainly not enough to achieve European standards and inclusion into the TEN-T network11.

Previous investments were primarily oriented to road transport infrastructure with more than 80%, rail and air with a total of 15-20%, while in the IWW transport is not invested at all.

Best practical way to show key assets, ongoing efforts, propositions and possible development is to show it separately for different modes of transport.

Road

Road freight transport is most developed and well distributed in average. Main routes are with good connections, linking Danube region with other areas. The only part of it where road infrastructure is lacking is east or south-east of Danube-Serbia where fast links to main Corridors are missing.

Main road routes of Danube region in Serbia are Corridor X with its branches and Route 4, crossing the region and linking it with neighbouring areas.

Total value of state road network in Serbia, without local roads, is estimated at 4,2 billion euro. Total value of maintenance cost is estimated at 40 million euro every year. According to relations of density and surface covered by municipalities belonging Danube region, value of road network without local roads is between one third and one half of total value.

Construction works are undergoing on Corridor X (Projects East and South – from city of Niš to Bulgarian and Macedonian border, as well as Belgrade bypass. Furthermore

11 Sources of all values shown in this chapter are: SEETO, Public companies „Putevi Srbije“, „Koridori Srbije“, „Serbian Railways“ and Ministry of construction, transport and infrastructure of Republic of Serbia

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At some parts of main routes and on the local level, particular efforts have been made in the renewal and development of the transportation infrastructure in areas affected by floods in the late spring of 2014.

To complete the bypass around Belgrade needs about 95 million euro, and for the construction of Route 4 from Belgrade to Požega needs about 400 million euro.

Rail

Rail transport has the same main routes as road network, but condition of infrastructure and density are far below the desired level. Total needs of maintenance in past are covered with only 11 % on average, resulting with maximum speed below 60 km/h on 50 % of rail network.

Basic characteristic of rail transport is still closed market without real possibilities for running operations beside „Serbian railways“.

Urgent investment in railway infrastructure of Serbia is estimated at around one billion Euros, and for bringing the railway infrastructure on the level of satisfactory standards in the future, it needs about 4 billion Euros.

In addition to investing in the tracks, the necessary investments are in signalling and rail transport management systems, station buildings, equipment for cargo handling and equipment for intermodal transport.

Although a few years ago, the company "Serbia-kombi", was founded as a subsidiary of Serbian Railways, activities aimed establishing “Ro-La” technologies in Serbia is practically non-existent and the company has no employees. Investing in Ro-La technology besides economic, also brings significant environmental benefits, where trucks over Serbia could transiting by rail rather than by road.

Inland waterways As already mentioned, priority projects on a system of inland waterways in Serbia are:

 Arrangement of the Danube waterway upstream from Belgrade  Removing sunken remains of the German fleet from World War II in Prahovo  Removing unexploded bombs from NATO bombing  Construction of Zezelj Bridge in Novi Sad  Reconstruction of the locks on the Danube River (Djerdap) In addition to Corridor VII (Danube river), important parts of network are river Sava, River Tisza and fairway system DTD. To bring the inland waterways to satisfactory level for safe and reliable navigation, total investments are estimated at 2 billion euro in next 15 to 20 years, but maintenance has to be on regular basis, including dredging, cleaning and signalling of waterways.

River information System is implemented fully at the river of Danube, ensuring by the tracking and positioning of vessels, traffic safety, directing and managing of traffic,

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Inland waterways are biggest potential of development together with intermodal transportation where is a lot of unused resources. The main constraint is limited quantity of goods and old fleet which mostly is not fulfills standards for navigation in EU.

There is another possible area of development connected with IWW transport – modernization of shipyards aiming to ensure maintenance of vessels but not only for the ship’s hulls, but also for upgrades and modern equipment of vessels.

Air

Air transport is fastest growing sector of transportation. Number of passengers is almost doubled in last decade. Main assets of these mode of transport are airport „Nikola Tesla“- Belgrade, followed by national airline company „Air Serbia“ managed by „Etihad“ group and several small agriculture and military airports that can be converted for civil purposes.

Main characteristics of airport “Nikola Tesla” is that it will reach its full capacity if current trends continue, before planned period. In the near future it will be necessary to invest in construction of additional runway and increasing the number of floors of the airport building.

On the other hand, the airport is accessible only by road public transport - there is no connection by rail or light-rail to the city of Belgrade. The airport is 18 km far from city Centre and in the period of rush-hour it takes almost one hour to reach the city centre by bus.

Intermodal transport

At the moment, there are no activities on construction of intermodal transport infrastructure, except few strategic projects on enabling the intermodal transport. In last 10 years there were 5 projects particularly dedicated to intermodal transport development, funded by EU programmes and some governments of west Europe countries.

The only operational development exists at the level of procurement of private vehicles for the transport of containers by road, but on very low level.

For construction of Intermodal Centre in Batajnica, near Belgrade, investment needed is 15,5 million euro. Other investments in intermodal infrastructure in Danube region in Serbia were not considered in short term, because of lack of quantity of goods and undeveloped IWW and rail transport.

Possible small investments in intermodal equipment and processes could be interesting at river ports locations - Novi Sad, Belgrade and Pancevo, where Ports of Belgrade and Pancevo are private owned.

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Already mentioned, development of Ro-La technology (Trucks on Wagons) bringing cheaper but also environmental friendly way of transport of goods is potential asset but only if neighbouring countries develop the similar compatible system enabling loading/unloading of trucks from dedicated railway wagons.

Model of PPP (public-private-partnership) in development of intermodal transport could be the solution for construction and operating of intermodal centers or new technologies implementation. This is because the start and sustainable work of intermodal transport needs critical minimal quantity of goods and intermodal units with acceptable prices of operations.

General development needs

Main constraints for development of transport system are:

 Political instability and lack of political will  General Crisis - Slow growth of industry and commerce  Not harmonized regulations and hampered implementation  State owned inefficient transport companies/operators in rail and river transport  Lack of funds for maintenance and reconstruction of existing transport infrastructure For effective development of transport system, main focus still have to be on capacity building of public authorities at national and local level, as well as improving of competences in the sector.

Writing process and the implementation of new laws harmonized with EU legal system is segmented and influenced by small lobby groups, confronting different modes of transport. One of the main points in meaning of new regulations should be implementation of eco-tax system, especially for development of intermodal transport and setting modes of transport in a partnership rather than a competitive relationship.

Deregulation and business on free market principles – existing monopoly of Serbian railways have to be separated from railway infrastructure, letting other operators to access the market at same conditions.

3.5.5. Key areas of transport development Taking into account of all of mentioned above, key areas of transport development of Danube region in Serbia are:

- Investment in new transport Infrastructure, with emphasis on railways, waterways and intermodal transport connecting main routes and Corridors on crossing of two European macro-regions (targeting government and local authorities, IFIs such are international funds, development banks etc) - Investment in reconstruction and rehabilitation of existing transport infrastructure raising the level of services and cost cutting (targeting

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government and local authorities, IFIs as well as capacity building technical assistance, etc) - Harmonized legislative, capacity building and improve of competences creating open market of transport services (targeting government, capacity building technical assistance, etc) - Implementation of soft measures emphasizing waiting times on border crossings, time loses at customs and other controls and procedures in foreign trade, as well as establishing financial conditions aiming attraction of transit traffic and facilitation of trade (targeting government, competent ministries, strategic projects and technical assistance) In addition to key areas, there is a lot of different small investments and business propositions mentioned, making the region of Danube in Serbia a unique breeding ground for the development of the transport industry.

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4. Questioner used in process of research

Survey on Perception of the Business Environment for the Purpose of Development of a Territorial Marketing Strategy for Danube Serbia Region

Dear Sir / Madam,

Austrian Development Agency (ADA) has been implementing the programme "Socio – Economic Development of the Danube Serbia Region ", which is the first programme in the context of implementation of actions and measures of the EU Strategy for the Danube Region in Serbia. The programme aims to advance the comprehensive and sustainable socio-economic development opportunities for the Danube Serbia Region and Serbia as a whole, by maximizing investments of the private sector, developing accompanying job creation potentials and increasing attractiveness of the Danube Serbia Region to foreign investors through infrastructure development.

Under the Component 2 of the programme, designed to improve visibility of the Danube Serbia Region and to sensitize and actively engage Danube Serbia Region stakeholders in socio-economic development initiatives, Danube Competence Center and Horwath HTL Belgrade are developing Territorial Marketing Strategy for the Region.

The aim of the territorial marketing is to convey the spirit of the region ("sense of place") as somewhere that is attractive to invest, do business, visit, work or live in and to buy products from the region.

The challenge is to position Danube Serbia so that it attracts investment and trade, to achieve the vision of a "global trading region" and the goal of increasing exports and jobs, and not as a source of cheap raw materials and labour. Territorial marketing strategy will provide framework for enhancing socio-economic development in the Danube Serbia region, to attract investors and promote the attractiveness of the region.

An essential element in territorial marketing is the fact that it is not just the marketing of an administrative jurisdiction. Nor is territorial marketing merely the institutional communication undertaken by territorial authorities. Rather it is an effort to match the expectations of potential clients with a defined geographical area. Territorial marketing is, in fact, a gathering together of an

ANNEXES TO THE TERRITORIAL MARKETING STRATEGY / DANUBE SERBIA REGION aggregate of assets and opportunities, directed at an audience whose needs have been identified and understood.

In that respect, it is very important to involve relevant stakeholders in the process of defining the framework of territorial marketing strategy through interviewing target audiences and organization of workshops / focus groups that will discuss the current status, current projects and programmes, new programmes / initiatives and perspectives of intra and inter sectoral cooperation of the key five sectors: agriculture, transport, environment, development of small and medium-size enterprises and culture.

The aim of this survey is to collect opinions of the relevant stakeholders – investors and business developers who do their business in Danube Serbia Region / Serbia, to provide us with perceptions of business environment in Serbia, as well as with their respective expectations and relevant outlook. This is why we asked institutions and associations that represent interests of the foreign business community in Serbia to select and send this questionnaire to the up to five relevant representatives per institution / association, according to their recommendations.

The emphasis is on the immediate hinterland of the River Danube in Serbia that includes 11 districts: Belgrade, Bor, Braničevo, Central Banat, Mačva, Podunavlje, South Bačka, South Banat, Srem, West Bačka, and Zaječar (please see the map below). However, experiences of the investors and business developers doing their business elsewhere in Serbia are valuable as well.

Such geographical focus ensures appropriate transnational approach in cooperation with other countries. In addition, important strategic projects outside the Danube Serbia Region that are directly contributing to implementation of the Danube Strategy, are also taken into consideration.

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Districts, cities and municipalities comprising the Danube Serbia Region

We would hereby like to thank you for taking time to answer the questions of the written interview in front of you. Your answers will be of utmost importance for providing recommendations for the future positioning and communication of the Danube Serbia Region at relevant markets.

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Key Stakeholders Questionnaire

Company: Business sector: Name: Position:

Date:

Part A

Please, give us your opinion on the following questions:

1. How do you see SIEPA (Serbian Investment and Export Promotion Agency) and VIP (Vojvodina Investment Promotion), as well as other relevant institutions (please provide names): do they successfully promote and present Serbia and particularly Danube Serbia Region to the international investment community? What activities are missing? What would you do in a different way?

2. How would you evaluate / describe current reputation of Serbia (Danube Serbia Region) among members of international business community?

3. Where do you think the existing international business connections of the Danube Serbia Region are the strongest (sectors / countries)? And, the weakest?

4. How these links can be used for future successful winning of new investments and new businesses?

5. Danube Serbia Region has population that migrated to other countries to work and live. How could this region use diaspora and local people with international connections to attract investments?

6. How can existing successful businesses in the Danube Serbia Region be utilized to attract investments and new businesses?

7. Where could future investments into Serbia come from? And how could potential investors be motivated to actually invest in the region?

8. How would you promote / sell the Serbia-Danube Region to the relevant markets? What particular tactics / instruments would you use?

9. How could your company / organization support future efforts to attract investments, businesses and companies from outside of Serbia and would you be prepared to actively participate?

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10. Do you have any further comments or suggestions related to the issues commented in this section?

Part B

We are trying to asses possible directions of the economic development in the Danube area and to identify the ways how to communicate these potentials to the foreign political and business community.

Please give your contribution to generating the classic SWOT elements (factors), having in mind the Danube area in Serbia and its impact on the economy.

Rank The STRENGTHS of the Danube Please assess this factor area on the scale 1 - 5 (Rank 1 – the most important for the according the easiness of economy) handling (1 – very easy; 5 – very hard) 1

Further comments:

Rank The WEAKNESSES of the Danube Please assess this factor area on the scale 1 - 5 (Rank 1 – the most important for the according the easiness of economy) handling (1 – very easy; 5 – very hard) 1

Further comments:

Rank The OPPORTUNITIES of the Please assess this factor Danube area on the scale 1 - 5 (Rank 1 – the most important for the according the easiness of economy) handling (1 – very easy; 5

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– very hard)

2 3

Further comments:

Rank The THREATS of the Danube area Please assess this factor (Rank 1 – the most important for the on the scale 1 - 5 economy) according the easiness of handling (1 – very easy; 5 – very hard) 1

Further comments:

Part C

Please assess different parts of the Danube Serbia Region value chain with the scale 1-5 (1 being the lowest and 5 the highest value), adding any category you consider necessary with regards to the relevant group of elements:

1. Front elements a. Planning documentation ______b. Instructions, PR material, Manuals, Web ______c. Front offices in administration ______d. Financial institutions and service ______e. Transport ______f. Retail ______g. Hotels, restaurants ______h. ______i. ______

Comments, suggestions, experiences:

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2. Middle elements a. Local administration ______b. River (port) authorities ______c. Legal institutions (police, courts, ...) ______d. Manufacturing ______e. Services – (lawyers, accountants, ...) ______f. Associations and business clubs ______g. ______h. ______

Comments, suggestions, experiences:

3. Back elements a. Maps, Planning and spatial documentation ______b. Strategic documents, projects, ______c. Statistics ______d. Labour bureau ______e. Communal infrastructure ______f. Road infrastructure ______g. River infrastructure ______h. ______i. ______

Comments, suggestions, experiences:

4. Support activities a. Health protection ______b. Schools and education system ______c. NGO – civil society sector ______d. Cultural offer ______e. Activism of the local communities ______f. ______g. ______

Comments, suggestions, experiences:

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5. List of workshop participants and interviewees

Target group: Tourism Aleksandra Milićević NTOS Ivan Vuković NTOS Ivana Svetlik TOO Kovačica Paljo Sampor TOO Kovačica Darko Vojnović TOO Bač Aleksandra Krstić OTKS Sokobanja Dane Mandić TO Bečej Mirjana Tucakov TO Bečej Dragana Zoric Stanojković TOO Stara Pazova Tatjana Miloradović TO Golubac Žarko Živanović TO Veliko Gradište Ivana Dimitrijević TO Veliko Gradište Dajana Stojanović TO Veliko Gradište Irena Posin Ministry of commerce, tourism and telecomunication Minja Stanković Ministry of commerce, tourism and telecomunication Danijela Vićentijević Ministry of commerce, tourism and telecomunication Dalila Dolmagić Ministry of commerce, tourism and telecomunication Bursać Milica Ministry of commerce, tourism and telecomunication Ivana Veljković Ministry of commerce, tourism and telecomunication Target group: Transport, SME, agriculture, environment and culture Tijana Maljkovic City of Belgrade Ivana Stefanović Leader Strahinja Simović Garanty Fund APV Ljupka Bojović Cvejić Garanty Fund APV Lazar Doroškov RCR Banat Zrenjanin Goran Blagojević Pediment DOO Emilija Stefanović VIP Fond Dušan Đorđević ITA Solutions Miloš Šešlija Regional Secretary for Agroculture Jasna Vickov TD Jezero Čenta Dejan Vickov Partnership for Tamish Region Petar Lončar City of Šabac Ištvan Požar Turistic Society Belo Blato Zorica Velimirović UA Agroznanje Vršac Ivan Vilimonović Network for Rural Development of Serbia Borislav Vulić Pokret Gorana Srbije Vesna Vandić LAG Đerdap Vesela Ćurković INTER Rade Anđelković Hoedlmayr Zastava d.o.o

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Nebojša Jevtić Serbian Chamber of Commerce Aleksandar Bacev ECL-Serbia Goran Đorđević ECL - Serbia Vladimir Vučković Harbor Belgrade Kristijan Korenić Harbor Belgrade Jelić Milosav DSTG Miloš Kosanić Serbian Chamber of Commerce Milena Rackov Kovačić Gallery Milan Konjović Vesna Burojević Gallery Sava Šumanović Katarina Živanović Indipendent expert Višnja Kisić Europa Nostra Serbia Tatjana Antić NTOS Zoran Hamović CLIO publishing Nebojša Bradić Art Sails Festival Dejan Veselinov Kolarac Institute Katarina Živanović Museum History of Jugoslavija

In addition experts and representatives of professional associations, chambers of commerce and others were contacted in process of research.