VOJVODINA in the Serbian economic space Valentina Ivanic

VOJVODINA in the Serbian economic space Valentina Ivanic, director Centre for Strategic Economic Studies “Vojvodina-CESS” Hungarian Regional Science Association 7 th Annual Meeting Cross border and transnational cooperation Subotica, 12 -13 November, 2009

CONTENTS ü AP Vojvodina – in the Serbian economic space ü AP Vojvodina – How we can improve regional competitiveness: inherited and created factors ü Types of regional instruments and policies: macro and micro competitiveness ü AP Vojvodina – structure of growth, RCA, external trade 2

SERBIA and AP VOJVODINA DESCRIPTION Life expectancy Vojvodina Teritory: 21. 500 km 2 (24. 3% of Serbia) Population: 2. 031. 992 (27. 1% of Serbia population) AP VOJVODINA SERBIA 71. 6 72. 7 Literacy rate ü 97. 6 96. 5 HDI value, 2006 ü 0. 824 0. 821 Average wage in 2008 ü 32, 906 32, 746 19. 2 19. 4 n/a 4597 ü 34 27. 2 2 955 5 134 279 497 Share of investment in fixed assets in GDP (%) (2004) GDP per capita, 2008. , € % of households having internet connection (2008. ) Density of road network (km/inhabitants m) EU 25 = 12167 Density of road network (km/km² ooo) EU = 1240 Rate of population that speaks English in the total population amounts 42, 3% which is above the average in most CEE countries (Bulgaria 14%, Romania 16%, Poland 22%). Global Competitiveness Index (GCI) in 2009 -2010, ranked Serbia on 93 place. GCI consists of three groups of variables: technology, public institutions, macroeconomic frame. In Business Competitiveness Index (BCI) in 2007, Serbia was ranked 91 th place among 127 countries. 3

SUMMARY OF THE FORECAST FOR SERBIA Basic Macroeconomic Indicators GDP per capita, current prices [dinar] 2008 1) 2009 2010 374, 594 401, 515 429, 431 5. 5 ü-4. 7 0. 7 45, 598 51, 335 57, 260 17. 9 12. 6 11. 5 Real gross wage, growth rate [%] 5. 5 3. 6 5. 4 Labor productivity, growth rate [%] 6. 4 -5. 0 1. 3 Employment, growth rate [%] 2) -0. 8 0. 3 -0. 7 Registered unemployment rate [%] 3) 22. 0 ü 23. 7 24. 1 Alternative unemployment rate [%] 4) 27. 7 29. 0 29. 5 Inflation rate, consumer prices [%] 12. 4 ü 9. 0 6. 1 Budget balance [% of GDP] -3. 2 ü-4. 5 -4. 0 Real GDP growth rate [%] Monthly gross wage per employee [dinar] Monthly gross wage, growth rate [%] 1) 2008 partly estimated. 2) Total employment excluding agricultural producers. 3) Unemployed persons as percentage of unemployed persons plus total employment. 4) Unemployed persons as percentage of unemployed persons plus total employment excluding agricultural producers. Source: Economic Forecatst for Serbia 2009 and 2010, IHS / Economica/Centre for Strategic Economic Studies „Vojvodina CESS“ 4

ECONOMIC GROWTH - FORECASTS % CHANGE OVER PREVIOUS YEAR Source: Economic Forecatst for Serbia 2009 and 2010, IHS / Economica/Centre for Strategic Economic Studies „Vojvodina CESS“ 5

SERBIA – REAL GDP GROWTH 10. 0 8. 3 6. 9 8. 0 5. 6 6. 0 5. 5 5. 2 % 4. 0 2. 0 0. 7 0. 0 -2. 0 -4. 7 -6. 0 2004 2005 2006 2007 2008 2009 2010 Forecast Source: Economic Forecatst for Serbia 2009 and 2010, IHS / Economica/Centre for Strategic Economic Studies „Vojvodina CESS“ 6

SERBIA – GROWTH STRUCTURE − GDP of Serbia showed a trend of growth in the period 2000 -2008. − Calculated by constant prices from 2002. it grew by an average rate of 5. 4% annually, which is faster if compared to global economy growth rate of 3. 94%. Structure of GDP, Serbia, 2007* Structure of DP of Vojvodina, 2004 24, 6% 55, 7% 75, 4% Tradable goods Non-tradable goods 44, 3% 7

DP STRUCTURE OF VOJVODINA, BY ACTIVITIES UNTRADABLE SECTORS 44. 3% Real estate: 2. 7% TRADABLE SECTORS 55. 7 % Health and social Other: 0. 2% work: 0. 2% Transport, storage and communication: 7. 8% Hotels and restaurants: Agriculture: 22. 4% 1. 4% Wholesale and retail, repair: 17. 8% Fishing: 0. 1% Construction: 4. 5% Electricity, gas and water supply: 4. 4% Manufacturing: 33. 2% Mining and qarrying: 5. 3% 8

THE DEGREE OF OPENNESS OF THE SERBIAN ECONOMY 9

PYRAMID OF COMPETITIVENESS TYPE OF INVESTMENT TYPE OF COMPETITIVENESS TYPE OF POLICIES (patents, brands, human capital) Innovation based competitiveness (Business sophistication, innovation) Market seeking type (horizontal FDI) (“green field” , telecom, energy. . . ) Asset seeking type - vertical FDI (oil, natural gas, cheap labour. . . ) Investment based competetiveness (Commodity market and labour market efficiency, financial market sophistication, market size, higher education and training, . . . ) Serbia is in the second stage Resource based competetiveness Basic elements for competitiveness building Efficiency seeking type (Infrastructure, institutions, macroeconomic stability, health and primary education) 10

PHASES OF ECONOMIC DEVELOPMENT – POLICIES AND INSTRUMENTS I N S T R U M E N T S Late 1990 s -Networking and partnerships -Improving labour force quality -Strategies for improving competitiveness of business climate and stimulating development -Investments in soft infrastructure -Public-private partnerships -Targeted investment attracting 1980 -1990 -Business incubators, -Top-down cluster initiatives -Support for business start up -Direct payments to certain industries -Trainings for SMEs -Attracting investments aimed at specific sectors or geographical areas 1960 -1980 -Investments in hard infrastructure -Attracting mobile production investments from external local areas -Attracting FDIs -Employing cheap labour force -Subsidies for investments in hard infrastructure 1960 -1980 -1990 Late 1990 s 11

SPATIAL FACTORS - IPA CBC – VOJVODINA Until 2013, Vojvodina can receive from 4. 5 – 6 mil € annualy from IPA -Cross Border Cooperation IPA CBC Serbia – Croatia– Period 2007 -2009 Total funds: ≈ 3 mil. EUR IPA CBC Serbia – Bi. H Period: 2007 -2009. Total funds: ≈ 3, 3 mil EUR IPA CBC Serbia - Hungary Period 2007 -2009. Total funds: ≈6, 1 mil. EUR IPA CBC Romania-Serbia Period 2007 -2009. Total funds : ≈7, 2 mil EUR 12

MEASURES OF IRDP AND STAGES OF DEVELOPMENT ASC - Agricultural Land Site Consolidation Scheme EEP - Energy Efficiency Programme WSP - Water Supply Pilot Project NTD - Nautical Tourism Development Programme I STAGE – FACTOR-DRIVEN ECONOMY -Economies primarily compete on low prices and natural resources -Enterprises are mainly involved in primary production and occupy a small part of the value chain -The economy is particularly susceptible to fluctuations in the world economic cycle, commodity prices, and exchange rates - GDP per capita: under 2000 $ IQS - Integrated Qualification Scheme BSC - Business Standardisation and Sertification APF - Agricultural Promotion Fund BPF - Business Export promotion Fund LSC - Labour Cost Subvention Scheme - E - Vojvodina II STAGE – INVESTMENT-DRIVEN ECONOMY - Bigger share of high and secondary educated working force - More efficient production processes and increase product quality - Absorption of new technologies - Opened market - GDP per capita between: 3000 -9000 $ BNT - New Technologies Transfer Scheme - III STAGE – INNOVATION-DRIVEN ECONOMY BBI - Building Business Incubators in Vojvodine VIP - Vojvodina Investment Promotion Fund CESS - Centre for Economic Strategic Studies - Innovation supporting - Innovative products on market - High price of products - High standard of living - Well connected business sector - GDP per capita: over 17000 $

COMPETITIVENESS ON THE MICRO LEVEL – CREATED FACTORS Barriers -Higher business and financial risk -Identifying foreign business opportunities -Enteroreneurship abilities -Managerial abilities Barriers: -Travel expenses -Establishing foreign distribution and marketing networks -Distance of foreign markets -National competition policies -Telecomunications infrastructure Strategic costs Measures*: -VIP -IQS -BBI -Guarantee fund Knowledge costs Measures*: -CESS -BSC -APF -BBI -Chamber of commerce -Learning about foreign environment -Doing market analyses abroad -Adaption of products to foreign markets -Accesing information abour other markets -Lack of information -Knowledge and experience in international markets -Research and education policies Kinetic costs Measures*: -VIP -BPF -CESS -E-Vojvodina Barriers: Measures*: -VIP -BBI -BSC -Purchasing legal consulting services -Translation of documents -Regulatory requirements on product standards -Legislative and regulatory frameworks *Measures defined in Integrated Regional Development Plan (IRDP), except Guarantee Fund and Chamber of Commerce 14

SHARE OF AP VOJVODINA IN INDUSTRIAL PRODUCTION OF R SERBIA Fields of industry with smallest share of AP Vojvodina in Serbia 6. 00% 5. 00% 4. 85% 4. 00% 3. 00% 2. 38% 2. 00% 0. 71% 1. 00% 0. 00% Motor vehicles and trailers Electricity, gas and hot water supply Coal mining 0. 00% Radio, TV and comunication equipment Metal ores mining 15

SHARE OF AP VOJVODINA IN INDUSTRIAL PRODUCTION OF R SERBIA Fields of industry with biggest share of AP Vojvodina in Serbia 100% 98. 50% 97. 90% 80% 70. 19% 70% 57. 91% 60% 54. 27% 53. 36% Textile yarns and textiles Food products and beverages 50% 40% 30% 20% 10% 0% Extractions of crude Coke and refined petroleum and gas, services products Chemicals and chemical products Leather and leather products, footwear

IMPORT BY INDUSTRY, Serbia 2008. Medium Low tech (3329. 6 mil EUR) Medium High tech (6003. 1 mil. EUR) 48. 0% Coal and nuclear fuels, rubber and plastics, base metals and metal products, other non-metal products 26. 6% Low Tech (2620. 5 mil. EUR) Production of food and beverages, tobacco, textile, clothes, leather and footwear, wood and wooden products, cellulose and paper, printing, furniture 4. 3% 21. 0% Chemical products, machines, electrical devices, motor vehicles and other transporting vehicles High Tech (541. 9 mil. EUR) Office supplies and computers, medical and optical instruments, clocks and watches. 17

EXPORT BY INDUSTRY, Serbia, 2008. Direction of restructuring in Western Balkan countries Medium Low tech (2509. 3 mil EUR) Coal and nuclear fuels, rubber and plastics, base metals and metal products, other non-metal products Medium High tech (1946 mil. EUR) 35. 8% 27. 8% High Tech (204. 7 mil. EUR) Low Tech (2341. 3 mil. EUR) Production of food and beverages, tobacco, textile, clothes, leather and footwear, wood and wooden products, cellulose and paper, printing, furniture Chemical products, machines, electrical devices, motor vehicles and other transporting vehicles 3. 0% 33. 4% Office supplies and computers, medical and optical instruments, clocks and watches. 18

REVEALED COMPARATIVE ADVANTAGE OF THE APV RCA of the APV in trade with the EU (1990, 1998, 2008) 1. 00 1998 2008 0. 78 0. 80 0. 60 0. 46 0. 47 0. 45 0. 40 0. 25 0. 20 0. 53 0. 30 0. 17 0. 09 0. 10 0. 080. 06 0. 05 0. 00 -0. 20 -0. 40 -0. 09 -0. 22 -0. 23 -0. 51 -0. 80 -0. 79 0 Food and live animals -0. 11 -0. 24 -0. 26 -0. 40 -0. 41 -0. 40 -0. 60 -1. 00 -0. 07 -0. 15 1 Beverages and tobacco -0. 54 -0. 85 2 Raw 3 Mineral fuels and 4 Animal and materials, except lubricants vegetable oils and fuels fats 5 Chemicals 6 Manufactured 7 Machinery and goods classified by transport materials equipment -0. 94 -0. 99 8 Miscellaneous 9 Commodities and manufactured transactions, n. e. s. articles 19

REVEALED COMPARATIVE ADVANTAGE OF THE APV RCA of the APV in trade with the CEFTA countries (1990, 1998, 2008) 1. 00 0. 80 0. 99 0. 85 0. 74 0. 83 0. 85 0. 81 19901. 00 0. 89 1998 1. 00 2008 0. 99 1. 00 0. 73 0. 60 0. 48 0. 45 0. 40 0. 48 0. 50 0. 31 0. 13 0. 01 0. 20 0. 00 0. 13 -0. 20 -0. 29 -0. 40 -0. 33 -0. 60 -0. 80 -1. 00 -0. 82 0 Food and live animals 1 Beverages and tobacco 2 Raw 3 Mineral fuels and 4 Animal and materials, except lubricants vegetable oils and fuels fats 5 Chemicals 6 Manufactured 7 Machinery and goods classified by transport materials equipment -1. 00 8 Miscellaneous 9 Commodities and manufactured transactions, n. e. s. articles 20

CONCENTRATION INDICES Concentration index CR 10 of import and export of APV with world Concentration index CR 10 of import and export of APV with EU Export 60 60 50 Import 50. 4 51. 7 44. 4 52. 2 51. 1 46. 6 50 40 40 40. 6 39. 7 30 30 20 Import 28. 2 25. 2 30. 4 20 20. 4 10 10 0 1990 1998 2008 • The smaller the country is the specialization index of export should be higher and specialization index of import should be smaller. • Specialization indices of export of AP Vojvodina are in all observed years smaller then the specialization indices of import of AP Vojvodina which indicates that Vojvodina does not have export strategy. • Export of AP Vojvodina in trade with EU is more concentrate than import and import from other countries is 21 more concentrate than from EU which is result of import structure (raw material, oil, gas)

SPECIALIZATION INDEX Specialization indices of export and import of AP Vojvodina 0. 14 0. 131 Export Import 0. 12 0. 1 0. 085 0. 082 0. 076 0. 0590000001 0. 06 0. 04 0. 029 0. 025 0. 023 2007 2008 0 1998 2006 The smaller the country is the specialization index of export should be higher and specialization index of import should be smaller.

COVERAGE OF IMPORTS BY EXPORTS OF AP VOJVODINA, BY SMTK SECTORS 1990 1998 2008 579. 5% 558. 1% 368. 2% 306. 9% 241. 5% 227. 8% 198. 8% 95. 5% 81. 4% 0 Food and live animals 32. 6% 1 Beverages and tobacco 89. 1% 57. 5% 50. 8% 12. 2%10. 3% 4. 2% 50. 9% 2 Raw 3 Mineral fuels and 4 Animal and materials, except lubricants vegetable oils and fuels fats 103. 3% 98. 5% 101. 3% 89. 1% 62. 7% 84. 0% 57. 6%54. 0% 44. 3% 123. 9% 117. 6% 118. 7% 0. 8% 5 Chemicals 6 Manufactured 7 Machinery and goods classified by transport materials equipment 8 Miscellaneous 9 Commodities and manufactured transactions, n. e. s. articles

VOJVODINA’S SMEs EMPLOYMENT GROSS VALUE ADDED Share of employees in SME'S of Vojvodina in the total number of employees in Vojvodina (2007) Share of GVA of SME'S in Vojvodina in the total GVA of Vojvodina (2007) 54% 64, 4% 35, 6% SME’s Large In EU, SME sector employs 67. 2 % of total employees 46% Large SME’s In EU, share of GVA of SME'S in the total GVA was 57. 6%

STRUCTURE OF COMPANIES IN AP VOJVODINA 1 0. 9 94. 9% 0. 8 0. 7 0. 6 0. 5 0. 4 0. 3 0. 2 4. 1% 1. 0% 0. 1 0 25

APV - INVESTMENTS − − The share of investments into construction works decreased in the APV in the period from 2000 to 2007 and the share intended for purchasing of equipment increased since 2001. Investments into equipment in 2004 were at the level above 50%, which means that economy of the AP Vojvodina passed the first (initial) phase of development Beginning of the second phase of development 60% 50% 40% 30% 20% 10% 0% 2001. 2002. Construction 2004. Equipment 2003. 2005. 2006. 2007. 26

PROJECTION OF NUMBER OF INHABITANTS Millions Projection of number of inhabitants by assumption of constant fertility 7. 17 6. 96 Vojvodina 7. 0 Central Serbia 6. 73 Serbia 6. 49 6. 20 6. 0 5. 23 5. 07 4. 90 4. 72 4. 57 4. 51 4. 0 3. 33 3. 0 2. 0 1. 94 1. 89 1. 77 1. 69 1. 25 1. 0 0. 0 2013. 2018. 2023. 2028. 2033. 2058. By 2002. census R. Serbia had population of 7. 498. 001, of what 5. 466. 009 lived in Central Serbia, and 2. 031. 992 in AP Vojvodina. In year 2008. number of inhabitants has reduces in Vojvodina (1. 979. 389) as well in Central Serbia (5. 370. 833), that means that number of inhabitants also reduced in Republic of Serbia (7. 350. 222)

CONTINGENT OF WORKING AGE POPULATION Millions Projection of contingent of working age population by assumption of constant fertility 5. 0 Vojvodina 4. 37 4. 60 4. 5 Central Serbia 4. 17 4. 02 4. 0 3. 5 3. 33 3. 17 3. 03 3. 0 2. 93 3. 87 2. 86 2. 81 2. 5 2. 08 2. 0 1. 5 1. 26 1. 20 1. 14 1. 10 1. 06 1. 0 0. 78 0. 5 0. 0 2013. 2018. 2023. 2028. 2033. 2058. Contingent of working age population consists of men between 15 and 65 years old and women between 15 and 59 years. By the 2002 census. in Vojvodina was 1320694 working-age inhabitants, while in Central Serbia this category consisted of 3476003 people, that means that at the level of Serbia there was 4796697 of working age population. According to the state in year 2008. , that number of working age population in Vojvodina has dropped to 1298487, in Central Serbia on 3451800, Which means that number of workingage population in Serbia has decreased for 46, 410 and is 4750287.

HUMAN RESOURCES Employment structure in enterprises, institutions and organisations, by sectors in Vojvodina in 2008 Tertiary 54. 7% Primary 8. 3% Secondary 37% In September 2009, primary sector employed 5. 7%, secondary 25%, and tertiary sector employed 69. 3%of total number of employees in EU 27* Source: Eurostat, National Accounts, annual average 29

SWOT Analysis and Policy recommendations Strengths Weaknesses -Bordering region (IPA –CBC for APV (2007 -2013) ≈4. 5 -6 million € per year ) -Vicinity of the EU market -Scientific research institutions in agriculture - IRDP (programmes for product quality raising, energy efficiency increase, IQS) -Outdated technology -Absence of NDP -Donor driven development -Extensive agricultural production -Unfavourable demographic trends -Postponed reform of public sector/ would decrease the country risk – which would lead to favourable debt/equity ratio and allow private capital to enter the public sector – PPP Opportunities Threats -European integration process and IPA funds -Foreign investments in technology intensive sectors -Postponed regionalisation and fiscal decentralisation -Global financial crisis and sudden stop of FDI Source: Competitivenes of Vojvodina economy drafted by Vojvodina-CESS (unpublished). 30

THANK YOU FOR YOUR ATTENTION Centre for Strategic Economic Studies “Vojvodina-CESS” Mite Ružića 2 Phone: +381(21) 528 -755 office@vojvodina-cess. org www. vojvodina-cess. org 31