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Nikolaos Sliousaregko, President of the Management Board of the HBA

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Slavica Đukić Dejanović, Serbian Minister of Education

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News

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Charlotte Ruhe, Managing Director For Central And South Eastern Europe At The European Bank For Reconstruction And Development (EBRD)

Serbia Needs A Swifter Economic Shift

Although the EBRD forecasts slower growth for Serbia in 2023, than in 2022, the pipeline of projects supported by the EBRD and the EU are promising greener and more advanced structure of the economy in the foreseeable future

In this exciting interview with Charlotte Ruhe, Managing Director for Central and South Eastern Europe at the European Bank for Reconstruction and Development (EBRD), we were provided with an excellent overview of the number of projects the EBRD is currently financing or set to launch in the near future. However, the interview also shows how Serbia and the Western Balkans are building strong bonds with the European Union in many ways that are important to the overall progress of the region and the future wellbeing of its citizens.

What are the most notable advancements in modernising, digitalising and greening the Serbian economy in the last two years?

There is much to say on this! Serbia is getting to grips with the energy sector reform, opening it up to green investment and moving to a more ambitious decarbonisation path. The long-planned introduction of renewable energy auctions is eagerly awaited by investors and, of course, by the EBRD, which is supporting their design and preparation through an extensive technical cooperation programme. Last year brought particular clarity to where the problems lie. Serbia is not the only European country to have been hit with an energy crisis last year, but many problems are home-grown. Structural challenges have been accumulating in the energy sector over many years, and this did not help the country when last year’s energy crisis hit. The government is now confronted by both with the need to reform the state-owned enterprises in the sector and to support the most vulnerable energy consumers. For the Serbian economy to achieve a true breakthrough as a whole, the energy system needs to decarbonise. This is not only to reduce emissions and air pollution, but to reduce reliance on imported fuels. When we look at the European Union, part of the reason it was able to withstand last year’s energy crisis was because solar and wind power accounted for a record 24 per cent of all energy produced in the EU in 2022. Overall, renewable energy saved the EU about 100 billion euros in gas imports last year.

The EBRD Board of Directors has just approved a loan to Elektropriveda Srbije (EPS), the state energy company, for a total of 300 million euros to support its energy imports. This loan (in two tranches) has a green reform programme attached as a condition. It includes boosting renewables, setting a credible decarbonisation path and reforming the company. There will also be a programme to help EPS upskill its workforce.

Decarbonisation of transport is another core priority. What we are doing right now in green transport is one of the largest infrastructure projects in Serbia to date, the high-speed €2.4 billion Belgrade-Niš railway.

A flagship “green” project we are keenly waiting to come on-stream is the waste-to-energy facility in Vinča outside Belgrade, the former location of one of the largest waste landfill sites in Europe. There will now be a state-of-the-art facility that will burn nonrecyclable waste with low emissions

As I write this, we are preparing to announce this major upgrade together with the EU, EIB and the government. The EBRD has committed a total of 550 million euros in tranches. Our loan comes together with several reforms, both at the national level and within Serbian Railways internally. Nationally, work will focus on the independence of the rail regulator, implementation of the Transport Community Treaty and the Rail Sector Action Plan. Serbian Railways will adopt a gender-responsive corporate governance action plan. Separately, the project will lead to a new market-relevant dual learning curriculum for the railway sector, building on the EBRD’s wider work in this area in Serbia (and a number of other countries).

A flagship “green” project we are keenly waiting to come on-stream is the waste-toenergy facility in Vinča outside Belgrade, the former location of one of the largest waste landfill sites in Europe. Now there will be a state-of-the-art facility that will burn nonrecyclable waste with low emissions; gas from the existing dump will be collected, and drain water will be treated. Working with us, IFC, Austria’s development bank and many other partners, Serbia can transform the largest untreated dump into the most striking example of green turnaround in Europe.

You recently visited Bosnia-Herzegovina and Serbia with the EBRD president, for whom this was the first in-person visit. What were the most pressing issues to discuss, and how satisfied are you with the outcomes?

Indeed, this was the first in-person trip to the two countries for the EBRD President, who paid a “virtual” visit to Serbia in 2021, during the pandemic. She was very glad to have this opportunity. In Bosnia and Herzegovina, we met with the new authorities; in Serbia, with President Vučić and Prime Minister Brnabić, and in both countries with private sector clients, infrastructure companies and civil society organisations. The President was optimistic about the long-term potential for green transition in both countries. We discussed renewable energy in both Sarajevo and Belgrade, and both capitals recognise the need to unlock private sector investment. In Serbia, as I mentioned, we are expecting the first renewable energy auctions; in BiH, the issue of grid connection for private developers needs to be resolved.

We also discussed the economy in general; our economic forecast for this year is slower growth than last year, but we expect it to pick up in 2024.

What do you see as the most significant impact on the region, and on Serbia specifically, that has occurred as a result of the continuous EBRD support to improving infrastructure links in the country and across the region?

Infrastructure investment has been and remains a key driver of economic growth in Serbia. There is a fairly well-developed road network that dominates the transport sector, but the railways are set to gain popularity with reforms in the sector underway and the high-speed network expanding. Road and rail coverage in Serbia are already good, but now the task is to improve their quality, because maintenance of outdated infrastructure is quite costly.

Infrastructure investment has been and remains a key driver of economic growth in Serbia. There is a fairly well-developed road network, which dominates the transport sector, but railways are set to gain popularity with reforms in the sector underway and the high-speed network expanding

Partly as a result of improving infrastructure, Serbia’s openness to trade has risen exponentially over the past decade. This trade is strongly tied to the nearby EU countries. There is also a steady and broad-based inflow of foreign direct investment.

Observing comparable EU member states, how advanced is Serbia today when it comes to digital infrastructure and the fibre broadband network? Where do you see opportunities for the EBRD to further its support?

Digitalisation in Serbia is progressing well, contributing to the improvement of the business environment, partially thanks to a reduced administrative burden. One of the signs of this is a steady flow of foreign capital, which in turn supports exports. Another good sign of economic development is strong growth in the export-oriented IT sector. The EBRD has provided support to some companies in this field. This sector has a lot of potential to attract educated young Serbians who might otherwise consider employment abroad.

In terms of physical infrastructure, the expansion of broadband to rural areas is advancing. Of course, when we speak about digitalisation we don’t just mean physical connections, but the rise of digital economy and e-government. An open government strategy, which includes a disclosure of more data and an easier participation of citizens, also relies on digitalisation.

Most of our current policy engagements are also in this area: the e-Agrar reform, which aims to establish the online Registry of Agricultural Households and enhance access to finance of farmers; digitalisation of administrative procedures and licenses needed for investing in renewable energy sources; and supporting the digitalisation of the public administration.

Serbia has serious ambitions when it comes to scientific and innovation capacities, starting from the Bio4 campus to expanding the network of Science and Technology Parks. In your opinion, how do these initiatives shape Serbia’s transition to a knowledge-based society?

Serbia has the potential to increase production of higher complexity products, but currently a large share of its exports are represented either by raw materials, primary products or low-tech manufacturing, like copper ore, frozen raspberries or electric conductors.

At the same time, the country has the same level of education as the European Union. Serbia needs to speed up the shift to a more knowledge-based economy – which we are already seeing in the IT sector – otherwise its workforce will continue moving abroad to find jobs that match their education levels. So, any project that stimulates innovation is good.

To what extent do these advancements represent part of the EU’s largescale efforts?

The EU will answer this question better, but what I can say is that EU efforts in Serbia focus on precisely the areas you are mentioning. Our projects largely leverage EU grants, either as incentives or for technical assistance. This is true both for infrastructure projects and the credit lines implemented through local commercial banks in areas like SME competitiveness, energy efficiency, and gender & youth inclusion.

While the EBRD invested eight billion euros in Serbia, the same projects we worked on received about €1.6 billion in co-financing from EU institutions.

Dual education is among the many topics that the EBRD president discussed with Serbian PM Brnabić. What brings this topic into the focus of policymakers at this time? How do current initiatives build upon previous ones? How does dual education address current worker shortages?

During the president’s visit, we signed a memorandum of understanding with the newly established Office for Dual Education and National Qualifications Framework, tasked to lead the work of the Sector Skills Councils.

Serbia needs to speed up the shift to a more knowledge-based economy – which we are already seeing in the IT sector – otherwise its workforce will continue moving abroad to find jobs that match their education levels. So, any project that stimulates innovation is good

This follows several years of efforts, including support to the Sector Skills Council for ICT and agribusiness sectors. As I mentioned earlier, the Belgrade-Niš railway project will have a programme aimed at increasing the supply of skilled workers in that sector. We also cooperated with the United Group on this.

Why is it important right now? There are many reasons, including the one I mentioned: the high levels of education in Serbia do not fully match the skills the industry needs today, or will need tomorrow, and one of the reasons this happens is insufficient communication between the private sector and education authorities.

How relevant are EBRD initiatives in Serbia and across the Western Balkan region when it comes to the current trend of relocating large value chains?

Maybe not relocating entire large value chains per se, but opportunities lie in creating new pockets of more complex and higher value-added exports, as well as better integrating foreign companies into domestic supply chains. We have historically supported foreign direct investment in all our markets, which helps to drive exports and improve economic complexity. In Serbia, FDI has been remarkably strong in recent years, although these investments need to be better leveraged to develop domestic value chains. But, according to our economists, the structure of Serbian exports is showing some signs of diversification, as we see the emergence of relatively technologically-intensive pockets in a number of industries.

POTENTIAL

Serbia has the potential to increase its production of higher complexity products, but currently large shares of its exports are either raw materials, primary products or low-tech manufacturing

OPPORTUNITIES

FDI has been remarkably strong in Serbia in recent years, although these investments need to be better leveraged to develop domestic value chains

SUPPORT

While the EBRD invested eight billion euros in Serbia, the same projects we worked on received about €1.6 billion in co-financing from EU institutions.