Aleksandar Vučić, Serbian Prime Minister

We Stand Firmly On The Reform Course

The reforms started in 2014 should be completed by the end of this government’s mandate and enable Serbia to become an orderly democratic country, with efficient institutions, a functioning market economy and a European future

Aleksandar Vucic

This government has the energy to continue work on a new wave of reforms, and it is aware that its success in this work is crucial to defining the economic fate of the country in the coming decades, says Prime Minister Aleksandar Vučić, announcing in this interview a series of measures that his office intends to undertake in the coming period.

How should your new programme be viewed? Is it a programme of continuity or a programme of qualitative steps forward in reforms?

– The programme that I presented in my exposé is the continuation of reforms started in 2014, which, once they are completed, by the end of the mandate of this government, should be a big step forward, or for them to turn Serbia into an orderly democratic country with efficient institutions and a functioning market economy. In the past two years we have worked on the creation of preconditions for economic recovery, macroeconomic and fiscal stabilisation, and important structural reforms of the labour market, building permits and the like, in the period ahead we are awaited by a more demanding, not to say technically more complicated, part of the job, and that is reform of the judiciary and essential sectoral reforms in the fields of education and public administration, which should round off this reform process.

Several governments before yours managed to stabilise public finances by a certain deadline, bt they all halted precisely on issues of structural reforms. In your opinion, do you think that in the elections you received the clear legitimacy you were seeking to crack that nut?

– This government has the energy to continue work on the new wave of reforms, in order for us to ensure the results achieved and create opportunities for further progress. In that sense I consider that we are at a crucial stage of the reform process, because our success in the implementation of the forthcoming reforms is crucial to defining the economic fate of the country in the coming decades, i.e. it will determine whether we will, as before, have frequent and seismic shifts in period of slight growth and stagnation, i.e. recession, or whether will fix ourselves on the rote to longterm sustainable and dynamic growth. The election results show that citizens are aware of this.

Your coalition and the assembly have been joined by right-wing parties that oppose further EU integration. Do you expect resistance in the implementation of European policies?

– It is good that the Serbian political scene consists of different opinions and ideas. I consider that as the richness of our political life, because nobody shold fear the diversity of political ideas as long as there is a strong institutional framework and democratic institutions that support diversity and guarantee the rule of law. Our challenge and goal is not to overstep everyone or to replicate everyone. I believe in the power of arguments, knowledge and hard work. I sincerely believe in the policy of the Government of Serbia, and our arguments are the results that we achieve. A politically strong and developed Serbia, in a stable regional environment, which accepts the latest legal and economic standards of the EU, received almost plebiscitary support in the elections.

Any substantiated criticism is welcome and comes as good advice. I think every eurosceptic needs to know a bit more than supporters of the EU project if they want to fundamentally criticise this organisation. Even among them there are those who do not dispute the importance of applying European standards. These are the questions around which it is healthy to build a consensus. Why should Serbia be the exception?

Why should Serbia be outside of a project that already today brings it a significant level of investment, new jobs, an ever better trade balance and respectable financial support? If by any chance Serbia becomes a member in the coming years we would, through development projects from structural funds on today’s projected GDP, be able to count on an additional 1 to 1.5 per cent of GDP.

Aleksandar Vucic

A politically strong and developed Serbia, in a stable regional environment, which accepts the latest legal and economic standards of the EU, received almost plebiscitary support in the elections

What could you announce from the areas of chapters 23 and 24 among policies that are essential for strengthening the rule of law in the economic sphere?

– I would dare to assess that we as the Government, and as the executive branch of government, have done a lot to fix the business environment in Serbia. This resulted in a better rating of Serbia in the Doing Business list. If we want to make it into the global premier league of countries with the best business environment, we have a lot of work ahead in order to continue improving in practice. That is not only the job of the government and the judiciary, but also the Parliament, the Serbian Chamber of Commerce, so-called independent institutions and expert associations, but also civil society. Everyone should bear his own burden of responsibility for the results achieved.

Each field in the Action Plans for Chapters 23 and 24 is directly or indirectly important to the business environment. I cannot say that the fight against organised crime is less important than the rule of law. There cannot be one without the other, and the first is in chapter 24, while the second is in chapter 23. I would remind you that we welcomed the opening of chapter 23 with 77 per cent of the measures envisaged by the Action Plan for this chapter completely fulfilled. The remaining 23 per cent is in various stages of implementation. However, for strengthening the rule of law in the economic sphere I would single out the efficiency of the courts at all levels and issues, addressing obsolete cases, the fight against corruption, crimes against the economy and in the media domain.

Because of all of these issues negotiations with the EU are important for us. Progress in chapters 23 and 24 means that we are on the right track and that we receive good grades, and that is the best signal to investors that Serbia is a safe haven for all investors, regardless of their national or international sign.

Economic growth is strengthening and what is particularly satisfying is that recovery is evident in a relatively large number of branches. What does the government intend to do to make it sustainable?

– In order for growth to be sustainable, the state needs to do two things. One is to complete public investments and the other is to create the preconditions for private investment. Growth should be achieved with small fiscal and trade deficits in order for public and external debts not to grow. In this sense, the reforms that we have implemented represent an excellent basis (reducing the fiscal deficit from eight per cent of GDP in 2014 to 2.5 per cent of GDP this year, reducing the current account deficit to below five per cent of GDP, strong growth in foreign direct investments of 46 per cent in 2015). In order for us to make economic growth really sustainable, and not only sustainable but also dynamic, we plan to: continue strong macrofiscal stabilisation, until we reduce the fiscal deficit to around one per cent of GDP (by 2020); increase public investment by about 150 million euros a year until we reach the average of Central and Eastern Europe (4-5 per cent of GDP annually). In this sense, our focus will be on strong modernisation of road and rail infrastructure, because we are aware that the impact of these projects on economic growth is several times higher if we had focused that money on consumption; launch the reform of education at all levels; actively lead specific sectoral policies, such as agricultural policy, and create conditions for the development of fast-growing activities, such as in the IT industry.

When it comes to public companies, if we look at your programme from 2014, the least has been done in relative terms. What new deadlines can you announce for resolving the issues of these enterprises?

– Restructuring public enterprises is a process that began in late 2014 and which will last several years and which is taking place according to an established schedule. Activities on the restructuring of EPS, Srbijagas and the Serbian Railways are carried out in accordance with the plans of restructuring and in stages. Professional support and funding are provided by the World Bank. The legal framework for better, more economical and more efficient operations of public enterprises is given in the new Law on Public Enterprises.

Aleksandar Vucic

This government has the energy to continue work on the new wave of reforms, in order for us to ensure the results achieved and create opportunities for further progress

It seems that the problem of the Smederevo Steelworks has been resolved successfully, but it is an expensive solution. How much space is left for such solutions and similar ones when it comes to, for example, RTB Bor?

– The pre-prepared plan of reorganisation for RTB Bor envisages the modalities of establishing new companies through the separation of certain assets such as mines. This company would be founded or function independently with the aim of concluding technical business contracts with a potential investor or joint investments with a potential investor. In any case, the precondition is that all ores and their concentrate are processed at the smelter RTB Bor according to market prices, with our intention to develop and manufacture the final products. In this way we would ensure two types of income – on the basis of profits in the newly formed company and on the basis of income from the smelter.

What is the next step in resolving the issue of companies undergoing reconstruction that have moved from the phase of protection against creditors and largely entered the regime of the pre-prepared plan of reorganisation?

– Plans will be made that are sustainable over the long term and acceptable for the creditors of these companies, and the state will support this process through the conversion of their claims and in some places also through write-offs.

Likewise, money has also been provided for the implementation of social programmes, and with that we have created all the prerequisites for plans to be acceptable for commercial creditors, because we have significantly decreased the levels of total liabilities and planned expenditures.

The World Bank particularly praised you for the new trend of a larger number of smaller but widely dispersed foreign investments. Is that the result of the strategic commitment of the government, or a question of the current dynamics?

– The increased volume of investments is primarily the result of the efforts of the Government, which established macroeconomic stability and provided for the predictability of the business environment. Successfully implemented fiscal consolidation, balancing the balance of payments imbalance, price stability and a clear course of reforms aimed at strengthening the competitiveness of the domestic economy are factors that can largely define the decisions of investors regarding whether to start their investment cycle in Serbia or not. We expect that in the future a large number of major investments in third generation will appear, which will valorise the economic position of Serbia and have a regional scope.

Foreign investors continue to note their satisfaction with the new Labour Law and the speed of issuing building permits. On the other hand, the Law on Land Conversion, with great delay, has only just entered into the application, while there is still no Law on Para-fiscal Charges. What novelties can you announce when it comes to improving the business environment?

– The effects of the reform of the Labour Law are as we expected them to be – there has been growth in employment and a reduction in unemployment and inactivity. The effects of the reform of the system for issuing building permits are even more positive. The growth of construction in the past year and a half is one of the pillars of the new momentum of the economy. When it comes to the further improvement of the business environment, in the short term we will regulate the financing of local governments, and our plan is to work intensively on the reform of fees and charges, in order for us to have a more transparent system.

Aleksandar Vucic

If we want to make it into the global premier league of countries with the best business environment, we have a lot of work ahead in order to continue improving in practice

When will Tax Administration be thoroughly reformed?

– Plans for the transformation of the Tax Administration have already been prepared and their rapid implementation is expected soon, which will involve a smaller number of better organised regional offices of the Tax Administration.

Likewise, reform is also being implemented through the system of recruitment, training, advancement and remuneration of staff, strengthening the material base of the work of the Tax Administration and technical and technological modernisation.

The process of transformation of the Tax Administration into a modern organised unit modelled on the administration of Western European countries is a long lasting process that we have already agreed with representatives of the World Bank and the IMF, it is realised in phases and is gradually yielding the first results. The state should be careful what and how much it taxes, the Tax Administration needs to be a credible threat of law enforcement and citizens need to respond to that by voluntarily and transparently reporting their income and paying taxes.

What will be in the focus of the government when it comes to combatting the grey economy?

– The continuation of the fight against the grey economy remains a task that is ranked very highly among the priorities of the Government. The results achieved in 2015 and 2016, which were largely the result of more intense controls, must be translated into lasting improvements in the administration system and reform of the Tax Administration itself. Coordinated efforts of the Tax Administration, the Interior Ministry and the Security Information Agency achieved notable reslts in the fight against illicit trade in excisable goods. This kind of cooperation will also be continued in the period ahead.

What kind of rank do you envisage for Serbia on the next Doing Business list?

– Last year saw Serbia advance 32 positions thanks to the recognition of reforms in the areas of paying taxes, to some extent due to the new system for issuing building permits and following changes to the methodology that finally placed on an equal footing the position of continental countries with those bordering the sea. It should be considered that each country’s ranking on the Doing Business list depends on the success of other countries. However, we expect that on the Doing Business list for 2017, which the World Bank will publish in October, we will have progressed by around a further four places, so we will achieve 55th place, and that in 2017 we will advance by a further 7-10 place and break into the top 45 to 50 world economies.

Although the results of economic growth and the inflow of investments are encouraging, the unemployment rate is still high and analysts from the European Commission to the IMF expect stagnation or onlt a small shift, unlike you – as you have announced a fall to 13 per cent by the end of 2017. What makes you optimistic?

– The latest data of the National Institute of Statistics shows that Serbia has its lowest unemployment rate since 2007, and that it has fallen below 16 per cent for the first time. The employment rate has increased by 3.2 percentage points compared to the previous quarter and the same quarter last year, from 42.6 per cent to 45.9 per cent. The best indicator is growth in employment and falling unemployment among young people, but the general unemployment rate is heading in the right direction, as it was 19 per cent in the first quarter and now it is 15.2%.

Contributing to reducing unemployment rates is enhanced economic activity, investments in new jobs and support for the development of the private sector, especially small and medium-sized enterprises, but also a better performance of the labour inspectorate and the reporting of seasonal workers.

At the same time, we are working on bringing the system of training, additional training and dual education closer to the structure of knowledge and skills of the working age population in order to meet the needs for new jobs that are emerging in small, medium-sized and large enterprises.

Reasons for optimism reside in very dynamic and diversified growth that the domestic economy has been recording in the previous period, as well as our commitment to fully implementing the programme of structural reforms and fiscal consolidation. The only real risk we see is possible geopolitical disruptions that could have an adverse impact on our largest trade partners and, thus, on export demand for our products.

Aleksandar Vucic

We expect that in the future a large number of major investments in third generation will appear, which will valorise the economic position of Serbia and have a regional scope

What could the government do in order, for example, for Siemens or General Electric or Ikea to be able to find more partners among Serbian SMEs than the current virtually symbolic number? How will you continue to support these small engines of development and employment?

– The inclusion of our companies in the supply chains of major international companies, those present here and those from abroad that are interested in partners in Serbia, has multiple benefits for local companies: they become suppliers of such systems; they are opened up not only to channels to sell products, but also to the ability to acquire additional skills, achieve standards and new technologies; to grow and continuously improve business processes, from technological to management, and the quality of their products, in order to sustain themselves in these arrangements and agree on new business.

As the private sector becomes stronger, so our companies will be better able to be included in the chains of large systems, so there will be more foreign investment here, because every investor, along with other parameters, also measures the capability of the domestic economy – domestic companies that they can rely on.

We are proud of our small businesses that have already become suppliers to large global companies. Recently, during the visit of the Swedish Prime Minister to Serbia, I had the opportunity to give him some of our domestic products – a chopping board and rolling pin, which our company from Ćuprija, Standard Furniture, produces for Sweden’s IKEA.

Apart from dual education, what can you announce when it comes to education reform, and which would better connect this sector to the needs of the economy?

– In our country, despite efforts, the classical system of teaching is still dominant at the majority of colleges, in which the student is largely a passive participant. Also, equally important is secondary education and its reform, which must follow in the period ahead, because it is difficult for young people who have no experience in a particular practice to decide on starting an independent business. Data shows that only three to five per cent of young people will launch their own business if they did not acquire some form of work experience during their schooling.

The dual education system develops a tendency towards entrepreneurship, reducing unemployment, increasing income, so Serbia – with a view to the experiences of developed countries like Germany, Austria and Switzerland, which for years have applied the dual model in their school systems – expects that this innovation will contribute significantly to economic development and reducing unemployment in Serbia as well.