1. 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

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

3. SERBIA and AP VOJVODINA Vojvodina Teritory: 21.500 km2 (24.3% of Serbia) Population: 2.031.992 (27.1% of Serbia population) 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 91th place among 127 countries. DESCRIPTIONAP VOJVODINA SERBIA Life expectancy71.672.7 Literacy rate 97.696.5 HDI value, 2006 0.8240.821 Average wage in 2008 32,90632,746 Share of investment in fixed assets in GDP (%) (2004) 19.219.4 GDP per capita, 2008., €n/a4597 % of households having internet connection (2008.) 3427.2 Density of road network (km/inhabitants m) EU 25 = 12167 2 9555 134 Density of road network (km/km² ooo) EU = 1240 279497 3

4. Source: Economic Forecatst for Serbia 2009 and 2010, IHS / Economica/Centre for Strategic Economic Studies „Vojvodina CESS“ SUMMARY OF THE FORECAST FOR SERBIA Basic Macroeconomic Indicators2008 1) 20092010 GDP per capita, current prices [dinar]374,594401,515429,431 Real GDP growth rate [%]5.5 -4.70.7 Monthly gross wage per employee [dinar]45,59851,33557,260 Monthly gross wage, growth rate [%]17.912.611.5 Real gross wage, growth rate [%]5.53.65.4 Labor productivity, growth rate [%]6.4-5.01.3 Employment, growth rate [%] 2) -0.80.3-0.7 Registered unemployment rate [%] 3) 22.0 23.724.1 Alternative unemployment rate [%] 4) 27.729.029.5 Inflation rate, consumer prices [%]12.4 9.06.1 Budget balance [% of GDP]-3.2 -4.5-4.0 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. 4

5. 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

6. SERBIA – REAL GDP GROWTH Source: Economic Forecatst for Serbia 2009 and 2010, IHS / Economica/Centre for Strategic Economic Studies „Vojvodina CESS“ 6

7. Structure of GDP, Serbia, 2007* Structure of DP of Vojvodina, 2004 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%. 7

8. Fishing: 0.1% Mining and qarrying: 5.3% Manufacturing: 33.2% Electricity, gas and water supply: 4.4% Construction: 4.5% Wholesale and retail, repair: 17.8% Hotels and restaurants: 1.4% Transport, storage and communication: 7.8% Real estate: 2.7% Health and social work: 0.2% Other: 0.2% Agriculture: 22.4% DP STRUCTURE OF VOJVODINA, BY ACTIVITIES TRADABLE SECTORS 55.7 % UNTRADABLE SECTORS 44.3% 8

9. THE DEGREE OF OPENNESS OF THE SERBIAN ECONOMY 9

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

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

12. 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 - Hungary Period 2007-2009. Total funds: ≈6,1 mil. EUR IPA CBC Romania-Serbia Period 2007-2009. Total funds : ≈7,2 mil EUR IPA CBC Serbia – BiH Period: 2007-2009. Total funds: ≈ 3,3 mil EUR 12

13. ASC - Agricultural Land Site Consolidation Scheme EEP - Energy Efficiency Programme WSP - Water Supply Pilot Project NTD - Nautical Tourism Development Programme 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 BNT - New Technologies Transfer Scheme - BBI - Building Business Incubators in Vojvodine VIP - Vojvodina Investment Promotion Fund CESS - Centre for Economic Strategic Studies 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 $ 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 $ III STAGE – INNOVATION-DRIVEN ECONOMY - Innovation supporting - Innovative products on market - High price of products - High standard of living - Well connected business sector - GDP per capita: over 17000 $ MEASURES OF IRDP AND STAGES OF DEVELOPMENT 13

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

15. SHARE OF AP VOJVODINA IN INDUSTRIAL PRODUCTION OF R SERBIA Fields of industry with smallest share of AP Vojvodina in Serbia 15

16. Fields of industry with biggest share of AP Vojvodina in Serbia SHARE OF AP VOJVODINA IN INDUSTRIAL PRODUCTION OF R SERBIA 16

17. IMPORT BY INDUSTRY, Serbia 2008. 17 Medium Low tech (3329.6 mil EUR) Coal and nuclear fuels, rubber and plastics, base metals and metal products, other non-metal products 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 Medium High tech (6003.1 mil.EUR) 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.

18. EXPORT BY INDUSTRY, Serbia, 2008. 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 Medium Low tech (2509.3 mil EUR) Coal and nuclear fuels, rubber and plastics, base metals and metal products, other non-metal products High Tech (204.7 mil.EUR) Office supplies and computers, medical and optical instruments, clocks and watches. Medium High tech (1946 mil.EUR) Chemical products, machines, electrical devices, motor vehicles and other transporting vehicles Direction of restructuring in Western Balkan countries 18

19. REVEALED COMPARATIVE ADVANTAGE OF THE APV RCA of the APV in trade with the EU (1990, 1998, 2008) 19

20. REVEALED COMPARATIVE ADVANTAGE OF THE APV RCA of the APV in trade with the CEFTA countries (1990, 1998, 2008) 20

21. CONCENTRATION INDICES Concentration index CR 10 of import and export of APV with EU 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 more concentrate than from EU which is result of import structure (raw material, oil, gas) 21 Concentration index CR 10 of import and export of APV with world

22. SPECIALIZATION INDEX Specialization indices of export and import of AP Vojvodina The smaller the country is the specialization index of export should be higher and specialization index of import should be smaller. 22

23. COVERAGE OF IMPORTS BY EXPORTS OF AP VOJVODINA, BY SMTK SECTORS 23

24. VOJVODINA’S SMEs EMPLOYMENT Share of GVA of SME'S in Vojvodina in the total GVA of Vojvodina (2007) 64,4% Share of employees in SME'S of Vojvodina in the total number of employees in Vojvodina (2007) Large SME’s Large SME’s GROSS VALUE ADDED In EU, SME sector employs 67.2 % of total employees In EU, share of GVA of SME'S in the total GVA was 57.6% 24

25. STRUCTURE OF COMPANIES IN AP VOJVODINA 25

26. 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 26

27. PROJECTION OF NUMBER OF INHABITANTS 27 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) Projection of number of inhabitants by assumption of constant fertility

28. CONTINGENT OF WORKING AGE POPULATION 28 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 working- age population in Serbia has decreased for 46,410 and is 4750287. Projection of contingent of working age population by assumption of constant fertility

29. Primary 8.3% Secondary 37% Tertiary 54.7% Employment structure in enterprises, institutions and organisations, by sectors in Vojvodina in 2008 HUMAN RESOURCES I n September 2009, primary sector employed 5.7%, secondary 25%, and tertiary sector employed 69.3%of total number of employees in EU27* Source: Eurostat, National Accounts, annual average 29

30. StrengthsWeaknesses -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 OpportunitiesThreats -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). SWOT Analysis and Policy recommendations 30

31. 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