ANALYSIS - Serbia, Macedonia Should Raise Exports of Services To Boost Growth

“This is normal for developed economies [...] but these are good quality, sophisticated, often export-oriented services, while here services mean mainly trade. That’s the biggest chunk. And a bit of traffic as part of the telecommunications industry. But there aren’t many production services that are of good quality."

Services contribute about 60% of Serbia's projected gross domestic product (GDP), while in Macedonia sevices account for 30% of the overall financial turnover in the country.

“When we talk about small economies the biggest problem is the shortage of exports. Because when you are small and you wish to export, you must export a big chunk of your production but the share of production in our GDP is small," Bajec told SeeNews.

ICT LEADS

One of the sectors with the highest growth potential in Serbia’s and Macedonia’s services industry is the information and communication technologies (ICT) sector and its further development hinges on budding foreign investment and infrastructure projects, industry officials and international agencies say.

Taking into account that the value of the Macedonian ICT market in 2008 was some 100 million euro with an annual growth rate of 15-20 percent, the ICT is the fastest-growing industry in Macedonia, state-run Macedonia Information Agency (MIA) quoted the Chairman of Microsoft Europe Jan Muehlfeit as saying at the Vision 7 conference in Skopje in October.

“One of the sectors of the services industry in Serbia that has the highest potential for growth is ICT. ICT service industry sector grew by 37% in 2007, and it is predicted that this service industry sector has further potential for growth since IT spending per capita is still below the EU27 average at 85 euro,” the U.S. Agency for International Development (USAID) said in a statement sent to SeeNews. USAID provided part of data it had gathered for its Serbia Competitiveness Project. 

Macedonia's ICT market needs to expand further to be able to keep pace with the growth of the ICT industry on a global scale. There is great potential for the development of the ICT sector in Macedonia, which as a small country of 2.4 million invests a lot in ICT know-how and technology, Muehlfeit said.

Microsoft Macedonia’s head, Ilijanco Gagovski, has advised local ICT companies to focus on small and medium-sized firms, as information technologied are under-used in this sector, MIA reported earlier.

Serbia’s main competitive advantages over its neighbours and some EU countries with regard to ICT include high level of expertise, highly trained and skilled workers and strong English language skills, USAID said in its statement.

ICT is among the sectors that can become the new investment attraction in Serbia once the Balkan country of about seven million emerges from the crisis, the head of U.S. Chamber of Commerce in Belgrade, Skip Bornhuetter, said earlier this year.

This field is likely to develop in the coming years as Serbia’s’ economy is going to need a strong system to support future investments, Bornhuetter added.

But what slows the growth of the ICT sector in Serbia is the shortage of much-needed government investment, according to Microsoft Serbia General Manager Vladan Zivanovic. The government in Belgrade invests yearly about 60 euro per capita in the ICT sector, while neighbouring Croatia invests triple that amount. Slovenia invests more than 300 euro per capita, while other EU member states invest more than 800 euro per capita in the sector.

Serbia expects to attract around $2.0 billion in foreign direct investment (FDI) this year, slightly down from about $2.1 billion in 2008, Economy Minister Mladjan Dinkic has said. Macedonia's government has said it expects the FDI inflow to slow down this year due to the global economic crisis. In 2008, FDI in Macedonia fell by 18.5% to 412.5 million euro.

HURDLES

While Macedonian entrepreneurs in the ICT segment should rely more on consulting services to optimize their business operations, Serbia lacks skilled managers with international experience.

Consulting is a relatively new business sector in Macedonia. Its development intensified  in the previous decade with the arrival of various international organisations (the EU, the World Bank, UNDP, USAID, OSCE), which started to implement a slew of programmes: strengthening capacities in the state administration, the small and medium-sized companies, agribusiness, non-governmental and civil rights organizations, said Beti Delovska, a managing partner in Skopje-based BASME Consulting and Training (C&T) agency.

The development of consultancies in Macedonia was also influenced by the growing awareness among businessmen and the state administration of the need of such services. Foreign companies and then local ICT firms were the first that started to use these services in Macedonia.

Yet, the market remains underdeveloped as local private firms are not using consultant services sufficiently. Obligatory consulting services, such as auditing, capital estimates, or introduction of quality standards are in the greatest demand alongside with advertising and staff recruitment. There is less interest in financial consulting, business process improvement, new product development and in overall work efficiency improvement, said Delovska.

The development of consulting services sector is expected to intensify in the next few years. First of all, the consultants have to increase their credibility and confidence among business people, she added.

Despite the availability of skilled workforce in many job areas in Serbia, the country lacks qualified managers that have been exposed to the best international business practices, USAID said.

As a result, meaningful investments have to be made in the future trainings and adoption of best international practices amongst service sector employees.

"Best practices include international certificates and we have supported both product certification and people certification in areas such as project management,” USAID said.

GOING FORWARD

Serbia’s biggest potential within its service sector lies in business process outsourcing services, including shared services, back office and call centres, while in Macedonia tourist services appear to be the most promising branch in the sector.

While Macedonia’s tourism has the biggest potential to develop in the service sector, all service branches work equally to attract foreign capital, the former president of the Service Chamber with the Macedonian Chambers of Commerce,  Darko Velkov, told SeeNews, adding that the business climate in the country is much more favourable compared to five years ago.

Macedonia's tourism industry is expected to generate 25 billion denars in economic activity this year, which is equivalent to 6.2% of the projected GDP, according to a recent survey conducted by the World Travel & Tourism Council (WTTC).

Other service sector branches primed for growth include construction, insurance as well as the food industry in light of the expected implementation of the HACCP food safety standard.

What’s more, Macedonia would not remain outside the global rising trend of the service sector, which, according to some estimates is expected to grow by 80% by 2050, Velkov said.

France-based EuroViva Financial Group President Dejan Stankovic told SeeNews that there is a real potential for growth of the insurance business in Macedonia, “first of all due to the existence of a legal framework, since the EU-aspiring country has adopted legislation compliant to a great extent with European Union standards.”

“Serbia’s big potential lies also in the logistics service sector, which is undersized at present, but we have several projects in the pipeline, such as EYEMAXX in Nis and Embassy Group’s IT Park in Indjija,” investment advisor with Serbia Investment and Export Promotion Agency (SIEPA), Jovan Miljkovic, told SeeNews.

Austrian real estate developer EYEMAXX will build, in cooperation with UK-based investment fund Chayton, a 61 million euro cargo centre at Serbia’s Nis Airport, in the south, it announced last year. Indian property developer Embassy Group plans to build a $550 million IT business centre in Serbia’s northern Indjija municipality.

The service sector in Serbia shows strong potential for future growth, USAID said, adding that the Balkan country was ranked among the top 20 on the Price Waterhouse Coopers Service Indices list in 2004 and ranked seventh in 2008.

USAID said that incentives provided by the Serbian government over the years have supported investments in service industry with strong indication that this practice will continueStronger political stability, greater pace of transition, closeness to the EU market, tax rates which are amongst lowest in the South East Europe, highly skilled and relatively inexpensive workforce, and the strongly positive experience of foreign investors who are already here are some of the reasons for investing in the service sector in Serbia.  

(1 euro= 96.3022 Serbian dinars or 61.5425 Macedonian denars)