Electronics Profile Serbia - Siepa

TRADITION OF THE ELECTRONICS INDUSTRY IN SERBIANIKOLA TESLASerbia is home to a rich tradition in the electronics industry, butthe story of this fi eld in our country begins with Nikola Tesla, oneof the greatest pioneers and inventors in the fi eld of electricity.Of his countless discoveries and contributions to science, Tesla'smost notable achievements include a forerunner to commercialelectricity, the alternating current (AC) system and important workleading to the invention of wireless communication and the radio.His colorful personality and groundbreaking achievements haverightfully been immortalized in science and popular culture alike,and it comes as no surprise that he is considered by many as themost important Serbian of all time.Serbia’s electronics industry dates back to the post World War II period when smallscaleof manufacturing of radio devices began throughout the former Yugoslavia. Themain production centers of the electronics industry were in Slovenia and especiallyin Serbia. The biggest companies in this fi eld were Iskra Kranj, Rudi Čajevac, RIZ andElectronics Industry Niš (EI Niš for short). These companies grew to become especiallylarge in the 1960s and 1970s. EI Niš was the largest of these: at the height of thiscompany’s peak it employed 28,000 people in over 50 factories throughout theformer Yugoslavia.The assortment of electronics products manufactured in Serbia grew as quicklyas the industry itself: Starting from the immediate postwar period of radio deviceproduction, companies in Yugoslavia moved into manfucturing consumer electronicsin the 1960s. In the subsequent decade, electronics production was also heavilyfocused on supplying the military. The 1970s also saw a rapid expansion in electronicsexports from Yugoslavia.This industry reached its peak in the 1980s: During this decade, Yugoslavia’selectronics industry was a $1 billion sector that employed around 100,000 people.About one quarter of these were employed in cutting-edge research and development.Companies in Serbia alone accounted for about half of the Yugoslav industry’sproduction and employees at this time. Every major foreign electronics company hadrepresentative offi ces in the country, while many fi rms worked under license to foreigncompanies. EI Niš produced television sets in cooperation with Philips. Manufacturersof electronic components for the military industry did so in accordance with standardsemployed in the United States.As was the case with most sectors, the 1990s in Serbia marked a period of sharpdecline for the electronics industry: The political problems and economic sanctionsimposed on Serbia during this decade had catastrophic consequences for the oncethrivingsector. By the mid-1990s, the size and profi tability of Serbia’s electronicsindustry was less than 10% of what it was in the previous decade. The industry waslimited to serving only the Serbian market. Reduced profi ts prevented local companiesfrom investing in new technologies.3

Foreign Investments in the Electronics Industry in SerbiaLargest Foreign Investmentsin the Electronics IndustryATB - Sever SuboticaMuehlbauerEatonGorenjeDanubeSavaSomborŠabacMali ZvornikDrinaSuboticaSentaBeèejVrbasSremska MitrovicaSavaSiemensKikindaZrenjaninNovi Sad VršacBelgradeSmederevoDanubeValjevoSvilajnacBorDunkermotorenDräxlmaierGorenje TikiPanasonicName Country Municipality Value Jobs CompletedSiemens LoherElectro Germany Subotica 33.0 750 2011ATB - Sever Subotica Austria Subotica 25.0 1000 2004TF Kable - Fabrika kablova Zajecar Poland Zajecar 25.0 560 2007Gorenje Slovenia Valjevo 30.0 600 2007Gorenje Tiki Slovenia Stara Pazova 16.0 400 2010Vossloch-Schwabe (Panasonic) Germany Svilajnac 13.0 400 2010Gorenje Home Slovenia Zajecar 8.0 300 2011Photon Optronics Germany Nis 6.3 70 2010Muehlbauer Germany Stara Pazova 4.0 100 2007Eaton/Moeller Germany Sremska Mitrovica 3.8 260 2007Sagemcom France Nis 3.3 203 2011Elrad Slovenia Vlasotince 2.3 228 2007Gruner 1 Germany Vlasotince 2.1 200 2007Engel Spain Nis 2.0 62 2001El France Nis 1.1 51 2011Dunkermotoren Germany Subotica 1.0 50 2011Yura CorporationUžiceKraljevoJagodinaKragujevaParaæincZajeèarTF KablePrijepoljeKruševacProkupljeNišPirotGrah AutomotiveLeoniPeæLeskovacKosovska MitrovicaPrištinaVranjePrizrenGorenje HomeYura Corporation“With start of WEG production in Serbia, we expect faster and easierapproach to EU, Middle East and Africa markets, what was our maingoal from the beginning.”Ms. Tijana KatalinicMarketing Director, WEG TechnologyYura CorporationGrunerElrad“Serbia fulfills a lot of preconditions for labor-intensive JIT productionwith available labor force, good infrastructure and not forget the strongand highly qualified support of the government and local authorities.”Mr. Peter Prohaskaformer General Manager, LEONI Serbia9

Success StoriesInvestment: 50M €Employees in Serbia: 1300Government support: Supported by 5M € grantStart of operations in Serbia: 2006Investment: 33M €Employees in Serbia: 750Start of operations in Serbia: 2003Gorenje Group was established in 1950. The group’s core business consists ofproduction and sales of household appliances, home interior items and trade andservices. In 2010, Gorenje Group was present in more than 70 countries, employed11,174 employees and achieved consolidated revenues of EUR 1.38 bn.In Serbia, Gorenje has invested around 50 million EUR to establish factories inValjevo, StaraPazova and Zaječar. In these factories, Gorenje produces refrigerators,freezers, cooling equipment in Valjevo; heating appliances in Zaječar; and washingmachines and driers in StaraPazova. In total, the company employs 1300 workersin Serbia. Gorenje received a total of 5 million EUR in grants from the Serbiangovernment – this accounts for 10% of the company’s total invested amount in Serbia.Furthermore, for investment in Zaječar, the Serbian government has agreed to buildfull transportation and electrical infrastructure.The other key reasons why Gorenje decided to come to Serbia are:• Ability to export to the Russian market under a preferential export regime - 1%tax rate for importing products from Serbia, compared to approximately 20% forimporting from the EU;• Flexible logistics and proximity to export markets (EU, CEFTA and Russia);• Experienced and cost-effective labor (cost of labor one third of similar offeringin Slovenia).Investment: 7.5M €Employees in Serbia: 150Government support: Supported by 750,000 € grantStart of operations in Serbia: 2011WEG Group was established in 1996. WEG Technology works mostly as a wholesalerof brown goods, white goods and small home appliances for other brands. WEG Groupconsists of 7 sales representatives worldwide. Its Finance & Distribution Centers arelocated in Milan and Belgrade and its sourcing offi ces are in China - Hong Kong, andShenzhen. Most of WEG’s revenues are generated in the Eastern European marketssuch as Serbia, Bosnia, Croatia, Romania and Bulgaria.In order to fulfi ll its aggressive strategy to rapidly penetrate the EU, Middle East andAfrican markets, WEG decided to shift some production capacity from China to Serbia.This is why WED invested 7.5 million EUR in production facility near Belgrade with 150workers. To support WEG’s project, the government of Serbia provided 750,000 EUR(5,000 EUR per new employee) non-refundable grant.For more than 125 years, Siemens has been one of the leading providers of equipmentin Serbia (ex-Yugoslavia) in its three main business divisions - industry, energy andhealthcare. In 2005, Siemens acquired LoherElektro in 2003 and invested 13M EURfor its plant for large drives for wind and solar power plants in the city of Subotica.LoherElektro created 600 new jobs in northern part of Serbia as part of this investment.Every month in the factory, 280 generators for wind turbines are produced for a numberof well-known companies such as GE Wind, Nordex, Repower, Fuhrlander, Gamesa,Ecotehnia, Vestas, Eviag and many more.At the beginning of 2011, Siemens announced the expansion of its productioncapacities in Serbia until 2013. In this three year plan, Siemens will invest an additional20M EUR in new plant which will produce 400 ofthe latest generation of generatorsdeveloped by Siemens Development Center per month. An 150 additional employeeswill be hired as part of this plan.Investment: 3.8M €Employees in Serbia: 1000Government support: Supported by 520,000 € grantStart of operations in Serbia: 2006Eaton electric d.o.o. in Sremska Mitrovica is an assembly plant of Miniature CircuitBreakers (MCB) and related products and is a part of the Power DistributionComponent Division production network of Eaton Electrical Sector EMEA. Eaton’splant is located in northwest Serbia in SremskaMitrovica in Vojvodina. The factorybecame part of the “Eaton family” in 2008, when Eaton acquired Moeller. TheSremska Mitrovica plant produces the latest generation of protective switchgearsthat provides maximum operational safety and protection of people and electricalsystems in all various kinds of buildings.In 2006, Moellercompany, which was later purchased by Eaton, decided to opena Greenfi eld production facility in SremskaMitrovica because it saw that the localdemand was growing quickly. The sales offi ce in Zemun in Belgrade was foundedat the beginning of 2006 and production in SremskaMitrovica was established inMay 2006. In 2008, Eaton Corporation acquired Moeller and proceeded to expandlocal operations.10 11

LOGISTICS AND INFRASTRUCTURELogisticsandInfrastructureAs a logistics base, Serbia is a perfect location for a company wishing to effi ciently serveits EU, SEE or Middle Eastern customers. It borders the EU at the Hungarian, Bulgarian,and Romanian state lines, while offering benefi ts of working outside the EU. Owingto its excellent strategic position on the geographic borderline between East andWest, Serbia is often referred to as a gateway of Europe. Two important Europeancorridors, N 0 7 – River Danube and N 0 10 – the international highway and railroad,intersect on Serbian territory, providing excellent transportation connections withWestern Europe and the Middle East. By using well developed road connections,a shipment from Serbia can reach even the remotest parts of Europe in less than72 hours. The transport of goods via railroads is highly cost effective. Through theCorridor N0 10, Serbia offers access to major European destinations. Serbia boastsa great potential to grow into the logistics hub of South East Europe. In order tofurther upgrade the country’s road and railway networks, roughly €4 billion will beinvested in its modernization over the coming years.The natural availability of hydropower and coal in Serbia results in the lowest priceof electricity in Europe, averaging just 0.05 €/kWh. The gas pipeline covers around50% of the major cities in Serbia but further boost will come from the new SouthStream Pipeline that will transport Russian natural gas across Black Sea, Bulgariaand Serbia into the mainland Europe. The 63 million m 3 per year pipeline is due to becompleted by 2015.Transportation InfrastructureLength of road network40,485 kmLength of railway network3,809 kmLength of navigable routes959 kmNumber of river ports 12Number of intrenational airports 2Average Utilities CostElectricity0.05 €/kWhCROATIADanubeSavaBOSNIA ANDHERZEGOVINAHUNGARYSomborDrinaSuboticaVrbasSremska MitrovicaŠabacMali ZvornikUžiceSavaBeèejMONTENEGRONovi SadValjevoPrijepoljeSentaKikindaZrenjaninBelgradeKraljevoPeæKragujevacVršacSmederevoKruševacKosovska MitrovicaPrištinaJagodinaParaæinDanubeLeskovacVranjeROMANIANišBorZajeèarHighwayMotorwayRailroadAirportRiver portBULGARIAPirotGas 0.42 €/m 3Water 0.20 €/m 3Average Production Hall CostBuilding 400 €/m 2Renting 5 €/m 2ALBANIAPrizrenMACEDONIA14

Tax SystemTAX SYSTEMTax Rate Recurrence Possible incentiveSerbia’s tax system is highly conducive to investment. Apart from featuring the lowesttax rates in Europe, investors can benefi t from possible tax incentives which createexcellent start up conditions. Primarily, there is a possibility of a 10 year corporateprofi t tax holiday for investments into the manufacturing sector which are worth over€8 million and create more than 100 new jobs. In addition, investors can receiveincentives on almost all principal taxes in Serbia according to the table on next page.Corporate Profit Tax 10% yearlyWithholding Tax(for divident, shares inprofits, royalities, intrestincome, capital gains,lease payments for realestate and other assets)20% yearly10 year holiday(investiments over8 million euro and100 new yobs) or20%, 40% or 80% ofinvestment valueas tax creditlower rate of 10% or5% accordingto double taxationagreementVAT18% - standard8% - lower ratemonthlyimport VAT return forexport of finished goodsimport VAT exempt infree trade zonesProperty Tax up to 0.4% yearly varies by municipalityAbsolute RightsTransfer Tax0.3% - stock and bonds2.5% - other propertyat purchaseof propertySalary Tax 12% monthly3 - year holiday for hiringapprentices2 - year holiday for hiringunemployed workersAnnual Income Tax10% - under 8x avreagesalary15% - over 8x averagesalaryyearlyPension and disabilityinsurance11% monthly3 - year holiday forhiring apprentices2 - year holiday forhiring unemployedworkersHealth insurance 6.15% monthly3 - year holiday forhiring apprentices2 - year holiday forhiring unemployedworkersUnemploymentinsurance0.75% monthly3 - year holiday forhiring apprentices2 - year holiday forhiring unemployedworkers1819

Financial IncentivesFINANCIAL INCENTIVESHighly competitive and diverse investment incentives are designed to reduce costs ofinvestment projects in Serbia. For standard-scale Greenfi eld and Brownfi eld projects,non-refundable state funds are offered in the range between €2,000 and €10,000 pernew job created within 3 years. Investments over €50 million that create a minimumof 300 new jobs within 3 years can be subsidized in the amount of up to 20% ofthe project’s value. Projects in the electronics industry are eligible for the highestsubsidies since they are a part of the sector of strategic interest in Serbia.Over the past four years, 18 investment projects in the electronics industryhave benefi ted from the state grants program. This makes this industry the thirdbiggest recipient of this grant program in terms of the number of projects fi nanced.The list of companies that developed their projects in Serbia with a support offi nancial incentives includes: Gorenje, Elrad, Eaton/Moeller, Emstech/Tager YuraCorporation and many more.DanubeSomborSuboticaVrbasBaèka PalankaBeèejSentaNovi SadKikindaZrenjaninSpecial interest regionsUnderdeveloped regionsStandard regionsFinancial GrantsEligibleInvestmentsGrant Amount(per job created)The MinimumInvestmentAmountThe MinimumNumber of NewJobs CreatedInvestmentRealised inUnderdevelopedRegions andRegions of SpecialState Interest€ 4,000 -10,000Standard-Scale ProjectsInternationallyManufacturingMarketableServicesInvestmentsinAutomotive,Electronicsand IT,Realised inRegions ofSpecial StateInterest€ 5,000 -10,000InvestmentRealisedin OtherRegions ofthe Republicof Serbia€ 2,000 -5,000Investments inAll Regions ofthe Republic ofSerbia€ 2,000 -10,000TourismInvestmentsof StrategicImportancein AllRegions ofthe Republicof Serbia€ 2,000 -10,000€ 0.5 mn € 0.5 mn € 1 mn € 0.5 mn € 5 mn50 50 50 10 50SavaSremska MitrovicaVršacRumaŠabacLoznicaMali ZvornikDrinaSavaBelgradeSmederevoDanubeValjevoBorKragujevacJagodinaUžiceParaæinKraljevoAleksinacKruševacPrijepoljeNišNovi PazarZajeèarPirotFinancial GrantsEligibleInvestmentsGrant Amount(EUR)The MinimumInvestmentAmountThe MinimumNumber of NewJobs CreatedLarge-Scale ProjectsManufacturingCapital and Labour Intensive Projects Capital Intensive ProjectsUp to 20% of the total investment Up to 20% of the total investment€ 200 mn € 50 mn1.000 300Kosovska MitrovicaLeskovacPeæPrištinaVranjePrizren2021

Recommended Investment LocationsRECOMMENDED INVESTMENT LOCATIONSPotential Investment Locations for Projects in the Electronics IndustryOne of SIEPA’s primary activities is finding suitable investment locations inSerbia. By maintaining an investment location database and working closely withinvestors, SIEPA advises on opportunities in Serbia, best suited to a particularproject. In the electronics industry, SIEPA has already worked with companiessuch as Panasonic, Gorenje and Yura Corporation in presenting availablelocations and assisting in the right selection. Based on our experiences, we canrecommend the following investment locations and will be pleased to offer moredetails to interested investors:In addition to a wide assortment of available Greenfield and Brownfieldlocations, investors in the electronics industries can take advantage of anumber of science and technology parks being developed by the government ofSerbia in Belgrade, Novi Sad and Indjija. National and regional cluster initiativessuch as the Embedded cluster and the Nis Cluster of Advanced Technologies arebrining companies and other institutions in the industry together for their mutualadvancement.Science and Technology ParksSuboticaFree Trade ZoneBelgradeDMBSremska MitrovicaIndustrial ZoneŠabacFree Trade ZoneBatoèinaIndustrial ZoneKragujDanubeSavaSuboticaSentaSomborBeèejKikindaVrbasZrenjaninSremska MitrovicaNovi Sad VršacBelgradeŠabacSmederevoMali ZvornikSvilajnacValjevoBatoèinaBorKragujevacUžice ÈaèakJagodinaZajeèarKraljevo Trstenik]ParaæinDrinaSavaDanubeBeèejFadipZrenjaninFree Trade ZoneNovi SadFree Trade ZoneSvilajnacIndustrial ZoneJagodinaIndustrial ZoneFKSZvezdaraThis park will be located in the Zvezdaraforest area of northeastern Belgrade onan area of 21 hectares. The park aims topromote the growth of smaller companiesand will feature a number of sharedservices, including building maintenance,meeting rooms, common rooms, andfi nancial and legal services. Constructionhas begun on the project which will becompleted in February, 2012.More information: www.piu.rs/projectUžiceFree Trade ZoneKragujevacFree Trade ZonePrijepoljeNovi PazarPeæKruševac NišLeskovacKosovska MitrovicaPrištinaVranjePrizrenPirotPirotFree Trade ZoneNišFree Trade ZoneEI Industrial ParkNovi SadScience and Technology Park Novi Sad willbe housed in a 2150 m², four-story complexin Novi Sad, Serbia’s second largest citywhich is located some 80 km from Belgrade.Like the Zvezdara complex, it will providea number of shared services for smallincubator companies involved in electronics,IT, and research and development.TrstenikPrva PetoletkaParaæinIndustrial ZoneMore information: www.piu.rs/project2223

About SIEPASerbia Investment and Export Promotion Agency (SIEPA) is a government organizationdedicated to effectively helping foreign investors and buyers, while raising Serbia’s profi le inthe minds of international business decision-makers. Created in 2001 by the Governmentof the Republic of Serbia, SIEPA’s mission is to support foreign companies seeking to setup or expand in Serbia and Serbian companies when doing business worldwide.Created as a one-stop-information-shop, SIEPA acts as a reliable partner forinternational companies throughout their investment project to ensure the best results.Foreign buyers committed to the highest quality may rely on our knowledge and expertisewhen looking for the right supplier.Major services offered to potential investors are free-of-charge and readily available:• Providing statistics, economic and legal investment-related information,• Database of Greenfi eld and other investment opportunities, with site visit organization,• Assistance in obtaining registration, licenses, permits and other documentation,• Identifying local partners and suppliers, including meeting facilitation,• Presenting ready-to-invest projects,• Maintaining investment and exporters databases,• Delivering sector analysis and studies.Some of the largest recent Greenfi eld projects in Serbia were completed as a resultof our assistance. The German Leoni and Norma Group, Italian Dytech or Korean YuraCorporationare on top of our reference list.To help potential investors speed up completion of their projects, SIEPA networkswith all FDI-related public and private sector bodies, including Ministries and othergovernmental bodies, municipal authorities and local self-government, building landagencies, tax and customs authorities, statistical bureaus, chambers of commerce andthe National Bank of Serbia.Mr. Aleksandar NedeljkovicFDI AdvisorT: +381 11 3398 550aleksandar.nedeljkovic@siepa.gov.rsMr. Bojan BozovicFDI AdvisorT: +381 11 3398 653bojan.bozovic@siepa.gov.rsSIEPA publications and materials on doing business in Serbia, as well as detailed sectoranalyses and studies feature numerous business opportunities in our country. They areavailable in hard copy and can be downloaded from our web-site at www.siepa.gov.rs.We would like to invite you to contact our specialized staff ready to assist you andyour business interests. Information packages about law, industries, sectors, businesspractices, and general doing business in Serbia is tailored and, may be, confi dentialbased on your company’s needs and requests. If you would like the best access theopportunities and intelligence gathered by our expert team, do not hesitate to contact us.Working with us is simple and effective.FEBRUARY 20123

T +381 11 3398 550F +381 11 3398 814office@siepa.gov.rswww.siepa.gov.rs