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Participation in the energy and environmental protection sectors in Serbia

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Within the new branch of the European Investment Bank dedicated to activities outside the European Union – EIB Global – we plan to expand support for renewable energy sources, digital and climate projects. We will also continue to support the vital transport network, education and health infrastructure, as well as the development of the private sector. In line with the region’s ambitions to join the European Union, we provide support for alignment with EU standards and reforms in various sectors.

This is how Alessandro Bragonzi, head of the regional representative office of the European Investment Bank for the Western Balkans, explains the EIB’s plans and key priorities for Serbia and the Western Balkans in the coming period . In an interview with, he estimates that the entire region can progress even more thanks to strong economic ties with the EU, which is the main trade partner of the Western Balkans.

– The inflow of foreign direct investment was also high with around six percent of GDP on average between 2015 and 2021, with a total value of 72 billion euros at the end of 2021, of which 60 percent came from EU countries.

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Economic relations with the EU have helped the region to advance with innovation, management practices and technology transfer. As the region is also witnessing the structural transformation of key industrial sectors, such as the automotive industry, its economic success continues to be linked to the integration of firms into global value chains. To remain competitive, advancing the global value chain model, investing in digital infrastructure and accelerating digital transformation will be critical. This also means a strong focus on skills and human resource development. In order to attract foreign direct investments, it is necessary to continue with structural reforms through the EU enlargement process.

Since the middle of 2002, the European Investment Bank has approved five Apex loans to the Republic of Serbia for small and medium-sized enterprises, enterprises of medium market capitalization, priority projects, entrepreneurs and local governments in the total amount of 1,065 million euros. How do you evaluate the effects of these investments?

– We see this project as an important milestone in the EIB’s cooperation with the National Bank of Serbia, which coordinated the distribution of these funds to the private sector and local governments. The financing supported 1,026 projects throughout Serbia, mainly in the production sector, wholesale and retail trade, as well as the agricultural sector. These investments contributed to the creation of 9,600 new jobs, including 367 for youth employment.

In addition to these loans, EIB Global continued to provide affordable financing for SMEs in Serbia through credit lines available from local commercial banks. To date, we have invested €2.5 billion in small businesses across the country, helping to sustain around 300,000 jobs. This year, EIB Global officially launched a credit line of 30 million euros with UniCredit Serbia to support the employment and professional training of people from vulnerable social groups. These funds will support Serbian companies committed to creating long-term employment and entrepreneurship opportunities for women, youth and segments of the population that face greater obstacles in the labor market.

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Also, EIB Global supports Serbia’s recovery and development program with a loan of 200 million euros signed with the Development Fund of the Republic of Serbia. Funds are available to a wide range of companies for various purposes such as equipment acquisition, digitization, construction works, reconstruction, facility maintenance or expansion of storage capacity.

What are currently the biggest EIB projects in Serbia, primarily infrastructural?

– The European Investment Bank is one of the largest financiers of transport projects in the region. So far, we have provided 2.3 billion euros for the transport network of Serbia, contributing to the construction of modern, safer roads, railway sections, bridges, bypasses. Our support for this sector began back in 1978 with the construction of the Trans-Yugoslav highway. Our most ambitious project in Serbia so far this year was the construction of the highway on Corridor 10, worth 579 million euros, which put Serbia back on the European transit map and improved connections between Serbia, Bulgaria and North Macedonia.

When it comes to plans, one of the biggest projects we have approved for financing of 1.1 billion euros is the construction of the railway on Corridor 5c in Serbia. This project involves the modernization of about 230 km of railway lines into a high-speed railway network between Belgrade and Niš. Investments in this railway corridor will lead to the modernization of the vital connection between the EU and the Western Balkans, and it is a flagship project within the Economic and Investment Plan of the European Commission and its Global Gateway strategy.

In line with our climate ambitions, other transport projects we are currently implementing include sustainable forms of mobility, such as improving the waterway along the Sava and Danube rivers. River transport is one of the most energy-efficient modes of transporting goods and people, of great importance for multimodal transport connections. EIB Global finances this project, which includes the rehabilitation of the port and ship locks Đerdap 1 and 2, with 100 million euros. The reconstruction of the Đerdap 1 navigation dam has already been completed, which increased the reliability, efficiency and speed of work by 30 percent. It is planned that EIB Global will finance an additional 31 million euros within the project that will improve navigation, safety and efficiency of river traffic.

Investments of 250 million euros in the health system

– In addition to traffic infrastructure, we also finance the reconstruction of clinical centers in Serbia. To date, the EIB has invested 250 million euros in the health system, thus contributing to the rehabilitation of 20 hospitals and clinical centers in Nis, Belgrade and Novi Sad, which helped to improve health services for more than three million people.

Also, the EIB provided 200 million euros for the research and development sector in Serbia, which enabled the rehabilitation of universities, scientific centers and laboratories, as well as the construction of science and technology parks in Belgrade, Novi Sad and Niš.

What do you expect from the new Government of Serbia, which was recently formed? Do you think there will be significant changes in economic policy?

– We expect to continue our successful cooperation and support the government in financing key infrastructure projects. We see that the focus is shifting towards the energy sector in the context of the current crisis caused by the war in Ukraine, in the same way that the Covid-19 pandemic has directed investments in the health sector in the past two years.

Just like that, Prime Minister Ana Brnabić announced that the focus of the new Government of Serbia will be energy. How can the EIB support Serbia in this fight against energy challenges?

– In line with the determination of countries in the region to accelerate the decarbonization of their energy mix, EIB Global has expressed strong support for this process, which requires significant investment in renewable energy projects, expansion of the electricity grid, more flexible administrative procedures for launching new projects and better interregional energy trade. At the Summit of the Berlin Process, leaders in the region pledged to work on energy security and green transition in the Western Balkans, which should bring national energy markets closer to EU standards.

Within our dedicated branch EIB Global, the bank has increased support for the preparation of energy efficient and renewable energy projects. For this purpose, it has already secured eight million euros in grants in 2022 to support the preparation of new projects throughout the region that will contribute to energy efficiency. Also, we are ready to support the European Commission’s recently announced package of energy support for the Western Balkans in the amount of one billion euros to solve short- and medium-term energy needs and initiate investments for long-term recovery.

We also participate in the initiative for coal-dependent regions in the Western Balkans and Ukraine, which helps countries transition from coal to a carbon-free economy. We also participate in the implementation of the “EU Green Agenda in Serbia” project, which supports the introduction of energy-efficient practices and environmental protection projects. To accelerate the green transformation of the private sector, we are developing innovative financial instruments, such as credit lines with a climate component for energy efficiency projects and guarantee instruments for private sector investments.

In addition to energy, the main challenge will be curbing inflation. The National Bank of Serbia continues to increase the reference interest rate, and businessmen are already worried about the large increase in prices. When can we expect stabilization of prices and markets, and until when could the increase in interest rates of central banks (NBS, European Central Bank) continue?

– During 2022, inflation has become a source of concern in a large number of countries, and Serbia is no exception. Annual inflation in October 2022 exceeded 11 percent in the EU and 15 percent in Serbia, which was simply unimaginable until a few months ago. The recent increase in inflation rates across the region was mainly driven by rising energy and food prices, in line with global trends, and is currently expected to return to normal levels starting in 2024 (expected to be 3.6 percent in 2024, IMF October 2022 World Economic Survey).

The good news is that in some countries monetary policy is doing its job: inflation in the US started to subside during the summer, although this is still not the case in the EU and Serbia. Gas prices – which are still very high compared to long-term averages – are currently stabilized and at lower levels compared to the peak recorded in August of this year. Central banks play an important role in controlling inflation, but it is clear that it will be largely driven by energy prices. So it will depend on geopolitical events.

Financial markets expect interest rate peaks to materialize as early as spring 2023 in the US, and in June/September for the Eurozone, and this appears to be a reasonable assumption. Central banks have instruments to suppress inflation, but this can have a detrimental effect on economic growth.

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