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South Korea: The saviour of Serbian industry?

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The enthusiasm of Yura, the South Korean automotive components maker, shows how Serbia can beat the economic crisis with low wages and attractive incentives.

Yura came to the Serbia Investment and Export Promotion Agency (SIEPA) looking for production sites and within weeks had bought the former Zastava Elektro cable plant in Raca for €3m. Under the April deal, the Koreans are to invest €8m and employ at least 1,000 workers by year-end – a blessing for Raca, a poor municipality with strikingly high unemployment.

The deal added to the momentum of Fiat’s takeover of the state-owned Zastava Automotive in nearby Kragujevac, begun two years ago. Yet Yura officials stressed that they would ramp up production for their existing clients, Hyundai and KIA, starting with output of 20,000 automotive electrical installations per month.

Serial production was to start today, with 300 ex-Zastava workers already re-hired. In a Serbian TV news documentary two weeks ago, the knock-on effects for the town were obvious. People regularly buying milk and bread suddenly had enough spare cash to also buy fruit juice, said a grocer. Sales at the local shop for cotton undergarments have soared.

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Factory towns all over the former Yugoslavia were gutted in the 1990s break-up. Serbia’s industrial base crumbled under international sanctions and took additional hits in the 1999 Nato bombing. Many Serbs now look back to the communist era – when the relatively moderate policies of Josip Broz Tito brought soft loans from the west – as a time of prosperity.

Serbia’s industrial output has only now regained its 1970 level and remains below 40 per cent of 1989 output, said Miroslav Zdravkovic at the Belgrade-based Economic Institute, according to the daily Vecernje Novosti. In the peak year before the 1990s Yugoslav wars, industry accounted for nearly 45 per cent of GDP, compared to around 20 per cent today, when services account for more.

Even before the global crisis, industrial recovery in the largest ex-Yugoslav republic mostly came through privatisations, with not enough of the greenfield projects that are needed to reduce unemployment. Serbia aims to attract $2.5-3bn worth of FDI every year, says Vesna Arsic, state secretary at the ministry of economy and regional development. FDI over the past 10 years – since the pro-western “democratic revolution” – adds up to $12.57bn, the central bank says.

Yura appears keen to invest more, and soon. The assembly in Nis, the main city in Serbia’s less-developed south, this week approved a grant of four hectares of land to South Korean auto-components maker to start building a greenfield factory in September. Another two hectares will go to an Italy’s Dytech Dynamic Fluid Technologies. Besides the free land, the city will lose around €2.5m in municipal fees from the two large foreign investors, while expecting to earn nearly €100m in direct or indirect income over the next decade, local media reports said.

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And there’s an element to this story which suggests, potentially, of things to come in other emerging markets. Yura, which has faced labour discontent in the Central and Eastern European automotive hub, Slovakia, appears pleased with Serbia’s lower wages (around €350 per month average) and still relatively capable workforce. Zastava Elektro workers, who blocked the railway line to Bulgaria several months ago over unpaid wages, are grateful for the Korean takeover.

Source FT, NM

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