Courting Capital in Serbia

I was struck by the banners in the airport in Belgrade. They hung in a series from the ceiling and highlighted different Serbian cities. Pirot was represented by a tire and the tagline "on the right track." Loznica featured a pear surrounded by cherries and berries and the tagline "fruitful investment." And Subotica displayed a rainbow kite and the "power of innovation." It was all very colorful and inviting, even though I didn't have any capital to invest or the time to visit all these places.

These "business-friendly municipalities" are a project of the National Alliance for Local Economic Development (NALED). Established in 2006 by USAID but now an independent organization, NALED is devoted to promoting economic development in Serbia. It brings together representatives of cities, businesses, and NGOs to increase investment and generally improve the business climate throughout the country. Serbia is heavily centralized, with all roads leading to Belgrade. NALED is trying to spread the wealth more equitably to the different parts of the country.

I was particularly struck by Subotica's brand of a rainbow kite. Subotica is located in Vojvodina, the most economically prosperous part of Serbia. Richard Florida, a professor of regional economic development, has argued that the "creative class" -- young people, artists, and gays and lesbians -- are essential to the revitalization of cities. You can anticipate that a city or a neighborhood will be attracting investment if you see galleries, coffee shops, and the rainbow flags associated with gay pride. But why wait and hope for the creative class to make a move? Cities can provide various inducements -- artist lofts, subsidies for cultural organizations -- to persuade the creative class to move in and then leverage their presence to attract investment.

Perhaps the association of rainbow and innovation has become a meme, because NALED was not thinking of Florida's arguments when they were coming up with Subotica's particular business-friendly brand. Rainbows, after all, also represent hope and yearning and, eventually, pots of gold. But they were definitely trying to think through the larger questions of Florida's approach: what attracts businesses to invest in and people to flock to cities that are not, at first glance, top destinations?

"When working with municipalities, we always focus on the most competitive sector and engage local businesses as success stories because they are the best promoters of new investments," executive director Violeta Jovanovic told me in a meeting last October in NALED's offices in Belgrade. That's why we have those sectors in each of the posters. It also helps certified municipalities to acquire an image and identity that they can use in promoting what they have to offer. Usually municipalities just say, 'We have an industrial zone, equipped land, and come to us.' But investors are rarely looking just for a location."

The business-friendly municipality program is only one of NALED's many initiatives. It has worked hard to remove "parafiscal charges" that the government levied on business for specific products or services. NALED identified 370 non-tax charges and 179 parafiscal charges that imposed what business considered to be unnecessary burdens. And the new Serbian government responded -- immediately. "The first 24 laws adopted by the government and by the parliament, aside from the initial laws related to the functioning of the government itself, eliminated these charges, following our analysis," policy director Jelena Bojovic said with no small amount of pride.

It's not all smooth sailing in Serbia -- there's pervasive corruption, inevitable bureaucracy, and the disproportionate influence of Belgrade. But NALED sees hope in a younger generation, greater openness to the outside world, and, eventually, integration into Europe.

The Interview

It looks like you give a business-friendly label to particular municipalities as a kind of Good Housekeeping seal of approval. How is this decided?

Violeta Jovanovic: Business-friendly certification is a product that was developed by USAID by the same MEGA program that started NALED. In 2007, after the basic criteria were developed, they were tested in two pilot municipalities -- in Vranje in the south and Subotica in the north. At that point, the program was handed over to NALED to continue implementation. We did some initial polishing. We developed a system of different grades for each criteria in order to make the program measurable. And we defined which criteria could be eliminated in order to determine the threshold the municipality would have to meet to get the certificate. Then we went out to the municipalities to explain why this program was helpful to them.

Most municipalities in Serbia at that point and nowadays are in transition from the previous system. They are taking a more significant role in local economic development. They are working with businesses that are already there and also attracting new investors. In order to do that, they need capacity and knowledgeable people to deal with the business community and to respond efficiently to the needs of investors. Instead of every municipality trying to think about how to deal with these tasks, we developed this program as a set of guidelines for municipalities to meet and achieve this certificate in a relatively short period of time.

Since it's a private standard and non-obligatory, we tried to come up with certain incentives for certifying municipalities. We signed memorandums of understanding with different institutions, primarily line ministries that pledged their support to promote the holders of the certificates. We also got USAID on our side to support the first municipalities going through the process. This is how it started in June 2008.

Out of eight municipalities that entered the process, the first three successful ones were awarded certificates. This was a big milestone for us, and it was also an invitation for others to join. As of today, we have about 55 municipalities going through the process, with 21 already certified. And many others are interested in joining. Outside evaluators at the international level are doing the evaluations for us. We have a number of partners of this process, including international organizations, embassies, and soon.

One of the key incentives for the municipalities is the marketing campaign at the Belgrade airport. Throughout the airport are different posters, billboards, and other promotional materials that let investors know which locations are business-friendly in Serbia. It's also a way for municipalities to understand how they can be more successful and independent in attracting investments. They largely rely on the central government to bring investors to them. We don't discourage this approach, which has worked for so long. But in addition to being responsive, we also encourage them to be proactive and develop tools to attract investors. This program also helps them recognize their unique selling points in the sectors in which they are competitive. When working with municipalities, we always focus on the most competitive sector and engage local businesses as success stories because they are the best promoters of new investments. That's why we have those sectors in each of the posters. It also helps certified municipalities to acquire an image and identity that they can use in promoting what they have to offer. Usually municipalities just say, "We have an industrial zone, equipped land, and come to us." But investors are rarely looking just for a location.

I'm surprised by how centralized Serbia is as a state. I'm curious the degree to which NALED acknowledges this centralization -- the sheer number of people moving to Serbia and emptying out the countryside but also the centralized ownership of land. It was pointed out to me that because much land is technically in the hands of Belgrade that sometimes it's difficult to attract investment.

Jelena Bojovic: Up to 2009, everything including construction land was state-owned. But in 2009, there was a new law on planning and construction and through that was introduced the conversion of ownership. Even in cases in which the state owns this construction land, municipalities were usually in charge of the usage of the land. They could use it or rent it for 99 years. Now with the transformation in the ownership structure, municipalities can just re-register free of charge. Wherever it says that the state is the owner, now municipalities can become the owner. They just have to submit a request. Also private owners can now own construction land whereas before they couldn't.

Of course there are some important sites, like airports, that are important to the state. Before it was a civil airport, it was military. It is still partially owned by the state.

The other question is whether you work on this issue of decentralization or whether it's just in the background of your work.

To read the rest of the interview, click here.