In common with much of the world, Serbia was hit hard by the global financial crisis that began in 2008. As the European recovery gathers pace, the Serbian economy is likely to recover at a similar pace, especially given the influx of foreign investment into the nations emerging auto industry. With deepening economic ties with the EU and the beginning of the path to EU membership, Serbia is expected to benefit from greatly expanded trade and investment. As a low-cost economy with improving access to the worlds largest market, Serbia is well placed to exploit its position. This is especially true with regards the auto industry.

The Serbian state has focused on the development of a large auto industry as a core aspect of its industrial policy. By building on the foundations established by Serbias formerly sizeable manufacturing sector and through increased investment into infrastructure, the Serbian government hopes to attract investment as other Central and Eastern European (CEE) countries become more costly locations for production. This policy has begun to reap dividends in 2010, with the announcement of large investments by foreign auto firms.

Car part firms have been viewing Serbia as a promising location for production – with South Korean and Italian firms leading the trend. For example, the South Korean firm Yusa is creating 1,400 jobs at an electrical components factory in Raca, while Italian firm Daytec is creating 400 jobs at a parts plant geared towards production for the growing Fiat plant at Kragujevac. But it is recent investment from Fiat, which is most promising. This joint venture between Fiat and the state-owned firm Zastava has already received hundreds of millions of euros in investment. Production has the potential to reach 300,000 units in 2011. Additionally, it was announced in late July that Fiat would produce two minivan models in Serbia instead of at plants in Northern Italy. This controversial move would see another 190,000 units being produced by 2012 in a EUR1bn investment.

Despite the overwhelmingly export-orientated focus of the Serbian auto industry, the market for car purchases is growing in Serbia as the economy recovers from the negative 2.9% growth of 2009. The economy is predicted to grow 2.7% in 2010, growth is expected to accelerate to 4.2% in 2011. This economic growth will fuel booming car sales, which BMI expects to grow 29% in the period 2010-2014. This substantial growth provides credible opportunities for investment in auto sales in Serbia, in both the new and used sectors.

BMI expects Serbia to become an important centre of the CEE auto industry, though this process will not be simple. As current production issues at the Fiat-Zastava plant show, the industry has not quite begun to operate easily, with retooling difficulties and infrastructural problems inhibiting investment. A major boon to the industry will be the program of major motorway investment by the Serbian government, which has been taking place in recent years and will continue for some years to come. Despite these issues, the strong commitment of the Serbian government to developing the auto industry will make Serbia an increasingly attractive target for investment.