Serbia: Tide of change

Serbia has had a dramatic year, with landmark elections followed by devastating floods

A couple of months ago Serbia went to the polls for early parliamentary elections. A rift in the Progressive Party and Socialist Party ruling coalition created a trip to the ballot box sooner than anticipated.

For the first time in over a decade the elections resulted in an outright majority for one party, with Aleksandar Vucic’s Progressive Party taking 158 out of 250 seats.

The stability potentially afforded by the result comes at an opportune time. In the annual ranking report on doing business internationally published by the IMF and the World Bank, Serbia’s rankings dropped on most measures. Vucic’s government, with the power of majority, has an opportunity to change that.


First up are reforms to the country’s employment laws, described by Vucic in a Financial Times blog as “more flexible”. The proposed changes – which have been opposed by trade unions but appear to be supported by the EU – should make it easier for foreign investors to hire, but also fire, workers.

There will be amendments to employers’ pension contributions – set to rise – while contributions to healthcare will drop. The government also wants to encourage employers to create jobs, moving workers out of Serbia’s large so-called ‘grey economy’.

Vucic has also set out plans to lower public sector pay and amend Serbia’s construction legislation.

The government has already managed to pass some legislation since taking power. On 13 May a law amending Serbia’s privatisation legislation came into force, changing the rules on how creditors of companies undergoing restructuring can collect their debt. 

Meanwhile, the government has passed legislation updating the handling of consumer claims.

Privatisation prospects

Another major pillar of Vucic’s proposed reforms that could have a significant impact on the business and legal sector is a wide-ranging privatisation programme. This has been talked about before – past privatisations were the subject of a corruption probe in 2011 and the jurisdiction’s sell-off programme ground to a halt in recent years.

Vucic wants to get the ball rolling again, with state-owned telecoms company Telekom Srbija likely to be first up for sale. Other state-owned entities earmarked for privatisation include electricity company EPS, the Nikola Tesla Airport in Belgrade and insurance company Dunav Osiguranje. 

BDK Advokati partner Vladimir Dasic suggests that smaller investment companies are already showing interest in Serbia and, should the privatisation programme really get rolling, interest is likely to come from across the region.

Karanovic & Nikolic managing partner Patricia Gannon says getting legislative reforms through and beginning the privatisation process are crucial to improving Serbia’s profile overseas.

“In terms of awareness-building, this is a part of the world that’s under-understood,” Gannon says.

More generally, M&A in Serbia has been dominated by transactions related to the financial crisis in the past few years, according to Jankovic Popovic Mitic (JPM) senior associate Lidija Pejcinovic.

Investor interests

Most work at present is taking place on a domestic or regional basis, although investors from outside the immediate south-east Europe region are showing more interest in the former Yugoslavia.

Nevertheless, the legal market remains small and dominated by local firms. Only three from outside the country have a foothold in Serbia – CMS, through its Austrian member CMS Reich-Rohrwig Hainz, Schoenherr and Wolf Theiss. All operate ‘in co-operation with’ local firms, owing to regulations, but are seen as international.

Karanovic & Nikolic is comfortably the largest firm in Serbia, with around 60 lawyers and another 30 or so across the region. JPM, followed by BDK, are the next-largest independent firms in Belgrade.

The past year has been characterised by spin-offs from some of the larger local firms. At the start of 2013 BDK partners Marija Bojovic and Vuk Drasokovic left with a small team to set up Bojovic & Partners, which now has seven lawyers.

Also last year former Wolf Theiss lawyer Jelena Hrle and Karanovic & Nikolic’s Vladimir Hrle established Hrle Attorneys, while JPM partner Vladimir Bojanovic and Karanovic & Nikolic partner Slobodan Doklestic set up DBP Advokati.

Alex Petrovic, a partner at Joksovic Stojanovic & Partners, suggests that fee pressure and a desire on the part of some lawyers to be the masters of their own destiny is driving the trend towards boutiques.


“It’s a natural progression,” Petrovic says.

But Dasic believes the boutiques will find it hard to compete.

“They don’t have enough capacity,” he argues. “It’ll take them some time to become more competitive.”

Petrovic thinks the legal market could do with more specialised lawyers, for example in areas such as IP – although Serbia does have a couple of strong IP-focused firms already, in the shape of boutiques such as Petosevic.

Overall, the future is looking a bit brighter for Serbia, although uncertainty remains and the recent floods (see box) have held up some of the hoped-for changes the government is planning.

With closer co-operation with the EU likely under pro-EU Vucic, Serbia is continuing its efforts to become a more attractive jurisdiction for foreign investment. There is no denying it offers myriad opportunities, particularly on the infrastructure and energy sides, for investors looking to break into a market that is still underdeveloped.

The floods: rebuilding prospects

Severe rain in mid-May had a devastating impact on Serbia and neighbouring Bosnia and Herzegovina. By the end of the month 1.6 million Serbians – 22 per cent of the population – and 1.5 million Bosnians 39 per cent of the population – had been affected, according to the European Commission.

More than 50 people lost their lives in the two countries.

In Serbia, the area affected extended north to Belgrade itself. Both countries requested humanitarian aid and the commission allocated €65m to help. EU countries also gave much-needed items such as pumps and boats.

The floods, coming so soon after the elections, risk holding up reforms proposed by Vucic. Lawyers say work has slowed significantly, but all hope things will be back on track by the autumn.

Karanovic & Nikolic managing partner Patricia Gannon suggests the floods, and the risk of damage to Serbia’s main power station, will prompt interest in renewing the energy infrastructure.

She hopes that any projects will involve PPP structures, until now rare in Serbia.

“We’ve been trying to develop PPP structures for years,” she says. “My hope would be that we kick-start a PPP environment– we need to bring in the private sector.”

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What the lawyers say

Alex Petrovic, partner, Joksovic Stojanovic & Partners: “The market is waking up. We now have a stable government and a stable political climate, and this reflects well on business.”

Vladimir Dasic, partner, BDK Advokati: “There’s an urgent need to make the market more attractive for foreign investors.”

Patricia Gannon, managing partner, Karanovic & Nikolic: “Our view is one of cautious optimism. We believe there’s 

an ability [for the government] to deliver.”

Lidija Pejcinovic, senior associate, Jankovic Popovic Mitic: “Serbia is trying to operate in accordance with investors’ interests and develop a comprehensive, coherent, stable and precise legal framework. At the same time it is undergoing structural reform and continuing the European integration process.”

Key figures: Serbia 

GDP: $38bn

Inflation: 2.6%

Population: 7m

Life expectancy at birth: 75

Unemployment: 21%

Source: World Bank, Statistical Office of the Republic of Serbia