Italy's Fiat to invest in Serbian auto plant

30/09/2008

Italian carmaker Fiat signed a deal Monday to invest in the Zastava auto plant, which observers expect to be a turning point for the country's economy.

By Igor Jovanovic for Southeast European Times in Belgrade – 30/09/08

Economy Minister Mladjan Dinkic (seated, right) and Fiat Group Chairman Sergio Marchionne (left) sign a deal that will create about 5,000 jobs in Serbia. [Igor Jovanovic]

The Serbian government and the Italian carmaker Fiat signed a contract on co-operation Monday (September 29th), under which the Italian partner will invest 700m euros in the Zastava auto plant.

Zastava, based in the central Serbian town of Kragujevac, collapsed in the 1990s. Soon after its breakdown, and that of the local economy, Kragujevac became known as Serbia's "valley of hunger". The joint venture is expected to generate not only a regional but also a nationwide boom.

The contract terms, not yet fully disclosed, foresee state-controlled Zastava and Fiat forming a joint venture, in which the Italians will hold a 67% stake and the government 33%. The new Fiat Group venture will employ 2,400 workers. Observers expect the factory to create 5,000 jobs nationwide.

Experts project annual output to be 200,000 to 300,000 cars, with production of two Fiat models kicking off late next year. Zastava currently manufactures just 12,000 cars per year.

Kragujevac will get a new transport infrastructure, and a large number of Fiat's partners are expected to launch businesses in the town. On Monday, two Fiat Group members, Iveco and Magneti Marelli, also signed a memorandum with the Serbian government on the production of buses, special vehicles and car components. Those contracts envision investments worth 240m euros and the opening of two new factories.

After the signing, Prime Minister Mirko Cvetkovic said he expects the new company to earn annual revenues of around 1 billion euros from car exports and to attract new foreign investors. Export revenues would be extremely important for Serbia, which this year is seeing a trade deficit of about 6 billion euros.

"The Serbian government will continue to create the best possible environment for other investors as well, in order to boost economic development," Cvetkovic said.

Italian Foreign Minister Franco Frattini said he hoped the deal with Fiat would raise Serbia's stature in the region and bring it much closer to the EU.

He also met with top state officials in Belgrade, to whom he conveyed support for rapid association with the EU.

"Italy strongly supports the pro-European policy of President [Boris] Tadic. We agree … that Serbia should join the EU as soon as possible," Frattini said.

Tadic said the deal with Fiat will spur Serbia in every possible way. "Those who did not believe Fiat would come to Serbia even ten to 15 days ago, who do not believe we will obtain EU membership candidacy and be placed on the so-called white Schengen list, should know that we will do all those things," Tadic said.