Mr. Bojan Jankovic Deputy director

1. Current status of the automotive sector 4th meeting of the SEE Investment committee Mr. BojanJankovic Deputy director April, 2009

2. Presentation outline Putting the region and Serbia in the context Automotive Industry Profile of Serbia Serbia automotive suppliers survey Current status and issues in the sector What should IPA’s do and what they could use

3. What is the potential of the region? • Hopefully a significant OEM in the next ST period • Potential for another OEM location • Reducing operating expenses • Access to work force with less limitation then in EU • Market accessibility, some opps available • JV potential • Incentives on a broader level then in EU • Free Zones • Tax incentives • Financial incentives • Flexibility in labor regulations

5. Reducing operating expenses Which region is most attractive for manufacturing activities? 38% Vs. 32% in 2007 12% 12% 5% 3% 2% 1% Southeast Central Western Russia, Northern Nordic Baltic Africa countries Europe Europe Europe countries Ukraine, Belarus Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 - 216 international executives

6. SEE - Clear leadership on costs and productivity Which region in Europe is most attractive in terms of labor and productivity? Flexibility of labor legislation Productivity increase Labor cost 33% 36% 49% 1 1 1 18% 14% 15% 10% 13% 16% 2 2 2 3 3 3 Western Europe Southeast Europe Central Europe Central Europe Southeast Europe Russia Ukraine Belarus Western Europe Southeast Europe Central Europe Source: Ernst & Young Southeast Europe Attractiveness Survey 2008 - 216 international executives

7. Trade diplomacy – market access • EU market • FTA with Russian Federation - Current negotiations to include passenger vehicles in the FTA (commercial vehicles already included) • Ukraine and Byelorussia trade agreement in process • CEFTA – duty free access to 20 million people market

9. FIAT Serbia • The plan is for FIAT to invest EUR 700mn for production of 300,000 units/year • Additional EUR 500mn expected through supplier network development • Global crisis will affect the project in terms of the time schedule and production level • The production level for 2009 15,000 vehicles

10. Automotive suppliers in Serbia • SIEPA new automotive suppliers survey results (2008) • Approximately 70 automotive parts and systems companies identified that are capable of supplying automotive OEMs, as tier 1 or 2 or spare parts market • A complete survey results together with detailed profile of suppliers will be available in SIEPA in the first half of 2009

11. What is being produced? Engine components mostly not assemblies -flywheels, valves, camshafts (significant inflow of FDI) Plastic and rubber parts – various exterior and interior parts (mostly produced by domestic companies) Electrical and electronic – mostly wire harness but also batteries and starter motors (significant inflow of FDI) Source: SIEPA survey June 2008

12. Company ownership Source: SIEPA survey June 2008

13. Turnover and exports • Foreign investors as key factors of growth Source: SIEPA survey June 2008

14. Sector employment Number of employees declining in domestic companies (due to privatization) but we see a sharp increase in foreign owned companies (new investors coming, growing of existing operations, etc…) Source: SIEPA survey June 2008

15. Current status of the industry in Serbia • Limited availability of local companies with international potential • Domestic companies struggling to improve their production, quality potential and links with Tier 1 and Tier 2 producers • Diversification to small series of local companies as a barrier for exports • Significant number of companies from the component sector still not privatized • Companies facing liquidity issues • Growth is coming from foreign investors! How can we stimulate local companies?

16. Current status of the industry in Serbia • Local OEM’s operating at limited capacity, primarily due to lack of demand on both markets but also because of their low ability to add value – that has strong impact on suppliers • FIAT reaction to crisis also limiting the short term potential to motivate local companies to invest as well as to attract suppliers • Lack of research and development centers or activities a crucial weakness • Linkages between companies and educational institutions not appropriate Bottom line : Serbia and the region depend heavily on FDI, primarily a strong OEM presence

17. But needing FDI in auto sector these days… • Strong decline in demand for the automotive products worldwide • Expansion is no longer the word of choice –we’re talking about cost efficiency, optimization, etc… • Financing potential on the market for companies in the sector is scarce - this issue needs to be addressed • Greenfield loosing their appeal • Protectionist measures from Governments might limit their motivation to move short term

18. So more action must be taken • Governments can create support schemes (access to low interest rate credits) to foreign investors as well (ex. SDF or FZR) • But funds are needed for this - what are the options? • JV importance ever increasing – Gov’s need to address the skill gap and other important issues in local companies – but without OEM it’s difficult… • Bureaucracy has to be reduced to a minimum level, improvement in investment policy a must • BUT the most important issue is knowledge – when Gov’s contract funding it affects investments in education! • IPA’s must provide more services! And there are costs associated with it…

19. List of appropriate locations for different needs of investors

20. Being able to incentivize links IPA’s with investors

21. Databases must be developed NEW on our website Search by: Sector / sub-sector markets technology used products certificates

22. Having an expert staff within the Agency is important Mr. Vladimir Tomic, Automotive industry advisor • Tel.: +381 11 3398 809, 3398 550 • E-mail: vladimir.tomic@siepa.gov.rs • MSc Mechanical Engineering, Faculty of Mechanical Engineering, Belgrade, Serbia • Two years experience with “Citroen Serbia” • Three years experience as FDI advisor in SIEPA

23. What is the impact of it all on IPA’s? • Funding of investment promotion activities under question • Protectionism might endanger promotional efforts That is why we need more direct support for the regional IPA’s • Local IPAs need resources: • Internal capacity: • Locations database • JV partners database • Suppliers database • Knowledge database • Promotional capacity: • Brochures • Conferences • Fairs • Road shows

24. THANK YOU! Serbia Investment And Export Promotion Agency SIEPA Vlajkoviceva 3/V 11000 Belgrade, Serbia Phone: +381 11 3398 550 Fax: +381 11 3398 814 office@siepa.gov.rs www.siepa.gov.rs