On 21 January 2021, Republic of Serbia and the United States signed the Interstate Agreement on Investment Promotion (hereinafter “Agreement“), which is a precondition for starting the activities of the U.S. International Development Financial Corporation (hereinafter “DFC“) in Serbia.
The opening of the DFC office in Belgrade represents an important step forward in the economic relations between the United States and Serbia. However, this is not the first time that economic cooperation between the two countries has taken place. Namely, the Agreement in question represents an upgrade of the Agreement on Investment Promotion concluded between the United States and the Federal Republic of Yugoslavia in 2001. Also, DFC represents the legal successor of OPIC (Overseas Private Investment Corporation), which was the holder of the execution of the agreement from 2001.
The conclusion of this agreement represents the fulfillment of the Washington agreement from September 2020. As a reminder, in December last year, a DFC office for the entire region was opened.
The main idea of the cooperation is based on the harmonization of the guarantee scheme of the Republic of Serbia with DFC by the end of the first quarter of this year and that by the end of the second quarter that money will be available to our companies and commercial banks to provide existing jobs and create new ones.
The money in question will be available to commercial entities, small and medium enterprises, for working capital and investments. This Agreement is worth about a billion dollars, which will allow commercial entities to reduce the negative consequences of the coronavirus, to grow and develop and realize their plans. The intention is that these loans to be approved for for a period longer than ten years, which is not the case in the guarantee scheme that is currently in force.
As a reminder, there is already a guarantee scheme in Serbia that has been agreed with commercial banks, in which the guarantor of the realization of part of the loan is the Republic of Serbia. According to the existing data, the guarantee scheme in question was used by about 23,000 companies and 1,580,000,000 euros was used out of a total of two billion euros, which was available. There is no doubt that this guarantee scheme was a huge incentive for liquidity, investments, and working capital in preserving the economic substance of companies and jobs.
According to the existing information, the Ministry of Agriculture is already in the phase of concretization of some support programs for small and medium food producers worth about 91 million dollars.
Interestingly, the new Agreement provides for an arbitration clause for resolving investment disputes between the USA and Serbia regarding the subject investment incentives by applying the UNCITRAL Arbitration Rules, which was not the case with the agreement from 2001.
Having in mind the legal procedures in Serbia, the Agreement needs to be ratified in the National Assembly to enter into force, which will end the validity of the agreement from 2001.
If the planned cooperation is implemented, the incentives in question will mean the creation of new jobs, overall positive effects on the Serbian economy, but also a signal to investors that Serbia is a safe place to invest.
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