On January 21, 2021, the Republic of Serbia and the U.S. Government signed the Investment Incentive Agreement (“IIA“), still waiting to be ratified by the Serbian Parliament. The IIA paves the way for the U.S. International Development Finance Corporation (DFC) to provide investment services in Serbia. In September last year, DFC opened its first office on this side of the Atlantic, right here in Belgrade .
The opening of DFC’s office in Belgrade is indeed a significant step forward in US-Serbia relations. However, this is not their first foray into economic cooperation in this field. IIA, judging by the available information on its wording, is an updated version of the 2001 Investment Incentive Agreement signed by the USA and the Federal Republic of Yugoslavia. Furthermore, DFC is the legal successor of OPIC (Overseas Private Investment Corporation), which was the main stakeholder under the 2001 agreement.
Under the IIA, the Government of Serbia plans to use DFC funds as a guarantee for bank loans borrowed by SMEs, for liquidity, working capital and new investment purposes. The guarantee scheme is set to be agreed on during Q1 this year and available in the middle of the year. The scheme would be worth up to one billion dollars. Aside from being affordable, the objective is for the loans to be long-term, i.e., terms of more than 10 years. Therefore, the scheme-backed financing is to provide borrowers with a quick capital injection while providing breathing room with a long-term repayment schedule. This is designed to alleviate the business and economic pressures caused by Covid-19 but also to stimulate economic growth.
However, there is more to the IIA than that which the Government of Serbia intends to use it for. Compared with the 2001 investment incentive agreement, the scope of the financial services under the IIA has been extended to include, amongst others, coinsurance, feasibility studies for potential projects, and grants.
Legally speaking, it is interesting to note that the IIA has introduced UNCITRAL Arbitration Rules to regulate investment disputes between the US and Serbia regarding investment incentives, something that did not feature in the 2001 agreement. Having in mind the legal procedures in Serbia, the IIA will take full legal effect once ratified by the Serbian Parliament. In turn the 2001 agreement will be repealed.
If the planned cooperation comes to fruition, the incentives will create new jobs, provide a boost to the Serbian economy but also signal to investors that Serbia is a sound destination for doing business.
Authors: Miodrag Jevtić and Mina Kuzminac
