Mark Harrison, founder and principal of Harrisons solicitors, a UK law firm based in Belgrade, Podgorica and London, gives us an overview on the current situation and opportunities in the Serbian legal market.
A new Government was elected in 2012 together with a new President, the Serbian Progressive Party being the clear winners. Having being given candidate status by the European Union, Serbia’s clear goal is to be given a date for talks for accession, and to ultimately become EU members, although the most optimistic view would be that 2020 is the earliest this can be achieved, probably later.
Issues over Kosovo are finally being addressed by the new Government, as this clearly is one of the obstacles to joining the EU. In parallel, there has been a strong anti-corruption drive, to improve transparency, with the most powerful tycoon presently in jail, under investigation. The world economy continues to impact on Serbia with a projected 2% drop in GDP last year, and the economic outlook for Serbia looking uncertain for the year ahead. There is heavy unemployment, a lack of recent foreign direct investment, and with the privatisation process almost complete, the question is where will new investments and funds come from and for what?
To add to this concern, Serbia is also still at a disadvantage because of the perception people have about the country, based in many ways, on ignorance of the country, its strengths and stability. This is not the potential investor’s fault, but this is a fact of business life.
Who is aware of the many subsidies and grants available to investors, the low rates of taxation and the excellent skills and education of the Serbian work-force-for example that of all the Central Eastern European countries, Serbia has the highest rate of English literacy?
Against that background how is the outlook for the legal profession? What areas might see growth or action?
Plainly M & A activity has decreased, and the Real-Estate sector is in the doldrums, with lots of empty office and residential buildings. Unfortunately the flip-side of an economic downturn is an increase of bank instructions on non-performing loans, with restructuring and bankruptcy work to the fore.
A recent regulation from the National Bank allows banks to hive-off NPL’s into SPV’s, allowing toxic loans to be removed, thereby increasing the liquidity of the banks, and therefore their ability to lend in the market place, something which has been stopping the economy from growing.
Serbia needs to grow its exports, and support its domestic currency, the Dinar, and as the country is one of the bread baskets of the region, with swathe upon swathe of good agricultural land, agriculture is a logical area for growth. This was highlighted by the recent visit from the Crown Prince of Abu Dhabi, resulting in agreements to invest in agricultural production.
Likewise Serbia produces more energy than it needs, and the raft of energy options are available to be developed aside from thermal, including hydro, wind, solar and renewable, all of which have seen heightened activity over recent years.
The Financial and Capital Markets are fairly immature, and only in the last year have we seen Eurobond Issues at state level. There are too many banks, and consolidation is needed. However financial work must increase, with more sophisticated instruments made available, so growth can be expected here.
There are basically 5 main foreign law firms with offices in Belgrade, with one having pulled out 2 years ago. 3 Austrian, an English law firm (ourselves) and another. Quite a few Serbian Domestic Law Firms have associations with Foreign Law Firms, mostly from Austria.
Aside from the Foreign Firms there are probably 5 main players from the domestic market, and this group of 10 have essentially consolidated their position over the last 3-5 years.
It is the common perception that unless a big western firm swallows a large domestic firm, the market will not change. You cannot just set up in Serbia and expect your name to bring you work. It is a contact sport, so the longer you have been here the better for business. Likewise Belgrade is just over 2 hours from London, so EU firms see it is a fly-in fly-out business destination.
This stagnation of business activity of course directly affects legal service providers. The larger firms have been shedding lawyers, and there is increased employee turnover. The domestic firms can no longer rely on transaction work. Law firms who only have one market, namely Serbia, will be worst hit, as will be the larger firms. Those unable to adapt will not survive.
The views expressed above are those of Mark Harrison and do not reflect and may not be attributed to the Law Society of England and Wales.