Putting Cranes Back to Work

USAID’s technical assistance to the National Bank of Serbia (2003-2006) laid the foundation for a strong banking sector that is now healthy, solvent and enjoys the trust of its citizens. More recently, USAID worked with Serbia’s Ministry of Construction to reform construction permitting to make it easier for businesses to invest. Not too long ago, few people believed these changes were possible.

Back in 2002, in my early 30s, I decided to invest in my future and buy an apartment in Belgrade. But times were difficult. After a decade of civil war, the banking sector was in shambles and getting a loan was nearly impossible. A stagnant economy and a depressed construction sector artificially inflated real estate prices.

Finding good quality furniture at reasonable prices also proved challenging. The lack of competition among local furniture retailers and absence of foreign retailers kept furniture prices unreasonably high. Many of us traveled over 250 miles, to either Zagreb or Budapest, to reach one of the closest IKEA stores that sold everything one needed at reasonable prices.

The Swedish furniture giant IKEA made its first attempt to enter the Serbian market 25 years ago, but was thwarted by the civil war. Their second attempt in 2008 failed because of an unmanageable construction permitting process and unresolved land ownership issues. However, in 2015 IKEA became the first foreign investor in Serbia to receive an electronic construction permit. This was made possible by a new e-permitting system – introduced with the assistance of USAID. The IKEA investment in Serbia is worth EUR 70 million and will create 300 jobs.

Vladislav Lalić, IKEA’s Southeast Europe director: “The dream that started 25 years ago finally became reality.” / Mirjana Vukša Zavišić, USAID

“Since the very beginning we were looking for some kind of ‘unified’ procedure. To run from one institution to another costs time and money and is excessive. Now things look good — our first store in Belgrade will open in July 2017.” said Vladislav Lalić, the company’s Southeast Europe director. “Our experience will be an incentive for other investors who are considering investing in Serbia.”

IKEA’s first store in Serbia will welcome customers in the summer of 2017. Works at the construction site are in full swing. / Mirjana Vukša Zavišić, USAID

The construction permitting process used to take over 240 days and required about 52 interactions between the investor and 20 different public sector entities. It was widely seen as a hotbed of corruption and a source of various economic inefficiencies.

“The new system shifts the burden from citizens and investors to local governments and public institutions that need to coordinate their work and request the necessary documentation from one another through official channels,” said Ivana Blažić Sević, head of city planning in the town of Topola.

A comprehensive reform of this process started in 2011. Administrative procedures and charges related to construction permits were a key impediment to business development. At the time, Serbia ranked 176th of 183 counties in the World Bank’s Doing Business report in this category.

With assistance from USAID, a law enacted in December 2014 in Serbia shortened the time required to issue a license to 28 days. A few months later, the government launched a one-stop-shop consolidated procedure, and by January 2016, the e-permitting system came online. The new law also lowered administrative costs of construction, creating considerable savings for investors. Serbia now ranks 36th of 190 countries in the World Bank’s Doing Business report with respect to construction permitting—a jump of 103 places compared to 2016.

“The effects were immediate,” said said Joe Lowther, former Chief of Party of USAID’s Business Enabling project.  “In 2015, Serbia’s construction sector expanded by 20.5 percent, while the number of building permits issued rose by 36 percent relative to the preceding year. That also meant job creation – construction is a very employment-intensive industry with spillover effects to other industries.”

Before, there were hardly any cranes in Belgrade. By October 2016, there were 489 active construction sites, according to the city’s mayor. / USAID Serbia

Moreover, new projects under construction are beneficial to Serbian citizens. The Clinical Center of Serbia, for example, received a permit under the new system and will soon start building  much-needed health care facilities.

With a more favorable business climate attracting investment, local government revenues increased by 18 percent in the first quarter of 2016 — which are key for the development of Serbia’s cities and municipalities, said Aleksandra Damjanović, State Secretary at Serbia’s Ministry of Construction. In addition, Serbia’s GDP expanded 3.5 percent in real terms in the first quarter of 2016; a significant part of this growth came from expansion in the construction sector.

“Before there were hardly any cranes in Belgrade—now we see them everywhere,” Damjanović said.

I was lucky the stars aligned in 2002 so I could make my first big step as an adult. Today, I am relieved that, largely thanks to USAID’s economic sector assistance programs in Serbia during the past 15 years, my son and future generations will have an easier start in life.

More than 4,000 permitting officials, who had not used any form of electronic communication in their work before, were trained in using the new online construction permitting application. / National Alliance for Local Economic Development Serbia

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