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Protecting the poor in Serbia during the economic downturn

Last week, a United Nations conference on least developed countries focused on private sector participation as a way to reduce poverty. But though the private sector undoubtedly has a role to play in developing nations, some experts question how easy it is to interest private companies during a global recession.

The World Bank this week published a report on ‘Public-Private Partnerships in Europe and Central Asia’, which notes that private sector investment in the Eastern Europe and Central Asian region decreased by more than 40 per cent between 2008 and 2009. The study also concluded that private investors were becoming extremely selective about which countries and projects they chose to invest in.

In Serbia for example, where the World Bank has financed over 30 projects (worth over 1 billion US dollars) and has a number still ongoing, one of the Bank’s three main aims is to encourage “dynamic private sector led growth”. However, with Serbia’s small economy and focus on achieving European Union membership, its record of attracting public-private investment is poor. To-date, only two key projects have been tendered – a new cargo terminal for Belgrade Airport and the Horgos-Pozega Highway.

And as the latest report underlines, “the days of easily attracting funding [from the private sector] are essentially over”. With the world-wide recession, companies have more limited access to long-term financing and are reducing their risks. This means that many private firms will only look at investing in countries with “institutional, regulatory and financial frameworks that ...minimize key risks and reduce the cost of doing business”. In other words, the private sector is avoiding countries where government is poor or state administration bureaucratic or open to corruption. With private investors harder to find as partners, Serbia may need to look towards the European Union and International Organisations for further help in financing projects.

In the meanwhile, organisations such as the World Bank continue to play a key role in supporting Serbia. Last month, a loan of 100 million dollars was announced to help the country with its cash transfer payments to low income households. The loan will allow the number of households benefiting from the scheme to increase by 25 per cent, as well as raising the amount payable to poor families with more than 3 members. The increased coverage of the scheme gives international support to Serbia’s new Social Welfare Law. The World Bank’s Country Manager in Serbia was the first to admit the effects of the global economic crisis, reporting that the number of people living below the poverty line in Serbia had risen by 60,000 in 2009. He therefore spoke of the Bank’s role in continuing to provide assistance to “protect the poor and the vulnerable” - an unlikely mission statement for any private sector companies.

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