UAE-Inspired Construction Growth – Country Case: Serbia
How leading UAE and Serbian businesses have paved the way for strengthening the ties between the two countries.
By Dr Jovan Nikčević, Managing Partner, NKP Law office
The United Arab Emirates and Republic of Serbia have a long history of diplomatic relations which has evolved from mostly quiet and protocolary exchanges since 1971 to today’s fruitful cooperation that has resulted in the reciprocal opening of embassies in Abu Dhabi and Belgrade.
The enhancement of diplomatic relations follows a significant improvement in business cooperation as reflected by numerous direct investments in the Republic of Serbia realized by various UAE companies. While UAE businesses have chosen to invest in a range of economic sectors in Serbia, such as aviation, defense, IT, agriculture, and construction, one of the biggest and most important transfers of capital was the acquisition of a significant share of stocks of the Serbian national aviation company JAT by Etihad Airlines along with assuming charge of the company. There are also projects in the defense industry, such as the cooperation between Emirates Advanced Research Technology Holding (EARTH) and Serbian state-owned companies Yugoimport, Utva and Krusik, or the agricultural projects, including the UAE company Al Dahra’s investments in state-owned farms in Serbia that are aimed at developing agricultural infrastructure, machinery, irrigation systems, and food production.
However, the UAE investments in the construction sector of Serbia have garnered the most media attention and for all the right reasons.
The biggest residential project “Belgrade Waterfront”, which is currently under construction at one of the most exclusive locations in Belgrade, represents a colossal US$3 billion-worth urban revitalization project that establishes the new city center of Belgrade as one of the top international destinations for foreign clients and investors. The project comprises a gross construction area of approximately 2 million sq. m. and 7,000 residential units.
On the other hand, more than 20 companies from Serbia have been in active operation in the UAE, especially in fields of water processing sector, production of machines, agriculture, solar power, and information technologies.
In light of further strengthening their economic ties, both countries have taken a proactive approach in order to put in place a regulated legal framework for doing businesses in their respective markets. This includes an agreement for the avoidance of double taxation which applies to their respective nationals who are residents of one or both of the contracting states in respect to tax on income, such as income (personal) tax and corporate tax.
Serbian companies have been granted easier access to the UAE market by being provided benefits which include expedited procedures for registering their companies, support for obtaining permits, customs and inspection documentation, as well as market analysis opportunities, finding partners and project financing, while newly launched companies can also use specialized startup incubator centers across the UAE.
In Serbia, UAE investors have benefited from the country’s new approach to encouraging foreign investors to include the assets from/in the Republic of Serbia to theirs portfolios, including the recently adopted Law on Digital Assets, which regulates the entire field of digital business that is primarily based on blockchain technologies and allows the crypto-currency trading to be absolutely legal on the territory of Republic of Serbia, and the Law on the Production and Trade of Weapons and Military Equipment, which enables foreign companies to invest in this industry under the conditions prescribed by the law.
When it comes to the construction sector in Serbia in particular, the country’s Planning and Building Act allows foreign legal entities which perform professional activities in the field of spatial and urban planning, drafting of technical documentation, construction and energy efficiency, to conduct the activities under the same conditions as Serbian legal entities.
Here are a few points to illustrate why the Serbian construction sector has drawn significant interest from UAE companies:
- As per the activities observed in 2019, the real estate and construction sectors cumulatively contributed almost 14% to the national GDP, which positions them as one of the country’s most significant commercial industrial sectors. This represents an increase of 39,9% comparing to the stats from 2018. Data from 2020 is still to be released, but it will undoubtedly show that the local construction industry remained vibrant despite the COVID-19 outbreak.
- Over the last couple of years, the value of capital investments from Arab countries, including those in the construction sector, has increased by more than 600%.
- The Serbian Development Agency lists one company from Qatar, one from Tunisia, and nine from the UAE among the largest investments of Arab countries in Serbia.
- The familiarity of the local legal sector with the FIDIC general conditions of contract for construction is added value for foreign investors and contractors. This is of particular importance for executing large and complex infrastructural projects which require multilateral engagements among investors, contractors, designers, public authorities, and so on. The application of these conditions ensures a balanced contractual regime and easy contract administration that serves primarily the trouble-free delivery of the project as well as the smooth resolution of any potential ongoing issues, such as claims, variations, or value engineering, through DAB and arbitration proceedings.
- Taking into account the geographical position of Republic of Serbia and its participation in numerous international projects, such as “Turkish Stream” pipeline project which will enable about 1.8 billion cubic meters of natural gas to be delivered annually. The pipeline’s projected capacity of up to 4.5bcm/y is of great importance for the energy needs not only in the Balkans but across Europe. Furthermore, the “One Road-One Belt” intiative, a gigantic project, which encompasses nearly 70 countries, touching the lives of 65% of the world’s populations, and contributes 40% to the global GDP, represents the largest infrastructure and investment projects in history. These projects have the power to change the infrastructure landscape of Serbia in the following period which, considering the legal framework, opens a new space for capital infrastructure investments. Due to its geographical position, Serbia is one of the main corridors linking East with West and South with North mainly via newly built highways and fast railroads, particularly the highway E-75 which nowadays covers the entire south to north route of Serbia, as well as the Belgrade-Budapest railroad.Last but not least, Serbia has great potential in inland water transport on the Danube river with more than 40 million tons of goods already carried via this river corridor which links South-Eastern and Northern Europe. The importance of the Danube river has already been recognized by UAE investors, namely Dubai Ports World which acquired the river port in the city of Novi Sad in northern Serbia.