Advocating For Foreign Investors

Interview: Maria Andrews, Commercial Counsellor, U.S. Embassy, Belgrade

After spending a year and a half of her tenure in Belgrade advocating on behalf of the interests of American companies in SCG, Maria Andrews, Commercial Counsellor of the U.S. Embassy in Belgrade, summarises for CorD her experiences and offers numerous practical examples of instances where senior Serbian officials proved helpful in resolving specific requests. “However,” Andrews insists, individual remedies do not cause the structure to “blossom. They do not change the system or make it more efficient”.

By Tanja Jakobi

In November public airport company “Aerodrome Belgrade” finally concluded a contract with American company DynCorp on the construction of a regional cargo centre at Belgrade’s Surcin Airport. The project, which represents the first step in the development of the civil aviation sector in Serbia, was commenced during the term of Andrews’ predecessor Patrick Hughes, and masterminded into realisation by Andrews herself.

The U.S. embassy’s commercial section operates under the direction of the U.S. Department of Commerce and is part of a network of 120 similar such sections in other countries and domestic (US) offices in 50 states. In markets like Serbia and Montenegro’s, activities are focused on assisting American companies to establish a presence and developing commercial operations with other companies and government officials, even to develop entire sectors.

“The DynCorp deal is a perfect example of how a commercial section is working with companies and the local government to develop important, key sectors which will get this economy rolling again, “ says Andrews, who has been serving as the commercial counselor for Serbia & Montenegro for a year and a half. “Even before I came to Serbia, I knew that there was a possibility to put the country on the map as an air transport hub.”

Her predecessor had already begun some work in the sector. A $1.5million feasibility study produced by the U.S. Trade and Development Agency (TDA) looked at three areas: the opportunity for an air cargo terminal and logistics centre, retail concessions, and a maintenance centre. From there, the Serbian Government and its Ministry for Capital Investments placed a worldwide tender for companies to bid on the planned air cargo facility. “That is where we became very busy advocating on behalf of American companies interested in a deal, but it came down to one company, DynCorp International from Texas. Ambassador Michael Polt and I explained to the government how important the project was and the strengths the U.S. company could bring to the party. We also wanted to make sure that the tender process was open and transparent, which it was.”

Andrews says that she is excited with the fact that the air cargo facility is going to develop even further than she originally envisaged. At present, the joint venture of DynCorp and Aerodrome Belgrade has 17 to 20 investors, mainly other airlines, which want to invest in the hub to transport cargo from all over Europe to Russia and elsewhere.

However, campaigning for foreign investments is not always easy or successful. Although the Serbian government has been thinking of developing a regional maintenance centre to accompany the cargo centre for number of years, potential investors are still waiting for the government to reach a final decision on the restructuring and reshaping of state carrier JAT Airways.

“JAT can play a key role in the transportation hub that is to be developed. However, there has to be a commitment from the government and a desire to help JAT to do what is necessary, given the resources it has, to make sure that it will be a key player in the entire development of the sector. That is just not being done,” insists Andrews.

After a prosperous long term relationship with U.S. manufacturer Boeing, in the mid ‘90s JAT signed a deal to buy Airbus planes and, after an initial payment, left the contract all but frozen due to a lack of funds. “JAT is supposed to have a business plan that would identify what they have to do, including what aircraft they need to buy. They know that they need to update a fleet but it is not enough to say we need aircraft but what kind of aircraft and for what strategy,” says Andrews. “Boeing has a regional focus, while Airbus has a long haul strategy. It is critical for JAT do decide whether they want to be a regional airline or an international airline.”

The fate of Boeing interests in Serbia is dependent on what happens with JAT. Boeing is still coming in about once a month to maintain their contacts with JAT and in the government. However, they are more or less waiting because JAT has no money to purchase anything. In the meantime, Boeing is being helpful to offer other solutions to the management of JAT as it tries to stay afloat.

“Boeing is not just interested in JAT’s fleet. It is also keen to work with JAT on the maintenance centre. They talk with the government at prime ministerial level and at presidential level about the maintenance centre and are ready to give the centre Boeing’s name. Giving its name to the centre will give it credibility so that investors can be found,” says Andrews.

The commerce department also closely looks at development in sectors including telecommunications, energy, construction and software. “I am not just talking about outsourcing, but about hiring software engineers and training them to develop software programs,” says Andrews.

Microsoft already took their first major step in that direction. The company is to set up a software development centre in Belgrade, and has already brought one of the top software engineers from Seattle while hiring local software engineers. Their first task will be to develop PCs and notebook software that recognises handwriting in Serbian, Croatian, Bulgarian, Romanian and perhaps Russian.

Hewlett Packard and Cisco Systems are also active in the market, while AutoDesk CEO and President, Carol Barts, has just concluded her visit to Serbia. “You start getting all kinds of synergies and I am proud that American companies are in this market,” says Andrews.

Andrews sees business organisations such as the American Chamber of Commerce, Foreign Investor Council (FIC), and the Serbian Chamber of Commerce as advocates for foreign investments: “In a market that is developing, organisations such as these should play a critical role in advocating on behalf of companies. I’ve talked with all three organisations at length to ask them to make more open and focused representations to the government on many issues we discussed,” says Andrews. “The government is very open and advocacy became a choice of implementing what we are trying to do, because the doors are open to go in and discuss issues with the governmental officials and come to some conclusions. I see that as very positive sign.”

However, when it comes to consistent results Andrews sounds less optimistic: “I get a lot of promises and good intentions which end up being forgotten. If I end up fifty-fifty I’m happy. Nevertheless, the changes to improving the investment and business climate do not become permanent. This also slows down the process of change. At some point this process has to become quicker. Also, the doors should start to be open not just at the higher level, but also at the lower level, “says Andrews.

Here are two examples of the obstacles foreign companies face at both the higher and lower echelons of the government. One is the (so far) quite depressing outcome of negotiations between American tyre manufacturer Galaxy, which already bought Ruma guma and wants to expand its facilities in China or Serbia, through either a green field investment or privatisation. For some time Galaxy has been eyeing Trayal Corporation, but after more than a year it has had no clear response from the government on whether it wants to spin off some parts of the company or sell it in one piece. “It is obvious that both approaches have their advantages and disadvantages, and we truly understand that, but the process of decision making is taking too long,” says Andrews.

Another example is negotiations between the Walbridge Group, one of the largest private contractors to the U.S. automotive industry, which is building a manufacturing platform in Eastern Europe. The platform includes Mefin S.A. - Romania, a company similar in scope of activity to Belgrade-based Industrija precizne mehanike (IPM). Over the past 18 months Walbridge has held discussions with numerous interested parties, including IPM’s management, Economics and Privatisation Minister Predrag Bubalo and Privatisation Agency President Miodrag Djordjevic, regarding its interest in expanding the manufacturing platform to Serbia through the acquisition of IPM. In spite of a number of meetings, negotiations have been stalled due to a lack of access to all of IPM books, which are necessary to conduct a due diligence study.

“We assisted Walbridge by facilitating several meetings. The government and the privatisation agency allowed access to IPM’s documents, but then when the company made steps to implement those decisions they were told that the government had changed their mind,” explains Andrews. “So here there is a very serious question again: ‘why not open up?’ Investors should be able to see what the debt structure is and what they are buying into. They will not be scared off. If they can anticipate what the problems are, it is going to benefit both them and the companies they are buying.”

Andrews acknowledges that there is a real desire and commitment on behalf of senior government officials to help companies through the process. “Deputy Prime Minister, Miroljub Labus, ministers of foreign investments, economy, and capital investments – Milan Parivodic, Predrag Bubalo and Velimir Ilic – do listen and in many cases they do take action, but the point is it is an action based on a specific request. It does not blossom by changing the system and making it more efficient, “says Andrews.

However, she repeats, the problem is that you always have to see Mr. Bubalo to resolve issues. “Mr. Bubalo should be working on strategic plans, not having to help individual companies solve their problems,” says Andrews, who is also disappointed with the effect of the multiparty interests within the government. “It has become a hindrance to the business sector. Each party has its special interests and instead of talking it through, the issues are being complicated.”

Andrews says that instead of paying many visits to the government, with specific issues to solve one by one, she would be more interested in focusing on bringing more medium-sized companies to Serbia & Montenegro. However, she does not see her job changing soon. “American companies have no problem hiring a lawyer and going to court, but that does not work here. The judicial system is just not in place, and even when we have some lower court decisions in favour of American companies, we see the government revoking them,” says Andrews.

Reading between the lines

Although the tender procedures are often well managed, there are problems with tender documents, which often hide ‘non-tariff barriers’. “The way they are written-in could favour certain companies from certain countries and when it happens, the companies bring that to my attention and then my office brings that to the attention of the government,” says Andrews. “This is not corruption per se, but just a badly written document.”

Losing patience

“The telecommunications sector is exploding and there will be tremendous interest from American, European and Asian companies in mobile telephony, once Serbia decides to privatise its mobile operators. However, the infrastructure, in terms of regulatory bodies and bodies to implement laws, is not there,” says Andrews. “In addition, the procedure took so long it seems that the companies are beginning to lose interest.”

Lack of focus and vision

Representatives of more then 20 Serbian companies went to Washington D.C. for a two- day conference (14-15 November) with their American counterparts. Although 150 U.S. companies expressed an interest in meeting with their Serbian colleagues, Andrews was not impressed with the list of companies, which were chosen by the Serbian Government and the Serbian Chamber of Commerce, nor does she expect to be engaged in many follow-ups.

“I am not very impressed with the number of companies that Serbian Prime Minister Vojislav Kostunica and Serbian President Boris Tadic brought with them to represent the future of Serbia & Montenegro. These business missions should be much more focused on key sectors and the list of Serbian and Montenegrin companies should be expanded. We need new faces, new companies and clear objectives. It is a simple question: ‘what do we want to sell here?’ The more focused you are and the stronger the message is the stronger the follow-up will be,” says Andrews. “The United States is the largest investor in Serbia & Montenegro, and this market will look as good now as it will look after Kosovo negotiations or the referendum in Montenegro. It is sad that, due to a lack of focus and preparations, the country doesn’t represent itself well.”