China And Europe Drive Roads and Energy Growth

BMI View: Serbia's proximity to the Europe an Union , continued regulatory and legislative improvement , in light of prospective EU membership and continued attention from China , support a strong growth outlook for the country's infrastructure sector. BMI forecasts 6.9% year-on-year growth for fixed capital expenditure, a strong proxy for the construction sector outlook, which is reinforced by new project financing arrangements by China and the E uropean Investment Bank .

Serbia's transportation ministry has announced that it is on the verge of signing an agreement with China to build a US$704mn bypass road around Belgrade. The deal , to be signed with China Machine Engineering Corporation , is the latest in a series of large road sector infrastructure investments made by the China in the Balkan state. Chinese developments funds, thought to be worth around US$ 10bn, are to be tapped for the project , which is expected to begin work in early 2014.

China Gaining European Foothold

Other major Chinese road building activity in Serbia includes work by Sinohydro to finish two sections of the US$2.1bn Highway 10. We also note that the growing presence of China in the road s sub- sector is mirrored elsewhere in the infrastructure market, especially in Serbian energy production. China Environmental Energy Co. and Shenzhen Energy Group highlight the movement of Chinese firms into the region's renewables market, with Serbia having a siz e able hydropower sector. China has increased its presence across South e astern Europe, especially in the transport and freight sectors, with an example being the invest ment made in Greece's Piraeus container terminal.

Europe Still Driving

Serbia is also likely to gain investment in its infrastructure as the main recipient of a planned US$1.3bn European Investment Bank (EIB) loan for the Western Balkans. The funds , to be allocated in 2013 after US$869 was distributed in 2012, will target transport and energy infrastructure . Considering these investments , along side Serbia's strengthening institutional capacity as it moves slowly towards EU membership, we foresee greater foreign investment and a positive business environment outlook.

Investment Leads To Outperformance
Serbia - Real GDP Growth, % change y-o-y, And Fixed Capital Formation, real growth % y-o-y

Fixed capital expenditure in Serbia is forecast by BMI 's Country Risk analysts to average 6.9% year-on-year (y-o-y) growth between 2013 and 2022, becoming a key driver of broader economic growth, which is anticipated to grow by 4.1% per annum over the period. After returning to growth in 2013, following an estimated contraction in 2012, this outlook is supported by the ventures that China and the EIB are planning for Serbia's infrastructure sector. We have refrained from upwardly revising our capital investment forecast until there are more confirmed projects in the pipeline; however, these announcements show a trend of increased investment in Serbia's infrastructure.

This article is tagged to:
Sector: Infrastructure
Geography: Serbia, Serbia, Serbia, Serbia, Serbia, Serbia