SERBIA - Within the next few years Serbia will be next in line in the CEE region to introduce a mandatory second pillar, Marija Medenica, director of Erste Invest Beograd, has told IPE.

The sister company of Austrian asset manager Erste Sparinvest has just set up business in the former Yugoslav republic and is preparing for a major growth over the next years.

"A new, democratic, pro-European government is currently being formed and on April 30 Serbia and the EU signed a stabilisation and association agreement," Medenica noted.

She added the last 18 months were a constant election campaign with presidential elections preceding the parliamentary ones.

"But now once the new government is in place reforms and other projects will be started - although it will take some time as the introduction of a second pillar needs legislative changes."

Medenica confirmed it will be a mandatory pillar to complement the already existing voluntary third pillar which had been started at the beginning of 2006.

"People are very interested in saving for their own retirement as they do not want to depend on the state and they know the government will be able to provide a sufficient pension for them," explained Medenica.

It is expected that. similar to investment regulations for third pillar funds. occupational pension vehicles will also be free to invest in equities, including overseas stocks.

At the same time, Erste Invest also expects a major growth of the Serbian stock exchange which currently has a market capitalisation of just over €15bn.

Growth will come from foreign direct investment as well as the final stage of privatisation under which around one-third of large state-owned companies will be floated. 

But one key element which that has yet to really develop is a bond market, Medenica pointed out.

"There are over 1,000 companies listed on the stock exchange but only just over 100 of them are liquid," she suggested.

This will change with the issuing of bonds and when the Serbian government increases its government bonds issuance.

"We have very few institutional investors at the moment, mainly banks running investment funds, so insurance companies and pension funds do not play a large role at the moment," said Medenica.

Total assets under management for 14 registered companies in the mutual fund industry, combining investment funds and pension funds, was only €44m in mid-June.

"That is a ridiculously low amount," concedes Medenica. But it is expected to grow when political stability allows for the financial market to develop and once the second pillar is created.

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