Serbia’s economic upturn. A chink of light

Glimmers of hope in Serbia's rust-belt

IT FEELS like a time-warp. Gleaming cars of a type designed in the early 1970s roll off the line at Kragujevac's giant Zastava plant. As the workers in blue overalls sip their Turkish coffee, they gaze up at portraits of Marshal Tito, the Yugoslav leader who died in 1980. Yet they are now looking forward, not back.

Zastava is often seen as a byword for Serbia's industrial decline. And if the company has suffered, so too has the town: 40,000 of its 200,000 residents used to work for Zastava. Only now, five years after the fall of Slobodan Milosevic, the demagogue who set Serbia on its course of war, suffering and isolation, are the town and the plant showing new signs of life.

In 1989, the last full year of old Yugoslavia's life, Zastava made 180,950 cars here. When the country fell apart, it lost suppliers and markets. The international sanctions imposed by the UN hurt, and during the Kosovo war in 1999, NATO bombed parts of the plant, which also makes arms. That year, just 4,500 cars dribbled off the lines; last year, 13,300. According to the mayor, Veroljub Stevanovic, well over half the working population was unemployed until recently. Even now, all of Zastava's diverse holdings in Kragujevac employ only around 13,000 people.

But then look at the chinks of light. On September 20th, after years of wrangling, Fiat of Italy struck a deal with Zastava to make up to 16,000 cars a year. At the company's arms plant, too, things are looking up: it has a $3.8m contract with Iraq. This year, says the mayor, over 7,000 new jobs have been created in the town.

The upturn matches the trend in Serbia as a whole: GDP grew by 7.5% last year. And Miroljub Labus, the deputy prime minister, says the country has pulled in $1 billion of foreign investment this year. United States Steel and some western tobacco firms have helped to turn round local industries that had virtually collapsed. On September 27th, Microsoft opened a software centre in Belgrade. Some 7,000 new firms have registered in Serbia this year.

Serbia's rate of inflation, 17.2%, is high. But that is a side-effect of recovery, and of a banking system and retail market jerking back to life. After long privation, people are chafing to buy fridges and cars.

Yet, despite all this, most citizens say life has never been as tough as now. “Our real problem”, sighs Mr Labus, “is public perception.” People do not compare their life now to that of five years ago, but rather to that of 20 years ago, the era of communist certainty.

Next week, the European Union's foreign ministers will start a set of negotiations with Serbia that are designed to lead to a “stabilisation and association” pact, and in the end, perhaps, to membership. Given that Serbia may soon face some painful constitutional changes - including the final loss of Kosovo and the break-up of its union with Montenegro - its economic upturn is good news, both for weary Serbs and their European partners.