A developing economic and financial center, Belgrade has been declared the City of the Future for Southeast Central Europe by the Financial Times Group’s fDi magazine.

A growing economy, with one of the largest domestic markets in its region, strategically situated on the doorstep of the European Union on the most important route linking Europe and Asia, Serbia has a lot going for it as a promising destination for foreign direct investment.

From its position in the middle of the Southeast Europe Free Trade Zone, it has access to a market of 55 million people. It is also the only country outside the C.I.S. to enjoy a free-trade agreement with Russia, providing tariff-free access to a market of 150 million people.

There are plenty of other advantages on offer to investors, including macro-economic stability, low labor costs, and the lowest corporate tax rate in Europe.

The economy is expanding at an impressive rate – by 6 percent in 2006 – and international institutions such as the World Bank, the European Bank for Reconstruction and Development, and the International Monetary Fund have lined up to heap praise on the republic as a stand-out economic reformer.

Eight years after the end of the ethnic wars that ravaged the Balkans in the 1990s, and seven years on from the economic distortions and political problems of the Milosevic era, Serbia is a fully democratic country that is rebuilding and modernizing its economy with a fair measure of success. In the longer term, it is working towards membership of the European Union.

According to the Serbian Development Institute, Serbia could be economically ready to join the E.U. by 2012 if it achieves the priority goals of the National Strategy for Economic Development: competition, a knowledge-based economy, and development of infrastructure.

However, several vital and complex political issues are still to be resolved. Negotiations on a stabilization and association agreement with the E.U. – a first step towards membership – stalled over Serbia’s rejection of E.U. calls for the handing over of former Bosnian Serb general Ratko Mladic and other key war crime suspects to the International Criminal Tribunal in The Hague.

From its position in the middle of the Southeast Europe Free Trade Zone, Serbia has access to a regional market of 55 million people

Meanwhile, a United Nations plan to set the Albanian-dominated region of Kosovo – administered by the U.N. since Nato’s 1999 air raids on Serbia – on the road to independence has been rejected by Serbia as “unacceptable.”

Parliamentary elections were held in January, following the withdrawal in 2006 of neighboring Montenegro from its loose federation with Serbia. The elections mean a new government, and presidential elections are to be held later this year. In February, the E.U. signaled a slight softening of its position, saying talks on integration could be restarted if Belgrade takes “concrete and effective action for full cooperation” with the war crimes tribunal.

Despite these politically unsettling events, Serbia has been attracting increased foreign investment. The banking sector is notable for the presence of Greek banks, such as National Bank of Greece, Piraeus Bank, Alpha Bank, and EFG Eurobank, and Austria’s Hypo Alpe Adria and Raiffeisen of Hungary are both well established.

Large American companies that have been investing in Serbia include global food packaging provider Ball Corporation, U.S. Steel, and Microsoft, which has made Belgrade the base for one of its five global development centers.

Short of capital, Serbia certainly needs FDI – particularly greenfield investment – to develop an export-oriented economy and create jobs. Dramatic progress has been made towards improving the investment climate. During 2005, the republic attracted more than 1 billion euros ($1.3 billion) of FDI, most of it brought in by the privatization of state-owned companies, which continued last year with up to 500 companies being put up for sale.

Mining and manufacturing are leading contributors to the economy, and there is considerable scope for increased production in agriculture, which, together with the food and beverage-processing activities associated with it, makes up the largest sector. Other sectors poised for growth include energy, tourism, software development, high-tech industry and the automobile industry.