The sixty-four thousand dollar question

For Antena M by: Miljan Vešović

Several days ago, UK Foreign Secretary and former Prime Minister David Cameron called Serbia “a Russian ally”. That statement is, of course, correct. While a lot has been said (including by this author) about Serbian efforts to destabilize Western Balkans with support of Russia, Serbia’s economic and trade policy often gets overlooked. Under President Vucic, Serbia has made a clear, consistent effort to become a leading trading partner for Russia, Iran and PR China in the Western Balkans and attract investment from these countries.

Let’s start with Russia. According to the 2022 analysis of the US-based think-tank “Foundation for Defense of Democracies” (FDD), over 1200 Russian – owned companies were founded in Serbia in 2022, which was a greater than 12-fold increase from the previous year. Having in mind that 2022 was the year when Russian aggression in Ukraine started and that Serbia, contrary to EU policy, didn’t impose sanctions on Russia after the war had started, it is pretty clear what happened – Serbia became the top European destination for relocation of Russian – owned businesses and sanction evasion.

Russian media confirm that assumption. For example, Russian internet outlet “Pro”, that deals primarily with economic matters, called Serbia “a great window into Europe, free and logistically comfortable market” for Russian businesses. “Pro” continues by explaining that, faced with Western sanctions, a lot of Russian companies started considering Serbia to be a very suitable place to re-enter international markets and renew production. “Pro” then, as an example, lists the big Russian IT company “Yandex” (so called “Russian Google”), which opened a large (more than 700 employees) office in Belgrade in 2022 and plans to open another big office in Serbia as soon as possible.

Another Russian media outlet dealing with economic matters, “Frank Media”, covered the analytical paper of Geneva-based think tank “Global Initiative Against Transnational Organized Crime (GI-TOC). In this analysis, published in July 2023, researches from GI-TOC found out that Western Balkans became a “magnet” for illegal cash flows from Russia. Serbia, they claimed, was “the most hospitable country” for such illegal cash flows. They too presented the data showing even more spectacular increase of Russian – owned companies in Serbia than established by FDD study in 2022. According to GI-TOC, between February 2022 and July 2023 more than 5000 Russian – owned companies were registered in Serbia. They concluded that “the large number of Russian-owned companies makes laundering Russian money easy” (in Serbia).

The Serbia – Russia sanctions evasion mechanism also applies to military exports and dual – use goods. In November 2023, investigative journalists of Radio Free Europe uncovered a scheme through which more than $71 million worth of dual-use goods was exported to Russia by Serbian companies. All this happened even though Vucic and other Serbian officials repeatedly claimed that “no one can bypass the sanctions against Russia through the territory of Serbia”. Having in mind that dual – use good cannot be exported without export licenses granted by state (in this case, Serbia), it is clear that this example of sanctions evasion happened with the blessing of Vucic and Serbian Government.

The Moscow-based think-tank “Valdai Discussion Club” also ran a very favorable article about Vucic in November 2023. Valdai Club is famous for organizing each year the Valdai Conference, which is often frequented by Vladimir Putin and described by experts on Russia and international relations as “Russian Davos” and “swanky high-level conference put on by the Russian elite”. In the article, titled “Aleksandar Vucic’s Political Dribbling”, authors claimed that Vucic’s “multi – vector policy was very effective and led to success in attracting foreign investment and developing economy, while securing good relations with the West, Russia and China at the same time”.

Valdai’s analysts concluded that the level of Western support for Vucic and Serbia will not decrease. They explained that “the West will support and bankroll Serbia whatever Serbia does, because the West doesn’t want Serbia to become dependent on Russia”. Having in mind some moves made by certain Western policy-makers and diplomats, this assumption by Valdai might unfortunately not be too far from the truth.

When it comes to Iran, Serbia (just like Russia) haven’t so far imposed the sanctions on Iran. This despite the fact that the sanctions were imposed by EU, and, as a candidate for membership, Serbia has an obligation to align itself with EU Common Foreign and Security Policy. Moreover, Serbia doesn’t have any sort of “historic ties” with Iran – therefore the excuse (of historic ties) Vucic uses when confronted with the fact that his government didn’t impose any sanctions on Russia is here moot.

Iranian investment into Serbia has in last years increased several times, and Serbian Government officials openly express their wish to further strengthen political, economic, trade and security relations with Iran. Both countries have publicly indicated the plan to conclude a free – trade agreement in the near future. According to Acting Assistant Minister for Economic Diplomacy in the Government of Serbia Jagoda Lazarevic, “concluding a free – trade agreement will open a new chapter in the economic and commercial cooperation between Iran and Serbia”.

According to officials from both countries, and as reported by Iranian English-language media outlet “Tehran Times”, common areas of cooperation, where economic and trade ties should be bolstered, are agriculture, petrochemicals and tourism. What they omitted was the defense industry. According to several media outlets, Iran has been extremely active in promoting its arms industry in Serbia and planning to export its military equipment there. Washington – based think – tank “Gulf International Forum” reported that Iranian government announced in October 2022 that Serbia was among the 22 countries that applied for purchases of Iranian drones.

Several media outlets then, in summer 2023, reported that Serbia had completed the purchase of more than 20000 Iranian drones. Government affiliated media in Serbia labeled the information “a fake news put together by artificial intelligence”. However, even Serbian chapter of “Russia Today” reported about a mysterious Iranian cargo plane landing on Belgrade Airport on September 16th 2023 and admitted that “even though there are no official information about what sort of cargo was brought from Iran to Serbia, the whole affair opens doors for a lot of speculations”.

What is, however, 100% confirmed is the fact that Iran had one of the largest stands at the “Partner 23” arms fair held in Belgrade between September 25th – 28th. According to various participants at the fair, Iranians brought prototypes of drones, but also cruise and anti – air missiles. In their analysis, above-mentioned “Gulf International Forum” concluded that “gradual Western departure from the Balkans and deteriorating relations with Serbia have clearly pushed Belgrade towards the rising Iran – China – Russia axis.

According to Serbian officials, including Vucic, China is one of the best friends of Serbia. Vucic, Serbian politicians and media even coined an affectionate moniker for Sino – Serbian relations – “Friendship of Steel”. Chinese state – owned enterprises control key industries in Serbia, such as copper mines and steel mills. As reported by “China Regional Snapshot Project”, led by US House of Representatives Foreign Affairs Committee, 70% of Chinese investments in Western Balkans are in Serbia.

Serbia and China signed a free – trade agreement in October 2023. The agreement, as reported by Radio Free Europe, covers 10.412 products from Serbia and 8.930 products from China. Vucic called the agreement “The Big Leap Ahead”, while Serbian Foreign Minister Dacic called it “historic”. Serbian Trade Minister Momirovic went the furthest – he labeled the free – trade agreement with China “the most important agreement signed in the last decades” and an “unique thing for whole Europe”.

According to the Sino – Serbian relations expert Stefan Vladisavljev, China by 2022 became one of the most significant economic and trade partners for Serbia, with Chinese investment in Serbia reaching the level of the combined investment of all European Union member states. According to data, the Chinese investment, helped by very active policy of Serbian Government to attract it, experienced a continued upward trend, even during the COVID-19 pandemic, when most of other economic activity decreased. Mining and automotive industry in Serbia are the most attractive targets for Chinese SOEs investing. Serbia is, of course, also a member of the Chinese “Belt and Road” initiative.

One of the main areas of cooperation between Serbia and China are telecommunications. In 2016, amidst US-led efforts to persuade allies and partners not to allow Chinese control over critical infrastructure (including telecommunications), Serbian state-owned telecommunications operator, Telekom Srbija, signed $150 million contract with Huawei for the development of fast internet and optical cables networks. More menacingly, Huawei provided more than a thousand security surveillance cameras that were installed in the streets of Serbian capital, Belgrade. These cameras are now used to, among other things, crack down on current protests of Serbian opposition against election irregularities.

Even after Trump Administration imposed sanctions on Huawei, Serbia continued cooperation with that company. In 2020, Serbian officials indicated that “there is no reason to halt cooperation with Huawei” and boasted that “Huawei is here to stay”. In addition to street cameras, Huawei now runs two “data-centers” in Serbia (Belgrade and Kragujevac), and is a designed contractor to create a national platform for development of artificial intelligence.

Huawei also expressed interest to build a 5G network in Serbia. It is true that Serbia signed the Washington Agreement with Kosovo in September 2020 (under auspices of former US President Trump) where it, among other things, committed not to allow Huawei to be a part of future Serbian 5G network. However, Vucic lied to Trump and Serbian officials have a different interpretation of that clause in the agreement – as reported by Radio Free Europe, Serbian Prime Minister, Ana Brnabic, explained that “Serbian officials and Huawei discussed the Washington agreement” and came to conclusion that “Serbia must have an open and transparent tender process for all its partners (including Huawei) when the time comes for development of 5G network”. According to Serbian officials, the start of 5G development in Serbia will happen this year.

The situation is clear. Serbia under Vucic launders Russian money, helps Putin evade sanctions and increases economic cooperation with Russia despite its brutal aggression against Ukraine. Serbia is also actively improving relations and wants to sign a free – trade agreement with Iran (yes, the same Iran that controls Hamas and Houthi rebels who attack Red Sea shipping lanes). Moreover, there is a strong probability that Serbia purchases weaponry, including drones, from Iran. Vucic has lied to successive US administrations and steered his country into a “steel friendship” with China to a degree that Serbia serves as a main hub for Chinese investment and influence in the Balkans. Chinese state – owned companies control mining industries, telecommunications, steel mills and cameras that Vucic uses to control its citizens.

Having that in mind, British Foreign Secretary’s frustration with Serbia shouldn’t surprise anyone. He is not alone – the ever – increasing number of decision – making voices from both sides of the Atlantic Ocean supporting more sticks and less carrots towards Vucic gives hope that the US/EU appeasement policy towards Serbia might change soon. The recently – announced, US – approved sale of Javelin anti – tank missiles to Kosovo further reinforces that hope.

However, the sixty four thousand dollar question for some politicians and diplomats, such as President of France Emmanuel Macron, current Montenegrin Minister of Defense Dragan Krapovic, US Ambassador to Serbia Christopher Hill (appointed by President Biden),  EU Parliament Rapporteur for Serbia Vladimir Bilcik, former Trump’s Special Envoy for Western Balkans Richard Grenell, EU Neighborhood and Enlargement Commissioner Oliver Varhelyi and others is – how exactly can an authoritarian regime that busses people from other countries to rig elections and kidnaps opposition leaders from streets and sends them to ICUs while being hell-bent on being the closest political, security and economic partner of anti – democracy Russia – China – Iran axis still be considered a trusted partner, a free and fair election provider and a legitimate EU membership candidate?