NOVI SAD, Serbia and Montenegro - The last thing to die is hope - even in a country like Serbia ravaged by war and economic mismanagement.

Foreign investors may not exactly be queuing up to invest in Serbia, but a small number are starting to take a closer look at the Balkan country, which is preparing to start talks with the European Union on closer economic and political ties.

"Political stability, the dismantling of bureaucratic hurdles and a corruption-free functioning justice system are necessary in order to boost investor interest," the German ambassador to Belgrade, Andreas Zobel, told journalists in Novi Sad recently.

So that Serbia can one day claim to be more than just the world's largest exporter of raspberries, the German state enterprise for technical cooperation (GTZ) has founded Vojvodina Investment Promotion Fund (VIP) in the semi-autonomous Serbian province.

The VIP, whose board of directors are all academics ranging in age from 26 to 30 years, encourages foreign direct investment in Vojvodina by offering support to would-be investors.

One of the region's biggest foreign investors, 82-year-old German furniture mogul and philanthropist Rudolf Walther, has made his home in the city of Subotica.

The furniture group Moebel-Walther founded by the Walther who hails from the central German state of Hesse, is reported to have invested millions in buying up Serbian land on which to build and rent out houses.

Inflation has soared to 13 per cent on the back of strong economic growth, but unemployment in Serbia this year is expected to exceed 30 per cent.

"If investors send us a request, they receive an answer within 24 hours," says the mayor of Zrenjanin city, Goran Knezevic.

But Istvan Pasztor, the provincial minister responsible for privatization, entrepreneurship and SMEs, admits: "There have been fewer foreign companies than we had hoped for."

Miodrag Mijic, the Nova Sad director of Telsonic, a subsidiary of Swiss ultrasonic welding equipment manufacturer Ultrasonics, complains: "Trucks delivering raw materials from Switzerland or Germany need only one day to reach Serbia but then they get stuck at custom for three or four days.

"We need new ideas to be implemented, otherwise the country will go to the ground," adds the 56-year-old Serb who spent several decades living in Germany.

Another issue concerns whether Serbia's well-educated youth will continue to leave as in previous years or will now remain at home.

Andre Sislis, a telecommunications student in the provincial capital, says: "I enjoy studying in Novi Sad and will stay if I can find a job, but foreign competition in the IT industry is so intense, students here with the right qualifications don't need to hide out here."

The 23-year-old student shows little interest in politics. "I hope the corruption ends some day," he says, adding if things do not work out for him in Serbia, he will emigrate to Germany or Canada.

"We need high-tech firms. The old economy is dead or dying," urges Vojin Senk, 57, informatics professor at Novi Sad University.

Liljiana Ilic, head of the Serbian subsidiary of Munich-based IT firm Zesium mobile GmbH, says Serbia's poor image abroad is one of the main reasons for the lack of foreign investment.

"There's been some progress in recent years. The main priority must be to start negotiations with the E.U. on membership," she said.

Meanwhile, several German and Austrian companies are targeting their investment at free trade zones, where they can manufacture tax- and duty free.

Siemens companies Ableger, Flender and Loher are collaborating on a project in Subotica to manufacture wind-power generators.

"Workers earn on average 200 euros net per month with us, on top of which we pay social contributions and travel costs," says director Istvan Sekula.

C 2005 Khaleej Times All Rights Reserved.