Belgrade - Serbia and the Italian carmaker Fiat on Monday signed a joint-venture deal expected to bring almost 1 billion euros (1.3 billion dollars) in investment and revive the moribund Serbian car industry. 

Fiat would pour 700 million euros and Serbia another 200 million euros into the Zastava factory in Kragujevac, which once made the infamous Yugo car. 

Fiat was slated to take a 67-per cent stake in the plant 110 kilometres south of Belgrade and raise output to 200,000 small, A-segment cars in 2010, most of them for export. Serbia's government would to keep the remaining stake for an unspecified period. 

The deal would later involve the expansion of the production bus parts with Iveco cargo vehicles and Magneti Marelli, the maker of auto components, through two more joint ventures. 

Serbian officials say the investment would create some 5,000 jobs in the Kragujevac area, which was hard-hit when the former Yugoslavia disintegrated in 1991, as well as force infrastructural development worth tens of thousands of euros. 

Eager to attract Fiat, Kragujevac has released the new venture from all local taxes for the next 10 years and pledged free land for any expansion project. 

The new firm would replace the Zastava car factory, a monopolist which sold tens of thousands of units annually before the breakup of Yugoslavia in 1991. 

It also exported a few hundred thousand units to the United States in the late 1980s, in what was billed as the "deal of the century" in Yugoslavia. 

The deal petered out quickly and was as quickly forgotten at home - however, Yugo's reputation as one of the worst cars in history has survived to today in the US. 

The factory has been in the doldrums over since, surviving on aid from the government while barely assembling a few thousand low- quality vehicles such as the Yugo, which is largely unchanged since it was presented as the domestic "national car" in 1981. 

The recession in Zastava, by far the largest employer in central Serbia, badly depressed Kragujevac, a town with a population of 175,000, which in the 1950s was the "industrial motor" of Serbia and Yugoslavia. 

The announcement of Fiat's investment in Zastava has stirred hopes of a revival of the town, where the price of luxurious residences, reportedly sought for Italian experts, has reportedly soared. (dpa)