Faced with the economic crisis in Germany and other European economies, as well as the expiration of contractual obligations to the state regarding subsidies, some foreign companies are planning to shut down factories or reduce their business operations in Serbia. As a result, several thousand workers and their families will be left without income by the end of the year.
The Italian company Benetton has officially announced that it will close its factory in Niš at the end of April, leaving around 950 workers unemployed. By the end of 2025, after 17 years of operating in Serbia, the German car parts manufacturer Dräxlmaier will shut down its factory in Zrenjanin, where as many as 2,000 people have been employed. Due to a reduction in business volume, the factory of the Chinese (formerly American) company Johnson Electric in Niš is planning to lay off 350 workers.
The Irish-American company Aptiv, which supplies its products to German automotive giants Mercedes and Volkswagen, has offered its employees in Leskovac the option of a voluntary termination of employment contracts, with severance pay of 80,000 dinars per year of service. Aptiv opened its Leskovac factory in 2018, employing as many as 5,000 workers at one point. However, the current workforce stands at around 3,000, as nearly all fixed-term employees had already been dismissed.
The wrong model comes at a cost
A voluntary redundancy scheme with severance payments of between 350,000 and 400,000 dinars has also been offered by the South Korean company Yura Corporation in Leskovac. Experts familiar with both domestic and global economic trends predict that such cases will become increasingly common in the coming period – not only due to economic crises and global instability but perhaps even more so due to Serbia’s flawed model of attracting foreign investment.
A common thread among most foreign companies that have set up in Serbia over the past two and a half decades – some of which have already left, while others are preparing to follow suit – is that they received substantial state subsidies when opening their factories, from Horgoš in the north to Merdare in the south. Dräxlmaier was granted nearly two million euros, Benetton around 1.5 million euros, Aptiv an astonishing 25.5 million euros, while Yura Corporation – which operates two factories in Niš and one each in Leskovac and Rača Kragujevačka – received a subsidy of 10,000 euros for every new job created. In just the past year, the state approved subsidies worth 93 million euros for 54 companies, mostly foreign ones.
Serbian trade unions say they are powerless to prevent the mass layoffs planned by foreign employers – at least in cases where the companies are not leaving the country entirely but are merely reducing their workforce due to allegedly declining business activity or the expiration of state incentive contracts.
The president of the Association of Free and Independent Trade Unions (ASNS), Ranka Savić, argues that protecting workers in foreign-owned factories that have announced layoffs is extremely difficult. In the current situation, she says, unions can only fight for the best possible severance packages, which “must be higher than those prescribed by law.” ASNS has been warning for years that an economic policy based solely on foreign investment could lead to such scenarios, as companies can easily leave the country when crises and market disruptions occur. The withdrawal of foreign companies will become even more frequent in the future as subsidies dry up, and also because Serbian workers are increasingly unwilling to accept being cheap labour, Savić told Radar.
Packing their bags as soon as subsidies run out
Duško Vuković, vice president of the Confederation of Autonomous Trade Unions of Serbia, points out that the state clearly has no response to the worrying trend of foreign investors leaving, which is leaving – or will soon leave – large numbers of people unemployed.
“There is no guarantee fund through which the state could provide financial security to surplus workers while they seek new jobs, or from which they could receive the wages that their employers failed to pay them. At the same time, by abolishing employer contributions for unemployment benefits, the government has reduced inflows into the National Employment Service fund, thereby limiting opportunities for retraining and further education for workers who lose their jobs,” Vuković explained.
He believes that the country urgently needs a new industrial and economic policy that, in the context of shifting global relations – many of which are protectionist – would safeguard domestic industries and the economy. Such a policy, he argues, would ensure that the interests and living standards of citizens, as well as the competitiveness of domestic employers, are better protected.
One of the first companies to withdraw was the well-known Italian footwear manufacturer Geox. As soon as its incentive contract expired, Geox shut down its factory in Vranje in July 2021, leaving over 1,200 locals unemployed. Bringing Geox to Serbia had cost taxpayers nearly 12 million euros. Just five years before saying “goodbye,” then-Prime Minister Aleksandar Vučić inaugurated Geox’s new factory on 31 January 2016, telling the people of Vranje that it was time for Serbia to change its attitude towards its poorest citizens. He also told them that when they walked through global metropolises, they would see their own handiwork displayed in shop windows. What he failed to explain was how they would be able to afford such travel on the 300-euro salaries they were earning at the time. Nor did he inform them that the state had paid Geox 9,000 euros for each of the 1,250 jobs created and granted an additional 100 million dinars for the development of construction land to build the footwear factory.
The arrival of Austria’s Gellinger Holding, which took over Mitros in Sremska Mitrovica in 2016, cost the state 5.8 million euros. By the end of 2023, the new owner had shut down the factory, leaving about 440 workers unemployed. In the meantime, Turkish company Jeansy also left Serbia, closing its Leskovac factory in the summer of 2023 and laying off 700 workers. Six months earlier, Bertex Textile abandoned 100 female workers in Kragujevac, despite having received 826,000 euros from the state under a contract that required it to employ 300 workers. Even less fortunate were the employees of furniture factories in Vranje and Sombor, whose employer, the Russian-owned Split company, abruptly decided to shut down both plants, as well as more than 30 furniture showrooms across Serbia, without any prior notice.
The Italian carmaker Fiat, now part of the multinational corporation Stellantis, also received generous subsidies, including tax exemptions and relief from contributions and other obligations. However, this did not stop the company from laying off around 2,500 workers in 2016 and 2022, albeit with a social programme. In this case, at least, the state retained a minority stake of 33 percent in the factory.
While the closure of certain production facilities and even entire factories is not unusual worldwide, the examples in Serbia provide clear evidence that the country’s economic development should not rely on the current model of attracting foreign investment – one that revolves around lavish subsidies, sometimes exceeding 10,000 euros per job created. This is particularly concerning in factories where workers earn little more than the legally guaranteed minimum wage. In extreme cases, some analysts suspect that this practice amounts to a form of “legalised corruption,” raising questions about whether others, aside from the employers, might also be profiting from such arrangements. These suspicions are reinforced by the fact that some of these contracts are kept from public scrutiny, classified as “business secrets.”
A particularly troubling issue is the poor reputation of some foreign companies operating in Serbia. Allegations have surfaced of employees being forced to wear nappies, workers being fired via text message, breaches of labour laws and strike regulations, bans on unionising, and labour inspectors being prevented from entering certain factories.
Another significant problem is that subsidies have been awarded indiscriminately. Generous incentives have been granted to companies in clothing and footwear manufacturing, meat processing, cable assembly, and similar industries—sectors that can easily relocate to another country. Additionally, automotive parts manufacturers are now facing difficulties, as reduced demand in Europe due to economic downturns has forced them to scale back production.
Foreign investors come and go, but domestic small and medium enterprises remain
To be fair, the current model of attracting foreign investors was not invented by Vučić and the Serbian Progressive Party (SNS). It was first introduced nearly two decades ago by the then-Minister of Economy Mlađan Dinkić, who justified it as a strategy to revitalise the Serbian industry. According to official data, between 2005 and 2016, Serbia subsidised foreign companies to create new jobs at a cost of 171 million euros. This figure does not include the value of construction land allocated for factories, infrastructure investments, or tax and contribution exemptions.
However, the real impact of these subsidies remains questionable. This issue was recently discussed at the Kopaonik Business Forum by Blagoje Paunović, the president of the Fiscal Council. He noted that in previous years, foreign investors were attracted primarily by cheap labour, easy access to natural resources, and low environmental standards. From 2017 to 2023, foreign direct investment in Serbia totalled 25 billion euros, but these funds were largely channelled into traditional sectors rather than technologically advanced industries that generate high added value. Paunović also warned that foreign direct investment in Serbia has been slowing down for years, with its share of GDP dropping from 7.4 percent in 2019 to 5.6 percent last year. An even greater concern is that foreign investors are increasingly withdrawing their profits from Serbia and reinvesting them elsewhere.
Regional Director of the European Bank for Reconstruction and Development (EBRD), Matteo Colangeli, also spoke at Kopaonik, stating that foreign investors come and go, but domestic small and medium-sized enterprises remain.
“Serbia has been very successful in attracting companies, often through various incentives. At this point, however, such incentives are no longer necessary, as Serbia now has good infrastructure, a strong engineering tradition, talented young people, and developing technology parks. Domestic investors should take advantage of this,” Colangeli emphasised. Whether they will or not remains to be seen.
What Serbia lacks, however – and what the EBRD director diplomatically omitted – is independent institutions that could guarantee equal business conditions for all investors, both foreign and domestic. These institutions would ensure fair treatment in the judicial system, timely issuance of construction, export, and other permits, and protection from various forms of extortion.
(Radar, 25.03.2025)
https://radar.nova.rs/ekonomija/strani-investitori-a-sad-adio/