The Serbian government gave 2.2 million euro worth of subsidies to the Austrian fruit juice producer, Rauch to employ 30 people in its factory in Koceljeva.
Foreign investment subsidy policy has been criticized for a long time, almost since the introduction of this practice more than 10 years ago, but recently the World Bank has said that their effectiveness is declining and a different model should be implemented in Serbia to attract new investments.
In January this year, the Serbian government approved two subsidies – 6.4 million euro to the Finnish cable company PKC to expand the capacity of its Smederevo factory and 2.2 million euro to Rauch for expanding its juice factory in Koceljeva.
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In the first case, the company’s total investment will amount to 20 million euro and by 2023, PKC should employ 1,200 people.
In the second case, the value of the investment is just over 10 million euro and the investor is obliged to employ only 30 people by 2021. This is probably the largest subsidy per employee granted so far, since, in the end, the Serbian government would end up paying about 73,000 euro per employee in Rauch’s factory.
The Austrian fruit juice producer, which bought the fruit processing company Voćar in 2006, has to pay 406,431 euro in salaries over the next two years, i.e. which adds to an average monthly salary of 564 euro, although it is not clear from the contract whether these figures are net or gross.
The investor only has a contractual obligation to pay the workers at least 20% over the minimum wage, as well as, five years after the completion of the investment and not to reduce the total number of employees below 248, as initially planned.
The State will disburse the funds in three tranches over the next three years and 55% in 2022, after the investor has provided proof of investment and hired the 30 workers.
Is a 2.2 million euro in incentives too much to hire 30 people? The professor at the Faculty of Economics in Belgrade, Milorad Filipović, thinks so.
“It seems to me that we have abandoned all criteria and standards. There is no economic logic for such a subsidy, because with 2.2 million euro the state could build a factory that would employ between 50 and 100 workers. There were several closed factories in Koceljeva, so they could invest in rebuilding some of them. Moreover, is this investment really necessary when we have so many local juice producers? Anyway, there is no serious progress and sustainable development without the maximum involvement of local minds and business,” says Filipović.
Foreign direct investments don’t have a great effect on the rest of the economy and are often heavily subsidized by the state, Filipović says and adds that foreign investments are necessary, but only as an initial driving force to kick off the national economy.
This post is also available in: Italiano