Marko Čadež: “Despite the pandemic, I expect Serbia to get an investment grade rating by the end of the year”

“Manufacture of machinery and equipment, information technology and food processing will be the hubs of economic recovery of Serbia”, says to Serbian Monitor in this exclusive interview Marko Čadež, President of the Chamber of Commerce of Serbia (PKS, Privredna Komora Srbije) from 2014, who has been deeply involved in the elaboration of the economic policies the Government of Serbia adopted to cope with the impact of the COVID-19 pandemic. Čadež forecasts a strong recover of the Serbian economy in 2021 thanks to the macroeconomic stability,  and the new Smart Specialization Strategy to be launched in this year.  

At the beginning of the year, the economic forecasts saw a growth of Serbia at a rate not below 6%, driven especially by construction sector, tourism and foreign direct investments in manufacturing. The COVID-19 has changed radically the perspectives in all the countries of the world. How it affected and will affect Serbia?

The coronavirus epidemic, as an unprecedented global shock, have affected all industries in Serbia. Certain sectors have been nearly completely devastated, such as tourism, hospitality industry and passenger transport, because their operations were rendered practically impossible, due to the measures to stop the spreading of the infection. On the other side, a significant part of the manufacturing industry suffered due to the lack of production inputs (as a consequence of disorders in the global supply chain) and decreased international demand. However, certain sectors within the manufacturing industry saw a rise in demand, which were mainly those producing basic foodstuffs, household chemicals, medical and protective equipment.  

After nearly 50 days of the state of emergency, Serbia reopened its economy. We emphasise the importance of the economic support programme, adopted by the Government of the Republic of Serbia, in terms of fiscal benefits, direct payments to the private sector, as well as the access to favourable loans within the Development Fund of the Republic of Serbia and guarantee schemes agreed with commercial banks. By observing the official data, it is obvious that the economy of Serbia handled the initial strike of the crisis well, i.e. the employment was maintained, which was the primary goal of the Government’s measures.  According to the Survey on the Business Activity of Companies in the Republic of Serbia, which is conducted by the Chamber of Commerce and Industry of Serbia on a representative sample of around 900 companies, the vast majority of businesspeople do not plan to decrease the number of employees in the second quarter.

However, considering that the economy of Serbia is open and integrated in the global supply chain, the economic situation in the upcoming period will depend on the speed of the opening of the European economy, which is at the same time the key foreign trade partner to Serbia, as well as on the potential second wave of the epidemic late this year.

To fight the unemployment on the raise, many Western countries will link the allowance of State incentives with the obligation to bring back home factories located in cheap labor force countries like Serbia. Are you worrying about that and do you think the Serbian State will launch specific policies and incentives to retain these investments in the country?

The fact that at the time of the global crisis the credit rating agency “Standard and Poor’s“  confirmed the credit rating of Serbia to “BB+”  is of great significance for the domestic economy and an excellent signal to investors and partners from the world. There is a real chance to have Serbia’s credit rating improved by the end of the next year, which would make Serbia become the first Western Balkan country with the investment level, which, unlike the speculative level, leads to the readiness of investors to invest in the long run, particularly in the economic sectors of higher added value.

Owing to the very attractive investment support regime conducted by the Government, Serbia has gradually become the most significant destination for foreign direct investments. In 2019 only, total inflow of FDIs amounted to EUR 3.8 billion, mainly from the EU countries (around 70% of total FDIs), but there is an increasing share of investments from Asia.

During the Forum “Economy after pandemic” held on 29th of May, Mr Čadež has said that the Chamber of Commerce is proposing a new set of economic measures to be adopted by the Government during the coming weeks.

Some industries will be hit harder than others by the recession, the automotive industry among the first ones. Serbia relaunched its industrial development through a breakthrough agreement with Fiat which had driven in the country many other automotive companies. Which future you see for this industry in Serbia?

FCA Serbia (Fiat) has been several times in a row the leader in Serbia’s export. However, we hope that the investor will decide to manufacture new car models in Kragujevac, which would to a large extent contribute to our export structure in terms of larger share of higher added value products. On the other side, it should be noted that many components assembled in the car factory are imported from Italy. However, besides the automotive industry, cooperation can be established in other sectors of the metalworking industry, then chemical, food processing and textile industries, which are at the same time the holders of Serbia’s export. We want to see more Italian investments in Serbia, more technology transfers and greater foreign trade exchange.

The COVID-19 will probably rearrange the global value chains on a regional scale. Do you think this process will happen also in the Balkans. How the regional cooperation can be improved?

The coronavirus epidemic, which paralyzed the global economy in the first quarter of 2020, is a practical example of the “black swan” theory, i.e. an unexpected event having caused huge effects. The recovery of Serbia’s economy will to a large extent depend on economic situation in the key economic partner countries, primarily in the European Union and the region, as well as on the potential second epidemiological wave.

The Chamber of Commerce and Industry of Serbia is one of the initiators of the Chamber Investment Forum, which brings together the chambers of commerce in the region, and which promotes the economic activity. It should be noted that after the EU, the majority of its economic activities Serbia carries out in the region.

We highlight the importance of the CEFTA, as well as the conclusions that the economic activity should be further improved through the single market characterized by “four freedoms”, the free movement of people, goods, services and capital.

Could this global recession be an occasion to rethink the development model of Serbia, focusing more on innovative industries and less on labour intensive investments?

Taking into account the export-oriented growth model based on the application of modern technological standards and innovations, the Government of the Republic of Serbia is in the process of adopting a New Industrial Policy, which includes the Smart Specialization Strategy, with the emphasis on the manufacture of machinery and equipment, information technology and food processing industry.

The University of Belgrade takes the best position on the prestigious “Shanghai’s list of universities”, if compared with all other tertiary education institutions in the region.  The importance of faculties of engineering is particularly pointed out, especially when it comes to electrical engineering, machinery engineering, mathematics, physics and informatics.

Serbia is one of the main promoters of dual education within secondary schools in the region, with the idea to expand it to universities. In addition, Serbia has a comparative advantage in the field of information technology, and there are several technical and technological parks that connect the science and economy.

Why the entrepreneurs and global companies should bet on Serbia even during the global recession?

First and foremost, Serbia is the largest market in the Western Balkan region, if observed by population and territory. When it comes to the foreign trade, Serbia records a surplus with most countries in the region, due to its largest production potential. Serbia has the excellent geographic position at the crossroads of the Pan-European corridors, and its economy is characterized by the macroeconomic stability (the key indicators are very favourable).

The international financial institutions estimate that this year Serbia will record a GDP decline in the range of 2.5%-3.5%, which is at the global level, i.e. relatively more favourable in comparison with many comparable European countries. In addition, Serbia is foreseen to have a high growth in 2021 of 5.0-8.0%, which is more than enough to cover possible losses of the economy incurred this year.

However, it is encouraging that the Government’s estimate is that owing to larger investments in infrastructure works, the economic activity of Serbia could be revitalized by the end of the year, which would make an annual GDP growth rate more favourable than the international institutions estimate.

The credit rating agency “Standard and Poor’s“ confirmed the credit rating of Serbia to “BB+“, which, at the time of the global crisis, is of utmost importance for the national economy. There are good outlooks for further improvement of the credit rating in the next year, since the macroeconomic stability is maintained and that, in its structural sense, the economy is better prepared than it was during the 2008 global financial crisis.

Which areas of cooperation between Italy and Serbia you see to cope together with the effects of the global recession?

Italy is one of the most important economic partners to Serbia. In addition to their traditional relations, Italy is one of more significant investors in Serbia. The exchange between Italy and Serbia will be under pressure in the short run, as well as the entire economic system both in the region and Europe. We have mentioned a fruitful cooperation in the field of the automotive industry, and we hope that the conditions will become favourable very soon to resume our cooperation in all sectors that used to exist before the outbreak of the pandemic, including the air traffic and tourism.

Interview by Biagio Carrano

This post is also available in: Italiano

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