FDI in Serbia: How do they benefit economy and employment?

Most of economy theorists would argue that Serbia did not have much luck with foreign investments because, in certain cases, we gave more than we received, while most of the companies that suffered badly in transition say that paying out regular salaries is better than paying none.

Since the beginning of this year, contracts on 11 investments have been signed which will result in 4,500  new jobs – said the president of the Serbian Chamber of Commerce, Marko Cadez at the presentation of the newest issue of Macroeconomic Analyses and Trends (MAT) magazine.

He also said that Serbian authorities have been negotiating with foreign companies about 53 new investment projects that should bring a total of 1.3 billion EUR worth of investments and 30,000 new jobs.

According to the UNCTAD data which was published in the 2016 World Investment Report, the total value of FDIs in Serbia was in line with the global trends. Although FDIs in Serbia have dropped by 2% relative to the year before, i.e. from $2.34 billion to $2.29 billion which still positions our country in the second place in the region, after Romania.

The editor of the Makroekonomija website, Miroslav Zdravkovic says that, considering the value of last year’s FDIs, Serbia ranked 64th in the world with the investment outflow reduced by 8.9%, from $1.59 billion to $1.45 billion.

Economy experts point out that the stable FDI influx is absolutely a must if the Serbian economy were to record a stable, long-term growth, and that this influx has to be at least 1.6 billion EUR. However, some experts claim that the many effects of FDIs in the country are not that positive as it seems.

For instance, in 2016, foreign investors drastically increased the so-called intercompany borrowing by 42%, compared to 2015, i.e. to 737 million EUR. The main reason for these loans, as economy experts say, is tax avoidance. When a company is repaying a loan, in bookkeeping that is registered as an expense and it is not taxed.

“They (investors) are avoiding to pay profit tax, pay out minimum wages, are using huge state subsidies and are severely breaching workers’ rights; the very rights they need to strictly adhere to in their countries of origin”, says a small shareholders consultant, Branko Pavlovic.

Economist Mladjen Kovacevic also says that the importance of FDIs is exaggerated. There are nine foreign companies among the top ten exporters in our country, and all of them also import substantially so their added value is pretty low. When you add to this fact that they transfer most of their profits abroad, usually to their HQ, the effect of their investments in Serbia could be debated – Kovacevic says. 

A total of 11 billion dinars was set aside in the Serbian budget for subsidies in 2017. In the period from  April 2014 to December 2016, the state allocated 156.72 million EUR of financial assistance to 40 projects worth 637 million EUR.

A month ago, certain media reported, citing the data collated by the National Employment Office, that almost ¾ of the workers employed by the companies that had received state subsidies were fired once the subsidies expired, in the period from 2011 to 2013.

Until the state authorities release transparent data about the effects of the FDIs made so far, the media will continue to speculate.

(Vesti Online, 09.07.2017)



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One Reply to “FDI in Serbia: How do they benefit economy and employment?”

  1. jj says:

    The amount of subsidies the Serbian government provides should be subtracted from the FDI total, as the subsidy amount essentially cancels out around half the investment by giving Serbian money (or taking on debt) back to these companies.
    And that 3/4 of the workers are fired once the subsidies are expired is quite bad, and shows the companies are really only employing 1/4 of the workers in the longer term. The Serbian government is paying the workers salaries, not the foreign countries for all the years of the subsidies.
    It would have probably been better if Serbia invested directly in Serbia with its own companies and start-ups. All the money set aside for foreign companies could have created some healthy companies in Serbia – and/or the money could have boosted domestic companies.

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