For years, economic experts have been demanding from the state authorities to analyse the effects of attracting foreign direct investments but the authorities have failed to provide a detailed answer.
Following the news that the Italian footwear manufacturer Geox has decided to leave Serbia and will probably relocate production to one of the neighbouring countries where it will probably be eligible to receive state subsidies and find an even cheaper workforce, we cannot help but wonder how many other foreign investors will follow suit and what are the real effects of state subsidies.
According to the contract signed with the Government of Serbia on October 8, 2012, Geox received a total of EUR 11.25 million (RSD 1.4 billion) from the state, i.e. a subsidy of EUR 9,000 per employee for an investment of EUR 15.8 million for launching production in Vranje. Geox also undertook to employ at least 1,250 people in the three years after signing the contract.
Geox (or Tehnik Development, as the company is registered in Serbia) launched production in January 2016. By late 2016, the company had a total of 1,278 workers, in 2017, it had 1,340, then the following year 1,269, in 2019, it had 1,283 and at the end of last year, it employed a total of 1,300 people.
The aforementioned state subsidies in the amount of 1.4 billion dinars do not include land which the Vranje authorities gave Geox free of charge to build the factory. The land was valued at 62.2 million dinars.
From 2016 to the end of 2020, based on the financial reports from the Serbian Business Registers Agency (APR), this company spent 3.8 billion dinars on the gross salaries, so the subsidy covered almost 40 percent of the total labour costs.
Also, in the past five years, the company paid 640 million dinars in taxes and payroll contributions and about 54.5 million dinars worth of property tax and other local taxes and fees.
Although the company recorded profit during four years of operations, except in 2020, Geox did not pay any income tax because they used the benefits of a tax credit. When all of this is added, it turns out that Geox got twice as many subsidies from the state than what it paid in state taxes in five years.
Milorad Filipović, a professor at the Faculty of Economics in Belgrade, says: “We are still left with a big problem of 1,200 people losing their jobs. Geox probably fulfilled all their investment obligations and is now relocating to some place with a better offer with Albania being mentioned as one of the options. The footwear industry cannot withstand high costs – they work with small margins and if the average salary in Geox Vranje was, let’s say, 500 euros, the company will eventually relocate where they will pay a salary of 400 euros,” Professor Filipović says.
This post is also available in: Italiano