In 2022, foreign investments amounted to over 4 billion euros, but this sum makes up only five percent of Serbia’s gross domestic product, while every fourth Serbian employee works for a foreign company.
Most investments in Serbia come from the European Union, the National Bank of Serbia’s data show. Among foreign-owned companies that opened in Serbia in 2022, a third are Russian-owned, which is 13 times more than in 2021. European companies are responsible for 70 percent of foreign direct investments in the country in the past decade, according to data from the Delegation of the European Union in Serbia from 2020.
“Serbian economy is dependent on foreign investments. We’ve seen how policymakers are almost blackmailing us into believing that the West will withdraw investments, but they themselves create an environment in which they make themselves dependent because they have not stimulated the domestic economy for the past 20 years. The withdrawal of foreign capital would have a negative impact on consumption, income and gross social product, but the economy would not totally collapse,” says Uroš Delević, an international economics professor at the University of London, for BBC Serbia.
“The state should stimulate those high-tech investments that require a more qualified workforce and have better equipment, which results in greater export potential and higher wages,” says the economist Saša Đogović and adds:
“Unlike those investments, labour-intensive investments such as those made in the leather, shoe or textile industries that require cheaper workforce, are not more technologically challenging and do not bring higher added value”.
Foreign investors invested the most in the industry of plant, animal and mineral raw materials processing – about 43.5 percent of all investments made, according to the NBS data.
Investments affect the country’s gross social product because its total includes everything produced by domestic and foreign companies on the territory of a country.
The share of total investments in Serbia’s GDP is still below the recommended level – about 22 percent, of which only 5% percent are foreign investments. In Serbia, foreign investments are seen as a replacement for the domestic economy, Delević points out, and not as an addition to it.
Đogović insists that “subsidies are the main mechanism in Serbia for attracting foreign investors” and goes on to say: “Subsidies may be suitable for those who want to invest, but the question is how suitable they are for the host country which doesn’t have clearly defined goals and criteria to support those investments. I don’t see Serbia having clearly defined goals. It turns out that subsidies have a positive effect only on the company to which they are granted because such company usually uses cheap labour and the capital it earns is distributed with the parent company,” he adds. In addition to a greater benefit for the company than for the state, subsidies do not bring a lasting solution to unemployment in local areas. Delević notes that new companies from abroad mostly give jobs to workers from defunct state enterprises, which does not increase employment in the place of investment.
The Serbian government has recently announced that it plans to increase subsidies for attracting foreign investments in 2023 from 17 to 23 billion dinars.
What if foreign investors withdraw?
The President of Serbia, Aleksandar Vučić, often in his addresses to the public proudly emphasized the data on the level of foreign investments in the Serbian economy. He was no less emotional when he spoke about the possibility of one of the key pillars of Serbian economic policy collapsing due to the issue of relations between Serbia and Kosovo. Speaking about the Franco-German proposal for solving the Kosovo issue, Vučić said that, if Belgrade rejects that plan, it may face the halt and then the withdrawal of investments from abroad. “They made a profit in Russia as well, so they left the country in 15 days. And the Germans in Serbia employ 80,000 people, there will be 100,000 by the end of the year. “We now have 8.2 billion euros in mutual trade with Germany, and it was slightly more than two billion when I became prime minister.” Salaries and pensions are paid from that,” said Vučić. European companies are responsible for 70 percent of foreign direct investments in the country in the past decade, according to data from the Delegation of the European Union in Serbia from 2020. “Serbian economy is dependent on foreign investments, policymakers blackmail us that the West will withdraw investments, but they themselves create an environment in which we are dependent, because they have not stimulated the domestic economy for 20 years. “The withdrawal of foreign capital would have a negative impact on consumption, income, gross social product, but there would not be a total collapse of the economy,” claims Uroš Delević, professor of international economics at the University of London, for the BBC in Serbian.
(BBC Serbia, 26.01.2023)
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