The Transition Report by European Bank for Reconstruction and Development is a fundamental tool to understand the industrial policies in the countries where EBRD operates and beyond. The edition 2025 put a strong emphasis on the comeback of public policies as a way to effectively address market failures. On the other hand, many industrial policies are more focused on protecting specific local interests than supporting a more sustainable business environment. Even if the growing public demand for larger State solicits more equality, less corruption, more focus on dynamic firms, less protection for ineffective state-owned companies, often the policy-makers use industrial policies as a promotional tool toward various stakeholders and not as a way to improve the business and social environment. Putting the industrial policies on the right track for sustainable growth is one of the aims of EBRD, thanks also to its experience in monitoring the implementation of many public policies, from Eastern Europe to Central Asia countries. Also in Serbia, the industrial policies are on the surge, with many similarities and specific differencies in comparison with the other countries analysed in the Report. We have asked Cevat Giray Aksoy, Senior Research Economist in the Office of the Chief Economist at European Bank for Reconstruction and Development in London, to delve into some important points of the Report, especially about the economic and social challenges Serbia is facing.
How can Serbia shift away from low-wage, labour-intensive foreign investments towards more productive services?
The initial post-transition model, which centred on attracting labour-intensive FDI to reduce unemployment, has largely run its course. With unemployment now at record lows and wages rising steadily, the challenge is to move up the value chain and pivot towards high-productivity services. This shift requires rethinking the focus of investment promotion, moving away from large-scale manufacturing assembly lines toward knowledge-intensive service sectors, particularly in ICT and business services. It also means removing barriers to trade in services and aligning data governance with international norms, which are increasingly necessary for cross-border service delivery. Support for domestic firms, especially younger and faster-growing ones, needs to be more targeted, tailored not just to firm size, but to innovation and growth potential. Educational reforms, especially in vocational and tertiary education, must also be aligned with the skills profile of a services-oriented economy. Without these shifts, productivity growth risks stalling just as external competitive pressures intensify.
Key priorities for Serbia in 2025 as defined in the Transition Report
• The reform agenda under the Reform and Growth Facility was approved in October 2024 by the European Commission. Reforms will focus on the rule of law and other fundamentals, governance, the digital and green transitions, human capital development and the business
environment.
• Further State Owned Enterprises governance reforms are key to avoiding future fiscal risks. An ongoing corporate governance programme in the state-owned electricity production company, Elektroprivreda Srbije (EPS), is essential for the successful restructuring of the company. Governance reforms in other SOEs, such as the railways, should also be accelerated, particularly considering the significant
investments undertaken, funded by international loans and backed by sovereign guarantees.
• The authorities should continue to decarbonise the energy sector. This can be done by scaling up renewables through auctions and increasing the energy efficiency of buildings, including by way of a switch to consumption-based billing.
How is it possible to implement industrial policies without a strong institutional framework? How to improve the administrative capacity of these countries?
It is certainly more challenging to implement industrial policies effectively in contexts with limited institutional capacity, but not impossible. As highlighted in the Transition Report, countries in such settings tend to rely on less costly and more distortionary tools—such as export restrictions—precisely because these are administratively easier to manage. However, this makes it all the more important to clearly define objectives, limit the scope of interventions, and create mechanisms for phasing in policies gradually. One way to improve implementation is to focus on projects that fall within the jurisdiction of a single ministry and to build dedicated units that can oversee and coordinate such initiatives. Over the medium term, administrative capacity can be enhanced through investments in digitalisation, targeted training, and attracting younger talent into the civil service—especially through competitive and transparent recruitment. There is also a role for external technical support, particularly from international partners such as the EBRD, in helping to build the institutional foundations needed for more effective industrial policy design and delivery.
How can countries manage the ongoing transition towards a green, regionally inclusive, and AI-driven economy while still completing the first transition to a market economy?
What we are seeing is a transition within the transition. Countries in the EBRD regions are still working to consolidate the foundations of a market economy, while simultaneously being called upon to respond to emerging priorities like climate adaptation, digital transformation, and regional equity. Managing this process requires combining foundational reforms with more forward-looking industrial and innovation policies. In practice, this means strengthening human capital and infrastructure, liberalising trade in services, and promoting digital readiness, while also being strategic about where and how the state intervenes. Policies that promote innovation and green technologies must be backed by clear prioritisation, strong coordination across ministries, and mechanisms to ensure policy coherence.
What public policies would you propose to sustain growth in Serbia’s ICT export sector given recent pressures on workforce availability and external demand?
Serbia’s ICT sector has been one of the strongest performers in the region, managing to grow rapidly. Yet, as the sector matures, new challenges are emerging—skills shortages, the absorption of a large influx of foreign tech workers, and external shocks such as the European economic slowdown. In this context, there is scope for more proactive policy engagement. Expanding the domestic supply of tech talent through stronger STEM education and vocational training is essential. At the same time, Serbia could take steps to retain and attract high-skilled workers, including foreign professionals, by streamlining visa regimes and supporting relocation. Targeted support for startups and high-growth firms—through access to finance or mentorship—could help sustain the sector’s dynamism. The broader point is that as the sector becomes more sophisticated, so too must the policy architecture underpinning it.
Macroeconomic developments in Serbia by EBRD data
Real economic activity is accelerating. After 2.6 per cent real growth in 2022, consistent with the adverse global macroeconomic environment, and an acceleration to 3.8 in 2023, according to newly revised GDP data, real GDP growth picked up further to 3.9 per cent year on year in the first three quarters of 2024 (this figure may also be revised in line with the new methodology). The greatest contributions came from services, predominantly retail trade, catering and tourism, and construction.
On the expenditure side, growth was driven by domestic demand – namely, household consumption and fixed investment – while net exports made a negative contribution due to higher growth in service imports, particularly tourism and transport, in line with easing inflation and the recovery in domestic demand. Higher import growth, along with a decrease in remittance inflows and government transfers in the first three quarters of the year, were reflected in a current account deficit of more than €3.3 billion, four times higher than the same period in 2023. Net foreign direct investment inflows remained strong at €3.6 billion in the first three quarters of 2024.
Inflationary pressures are easing, although more slowly than in Serbia’s peers. Average inflation fell from 12.4 per cent in 2023 to 4.8 per cent in the first nine months of 2024. The authorities have employed monetary and fiscal policy measures to support the economy in light of still relatively high inflation. Monetary policy shows signs of easing, with the policy rate declining slightly from its peak of 6.5 per cent to 5.75 per cent in September 2024, where it remained until November.
Real GDP growth is set to pick up in the near term. Economic growth is forecast to be at its medium-term potential in the short term, at 3.8 per cent in 2024 and 4 per cent in 2025, in line with the expected global recovery. Nevertheless, the global tensions about tariffs, the low growth in EU, the social protests in the country will probably reduce the forecasts about GDP, exports, and FDIs.
How can Serbia reduce the widening regional disparities between Belgrade and the rest of the country?
Serbia’s growth over the past decade has been spatially uneven, with Belgrade emerging as a magnet for younger generations and economic activity, while many smaller towns and rural areas face. Addressing these disparities will require a more place-sensitive approach to policy. Special economic zones and other place-based instruments can help stimulate local economic activity, but only if they are aligned with local conditions—such as skill availability, infrastructure, and connectivity. Improving transport and digital links between lagging regions and urban centres is critical, as is ensuring that national policies—on tax, education, or business support—do not inadvertently reinforce existing geographic inequalities. Ultimately, rebalancing the spatial distribution of economic opportunity is not just a matter of equity—it is essential for long-term national cohesion and sustainable growth.
Cevat Giray Aksoy is a Senior Research Economist in the Office of the Chief Economist at European Bank for Reconstruction and Development in London and Assistant Professor of Economics at King’s College London, Department of Political Economy. He is also a Research Fellow at London School of Economics and Research Associate at IZA Institute of Labor Economics. His current research focuses on forced migration (effects on host communities and self-selection of refugees), the political economy of trust (confidence in leaders and governments, civic values, and attitudes towards democratic institutions) and economic inclusion (earnings inequalities and access to banking services).
His research has been covered by over 100 media outlets, including BBC, Bloomberg, Business Insider, Financial Times, Forbes, Fortune Magazine, Harvard Business Review, Mirror, Reuters, The Daily Mail, The Independent, The New York Times, The Telegraph, The Times, Quartz, Vox, Wall Street Journal, Washington Post, and World Economic Forum.
He is the recipient of the Young Researcher Award from the Association of British Turkish Academics and was selected as a Leader of Tomorrow by The St. Gallen Foundation. He also occasionally contributes to Pocket Economics podcasts and write for GALLUP Blog, LSE Business Review, and VOXEU.