More focus on capital-intensive instead of labour-intensive investments

By amending the Regulation on determining the criteria for awarding incentives to attract direct investments, the state raised the threshold for minimum investments, and the division of local self-governments according to the level of development was abolished in favour of five regions.

Economist and director of LIBEK, Mihailo Gajić, say that the amendments to the regulation will not lead to major changes in the policy of subsidizing investments, but he expects that part of the investors will still be directed towards more capital-intensive projects.

With the changes, the minimum threshold for an investment project to receive state subsidies was raised from 100,000 to 300,000 euros, but Gajić believes that this is not too high, considering the price increases in the construction sector in recent years, as well as wage growth.

According to Gajić, raising the minimum threshold for state subsidies, including the fact that in the future, investors will receive a maximum of 2,000 to 5,000 euros per worker instead of 7,000 euros, can still have a certain impact and that is to redirect part of the investors from labour-intensive to more capital-intensive projects.

“It is one thing to subsidize labour-intensive projects in 2012, when the unemployment rate was between 22 and 25 percent. In a situation of abundant workforce and low wages, it is logical to support the creation of as many jobs as possible, in order to employ as many people as possible. Today, however, when the unemployment rate is around 9.4 percent, and it is difficult to find qualified workers in certain industries, the question arises whether we should continue subsidizing the creation of new jobs or support industries that employ fewer people, but bring more capital and have higher wages,” explains Gajić.

Although he believes that focusing on more capital-intensive investments was one of the Serbian government’s intentions when amending the subsidies regulation, he points out that a bad policy of subsidizing individual companies still remains in place instead of the government working to improve the general tax and regulatory environment.

Gajić is also not convinced that cancelling the division of local governments according to the development level and splitting Serbia into five regions will have a serious effect, given that the companies that received the biggest subsidies usually open their branches either in and around Belgrade and in Vojvodina, especially when it comes to suppliers of the automotive industry.

(, 26.05.2023)

This post is also available in: Italiano

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