Although the authorities have for years presented Serbia’s economic growth as the result of foreign investment inflows and major infrastructure projects, President Aleksandar Vučić has now said that the country must look for new sources of growth. Speaking at the opening of the 21st World Congress of Economists in Belgrade, he warned that the world is changing and that foreign investment will be less abundant than in the past.
Serbia, he said, will therefore need to identify new drivers of development in response to changes in the global economy and the slowdown in international investment flows.
He noted that countries are increasingly focusing on their own economic and national interests, reducing the scope for foreign investment inflows. He also stressed that Serbia must keep pace with innovative technologies and artificial intelligence, while paying particular attention to energy, water resources and productivity growth.
However, the question remains what these new sources of growth might be in practice. Economists have long warned that Serbia’s development has relied heavily on foreign direct investment, state subsidies and large-scale infrastructure projects, while the contribution of domestic industry, innovation and productivity has remained limited.
Has this model reached its limits, and can Serbia find more sustainable drivers of growth over the next decade?
Danilo Šuković, an economist and former member of the Anti-Corruption Council, told Insajder that the problem lies more in economic policy and the decisions made over the past years and decades than in the need for some externally imposed new growth model.
“If, over the years, we had pursued a development strategy and economic policy that prioritised the domestic private sector and export-oriented industries, we would not be facing this problem today,” Šuković said.
According to him, the focus instead was placed on foreign direct investment under conditions favourable to foreign investors, while domestic investors were, in many ways, disadvantaged. “As a result, the domestic private sector, which by definition should be the key driver of exports and an export-based economy, remains weak. When you lack a strong export sector, and you are a small country whose economy, by definition, should export around 60 per cent of its GDP in order to access sufficient demand, you inevitably run into a growth problem,” he explained.
Another factor that has contributed to the exhaustion of the existing growth model, according to Šuković, is excessive reliance on foreign direct investment while tolerating practices that should never have been accepted. “These foreign investors behave arrogantly. Workers in some of these companies cannot even establish trade unions, let alone fully exercise their rights. Environmental standards are often ignored as well. All of this has been overlooked for years, and now it is coming back to haunt us,” he said.
Šuković also identified Serbia’s long-standing exchange rate policy as another reason why the country is now searching for new growth drivers. “Another factor that has brought us to the point where we need new development paths and new incentives is the fact that for years and decades, Serbia has maintained a fixed exchange rate in conditions where it is no longer realistic. If the exchange rate is not realistic, export-oriented businesses cannot operate profitably,” he explained.
“If you export goods to the European Union while your costs keep rising and the exchange rate remains unchanged, losses become inevitable. Because of the inflation gap between Serbia and the EU, exporters lose competitiveness over time and eventually reach a point where exporting is no longer profitable.”
He believes that this policy has placed domestic exporters at a significant disadvantage and has made it difficult for many companies to survive in the market. “In my view, the exchange rate has crushed them. Instead of becoming the main pillar of economic development, they have remained marginal,” Šuković said.
He added that maintaining a strong dinar over the long term is impossible without a strong domestic economy: “You cannot keep a fixed exchange rate for so long and support it through foreign direct investment, tourism revenues and remittances from abroad. Those are all temporary solutions. A strong currency must be backed by a strong economy, because the exchange rate reflects the economic strength of a country.”
In his view, the exchange rate should reflect productivity differences between Serbia and EU countries to keep domestic businesses competitive.
“If Serbia cannot match the productivity and efficiency levels of the European Union, then the dinar must weaken against the euro so that our companies can remain competitive. If you fail to do that, you place them in an impossible position. That is exactly what we have done, and now we have to clean up the mess, which will not be easy.”
According to Šuković, the problem is further complicated by the declining importance of foreign investment as a growth engine. “Given the way foreign investors behave, and the fact that some are already beginning to withdraw, we are left without healthy investment capable of supporting economic development,” he said.
He argues that the current situation is not solely the result of global economic trends.
“It is easiest to blame global problems. Everyone is facing global challenges, but this is also the result of economic policy mistakes made over many years,” he concluded.
While Šuković sees the issue primarily as the result of misguided economic policies that weakened the domestic private sector and export industries, Jugoslav Ristić, former president of the Independent Trade Unions Association of Kragujevac, told Insajder that the core problem lies in a model based not only on foreign direct investment but also on cheap labour.
“That model has completely failed, and we are now witnessing its collapse. Companies that came because of subsidies and low labour costs are now leaving as wages have objectively and nominally increased. This shows just how flawed the model was. Around the world, there are still a billion people willing to work for five dollars a day. It was always a misguided approach. We wanted to create jobs, but first we shut down our own factories and abandoned our technologies, only to become dependent on foreign companies and, in the process, lose a degree of sovereignty,” Ristić said.
He believes one of the main obstacles to Serbia’s development is that foreign investors have long enjoyed more favourable treatment than domestic businesses, while the state neglected the development of local industry. “We attracted investors using low-productivity technologies based mainly on manual labour. These are the jobs we colloquially refer to as ‘cable winders’, where what is really being sold is cheap labour, with very little transfer of knowledge or technology. That kind of production offers no future,” he said.
Ristić argues that Serbia not only missed an opportunity to develop its domestic economy but also lost a significant share of the industrial capacity it once possessed during the transition period.
“The greatest value of any factory is its technology – its knowledge. Those factories certainly had problems, but they should have been improved rather than shut down. As a result, we have become heavily dependent on foreign investors.”
According to him, the bulk of state subsidies has been directed towards foreign companies, which then transfer their profits abroad. “We have now reached a point where Serbian workers no longer want to work for such low wages, so labour is being imported from abroad. It almost seems as though we developed the country for foreign workers,” Ristić said.
Asked whether there is a solution and a sustainable growth model, he replied that Serbia does not need to “reinvent the wheel”. “I am often criticised for looking too much towards the East, but I think there are models there that we can learn from. Without some form of state-owned industry – and we already have successful state-owned defence factories – it will be difficult to emerge from this crisis.”
He also stressed the importance of supporting domestic businesses. “Whatever their flaws, domestic entrepreneurs are not going anywhere. They will remain here and are tied to this country. Foreign companies come, and as soon as they find a cheaper location elsewhere, they leave. That is not a viable model and it ultimately leads to poverty. Competing through cheap labour, as we were discussing fifteen years ago, was always the wrong strategy because there will always be parts of the world where people work for far less money, for €200 or €300 a month.”
He noted that large parts of Asia continue to operate on such wage levels.
“If we want to live better lives and become more independent, we must change our economic strategy.”
“I firmly believe that only an economy based primarily on domestic businesses – while still welcoming foreign investors under the same rules that apply to everyone else – can gradually pull us out of this crisis. We once had a state-owned economy that effectively belonged to no one and was managed irresponsibly, especially after 5 October 2000.”
According to Ristić, only state-owned enterprises have an incentive to pay workers up to the limits of profitability, whereas private owners generally seek to minimise wages and maximise profits.
“That does not mean state-owned companies should spend recklessly and create losses. But perhaps we should take a closer look at how state-owned firms operate in China. They have entire conglomerates under state ownership that compete successfully in the market. However, if we want a functioning state sector, we first need a functioning state,” Jugoslav Ristić concluded in his interview with Insajder.
(Insajder, 24.06.2026)