What’s behind “the record” in attracting foreign direct investments?

Last year, just like in 2016, Serbia was a leader in attracting foreign direct investments in relation to the size of its economy, according to an analysis performed by the FDI Intelligence of the Financial Times. The analysis further states that owing to these investments, Serbia’s manufacturing industry is setting records.

“Automotive components, food and tobacco, textiles and real estate are the main sectors that attract foreign direct investments, and account for 54% of total investment projects in 2018,” says the analysis.

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However, the truth is also that, in the first seven months of this year, the manufacturing industry decreased by 1.4% on an annual basis, despite a strong growth of 6% in July, so the question to be asked is are so many foreign investments really a good thing or something is missing in Serbia.

In the first half of 2019, the foreign investment influx increased by 30% compared to the first half of last year, reaching 1.93 billion euro. According to Macroeconomic Analysis and Trends (MAT) magazine, direct investments were even higher than domestic, state and private investments in the first half of the year.

“The share of real estate investments in GDP is about 19.5% and is well below the level needed for stable economic growth. It would take at least 25% to guarantee this growth, the same that all the developing countries that emerged from the crisis have had. Foreign direct investments in the first half of the year were more than half of the total gross real estate capital. This means that local investments are insufficient. The ideal ratio would be for foreign direct investments to make up one-third of the total investments, with the rest coming from domestic sources,” said economist Stojan Stamenkovic.

He also questioned the structure of these investments as there was a decline in industrial production, while on the other hand, there was a large share of construction companies in gross value added.

“The question is: what are we investing in, what is the quality of those investments,” says Stamenkovic.

Ivan Nikolic, director of MAT, also agrees that foreign direct investments are usually made in sectors with lower added value and that that does not solve the problem of economic growth.

Ljubodrag Savic, professor at the Faculty of Economics in Belgrade, says he has no doubts about the figures reported by the Financial Times, but the question to ask is where those investments are going.

“Until 2009, investments were mainly made in services, finance, trade, transport, and this was not a good thing. Now, they are entering the industrial sector, but it would be nice if they were entering high technology sectors, where highly qualified people work, where actually sophisticated products, not components, are made and where wages are higher than average, not the minimum wage plus 20% as stipulated in agreements with foreign investors in Serbia. We cannot be satisfied with this, but the fact is that we also have no choice. We can accept investments in this way or we can refuse them, and in the latter case, the country’s growth would only be 1% per year. We should bear in mind that we are not a country with a solid technological base, and that we do not have a high respect for the law, the rule of law and low corruption,” said Savic, adding that the arrival of so many investments is not something to object to, but neither is it something to be proud of.

(Danas, 05.09.2019)




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