Competitive advantages and entrepreneurial initiative were enough for, in just a few years, the IT sector to emerge as one of the areas in which Serbia has something to offer internationally.
The IT sector in Serbia is becoming increasingly important: the value of IT services is constantly growing, as is the number of employees, and the quality is slowly changing with a greater participation of companies that do not only outsource to foreign clients. How much has the corona affected the business of this sector and what are the main obstacles to its development?
The importance of the IT industry is most noticeable through the growth of exports of these services. Only a decade ago, its value was almost negligible, and then began a steep growth. The value of exports of IT services soon exceeded the level of exports of most traditional industries. During the previous 5 years, the value of exports increased by 20-25% per year, which in those few years brought an increase of as much as 2.5 times.
IT has put Serbia on the world map as rarely any other products, except perhaps raspberries. Of course, this does not mean that everything is great in the IT sector – most of the exported services are outsourced to large foreign companies, while software solutions that are entirely the fruit of domestic companies still have a relatively modest share. This is slowly changing and there are good examples of companies such as Nutanix, Nordeus and others that have managed to fight for significant positions with their products and solutions worldwide. Also, some large multinational companies have opened their development centers in Serbia (such as Microsoft), but most of the IT sectors in Serbia are still based on a large number of small companies, entrepreneurs and freelancers.
Nobody knows for sure how many people are employed in the IT sector in Serbia. Estimates vary significantly – from only 6,000-7,000 (Vojvodina ICT cluster, 2015), through an estimate of 32,000 people, of which only 11,500 developers (StartIt, 2016), to as many as 47,000 developers (StartIt, 2019).
State statistics do not follow IT as such, but the international classification of employees, including the Information and Communication sector, where we should look for our employees in IT. These data are convenient because they are collected on an annual basis and we can compare them with data from statistics on exports of services – we see that the growth in the value of exports of services is accompanied by the growth of employees in this sector. But not everyone in the Information and Communication sector is employed in IT: there are journalists, PR officers, mobile operators and many others who perform similar activities.
In addition, the statistics here follow for which activity a company is registered and then observe all employees as employees in that sector. For example, developers working in banks to create and maintain e-banking are counted as employees in the Financial and Insurance sectors, just as a lawyer in EPS is counted in the Electricity Generation sector. Furthermore, we do not have information on how many people work through various online platforms from Serbia, such as UpWork, or how many of these people do something that we could define as IT, since there are various other jobs.
There is an additional problem: what do we calculate under the IT sector? Are they just developers who work directly on creating software, are they also engaged in similar professional jobs such as graphic design, sound processing and the like? Furthermore, should we add those who work directly with developers such as project managers, marketing people, or all others from support services working in IT companies (human resources, finance, etc.)?
Given that most people working in the IT sector can work from home, at least to a significantly higher extent than employees in more traditional industries, we could expect the IT sector to go through minor problems due to the corona virus pandemic. But that doesn’t seem to be the case – because if everything is fine on the supply side, it’s not necessarily on the demand side. In other words, it is true that a software company can organize its work processes in a better way, so that it works smoothly outside the office space, but that does not mean that companies that use its services will not reduce orders because their traffic has dropped.
As the data from the balance of payments show us, the export of IT services grew at the beginning of the year and in the first two months was higher by over 20% compared to the previous year. However, a decline followed in March, and during March, April and May, the level of exports for the first time in the last few years was actually lower than in the previous year. Only in June, there was a recovery and a higher level of exports than in 2019. The level of exports of IT services in the first 6 months of this year amounted to 700 million euros, which is certainly more than last year’s 675 million. Were it not for the corona, IT would probably have maintained its growth rates of 20% compared to the previous year, so exports would have amounted to around 810 million euros. Therefore, the crown has so far cost the IT sector about 100 million euros in lost exports, which is about 0.2% of GDP.
This boom in the development of the IT sector is not something that is specific only to Serbia – it is quite present in the surrounding countries, primarily Bulgaria, Croatia, Romania and Ukraine. This will also help us to more easily see what has contributed to the development of this sector. The most important things that catch the eye are the competitive prices and the quality of the workers.
Salaries of employees in Serbia and the listed countries are far lower than in developed countries in Western Europe or North America. For the salary of one good programmer in Germany, you can pay several of them in Belgrade or Bucharest. But that is not enough: your product must be of good quality. As much as we point out the numerous problems in the education sector in Serbia, we cannot deny that in some segments Serbia is not as bad as it seems to us – there is a tradition of education, at least one university on the Shanghai list, several good technical faculties (both public and private) where programmers are educated, the vast majority of students and graduates speak English well and so on. In some of these areas, Serbia is much closer to other European countries, which are much richer, than to Asian and African countries, which have the same level of GDP as us. In addition, with the development of various platforms on the Internet, knowledge has never been more accessible.
These competitive advantages and entrepreneurial initiative were enough for, in just a few years, the IT sector to emerge as one of the areas in which Serbia has something to offer internationally. It all somehow happened under the radar of the professional economic public, which by default was focused on agriculture as our development opportunity and on the policy of reindustrialization. Ignoring the state may not have been a bad thing because it also avoided bad attention – a large number of entrepreneurs in the industry will immediately complain about the new tax rules and the independence test as an example where the state’s attention actually made it difficult for the majority. There was also a bad measure of giving subsidies to foreign IT companies for employment. With a shortage of staff, this does not mean a larger number of employees, but their reallocation from smaller domestic companies to large multinationals that can offer better conditions and salaries precisely because of these subsidies.
If you want to make cars, you need a big factory, a huge number of expensive specialized machines (to make those 5,000 parts that go into one average car), you have to import a large number of components, then make the final product and export it by bad and slow rail, to wait for parts that have been waiting for you for a long time, etc. But if you make a website for a foreign client, you avoid most of these logistical problems that are immanent to doing business in Serbia. Also, you do not need loans for capital equipment – and loans in Serbia are significantly more expensive than in EU countries precisely because of the high business risk, so most banks do not want to work with business start-ups or small entrepreneurs. In such an environment, it is much easier to start a business for which you only need a good computer and fast internet. This does not mean that IT companies are completely relieved of the burden of bad domestic legislation – we only remember the Law on Foreign Exchange Operations which requires records of each individual inflow in foreign currency no matter how small – but only that this burden is relatively easier because the whole area is not so regulated, Talas reports.
