It seems that this is a plan, taking into account the statement of the President of Serbia, Aleksandar Vucic, that the smaller growth of the gross domestic product, due to the reduction of exports, because there is less demand from European countries due to the pandemic, can be compensated by large foreign investments.
“We are negotiating with a large number of foreign investors, mostly from Germany, but also from Japan and other countries,” he said, announcing the imminent start of construction of a car tire factory by the Japanese company Toyo Tires.
In the first eight months, the inflow of foreign direct investments in Serbia amounted to 1.6 billion dollars, which is twenty percent less than in the same period last year, which was otherwise a record with 4.3 billion dollars.
By the end of the year, Vucic predicts total inflows of two billion euros. According to UNCTAD data, the pandemic has severely affected the flow of investments on a global level, so according to the data for the first half of the year, their amount decreased by as much as 49 percent compared to the previous year.
Exports in the first eight months were six percent lower than last year
As for exports in the first eight months, it is six percent less than last year. Although world investment flows are unfavorable, the Government of Serbia seems to be serious about attracting investments.
The recent budget revision for this year increased the allocations for subsidies to investors by 416 thousand euros to a total of 83 million euros. Next year, according to the words of the Minister of Finance, Sinisa Mali, as much as 120 million euros will be allocated.
Although things seem unfavorable for investing, professor at the Faculty of Economics Ljubodrag Savic points out that it is all a matter of assessment and profitability.
“If you give someone enough incentives that will enable them to earn, they will come. Now it is not a problem of lack of funds for investment, nor is there a lack of investors. The problem is risk. In a crisis, some shut up and wait, and some are more willing to take risks. However, when you have an agreement with the government of a country, then the risk is lower, because you can expect help if things go wrong. Serbia has proven to be credible in fulfilling its obligations to investors, and that is why they are coming,” Savic said, adding that these were not too large investments that could endanger the company, but those of several tens of millions of euros, with a low level of technology.
The reduced global demand due to the crisis does not affect smaller factories as much, especially if their conditions are such that they are price competitive, and in Serbia they are due to benefits and cheap labor, Savic reminds.
The best solution is to compensate for lower revenues with foreign direct investments
Ivan Nikolic, director of research at the Institute of Economics, also believes that, although due to challenging investment conditions, especially in Europe, it will be possible to maintain a high level of inflow of foreign direct investment from five to seven percent of GDP.
“Seen from the balance of payments aspect, if smaller exports are projected, then the best solution is to compensate for lower revenues with foreign direct investments. Although the level of investments has decreased this year, they still cover the current account deficit. On the other hand, FDI, as part of gross fixed investment, also contributes to GDP. From that aspect, every support, and especially better investments with a higher level of value, is justified and investments should be attracted,” Nikolic estimates.
In recent years, a good part of the investments came from the auto industry, which is the biggest hit in this crisis.
Again, there is still talk of large investments in this area, and it was recently concluded that negotiations on a huge investment of 1.9 billion dollars with the Japanese company Nidec for the construction of an electric motor factory for electric cars are nearing completion.
Nikolic points out that large investors have a slightly longer-term horizon of perceiving the economy and expect that the market will return to normal.
“The period of investment activation is two, three years, and they probably expect that the situation will return to normal within that period. As for the next year, it should be borne in mind that the acquisition of Komercijalna Banka has not been realized yet, and if the ECB’s approval does not arrive, it could be transferred to the next year,” Nikolic reminds.
Also, some investments planned for this year have been moved, such as the German MTU, which postponed the realization by six months in July.
In the first six months of this year, according to the data of the Development Agency of Serbia, 19 contracts were concluded with foreign investors worth 1.1 billion euros, BiF reports.
