Since the beginning of the global pandemic, business circles have been talking about the shortening of supply chains and that Serbia, as a signatory to the Stabilization and Association Agreement with the European Union, could take advantage of that opportunity.
Does the relocation of suppliers from the Far East mean that the Western Balkans region is becoming the new Far East for European industry?
Bojan Stanić, assistant director of the Sector for Strategic Analysis of the Polish Chamber of Commerce, says that the issue of reducing economic dependence on distant markets, especially those where there are conflicting political interests of the world’s leading economies, first resonated during the relatively mild economic conflict on the Washington-Beijing route in 2019.
According to his opinion, an agreement could be reached that until that moment the word “protectionism” had a generally negative meaning, because it contradicts the basic principle of the free market, which is emphasized by the World Trade Organization (WTO).
However, since the aforementioned economic conflict between the two economic superpowers, protective (protectionist) measures have been viewed with a certain amount of approval by the world’s expert public. At the same time, a new word in economic terminology “nearshoring” appears.
– Serbia and the area of ​​the Western Balkans is seen in its potential as a fertile ground for the realization of this policy, but so far little has been seen in practice. The inflow of foreign direct investments into Serbia, which continued to a significant extent during 2022, is a consequence of the previously initiated trend, without a clear influence, that is, the contribution of “nearshoring” itself – believes Stanić.
According to him, although we know that the current model of growth and development of Serbia is favored by the free market and globalization (inflow of foreign direct investments from different parts of the world, as is the case now), it seems that the world economy has irresistibly moved towards regionalization, i.e. fragmentation, which will developing countries especially suffer.
European countries such as Germany and Slovakia, where the auto industry makes up a large share of GDP, experienced large production declines in 2021 and 2022 precisely because of the lack of chips. In response to that crisis, EU countries and the US have launched actions to return plants to their home countries.
The American company “Micron” plans to invest 100 billion dollars, use subsidies and open a factory in America. “Intel” also announced the opening of plants in the USA and Italy. Volvo has announced a factory for electric vehicles in Slovakia.
– In all this misfortune caused by the pandemic and the war in Ukraine, certain economic opportunities are also created for Serbia, which is forced to adapt to the significantly changed international economic flows. Considering that many companies owned by “western” capital have reduced or suspended operations in Russia, it would be an excellent opportunity for the local economy to move their operations to Serbia, which would practically be in line with the policy of “nearshoring” – says Stanić.
Our interlocutor emphasizes that in 2022 we have an increase in the inflow of foreign direct investments compared to 2021. However, it should be borne in mind that there is a significant jump in investments from China.
Specifically, the inflow of investments from China was two-thirds higher than in the same period of the previous year, while the amount of investments from the EU decreased by about one-third. Of course, the drop in investments from the EU is primarily caused by the slowdown in economic activity, given that there are inflationary pressures and increased recessionary expectations.
On the other hand, he says, we should not forget the increase in Serbia’s political risk, which some companies can subjectively see, regardless of the fact that the leading credit rating agencies confirm the viability of Serbia as a stable investment destination (credit rating BB+, according to Standard and Poor’s and Fitch Ratings).
– Companies from the EU are primarily interested in the area of ​​Serbia and the Western Balkans, of course, because we are in their immediate neighborhood, and among them investors from the leading economies: Germany, France, the Netherlands, Italy, and Switzerland can also be added to the potential of Norway, Poland. In terms of service activities, the USA and Great Britain stand out. Serbia’s interest is to attract as many investments as possible in activities with more added value, which at the same time have more complex supply chains (space for greater inclusion of the domestic component, in terms of micro, small and medium-sized companies). However, we should not forget that nearshoring is not just a mere relocation of factories and that on this basis the supply will be more secure.
There is a need to strengthen the supply chains themselves by including in the production processes of local and regional companies, which should adapt their operations to modern standards.
As a candidate for EU membership and a signatory of the SAA (Stabilization and Association Agreement), Serbia has the right to access the free EU market, i.e. products from Serbia are exported to the EU without customs duties.
In recent years, our country has successfully attracted high-tech investments from Germany, such as “Continental”, “ZF”, “Brosche” and the Japanese electric motor manufacturer “Nidek”. These investments came to Novi Sad and Pancevo, which means that the two main criteria were proximity to the EU market and an educated workforce.
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