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Near-Sourcing instead of Outsourcing brings new investments into Serbia

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Since the covid 19 pandemic, the term near shoring (near shoring) is being heard more and more often in the world, i.e. moving production from the Far East closer to Europe due to the interruption of supply chains and the increase in transport costs.

Theoretically, as well as in practice, this process should benefit the countries from Southeast Europe that are not members of the EU, which are the destination for those factories.

Economists on the “Homecoming” panel of European companies spoke about the real importance of foreign direct investments and what needs to be done to develop the domestic economy on them: Can Serbia attract more foreign investments? organized by the Foundation for the Development of Economic Science (FREN) and the Friedrich Ebert Foundation.

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About 60 percent of the total inflow of FDI to Serbia comes from the EU, and this reflects the foreign trade exchange in which almost two thirds of our exports go to the EU, and about 55 percent of our imports come from the Union.

Predrag Bijelić, a professor at the Faculty of Economics in Belgrade, points out that Serbia is returning to the place it had before 1990 in world trade and investments.

“FDI is necessary, because we do not have enough domestic capital. They are the opportunity to invest capital and create new added value to the country, which means using domestic resources. There is an emphasis on newly added value, i.e. using as many domestic components and resources as possible”, notes Bijelić.

He points out that supply chains in the world are now being shortened, but that does not change the fact that investments depend on a country’s comparative advantage.

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“I think that jobs where you bring components and assemble them here will no longer be profitable. We used to be known as a cheap labor region, but now wages are rising and that comparative advantage is melting away. Other advantages must be sought. In our country, for example, IT records good results and that knowledge-based economy would be a good thing”, concludes Bijelić.

Radovan Kovačević, a professor at the Faculty of Economics in Belgrade, evaluates nirshoring as “getting away from distant destinations and getting closer to motherland.” The problem is instability in flows from Southeast Asia, which came to the fore with the corona virus, but also with energy prices that increased transport costs.”

He points out that we are not that ready and we don’t have small and medium enterprises that have products that can be included in their supply chains.

“If more real domestic components were incorporated into global value chains, the effects of investments would be greater. But it is unlikely that there will be a sudden inclusion of small and medium-sized enterprises, it needs to be a part of long-term tendencies”, noted Kovačević, adding that FDI is very important for financing the balance of payments deficit.

Silvana Mojsovska, a professor at the Institute of Economic Sciences in Skopje, estimated that foreign investors look at this region of the Western Balkans as one region, while countries compete individually for investments.

“FDI can change the structure of foreign trade. From 2015 until now, Macedonia has almost doubled its foreign trade exchange. Traditional industries have not moved in six, seven years.
The change was made by foreign investors in the auto industry who produce essential products for the world industry.

Our most important export product is catalytic converters which are made from platinum and other metals and it is very expensive. If you look at exports, you would think that we have a strong economy, but everything is imported, and even when subsidies for jobs are added, we get that the effect of those investments is small,” she notes, adding that subsidies for FDI in this country have been reduced from 30 to 15 percent.

“Vulnerability is very high, if for some reason those investors had to go where we were, when we did not develop the domestic economy,” she wondered.

Strulnjaci points out that the technology transfer of foreign investments into the domestic economy is also questionable and that there is no empirical evidence for this, but that it is certainly better to have foreign direct investments than not to have them, Danas writes.

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