Domestic investors are afraid to invest in Serbia

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Since 2018, the republican budget has been a significant source of financing economic growth, and the share of public investments is around seven percent of Serbia’s GDP. At the same time, the value of savings in domestic commercial banks reached 12 billion euros. Why is that money sitting in banks, instead of being used for investment, and why is there not enough domestic private investment?

That was one of the topics at the 22nd Belgrade Economic Forum, and for Biznis.rs the answer was offered by the president of ITM Sistema Toplica Spasojević, who claims that domestic investors are afraid to invest in Serbia.

For the president of the Council of Governors, economist Nebojša Savić, the “disengagement” of savings is the result of insufficient development of the financial market. He assessed in the panel “Strategies for financing economic growth” that this is the reason why some citizens invest their savings in real estate, while others leave it in banks or save it in another way.

“We have to think about how to activate that savings. Domestic, private capital should be engaged as much as possible, but the majority of people in these areas, due to various negative experiences, are not ready to take risks and invest“, emphasized Nebojša Savić.

Dragijana Radonjić Petrović, vice-president of the Association of Economists of Serbia, assessed that economic growth is mainly financed from the state budget, by foreign financial institutions and from donations, as well as loans from commercial banks.

In the last few years, public investments have been around seven percent of GDP, which is an improvement compared to the previous period, since from 2001 to 2018, the average share of public investments was 2.6 percent of GDP, i.e. significantly below the level necessary for sustainable growth”, stated Petrović.

Economic theory says that the ideal share of investments in gross domestic product would be 25 percent, and that Serbia is only a few percentage points away from that “ideal”.

The analysis of the investment climate in Serbia, which was done for the Council of Foreign Investors (FIC) by the economist and former prime minister Miroljub Labus, however, pointed to the lack of private investments, especially domestic ones.

“Serbia would have to have a 25 percent share of investments in GDP to ensure a stable economic growth of five percent per year, and to achieve such a goal, private investments would have to increase the share of GDP by three to four percentage points,” said Labus during the presentation of the results of the analysis.

The president of ITM Sistema Toplica Spasojević agrees with the economist’s conclusion that the growth of domestic, private investments is necessary, and he assessed for Biznis.rs that they are a significant reservoir when it comes to financing economic growth in the coming years.

There is money in banks and companies, but domestic investors are afraid to invest, because they immediately expect tax or inspection controls, or the question of where they got the money from,” he told our portal during the Belgrade Economic Forum.

“Domestic businessmen do not have the same treatment as foreigners in Serbia, and in this sense, the announcement by the Minister of Economy Rade Basta that the ministry will pay attention to domestic companies and entrepreneurs is positive. The state should put the domestic businessman on a pedestal, and a few billion (euros) of domestic investments, as much as could be engaged, can be the anti-cyclical policy that is needed, so that the National Bank does not have to ‘tighten’ the monetary policy so much, and the state so much to spend from the budget“, Spasojević is convinced.

The budget for 2023, which is currently being discussed by the members of the Parliament of Serbia, foresees 545.5 billion dinars or slightly more than 4.6 billion euros for capital investments. The goal of the Government of Serbia is for economic growth to be 2.5 percent in 2023. For the sake of comparison, the inflow of foreign direct investments last year was close to 3.9 billion euros, and this year, 3.11 billion euros arrived until October, local media writes.

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