In recent years, despite frequent government claims about foreign companies flocking to Serbia, there has been a noticeable trend of foreign investors leaving the country. The Benetton factory in Niš has announced a production shutdown until April, though no details have been given regarding the fate of its workers. This is just one example of several companies that have ceased operations in Serbia, leaving workers in uncertain situations.
Previously, the Turkish company Jeansi closed its factory in Leskovac, and more recently, the Jura company in Leskovac offered its workers paid leave or the option for contract termination with severance due to a decline in product sales. Last year, the auto parts manufacturer Adient shut down its two plants in Kragujevac, and workers in Loznica were also laid off. Italian company Geox, which previously operated in Vranje, closed its operations, leaving over 1,000 workers unemployed.
What these companies share in common is that they all received substantial state subsidies. The reasons for their departure are varied, but the crisis in the global automobile industry, which has had a ripple effect on Europe, stands out. Another contributing factor is that foreign investors are moving to countries with more favorable business environments, as highlighted by Serbia’s President, who noted that “there is no more cheap labor” in the country.
According to Professor Milorad Filipović of the Faculty of Economics in Belgrade, Benetton’s departure reflects a broader issue. Despite being a well-known brand, Benetton invested heavily in marketing but operated in low-margin, low-profit industries. Filipović explains that over 20 years ago, he used Benetton as an example to his students, pointing out that most of its production was already outsourced to countries like Pakistan, Sri Lanka, and Vietnam, while Italy focused on strategic development and management.
At the time, Serbia was an attractive option for Benetton due to financial incentives and low production costs, including cheap labor, electricity, and utilities. The country was able to employ a large number of workers and gain political support. However, Serbia now faces a demographic crisis with over 50,000 young people leaving the country each year, which limits the potential for growth in low-cost industries like textiles and footwear.
Filipović also notes that Serbia’s heavy reliance on the automobile industry, particularly from Western countries, has not yielded the expected benefits. While Serbia was able to attract auto parts suppliers, it has not succeeded in drawing major automobile manufacturers to set up production in the country. Serbia remains dependent on the automotive supply chain, which is a weaker position with lower margins compared to actual car manufacturing.
The shift in the European auto industry, caused by a crisis of non-competitiveness and challenges like rising energy costs and severed ties with Russia, has spilled over into Serbia. According to Filipović, the country is no longer an attractive option for foreign investors offering low-class, unprofitable jobs. Production costs have risen significantly, and Serbia’s competitiveness in areas like textiles and footwear has decreased.
Economist Aleksandar Stevanović agrees, emphasizing that foreign direct investments in Serbia often attracted low-quality companies offering low-wage jobs. He believes that while some companies may fail, Serbia must focus on attracting higher-quality investments through a better business environment, low taxes, and efficient institutions. The current model of offering massive subsidies to attract investors is not sustainable in the long term.
Stevanović also expresses concern that Serbia is overcommitted to supporting the struggling European auto industry, which may not result in long-term benefits for the country. The investment in the electric vehicle supply chain, for example, may not be as secure as it seems, and there are many uncertainties about the development of lithium extraction and production.
In conclusion, while Serbia may have once been an attractive destination for foreign investors, the current economic and demographic challenges, along with shifting global industries, are prompting many foreign companies to leave the country. Serbia must reconsider its approach to attracting investment if it hopes to foster sustainable economic growth.
