“When discussing large foreign direct investments (FDIs), which have been record-breaking in recent years, totaling around four billion euros, it is rarely highlighted that foreign investors not only invest but also withdraw capital. Specifically, they withdraw profits, which is what they have earned. However, not all of it. Some portion is reinvested.
Ivan Nikolić, Director of Scientific Research and Development at the Economic Institute in Belgrade, stated in the latest December issue of the publication ‘Monthly Analysis and Trends’ that, over nine months, foreign investors withdrew 1.326 billion euros in dividends, which is 466.7 million euros or 54.3% more than in the same period. During this time, a part of the profit was reinvested, or, in economic terms, reinvested earnings amounted to 797.5 million euros, which is 102.2 million euros or 14.7% more. Regarding the interest paid by foreign investors across the border, 116.6 million euros ‘left,’ which is 22.6 million euros or 16.2% less.”
“There are increasingly more foreign direct investments, more companies operating, and their profits are growing. They performed well in 2022, and perhaps this year will be even better because of inflation, so nominally the results will be even better,” says Nikolić.
According to data from the ‘Quarterly Monitor,’ a publication by the Faculty of Economics in Belgrade, a high inflow of foreign capital into Serbia continued. Nearly three billion euros arrived in the first three quarters, with 971 million euros in the third quarter alone. This amounts to almost six percent of the GDP. Foreign direct investments in recent years have accounted for about 30 percent of total investments.
Milojko Arsić, a professor at the Faculty of Economics and editor of the publication, believes that the outflow based on capital, namely dividends, will continue to increase in the coming years.”
“In the coming years, an additional increase in the outflow of capital income from Serbia is expected due to the growth of foreign capital value and the high level of interest rates. Expenditures related to capital income, such as interest and dividends, have shown a strong upward trend over the past decade. In 2022, the outflow of funds from Serbia due to capital income amounted to 3.75 billion euros, and based on data for the first three quarters, it is estimated to surpass 4.5 billion euros in 2023, more than twice the outflow compared to about ten years ago,” he says.
The share of capital income outflow in GDP has increased from about five percent a decade ago to 6.2 percent of GDP in 2022 and almost seven percent in the previous year.
“The main cause of the increase in capital income outflow so far is the significant increase in the value of foreign capital—foreign loans, equity capital in Serbia over the past decade. As the external debt of the state and the economy increases, payments for interest also grow, while with the growth of foreign equity capital, the outflow based on dividends rises,” Arsić explains this difference.
At the end of 2013, the total value of foreign capital invested in Serbia was 48.4 billion euros, while at the end of September 2023, it reached 93.1 billion euros. Of the mentioned 93.1 billion, the external debt of the state and the economy accounted for 44.8 billion euros, while the remaining 48.3 billion euros were various forms of equity capital.
During previous years, remittances and foreign direct investments were more than sufficient to finance the trade deficit and the outflow of capital income from Serbia. Problems with Serbia’s external liquidity could arise if, for any reason, there were a significant and prolonged decrease in foreign direct investments, our interviewee notes.”
“So far, this is not happening, and due to the significant influx of capital from abroad, including loans and remittances, there have been strong pressures to strengthen the dinar. Therefore, the National Bank has purchased foreign currencies worth 3.25 billion euros, effectively withdrawing them from the market.”
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