Foreign investment trends in Serbia have undergone notable shifts, primarily favoring sectors like processing industries, construction, real estate and mining over recent years. This shift has pivoted the growth drivers from exports towards domestic demand. According to the National Bank of Serbia, foreign direct investment (FDI) inflows in the first quarter of this year amounted to 1.3 billion euros, marking a significant 53.4% increase compared to the same period in 2023. The sectors attracting the most investments in early 2024 were construction, information and communications, and the manufacturing industry.
Despite substantial investments flowing into these sectors, economists caution that a predominant focus on real estate and mining, while boosting immediate economic growth, may not be sustainable in the long term.
Last year, approximately 846 million euros of FDI were directed towards the manufacturing industry, while construction and real estate received about 780 million euros. Mining attracted 517 million euros in FDI. Comparatively, in 2022, the manufacturing industry attracted 1.2 billion euros, and construction and real estate received 1.4 billion euros. Mining investments were slightly above 200 million euros.
Over the past decade, investments in the manufacturing industry consistently outstripped those in construction and real estate by 50% to 100% annually until 2022.
Lazar Ivanović, a researcher at the Center for Advanced Economic Studies (CEVES), emphasizes that over 30% of FDI flows currently favor construction, real estate, and mining. He points out the limited developmental benefits these sectors provide, primarily due to their lower value-added contributions. Ivanović highlights concerns such as corruption, money laundering, and exploitation issues in mining, arguing that such a sectoral composition may not align with Serbia’s long-term economic interests.
Milojko Arsić, a professor at the Faculty of Economics in Belgrade, underscores that the current investment structure might be influenced by the exchange rate of the dinar. A stronger dinar tends to make investments in non-tradable goods sectors like construction and real estate more appealing, potentially hindering export-driven growth. Arsić draws parallels with pre-crisis investment patterns in Spain, where an overemphasis on real estate led to economic imbalances.
To foster more balanced economic growth, Arsić suggests prioritizing investments in export-oriented industries. He advocates for policies that incentivize high-tech, productive investments in the manufacturing sector, positioning it as the backbone of Serbia’s economy.
Looking ahead, economists like Dušan Marković from the Faculty of Economics in Belgrade caution against overreliance on construction and real estate sectors for economic growth. While acknowledging the current demand for real estate driven by factors like migration and tourism, Marković stresses the need for increased domestic savings to support broader economic investments.
In terms of FDI sources, China, the Netherlands, and Germany have been significant contributors in recent years, reflecting diverse foreign interests in Serbia’s economic sectors. Meanwhile, Serbia’s exports primarily target Germany, Bosnia and Herzegovina, Italy, China and Hungary, underscoring the importance of these trade relationships.
As Serbia navigates these investment dynamics, balancing short-term economic gains with long-term sustainability remains a critical challenge, requiring strategic policy interventions and careful economic planning.
