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Evaluating Serbia’s economic strategies and the role of technological progress

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In recent years, Serbia’s government has been aggressively investing in infrastructure to stimulate short-term economic growth, even at the expense of budget deficits. Since 2020, the budget deficit has reached 21.4% of GDP, while GDP growth has been only 15.3%. Such a strategy may produce temporary economic boosts, but investing money with negative returns is unsustainable. If a private company director were to adopt this approach, they would likely be dismissed.

Ivan Ostojić, a leading expert in technology and innovation originally from Valjevo, now residing in Switzerland, where he worked as a partner at McKinsey & Company, has always been a proponent of technological progress and European integration. However, in a recent interview with Radar, he expressed concerns about Serbia’s strategic partnership with the EU on critical mineral resources.

Ostojić is worried that this agreement could turn Serbia into a low-cost source of natural resources with minimal benefit to the country and significant environmental risks. He cites concerns about water reserves being jeopardized due to the use of large quantities of water in lithium extraction processes, which becomes contaminated with toxic chemicals. The potential benefits of the Jadar project for Serbia are questioned, as Ostojić suggests the risks may outweigh the advantages.

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The resistance to the Jadar lithium mine is unprecedented, largely because it is the first project of its kind in Serbia. Previous mining operations, many of which were state-owned at various times, had a different economic context. The current situation involves a foreign company taking control of a mine with minimal benefits for Serbia.

Ostojić challenges the government’s argument that foreign investments like those by Zijin Mining in RTB Bor have been profitable. He argues that such profits largely benefit foreign entities, leaving minimal gains for Serbia. In contrast, a domestic company would likely reinvest profits within the country, contributing more directly to the economy.

Concerns are also raised about Germany and the European Commission’s assurances regarding high environmental standards for lithium extraction. Ostojić points out Serbia’s poor track record on environmental protection and recent legislative changes that reduce penalties for wastewater discharge. Given this context, he doubts the effectiveness of these promises.

The debate extends to the overall economic growth strategy. Serbia’s heavy investment in infrastructure has not yet translated into significant economic gains, suggesting a potential mismatch between investment and economic returns. Ostojić compares this to the U.S. situation, where short-term economic gains driven by government spending have not always led to sustainable growth.

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Instead of relying heavily on foreign investments in resource extraction, Serbia should focus on sectors where it has shown strength, such as IT and dental services. Ostojić advocates for investing in high-tech industries and middle-sized companies that contribute to global supply chains. He also suggests exploring agricultural sectors and new technologies like quantum computing as future growth areas.

Overall, Serbia needs to recalibrate its economic strategies to ensure long-term sustainability, emphasizing investments that provide lasting benefits rather than short-term boosts.

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