Despite Serbia experiencing record inflows of foreign direct investment (FDI) in recent years, sustaining this level in the future is uncertain. Factors such as rising wages, energy prices, and labor shortages threaten future foreign investments. Additionally, high interest rates and reduced corporate taxes in the European Union contribute to the possibility of a gradual decline in Serbia’s FDI-to-GDP ratio.
Starting this year, multinational companies from the EU face a minimum tax rate of 15%. This change aims to discourage profit shifting to low-tax jurisdictions, reducing the “race to the bottom” among countries to attract investments. However, analysts anticipate a potential decrease in FDI inflows to Serbia due to these shifts in EU tax policies.
According to Dragoljub Rajić, a consultant from the Business Support Network, the EU’s tax measures aim to promote business activity within the EU amid economic challenges. The policy intends to counteract China’s support for its domestic companies by encouraging EU firms to operate within its territory.
Milojko Arsić, a professor at the Faculty of Economics, suggests that these changes may prompt companies to report their revenues in the EU rather than Serbia. While the Netherlands has been a significant source of FDI for Serbia, many companies use it as a base for investments elsewhere, diminishing its direct impact on Serbia.
Investors have raised concerns about Serbia’s business environment, citing lengthy trade disputes and political uncertainties as deterrents. These factors may lead some investors to reconsider their plans for investing in Serbia, despite initial interest.
Fitch Ratings predicts a decline in FDI inflows to Serbia this year, reflecting broader economic trends in the EU, Serbia’s primary source of investments. Although Serbia saw a modest increase in FDI inflows last year, uncertainties remain regarding future investment levels.
The net inflow of FDI in January showed a significant increase compared to the same period last year. However, it is essential to consider broader economic trends rather than individual monthly data when assessing the overall impact of foreign investments.
Overall, while Serbia has experienced robust FDI inflows in recent years, various domestic and international factors suggest potential challenges in sustaining this trend in the future.
