Serbia in the investment and balance of payments vortex

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Based on foreign direct investments, the inflow of foreign currency in the period from 2014 to 2019 reached the amount of 15.5 billion euros, and in 2019 as much as 3.8 billion euros. The pandemic did not stop them much either, so in 2020 they amounted to three billion euros, with great prospects of reaching the amount from 2019 again.

Many economists believe that a high level of foreign direct investment does not ensure the sustainable development of the national economy, bearing in mind that the common feature of many successfully reformed economies is a high level of savings and domestic investment and a capable public administration, established development policies.

From the first day, the current government realized that we do not have an economic system, and thus an economy capable of creating accumulation, which, together with depreciation, forms the basis for investments in fixed funds, nor, tomorrow, the necessary funds to repay investment loans. currently, it fills the gap between the value of investments and the value of own funds for investments. She also understood that she was not able to create a better system, not even in a longer, let alone shorter period of time, so, understandably, she did not even try.

That is why, over the years, the mainstay of our economic progress has been foreign direct investment in the private sector and infrastructure investment based primarily on foreign loans. Based on foreign direct investments, the inflow of foreign currency in the period from 2014 to 2019 reached the amount of 15.5 billion euros, and in 2019 as much as 3.8 billion euros. The pandemic did not stop them much either, so they amounted to three billion euros in 2020, with great prospects of reaching the amount from 2019 again. Only in that period, they were preceded by remittances from abroad, which arrived in the amount of about 17 billion euros, not counting the unregistered inflow of foreign currency on that basis.

There is no doubt, we are still counting on extensive foreign investments, so many think that the current government really believes that this is the right path for our development, and that is why it is persevering. Of course not. It is no secret that foreign direct investments make sense if they raise the quality of employment and the performance of domestic capacities and resources, which is, after all, the purpose of investments, nor is it invisible that the effect of foreign direct investments in Serbia is almost the opposite. The goal was achieved in terms of higher employment, but primarily cheap labor with a high import content of both investment and consumer goods. This, along with the current personnel policy at all levels, is a recommendation to all holders of more expensive living work to offer their services to the developed West.

Therefore, we are forced to invest abroad in this measure simply due to the lack of systemic and institutional conditions for the expansion of domestic private investment, due to the scarce investment potential, limited, among other things, and the understandable lack of interest of foreign-owned banks to lend to potentially risky investments, projects, in addition to quite safe ways of realizing their business interests.

Of course, there are other reasons and, fortunately or unfortunately, depending on who understands, balance of payments conditions for actively calling new investors. This is a significant foreign exchange inflow which, in the past, covers the current account deficit, which is due to foreign exchange inflows based on remittances from abroad half less than that resulting from high net imports and net outflows of foreign currency based on dividends and interest. In addition, these foreign currencies, together with remittances, raise the supply of foreign exchange on the foreign exchange market above the demand for foreign exchange and thus maintain the high value of the dinar, to the extent that the NBS must prevent further strengthening of the dinar by occasionally buying foreign exchange on the foreign exchange market. And the strong dinar devalues ​​foreign debts and facilitates their servicing and encourages imports on which VAT and excises are calculated, otherwise, the predominant revenues are the state treasury. So, roughly speaking, half of the high import deficit and other foreign exchange outflows are covered by remittances, and the rest is entirely covered by foreign exchange from foreign investments and even more to increase foreign exchange reserves. Could it be better, they say from the NBS.

The consequence of this development model is the growing dependence on these currencies, as the rights of foreign investors on the basis of accumulated investments and foreign creditors on the growing value of loans (dividends and interest) grow, so even such favorable conditions for new investors will have to be even more favorable, while at the same time meeting the needs of existing investors not to go the way of the recently “runaway” “Geox”. The time is not far off when foreign exchange inflows based on foreign investments will not be enough for such investment and balance of payments acrobatics, which enable us to provide external liquidity, without growing debts, on the basis of growing rights of foreign investors and creditors and growing foreign trade deficit.

Of course, things can change somewhat in a reasonable period of time, if we define a clear development policy that leads to the qualitative development of the economy, and change the system and economic policy to encourage domestic potential investors for entrepreneurship. A measure of success would have to be a change in the ownership structure of assets and sources of financing for development, if we want to avoid the impasse we are heading into.