Have the creators of economic policy finally understood what experts and domestic businessmen have been telling them for at least a decade, that the economy cannot develop on foreign investments and that domestic private investments are what develops the economy?
Or, under the influence of negative publicity due to the departure of Geox, does that sound good now? In any case, the Prime Minister Ana Brnabic, visiting Bojnik, said that we had been relying on foreign direct investments for a long time and for too long.
“Somewhere you have the potential of the local economy, local entrepreneurs, which is much greater than bringing in a foreign investor. When you waste time to bring in an investor with 150, 200, 300 jobs, that you have invested all that time in, say, giving people, educating them to be subcontractors for, for example, that pig farm in Lebane. This second example is much faster, and much more profitable, and people will be much richer. That is why I think that it is a huge responsibility of the local self-government to propose good projects. Not only does it rely on foreign direct investment, which is certainly very good, brings new knowledge and new technologies, but we need to start believing more in our knowledge, our skills and abilities. We are a different country now, we should not just rely on foreign investments,” said Brnabic.
According to the analysis of the professor of the Faculty of Economics, Milorad Filipovic, in the period from 2006 to 2019, foreign investors received 611 million euros from the state, and domestic 44 million euros in the name of support for opening a company.
The reasons are not only that the state prefers foreigners over domestic ones, but also because domestic investors have neither the funds nor the market for large-scale production, but the disparity is still huge.
“We are not asking them to equate us with foreigners, let them give us half of what they gave to foreign investors and we will be satisfied,” half jokingly, and half in reality, Dragoljub Vukadinovic, president of Metalac Group, one of the largest domestic companies, told Danas.
“Those foreign investors with low-tech production and who have received incentives from the state are attracting our workers. They give them a 10 percent higher salary from those state incentives, and now they are unfair competition to us. I have nothing against subsidies in high technology, where knowledge will be spread and where domestic companies will be subcontractors, but there are a lot of shoemakers, socks and cable winders,” Vukadinovic believes.
He also points out that such companies will leave on their own as soon as the average salary reaches 600 euros. According to him, the key problem for domestic investors is the lack of manpower.
“Every year, 40,000 fewer people are born than die, plus people go abroad. Only in Gornji Milanovac, which is one of the most developed cities in Serbia, there are 10 percent fewer people every 10 years. That is why, in my opinion, the priority should be to stop the outflow of population from Serbia,” says Vukadinovic, adding that now he would not dare to enter an investment in which he should employ more than 300 people, because he is afraid he could not find them in the vicinity of Milanovac.
As for state aid to domestic investors, he estimates that this could be done partly through employment incentives, partly through tax exemptions.
“I cannot complain about loans because we get them at favorable interest rates, but I believe that there are companies to which such loans are not available,” he concludes.
For Nebojsa Atanaskovic, the honorary president of the Union of Employers of Serbia, if there is significant financing of domestic companies, it should be taken into account that there are clear criteria.
“If the state starts to help domestic businessmen, I am afraid that it will not be according to clear enough criteria. If a company with potential that needs funds appears, then that’s fine, but in the past, funds were given without a clear picture of whether those companies have potential at all. We cannot completely replace foreign investments, because there are simply not enough large domestic companies that have a great demand from abroad to enter large investments, ” he says.
However, he points out that the Union of Employers has been pointing out for years that they do not have good enough support from the state.
“It’s not just money, but other things as well. For example, it is unthinkable for a municipality to provide business premises and for a private company to work in it. Everything that domestic companies do, they do with a great battle with the administration. On the other hand, foreign investors do not have these problems, all doors are open to them. In addition to what has been announced, that they have to pay a salary 20 percent higher than the minimum, which we are not even sure is respected, there may be additional benefits that we do not even know about. They are also exempt from profit tax, and even if they can’t, they can’t easily make no profit, since they import the vast majority of raw materials. Apart from employing people, I don’t see that these investments have made any greater benefit for the Serbian economy,” Atanackovic said, adding that the authorities could reduce the euphoria over the arrival of foreign direct investment “unless they are strategic companies that bring technology and knowledge.”
He adds that companies such as those that wind cables for the automotive industry are only there while there is a demand for those cables in Western Europe. As soon as the demand starts to fall, they immediately reduce the number of employees or leave. Domestic companies are different though. They have nowhere to go and are fighting for survival,” he said, noting the problem of finding suitable workers.
“The different behavior that the prime minister is talking about should have been done from the beginning. Along with attracting foreign companies, it was necessary to help domestic companies as well. We are late with the change of policy,” he concludes.
Dragoljub Rajic from the Business Support Network agrees with this. According to him, a new model should have been made in 2015 or 2016, “but no one went into the analysis of how much money we gave, and how much we got back from those investors.”
“If the only goal was to distribute that salary of 300 or 350 euros to the workers, then it would be better if they invested that money in funds to help small and medium enterprises. They would hire those people, and they would also return that money to the funds, as was the case in the Czech Republic, so it could be placed further. However, populism and the need to open factories led us to chase after investors, and our model was give what you give,” Rajic estimates.
Another aspect closely related to attracting foreign investment and the results of the economy is the economic environment.
A few months ago, Pavle Petrovic, the president of the Fiscal Council, published a book in which he researches the factors of economic growth and approaching the EU.
In short, the authors showed that if Serbia reformed its institutions, and at the same time improved education and increased investment, it would be able to initiate relatively rapid convergence towards developed European countries.
“This specifically means that GDP growth could increase from the current three to 3.5 percent to almost five percent. The driver of such GDP growth would be the rapid growth of productivity in the manufacturing industry, which would accelerate from the current four to about 5.5 percent. If, along with the improvement of institutions and other reforms, an economic policy stimulating the development of the tradable part of the economy (eg a stimulating dinar exchange rate) was pursued, GDP growth could be higher than five percent, and productivity growth in the processing industry could be about six percent,” the research concludes. It’s just that it’s much easier to agree with the investor how much he should come from, than to establish institutions, Danas reports.
