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Serbia, Political instability would drive away potential investors first

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The first consequences of possible political instability in Serbia due to the possible unfavorable direction of negotiations between Belgrade and Pristina would first affect the decisions of investors to exclude Serbia from plans for business expansion, according to economic experts.

Economist Goran Pitić stated that “healthy”, non-speculative capital prefers political stability.

“Experience shows that escalations of conflicts, especially political conflicts, lead to the flight of capital looking for more stable investment areas,” said Pitić, who is the president of the FEF Council of the Faculty in Belgrade.

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He added that Serbia, as one of the most important regional areas, arouses the interest of foreign investors, but, as a small open economy, is very sensitive to the interruption of the continuity of the inflow of foreign direct investments.

On the one hand, as he said, this speaks of the quality of the development model, which should certainly push more and ensure the possibility of strengthening the domestic private sector, which would be the backbone of economic development in the long term.

According to him, it is very important to understand the importance of direct foreign investments in Serbia, which consists in influencing employment, gross domestic product (GDP), and currently they are especially important due to the stability of the exchange rate.

“The withdrawal or reduction of direct foreign investments would affect the inflow of foreign currency, which would increase the pressure on the relatively stable exchange rate and on the melting of foreign exchange reserves in order to defend it, and on the other hand, the sliding of the exchange rate would affect wages and standards,” said Pitić.

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He stated that the withdrawal of investments would also affect the public debt because it would increase dramatically, and thus “investment stability” would be lost.

He pointed out that the current situation does not show that Serbia is facing a bigger “challenge”.

“There is interest from investors, those who are in Serbia are, as the data in their chambers show, ‘correctly satisfied’ and, with all the problems the economy has, at the moment there is no challenge for their survival,” Pitić assessed.

The problem, he said, is the influx of new investments if there were to be major political challenges, because there are not a few companies that would listen to what their governments and European institutions say.

According to him, foreign companies enter countries through diplomatic missions, commercial departments of embassies, and information that would talk about the serious political challenges that Serbia would eventually face would certainly influence the change in investment decisions in Serbia, which would slow down growth.

The consequences of political instability, as he said, come in a cascade, first political decisions would affect those who intend to enter Serbia, the next step is the impact on additional investment in existing factories, and then the narrowing of existing activities.

According to him, cheap energy products and everything else are transitory items because foreign direct investments require “long-term commitment”.

“They know that Serbia will have to adjust the prices of energy products over time, they always have a cost calculation, whether it is through the workforce, energy products, business model or through the capacity of the Serbian market in relation to neighboring countries, but these are only items in the profit calculation, and when it comes to the long-term decision to enter or stay in a certain country, the issue of political signals has a serious impact on the company’s decision-making,” said Pitić.

Foreign investment consultant Milan Kovačević said that the first consequences of possible political instability due to the negotiations between Belgrade and Pristina would affect the determination of potential investors to choose Serbia as a place of investment.

“The big, serious factories that have opened in Serbia probably wouldn’t withdraw, but that’s no consolation because the most important thing is whether they will continue to invest.” “I don’t know what the consequences would be for those companies that do not listen to the possible invitation of their governments to withdraw from Serbia,” Kovačević said.

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