However, the voice of exporters is not so strong anymore because, when it became clear that the state will not deviate from maintaining a strong domestic currency, they learned to “iron” the calculation, i.e. to cover what they sell abroad with imports and thus reduce the impact of exchange rate differences on business.
The monetary authorities will continue to lead the policy of a strong dinar, even when inflation in Serbia, at 15 percent year-on-year in October, is significantly higher than in the countries that make up the “currency basket”. This especially applies to the parity with the euro, the dominant currency in the calculation of foreign trade transactions, which, thanks to the interventions of the central bank in the interbank market, has even recorded a slight decline in value compared to the dinar in the last six to seven months.
Absurd or not, only at the beginning of this year, you could get 117.5872 dinars for one euro, in April it even strengthened and was worth 117.7512 dinars, but then it began a slow decline, and in recent weeks it shows signs that it will go down below 117.3 dinars. At the same time, according to a flash estimate, inflation in the Eurozone began to decrease in November, from 10.6 percent in the previous month, to ten percent.
With the dollar, which is also the settlement currency in exchange with the world, the situation is not the same, not only because of inflation, which is lower in the US and even suddenly dropped from a record 8.2 to six percent in October, but also because of frequent oscillations and the growth trend of that currency on world stock exchanges, especially compared to the euro. Thus, at the beginning of the year, one dollar was worth 104.0318 dinars, occasionally approaching the amount of 120 dinars, and in recent weeks it has been slightly above 111 dinars.
Businessmen have been pointing out for years that such an exchange rate policy benefits only importers and foreign investors, and that it reduces the competitiveness of our economy on foreign markets. However, the voice of exporters is not so strong anymore because, when it became clear that the state will not deviate from maintaining a strong domestic currency, they learned to “iron” the calculation, i.e. to cover what they sell abroad with imports and thus reduce the impact of exchange rate differences on business.
Maintaining the exchange rate protects foreign investors
Zoran Drakulić, president of the Business Club “Privrednik” and owner of the largest company for the production of pellets “Bioenerdži Point”, says that it is obvious that the state will not change the policy of a strong dinar because it would destroy some parameters that it wants to achieve, such as the height salary and protection of foreign investors.
“Is it realistic?” It’s not. Business people have long talked about the fact that the exchange rate must at least follow inflation. But that was not the case in the previous period either, and especially not now with such inflation. The exporters are very damaged there, it has been a problem for them for years and they have been saying for years that it is not good, while it suits the importers as much as possible”, says Drakulić, whose factory markets 30 percent of the firewood produced on the foreign market, while the rest is intended for consumers in Serbia.
This is also confirmed by Predrag Pantović, the owner of “PS Fashion design”, but adds that in the textile industry, which depends a lot on the exchange rate, not everything is so dark after all. “Domestic brands usually generate the most money in our market, so when it comes to the exchange rate, it suits us that it should be lower.” I know that other branches don’t like it, but it’s not bad for us. We all have financing through banks and we easily get euros, it’s good that we have that money available. On the other hand, since there is no domestic production of basic materials, we are dependent on imports, as well as working in other markets for things that cannot be produced here, so it suits us that the dinar is strong. But realistically, what’s good for a few of us, in the textile sector, certainly doesn’t suit the big exporters in the first place, so I’m not sure it’s generally good for our economy”.
The real inflation is much higher than the published one
He emphasizes that businessmen always try to follow the inflation trends, but now he fears whether they will succeed in doing so.
“Real inflation is much higher than it is announced.” But, let it be 16 or 17 percent, the question immediately arises whether I can raise prices by that percentage next year, not to get rich, but to maintain any kind of profit. This is a big problem because people are less and less able to pay. Namely, the growth of inflation in basic products, those that people have to buy, is much higher than that 16 or 17 percent. It is becoming increasingly difficult to keep up with prices in a stable currency, to maintain stable growth of the company, profitability… After the first year of the pandemic, last year and this year we managed to predict the increase in costs, to take it into account and to maintain profitability and sales. “For next year, after two years like this, I’m not sure, rather I expect that we will face the problem of profitability,” Pantović points out.
Bojan Radun, general director of “Imlek” and chairman of the board of directors of “Nektar”, tells B&F that the exchange rate has long ceased to be a tool for improving the competitiveness of the domestic economy in exports.
“In our country, contracts with public companies as well as with the management of many companies have long since started to contain foreign exchange clauses, so nothing changes with the exchange rate change.” I also think that with the devaluation of the dinar, our economy would not become more export competitive. On the contrary, it would only harm citizens and company employees in the short or medium term. It’s simple, if you look at the inputs in any manufacturing or service industry, there are almost none that are not bound by a foreign exchange clause. This means contracts with suppliers of packaging, energy, logistics and transport companies… the change in the exchange rate has no effect on them, but it would have an effect on the citizens, it would impoverish them. Even the exporters would not gain much from that, maybe in the first month or two, but after that everything would be ‘levelled’ again to the current parities”.
The influence of exchange rate differences does not disturb the plans yet
The prices of raw materials and raw materials bought abroad have significantly increased in the last seven months, points out Vojin Đorđević, creator and owner of the “Vodavoda” and “Gorki list” brands.
“Those price increases certainly affect our business to a certain extent, but not to a decisive extent. More expensive imports were inevitably accompanied by an increase in the prices of our products, but thanks to a business strategy focused on the strength and quality of the brand, we managed to overcome the potential risk in placement. Namely, our brands, ‘Vodavoda’ and ‘Gorki list’, are highly valued abroad and on our export markets belong to the premium segment in their respective categories, and our business partners accepted the increase in their prices with understanding,” says Đorđević, whose factories export about 25 percent of production to the markets of 17 countries.
He adds that the impact of exchange rate differences is felt, but not yet in such a way that they disrupt the business plan, considering that until now they have not had market restrictions when increasing export prices. “Consumers in the premium market segment to which we belong continue to show their willingness to pay more for top quality and a brand they trust,” asserts Đorđević.
According to Milan Šolaja from the Vojvodina ICT cluster, the relationship between the dinar and other currencies affects the IT industry the least.
“Our exchange rate is as it is, it favors importers more than exporters, but it is a situation that has been maintained for a long time.” Companies from the IT sector, however, are tied to foreign markets, they operate mainly on the American or European market and the situation in Serbia has no influence on them except when it comes to salaries and expenses they have here. As the dollar has risen in recent months, it pays more to those who have business arrangements with American companies, but it is not a constant because things change, you cannot count on it because today, tomorrow or a year from now it can be completely different. I think IT companies don’t care too much about it, it’s important for them that the markets are stable and that they have their own clientele to do business with,” says Šolaja.
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