The decision of the Americans to locate the office of the Development Finance Corporation (DFC) in Belgrade may show America’s intention to strengthen economic and political ties with the region, create opportunities for American companies and more specifically oppose China’s growing influence in the region and the geostrategic issue.
In the last five years, Serbian exports to America have increased by 50 percent, and imports by 36 percent, which shows that economic cooperation with the world’s largest economy is increasing rapidly. By the way, America is only on the 18th place among Serbia’s foreign trade partners in 2020. We exported goods worth 369.3 million dollars to the United States, while imports were worth 442.2 million dollars.
It should be borne in mind that last year was a pandemic, in one part of the year both production and trade were difficult, so economic exchange was reduced. Last year, for example, imports to Serbia from the United States decreased to 442.2 million dollars, from 551.2 million in 2019. On the other hand, it is interesting that exports steadily increased from 303 to almost 370 million dollars during this pandemic year.
That economic cooperation will continue to develop is indicated by the fact that the DFC office (Development Finance Corporation formed by merging several US development agencies) was opened in Belgrade last October, announcing not only the financing of large infrastructure projects listed in the Washington agreement, but also the inflow of private investment of American companies.
“We have had a lot of interest from American private capital in this region since the signing of the agreement. What we are trying to do is create an environment in which capital from other countries will come here,” said Adam Bohler, the executive director of DFC.
Finally, at the end of January, the Minister of Finance, Sinisa Mali, signed an interstate agreement with the US Ambassador to Serbia, Anthony Godfrey, on encouraging investments, which formally created the conditions for the beginning of the activities of the American International Development Corporation.
The first job that DFC in Serbia will have is a guarantee scheme for small and medium enterprises, worth a billion dollars. According to previous announcements, DFC would guarantee a certain amount for loans that small and medium enterprises would take from commercial banks in Serbia. The DFC guarantee would reduce the risk for banks, and thus reduce interest rates on loans. The operationalization of this project is planned for the second quarter of this year. A similar scheme was set last year by the Government of Serbia, in which the state is the guarantor for the repayment of loans. Of the available two billion euros, last year the companies took about 1.5 billion euros in loans with a state guarantee.
In addition to this, it is expected that DFC will significantly participate in infrastructure projects from the Washington Agreement, and above all by road and rail connections between Nis and Pristina. During the opening of the DFC office, Deputy Prime Minister Zorana Mihajlovic said that she hoped that with the help of the DFC, she would realize capital investments worth as much as 3.2 billion dollars.
In any case, since the arrival of the DFC, the Serbian side expects that American companies will follow them.
Although the United States is not among the largest investors in Serbia, looking at the inflow of foreign direct investment by country, the situation is somewhat different. According to the statistics of foreign direct investments (FDI) kept by the National Bank of Serbia, from 2010 to 2019, about 500 million euros were invested in Serbia from the USA. Since 2001, that amount has been around one billion euros. It should be said that in 2018, and especially in 2019, a huge jump in investments from the USA was recorded. While until 2018, there was no higher annual net inflow of 40 million dollars, in 2018, 68 million arrived from the United States, and in 2019, as much as 186.8 million dollars.
However, that is not a true picture of the investments that American companies had. In a large number of cases, they invested in Serbia through their daughter companies registered in Europe, most often in the Netherlands.
For example, the owner of Marbo product, a company that operates within Pepsi, is a company registered in the Netherlands, and the same is the case with Coca-Cola or Philip Morris (Tobacco Industry Nis). This gives a slightly distorted picture in which the amount of investments from the EU is overestimated, and the amount of investments from the USA is underestimated.
According to estimates by Serbian officials, the total amount of investments of American companies in Serbia is close to four billion dollars.
According to the data of the American Bureau of Economic Analysis, the companies that are in the majority American ownership (the last data are for 2018) employed 5,800 people in Serbia, and 106 million dollars were paid for the salaries of the employees.
The opening of the DFC office may have geopolitical motives as well as economic ones. According to Ivan Nikolic, an associate at the Institute of Economics, the decision to locate the DFC office in Belgrade shows the US determination to strengthen economic and political ties with the region, create opportunities for American companies and more specifically oppose China’s growing influence in the region.
Criticism of Beijing’s global investment, including its Belt and Road initiative, has risen sharply in Washington in recent years, making it an important dimension of China-US rivalry. Many developing countries in Asia, Africa, and more recently Europe, even Latin America, have benefited from an influx of Chinese money that helps them finance projects more cheaply and with fewer restrictions.
The fact is that American financing is not that efficient and cannot match the Chinese globally or in terms of financial capacity, because the volume of funds for infrastructure in the Belt and Road project exceeded 1.3 thousand billion dollars.
“According to the claims of the DFC management, the Chinese are competing with higher standards and a better end result,” Nikolic notes.
He explains that DFC projects must pass financial, environmental and social impact analyzes to ensure they meet internationally recognized standards.
“Even in the Western Balkans region, many utilities and other potential borrowers are not eligible due to lack of creditworthiness. Due to stricter social and environmental standards, DFC lending will inevitably remain slower, which will deter some investors. In contrast, Chinese banks and companies tend to be with more lenient standards, non-transparent contracts and often approve projects without practicing due diligence. DFC is finally a tangible alternative to China’s centralized economic model. But to maximize its influence, the United States must encourage countries to open up to private investment on the one hand, and private investors themselves to invest seriously in those countries on the other. If we look in isolation, in the region of the Western Balkans in the last two decades, this investment has obviously been absent. That omission was used by China,” Nikolic points out.
Whether all these ambitious plans will be realized may depend on politics. Professor at the Faculty of Economics in Belgrade, Ljubodrag Savic, estimates that it remains to be seen what the attitude of the new administration in the USA will be towards these projects in the region.
“It is possible that there will be private American investments in the future. The last big company to come to Serbia is Bechtel, which will build the Moravian Corridor. But a new president of the United States was also elected, and it remains to be seen what plans the new administration has for the region,” Savic is cautious, Nova Ekonomija reports.
