We are witnesses that the pandemic has started to turn the world in another direction, that is, that many countries are turning to themselves. If we want to make the best use of the opportunity created by this global crisis, it is necessary for all market actors to start working towards the localization of the economy.
“Whoever loses a profit, gets a loss.” The famous comic by Max Bunker and Magnus “Alan Ford” is considered the best satirical comic of all time. He is known for his sharp humor, sharp social criticism and phenomenal stories, which I loved to read. The dialogues from this comic, although written to be entertaining, very often hide a message that makes you think in the style of pop culture. And this quote, which is written on the T-shirt by the famous Grunf, hides a topic that I decided to write about in this text.
We are aware, I hope at last, that the Covid-19 crisis is not an incident and that everything that has happened to us in the last year is not a slightly longer storm that will pass in the end. We have completely changed the way we live and work, companies have had to adapt to the new situation, and the economy is facing great challenges that will last, it is now completely clear, several years ahead of us.
Although vaccination as the only real way out of the crisis has started in many countries, it is obvious that the dynamics with which this process is being carried out is simply too slow to stop this tsunami, which now, after a year, seems to be gaining momentum. If we add to that the strong anti-vaccination lobby, as it is popularly called today, and their great influence, which is transmitted mostly through one of the most powerful communication channels – social networks, it is clear that this crisis, and then its consequences, will torment for at least a few more years.
And the crisis has changed a lot. Here we will look at only one, although in my opinion the most important element, and that is to slowly but surely stop globalization and the philosophy of growth at any cost. Localization, as one of the conditions for sustainable development and long-term stability, if not already, will certainly be on the table of all corporations and economies in the world. Will world corporations and powerful economies easily give up their further growth, and thus globalization as a process in the economy? Certainly not and certainly each of these companies, and consequently the economy, will try to get everything back on track, but at the moment it doesn’t just depend on them.
If we look at how the pandemic has affected, say, supply chains, it is clear as day that many companies will relocate their factories from China, India, Vietnam and other countries that have opened up space for cheaper production and higher profits. If you want to import something today, for example, from China, the price of transportation, provided that you manage to “insert” your goods on the ship, is increased at least three times compared to the price before the pandemic.
Delivery times have been extended, and many goods are unavailable, given that countries now first provide their needs and only then export. A good example were medical devices and protective equipment, which, with a rise in price of several times, were often unavailable on the free market. I will give you a few more examples: construction materials have risen in price twice because there is simply not enough, aluminum semi-finished products up to three times, construction iron prices for now 50 percent, and sugar, oil and flour have risen with the tendency of further growth.
And all that is completely logical. A good part of the companies work with reduced capacity, both due to “locking” and due to the large number of infected people, so it is clear that in most cases domestic consumption has an advantage. At the time of writing, the news has emerged that the European Union will ban the export of vaccines outside its territory, which, in addition to moral ones, opens many other dilemmas in favor of the thesis that the world is turning in another direction. If we add to that the above-mentioned problems with transport, everything opens in the palm of your hand: the key is in localization.
The raspberry exporter imports raspberries
At the beginning of 1980, Yugoslavia was the country with by far the highest value of GDP among the Balkan countries. According to the data of the World Bank, the IMF and other international financial institutions, at that time, the former SFRY had an economy worth more than 70 billion dollars, reports Blic. Next in the Balkans were Greece, with just under 57 billion dollars, and Romania with 46 billion dollars in gross domestic product. Far behind, Bulgaria is in fourth place, with 19.8 billion dollars. Today, forty years later, the situation is significantly different.
After the disintegration of Yugoslavia and the period of wars, Serbia continues to lag behind the more developed European countries, but also the countries of the former Yugoslavia that joined the EU. Although it is indisputable that Serbia achieved economic growth and the smallest decline in GDP in the previous year, if we want to make the best use of the opportunity created by this global crisis, it is necessary for all market actors to start working towards localization of the economy.
It sounds strange that the crisis that has befallen us is seen as an opportunity, but it definitely is. At the beginning of the crisis, many countries experienced major supply problems, especially in the supply of medical supplies and food. Despite the fact that Serbia itself experienced a problem in the supply of medical equipment, mostly due to the import-oriented economy, Serbia also had food for export, although in that segment, unfortunately, it was partially oriented towards imports.
Statistics of product imports can largely show what it is that can raise the local economy in two directions: settlement of local consumption and exports, especially to EU and CEFTA countries, which make up over 85% of Serbia’s total exports. And here are a few more examples: At the moment, Serbia imports, in addition to the largest categories such as oil, gas, cars and machines, and products such as potatoes, garlic, beef and pork, apples, various other fruits, and even and raspberries as a traditional export product. Let’s not enter here into the “more complicated” products that we import and we can produce locally.
Serbia’s trade deficit was reduced to 320.8 million dollars in January this year, compared to 512.3 million in January 2020, because exports increased by 9.8 percent, while imports fell by 2.2 percent. We hope that this is a good indicator of where we are going, but there is still a lot of investment, stimulation and help for Serbian businessmen to turn to local production instead of import.
Is the taboo topic an introduction to the solution?
The period of economic growth in Yugoslavia in the 1970s was accompanied by stimulating loans, investments in heavy industry and large production facilities, as well as the education of engineers and technicians who “brought” know-how to our industry. Although perhaps the elements of the socialist economy were completely wrong, the orientation towards local production, increased local consumption and stimulation of the economy were made by large companies that covered domestic consumption, but also managed to compete successfully with Western companies.
Stimulating the local economy, agriculture and building local industry are opportunities that are opening up to us now more than ever. In order to seize the opportunity, it is necessary to turn the entire ecosystem towards the local economy. In that ecosystem are banks, which today almost do not finance development and investment loans, because they earn enough on working capital loans and cash loans for households. In that system are investment funds, which are unfortunately very little interested in Serbia, so angel, venture and mezzanine financing are practically non-existent on the market.
Finally, in that system is the state that has limited funds to stimulate the economy and foreign investors who come to Serbia mainly because of cheap labor and incentives to create jobs. The guarantee scheme is a good example of bank loans with a state guarantee, but it is focused mainly on working capital and refinancing of existing liabilities.
Stimulating local production with a state guarantee and even state co-ownership in those companies, although it sounds like a taboo, may be a temporary solution. Here, on this occasion, I open a public debate on financing models with one condition only – that the development of local production and services does not end so that we again get a loss according to the famous Grunf from the beginning of this text, BiF reports.
