By amending the Regulation on determining the criteria for awarding incentives to attract direct investments, the state raised the threshold for minimum investments, and the division of local self-governments according to the level of development was abolished in favor of five regions.
Economist and director of LIBEK Mihailo Gajić for Biznis.rs assesses that the amendments to the decree will not lead to major changes in the policy of subsidizing investments, but he expects that part of the investors will still be directed towards more capital-intensive projects.
With the changes, the minimum threshold for the value of the project that can be supported by subsidies was raised from 100,000 to 300,000 euros, but our interlocutor believes that this is not a too high bar, given the price increases recorded in the field of construction works and materials in recent years, as well as growth of wages of potential workers.
Raising the minimum threshold for support, including the fact that in the future investors will be able to receive a maximum of 2,000 to 5,000 euros per worker instead of the recent maximum of 7,000 euros, according to Gajić, can still have a certain impact – and that is to redirect part of the investors from labor-intensive to more capital-intensive projects.
“It’s one thing to subsidize labor-intensive projects in 2012, when the unemployment rate was between 22 and 25 percent. In a situation of abundant labor available and low wages, it is logical to support the opening of as many jobs as possible, in order to employ as many people as possible. Today, however, when the unemployment rate is around 9.4 percent, and it is difficult to find qualified workers in certain industries, the question arises whether we should continue subsidizing per job or support industries that employ fewer people, but bring more capital and labor. Places with higher earnings”, explains Gajić.
Although he believes that turning to more capital-intensive activities was one of the intentions of the Government of Serbia when amending the regulation on subsidies, he points out that a bad policy of subsidizing individual companies remains in place instead of working to improve the general tax and regulatory environment.
“Such an approach would lead to investors coming on their own instead of ‘bribing’ them with subsidies,” Gajić assessed.
He is not even convinced that the transition from subsidizing according to the level of development of municipalities to regions will have a more serious effect, given that the companies that received the most incentives just opened plants outside Belgrade and Vojvodina, especially when it comes to suppliers of the automotive industry.
He warned, however, of the inconsistency of the state when it comes to its own regulation and reminded that in 2014 the government adopted the Regulation on establishing a unique list of regions and local self-government units according to the level of development, and that it never reclassified municipalities later.
“So, the state has been pursuing a policy of balanced regional development for more than eight years, and we don’t have any data on the effects. When the state won’t review the level of development in certain periods, then it is better to abolish that list or put it out of force, which was practically done by switching to a ‘regional’ approach when it comes to support for investments. Such an approach undermines the rule of law,” said Mihailo Gajić for Biznis.rs