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Which industries are investors most interested in in Serbia?

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In the first eight months of this year, 2.66 billion euros of foreign direct investments entered Serbia.

According to NBS operational data, this is 1.2 percent more than in the same period last year. By the way, 3.9 billion euros of foreign investments arrived in the country last year, and when outflows based on FDI are excluded, the net inflow was 3.6 billion euros.

If the growth of FDI last year can be explained at least in part by the weaker result in the pandemic year 2020 (three billion euros), it is interesting where such a high inflow of investments came from during the war in Ukraine, the energy crisis in Europe and the announcement of recession from America to the EU.

It is also interesting to see that the war in Ukraine “braked” investments in just two months.

According to NBS data, only in March and April was the inflow of investments reduced, but from May the inflow recovered, and in July and August it surpassed last year’s FDI.

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For example, in the first six months of this year, FDI was lower by about 17 percent than in the same period last year, and at the end of August, it would exceed the level from the same period in 2021.

Ivan Nikolić, editor of Macroeconomic analyzes and trends, points out that only in the first month of the war in Ukraine, there was “panic” among investors, but that already from May, a significant inflow of FDI started.

“With the war, there was panic among investors, projects were postponed, but when things normalized, monthly investments reached levels of 100 million euros higher than in the same months last year.” These are not all new investments, most of them are companies that already operate here and are reselling investments that were planned even earlier. As soon as the situation stabilized, they returned to the realization of their plans,” notes Nikolić.

If you ask the National Bank, the most important factor that has influenced the continuation of FDI inflows is macroeconomic stability, despite the uncertainties coming from abroad.

“A favorable business climate, established free trade agreements with many countries, as well as continued investment in infrastructure development have additionally contributed to the continuous inflow of FDI,” the NBS notes, stressing that the data on FDI are operational for now.

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According to the data of the Development Agency of Serbia (RAS), which, among other things, deals with attracting foreign investments, the greatest interest of investors is in the automotive industry, the machinery and equipment sector, the food industry, and retail.

The RAS also says that most investors come from Germany, Italy, Austria, China, Turkey and Japan.

And they cite stability as the main factor in the arrival of investors.

“What positions Serbia well otherwise, but also in conditions of international instability, are primarily economic and political  stability, the country’s very good geographical positioning from the perspective of logistics and company operations, the possibility of accessing a market of over one billion consumers thanks to free trade agreements, the availability of very educated and professional staff, as well as competitive operating costs”, say the Development Agency.

They add that a stable and predictable environment is even more important since the onset of the covid pandemic, but also that companies tend to redirect their activities from distant destinations in the East closer to Europe and closer to their headquarters or customers, a phenomenon that has been named “nearshoring”.

Professor at the Faculty of Economics in Belgrade Ljubodrag Savić points out that it is possible that some jobs from the Far East were taken over by some factories that work here.

“I haven’t seen a lot of new factories this year, but it’s likely that existing ones have taken on some business given the supply chain disruptions.” It should be noted that foreign factories will pay much cheaper electricity and gas here than in their own countries. It will also have the support of the state, not only when it comes to subsidies but also in other ways. Obviously, it pays to invest in Serbia,” says Savić, adding that this is good news for us.

He warns that this model works as long as foreign companies are functioning well.

“Serbia does not have a lot of finished products that it puts on the market. Parts for well-known customers, belts, cables, seats for Fiat or Volkswagen are mainly produced here. If they have problems with sales, so will we. In times of crisis, investments are a great thing, but little depends on us,” he notes.

He is also not so sure about the effects of shortening the supply chains of European companies.

“If wages in the Far East are much lower than in our country, even slightly more expensive transport costs will not force investors to move the factory from there to Serbia.” On the other hand, it is not so easy to make a factory. It lasts for years, and in a few years everything changes,” Savić believes, confirming that the most important thing in the economy is certainty even in the long term.

It is interesting that in the first half of this year, some countries in the surrounding area recorded year-on-year growth in FDI.

Romania recorded 5.5 billion euros in seven months, compared to 8.6 billion euros for the whole of last year. However, according to the Romanian media, only 173 million are new investments, while everything else is reinvested profits of existing investors or long-term central bank loans.

Foreign investments are important, among other things, because they cover the current account deficit that flared up this year. In the first half of the year, according to Ivan Nikolić, it is almost four times higher than last year, mainly due to the huge prices of the energy we import. The half-year current account deficit reached 2.7 billion euros.

In addition to FDI, a significant source of funds from abroad is the famous remittances. The money sent to us by family, friends, husbands and wives for temporary work is almost bigger than the investments.

In 2021, income from personal transfers reached 3.6 billion euros, and in the first six months of this year, 2.17 billion euros. That is even 32 percent more than in the same period last year.

Within that, income from workers’ remittances amounts to 1.7 billion euros, which is a year-on-year growth of 40 percent.

It is interesting that expenditures based on workers’ remittances are higher by 57 percent, but at a modest level of only 111 million euros.

Nikolić reminds that in times of crisis they usually reduce remittances, because the crisis also affects their income.

“The explanation for the growth of remittances can be that the aid of Western countries to citizens and the economy during the previous two years was large, so that left room for larger remittances.”

By the way, last year the income from remittances amounted to 3.65 billion euros, in 2020 it was 3.1 billion, and in the pre-pandemic year 2019 it was 3.5 billion euros, as well as in the previous year 2018.

It is interesting that a decade before that, in 2009 alone, remittances were over three billion euros (3.2 billion), which testifies to the impressive outflow of the population, Danas writes.

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