The potential of business and investing in Serbia

The potential of business and investing in Serbia

In this article, we would like to delve deeper into the business- and investment climate of Serbia. In a report by the Institute of Business Value (‘IBM’), Serbia secured itself the first position of ‘Top-ranking destination countries by estimated jobs per million inhabitants’ for Foreign Direct Investment (‘FDI’). Followed by BiH, Slovenia and Macedonia all in the top ten, the Western Balkans region demonstrates an optimistic increase of economic growth.

The main industries in Serbia receiving inward investments (investments from foreign countries) include: textiles, transport equipment, chemicals and electronics. In that respect it is evident that manufacturing jobs constitute the majority of all FDI jobs. Consequently, Serbia has demonstrated a leading capacity in the sectors of automotive, IT and agriculture. It is therefore no surprise that according to the IMF working paper, Serbia receives fifty percent of all FDI stock in the Western Balkans region. Several trends account for the attractiveness of Serbia for foreign businesses. One of the main factors contributing to the acceleration of FDI’s in Serbia is the cost-efficiency of labor supply. The beginning of this century was marked by saving costs and outsourcing labor to developing countries to save financial capital, a concept known as outsourcing. FDI’s were focused on access and supply, market potential, labor costs, increase profits and first mover advantages. By improving their legal position, employment quality, their potential accession into the EU and educational system, Serbia remained an attractive hub for multinational companies. All these factors play an important role in the assessment of investment locations, with top priority to:

  1. Inward Investment
  2. Quality of the suppliers
  3. Political Stability and Legal Environment

In terms of Inward Investment, Serbia has secured an attractive position by imposing tax holidays for the extended period of ten years for companies investing a minimum of 8.3 million Euros in property, plant and equipment and where over hundred employees are hired. Although these financial incentives are not the main drive behind FDI’s, they still pose an attractive element for business opportunities.

In addition to economic benefits, Serbia has obtained prestige on educational level, which has had great influence on the quality of employees and the supply of the work force. Serbia scores high on several rankings regarding higher education and universities. In 2018, The U21 Ranking of National Higher Education Systems ranked Serbia third relative to countries at similar levels of GDP per capita. Three years before that, Serbia was considered among the pioneers in education regarding the disciplines of IT, mathematics and Engineering. The Times Higher Education based their conclusion on a variety of measurements, such as publication ratings, participation in schooling and GDP per head. Although FDI’s increase over time, and the quality of Serbia’s employees improves each year, FDI’s still rely mostly on foreign suppliers.

Serbia scores the lowest for the third factor of Political Stability and Legal Environment, which relates to their tensions with Kosovo and the case of corruption. Although there is some improvement in this area, the subsequent part of this text will demonstrate that Serbia has not yet made the necessary steps toward the actualization of stability. Corruption, along with several other problematic features contributing to national malaise, stand in the way of proper economic prosperity and development. Corruption remains an ever-increasing issue in the country, with especially problems relating to, getting electricity, paying taxes, protecting minority inversion and enforcing contracts. Following Macedonia, Serbia holds the scores high on corruption, relative to their neighbours in the Western Balkans.

However, Serbia faces several other challenges. State-owned enterprises (SOE’s) amount for great expenditure, yet sabotage private investments, innovation and competition. The many loans, subsidies and other payments would bear more fruit in private companies or multinational’s. To increase efficiency, these governmental financial distributions should be redirected elsewhere. Consequently, small businesses would thrive in the new field of competition and access to finance. For larger companies, the main issues in regard to a deficit of proper corporate governance and the acceleration of debt. Serbia would benefit from tackling issues regarding corruption, SOE’s and bad governance – especially in the wake of potential EU inclusion and rise of FDI’s.

Overall, Serbia is experiencing hopeful developments towards more stable economic balance and prosperity. This is in part due to their attractiveness for foreign businesses and investors. However, their political instability, democratic backlashes, corruption and mismanagement of domestic business stands in the way of achieving the self-actualization Serbia needs. In order for the country to improve its business- and investment climate, it should focus on taking away barriers and guaranteeing stability, which would result in an even further improvement of the country’s situation.