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Successfully investing in Serbia

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last updated on 16 June 2023 | reading time approx. 3 minutes

 

 

 

How do you assess the current economic situation in Serbia?

The Serbian economy has proven to be resilient despite facing significant challenges in recent times. These chal­lenges include soaring food and energy prices, domestic electricity shortages, regional droughts, slow growth of trading partners, and stricter global financial conditions. Despite these obstacles, the economy still achieved a real GDP growth of 2.3 percent in 2022 and is pro-jected to grow around 2 percent this year due to tight macroeconomic policies and weak trading partner growth. Despite these challenges, the 2022 fiscal out­come exceeded expectations, with favorable current account balances and reserve outcomes. The country's ongoing reforms are expected to drive growth to 3 percent by 2024, and to reach a potential of about 4 percent in the medium term.

Inflation has peaked and is expected to start falling soon. Headline inflation surged to 16 percent in February 2023 due to higher food and energy prices, while core inflation also rose to 11 per-cent. However, inflation ex­pec­tations have stabilized in recent months, and remain within the Na-tional Bank of Serbia’s (NBS’s) inflation corridor at longer expectation horizons. Inflation is ex-pected to decrease gradually as tighter policies take ef­fect and energy and food prices start to stabilize. By 2024, inflation is expected to fall within the NBS's target tolerance band. The current account deficit is also expected to decrease as a percentage of GDP in 2023, as a result of lower energy imports and strong exports. Over the medium term, the current account deficit is ex­pec­ted to decline to below 5 percent of GDP. 

 

How would you describe the investment climate in Serbia? Which sectors hold great potential?

According to the International Trade Administration, Serbia has taken steps to improve its invest-ment climate through macroeconomic and fiscal reforms, resulting in a more positive environment for foreign investment. Despite challenges such as bureaucratic delays, U.S. investors have been optimistic about Serbia's strategic location, low labor costs, and investment incentives. The gov-ernment has prioritized economic growth and job creation, implementing reforms in various sec-tors. However, some reforms have yet to be fully implemented, and the state-owned enterprises still pose a challenge. Also, the conflict between Russia and Ukraine has not significantly impact-ed Serbia's banking system, but inflation and supply disruptions may occur in the future. Never-theless, Serbia's trade with Russia is limited, with agricultural exports potentially suffering due to sanc­tions.

The latest report by the national investment agency shows that Germany, Italy, and the U.S. are the top three countries with the highest amount of FDI stock in Serbia, followed by France, Aus-tria, and China. In terms of the number of projects, the automotive sector tops the list, followed by agriculture, food and beverage, textile, electrical and electronics, and construction. The National Bank of Serbia also reports that the country received $4.4 billion in foreign direct investment in 2022. 

 

What challenges does a German entrepreneur face when engaging in Serbia?

German companies have been investing in Serbia for two decades now. They continue to be in-terested in the country due to its economic ties, similar mentality, and English-speaking citizens. The automotive industry is a significant focus for German investors, with companies such as ZF and Fischer Group opening factories in Serbia. Fischer Group chose to invest in Serbia due to the country's competitive investment climate, lack of language barriers, and excellent knowledge in the field of automotive technology. We can also confidently say that Serbia has become a manu-facturing hub due to its network of trade agreements, strategic location, duty-free exports, and highly skilled workforce. The cost of operating a business in Serbia is among the lowest in Europe due to its low corporate tax rate, salary tax rate, and VAT rate, as well as low prices for various services. The government has improved the business environment, but the country is still ranked 86th in the world for ease of doing business. Local help can be valuable due to the challenges associated with obtaining con­struc­tion permits, paying taxes, trading across borders, enforcing contracts, and resolving insolvency.

 

Germany is Serbia's most important trading partner worldwide. Russia and China also have their eyes on Serbia. What does this mean for German engagement?

There is proverb in Serbia, “first come, first served”. However, there is big problem to determine who came first. Is it first Germany whose miners gave the strength to the medieval kingdom of Serbia, and which knights did the core of the armored force? Or it was Russians, with whom Serbs shares the religious and cultural con­nec­tions and without help from them there would be no independent Serbia in 19th century? In reality in Serbia, there are many people who can have all. Most of the families nowadays have some member in Germany or in other countries of EU, but there are too many who did work in Russia and get enough to send youngsters to the Germany/EU.

We do not see any problems as we are doing business. In business it seems that German companies are wor­king together with Chinese companies in several industries and regions in Serbia. 
 

In your opinion, how will Serbia develop?

In December 2022, the Council acknowledged Serbia's progress in the accession negotiations but emphasized that developments in the rule of law, fundamental rights, and the normalization of relations with Kosovo are essential and will determine the pace of negotiations. Therefore, even though we can confirm that Serbia is developing towards the EU, we also must notice that, cur-rently, 2025 still doesn’t seem realistic as an ac­ces­sion date.

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