Foreign direct investments (FDI) in Serbia reached a historic high of €5.1 billion last year, with China emerging as the top contributor in terms of invested funds.
The mining and construction sectors attracted the most FDI. Data obtained by Nova Ekonomija reveals that the proportion of entirely new investments within this total is at its lowest historical level, with most investments coming from investors already operating in Serbia.
“If we look only at greenfield investments, we should be dissatisfied. However, if we consider total investments, the overall category is not bad, especially in these times when investors are scarce,” said Ljubodrag Savić, a professor at the Faculty of Economics in Belgrade.
According to Savić, there isn’t a significant difference between investments made by existing investors (reinvestments) and entirely new ventures, as their effect is “the same.”
Europe in trouble
“The key answer is that Europe is in trouble, America is making significant strides forward, and China is somewhat on the defensive. This could be one of the reasons for the lack of new greenfield investments—not because they don’t want to come to Serbia, but because Europe is imposing conditions, particularly targeting the Chinese. That’s why there aren’t new investments, and when you already have existing investors, it’s easier to reinvest,” Savić explained, adding that Germany’s economic problems are also a contributing factor.
In 2022, which was the best year for greenfield investments in the past five years, such investments amounted to €1.3 billion out of the total FDI inflow.
In other years, Serbia did not reach this level. For instance, in 2020, new investments totalled €820.2 million (out of a total FDI of €3 billion), and in the following year, they amounted to €885.2 million (out of €3.44 billion total FDI). However, last year saw a decline, with greenfield investments amounting to €679.2 million (out of €4.5 billion total FDI). This year, the figure has dropped further to €244.6 million so far, according to data from the Serbian Development Agency (RAS). The agency did not provide a precise date but noted this is the “latest data” in their database.
Causes of declining greenfield investments
Nikola Avramović, Senior Director for Financial Consulting at Alvarez & Marsal, stated that greenfield investments in Serbia have significantly declined due to several factors.
“Europe is facing slow economic growth, rising inflation, and increased energy costs, leading to a 4% drop in FDI across the continent. Eastern Europe has experienced a significant 44% decrease in greenfield investment projects compared to the same period last year. Investments from countries like Germany have particularly declined, especially in the automotive sector, due to economic slowdowns in those countries,” said Avramović, explaining this as a combination of global, regional, and sector-specific challenges.
Avramović also noted that greenfield investments come with certain challenges, the most significant being an overreliance on foreign investments. Balancing foreign and domestic investments is essential as a prerequisite for the country’s stable, long-term development.
Rising labour costs
Greenfield investments play a vital role in the economic development of any country, particularly in transitioning economies or developing markets like Serbia, where they have been instrumental in fostering industrial growth and attracting significant FDI.
However, one of the reasons for the lack of new investments in recent years is the rising cost of labour in Serbia, according to Nenad Gujaničić, Chief Broker at Momentum Securities.
“On the other hand, there are fewer subsidies, as many of these investments were tied to per-job subsidies. The industrial sector from the eurozone, which has operated extensively here, is another reason. Given their challenges, they won’t lay off German workers before Serbian ones,” Gujaničić explained.
Subsidy allocations
The proposed budget for this year allocates RSD 27 billion for subsidies to business investors.
The 2024 Serbian budget plans for RSD 26.96 billion in economic subsidies, while the 2023 proposal earmarked RSD 25.3 billion. By comparison, subsidies amounted to RSD 15 billion in 2019.
(Biznis.rs, 15.01.2025)
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Publish date : 2025-01-15 01:58:00
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