The International Monetary Fund projects Serbia’s growth to reach 3.5 percent this year, while the World Bank suggests the potential for higher GDP growth. These forecasts hinge on continued foreign direct investment, essential for financing. Economists emphasize the importance of private investments, suggesting that they should constitute at least 25 percent of economic activity to sustain stable GDP growth at around five percent annually.
The focus now shifts to identifying the barriers hindering growth and development for Serbian businesses. Nebojša Matić, owner of Mikroelektronika, a company with 22 years of experience in exports and employing a hundred workers, highlights the absence of a tax credit that once facilitated investments. Previously, tax credits eased investment endeavors, but the current lack of such incentives poses challenges for businesses like Mikroelektronika.
Serbia stands out in Europe as the sole country offering tax credits exclusively to large companies, neglecting support for small and medium-sized enterprises (SMEs), as noted by the Center for Advanced Economic Studies (CEVES). While substantial funds are allocated to attract foreign companies, domestic SMEs receive minimal support. CEVES advocates for reinstating tax credits for SMEs and enhancing support programs tailored to the domestic SME sector. They propose initiatives akin to Ireland’s model, with dedicated agencies for investment attraction and domestic company internationalization.
Despite Serbia’s modest total domestic investments, which fall below the regional average, the Development Agency of Serbia provides support programs for SMEs, including subsidies up to 200,000 euros per enterprise. Additionally, state support has facilitated approximately 90 companies in becoming suppliers to multinational corporations since 2018, with subsidies totaling around 10 million euros.
The director of the Development Agency of Serbia, Radoš Gazdić, outlines existing tax exemptions, including profit tax exemptions for companies investing over eight million euros in equipment and buildings, and hiring over 100 new employees. However, discussions about reinstating tax credits remain inconclusive, with no plans outlined in the fiscal strategy for the coming years.
While the tax credit on investment equipment could enhance modernization and productivity, alternative measures such as subsidies for equipment purchases are available through the Development Agency of Serbia. Despite these efforts, some argue that the focus remains disproportionately on foreign investments, underscoring the need for a more balanced approach to support both domestic and foreign investors.
In the quest for economic growth, Serbia faces challenges in aligning incentives to spur investments across all sectors. Balancing support for SMEs and attracting foreign investments requires nuanced policy adjustments to foster sustainable economic development.
