During the past year, a high influx of foreign capital into Serbia continued, estimated at around 4.5 billion euros. Foreign direct investments constitute almost six percent of the GDP, and in recent years, they have accounted for about 30 percent of total investments. The influx from foreign direct investments from January to October of last year amounted to 3.7 billion euros, which is eight percent more than in the same period the previous year.
As stated in the latest analysis by Macroeconomic Analyses and Trends, simultaneously, the largest part of that profit is leaving the country, and last year it amounted to a staggering 2.7 billion euros.
Out of this, 1.6 billion euros went to dividends, while 150 million euros went to the interest paid by foreign investors across the border. Economist Ivan Nikolić told Euronews Serbia that it is crucial to consider the actual amount of profit that went out through dividends.
“This is a significantly smaller amount than the 2.7 billion, for the 11 months of last year, it is 1 billion and 623.6 million euros,” Nikolić said.
He stated that profit is the key motive for foreign companies, and they primarily come to Serbia to earn money, not necessarily with the intention to invest in and develop Serbia.
“That is legitimate, it is good, and it is healthy and sustainable. So, when you earn, you can either reinvest it here, meaning expanding new capacities. Since it mostly involves large multinational companies, according to their business policy, they can reinvest that part of the profit in other areas or expand their operations,” said Nikolić.
He mentioned that the net inflow of foreign investments completely covers the foreign trade and, above all, the current account deficit.
“When we consider all outflows of foreign investments, including invested profit, dividends, net outflows, and interest – the remaining amount, which is these 1.228 billion for 11 months, fully covers the current account deficit, which amounted to 1.1 billion during that period. This is very important; it is essentially the source of a favorable situation in our interbank foreign exchange market. We do not have pressure on the exchange rate, that’s why our currency is stable, not because of something in Europe or the world. Primarily because our economy is strong enough to export. This picture is quite good because of these foreign companies,” said Nikolić.
Are all foreign direct investments good?
The interviewee from Euronews Serbia, from the Economic Institute, believes that the trend of foreign direct investments will continue this year, despite challenging circumstances.
“The crisis is indeed significant and deep in Europe. Europe and the EU, collectively, are still the largest investors in Serbia. Individually, China is one of the leading investors, but when we look at it as a whole, it is undoubtedly Europe. In the first nine months of last year, investments from Europe amounted to 1.6 billion, and from China, 800 million,” says Nikolić.
Nikolić stated that the initiation of exports, job creation, and employment have been the greatest benefits of foreign investments for almost a decade.
“The majority of these foreign investors have gone into the tradable sector. In the past year, for those 11 months, we can see that 29 percent went into the manufacturing sector. This is crucial; it creates the product that is exported,” Nikolić noted.
He added that positive experiences with foreign investments come from the aspect of creating added value, especially in sectors related to high technologies.
“We have foreign companies that have entered, but at the moment, we have a very good position for some companies or sectors that belong to a lower to mid-level technological development pool. I am primarily talking about the production of basic metals; I’m talking about the Chinese investors who set up in Bor. At this moment, the production of basic metals is almost sustaining the manufacturing sector from sinking, as is the case, for example, in Germany or the Eurozone. There, the year-on-year decline is between 6 and 7 percent, while in our case, there is still a slight growth, which is very good,” assessed Nikolić.
He stated that the state should control the operations of foreign investors through its policies and measures, directing or channeling their desire to come to Serbia and operate towards sectors that are currently crucial and create greater added value. According to him, this is not an easy task, especially in this period of a serious global crisis, particularly in Europe.
He adds that there are both less favorable and negative experiences with foreign investors.
“We have experiences, of course, that some investors are not that good. The best example is from last week, Belgrade Airport, somehow consistently making mistakes and oversights that have a negative impact not only on the country’s image but also on the balance of payments, serving as a negative example for other foreigners coming to the country on how not to do business. So, we have such a picture, we have a picture of truly incredible results and experiences,” stated Nikolić.
