Sormaz: Serbia’s economy dependent on crime and sanctioned russian entities

Written by Dragan Shormaz for The Geopost

After several years of economic growth and the attraction of significant Foreign Direct Investments (FDI), Serbia’s economy has begun to show symptoms of a serious crisis and the unsustainability of the current development model. During this year, FDIs have virtually halved, due to the presence of significant risk factors and structural problems that make Serbia increasingly less attractive to foreign investors.

According to the latest data from the National Bank of Serbia, instead of the previously forecasted growth of 4.5%, the GDP growth for this year will be only 2.8%, while FDIs have marked a decrease of as much as 54% (those from China—an unbelievable drop of 94%!). Although the government blames political disagreements accompanied by protests and blockades that have characterized political processes in the country over the last 11 months for these disappointing economic results, the real causes are much deeper and more serious.

One of the reasons for the slowdown of the Serbian economy is related to external factors that reflect the state of the European economy and consequently the reduction of cross-border investments coming from that side. This trend has hit Serbia particularly hard, as the overwhelming majority of FDIs come from EU countries—a deficit for which Serbia has been unable to find a replacement. The illusion of finding replacement investments in Asia proved to be a childish ambition of Aleksandar Vučić, which was shattered by reality. This is clearly demonstrated by the complete disappearance of Chinese investments, which last year in Belgrade were confidently claimed to have taken priority over those from EU countries.

The second and much more important factor in the collapse of Serbia’s image as an attractive investment destination lies in internal factors, a result of the Belgrade regime’s misguided policies. First and foremost are the geopolitical uncertainties stemming from Serbia’s unclear strategic orientation and positioning, which is only interesting to foreign investors as a country with facilitated access to the EU’s common market. As a relatively small market (which applies to the entire Western Balkans region), investing in Serbia makes sense only in the context of an easier and more competitive entry into the EU market. Any questioning of the continuation of the country’s European integration constitutes an alarm signal for foreign investors and a clear indication to avoid Serbia as a desirable investment destination.

At a time when the EU and the Trump administration are strengthening sanctions against Moscow, Vučić’s stubborn behavior and his continuous refusal to impose sanctions on Putin’s criminal regime only discourage capital, both foreign and domestic, from investing in the Serbian economy.

Uncertainties related to the future supply of oil and gas—which are also a consequence of the mistaken geopolitical positioning—are an additional negative factor that drives foreign investors away from Serbia. Instead of becoming part of the European package of solutions for the energy security of the entire continent, Vučić has insisted for years on a pseudo-independent policy of military, and increasingly political, neutrality. Thus, he has brought the country into a position of vital dependence on criminal and sanctioned Russian entities—a problem that cannot be overcome without the help and solidarity of the EU.

However, the question arises: What has Serbia done to deserve this help from the EU, when it itself chose the role of the Balkan drowned person who, like a blind passenger, uninvitedly climbed onto Putin’s Titanic?!

As long as energy insecurity stands like the Sword of Damocles over Serbia’s head, foreign investors will not risk their money by investing in a country towards which Vučić behaves irresponsibly and exceedingly adventurously.

In addition to the mentioned factors, foreign investors are also driven away by widespread corruption, legal uncertainty, and a misguided monetary policy that has led to the overvaluation of the Dinar, as a result of maintaining a fixed exchange rate for the national currency—and this in conditions of a cumulative inflation of as much as 82% from 2012 to today. This means that production in Serbia (including the cost of labor, which was previously its competitive advantage) has become excessively expensive, especially for export-oriented sectors, given that everything in the country has almost doubled in price, measured in Euros, over the last 13 years.

This is precisely the reason mentioned by the owners of the company Kentaur when they closed their production in Vranje a few days ago. The company Leoni has done the same, and an increasing number of investors are leaving the south of Serbia!

Having lost these comparative advantages, Serbia should have already built new ones—first and foremost in the field of high-tech development. But given that investments in innovation constitute only 0.99% of GDP, which is at the level of poor countries of the Global South, it is clear that Serbia has lost the opportunity to connect with the developed world.

Corruption is another reason why foreign investors, as well as domestic ones, bypass Serbia! In 2023 alone, Serbia spent 7.1 billion euros on contracts excluded from the application of the Law on Public Procurement, or 97% of all public procurement that year! In 51% of tenders, there was only one bidder! Obstructing the investigation into the case of the collapse of the roof of the railway station in Novi Sad is only the tip of the iceberg in the chain of corruption that Vučić has created after signing intergovernmental agreements (with China, Arab countries, Azerbaijan…) for large infrastructure projects.

Instead of responding to all these challenges with a clear political stance, Vučić has plunged into the rhetoric and politics of the 90s, with a noticeable tendency towards isolationism and a slide into economic catastrophe. In the end, the essential question remains: When the country runs out of oil, gas, and economic perspective, will the citizens of Serbia be able to live and drive their cars with the help of Russian propaganda that is offered to them today as a solution?

The only thing that makes the horizon ahead somewhat more optimistic than in the 90s is geography and the fact that, unlike then, the world is no longer in those dark years. Serbia is surrounded by NATO and EU countries, while dreams of the Russian army reaching the Danube have remained only a vain hope of Serbian Russophiles—just like the hopes that oil smuggling along the Danube will bypass US sanctions against Russian NIS. Whatever Vučić and his neo-radical followers do today, the general climate in Europe will melt the Russian ice with which they are trying to freeze Serbia!

However, without our active commitment, it is difficult to achieve something more important for our society than foreign direct investments—and that is the healing of the nation from the “virus” of Russian lies!

We MUST clearly renounce the concepts of the “Serbian world” and “Serbian integralism,” and orient ourselves towards Serbia’s membership in the EU and NATO, because only in that world will we have peace, democracy, sovereignty, independence, stability, freedom, and prosperity for the state and every individual!

This is the only right national program for today’s Serbia, and true patriots are only those who commit to this solution to the problems that are crushing the country today!