Foreign factory closures: Little hope for laid-off workers

Closure factory which operated thanks to the investment foreign direct investment, and which are leaving or announcing that they will leave in search of even cheaper labor Serbia, leaving a large number without work workers. This is a particularly big problem for smaller towns that often live off such factories.

Since accidents never happen alone, the state is, it seems, completely unprepared to respond adequately to the closure of factories, and the interlocutors of "Vremen" warn that the workers who lost their jobs will face a very difficult and uncertain future.

"Homegrown Haitians - modern cable winders"

Economist Goran Radosavljević points out that such a scenario could be expected because Serbia almost 20 years ago set up a business model based on subsidies and cheap labor that attracted foreign direct investments.

That business model, however, is exhausted because there is generally a shortage of labor, so even Serbia has started importing it, and the one available on the domestic market is no longer cheap.

"It was logical to expect that when the subsidy cycle, which lasted for about 10 years, ended, companies would start looking for other countries. Meanwhile, Serbia failed to attract enough industry with a larger, high added value, because foreign direct investments were mostly in the so-called traditional sectors, and when they were in high-tech sectors, then they were low-level processing and manual work. In Serbia, even programmers are 'modern cable winders', because they do some small code in to a large software chain that is made in Silicon Valley or somewhere else," says Radosavljević.

He says that at the moment it is very difficult to say what the state can do, but that it should certainly try to attract some different foreign direct investments, but also to encourage the growth of domestic investments because they are completely neglected "since we gave everything to foreigners and very selectively to domestic entrepreneurs".

"When you look at the decomposition of economic growth into the effect of labor, the effect of capital and the effect of technological progress, the latter, which contributed to economic growth in Serbia in the previous 15 or so years, is significantly lower than in the countries of Central and Eastern Europe. This means that we did not attract companies that pushed economic growth through technological development, but only through employment. Serbia did have a high unemployment rate, but it is no longer there, now it is in single digits, and one could say that it is at an approximately natural level," he says. Radosavljevic.

"Serbia is getting further away from the European Union"

He notes that, if the country wants to attract foreign direct investments with a higher degree of processing and added value, there must be an environment in the country that favors them, and that Serbia is unfortunately "further away from the European Union" and that, according to him, Montenegro and Albania will enter the EU before Serbia, which gives negative signals to investors not to come to us.

"This also brings us to the connection between education and the labor market, how many personnel are trained in Serbia who could work in industries that come with foreign investments, and there is also a literal exodus of qualified labor from Serbia to Western countries. In 2024, for the first time since 2012, we had a record inflow, but also a record outflow of foreign direct investments, so that only about 300 million euros remained in Serbia from that money, while previously it was even and around 1,5 or XNUMX billion euros," notes Radosavljević.

He also reminds that Serbia had an "accident with the auto industry" that it attracted and which is a good example of a high stage of processing, because with the problems that the auto industry has in Europe, that segment will also slowly begin to close in our country, which can be seen by the fact that it has not started and it is not known when the production of a new car model will begin.

He adds that Serbia still has comparative advantages such as food production that is not sufficiently exploited, while emphasizing that he is not referring to the production of grain and corn, which is currently being done, but to high processing.

He cites confectionery and the milk and dairy products industry as good examples and opportunities, but he also points out that the meat industry is probably not used "even two percent" in relation to the capacities and emphasizes that investments should be made in those segments, "and not that the arrival of the Tenis company from Germany is the most hyped, as if we don't know how to breed pigs".

There is no "unicorn"

He adds that the IT industry also offers many opportunities for Serbia, because the investments in it are relatively small and the opportunities are great.

"Serbia has had a solid IT industry for a long time, but there are no so-called 'unicorns', i.e. companies that started from scratch and later, in a short period of time, were sold for billions. People need to be offered a safe environment, that is, institutions that do their job, and we don't have such institutions, then security in business, that is, that no one will racketeer and blackmail them, which often happens," says Radosavljević.

In certain segments, such as food production or the construction material industry, where Serbia used to be very good, the state should provide subsidies, incentives and concessions that would first help those companies to be strong on the domestic market, and then to help them break into foreign markets.

"Unfortunately, we missed the chance to have a large domestic retail chain that could become a major regional player, because such a chain would enable us to market our agricultural products throughout the region. We should work on this, because there are private retail chains that could become such in the future," says Radosavljević

Foreign direct investments will no longer increase the income of the population, because they will leave more than they will come, because even when they came, they did so with salaries for workers of 200 or 250 euros and large subsidies, and now the average salary in Serbia is around 800 or 900 euros.

"Those companies no longer have a calculation, they will go to the former Soviet republics and find a way to maintain their level of profit. Turning to the domestic economy is not easy, even much more economically strong countries have not succeeded, and we missed that chance - to use the arrival of large companies like Fiat to include our companies in the value chain of that foreign company. When you include a domestic company in the value chain of global companies, those domestic companies remain in that chain, even when the global companies leave the country. This kind of inclusion Slovakia and Hungary did a phenomenal job," concluded Radosavljević.

"The state's answer is impossible"

Economist Milan Kovačević is very skeptical about how the state could react to the fact that foreign companies are leaving, and many workers are left without a job.

"The state's response is impossible, it will continue to happen, because Serbia has always attracted foreign investment on the basis of cheap labor. Wages are growing all over the world, and Serbia cannot be an exception. It is a huge shame that Serbia sold off its companies, banks, insurance and land, and attracted foreign investment, while completely neglecting its own economy. First of all, we should acknowledge the mistakes that have been made, due to which Serbia is among the countries with the highest inflation and does not have a stable economy, and then we should see how the country can in the next five or 10 years, it will develop its economy", believes Kovačević.

He points out that the workers who were fired when foreign factories withdrew from Serbia cannot be the basis for the development of the domestic economy, because they did not acquire the necessary knowledge through their work in those companies, because it was not required of them, nor did Serbia pretend that they should be trained in this sense.

He reminded that in the era of socialist Yugoslavia, the percentage of foreign investments in domestic companies was limited to 51 percent.

"Back then, every foreign investment had the goal of becoming our own, and at that time we acquired technology in all foreign investments, and now it's the other way around - foreign investors are being served," says Kovačević.

As an example, he cites Switzerland, where every joint-stock company must have a governing body with at least one Swiss citizen as a member.

Serbia attracted investments that no one else wanted

He also reminds that the policy of attracting foreign investments was based on the principle that Serbia will accept investments that no one wants.

"The president said: 'Whatever someone offers you, we will give you more'. This means that we measured foreign investments mostly by the value of the investment, which is wrong. For us, the best foreign investments were those in which there were no investments. The whole approach to foreign investments in Serbia was completely wrong," says Kovačević.

He warns that there is "not much hope" for people who have lost their jobs due to the closure of a company created by foreign direct investment.

"They can't help anyone to earn an income, and the only way to help them is to increase taxes on those who work, so that we ruin them too, or we go into debt, because there is no money. Our tax system has several hundred duties, which you will not find in other countries, and in the past period, Serbia has already borrowed huge amounts, and that for the public sector. We are only talking about public debt abroad. We gave too much money to foreign companies, and nothing from them, except that employed people, we did not acquire anything. They, on the other hand, did not invest their money, but took loans in their own countries and used it here. Those so-called private debts of all kinds should be added to public investments, and then we would see how big our debt is to foreign countries," says Kovačević.

He concludes that domestic investments in the economy have been completely neglected until now and that it is not easy to initiate them, because this requires first of all good ideas, but also the existence of a potential market on which the products would be marketed.