Are we under threat of a new recession?
Some of the leading economists have announced the possibility of a new world economic crisis in the press, and this issue was tackled during the Forum. “It’s interesting that at 2008 Davos, seven months before the Lehman Brothers bank bankruptcy, nobody talked about the crisis. At the following forum, they talked about the post-crisis period, while the greatest public debt crisis occurred in 2011. Our [Serbian] fiscal position is better than it was in 2008, not just due to the balanced budget, but also because of the lower allocations for salaries and pensions compared to the gross domestic product,” said Aleksandar Vlahovć, the former Minister of Economy and the President the Serbian Association of Economists.
Mr. Vlahović also pointed to another trend that implies that Serbia will cope with potential global economic turbulences more readily — the fact that the public debt has decreased from 75% of GDP at the end of 2014 to 56% of GDP at the end of 2018, although it’s still higher than it was before the 2008 crisis.
Dragan Đuričin, the president of the Serbian Association of Corporate Directors, has given more pesimistic prospects, as he implied that there are numerous speculations about the forthcoming crisis, as well as that the political climate leaves no room for optimism, given the currency, trade, and technological conflict between two great forces, China and the United States of America.
Low economic growth
Several participants talked about the problem of the low economic growth of Serbia, i.e., about lagging behind other developed economies.
Dušan Vujović, the former Minister of Finance of Serbia, said that Serbia would have to introduce fundamental changes in its approach to economy so as to catch up with developed countries. “In order to catch up with the rest of the world, we have to change the modus, we have to switch from walking this rocky road barefoot to flying. So, we have to change our way of operating completely, and that means to embrace digital transformation,” Vujović said.
A few days before his speech at Kopaonik Business Fforum Vujović said in an intervew for Belgrade TV channel N1 that it would take Serbia as many as 185 years to reach the average purchasing power of the European Union if its economic growth rate stayed the same. He also said that “we can reach up to 5.6 per cent or 7 per cent with the current model. And that is the model where the private sector has limited investments, infrastructure plan has holes, there isn’t enough educated labor force, investments in innovation or investment stimulation, for that matter. Under such conditions, it will take us 40 years to catch up.”
Dejan Šoškić, professor at the Faculty of Economics, University of Belgrade, and the former Governor of the National Bank of Serbia, made a similar point. Mr. Šoškić said that “our system is utterly undeveloped, unable to truly support our economic growth.” According to him, as a consequence, Serbia lacks financial support for those economic sectors that play the pivotal role in economic growth.
Petar Petrović, an economist and the president of the Fiscal Council, considers current economic growth to have rather dim prospects. He said that in theQ4’18 there was a sudden slowdown in economic growth, from more than 4 per cent to 3.5 per cent. The reason for that, according to his estimates, lies behind internal factors, considering that there was no similar situation in other economies of Central and Southeast Europe (CSE). The factors that led to the economic slowdown include decrease in coal production by 12 per cent (which affected the GDP decline in 2018 by 0.25 percentage points), slow production growth of “Elektroprivreda Srbije” (instead of the production growth of 10 per cent, they had only 1 per cent increase).
Mr. Petrović believes that “Elektroprivreda Srbije” (EPS) is the main obstacle standing in the way of a more dynamic economic growth. According to him, out of all state-owned companies that should be reformed, EPS is a priority.
He finds the weak investment policy to be another cause of slow growth. “Investments in infrastructure have remained the same as last year. Additional funds were invested in military and police equipment. Alright, that can be a political decision, but it must to be clear what consequences it brings about, i.e., that it does not generate economic activity,” Mr. Petrović pointed out.
Miroljub Labus, an economist and the former Minister of Foreign Economic Relations, considers domestic investments to be one of the ways towards a better condition in the economy. His analysis shows that private, domestic investments in Serbia are declining. “The question to ask is why our entrepreneurs do not invest,” Labus pointed out. “Many of our entrepreneurs think that they are discriminated against foreign investors. We have a budget surplus. My suggestion is not to invest in pensions, not to purchase airplanes, and to reduce income tax by 5 per cent. We should let companies accumulate capital and invest,” he added
One of the key points of the economic policy of the Serbian government is digitalization, so this topic was discussed from different angles. Kirill Tyurdenev, the CEO of Naftna Industrija Srbije (NIS), said that the company is making a considerable effort to ensure digital operations. Nonetheless, he also pointed that digitalization still cannot substitute for the key segment of a company — its personnel potential.
Nebojša Đurđević, the CEO of Digital Serbia Initiative, presented a review of startups in Serbia that mostly do business in the digital world. According to him, more than EUR140m was invested in this sector, though that was primarily foreign capital. According to his estimates, there are around 200 startups in Serbia, 45 per cent of which didn’t get external financing of any kind. They relied primarily on their own funds, or those obtained from family and close associates.
Zoja Kukić, Program Director for Startup Ecosystem in the Digital Serbia Initiative, also pointed out that digitalization is among the most significant topics when it comes to Serbian economy. She said that one third of all the panels at this year’s Kopaonik Business Forum revolved around digitalization, which was twice as many compared to last year, and compared to the 2017 Forum when these topics accounted for only about 5 per cent, we can see that there’s been a significant increase. She expressed her concerns about digitalization domains, given that there are no major corporate investments in startups “that are of crucial importance for innovation in this area.”
Finally, participants mentioned some good examples of cooperation between established and startup companies — Direct Media company, which deals with platforms for creating video content, automation of internet advertising, and statistical analysis of real time TV viewership, and “Telekom Srbija.” Also Milorad Bjelogrlić, Telekom CEO, said that his company is planning to open “Digital factory” in Belgrade, a hub for operating with startups where they can expand their knowledge and improve their skills. At the end of the training, “Telekom Srbija” would choose one of those startups and invest directly in it.
Milica Milojević is an economist and analyst, a part-time economic journalist with corporate, banking, and consulting experience. She has written papers on monetary and political economics, and economic history of Serbia and the Balkans.