Will foreign investors start leaving Serbia because we no longer provide affordable labour?
Although government officials often brag about the arrival of numerous foreign companies in Serbia, it is noticeable that in recent years, foreign investors have been leaving the country in much higher numbers than usual.
The Benetton factory in Niš has informed workers that production will be shut down by April, without providing any specific information about the fate of the employees.
This is just one of several companies that have ceased operations in Serbia in recent years, leaving workers at the mercy of other companies and the state. A common feature among many of these foreign investors is that they received significant state subsidies. The reasons for this situation vary, but one of the most prominent is certainly the crisis in the automotive industry, which is shaking Europe and the world, and whose effects are spilling over into other sectors.
Another reason why foreign investments are withdrawing from Serbia could be that they are relocating to other countries with more favourable business conditions. This is supported by a previous statement from Serbian President Aleksandar Vučić, who said that Serbia “no longer has cheap labour.”
Milorad Filipović, a professor at the Faculty of Economics in Belgrade, points out that despite its well-known brand name and the huge amounts invested in marketing, Benetton operates in a low-margin and low-profit sector. He adds that more than 20 years ago, he used Benetton as an example in lectures to his students.
“Even back then, all production was taking place in Asia (Pakistan, Sri Lanka, Vietnam), while in Italy, only strategic development, product design, finance, and high-level management were based,” Filipović explains.
According to him, Serbia may have been an attractive location for Benetton more than a decade ago.
“Firstly, because of the financial incentives it received and secondly, due to the low labour costs and generally low unit production costs, such as electricity and utilities. The arrangement suited both sides, as it employed a large number of previously unemployed, low-skilled workers. This gave the government significant political gains and a large base of supporters. However, in the meantime, around 50,000 young people leave Serbia each year, fewer children are being born and our demographic statistics are alarming,” he warned.
Another reason why some investors are leaving is that Serbia has become heavily reliant on the automotive industry, primarily from Western countries. This strategy worked to some extent.
“But after the COVID-19-induced crisis, the entire European automotive industry, especially Germany, has fallen into a deep crisis of competitiveness, lagging behind in all aspects of car development and trailing Asian manufacturers,” he points out.
According to him, apart from the “weak” Fiat (Stellantis) factory, Serbia has failed to attract any major car manufacturer to establish production in the country.
“We are still merely component suppliers, which is always a weaker position with lower margins, meaning dependence on the final manufacturer. As a result, part of Germany’s crisis has also spilt over to us,” Filipović explains.
The main causes of the automotive industry crisis in Europe, he says, are the forced “transition” to more expensive energy sources and the severing of ties with Russia.
“That is why alternatives are being sought in Jadar. ‘It won’t happen,’ say the people of Jadar, and many others. So, if you shoot yourself in the foot, don’t look for ‘help from friends,’” Filipović remarks.
He concludes that Serbia is no longer a country with an abundance of cheap labour.
“Moreover, unit production costs are far higher than they were 10 or 15 years ago, meaning our competitiveness in investment sectors such as textiles, footwear, and other unprofitable industries has significantly declined. Serbia needs to encourage entrepreneurship among a wider segment of the population for productive, innovative investments instead of focusing on buying and renting real estate, land, and gold,” Filipović states.
Economist Aleksandar Stevanović says that in any business, it is normal for some companies to fail, some new ones to emerge, some to merge, and others to relocate their operations. In his view, the same applies to foreign direct investments in Serbia, which, as he puts it, “entered our comfort bubbles for foreigners.”
“These investments were attracted ten years ago when we were literally solving the problems of the hard-to-employ and poor classes in Serbia by bringing in the lowest-quality investments,” he points out.
The time for such investments has passed, Stevanović underlines.
“A Serbia where the minimum wage is 500 euros and the average salary is 1,000 euros simply is not a place that, no matter how much you flood it with subsidies, will be attractive for genuinely low-tier jobs such as mass garment production,” he explains.
Mayor of Niš offers support for Benetton workers facing redundancy
The Mayor of Niš, Dragoslav Pavlović, has confirmed that Benetton, which has been operating in the city for 15 years, will shut down its production facilities within the next two months, leaving around 900 employees without jobs. He has promised support for the affected workers, stating that this is “a major problem and a significant blow to the city,” but assured that the city administration will not stand idly by and will actively work to address the issue.
“In cooperation with the Ministry of Economy, the Government of Serbia, the National Employment Service, and the Serbian Chamber of Commerce, we will prepare measures to mitigate the difficult situation faced by all those who have worked at Benetton and who are currently employed but will lose their jobs within the next two months,” Pavlović said, as reported by Beta.
According to him, in the coming months, Benetton workers will be offered suitable job positions in other companies, as there is a demand for labour in Niš.
“As in previous years, we will implement active employment and self-employment measures for all those who wish to start their own business, as well as for hiring individuals from hard-to-employ categories and those who are considered essential in the labour market,” Pavlović stated.
He added that the city will assist Benetton workers in registering with the National Employment Service so that they can receive compensation in accordance with their years of service.
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