Date: 19/02/2019

A quick look at the Serbian economy - Jelena Pavlović, the President of AmCham Serbia

"Better, faster, stronger – for real this time" - Two thirds of AmCham’s members have no staff on the minimum wage, and 96 percent of them use no investment or employment subsidies. This segment of the Serbian economy drives economic growth, pays above-average salaries, and allows the rest of society to develop

In 2018, the world marked the tenth anniversary of the collapse of Lehman Brothers and the start of the global economic downturn. The crash deepened and laid bare all the vulnerabilities of Serbia’s economy that have their origin in the disaster we allowed to happen in the 1990s, but also in all the later mistakes, contradictions, and hesitations of our country and society.

It comes as no surprise to see people think of the past decade as time lost. How else is one to view a period that saw the average wage rise from 400 to 420 euros? Twenty euros in ten years.

It is a fallacy, however, to ascribe all of our problems to the weakness of the market economy and liberalism, because that is not the system we live in. We are a society trapped in transition, in a distorted hybrid model where nearly one-third of the workforce is employed in public administration and state-owned enterprises; privatization has never been completed; and the stock market has never entirely taken off. The government’s interventions have come in various shapes and forms, mainly as subsidies and tolerance of late payment and loss-makers. Insolvency law is not applied consistently, defeating the purpose of this key mechanism for removing unviable firms from the market and making room for healthy businesses to compete and grow.

At this time, the private sector makes up less than half of the Serbian economy. These companies seek limited government presence in the market, a level playing field for all, and better enforcement of contracts and private property. More than 200 of these businesses have come together in the American Chamber of Commerce. Contrary to widely-held negative preconceptions of ‘private firms’, two-thirds of AmCham’s members have no staff on the minimum wage, and as many of 96% of them use no subsidies for either investment or employment. These are vibrant firms whose operations and investments generate value, drive economic growth, pay above-average salaries, and allow the rest of society to develop. Today, they are obviously not in the majority, nor do they constitute the Serbian average. This is why strength of the private sector will in the future prove to be the best yardstick of our progress.

In spite of last year’s record inflows of foreign direct investment, domestic private investment accounted for a modest 9 percent of GDP. Businesses that already operate in Serbia will be encouraged to invest more only if the environment and their own experiences lead them to believe they will earn a return on their investment in a reasonable time. This is why we keep highlighting the importance of predictability and certainty and support all efforts to enhance the business environment through the creation of rules that apply equally to all, institution-building, and the rule of law. Absence of these features increases the risk of doing business, which incentives for individual industries or investors then attempt to compensate for. And this takes us further away from equality, a key precondition for a healthy market economy.
By institutions we mean a public administration and judiciary that we expect to be professional and efficient, since they are responsible for upholding the rule of law in our society. Will legislation be reliable, appropriate, and reasonable? Will legislation be applied equally to all? Will court cases be resolved quickly and fairly? Will we be able to enforce contracts and safeguard our rights and our property? The answers to these questions depend on the quality of institutions, and these, in turn, hinge on the soundness of their constituent processes and people.

In spite of everything, 2018 has given us cause for optimism: Serbia has remained macroeconomically stable, cut its public debt, and seen high growth even under fiscal consolidation. Serbia, one of Europe’s least developed countries, will have to record above-average growth rates in the coming years to make up for its historic lag. Apart from having to preserve macroeconomic stability, we also face the formidable and important task of creating institutions fit for a market economy.

If there is one thing that everyone in Serbia can agree on, it is that we must be better, faster, and stronger. Let us then be so – lest we remain stuck in lost time for the next ten years as well.