Why does Serbia import products it can produce itself?

"Who loses profit, gains loss." This famous quote from the Max Bunker and Magnus comic "Alan Ford" is considered one of the best satirical comics ever. It's known for its sharp humour, pointed social criticism, and fantastic stories, which I love to read. Although written to be entertaining, the dialogues in this comic often hide a message that, in the style of pop culture, makes you think. This quote, worn on a T-shirt by the character Grunf, contains a theme I decided to write about in this text.

We know that the COVID-19 crisis is not an isolated incident and that everything that has happened to us in the past year is not just a slightly longer storm that will eventually pass. We have completely changed our way of life and work, companies have had to adapt to the new situation, and the economy is facing significant challenges that will last for, it's now abundantly clear, several years ahead.

Although vaccination, as the only real way out of the crisis, has started in many countries, it is evident that the pace at which this process is taking place is too slow to stop this ongoing crisis, which, now, after a year, seems to be gaining strength. Adding to that the strong anti-vax lobby, as it's popularly called today, and its significant influence, primarily through one of the most powerful communication channels - social media, it's clear that this crisis, and then its consequences, will continue to trouble us for at least several more years.

Half to me – half to me

And the crisis has changed many things. Here, we will only focus on one, although the most essential element is the slow but sure halt of globalization and the philosophy of growth at all costs. Localization, as one of the conditions for sustainable development and long-term stability, if it hasn't already, will undoubtedly be on the table for all global corporations and economies. Will multinational corporations and powerful economies easily give up further growth, hence globalization as an economic process? Certainly not, and it's inevitable that each of these companies and economies will try everything to return to the same paths. Still, at this moment, it doesn't depend only on them.

Let's look at how the pandemic has affected, for example, supply chains. It is as clear as day that many companies will relocate their factories from China, India, Vietnam, and other countries that have opened up space for cheaper production and higher profits. If you want to import something from China today, for example, the cost of transport, provided you manage to get your goods on a ship, has increased at least three times compared to the pre-pandemic price.

Delivery times have been extended, and many goods are unavailable because states now primarily secure their needs and only then export. A good example was medical supplies and protective equipment, which, along with price increases several times, were often unavailable on the open market. I'll give you a few more examples: construction materials have doubled in price because there isn't enough, semi-finished aluminium products have tripled in price, iron prices are up 50 per cent, and sugar, oil, and flour have all gone up. And all of this is entirely logical. Many companies are operating at reduced capacity, both because of lockdowns and a high number of infected individuals, so it's clear that domestic consumption takes precedence in most cases. As I write this text, news has emerged that the European Union will ban the export of vaccines outside its territory, which, in addition to moral issues, raises many other dilemmas that favor the thesis that the world is turning in a different direction, i.e., that many countries are turning to themselves. If we add the transport mentioned above problems, everything becomes as clear as day: the key is localization.

Exporter of raspberries imports raspberries

At the beginning of the 1980s, Yugoslavia had the highest GDP value among Balkan countries. According to data from the World Bank, IMF, and other international financial institutions, former SFR Yugoslavia had an economy worth over $70 billion at that time, as reported by Blic. Next in the Balkans was Greece, with just under $57 billion, followed by Romania, with $46 billion in gross domestic product. Far behind, in fourth place, was Bulgaria, with $19.8 billion. Today, forty years later, the situation is significantly different.

After the breakup of Yugoslavia and a period of wars, Serbia still lags behind more developed European countries, as well as former Yugoslav countries that joined the EU. However, it's indisputable that Serbia achieved economic growth and the smallest drop in GDP in the previous year. All market participants must start moving towards economic localization to maximize the opportunity due to this global crisis.

It may sound strange to look at the crisis that has befallen us as an opportunity, but it certainly is. At the beginning of the crisis, many countries experienced significant supply problems, especially in medical equipment and food supply. Despite facing issues in the supply of medical equipment, Serbia had enough food for export, mainly due to its import-oriented economy, even though it was partially import-oriented in that segment, unfortunately.

The statistics of imported products show what can boost the local economy in two directions: meeting local consumption and exports, especially to EU and CEFTA countries, which comprise over 85 per cent of Serbia's total exports. And here are a few more examples: at the moment, Serbia imports, in addition to the prominent categories like oil, gas, cars, and machinery, products such as potatoes, garlic, beef, pork, apples, various other fruits, and even raspberries, a traditional export product. Without delving into more "complicated" products, we import but could produce locally.

The trade deficit of Serbia has decreased to $320.8 million in January of this year compared to $512.3 million in January 2020 because exports increased by 9.8%, while imports fell by 2.2%. We hope that this is a good indicator of our direction. However, it still requires more investments, incentives, and assistance for Serbian entrepreneurs to shift towards local production instead of imports.

Is the taboo topic an introduction to a solution?

The period of economic growth in Yugoslavia during the 1970s was accompanied by stimulative loans, investments in heavy industry and extensive manufacturing facilities, and education for engineers and technicians who brought know-how to our industry. While elements of a socialist economy may have been entirely wrong, the focus on local production, increased local consumption, and economic stimulation created large companies that covered domestic consumption and successfully competed with Western companies.

Stimulating the local economy agriculture, and building a local industry is an opportunity that is now more open than ever. The entire ecosystem needs to shift towards the local economy to seize this opportunity. In this ecosystem, banks, which currently hardly finance development and investment loans due to their sufficient earnings from working capital loans and personal loans for individuals, play a crucial role. Unfortunately, Investment funds show little interest in Serbia, meaning that angel, venture, and mezzanine financing are virtually nonexistent in the market.

In the end, the state with limited resources to stimulate the economy and foreign investors who come to Serbia mainly due to cheap labour and incentives for job creation are part of this system. The guarantee scheme is an excellent example of bank loans with state guarantees, but it primarily focuses on working capital and refinancing existing obligations.

Stimulating local production with the state's guarantee and even state co-ownership in these companies might be a transitional solution, though it may sound like a taboo. Here, I'm opening a public discussion on financing models with one condition: that the development of local production and services doesn't result in losses, as famously illustrated by the quote from the beginning of this text.