Who approaches strategically - profits

Every crisis struck humanity has challenged existing ways of life and business. It also represented a turning point that offered new perspectives and opportunities for those brave enough to seize them.

The same is true today, two years after the pandemic outbreak. The world is still grappling with the changes and consequences that profoundly impact the global economy and human life. Border closures in an attempt to prevent the entry and spread of the virus in most countries have seriously disrupted global supply chains. Due to the new situation, economies cannot rely on international trade to the extent they did before, and there is a need to reduce dependence on other countries by investing in domestic production, i.e., the need to focus on developing the local economy.

Localization strategically directs the economy toward developing local business entities as one of the priorities for sustainable development and long-term stability.

By analyzing fundamental macroeconomic indicators, positive trends that should be capitalized upon and negative trends that need to be reversed to develop Serbia's domestic economy can be identified. Due to the economic measures taken and the structure of GDP, which does not rely heavily on highly sophisticated activities that were most affected during the pandemic, Serbia recorded one of the most minor declines in real GDP in Europe during the first year of the pandemic. Monetary policy focused on reducing the reference interest rate has an impact on lowering interest rates and, consequently, reducing borrowing costs and increasing investment activity. With a favourable investment climate, Serbia has attracted 28 billion foreign direct investments over the past decade.

On the other hand, an unfavourable demographic picture does not favour our country. There is a long-standing process of demographic ageing, where the most numerous of the population consists of people in their seventies. In contrast, the number of young, working-age people decreases yearly. Human resources are one of the critical factors in localization, and measures need to be introduced to halt this process and retain young professionals in Serbia. One potential risk is associated with the projected inflation rate, influenced by international and domestic threats such as supply chain disruptions, high transportation costs, and rising oil prices and primary agricultural products. These factors should be considered when forming a strategy for developing the domestic economy.

Successfully shifting towards localization requires the proper selection of economic entities that can contribute the most to economic development and industries that show the most significant potential for progress in initiating the localization process. Regarding choosing companies, the focus should shift toward developing micro, small, and medium-sized enterprises.

Micro, small, and medium-sized enterprises represent the backbone of every economy and drive employment and economic development. Globally, this group of financial entities, on average, comprises 99 per cent of the total number of registered companies and employs approximately 70 per cent of the workforce, while their share in gross value added (GVA) for developed countries averages between 50 and 60 per cent. International practice shows that the development and empowerment of this group of companies lead to a range of benefits, including increased innovation, economic growth, sustainability, socioeconomic stability, and reduced unemployment rates. In our country, the indicators are roughly the same: these companies make up 99.5 per cent of the total number of registered companies and employ approximately 70 per cent of the workforce. There has been an increase in their contribution to GVA from 50 per cent to 53 per cent between 2018 and 2019.

Serbia should follow positive global practices and move toward developing micro, small, and medium-sized enterprises as a condition for overall economic growth. When choosing industries with the most significant potential to initiate the localization process, gross value added (GVA) structure can be observed, highlighting the agricultural and processing sectors, which traditionally represent the most common activities and dominate the GVA structure. Additionally, the information and communication technology (ICT) and media industries show significant growth, with a 13 per cent increase in GVA in 2020 compared to 2019, with the tendency to further increase in the coming years.

The great potential of the agricultural industry lies in its underutilized natural resources.

According to recent data, Serbia has 29 per cent of arable land, only one per cent less than the Netherlands. Yet, the net value added in this sector is nearly eleven times smaller than in the Netherlands.

Deficient income levels indicate a significant opportunity for advancement in the agricultural industry through increased operational efficiency of farms. The low share of advanced technologies in the processing industry is the main reason for the need for high-quality, sophisticated products. Changing the technological structure would significantly impact economic growth since this industry has the highest share in the GVA structure. By examining the design of the trade deficit in goods, it can be seen that the most extensive export portfolio is based on raw materials. At the same time, imports consist mainly of finished products. This negative trend can primarily be reversed in the food segment by adding value to domestic raw materials, which would simultaneously impact the development of both the agricultural and processing industries.

The ICT and media industries have the highest potential for development, and these sectors could show the most significant effect in a short period. There is a trade surplus in the services segment related to a high volume of outsourced services. By investing in this sector, primarily in IT, it is possible to reverse this trend in favour of domestic products and services.

The localization process can only be achieved through a structured methodological approach involving all interested parties. Three segments that need to be developed can be identified: the business environment, the economy, and consumers. To set the business environment, it is necessary to create a legal framework that supports the development of the domestic economy, improves the efficiency of public administration, increases transparency in dealing with businesses, and provides continuous support to the economy. The primary outcomes of this segment include enhancing legal security, attracting investments, making public administration more efficient, increasing transparency and digital presence, fostering innovation, and promoting the growth of local businesses.

Regarding the economy, the focus should be on developing and improving sources of financing, developing human capital and culture, enhancing economic competitiveness, and investing in development and innovation. The goals to be achieved in the financial segment include involving multiple sources of funding in the development of the local economy, promoting competitiveness in the market, increasing workforce efficiency, improving job satisfaction, preventing workforce migration, and increasing exports of goods and services. In the consumer segment, efforts should be made to raise awareness and change their culture through marketing and education, leading to increased purchases of domestic products, a greater understanding of the quality of domestic products in local and global markets, and stronger connections between businesses and consumers.

Serbia is uniquely positioned to capitalize on the current crisis and all the accompanying trends by creating a strategy that leads to the localization of the economy. Shifting toward economic localization can bring significant benefits in terms of enhancing market competitiveness, improving the standard of living, creating jobs, preventing workforce migration, technological development, and ensuring long-term stability. Consumers are increasingly interested in domestic products primarily because of their availability and quality, which is an additional benefit and the basis for creating new and strengthening existing domestic brands.