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Re-industrialisation Key to Growth and Well-being

For Serbia, re-industrialisation is the only chance to catch up with the Central European economies and in order to do that huge investments in modern technologies are needed. It isn’t important whether these investments are made by foreigners or local companies, the main thing is that something happens in that direction

According to some estimates, the trade exchange between Germany and Serbia could reach €5 billion this year. However numbers need to be examined closer if we want to understand the story behind it, says Martin Knapp, Executive Member of the AHK Serbien Board of Directors.

In your opinion, what are the key factors contributing to this growth and how sustainable is it over the long term?

– It doesn’t make much sense to look only at the total volume of bilateral trade. The relation between import and export is at least as important. This relation is still very unbalanced, even if Serbian exports to Germany are steadily increasing. Macedonia is a very interesting case. It is the only country in the region with a surplus in its trade balance with Germany, and that’s a really big surplus. Macedonia exports three times more to Germany than it imports.

However, this happens almost exclusively due to German investments in the country, as these companies are suppliers to the German industry. In recent years, more and more such companies have also been investing in Serbia. Meanwhile, through our Purchasing Initiative, we help existing Serbian companies become suppliers of the German industry too. Therefore, we can assume that Serbian exports to Germany will continue to increase in the near future.

This year’s AHK Serbien survey again showed that most German companies present on the market would invest again. Could it be said that Serbia has established itself on the list of countries in which German companies express a constant interest or is it too early to talk about something like that?

– I don’t think it’s too early to make such an assessment. When German companies go abroad, they usually go to stay. Of course, this doesn’t happen out of pure philanthropy. Rather, it can be explained by the fact that there are many medium-sized industrial companies in Germany for which investing abroad is a huge project that they cannot easily repeat elsewhere if they encounter difficulties.

Therefore, they exert great efforts to protect their investment from risks. Furthermore, this also means that many German companies abroad are particularly interested in the development of their host countries’ economic, political and social environment. This is also reflected in the activities of our chamber. For example, once a year we organise the Serbian Visions Multi-Congress, which focuses on the civil societies’ commitment to a better future in the country.

Re-industrialisation can only succeed if enough people decide to work in production, directly at the machine and not just in the office

At the same time, 38% of survey respondents said that they did not see any positive shifts in the business climate, and assessed the tax system, tax administration and the efficiency of public administration as being poor – and these are all areas in which Serbia receives expert assistance from German organisations and institutions. Where do you see key bottlenecks to implementing reforms?

– I’m afraid a lot of things are the way they are because they always were. Take the travel order, for example, which a manager must sign when an employee goes on a business trip. You still have to apply to the bank in order to withdraw extra money from the company’s account for the business trip. When the employee comes back, the unused money must be returned to the bank. After that, you are free to withdraw the money again… So far, no one has been able to explain to me what this is good for. Perhaps the whole thing is a relic from the time when there was still strict foreign exchange control. For sure it is just a detail, but it is characteristic.

Compared to other surveyed countries, Serbia is in the middle. Are there only minor differences between the surveyed countries or do you see room for Serbia to achieve significant progress on that list? Where and how could that rating be primarily improved?

Martin Knapp, Executive Member Of The AHK Serbien – Such rankings are interesting and are designed to encourage people to strive for improvement. Nevertheless, most survey participants know only one or two of the countries really well. That’s why it’s hard to compare their answers. Other rankings seem to follow objective criteria at first glance, and another danger lurks there.

Certain governments deliberately improve all areas of the business climate that are covered by the criteria of rankings like the World Bank’s ‘Ease of doing Business’ index. Everything else they leave as it is. In this way, these countries end up with high rankings even without a real improvement of their business environment.

How do Serbia and the Western Balkans rate on the list of German companies when it comes to their search for geographically close locations with favourable entrance costs?

– It’s right that the Western Balkans are nearby and costs are low, at least for the time being. One could consider that this region should have been discovered much earlier… Nevertheless, most companies only became aware of the Western Balkans when North Africa was in trouble, Hungary and Poland were becoming more and more expensive and problems arose in Ukraine… Now, since Turkey has also ceased to be an attractive location for new investments, everyone has suddenly discovered the Western Balkans…

With our Purchasing Initiative we help Serbian companies become suppliers of German industry and increase Serbian exports to Germany

Following the completion of the fourth successful initiative to identify suppliers from the Western Balkans, do you see some trends or lessons that we could draw to create better links between German partners and Serbian component manufacturers?

– Some of these suppliers are already so busy that they can no longer accept new orders without expanding their capacities. 

Martin Knapp, Executive Member Of The AHK Serbien

To do this, however, they would have to find suitably trained specialists. But there are not enough of them on the labour market. That is why our chamber became involved in the field of dual vocational education.

For Serbia, re-industrialisation is the only chance to catch up with the Central European economies. Re-industrialisation, however, can only succeed if enough people decide to work in production, directly at the machine, not just in the office… This means that working at a machine must be attractive, not only financially, but also intellectually. You would be surprised if you saw what kind of knowledge young metal workers, such as industrial mechanics or CNC operators, possess today. They’re the partners of engineers, not just recipients of orders. No engineer could implement his ideas without them.

In your opinion, do people in Serbia give enough consideration to the effects of the fourth industrial revolution when it comes to the structure and volume of production in the country?

– The digitalisation of the Western Balkans was the subject of a recent study that was conducted on behalf of a number of companies and institutions, including our Chamber. The study was presented at the Digital Summit in Skopje last April. It shows that the necessary expansion of the networks is progressing slowly. However, this is the case in other regions too, including Germany.

Are there companies among the Serbian suppliers of German companies that can meet these challenges in technological terms?

– Our Purchasing Initiative certainly wouldn’t be so successful if companies weren’t able to meet the requirements of their German customers. Nevertheless, the vertical integration of the Western Balkan industry is to be increased. Of course, this also means that a lot of money still has to be invested in modern technologies. It’s not so important whether this investment is made by foreigners or local companies. The main thing is that something happens in that direction.

It is very encouraging that this year, a year before the official introduction of the system, dual vocational education and training is already being launched in many places throughout the country

How much have changes to date in the education system been carried out in line with the creation of a workforce that meets the future needs of the market?

– Reforming vocational education and training could, of course, have been considered earlier, especially since full implementation of a new system takes years. But what sense does it make to think about what could have been done? The fact is that Serbia is now ahead of the rest of the region with its reform laws. This advantage must now be exploited by companies with the support of vocational schools and the local offices of the Chamber of Commerce & Industry of Serbia.

According to the law, the companies and schools in which the system is going to be implemented next year must be decided at the local level. It is very encouraging that this year, one year before the official introduction of the system, dual vocational education and training is already being launched in many places throughout the country. This means that many companies and many schools have recognised the urgency of the issue.

German companies employed 25,000 people in Serbia four years ago, while today that figure has almost doubled. How would you estimate future trends, and what are the key factors when it comes to labour legislation, in which changes are expected by 2020?

– It is very difficult to make prophecies on this matter. Firstly, there is the international aspect. What alternatives will be available to investors? What measures will other countries take to attract investors? Labour laws are an important factor. They must be employer-friendly enough to convince investors to come to the country. On the other hand, they must also be employee-friendly enough not to encourage the brain drain.

Maintaining this balance certainly isn’t easy for a government. But the most important factor is the climate within companies. If employees and employers are constantly studying labour law, something is already going wrong. We are happy that, in our German factories here in Serbia, the Labour Code stands unused on the shelf almost all the time.

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