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By Ivan Nikolić, editor of monthly publication MAT (Macroeconomic Analyses and Trends), Institute of Social Sciences

The Secret of Serbia’s Success

Production of higher technological quality is a key means and catalyst for Serbia’s economic resilience against external shocks and a result of the successful technological restructuring of industry over the previous decade

When talks were launched with the Government of Serbia over the third revision of the IMF arrangement in mid-March, IMF Mission Chief Donal McGettigan used the word “resilient” to best describe the Serbian economy. According to his assessment, Serbia handled recent global shocks in an impressive way. Moreover, stats for January indicate that growth is continuing despite external restrictions and geopolitical challenges remaining. The growth of goods exports is particularly intriguing and was even maintained last year, when there were extreme fluctuations in the costs of raw materials and logistics, capital prices rose and export orders fluctuated.

The physical volume of industrial production levels reached at this moment is the highest it’s been in the last three decades. Industry’s accelerated recovery began following the successful implementation of fiscal consolidation, while the manufacturing sector has provided a significant contribution to economic growth since 2015. It also led to the growth of goods exports (approximately 86% of total goods exports are generated by the manufacturing sector).

However, the noted “resilience” isn’t accidental, rather it’s primarily a result of the successful technological restructuring of industry over the previous ten years. Investments in expanding capacities proved crucial for export-oriented growth – specifically those going towards medium- tech and high-tech branches of production. These investments were, on the whole, generated by foreign companies, though the effect of domestic companies isn’t negligible either.

Advanced technological possibilities improve the efficiency of production processes, thus reducing the country’s vulnerability to external risks and market fluctuations. Countries with a higher degree of technological intensity in their exports, and with those exports distributed widely across industries, demonstrate a significantly higher degree of resilience.

Openness to new technologies, flexibility, agility and innovative thinking are new qualities characterising Serbian industry

Serbia’s industrial production is no longer ‘inferior’, as some spiteful people like to suggest. It is true that it might still lack confidence, but performance outputs undoubtedly testify to positive shifts and technological advances. Competitive products are crucial to the long-term expansion of exports, and Serbia has ever more of them.

Openness to new technologies, flexibility, agility and innovative thinking are new qualities characterising Serbian industry. Manufacturers are accepting changes intensively, in order to ensure timely adaptations and diversify their activities, because it is only possible to survive on the global market by rationally perceiving macroeconomic trends, utilising the latest technologies and modernising operations.

The figures for Serbia show stable technological advances from low-tech to medium- and high-tech exports.

In 2023, the manufacturing sector achieved exports worth 24,675.8 million euros in 2023 (representing 35.5% of GDP, compared to a result barely exceeding 20% of GDP in 2010). This sector’s import-export coverage ratio stood at 93.5% (representing the best result to date, together with 2017’s coverage ratio of 93.9%).

Exports of products of mediumhigh technological intensity (considered in isolation) in 2023, apart from achieving a record high in terms of volume, achieved parity with imports for the first time ever

Six branches of the manufacturing sector achieved exports worth more than a billion euros over the course of last year. These included the production of auto parts and engines (2.55 billion), the production of electric motors and distribution equipment (1.82 billion), the production of rubber products (1.19 billion), the production of general-purpose machinery (1.03 billion), the production of precious and other non-ferrous metals (1.02 billion) and the production of plastic products (1.01 billion).

The first three of the aforementioned branches simultaneously achieved the largest positive foreign exchange balance. Meanwhile, the surplus in the production of auto parts and engines exceeds two billion euros (2.04 billion), while in the production of electric motors and distribution equipment and the production of rubber products it amounted to 849.1 and 765.0 million euros, respectively.

If we classify the international goods exchange according to the technological complexity of production, last year’s overall increase in processing sector exports compared to 2022 (worth 1,270.9 million euros) resulted from exports of so-called medium-high technological complexity (€1,163.8 million, i.e. growth of 12.5%) and products belonging to the so-called High-technology sector (€135.7 million, i.e. growth of 15.6%).

It is clear from the picture created here that exports of so-called medium- high technological complexity products grew the fastest over the previous three years (increasing from €6,043.2 million in 2020 to €10,490.6 million in 2023, representing growth of 73.6%). Exports of this group of products have increased as much as 5.2-fold since 2010.

The absolute growth of exports of this technology group has also been accompanied by a dramatic improvement in the foreign trade balance. At the beginning of the previous decade, barely two-fifths of combined imports of high- and medium-high technology products were covered by exports, while their exports last year achieved a coverage ratio of more than fourfifths of imports.

With similar export performances between countries, even in the highest technology segments, the difference in quality lies in the way local physical and technological inputs are used

Exports of products of medium-high technological intensity (considered in isolation) in 2023, apart from achieving a record high in terms of volume, achieved parity with imports for the first time ever. That’s why production of higher technological quality is a key means and catalyst for Serbia’s economic resilience against external shocks.

Serbia’s chronically poor export structure, following its rapid deterioration in the last decade of the 20th century and its stagnant and weak advances after the 2000s, has finally changed markedly in the last few years. The manufacturing sector and goods exports are currently performing satisfactorily, and in the meantime the technological intensity of Serbian exports is also changing for the better. Higher quality industrial production provides for goods exports that are more competitive, technologically advanced and increasingly valuable. However, if we want to maintain such a dynamic, growth in exports of medium- and high-tech products should be accompanied by growth in the level of technological innovation. With similar export performances between countries, even in the highest technology segments, the difference in quality lies in the way local physical and technological inputs are used. And they must prevail. This is possible provided investments increase in high-tech and medium-tech research and development activities, and provided various technological barriers are overcome.

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