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Alexander Markus, AHK Serbia Executive Board Member

Riding Turbulent Times

Unfortunately for Ukraine, German companies are relocating from Ukraine to Western Balkan countries in order to build up another nearshoring option not too far from the EU border. This is an opportunity for Serbia to attract more German investors

Alexander Markus, AHK Serbia Executive Board Member, commenced his assignment at the German Chambers of Commerce, AHK, in July of this year, when the Ukraine crisis started accelerating and businesses were preoccupied with building strategies to overcome supply chain disruptions and rising energy prices. Yet, despite this turmoil, German companies in Serbia are doing well and AHK represents a helping hand for them in dealing with the new normal, says Markus.

Given your strong familiarity with the Ukrainian market, could you estimate how vulnerable German companies operating in Serbia are as a result of disruptions to production in this country? What does your membership survey suggest about this?

From my modest point of view, not at all. On the contrary, or so to say, unfortunately for Ukraine, I know that there are German companies relocating from Ukraine to Western Balkan countries in order to build up another nearshoring option not too far from the EU border. And this is also an opportunity for Serbia to attract more German investors, once again, unfortunately, because of all the human casualties that this Russian aggression brings to Ukraine.

In addition to that, in our annual economic survey we asked our members about the short-term economic consequences of this war that they feel already or expect to hit their business. Firstly, they are already facing higher costs for energy, raw materials and inputs. Secondly, they have difficulties sourcing raw materials and services, because demand is higher than supply worldwide. Thirdly, they report disruptions in their supply chains and logistics.

At the moment, every company is focusing on its own energy supply and dealing with significantly higher energy costs.

Who buys what where? Who produces what where? Who sells what where? These questions are now being asked in a completely new way. Or, to put it another way, globalisation is reorganising itself. That’s why many companies are already working intensively on the diversification and resilience of their supply chains.

Has the development of events to date impacted on representatives of the German automotive industry in Serbia, and if so how; and on the general development prospects of the automotive sector in Serbia, where German companies play a particularly significant role?

Electrical equipment and automotive components are among the most important export goods from Serbia to Germany. Serbia has become an attractive relocation country for the automotive supply industry. This development has been initiated in recent years primarily by German investments in the country. With Continental, ZF, Brose, Bosch and numerous other companies, important component and system suppliers, having invested in Serbia. Serbia is thus one of the 25 most important supplier countries to Germany in this sector. The trend towards electromobility is likely to play into Serbia’s hands. Manufacturers of electric motors, vehicle electronics and battery components have already set up shop. Many local German automotive suppliers have also invested in research and development centres.

In 2019, ZF Friedrichshafen established its test centre in Pančevo, in order to meet the requirements of the dynamically growing e-mobility market. This centre provides technical resources for the development of electric drives for plug-in or fully electric vehicles.

An outstanding pool of intellectual capital, attractive labour costs, excellent skills, good communications networks and high proficiency in English are just some of the key competitive advantages that persuade international and German companies to expand their businesses to Serbia

In 2017, Continental opened its R&D centre in Novi Sad, which contributes greatly to the creation of global trends like digitalisation, autonomous and safe driving, and e-mobility.

There are 2.2 million registered vehicles in Serbia, of which 1,400 are hybrids and 102 are electric cars. The Serbian Association of Importers of Motor Vehicles reports that 30,416 new cars were sold in 2021, about 16% more than in the previous year.

Nevertheless, Serbia signed the Green Agenda Declaration in October 2020 at the Sofia Conference. The country is to be decarbonised by 2050 and achieve energy transition with the help of international support. The Serbian National Assembly therefore created the required legal framework with four new laws in 2021. As climate protection is one of the most important pillars of the European Green Deal, the promotion of e-mobility and climate-neutral means of transport is of great importance.

Considering the arrival in recent years of German companies with higher levels of technological manufacturing activities, could you explain how this shift has impacted on the cross-sectoral representation of your member companies and the inclusion of labour-intensive branches vs. capital-intensive ones?

At the moment, we have both types of German companies in Serbia – labour intensive and also capital-intensive ones. New German companies entering Serbia want to develop longer parts of the valueadded chain here in this country. And this is needed, because we all see that salaries are rising in Serbia and, thus, you have to develop manufacturing processes where you can pay these salaries.

We are especially happy when companies also open up research & development departments here in Serbia, and this is happening ever more often.

The Vienna Institute for International Economic Studies recently published a study proposing the increased development of six industries in Serbia and across the Balkans: agriculture and food, the textile industry, the automotive industry, energy, the IT sector and tourism. Which of these fields do German companies interested in investing in Serbia most often come from?

Definitely the automotive sector. Although the sector itself is going through major changes with the shift to other motors than the combustion engine. In this sphere, Serbia has become one of the most attractive and rising investment destinations in this part of Europe over the course of the last 10 years.

The food industry is one of the strongest points of the Serbian economy. The trade balance of agricultural products is in a constant surplus.

As the world market for ICT continues to evolve towards outsourced software engineering, offshore systems design and integration, Serbia is well-placed, both geographically and structurally, to provide a cost-effective, reliable alternative to more established markets. An outstanding pool of intellectual capital, attractive labour costs, excellent skills, good communications networks and high proficiency in English are just some of the key competitive advantages that persuade international and German companies to expand their businesses to Serbia.

Shoulder-to-shoulder with the food, manufacturing and automotive sectors, ICT is becoming one of the pillars of the Serbian economy. A large number of Serbian ICT companies offer very strong technical skills that have attracted partnerships with German and international firms and won them a place in high-value market niches. Serbia ranks 40th on the list of the biggest software exporters globally.

In which areas does AHK Serbia provide support to its members and has the current global economic crisis also influenced the topics that are addressed by the German- Serbian Chamber?

We are all witnessing the major impact of COVID-19 and the economic consequences of Russia’s aggression in Ukraine on the supply chain industry all over the world, in terms of slowing down or stopping the unrestricted flow of goods and services. We are trying to keep up with the needs and demands caused by current adverse market conditions.

Companies are re-organising their supply chains to be more resilient to such shocks in the future. Global companies are seeking new production locations in Europe, for at least some very competitive product areas, that can meet the quality requirements or – last but not least – can make the products available within shorter transport times.

The main focus of German investors’ involvement is on the automotive supply industry, wholesale and retail trade, and the construction materials industry

Industry worldwide has been forced to scale back production due to the disruption in supply chains, rising costs of input materials and a lack of workers. Apart from supply chain bottlenecks, other problems include high energy costs, as well as soaring consumer prices. Having this in mind, we should be cautious about inflation rate predictions, since the aforementioned costs can be seen as the major culprit.

As the German-Serbian Chamber of Commerce, one of our main goals is to accelerate cooperation between German buyers and their potential Serbian suppliers. For this purpose, together with our colleagues from 10 AHKs, we launched a joint initiative to create the largest supplier community in Europe. Our first milestone on that path was creating the AHK Industrial Suppliers Forum – a digital platform that we will use for business matchmaking.

We will continue to support our members in their business, providing them with help through our committees and working groups on relevant topics. Thus, the chamber is a platform for networking with potential clients. We also provide relevant expertise on the implementation of vocational training and dual education in Serbia. We hope that the spread of vocational educaton throughout Serbia will help to reduce the workforce shortages, at least in the medium term.

The level of invested capital, value of turnover, production, exports, but also the number of factories and employees in free zones, are all at the highest level reached over the last 14 years, which is how long their business results in Serbia have been monitored. How attractive is this form of investment to German companies?

Gross fixed capital formation in Serbia increased by almost 13% in real terms in 2021 (equating to €3.8 billion). Further growth of five per cent is the forecast for 2022. German direct investments amount to almost 3.5 billion euros for the period from 2000 to 2021. The largest German investors are Stada (€698 million), Henkel (€313.3 million), Lidl (€275 million) and ZF (€195 million). Serbia is establishing itself as a regional powerhouse for investment in the manufacturing and supply industry.

Initially, German investors entered the market by acquiring stakes in existing manufacturing facilities or taking them over as part of privatisation processes. In recent years, the presence of German corporates has shifted towards greenfield investments. The main focus of their involvement is on the automotive supply industry, wholesale and retail trade, and the construction materials industry.

German direct investment ranks second in terms of the number of projects carried out in Serbia.

How do you maintain communication with your membership? Have you reverted back fully to your pre-pandemic working methods, or have you developed some new hybrid forms of communication?

In this new normal, it’s important to understand members preferences and combine that with actual business needs. As I only started my assignment here in July this year, I now use my time to visit as many members as possible and follow every invitation that I receive from them. In addition, we have developed new hybrid forms, but I am personally also very glad to have live, in-person events and live communication with our members again, and we take great advantage of that opportunity.

OPPORTUNITY

Serbia is one of the 25 most important supplier countries to Germany in this sector. The trend toward electromobility is likely to play into Serbia’s hands

ACCELERATION

As the German-Serbian Chamber of Commerce, one of our main goals is to accelerate cooperation between German buyers and their potential Serbian suppliers

PROGRESS

We are especially happy when companies also open research & development departments here in Serbia, and this is happening ever more often