Milan Grujić, President Of The German-Serbian Chamber Of Commerce (AHK Serbia)

One piece of good news is that German companies are extremely satisfied with their investments in Serbia and would consider investing further and again. Even better news would be if the labour shortages and green transition were to become the new focus of Serbian policy efforts. This would further fortify positive trends

Each year, the AHK economic survey illuminates positive trends in the Serbian business environment and new avenues for further improvement. These insights are even more important today than ever before, as every country is interested in positioning itself as an attractive investment target in times of crisis, and Serbia is rightfully seeking to explore this possibility. Our conversation with Milan Grujić, President of the German- Serbian Chamber of Commerce (AHK Serbia), reveals how German companies perceive current economic trends and what they see as the important policy steps for Serbia to remain an attractive investment destination.

With how much optimism are AHK Serbia members today looking towards the end of this year and the next business year?

Actually, not so bad, considering the current political situation around the world. In the AHK economic survey, we asked AHK Serbia members about their own companies’ current business situation and their individual expectations for the future.

The assessment of companies’ own business situation in Serbia remains stable, despite the pandemic and the war in Ukraine.

By introducing the dual education system, companies offer young people from Serbia the opportunity to develop their skills and qualifications. That is the reason many companies invest in research and development, and in cooperation with educational institutes in their neighbourhoods, as well as opening training centres near their facilities. Investors are coming here to stay

A total of 52% of respondents rate their current business situation as good, almost half as satisfactory, and only 1% as poor. The outlook until the end of the year differs significantly only in one value: 10% expect their own economic situation to deteriorate in the second half of the year.

The existing community of German companies that our Chamber brings together can share positive experiences and those companies are extremely satisfied with their investments in Serbia, and would consider investing further and again. What made me the happiest about this survey is that 95% of companies participating in the AHK economic survey said that they would invest in Serbia again. This is more than ever before over the last five years. Our forecast is therefore very optimistic.

What factors influence that the most – those on the internal market or global factors?

We can see this interest in investment growing and remaining a trend, as potential investors recognise various possibilities and advantages in Serbia, such as its close proximity to the European Union, a positive and improving business climate, valuable existing trade agreements and organisations, a skilled workforce, infrastructure developing rapidly, improvements to administrative procedures, constructive and cooperative national and local regional governments. In the end, we need general public institutions that make Serbia a competitive location for potential investors.

How would you assess the current efforts of the Serbian government to adjust its policy under the conditions of inflationary pressures, primarily in the energy domain? How important is the price of electricity when it comes to the productivity of German companies?

This is a complex question. On the one hand, rising energy prices are bad for both the population and industry. On the other hand, subsidising or capping energy costs could lead to energy shortages, because energy providers may not find it attractive to provide energy at these capped prices. Industry needs both competitive prices and stability in energy provision.

According to the map showing the locations of German companies in Serbia, German investors are present almost nationwide across the country. Is labour availability still a motivating factor that attracts new German investors, or has the motivation changed?

Serbia and other countries of the Western Balkan region have high potential to position themselves as first-choice locations and destinations for the relocation of production operations for companies from the European Union. One of the main strengths and competitive advantages of Serbia that is attracting foreign investors is certainly the educated labour force.

It is our employees that bring us added value. By introducing the dual education system, companies offer young people from Serbia the opportunity to develop their skills and qualifications. That is the reason many companies invest in research and development, and in cooperation with educational institutes in their communities, as well as opening training centres near their facilities. Investors are coming here to stay.

In the context of labour availability specifically, how would you assess the possible scope of the Open Balkan Initiative?

The answer on the political side is that it is what the economy wanted, and that is indeed true dialogue. Agreements signed within the framework of the Open Balkan Initiative yield tangible solutions that save both time and money, and also make our economies more competitive on the global market. The common labour market and single work permit will soon take root. And this helps companies all over the Western Balkans.

Today’s political circumstances have a great influence on the decisions of companies to do business in certain regions. How justified did the expectation that Serbia is a destination for German companies interested in nearshoring really turn out to be?

Serbia has been a location for nearshoring for many years already. And more will come. That is also what we see from our AHK survey. Much fewer companies are looking for suppliers from Far East Asia or the Pacific region. Due to the unreliable logistics of great distances, companies are seeking locations or cooperation partners in countries that are near to the European Union – like Serbia.

There is no further development without legal security and certainty. That’s why one of the priority goals of Serbia’s economic policy in the coming period needs to be the further improvement of the regulatory framework that will result in predictable business conditions for investors

That’s why Serbia and other countries of the Western Balkan region have high potential to position themselves as first-choice locations and destinations for the relocating of production operations for EU-based companies. The current situation in Ukraine has merely accelerated nearshoring. It has made Serbia more visible as a potential destination to ultimately relocate production operations.

Under the new geopolitical conditions, what are the most important characteristics that potential German investors most often take into consideration?

What investors want in the end is always the same. We want stability, predictability, a well-educated and competent workforce and, as I said before, reliable logistics to reach our customers. What we do not like is bureaucracy and red tape.

Due to new approaches in the framework of the European Green Deal, sustainability has become another very important topic for doing business anywhere in the world.

That’s why it will become very important for Serbia to develop renewable energy sources to a much higher extent than is the case today, because in 10-15 years we all have to go in the direction of Zero-CO2 emissions. And when we then cannot buy CO2-emission free energy in Serbia, we will have a much greater problem than today’s rising energy prices.

What questions are you asked by German companies considering Serbia as a potential investment destination? What are the most important topics for them today regarding the business climate in Serbia and do they differ compared to two or three years ago?

Three years ago, we didn’t have the experience of unreliable logistics chains from Asia. Then COVID-19 came for all of us, starting from China – with all the ramifications for international valueadded chains and logistics. Closeness to the European Union today certainly plays a much bigger role than it did three years ago, but that doesn’t make all other topics mentioned above any less relevant. The lack of competent workforce plays a greater role yearon- year. For example just one German company could hire 700 emploees on the spot but they have difficulties finding them.

It will become very important for Serbia to develop renewable energy sources to a much higher extent than is the case today, because in 10-15 years we all have to go in the direction of Zero-CO2 emissions. And when we then cannot buy CO2-emission free energy in Serbia, we will have a much greater problem than today’s rising energy prices

The Serbian Government has to continue to invest more in the educational sector, to qualify more young people via vocational training, through so-called dual education. This type of practical training for young people is one of the secrets of the economic success of Germany, Austria and Switzerland. Young people that want to receive a technical professional education in these countries are trained two-thirds of the time in companies, as on-the-job training, and only spend a third of their time in professional state schools. And that is why the whole range of workers in Germany’s workforce – from blue collar to white collar – provide quality to the “Made in Germany” label.

What are your expectations of the new/old Government of Serbia?

As I’ve already stated above, there is a need to continue to invest more into the educational sphere.

Serbia should ake itself more attractive for younger people, and that means continuing to modernise schools, trade colleges and universities. German business is ready to support the development of vocational training in the country. That is what we know from our home country, where we have competences that we have been developing for many centuries already.

A qualified workforce and talented individuals should be further developed and nurtured in Serbia.

For sure, the rule of law is also important. There is no further development without legal security and certainty. That’s why one of the priority goals of Serbia’s economic policy in the coming period needs to be the further improvement of the regulatory framework that will result in predictable business conditions for investors. That was also stated in our survey by member companies of the German-Serbian Chamber of Commerce. Last, but not least, when it comes to the green economy, we need a strategy and a medium- and long-term implementation plan with clearly defined priorities in Serbia.