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Milan Grujić, President Of The German-Serbian Chamber Of Commerce

Soaring Bilateral Trade Attracts German Investors

The forecast for the bilateral trade exchange between Serbia and Germany until year’s end is exceptionally optimistic, primarily driven by two consecutive years of double-digit growth in Serbian exports to Germany. These positive trends contribute to Serbia’s continued appeal to German investors

The majority of economic experts assume that economic growth in Serbia will total around two per cent in 2023, while the National Bank of Serbia (NBS) anticipates a growth rate of up to three per cent. Real GDP growth could experience a resurgence from 2024, possibly reaching four per cent.

This is attributed primarily to FDI inflows, followed by an increased export volume, given that many manufacturing companies produce components in Serbia for their own industrial production, or products for the markets of their home countries. According to NBS data, inflows of foreign capital during the first four months of 2023 totalled approximately 1.3 billion euros, representing a surge of nearly 70 per cent compared to the same period of 2022. That is a major growth driver for Serbian export.

“As a consequence of this, when we observe current facts and figures, the forecast for the foreign trade exchange between Serbia and Germany until the end of this year is exceptionally optimistic,” says Milan Grujić, president of the German- Serbian Chamber of Commerce. “Due to the double-digit growth of Serbian exports to Germany over two consecutive years, the trade exchange between Germany and Serbia achieved a balance in 2022 for the first time after many years. Imports and exports reached a combined total value of eight billion euros last year. These are all very good figures, and one of the reasons Serbia remains an appealing destination for German investors.”

How have German companies that are either investing for the first time or reinvesting in Serbia responded to the forecasts of a slow recovery for the global economy?

– The ups and downs of the economy are always challenging. This is no different today. In Germany, many experts see serious signs of recession and this will have an influence on demand.

However, German and Serbian companies that are members of the German-Serbian Chamber of Commerce have positively assessed the business climate in Serbia and expressed favourable expectations within their own operations.

Despite the difficult economic situation in Germany, 87 per cent of surveyed companies would invest in Serbia again. We see this not only in the results of our survey, but also in reality. For example, at the beginning of 2023, German automotive parts supplier Continental expanded its investments by inaugurating a ‘mega factory’ near Novi Sad, producing state-of-the-art automotive displays. In April, Bizerba opened its new production facility in Valjevo, followed by Hansgrohe on a neighbouring plot in Valjevo in June. We will soon witness the laying of the groundwork for another German investment by another automotive supplier in Čačak. On another hand, however, we must understand that there is already a limiting factor to this process, in terms of the lack of qualified workers in many Serbian regions.

Serbia’s digital transformation initiatives are all geared towards nurturing a digital economy-friendly environment

Some economists believe that a decline in inflation, coupled with accelerated wage growth and a robust labour market, will aid the German economy in achieving modest growth throughout the rest of this year. However, this shift does not fundamentally alter Germany’s economic prospects, and any potential downturn in economic activity within the broader region, including Serbia, is likely to be modest.

Have rising inflation and slowed growth impacted the workforce dynamics of your members to date?

– The annual inflation rate, as measured by the consumer price index, is displaying signs of deceleration. According to the Statistical Office of the Republic of Serbia, it stood at 15.1% in April of this year and had fallen to 13.7% by June. Conversely, the gradual slowdown of consumer inflation in Germany (HICP) has led to a situation in which inflation stood at 7.6% in April 2023, compared to October 2022, when it was as high as 11.6%.

German companies have created more than 80,000 new jobs in Serbia. Based on the findings of this year’s AHK economic survey, 44 per cent of surveyed companies are planning to increase their workforce, while only three per cent believe that their number of employees will decrease. Furthermore, German companies hold a positive view of factors related to the Serbian labour market: they are satisfied with the qualifications, productivity and readiness of the workforce.

Our projection is that, by 2024, we will achieve a trade exchange worth 10 billion euros and have 100,000 individuals from diverse professional backgrounds employed by German companies in Serbia.

What are the most crucial issues for your chamber today when it comes to improving the business climate?

– The challenges that plagued the planet at the turn of the millennium are still very relevant, with new ones having also arisen, all while the time to react becomes increasingly limited. The year 2030 is fast approaching, and ambitious environmental protection goals can only be achieved through collaboration between the public, private and nonprofit sectors. Given these tumultuous times and the challenges confronting the global economy, it is of paramount importance that all companies in Serbia, including SMEs, base their operations on principles of sustainability and ‘green’ objectives. However, sustainable development must be a task for everyone: governments, societies and businesses, but also professions, consumers and all citizens. There is no time to delay on this path, and for us, at the Chamber, it is a task for today.

Regardless of ongoing German investments in Serbia, the lack of qualified workers in many Serbian regions is a notable limiting factor

Areas where untapped potential for improvement remains include education and the availability of skilled labour. Retaining talented personnel is of vital importance to business needs and demands, as is their adequate education in line with market requirements and trends. Serbia stands as the sole country in the region to have adopted a law on dual education, and the state continues to work tirelessly to promote and bolster the dual education system in order to tailor education profiles to the needs of the economy. In July of this year, the German-Serbian Chamber of Commerce signed a Memorandum of Cooperation with the Office for Dual Education and the National Qualifications Framework, underscoring the Chamber’s clear commitment to supporting and promoting the national dual education implementation programme, which is indeed one of the Chamber’s strategic goals.

Serbia is one of the countries where the implementation of the German Due Diligence Act is being tested. How is AHK involved in this process and what are your expectations?

– A new German law on supply chains came into effect on 1st January 2023 and requires all companies with over 3,000 employees to submit annual reports to the government on the status of fundamental human rights and compliance with environmental provisions in their supply chains. Starting from 2024, this obligation will extend to all companies with over 1,000 employees.

The German-Serbian Chamber of Commerce, through the “Supply Chains in Serbia” and “Green Economy and Sustainable Development” committees, is assisting Serbian firms that engage with Germany in adapting to these new regulations, and is thus supporting them on their journey towards sustainable business practices. The German-Serbian Chamber of Commerce is already implementing the Young Energy Europe project, which enables young professionals to enhance their expertise in energy efficiency. The Green Hydrogen Business Desk was launched this year as an incentive for sustainable projects and carbon management training at companies.

How do German companies view the development of the Open Balkan initiative, and how do they assess the effects of reducing trade barriers and relaxing regulations governing the free movement of labour?

– The Open Balkan initiative represents an excellent opportunity to liberalise capital flows, as doing so would make the region more attractive for establishing new investments and expanding current ones. However, in order for this initiative to be even more successful, it is essential to extend the Open Balkan framework to encompass all markets of the Western Balkans. German companies planning to establish a presence in Serbia are not only considering infrastructure and local conditions, but also the potential for broader regional engagement, thanks to harmonised standards that apply across the entire region. The development of a common economic market will therefore hold significance primarily for the economy and business, serving as a possibility to attract even more foreign investors.

How would you evaluate the current legislative initiatives that are aimed at enhancing the digital services provided for businesses by the government?

– The concept of digital transformation has been recognised as a pivotal global trend of the world economy — a process that transforms society and the economy as a whole. It is also an essential prerequisite for the survival, growth and development of companies on both domestic and global markets. Throughout the pandemic, digital transformation proved critical to company survival and accelerated the evolution of the European economy. Strategic development programmes for the start-up ecosystem, the legal-regulatory framework, digital infrastructure and public dialogue on digital transformation in Serbia are all aimed at creating a business environment that serves the digital economy.

Given that digital transformation is an ongoing narrative, a story that never truly ends, continuous efforts will be exerted in the direction of analysis and initiatives aimed at enhancing the current business model.

RESILIENCE

The Serbian economy demonstrates resilience and continues to grow despite the global crisis

REGION

It is essential to extend the Open Balkan framework to encompass all markets of the Western Balkans

SUSTAINABILITY

We assist Serbian firms that engage with Germany in adapting to new regulations that lead to sustainable business practices