Dejan Šoškić, Professor at the University of Belgrade Faculty of Economics

All rich countries generated their wealth in a similar way, by investing in the integrity of institutions and human capital. None of them resorted to what we’re striving for: the organising of expositions or the opening of mines

No, neither Expo 2027 nor a lithium mine and battery factory, nor even the European Growth Plan for the Western Balkans and the implementation of the Green Agenda, both of which are cited as drivers of growth, are decisive or sufficient sources of future economic growth, according to Dejan Šoškić, a professor at the University of Belgrade Faculty of Economics and a former governor of the National Bank of Serbia.

“None of the topics that you mention are, in my opinion, the “propellant” required for Serbia’s future economic growth, nor any kind of “turning point”, nor the condition for some kind of “quantum leap” in our country’s economic growth and future prosperity,” warns our interlocutor.

So, they are delusions?

— The majority of today’s rich countries became wealthy in the same way: through their citizens acquiring increasingly higher quality knowledge via education and science, through the strengthening of institutions and affording all citizens an equal and dignified position with state institutions by effectively protecting contracts and private property and encouraging free competition, and through the hard work of residents in a well-organised institutional system that encouraged the domestic population to stay in the country and develop their careers, and by enticing high-quality people from abroad to pursue their careers and entrepreneurial ambitions in those countries.

Serbia isn’t achieving satisfactory results in any of these areas that are vital to the country’s future economic growth being healthy and sustainable, and for its desired path to prosperity, says Šoškić, citing the poor results being recorded in our education system.

In PISA tests [Programme for International Student Assessment, OECD], our children achieve poorer results than their peers in Western Europe, China and other countries. Education has fallen to very low levels across the board, and the intolerable erosion of respect for teachers, lecturers and professors in our society is most evident in the incidents occurring between pupils and teachers or between parents, teachers and professors. Such conduct has never previously been recorded in the history of our society. Budget allocations for science (as a percentage of GDP) are lower than they were in the 1990s, when we were under sanctions and with wars in the surrounding area, while a large number of our scientific institutes have been closed down or are struggling to function, and some have been privatised and thus de facto transformed into commercial consulting companies, losing the most of their scientific function.

And yet, it cannot be denied that Expo 2027 is a widely debated topic among investors?

— Anyone who thinks that some kind of exposition will make Serbia a rich country is either naïve and ignorant on matters of economic development, or is expressing such views with manipulative intentions. If the organising of some expo or the opening of a mine is the way to make a nation wealthy, how come no country thought of that recipe before us? How come China, South Korea, Japan, Germany, Finland, Israel, and many other countries that have had successful periods of rapid economic development, didn’t opt to organise an expo and open a mine and strike it rich “overnight”? How come all these countries today have top universities, scientific research institutes, strong institutions and a developed meritocracy, i.e. everything that Serbia doesn’t have, but we apparently don’t understand what we must strive to acquire in order to became a rich, well organized and prosperous society, where people stay to live and work and don’t flee in their tens of thousands each year.

Many cite the agreement on critical raw materials between the Government of Serbia and representatives of Germany and the EU as creating slightly unexpected opportunities for economic growth and accelerated European integration?

— In my opinion, the agreement on critical raw materials between the Government of Serbia and representatives of Germany and the EU doesn’t create any unexpected opportunities for economic growth and accelerated European integration. All I see is that this agreement creates the possibility for the EU to acquire what are for them essential raw materials, while reducing their future reliance on Chinese imports.

When it comes to the opening of any mine, there are economic and environmental ramifications and the key question relates to the net benefits of such an investment. Who becomes the owner of mined mineral wealth? How many new jobs are created and how many “old jobs” are lost? How much new budget revenue is generated, and how much “old” budget revenue is lost? One special and very important question relates to the ecological consequences of such a project, i.e. the so-called negative externalities.

Domestic private investments represent the foundation of development. Why they aren’t encouraged in our country is a good question for representatives of the government

If a foreign company exploits our mineral resources, it becomes the owner of those resources, and pays our state only mining rents (in the range of just a few per cent of the value of mined materials, with Serbia’s mineral rent among the lowest in Europe). In such a scenario, the vast majority of the new value remains with the foreign company, which isn’t even required to pay our country profit tax if it “moves” the profit to other subsidiaries in countries where the tax conditions are more favourable (which multinational companies do regularly). When it comes to the large investments brought by foreign companies, we should consider that most of those investments are used to pay for technology that is predominantly imported from abroad. One part of those investments will be received as short-term additional income for domestic construction companies, until construction of the required facilities, and one part will be received by the sellers of land as a one-off payment.

And subsequently?

— It would be tough for there to be any mention of the guaranteed construction of factories for batteries, vehicles or anything else, because mining companies cannot influence the business policies of companies that produce cars or batteries (unless they are part of the same conglomerate, which isn’t the case in our example). Elon Musk didn’t require an operating mine in order to build an electric car or battery factory. Anyone wanting to build a car or battery factory in Serbia can do so now, without lithium mining in our country, but that hasn’t happened. On the other hand, the situation could be different if our mineral resources were extracted by a domestic state company. The total value of the mined raw materials (and not only negligible mining rents) would remain in our country.

And then the state, as the owner of significant mineral resources, could attract foreign companies to open battery and car factories with more favourable access to essential mineral resources. It is thus not surprising that the wealthy Norway long ago made the smart decision to entrust the extraction of its mineral wealth (North Sea oil and gas) to a state company that invests its profits in global long term securities for the long term benefit of Norwegian pension fund and transfers part of its profits to the state budget, for the short term benefit of all Norwegian citizens. But this is not being proposed in Serbia. It is instead being proposed that the country’s mineral wealth be entrusted to a foreign company that has a very controversial business history. Another question is how much such a project leads to losses for the agriculture and tourism that are currently developing in that area and could operate there for much longer than the active period of mineral wealth extraction? Perhaps even more could be obtained from agriculture and tourism with additional investments and incentives in that area. And that is also a factor that should be taken into consideration.

Finally, the environmental ramifications. Following the publishing of the proceedings of the SANU meeting of two years ago, entitled “Project Jadar – what is known?”, and the conclusions of this meeting of our country’s preeminent experts, who predominantly expressed a negative view regarding the implementation of this project, this issue is closed for me. This topic could only be reopened through some new independent scientific congress or independent scientific papers on this topic, or a concrete positive example of exploitation realised using the same technology and related to the same mineral wealth in another location. Until then, I think the wisest option is to follow the advice of our cleverest people in this field that’s been published by SANU.

Returning to the issue of the importance of a highly educated workforce, how would you explain the constant decline in the number of students enrolled in our higher education institutions? What are young people doing today if they aren’t getting an education and what kind of future economy is that leading us towards?

— Without fundamental and comprehensive positive change regarding the quality of education of the population at all levels in our society, it isn’t possible to talk about future economic growth and success for our country. The ambitions of our children and young adults (and the parents who guide them in their life choices) should be directed towards gaining a high-quality education and further schooling and training in order to qualify for high-paying jobs. But they should also be able to see in the life unfolding around them that acquiring knowledge leads to a better quality of life. A society in which teachers and lecturers can barely make ends meet, while young people see a chance to make money in betting shops and view their career development through the acquiring of diplomas without knowledge and membership in political parties that appoint them to positions that they aren’t objectively qualified to hold, cannot have realistic prospects of developing and creating a prosperous society. The huge number of Serbian people emigrating from our country is a clear indicator that our society – and its current scale of values – should be changed for the better from its core.

Some analyses have shown that, in addition to investments in labour-intensive sectors, there are increasing investments in more technologically intensive sectors. Do you recognise this progress?

— Genuine progress in this area will only be possible when we can offer a high-quality and technologically educated workforce. Quality education and science can’t be omitted from any successful long-term story of a nation’s economic development and prosperity.

When it comes to the general institutional and investment environment, what do you see as being the key drivers that are lacking in order for announced investments to prove effective?

— Best testifying to the erosion of the institutional environment in Serbia are the international analyses (conducted by the World Bank, Transparency International and other institutions) showing continuous decline in the institutional environment, particularly since 2015, while we languish among the four worst countries in Europe when it comes to the perception of corruption. Under such conditions, no “propellant” will help and no “quantum leap” will occur.

In my opinion, a well-ordered system with strong institutions, the rule of law, a lack of corruption, a highly educated workforce at all levels, with quality and accessible healthcare, are key drivers of development and the encouraging of foreign private investments and, even more importantly, domestic private investments.

Individual researchers claim that Serbia is seeing the slow emergence of a group of domestic companies able to compete on foreign markets, with more complex products on offer. Why is it so rare that we hear about the existence of measures to encourage domestic investment?

— Prior to World War II, just a couple of decades after the Wright brothers’ pioneering flight, Serbia was home to seven aircraft factories. If we were already able to offer the market complex products with advanced technology back then, I’m certain we could also do so today. Domestic private investments represent the foundation of development. Why they aren’t encouraged in our country is a good question for representatives of the government.

We are nonetheless witnessing the constant growth of exports. Doesn’t that prove that investments really are increasing?

— It is the quality of exports that’s essential. Serbia should export products and services that also mean exporting knowhow (professional and scientific), and as a rule such products and services are more expensive and profitable on the world market, equating to countries that have such exports being wealthier. No country has grown rich from exporting raw and unprocessed minerals and timber…