Business and Economics
Serbia is considered an upper middle-income country. Agriculture still plays an important role in business and accounts for most 8-10% of GDP in most years. The service industries have grown strongly over the past ten years and their GDP share was estimated to be 49 percent in 2017. The country’s economy underwent an extremely troublesome crisis in the 1990s and is still unstable, and the business sector, especially the industry, which accounts for 41 percent of GDP, is very vulnerable to crises abroad.
Business in the late 1900s. In the Serbian part of the former Yugoslavia there was a relatively diverse business community. It was This is a consequence of some good natural resources, a favorable transport position and a relatively large labor force. Apart from agriculture, the state played a dominant role in business. Economic growth was fairly good, but was completely interrupted when Yugoslavia split in the early 1990s. For Serbia, a decade of stagnant and declining economies followed, as a result of wars, shrinking domestic markets and international sanctions that stopped much of foreign trade. The sharpest fall came after the NATO bombings in the spring of 1999, when transport routes and several factories were destroyed or seriously damaged. Serbia’s GDP was halved in the 1990s. See Digopaul.
The transition period from 2000. Following the transition to democratic rule in autumn 2000, a radical program for the introduction of market economy was launched. This included rapid reforms with privatization as well as restructuring, modernization and internationalization of business. Annual economic growth in 2001–08 averaged just over 5 percent. However, internal problems and crises in the outside world have significantly delayed the implementation of the changes. GDP fell by 3.5 percent in 2009 but rose slowly over the following two years. Serbia was granted EU candidate country status in March 2012, which was expected to result in increased support and investment therefrom. The euro crisis counteracted this, and 2012 saw a GDP decline again, then by almost 2 percent. Subsequently, growth has fluctuated; In 2015, growth was 0.8 percent.
One goal of the radical reform program in the 1990s was to engage foreign investors to develop different parts of the country’s business. At a rapid pace, laws and regulations were changed to harmonize with the EU. But the pursuit of privatization encountered obstacles, especially with regard to the large state-worn companies with outdated technology and inefficient operations with unprofitable large workforce. For example, for the largest companies in the mining and metal industry, the state has not yet managed to achieve lasting privatization. Until the 2010 century, the energy sector and transport systems were exempt from privatization. The transformation process takes much longer than planned and still includes a number of state-owned companies that are in great need of restructuring. Many new, private companies have also not proven to have a sufficient basis for survival. Unemployment therefore grows every year.
- According to AllCityPopulation, the capital city of Serbia is Belgrade with a population of 1.3 million (estimate 2019). Other major cities include Novi Sad, Nis, Kragujevac, Subotica.
Problems and opportunities. In Serbia, there were high hopes that the country would receive the support of international lenders such as the International Monetary Fund, the World Bank and the EU, and that it would also be an interesting country of establishment for multinational companies and private investors. However, such a development was offset by the international financial crisis, followed by the euro crisis with shrinking demand in many of Serbia’s exporting countries.
The prospects are somewhat brighter than average in a couple of industrial sectors and for parts of agriculture. From a global perspective, Serbia currently has a number of benefits that can benefit the business community. It is a low-wage country that can compete with countries in South and Southeast Asia and it is close to the large market within the EU. Above all, Serbia has a number of free trade agreements, mainly with the EU, the Russian Federation and Turkey, as well as similar agreements with most of the countries nearby in the Balkan Peninsula. For multinational companies, therefore, an establishment in Serbia can facilitate the way into new markets. In the current economic development strategy, which applies from 2010, exports are seen as the engine for the country’s economic growth. Exports also increased noticeably until 2012. However, this makes the country vulnerable to financial problems abroad.
There are a number of difficult challenges within the country. This includes deficiencies in energy supply and transport systems, widespread corruption at various levels in society and an aging population, mainly as a result of many young people emigrating. Debt is gradually increasing, both for households and for the state, and foreign trade shows a significant deficit. State spending increases as a number of state companies go bankrupt or are on the brink of it and need to be supported. More and more people are becoming unemployed and they too must be supported, and it currently seems impossible for the government to create new jobs. In 2012, total employment in the country was less than 70 percent of what it was in 2001.
Agriculture is more important in Serbia than in most other European countries. In 2015, agriculture, forestry, hunting and fishing accounted for 22 percent of employment. Two thirds of the land area is used for some form of agriculture.
Serbian agriculture and the Serbian food industry were prominent already in former Yugoslavia and then produced for other parts of that country. Following the breakdown of Yugoslavia, Serbia became a net exporter of cereals, fruits and vegetables and their products, primarily to neighboring countries but also to the Russian Federation and EU countries. However, the harvests vary considerably, mainly as a result of the weather conditions.
On the fertile plain around the rivers in the province of Vojvodina in the north, maize and wheat, as well as industrial crops such as sugar beets, sunflowers and soybeans, are mainly grown. In other parts of the country, topography is less suitable for arable farming. In addition, the soils are leaner and the climate more uncertain with cold winters and often very hot and dry summers. There, livestock farming is of greater importance, as is the cultivation of potatoes, fruits, vegetables and fodder plants. The livestock consists mainly of pigs and poultry as well as cattle that provide both milk and meat for sale. Of the total agricultural production in 2010, 70 percent were vegetables and 30 percent were animals.
Contrary to what it was in other states in Eastern Europe, no comprehensive collectivization of agriculture in Yugoslavia was ever carried out, and in the 1980s, three-quarters of agricultural land was privately owned with farms covering a maximum of ten hectares. The remainder of the agricultural land belonged to large state agricultural combines as well as agricultural collectives. Over the past decade, the government has tried to privatize state agriculture but with less success. Domestic capital has been lacking and foreign buyers have usually shown no interest due to poor transport conditions in rural areas and other barriers to efficient production. In 2013, more than 85 percent of the agricultural land was in privately owned or leased state-owned land.
For many years, new investments in agriculture were neglected and after 1991 production fell sharply; In 2007, the entire agricultural yield was still less than two-thirds of the 1990 level. Harvest results vary widely between years. For example, the drought in the summer of 2012 meant that the agricultural production value of that year decreased by just over one fifth. Misuse of resources and poor organization can also explain why growth in agriculture is very slow. Irrigation is needed but is poorly developed. However, the main obstacle to a major increase in production is that private farms are still small. More than three quarters of them cover less than 5 hectares. In addition, the eggs are usually split into scattered ticks. Most farmers thus lack opportunities to modernize and increase the yield. Serbia considers itself to be the country in Europe that uses the least fertilizers and chemical pesticides, a relationship that can be viewed both negatively and positively. The least developed is agriculture in southern Serbia, most developed in the north.
Since 2008, agricultural production has increased. Above all, the harvest of sugar beet has increased sharply, but also the cultivation of maize and soybeans now gives better results. The state stimulates the cultivation of fruits and vegetables, mainly to increase exports of processed products thereof (jams, preserves, essences, spirits). Serbia is the world’s largest exporter of frozen raspberries and is also known for growing cherries, blackberries, blueberries, plums and apples. The most important vegetables are potatoes, peppers, cabbage and tomatoes.
The number of pets of various kinds decreased sharply during the 1990s and 00s. A number of collective farms are aimed at raising pigs or poultry, while cattle and sheep are now almost exclusively found by the small farmers. This small-scale production makes it difficult to develop contacts with the market, organize the processing of the raw materials and control their quality. It is therefore difficult to realize Serbia’s hopes for increased exports of animal products to EU countries.
At the forest inventory in 2008, more than 29 percent of the land was woodland and another 5 percent was overgrown with a mixed vegetation of shrubs and trees. More than 90 percent of the forest was made up of deciduous forest, mainly beech but also oak and poplar.
Previously, the state owned most of the forest land and forestry was integrated with large-scale timber industry. A gradual privatization resulted in the state share falling to just under 40 percent in 2008. More than 52 percent of the forest area was then privately owned, while the remaining 8 percent belonged to companies and various associations. Private forest land is usually severely fragmented. The area is an average of 0.5 hectares and the forest has low quality and productivity. So far, there are only a few large private forest properties, but from this comes a considerable part of the high quality hardwood that is sought after by the forest industry. Previously, half of all harvested forest was used for fuel, but that demand has decreased as natural gas distribution has expanded.
The demand for sawn timber is increasing, and the forest industry includes several thousand small and a number of medium-sized sawmills, furniture factories and other timber industries. They are almost all family businesses and most are located in central Serbia. For them, it is important to reach the standard required to be able to export to countries within the EU, such as FSC, which shows that the raw material comes from sustainable forestry. But the changes are slow and certification is a time-consuming process. Exports include veneer boards, parquet and not least wooden furniture. The low-wage country of Serbia can compete for solid wood furniture and also exports bedroom furniture for hotels as well as wooden doors and wooden windows.
Mineral and mining industry
The mining industry contributes just over 1 percent to both GDP and employment. Mining of lignite accounted for the majority, while the extraction and smelting of metals was of little importance. The breakthrough occurrences so far have been small and the operations have had to use completely outdated technology. Lack of capital means that it takes time for production to be fully modernized. Since 2009, however, the extraction of copper has increased.
Copper ore has been mined in Bor in eastern Serbia since the early 1900s, after the second world war by the state-owned company RTB Bor. The wars during the 1990s and, above all, the international trade sanctions meant that the extraction became increasingly outdated and environmentally disruptive, and the volume shrank. In 2007–08, the government tried to privatize the business but failed. Heavily rising copper prices in the global market led to major government investments, primarily in new equipment.
Mining and waste management have destroyed the landscape, and the outdated purification technology and technology from the 1970s inside the smelter has seriously degraded air and water quality. Since the end of the 1990s, production has increased and plans are underway to expand with mining occurrences at great depth. However, it requires moving a village. With loans from the World Bank and in collaboration with a Canadian mining company, the smelter is now being radically modernized and in conjunction with this a sulfuric acid plant is being built where you use sulfur which you get in the purification process. Increasing production causes growing waste management problems.
Ores containing lead and zinc are mined in the central part of the country as well as iron ore on a very small scale. Serbia’s only steel plant is located in Smederevo, east of Belgrade. The attempts to privatize it have also not been successful, as US Steel, after a few years of ownership without having started a profitable production, returned it to the Serbian state in 2011. One of the ovens was restarted in 2013 with imported iron ore and coke from Ukraine. In the Jadar valley in western Serbia there is a large presence of light metal lithium, and Rio Tinto, one of the world’s largest mining companies, has been investigating the possibilities of starting exploitation there since 2010.
The raw materials for primary energy production in 2010 consisted of lignite (68 percent), oil (9 percent), natural gas (3 percent), hydropower (10 percent) and wood (10 percent). Lignite is mined in the country, while a large and growing share of crude oil and natural gas is imported, mainly from the Russian Federation. Electricity came to 62 percent from power plants that were fired with lignite and 34 percent from hydroelectric power stations. Natural gas is also used to generate electric power.
Three quarters of the lignite production takes place in open pit mines in the Kolubara field 70 km south of Belgrade, while the remainder is mined in the Kostolac field east of the capital. Serbia is largely self-sufficient with lignite, but the demand for electricity is increasing and thus the need for more lignite. The government expects to open new mines in the Kolubara field, but such an expansion meets strong resistance from both locals who are forced to relocate and from environmental organizations that are negative to the coal mining. It is so far operated with outdated technology and therefore pollutes air and water and it takes place in open quarries, which destroys the landscape. More than half of the country’s electricity is produced in coal-fired power plants in the Kolubara area.
Serbia has two oil refineries, one in Pančevo, northeast of Belgrade, which accounts for most of all refining, and one in Novi Sad, the capital of Vojvodina. Just over two-fifths of the crude oil for these refineries is mined in the country, at nearly 60 locations in Vojvodina. The imported crude oil comes via a pipeline from the Croatian island of Krk on the Adriatic Sea. With the hope of finding more domestic crude oil, exploration is conducted south of the Sava and Danube rivers. The need for refined oil products is covered by 80 percent of the two refineries’ production, while the remainder is imported.
Natural gas is also extracted in Vojvodina, but production in 2011 covered almost a tenth of the country’s needs. Imports come mainly from the Russian Federation, currently headed by Ukraine and Hungary. It will increase, as Subotica in northern Serbia is one of the targets for the natural gas pipeline, South Stream, which has begun to be built from the Russian Federation under the Black Sea to countries in the Balkan Peninsula.
In the Passport Iron Gate on the border between Romania and Serbia lies Danube’s largest power plant dam with associated hydroelectric power stations. There, the two countries have six turbines each. Some smaller and also a number of small hydropower plants are found in the mountainous regions of western and southeastern Serbia.
NIS (Nafta Industrija Srbije) handles all extraction, import and sale of oil and natural gas. This former state-owned company was privatized in 2008 and listed on the stock exchange in 2010. Majority owner is the Russian oil company Gazprom Neft. The state electricity company EPS (Electroprivreda Srbija) has a monopoly on all production of electricity and operates all mining of lignite. It was the country’s largest company in 2012 and has also had a monopoly on sales of electrical energy. In January 2013, however, that market was opened to other companies.
Serbia’s energy policy is now being designed with a view to EU membership, and the energy market is gradually being linked to neighboring countries. Above all, modernization and efficiency in the entire energy sector are required and in addition a changed pricing. Serbia has so far had the lowest electricity price in Europe, but electricity generation has stagnated and a lack of electricity is seen as a serious problem for the country’s economic development. Official documents talk about sustainable energy conservation, but dependence on imported fossil fuels is increasing. Hydroelectric power’s share of electricity generation decreased in the early 2010s, but several small hydroelectric power stations have begun to be built. As for other renewable energy raw materials, there is the potential to use solar and wind energy, but no commercial use thereof has started. In the countryside, firewood is still of great importance.
Industry and service
The industry accounts for just over 26 percent of employment. Industrial production increased during the 00s by only 1.5 percent per year and had large fluctuations between different years. The sector’s share of GDP then decreased, while the importance of service industries grew.
In 2014, the manufacturing industry accounted for 16 percent of employment. In various ways, the government seeks to stimulate industrial enterprise: the corporate tax rate is among the lowest in Europe and a number of reliefs have been introduced for foreign investors. However, corruption and time-consuming bureaucracy are serious problems for business.
A lot of the former Yugoslav industry was in Serbia, mainly in the Belgrade area and on the Danube and Western Morava rivers. The war during the 1990s, sanctions and bomb attacks destroyed much of both buildings and transport facilities, but the main features of the dispersion picture remain. However, many smaller companies in remote parts of the country have been out-competed.
The food industry has become one of the stronger industries in the country’s business sector. Most of this has been privatized after 2000 and is increasingly being integrated with the grocery trade, which is now characterized by major players and growing internationalization. The food industry has received a strong influx of foreign capital, during the period 2001–12 second most after the financial sector and more than both the telecom and the automotive industry. Dairies and slaughterhouses have become fewer, larger and more rational and they strive to achieve a quality that complies with EU standards. Increased dairy production also means increased exports of milk and dairy products to neighboring countries. In Western Europe, there is growing demand not only for plum brandy and paprika sauces, but also for similar products of fruit and vegetables from Serbia.
The steel and metal industries are seen as an industry branch with good potential, but so far the privatization of steel and copper smelters has not been possible and business management and technology are only slowly changing. From time to time, operations have been almost entirely down. In the spring of 2013, operations at the country’s only steel plant started again as a result of demand from the domestic automotive industry.
The automotive industry was significant in the Serbian part of Yugoslavia, but during the 1990s it stagnated in Serbia. Trade embargo stopped import and export of vehicle components and the factories were damaged by the bombings in 1999. Since 2008, the largest car company, the former state Zastava, is largely owned by Italian Fiat under the name Fiat Automobili Srbija. It manufactures passenger cars in Kragujevac in central Serbia. In Priboj in the southwest lies the truck company Fabrika Automobila Priboj, FAP. Its production of vehicles for both civilian and military use decreased sharply after 2007, and components are now mainly produced for trucks and buses. Many companies produce components for the foreign automotive industry, such as chassis, batteries and electrical systems.
Electrical and electronic industry developed early in the Serbian part of Yugoslavia, Nikola Tesla’s home region. In the 1980s there was extensive production of both television sets and military equipment for communication. The 1990s became a disaster for the industry, which was cut off from foreign contacts and could not follow developments in the field. In 2013, it still had not reached the 1980s production level, despite the fact that it is now prioritized with particularly favorable conditions for foreign investors. However, after 2010, several foreign companies have established export-oriented production in Serbia. Two important centers are Niš in south-central Serbia and Subotica in the far north. Another industry with growing exports is the furniture industry (see Forestry).
The chemical industry mainly produces base plastics and other oil products as well as synthetic rubber. The petrochemical industry has its center in connection with the country’s largest oil refinery in Pančevo. The chemical industry has caused major environmental problems as a result of obsolete technology and poor emissions, and the difficult economic situation means that this can only be addressed slowly.
The Serbian textile industry is currently an internationally competitive industry. It is low-tech and labor-intensive with a low wage position and it is focused on manufacturing confectionery products. Most employees are in small or medium-sized workplaces. Its main local significance is the industry in the country’s southern half, where Lescovac is a traditional textile center. Foreign clothing companies, mainly Italian and German, invest in Serbia and exports of clothing and shoes are increasing. Most of this export goes to countries in the EU, which can see Serbia as a good alternative to countries in South and Southeast Asia, where wages are rising and products are thus becoming more expensive. The industry is the hardest hit by structural change in recent years.
During the 00s, economic growth occurred mainly in the service industries, especially in the trade, the real estate market and the various financial operations. The expansion of the financial and real estate markets was a result of the corporate restructuring and privatization. International retail chains from Croatia, Slovenia and Germany, for example, established themselves in the country and external shopping centers grew in larger cities. In the 2010s, trade expansion was halted. Growing unemployment and increased poverty have led to a fall in demand for many types of goods. Reduced capital flows have halted the growth of the financial sector. Tourism has increased very slowly since 2007, but it is important for employment.
Since Yugoslavia dissolved, independent Serbia had extremely difficult to build up its foreign trade. Civil war and EU and UN sanctions during the first half of the 1990s, and not least the NATO bombings of 1999, meant that trade was reoriented and changed to its content. The sanctions meant that important spare parts and advanced equipment could not be imported from many western industrialized countries. The share of raw materials in exports increased, among other things. as a result of the destruction of domestic industrial plants and could not be repaired.
Since 2000, foreign trade has been able to expand under calm conditions. Up until 2008, imports increased sharply for each year and exports also increased steadily but slightly more slowly. Following a sharp decline in 2009 as a result of the international economic crisis, a slower increase came in 2010-11. The trade balance has always been negative, and in 2012 export revenue represented only 60 per cent of import costs.
In the 2017 export, the most important commodity groups were iron, steel and other metals (9 percent of the total export value), cereals and their products (7 percent), electric machinery and appliances (7 percent), road vehicles (5 percent) and fruits and vegetables (5 percent). Most prominent in imports were oil, petroleum products and natural gas (16 percent), iron, steel and other metals (7 percent), road vehicles (6 percent), electric machinery (4 percent) and pharmaceuticals (4 percent).
The closeness to the EU and Serbia’s quest for closer links is reflected in the fact that two EU countries are now one of the country’s most important trading partners. In 2017, 13 percent of exports went to Italy and 12 percent to Italy. Then followed neighboring countries Bosnia and Herzegovina, Romania, Russian Federation, Montenegro and Northern Macedonia. Mainly among the importing countries came Germany (13 percent of all import costs). Next followed Italy (10 percent), China (8 percent), Russian Federation, Hungary, Romania and Austria. Serbia’s exports to the EU countries have since increased in absolute terms since 2000, but for the EU, Serbia is an insignificant trading partner; the country is in that respect in place 40.