In 2024, foreign direct investment inflows amounted to 6.6 billion euros, marking an 8 percent increase compared to 2023. However, during the same period, profit withdrawals reached 4.3 billion euros, which is two-thirds of the total investments in 2024 and represents a 40 percent rise from the previous year. These figures were highlighted by Professor Blagoje Paunović, President of the Fiscal Council of Serbia, during the Kopaonik Business Forum on March 2. He participated in a panel discussion titled “Can We Reach High-Income Economies?” moderated by Saša Ranđelović, a professor at the University of Belgrade Faculty of Economics.
The President of the Fiscal Council warned that Serbia is approaching a point where the net effect of foreign direct investment may soon reach zero, which could have serious implications for the country’s economy.
“What attracted foreign direct investment to Serbia in previous years? Relatively cheap labor, low labor costs, easy access to natural resources, and lenient environmental standards. Some of these factors are losing significance, especially as labor availability declines. Many trends are connected to this shift, but a slowdown in foreign direct investment could negatively impact our current account deficit, which stood at 6.4 percent of GDP at the end of last year,” Professor Paunović cautioned, adding that this is just one of many potential negative consequences.
He emphasized the importance of foreign direct investments, which totaled 25 billion euros from 2017 to 2023. However, these investments were primarily directed toward traditional sectors. “About 60 percent of these investments went into industries linked to natural resources, including mining, agriculture, and metal production. They did not significantly contribute to the development of high-value-added and technologically advanced industries. The slowdown in foreign direct investment has been ongoing for several years. In 2019, foreign direct investment accounted for 7.4 percent of Serbia’s GDP, but by 2024, it has fallen to 5.6 percent. What is even more concerning is the end of the investment cycle, as foreign investors are increasingly withdrawing profits to reinvest elsewhere,” Professor Paunović stressed.
Speaking about Serbia’s current economic situation, he noted that while the country is achieving solid growth rates of around four percent, this does not necessarily indicate long-term sustainability or high-quality growth. He pointed out the main shortcomings of Serbia’s growth model, which has been based on two pillars: public capital investments and foreign direct investments. He elaborated on the limitations of a growth model driven by public capital expenditures.
“Serbia’s economic development has so far relied on increased capital investments, primarily public investments, while private investments have mostly come from foreign direct investment, with very little domestic capital involvement. This has led to higher employment but minimal technological progress. While data suggests that public capital investments have had a positive impact on economic growth, particularly through construction projects, and that they have not displaced private investments, we have now reached the limits of this growth model and are facing several negative consequences. Over-reliance on public investment is already showing drawbacks. The allocated funds amount to six to seven percent of GDP, with 7.4 percent planned for this year, which is equivalent to 6.5 billion euros. We are already encountering financing challenges for such large projects, leading to delays or symbolic budget allocations, indicating an intention to extend project implementation timelines,” Professor Paunović explained.
He also raised concerns about the justification of these investments at all stages, from project planning to execution. “This is the result of failing to follow the regulatory framework for investment decision-making. Many decisions are made on an ad hoc basis, with no connection to public policies or strategic plans. Significant projects are approved without alignment with national development policies. A prime example is the failure to comply with legal obligations, particularly the Planning System Act of 2018, which required the Serbian government to propose a National Development Plan to Parliament by January 2020. This has not yet been done, which means that the government has not been able to establish an official investment plan. Consequently, there is no obligation to report on the effects or evaluation of individual investments. One of the many negative outcomes is the neglect of crucial sectors such as education and environmental protection,” Professor Paunović stated on the first day of the Kopaonik Business Forum, which runs from March 2 to March 5 and hosts approximately 1,600 participants.
