Serbia Industrial Plan Shifts Toward High-Value Manufacturing Growth Model

Serbia has introduced its 2026–2027 industrial-policy action plan, marking a strategic shift from labour-intensive manufacturing toward a capital-intensive industrial structure focused on higher-value-added production, stronger technological content, and cleaner industrial processes.

The policy reframes industrial development beyond attracting foreign factories and subsidising employment, positioning competitiveness around productivity, technology upgrading, energy efficiency, and export quality standards.

Structural shift from labour-based to technology-driven industry

Over the past decade, Serbia’s manufacturing expansion has been supported by foreign direct investment in industrial zones and export-oriented sectors, including automotive components, electronics assembly, cable production, machinery, metal processing, and food manufacturing.

The new framework reflects pressure from rising wages, constrained labour supply, EU carbon regulations, automation trends, supply-chain localisation, and declining foreign investment inflows, all of which reduce the effectiveness of a low-cost labour model. The plan defines a transition toward industrial competitiveness driven by automation, productivity gains, digital systems, and certification capacity rather than wage arbitrage.

Digitalisation, innovation, and green transition priorities

The action plan is structured around five pillars: digitalisation, innovation, investment, export technological upgrading, and the green transition. It places emphasis on artificial intelligence adoption in industry, expanded corporate cybersecurity, innovation-driven projects, green investment mechanisms, and increased exports of technologically advanced goods.

During the 2024–2025 cycle, the government reports completion of 67 of 71 planned activities (over 94%), alongside a 9.5% increase in manufacturing labour productivity. Gross value added per employee rose from €19,000 to €20,800.

Despite these gains, the plan notes that Serbia remains below the productivity threshold of higher-performing European industrial economies, requiring deeper capital investment in automation, robotics, industrial software, testing infrastructure, energy management systems, and product development capabilities.

Investment allocation and industrial financing structure

The financial framework prioritises traditional investment incentives. Industrial investment support is set at RSD 23.1bn (~€197mn) in 2026 and RSD 24.5bn (~€209mn) in 2027, using an exchange rate of approximately RSD 117.4 per euro.

Business infrastructure funding exceeds RSD 3bn annually (~€25.6mn per year). The Serbian-Chinese industrial park Mihajlo Pupin Industrial Park is allocated RSD 80mn in 2026 (~€0.7mn) and RSD 100mn in 2027 (~€0.9mn). By contrast, funding for circular economy transformation is significantly smaller, with only RSD 2mn in 2026 (~€17,000) and RSD 3mn in 2027 (~€26,000), alongside RSD 11.4mn (~€97,000) in donor support from GIZ in 2026.

Innovation funding and institutional support mechanisms

Innovation-related financing remains limited relative to the scale of industrial restructuring. The Innovation Fund receives RSD 120mn in 2026 (~€1.0mn) and RSD 240mn in 2027 (~€2.0mn). The Science Fund is allocated RSD 393.4mn in 2026 (~€3.4mn) and RSD 117.5mn in 2027 (~€1.0mn). The World Bank-financed SAIGE project provides additional support of nearly RSD 234mn in 2026 (~€2.0mn) and more than RSD 744mn in 2027 (~€6.3mn). These instruments are designed to support innovation ecosystems but remain dependent on linkage with industrial investment, export contracts, and factory-level technology adoption.

Declining FDI and the push toward domestic capital formation

The policy context is shaped by weakening foreign direct investment flows, which previously served as the primary driver of industrial expansion. The action plan notes a decline in inflows during 2025. Separate central-bank-based reporting indicates that net FDI fell by 51% to €2.278bn, while total FDI inflows declined by 34% to €3.477bn.

This shift increases pressure on domestic firms to finance industrial upgrading, strengthen supplier roles within multinational value chains, and move beyond subcontracting low-value processes. The strategy highlights requirements for certification systems, traceability, energy and carbon reporting, quality assurance, software integration, and management capacity improvements across domestic industry.

EU market access, green transition, and industrial compliance pressure

A key measure involves preparation for an ACAA agreement with the European Union covering electrical and electronic products, machinery, and personal protective equipment. The agreement is intended to reduce technical barriers and align conformity-assessment procedures, enabling Serbian manufacturers to access regulated European markets more efficiently.

The green transition dimension is constrained by limited financing, skills shortages, and weak institutional knowledge among SMEs. Companies report difficulties in accessing expertise, training, and digital tools for emissions monitoring, carbon footprint measurement, and environmental reporting.

Industrial policy is also shaped by compliance pressures linked to EU carbon regulation frameworks and supply-chain requirements affecting carbon-intensive sectors such as steel, aluminium, cement, fertilisers, and electricity.

Industrial output and macroeconomic conditions

Industrial performance remains moderately positive in the short term. Serbia recorded industrial production growth of 3.4% in April 2026 compared with April 2025, while EU-wide industrial output increased by 0.9% year on year in the same period.

The broader European market remains subdued, reinforcing competitive pressure on exporters and increasing the importance of productivity gains and technological upgrading within Serbia’s industrial base.