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Europe

Foreign investment in Serbia: Turning the first sod in the national interest

Serbia is attracting investors with generous subsidies. Critics say this is ruining competition. The president's priority, though, is to present himself as a creator of jobs.

It's nothing new for politicians to promote their country as an attractive location for businesses to set up. But a president who goes to unusual lengths to sing the praises of one particular company? This is exactly what Serbia's strongman Aleksandar Vucic did at the beginning of August. "IKEA changes mindsets - of individuals and of society,” he wrote, in a long guest article in Alo, a tabloid newspaper that's very much on his side.

After years of discussion, the cult Swedish company has opened its first furniture store in Serbia, south of Belgrade: the 400th worldwide. Even the toll booths on the motorway were moved so that customers driving from the city center wouldn't have to pay a toll. The relocation was paid for by the state.

Vucic, who has ruled the Balkan country with an iron fist for five years, visited the site several times to inspect the work and, ultimately, to conduct the furniture store's ceremonial opening. The crowd of journalists that always surrounded him ensured nice pictures would be shown on the evening news. Vucic, who in the 1990s was still a radical nationalist, now presents himself as a European, but at home he likes to portray himself as a savior, tirelessly creating new jobs for his fellow Serbians.

Read more:  Ikea in hot water for releasing catalog without women

Serbia cable factory (J. Dukic-Pejic)

Many jobs offered by foreign firms are simple and badly paid

Magic word: Subsidies

As an aspiring member of the European Union and a traditional ally of Russia, the Balkan country offers a certain degree of access to third markets. However, businesses are more likely to be enticed by its low wages. The downside: bad roads and unreliable railway networks, comparatively high taxes and social security contributions, ubiquitous and corrupt bureaucracy, and a judiciary that toes the party line.

The domestic market offers very low returns, says Dragoljub Rajic, an economics adviser; Serbians simply don't have enough purchasing power. "So people only invest here because of cheap labor and to get state subsidies, then possibly to export the products."

"Subsidies" is the magic word. Foreign investors are generously promised up to €40,000 ($47,670) for every job they create. The practice was introduced by previous governments, but it was Vucic's Progressive Party that made it a strategy to bolster the national interest. As a result, the moderately successful Fiat 500L model is manufactured in Serbia, and German automotive suppliers such as Dräxlmeier or Leoni and the meat producer Clemens Tönnies have also invested there.

"Politicians have granted themselves exclusive rights to be allowed to decide who gets the money and under what conditions," Rajic criticizes. "That throws the gates wide open for corruption."

Aleksandar Vucic visiting the Tönnies factory EINSCHRÄNKUNG (Tönnies/Foto: Maik Zeidler)

Vucic (l.) (links) visited the German "king of sausages" Clemens Tönnies

A huge bill

Meanwhile, the total amount of tax revenue that has gone to foreign companies remains a mystery. Simply adding up the published official figures is a Herculean task, as Radmilo Markovic, a journalist with the Belgrade weekly magazine Vreme, found out. Between 2003 and 2014 alone they totalled €5.25 billion - a massive sum, given that total state revenue is around €9 billion per year.

And Markovic's calculations don't include the biggest financial beneficiary - Fiat. These contracts are strictly confidential. Also not included: tax breaks, free sites for production halls, the construction of access roads or the laying of electricity or water supply lines financed by the state.

"There is absolutely no analysis of whether the subsidies are worthwhile for Serbia," Markovic told DW. "The money is distributed on a voluntaristic basis, in a non-transparent way, often just for election campaign purposes. There are probably dozens of rules being broken, or at least laws being creatively interpreted."

Race to the bottom

Foreign companies are also assured of financial bonanzas in the neighboring countries, such as Macedonia or Bosnia. "Just tell us how much Macedonia, Bulgaria or Romania are offering you … We in Serbia will make you a better offer," Vucic tells investors at every possible opportunity.

"It's a race to the bottom," criticizes Krunoslav Stojakovic, the Belgrade bureau chief of the Rosa Luxemburg Foundation, which has ties to the German political party Die Linke (The Left party). He says the Balkan countries are all outbidding one another with these subsidies, despite the fact that they're all very poor.

The Minister of Public Administration, Branko Ruzic, responded that Serbia was not an island. 'I don't believe that the people who get a job are unhappy about it," said Ruzic, who is also the vice president of the Socialists, the junior partner in the coalition government. "It's baseless and unfair when people accuse us of promoting Serbia with cheap labor. We're no Vietnam."

But the officially promulgated version of things, in which companies are attracted by Serbia's great business environment, doesn't match with what the investors themselves are saying. A member of the board of Zumtobel, the Austrian manufacturer of lighting technology, said that they were opening a factory in southern Serbia because wages there were low and there were plenty of workers in the region. After all, he went on, they were just looking for people who could assemble lighting products. At the company shareholders' general meeting in July, the board also announced that an 8-million euro "grant" from the Serbian government had played an important role. This was reported in the Vorarlberger Nachrichten newspaper: The Serbian public only found out about the size of the subsidy from DW. 

Branko Ruzic - vice president of the Socialist Party of Serbia (DW/N. Rujevic)

Ruzic: We aren't Vietnam

Five years without wages

Many employees are infuriated that starvation wages are seen as a positive for Serbia by businesses considering opening a subsidiary there. The minimum wage equates to €190 a month after tax; average wages are just under €400 a month. Unemployment, when not viewed through rose-tinted spectacles, stands at around 30 percent. Better-paid jobs in public administration are often given only to loyal party supporters: The Progressive Party has around 600,000 members in a population of 7 million. Not even the Communist Party in former Yugoslavia boasted a quota like that.

In July workers went on strike at places including Fiat, Gorenje, a Slovenian manufacturer of domestic appliances, and the wagon factory Gosa, which is owned by a Slovakian businessman. The workers here didn't receive regular wages for five years. "How do we survive? Write that we're magicians," a Gosa employee told DW.

Gosa factory in Serbia (DW/S. Kljajić)

The factory halls of Gosa are largely deserted

A show for the electorate

President Vucic and some of his ministers have accused the workers of making Serbia look bad in the eyes of the world and trying to scare off investors. Reports about unpaid overtime, workers fainting because of unventilated production halls or about corrupt health and safety inspectors are dismissed as malicious rumors.

With this, Vucic has, paradoxically, brought the free-market liberals and the leftists together. The former see competition as being threatened by subsidies, the latter are concerned about the exploitation of workers. However, neither group is strong in Serbia: Populist stories go down better. Before the presidential election, which Vucic won in the first round in April, he boasted of having created 130,000 jobs in the past few years. The independent website Istinomar ("Truthometer") revealed that only a fraction of these jobs exists. But this information won't reach Vucic's target audience - all of Serbia's mainstream media prefer to show him turning the first sod.

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