Analysis 04 Apr 16

Benefits of Serbia’s Lavish Investor Subsidies Queried

Serbia saw increased rates of FDI in 2015 - which may reflect the generous packages on offer - but experts worry about the long-term consequences for the budget and for free market competition.

Sasa Dragojlo
Kovacevic argues offering subsidies in “free zones” undermines free market competition. Photo: Media Centre Belgrade

Serbia’s government last September agreed to spend some €27,000 on every new worker that the Chinese company Meita Europe doo hired in their new factory producing automotive parts, which is due to be built in Baric, a small municipality on the edge of Belgrade.

The government also pledged to give the firm a 14-acre site for free, a tax waiver, to renounce its share of ownership in the company and exempt it for three years from all utility costs.

This was not the end of the list of perks on offer. The government also agreed to build infrastructure connections for the company and financially support the training of potential employees.

Milan Kovacevic, an expert in foreign investment and a member of the Scientific Association of Economists of Serbia, says this was typical of the way that Serbia uses contracts as bait to lure big investors, but adds that they are essentially harmful for the country.

“This is one of the worst contracts I saw - subsidies as a kind of bribe for foreign companies. Subsidies are often given too easily, without a proper cost-benefit analysis,” Kovacevic told BIRN.

“Some of those huge subsidies are not precisely defined. They are also not limited to financial assistance,” he added.

He notes that Serbia often offers foreign investors free land and assistance in clearing the land for construction. Serbia has been using subsidies to lure foreign investors since 2006, but many economic experts think they do more damage than good, since the state ends up giving the investors more money than they bring in.

Experts also say the law gives the government too much arbitrary power, creating space for corruption and political abuse, since most such contracts are not transparent.

The government made the contract with Meita Europe public only after the media portal Istinomer demanded this for months, with the help of the commissioner for freedom of information. The contract showed that the company was not obliged to create 1,400 new jobs, as Belgrade city officials had claimed, but only 770, by 2021.

“There was no calculation of what would Serbia gain, what the value of the gain would be, while at the same time there was a lot of space for possible corruption,” Kovacevic said, urging the state to draw up detailed cost-benefit analyses for such projects in future.

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