Serbia will have very competitive quantitative figures at the end of the year, although its inner structure is not competitive at all in the long run due to the negligence of developing strong institutions.
The health crisis has also posed economic challenges to many countries, especially for countries in transition. We talked about the impact of COVID on the economy, projections on GDP trends and other topics with the President of the FEFA Faculty Council, Prof. Dr. Goran Pitić.
Could you give us your projection on the GDP trends until the year-end?
There are four major economic issues that the whole world is following with a high attention, and Serbia certainly not being an exemption. First one is uncertainty regarding the future development of pandemic and consequently its impact on mobility, supply chains stability, macro developments, and on different industries. Second one is GDP recovery, and Serbia will achieve (most probably exceed) its targets for this year. Third one is fear of inflation and possible raise of interest rates, which may be having a strong adverse impact on the fourth one, high public debts at the world level (Central banks have enormously increased their balance sheets and cost of servicing the debts would increase in that case, which is further questioning the effectiveness of eventual new short term QE measures). Serbia will have very competitive quantitative figures at the end of the year, although its inner structure is not competitive at all in the long run due to the negligence of developing strong institutions, independent legal system and rule of law, anti-corruption mechanisms, and above all tolerance and genuine dialogue in the society that could contribute in moving forward towards EU values, and thus boosting highly needed fresh entrepreneurial potential.
“Serbia is moving forward albeit critically slow in some vital areas that could bring us closer to European standards”
The state responded to the crisis with measures and programmes to support both businesses and citizens. What impact will these measures have on economic trends but also on public finances?
Serbia has enacted fiscal reforms already in 2014 and this has provided a buffer to be used at the time of crisis. The measures have been very much alike in the other countries, using extensively both monetary and fiscal instruments. This has certainly contributed both to companies and citizens to mitigate their urgent problems, although some measures could have been more targeted (in particular those linear measures that were large by size and with the significant impact on raising the public debt, instead of targeting companies and citizens that were mostly hit by crisis). In the meantime, large contracts have been signed regarding building the infrastructure that will certainly help the economy, but it has opened the issues of transparency and public debt sustainability in the medium run (since the optimistic projection on public debt development are based on strong GDP growth in upcoming years for which the major prerequisite is democratization of society and enaction of qualitative drivers of growth – education and human capital, institutions, rule of law, etc). We are approaching the election time, and hopefully public finances will not be put under high pressure.
From October 2000 to March 2004, you were the Minister of Foreign Economic Relations in the first democratically-appointed government. If you were to compare Serbia from 20 years ago with today, what would you say has changed the most and where are we now on our road to EU membership?
It is very difficult to compare those two periods. Serbia is moving forward albeit critically slow in some vital areas that could bring us closer to European standards. We must not forget that we have started from the scratch. Country was at the end of 2000 devastated economically, high public debt, triple digit inflation, average salaries in dozens of deutsche marks, shortage of electricity, years of delays in some payments, etc. But there was a clear vision at that time, European path with private sector in front, there was a clear understanding of the needed values for building prosperity, the expectations were risen that Serbia may improve its democratic and economic capacity at the fast track. Today there is an evident effort to improve the infrastructure, there are some white spaces where good stories have emerged in the areas of digital, fiscal consolidation was important for current spending. On the other hand, polarization has widened today in the society, strong partisan interests are blocking the needed reforms in justice, in fighting corruption, in building strong institutions, and consequently slowing the path toward EU.
You have been the head of a bank for almost 15 years. What is your view of the growing banking market and what does this expansion mean for Serbia?
Too many players have been on the Serbian banking market for years. This number has been diminishing permanently, but in the last few years this process has been further accelerated. It has been driven both by external and internal factors. World crisis, new stringent regulations, and foreign banks consolidations at the global level had an impact on Serbian market as well. Two biggest French banks have left the market (Societe Generale already, and Credit Agricole in a closing phase) which is certainly not a good news due to their recognized corporate governance, reputation, professional standards, European business values, investment potential. The opportunities have been grasped by regional and local players. Undoubtedly, they have strong interest for Serbian market. Hopefully, they will bring further modernisation/digitalization whilst embracing/preserving European standards of corporate governance. This process is still ongoing since there are still few banks whose shareholders should reconsider their perspectives due to continuous poor performance.
There is a lot of talk about the effect that COVID-19 has had on the Serbian and global economy. What do you think will be the biggest challenges for not only large but also smaller countries in the coming period?
Uncertainty is certainly the major factor that is worrying both big and small countries. Different scenarios are warning that we still cannot foresee the end of pandemic, but on the contrary. Protective measures are already escalating that fill further challenge the world economy. In the meantime, companies and citizens have certainly learnt how to live in the time of covid and have adjusted accordingly, but with the expectations that there is the near end. The major challenge is the capacity of Central banks and Governments to step in with new quantitative easing, that may require new ways of adjustment for companies and citizens. The next one is certainly the expectations about raising interest rates in US and EU, due to some inflation fears and liquidity traps issues. Business wise, it will certainly be again a big challenge for industries that very much depend on people mobility, on supply chains stability, and on the cost of raw materials.
What can single out a country from others in terms of making it more competitive and attractive to investors?
It very much depends on its strategy and vision. You have countries that do attract investors either by its size, or by long term stability, or by level playing field for all investors, or by strong and independent institutions, and/or very skilled labor force. You have also countries that seek for their opportunities in offering significant subsidies to investors that obviously compensate to some extent for certain risks in some other areas that have not achieved satisfactory level. Certainly, the first strategy is preferred long term strategy but it requires persistent and continuous, very often politically unpleasant reforms, but these choices make the differences among countries.
The simplest answer, but most difficult to achieve, is people. Human potential. Educated and qualified workforce with relevant knowledge and skills. This requires continuous investment in education and science with a genuine focus on young talents and promotion of true values.
“We are approaching the election time, and hopefully public finances will not be put under high pressure”
In regard to education and staffing, how should faculties adapt their curricula to the needs of the market in general, and specifically the labour market?
The most recent research conducted by FEFA students research team is pointing out to very worrisome features of education system in Serbia, reflected by attitudes of interviewed sample of young population. Namely, less than 40% has expressed themselves as satisfied with a practical knowledge being offered at their faculties, but less than 25% have been given some tasks in which originality, creativity and relevant analytics have been asked for. Furthermore, 70% did not have a chance to get acquainted with topics such as entrepreneurship and/or innovation throughout their entire studies. Labor market today is demanding for relevant analytical skills, for creativity, adaptive capacity for the new digital world. There is no room anymore for the philosophy of one single correct answer and in particular not for the outdated program curriculums and academicians with their empty curriculums. FEFA faculty, being an affiliated institution of Harvard Business School is proud of having its professors with rich international both academic and business curriculums. Every year we are adjusting our program curriculums in line with the fundamentals of world academic and business trends. That is why we have the first accredited master program in Digital Transformation, the first program linking Psychology and Business, innovative program Creative Production and many others. Our students have a privilege to have regular webinars/talks with leading domestic and foreign experts in all those areas, and to further experience business world through organized internships with our numerous partner companies.
What does Serbia need to do to achieve faster economic growth? What opportunities does our country have?
As I already mentioned, it is good that we are investing in infrastructure, that we have provided a fiscal buffer in this crisis time through achieved consolidation few years ago. It is essential now to change the paradigm, and to focus on long term drivers of sustainable growth. If the vision is to have modern society with market competition and level playing field in place, the we have to introduce new priorities and to mobilize new potential for sustainable growth. Prosperous countries have identified a human potential as a key driver of raising their competitiveness and contributing to their growth. The answer is investing and focusing more on education and promotion of its genuine values and its relevance for the reformed labor market. A number of studies have shown as well that the significant sources of growth can be found in fighting corruption, in providing independent institutions, rule of law, in opening society for dialogue, and thus mobilizing all potentials in the country. There is no substitute for this. We may have solid results in quantitative terms (GDP, inflation) in the short run, but the opportunity costs of not doing these reforms are high, due to remaining inherent risks, the strongest being – further brain drain, perverse selection of the workforce with further depletion of public resources, continuous disintegration of genuine democratic and cultural values. It is high time to re-channel Serbia on the strong European path toward modern societies and truly competitive values.