Things are looking up a bit for Serbia’s economy.
The 1990s were a lost decade for Serbia. GDP declined sharply in the first half of the decade. A modest recovery in 1995-8 was wiped out by the NATO bombing. Per capita income in 2000 was just about where it had been in 1989… but the average person was much worse off, because income distribution had changed drastically, with a small caste of the rich and well connected now owning most of the country’s wealth.
The fall of Milosevic in October 2000 brought in a new government, but the economy was very slow to respond. GDP grew by only about 3.5% per year between 2001 and 2004, foreign investment was slow to show interest, and the income distribution stayed as bad as ever. I lived in Serbia during those years, and the general impression was one of dashed hopes. The assassination of Prime Minister Djindjic in March 2003 didn’t help matters.
But it looks like things may finally be changing.
— Serbia’s GDP grew by 7% in 2004, and is expected to grow by 5.5% – 6% in 2005.
— Foreign direct investment, after a dip in 2004, is now heading sharply upwards
— Exports are up by over 40% so far in 2005
— Inflation has been falling for three years, and may drop into single digits next year
— Serbia is finally getting ready to join the WTO
— There’s been a steady drumbeat of trade agreements with neighbors in the region
— Unemployment, though still painfully high (around 30%!), is finally starting to come down
And, of course, Serbia won a “Most Improved” from the World Bank earlier this year, for the business-friendly reforms enacted in 2002-4.
Now, this is a fairly fragile recovery. The growth is from a very low base; Serbia remains one of the poorest countries in Europe. Corruption is still a huge problem. Most of the country’s wealth remains in the hands of Milosevic-era elites.
Furthermore, much of the good news is payoff from the difficult reforms enacted under the late PM Djindjic. The current government, in office since March 2004, is a fragile coalition. It hasn’t done a lot but stay the course; and it can’t be pushed to do much more, because if it collapses, the xenophobic populist nationalist Radical Party (currently leading the polls) is waiting to pick up the pieces. And Serbia is about to face two major political shocks in the coming year: a referendum in Montenegro on secession, and talks that will probably lead to formal independence for the disputed province of Kosovo. Either of these could have huge knock-on effects on the economy.
On the other-other hand, the Kostunica government has put its first team on the economic side. Serbia currently has a very competent Minister of Finance in Mladjan Dinkic, while the Ministry of International Economic Affairs, under unsung hero Milan Parivodic, has been racking up a steady string of successes. So there’s that. And the country is currently “undervalued” by anyone’s standards. t has low wages, lowish costs, and a well-educated workforce; the red tape is not awful by regional standards, and it’s within an hour’s flight of Vienna and Milan.
So, if Serbia can avoid a major political crisis in the next few years, things could be looking up.