Governor's Address at the Ministerial Dialogue
Brussels, 17 May 2019
Esteemed colleagues, dear hosts,
Allow me also to extend my gratitude on behalf of the Serbian delegation for the
assessments and given recommendations. I believe that we can agree with general
assessment that Serbia has made huge progress since our first meetings. We can and
must agree also that today our economy is stable, by all means, and that it has good
growth prospects.
Now, on behalf of the National Bank of Serbia, I would like to emphasize that we share
your view that the Serbian monetary policy was conducted consistent with the inflation
targeting regime and the achievement of the targeted inflation rate. The fact is that
inflation in Serbia has been preserved at a low level for longer than half a decade. The
fact is, as you also pointed out, that Serbia has recorded a sharp fall in the NPL ratio. And
another fact is that with our measures we have supported two-digit growth in corporate
and household lending, and via this channel, we supported economic growth as well. It is
not by accident that I have singled out these segments of our operations. I chose them
as they are important components of the business and investment environment.
NPL structure, gross principle
CPI and core inflation developments,
(in RSD bn)
(in %)
y-o-y rates, in %
450 25
16
400
14
20
350
12
300
15
10
250
8 200
10
150
6
100
5
4
50
2
0 0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3
0
2019
1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1 7 1
Households (LHS)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Companies (LHS)
Other sectors (LHS)
CPI Inflation Core Inflation*
Share of NPLs in total loans (RHS)
*CPI excl. Food, Energy, Alcohol and Tobacco
This is why, in line with the topic of today's dialogue - Structural reforms to attract
foreign direct investment and increase resilience, I will briefly inform you about the
composition of foreign direct investment in Serbia. I will also provide a general
assessment of their benefits and what attracts investment to Serbia. I will also share
with you our opinion on what we can do through concerted efforts.
I will start with the figures. During the last four years FDI inflows in Serbia stood at
around 6% of GDP on average, while last year they reached 8.2% of GDP. By this percent
they provided full coverage of CAD, making financing risk much lower. We also have
strong project diversification of FDIs, which is, as quite important, recognised and by the
ECB, in order to reduce risks of sudden stops. More than half of investments in Serbia
are channelled to tradable sectors, with one third of the total going to the
manufacturing industry through many small projects to export-oriented sectors. Being
so, the FDIs were one of important drivers of the two-digit export growth rates of our
manufacturing industry during the last four years. Plus, we also have constant growth in
geographical diversification of FDIs, also recognised as important.
FDI structure by sector
FDI inflow (net basis) and coverage of current account
(in EUR bn)
15
4.0
177%
Other
Net FDI, % of GDP FDI / CAD coverage
Finance
3.5
Transportation
Mining
143%
146%
Share in GDP: 3.0 Construction and real estate
Trade
10
Manufacturing
2.5
118%
9.4
102% 2.0
91%
7.5
1.5
7.0
6.4 6.2
62%
62%
1.0
5
56%
5.2
5.1
0.5
35%
3.6 3.6
3.5
21%
0.0
-0.5
2.2
0 2013 2014 2015 2016 2017 2018*
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: NBS.
*NBS projection
* Preliminary data
High and diversified FDI inflows have been quite supportive for our growth
fundamentals. One reflection of their benefits is a rise in production and employment,
and improvement of the structure of our economy. We expect that FDI will be one of the
push up factors for our economy to growth at rates of at least 4% in the medium term.
Another benefit is that they are facilitating the access to global value chains. Let me give
an example. Additional benefit of FDIs, as recognised and said already, is export
diversification. According to the IMF's Export Diversification Index, Serbia ranks 12th out
of 186 countries, and this is quite good result. With this I would like to end this part
regarding the level, structure and importance of FDIs.
FDI inflow to automobile industry and automobile
Exports, production and employment in
industry exports
manufacturing
(2012 = 100)
(in EUR mn)
125 200
1,800 700
190
1,600
120
600
180
1,400
170
115 500
1,200
160
400
110 1,000
150
800
140 300
105
130 600
200
100
120
400
100
110
200
95
100
0 0
90 90 2012 2013 2014 2015 2016 2017 2018
2012 2013 2014 2015 2016 2017 2018
Car exports (LHS)
Production (LHS) Employment (LHS) Exports of other companies (LHS)
Productivity (LHS) Exports (RHS)
Cumulative FDI inflow in automotive industry (RHS)
And what is driving investors to invest in Serbia? Importance of structural reforms is
clearly confirmed through reforms we imposed. From the central bank perspective, the
most important and hardest was to provide price stability and regain trust in monetary
policy, due to hyperinflation in the past. And during the last half a decade inflation in
Serbia has been kept under control. According to the Global Competitiveness Index,
inflation in Serbia is no longer a limiting factor for doing business; as was the case for
example back in 2010. On the contrary, a low inflation environment is perceived as one
of the key factors of a stable business environment in our country. Further, relative
stability of the exchange rate, the mentioned results on the fiscal front, as well as in
many other areas as part of stabilisation agenda, are perceived as vital for FDI attraction.
This is all confirmed by many studies, such as World Bank study from 2018 showing that
countries with lower exchange rate and inflation volatility had higher FDIs in terms of
GDP. Not to forget, in terms of FDIs attraction, of outmost importance is also political
stability. The same is assessed by Moody's rating agency in their latest yearly report,
stating that Serbia clearly ranks above the countries with the same rating, when it comes
to political stability and government effectiveness. In such environment foreign investors
are rather reinvesting their profit in Serbia, than sending it back. On average - around
60% of profit is being reinvested.
What is ahead of us? I believe that the integration in infrastructure flows, the latest
technological projects and innovations, in line with our potentials, are the basis for
Serbia's growth. At the same time, this is the basis for investment. And our potentials
are geographic position and work force. Anyone offering a partnership in this context is
welcome. It is up to us to provide macroeconomic stability and equal treatment for all
investors. We do not have the privilege or the reason to measure this by any other
criterion, but the interest of our citizens in better living standards and sustainable
growth. And investments diversified by country and branch, are the guarantee to the
achievement of our goals which are written in all the preambles of the most reputable
and the most significant international institutions.
Of course, we can always do more. Each one of us present here. Therefore, allow me to
quote a message stated in the Joint Conclusions: "Across the region, further efforts are
needed to tackle corruption, improve the rule of law and strengthen institutions in order
to promote competitiveness". I strongly believe that this goes beyond candidate
countries and refers to all.
Thank you.