Serbia is also thinking about the idea of a development bank. This concept is outdated and the West has more or less given up on it. This bank is important in countries with no banking system. A typical example of development bank is the EBRD which was established in order to immediately invest the money in the countries of Eastern Europe that had no banking system during the early nineties.
Today, Serbia has a competitive system with 32 banks and there are also state-owned banks and state-controlled banks. I do not see that another state bank can make competition.
I listen to people who advocate the establishment of development bank and to the arguments on subsidies and the redistribution of money from the state budget. It is outmoded idea that is no longer used anywhere.
There is another “life saving” solution that can be heard in the campaign, that the Russians borrow us 10 billion euros. If it is true that we cannot grow without external inputs, then the nature of these inputs is very important.
If these are not the models of industrial policy and development, what would you do or suggest as the first move of the new government?
Serbia has a problem of over-indebtedness of the state, enterprises and people. Additional credits can help, but only partly. After all, there is statistical evidence that in recent years commercial banks have been withdrawing the money to their own countries. For this reason, the development model is definitely based on enhancing the supply and raising industry. Help from abroad should come in the form of partnerships and foreign companies’ capital.
How can this be achieved?
This is a key issue for the next government – how to bring more partners, entrepreneurs and companies with their own capital from Western Europe. This does not mean that these partners should lend money to a local entrepreneur or company, but to come with their own capital and build a new factory or a plant either alone or with a domestic partner.
Why would they come to Serbia?
They wouldn’t come because of the market, as they do in China, India or Russia. But we are cheap and we will be even cheaper. We don’t have natural resources like Saudi Arabia. Russia conforms to a similar model and we should follow it, it has been industrialized by West.
What will attract foreign investors?
First, we have to be clear in our minds – no one will come and invest if they cannot make money. Their main reason for opening industrial plants in Serbia is to deindustrialize their own countries. They have huge production costs and want to cut them down and to maximize profit. We “fight” only in terms of costs and not on the market.
We are ideally positioned to benefit from that. But low pay is not our only advantage, we need trained workforce and good infrastructure.
If you had the opportunity to be the minister of economy , what would be your first action?
I would immediately start the formation of the key and the only institution the state needs to constitute in order to favor this process.
The state should be the backbone in the establishment of a private institution in Serbia that will be the main agent for attracting foreign investments and their main partner. The investment is a very complicated step for a number of foreign companies and it’s hard for them to decide to come alone, buy land, build a factory and become its owners in a foreign country. This is easiest to achieve through personal contact with a local partner who can solve many problems and risks that foreign companies have. It is very important that the domestic partner reduces the gap between perceived and real risks for a foreign company or entrepreneur.
Prejudices of foreign investors toward Serbia can easily be eliminated by forming an investment fund for the development of Serbia. It is very realistic and it requires specific knowledge. The key element is that the state acts as a backbone in the development of such a fund, and not to be a burden to the budget. I consider it very important, especially since the new government will have to carry out a very radical budget rebalance.
Fund industry is very developed in the world and here is practically fictional. Funds are established by money collection, it is crucial that the first investors are those who helped raising the money, and these are usually the people who give credibility to the project and who say, “Here, I’ve invested money and now it’s your turn.”
This fund is the foundation of industrial policy in many countries. Italy formed it in June, England and France raised such a fund and Ireland it doing the same just now. Italy, for example, accumulated twenty euros to each euro invested in the fund. So, if it invested one hundred million euros, it has accumulated two billion euros for the investment in domestic economy.
How much money should Serbia invest in the establishment of such a fund?
It should invest between 50 and 100 million euros and aim at foreign investors to raise one billion of euros. An important detail is that the state will get that money back with a profit, just like all other investors. The state would have its own representative on the board of the fund, such as the minister of economy.
It is quite certain that one billion euros can be raised, especially by providing a professional and championship management, and it is also possible to attract the aces. This billion presents equity which is usually “tied” to the fund for ten years.
To these one billion euros in the fund, the European Investment Bank adds “one on one” euro, provided that the fund is not state owned and that it has credible investors and board of directors, which means that the fund could have two billion euros in equity almost from the start. Conservative banking calculation says that such a fund with two billion euros could solve the issue of liquidity excess in Serbian banks which are full of money and don’t know where to borrow it. In this way the fund could increase its capital to three billion euros. And that is the time for the fund to start proactively seeking foreign strategic partners with whom will invest in industrial projects in Serbia.
For quite some time, Citadel has been receiving offers from foreign companies which are in charge of making Fiat components to jointly invest in new factories. They need someone to help them, to follow them for years and solve many problems in the long term. This could be achieved by means of the fund which would invest up to 49 percent of the required investment in strategic partnerships, implicitly solve all the problems with the state and a give a foreign partner the option to redeem it all later. With 51 percent of strategic partners’ capital, the money fund would grow to six billion euros.
When can this capital become operational?
Fund would need a year to raise capital to one billion euros and two to three years to invest. This means that the new government would have six billion euros for new industrialization in its mandate.
So, 50 to 100 million euro state investment becomes an accelerator of industrial development. It is crucial step which the new government needs to take immediately, as there is no alternative. Actually there is, if it can even be considered as an alternative, and that is not doing anything.
Is it possible to raise the first billion?
There is money around the world that just cannot wait to be invested in something like that. The EBRD has the money intended for what is called private equity.
Even local businessmen have money and have the problem of how to invest it. Some of the businessman in Serbia sold their businesses and I don’t see that the money from these sales was invested in any major project. They invest in this type of funds, but abroad.