It seems that Europe has overlooked rather than anticipated geopolitical shifts
We spoke with Dragan Šagovnović, Director General of the Economics Institute, about the geopolitical situation in Europe, its impact on the economic situation on the continent, the privatisation of EPS and the current neoliberal system.
Is Europe really experiencing an economic crisis? To what extent does the war in Ukraine affect other global stakeholders such as China or BRICS?
Europe is in long-term economic stagflation, which was further exacerbated by the pandemic, and then by the Ukrainian crisis. In addition, the current trends in the direction of defragmentation and deglobalisation do Europe no favours because maintaining economic activity is conditioned by exports.
Europe seems to have overlooked rather than anticipated geopolitical shifts. Let’s just take the example of the so-called green agenda. Europe has projected energy security on technologies which have not yet reached commercial maturity, while investing less in research and development than the global competitors It belatedly brought into focus the long-term risks associated with critical minerals fundamentally important to the decarbonisation process. Hence, it missed certain opportunities to secure access to its sources, which in the meantime have become inaccessible. The European Union now imports 98% of its rare earths, 97% of its lithium and 93% of its magnesium from China. In the coming decades, these gas and oil supply risks may become even greater than before. Europe has already clearly, and it seems, irretrievably lost its initial advantage in the global market of renewable energy sources. Today, almost 40% of all employees working in fields related to renewable energy sources are located in China, with a mere 11% in the EU. With the escalation of the Ukrainian crisis, the situation has become even more difficult. The EU’s problem has proved to be of a structural nature, i.e. the costs of production factors have become even higher. This has all resulted in significantly higher inflation in Europe than in other parts of the world. Inflation is practically non-existent in China. What’s more, China’s economy is currently in deflation, which is equally concerning.
How is Serbia dealing with the crisis which has spilt over from the global level? Are all the problems we are facing a consequence of that crisis or do we bear a certain degree of responsibility?
The slowdown in economic activity and inflation is largely a consequence of the imported crisis. The entire region is experiencing slightly higher inflation as a result of what probably were higher inflationary expectations and the determination of the economy to shift the cost burden of maintaining high-profit rates onto consumers. At the same time, companies in Serbia are additionally protected by the lower price of energy and labour compared to EU countries. One example which illustrates this is that companies in Serbia have two times lower electricity costs compared to their EU27 counterparts. This ratio improved further in their favour in 2022 (48% compared to 41% in the first half of 2021). The explosion of gas prices was even more painful for the European economy. The price of gas for households increased by 35% and for businesses by as much as 109%. Practice shows that Serbia and Bosnia and Herzegovina benefited from a more relaxed position towards Russia. In both countries, the price of gas for businesses has increased by only 29% in the last year. In Serbia, the price of gas was on average the lowest in Europe. As with electricity, the price of gas in Serbia is approximately half that of the price of gas in Europe.
The Electric Power Industry of Serbia (EPS) was recently transformed into a joint-stock company. We have seen that the dissatisfaction among EPS employees is quite high and that many experts and the opposition parties are against this transformation. What is your view? Will it contribute to the company‘s recovery?
I think that, as a society, we have to be responsible towards EPS. It displeases me that hardly anyone today is willing to admit how much EPS has given to the economy and citizens of Serbia and how much it has contributed to the competitiveness of companies in Serbia and the standard of living of its citizens. I would also like to mention the attempt made by the Economic Institute a few years ago to demonstrate the average losses incurred since the year 2000 based on the implementation of social and economic policies through low electricity prices, to the detriment of EPS. The numbers are inexorable. They show that if we compare electricity prices in Serbia with the average prices in the countries of the former Yugoslavia, we have lost an average of approximately 0.5 billion euros a year, while if we compare those prices with the average price in the Energy Community, to which we belong, that loss amounts to almost 1 billion every year. If we multiply that by the number of years, we will clearly see that EPS has given us more than the entire privatisation process of all companies and banks, more than all the donors, and so on. We have to be aware of that, and approach the plans for the future of EPS with the utmost care and concern. In order for the transformation of EPS and its transition to a joint-stock company to serve its purpose, it should, primarily, entail the evolution of the state’s role from that of an irresponsible manager to a responsible owner. The ownership of such a company should have long-term developmental effects and not short-term political or populist ones.
Europe has projected energy security on technologies that have not yet reached commercial maturity
However, the attitude towards EPS has been the exact opposite for years. In my opinion, a transformation resulting in less state interference in the operational management of EPS is the only justified approach. Also, bearing in mind the specifics and importance of EPS, I am convinced that Serbia should rely on her own professional and educated resources in the further development of EPS. We tend to forget that EPS was one of the first companies with an ‘imported’ management. And where have we ended up? That is why I always emphasise that the management of state-owned companies must consist of educated people from within the system, who have spent at least 15 years in it. Of managers who understand the system. I hold a similar stance when it comes to foreign consultants. In the previous period, we had practically only foreign consultants in EPS. How far did EPS go during the last year and a half?
Neglecting the public interest at the expense of the interests of large corporations and economic powers is characteristic of the global neoliberal system. Do you see an end to it or will it undergo some kind of transformation into a more humane form of economic governance than the current one?
The neoliberal concept has brought us into the situation we are in today. I am sorry to say that I see Europe as the biggest loser. As for us, I hope we finally come to our senses. That we will turn to ourselves and to growth based on our own interests. Unfortunately, I’m not so sure about that. In response to your previous question, I will also answer this one. Just look at the publicity given to the energy transition in all the media. Is it inevitable? It is! But at what pace to avoid compromising supply security? We have calculated the contribution of the regions of the world to the total cumulative GHG (greenhouse gas) emissions. Did you know that 47% of pollution comes from North America and the European Union? The contributions of Serbia and regional countries to pollution are insignificant. If we express this cumulative pollution per capita, we see that each citizen of Serbia has polluted the planet half as much as the EU average, and almost three times less than the average citizen of Germany, the Czech Republic, the United States or Great Britain. This should be our argument for much greater financial support from the EU in the green transition process, which that same developed part of the world that is most responsible for the pollution of the planet is pushing us to do. I would also like to remind you that the GDP per capita in the countries of the region stands between 32 and 48% compared to the EU average, which reduces the capacity of these countries to combat climate change. The share of coal in the production of electricity is almost 70% compared to the EU average of 16%, which significantly increases the costs of so-called decarbonisation. Don’t misunderstand me her, we should be moving in the direction of green energy, but not at the expense of compromising supply security and with much greater support from European funds. Simply put, the principles applied to EU countries should also be applied to those in the so-called Energy Community.
When you became the head of the Economics Institute, you devoted yourself to revitalising its scientific and research potential, which gives it far greater importance for our society. Have you succeeded in that and what is the institute‘s significance today?
That’s a difficult question. Firstly, I believe that building institutions does not mean only constructing new ones, but above all respecting the institutions we already have. I am convinced that national policy should be conducted based on long-term national documents. I also believe that long-term national documents should be drafted by domestic institutions and not by individuals gathered “under the umbrella” of foreign donors, foreign organisations or newly formed NGOs. I think that today, in these times of “knowledge shortage and excess self-confidence”, our institutions are insufficiently valued and utilised.
We should move towards green energy, but not at the expense of compromising supply security
What message could you give us at the end of this interview?
I would like us to be proud of who we are and to feel privileged to live here, in Serbia, today. Bad things have always happened, but they were not be the priority, the breaking news that causes unrest, fear, insecurity, anxiety and aggression as dominant national feelings. Serbia can be a country of good news. The front pages could be brimming with the good news that does exist. I am confident that banning the reporting of accidents and the publishing of unverified rumours and inappropriate content on the first and last pages of newspapers, news headlines and broadcasts would contribute more to the mental and moral recovery of the nation than any economic programme. And mental and moral recovery are prerequisites for any kind of revival, including an economic one. I believe that Serbia has a chance and that it has branches on which economic development can be based. Serbia has its own capacities to design its own economic development. Is there enough optimism for this? Optimism that radiates and generates good energy? Energy that “hypnotises circumstances” to work in favour of what is believed and desired? “In each of us, there is enough goodness to create heaven and enough evil to create hell.” Let’s turn Serbia into a heavenly place!