Radojka Nikolić, a true savant and a brilliant mind in the field of economics and business, analyzes for Diplomacy and Commerce magazine current trends in the world of economics and demystifies the floscules we hear everywhere. Her clear-headed reasoing is a valuable voice in today’s turbulent times.
Serbia occupies the 48th place on the Doing Business List which is not that bad. However, Nebojša Katić has said recently that the list was fiction because Georgia and Macedonia are in the top spot regardless of the situation with foreign investments in these two countries not being good at all. How relevant is the Doing Business List?
Mr. Katić is, of course, for the most part, right. The list, compiled by the World Bank, is fiction or rather, I would call it yet another complex of ours which came about as a consequence of living life under sanctions and in isolation in the 1990s. I am confident that this period, when first Yugoslavia and later Serbia were anathematized, has caused so many frustrations at both national and social level, in as much that we now blindly accept any offer that would prove that we are a part of the world which is the same world that had rejected us back in the day. The same thing applies to the Doing Business (DB) List. First, we could hardly wait to be ranked and once we were ranked, it was the most quoted information used to prove that the Serbian economy was advancing. The authorities (regardless of who was in power at the time) benefitted from this, especially when the used methodology was changed and we appeared to have made „a reformatory leap“. That happened in 2016 when we were ranked 47th on the DB list. It seemed that we jumped 44 places because only in 2014, we were ranked 91st.
Of course that we did not make such a leap. The thing is that, in the meantime, the World Bank had changed the applied methodology, in addition to changing one parametre every year.
But what does the World Bank exactly measure with this list?! The DB covers 11 areas of doing business in close to 190 countries. It measures “the ease of doing business”, meaning the ease of launching a business, issuing of building permits, electricity supply, registering ownership, obtaining loans, protecting minority investors, paying taxes, cross-border trade, implementation of contracts and resolution of insolvency. So, all of these parametres are important for the ease of doing business in certain countries. However, there are a number of countries in which the legal solutions are good, but everything looks completely different in practice. You have to ask yourself who does the World Bank collect the data from? The data comes from laws and regulations, the associates of the DB list, the government of the observed country, regional offices of the World Bank and business people from companies they pick. All in all, there could be arbitrariness in the collected data.
In the case of smaller countries, like Serbia, there is an additional problem where the data for the Doing Business List is collected and ranked only in the biggest business centre in the country (meaning Belgrade).
So, you can see for yourself how much we value the DB list. Yes, it is an indicator of sorts, but it is by no means, crucial. The ranking on this list means more to smaller countries which are trying to prove themselves internationally, rather than developed economies which are never asked about their DB ranking.
Do you think that the growth of the Serbian economy, which has been chronically small for years, is now somewhat higher and sufficent to pull Serbia out of the crisis and prevent the migration from the country?
Of course, a 4 or 5 percent growth is not enough and I have been reiterating this whenever I could, for several years now. If the global economy is growing at the rate of 3 percent per annum, or if China and India are recording a 7 or 8 percent growth, our current growth rate is slow because we are seriously lagging behind the developed economies. To illustrate this let me just say that our living standard is 1/3 of that in the developed EU countries. This means that, in order to catch up, we need an annual growth rate of above 7 percent because none of these developed economies would willingly stagnate and wait for us to catch up. Another good indicator of how much we are falling behind the developed economies is Portugal. Back in 1989, Portugal (population 10 million) and Serbia (as a part of the former Yugoslavia) had the GDP of $5,900. Today, Portugal’s GDP is around $20,000 per capita, and ours is $5,800 which means that their living standard is three times higher than ours. This is the best illustration of how much we are falling behind and how much we need to speed through the reforms, rather than going at a snail’s pace.
Do we actually need technological development, and not the development that is based on having factories that pay Asian-level salaries for low qualified workforce?
Serbia’s position is, unofortunately, a rather difficult one since we need everything – fast technological development and the 4th industrial revolution, as well as the so-called “screwdriver industry” and pairing cables by colour. The question is how long is this going to last because the world is being conquered by electric cars. But, joking aside, I think that the state has to have a strategic direction in terms of what it wants to develop and what kind of economy it wants. If it wants to develop agriculture and processing industry, then it has to invest money in them first and boost the workforce potential. If it wants to develop machine industry, robotics, automatics and similar, then it has to focus on these segments. This is what many countries that advanced fast have done. When you start supporting one segment, financially- and institutionally-wise, then development is very easily recognized and achieved. A lot hinges on the state!
Speaking generally, and despite most Balkan and Eastern European states joining the EU, do you think that the growth in this part of the world is insufficient and inequality between the EU states too high that it resulted in Bulgaria’s population being reduced by 2 million and Ukraine’s by 5 million? Also, Lithuania and Estonia, which are doing well overall, are also experiencing mass emigration. What is the solution for this?
Everybody should live where they feel good. The world has become a global village. The Romanians and Bulgarians have advanced nicely with the generous help of the European Union primarily for geo-political reasons. But that is a whole different story. Of course, everybody rushed to the developed Europe after living in the Eastern European „warehouse“ for decades. The similar thing happened to other nations and countries that you have mentioned. The recipe for stopping migration is quite simple – create a state where life is good and everybody will stay. On top of that, others, that you certainly do not expect to come, will come. The point is that everybody is looking for a better life. It is up to an individual person to find the location for that better life, but nobody is immune to it.
Is Trump’s claim of „Putin asking him for help because of his accumulated riches“ realistic or maybe it is his bragging about „boosting the US economy by cutting back on regulation“?
I am not an expert on the US economy, but statistical data show that their economy has been recording significant growth rates – unemployment has been reduced to around 3 percent, which is quite low, and this year, their economy grew to close to 3.5 percent. Also, Trump kept his promise and reduced tax for his fellow millionaires. However, it is very difficult to ascertain at the moment whether these things expedited the development and increased employment, or maybe we are only now seeing the effects of Obama’s policies. As you know, people are polarized about the results of Trump’s presidency.
What can Europe do apropos „the crisis in the South“? Portugal, Spain and Ireland have managed to pull through, but Greece has not. And what about Italy which ever since it introduced euro as national currency, has been faring badly and is now even defying the European Commission with its budget?
I had an opportunity to ask in Brussels, the centre of the EU, a high representative of „the Brussels bureaucracy“ a similar question regarding the economic crisis you have mentioned. Their reply was that Greece and Italy had to be viewed as a „special case“. I understood this to mean that the EU will turn their blind eye to these two countries. There are many examples from the past of certain EU countries viewed as „an exception“ or „a special case“. Bear in mind that the EU is not only an economic but also a political union. Depending on the current circumstances, sometimes economic situation can be used to exert political pressure. And this rule can be literally applied to any country you have mentioned in your question.
How will Great Britain manage to get itself out of the negotiations with the EU during Brexit? How is that going to affect the rest of the EU and how the UK?
I never worry about the British. They are incredibly skillful people, both individually and in the mass. They have been very manipulative with the way they are leaving the Union, with some central figures even admitting they lied and used false arguments. There is no denying, however, that they have achieved their goal. We are yet to see, in a few years’ time, why this goal was so important to them. Everything they do is long-term which is also why this period of exiting the Union has been so long. The British are thorough and always striving to reduce their losses to the minimum. This summer, I read a lot in newspapers about the talks between the EU and Great Britain and it is unbelievable to see how the British leave a meeting as soon as they get an answer that does not sit well with them. The meetings continue after that and only after the fourth or the fifth one, it becomes quite apparent that they got what they wanted. So, I am not worried about the British. But I have to note that the EU is facing a new, big reconstruction and it remains to be seen what will happen afterward.
One of the few good things that the current government has done is investing in infrastructure and their fascination with railways and roads. To quote Nebojša Katić again, do we need to invest more in these segments, particularly interior roads and motorways like the ones from Negotin to Belgrade and from Novi Pazar to Jagodina?
It is only logical that we need to take care of the entire infrastructure in Serbia first. We, the people who live here, need infrastructure in order to have better living and working conditions. Only after we do that, we can think of foreign investors who also, like us, need a good infrastructure. But, this story about international railways and roads is partly derived from the EU’s recommendations for a better integration in the Western Balkans, and partly from China which is keen to see its goods having a better passability through Europe. As usual, we go for „we’ll have whatever you are offering“, which is good for everyone else, but not for us.
How do you see the future of the world and Europe in the light of China’s development, and in particular in the light of the One Belt, One Road project? Is this a development chance for us and Eastern Europe?
Unfortunately, Serbia is a country without a clear strategy for economic development. Politically, we are willing to talk to anyone, in every corner of the world, and we advocate cooperation and peace. And then, in this disorientated state, China approaches us with its several-centuries-long plan called One Belt, One Road, and we accept it. Bear in mind that we have done absolutely nothing to deserve this, but only have a good geo-political position since we are situated on their route from the Greek port of Piraeus to Central Europe. Now that we have found ourselves in such situation, yes, we can say that China is our chance. But I can also confidently say that many agreements concerning this cooperation were done to our detriment. Simply put, we were poor negotiators, or rather the Chinese were better ones. We still have a lot to learn which, unfortunately, makes our road to better life and higher living standard even longer.
Text: Žikica Milošević