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European integration as an instrument of Serbia’s development agenda

06. March 2018. | Belgrade

European integration as an instrument of Serbia’s development agenda

Macroeconomic, fiscal and economic stability is a key precondition for the growth and development of a country. These elements form the basis of the reform policy of the Government of the Republic of Serbia aimed at ensuring a stable market economy in line with the best European and global standards. Such a policy is continuously supported by more than 60% of Serbian citizens, despite the prevailing belief of one part of the public that these are unpopular reforms with uncertain results. Leading international financial institutions, the IMF and the World Bank, have recognised the positive effects of the reforms and provide unanimous support.

At the same time, a stable economy that is able to cope with the pressures of a highly developed European market is one of the four basic criteria for membership in the European Union. In this sense, the process of European integration is and must be part of an internal development agenda. In addition to the undoubtedly significant reforms that ensure fiscal and macroeconomic stability, this agenda also implies other elements that contribute to growth, sustainable development and overall economic well-being. Without prejudice to the importance of key political issues such as the Belgrade-Pristina dialogue, as well as the significance of the rule of law as a prerequisite for a successful EU accession process, it is necessary to focus on the issues that form the very essence and primary reason for success of the European project in the upcoming period.

Market economy cannot be built as sustainable without continuous regional development. Balanced development of regions, harmonised with their specific characteristics and needs, is at the heart of the convergence principle, which aims at establishing approximately the same level of economic development within the European Union. As a candidate country, Serbia seeks to implement the principle of convergence already in the phase of accession negotiations, primarily within the country, given the extremely uneven development in various parts of Serbia. In order to prepare the regions and local communities for EU membership and achieving standards in the field of regional development, successful cooperation has been achieved between the Ministry of European Integration and regional development agencies on the basis of a previously signed Memorandum of Cooperation between the Ministry and the Development Agency of Serbia (RAS). Among other things, cooperation involves exchanging information on the effects of European law on the functioning of local self-governments, training on the efficient use of European funds at the local level, and a contribution from local communities to the process of planning and programming of IPA funds in accordance with the priority of local and regional development.

As a country negotiating accession to the EU, Serbia has begun preparations for the successful use of EU structural and cohesion funds, which are on average over ten times greater than those now available from IPA funds. In order to be ready to absorb funds worth more than EUR 1 billion annually, it is necessary to have the competence for determining project priorities, training in project writing and an independent and efficient internal audit system. Preparation for the use of structural and cohesion funds is carried out under Negotiation Chapter 22 for which the Ministry of European Integration is responsible. This chapter refers to the establishment of a national structural and institutional system for the planning and use of funds, as well as to raising capacities within the country in order to achieve results in the field of regional development. From the point of view of implementing systemic changes and strengthening the efficiency of public administration, Chapter 22 is certainly one of the most demanding in the negotiations with the EU. On the other hand, it reflects a direct and immediate benefit for our country from the European integration process.

In preparation for Serbia’s equal participation in the European market, successful regional economic integration is necessary. Positive examples of such integration within the EU such as the Visegrad Group or the Nordic Union illustrate the economic interdependence of countries sharing the same geographical area. Serbia is fully committed to regional cooperation in all areas of common interest for the countries of South-East Europe, whereby we primarily support economic cooperation. Such a need was also recognised by the European Union and its member states, and was jointly implemented through the establishment of the Regional Economic Area as an upgrade to the existing successful mechanism within the framework of the CEFTA Agreement. According to the realised trade surplus of EUR 1.8 billion, it can be said that the CEFTA region is the most important for Serbia because we export three times more than we import goods from this region.

The development of our economy is largely based on the scope of cooperation with the EU and the region. Most of the investments derive from the EU (75% on average for the first three quarters of 2017). It is also favourable that a positive trend of geographical diversification of investments has been recorded. There has been a growth in investments from the Middle East and Asia-Pacific region, which points to an increase in Serbia’s attractiveness as an investment destination. According to FT (August 2017), Serbia has the world's best Global Efficiency Index for Greenfield FDIs. In sum and until November 2017, inclusive, the net inflow of foreign direct investments (FDIs) amounted to about EUR 2.3 billion (+ 37.5%) and exceeded the projection for the whole of 2017. Investments in export-oriented sectors will be the main drive for GDP growth amounting to 3.5% in 2018 and 2019. This last piece of information is significant because it shows how vital a destination the EU will remain for us in the next two years.

The highest growth in employment is largely in correlation with the origin of FDIs, which means that most new jobs are being created by companies that originate from the EU. As regards unemployment statistics for the last four years, the unemployment rate has been reduced by 12.1 percentage points, from 23.9% in 2012 to 11.8% in the II quarter of 2017. In the III quarter, unemployment was 12.9% due to a seasonal component, however, it is realistic to expect unemployment to fall below 10% in 2018, considering that labour taxes have been reduced since1/1/2018 by raising the non-taxable census for salaries from RSD 11,790 to RSD 15,000.

The total foreign trade of Serbia for the period January - December 2017 amounted to: EUR 34,466 billion, an increase of 13.0% compared to the same period of the previous year. The most significant trading partner is the EU with 64.25% of the share in our foreign trade. EU member states or countries that strive to become MS are our most important export destinations as follows:

  1. Germany with EUR 1,889 billion
  2. Italy with EUR 1,990 billion
  3. Bosnia and Hercegovina with EUR 1,211 billion

With the outbreak of the 2009 global economic crisis, the economies in most EU member states stagnated, which, apart from declining growth rates, also resulted in a general increase in unemployment and an overall decrease in security of the business climate. Despite the spill-over of negative effects of the crisis on the region of South-East Europe, every country in our region has managed to overcome structural problems and record stable economic growth in the past several years. Concurrently, Europe’s economy has started to recover and return to the level before the outbreak of the crisis. Apart from the general need for political stability on the continent, the EU enlargement policy is based on mutual benefits from the accession of new member states for both those countries and the EU. In this sense, despite the scepticism towards enlargement, the contribution of Serbia and the region to the EU is manifold and implies the expansion of the European economic area and new opportunities for directing healthy investments. Starting from the assumption that positive economic trends will continue in the upcoming years, the possibility that Serbia may close the economic gap in relation to certain countries that joined the EU since 2004 seems realistic for 2025, which has been highlighted as the potential year of membership. This will not only prove that we have fulfilled one of the key criteria for membership, but also that the EU is welcoming a stable partner that actively contributes to the development of Europe as a whole.

Text authored by Minister of European Integration Jadranka Joksimović for Kopaonik review