Multinationals face a tradeoff between strong growth prospects and heightened risks
B2Gs should monitor political developments in the country closely following the SNS party’s controversial win in December, which has sparked large domestic protests and international condemnation around electoral fraud. The risk for political instability will be elevated into at least Q2 2024 and should be factored into strategic planning.
Multinationals should also review their plans to account for a sustained period of high inflation that is likely to remain elevated into 2025, especially with rising wages that may also increase domestic cost pressures in the medium term. Scenario planning should weigh the increased political risk against the relatively strong growth prospects. Strategic plans should additionally factor in the decreasing likelihood of Serbia’s accession to the EU, as progress has stagnated since 2014 and is expected to remain stagnant until the next presidential election, currently scheduled for 2027.
Overview
- President Aleksandar Vučić has won Serbia’s third parliamentary election in only four years, following a snap election in December called the month prior. This saw Vučić’s SNS coalition win a majority of 130 of Serbia’s 250 seats in the National Assembly, with 48% of the popular vote.
- Claims of electoral fraud have mired the December election, with opposition parties claiming that tens of thousands of Bosnian Serbs and non-residents came to the country to vote.
- An EU Commission report released in November suggested Serbia’s progress in reforming the rule of law has largely stagnated, highlighting minimal progress of the politicized judicial system that human rights groups have claimed Vučić has weaponized against his rivals.
- Opposition coalition Serbia Against Violence (SPN) has alleged that up to 40,000 of non-Belgradians from nearby regions, including Bosnian Serbs, came to the capital to vote, and is demanding another election. Further claims of impartiality in media coverage have also surfaced, with anti-government media facing bans, fines, and an increasing trend of civil lawsuits.
Our View
Growing fiscal spending coupled with a sustained period of high inflation will exacerbate already-high tensions in the country, with an elevated risk of civil unrest, and government instability being the backdrop to the first few months of 2024.
Following a tumultuous year of heightened Kosovo-Serbia tensions, and anti-government protests sparked by two mass shootings in May, Vučić in November called for a snap December parliamentary election. What was supposed to be a move toward stability, however, has since soured, with the opposition coalition SPN alleging widespread electoral fraud, particularly in the simultaneously held local elections, where the SPN’s unexpected loss in Belgrade sparked outrage.
A trend of Vučić’s regime turning increasingly autocratic has also been reflected in the Corruption Perceptions Index, in which Serbia reached an all-time low in 2022, ranking as having the second-highest corruption in Europe, and 101st out of 180 on the index, down dramatically from prior to Vučić’s presidency in 2017, when it ranked 77th. This issue came to a head when President of the Serbian Republican Party Nikola Sandulovic was arrested on January 3 by Vučić’s close associate and ex-head of state security, Aleksandar Vulin, and was the next day seen in the ICU following a beating by secret services that left him paralyzed.
This trend of corruption is being watched closely by Brussels and will hamper its already-lackluster EU accession progress, which has seen only two provisional closures of accession negotiations since January 2014, with a European Commission report in November suggesting Serbia’s efforts, especially with rule-of-law reforms, have stagnated. Quick progress will be needed within the two-year window if Serbia is to receive any of the EUR 6 billion allocated from the Western Balkans Growth Plan, which also requires a normalization of relations with Kosovo.
EU funding is important for Serbian growth plans, with pre-accession funding of EUR 165 million accounting for 1% of the total budget in 2023. However, the SNS campaign was built on a manifesto that is likely to considerably raise expenditure in the country, including an increase in pensions, hike in public sector wages, and a promise to raise both the minimum and average wages to EUR 650 p/m and EUR 1,400 p/m respectively.
Serbia offers strong opportunities for multinationals in Europe, with expected GDP growth of 3.9% in 2024, which would make it the third-highest growth forecast for the region. Additionally, domestic consumption is expected to remain resilient, with consumer confidence rising 1.1% in December, against the EU average of -17.0%.
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