Working on business transformation and growth strategy projects, I have had the opportunity to take a close look at the supply chains of Serbian companies. Across different industries, one interesting constant stood out: almost every route for sourcing raw materials and equipment leads to Türkiye. The inputs vary widely, from pasta and agricultural plastics to components for household appliances and consumer electronics, copper and steel. Why Türkiye, and how? Türkiye did not build its strong position in the regional supply chain overnight. It developed this role over decades, carefully and strategically, with a clear vision of where its economy should be heading. The most important step on this path was the creation of Organized Industrial Zones (OIZ): the state buys land, fully equips it with infrastructure (electricity, gas, fiber-optic internet and more) and offers it to manufacturers on extremely favorable terms.
In practice, this makes it possible to build a cluster in which sheet metal is produced in one place, a factory next door cuts and shapes it, and the one beside it powder-coats and assembles the parts. The effects are internal transport reduced to zero, shared knowledge and experience, and lower start-up costs for new businesses. Along the same path, Türkiye launched the Turquality program, under which the state did more than finance machinery: it covered up to 50% of the costs of marketing, market research, opening warehouses abroad and implementing business software. One of the key measures, of course, was the Customs Union agreement with the EU, which allowed industrial goods to move duty-free between Türkiye and the EU. There are other examples of this turning point as well, which took the country from the closed economy of the 1980s to today's open, export-oriented economy.
Serbia, on the other hand, should not and cannot copy Türkiye entirely, given the significant market, cultural and demographic differences. However, by combining the best practices from the region with elements of the Turkish, Czech and Slovak economic models, Serbia can make a quantum leap in GDP growth and living standards (GDP per capita, the Gini coefficient and wage levels). To know which direction the economy should take, we first need to establish where it stands today. The financial system is stable at the macro level, while private consumption, that is, domestic demand, is growing.
At the same time, the economy faces numerous challenges. The domestic supply chain is underdeveloped, with a gap between the foreign giants operating in Serbia and domestic SMEs (small and medium-sized enterprises), which fail to become Tier 1 suppliers because they lack the necessary standards, capacity and technology. Productivity is low, reflected in foreign direct investment in low-skilled jobs that import most of their components, which directly feeds the foreign trade deficit. There is a shortage of specific engineering profiles, which directly limits the growth of more complex industries. Finally, energy intensity is high: Serbia uses considerably more energy per unit of GDP than the EU average, which makes domestic industry more vulnerable when energy prices rise and in the face of the upcoming EU carbon border levies (CBAM).
For Serbia to reach the economic indicators of comparable European countries of similar size, one of the surest paths lies in shifting the focus to niches where we already have a nucleus of knowledge or natural resources. Moving from low to high levels of processing would open the way to gradually building a high value-added economy. The industries Serbia should focus on include agritech and high-end processing (instead of exporting raw materials); ICT and advanced engineering (DeepTech and AI); the automotive, electrical components, metal and machinery industries; and biotechnology, medicine and pharmaceuticals. Developing these industries, and in turn raising GDP per capita and related economic indicators, requires certain prerequisites. They fall into five groups: regulatory; educational; financial and tax; banking and capital market; and business and ecosystem prerequisites.
Illustration 1: Strategic pillars of development
Regulatory
On the regulatory side, there is room for measures that systematically encourage domestic capital to invest in homegrown technology solutions. The first step in this direction is to introduce tax incentives for angel investors and established domestic companies that invest in innovative SMEs at an early stage. Allowing these investments to be partially deducted from the tax base would create a strong incentive to diversify domestic capital away from traditional sectors such as real estate and toward high-tech innovation with greater growth potential.
The second measure would ease the fiscal burden on labor through a multi-year grace period (payroll tax holiday) on taxes and social contributions for engineers and researchers working on the development of registered patents. Since the cost of highly skilled labor is the heaviest burden for SMEs in the research and development phase, such a mechanism would directly boost their global competitiveness and help them retain key talent. Finally, another important step would be a new model for awarding state subsidies, one that encourages investors to rely more on the domestic economy. Eligibility for these incentives could be tied to companies sourcing 40 to 50% of their components from local SMEs. In this way, foreign capital would naturally connect with the local market, and domestic firms would gain a real opportunity to become part of large supply chains.
Education
A high-value economy cannot be built on manual labor; it is built on engineers and professional management. With this in mind, dual education needs to be reformed to shift its focus from low-skill trades to high-tech occupations such as mechatronics technicians, CNC machine operators, and automation and industrial robotics technicians. Joint university-industry laboratories are also needed. Under this model, the state would fund development centers within universities where SMEs could test their products and avoid investing in their own equipment, which would otherwise cost between EUR 300,000 and EUR 1 million. Domestic entrepreneurs would thus gain access to state-of-the-art equipment, allowing them to significantly shorten the path from innovation to market.
Finance and Tax
An automation tax credit (0% tax on reinvested profit) would encourage companies to modernize their production capacity and, in turn, raise productivity. In practice, this would mean that any profit a company invests in automation or software is fully exempt from tax. A second initiative would reimburse most of the cost of SME certification and audits, since these are among the key prerequisites for entering foreign markets.
Banking and Capital Markets
Serbia's financial market is predominantly bank-centric: in 80% of cases, companies turn to commercial banks when they need additional capital. A further problem is that banks are highly conservative and focused on real estate collateral, which significantly holds back innovative SMEs. The first priority, therefore, is to develop the market for alternative sources of financing, namely venture capital and private equity. While Serbia's venture capital scene has made significant progress in recent years, private equity remains the most important missing link.
In practice, founders who started their businesses in the 1990s or 2000s are now reaching an age where they have no successors, or their companies have hit a growth ceiling. They also lack the know-how and capital to take a company from EUR 5 million to EUR 30 million in revenue. The role of a domestic private equity fund is not to lend money but to provide capital in exchange for an equity stake. Domestic companies would gain funding to acquire advanced technologies, enabling better products and a more secure position in foreign markets. They would also gain professional management, one of the defining features of how PE funds operate.
Business and Ecosystem
Creating specialized regional clusters modeled on the Turkish ones would mean connecting companies, research institutions and local governments within specific geographic areas and regions. This would raise productivity, competitiveness and innovation, drive economic development and support more balanced regional growth. The first step is to identify the specific strengths of each region: Vojvodina in agriculture; Šumadija and Western Serbia in the automotive and metal industries and fruit processing; Southern and Eastern Serbia in electronics and sustainable mining; and Belgrade in high technology. The next is to establish a triple helix of cooperation, enabling joint and easier entry into foreign markets, joint applications for EU funds, and shared costs for laboratories, transport, new product development and more.
Another important aspect of this pillar is the professionalization of management. Today, in many Serbian companies, the founder is at the same time the CEO and the CFO, and also handles procurement and many other tasks. A prerequisite for growth is to delegate and to hire experienced, well-trained managers who understand how a business grows beyond Serbia's borders and know how to make it happen.
By implementing the proposed initiatives, the economy would shift from an assembly model to one that generates high added value. The share of domestic factors in the final price would change significantly, securing accelerated GDP growth.
Illustration 2: The "low-margin manufacturer" vs. "high-margin value creator" economic model
The value-added economic model would mean cutting the share of imported raw materials in final products from 80% to 35%, raising the share of wages in the total value of the final product from 15% to 35%, and increasing the average EBITDA margin (operating profit) from 5% to 15%. The model is derived from real indicators of the Irish, Czech and Slovak economic models. It represents the only mathematically sustainable path to higher GDP per capita and to wages on par with those in Central and Eastern European (CEE) countries.
Implementing the proposed strategy would deliver measurable macroeconomic and microeconomic results:
- GDP per capita growth: moving from assembly to value-added industries keeps profit in the country, pushing society out of the middle-income trap.
- A smaller foreign trade deficit: substituting part of the raw materials imported from China and Türkiye with domestic supply reduces the share of imported inputs in the final product.
- Resilience to global shocks: a network of domestic Tier 1 suppliers reduces vulnerability to logistics crises and EU carbon border levies (CBAM).
- Human capital development: demand grows for university-educated professionals not only in services but in industry as well.
The true roadmap for Serbia's economic development lies in the success stories of Central and Eastern European countries with similar populations. Yet the comparison is only the beginning. A real breakthrough requires automation, smart specialization and capital market reform, which together could transform Serbia into the high-tech hub of the Balkans. This cannot be achieved by simply copying other business and economic models, but only through strong synergy between government, industry and science.
