Globalization, characterized by free trade, capital flow, and access to foreign resources, has been the dominant direction of the world economy for decades. Viewing the world as a "single market" has led to significant growth in trade, which has taken a major share of the GDP in many countries. However, it has also brought some negative aspects, such as economic inequality, social instability, and mass migration, which have not slowed down this trend. So why is the question of economic localization being raised now, and how does our country fit into this?
The answer lies in the COVID-19 pandemic, the latest crisis to hit humanity, which, like all previous crises, has highlighted the shortcomings of existing systems. It has significantly impacted changes in the global supply chain, thus challenging the current way of doing business and development, favouring global trends. The most visible consequence of the crisis is undoubtedly the compromised health and the number of lives lost in the past two years. In Serbia, one-fifth of the population has been infected, and we rank at the top regarding the number of infected per 100,000 inhabitants. The rapid transmission and infection rate of the virus, which can lead to a fatal outcome, led to the complete closure of many countries at the outset of the pandemic, with restrictive measures subsequently changing periodically depending on the epidemiological situation. The newly emerging crisis significantly affected the global economy, making exchanging goods and capital between countries difficult or impossible. Based on the analysis, the first pandemic year in 2020 saw a drastic percentage drop in the import (7.9%) and export (8.6%) of goods and services globally. The percentage change in real GDP also shows a significant decline of 3.5% in the total production of goods and services in 2020. However, projected growth of 9.3% in imports, 10.1% in exports, and 5.7% in real GDP is expected in 2021 due to adapting individual economies and introducing corrective economic measures. The consequences mentioned earlier, primarily caused by restrictive measures such as border closures, guide us towards economic localization. By analyzing the current situation in our country through three groups of indicators—demographic, prosperity, and economic—, we can identify positive and negative trends that can be utilized to shift towards the development of the domestic economy by reversing negative trends and accelerating positive ones. Starting with the negative trends in Serbia, it's essential to begin with demographic indicators. Over the last four years, the population has decreased by 150,000, with 130,000 of that decrease belonging to the younger people aged between 21 and 40. The majority of the population consists of individuals aged between 61 and 70. This distribution, accompanied by a continuous decline in numbers, especially among young people, from year to year, with a projection that by 2025, the population will decrease by 1.59%, reflects the process of demographic ageing that can negatively impact the country's economic development. Furthermore, the salary growth during the previous period is characterized by the trend of faster salary growth in the public sector compared to the private sector, reflecting the insufficiently rapid growth and development of the economy. Another indicator where Serbia does not rank highly is the Gini coefficient, which measures income inequality and ranges from 0 to 100, with a lower coefficient indicating greater equality than a higher one. With an index of 39.6, Serbia ranks at the bottom compared to countries in the region, and it is on the verge of crossing the 40 threshold, which indicates political and social instability in the country. Continuous migrations within the country, from less developed regions in Western Serbia and Šumadija and Southern and Eastern Serbia to the Vojvodina and Belgrade regions, are also noticeable. Regarding prosperity indicators, the Legatum Prosperity Index, calculated as the weighted average of several tens of variables grouped into several sub-indices annually, can be observed. When looking at the change in position over ten years, Serbia has progressed by twelve places overall on the list of 167 countries, with Denmark leading this year. The situation has improved in most areas included in this index, providing a good foundation for further development. Still, attention is needed to personal freedom and the judiciary, which is significantly lower ranked compared to the previous decade. Lastly, economic indicators predominantly show positive trends regarding the state's adaptation to the pandemic. Serbia had the smallest GDP drop in the region and among the smallest in Europe in the first year of the pandemic. In addition to the well-implemented policy of adapting to the newly emerging pandemic situation, two more reasons can be attributed to this: weak integration of the Serbian economy into the global economy and the lack of highly sophisticated activities most affected by the pandemic. The current monetary policy, focused on reducing the reference interest rate, involves the reduction of interest rates and, consequently, the decrease in borrowing costs and an increase in investment activity. With many incentives for foreign direct investments, the total amount of foreign investor investments over the last ten years has reached around 28 billion dollars. It cannot be denied that foreign investments bring numerous advantages in the form of new technologies and practices, reduced unemployment, and overall economic development. Still, it is also essential for investments to come from domestic sources to keep the country competitive and not overly dependent on foreign investments, especially during periods of crisis. The trade deficit has decreased due to the lower trade volume in 2020, but the structure still suggests that raw materials are predominantly exported while finished products are imported.
Serbia is uniquely positioned to capitalize on the current crisis and the accompanying trends by creating a strategy that leads to economic localization. Turning towards economic localization can bring significant benefits such as enhancing market competitiveness, improving living standards, creating jobs, preventing the emigration of the working population, fostering technological development, and ensuring long-term stability. For several reasons, the industries with the most potential to drive the localization process are agriculture, the processing industry, and the ICT and media industry. Looking at the GDP structure, it can be concluded that over 50% is attributed to five sectors: agriculture and the processing industry. The processing industry employs one-third of the total workforce in the economy. It is characterized by a low share of highly developed technologies, approximately 27%, significantly lower than in countries like Germany, where the percentage is nearly 60%. The focus can shift towards introducing highly developed technologies that would help produce high-quality and sophisticated products, leading to economic growth and a reduction in the import of these goods. The potential in agriculture lies in Serbia's cultivable land area, ranking it among countries with a higher proportion of arable land. At the same time, the net value-added in this sector is among the lowest in Europe, leaving ample room for advancement in the future. The most significant potential lies in the ICT and media industry, which records high annual growth, with the IT industry predominantly contributing to this growth. The issue faced here is the large volume of outsourced IT services, a trend that localization could potentially halt by promoting domestic products and services development. To successfully implement a localization strategy that would begin with investments in agriculture, the processing industry, and the ICT and media industry, the key is to focus on the development of micro, small, and medium-sized enterprises (MSMEs), which constitute 99.5% of registered business entities and as such represent the backbone of our economy. Through proper education and improved sources of financing, the result of economic localization will be a reduced dependence on other countries through domestic production, which, in turn, will stimulate economic recovery during and after the COVID-19 pandemic.
