Riskopol - the impact of the war in Ukraine on the serbian economy

Board games are no longer as popular. However, they are partially extinct because board game clubs for exchange and play still exist throughout America and some European countries. Board games have primarily been replaced by a faster, more efficient, more entertaining, and more profitable form of social entertainment - video games and social media.

As we were slowly emerging from the crisis caused by the COVID-19 virus, waiting for the last combinations of alphabets in virus versions to complete their relentless killing of the world's population (around 6.2 million people have died from COVID-19), the headlines have shifted from COVID-19 to a new, unfortunately seemingly "interesting" way of causing harm - war. Russia invaded Ukraine in its efforts to "equalize" and "strengthen" its eastern position. The war in Ukraine has been raging for over 40 days, and the casualties are mounting. The West responded in its way. With support for Ukraine's territorial integrity and condemnation of violations of international law, Russia was "attacked" with economic sanctions, trade bans, asset freezes, exclusion from SWIFT UN resolutions, and exclusion from international institutions. While on the one hand, the war in Ukraine, with its bombs and tanks, is showing its worst side, economic sanctions have significantly impacted the Russian economy, with visible results in the ruble's devaluation and a significant influence on Russia's GDP. However, no war, not even an economic one, can pass without casualties on the other side, and its effects have been widely felt in the West, primarily through inflation, increased energy prices, and clear indicators of declining GDP that are slowly resembling January temperature forecasts. It's also worth noting the tactic that has mostly limited sanctions to what can be somewhat tolerated. Russian markets can be replaced with new ones; food may not be as big of a problem, albeit more expensive, but ultimately, it will be available for those who can pay. However, sanctions are not, and most likely will not be, imposed primarily for gas, as oil, despite its higher price, can be procured from other sources.

Riskopol

So, when all of this is boiled down to a few sentences, it somehow occurs to me that the world has seemingly developed a new social game - Riskopol. I wonder if I'm plagiarizing a name already mentioned somewhere; that wasn't my intention, but what's happening to us today mostly reminds me of a combination of two once top-rated board games - Risk and Monopoly. For older folks, and to explain to the younger ones, the goal in Risk is for one of the players to conquer the entire world with their "tanks," while the goal in Monopoly is for one of the players to take all the money and force the other players into bankruptcy.

So, in Monopoly and Risk, players start from the same position with the same number of "tanks" or money in this new global game. Unfortunately, some smaller players don't have as much money or "tanks" as the others, so they have to play much brighter, more carefully, and cautiously because they can quickly go bankrupt or lose territory. The game is more complicated because double lousy luck is not excluded - losing territory and going bankrupt. Today, Serbia is one of those countries.

Historically, our country, which has always been on the border between East and West since the division of the Eastern and Western Roman Empires, through the great sacrifices and struggles for statehood in the previous century and the horrific civil wars in the territories of the former Yugoslavia, where we paid a high price for poorly played Riskopol after the fall of the Berlin Wall, is once again in the game, even though we didn't seek to enter it.

Serbia emerged from the COVID-19 crisis in 2021 with a 7.5% GDP growth and a stable forecast for further expansion of 4.5% GDP in 2022, which was in line with expectations for the eurozone. The inflation rate was predicted to remain at an annual level of 7-8% for several months and stabilize at the target range of 3-4.5% by mid-year. Although inflation was already rising in many countries, the global economy was expected to recover slowly. With adjustments to the benchmark interest rate, primarily in the United States, the United Kingdom, and some EU economies, the world would gradually recover from COVID-19. And then, the WAR happened. Inflation surged into double digits, food, energy, and commodities prices soared, and adjustments to interest rates in Western European countries and America still didn't yield sufficient results. Statements like "forget about cheap goods, inflation is here, get used to it" are becoming more frequent, projected GDP growth indices are being revised downwards, and the world is slowly but surely entering an economic crisis. The first signs of recession are already evident, with high prices for food and energy expected to persist for some time. Things are not much better in Serbia, where food and energy prices are rising. The European Bank for Reconstruction and Development (EBRD) has adjusted its projected GDP growth rate to 3.3% with uncertain further adjustments throughout the year. The benchmark interest rate was recently raised from 1% to 1.5%, explained by the need to counter inflation. While this adjustment is a good measure given the visible inflation, it comes with more expensive loans, reduced credit activity, and, consequently, slower economic growth.

Impact on the Serbian Economy

The escalation of the war in Ukraine affects the Serbian economy on at least three fronts. The first is the price of energy and food. Although Serbia has historically been self-sufficient in food production, energy prices inevitably affect all costs, including food. In Europe, 40% of gas and 27% of oil come from Russia, but that percentage is much higher in Serbia. Serbia is 100% dependent on Russian gas, and the leading oil distributor is NIS, which is 51% owned by Russia. The second front is raw materials for heavy industry. Ukraine and Russia are significant importers of aluminium and nickel used in the Serbian processing industry. Additionally, rare metals used in auto components (the most important number of foreign investments in Serbia in recent years) make the problem even more evident. The expected decline in European economies, especially Germany and Italy, and traditional markets for Serbian exporters, coupled with an anticipated drop in demand, could bring additional challenges for Serbian exporters. The third front is the disrupted transportation, both from conflict or sanctions-affected areas and from EU and Chinese countries due to completely distorted transportation prices and difficulty in finding available transportation capacity.

As mentioned above, Serbia has responded to these challenges by adjusting the benchmark interest rate to tame inflation. Temporary measures banning the export of wheat, corn, and oil have been in place for some time, and prices of certain products, primarily necessities and fuel, have been limited. These measures cannot be sustained long because they harm producers, traders, and the state. After such grim facts, it's not hard to conclude that we do not have a delightful period ahead of us.

What Should We Do?

So, what should we do? In the current geopolitical situation, we'll only play Monopoly and avoid bankruptcy while ignoring Risk, trying to remain neutral so we are overlooked, and attempting to survive this growing economic crisis with as few economic consequences as possible. I fear that it's clear to everyone that this won't be possible this time either. We will have to play a game of Riskopol, just like the rest of Europe. The distribution of cards is primarily transparent, and there's one territory left in Europe that still needs to take one of the colours, or at least thinks it hasn't, and that's us. We'll probably be left neutral with our "tanks," but in this second segment of the game, we'll have to make a choice, probably very quickly, by the summer, if not sooner. I hope that when making the decision, the fact that someone built houses, hotels, or factories and businesses, and where the most significant flows of money are, will be taken into account since we weren't smart enough to make a more substantial portion of it locally or ours. I fear that in this game of Riskopol, we cannot win; it's designed for the big players who have "won the game" (to borrow a term from our children), starting with more money and "little tanks." But we can minimize the damage, which will be a significant victory.