On a global scale, forecasts predict that food and energy issues will remain relevant for another year or two, inflation will continue to rise, and supply chains will likely never return to the pre-COVID state we once called normal. It will take a long time to establish balance because the current geopolitical situation in the world, post-COVID, will not allow supply chains to be reinstated in the old way. Although, as it does now, all of this may seem chaotic, we will adapt to the crisis and economic growth which will undoubtedly occur.
This is how Marko Marković, a business consultant and partner at the Serbian consulting firm Egzakta Advisory, responded to a question from Biznis Magazine about the current critical points in the global and local economy and whether it's possible to estimate how long the "pandemic economic crisis" will last.
Marković believes that the energy situation will stabilize only by the middle of next year, given that the prices of all energy sources naturally rise in the upcoming winter season in Europe. This is why the cost of oil is expected to continue to grow.
So, do you expect the energy crisis to be resolved only in a year?
It's likely to be slower. The energy crisis is caused by a shortage of specific energy sources, leading to a three- to four-fold price increase. As we approach winter, most countries strive to procure these raw materials as cost-effectively as possible and ensure energy stability. Therefore, it is realistic to expect this situation to stabilize only after the winter season, in the summer of the following year.
What are your thoughts on the global issue of rising prices and inflation? What will happen?
It is realistic to expect that the upward trend in prices will continue. Since metals have already reached high prices, the next item on the list is food, and everything is moving in that direction. We are already seeing dramatic increases in the price of wheat. All of this is happening because supply chains are disrupted. This is also the cause of inflation in the EU, which each country will have to address individually.
In which period can we expect further price increases?
Indeed, for the next three years, that includes rising prices for everything. I don't see a way to prevent it. The costs of certain raw materials, transportation, and food have a significant upward trend. With completely disrupted supply chains, the trends are more than evident. Moreover, experience shows that people relatively easily accept changes in prices.
How will the global rise in food prices look, and how will it affect Serbia, given that we have enough food?
Food prices are not rising due to a lack of supply, especially not in markets like Serbia, where there should be enough food for domestic needs. They depend on producers, who rely on raw materials, energy sources, and transportation, and all these prices are rising. In addition, the Serbian economy is partially in Serbian hands. I'm referring to retail chains that collect most of the margin from the field to the table and are foreign-owned. Maintaining profit levels will not be questioned, and all these chains will follow price increase trends. In Serbia, a lot is in the hands of foreigners, which would be fine if a significant portion of the profit were not mostly taken out of the country.
It is expected that relocating companies from Asia to Europe due to disrupted supply chains caused by COVID-19 will benefit Serbia.
I am trying to understand how someone expects that to happen. Despite all the difficulties caused by the COVID pandemic, multinational companies have yet to decide to take such a step, given that the total operating costs are still lowest in China and other countries where production is currently the cheapest.
On the other hand, we have never had a more significant opportunity than now to strengthen our economy by building our factories. We can produce many things and be competitive, from microchips and video games to final food products. We can make everything as a Serbian product. We need knowledge and qualified people to employ. Only by stimulating the local economy can we economically empower ourselves. Even though foreign direct investment yields results through increasing GDP and reducing unemployment rates, much better results would be achieved if we strategically focused on supporting and financing the local economy in Serbia. This is especially important in the long run because attracting FDI provides good short-term results. People here learn quickly, and that should be invested in. Changes always start from the micro-environment, and that's how the macro-environment can be changed. Small and medium-sized enterprises are the key segment.
What do you think of the Serbian economy in this context and the problems it has been facing for a long time, such as the low level of development compared to Central European countries?
The Serbian economy had long-standing problems even before the pandemic, so the COVID crisis became an additional problem. A fortunate circumstance is that Serbia's GDP does not depend much on the industries affected by the pandemic. The impact of tourism or similar services on Serbia's GDP is minimal. On the other hand, Serbia is a country that exports specific raw materials, such as copper and steel, and these prices are now rising. Serbia also exports food, and we have income. However, that is not enough. In addition to the noticeable GDP growth and rising average prices, the growth should primarily be in the small and medium-sized enterprise sector and domestic production.
The period of low-interest rates continues. Many are now afraid of an increase in interest rates. How long will interest rates remain low?
As long as economies seek growth more significantly than before the pandemic and inflation can be kept under control, interest rates will remain low. The European Union will certainly only change something at the end of 2022 or the end of 2023, as expectations are that growth should be stimulated, with GDP growth of 7 or 8 per cent annually. Generally, I do not believe in any interest rate hikes in the next two years, and they will logically have to go up. That is not a natural state. Interest rates will then rise, but very mildly, not dramatically. They ensure that no crisis intensifies in the meantime.
Is it possible that, along with pandemic conditions, a "black swan" event - a crisis that explodes rapidly - could occur? Where could potential "bombs" be?
It can happen. For example, it is possible that cryptocurrencies "explode." Some cryptocurrencies already have a market cap more significant than the three largest investment companies in the United States. This is not an average balance. Then, a massive problem in the U.S. is student loans that borrowers need to repay, which are reprogrammed indefinitely. All of this can explode, but it can also be prevented if no interest will stop it.
What is the "new reality" that the pandemic has brought to business?
The two most significant changes are undoubtedly disrupted supply chains, which create price disruptions, require much more working capital engagement, and accelerated digitization. The pandemic has placed digitalization high on the list of priorities for all companies and industries. Many firms did not have digital business models before the pandemic, but now they do. Digital services are now present in all sectors: banking, telecommunications, food delivery, and everyone has realized that alongside digitalization, logistics is a vital part of a company's development: to deliver what was purchased within 24 hours. The "new reality" has also brought about space optimization. Offices are no longer necessary for everyone. These are the main topics that have changed during the pandemic. The problem with the economy now is disruptions. Although we have yet to emerge from COVID-19, everything happening in the economy is called post-COVID economics. We are aware that COVID-19 will not be over for another few years. Therefore, there needs to be more clarity, and opportunities for local development should be sought in it.
What are the current biggest problems in the Serbian economy?
In statistical data, we have a better overall economic situation and an increase in average salaries. However, it is essential not to lose sight that a large part of GDP growth comes from public investments and capital projects. In addition, the average salary is rising in the public sector but not in the private sector, and it should be the other way around. The problem is that we need more companies capable of competing in regional and European markets. Moreover, many smaller companies have reached a certain level of development and cannot go further because they need more resources and knowledge. However, the first and most prominent problem of the Serbian economy is the need for more expertise and personnel, and the second problem is the lack of funds or financing, as banks are still mainly the only source of funding. Banks, mostly foreign-owned, are looking for minimal risk and maximum profit, and there is little room for development projects.
The Serbian banking system went bankrupt before, and then foreign banks arrived...
I have nothing against foreign capital in the banking sector, but it is known that the main task of any bank is to make a profit and minimize risk. On the other hand, structural financing of development projects is yield different from the expected results. The Serbian economy generally needs more local projects, the development of the Serbian private sector, and the localization of what does not need to come from abroad, such as the products we currently import. If we had incentives for the local economy, we would not have to import many things; we could produce them ourselves.
What kind of incentives are you referring to?
I mean incentives to make the financial market accessible to Serbian companies, to reduce taxes, to make education and training more accessible, and to provide everything that generally stimulates the growth of small business owners. There is a need for financial resources that can be invested in startup ventures, small companies, and small-scale food processing.
Small and medium-sized enterprises represent 85 per cent of Serbia's economy, and they cannot compete even in their own country, not to mention entering global markets. In principle, in Serbia, certain funds support entrepreneurs in converting raw materials into finished products, but if you try to do that, you will see that it is challenging. Therefore, we have GDP growth because we invest in public spending, and the construction sector is growing, but there is a better solution. Small and medium-sized enterprises must be enabled to drive economic growth.
What are the advantages of the Serbian economy?
The creativity of young people is a treasure, and that is the strength of the Serbian economy. We still have intelligence, fortunately, but we need to give young people jobs and opportunities. The state must create a better environment, and businesses must invest in young people. The essence is that macro changes through the micro world. This also applies to us to change the Serbian economy. First, think about yourself and your surroundings, then move on from there. This is the message from Marko Marković in an interview with Biznis Magazine.
Trends in Consulting
The consulting firm Ezgakta Advisory has focused exclusively on management consulting for the past two and a half years. However, it has been in various organizational forms for 15 years. Marko Marković has been leading the company for the past two and a half years as a co-owner and partner, and he emphasizes that the most significant segments of their work with clients now are strategy and operations.
The future of consulting is heading in the direction that we have chosen: we work together with the company to develop a strategy, define how to operationalize it, and then the company can decide to implement it on its own or with our assistance – it's a matter of choice. Traditional consulting is slowly becoming a thing of the past; in addition to advice, there is a growing demand for the implementation of solutions, Marković points out.
We Cannot Be Germany.
Serbia can reach the level of economically middle-income countries, but it will never enter the ranks of highly developed nations. We cannot be Germany; our nature does not allow it, just as it is the case in Italy, for example. Similarly, Germans will never be Italians in design. So, we must be something other than an economic powerhouse. However, we can aim to be like Slovenia, Slovakia, and the Czech Republic and create a society where people live off their work. This is achievable if we turn to ourselves our region, and localize. We must invest at the micro-level to do this because the development trigger is at the micro-level. We need to teach our children that knowledge is valuable and bring entertainment back to the realm of decency; we cannot claim to be a progressive country where reality TV is the most-watched program or betting shops are the favourite pastime of the youth. We must restore the family, bring back a sense of shame and pride, and establish some ideals. It is crucial in what environment and with what standards the population aged 12 to 25 grows up. Young people should find it stimulating to work for a startup, even if the salary is low, because they will learn something. Real change can only be achieved through changes in the micro-world. That's why more investment is needed in culture and education, and the future should be built through personal examples, says Marko Marković.
If the cryptocurrency bubble bursts...
What would it look like if the cryptocurrency bubble burst?
It would look the same as the 2008 crisis but ten times more potent because it's not just Bitcoin; it's all cryptocurrencies. That means a production drop and bankruptcy of almost everyone involved in cryptocurrencies, or those who own them, believes Marko Marković.
Serbian(Srpski)
English(Engleski)