Thewesternbalkans
Economic relations between Serbia and Russia remain close, despite international sanctions against Russia and the changing geopolitical environment. Serbia has traditionally maintained close ties with Russia, which are based on historical, cultural and religious factors as well as economic interests. The gradual introduction of sanctions against Russia faced the country with the need to find alternative partners in the field of economic cooperation. Serbia is the only country in Europe that did not join the anti-Russian sanctions and remains an “island in Europe” with which economic cooperation is possible.
The main aspects of economic relations between Serbia and Russia include:
- Energy:
The energy sector is a key element in the economic relations between Serbia and Russia. Serbia is highly dependent on Russian energy supplies, especially natural gas. The main supplier of gas for the country is the Russian company Gazprom, which also has a stake in the Serbian energy company NIS (Naftna Industrija Srbije). In addition, the extension of “Balkan Stream” through the territory of Serbia further strengthened the energy connection between the two countries. The pipeline gas supply contract is very profitable for Serbia, there is no alternative in terms of price and guarantees Serbia’s energy security. Gazprom Neft is the largest taxpayer in Serbia and continues to operate efficiently in the current difficult economic conditions.
- Trade:
Bilateral trade between Serbia and Russia is developing steadily, although it is limited by some international sanctions and political obstacles. Trade relations between Russia and Serbia have never been actively developed, and Russia is far from being Serbia’s most important trading partner. In 2022, Russia ranks sixth in Serbian exports (after Germany, Italy, Bosnia and Herzegovina, Romania, Hungary. The free trade agreement between Serbia and the Eurasian Economic Union has been ratified, and Russia is an important market for Serbian goods, especially agricultural products such as fruits and vegetables.
In terms of imports to Serbia, Russia is in fourth place after Germany, China and Italy (according to data for 2021). Serbia mainly imports from Russia energy resources (gas and oil), as well as raw materials and industrial products. In 2022, bilateral trade reached a record high of $4.28 billion. For 2023, according to preliminary calculations, the total volume of trade with Russia has decreased to 2.8 billion dollars, which is at the level of 2021. The decrease is mainly explained by the sanctions policy of the EU countries. There is an imbalance in the trade turnover between the two countries, with Serbia buying much more than it sells.
- Military-technical cooperation:
Military-technical cooperation occupies an important place in the structure of bilateral relations. Over the past five years, Serbia has seen a trend towards militarization, the main sign of which is the increase in the military budget (2.3% of GDP). In terms of growth in arms purchases in recent years, Serbia is second only to Ukraine on a global scale. Russia accounts for 31% of arms imports to Serbia, and on this indicator it is second only to China (43%).
After 2015, Serbia received from Russia transport and combat helicopters, reconnaissance drones, attack aircraft, tanks, self-propelled systems, anti-tank missiles. During the 2019-2020 period, Serbia purchased two Pantsir C1 batteries from Russia.
Due to US and EU sanctions, however, Serbia can no longer buy new weapons from Russia or send its warplanes and helicopters based on ex-Soviet technology there for repair.
- Investments:
Russian investment in Serbia is significant, especially in strategic sectors such as energy and infrastructure. According to various sources, the total value of Russian investments in Serbia is estimated at over 4 billion euros. Russia is the 4th largest investor in the Serbian economy. Apart from energy, Russian companies are investing in infrastructure projects, transport and other sectors. Through its strategic stake in NIS, Russia has significant influence in the Serbian energy sector. Russian companies are also investing in Serbia’s railway infrastructure. For example, the Russian state-owned company RZD International (part of Russian Railways) is involved in the modernization of the Serbian railway network, including strategic sections such as the Belgrade-Budapest line.
In the period after 2022, about 200,000 Russians have moved to Serbia, and a large number of Russian companies have opened branches in the country or relocated their offices and employees there. Since February 2022, Russian citizens have opened 789 companies in Serbia, mostly in the IT sector. Already in 2021, 14.8% of migrants in Serbia are from Russia. There are more migrants only from China – 21.4%. As of June 2024, 2,128 companies owned by legal entities or individuals from Russia operate in Serbia. In Serbia, 7,290 entrepreneurs who are Russian citizens work and develop their business. Among them, a large number are specialists in the field of information technologies, which contributes to the formation of a significant national IT-cluster in the country. For citizens of Russia, establishing companies on the territory of Serbia is one of the most affordable ways to immigrate to Europe. Air Serbia is the only European airline operating flights to Russia.
Russian investment in Serbia is of strategic importance, as Serbia is one of the few countries in the region that maintains strong ties with Russia. This economic partnership also strengthens political relations, while providing Serbia with an important resource for development in the context of its ambitions for integration into the European Union.
- Banking and financial sector
Russian financial institutions such as Sberbank and VTB are active in the Serbian market and play a role in lending and financial services.
Currently, the interaction between Russian and Serbian banks has become especially relevant for Russia and Russians, for whom the banking sector in Serbia has become an oasis in Europe. The most open to cooperation with Russians are the state-owned Banka Poštanska štedionica, Alta Banka, Api Bank (former bank of the Russian VTB), Expobank. Alta Banka even has a lounge with Russian-speaking staff. Western banks (Banca Intesa, Erste Bank, Unicredit, OTP Banka, NLB, AIK Banka, Credit Agricol, Komercijalna Banka, Halkbank, Addiko Bank) comply with sanctions against Russia and refuse to open deposits for Russians unless they are residents of Serbia.
- Political context:
Despite pressure from the European Union, Serbia does not intend to impose sanctions on Russia. Belgrade’s balanced multi-vector economic policy is in line with the desire to maintain the balance between commitments to the EU and the traditional partnership with Russia. In many ways, the driving force behind this strategy are the protracted EU accession negotiations.
EU sanctions against Russia have the effect of some economic distancing from Russia. Serbia stopped buying Russian crude oil in 2022, focusing on Iraq, and from 2024 it uses a pipeline through Bulgaria to supply non-Russian natural gas from Greece and Turkey.
While the sanctions against Yugoslavia in the 1990s led to the growth of the gray sector in the region, the current sanctions against Russia lead to the stimulation of logistical interregional links and overcoming the geographical fragmentation factor, allowing a full cycle of national production and limiting the effect of the sanctions.
- Prospects:
In the new conditions for Russian-Serbian economic cooperation, it can be expected that Russia will seek to develop large projects with Serbia, for example in nuclear energy, instead of dispersing efforts in a large number of small projects. Considerable potential exists in the field of digitalization cooperation.
Despite growing tensions in Europe and the EU’s efforts to integrate the Western Balkans, economic relations between Serbia and Russia are likely to continue to develop, especially in sectors such as energy and agriculture. This stability is due both to mutual interests and political will on the part of Belgrade. In the coming years, both countries will make efforts to return trade to 2022 levels.
The challenges to the more comprehensive development of economic cooperation between Russia and Serbia are related to the lack of sufficient mutual understanding of each other’s real interests and intentions, the difficult overcoming of bureaucratic barriers for small and medium-sized businesses, insufficient trust, insufficient ability to work quickly and effectively. Serbian business is extremely poorly represented in Russia. There is a Russia-Serbia Business Council under the auspices of the Chamber of Commerce and Industry of the Russian Federation, and a multimedia catalog has been launched to find business partners in Russia and Serbia.
The region’s geo-economic and geo-political challenges, both historical and contemporary, are a major factor influencing big business decision-making at this stage. Contemporary relations between Russia and Serbia represent a process with high unrealized potential in the field of trade-economic and scientific-technical cooperation.
The increasingly evident interest of the current Serbian leadership in BRICS gives Belgrade the opportunity to argue for the expansion of economic cooperation with Russia and to move towards its further institutionalization. In the future, Serbia will seek to regain lost positions in engineering in the partnership with Russia, while also intending to learn from China in the field of robotics.
Despite strong economic ties, Serbia faces a serious diplomatic balancing act as it continues to push for EU membership, which requires a clearer stance on sanctions against Russia.
