The rising tide of Serbia's IT market

In recent years, Serbia has positioned itself as an emerging powerhouse in the Information Technology (IT) sector, a field that has significantly contributed to the nation’s economic resurgence.

Nonso Onowu on January 12, 2024 Average reading time: 6 min
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The rising tide of Serbia's IT market

This sector, once a modest part of Serbia’s economy, has undergone a remarkable transformation, now standing at the forefront of its economic development. This article aims to offer a comprehensive analysis of the IT market in Serbia, exploring the various aspects that have fuelled its rapid growth, the challenges that have arisen in its path, and the potential future trajectory that this sector might take.
 

Current employment landscape in Serbia 

According to data from the first quarter of 2023 by the Statistical Office of the Republic of Serbia’s Labour Force Survey (LFS), the employment landscape in Serbia is witnessing significant and encouraging changes. The total number of employed individuals stood at 2,835,900, marking an employment rate of 49.6%. The unemployment rate concurrently registered at 10.1%, reflecting an overall positive trend in the job market. 

This period saw an addition of 31,600 employed persons compared to the first quarter of 2022, indicating a robust and improving job market.

A notable shift was observed in the sector-wise distribution of employment. The manufacturing sector emerged as a leading growth area, adding 28,700 new jobs. Conversely, the agriculture, forestry, and fishing sectors experienced a decline in employment numbers. 

The increase in formal employment by 43,900, predominantly in the manufacturing sector, juxtaposed with a decrease in informal employment, signifies a crucial shift towards more structured and formalized economic activities. This transition is particularly significant for the IT sector, which typically thrives in a formalized and organized business environment.

The growth in formal employment sectors potentially creates a more conducive atmosphere for IT and technology-related industries, aligning with the global trend towards digitalization and technological advancement. 

These employment patterns not only reflect the resilience and adaptability of Serbia’s economy but also underscore the integral role of the IT sector in shaping the country’s economic landscape. 

The growth trajectory 

The growth trajectory of the Serbian IT sector is a remarkable story of resilience, strategic evolution, and adaptability. From its nascent stages characterized by small-scale software development firms, the sector has matured into a vital cog in the wheel of Serbia’s economic machinery.

This journey from modest beginnings to becoming a major contributor to the nation’s Gross Domestic Product (GDP) is a testament to its potential and the strategic focus of both the government and private players in the industry. 

In 2021, the contribution of the IT sector to Serbia’s GDP was an impressive 6%, marking a significant increase from 4.5% in 2018.

This rise is not merely a statistical highlight but a reflection of the sector’s deepening impact on the economy.

The steady growth rate also mirrors the global trend of digitalization and the increasing reliance on technology in various sectors. 

This upward trend in the IT sector’s economic contribution is mirrored by the expanding ecosystem of IT enterprises and professionals in Serbia. From approximately 2,300 IT companies in 2018, the number has surged to over 3,500 in 2022, according to a report by the Serbian Business news. This increase is indicative of a flourishing entrepreneurial spirit and the emergence of Serbia as a favourable destination for IT startups and established tech companies looking to expand their operations in Eastern Europe. 

Furthermore, the sector’s growth is bolstered by the rising number of IT graduates, growing from 1,200 in 2018 to 1,800 in 2022. This increment is a clear indicator of the burgeoning interest among the youth in IT as a career choice.

Universities and educational institutions in Serbia have played a pivotal role in this aspect, constantly updating their curriculum to align with the latest industry trends and demands. Partnerships between academic institutions and IT companies for internships and research projects have further strengthened this growth trajectory. 

The robust growth of the IT sector in Serbia is also a result of a supportive legislative framework and strategic government initiatives

The robust growth of the IT sector in Serbia is also a result of a supportive legislative framework and strategic government initiatives aimed at fostering innovation and technological advancement. Tax incentives for IT companies, investments in tech parks, and a focus on improving digital infrastructure have made Serbia an attractive destination for foreign investments in technology. 

Moreover, the growth of the IT sector in Serbia is not just confined to the numbers. It has had a ripple effect on other sectors as well, leading to an overall boost in the digitalization and modernization of various industries. From e-commerce and fintech to healthcare and education, the influence of the IT sector’s growth is widespread, paving the way for a more interconnected and technologically advanced economic landscape. 

Factors driving growth 

The robust growth of Serbia’s IT sector is not an isolated phenomenon but a result of a confluence of several key factors. Each of these elements has contributed uniquely to creating an environment conducive to the development and expansion of the technology industry, as highlighted by the International trade association’s Serbia – Country Commercial Guide. 

Educational excellence and workforce development 

At the forefront of these growth drivers is Serbia’s commitment to education, particularly in STEM (Science, Technology, Engineering, and Mathematics) fields. Serbian universities, notably those in Belgrade, Novi Sad, and Niš, are renowned for their rigorous IT and engineering programs.

These institutions have become incubators for a new generation of tech-savvy professionals, providing a steady stream of highly educated graduates ready to enter the IT workforce. The curriculum in these universities is continually updated to keep pace with global technological advancements, ensuring that graduates are not just academically proficient but also industry-ready. 

Furthermore, the collaboration between universities and the IT industry through internships, research projects, and industry-sponsored programs has created a symbiotic relationship. This partnership ensures a practical, hands-on approach to learning, equipping students with the skills and experience needed to thrive in the rapidly evolving tech landscape. 

Competitive business environment 

Another pivotal factor is the competitive cost of doing business in Serbia, especially within the IT sector. Compared to other European countries, Serbia offers a more favourable economic environment for businesses, with lower operational costs including labor, utilities, and office space.

This cost-effectiveness has made Serbia an attractive destination for foreign investments and multinational companies looking to establish or expand their tech divisions. The country’s strategic geographical location, offering easy access to European, Middle Eastern, and North African markets, further enhances its appeal as a business hub. 

Proactive government policies 

The Serbian government’s role in catalysing the growth of the IT sector cannot be overstated. Recognizing the sector’s potential in driving economic growth and job creation, the government has implemented a series of policies and initiatives designed to foster a thriving tech ecosystem. These include substantial tax incentives for IT companies, aimed at stimulating growth and innovation.

The government has also invested heavily in the development of technology parks and business incubators, creating physical spaces that facilitate collaboration, innovation, and the sharing of resources among startups and established tech firms. 

Additionally, initiatives to bolster the digital infrastructure of the country have been a key focus. Efforts to enhance internet connectivity, digitalize public services, and support the adoption of new technologies across various sectors have laid a strong foundation for the IT industry’s growth.

Challenges and opportunities

Addressing the challenges

While the growth of Serbia’s IT sector is undeniably impressive, it is not without its challenges, which need to be acknowledged and addressed to ensure sustainable development. 

Brain Drain 

One of the most significant challenges is the phenomenon of ‘brain drain.’ Many talented IT professionals in Serbia, attracted by higher salaries and better career opportunities, choose to migrate to other countries. This migration of skilled workers not only depletes the domestic talent pool but also means a loss of potential innovation and economic contribution. To combat this, there needs to be a focus on creating more attractive working conditions within Serbia, including competitive salaries, career development opportunities, and a supportive work environment. 

Technological advancements and upskilling 

Another challenge is keeping pace with the rapid advancements in technology. The IT sector is continually evolving, and there is a pressing need for continuous learning and upskilling of the workforce. Serbian IT companies and educational institutions must work together to ensure that the workforce is up-to-date with the latest technological trends and skills. This could be achieved through regular training programs, workshops, and collaboration with international tech firms. 

Harnessing the opportunities 

Despite these challenges, the IT sector in Serbia is ripe with opportunities that can be leveraged to foster further growth and development. 

Surge in global demand for IT services 

There is a global surge in demand for IT services, particularly in areas such as software development, cloud computing, and cybersecurity. Serbia, with its strong base of technical expertise and competitive cost structure, is well-positioned to capitalize on this demand. By focusing on these high-growth areas, Serbia can not only expand its IT sector but also establish itself as a leader in these fields. 

Potential as a regional hub for IT innovation 

Serbia also has the potential to become a regional hub for IT innovation. Its strategic geographic location, coupled with a skilled workforce and supportive government policies, creates a conducive environment for IT businesses to thrive. There is an opportunity to attract foreign direct investment, encourage the establishment of research and development centres by multinational companies, and promote the growth of homegrown IT startups. 

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