This document presents the initiatives that emerged during a one-year dialogue conducted by CEVES with small and medium-sized enterprises (SMEs), other stakeholders, and key actors regarding the extent to which SMEs contribute to the sustainable development of Serbia and how to strengthen their potential for further contribution by 2030. The dialogue was held within the framework of the “Sustainable Development for All” platform, a project implemented by the German development organization GIZ and financed by the Swiss and German governments, with the aim of promoting the 2030 Agenda for Sustainable Development. These initiatives were launched at the MSP Serbia 2030: MSP100 Expo Conference and Exhibition held on June 1, 2022, at Mind Park in Kragujevac.
The United Nations 2030 Agenda has set 17 universally accepted goals to create better living conditions for present and future generations. The global Sustainable Development Goals (SDGs) can be grouped into the “5 Ps” dimensions crucial for humanity: people, planet, prosperity, peace, and partnership. These goals are integrated and indivisible, balancing the economic, social, and environmental dimensions of sustainable development. Achieving them requires collective action and responsibility from governments, parliaments, the United Nations (UN) system and other international institutions, local authorities, civil society, businesses and the private sector, the scientific and academic community, and all individuals. Conditions for sustainable and inclusive economic growth, shared prosperity, and decent work for all are created while respecting different levels of national development and capacity, with a commitment that “no one will be left behind.”
The contribution of the private sector to sustainable development is often viewed solely through its corporate social responsibility activities, but the contribution of SMEs to achieving the SDGs is direct. SMEs form the backbone of economic activities everywhere and, through their own development, contribute to prosperity and other dimensions of the 2030 Agenda. In Serbia, as they employ the majority of the total employment in the business sector, their productivity growth opens up opportunities for creating higher quality, more creative, and better-paid jobs. In previous decades, as large industrial complexes declined, SMEs have preserved some industrial skills and today significantly contribute to the rapid development of the ICT sector, with a strong potential for digitalization and the development of Industry 4.0. Additionally, SMEs contribute to sustainable development through export activities and investments in human capital and knowledge, with “hidden champions” particularly standing out.
Within the “Sustainable Development for All” platform, CEVES initiated a dialogue to create initiatives that will enable “SMEs to take the lead by 2030.” In this dialogue, we initially conducted several roundtable discussions and conferences that led us to conclude that the business conditions and needs of enterprises vary significantly depending on their level of development, competitiveness, sector, and size. In the next phase of the dialogue, we chose to focus on individual discussions with representatives of leading SMEs because, on the one hand, their role as “drivers” for the development of other smaller enterprises can be highly significant, especially if they are exporters, innovators, or green pioneers. On the other hand, drawing attention to their potential is particularly effective in redirecting public attention and decision-makers’ focus to the potential of the entire SME sector. As the culmination of this phase of the dialogue, we organized the “MSP Serbia 2030: MSP100 Expo” Conference-Exhibition, aiming to bring together carefully selected MSP100, according to international standards, playing a leading role in Serbia and highlighting the developmental potential of the domestic economy. The MSP100 Expo provided an opportunity for empowerment, mutual inspiration, dialogue, networking, and the initiation of initiatives that will support the development of SMEs and direct their strength towards achieving goals for the entire society.
The term “initiative” is used in a broader sense – as the initiation of action, rather than a detailed legally processed proposal ready for consideration by the government. The aim of the dialogue was to generate more concrete initiatives that directly address clearly identified problems faced by enterprises and where the “next step” is clear. These initiatives are often directed towards government institutions, but we also strive to identify activities that SMEs themselves and other stakeholders can undertake without relying on public institutions.
In the following text, we first present the “development philosophy” for SMEs, based on CEVES’ multi-year analyses of the position of SMEs in the Serbian economy, as well as observations made during the dialogue conducted before and during the Conference. We then present the systemic problems we have identified as some of the most important challenges that decision-makers in Serbia must confront in order to improve the business environment and the development of the SME sector. After that, we propose more specific initiatives in three areas that are crucial for the sustainable development of SMEs: capacity building and technological and green transformation; education and skills enhancement; and access to financing.
SME AND SUSTAINABLE DEVELOPMENT OF SERBIA: WHAT POLICIES ARE NEEDED?
Based on years of dedicated research and analysis of the role of small and medium-sized enterprises (SMEs) in achieving the goals of sustainable development in Serbia, as well as initiatives that have emerged through conversations with numerous business owners and representatives of the entrepreneurial ecosystem in the months leading up to and during the Conference, CEVES has developed a perception of the burning problems and developmental potential of Serbian SMEs, as well as the role that the government needs to take in creating a stimulating business environment through systemic changes and appropriate policies.
In order to realize the full potential for sustainable development of the country, special attention must be given to SMEs in Serbia. Not only are they the largest generators of employment, as elsewhere, but they are particularly important as unique drivers of “technological” innovation (which is increasingly the case elsewhere as well) and have a very specific and unique role in terms of broader skills and knowledge. Like in other countries, SMEs in Serbia generate a significant portion of production (60%) and employment (65%) in the entire business sector (excluding public services and agriculture). However, unlike most other countries, in Serbia, SMEs are the key drivers of industrial and many service-related knowledge and skills in the domestic private sector (with the exception of the agro-industrial complex where a significant number of large domestic enterprises exist). In addition to foreign direct investment, domestic SMEs are the ones that “took over,” first rescued, and then gradually developed a portion of industrial knowledge and skills from large socialist systems as they collapsed and disappeared in previous decades. Technological development and the growth of Serbia’s economy’s productivity can only be achieved through the development of SMEs—either by spreading technological knowledge from foreign direct investment to SMEs through stronger connections or by creating a favorable environment in which leading SMEs, internationally known as “hidden champions,” can continue to grow and develop, where “new champions” emerge, and where all “champions” together also benefit other, smaller SMEs.
In recent years, efforts to strengthen policies supporting the development of SMEs in Serbia have been noticeable. The most prominent are still programs that provide funds for equipment procurement (reaching a maximum of about 20 million euros in 2019, with slightly higher expectations in 2022). However, programs such as support for SMEs’ integration into the supply chains of multinational companies (developed by the Development Agency of Serbia), investments in innovation development (e.g., the Innovation Activity Fund spent more funds in 2020 and 2021—29 million euros—than in the previous eight years combined since its establishment), as well as digital and green transformation (primarily within the Serbian Chamber of Commerce) are becoming increasingly pronounced. There is also an increase in the amount allocated to domestic business owners, both large and SMEs, through government subsidies in accordance with the Law on Investments (which was also mentioned by Mr. Čadež at the Conference). In the five-year period from 2017 to 2021, the allocated funds amounted to 440 million euros, of which 80-90% were directed to companies with foreign owners (mostly large ones). In 2019 and 2021, domestic companies were granted 8 million and 15 million euros, respectively, which in both cases accounted for 15% of the total allocated funds, doubling during that period. For 2022, a record annual expenditure of around 160 million euros has been announced from the Ministry of Economy’s appropriation.
However, in the described combination of policies, the largest role is still played by simply redirecting funds from some entrepreneurs (taxpayers) to others. This refers to the allocation of funds, whether as investment subsidies according to the Law on Investments, or through SME programs, mostly through the programs of the Development Agency of Serbia, which would require the development of clearer criteria and greater transparency in allocation. On the other hand, investments that strengthen the capacity of the economy and increase the scope for its synergistic action are still limited. This can be achieved by making public services and resources that would be much more expensive for individual companies (such as acquiring knowledge and information from abroad, digital skills) accessible to larger groups of enterprises, as well as by enhancing the capacity of institutions to provide services that support this capacity and synergies. However, existing programs are still fragmented, with limited amounts of individual investments. For example, within the Program for supporting companies in export promotion of the Development Agency of Serbia, the approved funds for project activities cannot exceed 2 million RSD. Or, for example, within the program supporting digitalization in the Serbian Chamber of Commerce, the focus is on the initial stages of digitalization, which by their nature require less funding.
A few years ago, it was understandable (although not the only justified approach) that the key development policy in Serbia would be to stimulate employment quantity through the simplest administrative means—investment subsidies, particularly those generating a large number of jobs. Today, with the overall unemployment rate in Serbia dropping to 10.6%, and when it is concentrated in specific locations and demographic/qualification profiles, and when it is questionable whether large investors can even reach most of those locations or profiles, it is necessary to break with this practice and thoroughly reconsider the goals of Serbian development policies. If incentives are to be provided, how can they be linked to the achievement of objectives such as the transfer of specific technological knowledge or employment in specific underdeveloped regions? How to ensure synergy between such investments and the development of human resources in terms of sustainable human development, where champions can play an extremely important role? In both of these examples, smaller employers can often achieve greater effects. The problem is that this requires the development of institutions that can reach and work with a larger number of SMEs in a decentralized manner, instead of centralized action with a limited number of large enterprises.
For truly sustainable development, it is necessary to determine the direction and outlines of the future in which social resources are invested. It has become essential to develop integrated medium-term programs with clearly defined goals that relate to the entire environment in which SMEs operate—providing all necessary public services, from educating human resources to maintaining infrastructure for innovation development. Such programs concern specific processes, knowledge, and resources that are typically needed by certain groups of SMEs—not individual ones, nor all of them equally. The key to the success of SME development varies according to their typology. For Serbian champions, which are primarily addressed here, it is crucial to provide highly skilled human resources, opportunities for innovation development, application and accessibility of advanced, smart, and green technologies, and monitoring their presence in the global market with financial and other resources available to competitive SMEs.
Once the goals are clearly defined, it is possible to develop verifiable criteria for the provision of specific funds or services to individual companies, as well as transparent systems for their allocation. Currently, regarding subsidies according to the Law on Investments, the allocation of funds is decided by the Council for Economic Development, whose functioning lacks sufficient information transparency. The entire decision-making process, from defining goals and criteria, through application submissions, to the decision on incentive allocation, should be public. The Council’s annual report should be accessible on the Government’s website, as required by law. On the other hand, in programs supporting SME development, the availability of funds is primarily limited through the strict verification of administrative criteria, which in a way proves the achieved success of these companies. Instead, the focus should be on the potential of funds to achieve the maximum desired development effect or to achieve a set goal. Another way of limiting fund availability is based on a “first come, first served” principle, which also weakens the transparency of the process.
To achieve such a transformation, it is necessary to enhance the dialogue between institutions and the business sector and, in parallel, work systematically on developing and consolidating programs, coordinating cross-sectoral policies, and strengthening the institutions responsible for providing support.
Finally, one of the key obstacles to the accelerated development of the Serbian economy, especially SMEs, is the fundamentally negative attitude towards entrepreneurship and the lack of trust that Serbian society shows towards entrepreneurs. In this negative attitude, the state itself is actually leading, partly due to the legacy of the relationship towards “private entrepreneurs” from the socialist era and partly due to the lack of confidence in its own capacity to prevent abuses in economic activities, which are, of course, always possible. The administrative reaction is to limit various procedures and possibilities altogether, especially for SMEs, which are more difficult to “control”. In fact, despite three decades of transition, Serbia has not yet stopped the practice that in economic activities, everything that is not explicitly allowed is actually prohibited, contrary to what the Constitution mandates. In comparison, in the EU, which often has significant administrative requirements, these requirements are specifically reduced for SMEs compared to larger enterprises, following the principle of “Think Small First”. Abuses should be prevented through targeted measures, and since they cannot be completely eliminated, the question must be constantly raised whether the potential harm from abuses is greater or lesser than the benefits that unrestricted entrepreneurship can often bring.
When creating policies to support SMEs, decision-makers in Serbia should rely on positive examples from other countries, both post-transition EU member states and countries like Finland, Ireland, and Israel, which successfully implement various measures and programs to enhance competitiveness, exports, innovation, and sustainability.
SYSTEMIC ISSUES ADDRESSED BY THE INITIATIVES
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1. SME100 calls on the Government, the National Bank of Serbia, and other relevant institutions to reassess the benefits and reduce administrative barriers for small and medium-sized enterprises (SMEs), especially when their impact on SMEs is greater than on the rest of the economy.
It is preferable for these institutions to urgently address the strengthening of their own capacities wherever administrative obstacles are driven by the fear of misuse. Administrative barriers narrow the space in which the economy can operate productively, and the damage caused by unrealized productivity is undoubtedly greater than the harm from potential abuses in a normally functioning system. In this context:
- We join the efforts and initiatives that have been presented in recent years by the Chamber of Commerce and Industry of Serbia (PKS), the Association of Employers of Serbia (followed by a positive decision of the Socio-Economic Council), and NALED – to restore the right of small and medium-sized enterprises (SMEs) to use the tax credit for the acquisition of basic assets, which was abolished in 2013 through amendments to the Profit Tax Law. Reintroducing this tax incentive would stimulate investments in the modernization of existing equipment and the acquisition of new assets, which would have a positive impact on the competitiveness of not only SMEs but the entire Serbian economy.
- We call on the authorities to, wherever and whenever reasonably possible, provide advances for desired activities/goals. The effectiveness of such payments (even if they cover partial amounts) is significantly higher than payments through fund reimbursements, as the need for assistance is much greater at the beginning of any complex process than when it is completed. This is demonstrated by the example of a significant acceleration in the utilization of IPARD funds since advance payments were recently made available. We recommend a similar approach, especially for covering the costs of product certification. The Chamber of Commerce and Industry of Serbia has already initiated this, and we emphasize its importance.
- Implement continuous review of public policies, regulations, and public administration procedures to achieve maximum compliance with the EU principle of “Think Small First.”
- Shorten the government’s payment deadline to businesses from 60 to 45 days, considering that this is the deadline that should be met.
2. SME100 urges the government to identify medium-term support programs for the development of internal capacities of SMEs and their digital (including Industry 4.0) and green transformations in the new Strategy for SME Development. These development programs should involve multiple ministries, target the diverse needs of SMEs at different stages of development, and allocate investments for the capacity development of support institutions.
When it comes to “champion” companies, after assessing their existing capacities, it is necessary to make targeted investments in digitalization programs and the adoption of green technologies that will rely on, as well as enhance, these capacities, thereby promoting the development of innovative, high-tech, and software products and services that enable or facilitate further transformation.
- Among the initiatives discussed within the first thematic framework, “Enhancing Capacities and Technological and Green Transformation,” a notable example of such a policy is the call for targeted and intensified investment in facilitating access to product compliance certification, obtaining the CE mark, and similar measures. The specific initiatives we propose are further described below.
- Another implication of this programmatic approach is that medium-term investments in programs must be accompanied by investments in the development of the capacities of the institutions themselves to formulate and consistently and transparently implement these programs.
- In the context of further capacity building and transformation of SMEs, the public sector, especially public enterprises at the national and local levels, should play a crucial role. Through public procurement, they can significantly influence these developments. The specific initiatives we propose are described in more detail in the following text under thematic area 1.
3. SME100 calls on the government to transform work-based learning into a two-way process by supporting and eventually becoming a partner to the business sector in its significant efforts invested in workforce training. This will enhance the key channel for generating qualified personnel, enrich and accelerate the reform of the formal education system.
SME100 has identified the limited availability of a qualified workforce as the most significant constraint for their further growth and development. By “qualified,” they mean preparedness for productive engagement at all levels of qualifications. Opening and supplementing formal education with work-based learning programs is the right response to this problem. However, the ongoing reform known as “dual education” is only a part of the necessary response and is progressing slowly. Possible forms of support, incentives, and suggestions for collaborative initiatives are described under the initiatives in the following text under thematic area 2.
- At a minimum, the state should compensate a portion of the costs of formal training that many companies regularly provide, as well as the benefits they offer to retain employees at their often “peripheral” locations. These are investments that bring benefits to the entire economy by producing the workforce for all and mitigating the depopulation of the country. We highlight an even more ambitious proposal, allowed by law, to establish regional educational centers as public-private partnerships. More details about these initiatives can be found in the text under thematic area 2.
- By establishing alternative channels of communication, support, and collaboration, the proposed initiatives would not only contribute to increasing the availability of skilled personnel but would also set an example and facilitate the flow of information, speeding up the formal system’s reform. In this context, it is significant that there is political will to accelerate the alignment of the teaching staff’s profile with the needs of the economy in the near future, as Mr. Čadež, President of the Chamber of Commerce and Industry of Serbia, mentioned in Panel 2 of the Conference. However, the processes of identifying the needs of the economy and nurturing appropriate teaching profiles are very demanding and foreign to the formal education system.
4. SME100 urges the Government and the National Bank of Serbia to make further efforts in developing a range of instruments and opportunities to increase access to finance, guarantees, and insurance for SMEs.
- A significant portion of the Conference participants welcomes the statement of Mr. Čadež, President of the Chamber of Commerce and Industry of Serbia, that it is the “right time” to establish a national development bank that would bridge the gap between the need for financing development projects, especially in small businesses and agriculture, and the offerings in the financial market. Traditional financial institutions like banks are not capable of meeting the needs of all segments of the economy, primarily due to the regulatory framework in which they operate and risk policies with criteria that are unattainable for many micro and small businesses in the development phase, as well as small agricultural holdings.
- It is of utmost importance, however, that the development bank has professional management and a clearly defined lending policy that complies with domestic and international regulations regarding state aid mechanisms. In building the experience and credibility needed to establish such an institution, we strongly support the further development of the Export Credit and Insurance Agency (AOFI), through the support of initiatives proposed under Thematic Area 3 in the following text. By implementing these initiatives, a qualitative difference in the competitiveness of export-oriented SMEs in Serbia could be made in a very short time. Through its gradual recapitalization, along with the continuation of its good and credible management, both internal and external institutional credibility would be built, upon which the development bank could then be established without the allocation of disproportionate fiscal funds.
THEMATIC AREA 1: CAPACITY BUILDING AND TECHNOLOGICAL AND GREEN TRANSFORMATION
In each of the following areas of capacity building, the discussion begins with the initiative to develop programs that are systemic in nature, that is, that cannot be developed on a sufficient scale without significant state investment. It is less often about funds directly for the companies themselves, and more often about providing a larger volume and higher quality level of state services. Then there is the presentation of initiatives that are less demanding or do not require the cooperation of the state at all, but about which businessmen and development partners can do something themselves.
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1. Enhancing capacity and quality standards, especially for international market presence.
1.1. Supporting compliance with international export standards (market entry) and/or faster integration into value chains.
- To accelerate the inclusion of SMEs in international value chains, it is necessary to facilitate access and reduce the costs of product certification according to relevant quality standards, obtaining the CE mark, and similar requirements. It is important to differentiate between the needs of companies at the beginning of the modernization and market entry processes and those that already excel within the Serbian SME sector, whose needs are often not equally visible due to their specificities and small numbers. On one hand, greater incentives are needed for the modernization of existing facilities, acquisition of new laboratory equipment, and accreditation of testing bodies or laboratories for the required testing and product certification. On the other hand, for tests whose level of demand is not yet sustainable on a commercial basis but are deemed to enable the development of Serbia’s economy towards higher levels of productivity and competitiveness, support should be provided to accredited university laboratories for their development (e.g., enabling certification of EMS standards for fire reliability testing or SIL class for safety certificates). For high-tech companies (such as those producing radar sensors popular in the automotive industry) that are entirely export-oriented, it is necessary for the government to invest in testing smart solutions, such as a test park or smart testing polygons. Hungary has such a facility. A smart testing polygon would attract other smart nomads who could create a new community and microcosm that develops new businesses according to emerging needs, leading to a spillover effect. If Serbia aims to position itself in the region and beyond in smart technologies, something like this is necessary.
“Keeping up with the latest standards (rich, food contact, eco, tex, iso, etc.) and introducing and certifying ecological and safety standards requires significant investments in laboratory equipment and personnel.”
(adhesive production company)
1.2. As a first step within the previous initiative to improve product quality, advanced SMEs can collaborate to identify specific tests and certifications whose development would be of paramount importance for enhancing the capacity and competitiveness of the Serbian economy.
1.3. Another way to ensure a broader developmental effect of supporting the improvement of SME business standards is by developing domestic suppliers for Serbian champions through enhancing the technical and business capacities of smaller SMEs (establishing vertical, customer-supplier collaborations). It is possible to start with a pilot project initiated by SMEs in collaboration with development partners.
- On one hand, in order for Serbian export champions to focus on developing high-value-added products and components, they need a base of local (national) suppliers capable of delivering high-quality products and services at competitive prices with short delivery times. On the other hand, a significant number of micro, small, and medium-sized enterprises have the potential but lack the resources to meet the requirements necessary for inclusion in the supply chains of internationally operating companies. Through customer-supplier collaboration and with the support of the public sector or the government, Serbian champions can assist domestic suppliers in improving their technical and technological capacities, accessing specific knowledge, developing business skills, and securing demand for their products and services. In this way, exporters ensure reliable supply of products and services needed for their market presence abroad while simultaneously strengthening and gradually securing a sustainable path towards the internationalization of local (national) SMEs’ business activities.
,,Our company would have never achieved success without the networking and collaboration of small and medium-sized enterprises”. (interior design and construction carpentry company)
1.4. As a preliminary step or complement to the development of domestic suppliers, sector-specific/targeted “exhibitions” can be organized where smaller SMEs can showcase their capacities to larger SMEs and big enterprises.
In order for Serbian companies to collaborate more effectively, they need to first get acquainted with each other. We put „exhibitions” in quotation marks because they can be significantly more limited in scope compared to, for example, a technology or agriculture fair, with prior preparation and identification of potentially interested parties.
1.5.. Involvement of all stakeholders in the regulation and development of business infrastructure, particularly in the ongoing work on formulating the Law on Business Infrastructure, is crucial. A significant support from the government is to facilitate the connection and exchange of existing practices among stakeholders, as well as to express their priority needs and opportunities to be included in the regulatory framework.
- Clusters, business associations, industrial parks, science and technology parks, co-working spaces, innovation hubs, and other types of business infrastructure play a vital role in networking, collaboration, improving competitiveness, and creating a knowledge-based society. There is a need for greater engagement from the government and all stakeholders in the development and management of business infrastructure through the enactment of laws on business infrastructure and allocation of funds for support programs. Examples of good practices include NTP, MIND Park, Auto Cluster Vojvodina, Fashion Cluster FACTS, and others.
,,We started under the auspices of a technical faculty incubator in Belgrade, providing high-tech research and development services. We have progressed to developing IoT solutions for business clients… We are members of the Council for Science and Economy Cooperation of the Chamber of Commerce and Industry of Serbia, as well as the AgTech pilot supercluster. Our engagement aims to create an ecosystem that closes the loop from innovation and academic institutions to collaboration with the industry for product industrialization, financing, and securing the first major domestic customers as a springboard for creating new domestic products with export potential.“ (computer programming company)
1.6.MSPs should develop a platform where both commercial and non-commercial service providers can showcase their support services. MSPs, particularly MSP100, should provide references based on established collaborations.
- When MSPs at any level of business decide that they require external advice or suppliers to adapt their business models to contemporary trends and complex market conditions, they face a relatively underdeveloped market of business support providers with a wide range of quality. Developing a platform that provides information about support service providers (in areas such as digital transformation, financial management, green transformation, and other forms of organizational transformation), as well as the ability for users to share references, would significantly facilitate MSPs in finding suitable support. Similar to most other cases, it would be important to categorize services and their providers according to the typology of MSPs that would utilize them. An example of good practice is Global Business Services.
,,Knowing where to find what is essential, as there is limited time and capacity for exploration. Perhaps hiring an additional employee is needed, but that is expensive. The development of a ‘Platform for Information on Assistance from domestic and international institutions and donor programs and consultants – all in one place’ could be helpful”. (plastic parts casting service company)
1.7. Stakeholders and/or the government should develop an organization/institution that would facilitate international benchmarking of export-oriented MSPs’ own performance and provide access to information on international trends in relevant markets.
Currently, each MSP has to invest resources individually and separately to track market trends, identify niches for their products, assess risks, and explore opportunities for diversification by comparing their own performance with that of others in the market. Engaging international consulting firms is prohibitively expensive, and their knowledge is not tailored to the needs of MSPs precisely because MSPs in other countries do not engage them either. Instead, with the help of public or donor funds, an organization can be established to build this knowledge, serve the needs of MSPs in the most prominent sectors, and co-finance itself with the funds that MSPs can contribute. Such an organization/institution can be developed with the support of donors or funds, as well as investments from the MSPs themselves. A good practice example is https://www.cbi.eu/
2. Support for digitalization and strengthening the innovation environment
2.1. The government should gradually develop a program and allocate funds that can make a difference in the digital transformation of advanced SMEs through:
(i) financial support for the implementation of automation software, IoT and cloud solutions, additive and new materials (3D printing and the use of nanomaterials); (ii) financial support for MSPs to utilize services from MSP technology providers in implementing new ICT technologies; (iii) funding for the procurement of digital solutions; (iv) creating programs to support the modernization of production through robotics, including the procurement of robots and services from MSP technology providers for robot implementation and maintenance over a period of at least 3 years.
2.2. It is necessary to provide organizational support for the digitalization of SMEs through the development of regional Digital Innovation Hubs (DIHs),
which are conceived as „one-stop shop“ providing support for SMEs to become more competitive through the use of digital technologies. Within regional DIHs, companies would have the opportunity to exchange ideas and projects aimed at improving their business/production processes, products, or services using digital technologies. The range of services provided by DIHs extends from technological advice to information about funding opportunities, training, skill development projects, and networking. Companies have the opportunity to experiment and test their investments with DIHs before full implementation.
2.3. A significant boost to the development of digitalization using the services of domestic ICT companies could be provided through “Innovation Procurements” and “Innovation Partnerships” by the public sector – from institutions to municipal enterprises. The term “Innovation Partnership” was first mentioned in the Public Procurement Law, which came into force in mid-2020. Serbia is at the very beginning, and it is necessary to initiate a pilot project to start with
(e.g., there is already a proposal for “Smart Elevator Management”). This initiative is in line with the Action Plan of the Smart Specialization Strategy (2020-2027) and Measure 2.10: “Development of public procurement systems focused on procurement of innovative solutions with piloting in priority areas of the Strategy.” The goal is to support the implementation of new provisions within the Public Procurement Law.
2.4. Collaboration between industrial and technological companies in exchanging information about their needs and capabilities would provide both incentive and an example for government programs aimed at accelerating the digitalization of the Serbian industry. Is establishing a platform the right way to go?
Such a platform could make information about new technologies (ICT, green technologies, etc.) accessible and develop demonstration cycles and models for technology transfer between technological providers and SMEs. It could facilitate the exchange of information and user experiences. Within the platform, it would be possible to develop support programs for digital literacy training for employees in SMEs. Could such a platform help increase the utilization of services provided by domestic ICT companies in the process of digital transformation of the Serbian economy? Certainly, the creation of such a platform, in addition to company interest, would require initial investments from companies or donors, as well as research into the complementarity that can yield results. It would be worth exploring whether such a platform could build upon an existing best practice example like the EBRD’s http://technology-rs.ebrdgeff.com/srb_srp/
3. Green Transformation
3.1. Green transformation policies in Serbia are still in their early stages, and we cannot be satisfied with the current state
- (see the document “Industrial Policy Strategy of the Republic of Serbia from 2021 to 2030” at https://www.privreda.gov.rs/sites/default/files/documents/2021-08/Industrijska-Strategija-Vlade-Srbije-F01.pdf). The energy laws introduced in 2021 have taken the first steps towards increased incentives for improving energy efficiency and promoting renewable energy production (and reducing usage). Developing appropriate policies and initiatives related to SMEs requires starting with research and analysis of their potential for transforming into sustainable and efficient business models, as well as the development of these models in terms of resource utilization, environmental protection, and reduction of CO2 emissions. This should definitely be considered in the context of aligning our economy with the EU’s “Clean Energy Package” program. One initiative is to establish a national consensus and formulate a Green Plan for Serbia.
3.2. SMEs, together with their partners, should exchange knowledge and best practices to become aware of the increasing opportunities that “greening” can bring in terms of economic benefits. They should also develop an understanding of the importance of environmental protection (especially in waste management and the use of waste as a raw material in industrial processes) and the fight against climate change.
- Promote a digital platform for the circular economy by the Chamber of Commerce and Industry of Serbia for knowledge and best practice exchange (https://circulareconomy-serbia.com/).
- Promote best practice examples for waste reduction (e.g., millions of boxes being discarded due to online orders; a pilot project in Singapore demonstrates an alternative approach –https://cirkularnaekonomija.org/milione-kutija-bacamo-zbog-onlajn-porudzbina-pilot-projekat-u-singapuru-pokazuje-da-moze-i-drugacije/).
- Promote best practice examples of SMEs (such as UNIPLAST, IVA 28, Tehnomarket Pančevo, Servoteh, Unipromet) for energy efficiency, specifically in utilizing energy from alternative sources (solar energy) to meet a portion of their electricity needs, thereby achieving greater energy stability, reducing production costs, and lowering CO2 emissions.
- Promote positive practices for increasing recycling rates (e.g., a machinery manufacturer maintains data on all customers who purchased their equipment. In the sales contracts, it is stated that if the equipment is resold, the original customer will receive incentives if they inform the manufacturer about the new customer or offer to repurchase the equipment. The manufacturer then conducts defect analysis on the equipment, identifies, refurbishes, and reuses parts for other machines. It is essential to standardize and typify the elements and components used in the equipment and include standardized and unified elements in the design and development of new equipment. In the EU, the same charger is used for all devices, contributing to the reduction of electronic waste).
- Additionally, for increasing recycling rates, consulting the positive practice of the EU regarding the introduction of the “Digital Product Passport” can be beneficial. The aim of this passport is to provide complete information about a product’s composition and materials, enabling users throughout the supply chain to easily reuse or recycle the product if desired. Considering that possessing a digital passport will be a requirement for placing products in the EU market, it is necessary to systematically monitor and proactively respond to such initiatives in a timely manner.
THEMATIC AREA 2: EDUCATION AND SKILLS DEVELOPMENT
In Serbia, reform efforts have been underway for some time to ensure that the education system prepares citizens who are adequately equipped to enter the labor market and capable of continuously developing their capacities and productivity throughout their working lives. This transformation requires participation from both our rigid education system and the business sector and society as a whole. In the following, we will not delve into detailed recommendations for improving the entire education reform but rather propose specific steps that would be best taken by the government in collaboration with the business sector, while also highlighting actions that business leaders and development partners can take on their own.
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1. Initiatives related to workplace training and employee reskilling
1.1. The government should provide financial support and administrative assistance for training programs within companies that dedicate resources exclusively to the development and professional advancement of employees.
A significant number of companies conduct training for their own employees because it is necessary for their survival or business improvement. These training programs partially address the specific needs of the companies but largely serve as a remedy for deficiencies resulting from previous education. Such investments by companies have societal benefits as well. Well-trained workers become more employable and productive for any employer in the country. Therefore, we believe that the government should participate in financing such training programs. For the further development of this initiative, it is necessary to determine how the government will “identify” or how employers will “prove” that the training is socially beneficial. Is it sufficient for employers to have clearly identifiable teaching/training programs with specially paid instructors/mentors, or should these programs be open for employees from other companies to attend by paying a fee? Alternatively, could the government assist training participants by subsidizing a portion of the fees? An additional question is how to facilitate the accreditation of employers as publicly recognized training operators if they wish to pursue it.
“Considerable funds are wasted on frivolous training programs held just for the sake of holding them. The government’s recommendation is to allocate substantial funding and organize proper training sessions that will last for an extended period and equip people with valuable and practical skills. Knowledge is crucial.” (Interior design and construction joinery company)
1.2. The private sector and the government should jointly establish regional work-based learning centers through public-private partnerships (PPPs).
The reality is that not all companies have the capacity and resources to independently implement work-based learning programs, just as not all schools are able to take advantage of this opportunity. By establishing regional centers through public-private partnerships, companies with well-developed work-based learning systems could become training sites for students from a specific region in a particular industry. Establishing regional centers would involve establishing the necessary infrastructure, equipping them with the required tools and machinery, addressing the formal status of these centers, providing staff to work in these centers, and financing their operations.
“Graduates from universities mostly lack the training for real jobs. While there are many programs for ‘first employment,’ it would be more beneficial for us if we were all motivated to provide ‘first internships.’ The suggestion is to create programs similar to internships, where internships are paid but with certain incentives. The internship program should not require employment and should aim at expanding knowledge. I propose the collaboration of multiple companies employing the same workforce through various forms of PPP and the creation of educational centers with the goal of sharing knowledge and expertise with young employees.” (Conference participant)
1.3. As a first step in establishing PPP regional centers, or in the absence of progress, interested parties can create in-company professional development programs with a reference database of “100 top experts from the industry” that they can exchange among themselves.
With donor support, create a “learning from each other” program based on a list of “100 top experts from the industry” from Serbian companies. The program would encompass education in three areas: production, sales, and management. This model has already proven successful in developed European countries.
1.4. The government and/or the private sector, along with development partners, should promote successful work-based learning systems developed by Serbian companies and encourage the exchange of experiences and best practices among SMEs.
There are companies that have independently developed highly successful systems that, with minor or major modifications, could be applied in other Serbian companies. In order to promote examples of good practice and facilitate experience sharing, the government should organize a kind of “roadshow” in companies that have proven to successfully organize and implement work-based learning programs.
1.5. Employers, in collaboration with the media, should establish and regularly publish rankings of the best educational programs and trainings.
Every employer, a few months after hiring a new employee, gains significant impressions about the specific educational program completed by the employee at a particular school or university, or about the training program or specialized course attended. Based on these impressions, the employer can evaluate the program or training in several categories (such as theoretical knowledge, motivation, understanding of processes, work ethic, equipment usage). This evaluation should be in a simple online form. A media outlet that sponsors this activity would annually publish a ranking list, which could be named after the media outlet, for example, “NIN’s Ranking of Educational Programs.” This list would assist employers in selecting employees and also provide motivation for educational institutions to emulate good examples and improve their programs.
“The government has enabled increased enrollment of students in ICT courses and programs, but now the quality of education is declining because there is no system in place to maintain and enhance the necessary quality of teaching staff.”
(Participant in the conference)
2. Initiatives related to collaboration and support for formal education
2.1. The private sector and local authorities should provide scholarships to students in fields with labor shortages.
Through independent or collective corporate sponsorship of educational programs that are in high demand in the local job market, companies and local communities invest in their future workforce, thereby addressing one of the pressing issues in business. The costs of scholarships are lower than the costs associated with high turnover and a lack of competent personnel. A significant number of students from financially disadvantaged backgrounds are unable to pursue education, despite their interest in acquiring vocational skills. For companies, corporate sponsorship is a financially favorable mechanism for developing a positive image, fostering community engagement, and establishing trust with potential future employees.
2.2. The government should systematically support vocational colleges to actively engage in work-integrated learning.
Vocational colleges (similar to German Fachhochschule) are a natural part of the education system where work-integrated learning is most suitable. They admit high school graduates who already have the necessary foundation for further work and learning, know where and what they want to work, and have initiated the connection between the company where they begin their careers and the higher education institution that can provide them with the desired professional development and qualifications. Vocational colleges find it easier to accredit their programs, and it is normal for representatives of the interested business sector to influence their needs and requirements. Introducing industry lecturers and instructors is also much simpler in vocational colleges compared to universities. Therefore, this type of education is ideal for rapidly and effectively connecting the business sector with formal education. Ideally, employers should offer benefits for professional development, including the opportunity for employees to study while working at vocational colleges, as part of employment contracts with newly hired workers.
“In the past, we had industrial production centers in regional areas and schools that followed the needs of that production, but we lost that. As a result, there are no schools in her region that provide the workforce she needs. The only way to acquire those employees is through requalification.”
(Conference participant)
2.3. Technical faculties should prepare and accredit programs for work-integrated learning instructors.
Instructors need to possess both technical and pedagogical skills. It is not enough for someone from the staff to explain to students what they should do. The role of instructors is crucial for the success of work-integrated learning. Many companies lack trained and qualified personnel for this position. In the absence of qualified instructors, the best solution is to involve motivated and competent teachers from vocational high schools. They also require additional training to meet the expectations of work-integrated learning programs.
“The problem lies in purely theoretical knowledge, while practical knowledge is essential for entrepreneurs. We started with work-integrated learning in 2011 because it is important for young people to enter the company. We organized different generations of students to enter our company and get acquainted with the way we work. I am specifically responsible for the development of young people and working with them.”
(Plastic injection molding and tooling company)
3. Initiatives related to talent retention and attraction
3.1. The government should recognize the importance of retaining essential talent in companies and enable tax exemptions on a portion of profits used for employee benefits.
By providing tax incentives for employee benefits, companies would be motivated to invest in retaining and attracting quality talent, such as tax exemptions on a portion of profits that the company gifts to employees in the form of participation in a housing loan. This type of government support is an effective mechanism for mitigating the problem of high turnover rates and depopulation in certain areas.
“Tax policy is a variable thing; we should focus on what we can do. Our company provides assistance with housing loans and offers employee ownership participation, which increases employee motivation. We strive to create an environment where it is better for employees to stay together in the long term. That’s why we offer our employees a stake in the company (vesting program). Shares and ownership interests can already be distributed to employees without taxation.”
(Fruit and vegetable processing and canning company)
3.2. Serbia needs a clear and open immigration policy. In the meantime, the government should enable efficient acquisition of work permits, in a transparent manner and under equal conditions, for qualified foreigners applying for positions in high-demand fields.
A large number of migrants and refugees in Serbia possess qualifications and experience in job positions that are in demand by local SMEs. There is also an increasing number of digital nomads interested in working in Serbia. Their engagement in these job positions would be mutually beneficial.
“We have submitted requests to the local municipality three times, asking for permission to employ migrant workforce because there is absolutely no one in our village or the surrounding area whom we could hire, but we have been rejected each time. We don’t know why.”
(Metal manufacturing company)
4. Collaboration between higher education institutions and the industry
4.1. Make e-platforms for connecting scientific research organizations and the industry truly motivating and therefore sustainable.
In order to encourage collaboration between science and industry, businesses need access to information about resources, competencies, and the readiness for cooperation from academic institutions. Efforts have been made to establish an online platform that would provide access to data on research infrastructure, the research capacity of organizations, opportunities for applied research, and procedures for utilizing research infrastructure. The platform would also include information about product testing and certification opportunities. Why haven’t these efforts yielded results so far? Can alternative forms of coordination or the inclusion of additional participants, such as technology companies, be explored to ensure the sustainability of such a solution?
“The collaboration between science and industry is at a very low level. What exists is mostly at the individual level. Having an e-platform for collaboration between the industry and science would yield significant benefits, especially for early-stage companies and startups.”
(Conference participant)
THEMATIC AREA 3: ACCESS TO FINANCING
The underdevelopment of the export support system significantly reduces competitiveness and limits the growth of Serbian companies on a global level. Due to the lack of alternative funding sources, these companies rely on traditional financing options that are always expensive and difficult to access. To overcome financing obstacles, the involvement of the government, as well as developmental partner institutions, the banking sector, and the companies themselves, is necessary.
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1. Ensure conditions within the existing legal regulations and accepted international practices that will enable the Export Credit Agency of the Republic of Serbia (AOFI) to significantly mitigate the problem faced by domestic exporters due to the general non-acceptance of guarantees from Serbian banks abroad (even when they are foreign-owned).
This would significantly increase the competitiveness of SMEs by reducing the costs and time they currently need to invest in obtaining guarantees such as those for advance payment refund, performance bonds, maintenance within the warranty period, or participation in tenders. Currently, to obtain the described range of guarantees and others, SMEs must first secure a guarantee from a bank that accompanies them in Serbia, and then from the parent bank of those foreign banks. Since this is usually a third country in relation to the export destination, in administrative and cost terms, it is a very expensive and demanding process that sometimes even leads to missed business opportunities. The solution that AOFI has already developed with Raiffeisen International Bank from Vienna requires AOFI to obtain approval to open an account in Austria, Germany, or Switzerland with one of the first-class banks that would issue guarantees acceptable to foreign partners in an arrangement with AOFI. These guarantees would be reinsured by top-rated reinsurers from the global market. However, since AOFI did not receive approval from the National Bank of Serbia (NBS) for the existence of a deposit account with Raiffeisen International Bank (which was a bank’s condition), this arrangement ceased to take effect. Obtaining NBS approval for AOFI to open a deposit account in a foreign bank (partner) would solve the problem of accepting guarantees from Serbian exporters and construction contractors abroad because the nominal issuer of the guarantee would become either a first-class bank or a first-class insurer/reinsurer from Austria, Germany, or Switzerland. In addition, the recapitalization of AOFI would be desirable, which would further expand the range of business activities in which such guarantees could be issued. With these solutions, SMEs and even large Serbian companies would have access to tools that their competition in the global market has long had at their disposal.
“Our company exports high-value machines (800 – 1 million euros). When we sign a contract, we receive certain advance payments and need to provide a guarantee because no one will give you the funds just like that. It even happens that buyers in Europe are very selective when it comes to banks. The only way to overcome this problem was through confirmation (from the parent bank in the country). There is also a problem with job guarantees (paper-based or documentary credits) when they come to our banks and say they have an open credit in, for example, Algeria or Morocco, and they are not trusted because those are uncertain banking markets, etc. The procedures are long and expensive.”
(Manufacturer of special machinery)
“Our company did not receive a bid bond guarantee for participating in a tender in Qatar, so we didn’t win the tender. We talked to two of our banks. They didn’t accept guarantees from Serbian banks, only banks from Qatar. We asked our bank, but they couldn’t resolve it within the required timeframe. The job was not successfully completed.”
(Provider of innovative ICT solutions)
2. By providing banks with insurance against non-payment by foreign buyers due to commercial and political risks, encourage commercial banks to “follow” and support the competitiveness of Serbian companies’ exports, especially in the case of exporting equipment, machinery, and other capital goods, in line with the OECD Arrangement on officially supported export credits (incorporated into EU regulations).
Such insurance can be developed by promoting and developing public-private partnerships between AOFI and commercial banks, as seen in more developed economies (such as Finnish Finnvera, Croatian HBOR, Slovenian SID Bank, Czech EGAP, Slovak EXIM Bank, US EXIM Bank, Italian SACE, and many others), particularly in the case of medium- and long-term financing and insurance. By utilizing such a developed public-private partnership model, Serbian exporters would gain a tool that enables greater competitiveness, particularly in terms of payment terms, as well as the acquisition of new customers and export markets. To enable AOFI to carry out these insurance activities smoothly, it is necessary to fine-tune the legal framework, primarily by enabling medium- and long-term financing, as well as expanding and modernizing the instruments it can operate with. Recapitalization of AOFI is also desirable. Following the conference, several commercial banks have expressed interest in collaborating with AOFI, indicating further development of potential partnerships in the future. An additional initiative should be launched towards the Banking Association to ensure that all banks are informed about the possibilities of developing this product in collaboration with AOFI.
“It happens that competitors from countries that have institutions supporting them with export guarantees win contracts even though they are 30% more expensive because we cannot provide such guarantees.”
(Furniture and interior manufacturing company, as well as at least two other companies, provided very similar statements.)
3. It is necessary to continue and deepen the discussion on the reasons for the exceptional underdevelopment of the capital market in Serbia through systematic reevaluation of past experiences and initiatives, as well as the effects of unusually high regulatory constraints. The goal is to identify the reasons for “failures,” factors that have led to some limited successes, and engage in further dialogue with various stakeholders to discover paths that could lead to greater breakthroughs.
The discussion before and during the conference highlighted the growing need for the development of the private capital market. This would allow one part of the economy to invest excess funds, while enabling another part to utilize funds in a significantly more flexible manner than what the banking sector offers. Although there have been certain changes in the market in recent years, including the emergence of new forms of financing, the Serbian financial market remains heavily “bank-centric.” Banks cannot meet all the demands considering prudential regulations and criteria that banks must meet in their operations, as well as increasingly stringent credit conditions prescribed by BASEL standards. Leasing companies are also mostly owned by banks, while factoring is predominantly carried out by banks, although there is a noticeable growth in the establishment of new private factoring companies and the development of fully digital solutions for efficient use of factoring.
Continued and multiple efforts to develop the capital market, including investments in shares of SMEs and so-called “alternative financing methods,” have not yielded significant results so far. The discussion among stakeholders before and during the conference pointed to multiple possibilities and potential problems – from some expected stakeholders possibly being “uninterested” to previous overlapping activities or incompatible strategies promoting investments and commitment to market development.
It is necessary to determine more precisely in which situations the establishment of different forms of capital mobilization would be a good solution. On the one hand, there have been proposals for savings and credit cooperatives that played a significant role in financing the economy between the two world wars and in socialist Yugoslavia. Would they still be a viable solution today? Has their associated regulatory impediment since 2005 also affected the restriction of other forms of capital market development? (Namely, with the Banking Law from 2005, savings and credit cooperatives were forced to transform into commercial banks, merge with banks, or cease operations, thus obtaining the status of financial organizations.) On the other hand, strengthening instruments such as private equity, private debt, venture capital, crowdfunding, and crowdlending undoubtedly offer a “more modern” form of solutions, especially for the development of new types of SMEs (primarily in the “technological” sectors) and possibly for similar needs that savings and credit cooperatives would address.
Finally, it is crucial to make the progress already made in the development of these financing methods more visible, further attract investors, and present the investment potential of our economy. The state should engage in creating a stimulating regulatory framework through regulations, including tax incentives for such forms of financing.
4. Introduce mechanisms through which the Innovation Fund could involve private investment funds, venture capital funds, and individual enterprises in co-financing projects. The government should provide tax incentives or exemptions to support large enterprises in directing surplus capital towards financing innovative ideas and high-risk business ventures for which traditional and alternative sources of financing are limited in Serbia.
- Continue the Serbia Ventures program in the coming years, through which the Innovation Fund supports the founders of venture capital funds and individual innovative enterprises in co-financing projects. Introduce a similar program (under the jurisdiction of the Innovation Fund or other state agencies) to support the founders of private equity funds and individual SMEs in co-financing projects. Maintain the requirement that the Innovation Fund’s funds cannot exceed 50% of the total assets of the fund.
- Enhance tax incentives or exemptions to include corporations in the system of tax benefits, thereby encouraging them to channel surplus capital into financing innovative ideas and high-risk business ventures through alternative investment funds that are currently not widely present in Serbia.
- Amend the bylaws of the National Bank of Serbia to allow banks, pension funds, and insurance companies to invest up to 1% of their assets in alternative investment funds. Enable these financial institutions to utilize tax incentives when investing in alternative investment funds.
5. In order to provide up-to-date information on all available sources of financing in one place, it is necessary to create a dedicated A2F portal within the preduzetnistvo.rs portal, which will consolidate information from various sources and connect all financial institutions, investors, and alternative sources of financing with potential users.
In addition to information on available sources, to enhance the knowledge of entrepreneurs, a special educational section should be created to explain the characteristics of different products available in the market, as well as explanations about the institutions involved in or capable of financing businesses. To specifically support farmers, it is desirable to have a section dedicated to agricultural financing, as well as an educational component related to the use of IPARD funds and state, provincial, and municipal support programs.
To gather accurate and up-to-date information, continuous communication must be established with various stakeholders, including:
- • Government institutions (Development Fund, AOFI, Ministry of Economy, RAS, provincial and municipal authorities with financial support programs, etc.)
- Banks
- Leasing companies
- Factoring companies
- Crowdfunding and crowdlending platforms
- Business angels, venture capital investors
- Donors, international institutions, and organizations
To ensure the functionality and accuracy of the database, a unified data collection model must be established with all participants, allowing for data filtering based on user characteristics and financial products.
Sorting companies according to the following criteria:
- Date of establishment
- Activity
- Ownership structure: (domestic or foreign ownership, women’s ownership participation)
- Classification of companies by size
- Export-oriented company, yes or no
- Annual revenues
- Reported profit/loss
- Number of employees
Financing needs:
- Amount of funds required
- Purpose of funds
- Maturity
- Available collateral
- Repayment method
This requires daily work to maintain the database and ongoing communication with all parties providing information, using a unified data entry model for financing sources.
“Companies do not have adequate access to information, especially small companies that do not have enough staff to research programs and mechanisms to support businesses. Companies are also unaware of all the resources available to them, and even when they do know, there is a lot of administration involved in applying for programs. Our company has used several government assistance instruments, but it would be easier if there were faster information and simpler procedures.”
(Company in the metal industry)
