No. 121 | Year XI
The April 2023 edition marks a start of a new decade for Private Briefing, remaining consistent with the standard of comprehensivene analyses, yet with a fresh, digital interface. The central topic of our first eddition into the new decade is the continuation of the Ministry of Economy support programmes series, this time covering a popular programme for the purchase of equipment, the official start of which is expected soon. We also analyse mentoring services that RAS provides as a way to improve operations in manufacturing companies. Support for innovators comes through the analysis of the new StarTech call, and finally, we analyse subsidies for livestock breeding as the support model for farmers.
> NALED and the Government of the Republic of Serbia launched the third round of the StarTech programme to support innovation and digital transformation of the economy, with the overall goal of accelerating growth and transforming the traditional economy into a digital, export-oriented one, based on knowledge and innovation. StarTech consists of 3 main components, the first of which refers to direct financial and expert support, and through which the applicants, in addition to grants, can obtain expert support for growth and digital transformation. The second component aims business environment improvement for all companies, especially innovative and high-tech ones, through wide reforms. Finally, the third programme component educates businesses and the public about the importance of digital transformation and ensuring wider social support for business environment reforms. The programme budget is 5 million USD, 3,5 of which is allocated to the first component through direct financial and professional support to the businesses. The rest of the funds are allocated to the remaining two programme components, i.e., regulatory framework improvement support and promoting the innovators and Serbia as an investment destination.
> Within the first component, Lot 1 supports innovative start-ups, which can be founding teams and start-up businesses registered after January 1, 2021. Grants in the amount of 15,000 to 25,000 dollars are provided for innovation development, prototyping, implementation or commercialization of the innovation with a minimum of 10% co-financing. Lot 2 provides support to SMEs for the innovations and digital transformation in the amount between 25,000 to 50,000 USD and a minimum co-financing of 20%. Lot 3 supports the export initiatives or increasing employment, with grants ranging from 50,000 to 100,000 USD and a minimum of 30% co-financing. In addition to direct financial support, selected final beneficiaries will share up to 1,000 hours of expert support for business plan development, marketing performance, intellectual property protection, financial planning or other aspects of business.
> The applications number for StarTech, which is growing each year, testifies that the support for innovation and digital transformation, which includes both start-ups and developed businesses, has found the fertile ground. The programme successfully combines access to finance and access to knowledge and at the same time partially closes part gap between existing needs and available support for start-ups and transforming businesses. Therefore, it deserves recommendations, and for those who have applied, it is advised to discuss experiences with the previous calls’ beneficiaries, or address experienced consultants in order to fully utilize the opportunities offered by the programme.
> In this edition of Private Briefing, we continue analysing support programmes for SMEs provided by the Ministry of Economy, with significant programme budget. The overall goal of all the programmes of the Ministry, implemented through the Development Fund, is the increase of competitiveness of local businesses, improvement of enterprises and entrepreneurs’ operations and creating new employment, primarily through the investment in fixed assets. Specifically, the programme of support for purchasing new equipment, which Ministry implements with banks and leasing companies, provides grants for co-financing of purchase of the new production and construction equipment, which includes processing equipment and machinery, transport and manipulation equipment for the production processes and internal transport, parts and specialized tools. In addition, the call also enables the purchase of machines and equipment for improving energy efficiency and ecological aspects of production, as well as the construction mechanisation.
Eligible beneficiaries of grants and loans provided through the banks and leasing companies are active entrepreneurs, micro, small and medium enterprises, registered for production and construction, privately owned. Regarding the production, the primary beneficiaries are processing industry businesses, water provisioning sector, sector of lodging and catering, as well as expert, scientific, innovative and technical activities. In addition to the general eligibility criteria, the applicants are also required to have at least one registered employee at the end of 2021, that they haven’t reduced the number of employees by more than 10% at the end of 2022 and that they have regulated fiscal liabilities.
> In line with the projections and processes initiated in previous years, consolidation in the banking sector remains a continuous process, both in terms of finalisation of previously arranged M&As, and in terms of new ones. During the year, the acquisition of Credit Agricole by the Raiffeisen Bank, and the acquisition of Sberbank by AIK Bank have been closed. The total number of registered banks at the end of 2022 was 22, one less than in 2021, with modest decrease of number of employees from 23.000 to 22.000, and with approximately 48 billion EUR of assets, which is an increase of 6,5 billion or 15% compared to the 2021. Mutual market share of the first three banks is at approximately 40%, while the top 4 possess nearly 50% of the total assets, and top 5 nearly 60%, indicating significant concentration. Individually, the largest share holds Banca Intesa, with 15%, followed by the OTP with 13,8% and UniCredit with 10.7%, while the NLB, upon the acquisition of Komercijalna Bank, stands at 4th position with 10,2% of share in assets. The share of NPL at the end of 2022 continued to decrease, reaching a new historical minimum of 3,0%, compared to the previous 3,6%. The highest contribution to the NPL comes from the segment of private individuals, with increased share compared to 2022 (from 49% to 58%), with the rate of 4% being significantly above the total NPL rate. On the other hand, the contribution of businesses in NPL has decreased from previous 37% to 34%, and the average rate of 2,1% is significantly better than the total.
The financing structure assumes that the applicant provides 5% of the net value of the equipment of own co-financing, while the banks and leasing companies participating in the programme will provide a loan or leasing in the amount of 70% of the investment. Upon that, the applicants are eligible for 25% of the value in the form of the grant by the Ministry. Minimal amount of grant is 500.000 dinars, while the maximum is scaled by the number of employees. The applicants with one employee can obtain up to 1 million, and the maximum investment value is 4
million dinars. Those with up to 5 employees are eligible for up to 2,5 million, or 10 million dinars of the investment value, while those with 6 or more employees can obtain 5 million dinars grant, which with the 25% of investment value share, results in 20 million dinars of equipment. As a rule, the maturity of the loan component is between 18 and 60 months, which is appropriate for purchasing equipment, with 6 months grace as mandatory possibility, while the securitization of the loan is the collateral on the equipment purchased.
> Such structure of financing requires realistically minimal own participation of the beneficiary, compared to the standard crediting models, given that the grant covers 25% of the investment. Consequently, realistic participation of the applicant, accounting for grant, reaches 30% which significantly reduces interest cost and shortens the return period of the investment, allowing for faster accumulation and development of the beneficiary. In the situation in which businesses are chronically facing lack of adequate financing in terms of maturity and collateral requirements, such support can provide significant competitive edge and create added value. Therefore, it is no surprise that this programme is one of those with the fastest utilisation. The programme kick-off is expected soon, and the expected budget is 1,4 billion dinars, which, assuming the average grant of 10 million, would enable some 150 businesses to obtain support. For efficient and timely preparing of the documents and financial reports, supported by experiences from previous programme iterations, we are available.
> Serbian Development Agency (SDA) has again this year, published now a regular call for providing standardised mentoring services for MSMEs and entrepreneurs, aiming to support business development and reduce number of failed businesses. Unlike the programmes which enable quantitatively expressed financial support, in this one businesses and entrepreneurs can obtain support for qualitative improvements of the business model and operations in various segments. The call evolves and adapts to the business environment year after year, but the key benefit it provides remains the increased capacity of beneficiaries to utilise opportunities offered by numerous available programmes or commercial financing sources, by analysing their current operations, identifying room for improvements and providing guidance.
The mentoring process within the SDAs Standardised Mentoring Service is implemented using the methodology developed in cooperation with Japan International Cooperation Agency (JICA), undertook by certified consultants in direct cooperation with the owner or manager of the support recipient, in duration between 25 and 50 hours, 75% of which in the beneficiary’s premises. The process includes baseline analysis, identifying current obstacles for the business development, and outlining key growth and development areas. Based on such detailed analysis in key segments, the mentor and the mentee prepare the development plan and project.
The mentoring areas include current situation diagnostics, support in preparing development activities, plans and projects, consulting and coordination in the process of applying and approach to support funds, new technologies, consulting services, loan applications preparation with commercial banks and MSMEs support programmes, support in development activities, plans and projects implementation, networking, analytics and information acquisition, support in developing marketing and product management processes, general consulting, training and coaching, connecting to specialised consultants and implementation of Kaizen philosophy and business models.
Eligible applicants are private MSMEs and entrepreneurs older than 3 years without outstanding fiscal debt, that operate in the four segments of the processing industry sector – machinery and equipment industry, food industry, wood and furniture industry and rubber and plastic industry. As the service addresses beneficiaries in various development stages, the programme is also adjusted, so the methodology clearly defines mutual steps and activities within each mentoring visit, from process management, through the scope of work, number of visits and activities within each of them, up to preparing the plan and reporting, yet adapted to the type of beneficiary, i.e., start-ups or mature businesses.
> Considering the total budget of this call of 7 million dinars, and the limited mentors’ fees, the programme enables a significant number of applicants to benefit from it. The market in which entrepreneurs and MSMEs operate is in constant changes, reflecting the business dynamics, variations in customers’ habits and needs and competition development. In those circumstances, those who intend to keep up, have to develop their own capacities with identical dynamics at least, whereas those who want to grow and gain advantage, in addition to investing in equipment and premises, also have to invest in know-how and skills to be able to match the trends and increase competitiveness, profitability and sustainability. Those skills are often out of reach of businesses focused on their daily operations, and that is precisely why services such as this are often the key element which shifts the boundaries, allowing for the businesses to expand their development envelope to the one offering better possibilities for growth and development. Given that both the local and global markets are in the process of dynamic changes, one of the elements of the response to it can be the support provided by the experienced mentors which can indicate the existing room for development, empowering the beneficiaries and making them more resilient and competitive. In that respect, this programme is one of the opportunities to steer the trend of one’s own business development and we therefore definitely recommend it.
> Agricultural support programmes, in addition to large programmes organized by the state and foreign development programmes such as IPARD, also include a number of regular models such as incentives or subsidies. This month, the Ministry of Agriculture has opened a call for livestock incentives for farming beef, lambs, kids, and pigs, available to farmers through the Directorate for Agrarian Payments from April 21 to May 22. The request is submitted for cattle delivered to the slaughterhouse or exported starting from July of the previous year, and the eligible subsidies beneficiaries are legal entities, entrepreneurs or private individuals registered holder of an active commercial agricultural household.
Incentive requests are submitted separately for each type of cattle, with incentives limited to a maximum of 5,000 pigs per registered applicant per year. The incentive amount ranges from 1,000 dinars per head of pigs, over 2,000 dinars for lambs, up to
15.000 dinars for beef. The total budget for subsidies this year is just above 3.2 billion dinars. Digitalization is gaining momentum in agriculture as well, so the application is carried out by filling out the appropriate online form within the eAgrar platform.
> The importance of the regular subsidies, especially in comparison with other programmes aimed at improving the agricultural sector or SMEs, at first glance seems much more modest, however, it is provides regular annual additional income for farmers. On the other hand, the regularity of such incentives, which are focused on basic elements of stock farming, allows other funds from dedicated improvement programs to be actually spent in an adequate way, whether it is improvements to tangible assets that increase capacity or reduce costs, or improvements in the quality of livestock, or other competitiveness increase models. Subsidies are therefore a basic precondition for developing further aspects of competitiveness in terms of both productivity and export potential, as one of the essential elements of long-term sustainability. With the incentives as a more of a support model than a development measure, further production development can be planned, including processing improvement, introduction of meat processing or investing in additional capacity through other complementary programmes and commercial initiatives, all of which have been established as a successful model to increase competitiveness and consequently profitability and sustainability.
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