Private Briefing August 2023
No. 125 | Year XI
The August Private Briefing traditionally signals “back to school”, or picking up the pace before the last quarter. The support programmes analysed in this edition bring an interesting mix of support for large projects in the food industry, through the SDA investments programme, followed by support for long-term cooperation between the R&D sector and businesses through the Innovation Fund call, to support for liquidity management through AOFI factoring, which is an evergreen topic not only towards the end of the year. The analysis of the DAP subsidy programme for quality cattle to improve the overall livestock fund concludes the edition
AOFI: Factoring for Exports Support
// AOFI (Serbian Export Credit and Insurance Agency) is an export credit agency of the Republic of Serbia which provides export insurance and financing operations for domestic export-oriented companies since 2005. To increase its reach and effectiveness, AOFI cooperates with development, financial and other institutions in the country, and relevant foreign companies and institutions. The main goal of AOFI is to support exports through the implementation, improvement, and development of export financing activities and receivables insurance, and to achieve that, it has a set of instruments in its portfolio which include receivables insurance, export guarantees, short-term loans and factoring.
// In that portfolio, factoring is particularly suitable for SMEs as it improves liquidity and shortens the cash conversion cycle through advance payment by AOFI. That provides the beneficiaries with the necessary liquidity and funds to settle their obligations or finance production, further improving their balance position and increasing their financial management capacity. Furthermore, since factoring is not a loan, the debt ratio does not deteriorate either, which further improves their position for possible additional financing through classic instruments. From an operational aspect, the beneficiaries’ position is also improved by allowing them to offer their customers better payment terms. Factoring is therefore particularly suitable for SMEs which lack financial resources, or the capacity for further indebtedness in the financial market. At the same time, it improves the timing and the quality of their receivables collection, unlocking working capital for further investments, while simultaneously reducing collection costs and possible losses. The eligibility criteria for exporters is that their exports in the previous year have surpassed 100.000 EUR. The structure of their customers and their capacity to cover the outstanding invoices, as a prerequisite for the approval of factoring, is analysed by AOFI prior to deciding on the amount of the total portfolio of beneficiary’s customers which will be eligible for factoring.
// The existing liquidity gap, as well as the liquidity indicators of the entire economy indicate not only the continued need to diversify sources of financing, but also the growing trend of managing liquidity through the deferred payments, which have grown across the consolidated balance sheet of the entire local economy by 15%, to almost 3,8 billion dinars. Factoring for export-oriented companies is equally as important, since the latest analyses indicate an increasing trend of deferred payments in both Western and Eastern European markets. In that context, factoring as an instrument, also trending in the offer of state support institutions throughout Europe, gains additional importance. Under those circumstances, the factoring of individual export invoices, with the AOFI umbrella guarantee in cooperation with commercial banks, shows its value in practice.
SDA: Grants for Critical Improvements in Food Production Sector
// In addition to the series of programmes aiming specifically at the SME sector, supporting it in access to finance and access to skills simultaneously, Serbian Development Agency has published a call for allocation of incentives for attracting direct investment in automatization of existing capacities in food processing sector. This call is regular in SDAs portfolio, since 2019 and through the years, the amount of funds and improvements investments criteria have varied, but the general eligibility criteria remain. The eligible applicants are companies which develop their investment plans in the areas of automation with the goal of increasing productivity, the number of local cooperation partners and the usage of local origin raw materials. The eligible purposes for the incentives are investment projects in automation with the minimal amount of 2 million Euros, and the eligible costs list includes investments in tangible and intangible assets, implemented between the day of the submission of the request for funding, and the deadline for investment project finalisation.
The eligible purposes of investments in tangible assets include facilities, machinery, and equipment, with the exclusion of personal and freight transport vehicles, whereas the eligible investments in intangible assets include patents,
standardisation and licenses. Eligible costs in intangible assets for large companies are capped at 50% of the investment, 60% for medium sized companies and 70% for small, while the fixed assets obtained have to be new.
// Observing the amounts, and rather widely set of eligible purposes, this programme apparently has the purpose to support relatively ambitious projects for the competitiveness increase, at least in case of small, and to some extent medium enterprises, both directly through the investment in beneficiaries’ production processes, and through activities which increase the number of cooperation partners and suppliers. That in reality multiplies the investment effect and secures creation of solid supply chains and producers’ groups, which are being supported not only for the local, but also potentially export competitiveness in a sector which shows constant growth. Focus on the global competitiveness is visible through the aspects of the investment plan which is expected within the application package, and which, in addition to the usual analytical requirements in terms of financial reporting, technical and HR capacities, also assumes more complex insights in target markets and positioning.
The applicants are expected to provide an investment plan, in a predefined form. The plan includes a series of positions that should convincingly demonstrate the current and projected capacity of the beneficiary, and the effect of the investment. That requires a description of the project and its implementation process, the goals and products that will be the result of the project implementation, the dynamic plan of the project, the motivation for the introduction of automation and the SWOT analysis. In addition, the investment plan should also contain a brief overview of the organizational structure and ownership structure, a list of the key clients, know-how and advantages of the applicant, and his positioning in procurement and sales markets, the most important products and product groups, an overview of markets for the applicant’s products and his share in those markets, conclusive with the list of key competitors, suppliers and market development trends in the financed activity.
// Overall, the programme provides very significant amounts of grants and they seem well-measured for the purpose, enabling critical improvements which can bring a qualitative leap in the beneficiaries’’ operations, in terms of technical, production and overall capacities. On the other hand, the application requirements suggest that the call seeks companies which either possess the internal resources for analyses and plans, or access to external support, enabling them to convincingly demonstrate the capacity to implement the improvements. Glenfield consultants are available for initial assessment and structured support in the preparation of the application package.
Innovation Fund: Even Higher Grant Amounts for Innovative Solutions Development
// Within a set of Innovation Fund programmes active this summer, on this occasion we are analysing the call for the Collaborative Grants Scheme, as a very specifically tailored programme which enables more than significant support for innovations commercialisation. The programme rounds-up the set of well-established regular calls, including also the Mini Grants Programme and the Matching Grants Programme, which we have analysed in the previous edition. The programme portfolio through which the Fund achieves its goals has increased over the years, retaining the main purpose of encouraging the innovations as a model of economic development, aiming at different specific needs of R&D sector and MSMEs, depending on the businesses development levels and innovative ideas they pursue alike. Some of the programmes are focused on start-up teams and companies in the early development stage of the innovative idea, while some target already developed companies with existing innovative products and services that need support for internationalization and expansion.
Observed through those lenses, the Collaborative Grants Scheme is specific because it stimulates long-term cooperation between the R&D sector and businesses by connecting and supporting companies and research organizations in an effort to implement joint research and development projects to create new products, innovative technologies, technological processes and services, with market potential and high value. In addition, the added value of this programme is the establishment of cooperation with international companies and
organizations. The programme enables financing up to 500.000 EUR per project, for consortia of at least one micro, small or medium locally established and owned and one public or private accredited R&D organisation. The financing provided by the Fund can be up to 70% of the project budget for micro and small enterprises, or 60% for medium companies. Project duration is limited to 18 months, and the eligible applicants can also be those which previously used the Mini Grants programme to develop their product or service.
Financial support is provided for projects and innovations from all fields of science and technology and from all industrial sectors, however, the program is aligned with the Smart Specialization Strategy of Serbia, focused on four priority domains – Food for the future; Information and communication technologies, Machines and production processes of the future and Creative industries, so at least 50% of the available funds will be allocated to applications from those domains. Also, the Fund, together with the Government and the EU as the main partners in supporting innovation, provides support to projects that contribute to increased social inclusion of people with disabilities through advanced technologies.
// Innovative solutions can potentially be huge competitive advantage for MSMEs, which don’t possess the internal resources while the cost of R&D externalisation is more than often a critical obstacle to achieve and materialise the advantage, despite the innovative ideas and concepts. In that respect, this programme is an excellent opportunity to substitute missing funding and set the base for long-term sustainability, but also initialise long-term cooperation with R&D sector. In order to obtain the support, the project application must clearly highlight the qualifications of the management and key personnel and the ability of the consortium to implement the project; potential for cooperation among consortium members, technological innovation, a clearly identified and quantified market need, a competitive position including the global market, and the potential for commercialization. All this, along with a well-developed organizational design and project management system, performance control indicators and a risk management strategy should be included in the project application, which according to all our experiences is a very demanding process, both administratively and professionally. Therefore, thorough and precise preparation is essential, and given the scope and content of the necessary documents, our recommendation is to not only start preparation as soon as possible, but also to use the support through consulting with either previous beneficiaries or experienced consultants for that type of projects, which should step in since the early project preparation phase, and Glenfield consultants are available for eligibility assessment.
DAP: Significant Grants for High Quality Cattle Breeding
// Within the regular subsidies programme, by mid-August the Ministry of Agriculture, through the Directorate for Agrarian Payments, enables applications for subsidies in cattle farming for the purchase of high quality breeding cows, sheep, goats and pigs, as well as for queen bees. The eligible cattle breeds include a wide range of fattening, dairy and breeding races, of variable age, and to a great extent cover almost the entire range of available support for cattle breeding. The incentives request is submitted separately for each type of cattle, and the request for the same cattle unit can be submitted once in a calendar year, after the fattening period ends.
Eligible applicants are those active in the Agricultural Households Registry, with registered cattle fund, and they can be private individuals – bearers of the registration for the commercial agricultural household, entrepreneurs, legal entities and farming cooperatives, but also high schools, R&D organisation in agriculture, church or monastery. The incentives are defined as percentual share
of the total eligible investment,with VAT deducted, in line with the set of regulations which treat the farming incentives, and they vary depending on the cattle race and type which is purchased. The total amount of incentives per single applicant is capped at 3 million dinars for quality goats, sheep, pigs and queen bees, through 5 million for quality breeding cows and fattening bulls, up to 10 million dinars for breeding bulls.
// The total incentives amount per applicant, although significantly below the level attainable through some of the most prominent farming support programmes, is a direct support, or grant, and it is actually very significant incentive. Also, the incentives are aiming the cattle breeding sector which assumes long-term planning and development, and precisely as a support for long-term plans, subsidies like these enable farmers to cover a significant share of operating costs before they start gaining income on the basis of cattle breeding. Having that in mind, it is a very significant support model which can support farmers’ competitiveness and sustainability in increasingly more complex operating environment, therefore the programme is worthy of recommendation.
| KEY ECONOMIC INDICATORS | Aug - 23 | |
|---|---|---|
| 1 | Annual inflation | 12.50% |
| 2 | Reference interest rate | 6.50% |
| 3 | Unemployment rate | 10.10% |
| 4 | Average net salary - RSD | 85,539 |
| 5 | Average pension - RSD | 37,798 |
| 6 | Exchange rate RSD/EUR | |
| On the last day of the month | 117.2246 | |
| Average exchange rate for the month | 117.2266 | |
| 7 | Exchange rate RSD/USD | |
| On the last day of the month | 106.4807 | |
| Average exchange rate for the month | 106.1320 | |
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