Private Briefing February 2024
No. 131 | Year XI
The second edition of Private Briefing brings the continuation of macroeconomic analysis series, examining local business environment indicators, major expectations, and anticipated trends. Among the support programs under scrutiny is the SDA program aimed at bolstering business internationalization efforts, providing assistance for both production enhancement and multi-dimensional management improvement. This theme gains prominence with the intensification of the “nearsourcing” business framework. Additionally, we analyze the Collaborative Grants Scheme call by the Innovation Fund, and are pleased to announce the long-awaited first call within the IPARD III program in Serbia.
IF: Incentives for Connecting SMEs and R&D Sector
// Within the framework of the support package provided by the Innovation Fund for the beginning of 2024, in this edition, we analyse the Collaborative Grant Scheme Program. With this call, a standard set of regular calls has been completed, which includes both the Mini Grants and Matching Grants Programme we analysed in the previous edition. The portfolio of programmes and support methods through which the Fund achieves its goals has increased over the years, retaining the fundamental one – encouraging the introduction of innovation as a development model for the entire economy, and targeting various specific needs of scientific research organizations and SMEs, depending on the level of development of both companies and innovative ideas.
// The Collaborative Grant Scheme is specific in that it stimulates long-term collaboration between the research sector and industry by connecting and supporting companies and scientific research organizations in their efforts to implement joint projects aimed at creating new products, innovative technologies, technological processes, and services with market potential and high value. Additionally, the added value provided by this program is the establishment of collaboration with international companies and organizations. The individual awards are capped at 500,000 euros per project, with eligible beneficiaries being consortia composed of at least one private MSME established in Serbia and one public accredited scientific research organization. Funding provided by the Fund covers a maximum of 70% of the total eligible project costs for micro and small enterprises, and 60% for medium-sized enterprises. Projects can last up to 18 months, and eligibility extends to beneficiaries which have successfully completed other IF programmes previously.
// Innovative solutions can potentially be a huge competitive advantage for MSMEs, which do not have internal resources and for whom the cost of external product development is often a significant barrier to accessing that advantage, despite innovative ideas and concepts. In this context, this program offers an excellent opportunity to offset the lack of funds and resources and establish the basis for long-term sustainability and competitiveness, as well as collaboration with scientific research organizations. Given that, in our experience so far, presenting an innovative product or service in the form of an adequate business plan accompanied by financial projections can be a demanding process, both administratively and professionally, thorough and systematic preparation is crucial, as confirmed by all previous grant recipients. The deadline for project applications is April 1st. Considering the scope and content of the necessary application documentation, our recommendation is not only to start preparing as soon as possible but also to utilize assistance through consultations with previous grant recipients or by engaging consultants experienced in such projects from the early stages of application preparation.
Macroeconomic Overview: Local Environment, Trends and Projections
// Globally, in 2023, there was a paradigm shift: from defense to a mild offensive, albeit a different and digital one. Collins dictionary summarized this change in one word by shifting from “permacrisis,” a period of permanent parallel crises typical of 2022, to “AI,” or artificial intelligence, as the paradigm for addressing global challenges, including the challenge of economic growth. In this context, “AI” or artificial intelligence signals a shift towards a different approach to addressing challenges and transitioning from a defensive to a cautious yet clearly offensive approach. Locally, the situation is slightly different. Looking at the indicators that define the business framework, real GDP growth reached 2.3%, or nearly half the value of the mild growth in the years preceding the COVID crisis, and multiple times below the targeted values necessary to support the development and maintain approximation to the levels of more developed economies. The highest growth was recorded in the information and communication sectors (10.2%), the food industry (7.8%), manufacturing of construction materials (7.6%), wood industry (7.4%), metal processing (7.3%), and trade (7.2%). This was followed by somewhat moderate growth in the sectors of industrial production (5.2%) and construction (4.3%), while sectors such as mining (-0.5%) and agriculture (-0.4%) experienced declines. Compared to the surrounding environment, GDP growth is nearly half the average of the Western Balkans region (4.2%), the entire Balkans (4.1%), and even the EU average (3.6%).
The result of the previous year thus shows convergence towards targeted trends. It is clear that much stronger growth is needed, and it’s also clear that repeating the same approach over and over again will not yield different results. In our opinion, it is time to finally give a chance to the “bench players,” i.e., those who have been there all along, working diligently and training, although everything has been tailored to the “big stars” who have yet to deliver results. For stronger GDP growth, the game plan needs to be adjusted for the “bench players,” i.e., market conditions need to be slightly directed, if not to support them, then to remove barriers and clear the path for micro, small, and medium enterprises and create favorable conditions for their growth and advancement. For this, there is no one massive solution that solves all challenges for the “bench players,” but many small ones, always aimed at the same goal. In addition to numerous aspects of preferential treatment, investment incentives, and easing burdens, such an altered game plan also implies that infrastructure projects should be directed to meet the needs of the domestic SME sector, including areas such as environmental protection, waste management, and others, which, in addition to the net effect of investment, can also achieve a cumulative effect through their impact on sectoral productivity and efficiency. Moreover, this also entails interventions to support the implementation of new technologies, primarily AI, as well as in the field of education to build profiles of employees needed for the new era of “AI” entrepreneurship. Such a context would contribute to creating more equitable conditions and enable small domestic bench players to make a turnaround amidst the crowd and achieve the desired, sustainable growth!
// Regarding other indicators, inflation for 2023 at the end of the year recorded a value of 6.7%, which is a significant decrease compared to the end of 2022 (15.1%) but still seven points higher than the 2021 average (1.3%). The NBS interest rate, as an instrument of inflation control, rose throughout the year, from 5.25% at the beginning to 6.50% at the end, resulting in halting the inflation rate’s rise but not yet halting inflation itself. The unemployment rate fluctuated between 8.9% and 10.1%, with a relatively stable employment rate of around 50% throughout the year, close to the levels of the previous three years. Strong impetus to improve job quality and wage levels is still expected, partly achieved through the growth of employment in sectors with higher levels of job complexity. On the other hand, the impetus for wage growth could come from the existence of competitive labor markets, which have been causing economic migration for several years in a row. In December, the average net salary amounted to 710 EUR, significantly higher than last year’s 665 EUR and on par with the Western Balkans region average (720 EUR) but significantly below the Balkans region (870 EUR) and notably below the EU average (2,000 EUR).
| KEY ECONOMIC INDICATORS | Jan - 23 | Feb - 23 | Mar - 23 | Apr - 23 | May - 23 | Jun - 23 | Jul - 23 | Aug - 23 | Sep - 23 | Oct - 23 | Nov - 23 | Dec - 23 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Annual inflation | 15.10% | 15.80% | 16.10% | 16.20% | 15.10% | 14.80% | 13.70% | 12.50% | 11.50% | 10.20% | 8.50% | 8.00% |
| Reference interest rate | 5.25% | 5.50% | 5.75% | 6.00% | 6.00% | 6.25% | 6.50% | 6.50% | 6.50% | 6.50% | 6.50% | 6.50% |
| Unemloyment rate | 8.90% | 8.90% | 9.20% | 9.20% | 9.20% | 10.10% | 10.10% | 10.10% | 10.10% | 9.90% | 9.60% | 9.00% |
| Average net salary - RSD | 78,326 | 84,227 | 82,769 | 81,359 | 85,485 | 83,812 | 86,220 | 85,539 | 83,781 | 86,112 | 85,066 | 86,738 |
| Average pension - RSD | 33,731 | 37,809 | 37,813 | 37,809 | 37,807 | 37,821 | 37,811 | 37,798 | 37,786 | 37,797 | 39,874 | 39,831 |
| Exchange rate RSD/EUR | ||||||||||||
| On the last day of the month | 117.3224 | 117.3742 | 117.3087 | 117.2933 | 117.2719 | 117.2745 | 117.2301 | 117.2246 | 117.2106 | 117.1996 | 117.1777 | 117.2078 |
| Average exchange rate for month | 117.3103 | 117.3607 | 117.3268 | 117.3152 | 117.2831 | 117.2834 | 117.2753 | 117.2266 | 117.214 | 117.2015 | 117.1864 | 117.1927 |
| Exchange rate RSD/USD | ||||||||||||
| On the last day of the month | 110.1515 | 108.2888 | 110.7835 | 107.5592 | 106.456 | 109.6331 | 107.8176 | 106.4807 | 107.3455 | 110.7537 | 110.5346 | 106.7953 |
| Average exchange rate for month | 110.7865 | 108.9784 | 109.4539 | 109.6347 | 107.0652 | 107.8065 | 108.1884 | 106.132 | 107.4264 | 109.6498 | 110.9356 | 108.5576 |
// Throughout the year, the dinar remained stable against the Euro, while its value varied against the US dollar, ranging from 106 to 111 RSD. Lower prices of energy, along with the growth of exports of the processing industry, electricity, and services, contributed to reducing the current account deficit from 4.2 billion EUR (6.9% of GDP) in 2022 to 1.8 billion EUR (2.6% of GDP) in 2023. Total merchandise exports increased by 3.7%, while service exports were higher by 18.1%, driven by the growth of ICT, transport, and business services. Merchandise imports in 2023 decreased by 4.8%, with the largest contribution to the reduction coming from the decrease in imports of production inputs, including energy. On the other hand, service imports in 2023 increased by about 15%. The total foreign trade turnover in 2023 amounted to 65.5 billion euros, a decrease of 1.7% compared to the same period the previous year. The value of exports reached 28.6 billion euros, an increase of 3.7% compared to the same period the previous year, while the value of imports amounted to 36.9 billion euros, representing a decrease of 5.5%. This resulted in a deficit of 8.2 billion euros, a decrease of 27.9% compared to the previous year, and export coverage reached 77.7%, which is about 10% higher. About 9,600 business entities were registered in 2023, a decrease of 17% compared to 2022, and 45,608 entrepreneurs, an increase of about 9%.
// In 2023, the “near-sourcing” trend fully crystallized, as evidenced by the increase in support programs precisely for these purposes, aimed at assisting the economy in establishing relationships with foreign partners. According to all, including our own research and analysis, inflation remains recognized as the most significant negative factor for business and a key aspect of support in the future, expected to be in the form of financial support, as well as business organization, continued digitization, and networking. Support for such orientation should be implemented through the announced and now standard programs targeting business sectors that still align with the PIN – “Agriculture, Innovations, Niches” (“Poljoprivreda, Inovacije, Niše”) model we envisioned a decade ago. On the other hand, with the adopted law and framework for social entrepreneurship, support programs targeting specific segments are being introduced, as well as a broader ESG framework that is beginning to gain importance. Expected and announced support initiatives for this year are certainly led by the regular group of programs of the Ministry of Economy, which we will analyze in the next few editions, as well as IPARD III, which officially started with its first call. For beneficiaries, along with all other support programs, this means that support will be available, but it will also require effort in analysis, preparation of business and financial plans, and a well-justified explanation of identified improvement opportunities. Glenfield Consultants, as every year, are available for initial analyses as well as for projections and planning for the development and improvement of businesses in the year we have stepped into.
SDA: Blended Support for Internationalization of Operations
// The support provided by the Serbian Development Agency (SDA) for local businesses in their efforts to establish cooperation with multinational companies encompasses an increasingly wide range of activities aimed at better integrating foreign investors into the domestic economy and, simultaneously, adopting the principles of operation of international value chains by local companies. The current SDA call provides financing within the framework of the Support for Competitiveness and Digitalization Enhancement measures and Consultancy Support for Business Performance Improvement. Within the call, SDA provides grants the implementation of at least two project activities, one of which must be the Implementation of Business Performance Evaluation preceding listing on reference interactive platforms, with available funds per beneficiary limited to 7 million dinars. The support amounts range from 200,000 to 5 million dinars per activity, covering up to 80% of the project value, provided to the sectors of electrical equipment manufacturing, metal products, computers, electronic and optical products, other machinery and equipment, motor vehicles, trailers, rubber and plastic products, as well as label and sticker printing. They must have at least 15 employees and a minimum of 25 million dinars worth of fixed assets, with 50% of revenue coming from the sale of products and services.
Support for competitiveness and digitalization enhancement includes quality system certification according to industrial standards and ISO quality management standards, procurement and implementation of software solutions for the optimization and digitalization of production processes, support for the development and optimization of websites, as well as costs related to listing and subscriptions to reference interactive platforms. Support for business performance
improvement includes consultancy support for optimizing business and production processes required by multinational corporations, focusing on production line optimization, production serialization, and quality control implementation. It also includes compliance with green industry requirements, involving the preparation of technical documentation, studies, reports to reduce environmental pollution and improve energy efficiency in order to implement decarbonization and reduce industrial emissions.
To systematically and structurally incorporate all these improvements into the organization, the program also provides support for the introduction or enhancement of corporate governance, including strategic and operational planning, setting KPIs, familiarization with the principles of operation in international value chains, enhancing product placement and client acquisition. Additionally, the program enables support for improving and optimizing HR management processes, defining organizational profiles and corporate culture, and using automated tools for employee career management and selection during recruitment.
// The support model provided by SDA for business internationalization, or the exploitation of the “nearsourcing” trend, comes at the right time, judging by all indicators and our internal research at the regional level, which testify that entrepreneurs and SMEs have recognized the changes taking place in the global and regional business environment. Substituting distant suppliers with nearby ones inevitably opens doors for entering multinational supply chains, as well as for establishing partnerships with other potential partners in the region and beyond, who are looking for stable, well-organized, and reliable suppliers. Regardless of when the program is implemented, support for internationalization, alongside predictable demand, facilitates revenue planning and thus investment in equipment and fixed assets, as well as planning and implementing internal business development. Simultaneously, support for the introduction or enhancement of strategic and operational planning, corporate governance, and human resources management are also topics and areas where Glenfield consultants have extensive experience, excellent results, and are leaders in best practices specifically for the SME sector. We can fully customize them to the specific needs of applicants, and all it takes is to contact us for a free assessment and support in applying for this significant program for long-term capacity enhancement with evident benefits in terms of resilience, strength, business results, and market competitiveness.
IPARD III: Announcement of the First Call in the New Cycle of Rural Support
// Two years after we analysed the last call under the IPARD support within the Measure 1 – Investments in Physical Assets of Agricultural Holdings in Private Briefing, a new call for the same measure has been opened, this time within the framework of the IPARD III programme, effectively commencing its implementation. In addition to the four accredited measures under IPARD II, in the new cycle, users will also have access to new measures, namely: Measure 4 – Agroecology – Climate and Organic Agriculture; Measure 5 – Implementation of Local Rural Development Strategies – LEADER Approach; and Measure 6 – Investments in Rural Public Infrastructure. IPARD III also introduces new sectors into the programme – the fisheries sector, the cereal processing and industrial crops sector, and within Measure 7, alongside the rural tourism sector eligible under the previous program, new sectors are planned, including direct sales of agricultural and local products and the rural services sector.
The total budget for support under the new call, which we will analyse in detail in the upcoming Private Briefing, is 4.8 billion dinars, with individual support ranging from 20,000 to one million euros. These amounts can cover up to two-thirds of the investment value, indicating support for critical improvements and the potential transition to a completely different category of producers. What remains unchanged are the significant requirements during project preparation for support, as the practical process for claiming
IPARD grants consists of two separate phases: project approval phase and payment request approval phase. In the first phase, the applicant must submit all the necessary documentation required to even enter the project approval process alongside the Project Approval Request. Once the project is approved, the beneficiary can start the investment and complete it within the timeframe specified in the project approval decision, and only then can they submit the payment approval request.
// Given the complexity of the criteria, IPARD calls, in addition to sector-specific costs, it also entails general preparatory costs such as consulting fees for preparing documentation for IPARD incentives, costs for feasibility studies and other project-related studies or business plans, and fees for architects, engineers, and other consultants for preparing project and technical documentation. Additionally, they also include pre-financing. Therefore, in the next edition, we will analyse these aspects in detail, as well as ways to successfully overcome them as the first step in creating new value for the beneficiary.
| KEY ECONOMIC INDICATORS | Feb - 24 | |
|---|---|---|
| 1 | Annual inflation | 6.40% |
| 2 | Reference interest rate | 6.50% |
| 3 | Unemployment rate | 9.00% |
| 4 | Average net salary - RSD | 95,093 |
| 5 | Average pension - RSD | 45,742 |
| 6 | Exchange rate RSD/EUR | |
| On the last day of the month | 117.1756 | |
| Average exchange rate for the month | 117.2099 | |
| 7 | Exchange rate RSD/USD | |
| On the last day of the month | 108.2754 | |
| Average exchange rate for the month | 107.3542 | |
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