Private Briefing January 2023

No. 118 | Year X

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Private Briefing enters 2023 innovated, and the central topic is part one of a trilogy of macroeconomic framework analysis, at the global level, before we move on to the local framework and the financial sector in subsequent editions. Innovations are one of the ways to respond to the challenges and accordingly we are analyzing the Smart Start program of the Innovation Fund and the AgTech accelerator of the Bio Sens Institute, within the framework of H2020. In the end, we also analyze the SDA call to support standardization as a way to support companies in the local but also international environment, which takes on new meanings in the context of global trends.

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Bio Sense: AgTech Improvements Mentoring

> The beginning of the new year brings new programmes, and the first one we analyse is the third AgTech accelerator launched by the Bio Sense Institute, for startups in the agricultural and food sector. Through the education, intensive training, personal mentoring and access to research resources, the Bio Sense accelerator will provide domestic IT businesses the opportunity to contribute to the digitization of agriculture through the development of new and the improvement of existing solutions. In addition to the significant increase of the resources available to startups and support from the H2020 ANTARES project, this year the accelerator was also supported by the Serbia Innovates project, launched by the ICT Hub with the support of USAID.

> The accelerator will select ten startups to participate in an intensive, three-month programme. Eligible participants are entrepreneurs from Serbia, Montenegro and Bosnia and Herzegovina, developing and implementing innovations and IT solutions for agriculture and the food sector, or those improving or digitizing existing solutions, contributing to overcoming market challenges. The programme will bring together more than 20 mentors from the country and abroad, who will use their expertise, experience, contacts and ideas to help new tech entrepreneurs to test the feasibility of their ideas and turn them into sustainable business ventures. The support will take place through live and online workshops, along with thematic meetings and other events. In addition to mentoring support, the teams will also have access to R&D support in the transfer of knowledge, access to necessary data sets, scientific research equipment and test farms, being the resources vital for the development. The best teams will have the opportunity to participate in a large regional final event (Demo Day), where they will pitch to an international audience and a network of investors. Also, they will have acces to advice and necessary support thorugh contacts with mentors and other participants after the programme ends, contributing to their further progress and expansion in the market.

> Programs of this type can be of great importance, primarily due to the agricultural and food sector being characterized by unused potential and significant room for additional digitization and innovation. Any investment in the improvement of agricultural and food production multiplies return through the growth of productivity due to the technologically advanced methods of production, also allowing for higher level of quality and standardization and increased income. Another aspect is the access to larger markets with demand able to absorb larger quantities. The third is raising the level of competitiveness, which in the long term will affect both business results and market positioning, which additionally affects the further improvement of business and financial results. All of the above makes this program worth recommending to all interested startups.

Macroeconomic Overview: Global Activity, Trends and Expectaitons

> The year behind us brought a new word to our vocabulary – Permacrisis, chosen by the Collins Dictionary as the expression that best describes the entire year. It marks the trend of continuous crisis events of extended duration, in this case moving from the COVID-generated, to a completely new complex set that includes inflation and interrupted supply chains, rising energy prices and challenges in the labor market. For decades, these aspects did not significantly affect global economic and financial trends, in which relatively stable international relations provided a strong basis for growth and development. This has changed with the post-COVID period and the war in Ukraine, making 2022 the year with the most complex overall impacts on the global economy and financial markets. This has implications for short-term, medium-term and long-term growth, price movements and the overall “well being” of individual companies as well as entire international corporations and national economies. After decades of growth in the share of global trade in global GDP, the volume of goods and services traded peaked in 2008 and has since stagnated, ranging between 50% and 60% of the ever-growing global GDP.

PThe COVID-19 pandemic and the growing unreliability and interruptions in supply chains, primarily from the Far East, due to the significant increase in transport prices, have also changed the economic paradigm based on “agility” and “just in time” models in the context of perfect supply chains, into “resilience” model, which prioritizes resilience and structural strength over prices, speed of delivery and overall leverage. This implies the strengthening of own resources and “nearsourcing”, i.e. replacing distant suppliers with closer ones, or own production of raw materials. All this has significantly changed trade flows, part of trade is reshaped in accordance with geopolitical alliances, and the shift towards repatriation and domestic development dominates in strategic sectors.

In such an environment, the premise “crisis = chance” becomes valid for this region, which is now receiving more and more attention and opportunities in the new global distribution of cards, and it is up to the businesses and economies of the region to take advantage of those opportunities indicated through trends of “nearsourcing” and “resilience”.

The year behind us also marked the end of low inflation as a side effect of globalization. A strategy of “quantitative easing” and massive liquidity lasting almost an entire decade, compounded by the disruptions caused by COVID, the costs and limitations of the implementation of climate policies and the global energy crisis, has led to globally rising inflation. Central banks around the world reacted by tightening monetary policy, ending the era of low or even negative interest rates. Monetary tightening and other factors, according to most world analysts, had a negative impact on GDP growth worldwide in 2022, with similar expectations for 2023. Most economies are projected to bottom out by mid-2023 and begin a weak, unstable recovery. In order to respond to the current politically generated challenges, a significant growth in support measures and an increase in public spending is evident, with a budget deficit of 4% or more in 2022 in developed economies. That suggests that budget deficits will remain high, and with borrowing costs elevated, governments are likely to tighten fiscal policy to finance increased spending. Therefore, low economic growth is expected to continue in early 2023. The long-term potential of economic growth depends on production factors – labor, capital and technological innovations. The importance of technology is emphasized by the global shortage of skilled labor and the need for more efficient use of resources. Productivity growth has slowed significantly in recent decades, especially in developed markets, with a corresponding negative impact on growth. A transformed geopolitical environment may lead to lower cooperation in technological innovation, reduced movement of human talent, and further slowed productivity growth, resulting in lower overall potential economic growth in the near future.

Economies globally are already taking measures to counter this. In developed markets, there is a clear focus on increasing productivity in the service sector, which employs up to 80% of the workforce. Key technologies to encourage this include cloud services, artificial intelligence and digitalization in general. Increasing automation in the industrial sector can also increase productivity, especially in developing economies. Traditionally, a well-functioning infrastructure is essential for economic growth, especially “green” growth and sustainable economic transformation. Developing resilient infrastructure is one of the 17 Sustainable Development Goals (SDGs), while ESG investments aim to change the way we live and do business, with the fundamental shift needed to respond to the „triple planetary crisis“ – climate change, pollution and biodiversity preservation. It is expected that these factors will shape the next period of economic activity at the global level, and therefore also at the local level.

The global crisis, with all the limitations in the changed paradigms, is also felt locally. However, research from the previous major crisis (2007-2009), as well as the COVID crisis, showed that much better results were achieved by companies that used the crisis as an opportunity and invested in strengthening after the initial protection of resources. This confirmed that, in the dilemma of whether one should invest in a crisis situation and gain profit with great risk, or stay defensive and reduce costs to a minimum, the truth is somewhere in between – it is good to play defensively in a crisis, but after consolidating and protecting resources it is necessary to, play offensively, improve internal capacities, invest in knowledge, innovation and improvement of competitiveness. With all the unpredictability of the broader business environment, the surveys on business sentiment that we conducted on companies in the region also indicate similar concerns and expectations that are observed globally. The identified solutions and expectations for the next period include adjusting business model to changed circumstances, replacing “distant” suppliers wiht closer ones, entering the supply chains of large systems and other forms and models of changes that open the perspective for further development and, of course, innovation, with a special focus on digitization, in order to successfully face new challenges. In the next edition of the Private Briefing, we will analyse the local macroeconomic framework and examine the implications of global trends on the local market.

Innovation Fund: Support in the Earliest Development Phase

Smart Start is one of the programs of the Innovation Fund, which in 2021 expanded the Fund’s range of support to innovators in the earliest development stages. The goal of the programme is the development of the first prototype or minimum viable product (MVP), through providing financial and mentoring support to the most promising teams in conducting the first phase of market research, product development, establishing a business model and starting preparations for the next phase of fundraising. The programme aims teams and micro-enterprises from all fields of science and technology, as well as from any industrial sector, focusing on 4 priority domains: food for the future, information and communication technologies, with a special focus on artificial intelligence, machines and production processes of the future and creative industries. The financing awarded by the fund is capped at 3,6 million dinars per project, covering a maximum of 90% of the total project budget excluding mentorship support. The applicants should provide co-financing up to the full value of the project, with non-financial investments not being acceptable. Also, beneficiaries can count on additional 600,000 dinars if they opt for mentoring support.

The eligibility criteria for teams are that they must consist of 2 to 5 members and that 51% of the team members are residents of Serbia. Micro businesses applying must be in the form of a limited liability company, be privately owned by residents of Serbia and have been registered in Serbia for no longer than 2 years at the time of application. The evaluation criteria for applications include the assessment usefulness and competitive advantages of the proposed solution, the market potential, as well as the competence of the team. Eliminatory criteria include previous financing and existing financial capacity. That means that if the

applicant has already raised 25.000 EUR or more from the Fund,another business company or entity in the private or public sector, as well as if the applicant or his related legal entity had revenues of 100,000 euros or more in any year from the time of establishment, they are not eligible to participate. This also applies if any of the founders or associated members has 50% or more ownership in another company in Serbia or 50% or more ownership in a company that is implementing or has an approved project for financing by the Fund. Additionally, each individual team member can only participate in one project within the call.

The Fund, as a key state actor in the development of the innovation system, contributes to the economic development of the country by supporting creation of innovations, strengthening the ties between science and the businesses, as well as by suporting establishing new and strengthening existing companies with innovative potential. The macroeconomic effects of strengthening innovation potential are multiple, and include increasing the employment rate through the creation of new jobs, increasing productivity and technical equipment due to the use of new and more modern equipment, as well as improving the overall competitiveness of the national economy.

> The Smart Start programme is a good way for teams and micro-businesses with quality business idea to get initial financing for project development. Since during the entire development process they can also count on complete mentoring support from the Fund, necessary to overcome challenges in the initial stages of development of products, services or technologies, it can be said that the program offers a rounded set of initial incentives necessary for them to take-off towards successful business. Taking into account that the costs of initial testing and development of new technologies and products, in addition to the idea and necessary knowledge is necessary ingredient which, often requires significant funds, Smart Start represents a comprehensive support program that enables the transition from the idea phase to the product phase, allowing the start and development of an innovative company.

SDA: Increased Competitiveness Through Standardisation

> The Serbian Development Agency (SDA) has, in cooperation with the Ministry of Economy, developed and published a new call for the Competitiveness Development Support Program, with the aim of improving competitiveness, safety and quality of products and services, i.e. facilitating access to markets and increasing the level of competitiveness of MSMEs and entrepreneurs. The general eligilibitly criteria for participants are that they have been in business for more than two years and that they have not used other incentive mechanisms of the state or local communities, as well as that they are not in difficulties according to the definition of the Regulation on the rules for granting state aid. Also, applicants must be from the sectors of production, processing or IT services.

Eligible project activities include a number of elements of improvement and standardization, such as product compliance with the requirements of Serbian and foreign technical regulations, or the fulfilling the conditions for standards and quality marking (CE, 3A, eco-label, OEKO-TEX standard 100, etc.) including the assessment of the safety of cosmetic products and the creation of a dossier on a cosmetic product with a report on the safety. Eligible purposes also include the implementation of the procedure of voluntary evaluation of compliance with Serbian standards and the alignmento of business operations in accordance with the requirements of internationally recognized management system standards, which refers to the preparation and implementation of standards in the field of quality, environmental protection, food safety, etc. The total budget of the program is 100 million dinars, and funds are approved either in the form of refunds or co-financing in the amount of up to 40% for large companies, and up to 60% of justified costs for entrepreneurs and MSMEs, except for implementation and certification of the ISO 50001 standard, which is co-financed up to 60% for all beneficiaries regardless of size. Support ranges from 100,000 to 1 million dinars.

The main goal of the programme, the improvement of competitiveness, safety and product quality, with adequate certification, enables a significant expansion of the potential market for beneficiaries. This further enables an increase in the volume of production and sales, as well market share and profitability, based on a higher selling price or reduced costs as a result of standardization. Grants provided through the programme enable businesses to introduce the necessary standards and quality certificates under very favorable conditions, and to repurposing heir own funds that would have been used for the introduction of standards, thereby additionally strengthening their position in the market.

KEY ECONOMIC INDICATORSJan - 23
1Annual inflation15.1%
2Reference interest rate5.25%
3Unemployment rate8.9%
4Average net salary - RSD78,326
5Average pension - RSD33,731
6Exchange rate RSD/EUR
On the last day of the month117.3224
Average exchange rate for the month117.3103
7Exchange rate RSD/USD
On the last day of the month110.1515
Average exchange rate for the month110.7865

For additional information or questions, please contact us. Share your impressions, inquiries and news, or share the updates on the current projects.

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