Private Briefing January 2024

No. 130 | Year XI

Dec23

The first Private Briefing of the year, as in the previous one, comes with a central theme in the form of the first part of a trilogy analysing the macroeconomic framework, with a focus on the global level. Subsequent editions will cover the local framework and the financial sector. Among the support programmes, innovations are more than a fitting topic to start the year, so we are analysing the new iteration of the Mini Grants and Matching Grants. Along these two central topics, we also analyse  calls from the Provincial Secretariate for Economy, providing significant grants for  tourism and the acquisition of machinery and equipment for beneficiaries traditionally encountering the most obstacles in accessing financing

// The Provincial Secretariat for Economy of AP Vojvodina has published a call for a comprehensive improvement of the tourist offering in the province, targeting MSMEs and entrepreneurs predominantly engaged in accommodation services or serving food and beverage, including those having dedicated branches registered for those activities. The budget of the call amounts up to 400 million dinars, with 220 million designated for supporting the development of accommodation services, and the remaining for serving food and beverages. The eligibility criteria assume that applicants are registered within the territory of the province and conduct their activities there. For applicants in the accommodation sector, it is also necessary for the accommodation to be registered in the appropriate registry

// The support model takes the form of non-refundable grants for incurred costs reimbursement, with the possibility of advance payments for certain purposes, provided the applicant submits adequate collateral. Support amounts can reach up to 80% of the total eligible investment value, depending on the type of investment. Maximum and minimum amounts of grants are defined by the type of investment, ranging from 300 thousand to 4,5 million dinars. Since the support is aimed at raising the quality and capacity of tourist infrastructure facilities, the list of eligible purposes includes subsidizing construction, expansion, reconstruction, adaptation, rehabilitation, and investment maintenance of hospitality facilities. Additionally, support is provided for the development of project technical documentation for improvements, installation of chargers for small electric vehicles and cars, procurement of machinery and equipment for hospitality activities in accommodation facilities, introduction of technological innovations in the promotion and operation of hospitality facilities, as well as the procurement and installation of solar panels.

// From the perspective of applicants with a vision, ambition, and a clear plan to enhance their operations in the tourism sector, such calls, with a financing structure enabling the improvement of key elements of sustainability in through a relatively broad spectrum of basic assets, can result in effects that contribute to long-term capacity building for revenue generation and thus sustainable development. As it involves non-refundable funds ranging from half to even 80% of the investment value, depending on the purpose, it represents a highly effective and sustainable option for improvement. This call is therefore more than a good solution, worthy of recommendation, under the condition that the basic eligibility criteria are met, and that there is an adequate analysis of investment profitability and business profitability. Although it involves non-refundable funds, the decision on financing, as with all other financing options, should come only after the decision to invest, which implies a sustainable improvement plan based on high quality analyses and models, to ensure that the application and investment reach their full potential.

Macroeconomic Overview: Global Activity, Trends and Expectaitons

// The year behind us was truly flavoured by the transition from “Permacrisis,” the previous year’s word of the year according to Collins English Dictionary, to “AI,” or artificial intelligence, a concept that dominated 2023. This change signifies much more than just the expression itself and, in many ways, points to a shift in the paradigm of global business. “Permacrisis” symbolizes an uninterrupted series of new crisis events and resulting uncertainties on multiple levels. On the other hand, “AI” primarily represents a symbol of a technological approach to addressing challenges through simultaneous information processing and scenario development, managing uncertainties and risks, and rationalizing resources through personal potential and technological capacity. This allows for an easier transition from a defensive mode to an offensive, proactive approach, even if at lower pace and with dose of caution, which precisely characterized global trends in 2023. Inflation, the most significant global challenge in 2022, has been brought under control, impacting central bank interest rates, and the global economy is preparing for a “new growth” scenario instead of a “soft landing,” accompanied by a shift in sentiment from recession to moderate optimism. Although trade and production growth slowed in 2022 and remained weak in the early months of 2023, measured by the volume of goods and services, pressured by the war in Ukraine, high inflation, and tightening monetary policies in major economies, trade in terms of current US dollars grew at double-digit rates in 2022 and 2023. This was partly due to the rise in energy and other commodity prices and partly as a result of the export of commercial services, following the gradual easing of pandemic-related restrictions and the recovery of consumption in international transport and travel.

// Throughout 2023, despite the expected decline compared to the record values recorded in 2022, inflation remained a significant factor and cause for concern. The subsequent restrictive monetary policies of most central banks, coupled with the ongoing redefinition of supply chains in 2023, contributed to maintaining high prices, negatively impacting consumption and investments. This, along with further limitations on decades-built global markets, continues to significantly disrupt production and distribution. Concurrently, some labor markets continue to experience a workforce shortage, reflected in rising wage costs, contributing to inflationary pressures, while other regions face unemployment, widening local and global income gaps, further undermining social cohesion within individual markets and globally. The war in Ukraine and other conflicts posing risks to global stability, trade, and energy security further hinder economic growth and disrupt partially recovered supply chains. High and growing levels of public and private debt in many countries make them vulnerable to those risks.

Having in mind all these factors, the assessment that acute recession has been avoided is realistic, but new growth will continue on different premises. Coordination of fiscal and monetary policies by leading economies could improve global economic stability and growth, expected to remain low throughout 2024, while further diversification of supply chains and building greater resilience in key sectors could mitigate disruptions and contribute to calming inflation. One of the potential directions for kickstarting global economic momentum is identified as a further transition to a sustainable and low-carbon economy, through incentives for innovation, job creation, and improving long-term growth prospects. Additionally, progress in digitization, artificial intelligence, and automation is expected to impact increased productivity and efficiency.

// Over the past two years, the particularly accelerated pace of digitization is increasingly transforming all aspects of the economy, creating new opportunities and challenges. In this context, artificial intelligence and automation are expected to exert a particularly strong impact on numerous traditional industries, leading to the creation of new jobs. Simultaneously, this requires workforce upskilling and adaptation of business processes to keep up with these trends. Observing the global financial sector, it is noticeable that traditional financial institutions are facing challenges due to higher risk premiums, competition from fintech companies, and the need to adapt to changing consumer preferences and reduced demand. In response, the entire financial sector is shifting its focus towards digitization, automation, and providing personalized financial services to maintain competitiveness. Collaboration with fintech companies and the adoption of new technologies become key success factors for traditional banks.

// In an economy transforming from global to multi-polar, within an environment changing at an ever-increasing speed due to new impulses of technological progress, one of the key challenges remains how to achieve sustainable economic growth. Sustainability, in this context, is not only about the “long term” but is explicitly used in the context of the ESG approach, ensuring compliance with environmental, social, and governance criteria. Today, any serious discussion about growth takes into account issues such as climate change, demographics, resource efficiency, and fair distribution. Adequate investment programs have already been adopted, including the infrastructure package in 2021, the U.S. Inflation Reduction Act, and the NextGenerationEU fund in Europe. Together with the long-term budget of the European Union (Multiannual Financial Framework), these initiatives will provide investments of over 2 trillion euros by 2027. This program is associated with the implementation of reforms that create a clear framework and direct investments into priority areas for both governments and society – the labor market, renewable energy, digitization, environmental protection, electromobility, and diversity. In this context, AI carries both practical and symbolic weight – successful taming of the new wave requires new skills. While in technological terms, it involves mastering the abundance of AI solutions and their efficient implementation, in the global business environment, it is necessary to recognize the change and adapt. From a global “resilient” approach to logistics, there is a shift towards “nearsourcing,” and outlines of consolidation towards a multi-polar model are emerging. Everything is definitively different from the pre-COVID model. Although the measures taken to stabilize and improve the business framework are far from achieving their goals, they certainly create a framework for expectations in the coming period, both globally and at the local level. In the next edition of Private Briefing, we will specifically address the local macroeconomic framework and examine the implications of global trends on the local market.

Innovation Fund: A New Call for Financing Innovative Solutions and Businesses

// At the end of the previous year, the second call of the Innovation Fund for 2023 was launched, with a total budget of 10,3 million EUR to support the innovation ecosystem in Serbia. This further strengthens the Fund’s profile as a key factor in the development of an innovation-based economy through support programmes that not only provide significant funding but also maintain certainty and regularity, allowing entrepreneurs and companies to secure funds to develop their innovations fully, enter the market, or scale their innovation to a new level. Additionally, the programmes are carefully segmented and profiled, supporting the commercialization of innovations and the creation of added value in a highly structured manner. The new calls within the Mini Grants and Matching Grants programmes, which we are analysing on this occasion, continue to offer increased funding support, up to 50% for Mini Grants applications and 66% for the Matching Grans compared to previous calls, further supporting the development of projects and ideas that are deemed innovative and sustainable through the selection process. In addition to initial funding, which is a key obstacle for innovators to materialize their ideas, the advisory support provided by the Fund is an extra incentive and forms part of a package that has proven its effectiveness over the past 9 years, supporting hundreds of qualified applicants and their projects.

The Mini Grants Programme targets local, privatelly owned micro and small businesses, not older than five years. It provides financial support for the development of innovative products and services to businesses and teams of up to five members who are obliged to form a company only after project approval, thereby further easing the application process. The program aims to encourage the creation of knowledge-based innovative companies by establishing “start-ups” and/or “spin-offs” in the private sector. It provides financial support for the development of innovative technologies, products, and services with promising market applications. The support provided by the Fund is up to 120.000 EUR per project, covering a maximum of 70% of the total justified project costs. The duration of projects funded through this program can be up to 12 months.

The Matching Grants Programme is aiming domestic MSMEs already present in the market, seeking significant financial support for the local and international commercialization of research and development results. The program supports existing and profitable innovative businesses in generating new market value, increasing revenue, exports, and enhancing competitiveness. It is expected that they become more attractive to strategic partners, resulting in increased cumulative investment from the private sector in research and development commercial projects. The funding amount is up to 500.000 EUR per project, covering up to 70% of the total project budget for micro and small businesses, and 60% for medium-sized businesses. The duration of projects is up to 18 months, and after completing, the Fund expects to participate in a 5% share of the revenue, provided it is generated.

In addition to intangible assets, other intangible elements of improvement can also be financed, covering costs of consultancy support for optimizing production processes, serialization of production, and the implementation of quality control, as well as the introduction or improvement of corporate governance, strategic and operational planning, HR management, and planning for the implementation of software solutions. Additionally, consultancy support includes compliance with the requirements of the green industry, which involves preparing technical documentation, studies, reports to comply with green industry, energy efficiency, and decarbonization requirements, as well as the introduction of rules, procedures, and reporting related to ESG factors.

// Innovations in these calls encompass new and improved products, services, technologies, and processes. The Fund will consider funding projects from all fields of science and technology and any industrial sector. Both programs specifically focus on four priority domains: foods for future, information and communication technology (with an emphasis on artificial intelligence), machines and future production processes, and creative industries. These segments will receive 50% of the total available funding, provided that there is adequate number of applications approved. Applications for both programs are submitted through the Fund’s portal, where all necessary documents are available, accompanied by detailed instructions and explanations. The deadline for applications for both programmes is April 1st. Given the volume and content of the required application documentation, based on experiences from previous calls, the recommendation remains to start the preparation as soon as possible and to utilize assistance through consultations with previous beneficiaries of funds or by engaging consultants with experience in such projects who could be involved from the early stages of application preparation. Glenfield also provides a free assessment and analysis of eligibility for these programmes.

Provincial Secretariate: Grants for Purchasing Equipment

// The Provincial Secretariat for Economy of the Autonomous Province of Vojvodina has announced another call to support micro and small enterprises and entrepreneurs in the province, with funds allocated to support all sectors of activity. The support model involves non-refundable funds, totalling 80 million dinars, aimed at enhancing economic growth and entrepreneurship development. The focus is on investing in fixed assets to improve overall business conditions, reduce costs, and increase efficiency by introducing new or enhancing existing business capacities, as well as modernizing production and service-oriented activities. The funds are allocated for subsidizing the costs of purchasing machinery and equipment, provided that they are bought, delivered, and fully paid for between February 12, 2022, and the deadline of the call.

Specific purposes supported by the call include investments in production machinery and equipment from all sectors and activities, as well as passenger and freight vehicles intended for business purposes, excluding professional transport. The call is unique in allowing only one

application per applicant, but it can include up to 12 units of machinery or equipment purchased from a maximum of 5 different suppliers. Refunding of funds can be allocated for up to 80% of the value of the purchased machinery or equipment, ranging from 200,000 to 3 million dinars.

// In addition to standard and expected limitations for applying for support from the state budget, this call is specific in favouring inclusivity and diversity. Parameters such as the representation of women in the ownership or managerial structure and the presence of persons with disabilities contribute to the scoring and final eligibility assessment and ranking. Other criteria include the level of development of the municipality in which the applicant operates, the number of employees, and an advantage is given to manufacturing activities in the final scoring. From the perspective of the programme value for the end user, it is significant that the call specifically targets small and micro-enterprises, as well as flat-rate taxed entrepreneurs. This sheds a different light on the generally modest total budget of the programme, as it is tailored to the scale of business operations of the target group. Given that it involves non-refundable support of up to 80% of the value of the investment, and considering the streamlined application process and the emphasis on activities that facilitate new employment and production, traditionally facing many obstacles in accessing financing, the call is highly recommended.

KEY ECONOMIC INDICATORSJan - 24
1Annual inflation7.60%
2Reference interest rate6.50%
3Unemployment rate9.00%
4Average net salary - RSD89,956
5Average pension - RSD39,850
6Exchange rate RSD/EUR
On the last day of the month117.1737
Average exchange rate for the month117.1759
7Exchange rate RSD/USD
On the last day of the month105.8671
Average exchange rate for the month107.2454

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