Private Briefing July 2023
No. 124 | Year XI
After the June issue in shades of announcements of large support programs for SMEs and farmers, the Private Briefing summer continues with analyses of intensive support for innovation and development projects. Innovations are the subject of two analyzes of three different programs of the Innovation Fund, including new calls for the Mini Grants and Matching Grants Programmes, the while growth support for MSMEs is analyzed through the now traditional Ministry of Economy programme of grants and loans for development projects. This edition is rounded off by the analysis of the subsidies program for organic production as a regular form of structured support for farmers.
Innovation Fund: New Financing Model
// The Innovation Fund is an instrument through which Serbia materializes the “ innovation imperative”, as the ability to adapt and improve technological and R&D capacities based on the cooperation of the public and private sector. Accordingly, since 2011, the Fund has been implementing programmes primarily aiming to increase the capacity of start-ups and innovative companies, either through financial support, or through access to skills, or combined, as well as through connecting with R&D organizations. However, in addition to those direct support models, the Fund also implements some pioneering initiatives, including the Serbia Ventures programme, designed to encourage private investors, individuals, and institutions to actively participate in the financing of start-ups with high potential for growth by establishing an entrepreneurial fund. capital in Serbia.
// This year, the focus of the Serbia Ventures programme is on biotech innovative companies, formulated through the call which envisages the Innovation Fund to invest in a venture capital fund in Serbia in the role of a limited partner aiming to create a significant market effect on the innovation ecosystem. The planned amount of Innovation Fund equity is up to EUR 5 million, and the call seeks one partnering venture capital fund, which will has already collected or to has obtained the intentions of partners and investors to raise at least 3 million EUR in the first round of financing, within 12 months of obtaining a license from the Securities Commission. Eligible applicants are privately owned limited liability companies or joint stock companies, as well as alternative investment funds management companies licensed by the Securities Commission. The future joint venture capital fund must invest exclusively in start-ups directly or indirectly engaged in the development of biotech products and services such as bioinformatics, biosensors, biomarkers, biotech medical devices and other related projects.
// Although it does not directly target innovative MSMEs, this call is very significant as it aims to provide significant amount of funding for start-ups and innovative companies from a high added value sector. Given that access to finance for start-ups, as well as innovators with unconfirmed market potential is an area of high uncertainty and risk for investors, making development difficult or nearly impossible for numerous projects, an initiative that will enable this initial, critical obstacle to be overcome is certainly an exceptional step towards the diversification of funding sources. In addition, Serbia Ventures is also an example risk sharing and cost sharing model, through which the state can implement its own strategy for the development of innovative companies, and enable accelerated development of entire sectors through targeted and well-designed programmes.
Ministry of Economy: Grants for Development Projects
// Business support packages coordinated through the Ministry of Economy and state support institutions in the last seven years, quite thoroughly follow the overall business environment and adapt to it, both by support financing amounts and specific purposes, in order to fit the needs of businesses and entrepreneurs within the broader initiative titled “Decade of entrepreneurship”. The year 2023 is not an exception, and we will analyse the current Programme of Grants for Development Projects, which channels the support to investments in fixed assets, from purchase, through construction, extension, and reconstruction, to maintenance of production facilities, business premises, and warehousing. Exceptionally, for businesses in IT sector and high-tech services, the funding can be used to purchase office space. The eligible purposes list includes purchase of new or used production and construction equipment, including tools, as well as for the delivery vehicles for the transport of own products and other means of transport used in production.
Eligible beneficiaries are entrepreneurs, micro, small and medium enterprises, as well as agricultural cooperatives, profitable in the previous two years. Grants are available in the amount of up to 20% of the value of the investment, or up to 30% if the beneficiaries are registered in the underdeveloped areas. The amount of the entire investment supported through the programme ranges from 75.000 dinars for entrepreneurs and 250.000 dinars for legal entities, to 12,5 million dinars. The remaining amount of the project value will be financed from the Development Fund loans, with maturity of up to ten years for legal entities and up to eight years for entrepreneurs, with a grace period of up to one year. The interest rate is 1,5% with a bank guarantee as securitisation, or 2,5% with other means of collateral.2.
Eligible purposes include financing permanent working capital, up to 10% of the total investment, as well as the purchase of software and IT equipment. The funds can also be used for machines and equipment to improve energy efficiency and environmental protection aspects of production. Eligible beneficiaries can obtain grants of up to 2,5 million dinars, or up to 3,75 million for businesses operating in the underdeveloped area. Beneficiaries can also apply for higher grant amounts if they meet the criteria of fast growth
where the criteria for fast-growth is to have a minimum of 10 employees over the past 5 years and to maintain an average year-on-year growth rate in the number of employees or in revenues of 20% per year. The total budget for grants this year is 900 million dinars, which is as much as 260% of the value of last year’s programme. Additionally, this year the call also enables financing for the diversification of activities, i.e., starting operations in sectors in which beneficiary hasn’t previously operated, with grants of up to 2,5 million dinars.
// Assuming an average grant of 2 million dinars, the total number of programme beneficiaries could surpass 400, which is a significant reach. The mix of purposes, including permanent working capital and investments in fixed assets, with very well measured repayment periods with a grace period, along with favourable interest rates, makes this financing option a well-tailored solution for financing SME investments, which can affect long-term improvements of capacity and competitiveness, particularly because such financing enables closing the term misalignment of working capital, being a permanent challenge of local SMEs. The precondition to meet these goals is a good investment plan and a careful analysis of the economic framework and market potential. These parameters are also required within the business plan which is an integral part of the application package in the case of entrepreneurs, or investment programme in the case of companies, they are also a fundamental precondition for a successful and purposeful implementation of investments, enabling them to yield desired effects, which is additionally supported through the grant, reducing the return on investment period. Advisory support can be highly valuable here, and to this end, Glenfield will provide free of charge analysis and eligibility assessment fand for one of the applicants for this assessment, a top up in a form of a six-month “all inclusive” access to Glenfield E-Learning Platform as a means to strengthen the development through blending access to finance with access to knowledge.
Innovation Fund: Even Higher Grant Amounts for Innovative Solutions Development
// The Innovation Fund programmes are a regular topic in Private Briefing, both due to their clear profile and segmented approach in supporting commercialization of innovations and increasing the added value across the entire economy through supporting innovations for nineth year in a row, and to the significant amount of support provided, regularity and certainty. New calls within Mini Grants and Matching Grants programmes fit the same matrix, and they are published along with calendar start of summer. Although the dynamics has shifted from semi-annual to annual, the amounts of funding provided are significantly higher, which will provide the businesses and teams whose projects are assesses as adequate, with even higher quality of financing key expenses in early or developing phase, which is often a critical obstacle for local SMEs. In that context, the support provided by the Fund, consisting of financing and advisory support, is a unique, focused and specific tool constructed especially for overcoming those obstacles. The funds are mutually provided by the Republic of Serbia and the EU, through the IPA project Strengthening capacities and technological readiness of SMEs, whose total budget is 26 million euros.
Mini Grants Programme addresses local, privately owned micro and small enterprises, not older than 5 years, to which it provides financial support in developing their innovative products and services. It also addresses the teams of up to 5 members which are supposed to register a company only after their project is approved for funding, which additionally facilitates the application process and broadens the eligible applicants’ group and potential programme impact. The goal of the programme is to boost the creation of innovative, knowledge-based businesses, through establishing start-up or spin-off private companies, by providing them with finance to for developing innovative technologies, products and services with market application perspective. The financial support comes as a grant of up to 120.000 EUR per project, being up to 70% of IF financing of the total value, while the remaining 30% should be provided by the applicants from other sources. The project duration is limited to 12 months.
Matching Grants Programme addresses local private SMEs already present in the market, which seek significant additional funding for local and international commercialisation of the results of their R&D. The programme aims to support existing profitable innovative businesses to secure new, highly paid jobs, increase export and income and improve competitiveness, though the innovations and improvements which add value. It is expected for those goals and such support model to support local businesses to become more attractive to strategic partners, resulting in increased cumulative investments of the private sector in R&D, technological and development commercial projects. The financing provided is up to 500.000 per project, or up to 70% of the total budget for micro and small companies’ projects, and 60% for the medium companies. The duration is limited to 18 months and upon the completion, the Fund should be entitled to 5% of the profit generated by the new product or service.
// Innovations in these calls refer to new and improved products, services, technologies and processes, and the Fund will consider financing projects from all areas of science and technology, and from any industrial sector. However, both programmes have a strong focus on four priority domains – food for future, ICT (with focus on artificial intelligence), machines and production processes for the future, and creative industries, to which as much as 50% of the support budget will be committed. Applications for both programmes are submitted through the Fund portal, where all the necessary documents and instructions are also available. The deadline is November 15th, and given the scope and content of the necessary application package, we strongly recommend not only to start the preparation as early as possible, but also to use the support through consulting with the previous beneficiaries, or by engaging consultants with experience and proven track record in preparing that type of projects, which should be accessed from the early stages of application preparation, and Glenfield for those programmes, as well, provides free assessment and eligibility analysis.
DAP: Grants for Organic Farming
// Each year, the Ministry of Agriculture, through the Directorate for Agrarian Payments, launches a number of subsidy programmes to improve agricultural production. Although those programmes, more often than not, assume smaller amounts of funding, they are characterized by regularity and a significant level of certainty that enable planning, and consequently, provide support for structured, sustainable operations, as the basis for significant improvements brought by larger programs. On this occasion, we are analyzing the incentives for organic farming programme, which aims to support registered active agricultural holdings, with areas of organic plantations of up to 20 hectares. Eligibility criteria include appropriate certification for organic production, as well as ownership or long-term lease of the land on which production takes place, with no restriction regarding the type of crop. Long-term lease is also acceptable on state-owned land, while, when it comes to certification for organic agricultural production, the eligibility extends to applications from beneficiaries in the certification process at the time of the call.
Beneficiaries can obrain support is increased by a standard percentage compared to regular subsidies, i.e. incentives for plant production and rebates for fuel, fertilizers and seeds, and this year it amounts to 63.000 dinars per hectare. The amount is significant itself, but, additionally, organic production implies farming without the usage of standard chemical treatments, both,
fertilizers and pesticides, which are the most expensive inputs in agricultural production. Bearing in mind that their price, considering the volatility of petrochemical raw materials in the last two years, is one of the main generators of price growth in agricultural production, the provided subsidies actually have a higher relative value, compared to non-organic competition.
// Any investment in improving the agricultural and food production is significant and useful in many ways, and when it comes to organic production, investments have an additional aspect due to the fact that it is a product that achieves significantly higher selling price than competitive products from regular production. In addition, it is a commodity with high export potential, so the support which enables the substitution of part of the production costs is a very significant step in achieving a higher level of competitiveness, increased profitability and thus the capacity for further improvements and sustainability of production. All of these are immediate incentives for positive business results, market positioning and further improvement of both business and financial results, which certainly makes this call worth recommending.
| KEY ECONOMIC INDICATORS | July - 23 | |
|---|---|---|
| 1 | Annual inflation | 13.70% |
| 2 | Reference interest rate | 6.50% |
| 3 | Unemployment rate | 10.10% |
| 4 | Average net salary - RSD | 86,220 |
| 5 | Average pension - RSD | 37,811 |
| 6 | Exchange rate RSD/EUR | |
| On the last day of the month | 117.2301 | |
| Average exchange rate for the month | 117.2753 | |
| 7 | Exchange rate RSD/USD | |
| On the last day of the month | 107.8176 | |
| Average exchange rate for the month | 108.1884 | |
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