Private Briefing June 2023

No. 123 | Year XI


Daylight Saving Time in Private Briefing mode, for June 2023, comes with two crucial calls which will be in the focus of analyses and activities. The favourite national „programme for purchasing equipment with grant“ we have already announced, and now it has entered the official implementation phase, signalling „ready-steady-go“ for application preparation, given the traditional demand. The other is long awaited IPARD in its third itteration, with significantly higher budget and even broader application spectrum. We round up the analyses with two narrowly targeted programmes in Vojvodina – one for fruit and vegetable farming, and the other supporting tourism.

The Provincial Agricultural Development Fund every year, including this, provides favourable financing opportunities for farmers growing the fruit, grape, and vegetables in the form of loans for investment in physical assets of agricultural households in the sector, with the aim to facilitate the environment for intensifying agricultural production and increasing the competitiveness of individual agricultural households. The loans are granted for the equipment and machinery procurement, which must be new and delivered only by suppliers whose main activity is the production or sale of machinery for fruit and vegetable processing. Eligible beneficiaries are active, registered agricultural households, as well as legal entities and private individuals within the territory of the province. The loan amounts suggest that the eligible beneficiaries are predominantly micro and small producers, since the range is from 300,000 to 4.5 million dinars. The interest rate on approved loans, applying a currency clause, is 1% annually, while the maximum repayment period is 4 years, including a one-year grace period. In addition to the favourable loan costs, an additional incentive for development is that no interest is accrued during the grace period, so loan recipients have no obligation to make payments for the first 12 months, upon which repayment is planned in six-month instalments. Acceptable collateral is a mortgage on residential or commercial properties in larger cities and municipalities within the province.

Considering the constant increase in competitiveness in agriculture, as well as the persistent price disparities to the primary producers’ detriment, it is clear that any form of agricultural development incentives are certainly welcome. The financial resources the Fund provides for investments in machinery and equipment represent a significant contribution to supporting the producers, with a solid repayment period, one-year grace period, and favourable loan pricing. That can provide recipients with the opportunity to make significant improvements through the procurement and usage of equipment which will enhance their competitiveness and capacity for further advancements. The borrowing rate that is significantly lower than most favourable commercial conditions, strengthens the final beneficiaries’ financial structure by reducing potential indebtedness and financial costs. Taking into account that these are investments in new machinery and equipment procurement, the potential for modernization and consequent capacity strengthening, are additional aspects of increasing productivity, efficiency, and profitability. Considering global trends and developments in primary agricultural products markets, investments in strengthening and developing capacity is not only a good strategy, but also a necessary one for the development of individual and national agricultural sustainability in the upcoming period. The expected growth in agricultural product prices can present an additional incentive for empowerment, making this programme one that certainly deserves attention and recommendation for final beneficiaries.

Ministry of Economy: Exceptional Terms for Financing Key Improvements

Mid-June, the Government adopted a Decree as the basis for the start of the implementation of the Programme for the purchase of equipment in 2023 for SMEs. The programme is implemented by the Ministry of Economy in cooperation with the Serbian Development Agency (SDA) and selected banks and leasing companies. It provides grants combined with the loans and leasing to MSMEs, entrepreneurs and cooperatives for the purchase of production equipment, construction machinery, machines and equipment for the improvement of energy efficiency and environmental aspects in production. Started in 2013 as a pilot project, the programme allocated 100 million dinars for 80 initiatives of domestic SMEs. From then on, there has been a growth trend in programme budget, while companies have recognized the exceptional opportunity to implement improvements that can ensure sustainability, growth and development. The programme supports these efforts by fundamentally facilitating, through a unique combination of grants and loans, the procurement of critically important resources for increasing the efficiency, effectiveness, productivity and competitiveness of companies in both domestic and foreign markets. In addition, the programme facilitates introducing innovations and improving technological processes.

The programme aims entrepreneurs, micro or small businesses and cooperatives, registered for production or construction activities, primarily the processing industry, the water supply, the accommodation and food services sector, as well as professional, scientific, innovative and technical activities. In addition to the general qualification criteria, it is also required that the applicants had at least one permanent employee at the end of 2021, and that at the time of submitting the application they did not reduce the number of employees by more than 10% compared to the number at the end of 2022.

The financing structure implies that the applicant provides his own participation in the amount of only 5% of the net value of the equipment, while banks and leasing companies approve a loan or leasing in the amount of 70%, and the grant accounts for the remaining 25%. The minimum amount of support per user is 500,000 dinars, while the maximum amount is defined as a scale parameterized by the number of employees. Thus, applicants with one employee can expect a grant

of up to 1 million dinars, applicants with up to five employees look at up to 2.5 million dinars, while those with six or more employees are qualified for 5 million dinars, which all translates into financing the value of the equipment four times the amount of grant. The maturity of the credit component ranges between 18 and 60 months, which is adequately measured for the equipment, with a mandatory 6-month grace period while the means of security is a pledge on the equipment.

The implementation of the programme assumes two phases, with the first starting with a public call for commercial banks and leasing companies. In the second phase, a call is published for potential beneficiaries to apply for grants and loans. This means that applicants must meet the criteria of the programme, but also the criteria of banks, which implies not only formal criteria, but also adequate financial and business operations indicators. Moreover, it takes not more than a month or two from the moment when the Ministry selects banks and leasing companies to fully utilize the programme budget. This a confirmation that the gap in financing of fixed assets is still present, which we regularly analyse, and on the other hand, it is a consequence of the really useful and effective model of support that the programme offers. This also means that timely preparation is also paramount. In that segment, the experience is crucial factor, including knowledge of banking standards and procedures, and knowledge of financial and business management models, as well as improving performance and capacity, surpassing loan utilization and reaches deeply into high quality management of the investment process. In addition, the programme requires regular and orderly reporting on the implementation. All of that makes the assistance of experienced advisors with the capacity to support the entire process from preparation to the final report, a detail making a difference between an excellent opportunity for improvement, which the Programme certainly is, and seized opportunity to utilize available support, as the basis for long term development.

IPARD III, Welcome: New Possibilities, New Activities, New Purposes

The previous analysis of IPARD in Private Briefing took place almost a year and a half ago, on the topic of Measure 1 – Investments in physical assets. It was also the last call within IPARD II, phasing out of which continues, providing support to agricultural producers and processing businesses to modernize and increase productivity in the entire sector, as well as to improve the quality of life in rural areas. Within IPARD II measures, Measure 1 supports primary production on agricultural farms, Measure 3 improves processing capacities, while Measure 7 invests in rural tourism. IPARD II also included Measure 9, as a support vehicle for better implementation of the programme and strengthening of administrative capacities to carry it out.

After a long pause, coordination and anticipation, it was recently confirmed that the Republic of Serbia has agreed and opened IPARD III programme for support in the field of rural development within the instrument for pre-accession aid IPA III period 2021-2027. The European Commission established a budget in the amount of 288 million euros IPARD III, and out of the 13 measures offered by the EC to candidate countries, the Republic of Serbia opted to implement seven. Compared to the IPARD II program and measures accredited so far, new measures that will be available to support final beneficiaries include 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. Also, the plan is to introduce new sectors for support through the IPARD III, such as the fishing sector, the sector for processing grains and industrial plants. Furthermore, within Measure 7, in addition to the rural tourism sector that could count on support under the previous programme, new sectors are planned – direct sales of agricultural and local products and the service sector in rural areas.

When it comes to the results achieved in the implementation of the IPARD II programme, as of June 2023, within the framework of 13 public calls for investment measures, a total of 763 projects were supported in the amount of 65 million euros, 49 of which is of which the EU contribution. Regarding the implementation of IPARD III, it might

prove to be beneficial that during the preparatory period, the Ministry undertook activities primarily related to the introduction of the possibility of advance payments through amendments to the current Law on Agriculture, which should enable users to obtain financial resources faster in order to increase the pace of investments.

The final preparatory activities for the implementation of IPARD III, expected to kick-off with the first public calls in the Q4, are underway and in addition to the wide range of support so established so far, it provides intensive financing for young farmers, certified organic food producers and investments in renewable energy sources. The list of acceptable costs within all measures is comprehensive, to say the least, and the amounts of funds are more than significant. At the same time, the programme rules allow farmers not only to finance improvements, but also to prepare adequate plans for the effective usage of funds. Therefore, the IPARD calls don’t only refer to sector-specific costs, but also to general preparatory costs, e.g., the costs of consulting services for preparing the documents, the costs of preparing feasibility and other studies related to the project or business plans, environmental impact assessment studies and fees for architects, engineers and other consultants for the preparation of the design and technical documentation. This is particularly significant since in IPARD, significant support comes with significant demands. This includes analysis and projections, from basic project data, through description, technology, compliance, to complex financial analyses, within the pre-set profitability and expected returns. The prerequisite for obtaining support is therefore, either that the applicant has the necessary skills and knowledge to fulfil the requirements, or that he obtains the support of an advisor with experience in the preparation of such projects. We will monitor calls within IPARD III here and through other channels, and our experienced consultants are available for initial diagnostics, including the project and applicant eligibility, as well as possible wider support in the securing both IPARD and pre-financing.

DFV: Favourable Financing and Grant for Rural Tourism

We often analyze sector-specific calls, and in this edition, it is the call from the Development Fund of Vojvodina for co-financing long-term loans for tourism development. Its main objectives are to increase the quality and capacity levels of tourist facilities and subsequently create conditions for improving the quality and offering of tourism services, enhancing competitiveness, and fostering employment growth. The improvements targeted by the call relate to qualitative and quantitative aspects of the tourism sector, involving construction, extension, reconstruction, adaptation, refurbishment, and investment maintenance of facilities, as well as equipping them with additional amenities. Legal entities and entrepreneurs registered to operate in the field of tourism and hospitality, as well as individuals who are agricultural householders with active status within the province, are eligible to apply for funding.

Co-financing with grants amounting 8% of the approved loan, or 12% in case of women businesses and agricultural households, is provided by the Provincial Secretariat for Economy and Tourism. The loan amount depends on the applicant’s creditworthiness and ranges from 500,000 to 5 million dinars. The interest rate varies based on the currency and the applicant’s municipality development group. For indexed loans, it is 2% plus the six-month Euribor, while for dinar loans, it is variable, ranging from

0.5% to 0.8% added to the National Bank of Serbia’s reference interest rate, depending on the development group of the applicants’ municipalities. If the collateral is a bank guarantee, the interest rate is reduced by 1 percentage point. In addition to promissory notes, collateral may involve a bank guarantee or a mortgage on agricultural or construction land, residential or commercial property. The loan repayment period is up to 7 years, including a grace period of up to 12 months.

Considering that tourism is a sector that entails long-term planning and is undergoing significant changes in recent years, including increased demand for domestic capacities, timely support for improvement through financing has strategic importance. This program, with favourable borrowing costs, also provides a solid maturity period for the intended purposes, significantly enhancing the long-term capacity of beneficiaries and offering potential for increased revenue and profit. Therefore, it represents an excellent opportunity for the development of individual and small business entities and households in the tourism sector, deserving strong recommendation as an instrument for long-term sustainability and sectoral development through targeted and specific support.

1Annual inflation14.80%
2Reference interest rate6.25%
3Unemployment rate10.10%
4Average net salary - RSD83,812
5Average pension - RSD37,821
6Exchange rate RSD/EUR
On the last day of the month117.2745
Average exchange rate for the month117.2834
7Exchange rate RSD/USD
On the last day of the month109.6331
Average exchange rate for the month107.8065

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