Private Briefing October 2023

No. 127 | Year XI


The October Private Briefing 2023 brings analyses of programs that cater to both broad and specific user groups through regular and unique calls. We examine the current DF program for working capital loans and loans from the Development Fund of Vojvodina for climate-sustainable investments in various forms and purposes. Also, it comes with analyses of support programs for both highly innovative and typical startup companies and entrepreneurs, in the form of the PESEP and S3E. The edition concludes with an analysis of agricultural insurance subsidies, considering the evident need in the face of increasingly unpredictable climatic and meteorological conditions.

// Turning towards renewable energy sources, which has in the meantime become part of the broader ESG concept, has gained additional significance in light of current challenges related to energy stability and security. This is accompanied by the increasing number of opportunities for financing energy and climate sustainable investments. For businesses and farmers in Vojvodina, one such solution is the new call for loans for financing climate sustainable investments by the Development Fund of Vojvodina. The primary objective of the program is to secure funding for projects aimed at reducing carbon dioxide emissions and global warming. The funding amount is determined based on the creditworthiness of the beneficiaries, ranging from one million to one hundred million Serbian dinars.

// The Fund will grant loans to finance projects for improving energy efficiency in manufacturing and business facilities, as well as projects for the acquisition of agricultural and other machinery with hybrid or electric propulsion. This includes agricultural machinery for integrated plant production, such as no-till and minimum tillage seeders, as well as one-pass soil cultivation machines. Additionally, the call covers equipment for heating and cooling, reducing dependence on fossil fuels, increasing the use of renewable energy sources through the construction of solar power plants, biogas facilities, biomass plants, and waste management systems, among other purposes related to reducing global warming and environmental protection. The environmental impact is evident, but the analysis of effects does not end there!

// The interest rate ranges from 2% to 3% annually, depending on the collateral provided, and the user’s own contribution is only 10%, with loan terms extending up to 7 years, including a grace period of up to 12 months or even 24 months in the case of capacity or plant construction. Given these favorable lending conditions, these loans offer the opportunity to achieve significant improvements in competitiveness through increased productivity, efficiency, and cost reduction. Since investments in energy-efficient solutions or renewable energy sources yield substantial additional savings over an extended period, either through reduced energy consumption or the substitution of purchased energy with self-production, the financial aspect of improvement gains a whole new level of significance. Energy or fuel costs in production or business operations range from 10% to 15%, and improvements result in reduced consumption by 30% or more, which is the standard for classifying improvements as energy-efficient. This means that realized savings in overall operating costs can reach up to 5%, directly contributing to increased business profits. Considering the expected further rise in energy prices in Serbia, the impact of improvements facilitated through this type of credit support will become even greater. This, in turn, complements the effect on business performance.

Development Fund: Permanent Working Capital Financing as a Stabilizer

// According to the latest analysis of consolidated financial indicators at the level of the entire Serbian economy, based on the summarized financial statements in the Business Registers Agency, the net working capital of companies has reached 480 million euros. This is a positive step compared to the previous year when it was negative. However, there is still a shortfall of approximately 27 billion euros in long-term capital to fully cover the inventories in the economy, which is a 16.4% increase on an annual basis. Of this amount, small and medium-sized enterprises lack around 5.4 billion euros, or about 20% of the total, while entrepreneurs have increased their positive net working capital by 20.9%, but they still lack an almost unchanged amount of long-term capital of just under 380 million euros to fully finance inventories. In the environment of limited access for micro, small, and medium-sized enterprises (MSMEs) to medium or long-term loans provided by commercial financial institutions due to a lack of adequate collateral, substantial support in the form of financing for permanent working capital can be vital for business sustainability. The use of promissory notes or equipment pledges as collateral can be very significant in this regard. This is precisely the aim of the Development Fund’s program, which offers loans for permanent working capital. The program is aligned with the purpose of the Development Fund to provide easier access and broader availability of development financing for micro, small, medium, and large legal entities, as well as entrepreneurs and business newcomers. The loan terms are significantly more favorable than the market average.

Permanent working capital allows investment in various needs, such as the purchase of raw materials, materials, and inventory, as well as financing current obligations like production costs, customer receivables, and supplier liabilities. The loan amounts for end-users range from one million to up to 250 million dinars, with a currency clause applied. The loan amount is influenced by the offered collateral, and acceptable forms include a bank guarantee, promissory notes of individuals and legal entities, equipment pledges, and mortgages on real estate. In the case of a

mortgage, the loan amount ranges from 30% to 70% of its value, depending on whether it is land, industrial facilities, residential, or commercial space. The interest rates are the same for all users, regardless of their legal form, ranging from 1.8% annually if a bank guarantee is used, to 2.8% with a currency clause. The loan term is up to four years, including a grace period of up to six months, and the repayment is monthly. Additionally, the Development Fund charges a 0.3% loan processing fee based on the approved loan amount.

Permanent working capital represents a necessary resource for effectively enhancing the business activities of users, with several key benefits. Firstly, it ensures business continuity and enhances competitiveness by providing stability, planned operations, and significantly expanding production capacity by increasing the quantity of raw materials and opening new locations. Simultaneously, the continuous capacity for purchasing raw materials or goods improves the company’s position with suppliers, reduces costs, and enhances profitability, facilitating the accumulation of capital for future growth and development. Another aspect, particularly in the current “permacrisis” era, is increasing the company’s capacity to manage risks and unexpected costs, fluctuations in raw material prices, or market changes.

// The purpose of loans for permanent working capital, with well-structured repayment terms of four years and accessible interest rates, makes this financing option a favourable solution for financing the current liabilities of end-users. It can have a significant impact on the long-term improvement of capacity and competitiveness. A prerequisite for achieving these goals is a well-devised investment plan, combined with a careful analysis of the economic framework and market potential. These parameters are outlined in the business plan, which is an integral part of the documentation when applying to the Fund. They are also essential to ensure that planned investments are adequately realized and yield the desired effects. Collaborating with consultants with extensive experience in preparing projects for Fund support can be valuable in preparing a high-quality business plan and a comprehensive application.

S3E i PESEP: Support for Start-Ups

// In the business environment in Serbia, supporting the development of entrepreneurs and SMEs is considered a priority for economic growth. Consequently, there are various initiatives targeting different segments of SMEs, especially focusing on key elements of support required for start-up companies. One of the currently active programs available to a relatively narrow group of beneficiaries is the Southern European Entrepreneurship Engine Program (S3E). This program aims to accelerate the development and growth of deep tech companies in Southern Europe. Deep tech companies are those that develop and utilize high technologies such as nanotechnology, biotechnology, or artificial intelligence to solve real-world problems. The program offers a mix of services, including financial support, mentoring, training, and networking for such applicants.

The program is divided into two segments: S3E Start is designed for companies in the ideation and early development phase, while S3E Charge targets companies in the growth and expansion phase. S3E Start provides financial support of up to 100,000 euros, with mentoring and training focused on turning an idea into a sustainable

product or service. On the other hand, S3E Charge, which supports companies in expansion, offers financial assistance of up to 2 million euros. Its training and mentoring program is geared towards launching deep tech products and services in the global market, with the support of a network of partner institutions and companies.

// Given its overall capacity and comprehensive support model, the S3E program plays a significant role in supporting the development and growth of deep tech companies. It has the potential to facilitate initial market entry and global expansion. However, this program is available to a relatively small pool of potential beneficiaries. For the majority of start-up initiatives, the Promotion of Entrepreneurship and Self-Employment Program (PESEP) is available. This program is the successor to the largest-ever national program for supporting business newcomers, signed by Glenfield.

In this “roll-out” phase, in which additional banks have joined the program, support for business newcomers is provided through a unified mechanism, the Serbian Entrepreneurship Foundation (SEF), with support from KfW. This falls within the activities of the German Ministry for Economic Cooperation and Development as part of German-Serbian development cooperation. SEF assists banks in Serbia to provide access to financing for startup companies and farmers. This support further aligns with the program’s goals of enabling start-up companies and novice entrepreneurs to turn their business ideas into a reality, launch their own businesses, and make them sustainable, successful, and profitable in the long term.

// In this program, “Start-Up” has a specific meaning as business newcomers. Initial registration is not even required for application; having a good and sustainable business idea, prior knowledge and experience, and the desire to turn the idea into a growing business are sufficient. The program covers several areas of support, including financing provided by participating banks and access to knowledge through advisory and mentoring models. In the new phase of the start-up program, a special training concept for partner banks has been implemented, involving selected managers from Halkbank AD Belgrade who can assist applicants not only in selecting and implementing loans but also in developing their business ideas. This enhances the opportunities for those who believe in their business ideas, from the most innovative to everyday sectors, to materialize them in any organizational form. We invite all those who have decided or recently ventured into entrepreneurship to obtain the necessary documentation and apply for participation.

DAP: Incentives for Insurance of Assets in Agriculture

// Another program in the series of regular support programs for farmers is the call from the Directorate for Agricultural Payments for accessing incentives for risk management through crop, fruit, perennial, nursery, and livestock insurance premiums. Potential beneficiaries who can expect support through this call are registered active agricultural households that insured crops and fruit of field, vegetable, fruit crops, grapes, and hops, as well as nurseries and livestock at an insurance company in the previous year. The maximum total amount of incentives a beneficiary can obtain per request for one calendar year is a significant 2.5 million dinars. When it comes to agriculture, the percentage of agriculture insurance in Serbia, according to the official statistical data of the National Bank of Serbia for the first quarter of 2023, is 4% of the total insurance premiums, even though agriculture is one of the most important sectors of the Serbian economy, contributing almost 10% to the overall GDP, and it is subject to significantly higher risks than most other sectors.

Insurance, as a financial product, has great importance for the sustainability of the economy and agriculture. All investments in the development and sustainability carried out by companies and farmers are exposed to various risks arising from the nature of business, market, and competition. Reducing these risks largely results from investments in knowledge, skills, and processes, as well as proper organization and management of business, adequate financial management that ensures financial capacity and sustainability, and other elements. On the other hand, insurance is a solution that compensates

for the financial loss resulting from materialized risks. As the business complexity increases, the number of insurance solutions grows, but insurance of physical assets, both for entrepreneurs and farmers, allows the transfer of risk as a form of risk management, compensating for damages from weather events, theft, fires, floods, and similar events in a proven and secure manner. This property insurance is not only traditional but also a highly efficient solution to adequately cover this aspect of risk and uncertainty, thus improving the sustainability and competitiveness of businesses.

// Apart from the currently low penetration, the trend does not indicate significant progress at the moment. After almost 10 years since the catastrophic floods, even in the periods of “super-cell” storms causing substantial damage, the dynamics of agricultural insurance growth have not significantly increased. In terms of the overall insurance level, with insurance premiums accounting for 1.9% of the GDP, Serbia still lags behind the EU, which records 7%. Given this identified room for growth, the subsidy model for insurance is a secure contribution to changing this structure for the better, and, therefore, it certainly deserves every recommendation.

1Annual inflation10.20%
2Reference interest rate6.50%
3Unemployment rate9.90%
4Average net salary - RSD86,112
5Average pension - RSD37,797
6Exchange rate RSD/EUR
On the last day of the month117.1996
Average exchange rate for the month117.2015
7Exchange rate RSD/USD
On the last day of the month110.7537
Average exchange rate for the month109.6498

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