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Newsletter: It’s time for SMEs and Happy New Year!

Dear friends, partners, donors,

During 2022, we advocated for sustainable development in Serbia, and particularly for the key role that small and medium-sized enterprises (SMEs) are needed to play in it. We have also shown that SMEs a have great potential to do so—provided that policymakers and society stop treating them as “second-class” economic citizens.  The past year has brought political uncertainty, increased costs, and declining export demand due to the energy crisis, the war in Ukraine, and an increasingly sceptical attitude of business partners towards the international position of Serbia.  In addressing these challenges, SMEs have been showing grit and resilience, as during the pandemic.  And this, despite the additional pressures and risks they suffer in the absence of the rule of law in Serbia. Or maybe it’s exactly because of it—they operate prepared for unpleasant surprises. A piece of good news is that SMEs are showing an increasing interest in greening and digitalization. By promoting those transformations, we plan to make a small contribution not only to the growth of their productivity but also to living in Serbia by European values and standards.  

Our New Year’s resolution is to work on encouraging the development of continuous and stable support for SMEs through cooperation with all the relevant stakeholders. We will also persevere in the effort to make Serbia a better society for all its citizens. We take this opportunity to summarize our work and messages in 2022 before New Year’s wishes and announce the key activities we plan for the year ahead.

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Favorable circumstances we identified in the past have enabled Serbia to accelerate economic growth. This was an opportunity to turn growth into sustainable development, and it was missed. In the current crisis, failure to abide by European values in the way we work threatens not only to erode  organizational / institutional capacity, as we can already see happened with EPS, but also a regression in the development accomplished thus far. Servicing EPS’ debts has required a significant narrowing of the fiscal framework (available in Serbian only), as well as a bigger increase in electricity prices than the European energy crisis would have required alone. Despite this, untargeted budget spending has continued: giving to broad groups of citizens including those who do not need help, and permanently worsening the position of those who need it most.  This is dangerous considering the strong inflationary momentum. Also, in the long run, it is difficult to believe in the sustainability of the economic structure that is being built as decisions on sizable public investment are made outside the law, and without the scrutiny and participation of the public, or even the expert community.

As one of the coordinator of the “SDGs 4 All” Platform, we participated in the assessment of the progress Serbia made in 2021. Despite some improvements, Serbia has not made progress in achieving the 2030 Agenda. We paid special attention to the SME sector (more in the next section) and some of the key challenges they face: lack of skills in the labour market (Serbian only) and digital and green transformation. At the local level, we continued to work on strengthening local communities’ capacities for the management of their own development (Serbian only), while in three local self-governments – Pirot, Knjazevac and Sombor (Serbian only) – we actively worked on recognizing development opportunities and preparing local development plans.

CEVES OBSERVATORY

The war in Ukraine (started in late February 2022) pushed the already deteriorating economic sentiment in Europe deep into negative territory.  However, there are encouraging indications that the decline is stabilizing, and even recovering somewhat in recent months, especially in the countries of Central and South-Eastern Europe. The economic sentiment in Serbia notably improves only in the last, November observation.

Source: Eurostat, consumer and bussines surveys 

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We are particularly proud of the exhibition “SME Serbia 2030:SME100 Expo”, held in June 2022, where we gathered and presented 100 leading SMEs (PDF for download). We showed their potential and started bringing together their voices to make them better heard. The conference spawned a number of initiatives (available in Serbian only) to further strengthen the competitiveness and innovation of the SME sector, which CEVES further on took and advocated for in front of decision-makers and the public.

From 2023, we are embarking on an advocacy campaign – IT’S TIME FOR SMEs! We want tangible change in SME positioning within Serbia’s policies, an end to the neglect or even discrimination that they currently suffer. In particular we will focus on: the return of the tax credit on investments (which large companies get and SMEs do not); raising export support to the level common in competing countries in Europe; reorienting the support criteria for attracting FDI from a focus on employment numbers, to the overall effect it has on the domestic economy, especially in the field of knowledge building. The campaign will be launched at the end of January with a panel discussion and display of the June SME100 exhibition, in the premises of the Serbian Chamber of Industry and Commerce. During a series of media activities, the campaign will include a panel discussion in the Kopaonik Business Forum on March 7 – where we will also present our new SME competitiveness and innovation index*, and the second conference “SME Serbia 2030: SME100: Expo 2023” in September.

*With the support of USAID, through the five-year project “Big Small Economy” implemented by ACDI/VOCA , which CEVES is a partner of since 2022.

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CEVES STANCE

Instead of the (once key) question – when will Serbia enter the EU, the key question is becoming – will Europe enter Serbia, and when? These days the Serbian leadership and public are once again distracted by the complex situation in Kosovo, which threatens to spiral out of control, and erode Serbia’s image of stability. Stability, and its image, are a key conditions of the country’s further economic recovery. The second condition is the perception of a clear European perspective.  This too is being seriously eroded by both the Kosovo problem and by Serbia’s lack of alignment with the key issue in the EU’s foreign policy – ​​the attitude towards Russia. The third condition is the establishment of the rule of law and respect for European values ​​in the management of public affairs. Laws are generally good, but they are not applied, or do not apply equally to everyone. In this context, the adoption of the currently proposed Law on the Police, which in fact legalizes the violation of basic human rights, would be the biggest setback in the previous two decades. By contrast, living in legal certainty, and policy development with the participation interested parties, would radically improve the business environment and the quality of public investments, therefore strengthening Serbia’s businesses while facing external challenges. And that is not all. “Europe in Serbia”, a condition that is entirely in our hads, would strengthen Serbia’s European perspective and trust.

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We are entering the new year with announcements of the ownership transformation of public companies (into joint-stock companies), and particularly of the state-owned electric power company EPS i Norwegian advisors also participate will advise. The real “news” however these days has been that “EPS exports electricity again”.  In fact, the Serbian power system will not return to full production capacity for at least another year, while public finances will have been saddled with repaying the price of last year’s disaster for much longer. The reorganization of public enterprises cannot transform them from political to well-managed systems until the establishment of the rule of law transforms paper competences into real ones. Meanwhile, some progress could be made by adopting consistent energy and climate strategies that would answer the question of how will Serbia meet the emission reduction commitments it has taken before the world. And what is the plan for when in 20-30 years there is no more coal?  In any case, any real change will have to be preceded by serious preparations of a gradual reduction in the massive excess employment related to all public utilities.  Most important and demanding is the preparation of alternative sources of employment, as it takes resources and time. We hope that the Norwegian advisors will see this as well.

In the coming year, we will make significant efforts to encourage SMEs and help them move on with greening their business and their communities. We will argue in a series of brochures and workshops, that making business green is not only a trend or a threat imposed by the European Union, but also a moral obligation and a global process that shape future demand and brings opportunities for improving productivity and profitability of the business.

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THANK YOU NOTE

Great thanks to our partners from the project “SDGs 4 All”, as well as GIZ, SDC, World Bank, National Convention on the European Union, USAID, embassies of Germany, Switzerland and Slovenia, and other donors and partners who motivate us to jointly seek solutions to the challenges of a sustainable future for the Serbian economy. We look forward to further cooperation!

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A focus group was held in Sombor as part of the support for the development of the Mid-Term City Development Plan

The Center for Advanced Economic Studies CEVES, together with the Timok Youth Center, held a focus group with representatives of Sombor in the premises of the Sombor Educational Center in Sombor, on April 7, 2022, within the framework of the Economic Pillar of the “Sustainable Development for All” Platform. Among those gathered were representatives of the city administration, companies, the Chamber of Commerce and public utility companies. The event was organized with the aim of gathering information and participants’ views on topics that will be significant for the preparation of the Mid-Term City Development Plan.

During the event, participants shared their opinion based on their experience and expertise on the following topics: infrastructure quality, labor supply, the state of agriculture and tourism and the main obstacles to their further development, the availability of financial instruments for companies, as well as the impact of current events in Ukraine and covid crisis on business. Among the main conclusions of the focus group is the need to improve the quality of infrastructure, as well as the need for larger investments in order to stimulate and further improve the domestic economy. This is the first of several events that CEVES will be conducting in Sombor with the aim of formulating recommendations for the city administration for the preparation of the Mid-Term Development Plan.

Conference „SMART-Aid“ – More Accountable, Rewarding and Transparent State-aid

This Conference serves to launch several proposals leading to the development of a sustainable state-aid monitoring mechanism focusing on state-aid quality and impact. These include a Proposal for an Open Data Module, a Blueprint of a Citizen-friendly Report on State Aid, a Proposal for a “Subsidies Portal” and a Set of Outcome-oriented Indicators for Monitoring of the Quality of State-aid-supported Investments.

After a series of reports finding no progress in the field of state-aid in Serbia, the European Commission finally noted progress. The 2019 Law improved the alignment of Serbian legislation with EU rules and increased the operational independence of the Commission for State Aid Control. However, the level of transparency and accessibility of state-aid data is still underdeveloped, while the evaluation of the society’s benefits from granted state-aid is still missing. The first panel is dedicated to elucidating the management of state-aid with a focus on public information and monitoring, and how it can be improved: the current availability and accessibility of data, the role of institutions, and the assessment and monitoring of its benefits. The second panel will be focused on the future of state-aid, i.e. the likelihood of (the much desired!) significant improvement in its development effects. The latter requires putting it in the service of all citizens’ welfare, by focusing on the development of Serbia’s economy (particularly SMEs) and a significant improvement of the quality and structure of FDI.

This effort has benefited from the support of the Royal Norwegian Embassy in Belgrade and the Balkan Trust for Democracy of the German Marshall Fund of the United States, in scope of project ‘’Support It SMART – State-aid More Accountable, Rewarding and Transparent”. The ultimate goal is to contribute to fundamental progress in the establishment of accountability through transparency and increased independent monitoring of state-aid in Serbia.