37. Serbia

SMEs dominate the Serbian business economy, accounting for 99% of all enterprises. In 2020, SMEs employed more than 65% of the labour force and accounted for 59.2% of total gross value added and 66.4% of turnover. Sector-specific data indicates that most SMEs belong to the trade sector (23.9%), followed by the manufacturing sector (15.1%), professional, scientific and innovative activities (13.7%), and transportation and storage (9.7%).

Despite the unprecedented crisis caused by the COVID-19 pandemic, preliminary results from the 2020 SME lending conditions survey conducted by the National Bank of Serbia indicate that SME financing conditions did not deteriorate and, in some aspects, even improved. Timely and effective measures adopted by the National Bank of Serbia and the Serbian government diminished the negative effects of this crisis.

The National Bank of Serbia adopted the first measures to support the domestic economy even before the state of emergency was declared (15 March 2020) by cutting the key policy rate by 50 base points, to 1.75%, in order to maintain favourable financing conditions. Since March 2020, the key policy rate was cut by an additional 75 base points, to 1.0%.

In addition, the Serbian Government was one of the first in the world to adopt the Economic Measures Programme to mitigate the negative effects of the COVID-19 pandemic and support the Serbian economy. The priorities were to help economic entities in distress and to preserve jobs and wages.

The total value of economic measures in 2020 is estimated at around 13% of GDP. The support package consisted of nine measures, classified into four categories. These categories are tax policy measures, direct assistance to the private sector, liquidity preservation (e.g. financial support to the corporate sector through the Development Fund and corporate support guarantee scheme), and other measures (moratorium on dividend payments until the end of the year and one-off assistance to all Serbian citizens of age).

According to the preliminary results from the 2020 SME lending conditions survey conducted by the National Bank of Serbia in 2020, the stock of SME loans in 2020 increased by 14.8% year-on-year to EUR 8.2 billion. The increase is in part explained by the deferral of principle and interest payments on loans, which was one of the measures adopted with the goal to fight the negative economic effects of the pandemic.

New bank lending to SMEs in 2020 amounted to EUR 4.9 billion (19% lower y-o-y basis). The share of new SMEs loans among total corporate loans likewise decreased by 1.5 percentage points to 43.1% in 2020. This decline in new SME lending is explained by sizeable public support though non-debt channels such as: deferred payment of income tax advances, deferred payment of payroll taxes and social contributions in the private sector (during the state of emergency) with subsequent repayment of liabilities in instalments (starting from 2021 at the earliest), as well as direct support in the form of payment of three minimum wages to entrepreneurs and SMEs. The share of outstanding SME loans in total corporate loans increased to 33.3% (from 31.9% in 2019). Long-term loans increased as well and amounted to 87.6% of total SMEs loans.

Lending conditions measured by interest rate levels continue to improve. Interest rates for SME loans in/or indexed to foreign currencies decreased to 3.7% in 2020 (from 4.0% in 2019 and 4.3% in 2018). However, the interest rate spread between large companies and SMEs increased slightly to 1.6 percentage points (from 1.5 percentage points in 2019). On the Serbian dinar-denominated loans side, interest rates were 0,6 percentage points lower compared to the previous year (4,2% compared with 4,8%) and the interest rate spread between large companies and SMEs was 1.6 percentage points.

The rejection rate (the percentage of SME loan applications that are rejected) was 19.3% in 2020 (6.5% in 2019), while the utilisation rate (the percentage of used SME loans among all SME loans that were approved) was 96.1% in 2020 (98.2% in 2019). At the same time, the share of loans requiring collateral (excluding bills of exchange) was 50.5% in 2020 (50.7% in 2019).

The share of non-performing loans (NPLs) in total SMEs loans stood on a similar level as the previous year: 4.6% in 2020 compared to 4.7% in 2019. On the other hand, NPLs for the whole corporate sector decreased to 2.8% in 2020 from 3.2% in 2019.

SMEs dominate the Serbian business economy, accounting for 99% of all enterprises, most of them (96.2%) being companies with less than 10 employees.

In 2020, SMEs employed more than 65% of the labour force and accounted for 59.2% of total gross value added and for 66.4% of turn over. Sector-specific data indicates that most SMEs belonged to the trade sector (23.9%), followed by the manufacturing sector (15.1%), professional, scientific and innovative activities (13.7%), and transportation and storage (9.7%).

The National Bank of Serbia conducts an annual survey on SME lending conditions among commercial banks established in Serbia. Data covers financial loans provided by these banks to SMEs as well as cross-border loans.

Despite the unprecedented crisis caused by the COVID-19 pandemic, preliminary results from the 2020 SME lending conditions survey, conducted by the National Bank of Serbia, indicate that the SME financing conditions did not deteriorate, and in some aspects even improved. Such improvement are a result of the timely and effective measures adopted by the National Bank of Serbia and Serbian Government to minimize the negative effects of the crisis.

The stock of SMEs loans in 2020 increased by 14.8% year-on-year to EUR 8.2 billion. In 2020, new bank lending to SMEs decreased by 19% year-on-year. The share of new SMEs loans among total corporate loans likewise decreased by 1.5 percentage points to 43.1% in 2020, but the share of outstanding SME loans in total corporate loans increased to 33.3%. Share of long-term loans also increased and accounted for 87.6% of total SMEs loans. Part of the increase of stock of loans is explained by the implementation of debt moratorium, which was one of the main COVID-19 public measures. In addition, other Government measures for SMEs were very generous and impacted on lowering SME demand for loans, and consequently lowering SMEs’ new lending. With these measures, the Serbian Government managed to achieve the goal of maintaining low SME debt levels, especially if these new funding was needed for liquidity. In the future these loans would have only be a burden for SME business and would have harmed their future growth.

Lending conditions as captured by interest rate levels continue to improve. Interest rates for SME loans in/or indexed to foreign currencies decreased to 3.7% in 2020 (from 4.0% in 2019 and 4.3% in 2018). The interest rate spread between large companies and SMEs increased slightly to 1.6 percentage points (from 1.5 percentage points in 2019). On the Serbian dinar-denominated loans side interest rates were 0.6 percentage points lower comparing with the previous year (4.2% compare with 4.8%) and spread between large companies was 1.6 percentage points.

The rejection rate (that is, the percentage of SME loan applications that are rejected considering the amounts of loans) was 19.3% in 2020 (6.5% in 2019), while the utilization rate (the percentage of used SME loans among all SME loans that were approved) decreased to 96.1% in 2020 (from 98.2% in 2019). Meanwhile, the number of loans requiring collateral (excluding bills of exchange) decreased to 50.5% in 2020 (from 50.7% in 2019).

The share of NPLs in total SME loans in 2020 stood at 4.6% (compared to 4.7% in 2019). The NPLs of the whole corporate sector decreased to 2.8% in 2020 from 3.2% in 2019.

The Serbian government recognised the development of SMEs as one of the most important economic goals. In 2015, the Strategy to support in the development of SMEs and competitiveness (Strategy) was launched with the target of realising listed actions points during 2015-2020. The Strategy defined priorities and measures that should be implemented in the medium term. In 2016, the Year of Entrepreneurship was declared, and after successful actions made during 2016, it was decided in 2017 that the Year of Entrepreneurship be upscaled to the Decade of Entrepreneurship.

Under the Decade of Entrepreneurship programme, many government institutions, chambers of commerce, business associations, international organisations, donors, and NGOs are involved. Activities within this programme relate both to financial support (e.g. loans, subsidies, development of exports, support in entering supply chains, etc.) and non-financial support (such as education, requalification, professional and consulting assistance, etc.). In 2020, besides regular programmes, additional programs to support SMEs during the Covid-19 Pandemic were introduced. In the following paragraphs, some of the projects announced in 2020 are presented.

Program of Financial Support to Business Entities for Maintenance of Liquidity and Current Assets in Difficult Economic Conditions due to the Covid-19 Pandemic - Entrepreneurs, cooperatives, micro, small and medium-sized companies that are in majority private or cooperative ownership and that perform production, service, trade and agricultural activities have the right to use the funds. Funds under this Program could not be used for: organizing games of chance, lotteries and similar activities; trade in oil and petroleum products; production and marketing of any product or activity, which is considered prohibited by domestic regulations or international conventions and agreements.

The Innovation Fund has implemented a Public Call to Combat the Effects Caused by the Covid-19 Pandemic. Due to the need to respond quickly to the new challenges, the public call was open for seven days. Out of 229 submitted project proposals, financing in the amount of RSD 53.3 million was approved for 12 innovative projects of companies that are estimated to be able to create the most relevant, fastest and strategically important response to specific problems. and medium-sized enterprises. The maximum amount of financing within this public call is RSD 6 million per individual project, with the co-financing by the Fund for Innovation Activity covering a maximum of 85% of the total project costs.

The Program for the Promotion of Entrepreneurship and Self-employment is implemented by the Public Investment Management Office in cooperation with the Development Fund of the Republic of Serbia and with the professional support of KFW. The goal of the Program is to encourage the development of entrepreneurship through joint support for the establishment of new economic entities. In that way, conditions would be created for creating sustainable growth and employment. The total available funds for the realization of this program are RSD 300 million.

The IPA Project "EU for Serbia - Financial Resources for SMEs" is the implementation of the guarantee scheme and improving the capacity of SMEs to access various forms of financing. The value of the project is EUR 20 million, and this guarantee scheme through the leverage effect enables new loans in the amount of at least EUR 180 million for a minimum of 1,250 SMEs.

The Programme for the Competitiveness of Enterprises and Small and Medium-sized Enterprises (COSME) establishes the possibility of financing activities aimed at raising competitiveness and the establishment and growth of small and medium enterprises in Serbia. So far, 6 banks (Banca Intesa Serbia, UniCredit Bank Serbia, Erste Bank Serbia, Halkbank Serbia, OTP Serbia and NLB Bank of Serbia) have signed a guarantee agreement with the European Investment Fund within the COSME program. The signing of these agreements brings a total of over a billion euros in finance for companies in Serbia.

Entrepreneurship Development Program Through Financial Support for Beginners in Business in 2020 - Funds under this program could be used for: current maintenance of business or production premises up to the amount of RSD 350,000.00; purchase of equipment (new or used, not older than five years); permanent working capital, which can participate a maximum of 20% in the structure of the total investment that is the subject of financing.

Entrepreneurship Encouragement Program Through Development Projects in 2020.The funds allocated by the Program in 2020 were intended for: purchase, construction, extension, reconstruction, adaptation, rehabilitation, investment maintenance of production space or business space that is part of the production space, or space for storage of own products, raw materials and intermediate goods; purchase of new or used production and construction equipment (not older than five years), including tools, as well as for delivery vehicles for the transport of own products and other means of transport used in the production process; permanent working capital, which can make up to 10% of the total investment; procurement of software and computer equipment. The approved funds of the Fund for lending to business entities under this program amounted to RSD 3.4 billion.

Support Program for Small Enterprises for the Procurement of Equipment in 2020 - Entrepreneurs, micro, small and medium-sized legal entities and cooperatives that meet the requirements of the Program may be entitled to financial support in the amount of up to 25% of the grant from the net value of the investment. The remaining amount of the project value is financed from loans from commercial banks and leasing companies, with the economic entity being obliged to provide a share of 5% of the net value of production equipment. The total amount of funds intended for the implementation of the Program amounted to RSD 1.0 bn.

Support Program to Enter the Supplier Chains of Multinational Companies - The first public call from 2020 co-financed the following groups of activities: Investment in tangible assets of the Program Beneficiary; Investment in tangible assets of the Program Beneficiaries; Investment in the tangible assets of the Program Beneficiaries; Consulting support for optimization of production processes in accordance with expected standards of production process management in target sectors; Consulting support for the introduction or improvement of corporate governance; Consulting support for quality system certification according to the requirements of industry-specific standards. For the realization of the first public call in 2020 within the Program, a budget in the amount of RSD 290 million has been determined. The second public call from 2020 co-financed the following groups of activities: Purchase and installation of industrial robots / equipment for automation / digitization / optimization of existing production processes; Purchase and installation of autonomous robots with the ability to learn and robots; Improvement of production halls. For the realization of the first public call in 2020 within the Program, a budget in the amount of RSD 200 million has been determined.

Support Program for Export Promotion in 2020 - The program co-finances the following groups of related activities of companies related to the improvement of export potentials, in accordance with the company's application and the results of the diagnosis of export capabilities: Consulting support for export marketing activities; Exhibition at international fairs and business meetings; Entering the target market and improving the position on the same; Consulting support for the improvement of export capabilities; Improvement of production capabilities. A budget in the amount of RSD 150 million has been allocated for the implementation of this program.

Digital Transformation Support Program - The goal of the MSME Digital Transformation Support Program is to create a clear infrastructure to support MSMEs in the digital transformation process. The MSME Digital Transformation Support Program for 2019 is implemented through three phases, as follows: Development of individual Expert Analyzes for MSMEs by a Certified Consultant, including company self-assessment; Development of a Digital Transformation Strategy for MSMEs by a Certified Consultant, for selected areas listed in the Expert Analysis; Implementation of the solution envisaged by the Digital Transformation Strategy. The total budget of the Program is RSD 70 million.

Loans for Fixed Current Assets - Loans for permanent working capital are intended for economic entities classified as micro, small, medium and large legal entities, registered in the relevant register in the Republic of Serbia, which submit financial reports for the previous two years in which no loss is stated, as follows: economic entities that are majority privately or state-owned, except for public enterprises; economic entities with a share of social capital of less than 40%. The allocated funds amount to RSD 7 million.

Loans / Guarantees for Micro and Small Legal Entities to Maintain Current Liquidity - Loans for maintaining current liquidity projects are intended for economic entities classified as micro, small, medium and large legal entities, including economic entities operating in underdeveloped and extremely underdeveloped areas. The allocated funds amount to RSD 7 million.

Investment Loans - This financial support is planned to finance the purchase of office space, procurement of imported and domestic equipment (technological, transport, etc.), construction, upgrade, adaptation and rehabilitation of office space, it is possible to refund funds if investments are made in the period of six months before the request for credit and relate to the investment in question. The Fund may also approve investment loans for the purchase of a legal entity or property in bankruptcy proceedings and assets in enforcement proceedings, as well as investment loans for the purchase of shares. 20% of the total loan can be used for the purchase of permanent working capital. The allocated funds amount to RSD 7 million.

Short-term loans - Short-term loans are granted to economic entities, for occasional working capital, to encourage competitiveness and liquidity of the domestic economy. The allocated funds amount to RSD 7 million.

Loans for Exporters - The program is implemented by the Export Insurance and Financing Agency (AOFI). AOFI approves credit arrangements in local currency with a repayment period of up to five years to exporters - domestic legal entities and entrepreneurs. The determined funds amount to RSD 3 million.

Garranties for Exporters - The Agency issues guarantees on request and by order of domestic legal entities and entrepreneurs, provided that the exporter, in addition to the contract which is the basis for issuing the guarantee, has: realized export in the value of at least EUR 100,000.00 in the previous year or other appropriate proportional amount realized in the current year until the moment of submitting the request, with possession of the contract whose subject is export work in the value of at least EUR 100,000.00 in the current year; achieved a positive net operating result in the previous year.

Factoring - A financial instrument by which a factor (AOFI) finances export companies on the basis of future (outstanding) receivables arising from the sale of goods or services on foreign and domestic markets. Pursuant to the Law on Factoring, and in accordance with the conditions, AOFI performs factoring activities - purchase / purchase of receivables, for the needs of exporters. Funds allocated from the budget amount to RSD 700 million.

The Early Development Program is implemented by the Innovation Fund and is intended for young companies that develop technological innovation that is needed in the market. Applicants for this program are micro and small companies. The condition is that the companies are mostly privately owned by residents of the Republic of Serbia (51% or more) and not older than five years at the time of filing the application. Support includes a combination of up to 70% of the grant provided by the Innovation Fund and a minimum of 30% of the funding provided by the funding recipient. The fund allocates a maximum of EUR 80,000 per individual project. Projects can last up to 12 months. In 2020, funds in the amount of EUR 3.1 million were approved to finance 43 company projects. In addition, in 2020, 23 projects were realized for which EUR 1.7 million were approved in 2019.

The Innovation Fund also implements the Innovation Co-financing Program intended for companies that need significant financial resources for the commercialization of research and development. The program aims to further develop existing innovative knowledge-based companies, encourage the establishment of cooperation with international partners and increase the number of technology companies. The fund allocates a maximum of EUR 300,000 per individual project. Projects can last up to 24 months. In 2020, funds in the amount of EUR 3.7 million were approved to finance 14 company projects. In addition, in 2020, 24 projects were realized for which EUR 4.4 million were approved in 2019 and 2018.

The Innovation Fund implements and the Science and Economy Cooperation Program aims to encourage private sector companies and public sector research organizations to implement joint research and development projects with the idea of ​​creating new or improving existing commercially viable products and services, such as and innovative technologies with a significant impact on future development and market potential. The fund allocates a maximum of EUR 300,000 per individual project. Projects can last up to 24 months. In 2020, 22 projects were realized for which EUR 5.7 million were approved in 2019 and 2020.

The Innovation Fund also implements the Innovation Voucher Program. Innovation vouchers are a simple financial mechanism that enables small and medium-sized enterprises to use the services of the research sector to raise the level of innovation of their products and become more competitive in the market. The maximum amount approved per innovation voucher is up to RSD 800,000, i.e. the innovation voucher covers up to 60% of the total costs of the service. A maximum of two innovation vouchers can be granted to one applicant, in the maximum amount of RSD 1,200,000.

The Company Acceleration Program is Implemented by the Fund for Innovation Activity. The program aims to support techno entrepreneurship and improve access to sources of financing, in order to increase competitiveness and economic growth in the Republic of Serbia. All beneficiaries of this program will receive a grant in the amount of EUR 20,000 to EUR 50,000 which will be available to them during the acceleration period for the needs of business development.

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