Serbian Economy - Challenges & Opportunities by CorD Magazine

S ER B IAN E C O N O MY C H A L L E N G E S A N D O PP O R T U NI T I E S

To Regular Flow

Radoš Gazdić, Director of he Development Agency of Serbia (RAS) ● Violeta Jovanović, NALED Executive Director ● Stephen Ndegwa, World Bank Country Manager for Serbia ● Jelena Knežević, Certified Auditor, Managing Director, LeitnerLeitner Srbija ● Dejan Vukotić, CEO of AOFI – Serbian Export Credit and Insurance Agency ● Mira Petrović, Pošta Srbije CEO ● Jelena Galić, AIK Bank CEO ● Nihat Biševac, Mayor of Novi Pazar ● Dragana Stanojević, Chief of Party at USAID’s Cooperation for Growth project

WITH THE FIRST PACKAGE OF ASSISTANCE TO THE ECONOMY, THE SERBIAN GOVERNMENT FULFILLED ITS TASK OF PRESERVING MOST ECONOMIC SECTORS AND JOBS. FUTURE OUTCOMES DEPEND TO A LARGE EXTENT ON THE GLOBAL DEVELOPMENT OF THE SITUATION, BUT ALSO ON THE READINESS OF THE NEW CABINET TO PERSEVERE WITH REFORM PRINCIPLES AND ITS DIALOGUE WITH THE ECONOMY

CONTENTS

To Regular Flow

TAKING ON NEW CHALLENGES WITH A NEW GOVERNMENT

VITALITY IN CONFRONTING CHALLENGES

PANDEMIC BRINGS DIGITALISATION TO THE FORE

VIOLETA JOVANOVIĆ, NALED EXECUTIVE DIRECTOR

COMMENT

THINKING AHEAD & WORKING TOGETHER INNOVATIVELY

ENOUGH ENERGY, CONTINUED INVESTMENT

JELENA KNEŽEVIĆ, CERTIFIED AUDITOR, MANAGING DIRECTOR, LEITNER LEITNER SRBIJA

RADOŠ GAZDIĆ, DIRECTOR OF HE DEVELOPMENT AGENCY OF SERBIA (RAS)

READY FOR A FRESH RESTART

STEPHEN NDEGWA, WORLD BANK COUNTRY MANAGER FOR SERBIA

EPS - ALWAYS WITH SERBIA’S CITIZENS AND ECONOMY

EXPORTS DRIVE THE ENTIRE ECONOMY

DEJAN VUKOTIĆ, CEO OF AOFI – SERBIAN EXPORT CREDIT AND INSURANCE AGENCY

CITIZENS AND THE STATE COUNT ON US

MIRA PETROVIĆ, POŠTA SRBIJE CEO

NEW MARKETS ARE OUR AIM

24 26

LIFE HAS RETURNED TO NOVI PAZAR

JELENA GALIĆ, AIK BANK CEO

NIHAT BIŠEVAC, MAYOR OF NOVI PAZAR

OVERCOMING THE CRISIS TOGETHER

CCIS AND USAID OVERVIEW OF THE STATE OF THE ECONOMY

FORGING A NEW FUTURE

SERBIA’S NEW GROWTH AGENDA

July

COMMENT

Taking On New Challenges With A New Government With the first package of assistance to the economy, the Serbian Government fulfilled its task of preserving most economic sectors and jobs. Future outcomes depend to a large extent on the global development of the situation, but also on the readiness of the new cabinet to persevere with reform principles and its dialogue with the economy

espite being expected, the results of the parliamentary elections of 21st June confirmed that Serbia expects a government of continuity. This is very important in an economic sense, because it is expected that the new cabinet will also decide on the policy of continuing fiscal stabilisation and, finally, the continuation of reforms that slowed down in the previous period. These policies will undoubtedly be under the strong influence of the consequences of Covid-19. However, judging by the views of international financial institutions, domestic experts and the business community, they are necessary for Serbia to return to the path of accelerated growth following the expected hit caused by the quarantine. At this juncture there are still no economic indicators that could more clearly outline the consequences the quarantine had on the Serbian economy. Specifically, in order to provide an overview of the situation, alongside data for the months of quarantine, it will be even more important to check data from May, and even more so June, when most companies began returning to normal operations. What is encouraging is certainly the fact that the implementation of some foreign investments that had already been agreed has now continued. The further development of the situation depends largely on the currently very unfavourable development of the epidemiological situation around the world, which prevents a quick return to the normal level of economic activity. Serbian companies, according to numer-

ous surveys that have been released in the meantime or are underway, have replaced the pessimism of April with relative optimism, and a belief that they could return to normal operations by the end of this year, and could compensate for losses incurred during the quarantine within two years. This optimism is based on the extensive and timely distributed package of assistance from the Government of Serbia to the economy, as well as the fact that businesspeople in Serbia are accustomed to great economic turbulence and raw survival, as a definition of success.

conditions of full return to normality. This relates primarily to the tourism industry and the automotive sector, which has perhaps been hardest hit by the virtual collapse of this industry at the European and global levels. Even if this second aid package were administered quickly, it is quite clear that countries like Serbia have a small fiscal capacity to intervene in the domestic market, because with more borrowing they would exceed the level of borrowing considered as being risk-free. It is due to these reasons, but also due to the fact that countries with small internal markets

The election results indicate that a new government could be formed very quickly, which is very important, as the hardest hit sectors of the economy require a second targeted aid package Data on GDP movements, production levels, exports and the number of jobs will undoubtedly change in the coming months. They will depend to a large extent on economic trends at the global level, and primarily in Europe, because the Serbian economy is connected to the European market and dependent on its European partners, even more than that may seem. The aforementioned election results indicate that a new government could be formed very quickly, which is also important, because after the first aid package there is, for now, no second targeted aid package directed towards those sectors that have been hardest hit and which couldnâ&#x20AC;&#x2122;t recover quickly even under the

cannot rely on internal forces to compensate for external disturbances, that the fate of the Serbian economy will depend to the greatest extent on the epidemic and the economic situation in Europe and globally. In such a narrow but still significant space for action, a need arises for additionally close cooperation between the business community and the Government of Serbia on improving the business climate, accelerating digitalisation and the reform labour legislation, which would, on the one side, accommodate the challenges of organising work from home and, on the other, extended periods of engaging workers with reduced working hours. â&#x2013;

July

INTERVIEW

RADOŠ GAZDIĆ, DIRECTOR OF HE DEVELOPMENT AGENCY OF SERBIA (RAS)

Vitality In Confronting Challenges

The experiences of the Covid-19 pandemic could prompt major companies to opt for geographically closer suppliers and logistically simpler processes in the future. This is an opportunity for Serbia to attract new foreign investors, but also for domestic companies to become parts of large, global supply chains. Under the circumstances of the pandemic, there was almost no delay in constructing capacities for contracted investments, which reached record levels in 2019

evelopments on the economic front have undergone major shifts and changes at the global level during the Covid-19 pandemic. That uncertain period is a kind of challenge even now, and will probably remain so in the coming months for all companies, whether they are large corporations or small companies and entrepreneurs, in Serbia or any other country of the world. “As for Serbia specfically and the operations of companies here, a distinction could primarily be made between two types of companies, because the challenges or effects of the ‘Covid-19 situation’ differ depending on whether we are talking about small and medium-sized enterprises and entrepreneurs or

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multinationals and large companies operating in Serbia,” says Radoš Gazdić, director of the Development Agency of Serbia (RAS). When it comes to the SME sector, RAS is in constant communication with enterprises, but in a survey conducted with representatives of this sector has also seen that some of the challenges include maintaining the level of operations that they had prior to the crisis, says our interlocutor. Some of them had to temporarily halt their work and production, and they also had fears about how they would maintain liquidity. However, they agree that the measures taken by the government proved to be an effective intervention without which it would not have been possible to return

to regular business flows. The period ahead will certainly be challenging for this type of company, given that operations are still experiencing a slowdown and, as such, companies remain wary of new financial investments and exposure to risks. “Additional measures that the state plans to take as a form of support to additional employment will certainly contribute to increased operational security,” says Gazdić. Large companies and multinational corporations had a situation globally, and also here, which saw the interruption or aggravated functioning of supply chains. And that will probably influence the future reorientation of these companies towards suppliers that are geographically closer and towards pro-

cesses that are logistically simpler. “In such potential changes, we hope that companies from Serbia will join the supply chains of major world players – that they will take advantage of the opportunity that has imposed itself as a positive in this period,” says our interlocutor. Speaking in general terms, most investment projects in Serbia didn’t experience major standstills during the “corona period”, whether that relates to building work on the construction of factories that didn’t stop at all, or existing production capacities that experienced minimal stoppages to production, while some of them commendably redirected production during those moments to protective masks and essential sanitary materials. “When the state of emergency was lifted, and in some cases even directly before that, most factories returned to normal in terms of production. Leading in this were manufacturers from the processing industry, the automobile industry and, of course, the food industry, which did not experience standstills but rather worked to greater capacities. I also believe there won’t be a shortage of new investment projects, that their number will not lag behind the number we had in the previous period,” says the RAS director. According to the reports of the Financial Times’ specialised FDI Intelligence service, Serbia has been at the top of the world over the last few years in terms of the number of

• Which of the Government’s measures from last year and this one would you single out in terms of advancing the business environment and the country’s attractiveness for investment? - There are many measures, especially when it comes to amendments to existing legal norms that were made in the previous period in order to improve business operations in Serbia, such as amendments to the Labour Law, the Law on Planning and Construction and the Law on Investment, which also relate

Last year we had a total of 3,825 billion euros of foreign direct investment, which is the largest inflow of FDI in our country to date foreign direct investments, based on the size of its economy. According to the statistics of Eurostat, with a GDP growth rate of five per cent in the first quarter of this year, Serbia took first place among 38 European economies. “We are proud of these statistics, because they say that we’ve attracted a larger volume of greenfield investments than can be expected from an economy and a country of this size,” says Gazdić. And this trend continued in 2019. “We had a total of 3,825 billion euros of foreign direct investment, which is the largest inflow of FDI in our country to date,” says Gazdić.

directly and indirectly to the creation of an optimal environment for investors. In parallel with the increase in minimum earnings, the Government increased the non-taxable part of salaries and reduced contributions to prevent employers’ costs from increasing significantly, which is also significant for future investors. A set of laws and tax breaks were adopted at the end of last year that are envisaged for the creation of an even better business environment in our country. Also of great importance are the measures taken by the Government of Serbia relating to

the mitigating of the negative consequences of the Covid-19 pandemic. In a very short time frame, the government adopted three regulations with which it brought precision to the legal framework for the implementation of state aid measures from an economic package worth 608.3 billion dinars, or 5.1 billion euros, and then also very quickly began implementing those same measures. This segment of the government’s proactive moves is very important for maintaining liquidity and sustainable business operations, primarily among domestic companies, especially those in the sector of small and medium-sized enterprises and entrepreneurs, which have been the hardest hit by this crisis period. The application of measures, such as the moratorium on loans, deferrals for payments of taxes and contributions, direct payments, deferrals of corporate income taxes and loans for liquidity, have been accepted very well by domestic companies and are extremely important for maintaining the stability of the domestic economy. • These measures are particularly important from the perspective of preserving jobs and creating new ones. Considering RAS’s work to date, could the number of jobs created to date by contracted investments be estimated? - Only investment projects launched since the founding of RAS in 2016 – and we are talking about slightly more than 100 investment projects – should directly create over 40,000 jobs, while indirectly, according to World Bank estimates, these projects have enabled the creation of four to five times as many jobs, if we take into account construction works, logistics jobs, suppliers and other segments involved in, and related to, investment projects. Likewise, upon realisation, the value of investments in these projects will reach in excess of 2.3 billion euros. I say all this in order for us to form a clear picture of what the Government of the Republic of Serbia has succeeded in doing in a very short period of time, but also us - as the Development Agency of Serbia - in terms of attracting FDI. And the key to our success, compared to neighbouring states and the countries of the region, is primarily in the unequivocal and everyday commitment of the Government to creating a positive business environment and

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attracting direct investment through the reform of legislation and the regulating of business. This is a precondition that says to investors that we are an orderly, predictable and safe environment for doing business. • What kind of approach does RAS take in attracting investments that enable the transfer of technology? - We recognise the significance of investments that enable transfers of technology

years we will have new generations who are sufficiently skilled and trained for that which is needed by investors and the market. Supporting this is the fact that it is becoming increasingly popular to study some of the engineering sciences in our country, as well as the fact that a large number of our young people attend technical high schools. All this is a consequence of our de facto industrial tradition. We already have companies that cooperate with schools in terms of dual edu-

equal opportunities, rights and obligations for both domestic and foreign investors when it comes to applying for incentives. It is true that domestic companies are often lagging behind in percentage terms compared to foreign investors when it comes to investments and subsidies, which is a consequence of their weaker investment power, but everyone has the opportunity to receive incentives under the same conditions. The advantage of RAS is in the fact that we devote equal attention to supporting and developing the domestic economy through programmes and activities intended for the SME sector. By strengthening the capacities of domestic companies, through the improving of their operations and potential, on the one hand, and attracting direct investments, on the other, we strive to create a sustainable and successful system in which investors, both domestic and foreign, can rely on domestic suppliers and incorporate them into their flows, especially those that are orientated towards exports of the products and services of companies from Serbia. • To what extent is RAS equipped to lobby for Serbia in competition with the development agencies of other countries, in a professional and financial sense? - I consider that, as an Agency, we are suf-

and strive to attract precisely the kinds of companies whose core business is based on sophisticated technology. Some such companies are already present in our country, such as Brose, MTU and ZF. We also encourage the transfer of the latest technologies because we have very good foundations for implementing such projects - and those are the professional and educated people that are essential for work in technologically significant companies. Our educational institutions train high-quality engineers, technicians and researchers, and institutes participate in this with their many years of experience in the domain of scientific research. • Does Serbia have a suitable workforce that’s aligned with the needs of foreign investors? - I don’t think we have any fears about having a suitable workforce, and that in the coming

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Our people at RAS have over 15 years of work on foreign investment projects behind them and are extremely well acquainted with the way investors think cation – one successful example of that cooperation is the Secondary Technical School in Požega, which could, according to government announcements, become a regional training centre for CNC machines. • Which measures are available to RAS for encouraging domestic investment that remains below the appropriate level? - The regulations of the Republic of Serbia define, clearly and unambiguously, that all incentive measures apply equally to both domestic and foreign companies. According to the existing Law on Investments, there are

ficiently ready in every sense to be serious competition to countries and development agencies in other countries, and testifying to that are the results and successes of the last few years. The fact that we achieve much better results than any other country in the region in terms of direct investment, the fact that we have been declared the best investment destination several times, and the fact that we have the most investment in the Western Balkans (€3.8 billion in 2019), says enough about whether we are equipped and whether we are “beating” the competition in other countries. ■

July

INTERVIEW

VIOLETA JOVANOVIĆ, NALED EXECUTIVE DIRECTOR

Pandemic Brings Digitalisation To The Fore In the first wave of the crisis, it is certain that the measures of the Government of Serbia were crucial in preventing the collapse of the private sector. These measures were unexpectedly generous and easy to implement. At the same time, doing business during Covid-19 showed us how important it is to automate procedures and transition to electronic systems, which we will continue to support in the future.

he availability of cheaper loans for liquidity, a sector-specific approach and support for development will be crucial in the period ahead, says NALED Executive Director Violeta Jovanović. These kinds of measures would be a logical continuation of the first package of state measures exceeding five billion euros, which exceeded the expectations of businesspeople, says our interlocutor. “That was much-needed help for many companies whose operations were disrupted by the Coronavirus outbreak.” “The area of the economy gathered within NALED is satisfied that state measures included three of our key recommendations for the

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recovery of companies: postponing the payment of taxes and contributions to earnings during the state of emergency; securing favourable credit for liquidity and paying financial support to entrepreneurs and SMEs and their employees, alongside a previously adopted moratorium on loan repayments. These are also convincingly the most significant measures envisaged by almost all European countries,” says NALED’s executive director. “Our package is unexpectedly generous and, with an 11% share of GDP, is almost four times larger than the packages envisaged by Croatia or Bosnia-Hercegovina, whose measures account for three per cent of their GDP. We are also satisfied that the measures were adopted in a relatively short period of time and that they were easily administratively implementable. “On the other hand, the measures were completely linear and targeted support subsequently arrived. The government recently adopted a regulatory framework to provide businesses in the fields of tourism, hospitality and passenger transport with liquidity and working capital from the Development Fund. We will see what the result will be like, but we already have hints that interested in these loans among companies is high.”

• How does the situation look now that the economy is slowly returning to normal? Where do companies face the greatest challenges? - That depends a lot on the sector, on whether it relates to a large, medium-sized or small company. For example, hoteliers face a significantly reduced turnover of guests compared to the same period last year and will need more time to return to the 2019 level of operations. Tourism, but also passenger transport and craft services, were initially forced to completely suspend operations and they will need time to make up for that which they’ve lost. NALED conducted a survey on the eve of the adoption of the measures that showed, among other things, that 63 per cent of companies operating in the sectors of tourism, hospitality, transport, environmental protection and agriculture expect their income to be halved due to the crisis. This is not easy to compensate for and I believe that companies are faced with finding a new development strategy and ensuring the continuity of work, which NALED will support them in doing. One of the biggest challenges is also to prepare for a possible second wave and maintain operations until the threat of the virus has passed completely.

• Which other measures are needed to help the economy return to a growth trajectory as of next year? - NALED will advocate for future recovery programmes to encompass: • Measures that improve the competitiveness of the domestic economy – administrative relief, predictability and the reduction of taxes, contributions, fees and charges; • Measures that stimulate the transformation of business (from conservative to innovative), promote flexible operations, e-commerce, e-payments, the use of new technologies, R&D, improving postal services and transport and delivery services; • Measures that aim to establish models for flexible forms of employment and engagement (seasonal work, part time work, working from home and away from the premises of an employer, new forms of self-employment – work across platforms). We are certainly monitoring the situation, listening to the voice of the economy and municipalities, and proposing concrete new

measures to support local development and basic services for citizens at the local level. • A common opinion is that the pandemic has encouraged many companies to undertake the digitalisation process much faster. What are

send and receive e-invoices and submit requests and reports electronically. It is now clearer than ever to everyone how important it is to have up-to-date databases, that the possibility exists to reliably deliver electronically and that information systems are

Serbia's aid package to the economy was unexpectedly generous and, at an 11% share of GDP, is almost four times higher than the packages envisaged by Croatia or Bosnia-Herzegovina, whose measures account for three per cent of their GDP your insights? How good are existing measures aimed at encouraging digitalisation? - We are satisfied with the existing measures, and NALED will continue to advocate for the automation of procedures and the transition to electronic systems wherever that makes sense. The pandemic has brought digitalisation to the fore. Numerous companies have switched to an electronic method of doing business if they need to register workers, conclude contracts,

secure. One of the good examples that came to life well before the crisis is the introduction of e-Counters, because businesspeople who deal with cadastral records can monitor the status of their cases online, send an online application for registration and get an updated excerpt from the register. A good example is the Tax Administration, which has digitised most tax returns, among other things, enabling those who pay in lump sums to receive a decision on their

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annual tax at the beginning of the year, online in the tax postbox. They previously waited months for a decision, making it difficult for those paying in lump sums to plan their business. • How prepared were we institutionally for the mass transition to online operations: how ready were government services, the banking system and our communications infrastructure to withstand such a transition? What lessons have we learned? - The banking sector, together with the Treasury and the Tax Administration, had a significant role in the administration of fiscal benefits and direct payments, and this passed without major problems and delays. Moreover, telecommunications operators had a 50% increase in voice traffic in the first weeks and they withstood that without major problems. When it comes to lessons learned, what the crisis taught us is to appreciate digital solutions and we are now mature for e-government as a society. That’s why we should be consistent in implementing the priorities set by the Government, confirmed and recently adopted by

because I believe that all European countries and regions will activate additionally on this issue, in order to stimulate economic growth. What NALED advises is to work on improving their business environment, in order to attract investors long-term in the best high-quality way. NALED can provide them with particular support by including them in the Programme of

We are not abandoning our 10 priorities that we will deal with in 2020, because that's important for everyone who employs workers in Serbia to have better conditions for doing business the eGovernment Development Programme, which we have developed over the past year together with all relevant institutions.The eGovernment Development Programme 2020-2022 envisages that as many as 300 eGovernment services will be available in the next two and a half years, which will be used regularly by at least 1.5 million citizens and businesspeople. • How many of you local government members were in a position to maintain contacts with potential foreign investors? What do you expect to happen in the area of foreign investment at the local level, considering the economic changes globally? - We’ve seen that several investors have realised their plans in the previous period in that sense, but the fact is that the state of emergency slowed down numerous processes, including this one. Local governments are awaited by a big job in interesting investors in the coming period,

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Certification for Municipalities with a Favourable Business Environment in Southeast Europe (BFC SEE). Municipalities that have acquired this title have an advantage, because they have developed a more efficient administration by going through this demanding exercise. • What are the priorities of the work of NALED in the coming period? - When we presented our Grey Book of Bureaucratic Procedures, no one could have presumed that the world would be hit by an unprecedented health crisis that has no economic basis, but does have ramifications for the economy. We then singled out 10 priorities that we will deal with in 2020, and we are not abandoning that, because it is important in order for everyone who employs in Serbia to have better conditions for doing business. The priorities are reducing taxes and contributions on earnings, improving and

expanding the fiscalisation system, establishing a public register of non-tax charges, expanding the scope of the law on seasonal workers, developing the eAgrar system for the electronic registration of agricultural holdings and granting of subsidies, and abolishing the obligation to prove transportation costs. These are the essential changes for which we are advocating. However, in these changed circumstances that no one expected, we will follow the further development of the situation, and if there is a second wave of the coronavirus, NALED will again be the first organisation to propose adequate measures. • How much have your members contributed to Serbia coping more easily with the pandemic? - NALED is an organisation that brings together more than 300 members from the public, private and civil sectors. We are satisfied that our members, each in their own domain, have given their contribution to overcoming the consequences of the pandemic as soon as possible. We launched a comprehensive dialogue in order to support the state in a timely manner, and through the proposed measures to combat Covid-19 we acted as the voice of the economy and municipalities. Local governments have faced reduced revenues from taxes, fees and charges. That’s why one of NALED’s proposals was the formation of a special fund that would support the easier overcoming of the crisis locally. Furthermore, NALED launched an online donation platform in early April for the most endangered local governments. The goal was for us to connect and unify our members and partners in the fight against Covid-19, primarily those municipalities that need help, with companies and international organisations that are able to provide that help. To date there have been donations of food, medical supplies, protective and IT equipment provided through the platform for 41 municipalities, worth a total of more than 250,000 euros. When you add up how much socially responsible companies gathered within NALED have donated since the outbreak of the pandemic, directly and in cooperation with philanthropic organisations, that figure exceeds two million euros, and the money has mainly been used to procure urgently needed medical equipment. ■

July

INTERVIEW

STEPHEN NDEGWA, WORLD BANK COUNTRY MANAGER FOR SERBIA

Ready For A Fresh Restart

Serbia’s robust response to the health pandemic has shown good results and enabled it to be among the first economies in Europe to re-open. We are now looking forward to Serbia’s return to focusing on the medium-term agenda, where the Bank’s strengths – technical advice based on global knowledge and targeted and prudent financing – can support Serbia’s speedy recovery and accelerated growth

rior to the outbreak of Covid-19, the World Bank had announced its plans to allocate $340 million in loans to Serbia in 2020 in order to help the country improve its business environment, infrastructure and mining. We spoke with Stephen Ndegwa, World Bank Country Manager for Serbia, about the impact of Covid-19 on Serbia and the new priorities of the World Bank in this context.

• How did unfolding events impact on your plans, if at all? - We adjusted our activities to support the emergency response to the COVID-19 pandemic and its socio-economic impact, while our strategy in support of Serbia’s medium-term agenda to accelerate growth and improving livelihoods,

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including the interventions you mention, remains valid. Besides the 92 million euro COVID-19 health emergency project approved on 26th May, the Bank advanced 20.8 million euros from Serbia’s Catastrophe-related budget support programme (CAT-DDO). Moreover, restructuring three of our existing projects will provide Serbia with an additional 26.5 million euros to respond to urgent needs. This means that nearly 140 million euros was made available to the government to help finance its response to, and recovery from, the COVID-19 crisis. With the re-opening, we are discussing an acceleration of certain planned projects, including in support of macroeconomic stability, jobs- and material-intensive infrastructure rehabilitation/development, and more spirited

action to build resilience, including in health systems, and climate action. We see these as necessary adjustments, but also as a bridge to the medium-term reform agenda, for example, as outlined in the World Bank’s report: New Growth Agenda, which remains an imperative in order for Serbia to prosper. • Considering the current developments in the Serbian economy, where do you see the role of the World Bank in helping the country to address challenges? - Serbia’s resolute response to the health pandemic has shown good results and enabled it to be among the first economies in Europe to re-open. Now that the worst of the first wave of the pandemic is behind Serbia, we look to

Serbia’s return to focusing on the medium-term agenda, where the Bank’s strengths – technical advice based on global knowledge and targeted and prudent financing – can support Serbia’s ambitions. In this regard, the planned Public Sector Efficiency and Growth development policy loan will support reforms to sustain macroeconomic stability and enable public sector and business environment reforms to drive growth. In addition, we have several ongoing projects that help the public sector be more efficient, transparent and closer to citizens. Finally, we have several ongoing and planned projects that help to build and maintain physical infrastructure.

We also recommend implementing timebound interventions, since the current type and size of support is only sustainable in the very short term. Finally, transparency and accountability will be key to improving the effectiveness of interventions, but also for increasing public support. • According to your estimation from the beginning of 2020, the Serbian economy could have grown by seven per cent if state imple-

(i.e. for companies based in Europe moving some, or even the majority, of their production closer to home) and diversifying them (i.e. avoid concentrating most of the production in one geographical area). If this trend materialises, Serbia could potentially benefit. But this is not guaranteed – again, addressing the fundamentals is the key. So, if Serbia wants to benefit from the changing global economic landscape, the reforms set out in the New Growth Agenda will be critical.

• Given the novelty and unpredictability of the situation, to what extent can the Bank rely on its previous experiences? Which new policies/ types of intervention may the Bank use? - I think the most recent event that most of us will remember is the Global Financial Crisis of 2008/09, when we saw a significant worsening of the global outlook, although most analysts would agree that the current crisis and its social consequences are likely to be more severe than in 2008/09. Some of the lessons learned from 2008/09 were the need to act quickly and have

The New Growth Agenda for Serbia aims at improving fundamentals – such as governance, regulatory quality, skills and access to finance – as crucial areas for putting Serbia on a trajectory of high growth a coordinated approach to support aggregate demand. I think we also learned a lot about the need to strengthen financial sectors, and today financial sectors are in a much better shape than in 2008/09. Over the years of the Bank supporting countries to weather many different types of crises, we have learned quite a bit about how to design and implement interventions. It is important to target interventions so that only the intended groups benefit from the policies. It is tempting to go for universal support, which is easier to implement; but, given limited resources, targeted interventions are fiscally more sustainable, and maximise impact for a given level of resources.

mented reforms. In which aspects could the government still work on this reform agenda, under the new circumstances? - Working on the kind of reforms proposed in the New Growth Agenda is now even more important than before the crisis. The essence of those reforms is to put Serbia on a trajectory of high growth that can be sustained over the medium term. And for this, improving the fundamentals – first and foremost governance, but also regulatory quality, skills, access to finance – is crucial. As the world emerges from the crisis, one trend that a lot of people are talking about is the need to adjust global supply chains. This includes both shortening the supply chains

Finally, the crisis is an opportunity to reset the economy by advancing long overdue reforms for sustainable growth and achieving European standards of livelihoods – greening the economy, improving the quality and access to public services, such as health and education, and increasing public investment, including at the local level. • Given that all states are at present pressed to borrow money to help their economies survive, how much could Serbia move in that direction without jeopardising its fiscal stability? - Serbia entered this crisis in a relatively strong fiscal position. Since 2014 it turned a deficit of six per cent of GDP into surpluses of around one per cent in 2017 and 2018, slashing public debt from 67 to 53 per cent of GDP by 2019. This has allowed Serbia to put in place a generous support package, valued (including bank guarantees) at 11 per cent of GDP, significantly larger than other countries in the Western Balkans. The response to the crisis will have a high fiscal cost. The World Bank projects a fiscal

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deficit of between seven and eight per cent this year and debt levels (including guaranteed debt) increasing by over 10 percentage points of GDP in 2020, undoing much of the progress made since 2014. We do not doubt that these measures were necessary, as seen globally given the magnitude of the threat and impact. Going forward, it will be important to prior-

There are also some potential benefits in the recovery phase for which Serbia should position itself. The increased possibility of bringing supply chains closer to major markets and avoiding the concentration of manufacturing in only a few countries or regions – the so called ‘near-shoring’, as opposed to off-shoring of activities. This could mean increased

that Serbia’s system was ’in tatters’ – it was extremely stretched, but fast, corrective actions seemed to have paid off. The Bank has supported improvements in the health sector in Serbia since 2003, with a focus on health financing reforms for better efficiency, quality, access and equity. The just-approved COVID-19 emergency project will strengthen the national health system’s preparedness against subsequent pandemics. Investments under this project pandemic response simultaneously boosts Serbia’s capacity to deal with everyday health burdens, especially the inordinate burden of non-communicable diseases. • To what extent could unemployment become an issue in Serbia? - A key concern is the health crisis quickly morphing into an economic crisis, with significant social consequences. World Bank simulations on the impact of the slowdown in growth suggest that poverty could increase by 125,000 people or two percentage points. In a more prolonged economic crisis, poverty could increase by four

itise public spending. There will be a premium on increasing the efficiency of public spending, prioritising public investments with high returns and enhancing transparency and accountability. Perhaps this is not a time to build the stadiums announced last year. • What are the possible scenarios when it comes to GDP growth in Serbia in 2021, and what would be the major factors leading to different outcomes? - The World Bank projects that Serbia’s economy will decline by 2.5% in 2020. This decline is slightly lower than the average decline for countries in the Western Balkans, at 3.1%. The most affected sectors will be manufacturing, affected by supply disruptions in value chains, as well as containment measures, and certain services sectors that require a physical presence, such as transport, tourism and non-essential retail. This projection assumes that containment measures are gradually lifted in Serbia and across the world toward the end of the second quarter, and that economic activity gradually recovers in the second half of the year. As the economy recovers, we project growth of four per cent in 2021.

July

A key concern is the health crisis quickly morphing into an economic crisis with significant social consequences, including an increase in poverty by two to four percentage points investment and relocations of parts of supply chains closer to major markets, for example, to the Western Balkans, given their proximity to the EU. In thinking about this possibility, it is important to continue addressing many of the issues that have constrained investment in the past – because these will remain impediments to investors making decisions on whether to come to Serbia: the business environment, fragmented regional markets or the availability of skills. • Many countries, Serbia included, met the pandemic with a healthcare system more or less in tatters. Do you envisage stronger intervention of the World Bank in that sector? - The COVID-19 pandemic has indeed exposed the lack of preparedness of many public health systems across the globe. I would not say

percentage points. We have seen unemployment increasing across the region, but the large support packages provided by many countries, including Serbia, may have prevented more economic and social suffering. In a first phase, all countries, including Serbia, have focused their support on protecting incomes of firms and individuals, for example, by providing incentives so that firms do not lay off workers. As countries embark on an economic recovery phase, support should be provided to firms that are competitive and can quickly create employment, as well as to people that may have to find employment in different sectors. Continuing to implement the structural reforms agenda, which I highlighted earlier to explain how Serbia can achieve growth of seven per cent, will also contribute to more and better jobs. ■

JELENA KNEŽEVIĆ, CERTIFIED AUDITOR, MANAGING BUSINESS DIRECTOR, LEITNER LEITNER SRBIJA

Thinking Ahead & Working Together Innovatively LeitnerLeitner is one of the leading tax advisory and auditing firms in Central and Eastern Europe, which is increasingly recognised in Serbia due to its professionalism and the high quality of its services. LeitnerLeitner has teams of experts who work together across disciplines if the situation calls for it

s your personal advisor, LeitnerLeitner supports you in all of your tax-related issues, allowing you to concentrate fully on your business. That saves time and unnecessary effort. Our teams of experts work together across disciplines if the situation calls for it, says Mrs Knežević. • LeitnerLeitner Srbija was established in 2011 and in less than a decade has grown to become one of the country’s most influential companies in the area of tax consulting and auditing. Clients value your professionalism and high quality services. Is there anything else that sets you apart from the competition? - We strongly consider that the outstanding technical skills of our team and the high quality of LeitnerLeitner services are key success

employees and their knowledge are our most valuable resource. LeitnerLeitner is always orientated towards the professional and personal development of our employees by investing in their continuous education in the fields of tax, audit and accounting. • Can a good and successful business strategy be built without an individual approach to the client, their needs and specificities, whether that specificity refers to a product and service, the market etc.? - An individual approach is an imperative and the most important technique to provide unique service. We live in a time of constant changes of legislation and it is therefore crucial to constantly be up to date with the latest amendments. Through the knowledge of our employees, we

Our teams of experts work together across disciplines, if the situation calls for that factors in Serbia. Whether you are an SME or an international group, we never lose sight of our goal, which is to identify, coordinate and realise optimisation potentials. We think ahead with the aim of realising viable, innovative solutions for our clients, and creating sustainable added value. As we work in the financial services industry,

are able to provide high quality services to our clients, making us successful at the international level. Our experts are passionate about finding feasible solutions for clients’ tax, audit and financial advisory issues. As your personal advisor, LeitnerLeitner supports you in all of your tax-related issues, allowing you to concentrate

fully on your business. That saves time and unnecessary effort. Our teams of experts work together across disciplines if the situation calls for it. This rapid transfer of knowledge ensures that you have the combined knowhow of our entire company at your disposal at all times. • How would you evaluate the current economic environment in Serbia? How much will the pandemic that we’ve gone through, as well as the fact that this is an election year, impact on our economy? - The impact of the Covid-19 pandemic on the world economy, and thus Serbia’s, economy is being evaluated as significant, with some sectors sustaining greater losses compared to others, which will try to mitigate possible losses and evade an “out of business” scenario. The Guarantee Scheme for supporting the economy that was adopted by the Republic of Serbia is assessed as being positive, introduced with the intention of providing some kind of “time out” for registered business. The economy curve is anticipated as W shaped, with a sharp incline following the establishing of control of Covid-19, followed by another decline. However, a second and stronger rise will come after all the consequences of Covid-19 are neutralised and the economy takes its “natural course”. ■

July

BUSINESS

EPS - ALWAYS WITH SERBIA’S CITIZENS AND ECONOMY

The energy system worked reliably throughout the epidemic, thanks to the extra efforts of the employees of Elektroprivreda Srbije [Electric Power Industry of Serbia]. During this time of crisis, EPS went out of its way to meet the needs of all citizens

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Enough Energy, Continued Investment

he Covid-19 Coronavirus epidemic changed life and our everyday existence as we know it in record time, limiting movements and economic activity, but even during difficult times there are activities and occupations that don’t have the right to rest. There are always employees in the electricity sector, because a stable and high-quality supply of electricity is the first condition for everyone to be able to do their jobs and to enable Serbia to overcome one of the greater challenges in recent history. They have been, and remain, a pillar of support for citizens and the economy. Miners, engineers, fitters, dispatchers and all

other EPS employees are the ones who enable enough electricity to be available for households and ensure the safe operation of hospitals, the police, the army, stores of food and medical equipment, grocery shops, pharmacies... The energy system functioned reliably the entire time, thanks to the extra efforts of EPS employees. Sufficient electricity was produced for households where all members were together 24 hours a day, as well as for public facilities and industries that weren’t allowed to stop. Miners at the Kolubara and Kostolac opencast mines worked during the state of emergency, 24 hours a day, every day. Coal was produced as it is under

STABLE FUNCTIONING We don’t see EPS workers every day, but their work secures enough electricity for citizens. They contribute to the stable functioning of the state, and as many as 20,000 people worked hard every day, under very complex conditions, during the state of emergency.

regular conditions, because the continuous production of this resource is essential for the stable production of electricity. All thermal and hydro power plants worked continuously, and special emphasis was placed on the distribution and supply of electricity. Installation teams worked to the maximum in order to repair any possible network failures as soon as possible. It was crucial that there were no interruptions in the distribution of energy to healthcare institutions and, in particular, additional power was provided for so-called Covid-19 hospitals. At the company they say that every part of the EPS system is important, every person, which is why all protective measures were taken from the very first day. Workers received protective equipment, while all premises and the wider working environment were regularly disinfected. “Employees are the greatest value of EPS and taking care of them is the top priority. We secured all protective equipment and strictly adhere to the measures that protect the health of workers during this difficult time of the fight against the Coronavirus,” noted Milorad Grčić, acting director of EPS, speaking during the epidemic. “EPS has always been a stable pillar of energy for the citizens and economy of Serbia, especially when that was needed the most. Thanks to all employees, who participate directly in the process of producing coal and generating and distributing electricity and who take the situation seriously and respect the measures.” “This job does not exist without people, but we know that we have to keep our distance, wear masks and gloves, and take care because of ourselves and our families, and especially because of our responsible job. There must always be electricity, and we’ve provided it in all difficult times, and that is now our most important task. It is always difficult at the mine, now especially, and it is no easier in power plants and in the field,” says one EPS employee.

“We are aware that many human lives would be endangered without electricity, and that’s why we are extra careful.” During this time of crisis, EPS went out of its way to meet the needs of all citizens, not only those who were unable to pay their bills on time due to the state of emergency and the ban on movements. It was therefore decided to enable not only pensioners, but all citizens of Serbia to settle their financial obligations by the end of June and to extend the five per cent discount on all electricity bills during the state of emergency. This relates to all three bills for electricity consumed during the state of emergency (March, April, May) and a five per cent discount will still be applied if they are paid in full by as late as 30th June. These discounts will be shown in the bill that arrives in July, i.e. the first following bill following payment. moreover, interest will not be calculated on any of these three bills for the months of the

state of emergency, provided obligations are settled by 30th June. Investment projects also continued during the epidemic. One of the largest projects at EPS, the construction of a desulphurisation plant at the TENT A power plant, is progressing at a very good pace. “The largest environmental project in Serbia, on the construction of a flue gas desulphurisation system at the NikolaTesla AThermal Power Plant in Obrenovac, is progressing well and will enable sulphur dioxide emissions to be reduced 10 fold,” said EPS acting director Grčić, speaking during a tour of the plant’s construction site. “With this project we are not only guaranteeing clean air for Obrenovac and residents of Obrenovac and the surrounding area, but rather this project guarantees the extending of the work of TENT A, EPS’s largest thermal power plant. The contract for the desulphurisation system at TENT A was signed in 2017, while works are now progressing at an ever better pace and we expect the plant to become operational as of May 2023. This will reduce SO2 emissions on units A3, A4, A5 and A6 by as much as 10 fold.” Along with ensuring the stable production of electricity, EPS is working intensively on the modernisation and expansion of its distribution network. New substations have been made operational and launched all over Serbia, in Ub, Lazarevac, Kruševac, Loznica and Gornji Milanovac. With this a high standard and quality of electricity supply is enabled for households and businesses. Better living conditions for citizens and infrastructure for opening new factories and building highways and corridors are created through EPS’s investments in Lazarevac, Loznica and Mionica. The 110kW Kruševac 3 substation, in which 140 million dinars has been invested, has been reconstructed and put into operation. ■

GOOD RESULTS Mining production in Serbia during the first quarter of this year was nine per cent higher than in the first quarter of 2019, and production during April was six per cent higher than it was during April 2019. Miners managed to dig more coal even under the conditions of the epidemic. The production of electricity and total mining is expected to be higher in 2020 than it was in 2019, even under the conditions of the state of emergency. Miners and energy workers provide, and will continue to provide, a huge contribution to ensure the economy in 2020 will be among the best, from the perspective of GDP in the region, but also in Europe as a whole.

July

BUSINESS DEJAN VUKOTIĆ, CEO OF AOFI – SERBIAN EXPORT CREDIT AND INSURANCE AGENCY

Exports Drive The Entire Economy For the 15 years since its establishment, Serbian Export Credit and Insurance Agency (AOFI) has achieved successful international cooperation and positioned itself as a market leader and the most reliable credit insurer. This is always important for export-orientated companies, especially in years of crisis like this one

ith the aim of overcoming the crisis caused by the Coronavirus outbreak, AOFI has granted a period of suspension on all due and outstanding liabilities to all credit borrowers until the end of the year, after which the borrowers will be offered the possibility of annexing and rescheduling their repayment obligations in 24 instalments.

• Serbian Export Credit and Insurance Agency celebrates its first 15 years of operations. How satisfied are you with the results achieved and what makes you especially proud? - The aim of AOFI is to improve the export-orientated economy of the Republic of Serbia, because exports is a driver of the entire economy. During past 15 years of operations we have constantly been at the service of our clients, providing them with the opportunity to utilise and improve their export capacities. We have achieved successful international cooperation and positioned ourselves on the market as the leader and the most reliable credit insurer. We have signed several international cooperation agreements, among which I would single out reinsurance agreements with leaders such as Swiss re and R+W industries.

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• AOFI has established a moratorium on all receivables with the aim of overcoming the negative impact on the export-orientated economy of Serbia caused by the Covid-19 pandemic. How important is that to your clients? - The Government of the Republic of Serbia adopted a programme of economic measures to support the economy, with the aim of reducing the negative effects of the Covid-19 virus pandemic, “weighing” 5.1 billion euros, which represents half of the annual budget of the Republic of Serbia, or 11 per cent of GDP. This programme is all-encompassing and will greatly help the economy to more easily overcome this global crisis, that has impacted negatively on far stronger economies around the world. Huge fundings have been provided, which will enable – in addition to the continuation of GDP growth after the crisis – the preservation of the level of foreign trade exchanges, i.e. the preservation and growth of the level of exports of the Republic of Serbia. Apart from participating actively in the implementation of the adopted measures, the Agency has brought the decision to establish the moratorium on all receivables, with the aim of overcoming the negative impacts on the export-orientated economy of Serbia. Considering the situation that has emerged, as well as the

fact that exporters face liquidity issues and thus more difficult repayment of their obligations, AOFI, with its the primary role to impact exports growth and provide support to export-orientated businesses, has granted a period of suspension on all due and outstanding liabilities to all credit borrowers until the end of the year, after which the borrowers will be offered the possibility of annexing and rescheduling their repayment obligations in 24 instalments. • This pandemic, which has blocked the entire world, has shown us just how fragile even the most developed economies are. What could we learn from that; what could we change in the future? What should be done in the period ahead in order to preserve the Serbian economy’s exports? - The crisis has brought the problem of collecting receivables to Serbian exporters. Thus, it has emphasised the importance of credit insurance, which is one of the most important products under AOFI products and services range. Credit insurance is the product that can and should enable Serbian exporters to retain their markets and buyers in crisis like this one, but also to try to conquer new markets and thereby improve the foreign trade position of the Republic of Serbia. ■

Citizens And The State Count On Us Pošta Srbije, Post of Serbia, is one of the country's largest and most successful public companies, thanks to the fact that it is constantly improving, but also boasts almost 15,000 dedicated workers, coverage of all 88,000 square kilometres of Serbia, availability in more than 1,900 places, and a tradition dating back 180 years

ost of Serbia is an indispensable partner in state and social projects, ready to make all its resources available in both regular and extraordinary circumstances, says CEO Mira Petrović. • What is important for the sustainable and profitable survival of such a large system as Post of Serbia? - The measure of Pošta’s success can be boiled down to the difference between an innovative entrepreneur and an opportunist. As communication progresses, so does society, and one of the main intermediaries in this process is Pošta, which applies the latest trends and achievements

Photo: Foto Pošta/ A. D. (Aleksandar Despotović)

MIRA PETROVIĆ, POŠTA SRBIJE CEO BUSINESS

strives for as a whole – gender equality and the equal participation of women in all spheres of social, economic, public and political life. • When you say contribution to society, what do you mean specifically? Have recent events caused by the Covid-19 pandemic once again put the role of Pošta to the test? - During the state of emergency, Post of Serbia was obliged to maintain continuity in the provision of its services and it responded successfully to this mission. Alongside that, it also performed tasks entrusted to it by the state, such as distributing protective equipment throughout Serbia, which showed the impor-

The state is where its connections with citizens are, and generations of postal workers live with the awareness that they are holding this society's pillars of communication in its field, as has been the case with the introduction of the telegraph, telephone traffic, radio signals, the first cable televisions and electronic certificates. However, the changes introduced by Pošta ensure that this system is also avant-garde in social events. Did you know that Pošta was the first state institution to employ women, at the end of the 19th century, and did you know that Post of Serbia is perhaps the only large system today in which women are at the forefront of the senior management? Thus Pošta confirms in practise that it has already applied that which society

tance for the state of having a strong public operator of which it is the founder. Pošta is a recognised partner in national projects, such as recording tourist vouchers and requests for the replacement of outdated health insurance cards, in the project ‘Take the receipt and win’, in the development of a unique Address Register in Serbia, the Main Civil Register etc. • Despite complex market conditions and extremely strong competition, Pošta constantly

achieves significant growth in express and logistics services. How do you achieve that? - Constant investments in infrastructure, capacity expansion and the automation of processing work that was launched by my predecessor doesn’t only mean raising the quality for the end user, but also constantly maintaining high competitiveness. Considering our leading position, in this way we also contribute to the overall development of the market. When your mission is development, then it is inevitable that the scope of services and revenue will grow. A second factor is people and experience, and the experience of Pošta has developed over 180 years. Consumers awarded that with the “My Choice 2020” acknowledgement, while the Universal Postal Union awarded it with the “Golden A” certificate for quality management in international postal traffic. • With the aim of always being close to customers, you constantly expand your network of branches, counters and the range of products and services you provide. Could you reveal part of your plans to us? - We will establish the “Kragujevac” postal and logistics centre by the end of this year. We have invested in a complex of approximately 2,000m2, the purpose of which is logistics and the automated processing of parcels. This facility will improve our business operations, but also contribute to regional development. We will also draw attention to the problem of environmental pollution this year by including a contingent of electric vehicles in our fleet for the first time. ■

July

BUSINESS

JELENA GALIĆ, AIK BANK CEO

New Markets Are Our Aim AIK Bank's entry into the market of the European Union testifies to the strength and sustainable development of the foundations upon which it bases its operations. At AIK they say that this encourages them to continue implementing the strategy of further expansion in this part of Europe, as a financially strong and credible banking group

he banking sector in Serbia is most in line with EU regulations, compared to other areas of business in our country, which in the further process of harmonisation with European regulations can also contribute to a faster alignment to EU directives and standards in other sectors, reveals Ms Galić for CorD. • With the takeover of Gorenjska Bank slightly over a year ago, AIK Bank became the first bank from Serbia to enter the European Union market. What were your expectations and were they met? - AIK Bank’s focus is on business development, the expansion of its market presence and innovation, and in accordance with that, among other things, the process of taking over Slovenia’s Gorenjska Bank has also been concluded successfully. By strengthening its position in the region, AIK Bank has strengthened its position and gained the opportunity, together with Gorenjska Bank, to offer customers a quality service in the European Union. With this takeover, AIK Bank became the first bank from

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Serbia to enter the European Union market, which testifies to the strength and sustainable development of the foundations upon which it bases its operations. We decided on Gorenjska Bank because it is stable, with a good capital base, locally recognisable and provides good foundations for further development across the entire region and, together with AIK Bank, on the international market. In short, these

market and our goal is indeed to position ourselves as one of the leading banks of the banking market in this part of Europe. I’m extremely proud that, during this takeover process, the bank has shown its capacity to respond to the complex and demanding procedures of the European Central Bank, the Bank of Slovenia and the National Bank of Serbia, which encourages us to continue im-

I have the impression that clients are satisfied and that the banking sector was really up to the task during the state of emergency are our expectations and I’m sure we’re on the right path to realising them. • We assume that the goal is for AIK Bank to gradually position itself as one of the leading players on the banking market in this part of Europe. Are we off the mark? - As I’ve already stated, we are the first bank from Serbia to enter the European Union

plementing our strategy of further expansion in this part of Europe, as a financially strong and credible banking group. • Thanks to the consolidation of the banking sector that has started, the possibility of financing large regional development projects has increased. Would that contribute to connecting economies, expanding markets,

strengthening competitiveness and accelerating the region’s economic development? - All the markets of our region are small when viewed individually. If the regional market does not unite, we will all remain without the benefits it can bring. Here I don’t mean only the banking sector, but rather economic cooperation in total. In that sense, the consolidation of the banking sector in the region contributes to the development and expansion of regional cooperation between the economies of different countries, with which the market expands, thus accelerating the economic development of the entire region. Compared to other areas of business in our country, the banking sector in Serbia is most in line with EU regulations which in the further process of harmonisation with European regulations can also contribute to a faster alignment to EU directives and standards in other sectors.

• How do you rate the set of economic measures introduced by the state to help both citizens and the economy recover as easily as possible from the financial hit brought by the pandemic? - The Government of the Republic of Serbia’s set of economic measures aimed at minimising the negative consequences of the Covid-19 pandemic arrived at the right time.

• Speaking at the third online conference entitled “Business in Challenging Times”, you discussed the good organisation of banks under the conditions of the pandemic. Do you still think that your industry responded quickly to all requests and expectations of clients? - Solidarity and mutual support are most

Our goal is to upgrade our traditional banking with digital banking, thereby creating a complete offer of financial products and services available to all important in times of crisis. In that sense, the banks reacted responsibly and supported all measures in the direction of preserving financial stability and supporting the real sector of the economy. Moreover, we improved and strengthened online channels, in order for as many of our clients as possible to be able to use as many services as possible through e-banking and m-banking. Likewise, banks enabled their networks to be available to all clients, in order for the payment system to function unhindered, and especially for us to organise all pensioners receiving their pensions on time. In that sense, I think that clients are satisfied and that the banking sector was really up to the task during the state of emergency.

I believe the package of measures adopted encompassed the most important aspects of support for the economy and I firmly believe it will fulfil its basic aims related to preserving jobs and provide a chance for the survival of primarily micro, small and medium-sized enterprises, which are extremely vulnerable at present. When it comes to the third set of economic measures, I expect it will reduce external factors, such as the decline in demand and interruptions to supply chains and their consequences, while the fall in social product will remain within expected limits. • How many debtors have decided to opted to make use of the moratorium on loan repayments? Do you expect an increase in NPLs?

- Immediately at the beginning of the emergency health situation in the country, the NBS brought the decision to introduce a three-month moratorium on the repayment of all loans. The procedure has been simplified to the maximum, so at the level of the entire banking sector, in the domain of retail banking, about 90 per cent of users have been under a moratorium since 31st March, while in the domain of corporate banking that share is slightly smaller. In addition to this, banks have also supported the real sector of the economy through the guarantee scheme for liquidity and working capital loans, so in total sums we’re talking about two billion euros with which banks are, practically, helping the economy and citizens to more easily overcome the state of emergency caused by the pandemic. In that sense, we shouldn’t expect a large growth of NPLs in the coming period, and considering the experience from the previous crisis of 2008, banks have in the meantime equipped themselves well to respond to “external shocks” in a timely and adequate manner. • Although your bank has taken serious strides into the world of digitalisation and new technologies, you constantly offer additional innovations to clients and the market. What did your plans include in total for this year and will you postpone any of that? - Through the building of a strong digital platform, we want our clients to see AIK Bank as a personal bank that understands their individual needs and provides them with the desired services, regardless of time and location. Our goal is to upgrade our successful traditional banking with digital banking, thereby creating a complete offer of financial products and services, accessible to all and tailored to individual needs. We want to use online banking to make it easier for our clients to carry out all banking transactions, the backbone of which is mobile banking, to which the complete offer of the bank is transferred. Our plans include various online banking products, both in the segment of retail operations and in the segment of operations with small and medium-sized enterprises, and at this juncture we estimate that we will make them available to our clients during this year, according to initially planned dynamics. ■

July

BUSINESS

NIHAT BIŠEVAC, MAYOR OF NOVI PAZAR

Life Has Returned To Novi Pazar Thanks to political relaxation, the creation of a favourable economic environment for investment and development, as well as a large increase in the budget, over the past four years Novi Pazar has truly become the economic, cultural, transport, educational and sporting centre of the region

ur future will be the development of small and medium-sized enterprises, agriculture and tourism, for which huge potential exists. This has been recognised, among others, by our successful people living in the diaspora, Novi Pazar natives who want to invest in their city, notes Mayor Biševac. • Has Novi Pazar become a regional centre and a better place to live and invest over the past four years, as you promised when you became mayor? How do you see your city in another four years? - The main goal of the local government was for Novi Pazar to become a better place to live, and we succeeded in that, because we are recording an increase in the number of residents. In the last three years we’ve issued more than 40 permits for the construction of residential buildings, and all of that must be accompanied by adequate infrastructure. We’ve invested more than five million euros in sorting out roads and communal infrastructure, but there were also sufficient funds for health, education, culture and sport. Reconstruction of the Stefan Nemanja Primary School cost half a million euros, while reconstruction of the high school cost

July

70 million dinars and 600 million dinars was invested in the Bratstvo Primary School, which will have a swimming pool when we open it in autumn. We are awaited by the arranging of the majority of rural schools and the construction of a new one, while planned investments in healthcare should reach 30 million euros. Our budget in 2016 amounted to 2.315 billion dinars, while this year’s is 3.150, which represents an increase of around 835 million in just four years. Apart from health and education, our focus was also on culture and sport, so I can state proudly that we are among the cities that invest the most in culture and that Novi Pazar is a city with four super league clubs. That’s a big deal for a small city. • Which projects are worth investing in? What will improve the life of citizens the fastest and the most? - Investing in infrastructure, primarily in roads, pays off the most, because it attracts investors, so in the period ahead special attention should be paid to completing the bypass around Novi Pazar, arranging riverbeds, building bridges in the city centre etc. Thanks to the roads that have been built to date and the fact that Novi Pazar is an open-air museum, because there’s nowhere else in the world with so many cultural and historical monuments of Christian and Islamic culture that are under UNESCO protection, tourism is increasingly

becoming a development opportunity. This has also been recognised by our successful people from the diaspora, Novi Pazar natives who want to invest in their city. They have built eight new motels, while they are also investing in the reconstruction of existing hotels, so we are recording an increase in the number of tourists year on year. I’m particularly proud of the fact that we bought a plot of land for the construction of a new cemetery, occupational medicine, a new school and a biomass heating plant. This last project alone - the construction of the heating plant - is worth 6.5 million euros and is significant for multiple reasons. • Will the completion of the highway through Duga Poljana and increasing the number of routes from Morava Airport near Kraljevo contribute to the economic development of Novi Pazar and Sandžak as a whole? - Yes, that will certainly be very important for us. Novi Pazar has to date been overlooked by foreign investors due to the distance from the highway and airport. I’m convinced that many large investors, including our own people who’ve built large business systems in Turkey, will invest in this area. Turkish companies have so far invested everywhere else in Serbia, because we had nothing to offer them, but now that has changed, and will be even better. ■

July

CCIS AND USAID OVERVIEW OF THE STATE OF THE ECONOMY

Regarding the current situation caused by the Coronavirus pandemic, the Chamber of Commerce and Industry of Serbia and the USAID project Cooperation for Growth conducted two iterations of the online survey “Overcoming the Crisis Together”, dedicated to Serbian businesses and entrepreneurs. The questionnaire focuses on the economic consequences of the crisis and its impact on doing business

July

Overcoming The Crisis Together

he goal of the survey is to provide a quick and valid overview of the state of the economy, during and after the outbreak of the crisis, and convey businesses’ attitudes related to the effects of the crisis, opportunities to adjust business models to a significantly changed environment, measures businesses have taken, as well as measures applied by state authorities to support the private sector. “The findings of the survey are valuable because they are “mirroring” the state of the economy and the reactions of businesses in the seventh week from the day of the decla-

ration of the state of emergency. We would like to express our sincere gratitude to all businesspeople and entrepreneurs who participated in the survey. Representatives of 806 businesses participated in the first iteration of the survey, conducted in the last week of March – the third week after the beginning of the crisis. The second phase of the survey was conducted at the end of April, in the seventh week since the outbreak of the crisis, with the participation of 1,000 businesses,” said Dragana Stanojević, Chief of Party at USAID’s Cooperation for Growth project. After seven weeks of the crisis, the strong-

est effects impacting adversely on businesses are working time limitations and work from home, an inability to cover underlying costs, and a lack of contact with clients. This is followed by an inability to collect domestic claims from the private sector, postponements and cancellations of orders, as well as difficulties in transport and logistics. The findings underline the sensitivity of the private sector to liquidity, as well as to workforce optimisation, including working remotely. Tourism and hospitality stand out as the hardest hit business sector, followed by the creative industry, transport and the storage industry. Findings show that every other business has organised work from home for part of their employees (51% of respondents). Firms have also reduced working hours (43%), while every third business has started negotiations with creditors about delaying debt repayment (31%). Results also show that 20% of respondents have partially closed business operations, while 14,6% of them opted to halt all business operations temporarily. “It is interesting to emphasise that around one-fifth of respondents (21,2%) have changed their business model/production algorithm, so we can conclude that some of the Serbian

tially (26%), while 12% of companies have already reached the same level of business performance they’d achieved before the crisis. Every third company can adapt, partially (26%) or completely (5%), to online business. However, most respondents (2/3 of them) need physical space to do business, due to the nature of their operations. Representatives of around four per cent of enterprises

DRAGANA STANOJEVIĆ

It is interesting to emphasise that around one-fifth of respondents (21.2%) have changed their business model/ production algorithm, so we can conclude that some of the Serbian businesses have been better prepared to face this unpredicted situation, adapting more easily and facing necessary changes more courageously businesses have been better prepared to face this unpredicted situation, adapting more easily and facing necessary changes more courageously,” explained Stanojević. Although the crisis has had a drastic impact on decreasing capacities for production and/or services, 60% of respondents, the majority of firms have not decided to lay off employees, while the absolute majority of them have maintained the same number of employees they had before the crisis (85%). An encouraging fact is that a quarter of businesses have already recovered par-

determined by the size of the company. Every other entrepreneur is present on the internet, while practically all medium-sized and large enterprises have a website. This fact clearly emphasised the importance of being present on the web and sends a strong message to small enterprises that it is almost impossible to manage a business without an online presence. It is noteworthy that a significant number

cited financial or other barriers in switching to an online business model. If we look at this finding by firm size, entrepreneurs and micro-businesses can more easily switch to online operations than larger companies. A web presence and eCommerce are globally proved as important levers of growth (even before the crisis) and as basic “survival” tools in the crisis caused by Covid-19. According to the survey, Serbian businesses are aware of the importance of an internet presence – 85% of them already have a webpage or plan to create one. Having an online presence is partially

of micro-enterprises and entrepreneurs that do not yet have webpages plan to launch them (17.6% and 20/5% respectively). This once again shows that micro and small enterprises understand that the internet is a unique space that may provide them with an opportunity to compete for their web presence, increasing their visibility and attracting customers incurring considerably lower costs compared to the traditional offline businesses. The sectors with an above-average presence on the internet include the creative industry, the industry of non-food products, IT, tourism and hospitality. However, every other company in agriculture and construction, as traditional sectors, has a webpage and an online presence. It is concerning to a certain extent that food and beverage production and agriculture are not sufficiently present online, as they sustained a huge hit as a result of the Coronavirus and quarantine, when having an online presence was the only way for them to promote themselves, find consumers and

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partially compensate for interruptions in supply and distribution chains. This result additionally highlights the need for systemic solutions, such as unique food marketplaces. The number of eCommerce firms in Serbia is on the rise (via their webshop/or via “third party” webshops) and amounts to around 20%, compared to 12% recorded in the Business Survey conducted by USAID’s Cooperation for Growth project last year. “It is an encouraging fact that many enterprises offer e-banking and m-banking (85.6%). However, only 12% of respondents offer some type of card payment – whether it is direct payment or payment on delivery. This has been very important during and after the crisis caused by Covid-19, because cashless payments are much safer compared to cash payments,” insists Stanojević. A small percentage of firms (16%) offer more than one payment method to their clients. In all transactions, especially in B2C ones, the most optimised eCommerce offers all types of payment methods to customers. If firms do not offer this option, they lose customers.

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A third of companies will need three to six months to recover, with larger companies recovering faster However, it is assumed that a significant section of respondents in this survey are related to B2B eCommerce, for which e-banking is an optimal payment option. Businesses from the Belgrade area are engaged in eCommerce at a level above average compared to firms from other regions. According to size, entrepreneurs and micro enterprises were the hardest hit. According to sector, tourism and hospitality, the creative industries and transport are the worst affected. The crisis has deepened – the most common estimated recovery time is from three to six months, followed by six to 12 months. Following the first phase of the crisis, every other company said it believed its operating revenues had at least halved compared to the same month last year. However, the percentage of businesses expecting a huge loss

exceeding 80% declined slightly compared to the beginning of the crisis, amounting to 23%. Observing the losses estimated for 2020 compared to the 2019, larger companies estimated smaller losses. Only 13% of large enterprises estimate a loss of more than 80%. On the other hand, entrepreneurs and micro enterprises stand out as being particularly hard hit: a third of them estimate a loss exceeding 80%. When it comes to sectors of activity, the biggest losses compared to the same month last year were recorded in tourism and hospitality (75% estimated a loss exceeding 80%), but also in the creative industries, as well as transport, storage and trade. When it comes to businesses’ expectations of the economic impact of the Coronavirus outbreak on falling sales in 2020, as compared to 2019, the number of those who say

they expect more than a twofold reduction in sales declined slightly. It comes as no surprise that the most severe consequences for sales are expected by the tourism and hospitality sectors, the creative industries, and transport and storage. What is a new is that the worst affected sectors are followed by the IT sector, which, along with transport, indicates that the decline in the performances of sectors hit severely and immediately by the crisis is now impacting other sectors within the value chains. A third of companies will need three to six months to recover, with larger companies recovering faster. The absolute majority of companies (91%) still expect difficulties in fulfilling their obligations. After the first phase of the crisis, every other firm expected to have difficulties fulfilling their obligations for up to 60 days, now, in the seventh week, firms perceive that those liquidity problems will last 90 days or more, indicating that the duration of the crisis has hit the economy deeper and recovery will take longer. In the seventh week of the crisis, businesses estimated that, on average, they will need more time to recover than was estimated at the very

through the payment of the minimum wage (76% of companies rate this as useful), deferrals of payments of taxes on earnings and contributions (69%), deferrals of advanced payments (61%), and guarantee schemes for supporting the economy (53%).

The decline in the transport, tourism and industrial sectors significantly affects the decline in other businesses in terms of their supply/value chains beginning. Assuming that the crisis ended in the last days of April, a third of companies believe that they will recover in a period of 6 to 12 months (22%) or a period longer than 12 months (8%). About 30% of companies believe that they need 3 to 6 months to recover, while about 10% of companies estimate that they could recover in a month. When it comes to large companies, as many as 19% think that a month is enough to recover. Businesses are showing great interest in state aid measures: 64% have already applied, a quarter plan to do so and only 10% are not interested at all. The most vulnerable sectors applied first for some of the packages of economic measures. According to company representatives, the most useful measures are direct assistance to the MSME sector

It is important to note that a significant number of entrepreneurs (from 10 to 14%) need additional assistance in using state aid measures, which indicates that any practical and educational support that could be offered to companies by business associations, international organisations or state institutions is welcome. The decline in the transport, tourism and industrial sectors significantly affects the decline in other businesses in terms of their supply/value chains. “Overcoming the crisis is not a phenomenon that can be observed individually. Generally, the business of one company is part of one or more supply chains/values, so the speed of recovery of a particular company should be observed in terms of the intensity

of the impact on other enterprises in the chain,” explains Stanojević. Most firms, two-thirds of them, are impacted with changes in their operations by up to 30 other firms in the supply chain moving backwards (their B2B suppliers), and by up to

100 other firms in the supply chain moving forwards (their B2B customers). However, some companies are highly intensively connected with other companies: 10% of them have more than 150 suppliers, while a quarter of them place products and services for more than 150 other companies. Transport, tourism, and industry stand out as the sectors with the largest share of companies that, through changes to their operations, directly or indirectly impact on the business operations of other companies within supply/value chains, which indicates that we can expect a second wave of the economic crisis over time The USAID project Cooperation for Growth, in cooperation with the Chamber of Commerce & Industry of Serbia, will continue to monitor the Serbian economy and all consequences caused by the Coronavirus crisis. At the beginning of the July we will publish the findings of the third iteration of the survey, which will focus on the obstacles that businesses see obstructing their road to recovery. ■

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WORLD BANK

SERBIA’S NEW GROWTH AGENDA

Forging A New Future

Serbia is at a crossroads. Although current growth rates are improving incomes in Serbia, they are not bringing the country closer to average living standards in the European Union fast enough. The current 3 to 4% growth per year is at the upper end of Serbia’s current potential growth

o reach European levels of prosperity, Serbia must embrace a new, ambitious agenda for growth. Two decades ago, Serbia made the choice to leave behind years of war and rapidly reconstruct its economy. It curbed hyperinflation and steadily restored broken infrastructure. Real GDP growth of 6.6% ensued, interrupted only by the global financial

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crisis. Now, as then, Serbia must be willing to set another high goal of doubling its income in a decade. Only strong political will, stemming from a broad consensus, can bring about the policies needed to achieve this. Serbia can deliver on an ambitious reform agenda for growth, as it has before. Skeptics may argue it is unrealistic for Serbia to grow at seven per cent instead of 3-4% annually, or to generate 100,000 jobs each year, or to abandon the legacy of pervasive state control of the economy. But in 2014 sceptics would have dismissed the likelihood that Serbia would, in 3-5 years, turn a deficit of six per cent of GDP into a surplus, nearly halve unemployment from almost 20% to 13%, or slash public debt from 67 to 54% of GDP. Yet it did. Sustaining the success of these reforms underpins the foundation for the New Growth Agenda. Serbia can become a fast-growing, sophisticated modern economy, driven by its private sector, if it maintains the hards won gains of macroeconomic stability and advances transformation in the following areas: Boosting investment. Investment, private and public, is an expression of confidence in the future, and higher levels of it will be both the cause and effect of higher growth in Serbia. An

overall investment level of at least 26% of GDP would be needed to reach a 7% growth rate and to sustain that for a prolonged period of time. Based on historical patterns in similar countries, Serbia could add one percentage point to annual growth by increasing public investment alone to five per cent of GDP. Considerably more could come from closing the gap in private investment, given that Serbia’s private sector invests nearly three percentage points of GDP less than firms in Western Balkan countries and nearly six percentage points less than those in Central and Eastern Europe. Ensuring quality of investment is essential as well, including reforms of the public investment management system. Financing growing firms. The financial sector enables investment. Obtaining credit can be the difference between expansion or stagnation for small enterprises or start-ups that have innovative ideas and entrepreneurial drive. And in Serbia the financial sector lacks instruments that best suit their needs. Introducing new financing options and invigorating capital markets would help increase the ratio of private-sector credit to GDP, which is currently only half of the EU average. Achieving EU levels of financial intermediation would boost Serbia’s GDP by 1.3% annually.

Skilling workers. There is no better example of investing for the future than better education for Serbian children and youth. Ending functional innumeracy and illiteracy is not only the right thing to do, but would also supply Serbia’s companies with better-trained workers. Labour inactivity remains high, more so among women and the Roma population. High labour taxes, particularly for lowwage earners, diminish work incentives. Reducing non-wage costs and making labour tax and social security contributions more progressive would foster labour participation. Over

two-thirds of expanding businesses are unable to find workers with the right skills. A broad reform programme to upgrade skills – from curricula reform to quality assurance systems – and evidence-driven active labour market policies would improve quality. These reforms could add 1.3% to GDP growth annually. Raising productivity. The productivity of private firms will largely determine Serbia’s prosperity. With Serbia’s average firm productivity low (Serbian manufacturing firms produce only a third of what EU firms do, using the same inputs) and slowgrowing (less than 1% annually), there is much room for improvement – and with it significant potential for Serbian firms to produce more, hire more people, and pay better. Domestic private firms are the backbone of the Serbian economy, employing over half of the formal private labour force and exhibiting the highest recent productivity growth. Over three-quarters of net job creation between 2014 and 2017 was from only 5% of firms. Removing constraints to doing business, entry and competition

should help increase the number of high growth firms. In the same way, policies that encourage competition, level the playing field and equalise access to finance, as well as improve skills, would allow for more labour and capital to flow to the most productive firms, increasing overall productivity in the Serbian economy. A one per cent increase in productivity can bring an additional 1% increase in GDP. More productive firms have a better chance of competing internationally and bring the best business practices back home. Expanding exports. Exports of goods and

(e.g., access to raw materials, cost and inefficiency of border compliance). A firm that exports is twice as productive as a firm that does not, as a consequence of higher competition abroad. Low levels of investment in new technologies, issues with trade facilitation and other behind the border constraints on potential exporters can prevent Serbian businesses from entering international markets or expanding exports. Enabling business. Serbian enterprise, financial means, and skilled labour amount to little without the right environment to do business. A government approach of not only permitting but truly enabling business is essential. Changes to improve the overall business environment would find favour with any good-governance advocate: improved transparency of administrative procedures, simplification of overly complex laws, improving governance and curbing corruption. But comprehensive execution has so far been elusive. Progress in this sphere could add 0.9% to GDP annually. Reducing and reforming state aid would bring significant benefits, but requires hard choices, notably redirecting a large share of support from unproductive state-owned enterprises to productive investment. Along with maintaining macroeconomic stability, this policy agenda would constitute a declaration that Serbia intends to seize the oppor-

Reducing and reforming state aid would bring significant benefits, but requires hard choices, notably redirecting a large share of support from unproductive state-owned enterprises to productive investment services, an important component of Serbia’s success, grew from 30% of GDP in 2006 to over 50% of GDP in 2018. Over the same period, Serbian ingenuity and favourable policies have driven explosive annual growth rates in two service exports – 27% in computing and over 11% in professional services. But these two sectors account for a small share of the economy. For total exports to reach 80 per cent of GDP, which is the level of similar small transition economies that have already joined the EU, Serbia needs policies that upgrade export-supporting services (e.g., better transport, warehousing and brokerage services, especially for domestic firms), and to improve the operating environment for exporters

tunity it has created. None of this will come easy. In 2019, the global environment deteriorated; while leading indicators suggest a further slowdown in global growth and trade in the near term. But Serbia can safeguard its hard-won macroeconomic stability and take its economic transformation to the next level. Reforms will at once promote growth and build needed resilience for the coming period and beyond. But this goal will elude Serbia if it does not construct a better foundation for faster growth. The challenge is not only economic. It requires courageous, decisive and bold political commitment, as well as strengthening government effectiveness and accountability. ■ This article was edited by CorD

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Serbian Economy - Challenges & Opportunities

Articles inside

OVERCOMING THE CRISIS TOGETHER

FORGING A NEW FUTURE

LIFE HAS RETURNED TO NOVI PAZAR

NEW MARKETS ARE OUR AIM

THINKING AHEAD & WORKING TOGETHER INNOVATIVELY

ENOUGH ENERGY, CONTINUED INVESTMENT

PANDEMIC BRINGS DIGITALISATION TO THE FORE

VITALITY IN CONFRONTING CHALLENGES

CITIZENS AND THE STATE COUNT ON US

EXPORTS DRIVE THE ENTIRE ECONOMY

READY FOR A FRESH RESTART

TAKING ON NEW CHALLENGES WITH A NEW GOVERNMENT