37. Serbia
SMEs dominate the Serbian business economy, accounting for 99% of all enterprises. In 2022, SMEs employed more than 64% of the labour force and accounted for 60% of total gross value added and for 65.6% of turnover. Sector-specific data indicates that most SMEs belong to the trade sector (22.9%), followed by the manufacturing sector (14.7%), professional, scientific and innovative activities (14%), and transportation and storage (9.8%).
According to the preliminary results from the 2022 SME lending conditions survey conducted by the National Bank of Serbia in 2023, the stock of SME loans in 2022 decreased by 6.6% year-on-year to EUR 8.5 billion (while compared to pre-crisis 2019, it represents an increase of 18.4%, which in absolute terms is an increase of EUR 1.3 billion). The decrease in 2022 compared to 2021 was partly due to the repayment of subsidized loans provided to SMEs aimed to support them during the COVID-19 crisis. The share of outstanding SME loans in total corporate loans decreased to 27.9% (from 33.2% in 2021). Long-term loans decreased as well and amounted to 86.0% of total SMEs loans.
New bank lending to SMEs in 2022 amounted EUR 5.2 billion (0.6% higher relative to 2021t basis). The share of new SMEs loans among total corporate loans decreased by 2.4 percentage points to 34.7% in 2022.
Interest rates for SME loans in/or indexed to foreign currencies increased to 5.1% in 2022 (from 4.3% in 2021 and 3.8% in 2020). However, the interest rate spread between large companies and SMEs decreased to 1.9 percentage points (from 2.0 percentage points in 2021). On the Serbian dinar-denominated loans side, interest rates reached 6.7%, 1.8 percentage points higher compared to 2021 when it reached 4.9% while spread between large companies and SME decreased to 2.5 percentage points (from 2.8% in 2021).
The rejection rate (the percentage of SME loan applications that are rejected considering the total number of loans) was 16.6% in 2022 (20.5% in 2021), while the utilisation rate (the percentage of used SME loans among all SME loans that were approved) was 96.5% in 2022 (97.0% in 2021). At the same time, the share of SME loans requiring collateral (excluding bills of exchange) was 37.2% in 2022 (43.3% in 2021).
The share of NPLs in total SMEs loans slightly increased to 3.8% (compared to 3.5% in 2021), due to decreased stock of loans to SMEs. On the other hand, the NPLs of the whole corporate sector decreased to 1.9% in 2022 from 2.6% in 2021.
Real GDP growth in 2022 amounted to 2.5%, despite the arising global geopolitical risks and the poor domestic agricultural season. The growth in 2022 was driven by the growth of domestic demand, on the first-place personal consumption, and to a lesser extent, by the growth of private investments, while the negative contribution came from net exports and government capital expenditures. Growth in personal consumption was underpinned by the favourable movements on the labour market, with growth in formal employment of 1.6% and real wage growth of 1.7%, while the unemployment rate has dropped to a single-digit level of 9.5%. Average inflation in 2022 was 11.9%, while the core inflation was lower and averaged 7.1%. The increase in inflation during 2022 was driven by the global energy crisis, lingering consequences of the pandemic, and the drought that hit our region, all of which are drivers not affected by monetary policy.
When it comes to external developments in 2022, the current account deficit amounted to EUR 4.2 billion, or 6.9% of GDP, and was fully covered by FDI inflow. Compared to the 2021, the CAD was higher by EUR 1.9 billion and the main contribution came from the worsening of the trade deficit (EUR 3.3 billion), among which the energy imports increased by EUR 3.9 billion, mostly on the account of higher energy prices (around 85%). Looking at the other key categories, the primary account deficit was increased by EUR 0.9 bn, mostly due to higher dividends payments, while on the other hand, the secondary income account and services account, recorded a surplus increase (EUR 1.5 billion and EUR 0.9 billion). The gross inflow of FDI in 2022 amounted to a record EUR 4.4 bn, while net inflow amounted to EUR 4.3 bn, and was more than enough to cover the CAD.
In April 2022, National Bank of Serbia continued to tighten monetary conditions by raising its key policy rate (previously the monetary policy tightening cycle began in October 2021 when the National Bank of Serbia started with raising the weighted average rate at one-week reverse repo auctions). During the 2022, the key policy rate increased by a total of 400 bp to 5% at year-end, as a response to still persistent external cost-push pressures. Monetary tightening led to rising interest rates in money market and lending rates. Together with the high base effect and maturing of loans approved under the guaranteed scheme, higher lending rates slowed down domestic credit activity, so that total domestic loans to the nonmonetary sector at end-December recorded growth of 7.3% y o-y, excluding the exchange rate effect. The NPL share in total loans declined to a new record low of 3.01% in December, while CAR stood at 20.2%, suggesting high capitalization and resilience of the banking sector (regulatory threshold is 8.0%).
SMEs dominate the Serbian business economy, accounting for 99.9% of all enterprises, most of them (96.1%) being companies with less than 10 employees.
SMEs employed more than 64% of the labour force and accounted for 60% of total gross value added and for 65.6% of turnover. Sector-specific data indicates that most SMEs belonged to the trade sector (22.9%), followed by the manufacturing sector (14.7%), professional, scientific and innovative activities (14.0%), and transportation and storage (9.8%).
The National Bank of Serbia conducts an annual survey on SME lending conditions among commercial banks established in Serbia. Data covers financial loans provided by these banks to SMEs as well as cross-border loans.
Despite the unprecedent global energy crisis, preliminary results from the 2022 SME lending conditions survey conducted by the National Bank of Serbia indicate that the SME financing conditions did not deteriorate, and in some aspects even improved, because of the timely and effective measures adopted by the National Bank of Serbia and Serbian Government to minimize the negative effects of this crisis.
The stock of SMEs loans in 2022 slightly decreased by 6.6% year-on-year to EUR 8.5 billion. Also, the share of outstanding SME loans in total corporate loans decreased to 27.9%. Share of long-term loans decreased and accounted for 86.0% of total SMEs loans. The decrease of stock of SMEs loans in 2022 was mainly a consequence of maturing of loans approved under the guarantee scheme. Within the guarantee scheme banks granted almost EUR 2.4 bn of liquidity and current assets loans to SMEs enterprises and entrepreneurs in order to mitigate negative effects of Covid-19 pandemic. The loans were granted in the period May 2020 – July 2022, with maturity up to 3 years (up to 5 years for much smaller, „the second“ guarantee scheme) including 9–12 months grace period (18–24 months for the second scheme).
In 2022, new bank lending to SMEs remained at a similar level compared to the previous year amounting EUR 5.2 billion (from EUR EUR 5.17 billion in 2021). The share of new SMEs loans among total corporate loans decreased to 34.7 % in 2022. This decline was a consequence of higher increase of loans to large companies.
Interest rates for SME loans in/or indexed to foreign currencies increased to 5.1% in 2022 (from 4.3% in 2021). The interest rate spread between large companies and SMEs decreased to 1.95 percentage points (from 1.98 percentage points in 2021). On the Serbian dinar-denominated loans side, interest rates reached 6.7%, 1.8 percentage points higher compared to 2021 when it reached 4.9%. The spread between large companies was 2.5 percentage points (2.8% in 2021).
The rejection rate (that is, the percentage of SME loan applications that are rejected considering the amounts of loans) was 16.6% in 2022 (20.5% in 2021), while the utilisation rate (the percentage of used SME loans among all SME loans that were approved) was 96.5% in 2022 (97% in 2021). Meanwhile, the number of SME loans requiring collateral (excluding bills of exchange) decreased to 37.2% in 2022 (43.3% in 2021).
The share of NPLs in total SMEs loans slightly increased to 3.8% (compared to 3.5% in 2021), due to decreased stock of loans to SMEs. On the other hand, the NPL of the whole corporate sector decreased to 1.9% in 2022 from 2.6% in 2021.
The Serbian government recognised the development of SMEs as one of the most important economic goals. In November 2023, Strategy for the Development of small and medium-sized enterprises for the period from 2023-2027 (Strategy) was launched. In 2016, the Year of Entrepreneurship was declared, and after successful actions made during 2016, it was decided in 2017 that the Year of Entrepreneurship be upscaled to the Decade of Entrepreneurship.
Under the Decade of Entrepreneurship programme, many government institutions, chambers of commerce, business associations, international organisations, donors, and NGOs are involved. Activities within this programme relate both to financial support (e.g., loans, subsidies, development of exports, support in entering supply chains, etc.) and non-financial support (such as education, requalification, professional and consulting assistance, etc.).
The Ministry of Economy in cooperation with Development Fund implements Entrepreneurship Development Program Through Financial Support for Beginners in Business in 2022 - Funds under this program could be used for: current maintenance of business or production premises, purchase of equipment (new or used, not older than five years); permanent working capital, which can participate a maximum of 20% in the structure of the total investment that is the subject of financing. Financing structure: grants from the budget 30% of the investment value (40% in underdeveloped municipalities) and loans from the Development Fund 70% (60% in underdeveloped municipalities). 141 requests worth RSD 138.6 million of grants were approved.
The Ministry of Economy in cooperation with Development Fund implements Entrepreneurship Encouragement Program Through Development Projects in 2022. The funds allocated by the Program were intended for: purchase, construction, extension, reconstruction, adaptation, rehabilitation, investment maintenance of production space or business space that is part of the production space, or space for storage of own products, raw materials and intermediate goods; purchase of new or used production and construction equipment (not older than five years), including tools, as well as for delivery vehicles for the transport of own products and other means of transport used in the production process; working capital, which can make up to 10% of the total investment; procurement of software and computer equipment. 82 requests worth RSD 359.7 million of grants were approved.
The Ministry of Economy in cooperation with Serbian Development Agency and commercial banks implements Support Program for Small Enterprises for the Procurement of Equipment - Entrepreneurs, micro, and small legal entities and cooperatives that meet the requirements of the Program may be entitled to financial support in the amount of up to 25% of the grant from the net value of the investment. The remaining amount of the project value is financed from loans from commercial banks and leasing companies, with the economic entity being obliged to provide a share of 5% of the net value of production equipment. In 2022 dedicated budget was EUR 26 million from which EUR 10 million were provided from the EU pre-accession funds - IPA 19. Ministry of Economy and Serbian Development Agency signed contract with EU - Scaled up and technologically improved production capacity solutions among micro and small enterprises and entrepreneurs. 711 requests worth RSD 1,76 billion of grants were approved.
Support Program for Women Entrepreneurs and Youth -Funds under the Program could be used from Ministry of Economy in cooperation with Development Fund implements the purchase of equipment and delivery vehicles that are used to transport own products, raw materials and other means of transport included in the production process (new or used, not older than five years);ongoing maintenance of business and/or production space; operating costs that could participate at most up to 20% in the structure of the total investment. 98 requests worth RSD 108,9 million of grants were approved.
The Program for the Promotion of Entrepreneurship and Self-employment is implemented by the Public Investment Management Office in cooperation with the Development Fund of the Republic of Serbia and the professional support of KFW. The goal of the Program is to encourage the development of entrepreneurship through joint support for the establishment of new economic entities. In that way, conditions would be created for sustainable growth and employment. The total available funds for the realization of this program are RSD 300 million.
Support Program to Enter the Supplier Chains of Multinational Companies –was launched in 2019 and the following groups of activities can be financed through the Program: Investment in tangible assets of the Program Beneficiary; Investment in intangible assets of the Program Beneficiaries; Consulting support for optimization of production processes in accordance with expected standards of production process management in target sectors; Consulting support for the introduction or improvement of corporate governance; Consulting support for quality system certification according to the requirements of industry-specific standards, Software implementation, etc. Every beneficiary undergoes through diagnostics of business performances, to reach an agreement on intervention measures which can be co-financed. For the realization of the public call in 2022 within the Program, a budget in the amount of RSD 200 million has been determined. Serbian Development Agency signed 13 grant contracts which are being implemented. Second public call within the Program 2022 is being expected in 2023.
Support Program for Export Promotion in 2020 - The program co-finances the following groups of related activities of companies related to the improvement of export potentials, in accordance with the company's application and the results of the diagnosis of export capabilities: Consulting support for export marketing activities; Exhibition at international fairs and business meetings; Entering the target market and improving the position on the same; Consulting support for the improvement of export capabilities; Improvement of production capabilities. A budget in the amount of RSD 150 million has been allocated for the implementation of this program in 2022, and the public call was published in December 2022. Contracts with selected beneficiaries will be signed in 2023.
Support Program for Competitiveness Development - This program will contribute to increasing the level of use of standards in production and business organization, product certification, management systems, as well as increasing the use of other services in the field of quality infrastructure. The available funds are approved individually to the beneficiaries, with a refund as co-financing in the amount of up to a certain percentage of the total amount of justified costs for each project activity. The public call was launched in December 2022 with total budget of RSD 100 million. During 2023 it is planned to select beneficiaries, conclude contracts with beneficiaries and refund approved grants.
The goal of the Smart Start program, implements by the Innovation Fund, is to support highly promising teams in their efforts to validate their business ideas and demonstrate future usefulness of their technology through development of a first prototype or a minimum viable product (MVP). The program awardees will receive financial and mentorship support for execution of the first phase of market research, engaging in product development, establishing a business model and beginning preparation for the next phase of fundraising. In 2022, 27 start-ups received support in amount of EUR 0,98 million.
The Mini Grants Program is implemented by the Innovation Fund and is intended for young companies that develop technological innovations demanded in the market. Applicants for this program are SMEs and teams. The condition for SMEs is that they are mostly privately owned by residents of the Republic of Serbia (51% or more) and not older than five years at the time of filing the application. Support includes a combination of up to 70% of the grant provided by the Innovation Fund and a minimum of 30% of the funding provided by the funding recipient. The fund allocates a maximum of EUR 80,000 per individual project. Projects can last up to 12 months. In 2022, 129 projects were realized for which EUR 9.7 million were approved in 2019, 2020 and 2021.
The Innovation Fund also implements the Matching Grants Program intended for SMEs that need significant financial resources for the commercialization of research and development. The program aims to further develop existing innovative knowledge-based companies, encourage the establishment of cooperation with international partners and increase the number of technology companies. The fund allocates a maximum of EUR 300,000 per individual project. Projects can last up to 24 months. In 2022, 36 projects were realized for which EUR 9.7 million were approved in 2020 and 2021.
The Innovation Fund implements Collaborative Grant Scheme Program, aiming to encourage private sector companies and public sector research organizations to implement joint research and development projects with the idea of creating new or improving existing commercially viable products and services, such as an innovative technology with a significant impact on future development and market potential. The Fund allocates a maximum of EUR 300,000 per individual project. Projects can last up to 24 months. In 2022, 39 projects were realized for which EUR 11.4 million were approved in 2019 and 2021.
The Acceleration program Katapult, implemented by the Innovation Fund, is mechanism to support technological development and innovation, intended for startups that are in the early stages of product development and market positioning (Ideation), as well as companies with proven market traction that aim to accelerate their growth and raise additional financial resources (Scale-up). The Katapult consists of a three-month intensive training program with financial support to develop startups as quickly as possible and create conditions for rapid growth. The training is organized through mentoring provided by local and international experts, successful startup founders and investors, and everything is tailored to the specific needs of startups. All beneficiaries of this program will receive a grant in the amount of EUR 20,000 to EUR 50,000 (depending on stage of development) which will be available to them during the acceleration period. The first cohort, selected in March 2022, consisted of 19 highest-quality start-ups from Belgrade and Novi Sad, and mostly in ICT sector. Over the 12 weeks, start-ups worked intensively with about 30 mentors on various aspects of start-up development. 15 start-ups from the first cohort have raised investments of EUR 11 million, that is matched through this program as grants.
The Innovation Fund also implements the Innovation Voucher Scheme. Innovation vouchers are a simple financial mechanism that enables small and medium-sized enterprises to use research sector services to raise the level of innovation of their products and become more competitive in the market. The maximum amount approved per innovation voucher is up to RSD 800,000, i.e., the innovation voucher covers up to 60% of the total costs of the service. One applicant can be granted several innovation vouchers in the total maximum amount of RSD 2,400,000. In 2022, the Innovation Fund opened the eighth public call to issue innovation vouchers worth RSD 100,000,000.
In 2022, the Innovation Fund designed and launched a new financial program called Serbia Ventures to help in bridging financing gaps and encourage additional private investments to accelerate the growth of the start-up ecosystem in Serbia. Through this program, the Innovation Fund will invest in newly established venture capital funds in Serbia as a limited partner and help these funds generate a significant market impact on Serbia's innovation ecosystem. After the evaluation, the Evaluation Committee decided to grant funding to two applicants. To ultimately receive the funds within this program, the selected applicants must be fully registered and licensed by the Republic of Serbia Securities Commission as a legal entity registered specifically for managing alternative investment funds and registering a VC fund in Serbia.
Digital Transformation Support Program - The goal of the MSME Digital Transformation Support Program is to create a clear infrastructure to support MSMEs in the digital transformation process. The MSME Digital Transformation Support Program for 2022 is implemented through three phases, as follows: Development of individual Expert Analysis for MSMEs by a Certified Consultant, including company self-assessment; Development of a Digital Transformation Strategy for MSMEs by a Certified Consultant, for selected areas listed in the Expert Analysis; Non-refundable subsidy of the Centre for Digital Transformation up to 6,000 euros (implementation of a defined solution through consulting) which, in fact, equalizes the amount that the company itself is ready to invest in its digital transformation; Supervision of the implemented solution. The total budget of the Program is RSD 235 million.
Development Fund Loans for Fixed Current Assets - Loans for permanent working capital are intended for economic entities classified as micro, small, medium and large legal entities, registered in the relevant register in the Republic of Serbia, which submit financial reports for the previous two years in which no loss is stated, as follows: economic entities that are majority privately or state-owned, except for public enterprises; economic entities with a share of social capital of less than 40%. The allocated funds amount to RSD 7 million.
Development Fund Loans / Guarantees for Micro and Small Legal Entities to Maintain Current Liquidity - Loans for maintaining current liquidity projects are intended for economic entities classified as micro, small, medium and large legal entities, including economic entities operating in underdeveloped and extremely underdeveloped areas. The allocated funds amount to RSD 7 million.
Development Fund Investment Loans - This financial support is planned to finance the purchase of office space, procurement of imported and domestic equipment (technological, transport, etc.), construction, upgrade, adaptation and rehabilitation of office space, it is possible to refund funds if investments are made in the period of six months before the request for credit and relate to the investment in question. The Fund may also approve investment loans for the purchase of a legal entity or property in bankruptcy proceedings and assets in enforcement proceedings, as well as investment loans for the purchase of shares. 20% of the total loan can be used for the purchase of permanent working capital. The allocated funds amount to RSD 7 million.
Loans for Exporters - The program is implemented by the Export Insurance and Financing Agency (AOFI). AOFI approves credit arrangements in local currency with a repayment period of up to five years to exporters - domestic legal entities and entrepreneurs. AOFI realized 74 loan lots in the amount of EUR 30,740,041.60.
Guarantees for Exporters - The Agency issues guarantees on request and by order of domestic legal entities and entrepreneurs, provided that the exporter, in addition to the contract which is the basis for issuing the guarantee, has: realized export in the value of at least EUR 100,000.00 in the previous year or other appropriate proportional amount realized in the current year until the moment of submitting the request, with possession of the contract whose subject is export work in the value of at least EUR 100,000.00 in the current year; achieved a positive net operating result in the previous year. AOFI issued 19 active and 4 payable guarantees, in the total amount of EUR 51,428,308.56.
Factoring - A financial instrument by which a factor (AOFI) finances export companies based on future (outstanding) receivables arising from the sale of goods or services on foreign and domestic markets. Pursuant to the Law on Factoring, and in accordance with the conditions, AOFI performs factoring activities - purchase / purchase of receivables, for the needs of exporters. Funds allocated from the budget amount to RSD 700 million.
Note: For business loans total and business loans to SMEs there is a break in the time series in 2012. Starting 2012 data of one additional bank was included in the survey and part of increase can be attributed to their inclusion in the data.
Source: See Table 37.3.