In Serbia’s case, the two undoubtedly priorities are the development of every day more productive, more creative workforce, working at ever more decent jobs, and embarking for real on the green transition
With Kori Udovički, President of the Board and Chief Economist of CEVE we talked about Serbia’s MSP100, the role of CEVES and its organizational partners, state interference and the opportunities for Serbia’s SMEs.
As a start, can you please tell us what, or rather who, exactly is Serbia’s MSP100 (SME100)?
The SME100 companies have been carefully selected to represent Serbia’s leading companies created through domestic entrepreneurship —“leading” in the sense that we expect their contribution to be key to Serbia’s sustainable development (realization of UN 2030 Agenda). They represent the “Hidden Champions” of Serbia. Best known are those of Germany (also Austria) where they make much of the “Mittelstand”, a population of SMEs that has played a key role over the past decades in ensuring their countries did not de-industrialize as did many other highly developed economies. Although relatively small by global standards these are global leaders in very particular industrial niche markets, and very often are family-owned. While not comparable in size and sophistication, the SME100 also produce and exports increasingly sophisticated niche products for global markets: tools for the repair of passenger aeroplanes and jet-propulsion motors, laser-based speed-measurement equipment for the measurement of speed in transport, fertilizers and other agricultural products that capture CO2 from the atmosphere, complete theatre stage design and mechanism equipment of some of the most sophisticated global performing centres, a wide range of IoT and other artificial intelligence solutions, especially in agriculture.
“SMEs are not exempted from taxes on reinvested profits, while big companies are”
We estimate that the SME100 represent at least 275 Hidden Champions that in total generated more than 1.1 billion EUR in exports in 2020 and employ in total more than 30,000 people. We believe the actual figures are bigger because domestic financial report data do not cover all the information. We also did not in this round cover the companies oriented to the domestic market whose business services are critical to the success of these export- and innovation-oriented companies, and who also deserve attention.
You say carefully selected?
We focused on three “sub-populations” of sustainable development Champions: (i) exporters –as exports are a sine qua non of any small country’s development, that regularly proves their competitiveness and quality by passing the exacting tests of the global markets. (ii) proven innovators even if their exports are still at an earlier stage; and (iii) “green pioneers”, companies showing the way for Serbia’s green transition. We picked the largest and most impressive exporters among all companies whose direct exports of goods or/and services account for more than 24.9% of revenues and have a value greater than EUR 1 million. Not included are companies that are earning from exports of low-processing resources and agricultural products, or trade, and transportation services. The innovators are recipients of Innovation Fund or Horizon innovation grants, also established as exporters. The green pioneers were found through a combination of factors. A fundamental criterion for all was a positive business reputation.
Though successful according to those set standards, SMEs can’t really pull through the development process all alone and the scene seems oddly fragmented. What is the role of CEVES and its organizational partners, and where precisely do you see the importance of the conferences and expos like the MSP Serbia 2030: MSP100 Expo?
First, let me be clear that the SME100 are Champions. They are winners. Every single one of them emphasized that they do not need anybody’s “help”. We organized the event Serbian SME 2030: SME100 Expo primarily to highlight their development potential to the rest of the country—it is us, Serbia, that needs them. We also hoped the event will empower and inspire them to recognize their own potential, talk and connect, and launch initiatives that will support the development of SMEs more broadly, and direct their strength towards achieving goals for the whole society. Hundreds if not thousands of SMEs have the potential to be “winners”—but may never make it unless we make a more desirable and supportive business environment for SME development overall. Because the SME100 are successful despite there being a strong bias in Serbia’s policies and the environment against SMEs. While in the EU the practice is to, for example, give SMEs an advantage relative to large companies in public procurement, in Serbia it is the opposite. SMEs are not exempted from taxes on reinvested profits, while big companies are, and the regulations that for years have been used to subsidize employment are still completely adjusted to large companies.
How much of state interference, or rather regulation, is needed to make so far successful SMEs more resilient and ready for further growth in increasingly volatile market dynamics? Where is the fine line between letting these businesses develop sustainably and according to their nature, and supporting them without making them too reliable on state help?
Governments exist to provide public services – “goods” that when “produced” give benefits to more companies, and more citizens than they would if the same money was spent by a company only on itself. When the government educates and trains citizens to be a productive and creative workforce, that will benefit their first, second, and third employer. Similarly, when the government invests in and supports, the development of quality assurance system institutions, they open the way for the development of many companies that will later support the system through market mechanisms. When the government supports through guarantee funds export credits, it is only compensating for the fact that Serbia’s financial institutions are still not recognized as creditworthy enough.
“Working to the advantage of Serbia’s SMEs is the ongoing restructuring of global supply chains and nearshoring”
The good news is that programs in support of SME development are being developed and the resources invested are increasing, but it is not enough and it is too fragmented.
In which domain the most progress could or should be made, in order to achieve sustainable development and thus the UN 2030 Agenda?
Sustainable development is about the development of people, their possibilities, and options – closing cleavages between those with access to resources and earning power and those without and leaving no one behind. It is also about doing this in harmony with our natural environment, healing the damage that an exclusive orientation on “growth” has already caused. In Serbia’s case, the two undoubtedly priorities are the development of every day more productive, more creative workforce, working at ever more decent jobs, and embarking for real in the green transition. It is the workforce, i.e. people and community development that has become the bottleneck of Serbia’s development right now.
As the government is slow in improving its own quality of education and training, it would be not only fair but wise if it compensated, and collaborated with, companies who do this themselves, and well. The more people are well-trained, the greater the availability of a quality workforce for all. The problem is that this requires a government structure able to work in a decentralized fashion, reaching out to many SMEs instead of just a few large companies. It also requires that the formal education system adapts its offering to the needs of development, not the other way around.
What challenges does the current global economy present, and what, if any, are the opportunities for Serbia’s SMEs?
Serbia’s SMEs weathered surprisingly well the pandemic crisis not only because they were generously (overly so!) helped by the government, but also because of their flexibility and diversification strategies. That may not be the case if, as it is possible, the current financial market bubble under numerous pressures including the energy crisis and the Ukraine war—bursts and pulls global activity downward. Working to the advantage of Serbia’s SMEs is the ongoing restructuring of global supply chains and nearshoring where Serbia is in an excellent location, on the border of the EU. This, however, is also at risk because of the ambiguous message being sent by our current foreign policy. Proximity to the EU is valuable only with a clear EU membership perspective.