Dear Deputy Prime Minister,
and distinguished guests,
I would like to thank Minister Sertic for giving us the opportunity to speak at this important event. We wholeheartedly support the program to promote entrepreneurship in Serbia and its main elements as presented here today.
Private sector development will be the key for Serbia returning to higher and sustainable growth rates that will help the country converge with EU economic development levels. Private sector development is, in Serbia especially, all too often equated with Foreign Direct Investment.
Going through the daily newspapers in Serbia confirms that impression: half of the economic news is more often than not about prospective foreign investors in town A or B and the possible number of jobs that would create. This is, indeed, very important. FDI brings critical capital and know-how and will significantly impact economic development.
However, FDI will not have its full impact (and nor will more be attracted) unless the feeder industries, usually consisting of SMEs, provide much of needed inputs.
More than 80 percent of economic development in European countries is driven by SMEs. SMEs are also, in most countries, the key vehicles for local entrepreneurs to enter the market. So far, however, SME development has not taken off in the way we had hoped it would.
We recently commissioned a survey from IPSOS to get a better understanding why this is the case. There are six points derived from the survey material that I would like to share with you today:
First, people think that they have what it takes, but they aren’t engaging.
When asked what it takes to be a successful enterpreneur, the top four answers are ’expertise/education, funds, perseverance and commitment’. When asked further, ’Do you think that you have those characteristics necessary to start up your own business?’ response rates are encouraging: 46 percent respond yes (male more than female, more educated have more), and 47 percent no (female more than male, less educated have more).
This is not a bad score, but when following up with the question ‘Are you thinking of starting your own business?’, the rating already goes down significantly: yes 28 percent, no 66 percent.
Even more so, among these 28 percent, only 8 percent of respondents are actively working on starting their own business (out of the 46 percent that think they could).
Second, risks are perceived as too high.
When asked why, 85 percent respond that the risk is too high.
This is something to explore further, right now we don’t have more detailed understanding of what drives this answer (are Serbians that risk averse, or is this related to other circumstantial issues?).
Third, a blend of government and market-related factors are preventing people from taking initiative.
Apart from ‘risk’ which re-appears also here, 50 percent of answers to the question what are the major perceived issues entrepreneurs have to deal with, concern three issues: instability in the market, lack of access to finance, and high taxes and charges.
While government may not be able to help market instability, the second and third issue make up 40 percent of respondents, and when bureaucratic impediments and corruption (only 7 percent) are added, this is the majority of factors, and these are in government control.
Fourth, role models are lacking, or at least not seen.
This may be one factor explaining the low engagement numbers. In many successful economies, businessmen and women are widely known role models (and popular enough to aspire to high public office), and it is these role models that inspire others to try. In Serbia, the notion of entrepreneurs being role models is surprisingly absent: 77 percent see no role model at all, 11 percent mention relatives or friends, 6 percent local businessmen/women, and 1 percent foreign businessmen/women.
A question we would ask is ‘who can promote role models and how’. This could be a task for the Chamber of Commerce or FIC, but there is work to be done. While the government program includes promotion of entrepreneurship as an activity, creating and promoting role models could be emphasized more.
Fifth, still – those in business are perceiving a positive change.
We also asked existing entrepreneurs about the business environment and conditions to develop business. According to the responses received, three key perceived improvements over the previous year are: possibility of filing tax applications electronically, functioning of the Central Registry of Compulsory Social Insurance (significantly simplifies administrative procedures related to filing and tracking contributions for workers), abolition of the charge for land use
Going forward, entrepreneurs are hoping for decrease in tax rates, and further simplification of administrative procedures.
On the other hand, parafiscal charges remain as one of the top problems for entrepreneurs. Not only a matter of cost, but also of predictability. The introduction of mandatory use of notary services is also highlighted as a burden created by new measures.
Authorities need to build on this overall positive trend perception. We see two main themes going forward.
One is more emphasis on implementation.
A good legal framework for the business environment is needed, and much has been achieved with the adoption of the Law on Construction and Planning, the Labor code revision, the Law on Inspections and the Investment Law, to name a few. But consistent and predictable implementation is even more important. For large investors, it is relatively easy to get the attention of the authorities, but for smaller ones to prosper, they need clear and consistently applied rules.
The other is efficient and strategic use of scarce public resources.
Serbia is already spending relatively significant resources for investment support. However, despite some successes, there is much room for improvement.
Policies and incentives need to be made more strategic and targeted. Scarce public resources need to be used more effectively, generate better services for entrepreneurs and jobseekers to enhance conditions for private sector job creation. Here all levels of Government need to perform at high standard, and the new Investment Law has put in place regulatory framework that can serve as a basis.
Sixth, government is addressing some of the critical constraints, but so far this has not filtered down to would-be entrepreneurs.
Better communication on reforms and opportunities that entrepreneurs can avail of when starting a business should be an important attention point going forward. We believe that the program launched today can make an important contribution to bridging this gap and for building an entrepreneurial spirit in Serbia.
Thank you for your attention.