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Serbia Competitiveness Assessment & Political SERBIA COMPETITIVENESS ASSESSMENT & POLITICAL ECONOMY ANALYSIS REPORT NO. 29 Credit: ACDI/VOCA Credit: Photo JUNE 2016 This publication was produced for review by the United States Agency for International Development. It was prepared by Craig Hempfling, Richard Danicic, Edi Majstorovic and Branislav Savic for ACDI/VOCA with funding from USAID/E3’s Leveraging Economic Opportunities (LEO) project. SERBIA COMPETITIVENESS ASSESSMENT & POLITICAL ECONOMY ANALYSIS REPORT NO. 29 CONTENTS ACRONYMS .............................................................................................................................................. ii EXECUTIVE SUMMARY ......................................................................................................................... 1 I. INTRODUCTION ........................................................................................................................ 3 II. POLITICAL ECONOMY ANALYSIS .......................................................................................... 6 1. Foundational Factors ................................................................................................................................................. 6 2. Rules of the Game ..................................................................................................................................................... 7 3. Here & Now ............................................................................................................................................................... 8 4. Dynamics ..................................................................................................................................................................... 9 III. ACTIONABLE RECOMMENDATIONS ................................................................................... 11 1. Flourishing Gray Economy .................................................................................................................................... 11 2. Education System not Responsive to Labor Market .......................................................................................... 12 3. Public Sector Doesn’t Serve MSME Needs ......................................................................................................... 13 4. Lack of Access to Finance ...................................................................................................................................... 13 5. Marginal Donor Effectiveness ............................................................................................................................... 15 6. Lack of Modern Management Skills & Tools ...................................................................................................... 17 7. Cooperation & Dynamics Issues, including Associations & Clusters ............................................................. 18 8. Underdeveloped Supply Chains ............................................................................................................................. 20 9. Lack of Access to Information .............................................................................................................................. 20 IV. SECTOR ANALYSES ................................................................................................................... 21 1. Metal Processing Sector .......................................................................................................................................... 21 2. Wood Processing Sector ......................................................................................................................................... 24 3. Food Processing & Agriculture Sector ................................................................................................................. 27 4. Energy & Construction Sector ............................................................................................................................... 30 V. ASSESSMENT METHODOLOGY ............................................................................................ 34 1. Applied Political Economy Analysis (PEA) ...................................................................................................... 34 2. Evaluation of Alternatives & Recommendations ............................................................................................. 35 3. Assessment Performance & Logistics ................................................................................................................ 36 VI. ANNEXES ................................................................................................................................... 40 Annex 1 - Desk Research References ............................................................................................................................. 41 Annex 2 - Actors Interviewed .......................................................................................................................................... 45 Annex 3 - Year of Entrepreneurship, National Government Initiatives (Translated) ............................................ 49 Annex 4 - Entrepreneurship & Job Creation ................................................................................................................ 51 Annex 5 - Relevant Actors & Synergies ......................................................................................................................... 54 SERBIA COMPETITIVENESS ASSESSMENT & POLITICAL ECONOMY ANALYSIS i ACRONYMS ACCESS Assistance to Competitiveness and Compatibility with the EU of Serbian SMEs BEP Business Enabling Project CEVES Center for Advanced Economic Studies CFCU Ministry of Finance Department for Contracting & Financing EU Program CHF Swiss Franc CNC Computer Numerical Control COP21 Paris Climate Conference CRDA Community Revitalization through Democratic Action CSO Civil society organization EBRD European Bank for Reconstruction and Development ENECA Economic Expert Community Association EP Entrepreneurship Project EU European Union FIRMA Fostering Interventions for Rapid Market Advancement FMP Fabricated Metal Products GIZ German Federal Enterprise for International Cooperation ICIP Improved SME Competitiveness & Innovation ICT Information and Communications Technology IF4TM Institutional Framework for Developing the Third Mission of Serbian Universities IPA Instrument for Pre-Accession IPARD Instrument for Pre-Accession Rural Development IRENA International Renewable Energy Agency LED Local Economic Development project LEO Leveraging Economic Opportunities M&E Monitoring and evaluation MSE Micro- and small enterprises MSME Micro-, small and medium-sized enterprise NALED National Alliance for Local Economic Development NARR National Agency for Regional Development OECD Organization for Economic Cooperation and Development ONA Organizational network analysis ORF-EE Open Regional Fund – Energy Efficiency SERBIA COMPETITIVENESS ASSESSMENT & POLITICAL ECONOMY ANALYSIS ii PEA Political Economic Analysis PPES Preparedness, Planning, and Economic Security PROGRES Partnership with Municipalities Programme PSD Private Sector Development R&D Research & Development RARIS Regional Development Agency of Eastern Serbia RAS Development Agency of Serbia RDA Regional Development Agency RSEDP Regional Socio-Economic Development Program SDC Swiss Agency for Development and Cooperation SECO Swiss State Secretariat for Economic Affairs SIEPA Serbia Import-Export Promotion Agency SLDP Sustainable Local Development Project SME Small and medium-sized enterprises TA Technical assistance TAM-BAS TurnAround Management and Business Advisory Services USAID United States Agency for International Development UVIS Cluster of Serbian Aeronautical Industry VMC Vojvodina Metal Cluster WfD Workforce development SERBIA COMPETITIVENESS ASSESSMENT & POLITICAL ECONOMY ANALYSIS iii EXECUTIVE SUMMARY OBJECTIVE This assessment seeks to identify the key factors constraining Serbia’s private MSME sector, and its ability to grow and compete, particularly in EU markets and against the companies and products of EU member states. This assessment utilized the Applied Political Economy Analysis (PEA) methodology to identify the constraints and establish the causal factors for those constraints. In line with the PEA findings, this assessment makes numerous programming recommendations for USAID to pursue to stimulate MSME growth and competitiveness. The full PEA results are presented in detail in the format of the framework in Annex 1. ENTERPRISE VS. INSTITUTIONAL DEVELOPMENT At the outset of the assessment, we collectively considered two broad categories of intervention: i) direct assistance to the MSME sector; or ii) institutional development and capacity building targeting institutions with mandates to support the MSME sector. As can be seen from the PEA results, the volume and obstinacy of constraints limited our optimism in effecting institutional change. Not completely ruling out institutional strengthening however, we have sought to identify strategies that can serve as a vehicle to strengthen those institutions directly linked to targeted actors or initiatives. ASSESSMENT OVERVIEW The assessment team, at times accompanied by USAID staff members, interviewed 149 MSMEs and support actors, examining the institutional framework and actors. Interviewed MSME-support actors included donors and their implementing partners, national and local
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