ANNUAL PROGRAM REPORT June 1,1997 to May 31,1998 Strengthening Private Enterprises in Slavonia and Baranja, Croatia Agreement Number NIS-A-00-97-00026-00 Prepared for United States Agency for International Development Prepared by University of Delaware 4 Kent Way Newark, DE 19716 July 31,1998 TABLE OF CONTENTS Executive Summary Program Overview A Target 1 1 (15% sales growth in assisted firms) and Target 1 2 (10% employment growth in assisted firms) B Target 1 3 (30 assisted firms) C Target 2 1 (150 transactions linking enterprises m formally occupied regions to Croatia and abroad) D Target 3 1 (8 new cooperatives or associations developed) E Target 3 2 (10% increase in revenue of assisted cooperatives and associations) F Target 4 1 (3000 benefiting cooperative or association members in a minimum of 8 organizat~ons) G Reintegration Outreach Programs and Seminars H Summary Execut~veSummary The University of Delaware (UD) has been implementing a program to facilitate development and growth of small and medium companies to generate jobs and sustainable incomes for war affected populations in Slavonia, Croatia The program supports USAID's strategic objective to assist with the reintegration of populations affected by the Erdut Agreement Between June 1997 and May 1998, 18 volunteer US advisors completed technical assistance assignments for business and association clients in the war affected areas of Slavonia The length of volunteer assignments ranged from three to eight weeks UD in-country and local staff provided continuing assistance to 30 private business clients and 12 new farmer managed associations UD also conducted numerous reintegration outreach programs and seminars to facilitate the re~ntegrationof war affected populations into the Croatian tax and regulatory system Several major events affected UD program performance dur~ngthe first year of activities, including the delayed departure of the United Nations Transitional Administration in Eastern Slavoma (UNTAES) and the introduction of a Value Added Tax (VAT) in January 1998 The Government of Croatia (GoC) assumed full authority of the former UNTAES area on January 15, 1998 The UNTAES pullout from former sector East was delayed by seven months Until the border crossings were opened, sector clients experienced difficulty transporting products to and from the area, access to investment and debt financing was limited, and equally important, business laws and regulations remained in limbo for more than half the first year of the program UD training and technical assistance for clients in the UNTAES area have helped those companies adjust to new regulations and tax that became effective in January 1998 UD assistance has also helped companies in the former UNTAES area adjust to the loss of markets in the FRY as they attempt to penetrate markets in other parts of Croatia and abroad UD successfully met 5 out of 7 year one program targets Target 1 1 (15% sales growth in assisted firms) has been met and Target 1 2 (10% employment growth in assisted firms) has not been met Results at this time are 17% and 4 2% respectively Target 1 3 (30 assisted firms) has been met UD has provided technical assistance to more than 30 clients after evaluating 122 potential client companies Target 2 1 (150 transactions linking enterprises in formerly occupied regions to Croatia and abroad) has been met UD completed 235 linkages between companies in the war-affected areas and other parts of Croatia and abroad Target 3 1 (8 new cooperatives or associations developed) has been met UD is worlung with 12 newly organ~zedfarmer managed Associations and Cooperatives in the war affected areas of Slavon~a Target 3 2 (10% increase In revenue of assisted cooperatives and associations) will not be met All 12 assisted cooperatives and associations were established or reregistered in the past year and have not completed one year of operations or one growng season Target 4 1 (3000 benefiting cooperative or association members in a minimum of 8 organizations) has been met as a result of the large membership in the new Federation of Associations In Slavonia However, new independent associations in the war-affected areas of Croatia have lower membership than originally anticipated PROGRAM OVERVIEW UD's goal is to concentrate SME development activities on fostering more stable reintegration in the Slavonian war affected areas A large majority of companies in the war-affected areas are small, with less than 25 employees UD counseling and assistance has been helping firms focus on strategic goals and to accomplish those goals by implementing marketing assistance, business planrung, and technical assistance in production UD provides mainly strategic counseling, marketing assistance, and management assistance to local client firms UD locates clients by conducting a diagnostic evaluation of local businesses If a company is determined to be initially eligible and is interested in receiving some form of development assistance, a local UD employee is assigned as an Advocate to conduct a hrther and more detailed diagnostic analysis and prepare a plan for development assistance (intervention plan) The advocate works closely with the company, and monitors the progress and effect of the intervention plan Since June 1997, UD has designed development intervention plans for more than 30 local firms Most of these firms have less than 25 employees and consistently need basic marketing assistance, strategic counseling, and general business management assistance UD uses its five US based partners to provide on-sight advisory services to clients These partners include the Citizens Democracy Corps (CDC), International Executive Servlce Corps (IESC), Land O'Lakes, Inc , Agricultural Cooperative Development InternationalNolunteers in Overseas Cooperative 4ssistance (AN), and the MBA Enterprise Corps (MBAEC) A Target 1 1 (15% sales growth In asslsted firms) and Target 12 (10% employment growth In asslsted firms) Target 1 1 has been met and target 1 2 has not been met Results at ths time are 17% and 4 2% Employment figures have been negatively affected by the seven month delayed departure of the UN from Eastern Slavonla and the introduction of significant payroll taxes in that area These taxes increased wage rates by more than 100 percent and caused a drop in employment levels in the short term Some businesses have started recovering from this additional cost of doing business B Target 1 3 (30 ass~stedfirms) Target 1 3 has been met UD has developed 30 clients after conducting initial screening interviews with more than 122 firms After initial screening, UD conducted a more extensive diagnostic evaluation on more than 70 of these firms to determine if they meet UD's criteria for assistance All 30 clients have agreed to a comprehensive assistance intervention plan and have s~gneda memorandum of understanding committing themselves to followng through with UD9s recommendations and agreeing to prov~dequarterly financial and employment updates The followng companies are a representative sample of clients that have committed to working wth UD A brief summary of ongoing technical assistance projects, employment changes, and sales performance IS provided for each client Agro-Zemlya (Eastern Slavon~a) Agro-Zemlja requested assistance preparing for an agricultural trade fair that took place from October 9 - 13, 1997 (Agro-ZemlJa97) US partner, AN, ident~fiedand recnuted Steve Cain, an advisor in marketing commulllcations Mr Cain's assignment wth Agro-Zemlja occurred during October 5 - 17, 1997 Volunteer Cain made recommendations to improve their agricultural fair, made recommendations to improve relations wrth local government officials, and provided promotional material and relevant marketing material With proper development, Agro-Zemlya could have 300 plus exhibitors and 200,000 vlsitors annually The direct impact to the economy of greater Osijek could total more than 1 96 million DM annually Volunteer Cain recommended follow-up strategic planning and business management assistance that will be essential if the firm expects to have that level of impact on the local economy As a result of Volunteer Cain's recommendation, Agro-Zemlya has decided to relocate its fall trade show to a location outside Osijek to reduce costs, and increase profit UD has continued to work with Agro-Zemlya to search for mechanisms to reduce overhead costs and to help the firm make strategic plans for the future On Saturday April 18, 1998, Agro-Zemlja organized a small agricultural trade fair in Vukovar, "Spring fair of agriculture, construction and reconstruction of Vukovar '98 " The fair was free of charge and attended by the large agricultural community in Vukovar This fair was important for the local population in former Sector East that previously attended trade fsurs in Novi Sad, FRY and is essential for the reintegration of producers with suppliers and buyers in greater Croatia Employment has remained constant during the past year at 12 11 ethnic Croatians and 1 ethnic Serb 8 female and 4 male Sales have remained constant over the past year However, the company is expecting to have substantial sales growth during the Fall 1998 trade show at which time the full impact of UD techrucal assistance will be evaluated ALBUM (Eastern Slavonia) Album is a construction company established in September 1996 They have completed several large projects funded by the international community and have recently been awarded several projects funded by USAID The company plans to establish