Chapter 20: Enterprise and industrial policy

EU industrial policy strengthens competitiveness, facilitates structural change and encourages a business-friendly environment that stimulates small and medium-sized enterprises (SMEs).

Albania

Albania is moderately prepared in the area of enterprise and industrial policy. Some progress was made by the adoption of the Law on micro, small and medium enterprises, the adoption of the Law on start-ups and establishment of the Start-Up Council, and continuation of the assistance programmes to provide business support services and access to finance in line with the business and investment development strategy (BIDS), adopted in July 2021. The measures to reduce informal business activities and corruption continued to yield results although with
limited impact on the business environment.
In the coming year, Albania should, in particular:
→ address the main challenges to the business environment, by reducing the regulatory burden, enhancing the participation in the available funding programmes for businesses strengthening the efforts to tackle informality and corruption, increase business support services, and implement the Law on start-ups;
→ accelerate the full alignment of national legislation with the EU acquis on late payments;
→ adopt the unified investment Law and address the challenges to competitiveness and growth as stressed in the joint recommendations of the Economic Reform Programmes of 2022-2024.

Albania finalised and adopted its 2021-2027 business and investment development strategy (BIDS) in July 2021. The BIDS sets the strategic framework for Albania’s enterprise and industrial policy, covering SME skills development, innovation, sustainable growth, and conditions for attracting foreign investment. It also adopted a 2020-2024 programme for inclusive and sustainable industrial development (ISID), with three main pillars: industrial competitiveness and market access; productive employment and entrepreneurship development; and sustainable energy for productive uses and environmental management.
Albania is implementing its 2017 national Strategy on Innovation and Technology. A programme on Urban Partnership Acceleration was also adopted to connect Albanian innovation organisations, including universities, industries and start-ups that are committed to solving urban challenges. After several delays, Albania adopted the Law on start-ups in March 2022 and in April 2022 a Law on micro, small and medium enterprises (MSMEs), followed by the adoption of a grant scheme for start-ups in July.
Albania follows the implementation of the Small Business Act and has reflected upon its recommendations on policy formulation as regards the BIDS, the Law on start-ups and the Law on MSMEs. SMEs identify their main challenges as the informal economy (particularly in tourism), corruption and lack of transparency in public procurement (especially as regards Public Private Partnerships (PPPs)), the need for stable state institutions, unclear ownership of property titles, and the need to enforce the rule of law. Despite some improvements in the business environment, the COVID-19 pandemic highlighted structural challenges, and the global price increase due to ongoing Russian military-aggression on Ukraine is revealing weak export diversification and a high dependency on imports. Enhancing good governance and the quality of institutions and product diversification, while maintaining macro-economic stability, are crucial to supporting economic growth. However, businesses also face obstacles related to a lack of workforce skills and financial resources, as well as challenges to adjust to modernisation, digitisation, and e-commerce. Albania is focused on combatting the informal economy by expanding the taxpayer base, enforcing compliance and working to create a level-playing field for economic operators, including in the tourism sector and the re-construction programme, yet without considering the administrative burden and formalisation incentives. Sectors identified with the highest exposure to informal employment are trade and tourism (almost 50 % of total
identified cases) followed by manufacturing (20 %) and construction (18 %).
Albania continued to privatise state assets, partly through privatisation vouchers. The validity of privatisation vouchers, due to expire in December 2021, was extended until December 2023. A law on the establishment and operation of economic zones exists, though none has been established. A Technological Economic Development Area (TEDA) with an industrial processing plant is still in its development phase. The 2015 Strategic Investments Law was extended until the end of 2023 due to delays in the adoption of the unified investment law. Since its adoption, 22 investment projects have been adopted (10 during the reporting period), dominated by domestic investors that received 'strategic investment' status, mostly in the tourism, agriculture and energy sectors. In spite of a noteworthy overall FDI inflow, cluster-like linkages and trade in high technology remain weak relative to peers.
In the area of enterprise and industry policy instruments, the Albanian Investment Development Agency (AIDA) launched an online access to finance platform to enable businesses to access information on available financing opportunities. Access to finance remains a serious challenge for Albanian businesses. No state funds were distributed by AIDA during 2020-2021, as they were re-oriented to measures to alleviate the impact of COVID-19 on businesses. An advisory instrument that provides training and advisory services to MSMEs has been available since February 2021, providing opportunities for small grants to help businesses to adapt to the impact of COVID-19. Extraction industry companies were given a three-year royalty tax exclusion to boost pre-export mineral processing. The Albanian information society agency offers “TechSpace”, a creative environment for start-ups for training on technology, innovation and entrepreneurship activities. The “Roadmap to Silicon Valley” pilot programme
for start-ups offers an incubation phase at TechSpace, in cooperation with public universities, and public and private vocational high schools.
The Albanian legislation on late payments was further aligned with the EU acquis in May 2021 - full alignment should be ensured as soon as possible, including issues related to title retention, and recovery procedures for unchallenged claims. Albania’s SMEs definition is partly aligned
with the EU definition as regards the number of employees, however, national capacity in the field of SME policies and support remains very limited. Formal negotiations on an Association Agreement with Albania to participate in the EU Single Market Programme (SMP) started in June 2022.
On sectoral policies, Albania continues to implement the 2019-2023 national strategy and action plan for sustainable development and tourism. In March 2022, the government adopted a resilience package to help cope with the consequences of the Russian military-aggression against Ukraine, which includes support packages for economic operators in the transport and agriculture sectors. Albania continued to implement incentives for agro-processing industry, however the demand in this sector seems to be for more budget support and subsidies. Work continued on drafting the Smart Specialisation Strategy (S3), completing both the qualitative and quantitative analysis phases, but the Entrepreneurial Discovery Process remains to be launched.
A cross-sectoral strategy and Action Plan 2022 – 2026 on “Digital Agenda of Albania” was adopted in June 2022.

Bosnia and Herzegovina

Bosnia and Herzegovina remains at an early stage of preparation in the area of enterprise and industrial policy. Limited progress was made, notably in updating entity-level industrial policy strategies and in harmonising the insolvency framework across the country. The investment environment remains unsatisfactory. The recommendations of the previous report remain in large part valid.
In the coming year, Bosnia and Herzegovina should in particular:
→ simplify and harmonise business registration in both entities in order to reduce the administrative burden on entrepreneurs, by centralising company registration and licensing under one-stop-shops and by broadening online registration;
→ harmonise the industrial policy strategies and action plans of the various levels of government, ensuring coordination and involvement of industrial enterprises in policy formulation and implementation;
→ assess the needs of businesses, particularly SMEs, when it comes to modernising skills and adopt strategic guidelines for harmonisation of SMEs and entrepreneurship support.

During the reporting period, the entities and Brčko District continued COVID-19 support measures for business in the form of subsidies and tax reliefs. Guarantee funds continued operating in both entities. Although substantial resources were allocated to mitigate the economic consequences of COVID-19, a consistent countrywide approach (coordinated with the private sector) is still absent and the crisis response was fragmented, insufficient and slow.
An ex-post evaluation of the COVID-19 support measures for business would provide accountability for the use of public funds and evidence on the effectiveness of measures for future policy-making.
Regarding enterprise and industrial policy principles, Bosnia and Herzegovina still lacks a countrywide industrial development strategy as well as a state-level body promoting consistency between industrial strategies and coherence with other related policies. The Republika Srpska entity adopted its industrial development strategy for 2021-2027 in August 2021 and adopted the accompanying action plan in April 2022. The strategy partially corresponds to the EU industry strategy and envisages financing of up to EUR 85 million for its implementation. In April 2022, the Federation entity also adopted its own development strategy to 2027. The Brčko District has yet to prepare sectoral strategies to implement its
existing development strategy which is valid until 2027.
A few steps were made to improve the business environment and to attract investments. The Republika Srpska entity expanded the eligibility criteria for its direct investment incentive programme in March 2022, and in December 2021 the entity adopted its action plan to optimise administrative procedures in business registration, which is monitored by a council of 45 stakeholders. The Republika Srpska entity also adopted a rulebook on free zones in October 2021 to implement its own legislation, also in line with the state-level framework. In July 2021, the Federation entity adopted a new bankruptcy law, while Brčko District adopted its own in April 2022. As a result, the insolvency framework is now harmonised across the country. In September 2021, the Federation entity also adopted a law on crafts, which amongst other measures simplifies the registration and closure of craft businesses and regulates the management of a crafts registry.
Despite these developments, the investment environment and the level of competitiveness remain unsatisfactory. Bosnia and Herzegovina still lacks a countrywide strategic framework to encourage foreign direct investment and to improve the business environment. Common causes of informality like high barriers to starting a business and rules on taxes and para-fiscal charges continue to be among the most salient business environment issues, together with ‘red tape’ and the regulatory differences across various levels of the government. While electronic registration of businesses was launched in the Republika Srpska entity, the system is not yet fully functional due to delays in the issuing of e-signatures and e-seals. Such a system was also established in Brčko District. Since October 2021, the Federation entity also enables online business registration applications and set up a one-stop-shop. Further legislation is pending adoption to allow the Financial Information Agency to begin implementing this system.
Regulatory impact assessment is applied across the country and has been expanded to cover the impact on SMEs, though it is still often perceived as a mere formal obligation. Overall, the simplification of business-related legislation is being carried out on an ad hoc basis and is not harmonised throughout the country, e.g. as regards additional administrative and compliance requirements between entities.
Oversight and governance of public enterprises remains to be strengthened, including actions to put public companies on an equal footing with other industrial enterprises and to reduce substantial payment arrears. In October 2021, the Republika Srpska entity decided to establish a unit for the coordination and supervision of public enterprises within the Government’s Secretariat, with an aim to establish a new register of public enterprises. The Financial Information Agency continues to update the register of public companies in the Federation. Brčko District introduced clarifications on the selection and accountability of governing boards of public enterprises which entered into force in April 2022.

Bosnia and Herzegovina still lacks a countrywide strategic framework for SME development with harmonised objectives, priorities and measures relevant for each administrative level. The Federation entity adopted in February 2022 a proposal for developing a Small Business Development Strategy 2022 – 2027. Bosnia and Herzegovina has no timelines yet for developing a comprehensive countrywide SME framework for implementing the Small Business Act as a whole. Although the harmonised 2021-2023 action plans for support to SME innovation were adopted in both entities and Brčko District in 2021, the resulting country-wide priorities have not yet been utilised for developing a Smart Specialisation Strategy, which would still require a fully-fledged analysis for evidence-informed policymaking.
Preparations for the green and digital transitions and global competitiveness of industry in line with the EU industrial strategy are at a very early stage. While the level of internet usage in enterprises is high (with 98% using computers and 96% having internet access), only around 60% of small enterprises have a webpage and only 18% are active in e-commerce.
Energy diversification is slowly advancing. Bosnia and Herzegovina’s economy is about six-times more carbon-intensive than the EU average, which requires a greater focus on green investments, including actions at the SME level.
In 2021 Bosnia and Herzegovina ranked 75th out of 132 economies in the Global Innovation Index. The low-level commercialization of R&D is linked to low public investments in this area (just 0.03% of GDP) and the weak linkages for technology transfer and cooperation in clusters. The share of higher value-added and technology products is modest, and technology extension services are still non-existent. Private-sector applications under Horizon 2020 show a success rate of just 10%, and the Enterprise Innovation Fund has not invested in the country.
Bosnia and Herzegovina ratified the Horizon Europe Association Agreement in January 2022, with retroactive effect from the start of the programme. The collaboration of SMEs and research institutions is not sufficiently developed to create conditions for the application of innovative financing models like innovation vouchers or collaborative grants. The needed amendment to the patent law (see Chapter 7 – Intellectual Property Law) could improve both collaboration and financing of innovation activities for higher value-added business.
The capacities and funding to perform monitoring and evaluations of enterprise and industrial policy measures are still limited, and the data remains insufficient to describe the structure and dynamics of industry.
As for enterprise and industrial policy instruments, no progress was made in the EU acquis alignment of legislation against late payments in commercial transactions, including in the Brčko District.
Bosnia and Herzegovina continued to participate in the EU’s COSME programme on the competitiveness of enterprises and SMEs. In 2021, the partners from the two Enterprise Europe Network (EEN) consortia in Bosnia and Herzegovina received funding of around EUR 1.1 million. Bosnia and Herzegovina expressed its interest in participating in the Single Market Programme, and negotiations for an association agreement started in April 2022 and are progressing.
As regards sectoral policies, both entities adopted their tourism strategies valid until 2027, the Republika Srpska entity in January 2022 and the Federation entity in August 2022.

Kosovo*

Kosovo remains moderately prepared in this area. Some progress was made. In January 2022, the Assembly adopted a law establishing a commercial court for resolving trade disputes of businesses and foreign investors, as well as a law on property rights of foreign citizens. A working group on industrial development strategy (industrial policy) and business support was established in 2021.
In the coming year Kosovo should:
→ adopt and start implementing a strategy for industrial development and business and the sustainable economic growth pillar of the National Development Strategy 2021-2030;
→ improve the capacities of the Ministry of Industry, Entrepreneurship and Trade (MIET) and the Kosovo Investment and Enterprise Support Agency (KIESA).

As regards enterprise and industrial policy, Kosovo’s Ministry of Industry Entrepreneurship and Trade has established a working group for the development of the Strategy for Industry Development and Business Support, tasked to improve the business environment and promote industrial development, as well as resource efficiency and a more circular economy. Incentives for the use of renewable energy sources in industry are foreseen in view of the expansion of solar energy in the carbon emissions policy, whose approval is expected in 2022. The government has launched a dialogue with stakeholders and held consultative meetings with a view to drafting the National Development Strategy 2021-2030, where one of four pillars relates to the sustainable economic growth, and envisages the development of a Smart Specialisation Strategy.
The law on strategic investments remains to be adopted and the pending applications to be recognised as strategic investor to be evaluated, which will occur in accordance with the current law. Although the current legislation on foreign investment foresees equal treatment of foreign nationals and companies, in practice, this is not always the case (see chapter 4). The formulation of a strategy to reform the corporate governance of state-owned enterprise has not yet begun, even though part of the European Reform Agenda, while state-owned enterprises of strategic importance shall be transferred to a sovereign fund, whose concept has been set out.
In the area of enterprise and industry policy instruments, despite some positive steps to increase the administrative capacity of the Kosovo Investment and Enterprise Support Agency, the Agency faces organisational and capacity challenges. Further steps are needed to enable the agency to fulfil its objectives, and in particular, to enable the implementation of before- and after-care services and programmes and promote links between multinational enterprises and SMEs.
Kosovo should establish a streamlined process to handle investors’ grievances and retain investments, which would implement the principles of the Systemic Investment Response Mechanism as proposed by the World Bank. Courts continue to struggle to ensure a timely and coherent adjudication of cases, with cases stalled for years. This situation has a negative impact on the productivity of local businesses and desire for foreign investors to do business in Kosovo.
In January 2022, Assembly passed Law establishing the legal framework for a Commercial Court. Further effort is required to ensure effective operation of the court. Although the legislation on foreign investment foresees equal treatment of foreign nationals and companies, in practice, they encounter challenges registering property rights. To address this issue, the Assembly passed the Law on property rights of foreign citizens (EU and non-EU citizens) in January 2022.
Some progress has been made regarding the elimination of unnecessarily permits and reorganisation of licenses on the e-government platform but progress on implementation is needed. Coordination between central institutions responsible for licenses and permits remains limited. Effectively lowering administrative burden contributes to reducing informal business activities. The action plan 2022-2023 is in force, yet the design of the new strategy has not yet begun.
The lack of easily accessible and affordable credit serves as a substantial barrier to the growth of SMEs in Kosovo. In addition, the SME and corporate sector in Kosovo suffers from a low capacity to prepare bankable projects due to informality in accounting practices, weak corporate governance and management quality in addition to integrity issues. During 2021, the Kosovo Credit Guarantee Fund (KCGF) was expanded and enabled loans worth EUR 105.5 million to 1720 Micro- Small and Medium-sized Enterprises (MSMEs) in the sectors of production, services, agriculture and trade, including start-up firms and female owned businesses.
Kosovo has applied to participate in the Single Market Programme (SMP), formal negotiations for an Association Agreement started in March 2022 and are at an advanced stage.

On sectoral policies, the approach in policy-making is not sector-specific, resulting in the lack of specific sector policies and programmes.

Montenegro

Montenegro is moderately prepared/has a good level of preparation on enterprise and industrial policy. Some progress was made in implementing the enterprise and industrial policy, as per 2021 recommendation. Inter and intra-ministerial cooperation on both technical and political levels should be further developed to ensure consistency of different national strategies and programmes, including industrial policy, smart specialisation and
the Economic Reform Programme. Previous recommendations remain broadly valid.
In the coming year, Montenegro should:
→ continue the implementation of its revised industrial policy, in cooperation with relevant stakeholders;
→ accelerate legal alignment with the EU Late Payment Directive by adopting amendments to the law on deadlines for settlement of monetary obligations;
→ ensure continuous coordination of industrial policy with other key national strategies.

On enterprise and industrial policy principles, a new strategy for the development of women's entrepreneurship 2021-2024 was adopted in October 2021, together with the accompanying action plan for 2021-2022. Work advanced on establishing the Credit Guarantee Fund in 2022, a support mechanism facilitating access to credit for MSMEs through the banking sector. The reforms of the corporate governance in the state-owned enterprises need to be prioritised, in line with the Economic Reform Programme commitments. Alignment with the EU acquis on combating late payments, through amendments to the law on deadlines for settlement of monetary obligations, is still pending.
On enterprise and industrial policy instruments, the implementation of different programmes for the development of entrepreneurship and private sector continued under the overarching Programme for Improving the Competitiveness of the Economy. The financial allocations were reduced in 2021 because of the phase-out of temporary COVID-19 support and amounted to EUR 3 million overall. Businesses were consulted prior to the adoption of the Programme, for the first time, and the whole application process was digitalised. A single on-line portal for SME support (Single Access Point; www.biznis.gov.me) was launched in June 2022, which will provide all necessary information and contacts regarding advice and
assistance for businesses. As of May 2022, 410 public services were available on the e-government Portal, of which 99 were interactive and 311 informational.
In 2021, the Investment and Development Fund of Montenegro (IDF) provided financing worth EUR 210.3 million to Montenegrin enterprises, and additional EUR 74.7 million by the end of May 2022. IDF launched a new programme to support the development of green businesses in August 2021. In November 2021, IDF signed a EUR 50 million loan agreement with the EIB to support faster recovery of the local economy from COVID-19 and help introduce energy-efficient practices among small businesses in the country.
Montenegro expressed its interest to participate in the Single Market Programme (SMP).
Formal negotiations for an Association Agreement started in March 2022 and are progressing.
On sectoral policies, an action plan for the implementation of industrial policy for 2021-2022 was adopted in October 2021, allocating EUR 450.8 million for the planned activities.Government’s work programme for 2022 is focused on the synergies between Industrial Policy and the Smart Specialisation Strategy. In December 2021 the government adopted guidelines for the revitalization and development of manufacturing industry. The document defines measures and activities that should contribute to the establishment of a modern industrial base in Montenegro. The 2021 report on the Implementation of Industrial Policy of Montenegro 2019-2023 is yet to be adopted.
As regards innovation policy (see also chapter 25, Science and Research), two new structures were established in 2021 - the Council for Innovation and Smart Specialization and the Innovation Fund of Montenegro.
Despite some progress on inter and intra-ministerial cooperation, in particular when preparing the Economic Reform Programme 2022-2024, cooperation on technical and political levels should be further reinforced. The number of sectoral strategies, actions plans and reports should be further decreased and activities consolidated, in order to facilitate the efficient management of enterprise and industrial policy.

North Macedonia

The country is moderately prepared in this area. Some progress was achieved in implementing measures to support companies in mitigating the damaging effects of the COVID-19 pandemic as well as inflationary pressures (especially in the area of energy) and supply chain disruptions due to the war in Ukraine. Moreover, some efforts were made to formalise the informal economy. Legislation is not yet fully aligned with the EU Late Payment Directive.
The Commission’s 2021 recommendations were not fully implemented. In the coming year, the country should:
→ consolidate the institutional structure and mandates of public bodies to ensure effective implementation, monitoring and evaluation of strategies and policy measures;
→ ensure high level political commitment when implementing, assessing and renewing the strategy and action plan for formalising the informal economy, with specific attention to its business environment component;
→ develop measures to increase competitiveness of domestic companies and their integration in global value chains, other than state aid.

Enterprise and industrial policy principles are incorporated in several strategic documents under the competence of different national authorities. Nevertheless, the presence of several public bodies with overlapping and conflicting mandates makes the institutional set-up complex and resource inefficient. The Economic Growth Plan (EGP) remains the country’s most important horizontal list of measures. The Law on support of investments, which provides the legal framework for the Plan, was amended to allow for more flexibility and increased grounds for state aid, in particular on large investments. The scope and objective of State aid granted under the EGP is still unclear and no impact assessment of State aid was
made since its introduction.
Most of the existing strategies lack proper evaluation mechanisms, indicators and systematic impact assessment. A monitoring and evaluation unit in the Ministry of Economy is in its early stages. In addition, the country still has no strategy for attracting foreign investments and promoting innovation, despite various programmes implemented by the Fund for Innovation and Technological Development. A Smart Specialisation Strategy and an Export Promotion Strategy, which helps companies’ transition to higher value-added activities, still have to be adopted.
The impact of the COVID-19 as well as new risks stemming from Russia’s invasion of Ukraine, including high energy, commodity and food prices, combined with supply-chain disruptions, have exacerbated existing structural challenges. They negatively affected competitiveness and put significant additional burden on enterprises. Further to the six sets of measures to increase resilience of companies against the COVID-19 pandemic introduced in 2021, the government adopted a EUR 400 million package in March 2022 to protect citizens from rising food and energy prices and to help companies to maintain liquidity. With the aim to support economic recovery through increased investments in greening, innovation, digitalisation and human capital, an acceleration plan was adopted in October 2021, targeting specifically private sector co-funding.
Frequent changes to the regulatory framework, complex administrative procedures, absence of rules in para-fiscal charges, uneven enforcement of business regulations and skills mismatches in the labour market remain major obstacles to doing business. The linkages
between enterprises and other innovation actors remain very weak. In October 2021, the government adopted a new action plan for formalisation of the informal economy, following a report on implementation of the previous plan. On the basis of a published list of para-fiscal charges along with their value, efforts have started in view of evaluating, annulling, optimising and rationalising these charges, which could also help the formalisation of the informal economy. Efforts continued to improve the national e-services portal, which provides electronic services to citizens and companies.
On policy instruments, no progress was made in further aligning the Law on financial discipline to the EU Late Payment Directive, notably in the context of public bodies’ payment obligations.
The post-investment bonuses granted to companies under the EGP continue potentially to distort market competition. While the government approved seven projects of national interest according to the Law on strategic investments, the policy objective and discretionary power to award public funds for high budget investments under this law remains to be clarified.
Commercial bank lending is still the main source of private sector financing and alternative finance remains limited, also due to an insufficient legal framework for factoring and microfinance. The Development Bank introduced a guarantee facility and a subsidised credit line for micro and small companies. North Macedonia expressed its interest to participate in the Single Market Programme (SMP). Formal negotiations for an Association Agreement started in March 2022 and are progressing.
In terms of sectoral policies, the industrial strategy focuses on the manufacturing industry without sectoral prioritisation. During the process of developing a smart specialisation strategy, the following sectors were identified: smart agriculture and food industry, industry 4.0 (encompassing the mechanical, metal processing and automobile industry), as well as smart buildings and materials.

Serbia

Serbia is moderately prepared on enterprise and industrial policy. Some progress was made in general, in particular by adopting an action plan for the strategy on state ownership and management of business entities owned by the Republic of Serbia, and on last year’s recommendations thorugh the creation of the “e-consultation’’ portal aimed at increased business participation in public consultations and increased transparency in the legislative process. Last year’s recommendations nonethless remain largely valid. In the coming year, Serbia should in particular:
→ continue efforts to further improve the predictability of the business environment, with the emphasis on ensuring direct involvment of businesses in the process of regulation;
→ adopt a new SME and entrepreneurship policy strategy;
→ reallocate budgetary resources for foreign direct investment incentives to financial and technical support to SMEs.

With regard to industrial policy, Serbia has been implementing the strategy for industrial development 2021-2030, together with the related action plan for 2021-2023.
On enterprise policy, a new strategy to support the development of small and medium size enterprises (SMEs), entrepreneurship and competitiveness, replacing the strategy for 2015-2020 is yet to be adopted. Serbia’s legislation is largely aligned with the EU acquis on combating late payments in commercial transactions. However, work needs to continue towards full alignment, as Serbia is still to align its rules on payments, indemnity interest rates, expedited recovery procedures and compensation with the EU Directive in this area. In June 2021, Serbia adopted an action plan for the strategy on state ownership and management of business entities owned by the Republic of Serbia and established a database listing companies fully owned or partially owned by the state. The database currently comprises 307 companies (June 2022). In general, the progress on governance reform and restructuring of industrial state-owned enterprises is lagging behind; six companies were privatised during the reporting period, bringing the number of companies in the privatisation portfolio down to 62 (see also The existence of a functioning market economy).
Enterprises in Serbia continue to identify corruption and problems in the exercise of the rule of law as key obstacles to the investment climate and economic development. Serbia also needs to continue to increase predictability in the business and administrative environment, in particular for SMEs. Performance measurements for policy-making activities should be developed and more emphasis put on implementing the ‘think small first’ principle. The regulatory impact assessment with the SME test needs to be systematically carried out when formulating laws and implementing legislation. The implementation of the multilannual reform aimed at optimising and improving the transparency of all administrative procedures is ongoing. A digital ‘’e-consultation’’ portal for public participation in legislative processes was established following a decision adopted in June 2021 to increase transparency in the legislative process and facilitate participation in consultations. Effective communication on this new tool is crucial to ensure that businesses are properly and timely consulted and informed about regulatory changes.
On enterprise and industrial instruments, Serbia continues to use budgetary subsidies for newly created jobs as an incentive for foreign direct investments. This approach is not consistent with its industrial policy goal of privileging value added over labour cost and with the continued weakness in supplier development. The budget for SME measures is growing but remains modest compared to the amounts of state aid and tailor-made services offered to large investors. The lack of specialised support and advisory services for businesses limits the possibilities of domestic companies to modernise and qualify as suppliers to multi-national enterprises. Favourable loans and guarantees for SMEs are provided by the Ministry of economy and the development fund through joint programmes with commercial banks. These programmes provide financial support for the purchase of equipment, financial support to start-ups, and financial support for development projects. Nevertheless, access to finance by start-ups remain an impediment to their growth. Serbia expressed its interest to participate in the single market programme (SMP). Formal negotiations for an association agreement started in March 2022 and are progressing.
In sectoral policies, the current support for investment continues to prioritise manufacturing. Until recently, the approach in policy-making was not sector-specific, with the exception of tourism. The extent to which the industries identified in the smart specialisation strategy will benefit from the programmes under the industrial strategy is still to be proven.