According to the latest EBRD report on the transition, Serbia is 15th of the 38 countries in which the EBRD operates, the Regional Director for Western Balkans at the European Bank for Reconstruction and Development (EBRD), Zsuzsanna Hargitai, says in her interview for eKapija.
Still, she adds, although Serbia has better results than most other economies of the Western Balkans, it is still behind the new member states of the EU in central and southeast Europe.
Hargitai says for eKapija that there is room for progress and that, in 2021, the EBRD will focus on inciting green investments, increasing skills among the young, and with that the employment rate as well, and supporting female entrepreneurship.
– This year, we plan to launch a new program dedicated to young entrepreneurs supported by the Swedish government, combining EBRD loans and donor provided guarantees to improve access to financing and business advice for young entrepreneurs – says Hargitai.
– Importantly, we would like to put higher on the Serbian agenda the transition from coal in energy generation and consumption. It is time to start planning long-term, in the next 15-20 years, an exit from coal – the EBRD regional director points out.
In the year that marks the 20th anniversary of Serbia’s membership in the EBRD, we talked to our interviewee about the priority projects for 2021, the support that the EBRD provided to Serbia in the reform of public companies and about the necessary privatizations and the current economic situation in Serbia.
eKapija:The EBRD has supported the private sector over the past year. These are investments for competitiveness and economic recovery, in the amount of EUR 679 million. What are the plans for 2021, what will be the priorities and the most important projects?
– Building back better economies is in short the EBRD`s strategy for 2021. This means that we will not only continue to support the economies in which we are investing to recover from the crisis caused by the covid-19 virus, but we will also help them emerge from the crisis better, more resilient, greener, more inclusive and better equipped to use 21st century technologies. Indeed, in 2020 the largest part of the EBRD investment was for the private sector, small and medium enterprises as well as larger companies. This trend will continue in 2021 with financing for local and foreign investors and financing for local SMEs. Our emphasis will be on fostering green investments, increasing the skills and thus the employability of young people, supporting women entrepreneurs. We’ll continue – with EU co-financing – our financial and advisory support to enhance the competitiveness of local SMEs with enhanced focus on digitalization, green technologies and innovation, as we did in 2020.
This year, we plan to launch a new program dedicated to young entrepreneurs supported by the Swedish government, combining EBRD loans and donor provided guarantees to improve access to financing and business advice for young entrepreneurs. Regarding public infrastructure, EBRD is preparing financing for district heating companies, for a regional solid waste management programme and further investment in irrigation. Together with our partners at KfW, we shall scale up financing for energy efficiency in public and residential buildings and plan to advise the Ministry of Mining and Energy on setting up a national energy efficiency fund. Railways modernization, as green focus on transportation is increasing, will be also high on our investment and policy agenda in 2021.
eKapija: The EBRD has published annual results globally. What did these results show?
– The EBRD responded to the coronavirus pandemic with record investment of EUR 11 billion in 2020 through 411 projects, addressing the urgent needs of the 38 economies where it invests. This represents a 10 per cent increase in annual business investment relative to 2019, when the Bank provided EUR 10.1 billion to finance 452 projects.
The EBRD was the first international financial institution to adopt, in March last year, a crisis response financial and policy advisory program to address the economic impact of the pandemic. It focused on supporting existing clients with the provision of working capital, providing such facility to SMEs through our local partner banks and also provide such financing for vital public infrastructure services. In addition, to keep trade flows going, the EBRD supported a new record of 2,090 trade finance transactions worth EUR 3.3 billion under its Trade Facilitation Programme, involving 90 issuing and 140 confirming banks across 40 countries worldwide.
eKapija: When it comes to renewable energy, the EBRD is present in that field as well. What will be the focus this year?
– Having provided financing for the two largest wind farms in Serbia, Čibuk1 and Kovačica, our aim is to help open a new chapter for expanding investments in Serbia in renewables that have become significantly cheaper over the last years. We have started advising the Ministry of Mining and Energy with a view to launching the first auction for capacity allocation in first half of this year. The EBRD is supporting the establishment of the Association of Renewable Energy Producers in Serbia, which will bring together existing and potential investors to further develop the sector and represent investors in the relevant consultations with the Government. In 2021 we’ll start financing investments in district heating companies, supporting accelerated transition from coal, introducing solar and other renewables and network expansion – strongly supported by our excellent partners, the Governments of Austria and Switzerland.
Importantly, we would like to put higher on the Serbian agenda the transition from coal in energy generation and consumption. Coal is not cheap: it requires subsidy from the state budget and will be more expensive for the economy as carbon border tax is expected to be introduced and an increasing number of large corporates – customers of companies in Serbia – are committed to net zero emission. It is time to start planning long-term, in the next 15-20 years, an exit from coal. We are ready to help with advice and financing so that it is a ‘just transition’ in terms of social impact, Serbia has continued energy security and consumers have access to affordable energy.
eKapija: We have said that the EBRD provided considerable support to both large and medium and small enterprises. What, then, are the advantages and the terms that would made an employer choose the EBRD over a commercial bank and how can interested employers get your loans?
– The strategy of the EBRD is to support the sector of small and medium enterprises indirectly through cooperation with commercial banks and leasing houses to which it provides funds, which are then forwarded to the leasing houses’ clients in line with their commercial policies. The EBRD website features a list of the projects and the financial institution with which we cooperate, along with a description of each program and its advantages, so that’s a good starting point for each company that is interested in using the funds that the EBRD intends to provide through its network of partner financial institutions.
eKapija: According to the announcements, Serbia should conclude a new arrangement with the IMF. How do you view this agreement, are you concerned about the possible impact of this arrangement on the country`s public debt?
– IMF arrangements can be both financial and non-financial ones, where the latter ones do not affect the debt level. The previous arrangement Serbia had, which is expiring this month, was a non-financial instrument (called a ‘Policy Coordination Instrument’) intended to support the country’s reform agenda. The next arrangement is likely to be similar, focusing on reforms and could, as the previous one, help the Government’s focus in terms of the next set of key structural reforms.
eKapija: In 2020, Serbia had a smaller decline in GDP compared to the decline in GDP in European countries. Did such a result of Serbia come from our underdeveloped economy, good moves of the state or something else?
– According to our forecast for September 2020, GDP was expected to fall by 3.5 percent in 2020. However, as new indicators arrived, our estimate was that the decline could be even more moderate. Although the Serbian economy is affected by several channels (domestic lockdown measures, disruption in supply chains, lower inflow of foreign direct investment and remittances), the contraction in 2020 was smaller than in many neighboring countries because the structure of the economy, with the production of basic products, less sensitive to the effects of a pandemic. In addition, it helped that the government introduced a timely, robust crisis response package and continued capital investments throughout the crisis period.
eKapija: This year, Serbia marks the 20th anniversary of EBRD membership. How would you rate the development of Serbia from one to ten when it comes to structural reforms? How does Serbia stand in this respect when compared to other countries that have gone through the transition?
– When it comes to comparing the transition progress, the EBRD identifies six qualities of a sustainable market economy. Namely, a sustainable market economy is competitive, well-governed, green, inclusive, resilient and integrated. Progress on each quality is measured on a scale from 1 to 10. According to the EBRD’s latest Transition Report, Serbia performs best on the integrated quality, while most room for improvement seems to be in the areas of competitiveness and governance. The country’s average score on all six qualities is close to 6, making it rank 15th among 38 EBRD countries of operation. Although Serbia is doing better than most other Western Balkans economies, it still lags behind the new EU member states in Central and South-Eastern Europe.
eKapija: The EBRD has supported Serbia in reforming public enterprises. What is the biggest problem in managing these companies, in your opinion?
– The SOE sector in Serbia is relatively large and typically performs worse than it does in other European countries or in the private sector. The EBRD has supported the Serbian government to develop a new state ownership policy, which should contribute to better corporate governance in SOEs - but this is not the only persistent problem in the SOE sector. In line with the IMF program and with advice from EBRD, the Government agreed to adopt, in February-March 2021, a state ownership policy and action plan to provide a strategic vision of state ownership, including ownership objectives, financial and public policy targets, reporting and monitoring guidelines and procedural guidelines for the election and operations of the boards of directors.
eKapija: Privatization remains one of the painful topics for the state. Although we got rid of some big losers, such as RTB Bor, Zelezara ... there are still a lot of companies on the list. Do you discuss this topic with government officials?
– More efficient SOE sector is an important topic and in the interest of governments. Higher efficiency can be achieved either through a change in ownership or through improvements in corporate governance. EBRD stands ready to support Serbian government in whichever way it decides to make public utilities more efficient. As mentioned previously, we are currently helping the government to develop a state-ownership policy in line with best standards.
Priority in Bosnia and Herzegovina completion of Corridor Vc
– 2020 has been an excellent year with EUR 187 million of investments in 23 projects, with 50 per cent of our financing going into the private sector, in order to support lending to micro, small and medium-sized enterprises. In the public sector, there are a number of key priorities in the EU’s Economic Investment Plan for BiH that they EBRD will support. First of foremost we aim to continue our engagement and complete together with partners the financing for Corridor Vc, a flagship transport corridor for BiH that will link the country better with its key trading partners. We would also like to invest in improving rail infrastructure and will of course continue lending to sustainable infrastructure investments in municipalities and cantons that directly improve services for citizens. At the same time our focus remains the private sector. We are already discussing financing for a few local and foreign investors hoping to invest in BiH – and we aim to extend support to the newly established Credit Guarantee Fund which should help local companies weather the impacts of the pandemic.
Five-year plan for Montenegro being prepared
– In Montenegro, we had a record year in 2020 with over EUR 160 million in new financial commitments, including for vital infrastructure service provision and SMEs. We provided direct financing, but also financing through credit lines in cooperation with financial institutions. In addition, we provided a EUR 26 million loan to complete the Jezerine-Ljubice road. We are currently preparing a new EBRD strategy for the coming five-year period and have started discussions with the new government to agree on the priorities and specific focal areas for EBRD financing and advisory activities. Overall, we’ll continue to emphasize the Green Agenda, more infrastructure development to connect Montenegro with the markets in the region and the EU and enhancing the competitiveness of the private sector.