Enabling Environment for Sustainable Enterprises

Weak rule of law, unfair competition, and skills shortages: New survey detects what prevents Serbian enterprises from thriving

A new diagnostic report of the Serbian Employers’ Association shows the major obstacles for doing business and creating jobs in the largest economy of the Western Balkans. The findings are based on a survey among 450 enterprises done with ILO support.

News | 04 February 2022

©AFP/Europress

Survey findings show that the incomplete reform of public administration together with weak rule of law hamper the achievement of good governance in Serbia. There is low trust in the capacity of public authorities to fight corruption. Almost 60 per cent of survey respondents perceive existing anti-corruption bodies as ineffective in addressing complaints made by the private sector. More than one third of respondents report that bribery and other forms of corrupt payments are often or occasionally an accepted way of engagement with public servants, especially those representing inspection bodies or when applying for various permits or licences.

Despite a solid institutional infrastructure in place, enterprises believe that social dialogue is not used at its full potential yet. The weak commitment of policymakers to tripartite social dialogue limits the influence of the Social and Economic Council on national policy and law-making processes. More than a half of survey respondents assessed the activity of the economic and social councils at the national and the local level as ineffective or completely ineffective. The lack of trust in social dialogue institutions undermines the value of collective action and weakens the capacity of employers’ and workers’ organizations to grow their organisations.

Over the past two decades, Serbia has made notable progress in improving the legal and regulatory framework for doing business, but many challenges remain. Further progress is critical to reduce red tape. Laws and regulations are still perceived as cumbersome, ambiguous and non-transparent resulting from limited consultations with the business community. Only one third of surveyed enterprises found laws and regulations easy to understand and follow. At the same time, the majority of enterprises (67 per cent) reported dealing with overlapping regulatory bodies either on a regular basis or occasionally.

Serbia lags behind many peers on international indicators related to fair competition in the sense of creating a level playing field for all enterprises. This resonates with the perception of the majority of respondents (68 per cent) assessing anti-trust legislation as ineffective. Authorities need to ensure a balanced and fair regulatory treatment for all enterprises by reducing the size and distortiveness of state aid for selected state-owned enterprises and large foreign investors, and ensuring more transparency in public procurements. Surveyed enterprises think that state aid is often mistargeted and provides unprofitable state-owned enterprises an unfair advantage over more innovative and competitive domestic private companies. However, the most significant source of unfair competition comes from the informal sector. More than a third of surveyed enterprises reported that they always or often compete against unregistered or informal businesses.

Access to finance was assessed by almost half of the respondents (48 per cent) as a major constraint for the establishment and growth of enterprises. Alternatives to bank financing have remained either limited or not yet sufficiently regulated to ensure the uptake of non-bank financial instruments (for instance, microfinance, factoring, leasing, venture capital, private equity crowdfunding), which are particularly valuable for microenterprises and start-ups that would otherwise have hardly any access to traditional financing sources. Only 7 per cent of the respondents assessed the available financial products and services as completely adequate for their needs. Furthermore, government support programmes for MSMEs (medium, small and micro enterprises) were also found to have unclear eligibility criteria, as well as complicated procedures.

Skills shortages
are an increasing obstacle to doing business in Serbia. More than 70 per cent of enterprises identify skills shortages as having a negative impact on enterprise development. Despite recent reforms, including the development of the national qualifications framework, the Serbian education system fails to deliver the skills the labour market needs. More than half of surveyed enterprises (53 per cent) perceive graduates from vocational and higher education institutions only partly prepared or completely unprepared to meet the needs of enterprises. Approximately 45 per cent of surveyed enterprises reported having difficulties in recruiting workers with the right skills, especially highly skilled ones. The survey also concluded that adult professional development remains low, with a participation rate below 20 per cent, whereas life-long learning opportunities are still underdeveloped.
 
The new report is downloadable from here. The report was prepared based on the ILO Enabling Environment for Sustainable Enterprises (EESE) methodology, for more info see here.