Institute of Economic Sciences

Zmaj Jovina 12, 11 000 Beograd, Serbia

E-mail:office@ien.bg.ac.rs

www: ien.bg.ac.rs

PROJECT OUTLINE

THE CONTRIBUTION OF THE SMEE SECTOR TO THE DEVELOPMENT OF THE SAVA AND DANUBE REGION

Belgrade, November2010.

Executive summary of the project proposal

The SMEE sector is expected to contribute significantly to achieving the common goal of more dynamic regional development, by increasing GDP, improving the living standards, alleviating poverty, and reducing the unemployment rates. Moreover, intensive regional development is greatly dependent on the possibilities for strengthening the SMEE sector and its role in the development and regional cooperation. As the countries in the Danube and especially Sava river basin economically tied by the possibility to share natural, capital and human resources, as well as benefit from water transport, river tourism, catering and trade development, it is of great importance to enhance the capabilities and cooperation of SMEEs in the region.

The general purpose of the project is to stress out the importance of the SME sector for the development of the Sava Basin within Danube Region. Project: The Contribution of the Smee Sector to the Development of the Sava And Danube Region is aimed to promote role and importance of the SMEE sector for the development of the Danube and particularly Sava river area. Project is focused on the role of SME sector in support the competitiveness of enterprises, invest in people and skills and step up institutional capacity and cooperation in the countries of the Sava river basin, as a important part of the area set up by EU Strategy for the Danube Region.

In order to achieve the above mentioned goal, it is necessary to look upon specific contributions of the SMEs to economic growth and development, as well as the regional cooperation in order to achieve and sustain competitive advantage of the region. Project objectives include: supporting the competitiveness of SMEs through regional cooperation, investing in people and skills and promote cooperation with scientific and research institutions, improving mobility and intermodality along Sava region; upgrading institutional capacities and promoting cooperation and creation of SME clusters and reinforcing potentials for socio-economical development will serve as a basis for project implementation.

In accordance with project objectives, research will be based on both qualitative and quantitative methodologies, as well as comparative analysis realized through desk and field research techniques.

It is expected that a team from Institute of Economic Sciences (IES), Belgrade will lead the project in cooperation with International Centre for Promotion of Enterprises (ICPE), Ljubljana and other partners in Croatia and Bosnia and Herzegovina in 3 stages. The first stage should be completed in the first year, as long as other two stages length will be determined after completion of the first stage.

The findings of the Project will serve for recommendations to all stakeholders and decision makers in the region for promoting the development of the SME sector and supporting institutions in the function of economic growth and regional cooperation, increasing institutional cooperation within the region, strengthening networking between public and private sectors and scientific and research institutions in the Sava and Danube Region, as well as forming the SMEs clusters and specific projects in order to promote competitiveness and innovative and export performances of the individual economies and the entire region.

PROBLEM BACKGROUND AND JUSTIFICATION

Countries in the Danube river basin are economically tied by the possibility to share natural, capital and human resources, benefit from water transport, river tourism, catering and trade development, as well as from an easier flow of information, knowledge and innovations.

Having recognized the importance of the Danube area for overcoming regional differences in economic performance and obtaining sustainable development, the European Council tasked the European Commission to draw up the European Strategy for the Danube Region by the end of 2010. The adoption and the beginning of the implementation of the Strategy are expected in the first half of 2011. The full utilization of resources in the Danube area and the realization of the goals of the Strategy are possible only through balanced development of all the countries in the Danube River Basin.

EU Strategy for the Danube Region covers ten European countries along Danube – Germany, Austria, the Slovak Republic, Hungary, Croatia, Serbia, Romania, Bulgaria, the Republic of Moldova and Ukraine, and in a broader territorial context another 4 countries including: Slovenia, the Czech Republic, Bosnia Herzegovina and Montenegro.

At this stage, it is envisaged that the Strategy will be concentrated on the following four pillars and 11 priority areas:

- Connecting the Danube Region

1) To improve mobility and intermodality

2) To encourage more sustainable energy

3) To promote culture and tourism and people-to-people contacts

- Protecting the environment in the Danube Region

4) To restore and maintain water quality

5) To manage environmental risks

6) To preserve biodiversity, landscapes and the quality of air and soils

- Building prosperity in the Danube Region

7) To develop the knowledge society through research, education and information technologies

8) To support the competitiveness of enterprises

9) To invest in people and skills

- Strengthening the Danube Region

10) To step up institutional capacity and cooperation

11) To work together to tackle security and organized crime

Starting from the above mentioned priorities, our project is focused on the role of SMEE sector in support the competitiveness of enterprises, investing in people and skills and step up institutional capacity and cooperation, particularly in the Sava river basin as an important part of the area set up by EU Strategy for the Danube Region.

Having in mind that there is a long history of cooperation in the Danube region with 41 European Territorial Cooperation Programmes being active in the period 2007-2013, joint efforts of regional and local authorities in the field of SME development could lead to prosperity, job creation and sustainable development of the entire region. The SME sector is an appropriate instrument for developing synergies between the countries of the region.

Four countries along Sava river: Slovenia, Croatia, Bosnia and Herzegovina and Serbia, have a great potential for intensive regional development. These four countries create a southern subgroup of 14 Danube Strategy countries. By strengthening ties and networks between the SMEs in the Sava Basin, either on a cluster based concept or otherwise, more dynamic economic growth can be achieved.

The impact of the SME sector on the development of the Sava Region is possible because they contribute significantly to trade, transport, traffic and tourism. In light of that, further strengthening of business activities among SMEs is necessary, as well as the creation of friendlier environment for small businesses. By fostering trade, traffic and continental tourism, a higher level of competitiveness and development of the countries in the region can be achieved. The SMEs contribute to better utilization of rich natural basis and agricultural resources.

Because SMEs contribute to the employment of the work force, increase of productivity and growth of domestic product more than any other sector, the importance of their role for the development and economic growth of the region needs to be stressed out. Increasing economic competitiveness through development of SMEs should be recognized as a priority.

Strengthening cooperation among SMEs and entrepreneurs is of crucial importance for the development of the region. Consequently, the establishment of a regional cooperation centre may be of interest to all the states in this macro region. Intensifying cooperation within SMEE sector and consolidating connections between representatives of the business community will create conditions for continuous economic progress of the Danube and particularly Sava river area. In that sense, further development of SME sector, particularly in the field of river tourism, trade and transport, as well as improvements in business environment, more active involvement of supporting institutions and networking among public and private sectors and scientific and research institutions are required.

In order to justify the relevance of the selected topic of the project, it is necessary to provide insights into the Principles of Balanced Regional Development. Not only individual countries, but international organizations such as OECD, World Bank, UNDP and others, put significant attention to overcoming differences in the degree of the development of the regions in order to meet the objectives of internal cohesion. Among other issues, the Principles of Balanced Regional Development emphasize the importance of SMEs for regional development. The SMEs are the driving force of economic development, as they stimulate private ownership and entrepreneurial skills, and are flexible and can quickly adapt to market oscillations. In addition, the SMEs generate employment, utilize local raw material resources and have the positive impact on the diversification of economic activities. By contributing to exports and trade, they foster balanced regional development.

The purpose and objectives of the project

The general purpose of the project is to stress out the importance of the SME sector for the development of the Sava Basin within Danube Region. In order to achieve the above mentioned goal, it is necessary to point out to the specific contributions of the SME sector to economic growth and development. Furthermore, general recommendations and institutional assumptions for more dynamic development of the sector will be discussed.

The overall goal of the Project is to promote role and importance of the SMEE sector for the development of the Danube and particularly Sava river area. Project is focused on the role of SME sector in support the competitiveness of enterprises, invest in people and skills and step up institutional capacity and cooperation in the countries of the Sava river basin, as a important part of the area set up by EU Strategy for the Danube Region. The main objectives of the project can be summarized as follows:

To support the competitiveness of SMEE through regional cooperation
To invest in people and skills and promote cooperation with scientific and research institutions
To improve mobility and intermodality along Sava region
To step up institutional capacity and promote cooperation and creation of SME clusters
To reinforce the potential for socio-economical development.

Notwithstanding the different historical experiences and social and economic circumstances, the rivers Danube and Sava have been the connection point between the nations and cultures in the region for centuries. Today, a new approach to regional cooperation is needed. The SME sector should be recognized as the backbone of the more dynamic development of the countries in the Sava Basin.

Entrepreneurship plays a key role in enabling economic growth and prosperity. The focus is to be put on obtaining economic development through entrepreneurship. Entrepreneurs create new businesses and jobs, bring forth the great majority of innovative products and services to improve the quality of life and stimulate competition. The evidence clearly shows that entrepreneurship is still insufficiently developed in all the states in the Danube and Sava Region. Our intention is to emphasize that entrepreneurs are extremely important for prosperity of the entire region.

It can be stated that individuals in all the states in the region are generally discouraged from starting a business by cultural factors. Total early stage entrepreneurial activity (TEA) describes the proportion of people who are involved in setting up a business or owners-managers of new businesses. The TEA rate is the proportion of people aged 18-64 who are involved in entrepreneurial activity as a nascent entrepreneur or as an owner-manager of a new business. The table below provides comparative data on entrepreneurial activities in Serbia and other Danube Basin countries according to Global Entrepreneurship Monitor (GEM).

Table 1: Entrepreneurial activity in 2009 of the countries of the Sava Basin

	Nascent entrepreneurship rate	New business ownership rate	Early-stage Entrepreneurial activity (TEA)	Established business ownership rate	Discontinuation of businesses	Necessity driven (% of TEA)	Improvement driven Opportunity (% of TEA)
Bosnia and Herzegovina	3.1	1.3	4.4	3.9	3.1	39	20
Croatia	3.5	2.2	5.6	4.8	3.9	37	39
Slovenia	3.2	2.1	5.4	5.6	1.3	10	69
Serbia	2.2	2.8	4.9	10.1	1.9	41	46

Source: http://www.razvoj.gov.rs (Report on the Development of Serbia for 2009, pg. 78.)

Tea index for Serbia in 2009 amounted 4.9 (per 100 adults, 5 were actively entrepreneurial), which shows a deterioration of entrepreneurial activity compared with the previous period of time. Compared with other countries in the Basin (Slovenia, Croatia) where the average value of TEA ranges from 5.4 in Slovenia to 5.6 in Croatia, Serbia can be characterized by the lack of entrepreneurial activity and entrepreneurial spirit.

The development of small and medium-sized enterprises and entrepreneurship has been set as a priority and an imperative by the Serbian government. By developing and implementing the Strategy for Development of Competitive and Innovative Small and Medium Enterprises 2008-2013 the government has set goals and provided long and short term development guidelines. The baseline for the strategy adoption is found in the Strategy for Development of Small and Medium Enterprises and Entrepreneurship in the Republic of Serbia 2003-2008 and in the Action Plan for Stimulating Development of Small and Medium Enterprises 2005-2007. The strategy is based on the fact that SMEs play a key role in the country’s economic growth and prosperity. The basic goal defined in the strategy refers to fostering further strengthening and more dynamic development of the sector, along with more efficient use of SMEs’ potentials and capacities.

The basic macroeconomic indicators show the increasing influence of SMEs sector on the overall development of Serbian economy. According to the latest available official data, in 2008 SMEs on average accounted for 99.7% of the total number of economic entities, 43.2% of employment, 35% of GVA, 45.5% of export and 59.3% of the overall import, as well as 67.2% of employment, 66.6% of turnover and 59.1% of GVA of the non-financial sector of the Serbian economy. SMEs' share in total number of enterprises in Serbia, as well as their role in economic growth and development, is growing year after year.

A set of new legislation and regulations referring to enterprise’s establishment and performing procedures, contributed greatly to the dynamics achieved in the number of new companies. The effects of the world economic crisis have influenced to a great extent the operations of small and medium enterprises. The effects of the crisis imposed new business conditions, which, among other things, are characterized by a more rigid discipline in debt repayment. The crisis affected the liquidity/solvency of SMEs, led to an increase of the cost of capital, reduction in amount of funds and loans available to SMEs, fluctuations of foreign exchange rate and reduction in import/export activities and in the level of employment.

All above mentioned foster the need for more intensive development of the SEME sector in Serbia and that could be realized by promoting the development of the SME sector and supporting institutions through strengthening networking and enhancing regional cooperation in the counties of Sava river basin as an important part of the area set up by EU Strategy for the Danube Region.

Methodology of the project research/development approach

In accordance with the objectives and the expected outcomes, the following research methods are used in the project:

- Desk research method is used to evaluate the attained level of SMEE sector development in the Sava and Danube region countries, indicate the sector’s contribution to the overall economic development and point out to the significance of the sector’s role in specific industrial sectors’ development;

- Comparative analysis method enables the comparison between the stages of SMEE development in the different countries of the observed region;

- Inductive-deductive reasoning is used for identifying the possibilities for strengthening the SMEE sector in the region, and pointing out to the main presumptions and conclusions regarding the more dynamic contribution of the SMEE sector to economic development of the Sava and Danube region.

- Case study and field research as a methodology commonly used to bring out the details from the viewpoint of the participants by using multiple sources of data;

The dissemination of results to the final beneficiaries will be enabled by publishing the final Survey, elaboration and public discussion on the results and conclusions of the project.

Proposed project team

It is expected that a team from Institute of Economic Sciences (IES), Belgrade will lead the project in cooperation with International Centre for Promotion of Enterprises (ICPE), Ljubljana and other partners in Croatia and Bosnia and Herzegovina in 3 stages.

Proposed project team members from IES side are:

1. Dejan Eric, PhD, full professor

2. Ivan Stosic, PhD, research fellow

3. Radoje Zecevic, PhD

4. Jovan Zubovic, PhD, research fellow

5. Isidora Beraha, MSc, research assistant

6. Sonja Djuricin, MSc, research assistant

7. Ana Jasko, MSc, research assistant

contents of the project

The course of the project is primarily determinate by the following structure:

I) Specific contribution of the SMEE sector to economic development of the Danube and particularly Sava region

1.1. The evaluation of the SMEE sector role in particular countries

1.2. Comparative analysis of the attained level of development of the SMEE sector in the region

1.3. The contribution of the SMEE sector to regional development

1.4. Identifying the possibilities and preconditions for strengthening the SMEE sector in the function of economic development of the Danube and particularly Sava region

II) Danube and Sava as corridors of economic cooperation of the region

2.1. The evaluation of the involvement of the SMEE sector in the field of water transport

2.2. The role of the SMEE sector in development of the river tourism

2.3. Branding of Sava and Danube as attractive tourist destination

2.5. SMEE sector as a factor of trade development and export promotion

III) Presumptions for the SMEE sector’s greater contribution to development of the Sava and Danube region

3.1. Promoting the existing infrastructure of the SMEE sector for iincreasing competitiveness through development of entrepreneurship

3.2. Education and human resources development and more dynamic contribution of the SMEE sector to the overall employment growth

3.3. Drafting the life-long learning strategy in the field of entrepreneurship, fostering entrepreneurial skills and a culture of entrepreneurship

3.4. Forming the SME clusters in order to promote competitiveness and innovative and export performances of an individual economies as well as of the entire region

3.5. Fostering cooperation of Danube region countries in the field of science - Networking between public and private sectors and scientific and research institutions

3.6. SME's involvement in supply chains of the large business systems in the region

3.7. Forming the Center for coordination and economic cooperation development in the Sava and Danube region

IV) Conclusions and recommendations

Expected results and beneficiaries of the project

The expected results of the proposed project include an account of the development level of SMEE sector and summarize presumptions and recommendations for increasing the sector’s contribution to development of the Sava region. The idea is to give an overview and provide useful information not only to academic and political leaders, but to industry and civil servants working with regional development as well.

The expected results of the project:

The rise in awareness about the possible contribution of the SMEE sector to the overall development of the Sava and Danube region among policymakers, professional and scientific community
The systematic analysis of the attained level of the SME’s development in the countries of the region, as a basis for the summary of presumptions and recommendations for the greater contribution of the SME sector to economic growth of the region
The provision of incentives for further SME Policy development in the countries of the region
The provision of valuable information that can be used by the governments, in order for the new and advanced SME supporting measures to be introduced
The summary of good practices in the field of SME development

Growth and prosperity of nations depend to a great extant on the ability of the SMEE sector to generate employment, create added value, GDP and innovations, as well as fasten economic development. Due to its vitality and flexibility, the SME sector is resilient to external shocks and is more likely to adjust successfully to dynamic changes on the global market. The SMEs are more innovative and tend to be more productive than the large ones. Furthermore, they are considered to be the crucial parts of supply chains, providing materials and services to large businesses and distributing goods to customers. More intensive regional development is greatly dependent on the possibility to increase the share of the SMEEs in the total number of economic entities, especially in industries that are relevant for dynamic development of the Sava and Danube region. One of the critical factors of a region’s competitiveness is the development capacity of its small and medium innovative enterprises.

The general objective of the project is to contribute to making better use of the existing resources to tackle issues of territorial development and identify joint responses to common challenges. The SMEE sector has the potential to promote regional and cross-border cooperation for further economic growth of the region. A significant share of the SMEE sector in the key macroeconomic indicators in the countries belonging to the Sava and Danube region points out to the fact that this sector has become one of the main pillars economic development of both individual economies, and a region as a whole, rest on. The largest rise in the number of employees is recorded in the SMEE sector, this sector realizes the largest part of the total turnover in the national economies in the region, and its share in the forming of GVA of economies records constant rise. In the light of more dynamic regional development it is necessary to focus on identifying the possibilities for further development of the SMEE sector, strengthening connections and economic ties between countries, intensive networking in various fields of activities, promoting tourism, trade and export.

The project realization should lead to:

Promoting the development of the SME sector in the function of economic growth and prosperity of the region
Increasing competitiveness through development of entrepreneurship
Pointing out to the necessity of strengthening connections between the states in the region
Stressing out the need for educational institutions, communities and governments to cultivate new strategies to grow entrepreneurship knowledge
Forming the SMEs clusters in order to promote competitiveness and innovative and export performances of the individual economies, as well as of the entire region;
Promoting projects for know-how and technology transfers, and new technological solutions that are supposed to contribute to specialization and clustering in the region
Networking between public and private sectors and scientific and research institutions
Increasing institutional cooperation on local, regional, macro-regional and transnational level
Developing entrepreneurial support institutions