Lack of Cash Stifles Serbia’s Innovation Drive

Addressing business leaders at this year’s Kopaonik Business Forum – Serbia’s Davos – Prime Minister Ana Brnabic stressed that Serbia needed an economy “based on innovation, not just investment”.

It was a statement that reflected her government’s growing focus on entrepreneurship and innovation – not just big-ticket foreign investments – as a way to ensure sustainable growth, inspired by the vibrant tech-scenes that have helped transform the economies of Israel, Estonia, Finland and other innovation nations.

With growth rates for the IT industry of some 20 per cent annually since 2016, there is hope.

The sector now accounts for about 10 per cent of Serbian GDP and exports have already exceeded € 1 billion in July this year, according to Finance Minister Sinisa Mali.

But while the figures are great, so are the challenges to further growth.

The latest edition of the Global Innovation Index, published this month, noted the difficulty small Serbian companies have in obtaining loans, the low intensity of local competition, low levels of high-tech imports and meagre spending on digital technology.

Despite its potential, Serbia spends relatively little on Research & Development as a proportion of its GDP – just 0.9 per cent in 2017, compared to 4.25 per cent in Israel, 2.75 per cent in Finland and 2 per cent in fellow former Yugoslav republic Slovenia.

The Index – compiled by Cornell University, the INSEAD graduate business school and the UN’s World Intellectual Property Organisation – ranked Serbia 55 out of 126 countries in terms of innovation performance, behind regional peers Slovenia (30), Bulgaria (37), Croatia (41), Greece (42) and Montenegro (52), though Serbia did feature among 20 countries where innovation output outperforms a country’s development level.

“The greatest obstacle for innovators is the lack of money and easily available capital,” said Vladimir Vojvodic, a senior associate at the government-founded Serbian Innovation Fund, which provides grants to innovative micro or small businesses.

“That is crucial in the early stages of commercially-minded technological development,” he told BIRN.

Red tape

Innovation in Serbia is a hot topic, thanks to targeted government policies and a growing number of private centres for IT and entrepreneurship like StartIt and Impact Hub.

Serbia can already boast a few IT champions, such as Nordeus, FishingBooker, Trilateral and Seven Bridges Genomics. The industry, however, continues to be dominated by outsourcing companies lured to Serbia by the low wages paid to programmers.

The public and private players may differ occasionally on how to develop the sector, most notably over government subsidies to attract Continental’s R&D centre to the second city of Novi Sad this year, but there are many points of agreement.

Nevenka Rangelov, an editor at StartIt, which promotes entrepreneurship particularly in information and communication industry, underscored the value of public programmes in Serbia to boost IT education, from courses to retrain workers to the introduction of programming classes for schoolchildren from the age of 11.

Such initiatives will help address a shortage of skilled IT workers in Serbia, she said. But government regulation, the lack of a fully independent judiciary and suffocating red tape were stifling growth, Rangelov warned.

“We need a bureaucracy that is more attuned to the needs of entrepreneurs, so that they don’t choke on the paperwork and have to provide company stamps.”

One model of direct involvement from the state that was welcomed by the entrepreneurial community in Serbia was a grant program of the Serbian Innovation Fund.

Already in its fifth cycle since 2012, and with the sixth cycle closing soon, the programme provides up to 80,000 euros to roughly 20 innovative Serbian-owned micro or small businesses every year. Early-stage start-ups have been the main beneficiaries.

The winning projects are chosen by an independent panel of foreign and Serbian experts.

While most of the recipients so far have come from the IT industry, the programme also covers a wide range of projects and organisations from across Serbia and across different fields, including bio-technology, construction and robotics.

Instilling the entrepreneurial mind-set

The Innovation Fund provides business training to help prepare start-ups for the global market, but Vojvodic said its greatest value was in the finance it provides to Serbia’s cash-strapped innovators.

Even with such grants and an increase in private initiatives, Vojvodic said, there is still not enough cash to go around for Serbia’s blossoming IT industry.

He highlighted the lack a venture capital scene in Serbia as an obstacle to the Fund’s alumni in finding additional funding to development their products beyond the early stages. This forces many a Serbian entrepreneur to seek backing in Sofia, London or Berlin.

One local option is the Western Balkans Enterprise Development & Innovation Facility, launched by the European Investment Fund, European Investment Bank and the European Union, which provides capital to high-potential local businesses.

A lack of funding, Vojvodic warned, often conspires with a risk-averse mindset in Serbia to stifle even the most determined innovators.

“In some industries, like Israel, the US or Scandinavia, failure is not treated as the worst thing in the world, but as a learning mechanism,” he said.

“Here, that mind-set is missing, but also due to relative financial scarcity people here don’t have the luxury of failing repeatedly and then building a multi-million-dollar company at the sixth attempt.”

But the talent is there, he said.

“Recently the Fund’s expert team concluded that if we had the resources we could finance at least twice as many projects based solely on their quality. There are more than enough quality candidates. What’s missing is a sufficient amount of money.”

This article initially appeared in Belgrade Insight newspaper. 

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