When asked to name the biggest problem in the Serbian economy, the World Bank Country Manager for Serbia, Tony Verheijen said „lack of entrepreneurship“.
He adds that the number of foreign investors in Serbia is growing, but there isn’t enough domicile suppliers.
“At the moment, foreign investors are not using domicile suppliers because there aren’t any. And you should have them. Serbia needs small and medium enterprises which are crucial for economic development”, Verheijen underlines.
Is that our biggest problem? What about public enterprises, corruption and shadow economy?
– Yes, all of that too. But, aside all of that, I have to stress that economic activities grow thanks to small and medium enterprises.
Still, when a person wants to launch a business in Serbia, they are faced with problems, huge bureaucracy, high taxes…
– Yes, and that can be changed in two ways – through education system where you should teach entrepreneurial skills and by creating an appropriate business environment. The government has been talking about incentives and that is good too. But, you need a disciplined tax system and inspection control.
The World Bank has been cooperating with the Serbian government on reforming our tax system.
– We are working on its modernization. At the moment, a lot of resources and time is spent on the control of small and medium enterprises. That’s fine, but they are under a great pressure, and that has to be changed. There are two key things that the government needs to work on – changing the way both tax administration and inspection operate. If people realize that they can start a business without having to deal with various problems and unfair market, than many will do just that.
It is a well-known fact in Serbia that everybody is trying to avoid paying taxes. Even when the inspectors come knocking on their doors, it is always the small companies that are penalized.
– It is up to the tax inspection to realize in which segments can make businesses pay taxes on time and regularly. That’s its job in which the government should not interfere. The government’s job is to work on attracting investors and create prerequisites for development of SMEs. That’s should be its priority. Without small businesses you have a situation where investors come and leave after five years because you failed to find domicile suppliers for them.
Is this also the way to go to improve living standard of our citizens? Compare to the rest of the region, we have the lowest average salary.
– In order to live better, your economy needs to grow much faster than it is growing now. Serbia has lost a lot of time. Your economy has been growing slower than the rest of the region’s since 2008. Also, Croatia and Montenegro have tourism which brings them a steady cash inflow.
Expressed in euros, the average salary in Serbia has grown only by 17 euros since 2012.
-But also the Serbian economy did not record a proper growth, and dinar lost on its value. Serbia still spends a lot of money on supporting and subsidizing public and state-owned companies, and that money could be used for salaries. This has been a problem for quite some time now. Serbia is also late with attracting foreign investors. More companies you have, more the living standard will grow since it is companies that pay taxes that go straight into the state budget which is then spent on salaries for doctors, teachers, police force… The point is that you need to develop private sector.
Almost a year ago, you were very critical of the way in which Electric Power Industry of Serbia (EPS) operates, while only recently the World Bank praised the company. What changed in EPS in the meantime?
– In 2015, the government approved fiscal consolidation in EPS. After one year, we checked the state of affairs in the company and we were not happy. The company had losses, and it did not cut down on its expenses or number of employees. EPS is an important company which can successfully supply domicile market and be competitive in the region. But it is not using its full potential.
Back then, you agreed on the new plan for EPS with the Serbian government.
– Because of the huge losses, there was a proposal to increase electricity price by 3.8%, to reduce the number of employees, and to cut back on costs. Since then we have been carefully monitoring the situation, and for now, there is no reason to believe that EPS is not doing everything according to the plan. In July, we are going to assess the situation again, and based on that, we are going to adopt a financial model that would be sustainable for EPS by 2019, and recommend it to the government.
Should we privatize EPS, or maybe the company should get a strategic partner?
– Privatizing power companies is very complicated. However, having a strategic partnership, which entails the know-how management, is something that the government could consider. With good management, EPS would definitely have a positive influence on economic growth. The World Bank is not insisting on it, and we’ll let the Serbian government to decide.
The decision whether to increase electricity price is going to be made in two months’ time. Do you think that it will go up?
-Based on all of the business results that EPS has achieved, which we are going to assess in July, we are going to decide whether the price increase is necessary. In mid-2016, we said that the electricity price should go up over the period of the next two years, by the same percentage each year. But the final decision will be made in two months’ time.
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