Multiple disruptions of various magnitudes
Economic development is an essential precondition of overall development within a country. Growth and resilience of Small and Medium Enterprises (SMEs) in Serbia are critical in that regard, as they are the backbone of Serbian economy and account for two thirds of formal business sector employment (SMEs including microenterprises).
The growth and resilience of SMEs in Serbia have been challenged by a range of disruptions of different magnitudes and impacts in recent years. Some of those are earthquake-like, such as COVID-19 pandemic, and some are more like a slow, but persistent erosion, such as depopulation. But, as the old proverb says, “when life gives you lemons, make a lemonade” — we are witnessing that those disruptions present both challenges and opportunities.
The COVID-19 pandemic hit Serbian SMEs hard. According to the COVID-19 Socio-Economic Impact Assessment more than two thirds of SMEs were interrupted, 20% of SMEs had to restrict almost their entire operations and as many as an additional 49% of these SMEs worked with significantly reduced capacity and lacked resources. While the pandemic exacerbated other existing challenges they face, such as access to finance and markets, it also opened opportunities with the rise of nearshoring as a policy priority for many European states.
Additionally, depopulation in Serbia presents a big challenge for SMEs, with changes in labour force quality and availability, as well as shifts in the needs of a society with a changing population structure and, consequently, different customer needs. At the same time this situation offers opportunities for developing products and services for an aging population.
As many other countries, Serbia also needs to adjust to the acceleration of technological developments. The opportunity here is to design and offer new services and products using digital technologies. The European Union’s Green Deal and the Green Agenda for the Western Balkans present a push and, at the same time, a call for the transition towards a green and circular economy.
All these circumstances were taken into account when we started looking for ways to help make SMEs in Serbia more resilient and ensure their sustainable growth. It was clear that we are facing a complex problem — one that has an unknown solution and is dynamic. Or to be more illustrative — it is like a tunnel we enter and have no idea how long we will be in the dark, even if there is an exit on the other end.
UNDP Serbia’s Deep Demonstration process
In order to figure out how to best support the government and society to tackle this challenge, our team at UNDP Serbia joined the first cohort of Deep Demonstrations supported by UNDPs Innovation Facility and funded by the Government of Denmark. Together with Deloitte, we have gone through an intense five-month process, that proved unique and valuable in many ways. To give you a glimpse, this is what it encompassed:
- Looking at the problem in its entirety: We took time to analyse the broader ecosystem around SMEs in the country, identifying drivers, trends, challenges and opportunities for SME growth and resilience. The idea was to look at the problem from a system level and detect acupuncture points that can support system transformation. This approach is in stark contrast to how international development projects are usually set up, where stand-alone projects would look at SME development from one particular lens, for example environmental sustainability or access to finance. Instead, apart from these, we looked at the issue from many other different angles such as regulatory environment, skilled labour force, technology, and digital transformation, customers, and markets, with a special emphasis on sustainability and inclusion across all the above areas.
- Forming a diverse team and working in new ways: Rather than working with colleagues within one particular cluster, we composed a team of 10 UNDP Serbia staff from across the office, with expertise in private sector engagement, governance, economics, sustainable finance, start-up development, green and circular economy, environment and climate change, digitalization, skills, and labour. Despite the challenges that this way of working brought, such as figuring out new lines of communication and decision making, the ultimate benefit is evident — we are making sure that we don’t neglect certain aspects of SME resilience or place too much importance to some other.
- Engaging with and learning from a variety of relevant actors: First we conducted numerous interviews with representatives of the private sector, government, donors, academia, civil society, and financial institutions. Subsequently, a series of virtual workshops with various relevant actors enabled us to collaboratively identify and analyse features and futures of the SME sector in Serbia. This diversity in perspectives helped us develop a more holistic approach to the challenge of future-proof and smart SME development. There are a number of partners already working in the area of SME development in Serbia, so it was particularly important that UNDP finds a good approach and value proposition, where it can contribute the most, having in mind its mandate and position.
The Deep Demonstration process produced a number of results. First, it helped us articulate a tentative vision for SMEs Serbia: SMEs being at the frontier of technological and green transformation accelerate sustainable human and economic development in the country.