Process, then profit

"O, Serbia, among songs, among plum orchards, O, Serbia, among people in the fields, O, Serbia, among songs, among herds, O, Serbia, a song among nations." This poem by Oskar Davičo describes the homeland, Serbia, rich with plums, fields, herds, hills, songs, tenderness, and gentleness, yet often left poor and bare due to its harsh history. Serbia has experienced many falls throughout its history due to wars, enslavement, and even the mistakes of its leaders, but what is essential is that the people have permanently moved forward. Today, we have a completely different picture of Serbia and are writing a new history. It's a war without weapons, armies, or strategies—a war against an invisible enemy. A war in which all the world's countries are participating, fighting for victory on their turf. The battle against the COVID-19 virus is a new reality that will undoubtedly be recorded in human history. Impacting individual countries differently, the pandemic has forced leaders to adapt their national economic policies to mitigate the economic consequences of the virus. One of the most significant collapses occurred in the global supply chain, where countries integrated into the global economy felt a solid blow to their GDP and other economic factors. Serbia, as a developing country, has also been affected by the COVID-19 crisis, but whether it will find itself in a situation as often in its history, "poor and bare," and whether it can leverage its "riches" mentioned in Oskar's poetry, remains to be seen, as unfortunately, the battle is still ongoing.

During the period from 2019 to 2020, when we felt the most substantial economic impact of the virus, the Republic of Serbia experienced a natural GDP decline of 0.98%, which is much better compared to the average decrease recorded by EU countries, with Croatia in particular having a drop of 8.03% during that period. Serbia stands out as one of Europe's countries with the smallest decline in real GDP. Timely economic measures, limited integration of the Serbian economy with the global economy, and the value-added structure with no highly sophisticated activities affected during the pandemic are critical factors in the small percentage of decline. Maintaining good practices and further development of local policies are essential parameters for determining the future direction and activities for adapting to the pandemic situation. One of the activities that can respond to crisis impacts is the local identification of industries and the developing of their potential.

In Serbia, according to the data on the structure of gross value added (GVA) by sectors in 2020, three sectors with the highest participation were identified: manufacturing industry (GVA of 730 billion dinars), trade and repair of motor vehicles (GVA of 623 billion dinars), and real estate activities (GVA of 387 billion dinars). However, a high share in the GVA structure of individual sectors does not necessarily indicate the highest potential, as they have a different impact on a country's economic growth, stability, and prosperity. The economic activities in which countries specialize tell how some countries have remained rich while others have remained poor. Domestic manufacturing companies have represented the backbone of the Serbian economy for years. Regarding the percentage share in the GVA structure within the manufacturing industry, the areas that stood out were food, beverages, and tobacco with 24.5%, the metal sector with 11.1%, and the rubber and plastics processing sector with 9.6% in 2020. Additionally, from the perspective of the number of enterprises in 2020, the manufacturing industry accounted for 16.4% of the total number of registered business entities. It employed 392 thousand people, representing one-third of total employment in the economy. Another indicator of the drivers of the Serbian economy is the business results of companies, where the manufacturing sector, with 3.2 billion dinars in revenue, along with the wholesale and retail trade sector, with 4 billion dinars, together accounted for over three-fifths of the economy's income. So-called "fast-growing" companies, which increased their turnover by more than 20% annually over three years, contributed to 77% of net new jobs created between 2014 and 2017. Additionally, "young" firms (under five years old) produced 96% of net new jobs in the same period. Excluding young and fast-growing firms, which are relatively few, employment decreases, making these categories of companies the main drivers of new job creation. Despite these positive indicators, the growth in the number of employees with disproportionate revenue growth represents a significant obstacle for the entire sector, emerging as low productivity of manufacturing companies. By definition, productivity means a firm's ability to achieve the highest level of output products for a certain number of input parameters (people, raw materials, finances, etc.). According to World Bank data, the value added per worker at Serbian manufacturers amounted to 15.2 thousand euros, representing only 35% of the productivity of firms in the EU on average. In other words, Serbian manufacturing companies require three times more workers to produce the same output level as an average EU company. Furthermore, on the scale of high, medium-high, medium-low, and low technology applied in the industry, the manufacturing industry in Serbia records only a 27% share of tall and medium-high technological structures. This participation can be considered very low, especially compared to our neighbour, Hungary, which has as much as 60% high and medium-high technology. Overcoming these barriers represents the most significant potential for the Serbian manufacturing industry. Removing business constraints increases the chances of export and competitiveness, creating more fast-growing companies. In this regard, it is necessary to develop a strategy for developing the local economy through the systematic development of three main segments: the business climate, business entities, and consumers.

The state primarily influences the impact on the business climate. By developing legal frameworks that support the growth of the domestic economy, it would be possible to attract more investments and enhance legal certainty, which is one of the critical outcomes for the manufacturing industry. Additionally, support for the economy can be expressed by promoting and creating opportunities to form business communities, leading to resource sharing and increased productivity where the state can provide vital support in the development of workforce skills and the promotion of innovative solutions through the educational system, with the desired outcome of retaining our most valuable resource – young people – in our country, fostering their innovation, development, and the establishment of new companies. However, our business entities operate in a bank-centric system where the primary source of financing is the banking sector. The main obstacle in such a system is that banks are averse to high risks, which means newly established firms face challenges financing their activities. Banks typically finance working capital with little appetite for investing in R&D or developing new products and technological innovations within firms. In this case, business entities can knock on the following doors: government institutions that provide support through subsidies and tax incentives to boost the economy. However, such financial support often proves insufficient for most economic entities. Many countries have addressed this issue by relying on alternative funding sources such as venture capital funds, private equity funds, and other funds where specific groups invest their capital in certain companies, thereby becoming owners of particular percentages. Despite the challenging business climate, numerous activities can be undertaken within companies to enhance productivity. Each company should start by assessing its current state and business environment more clearly to identify potential opportunities. Defining and optimizing business processes, assigning clear roles within the team with a well-defined organizational structure, analyzing financial performance, and establishing budgets that encompass internal development are some of the initiatives that can lead to a more stable operational model, improved communication, enhanced skills, and ultimately, higher productivity. Indeed, companies have a lot of potential for such initiatives because many businesses were established after 1990 and have been continuously striving for profit growth without aligning their operations with global management and business system trends. Fragments of history are repeating themselves in the current international situation, but avoiding Serbia's historical decline depends on individuals' active and determined actions in government institutions and companies, as opportunities exist; it's just a matter of how and who seizes them first.