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Belgrade, 15/08/2016

Open Letter To The New Minister of Economy Of The Government Of Serbia, Mr. Goran Knežević

Business Support Network has sent an open letter to the newly-elected Minister of Economy in the Government of Serbia, Mr. Goran Knežević, informing him of the necessary market reforms and the issues that business sector is facing in Serbia. Letter is transmitted in full:

Dear Minister Knežević,

Together with congratulations for zour election to the Minister of Economy of the Republic of Serbia in the newly formed Government of Serbia, the companies and business organizations gathered in the Business Support Network, an international business association headquartered in Serbia, wish to draw your attention to the fact that the business community in Serbia is waiting for over 10 years to conduct the three key reforms for the improvement of the business environment in Serbia:

1. Reduction of wage tax and compulsory social security contributions and introduction of progressive taxation of the wages

2. Resolving of the issue of expensive and inaccessible credits by allowing the possibility of alternative sources of finance

3. Introduction of control over numerous fees imposed by municipal governments on the economy and creation of clear criteria for the number and height of such fees.

In all the research conducted in the business sector in the 2005 – 2016 period, the businessmen demanded these three major reforms, however, none of the previous ministers of economy successfully conducted them.

The results of the lack of the listed reforms are clear:

a) On average every company in Serbia is currently indebted for 196% of its founding capital, putting them at the edge of bankruptcy

b) Average time for the collection of claims in first half of 2016 was 132 days, which makes us a negative record holder in Europe, together with Bosnia and Hercegovina (130 days average)

c) Only every third company opened by young entrepreneurs (up to 35 years of age) manages to survive and remain in the market three years after startup, which is almost twice as less than the European average (64.7% surviving the first three business years).

d) One out of 18 companies in Serbia deals with some form of manufacture which is a main driver of export and directly related to the wealth and living standard of population (European average is one out of four companies)

e) In SME sector Serbia has three times less the number of exporters than the European average (11.9% is the European average, only 4.1% in Serbia), which is the consequence of the chronical lack of funds and high fees on labour, which make our economy uncompetitive on the foreign markets.

f) Numerous and high fees imposed by the municipal governments, high tax and social contributions on labour, together with lack of affordable sources of finance of businesses have directly contributed to a gray economy zone that, according to the different estimates, employs between 550 000 and 750 000 people. Average founding capital of small companies and entrepreneurs in Serbia is mere 5060 EUR, which makes young entrepreneurs and woman entrepreneurs especially vulnerable, as they often operate in an informal sector, avoiding legalizing their businesses due to high fees.

g) Due to the lack of three most important business reforms, the consequences are felt by the hundreds of thousands of citizens, legally employed in the private sector, since their employers are pressured by the numerous fees and simultaneously faced with the low purchasing power, and are unable to pay decent wages to them, and in dozens of cities throughout Serbia, employees in Chinese and domestic shops are paid below the minimum wage, and are socially despite their work status. In addition, Serbia is a rare country in Europe in which the minimum wage, providing a minimum of existence for the employee, is taxed the same way as the net wages that amount to several hundreds of thousands of RSD on a monthly level.

Due to all listed factors, we feel that many challenges await you as the new Minister of Economy, therefore, we have publically addressed you, so that the other governments of the newly elected Government of Serbia were introduced to the issues pressing the economy and slowing the economic growth.

Businessmen are very bitter at the political establishment in the country, since during the last pre-election campaign not a single serious public debate between businessmen and political candidates. Rather, the public was given a pink picture of the alleged recovery of the economy, which is very debatable. We hope that you, as a new Minister of Economy, will make a step forward to end this practice and enable businessmen to be consulted.

If you act on the long-expected wishes of the business sector, be sure that you will assist its long-term recovery, which will create conditions for the growth of employment and increase of living standard of citizens of Serbia.

Considering that the Government of Serbia itself proclaimed 2016 to be the year of entrepreneurship, it is the right time to conduct three major reforms demanded by the state by the businessmen.

We remain open for joint work on the most important economic reforms.