Newsletter 20/2012 - Our South East Europe
Enterprise Development and Innovation Facility to support development of competitive small end medium enterprises in Western Balkans
Private sector development as a key precondition for increasing the competitiveness of all the economies of the Western Balkans is linked to a number of policy areas including enterprise policy, public administration reform and infrastructure development. It tackles numerous issues such as small and medium size enterprises (SME) policy and financing, human capital development and research and innovation.
Limited access to finance has long hindered development of private sector in the Western Balkans, says Sanjin Arifagic, Head of the Economic and Social Development Unit at the RCC Secretariat.
“Early stage equity finance, the most important source of capital for new, fast-growing and technology-intensive companies, has been especially hard to come by in the region, and this problem was also put forward in the Regional Cooperation Council’s (RCC) Strategy and Work Programme 2011-2013 as one of the region’s priorities.”
The 5th Western Balkans Investment Framework (WBIF) Steering Committee which was held in December 2011 in Luxemburg endorsed a comprehensive Private Sector Development project - the Western Balkan Enterprise Development and Innovation Facility (EDIF).
“It is the first initiative in the private sector development area initiated through the WBIF. The project proposal was put forward by Serbia on behalf of the beneficiaries in the region and has been supported by the European Investment Bank (EIB)/European Investment Fund (EIF) and European Bank for Reconstruction and Development (EBRD)”, says Yannis Tsakiris, Head of South East Europe Regional Business Development at EIF.
“There is a clearly identified gap in financing for high growth potential companies in the Western Balkan region”, explains Ljiljana Kundakovic, interim Managing Director of the Serbian Innovation Fund. “EDIF will address this market failure.”
Prior to the establishment of EDIF, the Serbian Government established the national Innovation Fund to improve access to finance for innovative SMEs in Serbia, adds Kundakovic.
“At the moment, the Innovation Fund is implementing the EUR 8.4 million worth Serbia Innovation Project, financed through IPA funds and implemented in cooperation with the World Bank. The project supports two programmes of financing innovative companies, based on international models. The intention of the Fund is to contribute to the overall development of innovation through various financial instruments, particularly by fostering the establishment of new and strengthening existing companies, by positioning them to access venture capital markets, and by attracting foreign direct investment in high-tech Research and Development (R&D).
Tsakiris stresses that over the 2011-2015 period, EDIF is expected to attract approximately EUR 142 million of initial capital from the European Commission (EC), IFIs, beneficiaries and bilateral donors, resulting in estimated leverage for SMEs of more than EUR 300 million.
“Over time, the project can become a flexible channel of attracting and leveraging financing for private sector development in the Western Balkan region.”
According to Tsakiris, the project provides for a comprehensive set of complementary measures to improve access to finance for SMEs in the Western Balkans and to foster economic development in the region through creation of preconditions for establishment and growth of innovative and high-potential companies.
“In doing so, the project also intends to stimulate the emergence of a Venture Capital market in the region by setting the foundations of the Venture capital ecosystem, as well as disseminating best market practices.”
The project is expected to provide timely equity financing assistance at development and expansion stages in innovative SMEs and provide development and expansion capital to the established SMEs with high-growth potential in their respective markets. It should also improve access of small SMEs to bank lending and lower the cost of borrowing for expansion stage by providing SME loan portfolio guarantees to financial intermediaries, and support beneficiary governments in implementing priority reforms to create favourable regulatory environment for innovative and high-potential SMEs.
RCC welcomes this new development and pledges to support its successful roll-out in the region, says Arifagic. He adds that, hopefully, with the introduction of EDIF, the situation could improve substantially.
The EDIF project will be implemented in close cooperation between the beneficiaries, European Commission, IFIs (EIB/EIF and EBRD taking the lead) and international organizations active in the region, such as Organisation for Economic Co-operation and Development (OECD), to streamline the Western Balkan private sector development efforts.