Private Sector Development and Business Enabling Environment Assessment

The Serbian Economic Growth Activity (SEGA) ends in September 2010, and USAID/Serbia & Montenegro believes that future USAID assistance can be met by a modification of the existing strategy rather than establishing new development objectives and strategy. Recent events in Serbia have affected the business enabling environment and assistance programming. The country remains a highly centralized state with an outdated and often obsolete constitutional and statutory legal framework. The stated policy of modernizing political, social, and economic systems remains seriously deficient. The former Yugoslavia Communist/Socialist era of centralization that is still prevalent results in a dysfunctional national-local government relationship. The business enabling environment in Serbia is characterized by complex and widespread bureaucratic malaise. Legal, administrative, and operational procedures are often complex and difficult to navigate. Major advances in areas such as central banking, macro-economic and monetary policy, real sector structural issues, national and local strategic planning, budget formulation and execution, citizen participation, investment promotion, and public utilities management will not be sustainable in the long-term unless the business enabling environment is strengthened and legally protected. USAID's economic growth strategy encompasses a two-pronged approach that includes working at the national level to put in place macro-economic policy reforms and supporting the development of a more competitive and stable financial sector. The strategy also aims to enhance trade and competitiveness, which is critical for Serbia's economic growth and European Union accession. The assessment team conducted three studies with recommendations for future USAID program activities. Part I focuses on Serbia's labor market and workforce environment and social protection system, primarily the pension system. Part II assesses the financial sector, including macro-economic and monetary policy, banks and banking, non-bank financial institutions, financial sector infrastructure, and real sector structural issues. Part III highlights important events that have upgraded Serbia's business enabling environment, areas for improvement, and the economic growth setting involving macro-economic policy reform. The assessment team recommends a series of criteria where USAID assistance is considered to be potentially effective in achieving success in Serbia's financial sector. The criteria include macro-economic and monetary policy, banks and banking, non-bank financial institutions, financial sector infrastructure, and real sector structural issues. The team also proposes four broad financial sector initiatives for USAID to pursue. The report highlights recent economic and financial sector developments and outstanding issues, gaps, and vulnerabilities that can impact Serbia's economic growth in the future. It includes an assessment of work done to date under the SEGA project, including commentary from Serbian counterparts about performance and effectiveness, as well as a brief summary of other donors' activity in the area of macro-economic reform. The assessment team proposes two scopes of work to be prepared this year by USAID technical specialists setting forth USAID-funded design and implementation plans that build upon comparable USAID projects in the Europe and Eurasia region. The concept paper outline envisions two or more components: improving the business enabling environment and promoting a stable, more developed, and competitive financial sector, and enhancing trade and competitiveness. Additionally, the concept paper outline offers an opportunity for consolidation of USAID's economic growth portfolio during 2012 and beyond.