Courting Capital

I was struck by the banners in the airport in Belgrade. They hung in a series from the ceiling and highlighted different Serbian cities. Pirot was represented by a tire and the tagline “on the right track.” Loznica featured a pear surrounded by cherries and berries and the tagline “fruitful investment.” And Subotica displayed a rainbow kite and the “power of innovation.” It was all very colorful and inviting, even though I didn’t have any capital to invest or the time to visit all these places.

These “business-friendly municipalities” are a project of the National Alliance for Local Economic Development (NALED). Established in 2006 by USAID but now an independent organization, NALED is devoted to promoting economic development in Serbia. It brings together representatives of cities, businesses, and NGOs to increase investment and generally improve the business climate throughout the country. Serbia is heavily centralized, with all roads leading to Belgrade. NALED is trying to spread the wealth more equitably to the different parts of the country.

I was particularly struck by Subotica’s brand of a rainbow kite. Subotica is located in Vojvodina, the most economically prosperous part of Serbia. Richard Florida, a professor of regional economic development, has argued that the “creative class” –young people, artists, and gays and lesbians – are essential to the revitalization of cities. You can anticipate that a city or a neighborhood will be attracting investment if you see galleries, coffee shops, and the rainbow flags associated with gay pride. But why wait and hope for the creative class to make a move? Cities can provide various inducements – artist lofts, subsidies for cultural organizations — to persuade the creative class to move in and then leverage their presence to attract investment.

Perhaps the association of rainbow and innovation has become a meme, because NALED was not thinking of Florida’s arguments when they were coming up with Subotica’s particular business-friendly brand. Rainbows, after all, also represent hope and yearning and, eventually, pots of gold. But they were definitely trying to think through the larger questions of Florida’s approach: what attracts businesses to invest in and people to flock to cities that are not, at first glance, top destinations?

“When working with municipalities, we always focus on the most competitive sector and engage local businesses as success stories because they are the best promoters of new investments,” executive director Violeta Jovanovic told me in a meeting last October in NALED’s offices in Belgrade. That’s why we have those sectors in each of the posters. It also helps certified municipalities to acquire an image and identity that they can use in promoting what they have to offer. Usually municipalities just say, ‘We have an industrial zone, equipped land, and come to us.’ But investors are rarely looking just for a location.”

The business-friendly municipality program is only one of NALED’s many initiatives. It has worked hard to remove “parafiscal charges” that the government levied on business for specific products or services. NALED identified 370 non-tax charges and 179 parafiscal charges that imposed what business considered to be unnecessary burdens. And the new Serbian government responded – immediately. “The first 24 laws adopted by the government and by the parliament, aside from the initial laws related to the functioning of the government itself, eliminated these charges, following our analysis,” policy director Jelena Bojovic said with no small amount of pride.

It’s not all smooth sailing in Serbia – there’s pervasive corruption, inevitable bureaucracy, and the disproportionate influence of Belgrade. But NALED sees hope in a younger generation, greater openness to the outside world, and, eventually, integration into Europe.

The Interview

 

First tell me something about NALED (the National Alliance for Local Economic Development). When was it founded and why?

 

Violeta Jovanovic: NALED was established in March 2006 by USAID. The idea behind it was to bring together all three sectors and initiative dialogue between businesses, municipalities, and NGOs to improve conditions for doing business in Serbia. This is a very innovative idea in Serbia and beyond. The representatives of the three sectors usually don’t get together within the same organization. Unfortunately they often still see each other as opponents rather than as partners who share the same visions and goals. It’s been a challenge for the organization to try to find compromises and solutions that are acceptable for all three parties involved.

Within the first year and a half, USAID was very present and directly supporting the organization. MEGA (Municipal Economic Growth Activity), the program that established NALED, practically served as an incubator for the organization through 2007. A year following the registration of NALED, a managing board was established. The first member representatives entered the board to steer the organization and try to engage and motivate other members and partners to support the organization. In January 2008, the organization officially became independent from USAID by renting its own premises and starting out on its own.

It was a very tough beginning, but 2008 was a year of big growth for NALED in terms of office and membership. This is when we started to develop the internal capacity of the organization to serve its members and follow its mission. Over the past five years, we’ve accomplished quite a lot. We have 170 members: 80 businesses, 70 municipalities, and the rest are NGOs. We also made significant progress in reconciling their perceptions of each other and their willingness to sit at the same table and talk, design solutions, and implement those solutions. However, we still have a long way to go in terms of the issues and topics that are on the organization’s agenda. Organizationally, we’ve also grown quite a bit. We have 19 full-time employees. As of this year, we established a policy unit that is very important for the organization. One of its main goals is advocacy around regulatory issues, working with the government to change the conditions that hurt members.

We have quite an engaged and dedicated board. The structure of the board also reflects the diversity of our membership: mayors, local and international businesses, and also the NGO sector. We have programs and policy products that have become very visible. In addition to our visibility, the influence of the organization has grown accordingly. The first move of the new government established in the second half of this year was from our program, and this also reflects the organization’s influence.

 

When you say the “first move of the new government,” you mean specifically economic development?

 

Jelena Bojovic: This is about different charges that are burdening businesses. The first move on the part of the government was to cut a number of the charges that we recommended that they eliminate.

 

Taxes?

 

Jelena Bojovic: Parafiscal charges.

 

Like registration charges?

 

Jelena Bojovic:: Charges paid by the businesses but the quality of the service and what is being provided has much less value than the charge itself. Or in some cases, some charges are for the use of a public good, but the business is not using it at all. For example, all businesses are charged for the public use of wood whether they’re using wood or not. We identified 370 non-tax charges and 179 parafiscal charges.

The first 24 laws adopted by the government and by the parliament, aside from the initial laws related to the functioning of the government itself, eliminated these charges, following our analysis.

Violeta Jovanovic: I have one more general remark about NALED. It’s an amazing idea that others should try to replicate elsewhere in the world. Everyone is very keen to get such a structure in their country. But the challenges should be taken into account. In Serbia, it was very challenging to develop this American idea in a Serbian setting. We are still developing ourselves as a society based on active citizens, but we are not really that active as citizens. To develop such ideas as member-based organizations especially around such innovative ideas – ideas that can’t be compared to anything so people don’t initially know what you’re talking about — is very difficult and risky. We’re very lucky to have started our independent existence in 2008. If we had started a year later, we would have failed. That’s when the crisis hit, and it would have been much harder to get people interested in supporting anything.

 

Violeta Jovanovic and Jelena Bojovic of NALED

 

When I was here 22 years ago, there wasn’t talk of this kind of coordination. But there was talk of the traditional trilateral approach: business, unions, and government. Are trade unions involved in NALED at any level?

 

Violeta Jovanovic: No.

 

Is there any interest?

 

Violeta Jovanovic: We haven’t asked, and they haven’t approached us. There’s been no interest on either end.

 

Is there a separate Chamber of Commerce that exists as a lobby organization for businesses here in Serbia?

 

Violeta Jovanovic: Yes.

 

Do you coordinate with the Chamber of Commerce?

 

Violeta Jovanovic: There is some cooperation on certain activities of mutual interest. This was one of the challenges I had in mind when I talked about establishing NALED elsewhere. One of the key questions is competition with organizations that have been around for a long time. We tend to see them as our partners, but market-wise they are our competition.

The Chambers of Commerce of Serbia and of Belgrade have some image issues because business membership is obligatory. The law on the chambers was changed and should take effect as of January 2013 when membership will become voluntary. If this law doesn’t get delayed again, it will be a huge problem for the Chamber because businesses are not very satisfied with the services that the Chambers provide.

To be honest, I think we’re still developing the culture of membership organizations. We think that if we pay the membership dues, it will just come to us. But that’s not the way it is. There may be some room for arguing about the benefits provided by the Chamber, but in general they are seen as pro-government organizations that support whoever is in the government. Because they are very nicely tucked into the system in terms of financing, they don’t have to try very hard. For these reasons, we try to work with them because they’re definitely a market institution that will be here one way or another, but we’re very careful in terms of the initiatives we decide to pursue with them.

 

In addition to getting rid of those fees, what are your other regulatory priorities?

 

Jelena Bojovic: There is a huge pile of issues that businesses have here. One priority is to improve general communication between government and businesses, making it more open and transparent. There is some communication and there are some groups of businesses that have some communication with the government, but it is not transparent enough. And there is a feeling among business that the government doesn’t hear what most businesses say.

Businesses are also concerned that the government adopts legislation prior to the businesses having any say on it. Or sometimes parliament changes the legislation in a way that affects business without their knowing about it. For instance, from 2009 to 2011, there were 22 percent more charges that businesses didn’t know about or were not able to react to prior to their being enacted. There is no system to provide this kind of feedback. This also applies to smaller bureaucratic issues: how many times you have to go to local government or go to the tax authority. They might be small issues, but when you add them up, they make a big difference.

 

It looks like you give a business-friendly label to particular municipalities as a kind of Good Housekeeping seal of approval. How is this decided?

 

Violeta Jovanovic: Business-friendly certification is a product that was developed by USAID by the same MEGA program that started NALED. In 2007, after the basic criteria were developed, they were tested in two pilot municipalities — in Vranje in the south and Subotica in the north. At that point, the program was handed over to NALED to continue implementation. We did some initial polishing. We developed a system of different grades for each criteria in order to make the program measurable. And we defined which criteria could be eliminated in order to determine the threshold the municipality would have to meet to get the certificate. Then we went out to the municipalities to explain why this program was helpful to them.

Most municipalities in Serbia at that point and nowadays are in transition from the previous system. They are taking a more significant role in local economic development. They are working with businesses that are already there and also attracting new investors. In order to do that, they need capacity and knowledgeable people to deal with the business community and to respond efficiently to the needs of investors. Instead of every municipality trying to think about how to deal with these tasks, we developed this program as a set of guidelines for municipalities to meet and achieve this certificate in a relatively short period of time.

Since it’s a private standard and non-obligatory, we tried to come up with certain incentives for certifying municipalities. We signed memorandums of understanding with different institutions, primarily line ministries that pledged their support to promote the holders of the certificates. We also got USAID on our side to support the first municipalities going through the process. This is how it started in June 2008.

Out of eight municipalities that entered the process, the first three successful ones were awarded certificates. This was a big milestone for us, and it was also an invitation for others to join. As of today, we have about 55 municipalities going through the process, with 21 already certified. And many others are interested in joining. Outside evaluators at the international level are doing the evaluations for us. We have a number of partners of this process, including international organizations, embassies, and soon.

One of the key incentives for the municipalities is the marketing campaign at the Belgrade airport. Throughout the airport are different posters, billboards, and other promotional materials that let investors know which locations are business-friendly in Serbia. It’s also a way for municipalities to understand how they can be more successful and independent in attracting investments. They largely rely on the central government to bring investors to them. We don’t discourage this approach, which has worked for so long. But in addition to being responsive, we also encourage them to be proactive and develop tools to attract investors. This program also helps them recognize their unique selling points in the sectors in which they are competitive. When working with municipalities, we always focus on the most competitive sector and engage local businesses as success stories because they are the best promoters of new investments. That’s why we have those sectors in each of the posters. It also helps certified municipalities to acquire an image and identity that they can use in promoting what they have to offer. Usually municipalities just say, “We have an industrial zone, equipped land, and come to us.” But investors are rarely looking just for a location.

 

I’m surprised by how centralized Serbia is as a state. I’m curious the degree to which NALED acknowledges this centralization — the sheer number of people moving to Serbia and emptying out the countryside but also the centralized ownership of land. It was pointed out to me that because much land is technically in the hands of Belgrade that sometimes it’s difficult to attract investment.

 

Jelena Bojovic: Up to 2009, everything including construction land was state-owned. But in 2009, there was a new law on planning and construction and through that was introduced the conversion of ownership. Even in cases in which the state owns this construction land, municipalities were usually in charge of the usage of the land. They could use it or rent it for 99 years. Now with the transformation in the ownership structure, municipalities can just re-register free of charge. Wherever it says that the state is the owner, now municipalities can become the owner. They just have to submit a request. Also private owners can now own construction land whereas before they couldn’t.

Of course there are some important sites, like airports, that are important to the state. Before it was a civil airport, it was military. It is still partially owned by the state.

 

The other question is whether you work on this issue of decentralization or whether it’s just in the background of your work.

 

Jelena Bojovic: I’d say it’s both. There’s been a lot of change on this issue. We used to have direct elections of mayor. Most people might not think that this is the most important thing connected to migration. But there is no accountability at the local level. All the changes are being negotiated with the state government. The mayors are elected through their political parties, and the local branches of the political parties are accountable to the central political parties. It’s all centralized. If you are a mayor and you want to change things, you’ll be looking at Belgrade as the place to go. If the local leaders move to Belgrade then the citizens follow.

Additionally, the majority of mayors are looking at the option to go to the state level. They don’t even provide good enough service for their constituents, instead providing better service to their political leaders. When there is a tradeoff, they will do more for their party than for their citizens. But this has changed because of the change in the law. Mayors used to be accountable to the citizens because they were directly elected. This small change in the electoral system has had a big impact on centralization and migration.

Violeta Jovanovic: Our agenda should come from our members. Sometimes it’s difficult to find a compromise among the interests of all the three parties involved, to find a solution that is acceptable to all of them. On the other hand, our position as an advocate for the common good is quite difficult because, even as we deal with developmental issues and regulatory topics, we’re in the market because of our self-financing. Our membership is voluntary, and our funding is very insecure.

Our members are also very obedient. The mayors and business people are very inclined toward the government, because that’s where they get their business. And then we have citizens in civil society organizations who are very poorly informed on these modern trends and are not very active. Unfortunately we have inherited from the previous system a culture in which somebody else is responsible for us. We always have expectations that if we wait around long enough, someone, be it government or employer or educator, will rescue us. These notions are difficult to change.

Although it may sound that we are very self-satisfied, NALED has done a lot, given the capacity of the organization and the level of our own development and the funding and the mindset within the board. We would be able to do much more if we had some of these points resolved, either a free hand from the board and their support when things get difficult or funding secured over a two or three year period. We are constantly in the fundraising cycle, raising funds on a day-to-day basis. It’s difficult to plan ahead. When it comes to difficult decisions, we have to think carefully about the risks involved. Sometimes we have to compromise, but that’s the way it is. We face a philosophical challenge: to take a strong stand toward the government or to be lenient because it’s going to hurt less in the short term.

Jelena Bojovic: I want to add something to the centralization question. Our business certification program is in line with decentralization because we are working to empower at the local level. A new law on local government has given municipalities jurisdiction over local development, but they haven’t known what to do with it. But six months after the adoption of the new law, the business certification program showed how municipalities how to take over jurisdiction and be winners.

 

This is obviously a success story. Is there another success story you’d like to identify either in changing the dynamic in this country or measurably increasing economic development at the local level?

 

Jelena Bojovic: We have a number of examples. One of the examples is this new campaign that we have called Ask When, a continuation of something we started in 2008 called Out of the Maze. This was a campaign to fight bureaucracy. We invited businesses to contribute to change by giving examples of bureaucracy that bothered them the most. We collected these and put out the Grey Book, which includes examples of these bureaucratic procedures as well as ways to change them.

This year, we wanted to increase the pressure. It was not enough to present just what businesses think are the problems. We also wanted to provide opportunity for citizens to understand these problems and how they affect their own life. We realized that it’s hard to fight for business rights if the wider public does not understand how these problems influence them. We started a campaign called Ask When, inviting businesses and citizens to ask when these bureaucratic procedures would be changed. In addition, we did video spots. The first two are already filmed and have been distributed through social networks and also on Serbian television (RTS). RTS sponsors and supports the campaign.

The first clip is about pregnancy and the right of women who are pregnant to get their compensation. It explains the procedure for getting compensation. The second one was about these parafiscal charges we mentioned earlier. It was much easier for the government to make this change because citizens understood how these charges influenced business and how a common person lives in Serbia.

Violeta Jovanovic: One of the frustrations with Out of the Maze was that some institutions have always managed to hide behind their walls. It’s in the media, but they respond and get away without doing anything. Unfortunately this applies to other initiatives by other organizations and business groups. We were trying to think of a way to make it understandable to the general public and engage the entire community to lobby for it. The other issue was the image of businessmen in Serbia. We have tycoons who are extremely unpopular. Every business that is successful is immediately questioned — how did these people make this business? That’s why we were smart to start with the pregnancy and maternity laws, so that no one can raise those kind of questions. It’s not a civil procedure. Most of the paperwork is provided by the employer, who collects the compensation and transfers it to the mother or mothers-to-be. It affects businesses, and people want to see it changed. When we started the second video, the ground was already well prepared. But it took five years to convince the board that the project would not kill our relationship with the government. On the contrary, it helps the government easily implement solutions that are well argued and ready to go.

 

One common complaint I hear is the influence of corruption, both large-scale corruption and petty corruption, such as using small amounts of money to get around regulations. What do you think about the corruption issue and how can NALED address it?

 

Violeta Jovanovic: This issue is huge, as we all know, and spread throughout all aspects of the community. For this to be resolved, we need to engage citizens and not only point fingers at institutions. It starts with our culture of feeling obligated to pay people providing services — to a doctor, a teacher, a judge, whatever — that are already paid for. We don’t seem to understand that the one giving the bribe is as guilty as the person taking one. This could also be a topic for one of our videos, to show corruption in a funny way and why it has to stop.

In most cases, when people say that they have encountered this problem, we ask them, “Did you do anything about it?” They didn’t because they didn’t think it could be solved positively or quickly. For instance, our accountant often comes back to the office in tears because of all the red tape she has encountered or how long she had to wait in line or because they told her she had to come back another day. And she didn’t complain, she didn’t protest, didn’t say anything. She said, “It will only be more difficult for me when I go there next time.” It won’t change that way. We all have to take a stand and stop supporting it. It will probably be a long battle. But we won’t be victorious until we stop talking about it as if it were happening to someone else and not us.

 

Have you noticed a new generation — in business, in government, in NGOs — emerging in Serbia that is unburdened by the past and that embraces this different approach to economic growth?

 

Jelena Bojovic: I never thought about it as a generational issue. But now when you ask the question, I’m starting to think about it. I would say that the new generation in Serbia is much more aggressive. The things that are coming with the new generation for me are a bit scary. People have been so stuck over time with the previous governments that they now want to do things quickly, and sometimes the way it’s being done is not well thought through. I think that the new generation is bringing something new, that’s for sure, but I don’t know if it will go in the right direction.

 

Can you give me an example?

 

Jelena Bojovic: There are a lot of new young mayors who used to be in power in 2000. They did a lot for their cities, but at the same time, they got impatient. They changed a lot, but sometimes I have a feeling that they were impatient, that they were rushing into the change.

Violeta Jovanovic: I fully agree. I see a lot of potential in the next generation and the ones to come. However, there are risks with the mindsets of their parents, and our parents as well. We were isolated for a number of years, and the only messages we got were from our own media. Once we got out into the world, for those of us who did, it was a rude awakening. We saw that others were more advanced than we were and we had a lot of catching up to do. Also we had to change a lot of the notions that stick to us from the previous time and that are no longer useful. We somehow cling to these problems – ethnic, economic, political — rather than confront the unpleasant messages and move forward. To do this we need brave politicians who care about the country and the people and not just themselves. As long as we keep telling ourselves lies we will be stuck in the past, thinking of ourselves as unique, the best, special. Sure, we are all those things, but so are others. We need to be open and exchange with others, because this is where the beauty is, not so much in taking pride in the many mistakes we’ve made.

 

You were established by USAID, but now you’re independent. The big issue these days is if and when Serbia will join the European Union. How does NALED work with the EU and EU structures? Does this concept mesh well with European integration?

 

Violeta Jovanovic: It meshes very well, but at the moment we are the only ones who recognize this! We’re trying to tell others of this. The fact that USAID established us is a blessing and a burden. Some people think of us as a project that’s not here to stay, but it’s just the opposite. Other donors have had some reservations about supporting us because they think we are fully supported by USAID. But that’s not the case since 2008. We still have active cooperation with USAID, but it’s only for select projects on a very competitive basis. This is something we’re tying to communicate to other donors as well.

In terms of the EU, we’ve started to work with them on regulatory and policy issues with the establishment of the policy unit. Up to now, we’ve only been active in calls for applications, although we’re trying to communicate now as a partner in EU integration with the Serbian delegation, and to partner with different organizations trying to access the funding and identifying the missing structures and mechanisms that will allow us to join the EU in less than 10 years time.

Jelena Bojovic: We’re looking at the Serbia Progress Report to see if there is a similar understanding among our members regarding where Serbia should be and what are the biggest obstacles for Serbia to get into EU. We’re looking for matches — what the EU recognizes as a priority and what we recognize as a priority. And I think we look at Serbia in a similar manner, particularly around the regulatory structure. I think NALED can help with the progress of Serbia. But the EU can also help NALED and our members get closer to the Serbia that our members want to have in terms of a framework for business.

 

Belgrade, October 8, 2012


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