Approach The report’s diagnosis points to a central conclusion: Serbia’s governance system is structurally incapable of delivering the broad-based productivity growth the country needs. Institutions are not merely neglected but designed to require informal political coordination to function—a condition that the current
regime sustains and deepens. Demanding reforms that presuppose a functioning public administration is therefore pointless when we know the system will not be repaired under present conditions. Equally, investing enormous effort in regulatory improvements one by one is moving a haystack straw by straw.
Our strategy is therefore built on a different logic. Rather than assembling an exhaustive wish list, we organise recommendations into three tiers that reflect what is realistically achievable and by whom. This is a first iteration of such recommendations. The focus of the past year was to arrive at a correct diagnosis. In future work, CEVES plans to prepare a reform framework for the dysfunctionality of the executive, as well as to broaden the set of targeted recommendations proposed below.
First, a small number of low-cost, high-impact improvements that the current government can adopt without fundamental institutional reform. These are not politically threatening, not expensive, and have no defensible reason to resist. Second, conditions that the European Commission should attach to the substantive reforms already committed to under the Reform Agenda—above all, state aid alignment and public investment management reform. Without specific requirements, these reforms risk producing hollow formal compliance. We are not asking for additional reforms; we are asking that the reforms already under way deliver substantive results.
Third, a portfolio of independent initiatives that build the country’s capacity to raise competitiveness regardless of what the government does. These serve two purposes. They demonstrate how institutions can be set up and run in accordance with establishing regulations, with professional judgment applied to meet stated criteria—a governance demonstration effect. If the government chooses to engage, it can participate without controlling power, and in doing so learn from institutions that actually work. Equally important, these initiatives teach stakeholders—businesses, associations, local communities—to engage, mobilise, and build ownership over their own economic development.
I. Low-cost, high-impact improvements obtainable now The following measures do not require fundamental reform of the public administration. They are technically straightforward, fiscally modest, and address concrete barriers to competitiveness that the report documents. Their common feature is that there is no good reason not to do them. 1. Amend the Law on AOFI to enable a statebacked Guarantee Fund. The amendment
would allow AOFI to manage a guarantee fund “on behalf of and for the account of the state,” with initial capitalisation of EUR 5–15 million. In parallel, AOFI needs a SWIFT code to issue internationally recognised guarantees. This removes a concrete barrier to SME export finance that has been identified and proposed for years. There is no institutional complexity involved and no real reason to resist: it requires preparing regulations and declaring a modest fiscal commitment. The initiative has already been presented to the Ministry of Economy and the Serbian Chamber of Commerce, both of which have expressed support. 2. Assign unique project identifiers for all capital investments in the budget. A purely technical measure that would enable consistent tracking of capital projects across fiscal strategies, annual budgets, and execution reports. Currently, projects cannot be traced end-to-end across documents and years, making it impossible to monitor cost escalation, delays, or scope changes systematically. The World Bank has already proposed this. It requires no new legislation, no institutional reform, and no fiscal cost.
3. Require publication of procurement data for projects under special laws while the exceptions remain in force. The Reform Agenda commits to lifting legal derogations from procurement rules by June 2027. But the largest investments—including those related to EXPO 2027—will be contracted well before that date, under the very exceptions the reform is meant to eliminate. The European Commission should insist on a minimum disclosure standard now: all projects implemented under special laws, intergovernmental agreements, or other exceptions should publish basic procurement data (contract values, contractor identities, selection basis, timelines) as they are awarded, not retrospectively. This is a transparency requirement, not a structural reform, and it can be implemented immediately.
II. Conditions on reforms already under way Several important reforms are committed to under the Reform Agenda, notably state aid alignment with the EU framework and the development of a public investment management system. The risk is that
these become exercises in formal compliance that leave the underlying dysfunctions intact. The European Commission is in a position to prevent this by setting substantive requirements on what alignment must include.
inaccessible to domestic SMEs. Formal alignment that does not address this structural imbalance will lock it in. The Commission should require that the alignment plan include concrete measures to broaden SME access to state aid instruments and reduce the discriminatory effect of the current architecture.
1. State aid alignment must include a functional regional aid map. Serbia currently has no regional aid map, which means state aid gravitates to where it is easiest to spend— overwhelmingly Belgrade and a handful of saturated locations. Without differentiated aid intensities that direct higher support rates to less-developed regions, formal alignment with the EU state aid framework will produce a system that looks compliant but continues to concentrate investment where it is least needed. This is an EU acquis requirement for Chapter 8 and should be treated as non-negotiable in the alignment process.
3. Embed the SME investment tax credit in the state aid rationalisation. Reintroducing an investment tax credit within the corporate income tax system would equalise the tax treatment of incremental investment for domestic firms. This is a fiscally significant measure that implies either forgoing revenue—which is becoming tighter—or rationalising the existing FDI subsidy architecture. It belongs within the broader state aid alignment package rather than as a standalone demand, since it is part of the same rebalancing logic.
2. State aid alignment must include a strategy for redressing discrimination against SMEs. The report documents that the current system is overwhelmingly biased toward large, typically foreign, investors through instruments (CIT holidays, negotiated packages) that are
4. Public investment management reform must include strong transparency clauses, accompanied by building CSO monitoring capacity. The RA already commits to establishing a PIM framework. The Commission should ensure that this framework includes mandatory transparency provisions—not as an afterthought but as a design requirement. Equally important, the transparency clauses will only be effective if independent actors have the capacity to use them. Investing in CSO monitoring capacity alongside the PIM reform is what converts transparency from a formal property into an accountability mechanism.
III. Independent initiatives: building capacity of the stakeholders of competitiveness The following initiatives do not depend on government cooperation. They are designed to be implemented by independent, professionally managed institutions—anchored in civil society, business associations, or purpose-built organisations—with donor support. The government can choose to participate, but without controlling power. These initiatives serve two distinct purposes beyond their direct economic impact. First, they demonstrate how institutions can be set up and run in accordance with their establishing regulations, applying professional judgment to meet stated criteria rather than
operating through informal political coordination. In a system where this is not the norm, the demonstration effect matters: it shows the administration and the public what rule-governed institutions look like in practice. Second, they build the capacity of stakeholders—businesses, sector associations, local communities, regional development agencies—to engage, mobilise, and take ownership of their own economic development. This is essential preparation for the time when there is political will to tackle the dysfunctionality of the executive system, but it generates value regardless. 1. Serbia Credit Guarantee Fund (SCGF). An independent, professionally managed credit guarantee facility addressing the estimated USD 7.6 billion SME financing gap. Unlike previous EU guarantee schemes that allowed banks to serve preferred clients under marginally improved conditions, the SCGF is designed with differentiated instruments, integrated technical assistance, and additionality requirements that ensure it expands access rather than subsidises existing lending. The government can be represented on its governance board without holding a controlling stake—demonstrating how a development
finance institution can operate under professional management within a framework of clear rules.
2. SME upgrading pipeline. A staged programme that sequences support through three phases: independent diagnostic of the firm’s processes, technology, energy use, and skills; co-financing for the upgrades the diagnostic identifies; and implementation support. This replaces the current model of one-off equipment grants with an integrated pathway where each stage gates the next. It can be run as an independent donor-funded programme, demonstrating the logic that should govern state aid: support linked to diagnostics, conditioned on outcomes, building capacity rather than transferring cash. 3. SME A2F Springboard. A digital platform that improves financial literacy, provides automated financial analysis and benchmarking, and reduces the search costs involved in matching SMEs with financial institutions. It delivers four interconnected results: a financial evaluation platform, strengthened SME financial management capacity, a centralised
knowledge portal, and improved communication between SMEs and the financial sector. Scalable and cost-effective, it complements the SCGF by expanding the pool of SMEs that are investment-ready. 4. Competitive Territories. A competitive grant scheme supporting territorially organised coalitions—businesses, chambers, clusters, CSOs, and Regional Development Agencies— to develop place-based economic strategies. A Resource Centre provides methodological support and data. Coalitions that complete an approved strategy receive a base implementation grant; a second competitive fund co-finances larger investments. The initiative complements the EU-supported territorial development architecture (EU PRO+, INTEGRA) by bringing market-driven perspectives that strengthen public territorial strategies from below. 5. RDA Peer Learning Network. A structured peer exchange among Serbia’s Regional Development Agencies, anchored by the stronger agencies and organised through the Association of RDAs. Exchange is practical:
peer partnerships organised around specific challenges, with competitive grants supporting both sides. The network also begins to address RDAs’ systemic problem of limited access to EU development funds, which currently runs primarily through civil society grant calls rather than institutional capacity. 6. Investment Platform. A systematic tool for pipeline management of public investment projects—tracking preparation status, costs, timelines, and scope changes across the investment cycle. It can be built and operated independently as an analytical and monitoring instrument. Its power would be substantially amplified if the procurement transparency measures proposed in Section I (publication of procurement data under special laws) are adopted, since it would then be able to integrate official disclosure into a structured tracking framework. Concept note forthcoming. 7. SME Ombudsman (“Voice Without Exposure”). An office that provides the accountability layer for the broader portfolio. It operates across five functions: pattern documentation and advocacy based on aggregated evidence; confidential intake and analysis; legal navigation support for firms willing to act; public documentation of institutional conduct; and rapid response for acute cases. Designed as a civil society institution—without statutory powers initially, but with eventual statutory status as an explicit goal. The evidence base built during implementation constitutes the strongest possible case for legislation. A strong national office with territorial nodes ensures both analytical quality and local embeddedness.