Business Survey 2014 1000 preduzeca November 21 2014

Business Survey 2014 #1000 preduzeca November 21, 2014 Belgrade

Business Survey 2014 Methodology #1000 preduzeca

Methodology Realization: research was conducted in the period between 3 rd of September and 1 st of October 2014 Target population: Private business entities in Serbia with 3 or more employees Sample frame: List of all business entities (enterprises and establishments) registered at the Serbian Business Register (2012) Sample size: 1009 business entities Stratification: according to region, economic activity of business entities and size Method of data collection: Face-to-face interviews in company offices Average duration of the interview: 50 minutes #1000 preduzeca

Business Survey 2014 Description of Surveyed Businesses #1000 preduzeca

Characteristics of Surveyed Companies % of participants in survey Item Measure # Companies participating in survey / # invited 1009 / 3988 Founded before / after 2000 48% / 52% Profitable / unprofitable 2011 -13 2011: 90% / 10% 2012: 88% / 12% 2013: 86% /14% ØAnnual Revenues ØEmployment Ø€ 100, 000, Ø 20, 17% 29% Ø 5, 39% Ø€ 500, 000, 30% Ø 10 - 20; 16% Ø€ 100, 000 - 500, 000; 39% Ø 5 - 10; 29% #1000 preduzeca

Gender differences Work force Ownership structure ØMale majority owned ØFemale majority owned ØMen Ø 11. 2 Ø 78% Ø 80% Ø 64% Ø 7, 8 Ø 28% Ø 2. 0 Ø 0, 6 Employees (on average) Owners/Managers (on average) Women make up 36% of employees and 27% of managers. Ø 13% Total Ø 11% Enterprises Entrepreneurs Men own more than half of the company in 78% of firms #1000 preduzeca

Sales by Market Average for All Surveyed Companies ØFormer Yugoslavia countries (excluding Slovenia); 5% ØOther countries (the EU, Russia, etc); 3% ØOther towns / regions; 30% ØHometown; 62% #1000 preduzeca

Business Associations Ø 38% Membership 2014 Ø 12% Ø 11% ØTotal ØManufacturing Ø 7% ØTrade Ø 18% ØServices ØSmall ØNegative Evaluation 2014 Ø 17% Ø 11% ØAdvocating to the Government for the regulatory reforms ØOrganization of business fairs and support in placement of products ØTraining, education and information dissemination ØMedim ØNeutral Ø 26% Ø 21% Ø 25% ØLarge ØPositive Ø 50% Ø 42% Ø 35% Ø 17% Ø 33% Ø 37% Membership by year Ø 2011 Ø 36% Ø 2012 Ø 2013 Ø 2014 Ø 18% Ø 13% Ø 12% #1000 preduzeca

Expectations for the near future Do you expect increase, decrease or no change in that area/aspect? Specific expectations ØDecrease Introduction of new products/services ØNo change Ø 2011 Ø 6% Ø 2012 Ø 9% Ø 52% Ø 2013 Ø 5% Ø 58% Ø 2014 Ø 7% Ø 2011 Net profit Ø 42% Ø 16% Ø 2014 Ø 15% Number ofof Ø 2012 employees Ø 2013 Ø 2014 Total revenue Ø 31% Ø 51% Ø 34% Ø 45% Ø 36% Ø 37% Ø 43% Ø 58% Ø 15% Ø 31% Ø 66% Ø 12% Ø 19% Ø 67% Ø 10% Ø 2014 Ø 35% Ø 43% Ø 11% ØDecrease Ø 39% Ø 35% Ø 23% Ø 2013 Ø 2011 Ø 52% Ø 56% Ø 14% Ø 2012 ØIncrease Ø 20% Ø 61% ØNo change Ø 14% Ø 38% ØIncrease Ø 26% ØRefusal Ø 44% Ø 4% 9 #1000 preduzeca

Business Survey 2014 Reform Impact #1000 preduzeca

What changed in the last year? Some Improvement Significant Improvement Information about reforms Business participation in reforms Senior management time dealing with red tape Procedures for payment of wage taxes and contributions Type of collateral required by banks Worse Access to finance Construction permits (cost) Fairness in public procurement VAT rate Exchange rate volatility Time and money spent on regulatory issues Para-fiscal charges Wage taxes and contributions Administrative procedures Court procedures Inspection surveillance Construction permits (time) Labor law Customs and trade procedures Customs duties Excise taxes Service in financial institutions No Improvement Tax administration Payment transactions Business licenses Corruption Inflation Shadow Economy Bank interest rates and fees Amount of collateral required by banks

Evaluation of New Reforms ØNegative (1+2) ØNeutral ØPositive (4+5) ØNot applicable ØIncrease of VAT rate Ø 70% ØIncrease of penalties for tax violations Ø 25% Ø 32% ØAmendments to the Labor law Ø 19% ØAmendments of procedures for certification of health cards Ø 18% ØInclusion of tax inspectors Ø 17% ØAdoption of stimulating measures for employment Ø 17% ØAmendments of procedures for registration and deregistration of employees ØDon't know/ Refusal Ø 40% Ø 52% Ø 8% ØExtension of the deadline for the submission of the VAT returns Ø 8% ØSubmission of annual financial report to Business Registry Ø 7% ØSubmission of tax decisions by mail Ø 7% ØConsolidated payment of taxes and contributions Ø 7% Ø 23% Ø 44% Ø 32% Ø 51% Ø 24% Ø 51% Ø 14% ØProcess of registration real estate rights Ø 17% Ø 27% Ø 41% Ø 52% Ø 35% Ø 37% Ø 20% Ø 54% Ø 46% Ø 38% Ø 31% Ø 41% Ø 58% Ø 2% 1% Ø 4% Ø 7% Ø 5% 1% Ø 6% 0% ØØ 2% 6% Ø 4% 2% Ø 6% Ø 10% Ø 11% Ø 3% 0% Ø 5% Ø 4% 0% #1000 preduzeca

What changed from 2011 to 2014? Significant Improvement Inspection surveillance Corruption Transparency & predictability Quality of public dialogue Public procurement Wage taxes and contributions Management time dealing with regulations Duration of loan approval process Worse Court procedures Availability of finance Type of finance used VAT Excise taxes Quality of service in banks Reporting requirements by banks Some Improvement Para-fiscal charges Business licenses Enforcement of judgments Type of collateral required for loans Interest rates and loan fees Duration of loan term Business association services No Improvement Inflation Exchange rate volatility Customs duties Tax administration Administrative procedures Payment transactions Construction permits Labor law Customs procedures Amount of collateral required for loans

Time and money spent on regulatory issues During the last 12 months has your company spent more or less money and time dealing with regulatory issues compared to the previous year? Money ØMore money Ø 2011 Ø 2012 Ø 40% Ø 47% Ø 50% Ø 4% Ø 3% ØThe same amount of money Ø 2013 ØLess money ØMore time Ø 2014 Ø 33% Ø 28% Ø 2011 Ø 2012 Time Ø 56% Ø 63% Ø 4% Ø 66% Ø 47% Ø 37% Ø 5% Ø 49% Ø 56% Ø 3% Ø 7% ØThe same amount of time Ø 2013 ØLess time Ø 2014 Ø 31% Ø 22% Ø 66% Ø 69% Ø 3% Ø 9% #1000 preduzeca

Senior management time spent in dealing with regulatory requirements What is the amount of senior management time spent in dealing with regulatory requirements? 2011 2012 2013 2014 Up to 10% of work time 17% 12% 23% 29% From 10 to 20% of work time 29% 26% 32% 28% From 20 to 50% of work time 42% 44% 33% 35% More than 50% of work time 12% 18% 12% 9% #1000 preduzeca

Business Survey 2014 Corruption, Transparency, & Gray Economy #1000 preduzeca

Corruption in public administration To what extent does corruption in public administration affect your business? Effects of corruption on business ØIt affects a lot ØSometimes it affects ØDoes not affect at all Ø 2011 Ø 41% Ø 2012 Ø 38% Ø 33% Ø 2013 Ø 16% Ø 2014 Ø 17% Ø 20% Ø 41% Ø 26% Ø 38% Ø 46% Ø 42% Have you experienced blackmailing by a public servant in an administrative procedure? ØYes, we had to pay Blackmail by a public servant ØYes, but we didn't pay ØNo, I have no such experience Ø 2011 Ø 4%Ø 8% Ø 2012 Ø 2% Ø 6% Ø 92% Ø 2013 Ø 1% Ø 5% Ø 94% Ø 2014 Ø Ø 1% 4% Ø 95% Ø 88% Have you ever used some private connections in dealing with public administration issues? Reported use of private connections ØRegularly Ø 2011 ØRarely Ø 2012 Ø 10% ØNo, never Ø 2013 Ø 8% Ø 2014 Ø 5% Ø 27% Ø 21% Ø 33% Ø 46% Ø 40% Ø 20% Ø 51% Ø 72% Ø 68% #1000 preduzeca

Public procurement Base: Those who have experience with public tenders: (2011=400, 2012=400, 2013=293) Connections with political parties ØTotal Ø 4, 1 Ø 3, 7 Ø 3, 1 Ø 3, 4 Private connections ØTotal Bribing members of the tender panel The best financial offer The best technical capacity and experience ØTotal How often the following circumstances contribute to winning on public tenders? Ø 3, 9 Ø 3, 6 Ø 3, 1 Ø 3, 2 Ø 20 Ø 3, 2 Ø 3, 1 11 Ø 2, 6 Ø 3 Ø 20 12 Ø 3, 1 Ø 3, 3 Ø 3, 8 Ø 3, 7 Ø 2, 8 Ø 3, 1 Ø 2, 9 Marks from 1 to 5, 1 meaning never and 5 meaning often #1000 preduzeca

Grey economy estimates According to your estimate, out of the total number of employees working in enterprises that operate in the same industry as your company, for what percentage of employees do the enterprises pay (1) full contributions on salaries, (2) only partial contributions on salaries, and (3) no contributions on salaries at all? Ø 73% ØPay full contributions ØPay only partial contributions ØPay no contributions at all Ø 74% Ø 15% Ø 14% Ø 12% Ø 20 13 Ø 12% #1000 preduzeca

Business Survey 2014 Regulatory Framework #1000 preduzeca

Negative Impacts on Businesses Please assess the impact of the following elements on your business (percentage of negative ratings) Ø 81% Ø 77% Ø 72% ØWage taxes and contributions ØVAT Ø 49% ØTax administration Ø 69 Ø 61% Ø 66% Ø 67 ØOther obligatory (quasi-fiscal) charges ØAdministrative procedures ØInspection surveillance ØPayment transactions including time and money ØLabor law procedures and requirements ØObtaining of the business licenses and related requirements ØObtaining of construction permits and related requirements ØCourt procedures and requirements ØCustoms and external trade procedures Ø 25% Ø 28 Ø 31% Ø 43% Ø 63% Ø 65% Ø 62 Ø 77% Ø 75% Ø 74% Ø 70 Ø 62% Ø 70% Ø 66% Ø 61 Ø 43% Ø 44 Ø 34% Ø 39% Ø 45% Ø 41 Ø 37% Ø 42% Ø 33% Ø 34 Ø 38% Ø 44% Ø 48% Ø 43% Ø 49% Ø 52% Ø 50 Ø 28% Ø 33% Ø 40% Ø 35 Ø 20 11 Ø 20 12 Ø 20 13 #1000 preduzeca

Inspections What was the most frequent inspection in 2013 in your company? ØTax inspection Base: Those who were visited by inspections ØMarket inspection (754) ØLabour inspection Ø 26, 0% Ø 33, 0% Ø 28, 0% ØSanitary inspection ØTraffic inspection ØTourist inspection ØEnvironmental inspection Ø 8, 0% Ø 3, 0% Ø 0, 0% Ø 3, 0% ØCommunal inspection Ø 2, 0% ØVeterinary inspection Ø 2, 0% Base: Those who were visited by inspections (2011=738, 2012=755, 2013=816, 2014=754) Basic information on inspections: 2011 Average amount of fines imposed 2012 2128 € 1655 € 2013 2014 868 € 2022€ Average amount of time (in hours) spent by management 70 34 17 12 Average number of visits in the year before 5. 5 6. 0 3. 1 2. 2 Average number of visits in the current year 4. 8 3. 8 2. 1 1. 6 #1000 preduzeca

Construction permits Do you agree with the following statements? ØI don't agree ØI agree Costs related with Ø 2011 construction permits are Ø 2012 moderate Ø 65% Ø 3% Ø 66% Ø 7% Ø 2013 Simplification of construction permitting would enable me to expand my business Number ofpermits employees Construction can be obtained in a reasonable period of time Ø 13% Ø 10% Ø 2013 Ø 9% Ø 2011 Ø 16% Ø 3% Ø 15% Ø 59% Ø 28% Ø 57% Ø 33% Ø 89% Ø 25% Ø 2% Ø 66% Ø 9% Ø 70% Ø 2012 Ø 64% Ø 2013 Ø 64% Ø 2014 Ø 27% Ø 85% Ø 2012 Ø 2014 Ø 32% Ø 81% Ø 2014 Ø 2011 ØDon't know Ø 59% Ø 6% Ø 24% Ø 9% Ø 27% Ø 35% Ø 1% Ø 41% #1000 preduzeca

The enforcement system How would you rate the efficiency of the system for enforcement of judgments? ØComparison across ØTotal waves: Base: Private business entities with 3 or more employees: 2011 (N=913), 2012 (N=1020), 2013(N=1029) and 2014 (1009) ØVery poor/Poor ØGood Ø 2011 Ø 86% Ø 2012 Ø 2013 Ø 2014 ØVery good/Excellent Ø 13% Ø 2% Ø 80% Ø 61% Ø 66% Ø 16% Ø 4% Ø 29% Ø 27% Ø*to achieve reliable comparability, only clearly negative and clearly positive marks were included, due to unequal number of missing values #1000 preduzeca

Hiring Employees Base: Private business entities with 3 or more employees: Please give your reasons that caused you to limit hiring or retaining employees in the past 12 months. 2014 (N=1009) ØThere was no need for new workers due to market conditions Ø 64% ØWe've hired new people / does not apply to us Ø 20% ØAmount of taxes and social contributions ØWages are too high given productivity levels ØLack of qualified employees Ø 12% Ø 6% Ø 3% ØLabor law provisions limited fixed term contracts Ø 2% ØPaperwork involved in hiring and/or retaining employees Ø 2% ØLabor law provisions on severance pay Ø 2% ØLabor Law restrictions on firing Ø 1% ØPolitical risks Ø 1% ØOther, what? Ø 0% #1000 preduzeca

Business Survey 2014 Taxes & Charges #1000 preduzeca

The Most Negative External Factors ØOther obligatory (quasi-fiscal) charges (communal tax etc. ) ØWage taxes and contributions ØVAT Ø 69 Ø 3 Ø 69 Ø 4 Ø 65 Ø 4 ØPositive ØNegative ØGrey economy Ø 62 Ø 2 ØTax administration Ø 61 Ø 4 ØAdministrative procedures Ø 60 Ø 5 #1000 preduzeca

Business Survey 2014 Macroeconomic Policy #1000 preduzeca

Economic factors related to competitiveness Please evaluate how the following factors affect the competitiveness of your business ØNegative ØNeutral ØInflation Ø 88% ØWage taxes Ø 16% Ø 1% Ø 70% ØPoor access finance Ø 28% Ø 59% ØIlliquidity constraints Ø 38% Ø 66% Ø 51% Ø 40% Ø 42% Ø 3% Ø 20% Ø 1% Ø 83% ØInterest rate volatility ØExcise taxes Ø 24% Ø 78% ØExchange rate volatility ØCustoms duties Ø 12% Ø 74% ØVAT rates ØAsset price volatility ØPositive Ø 32% Ø 47% Ø 56% Ø 1% Ø 3% Ø 2% Ø 4% 29 Ø 2% #1000 preduzeca

Business Survey 2014 Access to Finance #1000 preduzeca

Funding sources Ø 5. 1 Ø 9. 7 % % ØOwn Funds ØBanks ØOther Ø 85. 2 % #1000 preduzeca

Reasons for Not Borrowing Base: Private business entities with 3 or more employees: If you did not borrow money in the last 12 months, why not? 2014 (N=1009) ØUsed ØHave owner’s equity instead of a loanØ 14% a borrowing need and bank products were not suitable for my needs or risk Ø 6% profile ØHave a borrowing need, but decided not to borrow because bank requirements Ø 6% take too much time/cost ØWere ØI declined a loan Ø 2% did not meet the requirements to obtain a bank loan Ø 2% ØHave no need for creditØ 49% ØRefusalØ 21% #1000 preduzeca

Types of finance used Please indicate the type of finance you have used and how often ØDidnt use ØTerm loans ØOverdraft ØRarely ØOccasionally ØOften Ø 15% Ø 30% ØRevolving credit Ø 31% Ø 13% Ø 19% Ø 22% Ø 58% Ø 9% Ø 7% Ø 19% Ø 17% ØGuarantees Ø 62% Ø 13% ØLeasing Ø 62% Ø 13% ØLetter of Credit Ø 79% Ø 10% Ø 7% Ø 12% Ø 10% Ø 4% Ø Ø 2% 7% Ø 6% Ø 7% Ø 10% Ø 5%Ø Ø 2% 7% Ø 8% Ø 3% Ø 2% Ø 8% ØFactoring Ø 82% Ø 6% Ø 8% ØCorporate Bonds Ø 86% Ø 6%Ø 8% ØIssuance of shares Ø 85% Ø 7% ØAll the time ØNo answer Ø 21% Type of finance used often and all the time: Ø 2011 Ø 2012 Ø 2013 Ø 2014 Ø 19% ØTerm loans Ø 15% ØOverdraft Ø 11% Ø 10% Ø 12% Ø 9% Ø 11% Ø 8% ØGuarantees ØRevolving credit ØLetter of Credit Ø 25% Ø 30% Ø 27% Ø 21% Ø 26% Ø 29% Ø 6% Ø 3% Ø 2% Ø 0% Ø 2% #1000 preduzeca

Suitability of the available finance How suitable is the available finance to your needs? Ø 96% Ø 93% Ø 90% Ø 91% ØInterest rates and fees ØCollateral requirements ØDenomination of the loan in foreign currency ØDenomination of the loan in local currency (dinars) ØQuality of service and support of financial institutions / banks Ø 74% Ø 73% Ø 76% Ø 77% Ø 70% Ø 72% Ø 56% Ø 64% Ø 60% Ø 50% Ø 64% Ø 58% Ø 67% ØDuration of loans ØDuration of the loan approval process ØReporting requirements by the bank Ø 54% Ø 57% Ø 55% Ø 61% Ø 56% Ø 54% Ø 51% Ø 49% Ø 52% Ø 54% Ø 2011 Ø 2012 Ø 2013 Ø 2014 #1000 preduzeca