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Alarm for Europe's tech sector: Stagnation replaced a decade of growth
The European technology ecosystem has, without any doubt, gone through major transformations during the last decade. New inventions, changing the way of working, increasing talent, capital, initiatives towards entrepreneurship, building high-value companies, are just proof that the development in the technological sector has been enormous. However, global changes and economic instability in recent years have brought new challenges, which have stopped a decade of continuous growth, led to stagnation and increased indebtedness of technology companies, which to a certain extent also applies to Serbia.
The European techno ecosystem is worth more than three trillion dollars today. Its total value has increased fivefold over the past decade, i.e. from almost 560 billion, which it was worth in 2015. And while the long-term growth trend at the level of the whole of Europe is evident, in the short term, this industry is facing a decline in investment, an increase in risky borrowing and a loss of talent. , shows the regular annual report “State of the technological sector 2024”, of the company “Atomiko”.
In the last decade, transaction values through mergers and acquisitions and initial public offerings in Europe have grown steadily, consistently exceeding the threshold of $50 billion per year. Investment levels peaked at $101 billion in 2021, up more than 170% from a year earlier. That investments have not completely stopped, but have decreased, is clearly shown by their volume – 47 billion dollars in 2023 and close to 45 billion dollars this year.
What is the situation in Serbia?
The value of the Serbian startup ecosystem from 2018 to 2022 increased by 75 percent and reached a value of more than one billion euros. Of all economic sectors, IT has been experiencing the fastest growth for years, and in 2023, the value of exports, according to data from the National Bank of Serbia (NBS), reached almost 3.5 billion euros. Although the forecasts are bleak due to the changing circumstances on the world financial market, it is expected that exports will exceed four billion euros by the end of this year, and even 10 billion euros by 2027.
In the first half of this year, the export of products and services in the field of information and communication technologies in Serbia increased by as much as 18.84 percent compared to the same period of the previous, otherwise record-breaking 2023, the Ministry of Information and Telecommunications announced. In the period January-June, exports amounted to around two billion euros, while in the same period last year it was 1.63 billion euros.
Despite these undeniably excellent results, experts in this industry indicate that our market has not remained immune to these global changes, and that the “golden age” has passed.
Saša Popović, the founder of Vega IT, tells NIN that this situation is very real and is a natural part of economic cycles that repeat over time. After a decade of intense growth, the technology industry in Europe and around the world is now in a correction phase.
“What we saw during the pandemic was a period of almost unprecedented prosperity. Digitization has become imperative for many organizations, and “cheap money” through low interest rates has encouraged huge investments. At the same time, companies employed more people than they needed out of fear that there would not be enough of them if that phase of prosperity continued. However, that era is over. A combination of various economic factors, such as geopolitical challenges, the energy crisis, rising inflation and rising interest rates, has led to money becoming “expensive” and access to capital becoming difficult. The consequence of that is less investment in innovations that are based on technological solutions,” explains Popović.
As he says, all these influences have brought about a significant turn in the behavior of companies and investors.
“For example, when it comes to “Venture capital” investors (capital that investors invest in startups and small businesses that have long-term growth potential, e.g. new), we see that now, instead of investing in risky startups that promise growth, but still they do not have stable incomes, they prefer to invest money in companies that are already making a profit and have clearly defined strategies for further development. This approach to “Venture capital” allows investors to reduce risk in an uncertain economic environment, so they resort to it even though it often means that they will have lower earnings. If we look at startups, this is a clear message for them to focus on generating real income and increasing profitability, instead of thinking about product development and the acquisition of a large number of clients that do not bring them any profit,” Popović is clear.
He adds that, despite the challenges, technology has not lost its strategic importance, that software is not only a tool for cost optimization but is slowly becoming a key factor for competitive advantage in almost all industries.
Although this phase is challenging, I believe it is also an opportunity for many companies to adjust their strategies to ensure more sustainable growth in the future,” he concludes.
Why is the EU stagnating?
Nemanja Mikać, general director of the company “ElevenEs”, tells NIN that the stagnation in the European technological system is a consequence of insufficient innovation and work, which is slowly coming to the fore.
“I am afraid that this period of stagnation, even a slight decline, will be a little longer.” European industry is facing a huge crisis in almost all technologically advanced sectors. The rise in prices, first of energy, and later of raw materials, started the decline. Later, more innovative technologies from China (mainly cars and hardware) and the US (mainly AI and software) joined. The Europeans are rapidly losing the market in China, especially in the auto industry (China is the largest car market in the world), and they are slowly entering the risk with the domestic market as well. There’s not enough innovation, people generally won’t do as much as the Americans and the Chinese do and now the consequences are starting to be felt. “I think the situation is worse than the media presents it,” Mikać points out.
Davor Sakač, director of TS “Ventures Fund”, Telekom Serbia, speaking for NIN about the current stagnation in the European technology sector, indicates that every time brings its own challenges. As he says, it is not easy for startups to get capital, but it is not impossible.
“I can speak based on our experience.” We as TS `Ventures Fund’ had eight investments in the first year, in the second year, when economic instability and the energy crisis began, only one. This year we will have 10, essentially every time is challenging for people who can take their chance,” says Sakač.
He points out that in the previous period, the European Union showed that it was not resistant to many things, especially in the field of regulation, which is the biggest barrier to growth for them.
“I deeply believe that we did not feel the crisis that way.” The bottom line is that all the startups that started before the crisis, more than 50 percent of them, managed to improve their business and open some other markets. We should mind our own business and everyone should focus on their goals. There is always money and chances for the best. Everyone today is looking for a chance to invest in a good business that will bring them some income. A business that can make some profit or extra profit, or optimize some existing costs, has no problem continuing its operations regardless of crises,” Sakač concludes.
Source: NIN
