The sale of Macedonian economy


THU, 03 FEB 2000

Skopje, January 29, 2000 - The Macedonian economy has collapsed long ago. Rare exceptions, like those in the construction industry and transportation, thanks to which gross national income has recorded a 2.7 percent growth last year, deserve all the credit. Also, all other parameters of business operations are practically negative. For example, industrial production is below the one recorded in 1998 by 2.5 percent and was realised in only 25 out of 35 industrial sectors. Foreign commodity exchange was by 8.5 percent lower, in other words, the value of sold goods was USD 2.9 billion.

A year earlier, in 1998, money supply amounted to 3.2 billion. For the first time in years the trade deficit was reduced by 11.2 percent, but remained high and amounted to USD 537 million, which is 20 percent of the total foreign trade. According to the number of unemployed, Macedonia is still first in Europe. There are about 350 thousand jobless people, which is as much as 41 percent of labour active, mostly young population. Wages are one of rare indicators which has registered an increase. Last year average income amounted to 9,627 denars or DM 310. Wages were higher not only nominally, but in real terms too, as they grew more than living costs. Retails prices were by 1 percent lower. Despite many foreign guests who came to Macedonia last year because of the Kosovo crisis, tourism also fell on hard times. The statistics say that last year 544 thousand both domestic and foreign visitors were registered, which is 5.3 percent less than in 1998. The sharpest decline of 77 percent was registered in direct foreign investments. The invested amount barely reached USD 25 million in contrast to USD 112 million invested in 1998. In this respect Macedonia ranks last in Europe. Some malicious commentators say that if it were not for Africa, Macedonia would rank lowest in the world.

Obviously, Primer Minister Ljubco Georgievski was unaware of these figures, when in his first public address this year on state Radio Skopje, in a programme called "Radio Spectrum" he spoke about future reforms and tried to instil some optimism and to encourage citizens and literally said that "hundreds of investors from all over the world are practically besieging the country these days as they know that it is "safe" and "stable" and want to help it speed up its development pace and keep in step with Europe". He reminded of the obligation of the Government and Parliament to create conditions for the implementation of urgently needed political and economic reforms and asked citizens for their understanding, patience and support in the hard time ahead. That would be perfectly all right if the Macedonian reality was not as it is, if the economy wasn't on its knees and reforms either out of the question or on ice for the last year ever since the Coalition for Change assumed power.

That is why the public disapproved of, and even sneered at, this statement of the Prime Minister. The opposition papers published numerous sharp comments and criticism at the expense of "the Prime Minister who is living in a never-never land", "the Government which is not keeping its promises and operates as an out-of-tune orchestra and whose ministers are playing their notes for themselves without any sense for music and totally disregarding all other players and the conductor". Not to mention national interests. As the opposition papers pointed out, it seems that none of the power-holders even think of the national interests because they are mostly preoccupied with their personal and party interests.

The public was simply "bombarded" with critical observations of experts, intellectuals and journalists who refuse to accept the fact that many of the country's production capacities "are offered to the world on a platter and for pittance", that many "national geese that lay golden eggs are sold as dead ducks" and "under the table" in direct, mostly secretly made deals between sellers and buyers. They demand that the "sale of national treasure" be stopped, especially to aggressive Greek neighbours, warning of possible political implications as Macedonia and Greece are still at loggerheads in the Organisation of United Nations regarding the name of the state.

In contrast to these, the state and government-inclined media mostly point to benefits that intensive cooperation and investment of Greek capital will bring to Macedonia in various economic fields, which cannot be denied. According to the Ministry of Development, 90 percent of the foreign capital invested so far comes from Greek businessmen. This country is a member of the European Union and the economic leader in the Balkans which is, with special incentives and probably with reason, encouraged to invest in the Western Balkan countries.

Until now, Greek companies have either taken over or are in the final stages of assuming power in a number of vital sectors of Macedonian economy: construction industry ("Titan" and "Holder Bank" own the Skopje cement factory "Usije"), tobacco industry ("Mihalidis" is the new owner of the Strumica and Kumanovo Combines), oil industry (the state company "Hellenic Petroleum" is the boss of the only Macedonian refinery "OKTA" from Skopje) and as of March the "National Bank of Greece" will be the majority share holder of the largest Macedonian bank which is old as the state itself - "Stopanska Banka", etc. Not to mention those smaller private companies which have found interest to invest their capital in textile, food, wood processing and other industries. The list is a long one.

That would all be perfectly normal and commendable if it were not for the first, unfortunately, bitter experiences with this cooperation which was obviously established on totally irregular market principles which warn and caution. Following several examples from more recent practice which have stirred up feelings in the country, best illustrate this.

Namely, it became clear to people how things stand with the largest foreign investment till now (Stopanska Banka), when at its last session last year, the Macedonian Parliament adopted a Law on taking over the Bank's debts in a summary proceeding. The DM 68 million the budget will get from the sale of Stopanska Banka will be come as follows: DM 28 million from state-owned shares and DM 40 million as a balance between the estimated (DM 65 million) and selling value (DM 116 million) of the Stopanska Banka. The remaining DM 98 million, which is the amount invested by the National Bank of Greece, European Bank for Reconstruction and Development and the International Financial Corporation, will be paid to accounts of share holders of other 15 percent shares.

Macedonia has undertaken to cover the debts of its bank resulting from poor investment decisions in the amount of DM 229 million and to issue bonds in that value. That practically means that in the next 15 years these debts, plus 5 percent annual interest, will be repaid to new bosses with citizens' money. In other words, for the repayment of the sum it will get from foreign investors, not counting the interest, the state will have to set aside DM 15 million annually. And it got the money for only four instalments! Even outsiders fail to see any economic logic in this. The explanation most frequently offered by politicians is that the main benefit will come from the introduction of new banking climate, representation of Macedonian business interests in the financial world (the new boss ranks high on both the Athens and New York stock exchanges and has 22 branch offices and subsidiaries all over the world and rich experience with transition), as well as from the promised improvement of the crediting policy of both economic and household sector.

The greatest objection of experts concerns the fear from too much power that foreigners will get from the sale of the largest and best Macedonian bank. According to them, nothing similar has ever happened on the stretch from Ljubljana to Moscow. Everyone allows foreigners to acquire shares in smaller private banks. It remains to be seen whether these expert are right and how much.

Owner of the Macedonian refinery OKTA from Skopje, the Greek state firm "Hellenic Petroleum" is yet another story. Let us recall that it has bought it some six months ago under rather dubious circumstances. Namely, an agreement was closed with a strategic investor, which was kept secret for a long time, and at the Parliament session at which the Agreement was ratified, the opposition labelled it as extremely harmful for the country. First signs which confirm these fears are now visible. Namely, from that pompously announced "major foreign investment" worth USD 182 million, not a cent has been paid to the account with the National Bank. And the refinery is working at full speed. The opposition daily "Morning Gazette" (Utrinski vesnik) recently published that this vital power generating capacity which was granted exclusive monopoly under this Agreement, contrary to all market and EU rules an common sense, and which operates as a "laundromat" in the re-export of oil to Kosovo, has made net income of USD 400 million.

According to this paper's claims, which have not been refuted so far, until now the owner has only paid USD 5 million to the Stopanska Bank's escrow account with the instruction that it should be used for the repayment of OKTA's foreign debts and not for the redemption of shares, as it had promised to do. Incidentally, the repayment of OKTA's debts is the obligation of the Macedonian Government. According to one of OKTA's Directors, Mr.Emanil Malelis, his company wants to rid itself of the mortgage of old debts so as to forestall any possible contingencies. Which ones, he did not specify, but with this statement he made it clear that his company did not trust its partner, the Macedonian Government, very much. Those well-versed in the local situation consider that the Government, to put it mildly, is behaving strangely.

The rare ones who had the chance to read the Agreement on the sale of OKTA, point out that the new General Manager Karahaljas is a skilful manipulator who does not honour his obligations and disregarding the agreed terms dictates his own conditions, which is nonsense. Allegedly, the Greek partner has made a number of speculative transactions, forced the Government to purchase some debts on its behalf on the international stock exchange under currently favourable terms (30 cents to a dollar) and has attempted to meet two of its liabilities with one payment: to pay for the shares and repay the debt, which is unheard of. Whether all this is true is hard to determine as the Government does not react to accusations and the inspection is playing dumb. According to analysts, the growing demands for the annulment of Agreement are but a "futile blank draw".

Indignant citizens of Macedonia are also having great "fun" with the scandal concerning the "oil exports to Kosovo" which was uncovered by the independent weekly "Capital' (Kapital). The owner makes a profit of net DM 500 thousand for 40 tanks of oil which daily cross the Macedonian-Yugoslav border at the Blace crossing.

With OKTA's secret approval, only the chosen ones can export oil. These are private businessmen close to top ranking government officials. The trade is realised with double invoices and an obscure firm "OKTA trade", which has not been registered in the country as a legal person, is also involved in this deal. Thereby the market has been totally suspended. Classical corruption is in full swing. The police have their hands full discovering all the participants in this illegal business under the Greek patronage. Or perhaps the Russian and Serbian mafia have their hand in it, as pointed out by Mite Jovanovski, President of the Association of Private Gas Station Owners who, around Christmas, found out the hard way "the benefits of foreign investments" in Macedonia. Contrary to Government's decision and the Law on the Restriction of Competition, the OKTA management team has halved their profit margin for retail distribution of oil.

This move has uncovered the intention to discourage and force them out of business as they account for 55 percent of retail trade in oil. They thought that the Greeks wanted to buy their gas stations, since the largest distributor "Makpetrol", was not affected by this measure. They strongly protested by blocking the roads leading to refinery and by raising dust and thus managed to force the Greeks to withdraw. The only question is for how long. They are convinced that this was only a trial balloon which the Greeks used to see how will the Macedonian partner behave in some future, much more forceful establishment of their monopoly on the Macedonian oil market. Especially when the current construction of oil pipeline Skopje-Thessaloniki is once completed. The first 10 kilometres have been noisily celebrated at minus 15 degrees centigrade on a snow covered wasteland.

On that occasion the new OKTA's boss held a public lecture to the Macedonian Prime Minister, Ljubco Georgievski, for alleged tardiness, state bureaucracy and forced him to promise to rectify all this. Unfortunately, not a word was said about other problems accompanying the construction of oil pipeline, which directly concern the interests of Macedonian builders and other enterprises which have something to offer. Despite all the promises, there are practically no Macedonian firms on the construction site.

If this situation persists, where will Macedonia end, many citizens, opposition politicians, intellectuals and journalists wonder fearing possible, unwanted political implications. They advise caution, demanding that the pace of allowing Greek capital into the country be slowed down so that investments from other European states and the world at large could also flow in. They place their hopes in the EU Monitoring Mission which has started functioning recently when the green light was given for the start of negotiations on the signing of Agreement on Stabilisation and Association. They are convinced that the Union is truly willing to help Macedonia so that they hope that, with incentives and according to its own standards, it will intensify the control of foreign capital coming into the country.