Privatisation on a make-up test

Why was the great privatisation in B&H annulled?

Drazen SIMIC

SAT, 13 MAY 2000

Sarajevo, April 26, 2000 - The annulment of tender for the sale of as many as 143 state enterprises, setting up of a "Tender Bureau" which will consist of international and national experts, as well as the sale of enterprise for cash only and not for securities - these are the results of the measuring of strength between the international community and current authorities in the B&H Federation. After the first round, the international community is in the lead.

After representatives of USA, EU, MMF and the World Bank openly expressed their dissatisfaction with the progression of the privatisation process to date in the B&H Federation, the mentioned decisions of the Management Board of the Privatisation Agency of B&H Federation have practically halted the entire process and introduced the new rules of the game.

The international representation offices in B&H sounded the alarm after the privatisation of the Sarajevo Hotel "Holiday Inn" and the planned privatisation of public enterprises "Elektroprivreda" (Electric Power Industry) and PTT Service, which make exceptional extra profits thanks to their monopolistic position on the market. "Holiday Inn", whose 51 percent of capital was estimated at 24 million DEM, was sold at a reduced price for 15 million DEM because the only bidder at the international tender was the local businessman Nedim Causevic. In essence, the fact that the majority share of the hotel was sold for 9 million DEM below its starting price did not pose a problem, but rather the fact that out of the agreed selling price of 15 million DEM, cash payment amounted to only five million DEM while the remaining amount of 10 million DEM was paid with worthless privatisation certificates. Namely, on the market the price of these certificates is between three to four percent of their nominal value. In simple terms, privatisation certificates worth ten million DEM can be bought for 400 thousand DEM. In other words, 51 percent of capital of the exclusive Sarajevo hotel, estimated at 24 million DEM, was practically paid 5.5 million DEM!

It is obvious that in this case the buyer has made a good deal, while the state, as a seller, traded badly with its property and, after much quibbling, it was finally concluded that, nonetheless, everything was in line with the law. Western diplomats and representatives of the international financial institutions did not share the enthusiasm of local officials with this "successful" sale. Numerous meetings and contacts with the highest F B&H officials were held behind the scene, but not in a "cordial and friendly atmosphere".

The frustration of the international community was not only caused by the difference between the effectively paid price for "Holiday Inn" Hotel and its estimated value. More or less, these ten million DEM would not essentially influence the ultimate effects of privatisation considering the value of state capital in the B&H Federation of some 25 billion DEM. However, it has simply become obvious that this was a matter of a fixed pattern whose large-scale application in privatisation of the remaining major state enterprises would result in utter failure of the privatisation and transfer of the state property into the hands of a small elite close to the current authorities for symbolic amounts and with ample use of worthless privatisation certificates.

With such purchase of state enterprises citizens and employees, who have already sold their certificates dirt-cheap for several German Marks, would be left without even moral satisfaction in the form of co-ownership over privatised state property. On the other hand, the new owners who would be to the authorities' liking, neither have enough money or knowledge needed for the introduction of new technologies, high-quality production and marketing of products on the world market, which are preconditions for the employment of the existing labour force and new job openings. According to experiences of the neighbouring Croatia, such privatisation is aimed at only squeezing the remaining economic and financial potential out of state firms and its conversion into hard currency which finally ends on the accounts of banks with headquarters on some exotic Caribbean or Mediterranean islands.

However, the latest decision on organising a new tender for the sale of the most profitable state enterprises in F B&H with the active participation of international experts who will be directly involved in attracting potential investors from abroad, and on cash being the sole means of payment, without the possibility of using certificates, has spoiled the game of local fixers and their patrons in the power structures. The reactions of these losers is reflected in the sudden revamping of a thesis that in this way "foreigners will buy all that is any good with cash, while only junk will be left for citizens who have the certificates". This is also seasoned with much "care" for the fate of certificates which will be additionally devalued in this way.

This claim could be true in the part that relates to the relative reduction of the value of certificates. True, if some seventy state enterprises, which are expected to be included in the new list for privatisation by means of tender, are successfully sold at international tenders, the total value of offered state capital for privatisation through public subscription of shares and payment with certificates would be somewhat lower, while the total amount of certificates would remain the same. However, the value of certificates has already been reduced so much that it simply cannot become any lower.

Besides, when it comes to the most profitable public enterprises such as PTT and Electric Power Industry, a part of their capital would in any case be set aside for privatisation by public subscription of shares. This same pattern would be applied in most of other firms. To put it simply, the strategic investor would be offered between 50 and 60 percent of capital for cash, while at least 20 to 30 percent would be sold to the local population for certificates. In other words, simple calculation shows that a smaller share would be secured with certificates, but at the same time, the national economy would receive an "infusion" in the form of several hundreds of millions of dollars, without which it would be doomed to fail.

After the conclusion of a cycle of donor conferences for the reconstruction of B&H with promised 5.1 billion dollars - with donations growing scarce and credits uncertain by the day - bare survival and economic survival of the national economy as well as citizens, are directly dependant on the inflow of fresh capital and initiation of production, employment and exports. Scaring citizens with foreigners who will "buy everything we have while turning us into simple hired labour" sounds frivolous to the world in which the capital has long ago crossed the borders and lost every national, religious or racial "colour" so that such messages irresistibly remind of communist ideological matrix based on the thesis on the "exploitation of the working class".

Ultimately, it is up to citizens to decide what pays more. To become co-owners of an enterprise that doesn't work, produce or export and therefore does not make any profit, but in which they sovereignly "manage" their newly acquired property, or to have somewhat smaller share in ownership, but thanks to strategic foreign partner and his investment of fresh money, knowledge and technology to participate in the distribution of realised profits. Common sense tells us that it is better to be a small co-owner of something that the sole owner of - nothing.

Original article