By Ivana Sekularac
BELGRADE (Reuters) - Serbia’s political instability has made Western investors hesitant to participate in privatisations, and it’s going to take major moves such as big-name IPOs to lure them, a senior official said on Friday.
More than 2,000 firms have been sold since 2000, when the fall of autocrat Slobodan Milosevic ended a decade of isolation, and the economy has grown by an average 6 percent a year.
But despite prudent macroeconomic policies and cutting red tape, the transition has also been marked by weak coalitions and slow, tortured progress towards the European Union.
“The foreign companies participating in privatisations in Serbia mostly come from Croatia and Slovenia,” Luka Andric, State Secretary in the Economy Ministry said in a interview on Friday.
“They are confident in their knowledge of the market. Investors from Western countries are hesitant to participate because of political instability.”
The latest government split, which might mean new elections, has nationalists and liberals squabbling over whether Belgrade should pursue closer ties with the EU or turn to Russia.
Serbia has taken some $11 billion (5.5 billion pounds) in foreign investment in the last eight years, versus almost $20 billion clinched by fellow ex-Yugoslav Croatia. Neighbouring Bulgaria, an EU member, attracted $7.5 billion in 2007 alone.
Andric said that to attract more investors, Serbia planned to float shares of big state companies including landline monopoly Telekom Srbija as well as Galenika pharmaceuticals, both profitable, well-run firms with a strong brand.
“With this move, we hope to attract foreign investors and turn the Belgrade stock market into a significant regional player,” Andric said. “We think Telekom could be listed in the bourse by the end of this year or in the first quarter of 2009.”
Andric said that some 750 remaining state companies would be sold off in 2008 and 2009, politics permitting.
“The main challenges we face remain the huge number of employees in state-owned companies, accumulated debts and outdated equipment,” Andric said, citing a lack of investment in the 1990s.
Andric added that one of the main factors attracting investors was the real estate holdings of state firms, often a bigger pull than their sector of activity.
“Real estate is the most attractive feature for investors because of the potential growth to come with an expected hike in real estate prices,” Andric said.
The state’s hopes for a windfall this year focus on car maker Zastava and the huge socialist-era conglomerate Genex, both of which were put on sale through tenders late last year.
Another much-anticipated sale, of flag carrier JAT Airways, will depend on whether the government and parliament are in a position to pass necessary laws, he said.
“The privatisation adviser should finish the strategy by the end of the month and the tender should be announced in May,” Andric said.
He said Icelandair (ICEAIR.IC: Quote, Profile, Research) and Russia’s Aeroflot (AFLT.MM: Quote, Profile, Research) had already expressed interest in the carrier.
Serbia Financial Chiefs Pledge Stability, BalkanInsight.com
By Aleksandar Vasovic in Belgrade
Mirko Cvetkovic, the Finance Minister in Serbia’s caretaker government said the government “will continue to operate until the appointment of a new one” after early elections likely to be held on May 11.
“The State budget will be maintained diligently and all the payments including wages and pensions will be secure,” Cvetkovic said in an interview with Belgrade’s B92 TV.
On Monday the Serbian government formally asked President Boris Tadic to dissolve the Parliament and schedule snap elections for May 11.
The Cabinet of Prime Minister Vojislav Kostunica collapsed following a bitter dispute between pro-Western and conservative coalition partners over a nationalists’-sponsored parliamentary resolution that conditioned Serbia’s European integration with Brussels’ recognising that Kosovo remains firmly within Serbia’s borders.
The move immediately prompted a 4.55% slide in the Belgrade Stock Exchange, brought the currency market to a halt and fuelled fears of instability among investors.
Cvetkovic said “budget revenues might fall due to political instability” and “hesitation of investors about the outcome of vote.” “However, I don’t see dramatic developments ahead,” he said.
Serbia’s budget for 2008 envisioned a spending gap of 0.5 % of the Gross Domestic Product and inflation of 6 percent. However due to excessive spending, the global financial crisis and tensions over Kosovo’s independence that culminated in riots across the country, inflation in February reached 11.5 % year-on-year.
Despite the poor outlook, Cvetkovic said the inflation figure will likely slide back by the end of 2008 to “a single digit.”
“I believe it (inflation) will not go beyond 10%, and it will remain a single digit depending on foreign investments. We should bear in mind that energy prices are rising, and we expect increases in food prices”
In a related development, Radovan Jelasic, the Central Bank Governor said monetary policymakers could resort to the country’s currency reserves of €9.66 billion to maintain stability of the exchange rate between the domestic dinar currency and the euro.
Earlier this month, the Central Bank raised its key two-week repurchase rate to 11.5 percent and in the past month it intervened with as much as €129 million to maintain liquidity of the currency market which remained dormant amid the turmoil over Kosovo.
In an interview with Belgrade’s Politika daily, Jelasic said that “inflation in the next few months will depend on external influences and the make-up of the future government.”
Economists remained cautious about Serbia’s economic outlook but said elections are better than the political uncertainty that has hit the country in the past year.
Jurij Bajec, a professor with Belgrade University’s School of Economy said elections are “the lesser evil… otherwise this year would be lost in an economic sense,” he said.
He said investors will remain cautious until after the May 11 vote and their future position “will depend on political forces that will win.”
“This hesitation (of investors) could be compensated and could be prolonged. In the latter case we will have several wasted years instead of only one. This will mark the beginning of an end of economic stability,” Bajec said.
Goran Nikolic, an analyst with the Chamber of Commerce said “political instability took its toll on the economy, an influx of investments, prices, monetary stability and development mainly through rising the current account deficit.”
“I believe at this moment elections are a good way out of that,” Nikolic said.
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