Last week we published our Serbia Country Guide, created in collaboration with the Belgrade Centre for Human Rights. Over the next few weeks we’ll be highlighting some of the unique business impacts in Serbia highlighted by the Country Guide.One of the greatest challenges faced by ex-communist states is the process of privatising the vast amount of land, industrial activity and public services coordinated by the state under communism. In Serbia, as elsewhere, this process is ongoing and remains controversial.
In 2011, The Belgrade Centre for Human Rights, the Country Guide’s partner in Serbia, reported that privatising former state-owned enterprises had been done without transparency and had resulted in thousands of workers being laid off.
Privatisation […] is generally believed to have been rash and rife with corruption. A large number of once successful companies were sold under extremely favourable conditions – even without tenders or auctions, to dubious partners who had no interest in continuing production and merely wished to get hold of the real estate and facilities for next to nothing. Many of the privatised companies have thus gone bankrupt, leaving behind masses of jobless people and citizens who lost their acquired rights to social protection and entitlements.
In April 2013, The U.S. Department of State reported that 2,350 companies had been privatised since 2000. In 646 cases (27 percent), the buyers failed to fulfil the contract terms and their contracts were annulled. Since 2011, a number of attempts to privatise large state-owned companies have stalled or failed.
In 2012, The European Commission identified state-owned companies as a major drain on the Serbian economy.
State influence in the economy remains high, due also to the predominant share of state ownership in major sectors of the Serbian economy such as energy (electricity and gas), railway and air transport and telecommunications. State-owned companies, which are overstaffed in general, employ more than 10% of all employees in legal entities. They make a loss of around €1 billion a year or about 40% of all losses in the economy. Privatisation of socially-owned companies has practically come to a halt. In 2011 only two enterprises were sold through a public tender (with sales receipts amounting to €1 million and investment commitments of €4.3 million) and two enterprises were sold through auctions.
As a result of delayed privatisation, cancellation of contracts or re-nationalisation, the state still has control over a number of large companies in the manufacturing sector. Currently, the portfolio of the Privatisation Agency consists of 408 companies. There are 171 companies under a restructuring procedure and most of the remaining firms are to be sold through bankruptcy or liquidation.
The implications for companies operating in Serbia are potentially significant, as many of their partners and suppliers may be state-owned or in the process of being privatised. To take just one example, the U.S. Department of State’s 2013 Investment Climate Report noted that privatisation may significantly complicate the purchase of land:
Property titles can be complicated and clouded by a multitude of factors – restitution claims, unlicensed and illegal construction, limitation of property rights to “rights of use,” outright title fraud, and other issues. […]
Investors continue to complain that land-rights conversions are stalled for a variety of reasons. Local authorities often lack expertise in valuing land and other technical aspects of conversion, land registries tend to avoid positive resolution of conversion requests, and public attorneys’ offices commonly challenge land-registry actions that do recognize conversion applications.
