One dollar steel mill exposes cracks in privatization in Serbia

While the purchase has stirred a sense of national pride, it is hardly a success story for the Balkan economy; rather, it has exposed the failure of a decade long effort to privatize the national economy.

Serbian Prime Minister Mr Mirko Cvetkovic signed the resale deal on February 1st 2012 with representatives of US Steel, the first private enterprise to enter the country after the downfall of former leader Mr Slobodan Milosevic in 2000.

Years of underperformance
Back in 2003, US Steel bought up the bankrupt Sartid steel mill in the eastern town of Smederevo for USD 33 million. Six months ago, the company announced it was leaving Smederevo due to years of underperformance. The plant had been operating well under its annual capacity of 2.4 million tonnes since 2007 and, together with its sister factory in Slovakia, made a loss of 65.5 million dollars in the first three quarters of 2011.

Keeping 5,500 jobs
The Serbian Government has been consistently down playing the negative effects of the embarrassing situation by promising to keep all 5,500 mill workers at their jobs.

"We'll find the money either by borrowing from banks or redistributing budget allocations." Mr Cvetkovic vowed, while admitting that the annual cost of keeping the mill running could reach 100 million dollars, a bill the struggling economy can ill afford to pay.

A desperate move
Critics said the sale was a desperate move ahead of the May 2012 general elections that the regime hopes to win, but do not believe the government has the capacity to save the dying mill nor the workers who depend on it for a livelihood.

Perhaps the only positive outcome of the steel mill purchase is that it has shone a harsh light on the last 12 years of privatization in Serbia, which began in earnest after Milosevic was forced to quit office back in 2000 and have resulted in some USD 20 billion worth of foreign direct investment in the country.

Privatization since 2001
Privatization has been described by each successive government since 2000 as Serbia's only option for economic recovery, but recent studies and analyses prove that it has devastating results that often lead to recession and possibly even the collapse of national economies.

Ms Danijela Rajkovic of the Social Economic Council of Serbia, an entity comprised of experts from the labor ministry and representatives from all major trade unions in the country including Nezavisnost (Independence) and the Union of Autonomous Syndicates of Serbia told IPS that "Some 3,000 firms were privatized since 2001."

However, she said that the Privatization Agency has annulled roughly 600 contracts so far, due to a range of irregularities, including certain companies defaulting on payments, and both foreign and Serbian buyers going bankrupt as a result of poor sales or underproduction.

She told IPS that nations in transition (political or economic) were responsible for between 10% and 15% of annulled privatization contracts worldwide. Ms Rajkovic said that "Serbia stands at the top with an average of 20%; in the industrial sector, almost a third (of the contracts) were annulled."

Left jobless
According to the Council's study on the impacts of privatization in Serbia, the only comprehensive report compiled on the subject, more than 500,000 people have been left jobless since 2000, impacting over a million of these workers' dependants. This is particularly significant for a nation whose total labor force is just 3.2 million people and where the unemployment rate stands at a staggering 23.7%.

Mr Svetlana Mancic, an official of the SSSS, told IPS that only a third of the surviving private firms, just 800 in total, are economically active today, while only 20% of them pay regular salaries to their employees.

Experts agree that hastily implemented and unregulated privatization is only partially responsible for Serbia’s current unemployment epidemic. Serbia's trade relations with economies hamstrung by ripple effects of the 2008 global economic downturn has placed additional strain on the developing country. Some 500,000 people lost their jobs in the 2008-2011 period due to global economic contraction.