Mass Privatisation in B&H

Thirteen Billion Marks Sought for Thousand Companies

AIM Sarajevo, November 1, 2000

The publication of the first public call for the subscription of shares in the media on October 30 marked the beginning of mass privatization in B&H. In the first round of subscription, two million FB&H citizens with 15.6 billion German marks (DM) in privatization certificates at their disposal will be given the opportunity to choose among 547 companies representing a little under a half of all state owned firms wherein the state capital amounts to something over 3 billion DM.

“What we are dealing with here is the first public call for the subscription of shares in enterprises thoroughly prepared for privatization, with validated opening balance accounts and privatization programs. The ongoing round of subscription will be followed by a second one during which the state capital of firms that have not as of yet completed the necessary documentation will be offered on sale”, says Nermina Kapic, vice-president of the B&H Privatization Agency (PA).

In this manner, a total of 1029 companies worth - if only nominally - 13.4 billion DM, will pass into the hands of private owners. Citizens with nothing but certificates in their pockets, will be given a chance to buy shares but in 752 of the companies. The rest will be privatized through tenders meaning that cash, something mere mortals do not have, will be required. Sixty eight companies marked as strategic by international experts for which buyers will primarily be sought abroad, also form part of this group. Strategic buyers will be offered 67 per cent of the entire capital of each firm. As a comfort, resident citizens, owners of privatization certificates, will be given a possibility of buying the remaining 33 per cent of the capital through the public subscription of shares. Two of the most profitable enterprises in the Federation at present - telecommunications and the electric-power industry - make an exemption in as much as only 15 per cent of their government-owned capital will be sold through the public subscription of shares. Thus, the sum-total of state capital offered for sale through tenders, i.e. cash, amounts to 7.1 billion DM. In other words, 3.7 billion worth of non-privatized capital will, for the time being, remain in the hands of the government with slight likelihood of any change in the near future.

The government has taken advantage of the privatization process in the FB&H to get rid of outstanding debts to its own citizens. The sum-total of privatization certificates distributed to the population equals 15.6 billion DM. Aside from public debts, the sum includes all pre-war foreign-currency savings in local banks as well, since the deposits have been spent long ago and, by way of comfort, citizens were offered compensation in the form of privatization certificates. Four-years-due soldiers' war salaries and outstanding government debts to the pensioners have been settled in the same fashion.

If judging by sheer numbers, barely a quarter of the state-controlled companies will be out of reach of the citizens in possession of privatization certificates but, on the other hand, the value of the state capital in the "chosen" firms amounts to 7.1 billion DM. That is to say that a little over a half of the government capital going over to private hands will not be sold through certificates.

In this manner the government has, in fact, cut in two the nominal value of the distributed certificates. Nevertheless, the citizens are not complaining because of the "blow under the belt". On the free market, the certificates are worth only three per cent of their nominal value.

What is to be done with them and where should they be deposited, are questions most citizens have no answer for, although over two million US dollars were spent on the campaign meant to educate them on the matter in the past two years. Ordinary people still have trouble believing in expert prognosis predicting that the ownership of some of the largest state companies will pass over to private hands and, thanks to the wheeling and dealing during the "minor privatization" generally experience the entire process of transition of ownership as yet another scam devised to make it possible for tycoons close to the government to buy up everything of any worth for symbolic sums, while the certificates assigned to mere mortals represent yet another worthless "governmental piece of paper".

The prevailing indifference of the citizens towards their own role in the historic transition from socialism to capitalism can best be illustrated by the fact that, up to now, the eight existing privatization and investment funds (PIF) have not managed to collect more than 1.5 billion DM worth of certificates from approximately a thousand citizens. If further 1.2 billion DM in certificates - spent on the purchase of previously government-owned apartments and other governmental properties during the "minor privatization" - are added to the sum, what we arrive at are an overwhelming 13 billion DM in privatization certificates, i.e. at the conclusion that 95 per cent of the certificate owners have not taken part in the privatization.

Since the process is at the start, there is still time for the majority of them to take an active part in it, either by directly purchasing shares in particular firms or by depositing their certificates in privatization and investment funds. There is also enough room to think things over until February 26, 2001 when the deadline for the subscription of shares in companies already put on the market expires.

Provided that the sum total of paid-in certificates ranges between 80 and 120 per cent of the set price, the sale will be successful, and the allotment of individual shareholders will depend on the worth of the certificates staked. In case these limits are breached, whether the sum be 20 per cent lower or 20 per cent higher than the set price, the sale will be annulled and the company put to the second round of privatization. As matters stand at present, the second round, i.e. the "make-up exam", is likely to begin in June next year and last twice less, sixty days, than the first one.

Not even experts agree on the true effects of the privatization. Thus, Velimir Lovric, chairman of the administrative board of the Federal Privatization Agency, estimates that by putting on sale 277 companies the government will obtain 15 billion DM - six in cash and nine to ten in investments - in the next three to four years. Most independent economists do not quite share his optimism, pointing out that the bookkeeping worth of the domestic firms is "inflated" and high above their actual market price.

Engrossed in the day-to-day struggle for survival, citizens do not pay much attention to the debates of the experts and assurances that certificates invested today may or may not bring them an additional income in dividends in the near or somewhat more distant future. To their minds, the only solid motive for investing them is the false hope that in doing so they will manage to cling on to their jobs. An even more serious misconception is the expectation that, some day, the government may in fact take pity and settle its debts in cash instead of certificates.

The certificates will be in effect for another year, perhaps a month or two longer, until the conclusion of the privatization process. After that, the ones that have not been unused will be annulled.

The widespread apathy and distrust towards the certificates and privatization in itself, makes things easier for the newly fledged tycoons. For paltry sums, they have already bought up privatization certificates worth millions from those to whom a kilogram of bread or a litre of milk today are more important than uncertain dividends in a couple of years. That they have perhaps missed their last chance of participating in the historic redistribution of property once belonging to the state, does not bother them much.

Drazen SIMIC

(AIM)