Wall Street in Sarajevo

Empty Pockets of "Mandatory Capitalists"

Four million people, two stock exchanges and million and a half shareholders. This all sounds like a welfare state. However, this is not Singapore we are talking about, but B&H - a country of paradoxes whose inhabitants, measured by international standards, live far below the poverty line.

AIM, Sarajevo, June 28, 2001

For the first time in its history, Sarajevo got a stock exchange. Its official establishment (June 20) did not cause much euphoria among "mandatory capitalists" in the B&H Federation (F B&H), same as the previous establishment of the stock exchange in Banjaluka did not result in large-scale outbursts of enthusiasm among citizens of the second B&H entity - the Republic of Srpska.

The reason for the lack of interest among common people of B&H for stock exchanges and shares is quite prosaic - people simply do not have the money even for bare survival. According to common sense everywhere in the world people invest funds in shares when they have some extra money, so that it is quite obvious that citizens of F B&H (with average salary of DM 430) do not fall into this category. On the other hand, until now 400 thousand citizens of F B&H have become owners of enterprise shares, which means that its every seventh citizen is a shareholder. In the Republic of Srpska there are around million shareholders, i.e. almost every inhabitant of this part of B&H who is of age owns shares.

The explanation of this paradox is quite simple - mass privatisation. About one half of its capital in B&H, the state generously offered for sale to its subjects through mass privatisation. The principle according to which this was done is essentially the same in both B&H entities, the only difference being that in the Republic of Srpska all citizens of age got vouchers without the nominal value, while in F B&H they got certificates with nominal value expressed in German Marks. By means of these certificates in F B&H, the state repaid its debts to citizens - from unpaid soldiers' salaries during four-year war in B&H to unpaid pensions. In addition, every F B&H citizen of age got around DM 2 thousand in certificates so that they could not say that they "had no part in the privatisation".

In the Republic of Srpska, the sale of state capital envisaged for mass privatisation was carried out in one round, while this process had two stages in the F B&H, so that until now only one half of state firms have been privatised and the rest should be transferred to private hands by the end of this year. That means that the number of shareholders in F B&H will continue to grow.

However, despite the fact that stock exchanges have been officially established in Sarajevo and Banjaluka, the new shareholders will have to wait before they can offer their shares for sale because neither of these two stock exchanges has started working. As far as the Sarajevo Stock Exchange is concerned, the official announcements mention September as its opening day, while unofficially experts say that next spring is a more realistic date for the start of its actual operation. Whether the Stock Exchange will start working in September or several months later, gives no reason to new shareholders to rejoice. Judging by experience gained so far with family budgets, most of family shareholders will immediately try to cash in their shares. In other words, the offer on the Stock Exchange will be abundant, but not the demand.

If most shareowners hurry to sell their shares because they need money to make ends meet, question remains who will be buyers. There are practically none among the local citizens, while in the past years the foreigners did not exactly break their backs to invest in B&H. An additional reason why no particular interest of local people in buying shares should be expected is the deeply rooted mistrust towards all kinds of "paper" - which is not totally ungrounded. Until now, depositors of national banks have been cheated twice. Once, before the war when the infamous "household foreign exchange savings" disappeared without trace, same as the state to which small letters ("The deposits are guaranteed by the state") at the bottom of savings-bank books referred. That is why citizens have given up on state banks as institutions to be involved with.

After the war, when they believed that everything has changed with the introduction of private banks, they were cheated again. This time, it was not the state that fell through, but several private banks and it turned out that no one guaranteed for citizens' deposits.

Now, citizens of B&H, same as in all other countries in transition, are at a new beginning. No one has any first-hand experience (apart that from books) with stock exchanges or shares, not even the state or financial experts and, least of all, the citizens. Previous painful experiences with banks and savings are not a mitigating factor so that the question remains how much time will it take for mere mortals to learn the new "rules of the game" of the stock exchange. Essentially, everything functions according to a very simple principle. Money is invested in shares for two reasons - if the investor has made a good choice, the value of shares will grow in time, as well as his profit. The other advantage of shares is that, in principle, they can be sold at any moment, i.e. turned into money, because there should always be someone interested in buying them. In practice, at least at the beginning, this system will not function because the demand for shares will be far below the supply as there is no extra money and because the until recently state-owned enterprises, whose shares should be traded, are mostly in a state of "clinical death". This completes the circle, which is why mass investments in the shares of B&H firms are not going to materialise in near future.

Having all this in mind, it is clear that objectively speaking there is not enough work in B&H for even one stock exchange, let alone two. Thus the question of their future arises at the very start. National and foreign economic experts assess that in the next couple of years these two B&H stock exchanges would practically disappear, i.e. become branch offices of a new, regional virtual stock exchange. This is a ruthless logic of globalisation and profitability, for which a market of some 20 million people is too small, not to mention four million poor Bosnian and Herzegovinians. Mere mortals in B&H are not currently racking their brains about the future of "their" stock exchange. The only thing that interests them at this moment is when and for how much will they be able to sell their shares, which they have practically got for nothing in mass privatisation in order to be able to make ends meet from the beginning to the end of month.

Unfortunately, no one can give a precise answer to this simple question. Anyway, one of the attractions of a stock exchange is the unpredictability of the price of shares, whose movement is not always logical. As former self-managers did not have to pay anything for this transfer into shareholders, so to say capitalists, they can consider that they have made a profit if they manage to sell their shares at any price. If firms (which they are co-owners of) go down, they would not lose the "real" money, because they did not invest it in shares in the first place. In other words, they can only gain and the stock exchange will show whether they are at break-even point or in the black.

Drazen SIMIC

(AIM Sarajevo)