VOLKAWAGEN AND "FELICIA" UNITE THE MARKET

Car Industry in BiH

AIM SARAJEVO, 16 July, 1998

Three very important events which happened last week determined the destiny of car industry in Bosnia and Herzegovina: signing of the Basic contract about co-operation between INIS from Sarajevo and the German car concern "Volkswagen AG" from Volksburg, the Decision made by the Government of BiH Federation about tax rates for cars produced on the territory of the Federation, and signing of the contract between "Volkswagen AG" and UNIS-Holding on establishing the joint company "Volkswagen" Sarajevo. Deadline of only three days which was needed for signing the contracts and making the decision shows that the activity related to the beginning of production i.e. assembling of passenger cars "Skoda-Felicia" in Vogosce near Sarajevo, was synchronised and precisely planned.

After few months of negotiation, two well known companies, German "Volkswagen AG" and UNIS from Bosnia and Herzegovina, have finally agreed to start by the beginning of August, so-called SKD assembling (the lowest level of disassembling) of passenger cars "Skoda-Felicia" from the production program of the German partner in the restored former Sarajevo Car Factory (TAS). From August till the end of this year 5000 cars will be assembled in Vogosce.

A series of negotiations between partners from Germany and Bosnia and Herzegovina, was necessary in order to start assembling cars, which finally resulted in signing of the Basic Contract on co-operation. A move of the BiH Federation Government followed, which decreased the tax rate from the present 20 per cent to seven per cent for the cars produced in the Federation, thus stimulating selling of this type of "Skoda" on our market. In order to complete the legal procedure, a joint German-Bosnia&Herzegovina company was established and named "Volkswagen" Sarajevo. The German company invested 58 and UNIS 42 per cent of the funds. So "Volkswagen" is one of the first world known companies which invested a rather large amount of funds in post-Dayton BiH, which describes best the safety in our regions. This is at the same time a stimulus and call to other world companies to invest capital freely, i.e. without war risk, in local industry.

Apart from reconstruction of the pre war car industry in BiH, stimulation of employment, etc. this move of the Germans is of complex significance. It finally started integration of Bosnia-Herzegovina industry on the total state territory. In fact, it is known that car industry is among rare ones which activates a wide range of industrial capacities for its needs, from production of steel and glass to chemical products. If it is known that each car has five thousand parts on the average, it is clear how many components and industrial capacities should be activated in order to produce a car. In this particular case of "Felicia", of course, the contract refers only to assembling, but in the future, when cars will actually be produced in Vogosca (as was the case until 1991 with annual production of 45,000 cars) this will move a series of factories from the standstill, employ thousands of workers and bring foreign currency to BiH by export.

Therefore, all the former UNIS factories which were producing for former TAS, first of all those in Sokolac, Konjic, Brcko, Bijeljina, Prijedor, Sarajevo and other towns, will have to be activated, but as experience shows, new co-operants will also appear to work for the company in Vogosce.

For such big actions concerning activation of production in all parts of BiH agreement of the other entity, Republika Srpska, was needed. The politicians have fulfilled their part of the job in all the preliminary works for assembly start-up. Since this is a matter of stimulating foreign investments in BiH, governments of both entities were more interested than seldom before. And, while the government of the Federation made the decision to decrease the tax rate for "Felicia", the Government of Republika Srpska made a decision to abolish (for five months for the time being) import customs for car spare parts. In this way agreement was reached on the unique price of "Felicia" throughout the country.

Making such decisions in the whole of BiH points out the fact that politicians are too tired of their "national interests" and that they "voluntarily" gave in when confronted with a series of economic arguments and awareness that industrial development brings welfare to the population and opens development prospects, instead of previous political outwitting about who gains, who loses, or who gains more and who gains less. Moves such as this one are lessons which show that BiH can be integrated most rapidly by a common product.

Money and better future are evidently more important than entity profiteering, which was recently proved at the International Conference of Investors organised by Islamic Bank for Development. At that time, UNIS and "Volkswagen" had signed a protocol according to which the Islamic Bank for Development, through "Bosnia Investment Co.", would invest four million dollars in "Volkswagen" Sarajevo. This third partner investing in production of "Felicia" in Vogosce even promised to increase its deposit later on. There is no doubt that other interested investors will appear once cars from Vogosce appear in the market, because of car industry propulsiveness, and further plans of "Volkswagen" Sarajevo concerning its broadening capacities which will certainly be attractive for some other world companies.

Car industry in BiH, with its tradition of several decades, has in this way been offered a possibility to enter the European and even the world market. It has already been planned to increase the number of assembled cars, after the first 5000 to be assembled in Vogosce, to 35,000 in 2002. Certainly not only assembling of "Felicia" would be done here, it is expected that the production of car spare parts will also begin soon, as was the case until 1991. This would be a bigger success than the current assembling of cars.

Since the BiH market is small, as well as the demand, it is already certain that only 10 per cent would be for the domestic market and 90 per cent for the foreign market. For the beginning, cars from Vogosce would be sold in Yugoslavia, Syria and Turkey, but it can be believed that "Felicia" would find quite a number of customers in Eastern Europe. Selling cars in a country opens the possibility for selling car spare parts, which is indeed an obligation of every producer.

There is yet another fact about start-up of assembling of "Felicia" in Vogosce that is encouraging. Start-up of lines in UNIS factories is employing a part of their pre-war workers. In the beginning, it is only about a hundred of them who were trained for the work, but further increase of production and broadening of the market will create possibilities for employing new workers.

For all these reasons, the first train from the Czech Republic with parts for "Felicia" which is expected to arrive in the next few days, should be understood as the announcement of new times not only for the car industry in BiH but considerably on a broader scale: from economic and all other integrations in the state, to return to normal life.

Samuel SKOPLJAK

(AIM, Sarajevo)