What awaits the new Serbian Minister of Economy?
On September 3rd, 2014, the new Minister of Economy, Željko Sertić, was elected by the Serbian national assembly. His inauguration marked the fifth Minister of Economy in the Government of Serbia in a 13 month period. What challenges await Mr. Sertić and can he avoid the fate of his predecessors?
In his first address to the public as the Minister of Economy, Mr. Sertić stated his objectives to be what he called the “three pillars” – improvement of existing companies, opening of new companies and finishing of the restructuring process of 502 companies in Serbia.
The first two priorities are nothing new – they were pretty much the repeated mantra of every past government. Keeping in mind that the key business barriers in Serbia are those which are outside of the competence of the Ministry of Economy (primarily, fiscal regulation, excessive bureaucracy in national- and local-level institutions and efficiency of judicial system), the efforts of the new Minister in these areas will mainly be limited to subsidy policies. It is unlikely that Mr. Sertić will make a radical departure from past policies, as was attempted by one of his predecessors, Mr. Radulović, and we are likely to see the continuation of current subsidy policy.
What the business community would like to see is to increase transparency of granting subsidies and reduce the opportunity for corruption in the process. The trust in the impartialness of the institutions managing the subsidies has eroded over the years, culminating with the 2014 report of Anti-Corruption Council concerning the Development Fund, claiming political influence in the decision-making process. In addition, SIEPA also faced similar charges, even leading to the control of the beneficiaries and plans to close the agency, during the mandate of Mr. Radulović, and even the arrest of some of the former top managers in early 2014. The new minister needs to rebuild trust of the business community in these institutions which can only be done by reforming them, making their work more transparent and remove possibilities for corruption from the decision making process, while increasing the control of funds placed through these institutions to prevent their misuse.
Concerning the opening of new companies, which is inevitably linked with the attraction of foreign direct investments, the new minister needs to reevaluate the mechanisms for attraction of foreign investors. In addition to aforementioned SIEPA, Serbia still has the so-called “Economic ambassadors” placed in various countries around the world, with little transparency or accountability for their results. The minister must perform evaluation of this program to see if its results justified the high costs and, if the evaluation proves negative, terminate the program.
The third priority stated by the new minister is the finishing of restructuring process in 502 companies in Serbia. The significance of this priority is that the Government finally acknowledged the problem of large number of companies in restructuring process, whose existence has been a stone around the neck of the business sector, while simultaneously causing a drain on public finance. The common traits for many of these companies are lack of marketable products, superfluous labor force, large accumulated debts to the suppliers, for unpaid goods and services, and to the government institutions for unpaid taxes and social security contributions. Enjoying the protection from creditors for almost a decade and a half, these companies have operated with an annual loss estimated to 250 to 300 million EUR, and turned into completely unsustainable enterprises whose main purpose is to artificially employ a large number of people in unproductive workplaces, owing their existence to the unlimited protection from creditors.
Resolving the problem of these companies has been a demand from the business community as well as international creditors (i.e. The World Bank) for many years. Previously, the governments were unwilling to deal with this issue, fearing the political consequences.
Unlike his predecessors, Mr. Radulović and Mr. Vujović, Mr. Sertić is a person linked with the leading Serbian Progressive Party – originally as a member of its SME board, and later on as an elected President of the Serbian Chamber of Commerce following the Progressive Party’s victory in the 2012 elections. During his mandate as the President of the Chamber of Commerce, he was highly supportive of the government and its policies. This would suggest that Mr. Sertić is trusted by the leading politicians concerning the economic issues, but it also makes it unlikely he would act independently of the Progressive Party.
While this makes it almost certain that we are not going to see radical reform propositions like during the mandate of Mr. Radulović, owing to his political background Mr. Sertić actually has more chances of implementing the reforms, albeit in a more limited form. Whether their scope will be adequate will be judged by the business community once they are presented. One thing is sure – the first challenge the new Minister will face is the companies in the restructuring process. And his decisiveness (or lack of it) in addressing this issue will give a clear image of the government’s willingness to carry out reforms.