04 July 2007

Macedonia must seize chance to depoliticise business

Macedonia is pledging to curb corruption and depoliticise business; it absolutely must follow through.

By Eric Jansson in Skopje
Published by BIRN's Balkan Insight
, 3 July 2007

Governments change and investors’ fortunes follow. It is the iron rule of banana republics: when new ministers take office they get a slice of the action, and companies scramble to redirect “contributions” from the old to the new.


A redeeming feature of the Macedonian government sworn in eleven months ago is that its ministers publicly insist this must not happen here.

Moreover, privately they seem to mean it. The outward evidence of their sincerity is a growing docket of corruption cases in the courts and a startling crackdown on illegal construction, in which authorities are literally dynamiting unpermitted buildings.

One finds inward evidence as well. For example, Vera Rafajlovska, the economy minister, has halted a practice by which she says private companies sometimes sought ministerial “approval” for commercial decisions. It invited corruption, wasted time and created “a huge pile of papers on my desk”, she says – so it is gone.

For companies in Macedonia – and therefore for the future prosperity of the country as a whole – these are important developments. Businesses seeking long-term profits want a predictable investment climate and a fair playing field, so curbing corruption and depoliticising business is essential.

No one claims that the scene is squeaky clean in the southernmost former Yugoslav republic, nor is it likely to be any time soon. Some economists reckon that, if they could measure off-the-books trade and add it to registered economic activity, the country’s gross domestic product would double.

However, through the efforts of two successive governments over the past five years, Macedonians who previously despaired of a day when official corruption would end are starting to believe that, at least, it can be challenged.

This summer, three cases of major investments – two foreign and one domestic – suggest that Macedonia has also reached a turning point in the overall depoliticisation of business. This is a matter of equal importance to the anti-corruption fight, to which it is closely related.

OKTA

The prime case is OKTA, the oil refinery purchased in 1999 by Hellenic Petroleum.

Debates over whether the 32 million dollar privatisation eight years ago was conducted properly, and whether Hellenic has since enjoyed unfair oil importing privileges, have proved inexhaustible. The seesaw of perspectives on the deal, from one government to the next, has always been awkward – a sign that Hellenic has friends in some political parties, none in others, and that its fortunes change when governments come and go.

Meanwhile what has mattered, ultimately, to the economy? Hellenic has not plundered the refinery but upgraded it, preserving jobs and investing more than 200 million dollars – all in the quest for profits and a future share in the wider Balkan market for oil products, in which Macedonia is only a bit player.

Later this month, an arbitration tribunal in Paris is expected to hand down a decision on OKTA’s relationship with the Macedonian state, which should end grumbling about the 1999 sales contract, once and for all.

OKTA has already “normalised” its relationship with the government well in advance of the decision, say Michael Myrianthis, the OKTA chief, and Nikola Gruevski, the prime minister.

Nonetheless, with both sides promising to honour the tribunal’s decision, it should provide a tabula rasa for future dealings. Hellenic’s position, at last, will no longer be influenced substantially by party politics. This promises to place one of the country’s biggest foreign investors on a more stable footing – a very important development.

Ski Centre Kozuf

A seesaw effect similar to the one experienced by Hellenic Petroleum has also dogged the domestic investors behind Ski Centre Kozuf, a new mountain resort being built in the highlands bordering Greece, near Gevgelija.

Their fortunes rose under the VMRO-DPMNE-led government in office until 2002, but they then faced debilitating delays under the Social Democrat-led government that followed.

Angel Nakov, Ski Centre Kozuf’s executive director, says problems began due to local disagreements with a Social Democrat MP. After “two lost years” that included “135 days of full-time inspections by financial and ecological authorities and police” a court decision stopped it. The company succeeded in making peace with the Social Democrats.

Now, with VMRO-DPMNE back in power, the project is really roaring to life. Ski Centre Kozuf has secured an 8 million euro loan from Stopanska Bank, enabling work on the mountain to accelerate.

As with Hellenic, troubles began when the Social Democrats entered government, then subsided midway. The key, however, is that peace has proved durable through last year’s change in government.

The result? More investment and more jobs – precisely what Macedonia needs.

Mobile Telecoms

OKTA and Kozuf are examples of good news. By contrast, the mobile telecoms market is the next big test case.

Since re-entering government, VMRO-DPMNE has followed through on a campaign promise to introduce more competition to a “duopolistic” mobile telecoms market, heretofore shared between just two operators – T-Mobile and Cosmofon.

Whether the companies actually constitute a duopoly is not the point here. What matters is the method by which competition is being introduced.

Without controversy, the government earlier this year published a tender inviting offers on a new operating license. It was won by Mobilkom Austria, the mobile subsidiary of Telekom Austria.

However, controversy began immediately after the sale, when ministers let it slip that a fourth license would also be offered. This profoundly irritated not only Mobilkom Austria but also T-Mobile and Cosmofon, both of which are local subsidiaries of foreign investors – in T-Mobile’s case Magyar Telekom, the Hungarian operator owned by Deutsche Telekom, and in Cosmofon’s case OTE of Greece.

Divisions between political parties are now emerging, with the Social Democrats favouring a more predictable environment for investors in the telecom sector and VMRO-DPMNE actively shaking things up.

This could prove to be nothing more than a disagreement over best policy. But Mile Janakieski, the transport and communications minister, dismisses Mobilkom Austria’s interests with a casual disinterest that could alarm other investors, too. “They are strong enough to play on the market,” he says.

If the government were to continue pushing this line aggressively and opposition parties saw potential traction in challenging it on grounds of fair play, this dispute could easily politicise the telecoms sector – a major source of investment in the country.

However, if they can avoid this outcome even while pursuing their competing policy goals, then Macedonia will have passed an important test.

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