ANALYSIS 

Eleven years after embracing capitalism, Belgrade has cancelled almost 30 per cent of all privatisation deals because of corruption or mismanagement. Yet the system remains open to abuse.

Stevan Dojčinović

 Valjevo, Belgrade, Podgorica and Warsaw

The now-abandoned Mašinoservis factory site is just one example of poor privatisation in Serbia (Photo: S Dojčinović)

Just two years after serving a prison sentence for attempting to kill four police officers during a gun battle in Belgrade, Milan Lazarević decided it was high time he cashed in on Serbia’s privatisation programme.

Seeing no reason why his criminal record should hold him back, Lazarević set his sights on buying a newly-privatised machine-parts factory, Mašinoservis, in his home town of Valjevo in south-eastern Serbia.

Turns out he was right his criminal past would be no hindrance to the sale. Serbia’s ownPrivatisation Agency signed off on the deal in November 2005.

In stark contrast to other former communist EU states such as Poland, Serbia was slow to introduce background checks on buyers to prevent criminals profiting from the sale of state companies.

This lack of state control created a perfect environment for widespread criminal activity, including illegal asset-stripping and money laundering.

The scale of corruption and mismanagement was such that Serbia has, to date, cancelled 629 out of a total of 2,281 privatisation deals because the new owners stopped production, stripped assets and failed to pay workers.

Thousands of Serbian workers have also lost their jobs as a direct result of mismanaged privatisation.

Milan Lazarević managed to buy a newly privatised company despite having a criminal record (Photo: Serbian Police)

While would-be investors are now required to obtain certificates stating they do not have a criminal record and are not facing charges, there are still loopholes in the system that allow criminals to profit from sales.

Lazarević, who secured state approval to buy Mašinoservis, is now back in a prison cell on trial for allegedly running a racketeering enterprise that extorted payments and favours from Valjevo’s bar and restaurant owners.

He is also accused of ordering the murder of a local underworld rival and has since been charged with tax-evasion, insurance fraud and misappropriating government funds.

‘Only Fools Talk’

Twenty-five years ago, Mašinoservis was a successful state-owned enterprise, employing 130 people in Valjevo, 100 km from the capital Belgrade. The factory once had offices throughout the former Yugoslavia.

Today, the building is locked up with heavy chains but it is just possible to peer into the courtyard. The factory is derelict and abandoned; the windows broken and set in half-crumbling walls.

Milivoj Savić, a former Mašinoservis employee, is one of many Serb victims of failed privatisations (Photo: S Dojčinović)

On paper, Mašinoservis continues to employ 12 staff, all of whom say they have not worked or been paid in nine years. Locals in outlying villages who once depended on the factory for work have been forced to scrape a living doing odd jobs whenever possible.

Milivoj Savić, 60, was the only worker brave enough to speak out. His wife protested throughout the interview at their home near the centre of Valjevo, angrily saying: “Only fools talk.”

Just mentioning the name Lazarević strikes fear in the hearts of people here.

Undeterred, Savić, nicknamed Bosanac, insists that talking to a journalist is pretty much his last option. Partially-paralysed after suffering a stroke, he can neither work nor retire because Mašinoservis never paid his salary or pension contributions after privatisation.

He says from the moment Lazarević arrived at the factory, there was little evidence the new owner intended to invest and try to turn the company around. Instead, the new boss met the workers and told them to go home.

“Lazarević said: ‘I have all your phones here in the company and when I find some work, I will give you a call.’ However, he sold all the machines and there’s nothing left down there [at the factory],” says Savić.

Desperate, Savić finally managed to meet Lazarević and pleaded with him to at least pay his pension contributions so he could retire.

“How do you want me to beg you, like a father, like a God, like a boss? He told me: ‘Bosanac, you are the age of my father, I’ll respect you for that and have no worries’… but he never paid,” says Savić.

He was the only worker brave enough to seek a face-to-face meeting.

The Deal

Lazarević bought the company in September 2004, paying the then owner, Vladan Krunić, €13,000 in cash. He was duly granted power of attorney, giving him full control of the company, until the sale could be officially approved by Serbia’s Privatisation Agency.

As the newly-privatised company remained subject to state supervision, only the agency could formally sign-off the sale, which it duly did on November 15, 2005.

Mašinoservis was originally privatised in December 2002 with Krunić paying around €40,000 for the firm. He says he couldn’t turn the company into a profitable enterprise and was unable to pay the workers, all of whom were on strike at the time of the resale to Lazarević.

During Krunić’s time as owner, the Privatisation Agency inspectors filed two critical reports over his management of the company; one in October 2003 and another in June 2004.

Both reports state Mašinoservis workers’ had not been paid since privatisation and that production had ceased, warning the company might have to be taken back under state control.

Extraordinarily, just five months later, inspectors revisited the factory that had been under Lazarević’s ownership for just a few weeks to find the workers unwilling to complain about anything at all, despite still not having been paid.

Asset Stripping

According to former owner Krunić and employees, Lazarević immediately set about stripping Mašinoservis’ assets.

Krunić claims Lazarević sold key machinery worth €10,000 within the first few months of taking control of the factory.

Lazarević also allegedly sold one of the factory buildings for €41,000 in cash, according to charges brought by Serbia’s tax office. They claim he sold the structure without declaring the sale, so evading paying tax.

BIRN has obtained records that show Lazarević mortgaged the factory site, although it has so far been impossible to establish exactly when he took the mortgage or the sum borrowed against the land.

Lazarević has not directly commented on any of the allegations or on his ownership of Mašinoservis, but his lawyer, Miodrag Đuričić, told BIRN that there is “no evidence against him”.

Regarding Lazarević’s management of Mašinoservis, Đuričić said that production and administration problems predated his client’s ownership of the firm.

While extreme, the Lazarević sale is far from unique in Serbia. This was just one of thousands of small enterprises sold off by the state, many of which will have been subject to illegal asset stripping and other criminal activities.

Not to mention the many Serbs who lost their livelihoods in a country where the unemployment rate stood at 20 per cent in 2010. The number of jobless is expected to continue to rise in Serbia, as the global recession bites further.

Serbia has not yet completed the privatisation process and has another 435 companies to sell, according to Privatisation Agency records.

Fake Buyer Background Certificates

Diagram – How ruthless buyers scam privatisation checks

Despite introducing tougher measures to prevent criminals using the privatisation process to launder money or for other illegal purposes, the system remains open to abuse.

Although buyers have been required since 2008 to present certificates from the police or the courts stating they do not have a record, criminals can still circumvent the system.

Some bidders use proxy buyers who do not have any criminal past, many place bids via offshore companies and others even forge the certificates.

“If someone comes with a forged certificate, how could I know that it is counterfeit? These are criminal acts; it must be for someone else to investigate,” says Dušan Belanović, director of the Privatisation Agency’s communications centre.

Asked why they don’t send the certificates to the police for checks, Belanović says the agency doesn’t have enough staff to conduct these types of checks.

In addition, Serbia is unable to ascertain the origin of money used to buy businesses through offshore companies.

Fugitive Darko Sarić was charged in 2010 by the Serbian authorities on suspicion of running an international drugs ring, thought to have smuggled around 3.5 tonnes of cocaine into Europe, and of laundering as much as €30 million through Serbia’s privatisation process.

Documents obtained through the state prosecution service and business registers in the US and Serbia, show Sarić managed to buy Serbian firms through offshore companies registered in the US state of Delaware.

Because the Privatisation Agency did not attempt to establish the origins of the offshore company funds, the authorities claim Sarić could have freely laundered millions of euros earned by illicit means.

The importance of robust buyer background checks has been demonstrated time and time again in Serbia. This failure enabled Zoran Copić to buy more than 15 companies in Serbia and Bosnia since 2005, despite being tried for cigarette smuggling at the time of the purchases.

The trial opened in 2004 and is yet to be concluded. He was arrested in Bosnia this April and charged with money laundering offences and is expected to stand trial soon.

Copić was also charged by the Serbian police in late 2010 with illegally mortgaging and stripping assets from some companies.

Law ‘Riddled with Weaknesses’

“The Privatisation Agency is a government body without any accountability,” says Verica Barać, president of Serbia’s corruption council

At the heart of the problem lies badly drafted and poorly enforced privatisation laws.

“Privatisation is riddled with incomplete regulations, weaknesses, gaps and holes,” says Vladimir Goati, a politics and economics expert who is also director of Transparency Serbia.

“Dozens of companies were sold… without established conditions that the owner is obliged to act responsibly toward the company and its employees.”

Verica Barać, president of Serbia’s corruption council, agrees: “It enabled tycoons and criminals to formally, by buying companies, actually come into vast estates.”

But Barać says the biggest problem with the current system is that there is still no real external control over the privatisation process.

“The Privatisation Agency is a government body without any accountability. They create, implement and control the privatisation process, but they are not controlled by any one,” she says.

Branko Pavlović, a former director of the Privatisation Agency, says the law is also flawed because it allows buyers to pay for companies in up to six separate instalments, giving the new owner time to sell off assets before completing the purchase.

“After they get the money [from asset stripping] it does not occur to them to pay the rest of the purchase price,” he says. The state is then forced to take back a virtually worthless shell of a firm.

Barać and Pavlović say that the laws were effectively approved by the World Bank and both claim the bank put Serbia under pressure to get the privatisation process rolling quickly.

“[The law] is the concept of the World Bank, based on liberal economics. It was important just to privatise, which meant institutions were not important, the property was not important, the processes were not important, the origin of money was not important,” says Barać.

The man who drafted the privatisation legislation in 2001, Aleksandar Vlahović, failed to respond to numerous requests for an interview placed via his assistant at his private consulting company Eki Investment.

Privatisation Chief ‘Forced Out’

“I had pressure from all sides,” says Branko Pavlović, former head of Serbia’s Privatisation Agency (Photo: S Dojčinović)

Pavlović was director of the Privatization Agency for just four months between April and July 2004.

Initially appointed by Dragan Maršićanin, the then minister for the economy, he claims he was sacked because he tried to reform how the privatisation agency was run and to confront crime in privatisation.

Pavlović says that from the moment he was appointed director at the agency, he was immediately being pressured from all sides, “politicians, international organisations and domestic tycoons”.

According to Pavlović, shady businessmen would attempt to approach him through a front person.

“Tycoons do that, they find someone who you know and then that person tells you ‘hey Branko, this businessman just asked me, do you want to go to dinner with us’ and I would say not dinner but he can come to the agency and we can schedule a meeting,” says Pavlović.

But Pavlović claims that as soon as he tried to terminate a suspicious privatisation deal that he was certain involved corruption, he was immediately fired along with the economy minister who appointed him.

Today he works as a lawyer and adviser to minority shareholders of companies in the process of being privatised.

The situation is not much different in other Balkan states, where privatisation has offered a perfect opportunity for shady deals, as witnessed in Bosnia, Macedonia and Montenegro.

In Montenegro, it is almost impossible to gauge the level of corruption because the details of sales are shrouded in secrecy, since the state hasn’t made the records public.

Podgorica began its privatisation process back in 1997 and around 85 per cent of companies are now privately-owned. NGOs have claimed many of these deals have been subject to high-level, serious corruption.

Slow but Sure Sales in Poland

“If we have any doubts about whether it is a legitimate investor, we disqualify them,” says Krzysztof Walenczak, Poland’s deputy treasury minister (Photo: S Dojčinović

It couldn’t be more different in Poland, where the state has taken its time over privatisation. Warsaw has developed a system focused on rooting out corruption and organised crime over the two decades since its transition from communism to capitalism.

Twenty years after beginning its privatisation programme, five per cent of Polish companies are yet to be sold, says Ireneusz Jablonski, an economics expert and member of the Adam Smith Institute in Warsaw.

Krzysztof Walenczak, deputy minister at the Polish Treasury which oversees the privatisation process, acknowledges progress has been slow but underlines they put a great deal of effort into finding solid investors.

“When we are selling a company we go to 15 different countries. We go to every financial centre… we have our own internal services that track potential investors. If we have any doubts about whether it is a legitimate investor, we disqualify them,” he says.

Walenczak says that off-shore companies have been excluded from the privatisation process for some time in Poland, because they cannot track the origin of the funds.

Unlike in Serbia and many Balkan states, the work of the ministry is subject to constant review by various agencies, including the powerful Central Anti-Corruption Bureau (CBA).

The CBA targets high-level corruption and reports directly to the prime minister.

“We are a unique agency in the EU because only our bureau has such powers,” says Pawel Wojtunik, director of the CBA. “We can work like the police… and use all ‘special measures’ as the secret service does. We can check the highest officials in Poland.”

The CBA also investigates sales that seem suspiciously low priced, ensuring the state gets the best return possible and rooting out corruption. Offshore companies give Poland a wide berth as they often don’t want to attract the attention of the CBA.

“We had one such case involving the privatisation of shipyards,” says Wojtunik. “A firm from a ‘risky’ country was interested in the sale until the media published information that the CBA was looking into the case. The firm withdrew its offer.”

EU Demands Serbia Investigation

“Three to five per cent of GDP is from money laundering activities [in Serbia]” says Vincent Deger, EU ambassador to Serbia (Photo: Media Centre, Belgrade)

While it seems clear that the Poles see crime-free privatisation as essential for the state and the economy, looming EU membership appears to be more of an incentive for Belgrade to revisit its privatisation process.

In June last year, the EU demanded Serbia re-examine 20 deals suspected of either involving high-level corruption or of failing to comply to privatisation rules.

To sweeten the pill, however, the Serbian government also received in July a €2.2m EU grant to help the state more effectively combat money laundering.

Vincent Deger, the EU ambassador to Serbia, notes that countries in transition to capitalist economies are at greater risk of money laundering because of the privatisation process, but warned the situation was of particular concern in the Balkans.

“Three to five per cent of the gross domestic product is from money laundering activities [in Serbia]. It’s a high risk… it threatens the smooth functionality of the economy and affects the whole of society,” he says.

Despite making much noise over Serbia’s willingness to confront the criminalisation of its privatisation process, not everyone’s convinced.

Barać, the anti-corruption council chief, is particularly unimpressed and doubts that even pressure from the EU will make much difference.

“The council has shown a number of privatisation cases and delivered documentation to the prosecution, but so far there haven’t been any investigations,” she says.

As Lazarević sits in prison, facing numerous charges of continued criminal behaviour, he remains the official owner of the now devastated machine-parts factory.

While the man the state granted ownership made thousands out of the Mašinoservis by selling assets and mortgaging land, many workers have been reduced to scraping a living  and surviving day to day.

Serbs are wondering when their leaders will finally ensure companies, and their livelihoods, are not placed in the hands of ruthless criminals out to make a quick buck.

Stevan Dojčinović is a Belgrade-based journalist. This article was produced as part of the Balkan Fellowship for Journalistic Excellence, an initiative of the Robert Bosch Stiftung and ERSTE Foundation, in cooperation with the Balkan Investigative Reporting Network.

The ECS letter indicates that the GoA had assigned exclusivity rights for 75 per cent of the country’s interconnection lines to the wholesale public supplier – a function assigned to the state-owned generation company KESH – and to the distribution system operator, OSSH/CEZ Distribution.

The ECS letter doesn’t report on who had complained or what might be the consequences if GoA fails to fulfill its obligation under the treaty.

The deputy minister of Economy of Albania Enno Bozdo commented for the Daily “Shqip” in Tirana that his government will start to “gradually reduce” the exclusivity of KESH in the next year, but didn’t offer a concrete timeline.

EU rules indicates that the interconnection lines in the Balkans must be open for use for all interested parties, a clause that in the past had caused disputes in several countries, including Bulgaria, Kosovo and Serbia.

Albania’s interconnection lines had been improved this year after the inauguration of the Elbasani-Potgoritza 400 kV line, which had opened the possibility for a Western Balkan line of supply toward Greece that is the most lucrative electricity market in the region.

Albania started to unbundle its energy market in 2008 by dividing the production, transmission and distribution network in three different companies and by legally opening the market for private operators in the wholesale supplying. In practice the market had remained the same.

- Real Estate: Rental prices in shopping centers show big fall says Colliers

- PM CNN interview stirs unusual debate on EU integration

- President Topi new political party is likely

- Suspected Drugdealer killed in mafia style action

- Albania accepts Hong Kong as “Chinese territory”

- Albania performance estimated as average from the EBRD transition index

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- Real Estate: Rental prices in shopping centers show big fall says Colliers

The rental prices in Tirana’s shopping centers saw 30-50 per cent drop this year due to increased economic difficulties and growing competition, the real estate agent Colliers announced in its report.

“The retail market in Tirana continues its dynamic activity – an additional 41,200 m2 is expected by end of 2011 – with the opening of Tirana East Gate, the city’s newest and largest shopping centre. The retail market experienced an increase in vacancy rates reaching 10.8% and a significant decrease in rental prices in some shopping centers in the range of 30-50%, in H1 2011. High street and secondary retail streets continue to report a drop of 20-30% in retail sales and a high turnover of shops,” Colliers underlined in the report.

Although a poor country with just 2700 euro GDP per capita, Albania is currently full with seven shopping centers while another one is expected to open soon.

The shopping center mania started back in 2005, when the first department store QTU opened 6 km outside Tirana. Several other projects followed soon. One of the shopping centers was taken over by the banks due to unpaid loans this year while others show difficulties to attract customers.

Furthermore, the retail sales this year showed an unusual decline of 6 per cent due to growing economic difficulties among Albanians.

Colliers report can be read in full here: http://dsg.colliers.com/document.aspx?report=1818.pdf

- PM CNN interview open unusual debate on EU integration

The Prime Minister Sali Berisha was asked by a CNN journalist during an interview this week what he except to earn from EU integration of Albania, a question that stirred an unusual debate among Albanians on possible benefits and costs from the integration process. Berisha replied to CNN that for him, EU integration is a dream, without getting into details on cost/benefits.

Albania has no known euro-skeptics among politicians or among opinion makers and intellectuals. Some newspapers attempted unsuccessfully to debate on EU integration but dropped the topic almost immediately. Albania is currently under the Stabilization and Association Agreement with EU, which comes due in 2013. According to the MSA, in 2013 EU will decide whether to accept Albania’s membership or to postpone the MSA for another 5 years.

Panorama, Shqip

- President Topi new political party is likely

The President Bamir Topi announced on Thursday in an interview for Top Channel that he plans to stay in politics after his mandate comes due early next year and that he may create a new right wing party. Mr. Topi, 54, was elected president from the ruling Democratic Party of the Prime Minister Sali Berisha. Over the last few years, Berisha had often attacked Topi publicly and effectively closed the door for his return in the DP. Berisha had accused Topi as the man behind the nationalistic campaign “the Movement Black and Red” as a political party against the government. Black and Red are the national colors of Albania.

Top Channel, Shqip.

- Suspected Drugdealer killed in mafia style action

Armando Andoni, a known drugdealer and US Marshals fugitive was killed on Monday 25 Sept. in a mafia style action that left no traces behind. Andoni, also known as Arjan Selimi, escaped from US in 1998 while on bail for the transportation of 1000 kg of cannabis. He was arrested in 2004 in Albania after a multinational law enforcement operation to cut drug smuggling in Latin America, Europe and US.

There had been quite few mafia style killings in Albania this year, including Skerdelajd Konomi, a judge in Vlora, who was killed with a bomb in his car.

Leaked US cables, Shqip, Gazeta Shqiptare

- Albania accepts Hong Kong as “Chinese territory”

Albania removed visa requirements with Hong Kong this week and referred to the “special administrative region of the People’s Republic of China”. Albania had adhered to the one China policy and strictly follows it. The Minister of Foreign Affairs Edmond Haxhinasto used the sentence “the Chinese territory of Taiwan” while speaking in a television talk show.

Official law publication

- Albania performance estimated as average from the EBRD transition index

Albania’s road toward open market economy was evaluated as poor or average in a list of 14 indicators compiled by the European Bank for Reconstruction and Development, in the Transition Index, a tool created by EBRD to follow the transition in Eastern Europe and Central Asia.

As for 2010, Albania performed well in Small scale privatization, where it scored 4 out of 4.6 points, in price liberalization and trade liberalization. Albania underperformed in enterprise restructuring, scoring just 2.33 points, in competition policy, just 2 and in Securities markets & non-bank financial institutions.

“More private capital is needed to help finance infrastructure investment, especially in transport and electric power. The priority is to accelerate the preparation of investment projects while ensuring that tenders are carried out in an open and transparent manner.

The system of tariff-setting at the municipal level is often non-transparent and politicized and hinders restructuring and investment in this sector. Reforms in this area should be pushed forward as soon as possible. The level of development in the non-banking financial sector is still quite low by regional standards. A key priority in this regard is to come to a resolution on the sale of INSIG, which is scheduled for this year,” the report noted.

EBRD report can be found here: http://www.ebrd.com/downloads/research/transition/tr10assess.pdf

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Disclaimer Notice

Weekly news report is a service of Albanianeconomy.com to offer a short review of the major events occurred during the week. It is published on Monday and includes the events occurred in the previous seven days. The main source of information is the local newspapers and televisions and AlbanianEconomy.com doesn’t verify the accuracy of the reports, so doesn’t bear responsibility on the veracity of the information reported.

You can send a request for this report by e-mail at gjerebara@albanianeconomy.com to receive it directly to your email address every Monday.

- The Prime Minister Berisha visits New York: Albania vote on Palestinian membership bid remains unclear

- Opposition regional councilors switch sides

- Miners strike continues with no end in sight

- Bribery in Albania and Bosnia the highest in the region – UN reports

- Albania sovereign bonds priced at 9.6 per cent

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- The Prime Minister Berisha visits New York: Albania vote on Palestinian membership bid remains unclear

The Prime Minister Sali Berisha visited New York between 19 and 22 September in the occasion of the yearly meeting of the General Assembly of the United Nations Organization. Mr. Berisha used the event to meet leaders from various countries in order to forward the cause of Kosovo Independence recognition and for advertising Albania as an investment destination.

Some of the Tirana’s newspapers stated that the diplomatic activity of Berisha this year was weaker than in the same occasion in 2010 and that the Prime Minister had much fewer meetings with head of states and prime ministers. Tema newspaper in opposition claimed that the Prime Minister is largely isolated now as the result of its democratic backsliding during the last two years. Pro-government media published informal photos that show Mr. Berisha embracing the US Secretary of State Hillary Clinton.

On the issue of Palestinian UN membership bid, Berisha said that he fully supported the existence of Palestine as a state, but also the US stance on the issue, but did not indicate straightforward how Albania will vote.

Sources: keshilliministrave.al, Shqip, Tema, Koha Jone, VOA.

- Opposition regional councilors switch sides

Opposition Socialist Party lost its majority in the regional council of Berati in south of the country and won a hardly fought battle to keep its majority in the regional council of Fieri, after some of the councilors elected in 8 May elections decided to switch sides and join the government coalition. Newspapers suggest that the event reflects bigger troubles for the weakened opposition, which is also suffering internal fights among different groups.

The Socialist Party held the power in Albania between 1997 and 2005 and its officials had a reputation for corruption. But the money seems to have gone with the power lost six years ago and the Socialist Party seems to have lost also its ideology and structures, according to Servet Pellumbi, a retired SP official.

Shqip, Gazeta Shqiptare

- Miners strike continues with no end in sight

Miners in the Bulqiza mine complex started a second indefinite hunger strike this week after the Union failed to reach an agreement with the Austrian owned Albanian Chrome company (ACR) who operates the mine through a concessionary agreement. The miners had requested higher wages and better working conditions along with full payment of the salaries for the last three months when they were on strike, plus the dismissal of the ACR appointed director of the complex. The Company had accepted all the conditions except the director dismissal but the Union said that its conditions were non-negotiable.

Meanwhile, in Tirana the opposition Socialist Party accused the government for managing a criminal organization in the mining sector in the expenses of the miners. The Minister of Economy Nasip Naço said in the parliament that the Union has a hidden agenda that aims to kick out of the country the company and to take the mine for some local businessmen. Naço did not explain whom the local businessmen behind the Union are, but in the last three months, the Union doesn’t accept to give up to any of its request and that if the company agrees on their terms, then, they add new requests.

Top Channel, News 24

- Bribery in Albania and Bosnia the highest in the region – UN reports

An UN Office on Drugs and Crime Report on Corruption in Western Balkans unsurprisingly discovered that Albania and Bosnia on the top on bribery followed in a long distance from Croatia and Kosovo. In Albania, the majority of bribes ends up in the pockets of medics and paramedics and is paid by citizens to receive better treatment. In the majority of cases officials ask directly or indirectly for money in exchange for their service. The UN report was co-financed by the European Commission and used structured interviews with citizens as method. The interviewed citizens were randomly selected from the adult population. Macedonia is the least corrupted country in the region according to the report.

Bribery prevalence and purpose

Macedonia: 6.2 per cent of the adult population paid at least one bribe in the last 12 months. Speeding up official procedure was the main reason. 50 per cent of the bribes were paid for this.

Serbia: 9.3 per cent of the adult population paid at least one bribe in the last 12 months. 38 per cent of bribes were paid to Speed up procedure and 18 per cent to receive better treatment, mainly in public hospitals.

Montenegro: 9.7 per cent of the adult population paid at least one bribe in the last 12 months. Speeding up procedures 31.9%, receiving better treatment, 18% and avoiding fines, 17%, were the main reason for bribing officials.

Kosovo: 11.1 per cent of the adult population paid at least one bribe in the last 12 months.

Croatia: 11.2 per cent of the adult population paid at least one bribe in the last 12 months.

Bosnia and Herzegovina: 20.7 per cent of the adult population paid at least one bribe in the last 12 months. Avoid fines was the main reason with 25 per cent.

Albania: 19.3 per cent of the adult population paid at least one bribe in the last 12 months. The majority of bribes were paid in public hospitals to receive better treatment. In 50 per cent of the cases the need to pay was after implicit request from the officials and 14.5 per cent the request was explicit.

For further information: http://www.unodc.org/documents/data-and-analysis/statistics/corruption/Western_balkans_corruption_report_2011_web.pdf

- Albania sovereign bonds priced at 9.6 per cent

Yields on Albania’s euro denominated bonds jumped to 9.6 per cent during the last few months, the highest ever, reported this week Bloomberg.

“Yields on Albania’s 300 million euros ($409 million) of 7.5 percent bonds due in 2015 jumped 69 basis points, or 0.69 percentage point, in the past month to a record 9.6 percent, according to data compiled by Bloomberg,” the agency said. Albania sold its ever sovereign bonds last October to pay for the Durres-Kukes highway that links Albania with Kosovo and is dubbed “The Road of the Nation” or “The Patriotic Highway”.

Xhentil Demiraj the country’s debt management director, said to daily “Shqip” in Tirana that the yield increase is not related to the economic development of Albania but is rather result of the increased risk related to the European debt crisis.

Albania doesn’t intend to issue new bonds in the near future and can wait up to 2015 to return to the international market.

Bloomberg, Shqip

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Disclaimer Notice

Weekly news report is a service of Albanianeconomy.com to offer a short review of the major events occurred during the week. It is published on Monday and includes the events occurred in the previous seven days. The main source of information is the local newspapers and televisions and AlbanianEconomy.com doesn’t verify the accuracy of the reports, so doesn’t bear responsibility on the veracity of the information reported.

You can send a request for this report by e-mail at gjerebara@albanianeconomy.com to receive it directly to your email address every Monday.

“We believe that this year will continue [with weak sales] despite some promising signs,” Ilir Hebovija, the deputy director of the Association told to News 24 TV.

“Prices had been slashed b y 10-15 per cent and the fall is higher in the periphery of Tirana but still the demand remains weak,” he added.
Albania saw a boom in construction during the last decade caused by very low housing stock inhered by the Communism and by banks eagerness to build up the mortgage sector.

The International Financial Crisis that started in 2008 cooled down prices and demands. Several construction companies had cut investments and several new apartment blocks remains unfinished.

The Association of Banks represent the banking industry in the country and its reaction came after employers of a bankrupted beer factory in the town of Vlora protested against the Raiffeisen Bank decision to confiscate the factory and close it down.

The factory was operated by a local businessman.

“Banks had lately experienced mounting difficulties in executing the collaterals [of the non performing loans], a process that is of vital importance,” the Association said in a press release.

“Some of the difficulties had been created due to tribunal decisions to halt the procedures of confiscation. […]” the Association said.
“In other cases the ownership deeds contain mistakes and that makes often impossible for the banks to confiscate the collaterals and to take back its money,” the press release adds.

The loans collateral executions had become vital for the banking sector in Albania currently due to increased non-performing loans. In April, non-performing loans jumped to 15.2 per cent of the total loan portfolio, a level never seen in the young banking sector of the country.

Albania has no precedents of vast scale bankruptcy. The bad loans portfolio had been on rise for the last three years. The banks had managed to avoid financial looses till now due to the poor legal framework on financial contracts that have made possible for the banks to transfer the costs of the nonperforming loans on the correct clients by increasing the interest rates.

An investigation from the National Authority for Competition this year suggested to the government to enforce new regulations on the protection of small borrowers from unfair bank practices. Despite this no regulations had yet been put into operation.

The Serbian president said that “better days and new investments are ahead for Serbia”. According to Tadic, with the deal signed on Tuesday, the Italian firm is “also becoming a Serbian company”, while new investments in Serbia will help create new jobs and raise the living standard.

The contract on the sale of Nitex was signed by Minister of Economy and Regional Development Nebojsa Ciric and Benetton Group Executive Director Biagio Chiarolanza. Tadic and Benetton then visited the Nitex factory, which is undergoing restoration. Benetton bought Niteks in May for just over €3 million. At the time, Benetton announced it would employ 2,700 people and invest €43.2 million in the Nis factory over the next four years.

Source: Balkaninsight

Banking system earnings reached 1.5 BN leks, (10.5 million euro) for the fourth month period from January to April 2001, a 47 per cent fall compared with the same period of the previous year.

Underperforming loans jumped to 15.2 per cent of the portfolio at the end of April from 14.7 per cent in March and showed a 27 per cent increase compared with 2010.

Underperforming loans were the main reason for the sluggish profits since banks activity continued to grow during the period. Assets reached for the first time 1 trillion lek (7.2 billion euro) as result of deposit increase. Deposits reached 841.1 BN leks or 5.9 BN Euro, a 13.8 per cent increase compared to the previous year. Individual customers increased their deposit holdings in the banks by 16 per cent while corporate customer deposits remained unchanged. Loans portfolio increased by 8.6 per cent to 510 BN leks (3.59 BN Euro) in April.

Mounting underperforming loans indicates continued difficulties among businesses and mistakes made by banks during the big loans boom in Albanian economy experienced between 2004 and 2007.

Albanians show their tendency to save during this period while the domestic consumption had remained very weak during the last year.

Kosovo’s Minister of Trade and Industry Mimoza Kusari Lila told Albanian TV Top Channel that the duty will be the first step and that an outright ban on all imports from these countries could follow.

“First we will impose the duty and if our exports will continue to not be accepted by these countries, a outright ban will follow”, Lila said in an interview. Serbia and Bosnia exports mainly foodstuffs in Kosovo. During the last year, imports from Serbia totaled to 370 million euro while those from Bosnia and Herzegovina totaled at 80 million euro.

“These goods can be easily substituted by imports from other countries,” Lila added.

Kosovo declared its independence from Serbia in 2008. Since them, Bosnia and Serbia do not recognize it thus causing troubles for the circulation of goods and passengers.

Kosovo’s exports totaled 268 million euro in 2010 (62 per cent increase compared to 2009) while imports totaled 2.1 billion euro (10 per cent increase compared to 2009).

“We have not the necessary capacity for highway maintenance and we are currently under discussion with the International Finance Corporation for the Durres-Kukes highway,” Berisha said.

Durres-Kukes highway was constructed in 2007-2010 to connect the landlocked Kosovo with Albania seaport of Durres. Considered as a “patriotic highway”, it swallowed almost 1 billion euro, or 10 per cent of the country’s yearly GDP. Its maintenance is expected to cost between 10-30 million euro per year and experts have doubts on its feasibility due to the minuscule volume of trade between Albania and Kosovo.

“The General Directorate of Roads (the country’s road building and maintenance authority) doesn’t have the necessarily human and financial capacity for this job,” Berisha added.

Albania is currently constructing three other highways, one of which is an expensive 30 km segment between Tirana and Elbasan. It is estimated to cost 400 million USD and is financed through loans from the Islamic Development Bank.

Albania state budged is already overstretched by the debt burden due to the patriotic highway while the international recession had slowed the economic growth of the country.