TOP INTERVIEWS Interview with Mr. RESAD ZUTIC Director BOSNA I HERCEGOVINA FEDERACIJA BOSNE I HERCEGOVINE AGENCIJA ZA PRIVATIZACIJU U FEDERACIJI BIH BOSNIA AND HERZEGOVINA FEDERATION OF BOSNIA AND HERZEGOVINA AGENCY FOR PRIVATIZATION IN THE FEDERATION OF B&H December 2001 Can you provide us with some background information on your career; what did you do prior to your appointment to this post, and what brought you to the Privatization Agency? I am by career a metallurgy engineer, and for more than 20 years I have been working on various managerial positions in the Metallurgy Company in Zenica. In May 2001, I was appointed to head the efforts of this Privatization Agency. I came here from a position of General Manager of a company dealing with the steel business situated in Vares. That factory produced spare parts for power plants, coal mines and steel mills. Five months ago, I arrived from the business sector to spearhead this Agency and my main goal is to bring a rational approach to the privatisation process. How do you intend to achieve this? First of all, I initiated a database, which enables us to have monthly reports based on a determined amount of data that in addition to the Federal Privatization Agency we receive from the Cantonal Agencies for Privatization. We are planning to continue our process throughout next year as well as to develop approaches using graphical presentations of the privatization process for 56 companies that are in the list of the Federal Privatization Agency. We are finalizing negotiations with the members of the International Advisory Group to set up a time frame of privatization for each company next year. I think that you know who are the members of the International Advisory Group: USAID, GTC, EC and WB. The main focus of our activities is to determine and define a beginning and an end to the privatization process in accordance to a time frame of operations for each company that GTC is helping us to privatize. This is more or less setting the rules… Yes, it was confusing at the beginning, but later it was accepted. What is the current situation with the privatization process, and what is being achieved ? Firstly, I would like to say that the privatization process in Bosnia and Herzegovina conceptually is set to be implemented in a very short period of time, that is for one year, in particular to achieve the transfer of state ownership to private one by using shares. Which means that state ownership will be transferred to the private sector and in particular to be distributed to the citizens. However, certain changes happened, where we realized that a more flexible market approach should be used in the privatization process. In short, a deviation from the first concept of the privatization process has occurred, and we are now using the concept of tender selling, which in a way slowed down the privatization process. What remains of the Markovic privatization scheme? As far as Markovic privatization is concerned, only around 4 % of state capital has been privatised in accordance with this model in FBiH. The difference between the Markovic concept and the current one lies in the fact that according to the Markovic process only the employees could buy the shares. Meanwhile, according to our concept, all citizens have the right to participate in the process. People from Bosnia and Herzegovina can use the certificates and foreign citizens have to pay cash. One of the disadvantages of the Markovic approach to the privatization process is the absence of foreign capital… Yes, it is a kind of transfer of state ownership to the workers; here the state sold its ownership to the workers. But this new process enables us to attract foreign capital through the tendering process, which is badly needed to restructure enterprises. The current privatization process includes small scale and large-scale companies. Which of these are in better shape to reach European levels of productivity? I believe the most adapted companies within this privatization process are the medium to large enterprises that are employing a maximum of up to 500 employees because the organisational structure is not so complicated. We already privatized 143 of these medium to large enterprises through tenders. Big scale companies have very complicated organizational structures, and prior to the privatization process they have to be examined and prepared. As a matter of fact, the privatization process has not begun yet within those enterprises. These enterprises are BH Steel, Zeljezara Zenica (Steel factory Zenica), Energoinvest, Željeznica (Railway), Elektroprivreda (Electric Distribution Company), PTT etc. The railways recently opened the line from Sarajevo to Zagreb. That is an important step towards organizing or at least reaching full operational level. Indeed, the railway system has to be restructured in order to achieve pre-war levels of operation. The level of railway transport or the level of infrastructure of railway should be developed to a higher level, in order to have some objective value. The part that we can sell to somebody is not the infrastructure, but the operational part i.e. operator, and that can be privatized once the function of the railway is achieved. Or for instance Elektroprivreda (Electric Distribution Company), we in Bosnia and Herzegovina have three Elektroprivrede (Electric Distribution Company): Elektroprivreda Republike Srpske (Electric Distribution Company of Republika Srpska), Elektroprivreda BiH (Electric Distribution Company BiH) and Elektroprivreda Herceg Bosne (Electric Distribution Company of Herceg Bosnia). So certainly this kind of Elektroprivreda (Electric Distribution Company) cannot be privatized. There are some examples of successful privatizations, for example Kakanj Cement Factory or the Coca Cola factory, what other opportunities exist? We are currently privatising those companies or business that have their market in the territory of the Federation as well as of Bosnia and Herzegovina, and foreign investors have shown a lot of interest in the privatization of such kind of companies. I believe that we need some time in order to prepare our companies to be able to participate in the global markets. The legal legislation should be harmonised with the legislation of the European Union and that is quite a long and demanding process. We have to introduce new and modern technologies. I believe that we should also introduce the western philosophy of the management of capital; here, we mostly manage resources, and I believe western philosophy is to manage the capital. That is why the attractive businesses for the privatization process are those that have markets in Bosnia and Herzegovina. Once we get admitted to the European Council or after we sign an agreement towards joining the European Union, then I believe that the door will be open towards world markets. I believe by that time the Foreign Direct Investments will be more present in Bosnia and Herzegovina, because we in Bosnia and Herzegovina have the knowledge of which successful businesses could be developed. In Bosnia Herzegovina I can say that we have a certain number of privileges or favours: the first one is related to tender selling (tender privatization), they are carried out in a transparent way, and this is the good motive for potentially serious investors, because our tenders are published in our internet web site, as well as in renowned international business magazines. Tenders are prepared by the Tender Commission, and always one representative of the I J P Counselling group is present, which I believe guarantees application of Western experience in creation of tenders itself. Secondly, we are allowing the buyers to purchase majority shares in order to enable them to manage the company. Actually, they can buy 100% of shares. Furthermore, Federal Government took over all international debts of the companies that are being privatised. Therefore, the potential buyers will not be burdened by previous debts. Another privilege is that we indicate the accountancy value of the company in the tender process, but on another side we are very flexible about the price, and we can sell the company even for 1 DM, of course under certain conditions; for example that the buyer invest in the company or starts production. Favourable geopolitical position and good relations of Bosnia and Herzegovina with East and West, enables potential investors from East to break into European Markets, as well as to investors from Europe to penetrate into Eastern Markets. We believe Bosnia and Herzegovina is at the crossroad of the Eastern and Western markets. In addition, I would say Bosnia and Herzegovina has a relatively cheap labour force. On the other side, we acknowledge the fact that there are a number of barriers, disadvantages for investors - the debt issue being a very sensitive one. One issue may be to be mentioned is the lack of reliable export connections into the E.U ? Yes, of course that is an issue. The new government is very much reform oriented, and strong will exists to create an environment, which will attract foreign investors and develop connections with Western Markets. We will need some time for it, but our goal is to find solutions for existing barriers and open up our market to the European and World Market. What would you like to say as a final message to the foreign investors who would be interested in investing in Bosnia and Herzegovina? As previously mentioned, we have privatized around 20% of State Property, our intention in the year 2002 is to privatize most of State owned property and most attractive companies. My message goes as follows: potential foreign investors should get more interested or should visit our internet web site, or if they read this interview to look at our list of 56 companies which will mainly be privatized during the following year. Next year is an opportunity for potential foreign investors to come to Bosnia and Herzegovina, to invest in, or to buy companies. The stability of the Konvertibilna Marka (Convertible Mark, Bosnian Currency), low inflation, the protection of foreign investments by the Law for Protection of Foreign Investments that will be further improved are guarantees. In addition, cheap labour is another reason that should attract foreign investors to invest in FBiH and Bosnia and Herzegovina. Furthermore, all political barriers to reforms have been overcome, and it is the right time to move further and to concentrate on our economy as well as our connections with Europe and with the world in exchange of goods and capital. In another words it is time to do business here. Exactly. I believe that Bosnia and Herzegovina is a chance for us, as well as for foreign investors to do some good business in the following years.