Ernst & Young is one of the most renowned corporate and business consultants in the world. You were the last one of the big 5 to set up in Macedonia 3 years ago. With such a competition level on such a small market, can you tell us what motivated your setting up in Skopje?
Well, in the last ten year, some of the now members of the team were in a process of transition. Most of us are professors. One of our collaborators, Hadzi Vasileva Verica, was a former director of the Agency of Privatisation. The others are also engaged in other companies or institutions. We have been involved in many large projects of privatisation. During that period, we cooperated with some of the "Big Five" and one of them was Ernst & Young. We worked together on a few very projects like Strumica Tabak, Kocani Tabak, in the tobacco industry. After that, Stopanska Banka. It was one of the country's biggest projects. Also, Cementara, which was bought by Titan from Greece and Holder Bank from Switzerland. It is one of the biggest groups for cement in the world. We worked on the project of gypsum. It's in Debar. Now it is owned by Knauf from Germany. We participated in the privatisation of Teteks, Makedonija Turist, now it is Holiday Inn Hotel, and many other companies. Our advantage was that most of our team, especially me, was involved with the expert team which prepared the new law for privatisation, the company law for public enterprises. We participated actively in the establishment of the new legal system. That was practically the beginning of our cooperation with Ernst&Young and we established the company. Normally, we did it on the same principles as everywhere in the world, i.e. on the principles of partnership.
We are a company like any Ernst & Young company in the world. We have a capacity to do an audit according to local and international standards. Most of our customers are foreign investors in Macedonia. Our second activity is corporate finance. That means we are doing different kinds of investments. We are working on a rehabilitation plan for some companies which are in bankruptcy. I participated in the creation of the new law for bankruptcy. We have a legal department and we offer all kinds of legal services for the companies. In the future, we intend to establish a new company for the legal activities and one new company for accounting services. An auditing company cannot do these kind of activities and we have many foreign clients who want these kinds of services. We are in a position to prepare a final report on the local standard and on the international standard and to give that kind of information all the time. Normally, we have very strong regulations, an internal policy.
But what was the main interest for Ernst & Young to establish a proper branch here, knowing that four of your competitors were already there?
The competition in this area is very strong, like everywhere in the world among these "Big Five" companies. But, sometimes, there is a conflict of interests. I'll tell you an example. If somebody is an auditor for some company and if that company intends to participate in the stock exchange, then it is not possible for an auditor to prepare the review. It must be some other. Now, we intend to develop audit in the banks. In our law, one company can be audited by one of the auditors only three years, not longer. After that, it must be replaced by another new auditor. This is our local law here in Macedonia. That is the proposal of the new banking law. Because we have too many troubles, not with the banks, but with saving companies. But, on the other hand, most banks in that period of time were a State property and now all of them are private. The financial sector is the most important for the stability of our economy. Now, I think, control and audit are very strict, like everywhere in the world. It was very liberal in the beginning, that's why 35 small banks grew up and some of them were not in a position to do legal activities. Now, the National Bank intends to control this area, not to control the business in the banks. I think that now there will be more competition among the banks, but every bank must do its business under very specific rules and regulations, like in every other country, because most of our population lost trust in the banks. We had a problem with the saving. Well, the problem was not from some kind of bankruptcy of the banks, but the reason was different. The currency was centralised in the National Bank in the former Yugoslavia. But, that is another story. However, the people now have their own private bank at home, they save money at home, they keep their money at home. But, I think very soon the banking system will develop in Macedonia, because the biggest bank (Stopanska Banka) is under control of the National Bank of Greece, IFC and the European Bank. Few other smaller private banks are now under control of other foreign banks. I think that now we have something new, something that was impossible one year ago. Now, many banks started to offer different kinds of credits, to buy houses or something else. That is new. Normally, people will start to trust the banks and they will invest their money. I think that maybe more than one billion dollars are in private funds.
So, perhaps people need to change their mentality and start saving money in banks before, actually, foreign investors change their mentality and vision towards this region?
Traditionally, people in this region saved money in the banks. It was a tradition here. But, after the break up of former Yugoslavia, Macedonia was in the most difficult financial and economic situation. Any economy cannot be developed without the local saving of the population. Foreign capital is also necessary, but it is impossible to develop an economy only on foreign capital.
Do you think that the stock exchange can play a significant role?
That is something new. We realised a process of privatisation in some special way, i.e. self-privatisation process. That was something special, because we had a special system, self-management system and that's why in the process of privatisation we involve practically all the employees. The model was prepared for foreign investors, but only few investors came here. That's why the process of privatisation was realised more with private investors, and by this I mean the employees. Normally, the stock exchange is the most active, i.e. the shares to be transferred to the real investors, because poor investors are not in position to be real investors, especially the employees. Now, they have a status of investors in some special way, an unusual way, and most of the employees now intend to sell their shares. Now, we are in a process of post-privatisation and in that context I think the stock exchange can play a significant role. We have relatively good examples of this. "Mermeri" in Prilep was bought by a Greek investor. He paid five times higher price than the nominal value, because it is a company that is very valuable. On the other hand, there are companies which have great losses, great debts and, in that case, the price of the shares is sometimes one tenth of the nominal value. But, the people intend to sell their shares and that's why I think the stock exchange is very important and very soon we will dematerialise the system of distribution of shares.
Do you see your Corporate Finance Department have a larger role in the post-privatisation process?
Yes. Now, we work on a few projects. Some of our companies intend to have a place on the stock exchange in Macedonia or in Greece. This is especially the case when a foreign investor buys a company in Macedonia and that company intends to rate high on the stock exchange. We carry out an audit under very strict regulations of the stock exchange. We do a revision of the last three years and the company must be absolutely clean. On the other hand, we support some companies to prepare them to go on the stock exchange, in order to know what the real value of the company is. On the other hand, our new law for taxes now stimulates companies. If a company rates on the stock exchange, it will pay less tax. That is the most important, I think. Because there is no real market of shares and value papers. All the transactions which go through the stock exchange are like on a sale. Practically, everybody who has any value papers intends to take money. It's not a real market, because for most of these companies in the previous system, it was not possible to sell shares if there was no audit, official report, etc. Now, everybody buys shares on their own risk, it's not a business risk, it's a real risk. That's why one of our activities is doing due diligence, legal and financial, if someone intends to buy shares of some company. We analyse the company and we determine what the risk is of that investment. We were involved in many, many projects of this type. Sometimes we do it after buying a company, because the investor intends to invest money and, normally, he wants to know what the real economic, financial, legal situation of the company is. Because the investor may buy a company which is practically in bankruptcy. That happened a few times. And there is a standard procedure that has to be followed. First, due diligence must be prepared. Without doing it, there is definitely a great risk. It's a suicide to go into any kind of buying in this kind of a state, because most of the companies were socially-owned companies with a history in which nothing is clear, for example who the owner of the company is, what kind of problems it faces, etc. That's why this is one of our most important activities. Most of our clients are from Greece, the Greek investors are the most active ones in our country. That's why we have two employees from Athens, Greece on our team. One of them knows very well the American standards and usually some of the companies, for example Coca-Cola, need to transfer all the figures and proposal on American standards. We do different kinds of consolidating audit, because some of the companies are branches of bigger companies. For example, the auditor for Coca-Cola in the world is Ernst & Young. Recently, we employed ten young people. We had 160 candidates and we intended to employ only six at first. But, really ten were excellent. All of them can speak English, they have a very good knowledge. We organize internal training and we select thirty. After that we organize a course and after that we select the final candidates.
Is it helpful for you to be a member of the network of Ernst & Young? Do you receive collegues from the other branches in the world and do you send yours abroad?
Yes, now I intend to send a few of them to work
in the offices around the Balkan Peninsula, because,
first of all, they must know each other, because
they will work together in the team. Now, we work
to make some kind of consortium for Elektrostopanstvo,
for example. We need experience from companies that
realised very large projects in the United States
or in other parts of the world and, normally, from
the other branches which are specialised in electricity.
Usually, different kind of knowledge is necessary
for some of the projects. We participate in all
the tenders organized by the Government, but something
unusual is happening which I cannot understand.
All the time the same companies are chosen. Our
offer is not too much expensive, it is very serious,
because we don't want to lose our image. We have
a special project for risk management in our system.
We are very strict. We don't want to go into the
risk of preparing some kind of a report, especially
for the debtors. I don't want to speak about our
competitors, but I was surprised to hear the report
about Jegunovce. In that case, it was like: "The
project will be a success, if the Government accepts
the debt, if it fires 900 employees." For any
company, it is not necessary to do any kind of due
diligence before that. If you prepare a business
plan for a company, you will know in advance under
which conditions that company will operate profitably.
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There are different kinds of procedures. I protested to the Agency and to the Ministry. But, we will work, especially now with the new debtors, because the World Bank insists that for any debtor, due diligence, legal and financial, and a business plan should be prepared and under this report the Government will decide what to do, whether to liquidate the company or to prepare it for selling. There is here, what we call a socialisation of the debts. For example, FENI is the most important for Kavadarci, Jegunovce is the most important for Tetovo. In the future, we will be involved in the project of rehabilitation of the companies. Because, it's not a problem to prepare an audit or to analyse what the problem is. The more important thing is to suggest what to do. That is what we offer. We offer a very competent team, international and local, professors and engineers. And we offer real possibilities for development of the companies. It is normal to involve experts from some international funds, banks and that's why our prices are a little bit higher. But the price is not the most important, the quality is. But, our experience here tells us that it is not quality that is the most important. I don't know how the selections are made, but I hope that we will be selected in the future. Now, our most important project is doing the audit for the National Bank of Macedonia. We offer an international team which has an experience with auditing for national banks and we are qualified for that project. I am angry about the tenders we lost, because I am sure we have the best teams, but I am sure that we will win the next ones. We will show that we really intend to offer the Government real projects, because the most important thing is to offer real options. In this business, the new strategy is to suggest what to do, not just to check the financial situation in a company.
Can you elaborate more on this activity?
Yes, we do this kind of activity to support our companies, because some of them don't have any knowledge about that. What do we usually do in a company when we prepare an audit? We prepare a special letter to the management in which we state the details we found and we suggest what is necessary for the management to do, we propose solutions to the problem. This is the most important thing we do.
The success of any project depends a lot on parameters such as Politic & Macro Economic stability, the market size, the labor, infrastructures… How would you describe Macedonia to any potential investor as far as those criteria are concerned?
We are now in a special situation. The Government works on improving the legal system and very soon our legal system will be similar to any other European countries. In that aspect I think that we are moving very fast. Usually, we intend to accept solutions which are more liberal than in other European countries. On the other hand, I think, we are in a process of reconstruction of the state, a transition from the former one-party political system to a multiparty political system. The state institutions are the most important. For example, to establish a modern tax system or customs system, all this state infrastructure is the most important thing for a modern economy, for the security of the investors. I think that our Government now intends to do that. Of course, every reconstruction has its painful sides, like firing people from work. This is happening right now in our administration. The whole non-profitable area, the schools, hospitals, kindergardens, etc., all these institutions must be established in a modern way. Participation of the citizens must be on a high level. The society must be organized like in every other civil society. In the former system, formally everybody was equal. But, now the financial and the economic position of every citizen depends upon his own successful work.
Do you think that now is a good time to invest in Macedonia?
I think that now is the chance. That's true. This is reality. What is the difference between our country and the "older" countries, countries with longer period of development? Let's compare Macedonia with one Latin American country, for example. They have intended to develop market economy for fifty years, but all of them are still on the beginning level. And Macedonia is on a good way to establish modern society with all the necessary infrastructure. This involves not only political, not only economic restructuring. We are very similar to the rest of Europe. We have many economic advantages. Our labour will be cheaper, our people can accept new technology very fast, we have relatively good position. We have signed a non-custom agreement with countries which have a great population, so this means our market is relatively big, we can sell products on a relatively big market. On the other hand, we implemented the modern tax system There is some kind of security for the investors, because the state really guarantees it and the investors won't face any unusual problems which they can face in other countries. But, we need time, as there is still corruption, etc. But, in the same time we are moving towards establishing a modern society, similar to the other modern societies in the world. I will make another comparison. I was on a holiday on the Caribbean's and what I saw there surprised me a lot. This state is just about 500 km below the United States. But, it's unbelievable. I cannot understand how a country can operate under such conditions. There is one region where it is a paradise and the rest of the state is like hell. We can also compare the other states from that region. I think all of them tend to develop some kind of a free market economy, but without establishing an infrastructure of a modern society, which is the most important, because the capital needs infrastructure, foreign investors need security. Without that, the state can't operate. Our advantage is that we transfer European experience from the other countries into our country and we tend to be part of modern Europe. One of the problems for the foreign investors, I think, is the situation in this region. We are in some kind of a "red zone" for foreign investors. Nobody wants to take on that kind of a risk. But, there is an interesting situation. The businessmen from the near countries, like the Greek ones, have more courage, because they are familiar with the area. They know the real situation here and they know what will happen. But, investors from more distant countries are very rare. Especially, American investors. The whole region here must resolve its problems very soon. They must negotiate, find solutions to the problems in Kosovo, Serbia. I hope that Serbia will be one of the most important powers in this region. They need to develop their own economy. Serbia is the most important for Macedonia, because about 60% of our products are exported on that market. And now, that market is poor. Previously, the standard of the population in Serbia was two or three times higher than the one in Macedonia. Now, it is the opposite. They destroyed their own economy. They are the biggest losers. They started with everything and now they are the biggest losers. That happens when you go on the wrong way.
Do you think now is the time for Macedonia to show what it is capable of?
I suppose it is so. It is very interesting. We are some kind of a bridge now between the Greek investors and Serbia. And that is good for us. Many of the investors start to establish small and medium-sized companies which produce different kinds of products and they sell them in Serbia. Because we have signed a non-custom agreement with Serbia, we are practically like a same economic area. Normally, the situation in Kosovo must be resolved. I hope it will be done in the next three years. I hope some acceptable solution for all the sides will be found. But, I think that the worst has passed. Because I think that now no nationalist will be supported. Nobody now will go into war for some ideals. Nobody wants that. We are a small region. We have been living here together for a few thousand years. I think the idea to promote the economy is the most important, because that is the only solution to offer people a better life. Because all these nations are poorer than they were ten years ago. It is an interesting situation with the journalists from western countries, especially American ones. When people hear the news on CNN or NBC, for example, they react. Traditionally, people here want to hear the journalists say who the bad guy is and who the good guy is. But, the American way of representing news is different. They show everything, refugees, for example. And we say: "Why do they show that? The most important thing here is the conflict and who is responsible for that conflict." It's very complicated to explain this region. Because it has a very complicated history. We lived relatively well in former Yugoslavia. It was a good example of a federation. But, when we started with the transformation from one to the other system, we couldn't find the new values. All the nations chose separatism as a new value. Everybody hoped that we would have a chance to develop our own economy, but at the end, the result was a catastrophy for everybody. Especially, for the former Yugoslavian republics. Maybe Slovenia did better than the others. But they moved everything from Macedonia and now they are coming back and are establishing companies here as it is very difficult to find new markets. And it is an interesting process. Each company now intends to return to the same market where it was present before. People here know the quality they offer, they know the products. People believe in the products from Slovenia, Croatia, and then comes Turkey, Bulgaria and other countries. But, now it is very difficult to establish a normal communication, because now you must pass five borders to transport any kind of products.
A few years ago, a delegation of American businessmen visited the Balkan Peninsula and they said that under these conditions they were not prepared to invest. They said they were ready to help, but any real big investment was out of the question. And I think very soon reality will push politicians to move the borders, to liberalise trade. Now, we are privatizing, we are establishing a civil society, but the capital needs space, it needs market. I think after the conversion from one to the other system, the new financial and economic basis will need a market. I am optimistic. The development is the only chance for improving the situation, for offering new possibilities, for inviting foreign investors. There are these institutions, like the World Bank, which tend to support the private initiative. When I say market, I mean a market in this area, in this region. When our Government decided to close the border, it was practically open for businessmen, because they pushed from both sides. Kosovo practically cannot survive without Macedonia. Everything goes through Macedonia and partly through Montenegro. So, it was done not because of military strategy, but because of continuing the normal life. Now, we are involved in a project with one Swedish company and one macedonian citizen. He is from Tetovo and he will invest in a new company which will produce ceramics. All of his business plan is established on the Kosovo market and South Serbia. In that way I am optimistic. Now, we are in the second phase when we establish a civil society. The businessmen, the people who control the capital will need a market. On the other hand, the rest of the population needs jobs, a better life and the energy will go very soon in the same direction. Macedonia has a chance, because the banking system is practically under foreign control. The most important infrastructure is under foreign control, the Telecom, the Refinery, for example. Very soon the water supply, the electricity will also be privatised. We are moving very fast, faster than the other countries. For example, the heating company is private only here in Macedonia. These foreign investors will need different standards of politics from the Government. |
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