may 3rd - may 16th

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southeast europe · a fortnight in review

no.06 / subscription only / 2nd may 2012

financial / The Curious Case of the Serbian Dinar

feature interview / Afternoon High Tea with H.E. Michael Davenport

the industry / The Effect of Croatia’s EU Membership on the B&H Economy

weathering it away

/ Eurozone Financial Services: Short-Term Bruises or Long-Term Prospects?

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may 3rd - may 16th

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may 3rd - may 16th

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The Embassy of Sweden and the Swedish Trade Council, with the support of the

Croatian Ministry of Economy, Croatian Chamber of Economy as well as the Croatian

Employers Association; are organizing a high-level INVESTMENT SUMMIT

at Westin Zagreb on Wednesday, 9 May.

The Summit will bring together project owners, international project financiers

and turnkey suppliers in the sectors of water, waste, renewable energy and

infrastructure. The aim is to present innovative ways of project financing and give

impetus to how these could contribute to the development of more projects.

ISC-SEE2012 is an exclusive opportunity for Croatian project owners to present their

projects to foreign companies and financiers with interest in the region in general

and Croatia in particular.

International project financiers at the Summit will include Macquarie Capital,

Ener-Cap Capital Partners, Crescent Capital and Finance in Motion as well as EBRD,

EIB and IFC.

The Summit is sponsored by Erste Bank, Bombardier, Ericsson Nikola Tesla,

Scania, Kapsch Trafficom, CMS Reich-Rohrwig Hainz, Saab and the Swedish Export

Credit Agency. Additional confirmed international private sector participants include

Vattenfall, Atlas Copco and Alfa Laval.

Register your participation NOW on the ISC-SEE2012 website,

www.isc-see2012.com

may 3rd - may 16th

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content

the indusry

financial

feature interview

event horizon

destinations

good stuff

in medias res

social economics

to do list

introductory epistle

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36

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42

48

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The Economy

Of General Interest

Weathering It Away

fortnightly news

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The Effect of Croatia’s EU Membership on the B&H Economy

The Curious Case of the Serbian Dinar

Crunch Time for Slovenian Banks

Eurozone Financial Services and Business: Short-Term Bruises or Long-Term Prospects?

Afternoon High Tea with H.E. Michael Davenport

Macedonian Ethnic Tensions: or Beyond Good and Evil

Croatian Democratic Union's Slush, Slush & Away

Ohrid: Blue Pearl of the Balkans

Must-Bring-Back from Serbia

NARR: Find a Partner, Improve Your Lot

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entirely ruled out. For would not the most elegant, pragmatic solution be to get rid of an entire country and abolish exports alto-gether? Indeed, indeed, it would.

The Slovenians, for their part, are look-ing at major problems in the banking sector as all the while public sector employees are staging mass protests – so pm Janša is un-doubtedly weathering the storm too and wishing it would all go away. His Macedoni-an counterpart Gruevski faces an even big-ger problem, a veritable tragedy, any com-mentary on which, for presents purposes, would demand a higher degree of solemnity than can be vouchsafed by this declaratively

Weathering It Away

introductory epistle

The title of this introductory epistle is absolutely intentional, and the author will admit from the get-go that he did

his best so as to combine the commonplac-es “weathering the storm” and “wishing it away” into one semantic unit. For that is precisely what has been going on in this re-gion over this past fortnight.

Take, for instance, Serbia, perhaps the best example of all. They are nominal-ly weathering the storm brought about by the depreciation of the Dinar, but, given that the elections are mere days away, they have sooner been wishing it away: both the incumbents and contenders, mind, for this problem will not go away – unless, of course, quality measures are taken.

Bosnia is no different: the bogeyman of the day is Croatia’s impending entry into the eu, and how that might affect Bosnian exports. Everyone’s up at arms, but the Government does not seem to have a clear strategy. I shall be a bit cynical and go one step further: it is also not clear what it is ex-actly that they are wishing away: Croatia’s eu entry, Croatia itself, eu certification schemes, Bosnian exports, or perhaps all of the above. In the mind of a politician, es-pecially a Bosnian politician, this cannot be

editor-in-chief

Igor Dakić

executive editor

Lee Murphy

lee@see-magazine.eu

graphic editor

Ivor Vinski

art editor

Stiv Cinik

country editors

Milan Milošević (Serbia)

Aida Tabaković (b&h)

Sebastijan Maček (Slovenia)

Miroslav Tomas (lifestyle)

issn 1848-4107

impressum

contributors

Dylan Alexander (Permanent)

Stephen Fish (Financial)

photography

Mens-Libera Photo,

Shutterstock, IStock, Wiki

Commons unless otherwise

specified

printer

Stega tisak d.o.o.

Zavrtnica 17, Zagreb

Croatia

director

Igor Dakić

igor.dakic@see-magazine.eu

sales & marketing (cro & slo)

Miroslav Tomas

miroslav.tomas@see-magazine.eu

+ 385 95 63 99 702

sales & marketing (serbia)

Miša Milošević

misa@see-magazine.eu

+ 381 63 224 223

sales & marketing (b&h)

Amela Tanović

amela@see-magazine.eu

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tel/fax +385 (0)1 46 77 165

cynical introduction, so we shall leave Mac-edonia alone for the nonce. Suffice it to say that what is true of others is true of pm Gruevski as well.

As for your author, well, Zagreb ac-corded him, a week back, a true spectacle. The last remnants of proper Croatian fas-cists, chaps from the Croatian Pure Party of Rights (hčsp), attempted to stage an in-ternational assembly of like minds and even managed to enlist the support of some ma-jor European players of the far right: Front Nationale, Voopost, Jobbik and so on. This, however, was not met with approval, so their plans to hold a rally on the Main Square went sour. They even had difficulty finding a venue at which they could share their ideas. I wonder, hadn’t it crossed their minds that, in the week when the Breivik trial com-menced in Norway, we would all just wish them away. Still, I don’t know that they’re quite in the process of weathering the storm, with far right ideas gaining ground all over the place, but that is not my concern. For I too can choose, and I choose not to listen to ideas that propagate racism, bigotry and suchlike. That storm, or torrent if you will, I absolutely choose not to weather. I simply wish it away.

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fortnightly news / the economy

The Austrian oil company OMV has decid-ed that the time is right to pull out of the Croatian and B&H markets. They have put 91 petrol stations up for sale, 63 of which are in Croatia. OMV say that they expect to have se-cured buyers for these assets by the end of 2013, but that there is reason to be optimis-tic for an even earlier sale, perhaps as soon as Q3 of this year. So far it would appear that the Slovenian company Petrol is interested in ac-quiring a number of these units, as is the Opti-ma Group, which hails from B&H but is owned by the Russian Njeftegazinkor. The Croatian company, Crodux Gas, which is owned by Ivan Čermak, is also rumoured to be looking to re-enter a market they left back in 2007, when they sold their chain of Tifon petrol stations to MOL. Although OMV have put a value of 300 million Euros on their assets, it has been sug-gested by industry sources that the final sale price might be as low as 130 million Euros.

A CO2 plant worth one million Euros has been opened in Sočkovac in Republika Srpska. This investment, by Messer BH Gas, will pro-duce 7,200 tonnes of CO2 on an annual basis, which is needed for the B&H food and bever-age industry, as well for ecological purposes. B&H industry, up until now, has relied on the import of carbon dioxide, but it is expect-ed that they will now become net exporters.

The President of Republika Srpska, Milorad Dodik, has stated that he will be making no concessions or compromises in his efforts to see the 2012 B&H budget passed. Indeed he stressed that he expects it to be passed with the framework which had been agreed upon during the meeting of “The Six” in Banja Lu-ka. He has further accused Bosniak politicians of undermining the proposed budget, and has said that he will not be backing the claim of the B&H Court and Attorneys Office for an ad-ditional one million KM in the 2012 budget.

Croatian Minister of Finance, Slavko Linić, has managed to sell $1.5 billion worth of state bonds on the U.S. market. The rate of maturity of the 5 year bonds pays a healthy, if slightly risky, return of 6.375%. The price of the issue was 99.472% with an interest rate of 6.25% , and the deal was brokered by Citigroup, Deut-sche Bank and J.P. Morgan. The allocated funds will be used to settle debts that are due for payment later this year. These latest bonds, however, are due to mature in 2017, when the Government is already expected to have to pay out almost 9.5 billion Kuna (1.25 billion Euros). This additional burden will saddle the nation with the kind of debt that would pre-viously have been regarded as unimaginable.

As a measure designed to stabilise project-ed inflation rates and aid recapitalisation, the National Bank of Serbia has reduced for-eign currency reserve requirements for Ser-bian banks. The previous rate of reserve re-quirements for the financing of banks, over a two year period, of 30% has been reduced to 29%, while the reserve rate for financing over the same period has been cut from 25 to 22%. At the same time, the required reserve of domestic currency has been elevated by 5% to 20% for up to a two year period, and to 15% for financing over a two year plus period.

As reported on previously at length in this and other publications, the Serbian Government purchased the Smederevo Steel Mill back in January following the withdrawal of US Steel from the Serbian market. However, since then they have been unable to source funding from a relevant investor who might be interested in taking over the plant and have now moved into the open. The Serbian Finance Ministry has called on any interested body to come forward with detailed plans for the revival of the former steel giant, and hopes to have at least some notion of its future shortly af-ter May 4th. It may be that the Government is 'pricing' itself out of finding what it seeks, as any prospective buyer must show revenues in excess of 1 billion Euros per business year.

Zagreb is to see a new addition to its already burgeoning mall-scene. This latest project is what the investors call a mini-mall, the con-struction of which began as far back as 2009, in Vrbani, towards the west of the city. The Point Centre is to be finished some time during 2013, and will boast 40,000m² of floor space, with 50 shops and 500 parking spaces. The company Bluehouse Capital have invested 50 million Euros into the project already, and Col-liers International (who are handling the mar-keting and lending of retail space) say that they have already started contacting potential cli-ents, amongst whom are expected to be three major fashion brands. The centre will create almost 500 new jobs for the local economy.

omv petrol stations up for sale

messer bh gas opens new plant in sočkovac

dodik stands firm on budget

croatia sells $1.5 billion worth of bonds

national bank of serbia reduces reserve

requirements

steel mill still seeking investment

a new shopping mall for zagreb

may 3rd - may 16th

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Croatian Deputy Prime Minister Radimir Čačić has announced the ambitious project 'Zagreb on the Sava'. This project will entail the ur-banisation of what are currently vacant plots along the bank of the Sava River, which will be made more suitable for development once construction has been completed on a dam, to the West, and four hydroelectric plants on the river itself. This alteration to the river's flow would allow for the demolishing of the exist-ing flood levies, which are problematic, mak-ing 3,500,000 m2 of building space available: to include parks, residential buildings, and of-fice space. In addition to the planned build-ings there will be improved motorway lines added to the local infrastructure, on both sides of the river. The cornerstone of all of this will be a full relocation of all elements of the Government, currently scattered throughout the area in 188 different locations. The en-tire project is estimated to cost 1.2 billion Eu-ros, and will be part financed via a credit line from the EBRD, and part by a series of Public-Private Partnerships. Mr. Čačić has said that he expects the first spade to be turned with-in three years, and that the Government might be situated in their new home by 2017. The re-al-estate community is quite cautious with regard to the applicability of Čačić’s project.

The IMF has published its forecast for future growth for transitional countries in Europe. While figures for the CEE region are promising – growth rates of 1.9% and 2.9% over 2012 and 2013 respectively – it's a mixed bag for the in-dividual countries comprising the Western Bal-kans. Bosnia and Herzegovina is expected to experience growth rates, for the same periods, of 0.0% and 1.0%; Croatia is likely to see re-cession in 2012 (-0.5%), before expanding in 2013 (1.0%); Macedonia fares best of all, with a projected growth of 2.0% for 2012 and even larger growth of 3.2% for 2013; Montenegro has been ascribed figures of 0.2% and 1.5%; and, finally, Serbia will also experience growth over both years, 0.5% and 3.0%, respectively.

The Slovenian footwear company, Peko, will be opening a new factory at Minićevo, which is near the town of Knjaževac, Serbia. The plant is due to begin production some time later in the year, most likely September, and will employ between 90 and 120 workers. The plant will produce 1,700 pairs of shoes per day to begin with, and expansion is hoped to bring the total workforce to 300 people. The total value of this investment is approximately 1.75 million Euros.

Mitrovica Valve Industry (MIV), a company which is in shambles after a failed privatisation, is to get a second chance as General Motors has announced it is to purchase the stricken Ser-bian outfit. GM will use the MIV facilities to set-up a car-part production line, which will create 300 new jobs for the town of Sremska Mitrovica.

Construction has begun on an IT and Business Park in Inđija, Vojvodina. The project, financed by the Embassy Group from India, will see the erection of four buildings, with 25,000 m2 of Class A office space, and plans for expansion to a massive 250,000 m2 within a five year period. The first phase of this mammoth project is to be completed by Q2, 2013, at a cost of 40 million Euros, which will be entirely financed in-house. Should the Embassy Group proceed with the additional expansion the entire cost will rise to 600 million Euros. Further developments beyond this point have not been ruled out.

Construction of a biomass pellet plant has begun in Doroslav, Vojvodina. The invest-ment is valued at 12 million Euros and repre-sents a joint venture between local entrepre-neurs and a Czech company, BPI. The factory will produce pellets, used for heating, from agricultural waste. The first phase of this en-deavour will see the plant exporting 100,000 tonnes of pellets per annum, approximate-ly 9 million Euros worth. The plants opera-tion will engage a wide array of local farmers, who will supply the raw material, while there will be 40 jobs created for the local economy.

The Croatian consortium Agrokor plans to is-sue 300 million Euros worth of bonds (in both Euros and US Dollars), which will be issued on the international market in accordance with Rule 144A and Regulation S of the US Securi-ties Act. The rate of maturity of the bonds will be seven years with a return that is to be de-termined upon the closing of the entry bids.

The Serbian oil company NIS is set to branch out into the river boat fuel market. Hav-ing opened a fuelling terminal on the Dan-ube, on March 14th, NIS are now looking to expand their operation further, and have set in motion plans to open several other termi-nals later in the year. The current terminal has two separate fuelling lines, for domestic and foreign vessels. It is proposed that some of these new terminals be constructed at Sme-derevo, and along the border with Croatia. NIS also have plans to acquire a tanker, which would allow them to fuel boats without their needing to dock. In addition, NIS are expect-ed to move into the Bulgarian market, with Gazprom Neft's sister company Marine Bunker.

new deal rising

imf releases its growth predictions for the region

peko moves into serbia

general motors takes over miv

construction of it park underway

construction of biomass plant begins

300 million euros worth of bonds to be issued

by agrokor

nis sails into the boat market

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fortnightly news / of general interest

We already knew the date, May 6th, but now we know just how many candidates will be fighting for the lion's share of the vote when Serbia goes to the ballot box next month. Some of the names have been long known, though there are late entries to the race: Boris Tadić (Democratic Party), Tomislav Nikolić (Serbian Progressive Party), Ivica Dačić (Socialist Party of Serbia), Čedomir Jovanović (Liberal Demo-cratic Party), Vojslav Koštunica (Democratic Party of Serbia), Jadranka Šešelj (Serbian Radi-cal Party), Zoran Stanković (United Regions of Serbia), Vladan Glišić (Dveri/Gateway Party)Muamer Zukorlić (Islamic Community), Ištvan Pastor (Hungarian Union of Vojvodina), Zoran Dragišić (Farmers and Workers Movement), Danica Grujičić (Social Democratic Union).

Public sector employees went on a one day warning strike in opposition to the Govern-ment's proposed austerity measures. The strike was joined by an estimated 120,000 public sector employees protesting against a 10% cut in salaries proposed by the already unpopular Government of PM Janez Janša. Crowds took to the streets of all major cities around Slovenia, with the bulk of the protesters coming from the unions of the educational sector. Border police went on a 'go-slow', while hospitals worked according to a 'Sunday regime'. Since the Government say they will not be back-ing down from these announced measures, the unions have promised further protests.

There will be no local elections, at least none run from Belgrade, in Serbian municipalities within Kosovo, because the UN mission in Ko-sovo (UNMIK) has refused to assist in the lo-gistics. Although the Presidential and Par-liamentary elections will proceed, indicating that there are no safety concerns and that UNMIK are satisfied with preparations in a broad sense, it is felt that moving ahead with the local elections there would be in contra-vention of the 1999 Security Council Resolu-tion (#1244). While Belgrade has indicated that they wish to hold local elections at some point in the future, and that they were not aban-doning any Serb-run institutions in the terri-tory, it might be that the locals are considering taking unilateral action. Despite a plea from the Minister for Kosovo and Metohija, Goran Bogdanović, for Serbs to refrain from organ-ising their own local elections, it would appear that some municipalities are apt to do just that. The Serbian population in Kosovo has shown an inclination to ignore Government directives in the past; however, this time, it may well be of a more serious nature as it poses a pos-sible threat to continued involvement in the region by the International Community. The Serbian elections will take place on May 6th.

Vice Chairman of the House of Representatives of B&H Parliament, Denis Bećirović (SDP B&H), addressed an open letter to the President of the Party of Democratic Action (SDA) and Vice Chair of the House of Nations of the Parliament, Sulejman Tihić. In this letter Bećirović makes a plea for reason in the search for a solution of the conflict surrounding the proposed 2012 budg-et. Bećirović has urged Tihić to use his influ-ence on the SDA officials who, until now, have been "obstructing and boycotting all dialogue on matters of vital importance for the State".

Successful entrepreneur and former Croatian democratic Union (HDZ) MP Stjepan Fiolić has been placed under arrest on orders from USKOK, State Prosecutor’s special task-force. Fiolić has been charged with suspicion of wrongdo-ing in relation to the sale of an office building in Zagreb, which cost the State coffers some 30 million Kuna. It is alleged that Fiolić brokered the sale of this office building at a rate far in excess of its market value; there are three oth-er Croatian citizens being charged on the same count as Fiolić, but so far their names have not been released to the public. Media analysts have offered up two names, however, those of former PM Ivo Sanader and Petar Čobanković, the former Minister for Agriculture, Forestry, and Water Management, whose ministry sub-sequently moved offices to the new building.

an even dozen names in the hat for serbian

presidency

general strike in slovenia

no local elections for kosovo

plea for reason from denis bećirović

stjepan fiolić arrested

The appointment of the newest Croatian cabi-net member, Siniša Hajdaš Dončić, was con-firmed just recently as he received the portfolio for Maritime Affairs, Transport, and Infrastruc-ture. As readers of SEE will be well aware, his predecessor, Zlatko Komadina, had to resign due to continued poor health, although he will be able to perform his duties as an MP. At the age of 38, Hajdaš Dončić is the youngest serving Minister in PM Milanović's Government. Barely a day into his new office, and the newest Min-ister called a meeting with his Bosnian coun-terpart in order to discuss the possibility of free passage through Neum. A bridge running from the mainland to Pelješac had been an option at one point, but has since been shelved giv-en the current economic climate. It has been suggested that a simple road, with no exits in-to Bosnia and Herzegovina, would prove to be the most cost-efficient solution at this stage and, with both sides reading from the same page, it is ever more likely to be implemented.

new minister wastes no time

may 3rd - may 16th

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As of January 1st, 2013, all citizens of B&H will be issued new, state-of-the-art biomet-ric identification cards, or cards which fea-ture many of the same characteristics as bio-metric passports. Sredoje Nović, the Minister of Civilian Affairs of B&H, stated that these new ID cards were being introduced so as to meet the requirements set by the Schen-gen Accord, which will affect border traffic between B&H and Croatia from next year on. Travel across the border is possible for a citi-zen of B&H by using a State ID card: Schen-gen simply applies more stringent safe-guards as to the identity of those traveling.

The Municipal authorities of Zrenjanin and representatives of the Belgian company Elec-trawinds have finally made public the plans for a 10 MW solar power facility. The exact lo-cation of this plant is still under considera-tion, as it needs 20 hectares, but will defi-nitely be going ahead. The total worth of this is expected to come in just under 20 mil-lion Euros and the Belgians are confident that further developments of this nature will come to fruition, especially with the at-tractive price of 0.23 Euros per kW in Serbia.

Forever to be known as 'the 9/11 Mayor', and now a successful businessman, Rudy Giuliani was in Belgrade having answered an invita-tion from Aleksandar Vučić, a mayoral candi-date for the Serbian capital. Vučić, of the Ser-bian People’s Party (SNS), invited the American to help rally support for his campaign, as well as to discuss potential investment oppor-tunities for US firms in Belgrade and Serbia.

The Fimi Media/Croatian Democratic Union (HDZ) slush fund case has finally begun in Za-greb. It is an historic first for Croatia's judiciary, as the political party, HDZ, stands accused of fiscal malfeasance, with the prosecution lev-elling claims that 31.6 million Kuna (4.2 mil-lion Euros) found its way into the party's slush fund. It is alleged that a team of six, led by former Prime Minister Ivo Sanader, had em-bezzled 70 million Kuna (9.3 million euros) over the 2003-2009 period, of which almost half found its way into the party coffers. Par-ty Treasurer, Mladen Barišić, HDZ accountant Branka Pavošević, FIMI Media owner Nevenka Jurak, and FIMI media representative Marica Ivanković all pleaded guilty as charged, while the other two involved, former Government spokesperson Ratko Maček and Sanader him-self have contested the charge, maintaining their innocence. The trial is set to be a lengthy affair, with one of the case files alone contain-ing in excess of 50,000 pages. Sanader has also called over 50 witnesses as part of his defense, some of which, it must be noted, have been called as witnesses for the prosecution as well.

Užice, as a region, just keeps on deliver-ing. RB Global's plum and pear brandies, sold under the label Stara Sokolova (Old Hawk's) have been awarded gold medals at the 69th Las Vegas Wine and Spirits Fair. RB Glo-bal have already won numerous domes-tic awards, and see this latest acknowledge-ment as a foot in the door to the American market, which is certainly welcome consid-ering they have already made plans to dou-ble their production to half a million tons of processed fruit per year. This family-owned company already exports 60% of its produce to the European and North American markets.

B&H Attorney's Office has filed more charg-es in the case relating to the preparation and execution of the October 2011 attack on the U.S. Embassy in Sarajevo. The men who these charges are being filed against are Mev-lid Jašarević (1988), from Novi Pazar, Ser-bia, and Emrah Fojnica (1991) and Munib Ahmetspasić (1990), who are both from Zeni-ca in Bosnia and Herzegovina. The three men are currently incarcerated and are await-ing trial. The prosecution has called a total of 39 witnesses and court experts, and will be presenting 100 pieces of material evidence.

biometric id for b&h

solar power plant confirmed for zrenjanin

rudy giuliani visits belgrade

hdz slush fund trial begins

serbian rakija takes first place in vegas

charges for the attack on u.s. embassy in sarajevo

Belgrade solicitor Goran Petronijević, le-gal representative of Radovan Karadžić, who is standing trial at The Hague Tribunal, has told the media that he would be calling up-on Milorad Dodik, President of Repulika Srp-ska, to testify on behalf of the defense. It is expected that Dodik is being called to testify on the circumstances surrounding the crea-tion of Republika Srpska, in an effort to prove that the entity was not created as a vehi-cle for ethnic cleansing, which is the pros-ecution’s contention. Dodik stated that he had not received any invitation to testify, and that he knew as much as the media did.

dodik to testify in defense of karadžić?

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the industry

The traditional Bosnian narrow-gauge railway. Will it do in the future? The answer, alas, must be negative.

Ironically, the seven proposed border-crossings do not have railroads, ruling out the cheapest form

of transport available in the see market.

may 3rd - may 16th

15

The Effect of Croatia’s EU Membership on the

B&H Economy

Croatian entry into the eu will have a significant effect on the current state of b&h economy and, bearing

in mind the existing economic ties be-tween the two neighbouring countries, analysts concur: it will lead to significant losses for the Bosnian side unless they can find a way to meet certain European re-quirements as soon as possible. Above all, this relates to b&h meeting the standards for the export of food products, so as not to face losing the market of its most im-portant foreign trade partner, Croatia, with a share of 14.85% in total b&h ex-ports (as of September 1st, 2011).

“B&h is in no way ready for Croatian entry into the Union, as it needs to meet the legal requirements, quality con-trol standards as well as other regula-tions imposed by the eu”, stated Prof. Dr. Duljko Hasić, macroeconomic ana-lyst with the Foreign Trade Chamber of b&h (vtk). Vtk estimates that b&h will need to spend approximately 80 million km in order to make the required adjust-ments but, with the 2012 budget not yet passed, there is no way to allocate these sort of funds, and thus no way to meet

“B&h is in no respect ready for Croatia's accession to the eu”; “Croatia’s entry into the eu will hit agriculture the hardest”; “Dairy farmers first to go”...

these are just some of the headlines that could be read in the b&h media as of late. And as there is no doubt that Croatian accession to the European family

will have an effect on the b&h economy, we just hope that there will be some positive effects, along with all the negative ones the papers

seem to know so much about…

these export requirements. “The b&h au-thorities have no strategy in place when it comes to what the integration proc-esses have entailed, with the signed saa and Croatian accession into the eu. As it stands, a mobilisation of all available re-sources is needed in order to meet the upcoming change with as few negative

repercussions as possible”, explains Hasić.Towards the end of 2011 the Foreign

Trade Chamber of b&h conducted an anal-ysis on how Croatian accession might af-fect the b&h economy, so as to know how best to inform the public of whatev-er prompt adjustments are needed for the impending changes in the current practise once Croatia becomes the 28th member of the European Union, on July 1st, 2013.

The results of this is an in-depth anal-ysis of the economic ties between the two countries, taking note of the volume and structure of the trade between them (emphasising the exchange of agricul-tural goods), the amount of Croatian in-vestment in b&h, the matter of the bor-der crossings, the effects on the export of building supplies (as well as the construc-tion workforce from b&h), the transport industry, the matter of the ‘Neum Cor-ridor’ and free passage to the harbour of Ploče, and, of course, access to Interna-tional Waters. There was further empha-sis placed on a long running property is-sue between the two as, according to vtk representatives, b&h claims more than 1.75 million m² of land, office and building

By Aida Tabaković

The analysts are clear in their

message here: the Government needs to pick up the pace or risk damaging

the economy to an irreparable state.

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16

space, hotels, resorts, as well varying stakes held in Croatian firms. This is a matter which needs to be resolved prior to the July 1st deadline.

The most pressing of these issues right now is finding the means with which to protect the Bosnian food industry, which may very well be facing a complete melt-down as, under existing conditions, b&h will find it nigh impossible to export to what is its principal foreign market. As it stands now, despite sharing borders of over 1,000km, there are only two bor-der crossings, Stara Gradiška in the North, and Doljani to the South, which will meet eu standards. If this does not change, then a significant portion of b&h’s exports of dairy, meat, and eggs will have to stop as the elevated cost of transport would al-most definitely put an end to a series of small production enterprises.

The analysts are clear in their message here: the Government needs to pick up the pace or risk damaging the economy to an irreparable state. Currently, of all of b&h’s (animal by-products) exports, only fish and rawhide meet eu export require-ments. The main reason for this is that b&h has no quality control in situ. Or, to be fair, they have no eu certified quality control. It is, and no one disagrees, im-perative that the b&h Government open such facilities to ensure that would-be export goods can be tested. The alterna-tive is too dark to consider.

Already it may well be too late for many small- and mid-sized businesses, as they generally lack the economic potential to be able to adhere to eu regulations, which are most rigorous with regard to the food industry. These are not new concerns and have been widely known to many for quite a long time: the State has exhibited a level of cognitive dissonance which is of unparalleled destructive po-tential. Not only is the Croatian market at risk, but any chance of deeper exports in-to the eu is fast receding.

dairy industry in danger

The dairy industry in b&h is faced, po-tentially, with huge losses as they stand to lose their largest export market, the situation made even more tragic by the fact that the dairy industry is one of few branches of the b&h food sector that is doing business with a foreign trade sur-plus: 40-50 million litres of milk are ex-ported to Croatia each year.

There are 25 dairies operating with-in b&h, and these process over 220 mil-lion litres of milk per year, gathered from 21,740 small farmers, while the industry itself employs 1,280 workers. As of last year, all 25 of these dairies had Hazard and Critical Control Point (haccp) certificates,

but only ten of them had the iso 9001, and just 3 held the iso 22,000 certificate.

The vtk analysis underscored the con-tinued growth of dairy exports over re-cent years, with a total of 53%, in 2010, of this produce (earmarked for cefta coun-tries) going to Croatia. It is recommended that further legislation be drawn up, and implemented, as soon as possible, so as to bring b&h standards into harmony with the eu. This will have the added bonus of bringing b&h closer to its own eventual accession talks, or at least smoothing the process once they begin.

One group who are very much aware of the impending disaster are the b&h farm-ers themselves. Should this export mar-ket dry up it would have a knock-on effect upon local economies. “It's sad that we, the farmers, have to intervene in order for the administration to start doing their job”, says Dubravko Vukojević, president of the Farmers’ Association of the West-ern Herzegovina County.

“When Croatia enters the eu, the traf-fic of products as it exists today will come to a halt: though the market will be more easily accessible to vegetable than animal by-products,” stressed Milenko Soče,

With the Croatian entry into the eu the exporters from b&h will be presented with

eu customs quotas, as opposed to the current free regime instigated by cefta.

may 3rd - may 16th

17

managing director of Agroherc Čapljina, a major fruit exporter. “We are at a stale-mate: the Government bureaucracy, ad-ministration, the ministries in charge, institutes and scientific communities are all failing in their tasks. One minute before zero-hour the last, desperate at-tempts are being made to make the best of a terrible situation. The Deputy Min-ister has offered his support and under-standing, and called the next meeting in 15 days time, to inform us on what can be done to save the situation.” Agroherc is one of only a few b&h companies which fulfil the eu export requirements, as it holds a Global gap standard certificate. The process of acquiring such certifica-tion is time-consuming, complex, and expensive: to be sure, it poses a practi-cally insurmountable obstacle for small individual producers.

croatian exit from cefta

Igor Radojičić, President of the Nation-al Assembly of Republika Srpska, agrees that certification, acknowledgment of documents, and an insufficient number of certified inspection labs and certifica-tion agencies will pose a significant prob-lem for future b&h exports. “B&h has yet to reach the required level when it comes to legislation regarding agricultural prod-ucts, codifying food safety, regulation implementation, all of which makes for a huge internal problem, and a further ex-ternal problem arises with Croatia leaving cefta, which will put an end to the cur-rent free trade regime and complicate ex-ports even further.”

But what does the Croatian exit from cefta really mean for b&h? With the Croatian entry into the eu the export-ers from b&h will be presented with eu customs quotas, as opposed to the cur-rent free regime instigated by cefta. Up to now, export of live fish was allowed from b&h into Croatia but, starting with July 1st, marking the beginning of the full implementation of eu veterinarian regu-lation, live fish exports will no longer be possible, and only processed fish from eu certificated facilities will be allowed (there are four such facilities in b&h: Nor-fish, Tropic, Laks, and Žuvela). A general ban on the import of animal origin prod-ucts will come into place as b&h has, as oft mentioned, failed to harmonise their reg-ulations with eu requirements, namely fully to instigate the harmonisation proc-ess as was done in the case of the fishing industry. There is only so much that the individuals, and the individual companies can do in this instance - Posavina Koka, a private company, who export 1 million Euros worth of animal by-products per year, have organised their production in accordance with eu regulations and re-quirements: however, it is up to the State to provide legal and logistic framework for their operation.

“When Croatia enters the eu, thus making the cefta treaty with b&h void, the negative repercussions will be felt on both sides of the border. If Croatia aban-dons the cefta treaty entirely, it stands to lose close to 220 million us Dollars: how-ever, if Croatia manages to lobby for the prolongation of the free trade aspect of the treaty with the European Commission, then b&h stands to lose both import- and

export-wise”, states Hasić and contin-ues by saying that the Croatian Chamber of Commerce has already put forth a pro-posal to the Croatian Government to pro-mote their cause with the Commission in order to keep the current trading regime in place.

“If it so happens that the Commission accepts the Croatian argument, then the b&h economy will completely lose its competitive edge in the domestic market since the Croatian industry would then have the complete benefit of State sub-sidies and access to ipa funds, while si-multaneously maintaining free access to the b&h market. They could still export to us, favourably, while we would re-main bound by eu regulations”, warns the analyst.

the border crossings issue

Seeing as how almost two thirds of b&h border is with Croatia, having only two border crossings (Stara Gradiška and Dol-jani) certified to perform the inspection of food products puts b&h into an extreme-ly unfavourable position. This is further complicated by the fact that Croatia, and the European Commission, seem adamant that two crossings were needed, and on-ly two, while, not unexpectedly, those on the other side feel that there should be a minimum of five. Vtk contend that it will cost at least 80 million km to facilitate adequate exporting to Croatia, with the

DIRECT CROATIAN INVESTMENTS IN B&H

Croatia is the third largest foreign investor in

B&H (trailing behind Austria and Serbia). The

two countries share a couple of important

agreements: the Agreement on the Avoid-

ance of Double Taxation, and the Agreement

on the Protection and Promotion of Invest-

ments. As of July, 2010, the total amount of

registered invested Croatian capital in B&H

came to 482.1 million Euros, which approxi-

mates 12% of total investments in the coun-

try. The largest Croatian investors in B&H

are HT (Croatian Telecommunications) and

Croatian Post, followed by Zagrebačka Banka

(who invested in UniCredit Bank d.d. Mostar),

Finvest Corp Čabar (who invested in Finvest

Drvar), Jamnica (Sarajevski Kiseljak), Belupo

(pharmaceuticals and cosmetics, investing

in Farmavita), Konzum, and oil giant INA who,

together with the Hungarian MOL,

recapitalised Energopetrol.

“If it so happens that the Commission

accepts the Croatian argument, then

the b&h economy will completely

lose its competitive edge in the

domestic market.”

www.see-magazine.eu

18

majority of those funds being used to up-grade the physical infrastructure.

A State Commission for the Integrat-ed Border Management (iug) has been set in place so as to oversee this issue. They, like any good Governmental body, want even more, and are looking for as many as seven crossings – their argument be-ing that fewer crossings will engender a black market economy since numerous operations will be unable to bear the ad-ditional costs borne from delays at the border, not to mention added transpor-tation. Ironically, the seven proposed crossings (which include the two already mentioned) do not have railroads, ruling out the cheapest form of transport avail-able in the see market. We need not go in-to the other benefits of using railway as a means of transport; needless to say that not enough thought has been put into the solutions already offered.

In fact, the vtk study only serves to raise further questions – will this af-fect the transit of goods from Serbia and Montenegro (to Croatia), countries which may well find themselves the vic-tims of congestion? Current talks have, so far, failed to reach a satisfactory solution on the subject of exports through Ploče, something that, along with the ‘Neum Corridor’, access to International waters, and related matters, the Council of Min-isters have yet to attend to with any de-gree of competency.

production transfer

Economic experts, such as Igor Gavran of vtk, appear to be singing from the same hymn sheet, and mirror that which has already been said: that Croatian entry into the European Union will have both negative and positive effects, but which of them becomes the dominant is sole-ly dependent on how the institutions in charge, and the economy in general, manage to prepare and adapt to the new market conditions. Igor Radojičić agrees with Gavran: “It is positive that the coun-tries of the region are, one by one, be-coming a part of the eu, offering them a better economic outlook as well as the

region, as membership in the eu promis-es at least some economic improvement. That in turn means that the neighbouring countries stand to profit from associat-ed possibilities for foreign trade and eco-nomic exchange.” Radojičić reminded us that the brunt of any negative effects will be experienced by the agricultural sector, with the new Rulebook on Fruit and Veg-etables already in effect since January 1st of this year. Its elevated import criteria al-ready pose a significant obstacle for many products from b&h, something which is corroborated by figures which show that exports into Croatia dropped by 21% in January and 27% in February.

Of course it won’t just be the b&h ex-ports which will be affected by all of these changes. As Croatia leaves cefta there will be the imposition of extra taxes and duties, which will likely affect, adversely, Croatian products as well, such as dairy, confectionary, and tobacco. It may be that several brands, common in the b&h mar-ket, may well find it no longer conven-ient to operate as before. Of course, those Croatian companies already present, and doing considerable business, such as Kraš, Zvečevo, Dukat, and the Atlantic Group, will find opportunities to expand, per-haps even to acquire additional holdings for their portfolios.

Vtk listed other positive effects, such as the fact that the direct border with the eu will provide an incentive for develop-ment of the economy (though such things should always be a priority within any nation state), and will create more inter-nal pressure for a more expedient imple-mentation of eu regulations, leading to a faster route to eu accession for b&h.

What was noted, and rings (perhaps) with more truth than anything else, was that the positive ‘fear’ from eu quality control might force the hands of those in power. So far, despite ample time in which to do so, the politicians have not acted as if they needed to follow the same rules as the rest of the world. It can be hoped that, finally, the b&h Government might see their way to reaching a compromise within their own fragmented clique be-cause, at the end of the day, the econo-my benefits all, not just one ethnic group, much in the same way that any potential export disaster will ultimately damage the whole country in equal measure.

Fear is a powerful emotion, perhaps here it can be put to good use.

The economy benefits all, not just one ethnic group... Fear is a powerful emotion, perhaps

here it can be put to good use.

may 3rd - may 16th

19

www.see-magazine.eu

20

financial

Pretty much like in every other country in the region, Serbia’s monetary policy-makers act as an isolated island and

react to little else than to the current predicament as postulated by their international creditors and nervous governments.

may 3rd - may 16th

21

The Curious Case of the

Serbian DinarAs the Serbian National Bank's reserves

are gradually being exhausted in an attempt to stabilise the Dinar, we look at its recent history and how the outcome of elections

might impact its vitality and stability. O tempora, o mores.

By Miša Milošević

The Serbian Dinar has, quite recent-ly, been hitting some historical lows against the Euro: indeed it will likely

do so again before May 6th, as the atten-tions of the political caste are focussed firmly on the upcoming elections. To date, all efforts to save the Dinar from its inexorable slide are limited to the Na-tional Bank’s operational releases of hard currency reserves in an attempt to pre-vent, as nbs puts it, “severe daily oscilla-tions of the exchange rate”, or steep and sudden depreciations which would fur-ther destabilise the already shaky Ser-bian economy. This, at least, has been the buzz of many days.

slipping on winter ice

Just a mere five months ago, the Serbian Dinar was considered, by Bloomberg no less, the second best European currency, after the Moldovan Leu. In 2011 the Dinar gained 2.7% in value, of which 0.8% was over one day alone: this impressive jump was in reaction to Société Générale's an-nouncement that it would increase its loans volume in the Serbian market. This particularly serendipitous piece of news

was perpetuated by the increased prob-ability of foreign investment, which was unusual given that the eu had postponed Serbia’s candidacy only a week before.

This suggested that Serbia’s eu hopes were not seen as a catalyst for an econom-ic boost, and it would appear that those foreign companies already operating in the country had not envisioned smooth negotiations between Brussels and Bel-grade anyway. In fact, it would be the 2012 elections which would, in all likeli-hood, be far more crucial to the stability of the Dinar, as well as State bonds. The problems, however, began before that, with the cold, icy, winter.

In the wake of the National Bank’s al-most daily interventions in the market, the Dinar has been sinking continuously. While 2012 has not been kind to the cur-rency, it must be of some dismay to the banking sector that the Dinar hit its low-est ever value last week, trading at 111.76 Dinars to the Euro. Since January 1st, 2012, nbs has sold in excess of 500 million Eu-ros in an attempt to stabilise the situation. It has been estimated, by both the banks and the Union of Economists of Serbia, that the total volume needed to return

www.see-magazine.eu

22

the Dinar to its rate from the start of the year would amount to 1 billion Euros. This mirrors the situation in 2010, when the National Bank sold over 2.5 billion Euros but still witnessed the Dinar drop by 10% over the course of the year. It was 2011 which was the ‘golden year’ for the Di-nar (though only in relative terms): it only took a 90 million Euros outlay to maintain the exchange rate that year, and, of that, 45 million Euros were later re-purchased.

who wants a strong dinar?

Well, this appears to be a simple ques-tion to answer: everybody, or almost eve-rybody. The more active businessmen in Serbia are either importers, or debtors, and need a strong Dinar for cheaper im-ports, and cheaper hard currency. Citi-zens also want a strong currency in or-der to repay domestic loans invariably tied to the Euro or Swiss Franc, and the banks want a strong currency in order to increase the payback rate, to mask their high interest rates, and to slow down the write-off of bad loans.

The National Bank of Serbia will also want to see a strong Dinar, primarily to reduce pressure on prices, and perhaps to slow down the withdrawal of capital from Serbia – and thus hide all the short-comings of the existing monetary sys-tem. Lastly, the Government (whoever is in power after May) will favour the same: the strong Dinar makes citizens happier; makes salaries appear higher; it improves the gdp; and it improves the overall fit-ness of the economy.

So, there’s a consensus on the need for a strong Dinar, but how might this be main-tained (indeed if it can ever be reached)? There is a misconception, often encoun-tered among the wider public, that the national hard currency reserves are sub-stantial and sufficient enough for the pur-pose of maintaining the Dinar. The truth, however, is somewhat different: the cur-rent reserve, 12 billion Euros, is actually diminishing. With an ever increasing for-eign debt, this reserve is coming under increased pressure – 60% of the reserve is actually that of private savers, and does not belong to the State. This means that every time the National Bank intervenes in the currency market it is using a frac-tion of private money, and in essence is nationalising it. Should there be a contin-uing shortage of fresh investment, then this monetary policy will result in a limi-tation on the withdrawal of hard currency from savings accounts, which could well lead to a hard currency crisis and the con-version of savings into public debt.

parallel realities

This is how Nebojša Katić, a finance and business consultant based in London, sees the situation: “In Serbia, laws of economy cease to exist. We have rising unemploy-ment, inflation which breaks European records, trade deficit, growing debt - and yet, the Dinar might be getting stronger

again”. According to Mr. Katić, the cur-rent situation is much like that which existed in the years which preceded the great economic decline in autumn of 2008. That is, with one major difference: before 2008, the strong Dinar was the re-sult of borrowing by the private sector – and now, the State is the main borrower, mainly in an exaggerated and unproduc-tive manner. Let us remind our readers that, back in 2008, Serbia was heading very close to a monetary, debt, and bank-ing crisis, which was narrowly avoided by what must have appeared as a divine in-tervention by the imf and a Vienna-based meeting of bankers who agreed not to withdraw their money from Serbia.

All of this brings us to where we are now, and the foreign debt structure: the Government’s share goes up whereas the Private Sector’s share goes down. How-ever, because State loans have to be re-paid, it is inevitable that this burden will spill over to the tax payer and affect fu-ture budgetary spending. The Govern-ment is still a much more qualified bor-rower than the Private Sector because it still possesses assets which can be sold and privatised, which is something lend-ers look for.

This same, or similar, situation ex-ists in the entire region, though: Croatia, Hungary, Romania, Bulgaria, etc. All these countries suffer from excessive public spending, have a trade balance

EURO / DINAR EXCHANGE RATE 2012

04.01. 12.01. 20.01. 30.01. 07.02. 17.02. 27.02. 06.03. 14.03. 22.03. 30.03. 09.04. 19.04. 25.04.

101

104

107

110

113

...every time the National Bank

intervenes in the currency market it is using a fraction of private money,

and in essence is nationalising it.

111.76

may 3rd - may 16th

23

end. After all, have not the Swiss prac-tically panicked when the Franc reached all time highs just last year, endangering their exports and the tourism industry? Conversely, the imf is also, quite simply, a bank, and any banker will favour stabil-ity – monetary in this instance – over any other concept. And it is here that we’re faced with a conundrum: Serbia in es-sence has no other choice but to invest all out in its exports, particularly in agricul-ture and the heavy industry, and is there a better way to boost exports than to make them cheaper? Though this may be a self-evident truth, how is it, then, that every-one seems to be in favour of a recognisably conservative monetary model?

The answer is simple. Pretty much like in every other country in the region, Ser-bia’s monetary policy-makers act as an isolated island and react to little else than to the current predicament as postulated by their international creditors and nerv-ous governments. In other words, the monetary policy has never been an integral part of a larger macro-economic scheme, the kind of scheme which would require a national consensus and a very serious plan as to in which direction the economy should be heading and on which bases it should rest upon. Put simply, the national currency, severely pegged to the Euro, has been a matter of an improvising act, guid-ed primarily by public opinion and foreign insistence on “stability”. And, in a coun-try with a disastrous employment rate, a country in which the average net monthly salary barely exceeds 400 Euros, this “sta-bility” has a price-tag on it. No pun in-tended, it means higher prices – in Euros.

All experts, regardless of their own in-dividual points of view and opinions, agree that it is time to change the way in which Serbian monetary policy has been conduct-ed to date. They also agree that the forth-coming elections might provide the means with which to change the current practise.

The new Government will probably in-herit the most difficult of heritages since 2000, and they will likely find themselves obliged to use unpopular weapons in order to help safeguard Serbian stability without jeopardising future potential for growth. As for us, we can only hope that the new Gov-ernment will also possess the ‘know-how’, the political will, and the courage to take the necessary steps. With the Sunday elec-tions ahead of us (May 6th), we may well have the first answers in our next issue.

deficit, possess high debt, and are all fac-ing a potential crisis within their banking sectors – even Croatia, however liquid, has witnessed a number of smaller banks struggling to keep afloat.

In fact we could, and should, call this a regional crisis. With this in mind we ask just how Serbia compares to the region as a whole: the fact that a decrease in gdp in Serbia was lower than in other countries in the region may very well speak vol-umes – but this is a purely statistical fact and does not paint a clear picture of the economic reality. Other parameters are considerably lower – from the employ-ment rate, to the average salary, not to mention the economic and production structure of Serbia, which is below the level of the surrounding countries.

the conservative paradox

Bogdan Lisovolik, imf representative in Serbia, sees a brighter future for Serbia:

“Despite the fact that Serbia's main for-eign partners, Italy and Greece, are facing internal crises even though the Eurozone has shown signs of recovery earlier this year, Serbia can still catch up and base its growth on export”. Lisovolik also points out that pensions, in Serbia, amount to 13% of gdp, which is much higher than the European average of 5.9% and is a consequence of the sad fact that the ra-tio of tax-paying workers vs. pensioners is the meagre 1.1 : 1: only 110 people work to “support” as many as 100 pensioners.

Serbia's public debt, which now amounts to 45% of its gdp, is not low any more (even though both Hungary’s and Poland’s are higher). “Such expenditure greatly affects the economy's competi-tiveness and it is imperative that Serbia initiate fiscal reform and reduce such ex-penditures,” says Lisovolik, in a recog-nisably obvious manner.

The underlying truth is, however, much more complex – paradoxical even. If Lisovolik argues in favour of an export-based economy, one of the most effective mechanisms to put it into effect is the controlled depreciation of the nation-al currency – after all, the Chinese have artificially kept the value of the Yuan low for years now to achieve just this

Serbia has no other choice but to invest all out in its exports,

particularly in agriculture and the

heavy industry.

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24

Crunch Time for Slovenian Banks

The banking sector is still coping with what can only be described as a per-fect storm. Following the collapse,

in 2008, of the us investment bank Le-hman Brothers, Slovenian banks, like their counterparts worldwide, have had to cope with the drying-up of available financing. This credit crunch, howev-er, coincided with the Slovenian hous-ing bubble bursting, inflated by reckless lending and leveraged buyouts (which went spectacularly wrong, leaving the banks saddled with soured loans).

Four years into the crisis and the banks are still in a bind. Their problems are many, and indeed complex, but the solutions, de-ceptively, appear to be simple. In an April 16th report (of a mission sent to Slovenia to assess the financial sector), the Internation-al Monetary Fund (imf) said that strength-ening the financial condition of commer-cial banks would require “a combination of measures, including bank recapitalisation and the cleaning up of bank balance sheets.” This should be coupled with a “deepening of the commercial orientation of the Govern-ment-controlled banks,” which requires

“tackling the long-standing governance weaknesses of these banks, which were put into the spotlight by the crisis.” In short: re-capitalisation, privatisation, and the estab-lishment of a bad bank.

Plans to set up a bad bank had already been on the backburner for a long time, but in the current climate this idea is once more gathering momentum, more so with the way the credit crunch is hampering lending.

The Slovenian banking sector may well have thought that the worst was over by 2010: Nova Ljubljanska banka (nlb), the market leader, had posted an 82 million

Euros loss for 2009 and finally the global financial crisis appeared as if it might be subsiding. They were wrong. Things got much worse.

By Sebastijan Maček

financial

Radovan Žerjav, the Slovenian Minister of the Economy, recently confirmed that the Government has been actively considering pushing ahead with this bad bank, or per-haps a fund into which struggling banks could offload their non-performing as-sets. This would solve many problems, and while it is not yet clear as to how much it would cost, there are other examples in Europe (like the National Asset Man-agement Agency in Ireland) which might provide advice, or perhaps warnings. Re-capitalisation and privatisation will likely prove more difficult to accomplish.

Slovenia is somewhat of an outlier among former Communist countries, in that the majority of the banking sector is still in domestic ownership. The top two banks in the country, Nova Ljubljanska banka (nlb) and Nova Kreditna banka Maribor (nkbm), are majority state-owned. For-eign-owned banks account for less than one third of the banking sector by as-sets, according to the Central Bank, com-pared to 60%-90% in most other former

The continued weakness of the economy might actually make it

easier for Slovenia to overcome

a deep-rooted suspicion of

foreign capital.

may 3rd - may 16th

25

on the Government as the custodian of the state’s majority stake. The problem is that the state coffers are empty. The Govern-ment says that this funding will be car-ried out without public contribution and it is willing to let the state holding drop to a controlling stake of 25% plus one share.

Nkbm is a different story. Long a re-gional bank, confined to north-eastern Slovenia, it performed reasonably well throughout the crisis… at least that was how it appeared on the surface. In 2011 things started to unravel and it transpired that the risks were there, but that they were just buried deep within the bank’s balance sheet. In mid-April it was forced to restate its results for 2011, revealing that a series of ill-judged loans to proper-ty developers, who had since gone bank-rupt (or as close as), had left it with an 81.1 million Euros net loss for the year, com-pared to a modest profit in 2010.

Even the privately held banks are struggling. Abanka Vipa, the third larg-est bank in Slovenia, posted a 119 million Euros net loss last year after setting aside a whopping 188 million Euros for impair-ments and bad-loans provisions. Proban-ka, a small bank by comparison, also badly needs capital, having incurred sub-stantial losses in several failed manage-ment buyouts.

Everyone agrees, and businessmen in-sist, that problems in the banking sec-tor need to be resolved, as they are prov-ing to be a huge drag on the economic

recovery: desperate to shore up their fi-nances, banks are hoarding cheap mon-ey that they are getting from the Europe-an Central Bank (ecb) and are unwilling to lend to companies, which are starved of funds to finance growth. This can be resolved by cleaning up bank balances, but politicians are, understandably, re-served. The memory of the bailout of nlb and nkbm after the collapse of Yugoslavia still lingers. The ‘n’ (for Nova) was added to their names after their balances were cleaned up in the early 1990s, at a cost of nearly 10% of gdp. It took well over a dec-ade to pay for that bailout.

What Slovenia does with its troubled state-owned banks will be a considerable test of the country’s newly found open-ness to foreign investment. Whatever its problems, nlb has enjoyed special status amongst the big financial firms in Slov-enia, although keeping nlb State-owned has long been a cornerstone of a thinly-disguised protectionist policy. Not only is it big, it is also one of only a handful of Slovenian companies which have inter-national presence: it also has a strong op-eration in Southeast Europe, Slovenia’s primary sphere of political and econom-ic interest.

Pm Janša’s current centre-right Gov-ernment has tried hard to appear more open to foreign capital. It has been woo-ing foreign investors with promises of a

“level playing field” and a lighter regula-tory touch. The Government’s economic team has no qualms about foreign capi-tal; though selling to foreigners may elicit grumbles from two of the smaller coalition parties, both of whom have a long history of advocating “national interest”, short-hand for protectionism.

Although the Government has not earned much in the way of plaudits for its pro-business package of austerity meas-ures – witness the recent massive anti-austerity protests by public sector trade unions – the continued weakness of the economy might actually make it easier to overcome deep-rooted suspicion of for-eign capital. After all, who wants to spend public money on bankers, who are widely perceived to be greedy and incompetent, especially when the recent track record of the state-owned banks looks shaky at best? The only question now remaining is whether there will be any takers for what, at first sight, does not appear to be a very sound investment.

Communist countries. One of the off-shoots of the strong state grip is that the two banks, stuffed with political cronies, often approved corporate loans not based on commercial risk assessment, but on political connections and the perceived proximity of managers to whichever gov-ernment was currently in office.

Consecutive Governments paid only lip service to possible privatisation of the financial sector; small steps were made. In 2002, the Belgian banking and insur-ance group kbc purchased a controlling 34% stake in nlb, the tentative agreement being that it would eventually be allowed to acquire a majority stake. A decade later, however, kbc actually reduced its stake to 25% after refusing to take part in a recap-italisation in late 2011, due to a failure to find common ground concerning the fu-ture of the bank with the state.

CUMULATIVE NET PROFIT/LOSS OF THE

SLOVENIAN BANKING SECTOR

PERFORMANCE OF STATE-OWNED BANKS

2009

2010

2011

NLB Group

NKM Group

2009

€ -85.9m

€ 12.7m

2010

€ -240m

€ 20.3m

2011

€ -205.9m

€ -81.1m

€ 121.8m

€-98.1m

€-409.6m

Source: Bank of Slovenia

Source: nlb, nkbm

According to the European Banking Au-thority, nlb needs at least 320 million Eu-ros by the coming summer, the equivalent of almost 1% of Slovenia’s gross domestic product (gdp), in order to meet eu capital requirements. kbc has been vague about its plans, not least because its restruc-turing plan, approved by the European Commission, involves an eventual with-drawal from the Slovenian market. The capital increase will, therefore, depend

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26

financial

Real structural change is more and more perceived as the only tool that could encourage medium and long term

growth, or such growth as would enable the Eurozone to compete with other rapidly growing markets.

may 3rd - may 16th

27

Eurozone Financial Services and Business: Short-Term Bruises or Long-Term Prospects?

Ernst & Young’s forecast for Euro-zone gdp has been downgraded again in March, with a contraction

of 0.5% now anticipated in 2012. This will likely cause non-performing loans in the Eurozone to rise to the highest level since the creation of the common currency in 1999; further, lending to business is pre-dicted to fall by 3.4%, which means a sharper contraction than the one we saw during the financial crisis. Asset manage-ment and pensions may enter somewhat safer waters as the assets under manage-ment (aum) are predicted to grow by 6% this year and recover to pre-crisis levels by 2015. Challenging times lie ahead.

The Longer-Term Refinancing Oper-ation has calmed the markets and giv-en banks time to build capital through deleveraging, increasing retained prof-its, and selling selective assets when the right buyer is found, but total banking assets and loans may not recover to the 2010 level before 2015. Longer-term out-look is also moderate for insurance pre-miums and aum for the asset management industry, which may be able to recover to

While the Greek restructuring and the European Central Bank’s Longer-Term Refinancing Operation (ltro) have calmed the

markets at least temporarily, the weakening economy will continue to put pressure on financial services companies across Europe and beyond. That said, Stephen Fish of Ernst and Young investigates if

there might be light at the end of the tunnel.

services will naturally transfer to those businesses they work with.

The weakening of the economy has been causing non-performing loans in the Eurozone to grow steadily since the onset of the financial crisis. The forecast predicts that this year non-performing loans will rise above 6% of total loans, which would be the highest level since the Euro was introduced in 1999. This hidden threat will continue to lurk around the banks’ capital levels while the world’s attention is focused on losses on sover-eign debt holdings. Naturally, non-per-forming loans are creeping up on banks as the businesses they have lent to struggle against the weak economy.

As predicted by Ernst & Young’s Euro-zone Forecast for Financial Services, the economy will contract by 0.5% this year, which will cause the demand for new loans to shrink further. At the same time, higher capital requirements have affect-ed banks’ lending capacities. The 2012 Eurozone gdp forecast has been down-graded considerably in the first quarter - from +0.1% to -0.5%. At the same time,

By Stephen Fish

Stephen Fish is in charge of the Ernst & Young

country practices in Serbia, Montenegro and

Bosnia-Herzegovina. Stephen started his ca-

reer in his native England, before moving to the

Middle East. He then lived and worked for Ernst

& Young in Czech Republic, Germany, Hungary,

Slovenia and Croatia before coming to Serbia.

pre-crisis levels. In the short term, how-ever, financial services in the Eurozone will continue to feel the impact of a weak economy trapped in a low growth and low investment cycle. Unrest around financial

www.see-magazine.eu

28

tougher credit conditions mean the to-tal loans to non-financial corporate and households segments could fall by eur 211 billion this year. This is a 2.3% decline on 2011, and a significant downward re-vision from the December prediction of a 0.9% contraction. Lending to businesses across the Eurozone is expected to con-tract even more seriously in 2012 – by more than 3%.

One could be sceptical about the Eu-ropean Banking Authority’s claims that the banks’ plans to meet the new capital targets by June should not bring a nega-tive impact to lending. The ltro may have saved the Eurozone from a broad cred-it crunch, but the deleveraging process is far from over. The predicted 2.3% con-traction in total lending means a deeper contraction of lending to the real econo-my, compared to the one that occurred in the direct aftermath of the financial crisis in 2009. This is partly caused by compa-nies which have been deleveraged sharply since then, which indicates little appetite for inward investments and rises doubts over the ability of the Eurozone economy to grow.

Total assets under management (aum) for ucits and non-ucits (Undertakings for Collective Investment in Transferable Securities) declined by 8.5% in 2011. This was driven by a large decrease in aum for Eurozone ucits, which was in turn driv-en by reduced investor confidence result-ing from the sovereign downgrades. In-flows into shorter-term funds also slowed down in 2011, as competition for retail deposits from banks increased. This pre-cautionary withholding of retail invest-ment from the Eurozone could start to reverse in the second half of 2012, as aum for ucits and non-ucits is predicted to rise by 6.1% in 2012 and reach the average 8% growth per annum between 2013 and 2015, when aum could finally rise above its pre-crisis peak.

Pension funds have increased their share of total aum in the last 18 months, partially benefitting from the flight from Eurozone ucits. It is predicted that be-yond 2014 the long-term austerity meas-ures being put in place will drive the funding crisis for public pensions and healthcare. This is likely to result in the asset management and life and pensions industries supplementing or replac-ing state provisions for Europe’s ageing population.

is there light at the end of the tunnel?

The Eurozone faces a challenging year, with large amounts of public and private sector debt yet to be refinanced, tight credit con-ditions, further fiscal austerity and more job losses. While growth should slowly re-turn in 2013, the European Central Bank (ecb) should continue to play a central role by being prepared to cut interest rates fur-ther and by purchasing government bonds in peripheral countries.

With a default on Greek sovereign debt negotiated and a second bailout agreed, policy-makers need to keep up the mo-mentum by putting a credible firewall around Spain and Italy. Should this be the case, the Eurozone gdp should fall mildly, by 0.5%, this year. Nine of the seventeen Eurozone members’ econo-mies are set to contract before gdp starts growing again in 2013.

In other words, Europe might well be witnessing the slowest recovery from a recession in the last forty years. One the other hand, the actions taken by the au-thorities - particularly the introduction of the long-term refinancing operations - have created conditions where it may be possible to see light at the end of the tun-nel even if actual recovery is still some way off. These policy efforts need rigor-ous maintenance and even reinforce-ment, so that the Eurozone, or its indi-vidual members, do not lose momentum.

The main constraints to Eurozone growth this year will stem from fis-cal consolidation and tight credit (the former may amount to more than 1% of gdp). The introduction of ltro may have boosted financial markets and receded the prospect of a banking credit crisis, but the latest data indicates that much of the liquidity provided has not yet been lent on into the wider economy.

The scale of the current crisis could trigger another positive outcome – the string

structural reforms that would otherwise be considered too difficult to implement.

may 3rd - may 16th

29

Banks across the Eurozone are still fac-ing difficult financing conditions as they strive to achieve higher capital ratios. As long as the banks are not passing on the liquidity borrowed from the ecb to busi-nesses and households credit conditions will remain tight, which will affect both investments and consumption. More-over, credit constraints and fiscal aus-terity may also become more severe and protracted than currently envisaged. In this scenario, the Eurozone would expe-rience a deeper recession.

regaining confidence

Despite a moderation in inflation this year (assuming no further rise in oil prices), consumer spending is also likely to be re-duced. At the Eurozone level, growth in consumer spending is likely to be neg-ative, at -0.7%. The outlook for busi-ness investment and consumer spend-ing means job creation will remain weak in most economies of the Eurozone. Ger-many will be among a few exceptions, as total unemployment is set to rise across the Eurozone to 18.2 million in 2012. A glimmer of hope is provided by relative-ly strong balance sheets of many Europe-an corporate entities, meaning the unem-ployment trend could be quickly reversed if confidence begins to return.

The European Central Bank (ecb) will continue to play a critical role in 2012, for, should the economic environment de-teriorate, the ecb might have to react by lowering interest rates further and step-ping up purchases of government bonds to facilitate debt refinancing by periph-eral countries at affordable interest rates. Without action, there is a risk of a series of disorderly defaults among weaker coun-tries that could threaten the future of the Eurozone, although the general risk of the Eurozone breaking up has been much smaller since late last year, owing largely to the agreements on Greece and the in-volvement of the ecb. This, however, does not mean that we have yet emerged out of the tunnel. The 2012 will be a difficult year for governments by all means; businesses and households will face the same. Even the weak recovery forecast for next year should not be taken for granted, given the substantial problems Eurozone will face by the end of this year.

There are, however, traces of opti-mism that the Eurozone policy-making

GDP AND INDUSTRIAL PRODUCTION IN SERBIA

community will tackle the challenges successfully and avoid permanent struc-tural damage to the Euro. Still, the impact of the crisis on the banks’ balance sheets, combined with weak public finances in many countries, may slow down the re-covery much more than in previous downturns.

The scale of the current crisis could trigger another positive outcome – the string of Eurozone-wide structural re-forms that would have otherwise been considered too difficult to implement. Real structural change is more and more perceived as the only tool that could

encourage medium and long term growth, or such growth as would enable the Euro-zone to compete with other rapidly grow-ing markets. For instance, tackling rigid-ities in the labour market, improving the quality of institutions in some countries, taking difficult decisions as concerns the care for ageing populations, and encour-aging a single market for services would all go a long way toward improving long-term growth prospects. Bottom-line is, by taking these steps now, the Eurozone governments would also take a big step towards easing the current crisis and help prevent the next one.

Source: Oxford Economics

Economic activity picked up in the first half of

2011, but it then slowed down again in the sec-

ond half as the impact of contractions in the

European economy weighed on export demand

and capital flows. As a result, earlier official

hopes of 3% GDP growth in 2011 were thwarted,

and growth of only about 1.7% was recorded for

the year as a whole.

Given the prospect of continued symbolic

growth in the Eurozone, any hopes of strong-

er growth in Serbia may mean a further wid-

ening of the current account deficit, especially

as conditions have become less favourable for

pick-up in foreign direct investment. Continu-

ous support from the IMF and other sources of

multilateral financing will remain increasing-

ly important to fund Serbia’s deficit. This may

provide reassurance for investors, but concerns

are mounting about the impact of slower growth

on public finances and a possible loss of fiscal dis-

cipline. Given the headwinds emanating from the

EU, Ernst & Young and Oxford Economics could

not forecast more than 2% growth in 2012, with

a pick-up to a little over 3% in 2013 – assuming

the Eurozone economy will start recovering from

its sovereign debt crisis.

Croatia’s EU accession in 2013 is likely to

encourage hopes that Serbia could follow suit,

which in turn may attract additional aid and

capital inflows. However, the membership proc-

ess will take at least six years – and possibly

much longer – as EU members will be insisting

on tougher admission criteria for potential Bal-

kan entrants following the Greek crisis.

Forecast

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30

feature interview

SEE You have a prominent diplo-matic background in Eastern Eu-rope, having served in Poland

and Moscow for quite some time. How would you summarise the transforma-tion of the East since the fall of the Ber-lin Wall?MD The transformation of Eastern Eu-rope has, in overall terms, been a re-markable success story. Very few people had been able to predict the extraor-dinary changes which took place in countries of the former Warsaw Pact at the end of the 1980s. Even fewer could have predicted that so many coun-tries of the Warsaw Pact and comecon would find their place in the European Union, or nato, and be in a position to make their own choices about their al-liances. Still, even more remarkable has been the transformation of the econo-mies and societies of former communist countries, all of which have helped to renew the commitment across our con-tinent to those important values which bind members of the Council of Europe, including, in particular, the respect for human rights. Many countries remain in transition and continue to face serious challenges. It is to be hoped that their leadership, and their people, will be in-spired by what has been achieved else-where in establishing democracy, hu-man rights, and the rule of law.

St. George’s Day, May 6th, will see the Serbian people casting their ballot in what may well be the country’s most important election to date. Of course

St. George’s Day is also celebrated in England, albeit on the 23rd of April. It’s a tenuous link to be sure, but see was never one to pass up an opportunity

to sip tea and enjoy some hot and buttered scones. H.E. Michael Davenport, British Ambassador to Serbia, was only too glad

to put the kettle on.

are fresh in people’s memories. Given the scale of the suffering, and displacement, which so many people experienced, it is welcome that current leaders’ efforts to drive forward reconciliation are meeting with such widespread support. As leaders of Serbia and Croatia, as well other coun-tries in the region, have recognised, rec-onciliation is in everyone’s best interest, but it will only come about through ac-knowledging past crimes and the suffer-ing which was inflicted on others. With-out reconciliation we cannot expect the sort of regional co-operation necessary to improve people’s lives and offer hope for the future.

SEE How successful will the Western Balkan's ultimate transformation be, and what about their future role in the European Union?

SEE This is your first posting to the Bal-kans. Do you see it as, perhaps, one of the most difficult regions in Eastern Europe, in terms of demography and politics?MD Over the last twenty-five years no other part of Europe has experienced the kind of traumas that the countries of the Western Balkans have gone through. The break-up of the former Soviet Union was not entirely peaceful, and could have de-scended into the sort of violence we wit-nessed in the former Yugoslavia: thank-fully, effective leadership in the region contributed to avoiding such a scenar-io. Many countries of Central and East-ern Europe benefited from strong and vi-sionary leadership which helped them to stay the course of difficult reforms, mov-ing, ever forward, towards a closer in-tegration with both the European Union and nato. War and strife, in this region,

Afternoon High Tea with H.E. Michael Davenport

“The British Government believes strongly in the eu’s ability to foster democracy, peace, and prosperity, primarily through its most

successful achievement, the Single Market.”

may 3rd - may 16th

31

MD The uk Government is among the strongest supporters of eu membership for all the countries of the Western Bal-kans. The experience of enlargement in Eastern and Central Europe from 2004-2007 has shown the hugely transforma-tive power of eu membership for transi-tional countries – cementing democracy, security, and the path to prosperity. The experience also yielded some powerful lessons, from which the eu has learned, and which have instructed its approach to

the Western Balkans, including Croatia’s successful bid for membership. Mean-while, Serbia and its neighbours are al-ready pressing ahead with reforms to pre-pare for eventual membership, including aligning with eu Common Foreign and Security Policy positions, and joining eu-sponsored accords such as the Ener-gy Treaty. I am confident that, as Serbia and its neighbours move towards mem-bership, the accession process will be still further improved and that as a result

the countries of the Western Balkans will prove amply prepared for participation in the Single Market and in the eu’s institu-tions and legislative processes.

SEE Great Britain has never been a great proponent of the eu - as a matter of fact; you do have your own issues with Brus-sels which tend to keep you at a great-er distance than other member countries. Yet you are supporting the move to bring in the Western Balkan countries. Is this polit-ically or economically motivated, or both?MD The uk – like all Member States – has engaged in healthy and lively debate con-cerning aspects of its membership of the eu. The British Government believes strongly in the eu’s proven ability to foster democracy, peace, and prosperity in Eu-rope, primarily through its most success-ful achievement, the Single Market. This is exactly the reason why we support further enlargement of the eu – including, natu-rally, all countries of the Western Balkans. The process of preparation for eu Mem-bership will catalyse and sustain the enor-mous progress already made, especially in terms of reforms and stability, in the West-ern Balkan countries; eventual Member-ship will preserve these gains and gener-ate still-closer economic convergence. The eu itself benefits too: a Union representing more – and more varied – countries en-joys a greater dynamism and speaks with a more authoritative voice in the world as we strive together to solve some of the globe’s major issues. And an enlarged Single Mar-ket will bring further economic vitality and competition, benefiting consumers, businesses, taxpayers and employees all across Europe, and even beyond. SEE Again, a similar question: in spite of Great Britain's occasional discord with Brussels, you have always had common standpoints with regard to the Balkans? Can you elaborate on that?MD The success during the last decade of establishing and cementing democracy, stability, and economic reform in many of Central and Eastern Europe’s transi-tion countries, due primarily to their eu-led reform processes on the way to mem-bership, is self-evident to all eu Member States, the uk included. There has always been a strong conviction in Brussels and in Member States’ capitals that this ap-proach to the Western Balkans will yield similar, mutually-beneficial, results.

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32

Successive European Councils have re-iterated this commitment. The Western Balkans are undoubtedly important to the eu, on account not only of our shared his-tory and long-standing cultural ties, but also on account of a number of present-day issues of critical importance such as energy, transport, commerce, and the fight against organised crime. Naturally, there are also our shared European values and like-mindedness on the world stage.

SEE Great Britain does not have a huge tradition of business in the region. Do you see that changing and which indus-tries could your economy develop in the Balkans?MD Whilst not among the top investors in the Western Balkans, the uk nonethe-less has a significant presence here. More than 60 firms are invested in Serbia alone

– some of which feature among the coun-try’s largest private-sector employers. But I certainly believe that there is huge scope for further development of econom-ic ties. Continued progress by the coun-tries of the Western Balkans – in making economic reforms, liberalising markets, modernising judiciaries, tackling monop-oly and corruption, and bolstering infra-structure, to name just a few areas – will certainly encourage more investors from the uk, and elsewhere, to enter the mar-ket. Serbia’s progress, along with its eu accession track, will send a clear signal of this commitment. uk firms are among the most globally active in the world and do not hesitate to move into a new market that has strong prospects; indeed, the uk government has made international trade and investment its central policy focus.

As for potential industries? The uk’s economy is broad-based – firms from eve-ry industrial sector contact my Embassy for information about doing business in Serbia. The uk is among the world’s larg-est manufacturing nations and has partic-ular strengths in the hi-tech, biotechnol-ogy, and renewable energy sectors which could, in time, become a bigger feature of the Serbian and Western Balkan econ-omies. From agriculture and mining, to automotive, aerospace, retail, financial and professional services, and to the cre-ative industries, I am confident that as the economies of the Western Balkans devel-op further, the more prominent will be British companies from these industries in South East Europe.

SEE You have just returned from the Do-nor Conference in Sarajevo. A total of 580 million Euros is being sought, for the purpose of re-housing 74,000 internal-ly displaced persons (idp). Are you op-timistic about whether this sum will ac-tually be raised? Do you believe that this conference might finally put an end to this humanitarian crisis once and for all?MD The main objective of the conference was to underline the international com-munity’s firm support to closing the idp (Internally Displaced Persons) chapter across the region, and to encourage finan-cial backing from the international do-nor community for the Regional Housing

hand. What I find striking at this time is that the bulk of the main political par-ties are committed to taking Serbia for-ward on its path of integration with, and ultimate membership of, the European Union. This is a very positive and wel-come development, reflecting the strong conviction among Serbs, especially the younger generation, that Serbia should make eu accession its top priority. We look forward to working with the Presi-dent and Government of Serbia, irrespec-tive of who they might be, after the elec-tions to support the reforms which will be needed as Serbia embarks, in earnest, on accession negotiations.

SEE Fragmentation of parties, and po-tential political options, is more notice-able than ever before: could the elections actually result in a political crisis, caused by a coalition of unhappy partners?MD Serbia is not the only European coun-try with a wide range of political options. We in the uk have only recently had a rare experience of coalition politics. Serbia has a much longer history of coalitions. Whatever coalition emerges, after the elections, the key will be to ensure com-mitment to common goals. Any Govern-ment in Serbia will face huge challenges in attracting investment, tackling unem-ployment, fighting organised crime and corruption, and pursuing an ambitious programme of reform. Voters have a right to expect a joined-up and determined ap-proach to facing these challenges.

SEE Finally, and on a lighter note, you seem to be the most passionate tennis player in the entire Serbian diplomatic community. Any comments on that score?MD Serbia is a dream for all tennis ad-dicts. Belgrade has excellent facilities and I’ve found great tennis partners, including people ready to teach me a thing or two. Serbian tennis is booming – with leading players inspiring future generations of Ser-bian talent. I arrived in Serbia just in time to share the excitement of Serbia’s 2010 Davis Cup victory at the Belgrade Arena. And of course it was Novak Đoković’s vic-tory at Wimbledon in 2011 which clinched his position as Number One in the world. In 2012 we have Wimbledon ‘twice over’, with the Olympics being held there in Ju-ly. I’m looking forward to some more ex-cellent duels between Novak and our own Andy Murray.

Programme (rhp). This programme will provide housing solutions for the most vulnerable displaced persons, reaching, as you say, some 74,000 individuals. un High Commissioner for Refugees Antonio Guterres, osce Secretary-General Lam-berto Zannier, and European Commis-sioner Štefan Füle have all taken part, il-lustrating strong commitment to the long overdue goal of closing this chapter.

SEE Let us turn to the forthcoming Ser-bian elections. Do you see them as a po-tential turning point which could alter, or reverse, the current political and eco-nomic course of the country? Just how drastic would it be, if we were to see a complete u-turn when compared to the current political establishment?MD It is for Serbian voters to decide the outcome of the forthcoming local, Par-liamentary and Presidential elections in Serbia. These are, after all, the first Ser-bian elections I have experienced at first

“Whilst not among the top investors

in the Western Balkans, the

uk nonetheless has a significant presence here.”

may 3rd - may 16th

33

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34

NARR: Find a Partner, Improve Your Lot

Cutting right to the chase, it's no great stretch of semantics to sug-gest that narr is in charge here:

they have responsibility for the accredi-tation of Regional Development Agencies (rdas) and are currently coordinating with nine rdas within Serbia. Along-side these groups narr finds itself as the driving force behind numerous projects, providing assistance in as many fields: advisory support for less developed mu-nicipalities, the standardisation of servic-es in led offices, professional crisis man-agement (pcm) training for municpalities, mapping of all regional development, as well as an Integrated Information System, which would be utilised in the pursuit of regional development.

Naturally all the moral support in the world would be useless without some fi-nancial clout, and so it is too with narr: they supply a number of financial support programmes to assist with such things as the development of innovative clusters, to improve the competitiveness of smes, support for business incubators (grants and standardisation of services), and they have also organised, most recently, the 11th Business Base Fair, which ran from November 29th to December 1st of last year. In addition to all of this, narr provide mentoring for a number of businesses, up to 50 hours free per company seeking ex-pert advice.

It must be noted that narr also has a significant role in international and

Founded in 2009, the National Agency for Regional Development (narr) is the legal successor to the Agency for the Development of smes and

Entrepreneurship. Narr has a clear mandate, as a national institution, finding itself in charge of balanced development for all regions of Serbia.

And then there’s the Enterprise Europe Network...

social economics

By Lee Murphy

And, almost exhaustively, co-financed with the Competitiveness and Innovation Framework Programme (cip), narr has helped the Enterprise Europe Network, the Women’s Entrepreneurship Network Serbia (wens), Mentors of Women’s En-trepreneurs in Serbia (wem), and the South East Europe Network of Excellence for Cluster (seeneco).

enterprise europe network serbia

In order efficiently and effectively to ex-ploit the potential of small and medium-sized enterprises in the single Europe-an market, the European Commission, in 2008, formed the Enterprise Europe Net-work (een), which, as the largest Euro-pean network for business support, offers a variety of assistance to small and me-dium-sized enterprises in the European Union and beyond. The National Agen-cy for Regional Development coordinates the een in Serbia and, along with its part-ners, participates in the implementation of these activities within the eu Com-petitiveness and Innovation Framework Programme.

These partners are, apart from the Na-tional Agency for Regional Development, the Universities of Belgrade, Novi Sad, and Niš, the Mihajlo Pupin Institute, the Ser-bian Investment and Export Promotion Agency (siepa), and, finally, the Serbian Chamber of Commerce and Industry.

inter-regional cooperation as both the beneficiary and the implementing partner in many projects across the globe: finno (a mechanism for fostering innovation in South East Europe), bilateral cooperation with Japan and the Japanese International Cooperation Agency (jica), as well as fur-ther cooperation with the Netherlands, It-aly, and the other Western Balkan nations.

Narr has also taken advantage of available grants and financing, using the Instrument for Pre-Accession Assist-ance fund (ipa) to help the Improved sme Competitiveness and Innovation Project (icip) and the Integrated Innovation Sup-port Program (iisp).

Information is one thing, active

assistance is quite another, and thankfully the

een doesn’t shirk its duties in this

regard either.

may 3rd - may 16th

35

The Enterprise European Network of-fers concrete services, of course, so that emerging, or existing, businesses might be better able to function in the modern marketplace. To this end the een provides information about the various directives of European regulations, the possibili-ties offered by a broader eu market (as well as other countries which might be part of the Network), the possibilities for much-needed business cooperation, and, most important of all, information on the various programmes and funds which the European Union have in place and which are intended for small and medium-sized enterprises.

Information is one thing, active as-sistance is quite another, and thankfully the een doesn’t shirk its duties in this re-gard either. If you meet the criteria then they will gladly mediate in the transfer of new technologies and knowledge, as-sist in the promotion of your enterprise, and help you find new partners in other markets. The een will also help stimulate smes so that they might innovate and be-come more competitive within a broader European market.

cooperation

So how is it then that you might be able to avail yourself of all of this assistance? Well, like almost every business endeavour, eve-rything starts with some paperwork: you will need to fill in some specific forms, the Business Cooperation Database (bcd) Form to begin with (if you like), in case you want to have dealings with other enterprises throughout the European Union. There are other forms too, depending on your requirements: the Transfer Offer Form – in case you have technology which you might wish to offer to others who are in search of new innovations themselves…and it would be those companies who would have filled out the Transfer Request Form.

the database

The bcd itself is the largest ‘supply and de-mand’ database of available business part-ners in Europe. In order to use this service you will need to, as we’ve already men-tioned, fill out the bcd Form (which you can find on www.een.rs, or you can ask one of the een partners for it).Whichever of the een partners you have delivered the completed paperwork to is obliged to enter

those interested, along with their profiles, on the Network website. Each company can choose who they will meet (or heaven forbid, avoid) at the event in question, and the Network partners involved will take care of the logistics for those involved.

Again, this is a relatively straight-for-ward process to navigate. There is a list of scheduled events on http://www.en-terprise-europe-network.ec.europa.eu/public/calendar/home.cfm. Should your company identify any event which you feel would be of interest then simply fill out the registration form on the internet or, if you’re not entirely comfortable with that, you can ask any of the partners within the Network to send you a hard copy.

foreign visits

The fundamental goal of visiting foreign companies is making business connections and the transfer of knowledge, experience, and technology. The Network partners, in cooperation with their counterparts in other European countries, organise these visits and provide logistical support to the companies involved for the duration.

Interested companies just need to con-tact the relevant partners within the Net-work, and express their wishes to organise a visit to a foreign company which might operate within a certain sector. The Net-work partners will then assess the possi-bility of making this visit happen, as well as investigating the conditions involved.

using the services

The Business Cooperation Database is free, while the engagement of the partners in-volved with the Enterprise Europe Net-work in Serbia is financed by the Europe-an Union through cip and through narr. Costs incurred by any participation in for-eign events are the responsibility of the company itself, while travel expenses, accommodation, etc, might be partially borne by the partners.

The Enterprise Europe Network is active in more than 49 countries worldwide. With more than 600 partners (agencies, uni-versities, technological-research develop-mental institutions…), and as such the Net-work represents the largest international organisation which promotes and supports the work of small and medium-sized en-terprises. There is absolutely no reason why one shouldn’t make the most of it.

your data into the system, and to keep you informed as to the profiles which meet your own demands for cooperation (as well as any companies which might be in-terested in contacting you for the purpos-es of a business relationship). Once your profile has been successfully paired with a corresponding one, then the official con-tacts are released by the een, and after that much of what happens is up to you!

international meetings

Traditional business negotiation is not something that the Agency eschews and so, by means of large fairs and other re-lated gatherings, they seek to facilitate the direct connection of companies by way of organising short meetings in advance of the day itself (business2business). Com-panies must apply for participation ahead of the event and there will be a list of all

THREE MAIN PILLARS OF NARR

1Planning and implementation

of regional development

policies and measures and

strengthening institutional

infrastructure (RDA)

2Nonfinancial and financial

support to SMEs

3Monitoring of

infrastructural projects

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Croatian Democratic Union's Slush, Slush & Away

Lo and behold! Yet another corrup-tion trial is underway in Croatia. Of course this is nothing new to any-

one who knows anything about the usu-al hustle and bustle of Balkan politicking. Nevertheless, the Zagreb County Court is awash with journalists, all of whom feed the media, in depth, with hourly reports of what takes place on Zrinjevac (and this on a daily basis). Indeed this may well be a show-trial: all manners of onlookers are following developments in what is now, quite simply, referred to as the ‘fi-mi Media’ scandal. fimi Media have, for the most part, already played their part in this saga: their name has been synony-mous with corruption for over two years now; it is also synonymous, however, with former Prime Minister Ivo Sanader, and his party, the Croatian Democratic Union – hdz.

If you’ve picked up a newspaper, lis-tened to the radio, or glanced at a tele-vision set over the past 27 months, then none of this will be news to you. You’ll be aware that Damir Mihanović, former

The case of the hdz Slush Fund is what captures the attention of the Croatian public these days: after all, the financing of political parties

had always been shrouded in a veil of mystery (it still is!). Party financing has long been the topic of heated debate amongst the politicos, be they the

voting public looking to rationalise their position, or journalists hoping they can be the next Woodward or Bernstein. So you can imagine the chatter

when hdz found itself in the dock, just one month before the January parliamentary elections.

board-member of Croatia osiguran-je, blew the whistle on the whole af-fair when he claimed to have attended a 2007 meeting at which the aforemen-tioned former Prime Minister suppos-edly ‘suggested’ that he, and the heads of a number of State-owned companies, should use the services of fimi Media. It was a celebrated gathering, if we might use the term: hep (the electricity utili-ty company), Croatian Forests, hac (the motorway utility), fina (the state finan-cial agency) and a score of others would all find themselves handing over what would turn out to be a proverbial brown

– or blue – envelope.

event horizon

This was accomplished by availing of fimi Media’s services, who would then ‘over-charge’ their new State clients, and then some of this money found its way into a slush fund… a slush fund which was re-portedly run by Sanader, and a number of other individuals: hdz Treasurer Mladen Barišić, hdz accountant Branka Pavošević, fimi Media owner Nevenka Jurak, and fi-mi media representative Marica Ivanković. These latter four have already pleaded guilty to all charges, while Sanader him-self, and former Government spokes-man Ratko Maček, refuse to entertain the slightest notion that anything untoward ever took place.

By Dylan Alexander

Given the state of the defence’s plan of attack (both hdz’s and Sanader’s), it can be assumed that one, or both, will lose.

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That a former Prime Minister of a demo-cratic nation, about to embark on a Eu-ropean journey, would find himself under such a spotlight is almost unimaginable. So then, what should we call it when an entire political party, still in power mere months ago, finds itself in the exact same position?

The hdz Slush Fund case is an histor-ic first for the Croatian judicial system: the Law on Liability of Legal Persons for Criminal Offences is not often invoked by Croatian prosecutors, yet invoke it they did.

While the whistle-blower could only testify on activities from 2007 onwards, it emerged that hdz had been making use of a slush fund since 2003, and that the money

of Sanader’s involvement, it almost beg-gars belief that a Prime Minister could ever be unaware of such a fund, especially over a seven year period. Likewise, that hdz could be equally unaware that their lead-er had siphoned off no less than 45 million Kuna from State bodies without any alarms being set off, is laughable.

Never before, at least not in the mod-ern sense, has a political party been put on trial like this and, given the amount of ev-idence compiled by uskok, it would seem that no result other than ‘Guilty’ will be acceptable. For all the embarrassment that this, and its precursors, have caused, Croatia needs a definitive verdict.

the end?

And so, with all said and done, the fimi Media/Slush Fund Trial stands to be quite a lengthy one. The indictment alone num-bers 500 pages and the case file currently weighs in at over 50,000 pages. Further-more, the Defence for Ivo Sanader alone have called more than 50 witnesses, and likely more are to come as he finds himself caught between the prosecution and the army of lawyers hdz has assembled.

Regardless, it will be curious to see what sort of outcome awaits us: Sanad-er may, or may not, be convicted (al-though it would appear that the pros-ecution has other charges to level at the former Prime Minister, especially should they fail to make something stick on this occasion), but, as things stand, it would seem that he will be found guilty on all counts. hdz, however, is a different sto-ry: a solitary man could have some hope of redemption, some chance to regain past and former glories, but should hdz be found guilty and convicted, then they will be obligated to reimburse the State for damages totalling 30 million Kuna, and find themselves with a tattered rep-utation, more tarnished than it is even today. Of course, in the interest of bal-ance, it is possible that hdz emerge the victor, were victor ever an apt term in this instance. For, to win simply means that their reputation is, well, simply tar-nished as it already is…

In any case, given the state of the de-fence’s plan of attack (both hdz’s and Sa-nader’s), it can be assumed that one, or both, will lose: should that happen, we can only hope that they don’t try and use an-other slush fund to settle their debts.

Acting on the testimonies of Jurak, Barišić, and others, uskok launched their official case against hdz on October 25th, 2011, proceeding to freeze their party assets one week later, on November 1st. At this time it is estimated that hdz benefited to the tune of 30 million Kuna via the slush fund, and uskok want these funds repaid to the State. An additional 15 million Kuna has, allegedly, been appropriated in the same fashion by Sanader for his personal use.

As has been said, the Western Balkans are no stranger to the concept of pub-lic sector corruption: uskok, however, have moved with impressive alacrity in their attempts to bring this sorry chapter

was being used to fund elections (both the 2007 General Election and Jadranka Ko-sor’s Presidential campaign of 2005), ad-ditional (or double) salaries for Ministers, as well as sundry personal expenses.

It was this source of finance that the Bureau for Combating Corruption and Organised Crime (uskok) began to in-vestigate in October of 2011. Indeed, it has been suggested that their previous campaigns primarily against fimi Media, Hypo Bank, as well as a number of various Governmental officials was all in support of a larger goal: the gathering of enough information to catch hdz, and eventually Ivo Sanader, in a lie.

to a close. Certainly it does the Govern-mental incumbents no harm to have this dealt with in a short, sharp, manner, but it was hdz who were in power when all this began.

What comes next may well become the stuff of legend: all the accused parties have taken a most unusual, and identical, stance in their defences. They all claim that they had no knowledge of the slush fund, and that it was the other who was responsible for its unlawful creation and subsequent abuse (though whether one can ‘abuse’ an illegal fund might well be semantics). Irre-spective of the fact that there are witness-es queuing up to testify to their knowledge

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On April 13th, which was a Friday – whether this is ominous or not we leave to the reader to decide – five

bodies were discovered near Železarsko Ezero, an artificial lake located at the Northern limit of the capital of Skopje. Filip Slavkovski, Aleksandar Nakjevski, Cvetančo Ačevski and Kire Tričkovski were all aged 18-20, while the fifth man, Borče Stevkovski, was 45. It was almost immediately made public, by none oth-er than Interior Minister Gordana Janku-lovska that the execution-style killings were planned in advance and the victims ostensibly picked at random.

from bad to worse

Although Jankulovska also said that there was no evidence “to suggest the ethnic background or the identity of the killers, nor the motives for the killing”, and al-though she appealed to all “to refrain from any speculations that could fuel intereth-nic tensions”, it did not take the Macedo-nian population, or at least certain aspects thereof, long to assume that the killings were ethnically motivated and perpetrat-ed by Albanians, just as it did not take the mob long to rally up. What followed, on April 16th, were protests in the centre of

Skopje, primarily led and organised by supporters of the football club Vardar, and there was no shortage of aggressive, nationalistic rhetoric. It all culminated when the mob made a move in the direc-tion of Bit Pazar, the part of Skopje known for its little traditional shops and crafts studios that are mostly owned by Albani-ans. There was commotion, masked fac-es throwing stones at the police, and fi-nally an attempt to break the cordon. An

Albanian house had already been burned down the previous Friday, and three Al-banian men were beaten up at a bus stop; and though the group was stopped at this point, it could not be prevented from at-tacking a local tv news crew and their van, their anger additionally fuelled by the rumour that the victims had been se-verely tortured prior to being liquidated as a result of a blood feud, and that both the Government and the media had in-tentionally kept this fact secret.

The press had indeed been urged to re-frain from reporting on the problems – whether to prevent further inflammation of the situation or to attempt to brush it all under the carpet – or a mix of the two

– it is difficult to tell. Suffice it to say that everything is possible under the circum-stances, and that even the brother of one of the victims, Aleksandar Stefkovski, urged that the madness cannot go on, no mat-ter who the killers are. “We should stop here,” the man said. “We were hit by this tragedy more than anyone, but we cannot bring back the dead. Let us leave it to the police to do their job and find the perpe-trators, and as for us, we can only grieve.” Alas, if only the business of provoking and fuelling ethnic tensions weren’t a sort of a national sport in the Balkans…

in medias res

Macedonian Ethnic Tensions: or Beyond

Good and Evil That there is tension between 'native' Macedonians and ethnic Albanians in the southernmost former Yugoslav Republic is certainly nothing new;

however, things have flared up to an awfully dangerous level in recent weeks and months. Indeed there is a genie, and it cannot, at all times,

be contained by a lamp.

By Igor Dakić

We will do well to remember

that a civil war was narrowly

avoided in 2001, mostly courtesy

of a foreign intervention...

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then and now

We will do well to remember that a civil war was narrowly avoided in 2001, mostly courtesy of a foreign intervention and the subsequent signing of the Ohrid Accord, which granted greater rights to the Alba-nian community, who, according to the 2002 census, make up approximately 25% of the population (roughly 500,000 in to-tal). Passions ran wild, especially then, but no party was left with an alternative. Everyone had to comply, even the most extreme elements in both ethnic groups.

As for this year, trouble ostensibly be-gins with the deaths of two Albanian youths in Gostivar, killed by an off-duty policeman on February 29th. These kill-ings too have not as yet been explained – some say that the three were arguing over parking, others say that the two men had confronted the officer in order to ‘silence’ him, specifically in relation to alleged drug trade in the area. Then, as now, ri-ots followed, including attacks on school buses and property.

“What is of concern,” said President Gjorge Ivanov on the occasion “is that young people are involved in all of these events. Relevant institutions are tak-ing measures. However, every segment of the society needs to bear a measure of responsibility for what is happening to us, starting with the family, the school system, the non-governmental organi-sations and the media. Everyone should bear responsibility, because we know what can happen when corrupted young people incite events which affect inter-ethnic relations in the country."

Tensions peaked around the middle of March, a period marked by a quaint con-test staged by Albanian secessionist par-ties and groups, namely as to who would be louder and more determined in ut-tering that ethnic Albanians have no fu-ture in Macedonia and that partition is the only solution. The pot was simmer-ing until… well, until more people died and until young people, in this instance Macedonian football hooligans, got in-volved again.

Ismet Ramadani, a former Macedo-nian mp and political analyst, inferred that much of the tensions were a re-sult of Macedonian political policy. “pm Gruevski’s Government is pursuing a nationalistic and conservative policy, which creates tension and anxieties in a multiethnic society like that of Macedo-nia,” said Ramadani, an ethnic Albanian.

Indeed, although it is true that one of the main political and social platforms of most Albanians leaders is further ghet-toisation of their own people – for in-stance, despite legally binding docu-ments and strategies adopted by the Government, including the one on inte-grated education in 2010, Albanian chil-dren, in Albanian only schools, are not allowed to learn the Macedonian lan-guage until Third Grade (age 9-10) – the nationalistic stance of the Macedonian Government is of little help.

beyond good and evil

Macedonia is a comparatively young na-tion, which means that it is still in the process of creating a structure on which to base the edicts of its own identity. Macedonia is also a relatively poor coun-try, which in turn means that the politi-cal establishment will be all the more apt to exploit those ‘colourful’ populist plat-forms such as football, religious affiliation, and, of course, the myth of Alexander the Great. Still, how is any of this any differ-ent from the situation in the other former Yugoslav Republics, excepting Slovenia, if only to a measure? It is no different in es-sence, but it has a slightly different con-text, insofar as the most pressing Mace-donian socio-political realities are a bit more retrograde.

The last statement is not an insult, but a statement of fact – all Balkan States emerged in the early nineties as Nation-al States, with a definable ethnic pre-fix, which means that relevant minorities (Right Wing extremists and militaristic pragmatists would call them “troublesome

Macedonia is a comparatively

young nation, still in the process of creating a

structure on which to base the edicts of its own identity.

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minorities” – Serbs in Croatia, Kosovars in Serbia, “everybody” in Bosnia, and so on), especially given that we are talking about recognisably immature societies, would be treated as citizens of a second order. The power to integrate rests al-ways on the dominant ethnos; strange as this may sound to many Macedonian ears, ethnic Albanians as a relevant minor-ity have to be “persuaded”, their origin notwithstanding, to support Macedonia in, say, a sporting contest. This, of course, is not easy, and demands the use of well-planned, sober and effective mechanisms. It requires patience, tact, intelligence and

– yes indeed – evidence that Macedonia is

inclusion, the rule of law, the kind of cul-ture that would – inasmuch as it is possi-ble – be bereft of empty mythmaking. For, if Macedonia is in a way stalled, it is not primarily stalled because the Albanians need to improve, but because the Mace-donian democratically elected authorities keep choosing the easy way out, and that is to perpetuate, howsoever quietly, a so-ciety based on conflict.

For, you see, there are plenty of wild ideas running amok in the cafes and bet-ting shops of Skopje. That the five mur-ders may have been a deliberate politically masterminded plan designed to destabi-lise whatever weak peace there was. That it may have been the work of the Greeks. That, some Albanians feel, it may have been a Serbian attempt (supported by the Russians of course) to besmirch their peo-ple, and so on. Although, without much surprise, the eu, nato, and Embassy heads have all condemned the spiralling situation and called for stronger political leadership on the ground, the said con-spiracy theories and uneducated guess-es paint a very clear picture, seen in this and especially the last century numerous times the world over: it all smells of that particular type of sophomoric, amor-al, public house revolution which Mace-donia cannot, under any circumstances, entertain even the notion of having. For that would mean going beyond the realm of good and evil, where people are merely pawns in a ploy which can look organised and meaningful only to the most paranoid of characters.

Macedonia is Europe, and so are its Al-banians. It is high time they took this fact for granted. It is high time for them, both parties if you will, to start sharing it.

maturing into a society that can vouch-safe equal rights and opportunity for all, a wealthier society.

On this score, there is very little evi-dence that Macedonia is heading in the right direction. For instance, Former In-terior Minister Pavle Trajanov, now an mp in the ruling coalition, said that the April 13th murders were “a classic terrorist act that may have dire consequences for the peace and stability of the country, heav-ier even than the [1995] assassination at-tempt against President Kiro Gligorov”. This kind of rhetoric is unbecoming, es-pecially in light of the fact that we sim-ply do not know for sure what exactly is it that happened that day. It may be true that Macedonians are currently in proc-ess of putting a fishing touch on their own national identity, but one cannot escape from the impression that there is no more time for these finishing touches, that it is high time, or practically the last mo-ment, to start building a culture based on

If Macedonia is in a way stalled, it is not primarily stalled because the Albanians

need to improve, but because the authorities keep

choosing the easy way out.

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The dawn warms the soul thence, / The sun shines bright in the highlands:Yonder emerges a vast expanse, / Nature's power with great opulence:

The clear lake you see as white in hue, / Or darkened by the wind as blue;Look at the plains, at the mountains, / Beauty everywhere divine reigns.

To pipe there my heart's ecstatic cry, / So the sun may set, that I may die.

Konstantin Miladinov, an extract from Longing for the South

(translated by Igor Dakić)

destinations

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Ohrid, Blue Pearl of the

BalkansWith the verse to the left, from the poem

‘Longing for the South’, the 19th century poet Konstantin Miladinov nostalgically recollects

his old country. Writing in distant and cold Russia, he muses on the lake and its wind

swept waters, washing the shores of his home town. Welcome...

The ‘South’, as referred to by the po-et, is what is at present known to us as the Former Yugoslav Republic of

Macedonia, a somewhat cumbersome name for what was once the southern-most republic of the Yugoslav federation. Situated in the South of the Balkan Pe-ninsula, Macedonia sits athwart the very centre, bordering Serbia and Kosovo to the North, Greece to the South, Bulgar-ia to the East, and Albania to the West. This country, of ancient and rich histo-ry, with Illyrians, Macedon Greeks, the Romans, Byzantines, Slavs, and Ottoman Turks all contributing threads to its cul-tural fabric, can truly be called the Heart of the Balkans.

Macedonia is a landlocked country with rugged mountain ranges surround-ing the central Vardar River valley, with over fifty lakes and numerous mountain peaks towering high above us. It is a land of pristine wilderness and spectacular sites, be it natural phenomenon or archi-tectural constructs, that span a period of over three thousand years. A hundred kil-ometres from the Aegean Sea to the East and the same distance from the Adriatic

to the West, despite its mountainous ter-rain, Macedonia receives all the benefits of a mild Mediterranean climate, making its valleys an agricultural paradise with numerous vegetable groves, orchards and vineyards.

But, for all the myriad of wonders Mac-edonia has to offer, one location stands out, with its unique natural beauty, and its historic and cultural significance. For Ohrid, both the lake and the city, have been placed on the unesco World Herit-age list both as a cultural and a natural site, one of just seven such locations in Europe.

the lake

Ohrid is the largest lake in Macedonia (and also on the Balkan Peninsula). It sits on an elevation of 695 meters above sea level on the south west of the country. The lake borders Albania, with approxi-mately one quarter of its surface falling under its auspices. Seeing as the country is landlocked, the lake is known locally as the ‘Macedonian Freshwater Sea’ and the ‘Blue Pearl’. Its vast expanse of water, surrounded as it is by skyline dominating

By Miroslav Tomas

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44

mountain ranges, makes for a spectacu-lar sight. It is no surprise that Ohrid has evolved into a local tourist magnet with numerous hotels, vacation homes and re-sorts readily available, and it has prov-en a popular getaway for all Macedonian residents. Though the majestic beauty of the lake and its surroundings is truly cap-tivating and has inspired many a visitor over the course of centuries, what is most impressive about it in fact remains hid-den from casual sight, deep beneath its surface.

Ohrid has a surface area of 358km², with a maximum depth of 286m, and plays hosts to a vast array of submarine flora and fauna. The vast depth of the lake can be attributed to its tectonic origins, and it is estimated to be between four and ten million years old. Being geographical-ly isolated from other bodies of water, the lake has, over the millennia, served as a sanctuary for many organisms from the Palaeocene period, preserving them to this day, and making Ohrid a museum of living fossils. Many biological species have evolved into new ones sheltered in the Ohrid depths, and so, of some 300 spe-cies living in the lake, two thirds are en-demic organisms. The lake is home to sev-enteen different fish species, of which the most numerous is the Ohrid Bleak, whose scales have been used to produce the fa-mous Ohrid pearls, to this day a popular souvenir and once one of the backbones of the local economy.

the city

Sitting on the north-eastern shore of the lake is the city of Ohrid. First men-tioned in the 3rd Century BC as ‘Lichni-dos’ (coming from the Greek name Lacus Lychnitis, meaning White Lake), Ohrid is a city of 55,000 inhabitants situated on a cape that stretches into the lake, with its historic centre, the medieval Emper-or Samuel’s fort, sitting on a ridge ris-ing high above the shore. Now a popular tourist centre, it is a place of tremendous historic significance. Though the Greek reference coincides with the period when the locale came under the rule of Philip the Second of Macedon, the lake and its surroundings were, prior to this, popu-lated by the ancient Illyrians who were eventually driven out by the Macedoni-an conqueror. After the Romans subdued Greece in the 2nd Century bc, Lychnidos

The Church of Saint John at Kaneo (Crkva Svetoga Jovana Bogoslova)

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became a vital point on Via Egnatia, a road connecting the Aegean and the Adri-atic coast. With the Romans eventually came Christianity, and the city became a religious centre and a place of pilgrim-age. With the arrival of the Slavic popula-tion into the Balkans Ohrid also became a centre of culture with St. Naum and St. Clement, founders of the Macedonian Orthodox Church, who were spreading Christianity among the populace in the 800s. The city reached its peak in terms of its political significance in the 10th and 11th centuries, when it became the capital of Emperor Samuel’s state, which encom-passed the vast territory of what is now Macedonia and Bulgaria. After the down-fall of Samuel’s empire, Ohrid changed hands between Byzantium and Bulgari-ans before coming under the rule of Ser-bian lords; and, sharing in the fate of the Kingdom of Serbia, it became a part of the Ottoman Empire in the late 14th Century.

Not to trouble the reader any further with the history of political influences on the region (as it is in fact a story in its own right), we turn instead to the cultural her-itage bestowed on this unique city. Back in the late Middle Ages, Ohrid was said to have had 365 churches, one for every day of the year, thus earning the nickname Je-rusalem of the Balkans. Though not near-ly as many are left standing, the whole re-gion is abundant in religious monuments; Orthodox and early Christian basilicas adorn the cliff tops all around the lake. The crown jewel among them is the Church of Saint Sophia, located in the city of Ohrid, dating back to 11th Century.

A place one should visit to experience the

true Balkans in all its magical beauty.

Nevermind the current political

situation.

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The Ottoman Turks additionally endowed the city with a specifically oriental, urban appearance, with winding narrow cob-blestone streets leading up to Samuels’s fort from the lakeshore. Public baths, a covered market (bezistan) and 19th cen-tury town houses (with carved stone foundations and white plaster facades of the multi-story superstructures), give the place a feel reminiscent of old Istan-bul. Traditional craftsmen working in sil-ver, copper and wood still tend their fam-ily-owned street side shops, just as the generations before them did.

The modern Ohrid, be it the city itself, or the lake, is a place of hotels and resorts. Located all around the lake they make for the bulk of the Macedonian tourist indus-try. One of two Macedonian Internation-al airports is located next to the city, and though the motorway will get you only as far as the capital of Skopje, the local roads leading to Ohrid provide some truly fan-tastic scenery, which might atone to a de-gree for the lengthier drive.

the ohrid summer

As is only befitting of a place of such natu-ral beauty and historical heritage, Ohrid is at present a major cultural centre. Cap-tivating and inspiring artists throughout the past, the lake hosts a number of art colonies, poetry festivals and other cul-tural events. The highlight of the cultur-al season, however, is the ‘Ohrid Sum-mer’ festival, taking place each year in the months of July and August. Dedicated to classical music and theatrical arts the festival has a tradition dating back to 1961 and has over the years evolved into one of the top European events of its kind. Hav-ing marked its golden jubilee last year, the organisers have pledged to outdo them-selves in this year’s edition of the Ohrid Summer. The festival is in part held at the ancient Hellenistic amphitheatre that dates back to the 2nd century bc, situated under Samuel’s fort and overlooking the majestic lake. This spectacular venue has in the past hosted such musical greats as

Zubin Mehta, Jose Careras, Enio Moricone, Gideon Kramer, Julian Rachlin, Katia Ric-ciarelli, and the list goes on, and on, and on.

Bearing all that has been said in mind, one can only ponder on this extraordinary corner of the world as one of those pre-cious and special places where one might feel in touch with the primordial essence of nature and man, a cradle of great civi-lisations long past, yet still living. A place one should visit to experience the true Balkans in all its magical beauty. Never-mind the current political situation.

STRUGA AND THE POET

Struga is the other major city situated on the

Macedonian side of Lake Ohrid. It is a city of

33,000 inhabitants, with a history as rich as

that of Ohrid. According to legend, Emper-

or Samuel was crowned in the Church of the

Blessed Madonna just outside the city. The

poet Konstantin Miladinov was born there

in 1820. Miladinov is regarded as the father

of Macedonian poetry, and together with his

brother Dimitri he played a crucial role in the

awakening of the Macedonian national spirit

in the times of Ottoman rule. The nostalgic

poet who wrote such emotional verse never

saw his native Struga again. Upon his return

from Russia he found that the Turks had im-

prisoned his brother and so made his way to

Istanbul to affect his release. Unfortunately,

the ill-fated hero only ended up sharing in

his brother’s fate and ultimately met his de-

mise in a Turkish prison in 1862. To keep the

memory of the two brothers the city annu-

ally hosts the ‘Struga Evenings of Poetry’, an

international poetry festival, the laureates

of which are names such as Pablo Neruda,

Joseph Brodski, Eugenio Montale

and Seamus Heaney.

Castle Ohrid, The Citadel

may 3rd - may 16th

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Must-Bring-Back from SerbiaTouring around Serbia? These are the things

you simply cannot leave without.

good stuff

Pirot Rug

Užice Kajmak

Pear Brandy

Opanci

Pirotski ćilim, or to translate, a rug from Pirot, is a product of traditional crafts-

manship, seeped in rich folklore. Pirot is a small town in the South-East of Ser-

bia in the foothills of Stara Planina (Old Mountain), and it is from here that the

quality wool used in the weaving of these carpets comes from. Although it is

assumed that the craft reached Serbia via the Ottoman invaders, it has nev-

ertheless become extremely characteristic of the Serbian ethos. Believed to

hold magical powers, these carpets have been historically woven as good-luck

charms, specifically for Serbian rulers. They remain a beloved national symbol,

but it may well be that we’re speaking of a dying craft. So, hurry up... Seeing as how rakija is most commonly dis-

tilled from either grapes or plums, this variant,

which would ideally be based on the Williams

Pear, is held in high regard as a delicacy. A spir-

it intended for special occasions, 'viljamovka'

was originally prepared by orthodox monks,

who then decided to add an extra feature by

putting a bottle over a branch with a pear bud

on it so that the fruit would develop inside the

bottle, which they later filled with pear brandy.

Though the industrial production gets around

this problem by gluing the bottom of the bottle

after the pear is inserted, we direct your atten-

tion back to our above stated piece of advice:

the traditional stuff is still the best, so do not be

surprised to see bottles affixed to pear trees as

you drive around the countryside. Especially in

the vicinity of a monastery.

Opanci are the traditional peasant footwear, specific to the Balkans, and are

made from strips of sheep hide, which are of varying colour depending on the

region from which they come. The Serbian version of opanci, however, has very

specific characteristics and tends to stand out at first glance, especially on ac-

count to a curved horn, styled from leather, on their tips. This Serbian variant,

known as ‘šiljkan’, meaning ‘spiked’, comes from the Šumadija region, and up

until some fifty years ago was worn regularly by the peasants who farmed the

land. Though nowadays exclusively a souvenir, or part of a folk costume, opanci

have lost none of their allure.

Kajmak is a creamy dairy product somewhat similar to clotted cream, only

with a slightly higher fat content. The word itself is of Turkish origin, and the

product is well known throughout Asia Minor and the Balkans. Kajmak is made

from cow’s milk and is sometimes aged in order to give it an added richness of

flavour. Although a seemingly simple dish, it must be noted that Kajmak spe-

cifically produced around Užice stands out for its quality and is as such revered

all around the region. Kajmak

is usually enjoyed as a starter

with bread and olives, or as a

side dish with grilled meat. As

in the case of other reputable

dairy products in the Balkans,

you’re better off avoiding

the commercial efforts (of-

ten they just seek to capital-

ise on the name) and get your

hands on some of the home-

made stuff.

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to-do list

Tech Achievements FairFair Grounds, Belgrade/

EstelleKino Šiška, Ljubljana (21h)

/

MadredeusCankarjev dom, Ljubljana (20:30h)/

LIST 2012Lukavac, B&H/

BBC Philharmonic KD Vatroslav Lisinski, Zagreb/

Medicine & TechnologyZagrebački Velesajam, Zagreb/

The Young Lions Kinoteka B&H, Sarajevo (19h)/

ZAZKrižanke Summer Theatre, Ljubljana/

The Love For 3 Oranges National Theatre, Belgrade (19h)/

Red Bull Flying BachINK, Pula (20:30h)/

Tourism, EnogastronomyZagrebački Velesajam, Zagreb/

World Press PhotoNational gallery of B&H, Sarajevo/

The Sales ExperienceWestin Hotel, Zagreb/

Druga Godba FestivalLjubljana/

Inv. Summit Croatia-SEEWestin Hotel, Zagreb/

55th IT, telecommunications and technology fair

British soul and R&B star promotes her new album

The supreme champions of Fado,in Slovenia this time

10th annual tourism, hunting & fishing fair

Juanjo Mena (conductor), Sol Gabetta (cello), works of Mahler and Shostakovich

39th medical equipment and pharmacy fair

Second World War epic starring Marlon Brando

Anyone care for a revamping of the good old French chanson? We do.

Opera by Sergei Prokofiev

Flying Steps perform to the music of J.S. Bach, world tour opening

Tourism, wine and gastronomy fair

World press photography exhibition

The P. World agency sales and marketing conference

28th International world music and contemporary jazz festival

The Swedish Embassy and the Swedish Trade Council stage a top level event

May 7th

May 8th - May 26th

May 9th

May 3rd

May 9th - May 12th

May 9th - May 23rd

May 9th - May 13th

May 9th

May 12th

May 10th - May 12th

May 12th

May 17th - May 19th

May 14th

May 12th

May 5th

Red Bull Flying Bach Investment Summit Croatia-SEE ZAZ

may 3rd - may 16th

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