Foreign Investments and Developing Countries - Macedonia as a Case Study - V

=============================================================================================================================Foreign Investments and Developing Countries - Macedonia as a Case Study - Part V A dialog with Nikola Gruevski, former Minister of Trade and Finance of the Republic of Macedonia By Sam Vaknin Author of "Malignant Self Love - Narcissism Revisited"

Sam: The world has gone through a major cycle of physical colonization in the last five centuries. European countries conquered, by military means, large swathes of land with rich raw materials and mineral resources. They clashed with each other often and the outcomes of these clashes were eternalized in the form of international borders. Whole continents were subjected to this mercantilist behaviour. Raw materials and cheap labour were "sold" at ridiculous prices by the colony to the colonizer - and expensive finished goods and services were imported by it. This led to economic depletion and social unrest which resulted in two world wars and in the de-colonization of the world. But a second cycle started in 1989, with the fall of the Berlin Wall. This time no physical presence is required. Money and other symbols (information and know-how, technology and science, cultural imports) do the job. Again, the Western powers colonize parts of the world for the same reasons: cheap raw materials, cheap labour, new markets. Yet, this time, they do it more subtly: through credits, joint ventures, film festivals and television serials. A reaction is already developing. I, personally, believe that the countries of Central and Eastern Europe will rebel (mainly against the EU), once they understand what is being done to them. A world of regions and ethnic groups will supplant the world of nation-states. All over the world, political units are disintegrating to smaller and smaller ones. Macedonia should be aware of these trends and should not fall in the trap of the new form of colonialism without extracting a hefty price. But it would be able to demand this price only if it will become an interesting place, economically and financially. This is the most basic mistake of the Macedonian national strategy: It strives to join the EU as soon as possible - without going through the pains of real reform, the creation of a real market economy and the sacrifice of special interests of powerful groups.

Nikola: In the meanwhile, the Western countries understood the East European market to include all the ex communist countries in Eastern and Central Europe except Macedonia (and SR Yugoslavia and Albania to a certain degree). Forgotten, on the financial chart of the world the name Macedonia almost doesn't appear, more often marked only with five letters (FYROM).

In the prestigious SBC-Warburg-Dillon-Read the present director of equity investments, the executive director of the head office covering equity investments in the European emerging markets, and another person from the so called "emerging markets" discussed the Macedonian capital market. While mentioning the state telecommunications company in Macedonia, I was asked: "Can you dial a foreign country from Macedonia, or the people can dial only between them, inside the country?"

This question was asked when the Macedonian government was announcing the privatization of the state telecommunications company, probably not loudly enough.

Similar questions were asked regarding other fields and concerning concrete and potential opportunities related to investment in Macedonia. My conclusion was that their knowledge about the State, in general and about the Macedonian national economy, in particular, was equal to the knowledge that the average Macedonian has about Tanzania. The above mentioned company has invested billions in: The Czech Republic, Uzbekistan, Poland, Russia, Romania, Bulgaria, Ukraine etc. except in Macedonia. I could notice the same thing in almost every similar multinational. Most of these companies, with no exaggeration, have so much money that they could buy, without any problem, all the companies in Macedonia. For example, the seven funds of Flemings manage, between them, 64,99 billion pounds (June 30 1997), equivalent to 188 billion German marks.

In the plan for attracting foreign capital, the government must, besides the agency for the promotion of Macedonia, appoint a person in the government (for example a minister without portfolio, with a special and unique assignment - attracting foreign commercial investments to Macedonia). This person must have high authority and the confidence of the prime minister to whom he should also report. His aim will be to generate concrete suggestions, decisions, activities and laws "to be passed" by the legislature. He should encounter no obstacles in the government, despite the resistance of certain ministers, under the influence of external interest groups or as a result of direct pressures applied by these groups or through lobbying. All of this is assuming that the minister has both the will and the determination to persist to the end of the battle to make Macedonia attractive for foreign capital, regardless of the internal pressures and influences. Maybe in this game, the prime minister, as a politician, for a short period of time, might lose some support, but for the longer period, he stands to gain much more, above all from the voters - the citizens of the country, that will undoubtedly feel the positive changes brought on by the politics.

Sam: This solution, a "Czar" of investments or of privatization has been tried elsewhere, with little success. Very few politicians - anywhere, not only in Macedonia, give up so easily on lucrative state enterprises. They can reward their cronies by providing them with jobs, profitable contracts and other benefits, material and intangible. To open the country to foreign investments - means to lose economic control. A lot of people make money from imports, for instance. Will they be happy if local produce replaces imports? A lot of wealth is transferred from the state to select individuals and enterprises in the forms of concessions, monopolies, favourable tax and customs tariffs and "customized" public tenders. Foreign investors will not put up with this. They are a noisy lot. They refuse to play the game. They say what they think and are afraid of no one. Do local politicians really want this kind of trouble? Until a clear separation is made - backed by criminal sanctions and penalties - between money and politics, between businesses affected by decision making and the decision makers, the incentives to introduce foreign capital to Macedonia are few and far between. Foreign investments will come, with or without government involvement. It is the negative involvement of the state that must first be eliminated. Its positive assistance is less important by far.

Nikola: Should one Western firm enter the Macedonian market by purchasing only 10% to 20% or more of the ten best companies in Macedonia, that would mean that the foreign company will not only bring fresh capital to expand the domestic companies, but through its own representatives on the Boards of Directors of these local companies, the Western firm will bring new ideas, solutions, product mixes, quality, new investments, exports and new markets. The Western firm could then connect the domestic companies to new individuals and companies in the Western world of finances. The objective of any firm that would purchase securities in Macedonia would be to make the companies and country invested in much more competitive and attractive. After a period of time, they could sell the securities, in order to realize a profit, and thus to invest in another or in the same country with the same purpose.

To start with , if the foreign companies conclude that there is no chance to sell the securities that they would buy, they are not likely to buy them because nobody wants to buy something that later can not be sold at a profit of 20 - 30% or more.

Macedonia is one of the risky countries. Eventual investment of foreign capital in the form of portfolio investments would come after forming a judgment that high profits would be made from speculative investments. There is no other reason why would anyone invest in Macedonia and not in, for example, England where the risk is much lower. The Macedonian companies and the Macedonian market can compete only by offering higher yields through capital gains, dividends or interest payments, and especially the former. Because the capacities in Macedonia are under-utilized, and the level of development is low, higher positive earnings are possible.

I would like to return to the suggestion, that the government should initially take upon itself to attract foreign capital. The minister that I mentioned earlier should suggest a programme with pre- determined deadlines, and submit a report to the government on compliance with it. He should be directly engaged in:

1.. Attracting portfolio investments (selling smaller and/or bigger parts of several our companies to western investors, through the stock exchange). In this case we are talking about indirect investments (through the stock exchange) of large, prestigious, investment banks, brokerage firms, funds etc.

2.. Attracting direct investments (sale of control nuclei of factories and other companies in Macedonia to foreign investors, and with a prior agreement signed with the government and with the Agency of privatization). These deals - in the absence of a law regarding takeovers - would formally be effected through the stock exchange. In this context, we are talking about direct investments where multinational renowned manufacturers of a certain products would buy factories in Macedonia, in their field of manufacturing.

3.. Joint investment in new projects.

4.. Finding buyers - underwriters of eventual issues of Macedonian Eurobonds.

5.. Attracting foreign capital to the field of tourism.

The assignment under point 5 could be eliminated from the jurisdiction of the above mentioned person /and assigned to other person/s, to avoid overburdening him. It would be best to leave the mission of contacting direct creditors (IMF, WB, EBRD, etc.) of the state to another person(s).

Sam: I think that if such a person will have the backing that you mentioned: from the Prime Minister, by a special law, from the legislature - he might even succeed. All this, subject to the sea change in the political atmosphere. Attracting foreign Direct and Indirect Investment must be declared a national priority and a state of emergency must ensue. This person must be a widely known, appreciated and liked figure, well connected and with the legal authority to cut through red tape, circumvent regulatory procedures, go around commissions, committees and bureaucrats. On the other hand, he must not be given too much power, lest he abuses it. Stringent checks and balances must be implemented to prevent corruption.

(continued)

===========================================================================================================================AUTHOR BIO (must be included with the article)

Sam Vaknin ( samvak.tripod.com ) is the author of Malignant Self Love - Narcissism Revisited and After the Rain - How the West Lost the East. He served as a columnist for Global Politician, Central Europe Review, PopMatters, Bellaonline, and eBookWeb, a United Press International (UPI) Senior Business Correspondent, and the editor of mental health and Central East Europe categories in The Open Directory and Suite101.

Until recently, he served as the Economic Advisor to the Government of Macedonia.

Visit Sam's Web site at samvak.tripod.com