Your browser is no longer supported

For the best possible experience using our website we recommend you upgrade to a newer version or another browser.

Your browser appears to have cookies disabled. For the best experience of this website, please enable cookies in your browser

We'll assume we have your consent to use cookies, for example so you won't need to log in each time you visit our site.
Learn more

Investment ideas wanted

Getting Serbia's economy back on its feet demands that the construction industry is dragged into the 21st century. Western firms need to play a key role.

We need reconstruction of the way Serbian business thinks as much as of Serbian infrastructure, ' states Djordje Siradovic, managing director of Serbia's largest cable manufacturer Novkabel.

Industry and commerce have been in limbo for the last decade.

According to one independent Belgrade-based consulting engineer, few managers really understand the open market and fewer still have recent, hands-on experience.

This is not to say Serbian firms have not been successful. Construction industry giant Energoprojekt is still ranked in the top 200 international civils firms despite losing a third of its staff in ten years. Contractors Gemax and Dugon, reported to have had close links to the Milosevic regime, have prospered in the last three years. 'Both deliver genuinely good product, so are likely to remain strong, ' comments Vladislav Ilic, director of independent consulting firm InnoTech. A small number of privately owned consultants and contractors have sprung up in the last five years. The number of construction companies in good shape is tiny, though.

By far the majority of Serbian construction firms are state owned. They are set up to deliver turnkey projects, vertically integrated with design, finance, development and contracting capabilities. It is normal for the combines to own all necessary plant. Most construction firms have no direct competitors.

They are specialists in their field, or dominant in their particular region of Serbia.

Trade sanctions imposed by the European Union have caused Serbian exports across all sectors to shrink to 10% or less of 1989 levels. Overseas contracting, one of the construction industry's strengths during the 1970s and 80s and a major earner for Serbia, is now negligible.

Meanwhile, the country's shrinking gross domestic product, down 66.4% from 1989-99 and forecast to fall a further 25% this year, has starved the domestic construction market of capital.

Companies have been running their assets into the ground.

There has been little or no investment in new plant.

Between 75% and 90% of plant is no longer operational due to neglected maintenance and mechanical failure, believes Aleksander Kovacevic, an engineering economist working for the United Nations Organisation for the Co-ordination of Humanitarian Relief. Leviathan construction firm Pim, main contractor for widening of the E75 highway north of Belgrade, has subcontracted the muckshift to Gemax. The move is unusual for Serbia, raising questions over whether Pim still has the in-house capability.

There are concerns that Serbia will be short of equipment to tackle immediate reconstruction. Foreign investment in new plant is essential in the longer term.

In the face of diminishing workload, meanwhile, companies have been massively over staffed. Serbian employment law makes it almost impossible for an employer to shed personnel. For the last decade construction firms have been burdened with vast payrolls, on which they are obliged to pay 100% tax. As a result nearly all firms have been operating at a loss.

Some companies have been hit particularly hard. Milosevic appointed allies to top management positions in many firms.

Serbia has a complex privatisation law dating from 1997 (to be ratified later this year). It is reported that healthy businesses were being deliberately run down in order for the same managers' private sector companies to buy them at knock-down prices.

Firms favoured by the regime were also given tax breaks - 19 construction companies are known to have been exempted from profit and employees' wage taxes. By the same token, businesses not aligned to the government have been taxed at higher than normal rates, and subjected to irregular investigations and fines.

And there are other forms of institutional corruption.

Since 1997 Belgrade City Council was charging clients and construction firms between 10%15% of project value for 'administration'. Planning consent was simply impossible to gain without making the payment. 'The Socialists realised there was a lot of money to be made from construction, ' says a Belgrade consultant.

Of the estimated £2.25M direct damage done to infrastructure and industrial structures by Nato bombing between March and June 1999, £107M worth has been made good. The state has covered the cost of wages and materials, but all other overheads have had to be met by the companies carrying out the work themselves.

According to a senior manager at Energoprojekt, 'reconstruction work has left most of the construction sector effectively bankrupt'.

The old government was also starving the market of basic materials like powder cement, inflating the price up to three times above market norms and pocketing the added value, it is claimed.

An alarming knock-on effect from this decade of decline has been the flight of skills from the industry. 'Contraction of the construction sector led to lack of innovation, ' comments Ilic.

'Good engineers could see there was nothing interesting likely to happen and left.' There is reported to be a small but active employment black market - independent firms are taking on staff on an occasional basis.

Many engineers are keen to return to the industry when the market revives, Ilic adds. But 'people haven't done design work here because there has been nothing to design, ' he says.

'Their skills are rusty.'

Milos Svarc, managing director of project management firm Fideco and former vice president of Energoprojekt confirms: 'After ten years of isolation younger engineers don't have experience of working on major projects. It is possible to mobilise engineers quickly, but it is questionable whether they have the ability to tackle work required.'

Brushing up on technical developments and investing in new construction equipment are not the only imperatives for Serbia's civils firms.

The combines need to be broken up, says Ilic. They are too unwieldy to perform in the modern construction market. 'Serbian construction companies are large and slow. By the time they are able to make decisions market opportunities have passed.'

And if the country is to optimise the amount of reconstruction it can achieve with funds made available through donation, loan or direct investment it must comprehensively rethink its values, says Svarc. 'Nobody talks about productivity at the moment.' Serbia needs guidance on how to invest and make money work. 'Finance must be supported with expert advice, otherwise it's not worth providing, ' he states.

Fideco and InnoTech are two of a small band of consultants providing project management services. A huge push is needed to introduce efficiency to clients, engineering designers and contractors, says Ilic.

Belgrade University's school of engineering is widely respected for delivering good, solid technical training, and its graduates produce good, solid structures. But the concepts of designing out structural redundancy and value engineering are currently missing, Ilic reports.

'People do not think about pounds and pence; they don't look at ways to save money.' Nor are designers at present concerned with ways of speeding construction. 'Historically, the industry has not equated time with money.' Construction has been equated with employment, creating little incentive to accelerate the critical path.

Clients need to start setting targets and demanding conformity, says Ilic.

Many firms are keen to develop as independent, Serbian-owned enterprises. The country has more than enough manpower for all forseeable work.

However, few are in doubt that the construction sector needs injections not just of cash, but of expertise. 'People are going to have to increase productivity. They are keen to form joint ventures to pick up new skills, ' Ilic reports. In return, Serbian firms can guide Western business partners through the country's legal and bureaucratic jungle, and provide access to ready-formed business networks.

Svarc adds that, in the current economic climate, Western firms' experience of the open market is vital to project development, from identification of potential investments through to outturn. 'The country needs first class consultants and project managers. But UK firms have come here in the past and asked: 'Where's the money?' There will be no work at all to do here unless those firms bring capital and look for investment opportunities.'

Workers' ownership Workers' earnings are no longer enough to cover the basic costs of living. In a bid to appease staff some management boards have apportioned them shares in the business that employs them. 'It should be normal that people coming to work earn a sensible wage, so that they can pay rent, buy a TV, feed themselves, clothe and educate their children. We should be able to pay workers an adequate wage, ' explains Djordje Siradovic, Novkabel managing director. 'But at the moment it is not possible.

Instead we gave them fairytales about who owns the company - we give them shares and tell them: 'You are the owners'.'

It is not yet clear how workers' ownership will affect future business operations.

Workers are able to vote on company decisions, and though in practice the state is still the ultimate owner of assets, proceeds from future privatisation may be divided among the shareholders.

Have your say

You must sign in to make a comment

Please remember that the submission of any material is governed by our Terms and Conditions and by submitting material you confirm your agreement to these Terms and Conditions. Please note comments made online may also be published in the print edition of New Civil Engineer. Links may be included in your comments but HTML is not permitted.