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Reversing 10 years' decline

Serbia is facing up to some grim realities - the country is bankrupt and its construction industry exhausted. Andrew Mylius reports.

Post election celebrations in Serbia are over. It is now three weeks since Slobodan Molosevic was swept from power on a tide of popular discontent. The new federal government, a democratic coalition headed by president Vojislav Kostunica, is getting to grips with damage done under Milosevic's 13 year reign. It is not a pretty sight.

Serbia's economy is in chronic decline. According to Belgradebased economics forum G17+, gross domestic product fell from £19.27bn to £6.47bn between 1989 and 1999, a direct result of wars waged by Milosevic and trade sanctions imposed by the European Union. Sanctions meant GDP fell a further 25% last year, reports Aleksander Kovacevic, an engineering economist working for the United Nations Organisation for the Coordination of Humanitarian Relief.

The economy is centralised and structured along communist lines. It remained largely unreformed under Milosevic's Socialist Party government. The state owns nearly all land and property, companies and banks, and has historically squeezed capital from one sector to finance another. With rapidly diminishing national income Serbia's financial institutions have been forced to bankroll the state for nearly a decade, says G17+ executive secretary Suzana Mrgic'.

Last year, for example, the state spent £190M more than it earned. The banks are now all but bankrupt.

This has had a dramatic impact on construction work.

State backed projects across Serbia were on hold last week pending a review by the new government. According to an independent, Belgrade based civils consultant, Milosevic siezed on civil engineering as a propaganda tool and was pumping funds into prestige schemes to demonstrate that Serbia could fight on in the wake of Nato's bombing campaign and in the face of the EU's trade embargo.

Widening of the E75 motorway north and south of Belgrade, financed by Serbia's largest banking consortium Belbank, 'looked good on television, but in reality was woefully under resourced', he observes.

Finance has now dried up altogether.

Under Milosevic, construction firms were forced to operate at a loss, with clients - other state departments - covering wages and the cost of materials, but making no allowance for other costs. The imbalance between earnings and outgoings has been exacerbated by overstaffing. It is almost impossible for firms to fire workers under Serbian employment law.

The result is that little or no investment in new plant has taken place. Kovacevic believes anywhere between 75% and 90% of Serbia's ageing plant fleet could now be out of operation due to inadequate maintenance and mechanical failure.

Serbia has so far made good only 10% of the damage to bridges inflicted by Nato and 15% of damage to the electric power infrastructure, tackling projects that were either essential or lowest cost. Over a decade of chronic neglect has taken a severe toll on the rest of Serbia's energy and power supply, water, road, rail and air transport infrastructures. In addition to the £2.1bn worth of repair needed to structures damaged by Nato, G17+ calculates £4.26bn investment in infrastructure is needed to put the country back on its feet.

Getting to work on major infrastructure projects is essential not just for the physical fabric of Serbia. The country's economic exhaustion has resulted in close to 50% unemployment and average wages of £20-£25 a month. A boom in the construction sector is needed to provide jobs, raise earnings and to improve the nation's standard of living. Kostunica's government is facing a difficult political future if it cannot deliver tangible changes quickly, says Zoran Vidakovic, marketing director at state owned construction firm Energoprojekt.

'We have just managed to climb out of the political abyss.

We are now on the brink and we don't want to drop back, ' Vidakovic comments.

The nation is pinning its hopes on rapid reform planned for early next year. Serbia has a three tier political system, headed by the newly elected democratic federal parliament.

Elections were taking place throughout the country last week to appoint new ministers at city and municipal council level. But between the two sits the republic's parliament, which wields the real power in Serbia's day to day running. It is still dominated by Milosevic's Socialist Party and for the time being is set to obstruct all democratic initiatives.

However, there is widespread confidence that the Socialists will be ousted in republic parliamentary elections on 23 December. This will pave the way for root and branch change. Kostunica's coalition has declared privatisation of state owned property and companies is one of its urgent objectives, with reform of employment law and the tax system.

Selling its assets to the private sector will enable Serbia to start clearing some of its international debt - combined, it owes £8.56bn to the International Bank for Reconstruction & Development, the International Monetary Fund and in bilateral, private and short term debt.

Redeeming its debts is a prerequisite for further international, institutional lending.

Privatisation will also, Kovacevic hopes, result in streamlining Serbian businesses and make them competitive.

Serbia's shopping list

A decade of under investment has created a vast backlog of work. The nation's roads, bridges and rail network need major refurbishment.

An estimated 50% of roads require rebuilding.

Two rail lines crossing Serbia north-south and east-west demand upgrading to take high speed trains.

Belgrade airport needs refurbishing.

Belgrade ring road has to be completed.

Major development of ports on the rivers Danube and Sava is required.

In Belgrade itself, major traffic remodelling is needed to ease congestion.

The public transport fleet needs to be replaced with new stock.

Well over 30% of treated water is lost before reaching the consumer and the city's sewer system is woefully inadequate.

A third of Old Belgrade is affected by over-topping of sewers when the levels of the Sava and Danube are high.

Most of the city's building stock is suffering from acute neglect.

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