The Balkans A Paradise for (American) Investors

The Balkans are proving to be a great region for foreigners to invest. As long as the investors come from the United States that is. With political support from Washington, American companies are making a killing, but the deals being made don't always conform to transparent, free-market principles.
Von Marion Kraske

The compliment sent to Belgrade by US business executive John Surma was a thoroughly positive one. Glowing, in fact. In it, he praised the government of Serbian Prime Minister Vojislav Kostunica as being "open and cooperative." He also wrote that Serbia is "a good place to do business."

Serbia? A paradise for investors? Normally one hears Serbia mentioned in connection with some recent geo-political catastrophe or brazen political murder. This is the same country, remember, which produced Slobodan Milosovic and where former Prime Minister Zoran Djindjic was shot in the back by a criminal gang simply because he had announced his intention to cooperate with the Hague War Crimes Tribunal.

But Surma isn't just some random executive. He's the President and CEO of US Steel -- with annual sales of about $9.5 billion, one of the world's most powerful steel giants -- and has nothing but praise for the prospects of doing business in Belgrade. The Serbs can hardly imagine a better lobbyist for their ailing economy. To attract other US companies to the Balkans, the steel corporation recently launched an unusual promotional tour. In New York, Cleveland and Chicago, senior managers met with representatives of a number of US companies to sing the praises of Serbia as an industrial site. The work force? Excellently trained. The location? Geographically ideal.

American investors preferred

The one thing Surma hasn't mentioned, but that probably plays a far more important role than all other investment criteria, is Belgrade's willingness to consistently make, from Surma's point of view, the right decisions.

It appears that the Kostunica administration tends to favor American companies when it comes to doing business and the Americans are, not surprisingly, Serbia's biggest investors. Tobacco conglomerate Philip Morris, for example, acquired a controlling stake in DIN, Serbia's largest tobacco company, for more than €430 million in 2003. And later that same year and despite promises made to German investors, the Sartid steel plant, one of Serbia's key industrial assets, was ultimately sold to the US Steel Corporation for the bargain-basement price of $23 million. Indeed in that case, Serbian authorities were so cooperative as to prompt an investigation by the Belgrade district attorney's office. Rumors of corruption generated by that sale have proven difficult to dispel.

Diplomats in Belgrade say that when he was still alive, former Prime Minister Djindjic was summoned by US ambassador William Montgomery almost weekly to iron out the deal. "The decision was clearly reached at the political level, in response to pressure from Washington," says business analyst Nebojsa Medojevic, Director of Montenegro's Center for Transition in Podgorica.

Others feel pushed out of the bidding

Yet while the Americans are nothing but positive, the Germans have continually expressed their displeasure with Belgrade. German ambassador Kurt Leonberger warned the Serbian government that its behavior could lead to further deterioration in economic relations with Germany. Speaking with uncharacteristic sharpness, the diplomat suggested that the Serbian government has adopted a political strategy that paves the way for the Americans to acquire lucrative investment properties in Serbia.

The alleged scheming has left European steel competitors empty-handed. Two German companies that feel short-changed by the deal are steel manufacturer Thyssen Krupp and Duesseldorf-based WestLB, which is part of international banking consortium.

Sartid originally owed the consortium about $110 million, but the sale of the company to US Steel was approved without any conditions whatsoever. There were absolutely no conditions allowing for compensation for Sartid's creditors. The banks refuse to give up. "Our goal is to reverse the deal," says Hans Albers, a spokesman of WestLB. "The way the deal has been handled so far has absolutely nothing to do with due process."

The Germans have been supported by a Serbian anti-corruption group, which has long viewed the Sartid case as "the biggest scandal associated with Serbian privatization." The group claims that the deal only materialized after millions in commissions had been paid. Meanwhile, a lawsuit to contest the controversial sale has been filed in Belgrade's high court, and the case is scheduled to go to trial in a few weeks.

In addition to the deals in Serbia, US companies have also managed to land major, lucrative contracts in other countries in south-eastern Europe. But here too, free competition, a principle so often touted in America, often appears to come up short. US construction giant Bechtel was awarded the contract for the construction of a 37-kilometer section of Croatia's Adriatic Highway between Split and Dubrovnik without ever having participated in a public bidding process. Local road-building companies, well-known throughout Europe in the days of former Yugoslav dictator Tito for their excellent work, remained essentially empty-handed.

Connections and political pressure make it happen

Once again, it appeared that the contract wasn't being awarded to the company submitting the best bid, but the one with the best connections -- undoubtedly Bechtel; the construction giant is known for its excellent connections to the White House. The Croatian opposition party filed a corruption complaint, and Transparency International filed a lawsuit alleging that the deal leaves "room for speculation." The Croatian government relented and cancelled the deal with Bechtel.

Croatia, like many other countries in the region, is in a difficult position. On the one hand, Zagreb would like to see its pro-Western course lead to EU membership. On the other hand, the Croatian government wants to avoid offending the Americans, and with good reason. When it comes to long-term strategy, the US, not the EU, is considered the region's key ally. According to Dusan Reljic, a Balkan expert at the Berlin Center for Science and Politics, Balkan governments hope to gain significant prestige by "positioning themselves as junior partners of the United States."

They're also hoping for economic benefits. Belgrade, banking on decades of experience in exporting military equipment, expects to receive lucrative contracts if US troops are stationed in Eastern Europe. But, as decision-makers in south-eastern Europe have quickly realized, Washington isn't especially interested in playing their game unless it receives something in return.

A German economic expert in Bucharest has noted that the Americans, for their part, "are adept at applying pressure." Bechtel was awarded the contract for Romania's planned 415-kilometer Transylvanian Highway, also without having participated in any public bidding process. It comes as no surprise that Romania is currently leading in the competition among Eastern European countries for future American military bases.

These all-too-cozy relationships have aroused the ire of the EU, which recently concluded its official negotiations with Romania for its membership in the organization. In order to award its highway construction contract to Bechtel, the Romanian government conveniently suspended European competition law.

The Polish government, however, recently discovered that entering into schemes with the United States doesn't always produce the desired results. In return for their obsequious support for the US effort in Iraq and an order they placed with American aircraft manufacturer Lockheed Martin for 48 F-16 fighter jets worth billions, the Poles were hoping that the Americans would revoke burdensome visa requirements for Poles traveling to the United States and that Lockheed Martin would invest in the Polish economy. But American commitments ultimately fell short of Polish expectations. As officials in Warsaw have sourly observed, Lockheed Martin has repeatedly postponed projects for which contracts had already been signed. The Americans' succinct excuse is always the same: market conditions, they say, have changed. And the Poles still need a visa to visit the United States.

Translated from the German by Christopher Sultan

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