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Foreign Investments and Developing Countries: Dialog With Former Finance Minister of Macedonia Nikola Gruevski, Part II

Sam Vaknin, Ph.D. - 2/14/2006

Nikola: Other things happened in Eastern Europe, but not in Macedonia in 1997, both in business and in finances.

- In February 1997 Isuzu from Japan confirmed that it will build a $250 million USD machine factory in Tuchy in southern Poland.
- In April, the Moscow county assumed the control over the AZLK manufacturer of Moskovich cars, and one of Russia's biggest tax bonds.
- In May, The Hungarian company OZD (railroad manufacturer) was sold to the German firm Aicher.
- In June, Serbia sold 49% of the state telecom to the Italian Stet and the Greek OTE for $900 million. The Swedish forest group AssiDoman took control over the Czech paper company Sepop.
- In July, Poland issued 72 million shares in the copper manufacturer KGHM, with an estimated value of over $1 billion. 51% were set aside for sale to financial investors and to the workers. The American car manufacturer Ford invested $9.5 million in 51% of a car state factory in Belorussia. A Consortium led by the Russian Uneximbank bought 25% of the state telecom company Svyazinvest. The tender was publicly regarded as fair, but was attacked by other Russian bankers. Unexim also "hooked" Norilsk Nickel, the world's biggest nickel manufacturer, in which the company owned a stake.
- In September, the Polish textile company Prochnik bought a 60% stake from 6 rivals, in that time divided among quite a few national investment funds. This was the first consolidation after the programme for mass privatization. Poland agreed to sell its telecom monopoly TPSA. In 1998 20% of the shares will be sold on the domestic and foreign stock exchanges. A strategic investor will be introduced in 2003. The Polish consortium led by Elektrim won the right to build and operate a highway from Lodz to the German border. The South Korean firm Daewoo concluded an agreement for joint investment with the Ukrainian car manufacturer Avtorar. They will immediately invest $300 million plus $1,3 billion after 6 years.
- In October, the Italian Fiat returned to Russia after 30 years, by associating with itself with GAZ – a car manufacturer – and committing itself to a $850 million deal for building a factory for Fiat.
- In November, the Swedish Volvo bought Ikarus – a Hungarian manufacturer of buses - through a tender. The English - Holland Shell aligned itself with the Russian Gazprom and Lukoil to buy the state oil company Rosneft. British Petroleum paid $572 million to buy 10% of the Russian oil giant Sidanco, from its shareholder Unexim. The French Renault declared that it would invest $350 million in a joint investment with the problematic car manufacturer Moskovich - formerly AZLK. The Romanian manufacturer Dacia concluded a deal with the South Korean Hyundai, for manufacturing its 1999 Accent model.


This trend continued well into 1998.

In January alone, Pepsi Co. completed the purchase of the remaining shares in the Polish manufacturer of sweets and sandwiches Wedel. Pepsi Co. already manages 83,3% of the company. Poland decided to raise the legal ceiling of foreign ownership of the local radio networks to 49%, instead of the previous limit of 31%. The changes were forced upon it because Poland has committed itself, in the accession talks, to the liberalization of foreign ownership limits, in line with the EU.

The Holland brewery Heineken launched a tender to increase its share in the polish brewery Zywiec to 75%, at a price of $125 million. The Holland giant already invested $50 million in the factory, and increased its share from 25% to 32%. Heineken announced that it would like to keep the company on the stock market, and has no intention to increase the capital further.

The Slovakian manufacturer of steel VSZ finally succeeded to take over the problematic Hungarian cast iron manufacturer DAM, after the Hungarian government agreed to a nominal value of $1 if the Slovaks take over its debts of $13 million. Besides that, VSZ sold its 20% to a Czech steel mill.

The American Ford Motor Group declared that there will be a joint investment with Russky Dizel, an engineering group based near St. Petersburg, for the production of $150 million, and annual production of 25 000 automobiles is planned.

In the financial world of Eastern and Central Europe, the following events transpired, among others:

- In January, the Dutch bank ABN Amro bought 80% of the Hungarian Magyar Bank for $89 million, plus $137 million in new capital.
- In February, the Russian energy firm Gazprom forced Hong Kong Regent Pacific to liquidate a 200 million dollar fund. The purpose was to exploit the difference between the low domestic and high foreign value per share of Gazprom.
- In March, the Polish BIG bank paid 84 million dollars to the state, for a special share of 32% in Gdanski Bank, in which BIG already had 31%. An Irish company increased its share in the Polish bank Wielkopolski Bank Kredytowy to 60.2%. The Austrian Futures & Options Exchange started to offer derivatives to investors in Hungary. The well connected Polish bank Kredit Bank bought the shares of the central bank in the Polish Investment Bank and in Prosper Bank.
- In June, the government of Poland sold Bank Handlowy – the former bank for foreign trade – to a mixed bag of strategic and financial investors for $1 billion. In Slovenia, Nova Ljubljanska and Nova Kreditna Banka Maribor were put out of reclamation. They were being prepared for privatization in 1998.
- In July, the Japanese Nomura agreed to buy 50% of Investicni a Postovni Bank in the Czech Republic. An Irish insurance company and Kredietbank from Belgium paid $90 million for 48% of K&H, the fourth biggest bank in Hungary.
- In September, the German Commerzbank increased its share in the Polish BRE Bank from 28% to 48,8% by buying new shares. The Austrian Giro Credit bought 88,7% of Merobank, a Hungarian bank owned by the state , for 24,3 million dollars.
- In October, Bank Austria/Creditanstalt bought 13% of the Polish PBK Bank for approximately $60 million. A similar share went to the local Kredit Bank and to the Warta Insurance group.
- In November, in spite of the disturbances in the global markets, the Hungarian telecommunications giant Mata successfully sailed into New York and Budapest. A consortium led by the local insurance company Atlasz paid $32 million for 62% of PK Bank - the last Hungarian state bank. The Romanian government announced that the postal bank Banc Post will be put on the block at the beginning of 1998.

Again, this trend continued, unperturbed well into the first few months of this year.

Investicni a Postovni Bank (IPB) was finally sold to the Japanese NOMURA SECURITIES. The Japanese paid a small amount of 2,9 billion CZKs ($81 million) for the 36% that were supposed to belong to the government, but they agreed to inject an additional 12 billion CZK into it. Nomura and similar funds now control 70% of IPB.

The Polish minister of finance, Balcerowicz, announced that 35% of PKO, the biggest commercial bank will be sold to strategic investors in the third quarter of this year. Also, a listing on the stock exchange will follow in March or April.

Russia issued licences to four western banks for opening branch offices. The German Deutche Bank and Commerz Bank, as well as the American JP Morgan and Bank of America were the most successful candidates from a total of twenty applicants.

Last year Poland had a 7% growth rate. From 1990 to the present, foreign investments in Poland totalled more than 20 billion dollars. The USA has invested 4 billion dollars, Germany 2,1 billion dollars and so on. Among the top foreign investors in Poland, Fiat is in the first place with 1,1 billion dollars, and Daewoo Motors on the second with 1 billion dollars in investments.

These bits of information are only a part of what happened in Eastern and Central Europe in 1997. Where is Macedonia in all of this? How much fresh capital was missed in this period? How many new jobs, new ideas and new markets Macedonia did not obtain, and could have? Why?

(to be continued in tomorrow's issue)