Transcript review on Slovenia, Romania and Czech Republic

Industrial transition models –
review on Slovenia, Romania,
Czech Republic, Hungary,
Estonia and Poland
Vladimir Kvetan
Institute for Economic Research
Slovak Academy of Sciences
Review from Ljubliana


Hearing 7th march 2008 - Ljubljana / Slovenia
Academic view on transition process




Jozef Mercinger – Economic transformation process in Slovenia
Gheorghe Zaman – Economic transformation process in
Romania
Milan Žák – Economic tranformation process in Czech Republic
Practical point of view




Josef Zbořil – Restructuring in the chemical sector in the Czech
Republic
Samo Hribar Milič – Restructuring in the Slovenian industrial
sector
Vanda Pečjak – Restructuring in the Slovensian chemical sector
Angela Pop – Restructuring in the Romanian chemical sector
Review from Budapest


Hearing on 18th April 2008, Budapest / Hungary
Academic point of wiew:




Prof. Akos Bod – University of Economic Sciences In Budapest,
former president of Hungarian Central Bank
Michal Gorzynski – Senior economist at CASE
Prof. Alari Purju – Professor at Estonian Business School,
former advisor to Minister of Economic Policy Issues
Practical point of view:



Janos Nagy – Alba Geotrade Zrt.
Mr. Edward Swarc – Vice president of the Polish Association of
Construction Industry Employers
Roode Liias – Proffessor at the Tallin University of Technology Estonia
Population structure
Total population
Total dependency
ratio
Young dependency
Ratio
Old dependency
ratio
1990
2000
2007
1990
2000
2007
1990
2000
2007
1990
2000
2007
8 767
8 669
8 595
88,4
80,1
75,9
52,3
41
34,9
36,1
39,1
41
10 362
10 305
10 313
89,8
71,3
70,5
56,3
40,1
35,3
33,5
31,2
35,2
ee
1 571
1 568
1 555
86,3
87,8
79,5
54,6
48,5
40,4
31,8
39,4
39,1
lv
2 668
2 658
2 643
84,3
86,7
77,8
52,3
47,5
38,5
32,1
39,2
39,3
lt
3 694
3 702
3 706
85,4
87,5
79,2
55,8
51,8
42,6
29,6
35,7
36,6
hu
10 375
10 373
10 374
88
77,7
75,3
52,5
41,9
37,5
35,5
35,8
37,8
pl
38 038
38 183
38 309
90
81,2
68,6
62
51,2
39
28
30
29,6
ro
23 211
23 192
22 810
90
82,6
72,8
60,6
48
39,3
29,4
34,6
33,5
si
1 996
2 000
1 999
77,8
73,1
69,1
50,1
40,2
33,7
27,7
32,9
35,4
sk
5 288
5 311
5 296
93,2
77
66,4
64,7
49,7
39,2
28,5
27,2
27,2
105 973
105 963
105 602
bg
cz
Total
Labour market structure
Employment
2000a00
Growth
rate
2007a00
Unemp. Rate Total
2000a00
Unemp. Rate Males
2007a00
2000a00
Unemp. Rate Females
2007a00
2000a00
2007a00
bg
2794,7
3252,6
16,4%
16,4
6,9
16,7
6,5
16,2
7,3
cz
4681,3
4922
5,1%
8,7
5,3
7,3
4,2
10,3
6,7
ee
572,5
655,3
14,5%
12,8
4,7
13,8
5,4
11,7
3,9
lv
943,7
1118
18,5%
13,7
6
14,4
6,4
12,9
5,6
lt
1404
1534,2
9,3%
16,4
4,3
18,6
4,3
14,1
4,3
hu
3829,1
3926,2
2,5%
6,4
7,4
7
7,1
5,6
7,7
pl
14525,7
15240,5
4,9%
16,1
9,6
14,4
9
18,2
10,4
ro
10652,8
9353,3
-12,2%
7,3
6,4
8
7,2
6,5
5,4
si
900,7
985,2
9,4%
6,7
4,9
6,5
4
7
5,9
2101,6
2357,7
12,2%
18,8
11,1
18,9
9,9
18,6
12,7
42406,1
43345
2,2%
sk
Total
Employment structure in 1998
* BG and PL 2000
BG
A+B
CZ
EE
LV
LT
HU
PL
RO
SI
SK
total
297
267
57
188
286
267
2 727
4 659
109
181
9 037
C
42
86
7
n.a.
n.a.
27
293
203
8
36
702
D
676
1 341
133
183
288
916
2 901
2 305
288
574
9 605
E
58
93
16
24
37
97
263
239
9
53
890
F
160
472
45
54
99
226
1 024
444
51
204
2 780
G+H+I
760
1 193
156
241
336
888
3 178
1 606
200
494
9 052
J+K
120
348
42
46
60
245
911
253
64
114
2 203
L-P
666
1 022
153
249
379
974
3 230
1 387
172
541
8 774
1 486
3 640
14 526
11 097
2 198
43 044
total
A+B
2 781
4 821
609
985
901
10,7%
5,5%
9,3%
19,1%
19,2%
7,3%
18,8%
42,0%
12,1%
8,3%
21,0%
C
1,5%
1,8%
1,1%
n.a.
n.a.
0,7%
2,0%
1,8%
0,9%
1,6%
1,6%
D
24,3%
27,8%
21,8%
18,6%
19,4%
25,2%
20,0%
20,8%
32,0%
26,1%
22,3%
E
2,1%
1,9%
2,7%
2,4%
2,5%
2,7%
1,8%
2,2%
0,9%
2,4%
2,1%
F
5,8%
9,8%
7,4%
5,5%
6,7%
6,2%
7,1%
4,0%
5,7%
9,3%
6,5%
27,3%
24,7%
25,7%
24,5%
22,6%
24,4%
21,9%
14,5%
22,2%
22,5%
21,0%
J+K
4,3%
7,2%
6,9%
4,7%
4,1%
6,7%
6,3%
2,3%
7,1%
5,2%
5,1%
L-P
24,0%
21,2%
25,1%
25,3%
25,5%
26,8%
22,2%
12,5%
19,1%
24,6%
20,4%
G+H+I
Structure of employment in 2007
BG
A+B
CZ
EE
LV
LT
HU
PL
RO
SI
SK
total
245
176
31
111
160
180
2247
2762
96
99
6107
C
35
54
n.a.
6
5
16
248
109
5
16
496
D
766
1406
135
165
268
874
3162
1974
269
635
9653
E
60
73
9
21
26
62
218
176
10
40
696
F
292
447
81
127
171
331
1054
679
59
237
3476
G+H+I
902
1158
169
318
407
1055
3528
1777
217
567
10099
J+K
207
455
59
95
98
370
1316
379
92
193
3263
L-P
744
1153
165
275
399
1039
3464
1498
226
569
9532
total
3253
4921
649
1117
1534
3926
15237
9353
974
2357
43322
A+B
7,5%
3,6%
4,8%
9,9%
10,4%
4,6%
14,7%
29,5%
9,9%
4,2%
14,1%
C
1,1%
1,1%
n.a.
0,5%
0,3%
0,4%
1,6%
1,2%
0,5%
0,7%
1,1%
D
23,6%
28,6%
20,8%
14,8%
17,5%
22,3%
20,8%
21,1%
27,7%
26,9%
22,3%
E
1,9%
1,5%
1,5%
1,9%
1,7%
1,6%
1,4%
1,9%
1,1%
1,7%
1,6%
F
9,0%
9,1%
12,5%
11,3%
11,1%
8,4%
6,9%
7,3%
6,0%
10,1%
8,0%
27,7%
23,5%
26,1%
28,5%
26,6%
26,9%
23,2%
19,0%
22,3%
24,1%
23,3%
J+K
6,4%
9,2%
9,1%
8,5%
6,4%
9,4%
8,6%
4,1%
9,4%
8,2%
7,5%
L-P
22,9%
23,4%
25,4%
24,7%
26,0%
26,5%
22,7%
16,0%
23,2%
24,1%
22,0%
G+H+I
Structure of GVA
1998
BG
CZ
EE
LV
LT
HU
PL
RO
SI
SK
total
A+B
18,8%
4,2%
6,1%
4,0%
9,8%
5,5%
6,0%
16,0%
3,8%
5,4%
7,0%
C+D+E
26,7%
31,2%
22,2%
21,5%
23,0%
28,2%
24,9%
29,1%
30,2%
27,5%
27,0%
4,8%
8,1%
7,0%
6,1%
8,4%
4,6%
7,9%
5,6%
5,7%
7,2%
7,0%
G+H+I
17,1%
24,8%
27,3%
31,9%
27,6%
23,2%
26,7%
25,5%
21,6%
27,2%
25,4%
J+K
19,4%
16,3%
20,8%
15,1%
11,6%
19,2%
16,4%
12,4%
18,9%
16,4%
16,4%
L-P
13,2%
15,4%
16,7%
21,4%
19,7%
19,3%
18,1%
11,3%
19,7%
16,3%
17,0%
HU
PL
RO
SI
SK
total
F
2007
BG
CZ
EE
LV
6,2%
2,4%
2,8%
3,3%
5,3%
4,0%
4,3%
7,5%
2,0%
2,9%
4,3%
24,1%
32,6%
21,3%
13,6%
23,3%
25,0%
23,2%
26,4%
27,5%
30,3%
25,8%
8,2%
6,3%
9,1%
8,4%
10,0%
4,6%
7,9%
10,3%
7,0%
6,7%
7,6%
G+H+I
24,4%
24,6%
26,9%
33,0%
31,5%
21,8%
27,9%
26,0%
22,5%
26,6%
26,2%
J+K
22,0%
17,3%
23,3%
23,5%
14,7%
22,6%
18,4%
14,9%
21,6%
17,8%
18,5%
L-P
15,1%
16,8%
16,6%
18,2%
15,1%
22,0%
18,3%
15,1%
19,4%
15,8%
17,7%
A+B
C+D+E
F
LT
General tasks of transition process




Privatization and private sector building
Price liberalization
Liberalization of foreign trade
Monetary convertibility
 Slovenia and Czech Republic creation of national
currency
 Heading to EU (mid 90’s)
 Restructuring the labour market
 Restructuring of foreign trade orientation
Slovenia (1)
 Overall background

Different position compared to others
 No hard core communism and centralization
 Part of Yugoslavia concentrated on industry
for western territories
 Tradition in self managing companies
 Short war with Croatia
 Transition background
 Gradual approach
 Ignoring Washington agreement with
assumption S>D
 Floating immediately
Slovenia (2)
 Privatization process
 Privatization equation
(10+10+20+(1-x)*40)+(20+x*40)=100
10% Pensioners funds
10% Restitutions
20% Development funds
40% social property
20% employees
0<x<1
x=1 small successful companies, majority of
workers and management
x=0 large unsuccessful companies, state property,
PF, RF
0<x<1large successful companies, auctions for
vouchers
Slovenia (3)
 Restructuring the industry
 Retiring rather than firing
 Strong social dialoque
 Cautious approach to FDI
 Experience in






Acquisitions rather than green field investments
Not much technology transfers
Increased imports more than exports
Specialization within a multinationals
Strong monopolies
Income account deficits GDP vs. GNP
 FDI not positive or negative
 The policy was NOT TO HAVE AN INDUSTRIAL POLICY
(Milič)
Slovenia (4)
 Slovenia’s success factors
 Fast and rational reactions to changes
 High investments to technology
 Openness to foreign investments “take
the best out of FDI” (Pečjak)
 Professional leadership
 Employment policy following business
needs – good social mix
Romania (1)
 Starting possition
 Centralised economy
 Relatively underdeveloped industry
 Rural areas connected to agriculture
 Transition background
 Effective mix of gradual reforms and rare
shock therapy
Romania (2)
 Privatization
 Slow process
 3 stages
 1990 – 1991 – setting up commercial societies
with private or mixed capital
 1991 – 1998 – privatization law allows selling and
buying the shares and state assest
 1998 – ongoing process -
 Mostly foreign strategic partners
 In 2006 only 71,6 % of GDP (by
preliminary data) were made in private
sector
Romania (3)
 Restructuring the industry
 Restructuring industry not a key role in transition
process – deindustrialization
 Wrong policy decisions (subsidies to wages rather
than technology progress)
 Positive effect of FDI due technology transfer
 Key factor of success




Investment in modern equipment
Re training of employees
Environmental investments
Customer orientation
Czech Republic (1)
 Starting point
 Part of Czechoslovakia peacefully spitted
 Highly centralized economy
 More final goods oriented industry
compared to Slovakia
 Advantage (compared to SK) in Prague
as a seat of foreign trade organizations
 Transition background
 Shock therapy
Czech republic (2)
 Privatization process
 Small scale privatization SMEs
 Direct sales
 Restitutions
 Large scale privatization (vouchers)
 Restructuring of industry
 Restructuring done by the system “jump to water and
swim”
 Only key (network) industries were kept state owned
as a social pillow
 FDI as a strategic partnership, “neither saints or evil”
(Zbořil)
 “Tunneling”
Czech republic
 Success stories
 Operation facilities survived the
shareholder’s shocks
 Further foreign strategic investors arrived
 There have been some “victims” but not too
many causing not too much losses
 Looking back the privatization was fairly
smooth and fast and ultimately, succesfull
Hungary (1)
 Starting points
 Open (rather than suppressed) inflation
 Import intensive economic structure
 Exposure to international finance (high international
debts from capital markets, IMF, banks)
 Active fiscal state (subsidies, sur-taxes, „financial
bridges”
 Privatization techniques
 Sale to outside owners
 MBO/ ESOP
 Voucher
 Restitution
 Other
 Still in state hands
Hungary (2)
 Industrial policies
 Antal’s years
 cautious macroeconomic policies: gradual
antiinflationary stance; maintaining access to capital
markets, invitation of FDI
 Radical reforms in micro-economy: banking law,
 subsidy reduction, increase of energy prices, law on
 bankruptcy, market-type privatization
 The “second coalition” 1994 - 1998
 a macroeconomic shock in Spring 1995 to reduce deficit
 U-turn in privatisation: sale of large scale (industrial
natural monopolies, utilities) to foreign investors
 Export-led industrial growth, industrial zones,
statesupport to sub-contractors
Hungary (3)
 Industrial policies
 Correction again (1998 – 2002)






Slow down of privatisation
Mostly cautious macroeconomic policy
Increased support to SMEs
Demand-increasing policies in housing, construction
Support to Clusters
Energy pricing: a political football (A. Bod)





Increased public spending, wage growth, loss of
price competition
Boom and bust in infrastructure-related construction
Tax policies: U-turns
Further privatisation (banks, airport, oil and gas) – in
order to generate revenues
 Accession to EU (2002 - 2006)
Hungary (4)
 Still room for industrial strategy
 Hungary is not doing too well with
Lisbon agenda
 Economic slow down hits mostly SME in
industry and construction
 Duality of the economy: dynamic
transnationals – stagnating domestic
players
 Debates on education system, labour
market regulation, tax system
Poland (1)
 Starting position

deep economic crisis in Poland in the late 80-ies
 Shock therapy approach – 1989/1990






price liberalization
Polish currency depreciation
foreign exchange liberalization
foreign trade liberalization
limitation of subsidies (hard budget constrains)
salaries control and restrictive monetary policy
Poland (2)
 Impact to Industry
 New price structure (including the new price of
the capital and energy)
 Foreign competition
 Decrease of the domestic demand (as a result of
restrictive income policy)
 In 1991 a deep crisis of the enterprise
sector started in Poland. The need to
change the structure of the industry – the
goal to make it more competitive:
 Privatization
 FDI
 Development of the Polish private sector
Poland (3)
 Privatization
 Main goals: systemic (ownership change of the
economy) and economic (increase of the
effectiveness of the privatized companies)
 Speed priority: not so important
 Sectors excluded from privatization (part of the
infrastructure and mining industry)
 Important role of insiders
 Main methods of privatization: direct sales, MEBO,
mass privatization
 there are still more than 2000 companies partially or
fully owned by the State (Gorzinsky)
Poland (4)
 Achievements
 macroeconomic stabilization
 progressing economic integration with the EU
 rapid development of the private sector
 flexible and competitive sector of Polish private
enterprises
 well functioning capital market
 Failures
 high unemployment rate
 low innovativeness of the Polish economy
 not enough level of internationalization of Polish
enterprise sector
 “weak” SME sector
 undeveloped infrastructure
Estonia (1)

Starting points

republics of the Soviet Union;
Creation of basic institutions like (e.g.Central Bank, Ministry of
Foreign Affairs) and introduce completely new currencies etc
There was a strong political consensus on the need for fast and
substantial economic reforms
The hyperinflation in the rouble zone in 1991 and 1992
destroyed the savings of households
Closed markets to Soviet Union




New currency
Monetary reform
Privatization
FDI and structural changes





Key issues of reform
Estonia (2)

Privatisation
 The privatisation process of companies was organised by the
Estonian Privatisation Enterprise followed by the Estonian
Privatisation Agency
 Some elements of the Treuhand scheme, sales were without
the restructuring of companies;
 The companies were sold through open tenders, the first
target being to find core owners;
 Minor part of shares were sold for vouchers;
 No reservation of shares for employees and employers.
 The FDI had a critical role in privatisation;
 Privatisation of infrastructure enterprises (Estonian Railway,
Estonian Air, Tallinn Port, Estonian Telecom) of various success
until 2000s;
 In creation of the private sector, privatised enterprises did not
dominate, a larger number of companies had been created as
new private companies
 The FDI have been creating on average 15-20% of total capital
accumulation in Estonia during 1994-2006.
Estonia (3)

FDI and structural changes








The total FDI stock created 10 bln EUR or 95% of the GDP at
the end of 2006;
The gross fixed capital formation created around 30% of the
GDP in the 2000s;
Changes in the structure of the FDI, less investments into the
share capital and more reinvested profits;
40% of FDI from Sweden, 25-30% from Finland;
Around 30% of FDI stock in real estate, renting and business
services, 28% in financial intermediation, 17% in
manufacturing.
The main determinants of the FDI were related to financial
stability, free movement of capital, rapidly improving legal
framework and favourable tax regime;
Very liberal foreign trade regime,
The perspective EU membership played an important role
Estonia (4)

Industrial policies


The general aim of the Estonia’s economic policy has been the
creation of an open competitive and stable framework
supporting business activities;
Relatively low tax level;








proportional personal and corporate income tax with 21% and
with the tax exemption for reinvested profits
very limited resources available for industrial policy;
The availability of resources from the EU structural funds
created additional resources to finance R&D activities;
The state programmes in ITC biotechnology, materials science
and power engineering.
The central government’s role is increasing acording to local
Tallinn and surrounding county created 60% of the total GDP
and received 70-80% of the FDI until 2007;
The co-ordination between the different government agencies
was too limited;
Ministry of Research and Education
Conclusions and findings
 Privatisation and FDIs was an essential tool
for industrial policy
 Not a clear industial policy in all cases
 Estonia, Slovenia
 Mostly decentralised approach without state
interventions
 Institutional quality is basic element
 FDIs are beneficial in greenfield
investments
 Gradualism vs. shock therapy???
 Labour market transition (hands drain)
For more insight to transition
process
 Kiglics Istvan, Rebuilding the Market
Economy in Central – East Europe
and the Baltic Countries, Akademiai
Kiado, Budapest, 2007, ISBN 978963-05-8557-6
Thank you for your attention
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