Cyclopedia Of Economics 3rd edition

For example, the Nomura company, as one of the most powerful investment banks in the world, with shareholders' capital of over 15 billion dollars, with 63 international offices in 26 countries, approximately 3 million client accounts and over 400 billion dollars in managed client funds, last year, "as a joke", bought 4000 pubs in England. It holds the first place in Central Europe (excepting Russia) as a leading provider of financing. Since 1995, in their capacity as lead managers, they invested 2,7 billion dollars in this region (source: Euromoney Bondware). JP Morgan are right behind them, judging by the same criteria, with 2,2 billion dollars, Daiwa Securities with $1,9 billion, Credit Swiss First Boston $1,6 billion, Merrill Lynch with 1,4 $billion. Nomura was the lead manager of the first public offering of bonds of the National Bank of Slovakia in 1994, to the tune of 25 billion yens. At the same year Nomura bought the municipal bonds of the city of Prague for 250 million US dollars, invested 24 million dollars in corporate bonds in Slovakia, invested 4 billion in Latvia, 15 billion in bonds of the National Bank of Hungary, 60 million $ in international bonds issued by Lithuania. In 1996, besides the issue of municipal bonds of the city of Tallinn, in Latvia (60 million DM), Nomura invested 50 billion yens in Romania, 70 million $ in corporate bonds in the Czech Republic, and in 1997 they invested 500 million $ in bonds of the City of Moscow, 70 million $ in Slovakia, 450 million dollars in international bonds in Ukraine. In 1998 hitherto, they concluded new investments in The Czech Republic (the takeover of IPB Bank), and negotiations in Ukraine and Slovakia are in their final stages. The same company invested 91,2 million $ in Pliva-Croatia, 31,1 million $ in VTS-Slovenia, 24,7 million USD in SKB Bank in Slovenia, and in July 1997 453,3 million $ were invested by it in KGHM Polland Miedrz SA.

The first kind of information barrier is much more serious. That Macedonia is absent from the information cum investments race is suicide.

All of this can be compared to basketball. 7 or 8 years ago nobody in Macedonia knew what was happening in the NBA league, but today, after regular TV broadcasts and commentary, the bulk of the populace feels the league to be its own. Many know the names, success stories, the good and the bad side of every team in the most lofty basketball league. If anyone were to inform the public about the events in the world's capital markets, as well they do regarding the events in basketball, the picture would have been different. Many of the citizens would have put this knowledge to good use, especially in view of the emergence of the capital markets in Macedonia. Unfortunately, not only has the domestic public been until now in a so called informational vacuum, but the passiveness of Macedonia with regards to this question, obstructed the ideas or opportunities of the investment multinationals to invest their capital in Macedonia. This caused great damage to the country, and it is a missed opportunity.

Foreign capital is important for faster development as well as for a prompt exit from the economic crises and isolation. Foreign capital is also important in preparing the country to EU entry. Until and unless it finds interest in Macedonia, the probability of entering EU are very small. At the moment, this is better, because if Macedonia were to enter the EU now or in the near future, it would have become an even bigger base for the supply of raw materials to that community than it is now. Macedonia must deeply enmesh itself in the process of globalization, and to ask for the acquirements from it. In that game every side has its own "mathematics". The rich can get richer, and the poor can get less poor. This option is possible, but if one is not careful, the poorer can get even more so.

1. 
   How aggressive will Macedonia be in its propaganda;
   
2. 
   How much "substance" it has to offer, and
   
3. 
   The conditions offered by it.
   

In the prestigious SBC-Warburg-Dillon-Read the present director of equity investments, the executive director of the head office covering equity investments in the European emerging markets, and another person from the so called "emerging markets" discussed the Macedonian capital market. While mentioning the state telecommunications company in Macedonia, I was asked: "Can you dial a foreign country from Macedonia, or the people can dial only between them, inside the country?"

This question was asked when the Macedonian government was announcing the privatization of the state telecommunications company, probably not loudly enough.

Similar questions were asked regarding other fields and concerning concrete and potential opportunities related to investment in Macedonia. My conclusion was that their knowledge about the State, in general and about the Macedonian national economy, in particular, was equal to the knowledge that the average Macedonian has about Tanzania. The above mentioned company has invested billions in: The Czech Republic, Uzbekistan, Poland, Russia, Romania, Bulgaria, Ukraine etc. except in Macedonia. I could notice the same thing in almost every similar multinational. Most of these companies, with no exaggeration, have so much money that they could buy, without any problem, all the companies in Macedonia. For example, the seven funds of Flemings manage, between them, 64,99 billion pounds (June 30 1997), equivalent to 188 billion German marks.

Macedonia is one of the risky countries. Eventual investment of foreign capital in the form of portfolio investments would come after forming a judgment that high profits would be made from speculative investments. There is no other reason why would anyone invest in Macedonia and not in, for example, England where the risk is much lower. The Macedonian companies and the Macedonian market can compete only by offering higher yields through capital gains, dividends or interest payments, and especially the former. Because the capacities in Macedonia are under-utilized, and the level of development is low, higher positive earnings are possible.

I would like to return to the suggestion, that the government should initially take upon itself to attract foreign capital. The minister that I mentioned earlier should suggest a programme with pre-determined deadlines, and submit a report to the government on compliance with it. He should be directly engaged in:

1. 
   Attracting portfolio investments (selling smaller and/or bigger parts of several our companies to western investors, through the stock exchange). In this case we are talking about indirect investments (through the stock exchange) of large, prestigious, investment banks, brokerage firms, funds etc.
   

2. 
   Attracting direct investments (sale of control nuclei of factories and other companies in Macedonia to foreign investors, and with a prior agreement signed with the government and with the Agency of privatization). These deals – in the absence of a law regarding takeovers - would formally be effected through the stock exchange. In this context, we are talking about direct investments where multinational renowned manufacturers of a certain products would buy factories in Macedonia, in their field of manufacturing.
   

3. 
   Joint investment in new projects.
   

4. 
   Finding buyers - underwriters of eventual issues of Macedonian Eurobonds.
   

5. 
   Attracting foreign capital to the field of tourism.
   

It would be best to leave the mission of contacting direct creditors (IMF, WB, EBRD, etc.) of the state to another person(s).

 

PART FOUR

The person that this project would be entrusted to, must have enormous knowledge in the field of international finances and must exceptionally well know the problems and needs of Macedonia.

• 
  Companies – consultants, at least in London, New York and Frankfurt , that would be remunerated through a flat rate combined with a percentage of every realized deal; Besides using the services of the Law and Economy Faculties in Skopje, the government should engage independent financial consultants, in Macedonia and abroad;
  

• 
  The embassies of Macedonia in the big financial centers should have new appointees besides the existing staff: qualitative representative of Macedonia with expert help from economists associated with this project.
  

The impression is that the external problems could be solved much faster than the internal ones, because of, as one high-level financial expert and politician in Macedonia stated: "the hostility of the domestic managers of the companies towards the foreign capital", which more or less is the generator of every other problem in Macedonia with regards to the attraction of foreign investments. This situation will sooner or later change, but the conditions and the environment will no longer be the same. The favorable conditions for foreign investments have its timing, just like everything else.

The legal environment is the starting point of serious intentions for attracting large amounts of foreign investments. There is a need for customized laws and/or for the introduction of changes to existing laws, which will give the capital market in Macedonia at least approximately equal conditions with the same in other countries in transition, not to mention more favorable ones.

First of all there is no law for foreign investments as a ''lex specialis''. It is a big lacuna in the legislation in Macedonia. Of course it would mean discrimination against domestic companies, but we must know that if we want foreign investment, the discrimination is unavoidable. Even now there are a few discriminatory articles in the laws of Macedonia (e.g., tax laws), but obviously it is not enough. All East European countries gave strong stimuli (and this means discrimination) to foreign investors. This is our fate.

But Macedonia is an opposite case. In Macedonia, more laws contain discrimination against foreign investors or non-standard legal conditions for investment.

The Macedonian courts must accord faster treatment to all the matters involving a foreign company or a foreign investor.

In the past, I proposed to establish a special court (within the existing court system) for foreign investors. This court will be obliged by law to render a decision and judgement in six months time. Otherwise, it will have all the authority and responsibility of a regular court. This single act may be more important than reams of paper imprinted with the right verbiage of non-applicable laws.

Besides this, in the section dealing with the penal aspects of the same law, there should be serious punishment for the company and for the managing organs in case of a violation of this regulation. The deviations from this regulation should be regulated in details with a law. For example, for performing a transaction with bank shares above a certain percentage, a prior consent is needed from the NBRM. If this consent (permit) is not provided, the managing organs have the right and the obligation to condition the transaction.

The creators of the Macedonian stock exchange, Mr. Andy Wilson and Barry J. Bird from the consultancy ISC (the first is the former Executive Director of the London Stock Exchange), also estimated that this article is the main reason for the absence of foreign capital in Macedonia in the form of portfolio investments, and for the stagnation in the development of the stock exchange in Skopje.

"It is very difficult to imagine a good reason why an association whose shares are publicly traded, prohibits the legitimate shareholders to sell their shares, except if their intention is not to allow the members of the Board of Directors to buy shares at prices suitable for them."

Most of the stock companies in Macedonia have this regulation in their statute. Most of them even predicted that their administrative organs will determine the price of the shares, which will be sold to the members of the Board.

If the companies whose shares are traded in public must grant permits for any transfer of their shares, than there is a very serious risk that nobody will care to invest in them. This refers, particularly, to foreign investors who don't think that it is reasonable to ask for a prior approval from the business associations to sell their own shares. Members of the board of directors, who want to buy other shares, need to do so in competition with the public, and not to have privileges at the expense of other shareholders. Due to this provision in the Law for Investment Funds in Macedonia it will be very difficult to trade shares. Now the probability that the Investment Funds in Macedonia (whose development is likely to encounter other problems), will not function properly is very high, and that will have inevitable negative results on the saving and on the Macedonian economy.

One of the arguments for including this article in the Law for Business Associations is that this will help the stock companies in preventing unwanted actions. However, it is not a way to achieve that goal; it could be stopped with regulations and a behavior codex in the case of taking over and associating.

This is because of the possibility, given to the Board of Directors of the companies to manipulate the ownership structure. To foreign investors, the possibility that the future of their investment will depend on the good will of a company's administrative organ is unacceptable, not serious, and deters them from investing. There are precedents (for example in Russia). In 1946, the communist government of the " new social order" took away the property of the citizens, "by law". From the legal point of view, everything was fine. Today, in some ex-communist countries, there are still attempts to limit the freedom of the use and disposition of private property.

This problem concerns both foreign investors and thousands of small shareholders in the country.

The most alarming thing in Macedonia regarding this question, is that, until now, not one serious force or lobby appear, that concretely and seriously addressed this issue. Potential candidates include: political parties, journalists, powerful non-governmental organizations, trade unions, the political opposition, the professors' lobby, the management lobby etc.

This article is a result of the ineffective law of privatization in Macedonia. This fact (the inefficacy of the whole process) is less and less disputed in Macedonia both by those who authored the law and by those who were responsible to implement it.

Once the primary and secondary cycles of privatization in Macedonian ended (and the shares were concentrated at the management levels) - the third cycle of privatization will begin. Then, the defenders of this law will ask for changes in it, because of the impossibility - without foreign capital - to keep up with the industrial development of competitive companies in the countries in the area and worldwide. Unfortunately, many opportunities will been missed by then, and the citizens of the middle and poorer classes of Macedonia are likely to feel the brunt. 90 per cent of the nation belongs to middle and poor class of citizens. There is low probability that this law will be changed till the next parliament elections in Macedonia, so as to avoid conflict between the government and the management lobby. The resolution of this question depends on the pre-election government calculus, on pressure applied by international financial institutions. In the best case it will be changed just before or after the elections. In worst case, only after completion of the privatization process in Macedonia in the year 2001.

When we discuss the Law for Business Associations, it seems that there is a need for a clear distinction between the open and closed types of stock companies, also known as public and private companies of the Anglo-Saxons type of legislation. The first ones should have much more facilities and faculties than the second ones.