Serbia: Vranje Jobless Spurn Loan Offer

Tuesday, 2 August, 2005

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Nikola Lazic

Zoran, a jobless resident in Vranje, southern Serbia, has just applied to the Serbian government's development fund for a micro-credit loan to open a shop. He and his wife lost their jobs at the Kostana textile firm and at Jumko footwear manufacturers respectively, and jointly seek a loan of some 12,000 US dollars.

"The only way out of the dire economic situation in which my family finds itself in is to start our own business," he said.

Alongside another 140 people in the Pcinja area who have applied for similar micro-credit loans, they are waiting to see if the fund accepts their applications.

Given the disastrous state of the economy in southern Serbia, one might expect Zoran to be among thousands of applicants for such loans. But this is not so. Though Vranje has one of the worst unemployment rates in Serbia, there has been no rush for development fund credits, in spite of the fact that they are targeted at jobless people.

Analysts scratch their heads about this phenomenon. Some claim that Vranje people are reluctant to accept responsibility for their futures and attribute this lack of initiative to the legacy of the communist era. Others pinpoint people's ignorance of economic principles and fears that they will not be able to repay their loans.

With 80,000 inhabitants, Vranje is the biggest town in the Pcinja district in Serbia's underdeveloped southern tip. Of 12,000 officially unemployed in the municipality, only 40 have applied for micro-credit loans. The deadline for submitting applications expired on May 20.

Intended exclusively for persons registered with the National Employment Agency, NSZ, the sums offered range from 7,200 to 30,000 dollars, with a low annual interest rate of one per cent and a one-year grace period. Little paperwork is needed. Applicants need proof of a mortgage and either a contractual guarantee signed by a solvent legal entity or a promissory note with signatures of two fully employed endorsers.

The credits compare favourably with rates for loans charged by commercial banks – most set two or three per cent per month and insist on substantial deposits.

Wages are low in Vranje, even by Serbian standards. No longer the prosperous "Little Switzerland" of communist times, monthly salaries average at 220 dollars, 30 dollars less than the national rate.

The town earned its nickname in the communist era, when several large socially owned firms employed tens of thousands of workers. That all disappeared after the collapse of Slobodan Milosevic's regime in 2000 and the start of the economic transition period. In the process of adjustment to a market economy that followed, most of Vranje's industrial complexes proved unviable and shed their workers.

Of the three giants that used to employ more than 20,000 people between them, only Simpo, a furniture maker with little more than 6,000 workers, has survived. Even this firm's future is precarious. Privatised in 2000, it has run up 146 million dollars in debts and only operates thanks to state subsidies and the sale of its most profitable parts.

Workers at two other local giants, Jumko and Kostana, are less fortunate.

Jumko once had almost 10,000 employees. Having assumed its debts of 36 million dollars, the government has become the majority shareowner. It has since offered generous pay-offs to redundant employees who comprise more than half the old workforce. All are registered with the local NSZ office.

Kostana's workforce of around 2,400 have fared worse. Since 2003, the company has been bankrupt and the management wants the state to pay the 6.4 million dollars it owes in unpaid wages and welfare benefits. This is only the tip of the iceberg, as the firm's overall debts total 26 million dollars.

So far, Kostana has attracted the attention of one potential purchaser, Amasis of Belgrade, which has offered only 1.8 million dollars for Kostana's remaining assets – an empty factory and deserted manufacturing facilities. As Amasis is buying a bankrupt company, it has no obligations towards Kostana's 2,400 employees.

When the workers from smaller companies in Vranje that have collapsed are factored in with those who never found jobs in the first place, one reaches the figure of 12,000 people listed as unemployed in Vranje's NSZ office.

One reason behind the low take-up rate for micro-credit loans among this pool of unemployed workers is that few are professionals with higher education degrees.

Most are manual workers who imbibed the work culture of the communist era, when initiative was frowned on and it was accepted that the authorities would take care of them.

The new authorities have done little to remedy this culture, either through incentives or retraining schemes for the unemployed, few of whom have experience of running private businesses.

Dragan Petrovic, parliamentary deputy for the reformist G17 Plus from Vranje and a member of the Serbian parliament's agricultural committee, blames the lack of an entrepreneurial spirit among local people on an insufficient knowledge of legal regulations and a reliance on the habits acquired in communist times.

"Locals here are not following modern economic trends," he told IWPR. "Few people know how to draft a proper business plan, which is the essential preliminary phase for starting a business."

The locals are used to working from 7am to 3pm in state-run companies, he added, and are not accustomed to assuming responsibility. Launching and running a private business is uncharted territory for them.

But Srboljub Dimitrijevic, a doctor of philosophy from Vranje, does not believe there is a problem with the local people's mentality. He points out that the region underwent an economic boom a century ago, when it was still part of the Ottoman Empire, which suggests Vranje people are not inherently lacking in the entrepreneurial spirit.

Dimtrijevic assigns the blame higher up. "The state has not clearly defined its economic policy," he said. “If someone loses his job – even if he takes a loan – he simply does not know where to invest the money.

"The state has failed to educate people about launching and running private businesses - and paying back loans is not easy."

Miodrag Antic, president of the Private Entrepreneurs Association for the Pcinja and Jablanica districts, which numbers 1,200 members, agrees. Locals want to set up businesses but are put off by interest rates, the requirements set for obtaining loans and the paperwork, he said.

Whatever the reasons for it, the government's micro-credit scheme appears to have failed in this part of Serbia. The trickle of applicants want only to start small shops and workshops, for the most part, so few of the new businesses will make any difference to the town's jobless rate. For the time being, at least, the list of names registered at the local NSZ office may remain as long as ever.

Nikola Lazic is an IWPR contributor in Belgrade.