01 April 2006

Letter from Pristina: Nearly everything's for sale in the city without a country



As you sit in the smoke-filled bar of the somewhat threadbare Grand Hotel Pristina, drinking another bottle of the perfectly adequate Pec beer, you wonder if someone will arrive to pay the bill.


Yes, the bill for the hotel, and for the beer. Or, rather, for the entire brewery. And for the manganese industry, the national winery and the entire hydroelectric industry, if you please. Soon. Anyone.


In Kosovo these days, almost everything is for sale. Most of the economy, including the biggest hotel in town and the only brewery, is still mired in rusty state-run industries from the days of communism, when this was a province of Yugoslavia.


Most of it can be had for a very low price, too. That's because a lot of investors get spooked by the small print -- specifically, by the address. The problem is that Kosovo is not a country. It is technically a province of Serbia and Montenegro, but it has been under United Nations stewardship since the 1999 NATO war. Its precise status is the subject of talks in Vienna that might, or might not, turn it into a nation; in the meantime, it is nowhere land.


"It might not be a state, but it is a transforming economy, on its way from war to peace and from communism to a market economy," offers Joachim Rucker, the energetic German diplomat who has been given the unenviable task of selling Europe's most messed-up economy to the world.


As head of the UN's Kosovo Trust Agency, his job is to find buyers for the thousands of state enterprises, tiny and huge, functioning and (mostly) collapsed, that populate this formerly authoritarian economy.


The world has plenty of experience in privatizing ex-communist industries, and most of them are negative. Kosovo, as a place trapped in a post-conflict limbo, has the benefit of being late in the game. So the UN has picked Germans to run its agency, since the former East Germany is one of the few places (along with the Czech Republic) that did a decent, non-corrupt job of creating a real economy in the ashes of totalitarianism.


Mr. Rucker's system is designed to avoid the pitfalls that have plagued places such as Russia. He sells not the corporations, but their various productive assets, stripping out debt and original corporate structures. He judges bids not on the purchase price (since many firms are worth little more than their real estate), but on the amount the bidders are willing to invest, in the long term, in making them productive. And, if there aren't enough bidders, he cancels the auction.


That happens a lot. The brewery and the hotel remain in a rusting netherworld, because two previous attempts to sell them have attracted only one or two bidders, none of them very credible. In recent weeks, both have received new bids, which are being considered.


Mr. Rucker's pitch offers the one really strong selling proposition in Kovoso companies: You're really getting in on the ground floor. When people think about "emerging-market investments," this is not usually what they have in mind. Owning the only decent hotel in the capital of a not-yet-country could have an upside.


But the downsides are many. Doing business in Pristina, the bombed-out shell of a landlocked hinterland that was never one of the region's economic powers, can have its challenges.


One problem, a big one, is that you're not buying your company from its actual owner -- and nobody currently knows just who that owner might be. If Kosovo gets independence, Serbia may well have strong legal claims on all the former Yugoslav companies.


That explains why it's called the Kosovo Trust Agency: 80 per cent of the proceeds are placed in trust until they can be given to whatever sovereign state, or states, eventually emerge from all this (there is still the risk that the legitimacy of the sale itself could be challenged). The other 20 per cent are immediately given to the employees (or ex-employees) of the firm, since Yugoslav companies were officially "worker-owned."


There's another problem. Outside of any business, and most homes, is a growling box emitting diesel fumes. It's the mandatory electric generator. Even though Kosovo was once the main electricity power for Yugoslavia, it's now unable to even come close to meeting its own needs. Power is rationed: You get five hours with electricity, then one without.


"Energy stability is a huge issue for any foreign investor," points out Besim Beqaj, the head of the Pristina Chamber of Commerce. Which leads to the hydroelectric system, which could really use some investment. Except that it's too much of a mess to sell. The biggest problem is that people in Kosovo have never paid electric bills, and most still don't. There really isn't enough money to set up a proper bill-collecting system.


What would it take to get that going? To start with, someone ought to buy the brewery. You'll need a drink.