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Industrial transition models – review on Slovenia, Romania, Czech Republic, Hungary, Estonia and Poland Vladimir Kvetan Institute for Economic Research Slovak Academy of Sciences
Industrial transition models – review on Slovenia, Romania, Czech Republic, Hungary, Estonia and Poland
Vladimir KvetanInstitute 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 populationTotal dependency
ratioYoung dependency
RatioOld dependency
ratio
1990 2000 2007 1990 2000 2007 1990 2000 2007 1990 2000 2007
bg 8 767 8 669 8 595 88,4 80,1 75,9 52,3 41 34,9 36,1 39,1 41
cz 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
Total
105 973 105 963 105 602
Labour market structureEmployment
Growthrate
Unemp. Rate Total Unemp. Rate Males Unemp. Rate Females
2000a00 2007a00 2000a00 2007a00 2000a00 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
sk 2101,6 2357,7 12,2% 18,8 11,1 18,9 9,9 18,6 12,7
Total 42406,1 43345 2,2%
Employment structure in 1998* BG and PL 2000
BG CZ EE LV LT HU PL RO SI SK total
A+B 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
total 2 781 4 821 609 985 1 486 3 640 14 526 11 097 901 2 198 43 044A+B 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%
G+H+I 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%
Structure of employment in 2007 BG CZ EE LV LT HU PL RO SI SK total
A+B 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%
G+H+I 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%
Structure of GVA1998
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%
F 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%
2007
BG CZ EE LV LT HU PL RO SI SK total
A+B 6,2% 2,4% 2,8% 3,3% 5,3% 4,0% 4,3% 7,5% 2,0% 2,9% 4,3%
C+D+E 24,1% 32,6% 21,3% 13,6% 23,3% 25,0% 23,2% 26,4% 27,5% 30,3% 25,8%
F 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%
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 funds10% Restitutions20% Development funds40% social property20% 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)
Accession to EU (2002 - 2006) 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
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
Key issues of reform New currency Monetary reform Privatization FDI and structural changes
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 978-963-05-8557-6
