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Res Publica announces: Tales from the Region #2

In the first edition of "Tales from the Region" we addressed the various challenges that countries in the region faced in the first few months of the pandemic. We read seven "tales" through which we learned how neighboring countries and their health systems were affected by the initial wave of COVID-19.

More importantly, we have seen that many countries in the region are in the "same mess". Politicians and political parties place their own political interests above those of the citizens. In some countries, the number of new positive cases of COVID-19 not only did not decrease, but experienced "peaks" in the summer months, when the virus was expected to subside. Meanwhile, the citizens of these countries for the most part were undisciplined in following the recommended measures for protection and prevention.

After the first few months, we witnessed large public gatherings (concerts, sports competitions, celebrations, etc.) without any respect for safeguards. However, these gatherings were not only left unsactioned, but in some cases even supported by the government.

Meanwhile, the economy has slowly succumbed to the virus. How? We find out through the "tales" of our collaborators from Croatia (Prlija), Kosovo (Sbunker), Serbia (Не давимо Београд), Bosnia and Herzegovina (Анализирај.ба), Montenegro (PCNEN) and Bulgaria (Sega.bg). They show where things went wrong in the past few months, but also point out what needs to be done in the future.

In anticipation of the expected second wave, we seek an answer to the following question: how to avoid a complete lockdown of the economy again, while ensuring maximum protection for citizens?

We find out in the second edition of "Tales from the Region".

The "Tales from the Region" initiative is implemented by the Institute for Communication Studies within the project "Connecting the Dots: Improved Policies through Civic Engagement" implemented by the Institute of Communication Studies (ICS), with the support of the British Embassy Skopje.

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Invisible in the fight against an invisible enemy

Stefan Maric

Stefan Maric 200x250Self-employed persons, workers in precarious employment or in the "shadow economy", as well as the most socially underprivileged households, are largely left alone again, twisting in the wind.

Despite the "economic optimism" of the ruling elite in Serbia, the effects of the health crisis have spilled over into the economy to a considerable extent. Although a solid amount of funds has been allocated to help the economy, it seems that the state policy for the most endangered categories of workers, businessmen and the population has remained unchanged. The large part of self-employed persons, workers in precarious employment or in the "shadow economy", as well as the most socially endangered households, are left alone again, twisting in the wind.

The great number of layoffs in the informal sector of the economy were accompanied by mass layoffs of workers who worked in the factories of some of the largest foreign investors. The economic policy of attracting foreign investments "at any cost", which the ruling regimes in the country have been pursuing for many years, has once again shown its dark side. Serbia is also the only country in the region that neither increased, nor expanded the coverage of social benefits for the poorest sections of the population during the pandemic.

The Government of the Republic of Serbia adopted the first serious economic measures aimed to minimize the negative economic consequences of the pandemic with a certain delay, only at the beginning of April.

The National Bank of Serbia (NBS) was somewhat more agile in adopting anti-crisis economic measures, and in addition to the usual move of reducing reference interest rate in crises of this type, NBS also made a decision to introduce a moratorium on loan and lease repayments. The deferment in the repayment of these obligations was valid for a period of at least 90 days from the introduction of the state of emergency (March 15) and applied to all individuals and legal entities. Such a measure had at least a temporary positive impact on the liquidity of the population and the economic system, but, as with many others, this too was accompanied by controversies. Although banks did not charge default interest, they charged regular interest on all loans for the period when the moratorium was valid. In practice, this meant increasing the total value of liabilities after the moratorium expired by the amount of accrued interest during the moratorium. The highest state officials and pro-regime media did not go out of their way to explain in more detail the mechanism of the moratorium, so for many citizens, this "catch" went "under the radar".

After several weeks of uncertainty as to whether and in what way the state will react to help the economy in the fight against the "invisible enemy", the Ministry of Finance finally publicly presented the adopted economic program on the last day of March. According to the Finance Minister’s announcements, the total value of these measures amounted to 610 billion dinars (5.1 billion euros), which is about 11 percent of the value of the country's GDP. However, these 610 billion also included loans from private banks to the economy, so the real value of these measures actually amounted to 430 billion dinars (7.8 percent of GDP). The Government's economic program included postponing the payment of taxes and contributions on wages and profits for the following three months, payment of the minimum wage to micro, small and medium enterprises for each employee in the next three months, access to soft loans for these companies, and one-time payment of 100 euros to all citizens of the Republic of Serbia who are of age. These measures have definitely led to much needed liquidity being injected into the economy; however, they could have been more generous and much more selective.

For instance, the measure of deferral of payment of taxes and contributions could have been accompanied by the write-off of these obligations, especially for micro and small enterprises that operate in the most affected areas of business, such as tourism, catering and transport. The government could have created a scheme according to which, in addition to the payment of the minimum wages for less affected companies, it would also pay a larger amount of aid for companies that experienced the biggest drop in turnover, which was exactly the case in the abovementioned branches of business. Also, much greater efforts could have been made to make loans much more accessible to micro and small enterprises, which, unlike larger companies, often do not have well-established credit arrangements with banks, making it difficult for them to access these much-needed funds.

Poor criteria and an epidemic of layoffs

For any firm to qualify for any of the measures under the Government's economic program, the condition was for the firm not to have laid off more than 10 percent of the workers starting from the onset of the state of emergency to the date of formal entry into force of these measures. And this is the criterion that leads us to the first major issue. Namely, we can easily imagine a situation in which a hairdresser or car mechanic with up to 9 employees was forced to lay off at least one worker due to a drastic drop in demand. According to the set criteria, such a decision would automatically disqualify this company from the assistance program, unlike some larger companies with up to 100 employees, which could theoretically lay off up to 10 workers, after which they could still formally apply for state aid. This would prevent many companies that were most affected by the crisis from benefiting from the assistance.

Another problem with this criterion is that the maximum of 10 percent of dismissed workers did not apply to workers employed through employment agencies, since such workers are not formally registered as employees of the company in which they de facto work. Also, the 10 percent did not include temp or contractual workers. This is especially problematic if we keep in mind that according to this year's Eurostat data, there are as many as 437 thousand workers listed in the category of temporary employment in Serbia. The number of workers working in precarious conditions in Serbia has quadrupled in the last 8 years (from 2.4 percent in 2011 to 8 percent in 2019) and is currently at a level that is three times higher than the EU average. It was these workers (besides workers working in the informal sector) who were most affected during the pandemic. Large foreign investors were in the lead in the mass layoffs in Serbia, who in the past, encouraged by the generous scheme of state subsidies, relocated parts of their capacities to Serbia.

Losi ekonomski politiki i epidemija na otkazi vo SrbijaSource: newseu.cgtn.com

The Finnish automotive cable factory, PKC from Smederevo, fired about 350 people in two waves. Until 2014, this company received almost 14 million euros through the program of state subsidies. Hutchinson, a French water hose and gasoline hose manufacturer, fired between 80 and 300 workers (the number depends on whether you ask the workers of Hutchinson or the Mayor of Ruma). This factory received state subsidies for the construction of the first of the two production plants, and it also benefited from the construction of infrastructure financed by the state and local self-government in the amount of over one million euros.

As a result of a liquidation process of as many as three subcontractors working for the Italian company Olimpias in Nis, exclusive supplier of the famous Italian company Benetton, between 500 and 700 workers lost their jobs overnight. This multinational Italian company is also one of the foreign companies that received generous state subsidies. In the case of Benetton, by the year 2015 the company received 10.5 million euros in subsidies just for opening in Serbia.

Data manipulation for political purposes

Believe it or not, the ruling political party in Serbia not only boasts about the reduction of unemployment in the midst of the pandemic, but is even proud of the fact that unemployment has come down to a record low level. Although the category of unemployment really is reduced according to official statistics, this result is solely a consequence of the economic methodology and in no way does it mean that there were no layoffs during the pandemic. Namely, in order to fall into the statistical category of unemployment, you have to be actively looking for a job, which is made very difficult, sometimes impossible, during a pandemic. That is why a large number of workers, after being fired, went from the category ‘employed’ to the category ‘inactive’, not ‘unemployed’.

Thanks to this, it is possible to reduce unemployment (by about 87 thousand) and employment (by about 33 thousand) at the same time, at the expense of a large increase in ‘inactivity’ (not only from the category of ‘employment’, but also ‘unemployment’). That is why the figure that shows reduction of employment is much more relevant for gaining a picture of the current situation on the labor market in Serbia. But to get an even better picture, we need some more data.

Thus, e.g. The International Labor Organization (ILO) calculated that in Serbia, if you compare the second to the first quarter, the total number of working hours was lower by as much as 14.8 percent, which would theoretically be equivalent to 510 thousand jobs lost. However, it is important to say that this reduction in the total number of working hours includes not only people who have actually lost their jobs, but also workers whose working hours have been reduced, as well as employees currently on mandatory leave, etc.

The political elite in Serbia also did not miss the opportunity to boast about the fact that during the pandemic, Serbia will have one of the lowest rates of GDP drops, or as they like to say - the highest growth rate (albeit negative). However, the relatively lower rate of GDP decline in Serbia (according to the IMF, 3 percent this year) has little to do with an overly successful economic policy, but with the structure or underdevelopment of the economy. The coronavirus pandemic has had a proportionately higher effect on developed countries due to the greater relative importance of products with higher added value, such as cars, machinery and equipment, tourism, etc. that faced the biggest drop in demand.

As a country whose share of agriculture and the food industry (with the least affected demand) is five, i.e. three times respectively, higher than in the countries of Western Europe, Serbia simply does not have the same problems as the developed countries of the West.

Pre-election "gift" in the form of 100 euros

The decision of the Government to include a one-time payment of 100 euros to all citizens who have passed the age of majority in the package of economic measures caused the most resentment with economic experts, but also with the public itself. The main reason was the fact that the financial aid was the same, regardless of the individual's income.

So, better-off members of society did not even notice receiving 100 euros in their bank account, while for those who need this help the most, it was insufficient to meet the most basic needs. Disadvantaged households with a larger number of children were most affected, since underage citizens did not receive this assistance.

Underprivileged families also do not have their own savings and have fewer backup options (for example, it is harder for them to borrow money), and unexpected costs arise (masks, hygiene products, etc.) arise during a pandemic. Socially responsible policy in times of crisis is particularly important in the countries that rank highest in Europe in terms of the at-risk-of-poverty rate, and Serbia is one of them.

In that context, it is a devastating fact that Serbia is the only country in the region that has neither increased the amount of financial social assistance, nor has its coverage been extended to a larger number of people.

A huge part of the budget funds, as much as 600 million euros, were spent on this one-time payment of 100 euros to all citizens. For the sake of comparison, that is two and a half times higher than the total annual payments to welfare recipients, half as much as the agrarian budget or a whole three times higher than the average annual investments in healthcare in the past three years.

According to the estimates of the Fiscal Council, as many as 30 percent of companies in Serbia did not take advantage of the possibility of deferring the payment of taxes and contributions to earnings and profits. Two-thirds of micro, small and medium-sized enterprises relied on their own reserves and the help of friends and family to resolve financial difficulties during the state of emergency, and only 5-10 percent said that the government measures influenced their decision not to lay off workers. According to a survey of two domestic NGOs, about 230 million euros out of 950 million, which was the total value of direct state aid to companies in the form of payment of minimum wages, could potentially go to companies that did not suffer economic loss. All these data represent arguments in favor of a more selective approach to the selection of companies and business branches that need economic assistance the most.

If it could be said for the first package of measures that, for simplicity purposes, it was necessary to grant aid to everyone, so that the money reaches the endangered companies as soon as possible, such an argument cannot be used for other economic aid packages, as the Government had time to assess which sectors of the economy were most endangered by the pandemic and to create a new package of measures accordingly.

An economic program that would be much more selective (by introducing a level of turnover decline as a threshold for granting aid, for example), but also more generous for a much smaller number of targeted companies, as well as a socially responsible policy that would significantly increase allocations for the most disadvantaged population is the only possible remaining response to the unpredictable economic consequences of a pandemic whose end is not yet in sight.

 

This blog is published as part of the regional blogging initiative “Tales from the Region”, led by Res Publica in partnership with Analiziraj.ba (BiH), Sbunker (Kosovo) Ne Davimo Beograd (Serbia), PCNEN (Montenegro), Prlija (Croatia), ABCnews.al (Albania) and SEGA (Bulgaria).

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Note: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of the Institute of Communication Studies or the donor.

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Thursday, 03 December 2020

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