Accessibility links

Corruption Deters Foreign Investment in Balkan Region - 2003-06-24


Endemic corruption, mostly in the form of bribe paying, continues to deter foreign investment in the Balkan region of southeastern Europe. Lack of clear ownership of enterprises and a tainted judicial system are also obstacles to investment.

After the fall of Slobodan Milosevic almost three years ago, Serbia again became part of the world economy and there was a shortage of quality hotels in Belgrade. The Inter-Continental, a luxurious suburban facility that was built in 1979 to host an annual meeting of the International Monetary Fund, was a prized property. Starved of investment in the 1990s, but still with an expert staff and a fine location, the Inter-Continental has attracted interest from foreign investors.

But the hotel has an unsavory image. One of the most notorious underworld figures in Serbia, Arkan, was a frequent visitor. His wife managed a fashionable shop inside the hotel. Arkan himself was subsequently assassinated, gangland style, in the hotel lobby. The Inter-Continental chain, which had only indirect links to the hotel, a year ago threatened to withdraw its logo and name because royalties had not been paid.

In recent months representatives of global hotel chains have come to Belgrade to consider a bid for the Inter-Continental. But economist Milko Stimac says the potential investors were scared away when they looked at the company's books. Management, he says, has split the company in two and loaded up the Inter-Continental with debt.

"The main part of this new enterprise was the Inter-Continental hotel, which immediately was exposed to asset stripping [the money removed]," he said. "Now Inter-Continental is over-debted."

The structure and ownership of the hotel are also in question. They are now being adjudicated by the unreformed Serbian courts.

With occupancy much higher than it was two-years ago, many hotel employees believe the current owners do not want a foreign partner. Critics, and there are many, fear that an unreformed judicial system will validate the hotel's current non-transparent ownership.

Rory O'Sullivan, the World Bank representative in Belgrade, says judicial reform and creation of enforceable commercial law are critical needs of a democratic Serbia.

"The courts generally are not operating in a satisfactory way," said Rory O'Sullivan. "This does not give confidence to investors on the outside. I think a lot of people in Europe are looking and waiting and hoping that the Serbian government and the people of Serbia will come to grips with the issue of judicial reform."

Judicial reform, says Mr. O'Sullivan, is a critical component of Serbia's fight against corruption. And much more is at stake than the future of the Inter-Continental Hotel. Without judicial reform, the World Bank official says, Serbia has no chance of becoming a member of the European Union.

XS
SM
MD
LG