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Home/News/Overture in the announcement of privatization of military factories

Overture in the announcement of privatization of military factories

From the beginning of 2017 until the end of September interest increased the tax debt of Zastava Arms, which exceeded ten billion dinars, by 380 million dinars.

Despite of better results in growing exports (contracted placement of infantry weapons, hunting and sports weapons for personal defense worth around $ 55 million) and assured employment capacities until mid-2019, management and employees of Zastava Arms can’t be completely satisfied.

If investments in the procurement of modern equipment are added, then, the preparations for the construction of a new production hall, which have already begun, as well as the purchase of Zastava Blacksmiths and new factory laboratories, it can be said that there is a good reason for satisfaction. Then, what can be the reason for weapon manufacturer from Kragujevac and others like it, which all have a record business results, cause for unhappiness? Problem lies with enormously high tax debts towards the state and local governments, which endangered their good business results for years. For example, the debt of Zastava Arms which is the biggest tax debtor among state-owned companies, exceeded ten billion dinars, where 60% of that debt is just interest. What is the burden of it, is best testified by the fact that from the beginning of the year to the end of September 2017, interest increased the tax debt of that factory by 380 million dinars (by the end of the year it will grow by a half billion dinars).

The trouble is that the state, which is the majority owner of all factories of the Defense Industry of Serbia, and which in 2013 obliged to convert debts into the ownership stake in these companies, does nothing to enable the domestic military industry, the largest net exporter of the Serbian economy, and nothing to get free of these debt shackles. Although the authorities occasionally announce the resolution of this problem, arguing that the OIS debt conversion process was launched, the fact is that nothing concrete is being done on this plan, and that the profit from the operations of Zastava Arms in 2017, as well as the previous two years, will “eat” the interest on tax debt. Even though no one had officially announced why the state delays with the implementation of the debt collection obligation of the leading companies in arms production, it is speculated that this could be related to the expected privatization of military factories. “The only thing we can do is that we can register a share in Zastava Arms possession, which can later open a possibility for debt compensation that city of Kragujevac has with Electric Power Industry of Serbia, if there is an agreement of other state-owned companies, that is “, argued the City Council and also specified that the debt of Zastava Arms, which is around 3 billion dinars, the city converts into the capital of that factory. This conclusion of the Kragujevac city administration, however, has not yet been carried through. The Government of Serbia is waiting for the decision of conversion of its own claims into the ownership stake in Zastava and other military factories. According to the estimates of individual analysts, the state postpones the debt conversion in order to make domestic arms and their trade union leaders more agreeable to the announced privatization, that is, recapitalization of the Serbian military industry.

The debt agony of Zastava Arms and other military factories started in 2003, when they ceased to pay taxes and contributions, as well as to settle other obligations towards the state and local self-government, which happened with the tacit consent of the Serbian Government. With this move the government wanted to allow military factories Sloboda from Cacak and Zastava Arms before all, to recover from consequences of the sanctions introduced in the 1990s, which were “targeted” by the middle of the first decade of the new millennium. Also to this should be added the consequences of the NATO bombing (where only in the Zastava Arms half of the production capacity was lost), as well as the inability to place products on foreign markets, which were not legally available until 2005. It was estimated that in such circumstances, the arms industry could not “survive” if it regularly settled all obligations to the state, local self-governments and suppliers. The state, therefore, did bypass the existing legal regulations and unjustifiably in relation to the rest of the economy, provided a privileged position for the domestic military industry, which, according to the export results of Zastava, the First Partizan, and “Milan Blagojevic” was still a good strategy. The problem, however, is that the state did not forget, and did not give up, its claims.

(Un) justified fear of job loss

According to Draft law on production and trade of weapons and military equipment which should enter the parliamentary procedure at the end of this year or early next year, foreign companies and investors could become owners of up to 49% of the capital in factories of the Defense Industry of Serbia (Zastava, Prvi Partizan, Krušik, Sloboda, Milan Blagojević and Prva iskra), while the state would keep the control package, or 51% of the shares. Employees and trade unions, however, fear that these 49% of privatized capital would rapidly turn into the majority ownership of foreigners, and that the price of privatization of military factories would be paid by the employees, as it was the case with rest of the Serbian economy in the last 20 years. Therefore, they urge the Government not to accept the privatization of their factories.