At the end of June, the Agency for Business Registers (APR) published its annual publication Annual Report on Business Operations in the previous year. This publication is very useful to feel the pulse of the economy, much more than one-dimensional macroeconomic aggregates such as GDP. Compared to the previous year, there is a shift – the number of companies that reported a loss in business has decreased and the total loss was lower, but some problems such as low liquidity still exist. What particularly interests me here is the business of public companies.
Public companies are also required to send their financial indicators to APR. This was done by 549 of them this year, although APR keeps as many as 599 of them in its records. These public companies that submitted reports during the previous year employed 115,000 workers, which is a total of 10% of employees in the economy, 23% of total economy capital and 16 % of total assets. This figure of employees in public companies and other business data does not include workers in state-owned companies that are in the status of a joint stock company. Railways, Post Office, EPS, EMS, companies dealing with city traffic, water supply and sewerage, green maintenance, etc. are counted, but not Telekom Srbija, Postanska Stedionica Bank, Dunav osiguranje, etc. Therefore, the public enterprise sector is very important for the whole economy.
After several years of doing business with such positive results, in 2019, public companies as a whole were operating at a loss. The net loss of the public enterprise sector amounted to 4.7 million euros. And that happens in a year in which the economic growth rate is over 4%. In other words, it is not the external factor that is to blame for such poor business results, but the internal factors of these companies. The external situation even helped public companies: record low interest rates mean lower expenses for servicing loans, low energy prices mean lower business costs and a higher collection rate of Srbijagas to its customers, etc. So what awaits us this year, when a recession is expected?
The poor business results of public companies are best seen when compared to the results of the entire economy. If public companies operate properly, their business results should not differ significantly from the results of the entire economy. As the APR data show us, it is just the opposite. Public companies have significantly lower business results: very low return on capital and business assets. More importantly, these indicators are deteriorating and decreasing from year to year. At the same time, these indicators for the entire economy remain at a much higher level.
However, public companies are in most cases in a monopoly status. Wouldn’t it be wrong for them to have high profits, since that could only be to the detriment of the high monopoly prices that we would all pay? This argument is only partially true – public companies are generally in a complete monopoly position (garbage collection, water supply and sewerage, electricity distribution, etc.) but this is not the case in some large public companies. This is most visible in the case of EPS, but the Serbian Railways have won competition in the form of private operators for freight railway traffic, while only a part of postal items is reserved for the public operator of the Serbian Post. At the same time, due to their size, it is these few large public companies that determine the business results of the entire public enterprise sector.
In addition, these companies should invest in the maintenance and improvement of the existing communal infrastructure: new conditional landfills, new pipes for water supply and sewerage and expansion of these networks, new plants for the production of electricity that will pollute less, etc. Instead, we have been witnessing for years that the investments of public companies are very low, even lower than the depreciation costs, which means a constant decline in the quality of communal infrastructure. That is why public companies must be able to generate business revenues and profits – they should be used to finance new investments that we lack. If investments were high enough, it would be justified for public companies to have low profit rates. That is not the case now.
In the previous year, the situation was even worse because public companies, instead of low profits, even recorded a loss. This loss is actually much higher because the received subsidies and grants from the budget are recorded as business income. Public companies such as the Railways or the Resavica mines could not survive at all without high subsidies each year. Unfortunately, we do not see this from this APR publication, as we could before, because now only certain data from the financial statements are summarized, while earlier it was significantly more detailed. This loss will have to be covered in some way, most likely through subsidies and by dragging the hands of politicians, who run those same companies, into our pockets, Talas reports.
