Gross domestic product or GDP trends are taken as the most common and best indicator of economic well-being in a country. GDP is the sum of the values of all goods and services produced in an economy, so its growth means that the total amount of goods produced has increased, which indicates good trends: increasing productivity, and thus the income of workers and entrepreneurs, and employment and public revenues for state expenses. But when GDP becomes a purpose in itself, and not just what it really is – an indicator of the state of the economy, then the connection between what GDP should measure and the real situation is usually lost. One of the reasons for that is the artificial pumping of GDP through exorbitant prices of public infrastructure projects or a megalomaniacal approach in their planning, so what is needed and what is not needed is built, primarily because it has a positive impact on GDP growth in the short term.
One good example of this phenomenon is the project of building a high-speed railway Belgrade – Subotica. This railway infrastructure was in a very bad condition before the start of these works, and on some sections the trains simply ran at speeds of 30 or 40 km / h. But did that really mean that it was necessary to build a completely new line for high-speed trains (including a new track), which could travel faster than 200 km / h? Would it be financially smarter instead to just repair and tighten the railroad, with that one track?
We do not have a clear answer to this question because we do not have a publicly demonstrated any feasibility study of this line or a cost-benefit analysis. The budget revision for the current year mentions 117 million euros of the Chinese Bank for Export and Import for the section of the Belgrade Center – Stara Pazova railway; to that should be added the already used funds from the loan for the railway of the Russian Federation, but also the Chinese loan for the section Novi Sad – Subotica (the amount of this loan, in some cases, is not in the budget, although it is stated there). According to some media, it is a total of 2 billion dollars or about 1.7 billion euros.
In the short term, the construction of this railway certainly has a positive impact on the creation of GDP, the value of which includes the value of work performed. It is irrelevant for these statistics that most of the works are performed by Chinese and Russian companies. According to the price shown, the construction of this railway will bring with it 1.7 billion euros of new value, or almost 3.5% of GDP (not counting the possible impact on domestic production of construction materials). However, this happens only once, in the year when these works were performed. As early as the following year, the railway’s contribution to GDP calculation was significantly lower; the railway then brings only the value of the sold passenger tickets and freight fees.
However, we should be interested in addition to how much the railway will contribute to GDP and what impact it will have on the rest of the economy. If we take that the price of the already presented 1.7 billion euros and it is financed by loans that bear an interest rate of 2%, we come to the sum that only to finance interest it is necessary for this railway to bring 34 million euros of annual revenue, through ticket collection for passengers and freight fees. But the railway also needs to be maintained, it will require occasional and constant investments and repairs. If we take the depreciation rate of 2% per year, that means another 34 million euros of necessary income, or a total of 68 million per year. Is that possible, on this line?
When we look at the Belgrade-Budapest railway, it is clear that most of the passengers on the territory of Serbia will be between Belgrade and Novi Sad, including smaller passing stations. But there will simply not be much traffic between the endpoints, Belgrade and Budapest. Serbia and Hungary are not connected economically or culturally enough to have a lot of traffic between us – before the construction of this railway, there were only three, and then two, trains a day to Budapest from Belgrade and vice versa and they were half empty. It is similar with flights, these two cities were connected by a direct flight only by Belavia and Air Serbia, with several flights a week. Bus traffic was a bit heavier, with a few buses a day, but this is a bit of a false picture as it was mostly buses that used Budapest as a way station to Vienna, where most of these passengers went, and a couple of vans should be added to all that. Simply, the distance is less than 400 km, which is effectively less than 4 hours of driving (if there is no crowd at the border), which means that a fast train, like a plane, most people can not offer much more than traveling by car or even bus, so much that they would decide for a fast train, especially having in mind the expected high prices of this transport (the announced price of the Belgrade-Novi Sad ticket in one direction is almost 10 euros, while before the reconstruction of the railway the return ticket to Budapest by train was 26 euros, as much as the one-way bus ticket).
The situation with the cargo seems a little better, having in mind that this direction is one of the main arteries for the transport of cargo. The problem lies in the fact that a significant part of the cargo passing through Serbia on this route is in transit or is intended for Serbia (or Hungary) in the form of bulk cargo, so it is cheaper to transport it by truck than by train. In addition, a speed of 200 km / h is completely unnecessary for transporting cargo – it’s like taking a diving suit and a bottle when you go out for a walk while it’s raining. For freight that is transported by rail, it is much more important whether there are free freight cars (look at the miracles, we also had bottlenecks in this domain) and that the transport is safe – in other words, that the timetable is respected and that trains are not late. Copper ore, corn or car tires do not matter whether they are transported at a speed of 120, 160 or 200 km / h.
If this high-speed railway project is not profitable, any deficit that this railway will generate will have to be collected from the rest of the economy, which means that the railway will then be a noose around its neck and will have a negative rather than positive effect on economic trends. Two effects should be kept in mind here: the first is cannibalism – as the revenue of the railway we should not count the total inflow of money by its use, but only the difference in relation to the previous revenues, while the old railway was operational. Otherwise, we would fall into the trap of overestimating the revenues of the new high-speed railway. This is similar to the effect of cannibalism in marketing – when you place a new product on the market, you can not only expect an increase in sales of a new product to new customers, but also a decrease in sales of the old product, because some consumers will switch to using the new product. So, if you place a new fruit yogurt with raspberry flavor, you can expect an increase in its sales, but also a decrease in sales of strawberry yogurt, because part of the consumers will switch from strawberries to a new product. In the case of the railway, we have a similar effect because the users of the old railway will now be forced to use the new railway or, if the prices do not suit them, to switch to some alternative form of transport. Therefore, in the analysis, we should only be interested in how much is the difference between the old and new railway revenues. Another possible effect is to attract investment: if it is now faster and easier to travel, it can influence the attraction of new investments near the railway route. This is difficult to measure, because an attempt is made to make a comparison between the counterfeit and the existing situation, but there are some methods that can give at least approximate, although not final results. This should measure whether the railway has wider positive effects on the rest of the economy outside the railway business itself.
But this railway is not the only project for which we do not have any publicly available analysis of whether it is profitable. This more or less applies to all infrastructure projects, from the construction of highways to Montenegro, to the Moravian Corridor or highways to Bosnia. This does not mean that these analyzes do not exist (although it is also possible; if Vucic, as Prime Minister in 2017, boasted that he drew the routes of highways on a map, I assume that none of the civil servants is so crazy that he later corrects that route to go there).
There is a special project evaluation department in the Ministry of Finance that should deal with this, but in several of its previous reports, the International Monetary Fund pointed out that it is necessary to increase the analytical capacities of the departments dealing with the selection and evaluation of infrastructure projects. The IMF is known for its euphemistic and politically correct way of expressing itself, so when they say that the fight against corruption should be improved and the rule of law strengthened, it usually means that corruption is widespread in the country and that the regime controls the judiciary.
An additional problem is whether the prices of these infrastructure projects have been inflated. The first indicator that prices are inflated is that a large part of them was built through interstate agreements (with foreign state financiers, such as state-owned banks or investment funds from countries such as China, Russia or Azerbaijan). In these cases, the domestic regulations on mandatory tenders are bypassed, where the bidders who offer the lowest price win. Although this process is not perfect either, it at least provided some kind of match and price control, while now the most common form is direct contracting, that iit is known in advance which foreign company will perform which part of the work and at what price, as well as which jobs will be ceded to domestic construction companies and also at what price. In other words, the competition is gone. And to all that, we should add decades of corruption in the construction of large infrastructure facilities, which really indicates that a significant part of such funded projects is overpaid, Talas reports.
