BALKAN BLOG: Yugosphere and loathing in Toytown

By bne IntelliNews July 14, 2011

bne -

God bless The Economist. An undoubted paragon of worthy western neo-liberalism, on occasions the UK politico-economic bible has an uncanny ability to get things both horribly right and horribly wrong at the same time.

Exhibit #1 in the case for the defence/prosecution is the "Yugosphere" concept - dare one say ideology - propagated in the last couple of years by the magazine's wannabe Fitzroy MacLean (the purported inspiration for James Bond), Tim Judah. Truth be told, Judah's Yugosphere idea, which is based on the reestablishment of the economic, political and social ties between the successor states of the former Yugoslavia, is a beguiling one at first sight. Who after all would relish a recurrence of the blood feud-type massacres that came to characterize the break-up of the second Yugoslav state?

On the other hand, it undoubtedly represents an exercise in stating the bleeding obvious - neighbouring countries, even after bloody conflicts, almost always tend to arrive at some sort of modus vivendi, whether its based on economic self-interest or a genuine desire to heal the wounds - literal or metaphorical - that have led to war in the first place. After all, what is the EU, which all the successor states of the former Yugoslavia are so keen to join, if not the ultimate example of reconciliation between former warring partners?

So what does the Yugosphere concept represent? A low rent version of the EU, based on a mutual desire to own your own house, drive a German car, wear an Italian suit, eat French cheese while drinking home-made rakija and listening to cajka -arguably the pan-regional choice of drink and music in the former Yugoslavia?

Central to the Yugosphere theme is the idea that former protagonists/neighbours are increasingly willing to re-establish former trade links, with the 2010 takeover of Slovenian food company Droga Kolinska Group by its Croatian peer Altlantic Grupa cited by The Economist at least as the ultimate business example of its - god forbid, think many locally - Balkan "friends reunited" theme. Ironically, though, that takeover - at €324m the largest ever acquisition by a Croatian firm in Slovenia - has in turn led to an example of how things can go horribly wrong in terns of cross-border mergers between former Yugoslav states.

Droga Kolinska's former chief executive, Slobodan Vucicevic, a Serbian businessman and a 5% shareholder in the Slovenian firm, has found himself in hot water after his NCA Investment Group brought a controlling 51% interest in Magma, a leading toy and clothing retailer in Croatia with his share of the proceeds from the Droga Kolinska sale. Having sealed a deal in February to take control of Magma's operations in Croatia, Bosnia-Herzegovina and Serbia - which at a supposed total of €24.6m represented the biggest takeover of a Croatian firm by a Serbian entity - Vucicevic has since found himself at the heart of a business scandal in Croatia, whereby he has been cast the villain of the piece, representing a perfidious Serb businessman looking to swindle an apparently honest Croatian entrepreneur.

Precise details of the dispute, which are now the subject of legal action in both Croatia and Serbia, remain typically opaque in a region where the concept of client confidentiality is often used - for which read abused - to cover financial shenanigans. Ironically, what seems clear is that NCA has paid in full €18m for its share of Magma's Croatian business, while having apparently reneged on its obligations to pony up over €6m for its share of the operations in Bosnia and Serbia. Meanwhile, the Croatian courts have slapped a ban on Vucicevic using several of the brand names he has paid for in Croatia, while he is seemingly free to use the brand names in Bosnia and Serbia he allegedly hasn't paid for. Confusing or what?

Events have been given a further twist by the fact that Magma's one time sole owner, Goranko Fizulic, is a former economy minister in Croatia, who still wields a fair share of political clout at home, despite the fact that Magma almost went bankrupt as a result of the sharp economic downturn in Croatia, which has seen formerly spendthrift Croatian consumers slash their purchases.

Where we go from here remains a subject of fevered speculation. Magma is now hoping that a former suitor, Polish retailer EMPiK Media Fashion, will come to the rescue and buy out NCA, while Vucicevic, who is facing a €40,000 a day loss on his investment, is no doubt hoping against hope that the Croatian courts will side with his argument that he was sold a pup by Fizulic. Whatever the final outcome, however, the fact remains that the Yugosphere concept is as much a myth as a reality when it comes to doing business in the Balkans.

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