Anyone arriving in Zenica, central Bosnia & Herzegovina, prior to 2004 would have found the post-war town just as it was described in “Zenica blues”, a song by the famous ex-Yugoslavian band Zabranjeno pusenje (No smoking). Life in Zenica, the site of the broken country’s largest prison, was so grim the lyrics claimed “whoever survives 12 years in Zenica prison, is a real hajji”.
Most people arriving in Zenica today still sing a bit of Zenica blues, but the town is no longer grey even on a foggy early November evening. Today, Zenica defies stereotypes about post-war Bosnia, as it is a modern, growing town thanks to the rehabilitation of one of Southeast Europe’s largest steel mills.
The change started in 2004 when international steelmaker ArcelorMittal stepped in to reopen Zelezara Zenica, which had been heavily affected by the Bosnian war. After a 17-year halt in operations, steel production at the Zenica complex was restarted in 2008 — the result of four years of work by local engineers and ArcelorMittal experts from around the world.
The magnitude of the task was reflected in the name of the project to bring the steelworks back to life; it was was dubbed ‘Phoenix’ after the great bird that rose from the ashes. Integrated production using iron ore from the nearby Prijedor mine began on schedule in July 2008, after an investment of over €90mn. ArcelorMittal’s total investments in Zenica so far are over €160mn.
Nine years later in November 2017, ArcelorMittal and Zencia jointly celebrated the 125th anniversary of steelmaking in the town, marking the occasion with an event on November 2.
In an exclusive interview with bne IntelliNews during the event, ArcelorMittal Zenica CEO Biju Nair stresses the contribution the revived plant has made to the local and national economy. “I can see with my own eyes how the town has grown together with the plant,” he says.
Recent figures show that over 2,200 people are directly employed at the steel mill and another 10,000 jobs in the local supply chain depend on ArcelorMittal. Nair refers to research by the World Steel Organisation which shows that for every job generated by a steel company 16 jobs are indirectly created. ArcelorMittal pays €30mn in gross salaries to its Zenica workers each year, of which Nair calculates €15mn is spent on consumption in the local economy — “this money is going to the farmers markets, coffee shops, everywhere…”
ArcelorMittal has been among the top Bosnian exporters for years, topping the list in 2013, 2014 and 2015 before dropping to second place in 2016 due to worsening conditions on the global steel market. The company imports coal from Australia and the US, while it exports long steel products to all the ex-Yugoslavian countries as well as to Austria, Bulgaria, Hungary, Italy and Romania. According to Nair, the contribution of the company (in terms of exports minus imports) to the country’s GDP is over 2.5%.
The story of steelmaking in Zenica is one of resilience, innovation, engineering skill, hard work and determination, Nair tells bne IntelliNews. “These things are in the DNA of the people,” he says, adding that this was a key factor in the decision to invest in Zenica.
There had to be some motivating factor to convince Arcelor Mittal to invest in the face of claims by many experts that restarting the steel mill after so many years of inactivity would be impossible. Talking to bne IntelliNews in a mixture of Bosnian and English, Nair underlines that what tipped the balance was that when the due diligence was carried out, it became clear that people wanted to see their plant operating and were ready to start working.
“Whether it’s in Eastern Europe or Russia or Kazakhstan or other regions, our company always looks for opportunities to invest where there is a history in steelmaking,” says Nair. “History means that there are people who know how to make steel. What matters most in any industry is people and knowledge and skills. If you go into a greenfield project, the most difficult thing is to show people how to make steel and how to understand the technology. Zenica already had this.”
ArcelorMittal is the world's leading steel and mining company, with a presence in 60 countries and an industrial footprint in 19 countries. These include countries like Mexico, Kazakhstan and Ukraine, all of which have a tradition of steelmaking.
ArcelorMittal’s website stresses Zenica’s history in the industry; people have been producing steel for a millennium thanks to the area’s natural resources, large coal deposits, and the communication lines along the Bosna river valley. The steelworks itself dates back to when a group of Austrian industrialists set up Iron and Steel Works Zenica in 1892 — part of the first major wave of industrialisation in Europe, that extended as far as Bosnia.
When discussing the decision to invest in Bosnia, Nair also talks of the sympathy felt by people around the world towards Bosnia because of what the country endured during the wars of the 1990s. “I was not here in 2004, but definitely I can feel that some emotions must have also played cards. When you make an investment in a country like Bosnia which needs investment and growth, in one way you are supporting that country and in another way you want to benefit from the country’s need for investment which means you will have the support of the government and the people,” he says.
“So, I would say: knowledge and skills of the people and opportunity,” Nair sums up the decision to invest.
Market challenges and advantages
In addition, despite the severing of many supply chains after war broke out in ex-Yugoslavia and the country fractured, markets for Zenica’s products remained and its products have a strong reputation. ArcelorMittal Zenica (Zelezara Zenica before the takeover) has for years been the key supplier of long steel products to ex-Yugoslavia. Almost all these countries can be reached by truck, and the company can thus deliver to the door for its customers.
“So, you had a market and customers believing in the products of Zenica. Today, with ArcelorMittal, we have great value from that. You can read between the lines when I say that we always try to connect between the traditions and new knowledge. That’s how we came here,” Nair adds.
Not that is has all been easy. Nair sees political instability as the main challenge for developing business and investment in infrastructure in Bosnia and the wider region.
In addition, concerns have been raised by journalists and environmental groups about air pollution in Zenica. Nair says the company is now addressing environmental issues. “We have invested in an old factory and it brings environmental challenges. We have made investments of nearly €50mn in this segment so far but we have to do more, and the next two or three years are very critical to us to complete our obligations related to the environment,” he tells bne IntelliNews.
ArcelorMittal is also struggling to boost its stake in the nearby Prijedor mine, which has been the main supplier to the steel mill in Zenica for decades. Alongside the acquisition of Zenica in 2004, ArcelorMittal bought 51% of the company then named Iron ore mines Ljubija. This company today operates under the name ArcelorMittal Prijedor, and exports iron to other ArcelorMittal companies.
The international steelmaker now wants to increase its stake in the Prijedor mine, where the remaining 49% is owned by the government of Republika Srpska, even though Zenica is located in the Bosnian Federation, the country’s larger entity. Taking greater control of the company would ensure a source of iron ore for Zenica’s unit.
However, the Republika Srpska government’s attempt to sell over 60% of its 49% stake in Prijedor this spring failed due insufficient political consent and has now been put on hold. It’s not clear what the entity’s government plans to do now.
“We are struggling to find solutions for Prijedor because Prijedor and Zencia are married together, not by ArcelorMittal but by history,” says Nair. “Now, we need to develop new mines there so ArcelorMittal is looking forward to a very good engagement with the government of Republika Srpksa to find a solution to develop it and go further.” He stresses the benefit of having an iron ore mine virtually on the steel plant’s doorstep: “if Prijedor mine produces iron and it is used in Zenica, it gets value but if you transfer it more than 500km, it loses value. We need to continue this marriage.”
Despite the challenges, however, ArcelorMittal is committed to staying in Bosnia and in the region, with Nair being very passionate about his work there. Having already spent 14 years and millions of euros, ArcelorMittal wants to see its business grow along with the town of Zenica.
“We are stay here, we invest here… Our goal is to stay within the ex Yugoslavia and from [Bosnia] go to Serbia, Slovenia, Croatia…” he concludes.
Zenica history: the first worker at the steel mill.