Reform of State-Owned Enterprises for the Purpose of Economic Growth in the Republic of Serbia

: This study on the performance of state-owned enterprises in Serbia has shown that the state has great difficulties managing the enterprises that are in its portfolio and under its control. The adaptation of state-owned enterprises to exogenous shocks unfolds at a slow pace and is faced with many problems. The institutional environment for the strategic restructuring of the state sector is not in the service of strengthening the efficiency of its business operation. The study has shown that the economic performance of state-owned enterprises exerts a direct influence on economic growth, the budget, government balance sheets, and debt. While healthy enterprises (the ones conducting their business successfully) are valuable state-owned property, enterprises with a loss or over indebted enterprises are obligations which demand intervention through the injection of additional capital or through other forms of help from the state. The main goal of restructuring state-owned enterprises is to improve responsibility and efficiency. The array of measures for improving efficiency ranges from modifications of the legal framework and corporate governance of socially owned enterprises (including corporatization and separation of activities) to the sale of property to the private sector or complete privatization. Reforms are aimed at improving the transparency and responsibility of state-owned enterprises, not just for the purpose of efficiency but also for the purpose of harmonization with the ethical and deontological requirements.


Introduction
'Reforms of strategic state-owned enterprises in Serbia are progressing at a slow pace, additional efforts are needed to strengthen corporate governance and ensure professional leaders in those enterprises' (Sebastian Sosa, IMF Resident representative in Serbia, February 20, 2020).
Although the process of privatization in Serbia has not yielded the expected results (due to corruption or other issues in privatization processes), the first decade of transition saw a rapid reduction in state ownership through a combination of privatization, bankruptcy, and restructuring.However, as a result of a series of factors -the 2008 financial crisis [12], the 2020 global pandemic, heightened social tensions, inequality, pressure on public services, pensions and social security networks, and intensified flow of migration -there has been a greater direct engagement of the state and a growth of the state sector in all transition countries.A justification for greater presence of the state was found in the correction of market deformations and the accomplishment of strategic or social goals.Although in part this can be justified by a high rate of unemployment, depressed regions and devastated industries, and the maintenance of "priority" sectors (the defense industry, etc.), the overwhelming impression, based on the study of business operation of enterprises in the state portfolio, is that many state-owned enterprises still exist and survive without any clear rationale, chiefly as a relic of unfinished transition and privatization or acquired interests [9].
The topic of research in this paper is the impact of inefficient business operation of state-owned enterprises on economic growth.The goal is to make a critical overview of the key performance characteristics of state-owned enterprises' business operation and to point out the necessity of their restructuring to the creators of economic policies.The basic research hypothesis has sprung from the goal of this study: restructuring state-owned enterprises positively affects macroeconomic stability, economic growth, and brings about better efficiency in business operation of the economy.State-owned enterprises are a byword for inefficiency of business operation, they are permanent users of direct budget investments, by means of which they bring about an increase in public spending and fiscal imbalance ().State-owned enterprises also receive different forms of indirect subsidies, such as state guarantees for loans and toleration of unpaid taxes, which results in increased current and future public expenditures and decreased public revenues (Stojanović & Stanišić, 2015).An increase in the efficiency of the state sector's business operation would result in considerable fiscal savings and bring about a total increase in the efficiency of the national economy.More efficient business operation of the state sector and increased responsibility in management would reduce direct and indirect budget subsidies at all levels of management (republican, provincial, and local).
The basic coordinates of this study have determined the structure of this paper.The paper consists of three mutually related parts: the first part shows basic reasons for the inefficiency of state-owned enterprise management in transition countries, the second part points to the methodological character of this study, whereas the third part analyzes the basic results of the study.The conclusion shows the basic modes of restructuring state-owned enterprises in Serbia as serving the purpose of greater economic growth.

The Inefficient Institutional Framework of State-owned Enterprise Management in Transition Countries
Research into the efficiency of the institutional framework of state-owned enterprise management in transition countries has revealed that the business operation of state-owned enterprises increases risks [1], above all, in three areas: a) functioning of the market, b) public finance, and c) financial stability.
A comparative analysis of the role of state-owned enterprises in Central European, East European, and South European transition countries (CESEE) has revealed that state-owned enterprises (SOE) make up a considerable share of economic activities, though with great variations between countries and sectors (in most countries the SOE make up at least 5% of total employment or total Gross Value Added, but in Poland and Russia this share amounts up to around 15%, and in Belarus even up to 30%).The SOE are concentrated in natural monopoly sectors, but they are also present, to varying degrees, in other sectors such as mining, agriculture, production and services.In all transition countries, the SOE sector has, in systematic terms, a significantly poorer rate of efficiency in comparison with the private sector [3], primarily due to the following reasons: (1) it generates a lower income per one employee, (2) it pays higher salaries than is the case with private enterprises [18], and (3) it is much less efficient.The unequivocal conclusion is that poor management of state-owned enterprises is at the root of the problem, whether it is the field of ownership policy (the lack of balance between active governmental engagement and delegation to the independent supervisory boards and boards of directors at SOE) that we are discussing or modalities by which governments supervise the financing of these enterprises and manage the relations between state-owned enterprises and national budgets [11].In any case, the analysis of transition countries shows that greater state ownership is not a good way to achieve faster growth and convergence -quite the contrary [4].
State-owned enterprises in all EU countries make up a large share of property and employment (in OECD countries, more than 6 million workers are employed in majority-owned SOE), and they are specially concentrated in so-called "network industries" (energy and transportation systems) where the spillover effects on the rest of the economy are extremely important [13][14][15].In the EU, the state sector is particularly large, because of historical heritage, in transition member-states such as Poland, Croatia, Romania, and Slovenia.However, SOE are also prominent in some member-states of the EU-15, such as France, Italy, and Sweden.The European Commission's analyses of the 2008 global recession's effects show that in EU countries the profitability of SOE in key "network sectors", such as energy and railways, remained positive and quite stable during the crisis, although there are differences between the national and subsector levels.In transition countries, the return of capital in private enterprises is, in the majority of cases, considerably higher than in SOE [6], but analyses have shown that, in the periods of recession, the profitability of public enterprises was more resistant to the crisis (because the private sector registered a greater fall in production).
In 2018, Serbia was ranked 15 th of 20 Central and East European transition countries which were evaluated based on the management of state-owned enterprises (the composite index of the IMF included ownership policy, financial supervision, as well as fiscal and political interactions).The institutional framework of SOE management is at its most efficient in particular Baltic countries, while in other transition countries there is plenty of space for improvements.Politically the most difficult elements of SOE management are centralized supervision and greater severity in financial reporting [7].
In the period behind us, the process of privatization was not adequately followed by market reforms.Changes in the regulatory framework have important implications for SOE because exposure to greater competition gives encouragement for better management and greater efficiency [16].The privatization experiences of EU transition countries suggest that the transfer of public monopolies to private hands can stimulate rent-seeking [4].
The process of restructuring is faced with many difficulties that are often connected with political resistance and corporate cultures but also with a considerable debt in state-owned enterprises.In almost all transition countries, the inefficiency of SOE does not solely come from state ownership but also from other state policies (for instance, the practice of procurement and the like).

Scope and Structure of the SOE Sector
In 2019, the sector of state-owned enterprises (SOE) in Serbia included a total of 1,604 enterprises with slightly more than 180,000 employees.From the point of view of the participation of basic economic indicators in the economy of the Republic, the SOE sector is oversized, primarily due to the slow process of bankruptcy and liquidation, as well as due to the still unfinished process of privatization and restructuring [12].

Private Versus State-owned Enterprises
The number of companies in the public sector has increased by 7.6% in the past five years.Despite a significant reduction in the number of employees, losses and liabilities, the SOE sector is a big loser in 2019 (30.5% of economic losses).

Net Result of State-owned Enterprises
In 2019, state-owned companies operated with a loss of EUR 382 million, of which 57% of losses were located in state-owned companies in bankruptcy and liquidation, 30.6% in public companies and 12.4% in state-owned non-privatized companies.The net profit of state-owned enterprises is mainly located in the segment of large public infrastructure systems and in enterprises of special-purpose industry.

Gross Value Added of State-owned Enterprises
The SOE sector is in the period 2015-2019.achieved modest real growth of gross value added, only 1.5%, primarily bearing in mind that in the same period the growth rate of GVA of the private sector was 44.8% (growth of GVA of foreign private sector was 50%).The share of the state sector in the structure of the GVA of the economy decreased by 5.4 percentage points.Annual oscillations of GVA growth rates are characteristic for state-owned enterprises (decrease of -18.7% in 2019), slightly less for the domestic private sector (stable growth registered in 2018 and 2019), and least for the foreign private sector.

Employment in State-owned Enterprises
Total number of employees in state-owned enterprises in Growth in the Republic of Serbia the period 2015-2019.it was reduced by -20%, ie by 46,000 workers (from 226 thousand to 180 thousand).Structurally, the reduction of employees in public companies at all levels amounted to -15.7% (-26 thousand workers), while in the group of state non-privatized enterprises 1/3 of workers were reduced (from 60 thousand to 40 thousand).

Qualitative Performance of State-owned Enterprises
The survey of qualitative business performance of state-owned enterprises shows that all indicators of qualitative business performance are significantly below the indicators of private sector business.The general assessment is that the SOE sector operates unprofitably, illiquidity and unprofitably.
1. Productivity of enterprises in the SOE sector had a growth trend in the period 2015-2018, but in 2019 a decrease of 10% was registered; 2. The efficiency y of the SOE sector is constantly at a lower level than the economy of the POE sector throughout the period, except for the oscillations in 2016 and 2017 when the SOE sector operated more economically; 3. Public sector profitability is constantly 5-10 times lower than POE sector profitability.In 2019, the SOE sector sent unprofitably (-1.7%), while the POE sector recorded a high profitability of 8.93%; 4. Solvency of the SOE sector is constantly moving throughout the period in the range of 1.7% -1.9%;  POE-Private-owned enterprises; SOE-State-owned enterprises; ROA -Return on assets; ROE -Return on equity; Indebtedness 1.-ratio of total liabilities and total sources of financing; Indebtedness 2.-the ratio of total liabilities and capital.
1. Liquidity of the SOE sector is constantly twice lower than the liquidity of the POE sector (the ratio of the general liquidity ratio of the private and public sector in 2019 is 1.10: 0.51, while the ratio of the reduced liquidity ratio is 0.72: 0.38); 2. Profitability indicators show that the POE sector generally lags significantly behind the POE sector and operates unprofitably (with the exception of the operating profit rate in 2018).It is characteristic of 2019 when the SOE sector operated at a loss and with zero operating profit, when the rate of return on operating assets (ROA) and the rate of return on capital (ROE) were negative (-0.7% and -0.4%); 3. SOE sector indebtedness is constantly lower than POE sector indebtedness.While the ratio of total liabilities and total sources of financing (Indebtedness 1) is slightly more favorable in the SOE sector, the ratio of total liabilities and capital is significantly more favorable in the SOE sector (Indebtedness 2, 149.2 versus 89.6).

Losses in Large State-owned Enterprises
Out of 1,604 state-owned companies, 96 companies employ more than 250 workers.Every 9th worker in the economy of the Republic works in large state-owned companies, they create 14% of gross value added, but also 14% of economic losses.All losses of large state-owned enterprises are located in 24 large state-owned enterprises.Of the 96 large state-owned enterprises, 24 large state-owned enterprises generate all losses in large state-owned enterprises.In the structure of these losses, 3/4 of losses are located in public enterprises, primarily in large infrastructure public enterprises, while 1/4 of losses (EUR 85 million) are the result of operations of large state-owned non-privatized enterprises in the process of restructuring.

Public Enterprises with the Biggest Loss
In 2019, public enterprises in Serbia at all levels (republic, provincial and local) operated negatively, employed 11.9% of employees, created 13.9% of GVA and participated with 8.4% in total economic income, 4.3% in net profit, 14.8 in net losses, 15% in total liabilities and 15.8% in total cumulative losses of the economy.
Out of 564 public enterprises, 120 enterprises were operating at a loss in 2019, while 258 PEs reported a cumulative loss.The business of the republic's large infrastructure PE-15s has a decisive influence on the overall performance of public enterprises.Consolidated financial statements show that PE-15 operated negatively in 2019 (10% of net losses of the economy), employing 7% of employees in the economy, 10% in GVA, 5.2% in revenue, but also 11.8% in total liabilities and 9.8% in cumulative loss.

Sectoral Performance of State-owned Enterprises
In the sectoral structure of state-owned enterprises, the most represented are enterprises from the following sectors: Manufacturing (244), Water supply and wastewater management (230), Professional, scientific, innovation and technical activities (213), Construction (179), Trade (137) and Traffic (101).Most employees are in the sector Electricity supply (21% of employees in state-owned enterprises), Transport and storage (20%), Water supply (16.8%) and Manufacturing (12%).The largest GVA, revenue and profit are generated by state-owned enterprises in the electricity supply sector (45%, 47% and 50%).Current losses are concentrated in the sectors of Construction, Manufacturing and Trade, cumulated in the sectors Electricity supply and Manufacturing, while liabilities are located mostly in the sector Electricity supply (26%).
The biggest losers in the state sector are Construction, Manufacturing and Trade, whose total negative financial result in 2019 amounted to 411 million.EUR.Total liabilities are concentrated in the electricity supply sector (EUR 5.2 billion), while accumulated losses are mostly accumulated in state-owned enterprises in the manufacturing industry (31%).

State-owned Enterprises in Bankruptcy and Liquidation
Out of 1,604 state-owned enterprises, almost 600 companies are in the process of bankruptcy and liquidation.This group of enterprises in the state portfolio permanently burdens the business of the economy, creating current losses and increasing the accumulated losses from year to year.State-owned enterprises in bankruptcy and liquidation (592) represent a transitional burden whose resolution is proceeding at a slow pace.The current losses of this group in 2019 amount to EUR 227 million (30% in the total losses of all state-owned enterprises, 9.1% of net losses in the economy).The total liabilities of this group of SOEs amount to EUR 4.8 billion of total liabilities (24.3% of liabilities of all state-owned enterprises, 5.8% of liabilities of the economy).Cumulative loss of 5.2 billion EUR (44% of SOEs, 17% of the economy), is located in the former large economic systems that are in a decades-long process of bankruptcy and liquidation.

Discussion
Research on the performance of state-owned enterprises in Serbia has raised several key issues and priority tasks: 1 Enterprises up to 2035 and with a Vision until 2050, which would lay special stress on the segment of strategic directions in industry and energy, and which would elaborate not only upon the commercial aspect of the most significant state-owned enterprises in the field of energy, but also upon the urgent ecological aspect because of the enormous CO 2 emission and degree of pollution.Apart from that, it is important to mention that the modalities of using state-owned energy facilities will be one of the key issues in Serbia's accession to the EU.

Conclusion
By reforming state-owned and public enterprises, the state would free itself from its double role (owner and regulator) and from its exhausting task of having to balance numerous and quite often mutually conflicting goals in the management of those enterprises -from creating conditions for their efficient business operation, to pursuing investment policies aimed at their long-term sustainability, to establishing tariffs that are compatible with long-term business operation, to carrying out the social policy of employees and the protection of consumers from any possible abuse of monopoly position.During the entire transitional period, the economic-financial consolidation of public enterprises (the modernization of production and technological processes, debt reschedule, subsidies, grants, price policies, etc.) unfolded in waves, cyclically and selectively.In order to stop the trend of qualitative business operation performance becoming ever worse (illiquidity, insolvency, reduction in long-term financial imbalance, increase in liabilities) it is necessary to carry out the prioritized structural reforms of public enterprises aimed at: depoliticizing the process of management and decision-making in enterprises (maximization of the number of employees, a high level of salaries, the maintenance of low prices for services as a social category, and the like); establishing financial discipline (improvement of legislation in the area of debt collection, tax payment, and payment of other liabilities to the state, more efficient bankruptcy proceedings, establishing the timeframe for restructuring, and the like); reducing the number of employees; business-technical consolidation and modernization (reduction in technical losses, reorganization and closing down the unnecessary entities which create losses, etc.); removing price disparities; continuing the liberalization of infrastructure activities through the introduction of competition, but also modernizing, in a technical-technological sense, the production process and enhancing the efficiency of business operation for state-owned enterprises whose activity has a strategic character or the character of a natural monopoly, and for which partial privatization has been envisaged (majority state ownership).Improving the management of state-owned enterprises is an urgent structural problem.Improvements in the management of state-owned enterprises (the introduction of more independent and professional boards into SOE, stricter financial reporting and revisions) do not unfold at the desired pace, which is visible in the effects of business operation.It is necessary to broaden the spectrum of measures and mechanisms, which, in general, demands making difficult choices (for example, reducing the number of employees, selling non-resistant property, the state's need to pull itself out of these difficult choices, and the like).In brief, the resolution of problems in the state sector is a complex, long-lasting process which demands continuous devotion in the course of several years.

Figure 1 .
Figure 1.Contribution to the economic growth of the state (SOE) and private sector (POE) of the economy -participation in GVA (%).

of enterprises Number employee Income Liabilities Net profit Net loss Net result Cumulated loss GVA mil.EUR
(1)h cumulative loss of 11.8 billion EUR (40% of all accumulated losses of the economy) and high total liabilities in the amount of 19.6 billion EUR (30.5% of all liabilities of the economy).Structurally, the SOE sector includes three large groups of enterprises:(1)546 public enterprises (republican, provincial and local); (2) 466 state-owned non-privatized enterprises; and (3) 592 state-owned enterprises in bankruptcy and liquidation.1. Public enterprises (PE) employ a total of 140,000 employees at all levels, which is 12% of employees in the economy.The negative financial net business result of PE in 2019 (-117 million EUR) reduced the positive business performance of the economy by -3.5%.Cumulative loss of PE of 4.7 billion EUR represents 16% of all accumulated losses of the economy, while total liabilities of 12.3 billion EUR participate with 15% in total liabilities of the economy; 2. State non-privatized SOEs generated 505 million EUR new value in 2019 (2.5% of the economy), employs more than 40,000 workers (3.4%), participates with 6.6% in current losses, with 6.8% in cumulative losses and with 2.55 in total liabilities of the economy; 3. State-owned companies in bankruptcy and liquidation represent a huge ballast in the business of the economy: 5.2 billion EUR cumulative losses (17.4% of the economy), 227 million EUR of current losses (9.1%) and 4.8 billion EUR total liabilities (5.8% of the economy); 4. The contribution of the SOE to economic growth decreased in 2019, the share of GVA of the SOE sector in the total GVA of the non-financial sector was 7.3%.Source: Authors', based on SBA data
1.The number of state-owned enterprises increased by 7.6% (from 1,491 to 1,604); 2. The number of employees was reduced by 20% (from 226,367 to 180,507, by 45,860); 3. Total revenue of state-owned enterprises decreased by -17.3% (-10.4 billion EUR); 4. Unlike the private sector, the decrease in net profit (-39.4%) is greater than the decrease in net loss (-26.8%); 5. Gross value added of the sector SOE has had an extremely modest growth in the past 5 years (1.5%), in contrast to the private sector (44.8%); 6.Capital in state-owned enterprises decreased by -6.1%, while in the same period capital in the private sector increased by 27.8%; 7. Positive performance of the SOE sector is reflected in the reduction of accumulated losses by more than a fifth (-21.9%) and the reduction of total liabilities by 16.1%; 8. Having in mind the business performance of the private sector, especially the performance of private companies with majority foreign capital (increase in employment and GVA by 50%), it is clear that the business of SOE sector faces a number of accumulated structural problems.Source: Authors', based on SBA data million) and losses of non-privatized SOE (EUR 46 million); 3. A comparative analysis of the private enterprises(POE)and SOE shows, especially in 2018 and 2019, that while private companies increased net profit and reduced net losses, the performance of state-owned companies had the opposite trend, the net profit rate was lower, while on the other hand, the net loss rate was constantly increasing.For example, the rate of decline in net profit of SOE in 2018 was -23.3%, and in 2019 it registered an extreme decline of -58.1%.At the same time, the net SOE loss rate grew at a rate higher than 16%< 4. In 2019, there were 35 SOE whose profit was higher than 100 million RSD, and which participated with 5.6% of the total profit of the economy and with 6.3% in total employment.The structure of the largest state profits mainly includes large republican infrastructure PE and SOE of the defense industry.
1.The upward trend in the growth of net profit of SOE was short-lived (2016-2017), so that in 2019 the net profit of EUR 375 million was twice lower than the net loss (EUR 757 million); 2. The structure of net losses in 2019 is dominated by losses of SOE in bankruptcy and liquidation (EUR 218.4 million), followed by losses of public enterprises (EUR 117.2

Table 3 .
Trend of growth rates/decreases of profit and losses of POE and SOE.

Table 4 .
Annual fluctuations in GVA growth rates of SOE and POE.
Source: Authors', based on SBA data.

Table 5 .
Qualitative indicators of business versus private enterprises.
Source: Authors', based on SBA data.Source: Authors', based on SBA data

Table 6 .
Business performance of large state-owned enterprises 2019.
while the other half are companies of non-privatized state-owned companies that are in the process of restructuring.While the losses of 12 large state-owned enterprises in restructuring amount to EUR 84 million.

Table 7 .
Business performance of public enterprises 2019.
Source: Authors', based on SBA data.
to the state and other public enterprises, linkage of years of service, and the like); 13.To adopt The Strategy of Development for State-Owned