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Floods inflict grievous blow on frail Balkan economies

Source: Reuters - Wed, 21 May 2014 10:38 GMT
Author: Reuters
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Fata Kovacevic sits near her flood-damaged house in Topcic Polje, Bosnia, May 20, 2014. REUTERS/Dado Ruvic
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* Damage from flooding seen at billions of euros

* EU, EBRD to assess how to help

* Damage to infrastructure, energy, agriculture

By Daria Sito-Sucic and Ivana Sekularac

MAGLAJ, Bosnia/BELGRADE, May 20 (Reuters) - When the waters receded, hundreds of employees at the paper and pulp factory in the Bosnian town of Maglaj turned up for work. Armed with shovels, they began to clear the mud that caked the Natron Hayat mill, where machinery had sat for days submerged under three metres of water.

The factory was wrecked, and barely a house in the town around it was left untouched by the worst floods to hit the Balkans in living memory.

Maglaj was a picture of destruction, and of the economic toll on a region woefully unfit to foot the bill.

"We all live off this factory, and the sooner production resumes, the sooner the town will return to life," said mill worker Mirza Mahic, shovel in hand.

Two decades after the wars that tore apart Yugoslavia and put much of the region on Western financial life support, Serbia and Bosnia must again look to Europe for the money to recover from days of devastating floods.

In Bosnia alone, forecasts of the damage top 1 billion euros ($1.37 billion). Given the destruction inflicted on agricultural land and the energy network, imports are set to rise, impacting economic growth and inflation. Food prices could soar.

Estimating the damage in Bosnia at 1.3 billion euros, or roughly 10 percent of national output, Raiffeisen Bank said on Tuesday its forecast of 1.5 percent economic growth this year was under pressure.

Already struggling with very high unemployment, lower growth will only make it harder for the countries' populations to find regular work. Bosnia's jobless rate is running at around 40 percent and Serbia's at 25 percent, according to official estimates, with many workers scratching out a basic living in the grey economy.

Bosnia's presidency has asked the central government to request reprogramming of the country's international loans and for commercial banks to adjust loan repayments for Bosnians hit by the flooding. The government says they number in the hundreds of thousands, and that more than 100,000 buildings are unusable.

In Serbia, sandbag barriers largely kept the waters from the country's biggest power plant, Nikola Tesla, but the largest coal mine that supplies it was turned into a lake 60 metres deep in some parts. Prime Minister Aleksandar Vucic says the clean-up at the complex will cost more than 100 million euros.

Energy production, already down 40 percent, could be limited for months. "It will take us a year to recover production here and take the water out," Kolubara mine general manager Milenko Grgic told state television.

Envoys from the European Union and the European Bank for Reconstruction and Development (EBRD) visit the region this week to see the damage first-hand.

As a candidate for EU membership, Serbia qualifies for the bloc's Solidarity Fund, providing the damage amounts to at least 0.64 percent of gross domestic product (GDP), or around $240 million. Serbia plans a donor conference on Thursday.

"LOST EVERYTHING"

Bosnia, however, is yet to qualify for candidacy due to years of foot-dragging by a political elite still split along ethnic lines. A spokesman for the EU's mission in Bosnia said the bloc's executive arm, the Commission, was urgently looking at how to pull together a support package for the country.

"The flooding destroyed not only the houses and businesses but also the infrastructure, inflicting huge damage to roads, bridges, railway tracks and waterworks, which will need major investment," said Aleksa Milojevic, director of the Economic Institute in the flood-hit town of Bijeljina in eastern Bosnia.

Milojevic said the agriculture and cattle stock in Bosnia's northern Semberija region, the country's granary, was completely destroyed because of the failure of authorities to react quickly to warnings of the impending floods.

Bosnia's central government will discuss the impact with the International Monetary Fund, which begins a 10-day review of a standby loan deal on Wednesday. The deal is already frozen over the failure of governments in the country's two autonomous republics to agree on economic policies.

"The floods will have significant implications for the budgets, both on spending and revenue sides," the Fund's envoy to Bosnia, Ruben Atoyan, told Reuters.

Serbia, too, is due to begin talks soon on a new precautionary loan deal with the IMF. The Washington-based lender is looking for deep spending cuts but the floods may have ruined the best-laid plans of Finance Minister Lazar Krstic.

In Serbia, agriculture accounts for roughly 12 percent of GDP and is valued at $5 billion. The sector accounts for 25 percent of total exports. Fortunately, Serbia's breadbasket, the northern Vojvodina region, was spared the worst of the flooding. But the sector did not escape completely.

"If 10 percent of agricultural production was affected it means that the damage could amount to $500 million," said Milan Prostran, former head of the agriculture department at Serbia's Chamber of Commerce.

Small farmers in both countries were hit hardest.

"We all lived off raspberries, and now it's all gone," said Elvir Cizmic from the Zeljezno Polje region in central Bosnia, where landslides left over 5,000 people homeless and destroyed raspberry fields.

"We had an annual output of 3 million marka ($2.1 million) from raspberries," Cizmic said. "I can't believe that in one hour I lost everything I had worked for my whole life." (Additional reporting by Zoran Radosavljevic in Zagreb and Gordana Katana in Banja Luka; Writing by Daria Sito-Sucic; Editing by Matt Robinson and Toby Chopra)

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