The biggest corporate crisis in Croatia shook the whole country, but what consequences does it carry? Here are a few…
Agrokor is the most important player in the entire Croatian economy, and as Poslovni Dnevnik writes on the 19th of October, 2017, it made up 15% of the GDP. While we’ve heard about all of the negative ”side effects” of the crisis in Croatia’s largest privately owned company, how much do we really know about how all of this will affect us, the mere mortals, the little people? Novi List examines some important examples of just what this crisis means when it trickles down to the level of the every day person.
1. Job positions in Agrokor Group companies are no longer remotely secure
There are about 60,000 Agrokor employees, of which around 45,000 are in Croatia. Despite half a year of agony, not one of these people yet finds themselves in a safe enough position to breathe a sigh of relief and say their job is safe. Analysts now estimate that even in the event of a takeover of Konzum, thousands of jobs may still be lost within that company. Some of these people will of course find work in other chains, part of this group would retire, and part of it, if it does not succeed in finding a new employment status, could become part of the already devastating Croatian emigration statistics. Other companies from Agrokor such as Ledo, Jamnica and Belje don’t really have a great deal of competition in the market.
2. The agriculture and food industry is endangered
The crisis that shook Agrokor highlighted all the weaknesses of the domestic agriculture and food industry, which leaned on Konzum (and its former stability) for years. Thousands of small Agrokor suppliers will be forced to think about other chains or other product types, and even consider markets outside of Croatia, for which they don’t yet have a network, because they haven’t needed one. Such problems would affect entire regions throughout the country on a massive, and an extremely negative scale. If there is no interest in taking over Agrokor’s manufacturing companies, it would naturally mean the disappearance of numerous products to which people in this country have become accustomed, followed by a significant increase in imports. In such a bleak case, other food companies in Croatia who have relied on Konzum would also have to look for new ways to sell their products, or even lower their overall production.
3. Negative impact on Croatia’s economic growth
Although all the current estimates indicate that the impact of the crisis in Agrokor hasn’t affected the domestic economy to the massive degree it could have, the dilution of the above-mentioned problems will show how strong this impact will be over the coming year. Croatia may be less productive and end up needing to import more, meaning less employment and at once that takes its inevitable toll on overall economic growth, it will hit tax contributions, pensions and health insurance. Lower budget revenues may also mean new savings in the budget, which would mean less money for education, health care, pensions, social programs, and even the introduction of possible new taxes in order to overcome financial issues. Long story short, this would obviously mean a devastating impact on every resident of the Republic of Croatia.
4. Huge threat to the budget
The budget could potentially be jeopardised if, after the introduction of Lex Agrokor (law), creditors, led by Russia’s Sberbank, push more lawsuits. The government will have to respond to such pressures by engaging an attorney and that would result in yet another enormous expense. But even in the case of needing to hire an attorney, this would only be a drop in the ocean if any potential lawsuit doesn’t work in the country’s favour. In the case of the state losing, compensation paid in hundreds of millions of euros or billions of kuna would be on the cards. Paying such enormous damages would, quite obviously, mean less money for the things the budget serves for, including healthcare, education, pensions, and public sector wages, to name a few. Such a scenario would have a severe impact on Croatia’s credit rating, and its deterioration would mean more expensive interest on debt, and even less available money for the aforementioned budget expenditures.
5. Reduced yields on pension funds
Owing to Agrokor’s incredibly powerful position in the Croatian economy, anything that goes wrong in Agrokor naturally goes wrong for the entire country and therefore everybody in it. If any one of the above scenarios end up occurring owing to the unbelievable level of mess Croatia’s largest private company has managed to get itself into, this would hit the pockets of every tax payer and mean a dramatic reduction in the savings of future retirees.
Only time, and the way the rest of the situation is handled will tell just what direction this messy and increasingly murky process will take. With the arrests of twelve top people in Agrokor’s former administrative body having taken place over the past few days, and the fierce battle it seems Ivica Todorić is ready to get into from London with his hiring of the formidable British lawyer Michael O’Kane, everything is merely a waiting (and a guessing) game.
