Unions appeal to state as crisis in construction deepens
Published: 8 January 2012
In 2011 the crisis in the construction industry in Slovenia (*SI0207102N* [1]) intensified. Eurostat [2] reports that among the 14 Member States for which data were available in May 2011, construction output fell in nine countries and rose in five. The largest decreases were registered in:[1] www.eurofound.europa.eu/ef/observatories/eurwork/articles/unions-demand-measures-to-address-construction-industrys-problems[2] http://epp.eurostat.ec.europa.eu/cache/ITY_PUBLIC/4-19072011-AP/EN/4-19072011-AP-EN.PDF
Construction work in Slovenia fell by 30% in 2011 – the biggest fall in this sector in EU, according to Eurostat. Unions are campaigning on behalf of construction workers who have been paid neither wages nor unemployment benefits for months and have no means of survival. Union confederation ZSSS blames their plight on inadequate insolvency legislation, and says poorly regulated management buyouts are making matters worse, leading to more bankruptcies and job losses.
Background
In 2011 the crisis in the construction industry in Slovenia (SI0207102N) intensified. Eurostat reports that among the 14 Member States for which data were available in May 2011, construction output fell in nine countries and rose in five. The largest decreases were registered in:
Slovenia (-30.1%);
Spain (-17.3%);
Bulgaria (-16.5%).
The highest increases were in:
Poland (+24.7%);
Sweden (+11.2%);
Germany (+8.0%).
Of Slovenia’s three biggest construction companies, two (Vegrad, SCT) face bankruptcy and the third (Primorje) is fighting for survival. Consequently, subcontractors have not been paid and many of these will also go bankrupt. Even so, a report (in Slovenian, 88Kb PDF) by Boštjan Vasle, Director of the Institute of Macroeconomic Analysis and Development (UMAR), explains his belief that the crisis in the construction sector has not yet reached its peak. He expects redundancies to have increased in the second half of 2011, with a resulting increase in the number of unemployed people in Slovenia. Below are some of the cases reported to the European Restructuring Monitor.
| Announcement date | Company | Type of restructuring | Planned job reductions |
|---|---|---|---|
| 08-06-2011 | Bankruptcy | 760 | |
| 10-05-2011 | Bankruptcy | 128 | |
| 11-03-2011 | Bankruptcy | 221 | |
| 09-03-2011 | Bankruptcy | 120 | |
| 19-02-2011 | Bankruptcy | 799 | |
| 26-01-2011 | Bankruptcy | 130 | |
| 19-01-2011 | Bankruptcy | 100 | |
| 22-12-2010 | Bankruptcy | 134 | |
| 22-12-2010 | Bankruptcy | 1071 |
Source: European Restructuring Monitor
Unions propose work on schools and hospitals
The Association of Free Trade Unions of Slovenia (ZSSS) has reacted by asking the Government to step in and renovate schools and hospitals. This would not only help the construction industry but would increase the buldings’ energy efficiency. Unions claim the State could obtain considerable funding for this from the EU. Such investments could start a new economic cycle which would have a cumulative effect on the whole economy and domestic demand. However, the government has rejected these proposals, deciding instead to cut the already small fund earmarked for this work when it rebalanced the state budget.
Inadequate insolvency legislation leaves workers unpaid
Even before the construction industry began to fail, the ZSSS had spoken out about the inadequacies of Slovenia’s insolvency legislation because it leaves workers of bankrupt companies without any support.
On 3 June 2009, the company LTH, based in the city of Škofja Loka, faced bankruptcy and its workers had received no pay for the previous five months.
At the end of November 2010 one of the workers employed at TOM Mokronog submitted an application for its bankruptcy. Some of the company’s workers received their last wage at the end of September 2010, although some others were paid in the middle of October 2010. The company also owed workers part of their wages for July 2010, and it had not paid social security contributions since February 2010.
On 15 June 2011, the Ljubljana District Court began a bankruptcy procedure for the company SCT, Slovenia’s biggest construction industry company. Again, workers here had not been paid for five months, since January 2011.
Currently 292 workers at the Konstruktor company in the city of Maribor remain unpaid as their company too faces bankruptcy.
The ZSSS has publicly appealed to the President of the Republic of Slovenia Dr Danilo Türk, and to the country’s Human Rights Ombudsman Zdenka Čebašek-Travnik, calling on them to use all their authority and take immediate action to solve the economic problems of workers from all companies facing bankruptcy.
Poorly regulated buy-outs add to industry’s woes
The ZSSS has warned several times that poorly regulated management buy-outs (take-overs) and monopolistic practices still occur in Slovenia – and frequently in the construction industry. This has led in some cases to the destruction of companies through asset stripping and job cuts.
The most infamous scandal was known as ‘clean shovel’. It erupted when the directors of the three largest construction companies (SCT, Vegrad and Primorje) were arrested for a short time. Eight people were accused by state prosecutors of giving and receiving bribes. This suggested that these named companies were parts of a monoply network to get the most benefits from state-run infrastructure projects. The second aspect of this scandal was the poorly regulated management buy-outs which involved the elimination of companies through asset stripping and the loss of jobs. Both SCT and Primorje were taken over by their management.
Prof.dr. Jože P. Damijan from the Faculty of Economy, University of Ljubljana, said that with the management buy-out of the SCT through bank credits the monetary flow of the mother company and its daughter companies were completely exhausted. As said already the SCT became bankrupt and the Primorje is fighting for survival.
Commentary
The government has no specific policies to help the construction industry. Before the global economic crisis, many experts had warned that the construction industry in Slovenia was far too big and had suggested, without success, that its capacity should be rationalised.
It is difficult for companies in most sectors to get loans in the current economic climate, but practically impossible for construction companies. Slovenia’s Finance Minister, Franc Križanič, came under attack recently for saying banks should give more loans to businesses – commentators pointed out that the government has a majority stake in NLB, the biggest bank in Slovenia. The combination of the lack of loans, the lack of state investment due to budget cuts, and the Eurozone crisis make the future look bleak for Slovenia’s construction industry.
Štefan Skledar, Institute of Macroeconomic Analysis and Development
Eurofound recommends citing this publication in the following way.
Eurofound (2012), Unions appeal to state as crisis in construction deepens, article.
