Yugoslavia - Raising productivity in Yugoslav industry - some issues

Report No. 3383a-YU p Ei O PY Raising Productivity in Yugoslav Industry Some Issues July 21, 1981 Country Programs Department I Europe, Middle East and North Africa Regional Office FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  Glossary of Abbreviations BOAL = Basic Organization of Associated Labor COAL = Complex Organization of Associated Labor COI = Community of Interest GDP = Gross Domestic Product ICOR = Incremental Capital Output Ratio LDR = Less Developed Regions (currently Bosnia-Herzegovina, Kosovo, Macedonia and Montenegro) MDR = More Developed Regions (currently Croatia, Serbia Slovenia and Vojvodina) Exchange Rates Following a devaluation on June 6, 1980, the market rate was adjusted from 21.08 Dinars to the US Dollar (1 Dinar = 0.047 US Dollar) to 27.40 Dinars to the US Dollar (1 dinar,= 0.036 US Dollar). Since then the dinar has continued to depreciate against the US Dollar and on June 30, 1981 stood at 33.94 Dinars to the US Dollar (1 Dinar = 0.029 US Dollar).  FOR OFICIAL USE ONLY RAISING PRODUCTIVITY IN YUGOSLAV INDUSTRY: SOME ISSUES Table of Contents Page No. COUNTRY DATA MAP SUMMARY AND CONCLUSIONS ....................... i-v PREFACE ....................... 1-5 I. THE INDUSTRIAL SECTOR IN YUGOSLAVIA. 6 A. Industrial Development Strategies. 6 B. Industrial Performance in the Seventies . . . 9 (i) Output. 9 (ii) Exports .10 (iii) Imports .12 (iv) Investment .12 (v) Employment ............ 15 (vi) Total Factor Productivity Growth ., 16 C. Regional Differences in the Level of Outpuit and Employment ......................................,. 18 (i) Industrial Structure .......................... 18 (ii) Regional Policy Instruments ................... 21 (iii) Employment . ................................... 22 (iv) Labor Intensive Industrial Development .... ... 24 D. The Role of Industry in Absorbing Labor ....... ........ 26 (i) Structure of the Labor Force. ............ 26 (ii) The Future Pattern of Employment (,rowth .28 E. Industry in the Eighties .32 II. INDUSTRIAL PRODUCTIVITY: OBJECTIVES AND ISSUES .33 A. The Objectives and Mechanisms of the Self-Management System .33 This report is based on a mission which visited Yugoslavia in November 1980, consisting of Basil Kavalsky (chief of mission), Fred Kilby (general economist), Keith Marsden (industrial economist) and Harbaksh Sethi (industrial engineer). This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.  Table of Contents (Continued) Page No. B. Productivity Issues ...... ............................ 36 (i) The Allocation of Foreign Exchange .... ....... 37 (ii) The Pricing of Capital ....................... 39 (iii) The Training and Motivation of Managers ...... 42 (iv) The Training and Motivation of Workers ... .... 45 (v) Location within Republics and Provinces ...... 47 (vi) Productivity Differences between Republics and Provinces .............................. 50 (vii) The Development of the Capital Goods Industry ................................... 53 (viii) Promoting the Small-Scale and Individual Sectors .................................... 55 III. CONCLUSIONS AND SUGGESTIONS .............................. 58 STATISTICAL APPENDIX .66 ANNEX I - Regional Differences in Industrial Productivity .74  List of Text Tables Table No. Page No. 1 The Pattern of Industrial Growth .......................... 10 2 Share of Industry in Gross Fixed Capital Formation ....... 13 3 Some Basic Indicators of Industrial Performance in 1978 ... 20 4 Regional Variations in the Pattern of Industrial Growth ... 21 5 Regional Unemployment Indicators 1980 . ..................... 23 6 Indexes of Regional Variations in the-Cost Structure of Selected Labor Intensive Industries ...... ................ 25 7 Structure of the Labor Force 1953-79 ....................... 26 8 Labor Force Projections 1979-90 ............................ 30 9 A Comparison of Rates of Inflation and Interest .... ....... 40   COUNTRY DATA - YUGOSLAVIA AREA POPULATION DENSITY 255,804 sq. km. 22.0 million (mid-1978) 86 persons per sq. km. Rate of Growth: 0.92 (from 1970 to 1978) 154 persons per sq. km. of agricultural land POPULATION CNAXACTERISTICO (1978) HEALTH (1977) Crude birth Rate (per 1,000) 18.0 Population per physician 762 Crude Death hate (per 1,000) 8.0 Population per hospital bed 166 Infant hortality (per 1,000 live births) 34.0 INCOME DITRIBUTION (1978) DISTRIBUTION OF LAND OWNERSHIP (1971) 2 share of household income, lowest quintile 6.6 1 owned by top 102 of owners highest quintile 38.7 (social sector Kombinats) 15.1 2 owned by smallest 10 of owners (private smallholders) 84.9 ACCESS TO PIPED WATER (1978) ACCESS TO ELECTRICITY Dwellings with piped water (S) 40.5 S of all dwellings (1978) 89.0 rural (1971) 80.0 NUTLITION (1977) EDUCATION Per capita Calorie Supply 3,445 Adult Literacy rate (2) 85 (1975) (1362 of requirement) Primary school enrollment (2) 100 (1977) Per capita protein supply (grams/day) 101 Secondary school enrollment (2) 79 (1977) GNP PER CAPITA IN 1979 1/; US$2429 CROSS JOKESTIC PRODUCT IN 1978 AVERAGE ANNUAL RATES OF GROWTH (1, constant prices) Ub t Mln. 2 1970-75 1975-78 1978 GDP at Market Prices 53,765 100.0 6.6 4.9 6.8 Total Consumption 38,597 71.8 6.8 4.9 13.4 Gross Domestic Investment 18,811 35.0 5.9 6.7 -3.3 Gross Domestic Savings 15,168 28.2 5.7 13.8 2.6 Exports of Goods and Nonfactor 5.7 -1.8 2.5 Services 8,655 16.1 6.3 0.7 9.5 Imports of Goods and Nonfactor Services 12,247 22.8 OUTPUT, LABOR FORCE AND PRODUCTIVITY IN 1978 GDP at Current Factor Cost (1978) Labor Force 4/ Value Added Per Active Resident Worker USS Mln. 2 Iln. 2% UST (1978) 2 Agriculture 2/ 5,702 11.7 2.67 33.1 2,136 35.4 Industry 3/ 21,945 45.1 2.69 33.4 8,158 135.2 Other 20,970 43.2 2.70 33.5 7,767 128.8 Total 48,617 100.0 8.06 100.0 6,032 100.0 GOVERNMENT FIANCE, consolidated. 1978 US$ Mln. Consolidated Public Sector Receipts 20,617 Expenditures 20,885 burplus -268 katio of Current Receipts to GDP at Market Prices (S) 38.3 MONEY, CREDIT AND PRICEb (in billions of dinars) 1974 1975 1976 1977 1978 1979 Money Supply 5/ (end-year position) 103.4 137.8 214.3 257.2 329.2 386.4 Money Supply as Z of GDP at market prices 24.3 25.6 31.4 31.9 32.8 - Bank Credit Total 6/ 359.6 451.7 569.1 699.3 884.6 1,081.4 Enterprises 276.9 350.9 443.1 539.2 682.7 841.1 Government and other Social Sector 54.6 67.2 78.3 98.4 111.6 126.6 Households 28.5 38.7 50.5 65.1 90.3 113.7 Price Indices (Annual Percentage Change) Industrial Producer Prices 29 22 6 10 8 13 Agricultural Producer. Prices 14 13 14 12 11 25 RetaiLl Prices 26 26 9 13 13 22 1/ The per capita GNP estimate is at market prices, calculated by the same conversion technique as the 1979 World Atlas. All otner conversions to dollars in these tables are at the prevailing period average exchange rate (see inside cover). 2/ lncludes irrigation and forestry. 3/ Manufacturing, mining, construction, electricity, gas and water. 4/ Total active resident labor force, excluding unemployed. 5/ Currency in circulation, demand deposits and float. 6/ Short- and long-term credits.  BALANCE OF PAYMENTS, MERCHANDISE TRADE AND DEBT Annual Data at Current Prices (US$ Millions) 1976 1977 1978 1979 1980 1/ SUMMARY OF BALANCE OF PAYMENTS EXTERNAL DEBT, December 31. 1979 4/ Exports (f.o.b.) 4,893 5,191 5,809 6,795 8,978 - US$ Millions Imports (c.i.f.) -7,367 -9,789 -10,439 -14,019 -15,064 Trade Balance -2,474 -4,598 -4,630 -7,225 -6,086 Debt Outstanding and Disbursed 13,645 Official (3,326) Non-Factor Service Receipts 2,275 2,755 3,140 3,901 5,075 Private (10,319) Non-Factor Service Payments 2/ -1,102 -1,008 -1,138 -1,414 -1,735 Non-Factor Services Net Balance 1,173 1,747 2,002 2,487 3,340 Debt Service Ratio 5/ (Z) 19.9 Debt Service Ratio 6/ (Z) 14.9 Factor Service Receipts 1,974 2,640 3,120 3,581 4,247 Factor Service Payments -838 -1,135 -1,775 -2,504 -3,792 Factor Services Net Balance 1,136 1,505 1,345 1,077 455 Current Account Balance 165 -1,346 -1,283 -3,661 -2,291 Medium & Long-Term Loans IBRD LENDING. (as of April 30, 1981) (Million US$) Disbursements 2,096 2,665 2,800 2,438 3,474 AmortLzation -902 -1.050 -1,300 1,304 1.446 Outstanding & Disbursed 1,396.2 Net Disbursements 1,194 1,615 1,500 1,134 2,028 Undisbursed 1,082.2 2,478.4 Export Credits Extended (net) -100 -183 -106 -125 -221 Capital Transactions n.e.l. 3/ -205 85 318 1,306 253 Use of Reserves -989 -171 -429 1,346 231 MERCHANDISE TRADE 7/ Imports Capital Goods 1,759 2,436 2,559 3,572 2,802 Intermediate Goods 4,697 5,989 6,325 8,935 11,479 Consumer Goods 911 1,208 1099 1,512 783 Total Merchandise Imports (c.i.f.) 7,367 9,633 9,983 14,019 15,064 Exports Capital Goods 826 1,080 1,132 1,156 1,379 Intermediate Goods 2,589 2,667 2,809 3,627 4,679 Consumer Goods 1,463 1,509 1,73 2,011 2,919 Total Merchandise Exports (f.o.b.) 4,878 5,256 5,671 6,794 8,978 MERCHANDISE TRADE INDICES 7/ 1976=100 Index of Export Dollar Unit Values 100 113 122 141 162 Index of Import Dollar Unit Values 100 114 119 142 169 Terms of Trade Index 100 101 103 99 96 RATE OF EXCHANGE Annual Averages End June 1981 US$1.00 = Dinar 18.19 18.30 18.64 19.0 24.91 33.94 Dinar = USi0.055 0.055 0.054 0.053 0.040 0.029 1/ Preliminary data. 2/ Including withdrawals from foreign currency deposits. 3/ Includes errors and omissions, short-term loans, IMF account, national and commercial bank credits. (Calculated resLdually.) 4/ Estimated. 5/ Debt service as a percentage of exports of goods and nonfactor services. 6/ Debt service as a percentage of exports of goods, nonfactor services and factor services. 7/ Merchandise trade data are estimated on the basis of statistical exchange rates which differ from period average exchange rates used in calculating balance of payments data during 1976-78.  VINV ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~~~~~~~~~NNNI m~ ~zz-~ cz3snifnfliSVNdNI NOI1V1UOdSNVSIi SS INU3lunYnKSOVU3 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ A; VI2d ;1 s o N n k S3t IT'~~~~~~~~~~~~~~~~~~N NSAN~