The announcement of the Hungarian government to extend its economic development programme – popular in the Carpathian Basin – to the non-neighbouring Republika Srpska, attracted the attention of many people. Ever since the friendship of the Hungarian Prime Minister Viktor Orbán and the Bosnian Serb President Milorad Dodik has deepened, increasingly more is heard about Hungary’s role – sometimes as a sponsor and at times as an investor – in many fields of the market of Bosnia-Herzegovina.
This economic development programme contributed to the upsurge of Milorad Dodik’s popularity and to maintain his party’s leading position in the 2022 elections.
Under the support scheme, 2 176 applications were approved in two rounds, but beneficiary farmers reported significant overpricing. The 30% co-payment was often close to the real value of products of the same category.
So far, Hungarian taxpayers have contributed with more than €30 million to help some Hungarian manufacturers and distributors to generate sales of nearly €50 million in Bosnia and Herzegovina through preferential purchases of machinery by Bosnian Serb farmers.
Responsible Neighbourhood, Extended Economic Development Support
Following the meeting between the Hungarian and the Republika Srpska governments in November 2021, the Prime Minister of the Republika Srpska, Radovan Višković, already implied that certain forms of economic support had been discussed during the Hungarian delegation’s visit.
The Prime Minister’s Office issued a press release after the meeting on behalf of Prime Minister Viktor Orbán. According to it,
the region’s development is important for the Hungarian government, therefore its Responsible Neighbourhood economic programme is being extended to the territory of the Republika Srpska.
In the first round, a €35 million development aid would be put out to tender on the territory of Republika Srpska, as it was announced by Péter Szijjártó in Banja Luka in July 2022.
Under the enterprise development scheme, grants of up to €25 000 and up to 70% non-repayable support were offered for the purchase of agricultural machinery and mechanical attachments, provided they are supplied by a Hungarian manufacturer or distributor. The subsidy aims to encourage both the Hungarian economy and the development of the economy in the Republika Srpska.
The Prosperitati Foundation, launched as a regional and economic development programme, had already been operating in Vojvodina for six years by then, and provided about €250 million in grants until 2021.
This support scheme had a specific aspect in Vojvodina, because the economic development programme sought to mitigate the negative demographic trend by strengthening local Hungarian businesses. In the Republika Srpska, on the other hand, it would be difficult to argue in favour of the support on the grounds of retaining the local Hungarian population, because, according to the latest 2013 census data, there are only 166 Hungarians living in the territory of the Serbian entity, and their number is not even close to 1000 at the national level. According to data from the Government Office of the Capital City of Budapest, about 360 people held dual citizenship in the country in October 2023.
Well, then what interest does Hungary have in supporting the Bosnian Serb entity?
As we pointed out in our previous article, Milorad Dodik has been in an increasingly difficult situation in recent years since the United States of America imposed sanctions on him. The sanctions made it impossible for businesses linked to him or his family to carry out economic activities.
That has limited Dodik’s and his party’s chances for the next elections where the stakes were high, mostly because of their poor performance on the last municipal elections in 2020. The Alliance of Independent Social Democrats (Savez nezavisnih socijaldemokrata – SNSD), despite enjoying the trust of the majority of voters in the Serbian entity, lost its majority support in the capital, Banja Luka.
Dodik’s concern was not without a cause, and he had to find a new strategy to maintain his leading position in Republika Srpska. The helping hand came from his most recent ally, Viktor Orbán.
The Hungarian Capital Came At Just the Right Time
On the initiative of the Republika Srpska government, a special organisation, the Progressus Foundation for Sustainable Development of the Republika Srpska, was established to manage the tenders for economic development support, and its opening ceremony, combined with an agricultural expo, was held on 31 August 2022.
Milorad Dodik reported on the event in a video on his social media page: “I know what it means to soak the land with the sweat of farmers. It is time to use as much machinery and equipment as possible. Therefore, it is a noble gesture of the Hungarian government and the Hungarian state to make this possible. Please, do not hesitate to express your interest, and if the allocated budget would be exceeded, we will find a way to meet everyone’s needs, respond and provide additional resources by the government of Republika Srpska. But, first and foremost,
we will do our utmost to make this programme a truly significant one.”
– said Dodik in his opening speech.
With this timing, the SNSD had already started its campaign for the general elections announced in May 2022 to be held in October. These are the most important elections in Bosnia and Herzegovina, as citizens elect representatives in six different government bodies at the same time:
- Presidency of Bosnia and Herzegovina;
- House of Representatives of the Parliamentary Assembly of Bosnia and Herzegovina;
- House of Representatives of the Parliament of the Federation;
- the National Assembly of the Republika Srpska;
- the President and Vice-President of the Republika Srpska; and
- the Cantonal Assembly of the Federation.
The SNSD, fostering a strategic partnership with the Hungarian government, was interested in four of the above electoral areas. In the days before the elections, Viktor Orbán personally sent a message to the Bosnian Serbs, stressing that Dodik was a good friend of the Hungarians:
“I have always supported him and I would like to continue working with him in the future. I hope I will have the opportunity to do so after the elections.”
– said the Hungarian Prime Minister. Eventually, the party won a landslide victory. Željka Cvijanović, the SNSD candidate, became (51,65%) the Serb member of the three-member (Bosniak, Serb, Croat) Presidency of Bosnia and Herzegovina; in the national parliament, 6 seats (41,15%) were received by SNSD members (out of 14 reserved for the Serb entity); 29 (34,63%) of the 83 seats in the Republika Srpska parliament were won – against 10 other parties – by the SNSD and the post of the president of Republika Srpska was also won by the SNSD-candidate, Milorad Dodik (47,06%).
The Hungarian government has so far spent more than €30 million on agricultural subsidies for Republika Srpska
In 2022, Progressus opened its offices in Banja Luka and in three other municipalities: Bijeljina, Gradiška and Derventa, set up the application system, organised an information tour and launched the first call for applications.
For the implementation of the business development programme in Bosnia and Herzegovina, the Ministry of Foreign Affairs and Trade provided HUF 94,6 million for operational expenses through the CED Central European Economic Development Network Nonprofit Ltd. in the same year, since the target country of the programme implementation is part of the Central European region. This amount corresponds to approximately €250 000. The payment of grants awarded under this call for proposals only started from 2023 onwards.
The Foundation staff started the first round of the BTP-22 information tour in February 2022, which opened the possibility to submit the applications. The results of the first awarded applications were published in April, and 653 farmers were granted a positive decision.
Farmers had to effect their co-payment for the agricultural machinery by the end of September 2023. Based on that, 98% of the applicants – 641 farmers – submitted payment applications to the Foundation. They were the ones who actually paid the amount of co-payment, which was a condition for receiving the grant. For those who successfully applied and paid the supplier at least 30% of the purchase price of the chosen agricultural machinery or related equipment, the Foundation paid the remaining part of the purchase price.
This round involved around 1200 machines, with delivery taking place between July and September 2023. In response to our question, the Progressus Foundation said that under BTP-22
641 applicants purchased agricultural machinery in a total amount of €13,8 million owing to the Hungarian government.
However, according to the CED’s response, the total value of the equipment purchased by the successful applicants is €12,8 million.
In the second round, BTP-23 a total of €23,3 million was awarded to 1535 applicants, which, together with a €10,8 million co-financing, generated a turnover of around €36,2 million for Hungarian suppliers. In the two previous rounds, the CED approved a total of €32,7 million in non-repayable grants, to which the applicants added €15,2 million.
This has enabled Hungarian agricultural machinery manufacturers to achieve a trade of €49,99 million in Bosnia and Herzegovina within two years,
– provided that applicants make use of the possibility of co-financing in the case of all grants awarded. Both imported and domestic products within the State are subject to a sales tax of 17%, i.e.
Bosnia and Herzegovina’s budget could be boosted by €8,49 million in taxes on the account of the aid from Hungary.
Based on the awarded grants and finances provided subsequently, the deadline for the implementation of BTP-23 has been extended, therefore the amount of funds used is not yet final.
Progressus tenders offer field machinery at prices two to three times higher than those on the Hungarian market
On a local agricultural internet forum of the Bosnian Serb farmers, the Progressus Foundation as well as the advantages and disadvantages of applying there have been discussed since August 2022, when the application period started. Reading posts, several conclusions can be drawn from the experiences of the applicants.
First off, farmers report overpricing.
According to a commenter, the 5-tonne Furrier trailer available from Kite BH Ltd. was offered for €15 000. “I reckon its a gilded trailer, isn’t it?” – another commenter asked. A corresponding comment states that it is not normal for a 5-tonne trailer to cost as much as a second-hand tractor in good condition.
In the 2022 advertisements of the Agroinform webshop, we could not find a 5-tonne Furrier trailer, but a new 10-tonne trailer was offered for €17 000, although by a different manufacturer. The price of a 5-tonne trailer – from another manufacturer – is still €6 885 in Hungary. Compared to that, €15 000 is more than the double of it.
“(…) For comparison, the same irrigation drum (Turbo Jet) is offered in Hungary for €4 476,24, and we are offered it for “trifling” €13 839,93. The same applies to all other connectable devices”, they wrote in another post.
For example, the Turbo Jet 63/300 rotary irrigation drum was offered in Hungary for €7 620 including VAT in the Agroinform 2022 webshop. The same model on the Agroszaki site is still available for €9 440 including VAT. However, the 52/200 model cited by an applicant as an example, was around €4 400 between 2022 and 2023. The price for this type has not changed to this day. Compared to the prices in Hungary, the offer of almost €14 000 is more than three times higher than in Hungary, but in the case of the 63/300 model, the overprice is almost 46%.
Similarly, others have also pointed out that bigger and more powerful machines from other manufacturers can be bought for as much – or even less – money as those offered by Hungarian manufacturers under the tender.
Átlátszó Vajdaság could get an insight in some of the pro-forma invoices submitted to Bosnian Serb farmers within the BTP-23 round. Based on these invoices, an overpricing of roughly 10–30% can be determined in comparison to the prices of the webshops.
One of the applicants reported that at the Foundation’s open day farmers pointed out to the dealers that the prices were not indicated at all, and that the dealers set the prices individually, custom-made for almost everyone. Only one of the manufacturers present responded to this, justifying custom-made price quotations on the grounds of specific user needs, but he did not convince the farmers with his answer. There was also a farmer who, after rejecting the original quote, was called back within a few days and got a more favourable offer.
Consequently, for some farmers that gave rise to the thought, that the 30% co-payment mostly corresponds to the real value of the machines.
To our inquiry, the Progressus Foundation replied that “the Foundation is not in contractual or other direct legal relationship with distributors who sell their machines and equipment to users of the Foundation’s grant programmes. (…) The Foundation’s only formally legal relationship with the distributors is the payment of the amount of the aid on behalf of the purchasers, i.e. the beneficiaries of the aid, into the supplier’s account, and the basis for the payment is the contract on providing support concluded between the Foundation and the beneficiaries, i.e. the farmers and processors”, – the operator’s statement reads.
Text by: Virág Gyurkovics
Opening photo: Viktor Orbán and his delegation at a working lunch with the leaders of the Republika Srpska in Banja Luka, Bosnia and Herzegovina, 6 November 2021. Source: Miniszterelnöki Sajtóiroda / Fischer Zoltán
The text was originally published in Hungarian on 16. 12. 2024.
This article was written in cooperation with Transparency International Hungary, with the support of the Transparency International Secretariat, in the framework of the Global Anti-Corruption Consortium.