Macedonia: A Land Of Opportunity

By Giorgio Buttironi

The Republic of Macedonia, a landlocked country in South-East Europe with 2 million inhabitants, acquired independence from Yugoslavia in September 1991 following a national referendum. Over two decades, Macedonia has undergone a significant evolution from being the poorest republic in Yugoslavia to becoming the top performing country among EU candidate countries.

Post-Independence Challenges

Economic growth was stifled during the first five years of Macedonia’s independence mainly because of what could be called a ‘double embargo’, which deeply affected the country. The UN sanctions on the Federal Republic of Yugoslavia affected Macedonia, albeit indirectly, because they ended up hitting the country’s main external market. Additionally, the country suffered a direct blow when Greece imposed a heavy economic embargo over the naming dispute. The use of the Vergina Sun on the national flag and the appellative ‘Republic of Macedonia’ – opposed to the homonymous region in Northern Greece – were perceived as a tentative sovereignty claim by Greece. Under the auspices of the United Nations, the two countries began diplomatic relations in 1995 and committed themselves to the resolution of the naming dispute; however, Macedonia had to modify its national flag and assume the appellative of ‘Former Yugoslav Republic of Macedonia’ in international settings.

Economic Progress

With the economic recovering beginning thereafter, the country’s GDP grew steadily by an annual average of 6% between 1996 and 2008. Growth trends remained relatively benign even during the financial crisis and – although the GDP suffered a contraction of 0.9% in 2009 – it recovered immediately after, by registering increases for 2.9% in 2010 and 2.8% in 2011. The extent of this performance can be also acknowledged through its bid’s progress for European Union membership: in 2001, Macedonia became the first country in South-East Europe to sign an Association Agreement with the EU. This process received another major boost in 2005, when Macedonia was granted the candidate status by the European Commission. The country’s progress towards the ultimate objective of full EU membership can be regarded as satisfactory, especially in meeting the economic requirements set out in the Copenhagen Criteria of 1992. Between 2011 and 2012, Macedonia registered a budget deficit of 2.6% of GDP and a public debt of 32.1% of GDP – well below the respective guidelines of maximum 3% of GDP for the deficit and 60% of GDP for the debt. Moreover, inflation has remained on an annual average level of 2% over the last ten years, with the country enjoying a relatively positive assessment by major credit rating agencies such as Fitch and Standard & Poor’s (BB+ with stable outlook).

Ripe Ground for Investment Opportunities

The Macedonian government has long endeavoured to create a favourable fiscal climate for potential investors and, judging by the numbers, it has not disappointed in its intent. A flat rate of 10% applies for Corporate and Income Tax, with no tax levied on retained earnings and operations in technological industrial development areas. Value Added Tax (VAT) is fixed at 18%, but is lowered to 5% on specific items. Moreover, Macedonia signed free-trade agreements and double taxation treaties with several European countries (including Turkey and the Ukraine), thus providing access to its market to approximately 600 million consumers.

Technological Industrial Development Zones (TIDZs)

Worthy of being mentioned are also the so-called ‘free zones’ or – as more commonly known – TIDZs. These areas, endowed of infrastructural benefits comprehending anything from electrical grid outlet to telecommunications network and fire protection, have been designated to become areas to incentivise private companies to invest in big projects. The greatest benefits come from a fiscal viewpoint and are quite astonishing: exemption from corporate tax and income tax for ten years, and absence of VAT and excise duties. Moreover, subsidies of up to €500,000 for building expenses are also available. In the TIDZ “Stip”, Johnson Controls invested over $20 million and hired 1,400 employees for its plant dedicated to the construction of car seats.

Main Sectors for Investment

The low level of taxation, combined with the existence of commercial agreements with the rest of Europe and its free zones fiscal incentives, makes the Republic of Macedonia an interesting market for investment in sectors such as agribusiness and energy infrastructure.

Agriculture and Food Production

Macedonia possesses a sizeable agricultural sector for industrial crops, fruit and vegetables, and wine production. In 2010, the country produced approximately 26,158 tonnes of tobacco – constituting the largest agribusiness export contributor with €72 million – and over 900,000 tonnes of vegetables, whose exports grew by 30% in 2010. Furthermore, wine production – accounting for circa 20% of the total agricultural output – is also a thriving sector, with over 115 million kg of wine grapes purchased in 2010. Considering that Macedonia’s economy is principally oriented on agriculture, fruit and vegetables, wine and tobacco production constitute the greatest investment opportunities.

Energy Infrastructures

With the government openly willing to develop an efficient energy sector through both public and private investments, Macedonia provides interesting opportunities in gas pipeline networks, hydroelectric power plants, and renewable energy.

Completing the national network of gas transmission is a key priority in Macedonia’s energy strategy; the country enjoys firm governmental commitment to the completion of this projection, as well as monetary support from global financial institutions amounting between €250 million and €350 million.

Significant potential also lies in the construction of 400 small hydroelectric power plants, with an annual electricity output of 1,200 GWh; approximately 68 concessions contracts have already been signed with total installed capacity of 58 MW, expected annual production of 277 GWh and a predicted investment of circa €103 million.

Although still in its early stages, Macedonia could prove a favourable ground for renewable energy due to is continental climate, characterised by hot summers and high intensity of solar radiations; the average annual solar radiation in Macedonia amounts to 1,385 kWh/m2. Contrarily to solar energy, the potential for wind is still under assessment with feasibility studies to evaluate the reliability of this potential energy resource.