PROFILE OF REPUBLIC OF MACEDONIA

ECONOMY

EMERGING TRENDS

Republic of Macedonia strategically works on its economic development and the creation of a favorable business environment. The country has a long-term macroeconomic stability and low inflation (in average is 2% in the past ten years), balanced public finances with low budget deficit and a stable exchange rate. In the past couple of years the reforms implemented in the labor market, along with active employment programs, decreased the unemployment rate from 36% to 25%. The main macro-economic indexes are presented in Table 1.1.

In the “Doing Business 2016” report of the World Bank, Republic of Macedonia is ranked at 12^th position in the world according to the ease of doing business – a progress of 41 places comparing to the rank in 2012. Macedonia is ranked first on this index (ease of doing business) compared to 25 economies in Europe and Central Asia.

According to the Global index of competitiveness developed by the World Economic Forum „ Global Competitiveness Index of the World Economic Forum“ for 2015-2016, Macedonia is in the category of efficiency driven economies at the 60^th position, with an improvement of 30 places compared to the same report for 2012-2013. In the 2015-2016 report, Macedonia is among the first ten most competitive European developing economies.

According to the Agency for Credit Rating „Standard and Poor’s“, the credit rating of Macedonia at the end of 2013 was BB-/ stable/B.

Table 1‑1 Macro-economic figures

STRATEGIC INDUSTRIES

There are several industries of strategic importance for Republic of Macedonia as are: agriculture, food processing industry, metallurgy, textile industry, production of automotive parts, construction, chemical industry and ICT sector.

Agriculture is one of the most important sectors of the Macedonian economy accounting for 10,1% of the GDP value for 2014. The production of fresh and high quality agriculture products is an excellent base for development of the food processing industry. In general, the food processing industry has a strong reputation based on the quality and reach of its products (access to regional and global markets). Main Macedonian products are fruits, vegetables, wine, sheep and goat cheese. The share of the food processing industry as a percent of the industrial production is 11,75% in 2014; it has 23.704 employees, which accounts for 3,33% from the overall employments in the industry.

The geological structure of the land in Republic of Macedonia is rich with raw materials and minerals which constitute a good base for a well-developed sector of metallurgy. According to the latest data, metallurgy generates 11,59% of the value of the industrial production. The basic sources for resources in this industry are the mines of lead, zinc, copper, Ferro, nickel, and Ferro silica mines. As a sector, metallurgy represent a base for industry development and is a significant contributor for economic growth of the country, currently employing 15.252 employees (2014).

The existing tradition and high quality human capital enabled the automotive components industry to continue its development. The production of automotive components which started in 1960 with the Serbian company “Zastava”, has re-profiled and modernized in the past decade with the entrance of foreign investors such as “Johnson Controls”, “Johnson Matthey”, “Van Hall”, “Dräxlmaier”, “Kemet”, “Amphenol” and others that have invested in opening of production capacities in the free economic zones. Today, automotive components produced in Macedonia are sold on the markets in Europe, Russia, Turkey, Africa etc.

The textile industry is a traditional manufacturing sector in the Republic of Macedonia which generates 17% of the annual value of GDP (2014). Macedonian textile is highly valued and recognized product on the global markets. The available capacities in the industry have the required infrastructure, modern technology, and qualified employees. The textile industry is a labor-intensive industry, employs 35% of the total workforce in the manufacturing, and participates with 17% in the total annual exports (2014).

The newest and fastest growing industry branch is the ICT sector. In pace with the global trends, the Macedonian telecommunications market is rapidly developing, especially in the mobile segment. The Act for electronic communications, from 2005 is harmonized with the EU regulation providing stable and consistent regulation of the sector and full liberalization of the market aiming to attract investments from domestic and foreign operators. In 2014 this industry gave employment to 13.579 and has 3,4% GDP share.

TRADE EXCHANGE

Republic of Macedonia has achieved a high level of trade liberalization, which is derived from:

• its membership at the World Trade Organization (WTO) from 2003;

· its membership at CEFTA – Acts for free trade with Albania, Bosnia and Herzegovina, Serbia, Montenegro and Croatia;

· Acts for free trade with Turkey and Ukraine, as well as the EFTA countries;

· Agreement for stability and association with EU from April 2001, that gives Macedonia free connection;

As a member of WTO, Macedonia committed itself to respect the three basic principles of trade conduct: (1) transparency of law, (2) equal rights and privileges for domestic and foreign companies and citizens and (3) the principle of the most most-favoured nation. The Law on Customs Tariff is fully-harmonized with customs systems introduced by the World Customs Organization and the Combined Nomenclature of the European Union.

In the period 2009-2014, the Macedonian economy doubled its exports; however, its imports grew as well– Table 1.1. The fact that the trade net-exchange is not changing indicates that the export is growing with a higher annual rate compared to the imports which on medium term can result into significant improvement of the net trade exchange.

Main export products of Republic of Macedonia are: automotive components, ferronickel, fuel oil and processed products, machines and appliances, products from iron and steel, tobacco, textile products, wine, medicine, fruits, vegetables, tinned food. The main export partners are: Germany, Great Britain, Serbia, Greece, Bulgaria, Italy, China, Turkey, and Romany. The domination is from EU28 countries.

Main import products are platinum and leaguers of platinum, oils and oils derived from bitumen minerals (except for raw minerals), electrical energy and other metals form platinum group and their leaguers, unmanufactured or in dust shape. The main import partners are: Great Britain, Germany, Bulgaria, Italy, Serbia. China, Russian Federation, Ukraine, Croatia, Slovenia.

TRANSPORT

Republic of Macedonia is a continental country with a strategic location on the crossroad of two major Pan-European corridors (Corridor 8 and Corridor 10), that connects Central Europe with Adriatic, Aegean and Black Sea. The neighboring countries are a potential market of estimated 30 million people, while Europe as a market covers a population of 80 million.

Macedonia has an extensive network of paved highways and secondary roads. The network is well planned and of high quality. The total length of the road network is 14.182 km, out of which 242 km are classified as highways, 911 km are arterial roads, 3.771 km regional, and 9.258 km are local roads.

The length of the open railway trucks in Republic of Macedonia is 696 km. The main north-south connection from Belgrade to the Thessaloniki port is passing through Macedonia. In 2015 there were some major investments in the railway network by buying modern trains from China (PRC).

The Macedonian airport system consists of two airports for international airline traffic (the airport Aleksandar Veliki – Alexander the Great in Skopje, and Sv. Apostol Pol - Saint Apostol Paul, in Ohrid) five sport airports with grass runways (Skopje-Stenkovec, Kumanovo, Shtip, Bitola, And Prilep) which are appropriate for any type of sports aviation, and there are also six airports for airplanes of trade aviation, through which are mainly conducted services with regard to agriculture and forestry (there is only one in use).

TELECOMMUNICATIONS

Republic of Macedonia has a well-developed telecommunication network with density that corresponds with the average in the region – 20 lines on population of 100. The former state monopoly “Macedonian Telecom” was privatized in 2001 and sold to “Madyar Telecom”. At the moment there are two mobile operators covering the market: “T-Mobile” Macedonia (subsidiary of “Macedonian Telecom”) and VIP (subsidiary of “Mobilkom” Austria). The mobile network covers 99% of the population with penetration higher than 100%.

According to the register of operators that broadcast program packages and data, the number of operators of public electronical communication networks that are providing services through cable infrastructure is 54. Additionally, there are three operators that are providing services through IPTV – platforms, one operator that provides service through DVB-T platform and one operator that provides service through DVB-S- platform. (Source http://www.avmu.mk/ - Agency for Audio and Audiovisual Media Services – updated on 27.22.2015)

Republic of Macedonia follows the trends of the digital economy. The Law for data in electronic form, as well as the Law on digital certificates are adopted in 2001, while in the past decade all necessarily laws were changed to accommodate the use of digital certificates.

According to the data from the State Statistical Office, in the first quarter of 2015, 69, 4% of the households had access to internet from their home - one percentage point higher in comparison to the same period in 2014. The participation of households in the broadband internet from the total number of households has increased from 67, 7% in 2014 to 69, 0% in 2015. Almost all (99, 5%) from the households with internet access had broadband (fixed or mobile) internet connection.

In the first quarter of 2015, out of the total population aged 15 to 74, 69.2% used a computer, whereas 70, 4% used the internet. The internet is mainly used by pupils and students, who make up 94.7% of the total number of users. In the first quarter of 2015 , 71,2% of the internet users used mobile phone, or a smart phone, for internet access outside the home and work.

According to data from the State Statistical Office, 93,5% of the businesses with ten and more employees had a broadband access to internet in 2015 (through fixed or mobile connection). More than half of the businesses (59,1%) had access to internet through portable device, using the mobile network (3G/4G). Mobile internet (through portable devices notebook, lap top, smartphone, PDA-phone etc.), was used by 11, 4% of the employees in the businesses. Half (49,8%) of the businesses use social media ( “Facebook”, “LinkedIn”, “Twitter”, “Present.li”, “YouTube”, “Flicker”, “Picasa”, Wiki – tools etc. ).

Other data for 2015, indicate that around 52% of the businesses have a web site, while 79% of those which have, have provided a description of their products/services and pricelists on the internet, 40,2% have listed links/references to their social media profiles, and 16,4 % have made an online purchase, or a reservation. 17, 7% of the businesses have used ERP- software packages for electronic and automatic information trade regarding their business, whereas 21, 6% have used software application for Customer relationship management (CRM).

In 2014, 7,7 % of the businesses with ten or more employees have used e-trade, i.e. they were buying or selling goods and services through computer networks (web or EDI), 3, 6 % sold products and eservices while 5,9 % bought.

ENERGY

Republic of Macedonia is striving to become self-sufficient in electrical energy. The total annual generation of electricity amounts to slightly above 6,000GWh and it is derived from thermal and hydroelectric sources. The energy production covers 65% of the domestic needs for electrical energy. In line with EU policies, the State Electricity Utility has been recently restructured into 4 independent units: two for generation, one for transmission and one for distribution of electricity. The distribution company has subsequently been privatised in 2006 and 90% of the shares were sold to EVN (Austria).

The capacities for generation of electrical energy generation are still in dominant property of the state and the private investment in this sector has been in general small in the past period.