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UNITED NATIONS

UNITED NATIONS CONFERENC E ON TRADE AND DEVELOPMENT

INVESTMENT POLICY REVIEW

The former Yugoslav Republic of

MACEDONIA

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United Nations Conference on Trade and Deveopment

Investment Policy ReviewThe ormer Yugoslav Republic o

Macedonia

UNITED NATIONS

New York and Geneva, 2012

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Investment Policy Review o the ormer Yugoslav Republic o Macedonia

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NOTE

The United Nations Conerence on Trade and Development (UNCTAD) serves as the ocal pointwithin the United Nations Secretariat or all matters related to oreign direct investment, as part o itswork on trade and development. This unction was ormerly carried out by the United Nations Centreon Transnational Corporations (1975–1992). UNCTAD’s work is carried out through intergovernmentaldeliberations, research and analysis, technical assistance activities, seminars, workshops and conerences.

The term “country” as used in this study also reers, as appropriate, to territories or areas; thedesignations employed and the presentation o the material do not imply the expression o any opinionwhatsoever on the part o the United Nations Secretariat concerning the legal status o any country,territory, city or area or o its authorities, or concerning the delimitation o its rontiers or boundaries. Inaddition, the designations o country groups are intended solely or statistical or analytical convenience anddo not necessarily express a judgement about the stage o development reached by a particular country or

area in the development process.

The ollowing symbols have been used in the tables:

Two dots (..) indicate that data are not available or not separately reported. Rows in tables have beenomitted in those cases where no data are available or any o the elements in the row.

A hyphen (-) indicates that the item is equal to zero or its value is negligible.

A blank in a table indicates that the item is not applicable.

A slash (/) between dates representing years – or example, 2004/05, indicates a nancial year.

Use o a dash (–) between dates representing years – or example, 2004–2005 – signies the ull period

involved, including the beginning and end years.Reerence to “dollars” ($) means United States dollars, unless otherwise indicated.

Annual rates o growth or change, unless otherwise stated, reer to annual compound rates.

Details and percentages in tables do not necessarily add to totals because o rounding.

The material contained in this study may be reely quoted with appropriate acknowledgement.

UNCTAD/DIAE/PCB/2011/3

UNITED NATIONS PUBLICATION

Sales E.11.II.D.13

ISBN 978-92-1-112823-9

© Copyright United Nations, 2012

All rights reserved

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PREFACE

The UNCTAD Investment Policy Reviews (IPRs) are intended to help countries improve their investmentpolicies and to amiliarize Governments and the international private sector with an individual country’sinvestment environment. The reviews are considered by UNCTAD’s Investment, Enterprise and DevelopmentCommission. The IPR recommendations are then implemented with the technical assistance o UNCTAD.The support to beneciary countries is delivered through a series o activities which can span over severalyears (more inormation about the IPR programme in annex 1).

The Investment Policy Review o the ormer Yugoslav Republic o Macedonia , initiated at the request o the Government o the ormer Yugoslav Republic o Macedonia, was carried out through a act-ndingmission in February and March 2010. The mission received the ull cooperation o the relevant ministries andagencies, in particular the Ministry o Economy and its Department or Stimulating Investments and SocialResponsibility. The mission also had the benet o the views o the private sector, oreign and domestic, and

the resident international community, particularly bilateral donors and development agencies. A preliminaryversion o this report was discussed with government ocials in Skopje in December 2010. Comments werealso gathered during a workshop organized by the Ministry o Economy. The nal report refects writtencomments rom various Ministries o the Government o the ormer Yugoslav Republic o Macedonia, ascollected by the Ministry o Economy. The report also beneted rom discussions with the UNDP Ocein the ormer Yugoslav Republic o Macedonia and the Delegation o the European Union to the ormerYugoslav Republic o Macedonia.

The relevance and eectiveness o the regulatory regime are assessed against several related criteria:(a) whether regulations adequately promote and protect the public interest; (b) whether regulationsadequately promote investment and sustainable socio-economic development; and (c) whether the methodsemployed are eective and well-administered, given their public interest and development objectives andthe legitimate concerns o investors that rules and procedures do not unduly burden their competitiveness.International benchmarks and best policy practices are taken into account in making the assessment andrecommendations in this report.

The strategic ocus o this review is on the elaboration o an investment policy programme, namelythe “Programme or Stimulating Investment in the Republic o Macedonia 2011–2014”. The choice o ocusollows a specic request rom the Government o the ormer Yugoslav Republic o Macedonia, showing itscommitment to the creation o a sound investment climate, thereby contributing to creating an improvedbusiness climate, a more competitive economy and, ultimately, generating greater wealth and employment.The Government’s commitment has already been demonstrated by the creation and implementation o threeprogrammes o ar-reaching reorms, the latest o which being the “Programme or Stimulating Investment in

the Republic o Macedonia 2007–2010”.This report was prepared by the Investment Policy Review team, under the supervision o Chantal

Dupasquier. James Zhan, Director o the Investment and Enterprise Division, provided overall guidance. Thereport was written by Kalman Kalotay, Isabel Maria Marcin, Massimo Meloni, Ricardo Pinto and Matija Rojec.Substantive contributions rom Alexandre de Crombrugghe, Hamed El-Kady, Astrit Sulstarova and LorenzoTosini are also acknowledged. The report beneted rom comments and suggestions rom UNCTADcolleagues, including Kiyoshi Adachi, Yoseph Asmelash, Hans Baumgarten, Richard Bolwijn, Quentin Dupriez,Anna Joubin-Bret, Joachim Karl, Natalia Guerra and Elisabeth Tuerk, as well as rom Stephen Young, undera peer review process. Irina Stanyukova and Juan José Maqueda provided research and statistical assistance.This report was unded by the Government o Sweden.

It is hoped that the analysis and recommendations o this review will help the ormer Yugoslav Republico Macedonia achieve its development goals, contribute to improved policies, promote dialogue amongstakeholders and catalyze investment and the benecial impact o oreign direct investment.

Geneva, June 2011

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CONTENTS

PREFACE iiiCONTENTS v

ABBREVIATIONS i

INTRODUCTION iii

I FDI TRENDS AND PERFORMANCE 1

A. Economic background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

1. Growth and macroeconomic developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

2. Labour market . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

3. Structure o the economy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

4. International trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

5. Inrastructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

6. Demographic structure and human resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10

B. FDI trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

1. General FDI trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. Composition o FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2.1. FDI by components . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

2.2. Sectoral composition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 152.3. Origin o FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

C. Impact o FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

1. Employment and output . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

2. Linkages and technology transer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

3. Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4. Impact by types o investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4.1. FDI in selected services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

4.2. Eciency-seeking FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

4.3. FDI in natural resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

D. Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

II. THE INVESTMENT FRAMEWORK 27

A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

B. Specic FDI measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

1. FDI entry and establishment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

2. Treatment and protection o FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

2.1. Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

2.2. Transer o unds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 292.3. Expropriation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

2.4. Other issues related to treatment and protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

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3. International ramework or FDI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3.1. Bilateral investment treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

3.2. Double taxation treaties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34

3.3. International agreements containing investment provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

4. Assessment o FDI-specic measures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

C. General measures regulating business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

1. Adjusting national regulations to the acquis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37

2. Business registration, documentation, conditions and procedures . . . . . . . . . . . . . . . . . . . . . . 39

2.1. Legal orms a business can take . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

2.2. Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40

3. Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.1. Tax rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

3.2. Incentives and special regimes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

3.3. Tax administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

3.4. Assessment and recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44

4. Accounting and auditing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46

5. Customs administration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

6. Labour . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

7. Employment and residence o oreigners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50

8. Land and construction permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

8.1. Cadastral records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

8.2. Land acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52

8.3. Construction permits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

8.4. Land-related ees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

9. Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

10. Competition policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55

11. Governance and institutional capacities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

11.1. Commercial justice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

11.2. Transparency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57

11.3. Government policies conducive to corporate social responsibility . . . . . . . . . . . . . . . . . . . . . . . . 57

11.4. Public-private partnerships . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

12. Protection o intellectual property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58

D. Assessment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

III. DESIGNING A NEW PROGRAMME FOR STIMULATING INVESTMENT 61A. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

B. Assessing the implementation o past programmes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62

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C. Developing a new programme or stimulating investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

1. Achieving global excellence in the investment ramework . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

2. Creating synergies between FDI and industrial policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

3. Strengthening policymaking in the area o investment and competitiveness . . . . . . . . . . . . . . . . . 70

3.1. Current institutional setting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70

3.2. Enhancing the eciency o the institutional ramework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71

4. Rationalizing the investment promotion eort . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4.1. Current structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74

4.2. Proposed structure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75

5. Ensuring eective policy implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78D. Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

IV. SUMMARY OF FINDINGS AND RECOMMENDATIONS 81

A. Achieving global excellence in the investment ramework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

B. Creating synergies between FDI and industrial policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82

C. Strengthening policymaking in the area o investment and competitiveness . . . . . . . . . . . . . . . . . 82

D. Rationalizing the investment promotion eort. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

E. Ensuring eective policy implementation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83

Anne 1 IPRs – an integrated assistance approach 85

Anne 2 Regulatory reorms in the ormer Yugoslav Republic o Macedonia 87

Anne 3 Methodology o international ta comparisons 89

Anne 4 Inputs or the implementation o the programme or stimulating investment 91

REFERENCES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105

TAblESTable I.1. Main trading partners o the ormer Yugoslav Republic o Macedonia, 2009 . . . . . . . . . . . . . . . . 9

Table I.2. Inrastructure indicators o the ormer Yugoslav Republic o Macedonia, 2003–2009 . . . . . . . 10

Table I.3. Top oreign investment projects in the ormer Yugoslav Republic o Macedonia, 2001–2008 . . . 12

Table I.4. The ormer Yugoslav Republic o Macedonia: comparative FDI fows with selected countries,

1996–2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

Table I.5. FDI infows by component and income on inward FDI in the ormer Yugoslav Republic o

Macedonia, 1996–June 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Table I.6. TIDZs in the ormer Yugoslav Republic o Macedonia, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Table II.1. BITs and DTTs o the ormer Yugoslav Republic o Macedonia as o November 2010 . . . . . . . 34

Table II .2. Nominal corporate tax rates in selected economies in 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . 41

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FIGURES

Figure I.1. Chronology o steps o the ormer Yugoslav Republic o Macedonia towards EU

accession and regional integration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4

Figure I.2. Real GDP growth and infation in the ormer Yugoslav Republic o Macedonia, 1995–2009. . . . 5

Figure I.3. Structure o the economy o the ormer Yugoslav Republic o Macedonia,

1992, 2002 and 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Figure I.4. Trade structure by product group in the ormer Yugoslav Republic o Macedonia,

1990, 2000 and 2009 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Figure I.5. FDI infows to the ormer Yugoslav Republic Macedonia, 1994–2009 . . . . . . . . . . . . . . . . . . . . 11

Figure I.6. Sectoral composition o the inward FDI stock o the ormer Yugoslav Republic o

Macedonia, 1997–2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Figure I.7. Inward FDI fows o the ormer Yugoslav Republic o Macedonia by country

o origin, 1997–2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Figure I.8. Monthly gross wage paid by oreign and domestic companies in the ormer Yugoslav

Republic o Macedonia, 2007. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Figure II.1. Central government tax revenues as a percentage o GDP in selected economies, 2008 . . . . 44

Figure II.2. Taxation o investment in the ormer Yugoslav Republic o Macedonia and in comparator

countries, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

Figure III.1. Possible uture national structure or investment and competitiveness . . . . . . . . . . . . . . . . . . . 77

bOXES

Box I.1. What is in a name? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Box I.2. Membership o the ormer Yugoslav Republic o Macedonia in selected international

economic agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Box I.3. The impact o the nancial crisis in the ormer Yugoslav Republic o Macedonia . . . . . . . . . . . . 6

Box I.4. Development o clusters in the ormer Yugoslav Republic o Macedonia . . . . . . . . . . . . . . . . . . . 7

Box I.5. Data on FDI and oreign aliates in the ormer Yugoslav Republic o Macedonia . . . . . . . . . . . 13

Box I.6. Potential or FDI in the wine value chain . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Box II.1. Are local rms discriminated against? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Box II.2. Investment-related provisions in the SAA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

Box II.3. The ormer Yugoslav Republic o Macedonia in international business rankings . . . . . . . . . . . . 37

Box II.4. Advantages o TIDZs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43

Box III.1. Policy lessons rom Estonia’s FDI attractiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64

Box III.2. UNCTAD’s Empretec programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67

Box III.3. UNCTAD’s Business Linkages Programme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68

Box III.4. The multi-acility economic zone concept . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Box III.5. Local rms in the ree zones o the Dominican Republic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69

Box III.6. UNCTAD’s technical assistance in collecting and reporting statistics on FDI

and activities o TNCs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80

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ix

ABBREVIATIONS

BIT bilateral investment treatyCBIP Coordinative Body or Intellectual Property Rights

CEA Center or Economic Analyses

CEFTA Central European Free Trade Agreement

CIS Commonwealth o Independent States

CPC Commission or Protection o Competition

CR Central Registry

CSR corporate social responsibility

DTIDZ Directorate o the Technological Industrial Development Zones

DTT double taxation treatyEBRD European Bank or Reconstruction and Development

EC European Commission

EFTA European Free Trade Association

Empretec Emprendedores (entrepreneurs) – tecnología (technology)

EU European Union

EVN Energie Versorgung Niederösterreich (company)

FATS Foreign AliaTes Statistics

FDI oreign direct investment

GATS General Agreement on Trade in Services

GDP gross domestic product

GFCF gross xed capital ormation

IBFD International Bureau o Fiscal Documentation

ICC International Chamber o Commerce

ICSID International Centre or Settlement o Investment Disputes

ICT inormation and communication technology

IFRS International Financial Reporting Standard

IMF International Monetary FundIOM International Organization or Migration

IP intellectual property

IPA investment promotion agency

IPPC Integrated Pollution Prevention and Control

IPR Investment Policy Review

ISO International Organization or Standardization

IT inormation technology

kWh kilowatt hour

M&A merger and acquisitionMCC Ministerial Committee on Competitiveness

MIGA Multilateral Investment Guarantee Agency

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x

MoE Ministry o Economy

NATO North Atlantic Treaty Organization

NBRM National Bank o the Republic o MacedoniaNECC National Entrepreneurship and Competitiveness Council

NGO non-governmental organization

OECD Organization or Economic Cooperation and Development

OGRM Ocial Gazette o the Republic o Macedonia

PP public procurement

PPB Public Procurement Bureau

PPD public-private dialogue

PPP public-private partnership

PRO Public Revenue Oce

PV present value

R&D research and development

RECA Real Estate Cadastre

RIA Regulatory Impact Assessment

SAA Stabilisation and Association Agreement

SAC State Appeals Commission

SEE South-East Europe (Albania, Bosnia and Herzegovina, Croatia, the UnitedNations Interim Administration Mission o Kosovo, Montenegro, Serbia, and the ormer

Yugoslav Republic o Macedonia)SME small and medium-sized enterprise

SOIP State Oce o Industrial Property

SSO State Statistical Oce

TIDZ Technological Industrial Development Zone

TNC transnational corporation

TRIMs Agreement on Trade-Related Investment Measures

TRIPS Agreement on Trade-Related Aspects o Intellectual Property Rights

UNCITRAL United Nations Commission on International Trade Law

UNERR Unique National Electronic Registry o Regulations

UNIDO United Nations Industrial Development Organization

UNMIK United Nations Interim Administration Mission in Kosovo

USAID United States Agency or International Development

VAT value added tax

WIPO World Intellectual Property Organization

WTO World Trade Organization

XBRL eXtensible Business Reporting Language

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xi

THE FORMER YUGOSlAV REPUblIC OF MACEDONIA

xixi

Key investment cimate indicators

Key economic and socia indicators

Sources: UNCTAD; World Bank, Global Development Finance and World Development Indicators; United Nations Statistical Division, National Accounts Main Aggregates;

Notes: 1

Agriculture includes agriculture, hunting, orestry and shing. Industry includes mining and quarrying, manuacturing, electricity, gas and water supply, andconstruction. Services include all other economic activities.2 Excluding Croatia.3 Most recent data or 2008.

Averages reer to unweighted averages.

n.a.: not applicable.

The ormer Yugoslav

Republic o Macedonia

Albania BulgariaSEE

average

Ease o Doing Business Rank 38.0 82.0 51.0 n.a.

Time to start a business (days) 3.0 5.0 18.0 21.6

Cost o registering property(% o property value)

3.2 3.4 3.0 3.4

Investor protection index (0–10) 6.7 7.3 6.0 5.3

Time to pay taxes (hours per year) 119.0 360.0 616.0 273.0

Time to enorce contracts (days) 370.0 390.0 564.0 502.3

Cost o enorcing contracts(% o claim)

33.1 38.7 23.8 34.5

Time or export (days) 12.0 19.0 23.0 15.7Time or import (days) 11.0 18.0 21.0 15.0

0

20

40

Investor protection

index (0-10)

Time to

start a

business

(days)

Cost of enforcingcontracts

(% of claim)

Time for

export

(days)

Time for

import

(days)

The former Yugoslav Republic of Macedonia

SEE

Values as % of GDP

Agriculture

Exports of

goods and

services

Imports of

goods and

services

Gross domestic

savings

Domestic

investment

Industry

Services

The former Yugoslav Republic of Macedonia

SEE

Indicator 1992–1999

average2000–2008

average2009

SEEtotal or average

2009

Population (millions) 2.0 2.0 2.0 23.9

GDP at market prices ($ billions) 3.6 5.5 9.5 152.8

GDP per capita ($) 1818.3 2728.5 4662.3 6405.6

Real GDP growth (%) 0.7 3.2 -0.8 -2.5

Gross domestic savings (% GDP) 9.4 3.4 3.5 12.4

Domestic investment (% GDP) 16.8 17.9 19.5 23.5GDP by sector (%):1

Agriculture 12.6 12.0 11.4 9.7

Industry 32.0 30.2 29.8 27.0

Services 55.4 57.7 58.8 63.4

Infation, CPI (%) 24.3 3.4 -0.3 1.6

Trade ($ billions):

Merchandise exports 1.2 2.0 2.7 27.0

Services exports 0.1 0.5 0.9 21.1

Merchandise imports 1.6 3.3 5.0 57.4

Services imports 0.3 0.5 0.8 11.6

Exports to GDP ratio 38.8 45.9 43.4 32.5

Imports to GDP ratio 48.2 63.5 63.2 46.3Capital fows ($ billions):

Net FDI fows 0.0 0.3 0.2 6.1

Net fows rom private creditors 0.0 0.1 0.5 1.22

Net fows rom ocial creditors 0.0 0.0 0.0 1.02

Grants3 0.0 0.2 0.2 1.92

FDI to GDP ratio 1.6 6.0 2.9 5.2

Lie expectancy at birth (years)3 72.2 73.6 74.2 74.1

Unemployment (% o total labour orce)3 .. 34.5 33.8 ..

Literacy rate, adult (%)3 94.0 96.6 97.0 98.0

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xiii

INTRODUCTION

The ormer Yugoslav Republic o Macedonia is a relatively new destination or oreign direct investment(FDI). Beore independence gained in 1991, the ormer Yugoslavia (o which Macedonia was a constituentrepublic) had attracted some FDI, but on a small scale. It was overshadowed by the more developed republicso the ederation, while less developed regions such as the Socialist Republic o Macedonia attracted almostnone.

During the 1990s, FDI infows remained very small, refecting the small size o the country (2 millioninhabitants), and unavourable external circumstances such as the civil war in ormer Yugoslavia, a tradeembargo imposed by Greece as a result o a confict about the name o the country, as well as domesticpolitical problems such as civil unrest in the ormer Yugoslav Republic o Macedonia proper.

Since 2001, the political situation has stabilized, bringing about economic growth and higher FDI infows,mostly through privatizations. This period o stability has also made it possible to accelerate reorms andtransorm the country into a market economy, and prepare it or its integration into the European Union(EU). Over the past years, the business environment has improved signicantly, and investment promotion hasbecome very active, using a variety o methods to draw the attention o potential investors. The impact o FDI has been so ar small although not insignicant in a ew sectors such as banking and telecommunicationswhere oreign investors have attained a critical mass.

The Government has ambitious plans to modernize the country, increase welare and advanceEU integration. It is also aware o the role that FDI can play in reaching its goals in the eld o economicdevelopment. The nancial and economic crisis which started in 2007 has urther highlighted the importanceo FDI in stabilizing small and vulnerable economies such as the ormer Yugoslav Republic o Macedonia. TheGovernment has recently embarked on a wide-ranging reorm programme that has already increased the easeo doing business. To reap more benets, it has embarked on an investment programme or 2011–2014, orwhich the Investment Policy Review (IPR) provides various recommendations.

The recommendations o the IPR (chapter II on regulatory issues and chapter III overall) are based on ananalysis o FDI trends and impact (chapter I), and on a thorough assessment o the regulatory ramework orFDI and business in general (chapter II). The main aim o chapter I is thereore to analyse the opportunities thatthe country oers and the challenges it aces. It brings to light the acts that FDI infows have been relativelysmall in comparison with neighbouring countries, and have targeted mostly large privatized companies inelectricity, manuacturing and telecommunications. Western European countries are the leading investors andthe main trading partners, ollowed by South-East European partner countries. Economic integration in South-

East Europe (SEE) and the adoption o national regulations in line with EU standards have deepened thecountry’s participation in the global economy, and can create new opportunities or FDI.

Chapter II builds on the analysis provided in chapter I and lays the ground or the investment programmethrough an evaluation o the legal and regulatory ramework or investment, and provides concreterecommendations to improve it. It highlights that oreign investors have been put on equal ooting with domesticcompanies, and that the country has adopted a transparent and eective taxation system. Furthermore, theease o doing business has improved through a process called regulatory guillotine. The challenge o movingorward is to consolidate the reorm process by way o ensuring the implementation o the new regulations,and strengthening institutions and their capacity to ull their tasks. The proposed measures aim at urtherimproving the FDI attractiveness o the ormer Yugoslav Republic o Macedonia, and enlarging the scope o its

competitive advantages to excellence in the investment climate and well-unctioning inrastructure, in additionto relatively low-cost labour and avourable taxation.

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xiv

By bringing together the analysis and recommendations o previous chapters, and complementing themwith a review o the institutional ramework or investment, chapter III presents an overall strategy to attract

investment that will eed into the programme or stimulating investment covering the period 2011 to 2014that is being developed by the Government. The review o the institutional ramework or investment leads todetailed proposals or measures to ensure the consistency o policies and operations, and the development o the relevant institutional capacities.

Chapter IV highlights the main ndings and recommendations o the review.

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Chapter I Investment Policy Review o the ormer Yugoslav Republic o Macedonia

11

I FDI TRENDS AND PERFORMANCE

The ormer Yugoslav Republic o Macedonia (box I.1) is a small landlocked country in the BalkanPeninsula, surrounded by Greece, Bulgaria, Albania and Serbia, including the territory o Kosovo.1 The countrygained independence rom the Socialist Federal Republic o Yugoslavia in 1991. Since then, the country hasundergone a major transormation, rom a socialist model o economic organization to a market economy. Inthe 1990s and the early 2000s, it underwent a radical privatization process, moving away rom a mix o largepublicly owned rms called socially owned enterprises and some small privately owned rms to an economydominated by the private sector. This process is now largely completed. The share o the private sector in theproduction o the gross domestic product (GDP) increased rom 42 per cent in 1992 to 86 per cent in 2002(Macedonian Privatization Agency, 2002).

Bo I1 What is in a name?

The country admitted to international organizations such as the United Nations under the temporarydenomination o the ormer Yugoslav Republic o Macedonia, calls itsel the Republic o Macedonia, a namethat Greece contests. Ater the break-up o Yugoslavia in 1991, when the name o the newly independentrepublic was chosen, a dispute between Greece and the ormer Yugoslav Republic o Macedonia arose.Greece did not acknowledge the constitutional name “Republic o Macedonia” claiming that its name,symbol and constitution imply territorial claims to the neighbouring Greek province o Macedonia.

The conlict escalated in 1993 when the ormer Yugoslav Republic o Macedonia incorporatedthe Vergina Sun into its lag, which is a symbol o the ancient Kingdom o Macedon. As a result,Greece decided to impose a trade embargo on the ormer Yugoslav Republic o Macedonia. An interim

accord resolved this aspect o the dispute in 1995 by changing the lag. However, the various mediationeorts, which have been undertaken to ind a compromise and to give a mutually acceptable name to thecountry, remain unsuccessul as o the writing o this report. Failure o compromise between Greece andthe ormer Yugoslav Republic Macedonia is the main reason why the latter could not join North AtlanticTreaty Organization (NATO) in 2009, and could not start negotiations about EU accession, despite apositive opinion in the 2009 progress report o the European Commission (EC).

Source: UNCTAD, based on various reports, and EC (2009).

Parallel with the transormation o the economy, the country has also reoriented its international

economic relations through accession to international organizations (box I.2). The ormer Yugoslav Republico Macedonia has become a member o the United Nations, the International Monetary Fund (IMF), theWorld Bank and the World Trade Organization (WTO). The country has been particularly active in promotingits Euro-Atlantic integration, notably with respect to its potential accession to the EU and the NATO. Ithas concluded a Stabilisation and Association Agreement (SAA) with the EU and in 2005 it acquired an EUcandidate status (gure I.1).

1

Kosovo (United Nations Administrative Region, Security Council resolution 1244 (1999)), a province of Serbia, was separated de facto from the latter in 1999, when it wasoccupied by international forces. The majority population declared Kosovo independent in 2008, which has been recognized by 73 of the 192 member countries of the

United Nations (as of January 2011), including the former Yugoslav Republic of Macedonia. Kosovo is, however, not a member country of the United Nations, and Security

Council Resolution 1244 of 1999 recalling the sovereignty and territorial integrity of the Federal Republic of Yugoslavia (the predecessor of Serbia) alongside a call for

self-administration for Kosovo, still remains in force. The treatment of data referring to Serbia and Kosovo in this report does not imply the expression of any opinion

whatsoever on the part o f the UNCTAD secretariat concerning their legal status or their authorities, or concerning the delimitations of their frontiers or boundaries.

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Investment Policy Review o the ormer Yugoslav Republic o Macedonia Chapter I

2

Bo I2 Membership o the ormer Yugoslav Republic o

Macedonia in selected international economic agreements

Stabilisation and Association Agreement

In 1999, the EU oered a stabilization and association process to ive South-East European countries,including the ormer Yugoslav Republic o Macedonia. Within its ramework, a Stabilization and Association Agreement (SAA) was signed with the country in 2001, which entered into orce in 2004 thanks to an InterimAgreement concerning trade and trade-related matters immediately enabling the ormer Yugoslav Republico Macedonia to beneit rom trade preerences rom the EU. The SAA set up two stages to reach ullassociation, which should be realized in a maximum o 10 years. The ormer Yugoslav Republic o Macedoniahas to progress on eight key priority areas, including dialogue between political parties, implementation o the law on police and anticorruption legislation, reorm o the judiciary and public administration, as well as

measures in employment policy and or enhancing the business environment.

Phase I was scheduled rom 2004 to 2008 and concerned primarily the implementation o internalmarket-related EU laws, as well as other trade-related areas. In 2009, the EC and the Council o the EUrecommended to pass to the Phase II o the SAA. Simultaneously, the EC recommended the opening o negotiation or accession, responding to the country’s aspiration or ull EU membership.a In the Phase II,the ormer Yugoslav Republic o Macedonia needs to take action on the ollowing matters to:

● Extend the right to acquire ownership over real property to branches o EU companies;

● Take steps or the progressive implementation o the supply o services by EU companies;

● Ensure liberalization o portolio investment, nancial loans and credits with a maturity shorterthan a year;b and

● Discuss the issue o opening and holding o bank accounts abroad by the residents o theormer Yugoslav Republic o Macedonia.

Central European Free Trade Agreement

The Central European Free Trade Agreement (CEFTA) was established in 1992 by Czechoslovakia,Hungary and Poland, joined later by Slovenia, Romania, Bulgaria, Croatia and the ormer Yugoslav Republico Macedonia, Albania, Bosnia and Herzegovina, the Republic o Moldova, Montenegro, Serbia and Kosovo/United Nations Interim Administration Mission in Kosovo (UNMIK) (in that order). When the originalmember countries, as well as Bulgaria, Romania, Slovenia acceded to the EU in 2004 and 2007, they letCEFTA. On the basis o bilateral ree trade agreements signed between members in the ramework o the

Stability Pact or South East Europe, the CEFTA aims at establishing a ree trade zone in the region.Current criteria or membership are WTO membership or commitment to respect all WTO

regulations, Free Trade Agreements with the current CEFTA member States and a European UnionAssociation Agreement.

European Free Trade Association

The European Free Trade Association (EFTA) has 20 ree trade agreements with countries andterritories outside the EU, one o them signed with the ormer Yugoslav Republic o Macedonia.

World Trade Organization

The ormer Yugoslav Republic o Macedonia applied or World Trade Organization (WTO)membership in December 1994. In 2002, WTO decided that the ormer Yugoslav Republic o Macedonia

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3

Peace was re-established in the country in 2001, resulting immediately in better economic conditions andhigher growth. The announcement o the EU candidature in 2005 urther improved the country’s attractiveness.Due to its EU membership candidacy, the country is in the process o harmonizing its legal and regulatorysystems with international, primarily EU, standards. The recommendation o the EC to opening negotiationtalks in 2009 (box I.2) acknowledges the country’s reorms and recognizes its ullment o the political criteriaset by the Copenhagen European Council in 1993.2

A Economic background

Ater the turbulent period o the 1990s and a more stable one since 2001, important structural changestook place in the country. However, the economic legacy o the past is still elt. The ormer Yugoslav Republico Macedonia is one o the countries o Europe with the lowest income and is plagued by high unemployment(over 30 per cent). As the diculties mentioned above require a long time to overcome, the GDP per capitao the ormer Yugoslav Republic o Macedonia is relatively low ($4,407 in 2008). In comparison, it is belowthe average o the South-East European countries and about the same as those o Bosnia and Herzegovinaand Albania, which are among the poorest countries in Europe. Given the current conditions, the ormerYugoslav Republic o Macedonia would become the poorest EU member State ater accession with a GDPper capita which ranks well below those o the two current poorest EU member countries, Bulgaria ($6,546)and Romania ($9,300).

1 Growth and macroeconomic developments

In the wake o the break-up o the ormer Yugoslavia, the ormer Yugoslav Republic o Macedonia suered

rom output losses or several years (gure I.2). It was ollowed by a longer period o moderate growth(1996–2008), with the exception o 2001, when the economy contracted due to the Albanian insurgency. Theinternational crisis hit the country again in 2009, and the GDP declined as a result.

Ater the economic turmoil in the early 1990s, the Government began restoring macroeconomic orderand bringing infation under control by tightening monetary policy, consolidating the scal position o thecountry and retrenching income policies. Today, one o the country’s major achievements is its macroeconomicstability. The national currency, the denar, was de acto pegged to the Deutsche Mark between October 1995and 1999 and to the euro since 1999. This peg has also helped to maintain condence in the stability o thenancial system.

2 The accession criteria are also called Copenhagen Criteria because they were established at the Copenhagen European Council in 1993. The conditions are set out by

Article 49 and the principles laid down in Article 6(1) of the Treaty on European Union.

may accede to the WTO Agreement, and on 4 April 2004 the Agreement entered into orce. They agreed

on a gradual elimination o taris and transitional periods or the most vulnerable economic sectors, e.g.they kept a relatively high average tari rate on agricultural products and little bit higher taris on industrialproducts or a transitional period o 3–5 years (Mojsovska, 2005).

Source: UNCTAD.a At the moment o closing this report (June 2011), accession negotiations had not yet started.b The latest amendment o the Law on Foreign Exchange Operations (July 2008, Ocial Gazette o the Republic o Macedonia (OGRM) 81) already stipulates that the current restrictions on portolio investments in securities by residentswill cease once the rst stage o the SAA expires.

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4

1 9 9 5

1 9 9 6

1 9 9 7

1 9 9 8

1 9 9 9

2 0 0 0

2 0 0 1

2 0 0 2

2 0 0 3

2 0 0 4

2 0 0 5

2 0 0 6

2 0 0

7

2 0 0 8

2 0 0 9

2 0 1 0

2 0 0 1

•

S t a b i l i s a t i o n a n d A s s o c i a t i o n ( S A A )

A g r e e m e n t s i g n e d

•

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t r a d e - r e l a t e d m a t t e r s e n t e r s i n t o f o r c e :

t h e c o u n t r y b e n e f i t s f r o m a s y m m e t r i c

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•

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c a n

d i d a t e c o u n t r y g r a n t e d

2 0 0 6

•

C o u n c i l o f t h e E U a d o p t s E u r o p e a n

P a r t n e r s h i p

•

B u c h a r e s t S u m m i t : j o

i n t d e c l a r a t i o n o n

e x p a n s i o n o f C E F T A t o

t h e r e s t o f S o u t h -

E a s t E u r o p e

•

A d m i s s i o n o f t h e c o u n t r y t o C E F T A

1 9 9 5

•

E s t a b l i s h m e n t o f d i p l o m a t i c

r e l a t i o n s w i t h t h e E U

2 0 0 7

•

V i s a F a c i l i a t i o n A g r e e m e n t w i t h

t h e E U s i g n e d ( e n t e r e d i n t o

f o r c e 2 0 0 8 )

2 0 0 8

•

A c c e s s i o n P a r t n e r s h i p

a d o p t e d , u p d a t i n g f r o m

E u r o p e a n P a r t n e r s h i p

2 0 0 9

•

E C

p r o p o s e s t o p a s s o n t o t h e 2 n d

s t a g e o f t h e S A A

•

E C r e c o m m e n d s t o o p e n

n e g o t i a t i o n s f o r a c c e s s i o n

2 0 1 0

•

S i n c e J a n u a r y 1 s t

2 0 1 0 , v i s a - f r e e t r a v e l

t o S c h e n g e n c o u n t r i e s

1 9 9 9

•

S t a b i l i t y P a c t f o r S o u t h

E a s t e r n E u r o p e

l a u n c h e d

•

S t e p s t o w a r d s E U a c c e s s i o n

•

S t e p s t o w a r d s r e g i o n a l i n t e g r a t i o n

F i g u r e I 1 C h r o n o l o g y o s t e p s o t h e o r m e r Y u g o s l a v R e p u b l i c

o M a c e d o n i a t o w a r d s E U a

c c e s s i o n a n d r e g i o n a l i n t e g r

a t i o n

S o u r c e : U N C

T A D .

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Figure I2 Real GDP growth and ination in the ormer Yugoslav Republic o Macedonia,1995–2009

(Annual per cent change)

-5

0

5

10

15

20

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Real GDP growth Ination (CPI)

Source: UNCTAD.

Compared with other transition economies, the nancial system o the ormer Yugoslav Republic o Macedonia was resistant to the economic crisis due to strict liquidity risk management standards and a strongorientation towards traditional banking activities (box I.3). A main concern remains the current accountdecit, which reached 12.8 per cent o GDP in 2008, up rom 7.6 per cent in 2007 and close to zero in 2006.External balances had improved signicantly due to a rebound in exports and low imports. In 2010, thecurrent account decit narrowed to around 2 per cent o GDP.

2 Labour market

The ormer Yugoslav Republic Macedonia is suering rom a low activity rate (56.7 per cent in 2009)and a high unemployment rate (32.2 per cent in 2009). The latter may be overstated due to unregistered

employment in an extensive inormal sector, which is estimated to be the equivalent o 15 per cent o GDP.Nevertheless, long-term unemployment is widespread among youth, the rural population, ethnic minoritiesand less educated people. One o the main challenges or the ormer Yugoslav Republic o Macedonia is tocreate employment and to integrate the youth, women and people employed in the inormal sector intothe ocial job market. Many people in the country work in amily businesses and more than 10 per cent o the employed population are unpaid amily workers. The share o unpaid amily workers is especially high inagriculture, accounting or almost 50 per cent o employees (data rom the State Statistical Oce (SSO) or2008).

The Government sustained its eorts to provide education to a greater number o students and toimprove vocational training or adults. Expenses on education increased, rom around 3 per cent o GDP

in 2007 to about 4 per cent in 2008 (with a signicant share o the additional spending on renovation andconstruction o school buildings and the purchase o inormation technology (IT) equipment. Between 2001and 2007, there was an increase in the number o students who attended rst and second stages o tertiaryeducation. Despite these eorts, the overall level o education and training o the labour orce is still relatively

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low and the mismatch persists between the qualication prole o the labour orce and the requirements o enterprises. In this regard, a plan or vocational education and training that properly refects labour market

conditions is missing.

Bo I3 The impact o the fnancial crisisin the ormer Yugoslav Republic o Macedonia

The inancial crisis that started in 2007 as a liquidity crisis in the United States banking system not onlyput large inancial institutions at risk, but led to a worldwide economic downturn. While the banks o theormer Yugoslav Republic o Macedonia were aected only moderately by the crisis, the real economy washit severely at the end o 2008 through a collapse in export demand and loss o external inancing. Industrialproduction and exports declined sharply.

The downturn resulted in lower tax revenues and a orced sell-o o central bank oreign exchangereserves to maintain the exchange rate peg. While the central bank’s policy rate was raised rom 7 to 9per cent to attract inancial inlows, other measures (10 in total) were undertaken by the Government toight the crisis. Among them, there were measures like the writing-o o some type o liabilities and taxreductions. In contrast to developed countries, the Government has not given aid to particular irms orsectors (OECD, 2010b).

In a survey undertaken by the German Chamber o Industry and Commerce in Macedonia (2010), 50per cent o the respondents declared that they experienced decreasing turnovers in 2009. However, 47 percent believed that they would increase in 2010.

By the second hal o 2009, the situation had largely stabilized and conidence had improved. Theeconomic rebound depends on the recovery o the largest trading partners like Germany or Greece andthe amount o external inancing received in the nation.

Source: IMF (2010a) and CEA (2009).

3 Structure o the economy

The economy is characterized by a large services sector, a middle-sized manuacturing sector and a smallagricultural sector. The size o the latter has steadily decreased over time, but still remains signicant today.

Industry accounted or close to 40 per cent o the total GDP in 1992. Since then, it declined and representstoday about 30 per cent o GDP (gure I.3). The manuacturing sector is dominated by iron and steel, textiles,construction, and the exploitation o metals and minerals, some o which could orm the basis or clustersdevelopment (alongside with niche industries; box I.4). In contrast, the services sector grew rom 44 per cento GDP in 1992 to 58 per cent in 2008.

Structural changes have so ar had limited impact on the employment structure o the country.Employment in the services sector grew rom 42 to 50 per cent between 2004 and 2009. Employment inthe industry sector fuctuated around 32 per cent whereas the share in the agricultural sector declined to20 per cent. However, the share is still high compared with the average o the Organization or EconomicCooperation and Development (OECD).

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Bo I4 Development o clusters in the ormer Yugoslav Republic o Macedonia

Through its Unit or Industrial Production, Technological Development and Innovations, the Ministryo Economy supports oicially the creation and development o clusters comprising both domestic andoreign irms involved in a given value chain. Since small and micro companies prevail in the ormer YugoslavRepublic o Macedonia, clusters are an important tool to acquire and share inormation on new productsand production processes. In addition, companies in a cluster can embark on a strategy to improve theirinternational competitiveness and their access to international markets.

Clusters are selected by the Ministry on the basis o comparative advantages and traditions o thecountry, as well as their potential or uture development and close cooperation between economic actors.The existing clusters in the country are however at very dierent levels o development – some o them

are airly advanced in terms o productive capacities, others are rather underdeveloped. In the same vein,some o them operate like real clusters, while producers in others have lower level o awareness about whatsynergies among producers getting together, supported by educational and training institutions would leadto. At the beginning o 2010, the country had 10 clusters, o which our (inormation and communicationtechnology (ICT), automotive, textile and wine) are airly developed, while the six others (ashion and design,wood and urniture, ruits and vegetables, apiculture, conectionary, and snailery) are working at a lowerebb. In some cases, such as the ashion and design cluster, there would be room or urther development,or example related to increasing the value added o the related textile cluster. Two clusters (tourism andsheep) have already been abolished oicially.

Sourc e: UNCTAD, based on interviews

Figure I3 Structure o the economy o the ormer Yugoslav Republic o Macedonia,1992, 2002 and 2008

(Per cent)

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

1992 2002 2008

Agriculture Manufacturing Other industry Services

Source: United Nations Globstat.Note: Other industries include mining and quarrying, electricity, construction, gas and water supply.

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In the business sector, small and medium-sized enterprises (SMEs) accounted nearly 99 per cent o the70,000 entities o the country in 2009. They represented 79 per cent o total private sector employment and

61 per cent o private sector value added. The majority o them were engaged in services, especially wholesaleand retail trade (47 per cent), transportation, storage and communications. On the side o large companies,200 o them realized about 48 per cent o total revenues and 63 per cent o total prots beore taxation o all enterprises in 2008 (Euro Business Centre-Skopje, 2009). The ormer Yugoslav Republic o Macedonia isthereore characterized by a duality in the business sector. SMEs are a key source o employment but producerather limited value added. Large companies3 oten operate in an environment delinked rom SMEs and createrelatively ew jobs but are important sources o value creation. This situation, partly inherited rom the ormerYugoslav system under which a small-scale private sector engaged mostly in trading coexisted with publiclyowned large rms, holds back the development o SMEs and limits the scope or potential business linkagesbetween SMEs and large rms (see also section B2. on the linkages between oreign aliates and SMEs).

4 International trade

As a small country, the ormer Yugoslav Republic o Macedonia is relatively open to trade (exportsand imports) in goods and services (accounting or 133 per cent o GDP in 2008). Thus, the country ishighly dependent on the international economy and susceptible to external shocks, such as the recent globaleconomic crisis (box I.3). Both imports and exports were very dynamic in the 2000s, and imports tended toexceed exports. Between 2000 and 2009, imports rose rom $2.1 to $5.0 billion, while exports grew rom$1.3 to $2.7 billion (gure I.4). The trade decit can be partly explained by the importation o ve large itemswhich are essential or the expansion o the economy, namely petroleum, iron and steel, textile yarn, roadvehicles and electric energy. European countries, including South-East European ones, are the main tradingpartners. The Russian Federation is the country’s second largest import partner due to its large oil deliveries(table I.1).

Figure I4 Trade structure by product group in the ormer Yugoslav Republic o Macedonia,1990, 2000 and 2009

(Total export value and export value o important industries according to SITC in $ millions)

0

100

200

300

400

500

600

700

800

900

1990 2000 2009

V a l u e o f i n d u s t r i e s

i n

$ m i l l i o n

0

500

1,000

1,500

2,000

2,500

3,000

V a l u e t o t a l t r a d e i n

$

m i l l i o n

Food and live animals Beverages and tobacco

Crude materials, inedible, except fuels Mineral fuels, lubricants and related materials

Chemicals Manufactured goods classied chiey by material

TOTAL

Source: SSO.

3 Includingmanyforeignafliates.

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Table I1 Main trading partners o the ormer Yugoslav Republic o Macedonia, 2009

Main eport partners % o total Main import partners % o total

GermanySerbiaKosovo/United Nations Interim Mission in KosovoGreeceItaly

16.712.511.710.88.1

GermanyRussian FederationGreeceSerbiaItaly

10.39.88.77.97.2

Source: SSO, preliminary data.

5 Inrastructure

In general, the inrastructure o the ormer Yugoslav Republic o Macedonia has undergone modernizationin recent years; nevertheless urther improvements are necessary i the country wishes to grow aster and

attract more FDI. In one survey carried out in 2005 (World Bank, 2009), 22 per cent o rms in the countryelt that insucient inrastructure was a constraint to operations. Among export-oriented rms, 57 per centhad a problem with electricity, and 52 per cent with telecommunications.

In land transport, Pan-European Corridor VIII runs rom Albania in the West to Bulgaria in the East,crossing the ormer Yugoslav Republic o Macedonia, and Corridor X connects Austria with Greece viaSlovenia, Croatia, Serbia and the ormer Yugoslav Republic o Macedonia. The Macedonian section o Corridor X is almost ully covered by highways and railways, although eective access to sea remains a problem.Business people complain that on the Greek end o Corridor X, strikes too oten disturb transportation,and the ees charged by the port o Thessaloniki are too high. The highway links o Corridor VIII are not yetcomplete,4 and rail connections are to be built. However, that corridor oers an alternative access to the

sea, via the Albanian port o Durrës, which charges are estimated to be 20 per cent lower than those o Thessaloniki.5 The EU supports the improvement o the Pan-European corridors; in addition the EuropeanBank or Reconstruction and Development (EBRD) lent in 2009 €50 million to the upgrading o more than400 kilometres o regional and local roads. The World Bank carries out a number o programmes in landtransport, including a Regional and Local Roads Programme Support Project (RLRSP) or an amount o $105million.6

Inair transport, business people see certain bottlenecks constraining the ecient management o operations(e.g. there is no direct connection to major cities in Europe such as Paris or London). The country has twoairports (Skopje and Ohrid). In 2008, the Turkish company Tepe Aken Ventures (TAV) signed a concessionagreement to manage both, and started the modernization o the Skopje Airport, and the construction o a

new terminal building.The telecommunications inrastructure is generally acceptable or investors. In xed-line services,

Makedonski Telekom enjoys a quasi monopoly. Makedonski Telekom was privatized in 2000 to the Hungarianaliate o Deutsche Telekom called Magyar Telekom. The mobile telephone segment is more oligopolistic,dominated by three main players: Makedonski Telekom’s T-Mobile (with a market share o over 60 per centin 2009), ONE (Telekom Slovenije, 23 per cent) and VIP (Mobilkom Austria, 12 per cent). Ater liberalizationin 2008, the prices or xed-line telephone calls went up (table I.2), although they still remained competitivecompared with Germany, Croatia and Hungary. In the mobile segment in 2006 (the most recent year or whichinternational comparison was available), the ormer Yugoslav Republic o Macedonia was less competitive, witha price or one three-minute call ($1.41), being higher than Croatia or Hungary.7 These dierences might have

4

Tenders for concessions for around €1 billion are under way.5 According to the Corridor VIII: Pre-Feasibility Study on the Development of the Railway Axis (Pan-European Corridor VIII Secretariat, 2007), estimations predict that half

the imports and exports of the former Yugoslav Republic of Macedonia by container that presently use Thessaloniki port could move to Durrës.6 http://web.worldbank.org/external/projects/main?pagePK=64283627&piPK=73230&theSitePK=40941&menuPK=228424&Projectid=P107840. There are two other

projects for an approximate cost of $20 million each: the Second Trade and Transportation Facilitation project and the Railways Reform project.7 Data from International Telecommunication Union.

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been reduced since then as in 2009 signicant reductions in retail mobile prices were reported in the ormerYugoslav Republic o Macedonia.8

Table I2 Inrastructure indicators o the ormer Yugoslav Republic o Macedonia, 2003–2009

Item 2003 2004 2005 2006 2007 2008 2009

Fied telephone, price o a 3-minute local call(peak rate, $)

.. 0.061 0.061 0.061 0.067 0.085 ..

Mobile cellular, price o 3-minute local call (peak, $) 1.988 1.396 1.400 1.414 .. .. ..

Fied-line penetration rate (per 100 inhabitants) 25.9 26.4 26.2 24.1 22.7 22.4 ..

Mobile penetration rate (per 100 inhabitants) 38.3 48.5 62.0 69.5 95.4 122.6 ..

Internet users (per 100 inhabitants) 19.1 21.0 23.0 25.0 27.3 42.9 ..

Railway labour productivity (1989=100) 67.2 76.2 112.9 132.0 161.0 162.4 ..

Residential electricity taris (USc kWh) 4.7 5.1 4.4 5.1 5.7 6.1 6.9

Average collection rate, electricity (in %) 77 82 88 85 86 87 91

Source: EBRD and data rom International Telecommunication Union data.

In energy inrastructure a major challenge or the ormer Yugoslav Republic Macedonia is to increase andto diversiy its electricity supply in order to satisy increasing domestic demand. Domestic generation capacityis sucient to match normal demand but already ails to meet peak demand. Electricity imports accountedor 20 per cent o consumption between 2000 and 2009 but peaked at 38 per cent in 2008 (Tieman, 2011).In energy generation and wholesale electricity distribution, still dominated by the State-owned ELEM, thereis a lack o competition. Since the electricity industry suers rom a history o under-investment and lowstandards o maintenance, the introduction o competition is a key priority. In principle, the country hasa potential in both the traditional ways o producing energy and in renewable ones, especially solar andhydropower. However, i the Government wants to exploit this potential, especially through attracting oreign

investors possessing necessary technologies, it has to aim or a stable and improved regulatory ramework.This is particularly true or renewable energies, where a stable regulatory environment guaranteeing goodreturns on the heavy investments would be essential.

6 Demographic structure and human resources

The ormer Yugoslav Republic o Macedonia is a small country, with a population o 2 million. Populationgrowth is 0.2 per cent per annum. In the 2009 Human Development Report, the country was ranked 72ndamong the 182 countries surveyed, behind Bulgaria (61st), Romania (63rd), Serbia (67th) and Albania (70th).9 It is characterized by ethnic diversity,10 and the level o human development varies largely between dierentethnic groups. According to data rom the SSO, 29 per cent o the total population lived below the national

poverty threshold in 2008. Among the most vulnerable ethnic group, the Roma, the same ratio reached 64 percent (EBRD, 2010).11

The ormer Yugoslav Republic o Macedonia is a net emigration country. Around 370,000 citizens o thecountry are living abroad (IOM, 2007), mostly in Australia, Germany, Italy, Switzerland, Turkey and the UnitedStates. The Diaspora is important rom a nancial point o view: remittances accounted or around 15–17 percent o GDP in the 2000s, although the global crisis led to a decrease in those transers (EBRD, 2010). TheDiaspora could play an active role in economic development, or example it could stimulate a partial return o skilled people (Janeska, 2003), who could also bring in oreign business partners. Some returnees already play8 Enlargement Countries Monitoring Report III – March 2010. Supply of services in monitoring regulatory and market developments for electronic communications and

information society services in Enlargement Countries.9 “The Human Development Index (HDI) provides a composite measure of three dimensions of human development: living a long and healthy life (measured by life

expectancy), being educated (measured by adult literacy and gross enrolment in education) and having a decent standard of living (measured by purchasing power parity,PPP, income).” (http://hdrstats.undp.org/en/countries/country_fact_sheets/cty_fs_MKD.html).

10 Ethnic Macedonians are 64.2 per cent, ethnic Albanians 25.2 per cent ethnic Turks 3.9 per cent, ethnic Roma 2.7 per cent, ethnic Serbs 1.8 per cent, ethnic Bosnians 0.8

per cent, and Vlachs 0.5 per cent (EBRD, 2010).11 Roma children also have the lowest literacy rate and still a very low rate of enrolment, attendance and completion of both primary (61 per cent) and secondary education

(17 per cent) (EC, 2009).

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an important role in investment promotion. In this regard, our members o the Diaspora were appointed inkey cabinet positions ater the 2006 elections, partly with the aim to stimulate oreign investment.12

B FDI trends

1 General FDI trends

FDI infows were very small until 1998 (box I.5 or the methodology or data collection). Between 1998and 2007, FDI fows were larger due mostly to the privatization o State-owned rms, and acquisitions o major companies and banks by oreign investors (gure I.5).13 The sale o the national telecommunicationsoperator to Magyar Telekom, the Hungarian aliate o Deutsche Telekom in 2001, has so ar been the largestFDI transaction (table I.3), explaining the peak o $450 million in infows in 2001. Ater a lull, a second peak wasobserved in 2007, leading to a record o $700 million o infows. In 2008 and 2009, FDI dropped again, largelydue to a deteriorating international environment. Until 2008, 38 per cent o the total FDI (equity capital) was

attracted in greeneld projects (including projects in the ree economic zones).

Figure I5 FDI inows to the ormer Yugoslav Republic Macedonia, 1994–2009(Millions o dollars)

-

100

200

300

400

500

600

700

800

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Source: UNCTAD, FDI/TNC database.

12 www.migrationinformation.org/Proles/display.cfm?ID=608.13 Mostoftheseprivatizationsturnedouttobe“browneld”investmentinthesensethattheacquiredcompanieswerereorganizedandrecapitalizedbythenewowners

(cf. Meyer and Estrin, 2001, and Estrin and Meyer, forthcoming).

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Table I3 Top oreign investment projects in the ormer Yugoslav Republic o Macedonia, 2001–2008

Investor Home country Target company Amount o investment($ millions)

Magyar Telekom (Deutsche Telekom) Hungary (Germany) Makedonski Telekom 346.5

EVN Austria ESM Distribution 270.2

National Bank Greece Stopanska Banka 46.4

Balkanbrew Holding Greece Skopje Brewery 34.0

Hellenic Petroleum Greece OKTA renery 32.0

Société Générale France Ohridska Banka 30.4

Titan, Holderbank Greece/Switzerland Usje Cement Factory 30.0

Balkan Steel Liechtenstein Ladna Valalnica 21.0

QBE Insurance United Kingdom ADOR Makedonija 14.8

Duerco Switzerland Makstil 11.5

East West Trade Austria Centro 11.0Milestone Iceland KIB Kumanovo 6.4

KuppBall Transthandel Germany FZC Kumanovo 3.4

SCMM France Feni Kavadarci 2.3

Source: UNCTAD, based on United States Department o State (2008).

In global comparison, the ormer Yugoslav Republic o Macedonia has attracted a air amount o FDI orthe size and the level o development o its economy. It has, however, been outperormed by its peers romSEE and the European part o the Commonwealth o Independent States (CIS) (table I.4). In terms o FDIinfows, the ormer Yugoslav Republic o Macedonia has lagged behind all comparator countries except or theRepublic o Moldova. Its FDI stock o $4,510 in 2009 placed it ahead o the Republic o Moldova and Albania

only; nevertheless, since 2001 the latter has attracted more FDI.

A comparison with other regions o the world shows a dierent picture o the country. According toUNCTAD’s perormance and potential indices,14 the ormer Yugoslav Republic o Macedonia perorms aboveits potential. In 2008, it was ranked 44th (o the 141 economies covered) in terms o FDI perormance,and only 100th in terms o FDI potential. In other words, the main reason or limited FDI infows so aris the weak FDI potential o the country. Indeed, in terms o FDI potential, it ranks lower than any o thecomparator countries rom SEE or the CIS, including Albania and the Republic o Moldova, while in terms o FDI perormance, it ares better than Greece and mostly on par with Ukraine.

14 The UNCTAD Inward FDI Performance Index is a measure of the extent to which a host country receives inward FDI relative to its economic size. It is calculated as

theratioofacountry’sshareinglobalFDIinowstoitsshareinglobalGDP.TheUNCTADInwardFDIPotentialIndexisbasedon12economicandstructuralvariables

measured by their respective scores on a range of 0–1. For the methodology for building the index, see UNCTAD (2008), pp. 34–36.

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Bo I5 Data on FDI and oreign afliates in the

ormer Yugoslav Republic o Macedonia

In the ormer Yugoslav Republic o Macedonia, until the end o 2010, three institutions collectedinormation on FDI and oreign ailiates. First, the Central Registry kept a special FDI register (chapter II),as well as a number o other registers which contained various data on oreign ailiates (e.g. trade register,Register o Annual Accounts, etc., see chapter II, section C). As or FDI data collection on a balance-o-payments basis, the National Bank o the Republic o Macedonia (NBRM) collected statistics on FDI lowsand stocks according to international standards. In parallel, the State Statistical Oice (SSO) producedregular annual FDI surveys, the last one dated 2008.

There were obvious duplications o statistical monitoring o FDI between the NBRM and the SSO.

Also, the Central Registry’s database contained similar inormation to that o the two databases (o theNBRM and the SSO). A Memorandum o Understanding (MoU) was signed by the NBRM, the SSO andthe Ministry o Finance to create a Working Group on FDI and FATS (Foreign AiliaTes Statistics), inorder to propose solutions and avoid these duplications. The NBRM would be the main institution onstatistics o inward and outward FDI lows and stocks, while the SSO would be able to monitor operationalcharacteristics o oreign investment enterprises.

The amendments to the country’s programme on statistical research 2008–2012, published in theOicial Gazette 141/2010, terminated the research o the SSO entitled “Annual report on FDI and otherorms o international economic cooperation”. Currently, the NBRM is the only authorized institutionor the FDI data according to the balance-o-payments method, although not necessarily statistics on theoperations o transnational corporations and their oreign ailiates. According to the deinition used inthe ormer Yugoslav Republic o Macedonia, FDI is investment by legal and natural persons rom abroadin business entities o the ormer Yugoslav Republic o Macedonia, resulting in a long-term interest, and anownership o at least 10 per cent. However, the NBRM takes into account the subsequent investmentbetween the oreign parent company and its local ailiate ater the initial equity investment, too. Thismethodology ollows the recommendations o the IMF and the OECD. According to this classiication, FDIincludes: own capital and reinvested earnings, receivables rom related parties rom abroad and obligationstowards related parties abroad. The weakness o the current system is that, while it is advanced on overallFDI data, it is not complete regarding operational data on oreign ailiates, which would permit a moredetailed analysis o the development impact. Moreover, the current system does not optimize the potentialsynergies between dierent data collections (e.g. through joint surveys or shared mailing lists).

Source: UNCTAD, based on Methodological Explanations, NBRM.

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T a b l e I 4 T h e o r m e r Y u g o s l a v R e p u b l i c o M a c e d o n i a : c o m

p a r a t i v e F D I f o w s w i t h s e l e c t e d c o u n t r i e s , 1 9 9 6 – 2 0 0 9

( D o l l a r s a n d

p e r c e n t )

C o

u n t r y

A b s o l u t e p e r o r m

a n c e

R e l a t i v e p e r o r m a n c e

A v e r a g e F D I i n f o w s p e r y

e a r

F D I S t o c k

A v e r a g e F D I i n f o w s p e r y e a r

F D I S t

o c k

M i l l i o n s o d o l l a r s

P e r c a p i t a ( D o l l a r s )

P e r $ 1 0 0 0 G D P

A s % o G F C F

P e r c a p i t a

( $ )

% G D P

1 9 9 6 –

2 0 0 0

2 0 0 1 –

2 0 0 5

2 0 0 6 –

2 0 0 9

2 0 0 9

1 9 9 6 –

2 0 0 0

2 0 0 1 –

2 0 0 5

2 0 0 6 –

2 0 0 9

1 9 9 6 –

2 0 0 0

2 0 0 1 –

2 0 0 5

2 0 0 6 –

2 0 0 9

1 9 9 6 –

2 0 0 0

2 0 0 1 –

2 0 0 5

2 0 0 6 –

2 0 0 9

2 0 0 9

2 0 0 9

T h e f o r m e r

Y u g o s l a v

R e p u b l i c o f

M a c e d o n i a

1 0 4 . 6

2 1 8 . 1

4 8 9 . 5

4 5 0 9 . 7

5 2 . 3

1 0 7 . 8

2 3 9 . 9

2 8 . 8

5 2 . 0

6 2 . 2

1 7 . 2

3 2 . 6

3 0 . 3

2 , 2 0 6 . 1

5 1 . 9

A l b a n i a

7 3 . 6

2 2 5 . 9

7 3 8 . 8

3 5 3 7 . 0

2 3 . 9

7 2 . 9

2 3 2 . 5

2 3 . 2

3 8 . 4

6 2 . 9

9 . 7

1 0 . 1

1 7 . 3

1 1 0 6 . 3

2 8 . 7

B u l g a r i a

5 9 7 . 2

2 , 2 2 6 . 8

8 , 6 1 3 . 5

5 0 , 7 2 7

7 4 . 0

2 8 5 . 8

1 1 3 3 . 8

4 9 . 2

1 0 1 . 0

2 1 2 . 7

3 5 . 6

4 9 . 2

7 4 . 3

6 , 7 6 1 . 0

1 0 7 . 7

C r o a t i a

8 9 5 . 5

1 , 4 7 5 . 6

4 , 3 0 9 . 2

3 6 , 6 0 2

1 9 6 . 5

3 2 6 . 1

9 4 6 . 8

3 8 . 7

4 5 . 3

7 1 . 6

1 9 . 9

2 0 . 1

2 7 . 2

8 0 5 8 . 9

5 8 . 1

G r e e c e

7 5 6 . 6

1 , 1 2 8 . 0

3 , 8 2 9 . 9

4 4 , 9 2 7

6 9 . 7

1 0 1 . 9

3 4 3 . 0

5 . 7

6 . 1

1 2 . 5

2 . 5

2 . 8

6 . 3

4 , 0 1 4 . 0

1 3 . 6

M o l d o v a , R e p u b l i c o f

6 8 . 7

1 1 9 . 6

3 9 1 . 6

2 , 6 0 4

1 6 . 0

2 8 . 3

9 3 . 6

4 6 . 1

5 5 . 5

8 1 . 0

2 5 . 9

3 0 . 0

2 6 . 4

6 2 4 . 7

4 8 . 2

M o n t e n e g r o

. .

1 3 3 . 0

9 4 1 . 5

4 , 5 7 9

. .

2 6 4 . 2

1 5 1 4 . 1

. .

8 2 . 1

2 4 9 . 3

. .

4 9 . 1

1 0 3 . 0

7 , 3 5 7 . 9

1 0 9 . 8

R o m a n i a

1 , 1 1 8 . 6

3 , 4 8 2 . 7

1 0 , 3 8 1 . 5

7 3 , 9 8 3

5 0 . 2

1 5 9 . 8

4 8 2 . 6

2 9 . 4

4 8 . 2

6 4 . 5

1 5 . 5

2 1 . 9

2 3 . 0

3 , 4 6 1 . 8

4 5 . 9

S e r b i a

2 0 3 . 4

9 1 3 . 0

3 , 1 8 1 . 6

2 0 , 5 8 4

. .

. .

. .

. .

5 1 . 1

8 5 . 4

. .

3 0 . 4

3 9 . 0

. .

4 9 . 3

U k r a i n e

5 9 5 . 6

2 , 4 8 6 . 4

7 , 8 0 6 . 0

5 2 , 0 2 1

1 1 . 9

5 3 . 0

1 7 2 . 4

1 5 . 3

3 6 . 5

5 5 . 7

7 . 7

1 7 . 2

2 3 . 0

1 1 6 6 . 8

4 4 . 3

S o u t h - E a s t

E u r o p e

1 , 3 5 5 . 1

3 , 3 8 1 . 9

1 0 , 7 6 2 . 7

7 7 , 6 2 8

8 6 . 9

1 7 2 . 2

4 8 5 . 1

3 2 . 8

4 8 . 7

7 8 . 8

1 6 . 3

2 2 . 0

3 0 . 8

3 , 8 2 4 . 8

5 2 . 8

T r a n s i t i o n e c o n o m i e s

7 , 9 4 9 . 0

2 0 , 4 4 1 . 7

8 4 , 5 4 3 . 4

4 9 7 , 4 0 4

2 6 . 2

6 6 . 4

2 7 7 . 5

1 8 . 1

2 7 . 6

4 5 . 0

9 . 8

1 3 . 9

2 0 . 3

1 , 6 3 3 . 4

2 7 . 5

E u r o p e a n U

n i o n 2 7

3 5 1 , 0 6 6 . 5 3 3 3 , 8 2 2 . 2 6 0 2 , 3 7 2 . 9 7 , 4 4 7 , 9 0 4

7 2 8 . 5

6 8 6 . 1

1 2 2 8 . 1

3 9 . 8

3 0 . 7

3 6 . 5

1 9 . 5

1 5 . 5

1 7 . 6

1 5 , 1 5 5 . 5

4 5 . 5

S o u r c e : U N C

T A D , F D I / T N C d a t a b a s e ; W o r l d B a n k , W o r l d D e v e l o p m e n t I n d i c a t o r s 2 0 1 0 .

N o t e s : T r a n s i t i o n e c o n o m i e s : S E E a n d t h e C I S . I n c l u d i n

g i n v e s t m e n t f o w s b e t w e e n m e m b e r S t a t e s o t h e g r o u p .

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2 Composition o FDI

21 FDI by componentsSince 1996, when such detailed data are available, equity capital has been the largest component o

FDI infows, accounting or more than 60 per cent o the cumulative fows over the period 1996–June 2010(table I.5). Other capital (intra-company loans) and reinvested earnings however played an important role inFDI in individual years (other capital in 2004, 2007 and 2008, reinvested earnings in 2005 and 2007). With theexception o 2005, inbound FDI has exceeded income on inward FDI. However, the latter remained relativelyhigh also in the period 2007–2009. Prot repatriation (the dierence between income on inward FDI asregistered in the current account and reinvested earnings as registered in the capital account) remained low inthe period 1996–2006 but increased aterwards. In the global crisis year o 2009, repatriated prots exceededtotal FDI infows.

Table I5 FDI inows by component and income on inward FDI inthe ormer Yugoslav Republic o Macedonia, 1996–June 2010(Millions o dollars)

Year Equity capitalReinvested

earnings

Other capital(intra-company

loans)Total FDI inows

Income on inwardFDI

Proft repatriation

1 2 3 4=1+2+3 5 6=5-2

1996 6.8 .. 4.4 11.2 .. ..

1997 39.8 -1.7 19.9 58.1 0.3 2

1998 130 7.7 12.8 150.5 9.2 1.5

1999 38 24.9 25.5 88.4 31.4 6.42000 182.2 23.7 9.1 215.1 31.3 7.6

2001 447.5 -14.1 13.8 447.1 -0.8 13.3

2002 78.9 14.9 11.7 105.6 39.5 24.5

2003 97.7 30 -9.9 117.8 64.3 34.4

2004 152.9 0.9 169.2 323 67.5 66.5

2005 98.9 55.9 -57.7 97 141.8 86

2006 353.9 19.5 50.8 424.2 58.6 39.2

2007 259.3 251.1 188.7 699.1 469.5 218.5

2008 299.7 24.4 262.9 587 253.4 229.1

2009 214.9 -158 140.2 197.1 138.4 296.4

2010 H1 43.6 59.6 50.6 153.8 103.8 44.2

Source: UNCTAD, FDI/TNC database, and NBRM.Note: 2009 data were revised in November 2010 by including data rom the annual FDI Survey and due to improved coverage o credit indebtedness data.

22 Sectoral composition

In the 2000s, FDI infows were concentrated in the services sector, in particular in nancial intermediation,as well as in electricity, gas and water supply and manuacturing (gure I.6). Also, as seen above (table I.3), theve largest investors come rom these elds, as well as rom telecommunications, where large projects hadalso taken place. The country has a potential o attracting new investors not only in these industries, but alsoin others where FDI has been so ar more limited.

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Figure I6 Sectoral composition o the inward FDI stock o the ormer Yugoslav Republic o Macedonia, 1997–2008

(Per cent)

0

10

20

30

40

50

60

70

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Agriculture Industry Manufacturing Services

Source: Based on NBRM data.

Notes: Percentages add up to less than 100 per cent due to non-allocated stocks. Industry includes mining and quarrying,manuacturing, electricity, gas and water supply, and construction, o which manuacturing is show separately.

Agriculture, ood and beverages

Climatic conditions, a longstanding accumulation o skills and traditions make agriculture a particularlyimportant sector or the economy o the ormer Yugoslav Republic o Macedonia. This does not mean, however,

that it would be automatically a major target or inward FDI. In general, FDI in agricultural production is verylimited in all parts o the world. Additionally, access to agricultural land is constrained (see chapter II.B).

In principle, possibilities or FDI could take place at other points on the ood value chain, especially indownstream activities, such as warehousing, retail and ood manuacturing. In the ood and beverages industry,there are a ew examples o oreign investment, such as the joint purchase by Heineken’s Greek aliateAthenian Brewery S.A. and the Greek sot drinks company Hellenic Bottling o a 51 per cent stake in thePivara Skopje brewery, the largest one in the ormer Yugoslav Republic o Macedonia. Another example isDairy Ideal-Sipka, which was ounded in 1997 as a joint venture with Bulgarian investors. The company has95 employees and is the second largest dairy in the country. In 2007, the Croatian rm Dukat, a companyalready active in the market o the ormer Yugoslav Republic o Macedonia, took over Ideal-Sipka, and in so

doing enabled the company succeed not only in the country but also on oreign markets.15

In 2007, Dukatwas acquired by the French company Lactalis, and Dukat was made responsible or Lactalis’ expansion toSEE. Examples o oreign investment in the wholesale distribution o ood and beverages include the Croatian15 Outside of the former Yugoslav Republic of Macedonia, the company markets its products in economies such as Albania, Australia, Croatia and Kosovo, UNMIK.

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company Agrokor Group (production and distribution o ood and beverages), and the Slovenian supermarketchain Tuš. Agrokor plans to construct a $30.9 million distribution centre in the South o the country, while Tuš

plans to open 20 supermarkets throughout the ormer Yugoslav Republic o Macedonia in the next ve years.In tobacco production, Imperial Tobacco (United Kingdom) owns 99 per cent o Tutunski Kombinat AD, whichmanuactures, distributes and sells tobacco products. There are also investment potentials in the wine valuechain (box I.6).

Bo I6 Potential or FDI in the wine value chain

Wine production has a long tradition and a good skills base in the ormer Yugoslav Republic o Macedonia. This industry, together with related input industries (barrels, cork, glass bottles, etc.), itsdistribution network and related activities (hotels and other tourist services related to wine tourism), hasa potential to become a dynamic cluster, uelling broader growth o the country’s economy (box I.4).

The role o oreign investors is relatively limited in wine production but important at other pointso the value chain. They are minority shareholders in some o the local wine–producing companies (e.g.Popova Kula) but are important partners in the international distribution o wine. In this area, interestsmay diverge as oreign buyers tend to insist on buying cheap bulk wine, a demand that leading irms o theormer Yugoslav Republic o Macedonia, such as Tikveš (largest winery, accounting or 30 per cent o totalwine production capacities o the country) are increasingly turning down. Foreigners are also importantpartners in supplying inputs to the wine industry. Bottles are imported rom Croatia and, to a lesser extent,Bulgaria, cork rom Greece, and barrels rom France, Hungary and the United States. Foreign investors areinterested in investing locally in key input industries.

The potential in this industry is recognized by the act that the Government has created a wine cluster.To become ully eective, this cluster needs more support rom the Government, or example in the ormo acilitating regular participation in international airs, and/or promoting investment in supply industrieswhere local capacities are low or non-existent. A positive example is the attraction o the Turkish glassirm Sisecam to bottle production, which in the longer term could resolve the problem o bottle imports.Similar imports o oreign capital could help or example barrel production. Finally, the Government has amajor role in image–building, or example through the registration o the appellations o origin or wine o the ormer Yugoslav Republic o Macedonia. In this respect, it would be important to register and protect notonly the name o the country but also to protect the name o individual wine regions within the country.

Source: UNCTAD.

Manuacturing

Steel.The ormer Yugoslav Republic o Macedonia possesses both metal ores and water resources, makingit an attractive destination or steel production. Duerco (Switzerland) entered the country in 1997 uponprivatization and reconstruction o the ormer Mines and Iron & Steelworks Skopje. Duerco started an intensivemodernization programme, with an initial investment o €15 million in 1999, and a subsequent investment o €22 million in 2007. Additionally, they have spent €20 million on projects related to environmental protection. In 2004, another strategic investor, the Netherlands-based company Mittal Steel (now ArcelorMittal), enteredthe market o the ormer Yugoslav Republic o Macedonia, which led to a sharp rise in base metal production

in 2005. The company obtained a €25 million loan rom the EBRD to improve energy eciency, to provide thecompany with working capital, and to urther promote regional integration o the steel industry.

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Zinc, lead and cement. The United Kingdom-based aliate o the Mumbai-listed Binani Industries Ltd.bought the Zletovo and Toranica lead and zinc mines, and restarted production, yielding over 2,000 tons

o lead and just less than 1,000 tons o zinc since December 2006. The German company Knau has beenproducing building systems such as gypsum plaster boards in Debar since 1998. The aliate in the ormerYugoslav Republic o Macedonia is a subsidiary o Knau GmbH, Austria. Knau acquired an existing companyin the ormer Yugoslav Republic o Macedonia and upgraded the production and started to export most o itsoutput to SEE.

Automotive components industry . There are three important transnational corporations (TNCs) operatingin the Technological Industrial Development Zone (TIDZ) o Skopje 1 (table I.6), two o which are alreadyestablished – Johnson Matthey (United Kingdom) and Johnson Controls (United States) – and one, TeknoHose(Italy), which is being established. The chemical company Johnson Matthey built a new emission control catalystplant to serve rapidly growing demand or its products in Europe and North America. The rst project is a

state-o-the-art manuacturing acility. The initial investment in the plant in the ormer Yugoslav Republic o Macedonia was £34 million (€48 million), and the operation began by the end o 2009. The new plant created128 new jobs. Johnson Controls has carried out a multi-phase investment in the ormer Yugoslav Republic o Macedonia or the production o electronic interiors. The rst phase o the investment is planned to generate500 new jobs by 2014. Investment in the inrastructure leading to the zone will amount to about €6 million.TeknoHose will invest €10 million in a actory producing armoured high-pressure rubber hoses or theautomobile industry, thereby creating employment or 150 people. The production is expected to start in2011. The company will export most o its products to Eastern Europe and the Russian Federation.

FDI in the Technological Industrial Development Zones.Although TIDZs do not represent a separate industry,they can be treated apart rom the other industries as the zones provide particular services and ocus on theattraction o companies in high technology. The ormer Yugoslav Republic o Macedonia introduced the modelo the TIDZs in 2007, providing avourable conditions or the development o business activities by oeringprepared industrial sites and pre-built actories with investor-ready physical and legal inrastructure, supportservices and tax, customs and other additional incentives (see chapter II on tax advantages in TIDZs). TheGovernment tries to attract manuacturing, IT (sotware development, hardware assembling, digital recording,computer chips and the like), research and development (R&D) and environmental-riendly companies.16 Soar, there are our zones with one o them being operational or investment Skopje 1 (Bunardžik) (table I.6).The Law on Technological Industrial Development Zones ormally opens the TIDZs to oreign as well as todomestic natural and legal persons. However, in reality TIDZs ocus mostly on oreign investors.

Table I6 TIDZs in the ormer Yugoslav Republic o Macedonia, 2010

Feature Skopje 1 Skopje 2 Štip Tetovo

Size 140 ha 100 ha 208 ha 97 ha

Ownership State State State State

Utilized capacity 20% 0 0 0

Key investors Johnson Controls, Johnson Matthey

None None None

Inrastructure Investment ready

Construction o maininrastructure started 2010(central boulevard, water,gas and sewage mains)

Construction o maininrastructure started 2010(central boulevard, water

and sewage mains)

Construction o maininrastructure started 2010(central boulevard, water

and sewage mains)

Source: UNCTAD, based on the Invest Macedonia website.

16 According to our interviews.

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The Government o the ormer Yugoslav Republic o Macedonia is currently in the process o expandingthe TIDZs in the country. A urther seven sites are being considered or designation and investment. However,

given the cost o the investment in necessary inrastructure and the act that only one o the current ourdesignated TIDZs is investment ready (and 20 per cent utilized), this issue will need to be addressed careully.

Contracts with TNCs in the textile industry.The textile industry was declining in the 1990s in terms o outputand employment. A privatization programme completed in 2001, the entry in orce o the SAA with the EU inthe same year, and entry in the WTO in 2004, helped the industry recover in recent years. Employment roserom about 4,000 in 2002 to 7,000 in 2006 in Štip, the country’s number one centre o textile production(Kathuria, 2008: 127). All the domestic companies in Štip collaborate closely with international rms throughcontract manuacturing. Firms in the ormer Yugoslav Republic o Macedonia work mostly or European andUnited States companies, such as C&A (Belgium), Boss (Germany), Mexx (Netherlands), Bonita (Germany),Mango (Spain), Liz Clairborne (United States) and Kenneth Cole (United States). Due to proximity to theWestern European market, the ormer Yugoslav Republic o Macedonia-based rms can react quickly tochanges in orders. However, producers in the ormer Yugoslav Republic o Macedonia need to move upto more value added processes, including design capacities. The country’s rst designers’ association wasestablished in 2005, which set up a Fashion Centre with oces and work rooms in Skopje (USAID, 2009b: 56).Nevertheless, it is still in an early stage o development.

Services

In the services sector, FDI mainly went to energy distribution, banking and telecommunications-relatedactivities.

Energy . In 1999, Hellenic Petroleum, the Greek State-owned oil company, bought the OKTA renery. In

2005, the ormer State-owned utility, ESM, was unbundled into our major companies: AD ESM (distribution),AD MEPSO (transmission system operator), AD ELEM (generation including hydropower) and AD TECNegotino (generation). The new power distribution company, AD ESM, was sold in 2006 to EVN, an Austrianinvestor. However, a ew years later, relations between the Government and EVN deteriorated, and the latterstarted an arbitration process against the ormer Yugoslav Republic o Macedonia (chapter II, section B). Inanother deal, the Austrian company Energie Zotter Bau acquired 16 sites or construction o small hydro-power plants in 2007, and its plants are expected to be operational by 2012. Another large TNC in the ormerYugoslav Republic o Macedonia is the Russian oil company Lukoil, which has been engaged in wholesale andretail trade o oil derivates since 2005. It urther plans to build 40 new gas stations estimated to cost morethan $50 million.

Banking . The banking sector comprises 18 banks and 8 savings houses. Its total assets account or about39 per cent o GDP. Foreign shareholders hold a majority in 13 nancial institutions, and control 93 percent o total banking assets (data at the end o 2008). Two o the three largest banks are owned by oreignshareholders, Stopanska Banka by the National Bank o Greece and NLB Tutunska Banka AD Skopje by NovaLjubljanska Banka (Slovenia). Other investors are Société Générale (France), Milestone EHF Island (Iceland),Alpha Bank (Greece), T.Z. Ziraat Bankasi (Turkey), Demir-Halk Bank (Netherlands), CKB Bank (Bulgaria), AlaFinance Holding (Bulgaria), Steiermärkische Bank (Austria), and ProCredit Holding (Germany), a micro-nancebank.

Insurance. The insurance industry is small and growing slowly. In 2000, QBE (Australia) entered themarket and became a major stockholder o Makedonija Insurance. In 2008–2009, domestic shareholders were

replaced by insurance companies rom Slovenia, Austria and Croatia, providing more capital and bringing inexpertise in building capacity o institutions.

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Business process outsourcing . In this area, FDI infows have ocused mainly on telecommunications-relatedservices. One example is the establishment in 2007 o a multilingual call centre in Skopje by the United

Kingdom outsourcing company Euroanswers. Other companies developing sotware products in the countryare Seavus (Sweden) and Netcetera (Switzerland). The Government promotes the ICT industry and createdan ICT cluster in 2000, and covering 80 companies today. It osters regional and international cooperation,or example through collaborations with other ICT associations in SEE and membership in international andregional bodies.

Real estate and tourism. Foreign investment in tourism has been small so ar (1 per cent o total FDI stock in 2007). The Turkish company Princess operates under the Sheraton brand. In the real estate industry, oreigninvestors ocus on shopping and business centres. In real estate, Baln (Albania) is one o the key investors inrecent times. Its Skopje City Mall, with a planned retail space o 38 000 m2, located only 3 km rom the citycentre o Skopje, is expected to be completed in 2012. The Israeli real estate rm Gazit-Globe also plans theconstruction o a commercial centre in Skopje. The newly constructed Ramstore shopping mall in Skopje isan investment by Koç Holding rom Turkey. Slovenia’s Merkur Group also owns a new business and technicalretail centre. Cevahir Holding (Turkey) in turn has bought land in the municipality o Aerdorom to build threeskyscrapers. The Israeli company Industrial Buildings Corporation invested in Sun City, a high-class residentialarea at the outskirts o Skopje. This track record is good despite the act that rules on land acquisition stillneed urther improvements (chapter II, section C).

23 Origin o FDI

Comprehensive data on FDI infows by country o origin since 1997 are available. Since then, the largestoreign investors in the ormer Yugoslav Republic o Macedonia have been Greece, the Netherlands and Hungary,in that order (gure I.7). Statistics on the origin o FDI need to be treated with caution however, because in

some cases the nationality o the immediate and nal investor may dier. The State-owned telecommunicationcompany o the ormer Yugoslav Republic o Macedonia, or example, was acquired by the Hungarian-ownedcompany Magyar Telekom; however, this company itsel belongs to the German Deutsche Telekom group.17

Greek investors target various industries, in particular banking (Kreditna Banka by Alpha Bank, StopanskaBanka by the National Bank o Greece), oil rening (OKTA renery) and ood processing (Skopje Brewery).The largest project rom the Netherlands – the second largest investor – has been Mittal Steel’s investmentproject. There are also several investments in agriculture, with European Plants in coniers production, SBWInternational in vitro technology and Romero in the production o roses. As or Austria’s investment, thelargest part o infows comes rom the power distribution company EVN. Slovenian investors are active invarious areas, including banking (Nova Ljubljanska Banka), telecommunications (ONE) and real estate (Merkur,

ERA). Swiss investments consist mainly o Duerco’s project; others are in the areas o construction materialand sotware services.

17 Instatistics,thisinvestmentisascribedtoHungary.IngureI.7,theinvestmentinMakedonskiTelekomissingledout.Withoutthisinvestment,Hungarywouldonlyhold

positioninthemiddleeld.Incontrast,GermanywouldbeoneofthetopthreeinvestorsintheformerYugoslavRepublicofMacedonia.

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Figure I7 Inward FDI ows o the ormer Yugoslav Republic o Macedonia by countryo origin, 1997–2008

(Millions o euros)

M a k e d o n

s k i T e l e k o m

M a k e

d o n s k i T e l e k o m

0

50

100

150

200

250

300

350

400

450

500

G r e e

c e

N e t h e

r l a n d s

H u n g a r

y

A u s t r

i a

S l o v e

n i a

S w i t z

e r l a n

d

U n i t e

d K i n g d o

m

B u l g a r

i a

L u x e

m b o u

r g

G e r m

a n y

S e r b i a

Source: UNCTAD estimates, based on data rom the NBRM (investor countries only) and company reports.Note:The investment in Makedonski Telekom can be attributed to either Hungary (immediate investor) or Germany (ultimateowner), although ocial data register it under Hungary only.

C Impact o FDI

The impact o FDI on a country’s economic and social development is measured in terms o its positivecontribution to output, employment, export diversication, technology and skills transer, supplier linkages,as well as scal revenues and inrastructure development. However, FDI can also have negative eects on thedevelopment o domestic enterprises and the perormance o an economy, particularly through crowding out,monopolization or negative environmental impact.

The ormer Yugoslav Republic o Macedonia has a relatively recent history o FDI attraction and themoderate volume o FDI infows so ar implies that the impact on its economy is limited. Also, there isinsucient data or a systematic impact assessment. Nevertheless, in those industries with signicant FDIpresence, such as telecommunications and banking, it is possible to observe eects in terms o considerableimprovement in services delivery and a reduction in costs. The ollowing section presents some impactassessment that is drawn rom available data and anecdotal or ancillary inormation.

1 Employment and output

With an unemployment rate above 30 per cent in 2009, the ormer Yugoslav Republic o Macedonia

urgently needs job creation. It is thus a crucial question to what extent FDI can generate jobs. In 2009,mergers and acquisitions (M&A) companies had 51,236 employees while greeneld investments providedwork or 17,850 employees in the ormer Yugoslav Republic o Macedonia. This is related to the act that, so

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ar, the bulk o FDI has taken the orm o cross-border M&As (including browneld projects). In addition, theshare o employees per equity capital is twice higher in M&A projects than in greeneld investments, due to

dierences in the industry composition o the two groups (in M&A projects, one can identiy certain labourintensive activities such as telecommunications services).

In the ormer Yugoslav Republic o Macedonia, oreign investment projects generate relatively wellpaid and high-productivity jobs. According to data rom the SSO or 2007, oreign investors tend to payhigher wages in most industries, except nancial intermediation, real estate and other community, social andpersonal service activities (gure I.8). In the area o training employees, again, oreign aliates oer certainpositive examples. Knau Radika AD or instance has an International Organization or Standardization (ISO)9001:2000 Quality Management Certicate and is also a long-term co-operator o the local branch o theInternational Association or the Exchange o Students or Technical Experience (IAESTE), one o the largeststudent organizations providing internships in companies and institutions. ArcelorMittal also reported on-the- job training o employees in our interviews.

Figure I8 Monthly gross wage paid by oreign and domestic companies in the ormer Yugoslav Republitc o Macedonia, 2007

(Denars)

0

5000

10000

15000

20000

25000

30000

35000

40000

45000

50000

Agriculture,

Hunting and

Forestry

Mining and

Quarrying

Manufacturing Electricity, Gas

and Water

Supply

Financial

Intermediation

Real estate Health and

Social Work

Other

community,

social and

personal

serviceactivities

monthly gross wage paid by foreign entities monthly gross-wage paid by all companies

Source: SSO.

Foreign aliates are among the largest companies in the ormer Yugoslav Republic o Macedonia, thereoretheir economic output is sizeable. O the 10 largest companies o the country, 7 are oreign aliates. 18 Ingeneral, the acquisition o companies in the ormer Yugoslav Republic o Macedonia by oreign entities ledto an increased output. The previous examples o oreign acquisitions showcased examples o productionextensions.

18 OKTA AD Skopje, EVN Macedonia AD, Makedonski Telekom AD, Feni Industries AD, T-Mobile Macedonia AD, ArcelorMittal Skopje (HRM) AD, ArcelorMittal Skopje (CRM)

AD.

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2 Linkages and technology transer

According to our interviews, linkages are weak in the majority o cases. They are particularly low orgreeneld investments because these companies are ocused on exports, and they import most o theirproduction inputs. Linkages are more developed in companies acquired by oreign investors, in which thenew owners not only maintain the existing linkages with domestic suppliers but also aim at upgrading them.For example, in Knau 60 per cent o their supplies come rom companies o the ormer Yugoslav Republic o Macedonia, and this share is on the rise. Knau also supports domestic companies to meet the standards o the ISO certicates. According to Knau, the quality o supplies in the country improved in the last 10 yearsand the companies are very eager to upgrade their production.

In the area o technology transer, some aliates o TNCs import top technology rom their mothercompanies and introduce it into the market o the ormer Yugoslav Republic o Macedonia. Technology transerencompasses both physical transer o machinery and technology, as well as the intangible transer o knowledge

and skills. In general, technology transer can be enhanced through institutions such as collaborations betweenuniversity and industry, inter-rm technology collaboration (horizontal and vertical networks o collaboratingcompanies) or creation o high-technology zones. Some clusters collaborate with universities, such as theautomotive cluster. Due to the missing linkages, the technology transer remains within the mother company-aliate ramework and does not benet domestic suppliers.

3 Trade

Foreign ownership is usually helpul to build an export base. In the ormer Yugoslav Republic o Macedonia,oreign aliates trade on average more than domestically-owned companies. They export close to 60 percent o their output, while the domestic ones export about 40 per cent. That is why FDI had an impact on

the trade structure both in terms o trade diversication and destination, and contributes to an increase innational exports. For example, exports o the country are highly concentrated in iron and steel, textiles, andood, beverages and tobacco, and some o these industries (including iron and steel) are dominated by oreignaliates. All in all, trade fows correlate highly with FDI fows meaning that FDI is complementary to trade.

4 Impact by types o investors

41 FDI in selected services

The role o FDI in the development o services has been limited to telecommunications and nance,as FDI other inrastructure services such as power generation has yet to materialize. As noted earlier in

the report, oreign telecommunication rms have installed modern technology with approximately 95 percent coverage o the country in mobile telephony. Through the intensied competition, retail prices droppedrecently. Next to Croatia and Turkey, the ormer Yugoslav Republic o Macedonia is the only country in theWest Balkans where mobile subscribers have access to number portability.

In nancial services, the entry o oreign investors had two eects. On the one hand, it led to a consolidationo the industry. While in 2003 there were 21 banks (among them 8 owned by oreign investors), there were 18in 2008, among them 14 oreign-owned. Within this process, three banks, Komercijalna banka, NLB Tutunskabanka and Stopanska banka, became larger, controlling two thirds o total banking assets. On the other hand,the entry increased competition because more experienced and productive banks came into the market.Consequently, it led to the steady increase in domestic credit, the decrease in the day-to-day interest rates

and lending rates, and the reduction o non-perorming loans.

Stopanska Banka AD is one o the examples o restructuring through FDI. Ater privatization in 2000,the bank had a new IT system and standardized procedures or decision-making; risk management and

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procurement were introduced, and the new owners cleaned up the loan portolio. In 2001, the Trainingand Development Department was established and in 2008 the bank received special recognition rom the

magazines Euromoney and Finance Central Europe.The high concentration o oreign-owned banks can potentially lead to an increase in systemic risk

when their parent banks suer nancial distress, as has been the situation in Greece starting in early 2010.The our largest Greek banks – the National Bank o Greece (NBG), Alpha, Eurobank EFG and Piraeus – havean estimated market share o 40 per cent in the ormer Yugoslav Republic o Macedonia. Thereore, the risk or contagion could potentially be high. However, Greek-owned banks in the ormer Yugoslav Republic o Macedonia do not hold Greek Government debt and have very limited dependence on their parent banks ornancing (IMF, 2010b). Thus, it is rather probable that contagion will occur on a smaller scale through reducedunding and credit contraction. The growth rate o domestic credit to the private sector has gone down since2008, though it is still positive (2.4 per cent in February 2010). 19 In case o bankruptcy o one o the Greek banks or scaling down o their businesses, other banks such as Raieisen International have declared that theycould step in.20

Another problem o the nancial market o the ormer Yugoslav Republic o Macedonia is the limitedlending to micro enterprises and SMEs. Oten these companies do not meet the rigid collateral requirementsand, thus, need to pay higher interest rates. Nevertheless, in recent years, oreign-owned banks, such as theExport & Credit Bank and ProCredit Bank, have been increasingly involved in the micro loans segment, someo them with the support o international development banks.21 Higher spillover eects can thus be generatedi oreign investors collaborate with international nancial institutions. The positive impact o the nancialindustry could be urther enhanced i the enorcement o nancial collateral and court procedures werestrengthened.

42 Eiciency-seeking FDI

Eciency-seeking FDI is commonly described as investing in oreign markets to take advantage o alower cost structure, in particular through labour costs. The companies in the TIDZ are prime examples o eciency-seeking TNCs. So ar, the benets have been small because there is little technology transer todomestic companies. According to our interview, or example, Johnson Controls imports all industrial inputsand exports 100 per cent o its production. The company has no domestic suppliers or inputs aside rom theinrastructure suppliers (cleaning companies, electricity, telecommunication, etc.). Yet, they employ nationals o the ormer Yugoslav Republic o Macedonia and pay a salary higher than the average domestic wage.

According to our interview with Johnson Matthey, the company uses local inputs or consumables o

small value and or construction (e.g. mechanical and electrical services). Most o their raw materials are,however, not available in the ormer Yugoslav Republic o Macedonia. They do not give training to suppliers butguidance to help them meet the international quality standards. For the employees, generic quality trainingand environmental and health and saety (EHS) training are provided to all employees, whereas job-specictraining is only given to some divisions.

As the companies in the TIDZ opened up very recently, it is still too early to make conclusions aboutthe impact achieved.

19 According to NBRM data.20 www.iii.co.uk/news/?type=afxnews&articleid=7895215&subject=companies&action=article.21 EBRD (2010).

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43 FDI in natural resources

Resource-seeking FDI is based on the availability o natural endowments, such as iron or zinc. Theseare mostly capital-intensive and high-technology industries, where technological spillovers are less probableto occur because new and sophisticated technologies are more dicult to imitate. Oten, local rms lack the capacity to catch up with oreign rms in this segment. Capital-intensive industries also generate lessemployment. For instance, Makstil (owned by Duerco) increased production heavily, but decreased thenumber o employees rom 905 in 1993 to 820 in 2007.22

FDI in resources needs to be observed careully regarding its environmental impact. Recently, non-governmental organizations (NGOs) raised concerns regarding environmental impact o some plants romArcelorMittal. However, in the ormer Yugoslav Republic o Macedonia, this is not a concrete concern.ArcelorMittal is currently improving environmental standards; though a new wastewater treatment plantwas delayed due to the nancial crisis, it is expected to be completed by the end o 2011. 23 According

to ArcelorMittal, its local aliate has introduced various innovations in the area o better environmentalmanagement, such as the replacement o heavy uel oil with natural gas in the hot strip mill in 2008/2009, theintroduction o indirect heating in acid tanks, and ISO 14001 certication.

D Assessment

Since independence, the ormer Yugoslav Republic o Macedonia has successully transormed itsel intoa market economy. This transormation was not an easy process, and during the 1990s the country struggledwith a steep all o GDP, high infation, and almost no oreign investment or several years. Political instabilitydue to the dispute with Greece and the Albanian insurgency hampered recovery at the end o the 1990s.Since 2001, stability has increased and economic growth strengthened, as the macroeconomic situation

has improved. The country has made inroads in its international economic integration, resulting in WTOmembership, and in an EU candidate status. Relatively larger fows o FDI entered the country, mostly in theorm o acquisitions (including privatizations). However, the nancial crisis disrupted the economic revivalthrough decreasing exports and declining nancial infows.

So ar, FDI by TNCs has impacted the economy through dierent channels: (a) an important sourceo nancing as evidenced by its high share in GFCF; (b) oreign companies enhanced services, such as intelecommunications and banking; (c) introduction o new technologies o production and new machineries aswell as the establishment o ISO standards; (d) improved export capacities, especially in TIDZs, and throughcontract manuacturing (or example, in the textile industry); and (e) payment o higher wages than domesticinvestors.

For potential investors, the country has various attractive eatures, including political and macroeconomicstability, an open market economy, relatively skilled and motivated workorce, competitive labour costs, and areasonably developed inrastructure (which nevertheless will require more investments in the near uture). Aswill be highlighted in chapter II, all this is coupled with an EU integration process and a generally good businessenvironment, thanks to a strong commitment o the Government and an ambitious reorm agenda.

However, there are important challenges to be addressed i the country wants to ully tap its potentialas the world economy will be recovering rom the economic and nancial crisis. They key in this process willbe or the country to better position itsel in the international division o labour based on an acceleratedsearch by companies or cost eciency and higher value added. This is not an easy task as the ormer Yugoslav

Republic o Macedonia is a small and landlocked country, endowed with relatively ew natural resources. Thereare nevertheless other eatures which can be changed with the right policy mix. These include the low income22 www.makstil.com/en/02-Local/prole.aspx.23 EBRD website, Bankwatch website.

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situation o a majority o the population and the ongoing confict over the country’s name. Also, while thecountry’s image has markedly improved in recent times, urther could be done to portray the ormer Yugoslav

Republic o Macedonia as a destination or investors. Furthermore, as it will be shown in chapter II, there aresome outstanding issues in the business environment that the Government can continue to improve.

The country should aim to attract more FDI and to derive more benets rom it. To increase thesebenets, it has to develop linkages between FDI and the domestic economy. Furthermore, the ormer YugoslavRepublic o Macedonia could use FDI to improve its inrastructure (e.g. through private-public partnerships).An ecient and high-quality inrastructure with good international transport connections would upgradethe country as an investment destination in the heart o the West Balkans and would also benet domesticcompanies. Especially when investment plans are scaled down or postponed, the Government needs toconvince oreign investors o the local economy’s strength. It has to bundle its orces to create a dynamic andappropriate business environment together with a stable legal ramework. Suggestions on how to do so areelaborated upon in the subsequent chapters.

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Chapter II Investment Policy Review o the ormer Yugoslav Republic o Macedonia

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II. THE INVESTMENT FRAMEWORK

A IntroductionIn the course o its transition to a market economy, the ormer Yugoslav Republic o Macedonia has

opened itsel to oreign investment and embarked on an ambitious programme o reorms. The changeshave been largely determined by the country’s aspiration to become a member o the EU and thus theneed to progress with the development o a domestic legal ramework that takes into account the acquis

communautaire (thereater the acquis) and will make it possible to accommodate it without jeopardizing basiclegal stability The acquis is the total body o EU regulations accumulated so ar, and its ull adoption is animportant requirement or candidate countries. The acquis is not static and keeps evolving; thereore applicantcountries, such as the ormer Yugoslav Republic o Macedonia, also need the capacity to deal with utureadditions to their existing body o laws.

The WTO accession and the EU integration processes (box I.2) have opened up new possibilitiesor the economy o the ormer Yugoslav Republic o Macedonia. Companies, originally located in a smallmarket o 2 million people, have gained easier access to larger markets. In the case o the EU market o 500million people, access has indeed become almost completely ree (with only a ew remaining exceptions, e.g.sensitive agricultural products). However, the access to oreign markets will eventually be accompanied bythe opening up o the market o the ormer Yugoslav Republic o Macedonia to oreign competition. Whilethe SAA allows an asymmetrical opening to oreign markets, preparing or increased competition remainsa challenge. Moreover, the uncertainty surrounding the exact date o entry into the EU (chapter I, box I.2)may be interpreted as a risk by investors, which needs to be counterbalanced by an investment environmentcharacterized by increasing stability.

Along with its commitment to EU accession, the Government has engaged, since 2001, in major eortsto improve the ease o doing business and enhance the legal ramework and the economic environment orinvestors. The ormer Yugoslav Republic o Macedonia oers various attractive eatures to oreign investors,including a avourable and simple tax system and a smoothly unctioning customs administration. These eortshave been recognized internationally, as is refected in the country’s improved international rankings.

Thanks to ast reorms, the economy has improved signicantly in recent years. Changes have, however,brought about new problems. One o them is legal stability. In a rapidly changing environment, economic actorsand public administration do not always benet rom sucient inormation on new laws and regulations inorce. The other problem is the capacity o public administration to understand and apply the new lawseectively, issue the right type o by-laws and apply them. A third problem is a multiplication o laws and

institutions in a country o only 2 million people. While enacting new laws or creating institutions is probablyunavoidable on the road to EU membership, the ormer Yugoslav Republic o Macedonia needs to pursue itseorts to rationalize them or merge and integrate institutions with similar or overlapping mandates. Thereare also regulatory areas such as business registration, protection o intellectual property or employment o oreigners where there is room or urther simplication.

Against this background, this chapter reviews the regulatory and policy ramework o the ormer YugoslavRepublic o Macedonia or all business, including FDI, and proposes concrete recommendations to urtherimprove the investment climate with a view to derive more developmental benets rom oreign investment.

B Speciic FDI measures

The ormer Yugoslav Republic o Macedonia is open to oreign investors. In the absence o a speciclaw regulating oreign investment, the key provisions on the treatment, protection and operation o oreigninvestment are provided by a body o laws, including the Constitution, the company law (called Law on Trading

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Companies), a number o sectoral laws and international treaties signed by the country. This is in line with thepractice o EU member States.

1 FDI entry and establishment

The investment regime o the ormer Yugoslav Republic o Macedonia is open to FDI and contains veryew restrictions on the entry or establishment o oreign companies. There are only a ew sectors – radiobroadcasting, insurance and gaming – where restrictions expressed in terms o oreign shareholding apply.These are not inrequent in other countries, too, and do not prevent the participation o oreign capital inthese sectors.

● Radio Broadcasting. According to the Law on Radio Broadcasting, a oreign national or legal entitymay hold an equity stake in a broadcasting company o up to 25 per cent. Combined oreignshareholding may not exceed 49 per cent.24

● Insurance. The Insurance Supervision Law25

stipulates that the individual share o a legal entity ornatural person in an insurance company can go up to 25 per cent o the equity, a rule whichapplies to both oreign and domestic investors (article 16). In the case o a oreign-controlledinsurance company, an individual shareholding may go up to 65 per cent, and with a specialapproval o the Minister o Finance, up to 80 per cent (article 89).

● Gaming. Foreign investors may only organize games o chance in conjunction with domestic legalor natural persons in their own hotel, i oreign equity share is higher than 50 per cent. Foreignlegal entity or natural person cannot organize entertainment games, neither independently northrough orms o investment in domestic legal entities and other orms o cooperation and jointventure.26

While there are no restrictions on the participation o oreign capital in banking (Banking Law),27 specic

requirements apply to oreign banks (or oreign entities with a participation in a oreign bank), related to theacquisition o a licence or ounding and operating a bank. According to Article 17 o the Banking Law, theseinclude providing (a) a certicate rom the registry o the head oce o the oreign bank and/or oreign personwho has a participation in a oreign bank; (b) a proo that the oreign bank is authorized to collect deposits andother repayable sources o unds in the country o registration o the bank’s head oce; (c) an opinion romthe competent authorities in the country where the head oce o the oreign bank is registered related tothe acquiring control in the bank; and (d) evidence that the competent authority o the oreign bank exercisesadequate supervision on consolidated basis, at least according to the method and volume specied by the law.

The establishment procedures or all other sectors are the same or domestic and oreign investors(see section C.1.3 or details), with two additional procedures or oreign ones. In addition to reporting to

the Trade Register, a mandatory step or all oreign rms and non-residents (see section C.1) is to report (a)their direct investments in the ormer Yugoslav Republic o Macedonia to the Register o Direct Investments,and (b) their purchases o real estate to the Register o Investments in Immovable Property o Non-Residentsin Macedonia and Residents in Macedonia. These two registers are maintained by the Central Registry o thecountry. These procedures do not serve as screening mechanisms and are used to collect data and statisticson oreign investment. The Central Registry can reuse registration only i the legally required documentationis not sent to the Registry, or i the legal deadlines are not met. According to the Law on Foreign ExchangeOperations, oreign companies ailing to register (or ailing to register within the deadlines) ace penalties: orexample, they can not transer dividends or repatriate prot abroad.

24 SeeArticle10.Non-ofcialEnglishtranslationisavailableat:www.mlrc.org.mk/law/l021.htm.25 “OfcialGazetteoftheRepublicofMacedonia”(OGRM)27/2002,84/2002,98/2002,33/2004,88/2005,79/2007,88/2008,56/2009,67/2010.26 Article44,Article54andArticle60oftheLawonGamesofChanceandEntertainmentGames,OGRM10/1997,54/1997,13/2001,2/2002,54/2007.27 OGRM67/2007,90/2009.

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Once a company is registered with the Register o Direct Investments, it directly acquires national legalstatus, irrespective o its orm and ownership (types o ownership in section C.2.1). However, i the FDI

project takes the orm o a branch or representative oce (section C.2.2), it remains considered as a oreignentity under the law o the ormer Yugoslav Republic o Macedonia. This dierentiation has implications onthe acquisition o land and other property by the oreign aliate (section C.8.1). The categorization o localvs. oreign is picked up as a dierentiation between “residents” and “non-residents” in the Law on ForeignExchange Operations (section B.2). It is, however, treated dierently in the Prot Tax Law (section C.3.1),which applies a territorial principle and treats branch and representative oces as local taxpayers.

According to the Law on Foreign Exchange Operations,28 direct investments and all subsequentmodications shall be reported to the Register o Direct Investments within 60 days rom the date o conclusion o the capital transactions. This register contains general inormation on oreign investors, thetype o investment (greeneld vs. acquisition), the amount o investment and method o nancing (cash vs.non-nancial deposits). The Register o Direct Investments also automatically takes over data rom the TradeRegister. Regarding the amount and type o invested resources, oreign investors are obliged to submit a bank statement or their investment speciying the amount.

According to Article 12 o the Law on Foreign Exchange Operations, non-residents and aliates o oreign trade companies in the ormer Yugoslav Republic o Macedonia that acquire real estate in the countryshall report their investment and all subsequent modications to the Central Registry within 60 days rom thetransaction, unlike citizens o the ormer Yugoslav Republic o Macedonia.

The registration procedures o the ormer Yugoslav Republic o Macedonia work ast in internationalcomparison (section C.2). There are, however, certain problems related to the registration o real estate, andto the reliability o inormation contained in the national land registry (called cadastre; section C.8). It is also

possible to raise a more undamental question i there is a need or a separate registry or FDI. As the caseso Croatia and Slovenia show, the lack o a separate FDI registry is not necessarily an obstacle to properregistration and monitoring o FDI.

2 Treatment and protection o FDI

21 Treatment

The Constitution guarantees “equal position o all entities in the market” (Article 55). The Law on TradingCompanies,29 which regulates the main aspects o the operations o all companies in the country, providespost-establishment national treatment o oreign subsidiaries, branches and representative oces o oreign

rms (art. 30 and art. 581). The principle o national treatment is also invoked by the bilateral investmentagreements signed by the country (section B.3.1).

Moreover, in the context o privatizations, according to the Law on Privatization o State-owned Capital,30 oreign investors are guaranteed equal rights with domestic investors when bidding on tenders or companyshare packages owned by the Government.

22 Transer o unds

The Constitution guarantees oreign investors’ right to ree transer and repatriation o investmentcapital and prots (Article 59). This right is only guaranteed to those who have ullled all legal obligationsrelating to taxes and social insurance contributions. Moreover, according to the Law on Foreign Exchange

28 OGRM34/2001,49/2001,103/2001,32/2003,Article8.29 OGRM28/2004,84/2005,25/2007,87/2008.30 OGRM37/1996.

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Operations,31 the registration o investments at the Central Registry is a precondition or the ree transer o unds (Article 8). The law specically provides or the ree transer o prots, o proceeds rom the alienation

or sale o ownership in direct investments, o the remainder o a liquidation estate, as well as or the right toindemnity i damage or lost occurred to the invested capital rom expropriation or due to other measureso the Government. There is, however, a dierence between “residents” and “non-residents” in the Law onForeign Exchange Operations.

Current account liberalization (IMF Article VIII) was introduced in 1998. The existing Law on ForeignExchange Operations is based on the SAA and was adopted in 2001 and later amended. The oreign exchangeregime is going through two phases o liberalization, ollowing the requirements o the SAA.

(a) In the rst phase, all the transactions were liberalized or non-residents, i.e. their payments relatedto FDI, portolio investments, real estate transactions, commercial transactions, credits (with

the exception o cash transers in which higher amounts require prior registration; see below).For residents o the country, everything was liberalized, except that they are not authorized toopen deposits abroad,32 buy real estate abroad, or buy securities abroad (and they also need toregister higher amounts o cash transers). Securities abroad can be bought only by banks andother institutional players at the securities market. In October 2009, the EC proposed to moverom the rst to the second stage o the SAA;33 however, this entry to the second stage has notmaterialized yet.

(b) In the second stage, all the remaining restrictions mentioned above will be abolished. Dealingswith securities and residents’ investments in real estate abroad will be ully liberalized, andthe liberalization o deposit activities o residents abroad will be started. When this happens,

the NBRM will have to prepare the necessary by-laws. It is however dicult to predict withprecision the exact date o entry into this phase.

The national currency o the ormer Yugoslav Republic o Macedonia, the denar, is ully convertible withinthe domestic market, although is not necessarily traded on oreign markets. Payments to or rom oreigncountries are perormed by banks authorized or oreign transactions by the NBRM. Credit transactionsbetween residents and non-residents can be reely arranged. The only requirement is that such loans mustbe registered with the NBRM. Certain legal entities conducting business activities abroad can hold depositsin oreign banks but only with the permission rom the NBRM. Non-residents can reely open non-residentaccounts in banks o the ormer Yugoslav Republic o Macedonia. Residents can hold oreign currency accountsin banks o the country.

Though only a ew restrictions remain in the area o transer o unds, the current oreign exchangeregime still compares unavourably with neighbouring countries which are already in their second phaseo liberalization. These include those which have already entered the EU (e.g. Bulgaria and Romania) or arenegotiating their entry (e.g. Croatia and Turkey). However, countries such as Albania, Bosnia and Herzegovina,Montenegro, and Serbia, are in the same phase o the SAA as they signed their agreements very recently(between 2008 and 2010). For the ormer Yugoslav Republic o Macedonia, it is recommended to moveto Phase II as quickly as possible as the restrictions o Phase I or residents may potentially hold back orcomplicate the plans o successul companies in the ormer Yugoslav Republic o Macedonia or oreign aliatesto expand abroad (e.g. in neighbouring countries).31 OGRM34/2001,49/2001,103/2001,54/2002,51/2003,81/2008.32 In turn, current accounts abroad are authorized for banks; government representatives; citizens of the former Yugoslav Republic of Macedonia who have an emigration

visa or work permit valid for more than six months during the period of their stay abroad; foreign natural persons who temporarily stay in the former Yugoslav Republicof Macedonia on an immigration visa or work permit valid for more than six months; legal persons performing services in the international transportation of goods or

passengers;investmentcompanies;scienticinstitutions;legalpersonswitharepresentativeofceorbusinessunitabroad;residentswhohaveaclaimtocollectbased

on a court decision issued by a court abroad; and residents who have claims based on sale o f real estate abroad, if the regulations of the country where the real estate

islocatedrequiretheresidenttoopenanaccountwithaforeignbank(IMFAnnualReportonExchangeArrangementsandExchangeRestrictions2009).33 http://ec.europa.eu/enlargement/candidate-countries/the_former_yugoslav_republic_of_macedonia/relation/.

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23 Epropriation

The Constitution guarantees the right to property. No person may be deprived o his/her property or

the rights deriving rom it, except in cases concerning the public interest as determined by law (Article 30o the Constitution). According to the Law on Expropriation,34 expropriation is possible during instances o war or natural disaster, or or reasons o public interest. Public interest, as dened by this Law, includes theollowing:

● Construction o inrastructure;

● Construction o power stations, waterworks, water supply systems, postal and communicationsystems and all accompanying and supporting inrastructure;

● Construction o buildings or deence and civil protection and regulation o border crossings; and

● Buildings and equipment or research o natural resources, education, science, health, culture,social security, athletics or activities; and

● Building settlements ollowing extreme natural disasters and relocation settlements.

Under the Constitution and the Law on Expropriation, the State is obliged to pay rightul compensation,not lower than the market value o the expropriated property, plus interests due, since the date o expropriationi the payment is not made within 15 days o the decision on expropriation. The last amendments on the Lawon Expropriation (2008) have shortened the period or appeal rom 15 to 8 days. The eciency o the currentlaw is not easy to assess, as there have been no cases o expropriation o oreign investors since the 1950s,nor is there any major reason to think o the probability o such actions in the near uture.35

The issue o regulatory takings is governed by the bilateral investment treaties (BITs) ratied by theormer Yugoslav Republic o Macedonia.

24 Other issues related to treatment and protection

In principle, all rms established in the country nominally enjoy the same treatment. However,de acto, thequality o treatment can depend on who the investor is (USAID, 2009a: 10). High-prole international investorsand larger local investors report ew problems with the implementation o the law. Despite problems with theunctioning o courts (section C.11.1), the Government has been successul in keeping these larger investorssatised with their level o treatment; this appears to be achieved largely through inormal channels. At thesame time, smaller investors and minority shareholders still experience signicant barriers to implementationand enorcement o national laws. These smaller rms, as well as other local investors, sometimes eel that apreerential treatment is provided to oreign investors, both in terms o incentives and the enorcement o

laws (box II.1).

The arbitration law o the ormer Yugoslav Republic o Macedonia is based on the Constitution, theLitigation Procedure Law,36 the Law on Disputes Settlement,37 the Law on International Trade Arbitration38 andthe Law on Trading Companies, and ollows the Model Law on International Commercial Arbitration (adoptedin 1985, amended in 2006) o the United Nations Commission on International Trade Law (UNCITRAL).Arbitration between companies has been undertaken within the Economic Chamber o Commerce since1993 through a Permanent Court o Arbitration.

34 OGRM33/1995,20/1998,40/1999.35 www.eubusiness.com/europe/macedonia/invest.36 OGRM4/1977.37 “OfcialGazetteoftheSocialistFederalRepublicofYugoslavia”43/1982.38 OGRM39/2006.

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Bo II1 Are local frms discriminated against?

While oreign investors generally eel that their treatment is good, local irms oten eel de acto disadvantaged relative to oreign investors. The eeling o discrimination stems partly rom the act thatmost o the oreign companies are larger, and partly rom the perception that, consequently, they can talk tothe Government more easily. Throughout the interviews conducted or this assessment, three main pointshave been raised by local irms:

1. Local investors do not eel that their rights are protected adequately (and as much as the rights o oreign investors) by the Government.

2. The Government’s strategy is not particularly encouraging local investors to start their own

businesses in certain locations – it is particularly evident in the TIDZs, where access to locals remainsconstrained in practice.

3. The authorities have made considerable eorts to liberalize the legislative and administrativeregimes according to SAA and WTO rules, but with little limited eort to creating an environment thatprotects domestic industry to the extent permissible under the same rules (e.g. eective antidumpingactions or countervailing duties in case o unair competition).

The Government may need to pay more attention to ensuring the equality o local irms and oreigninvestors. One area where a revision o policies could yield results is incentives, especially in TIDZs.

Source: UNCTAD, based on interviews.

According to the Law on International Trade Arbitration, in disputes with other business operators andState agencies acting in their commercial capacity, oreign investors have recourse to international commercialarbitration. The parties involved in an international dispute may agree to settle their dispute through domesticlitigation, mediation, or a oreign arbitration tribunal. The Government has 42 arbitrators accredited ordomestic arbitration and 30 internationally-accredited arbitrators on the country’s arbitration list.39

International agreements signed and ratied by the country or inherited rom ormer Yugoslavia on thebasis o succession provide or international arbitration o disputes between the oreign investor and theState. The ormer Yugoslav Republic o Macedonia is a party to the New York Convention on Recognition and

Enorcement o Foreign Arbitral Awards, the Geneva Convention on Execution o Foreign Arbitral Awards, theWashington Convention on the Settlement o Investment Disputes between States and Nationals o OtherStates (ICSID), and the European Convention on International Commercial Arbitration. The ormer YugoslavRepublic o Macedonia also signed the Convention Establishing the Multilateral Investment Guarantee Agency(MIGA). Ratied international agreements take precedence over domestic legislation.

The number o cases o investor–State disputes brought beore international arbitration is not large,although they emanate rom major investors in the country, which may be a reason or concern. Until now,there have been three cases o disputes with oreign investors. The rst was the case o the Greek investorHellenic Petroleum regarding the OKTA oil renery in Skopje. The Greek side claimed and won in 2007 at theInternational Chamber o Commerce (ICC) compensation rom the State due to violation o a sales contract.40

The second is a case currently beore ICSID, led in 2009 or the power distributor EVN Macedonia. Invokingthe Energy Charter Treaty, the Austrian parent company EVN presented claims or unpaid electricity supply

39 According to information provided by the Permanent Court of Arbitration attached to the Economic Chamber of Macedonia.40 ICC Case No. 13176/FM.

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during the time prior to the privatization (1995–2004) in the amount o up to €93 million plus interest.41 Thethird case, which is also pending, was also led at ICSID in 2009 and concerns the Swiss conectionary aliate

Swisslion.42

3 International ramework or FDI

31 Bilateral investment treaties

By November 2010, the country had 33 BITs: 30 in orce (table II.1) and 3 (Belarus, Egypt and theIslamic Republic o Iran) in the process o ratication. Negotiations with Greece, Northern Ireland and Omanhave been completed, and the agreements are to be signed and ratied as soon as possible. BITs are undernegotiation with Croatia, Kazakhstan, Qatar and Uzbekistan. The ormer Yugoslav Republic o Macedonia hasnot yet concluded BITs with the EU member countries Cyprus, Denmark, Estonia, Ireland, Latvia, Lithuania,Malta, Portugal and the United Kingdom, and the non-EU important trading partners o Australia, Canada,

Iceland, Japan, Kosovo/UNMIK,43 Mexico, the Republic o Moldova, Montenegro, New Zealand, Norway and theUnited States. The BIT with Montenegro is in the process o signing. The Government started negotiating a BITwith Israel in December 2010, and planned to open negotiations with Canada, Kosovo/UNMIK, the Republico Moldova and Qatar in 2011. The BITs concluded by the ormer Yugoslav Republic o Macedonia contain thestandard BIT provisions (e.g. protection against expropriation, judicial review in cases o unair compensationor expropriation, air and equitable treatment, ree transer o unds and recourse to international arbitrationor investor-State dispute settlement,44 etc.).

While the network o BITs is airly extensive, it is not yet complete. To urther increase legal stability andpredictability or FDI, the ormer Yugoslav Republic o Macedonia would need to initiate and conclude BITswith some o the countries which are important investors in the country or important business partners. In

doing so, the country would need to set priorities, given its limited resources and the complexities o potentialnegotiations. For this reason, it should pursue the completion o BITs with EU member countries as a mattero priority. At the same time, it needs to acknowledge that, as a consequence o the entry into orce o theTreaty o Lisbon on 1 December 2009, competences on negotiating international investment agreementshave shited rom member countries to the EC. Although uncertainties remain about the exact extent o thecompetencies that in line with Article 207(1) o the Treaty will be transerred, the Commission will eventuallyevolve into the entity negotiating BITs or the EU member countries (UNCTAD, 2010: 84). These changesmay have implications or the ongoing and uture negotiations o BITs by the ormer Yugoslav Republic o Macedonia with EU member countries.

41 ICSID Case No. ARB/09/10.42 ICSID Case No. ARB/09/16.43 The United Nations considers Kosovo to be an internationally administered territory under the name of United Nations Interim Administration Mission in Kosovo

(UNMIK) (Security Council resolution 1244 (1999)).44 Exceptions always exist. For example, the BIT with Croatia does not have explicit reference to national treatment.

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Table II1 BITs and DTTs o the ormer Yugoslav Republic o Macedonia as o November 2010

Economy

BITs

Year o signature(year o entry intoorce)

DTTsYear o signature Economy

BITs

Year o signature(year o entry intoorce)

DTTsYear o signature

Albania 1997 (1998) 1998 Lithuania 2008

Austria 2001 (2002) 2007 Luembourg 1999 (2002)a

Belarus 2001 (--) 2005 Malaysia 1997 (1999)

Belgium 1999 (2002)a 1991 Moldova, Rep o 2006

Bosnia andHerzegovina

2001 (2004) Montenegro 1996b

Bulgaria 1999 (1999) 1999 Morocco 2010 (--)e 2010

China 1997 (1997) 1997 Netherlands 1998 (1999) 1998

Croatia 1996 (2002) 1994 Poland 1996 (1997) 1996

Czech Republic 2009 (--)c 2001 Qatar 2008

Denmark 2000 Romania 2000 (2002) 2000

Egypt 1999 (--) 1999 Russian Federation 1997 (1998) 1997

Estonia 2008 Serbia 1996 (1996) 1996b

Finland 2001 (2002) 2001 Slovakia 2009 (--)d 2009

France 1998 (2000) 1999 Slovenia 1996 (1999) 1998

Germany 1996 (2000) 2006 Spain 2005 (2007) 2005

Hungary 2001 (2002) 2001 Sweden 1998 (1998) 1998

India 2008 (2008) Switzerland 1996 (1997) 2000

Iran, Islamic Rep o 2000 (--) 2000Taiwan Province o China

1999 (1999) 1999

Ireland 2008 Turkey 1995 (1997) 1995

Italy 1997 (1999) 1996 Ukraine 1998 (2000) 1998

Korea, Rep o 1997 (1998) United Kingdom 2006

Latvia 2006

Source: UNCTAD, based on data provided by the Government.a Agreement signed jointly with Belgium and Luxembourg.b The agreement signed with Yugoslavia applies to both Montenegro and Serbia.c TheBITwithCzechRepublicwasratiedbytheParliamentoftheformerYugoslavRepublicofMacedoniaon28September2010(OGRM123/2010).d TheBITwithSlovakiawasratiedbytheParliamentoftheformerYugoslavRepublicofMacedoniaon25December2009(OGRM150/2009).e TheBITwithMoroccowasratiedbyParliamentoftheformerYugoslavRepublicofMacedoniaon6November2010(OGRM143/2010).

32 Double taation treaties

The ormer Yugoslav Republic o Macedonia has signed agreements or avoidance o double taxation

(double taxation treaties (DTTs)) with 38 countries,45 and has taken over and applies one agreement (withBelgium) concluded by the Socialist Federal Republic o Yugoslavia46 (table II.1). Agreements with 33 countriesare in orce; the ones concluded with Germany, Egypt and the Islamic Republic o Iran and Morocco are notyet in orce. DTTs with Azerbaijan, Bosnia and Herzegovina, and Luxemburg, are yet to be signed by bothparties. Negotiations with Israel started in November 2010.

Among the main investing economies in the ormer Yugoslav Republic o Macedonia, the Governmenthas not yet concluded DTTs with the EU countries o Cyprus, Greece, Malta and Portugal, and some largeFDI source countries such as Canada, Japan and the United States. The ormer Yugoslav Republic o Macedoniawould need to initiate, nish and conclude DTTs with some o those countries, again giving preerence rstto remaining EU countries.

45 This counting includes Montenegro and Serbia as two countries, although the same agreement signed in 1996 with Yugoslavia is in force with respect to both.46 If and when the agreement signed between the former Yugoslav Republic of Macedonia and Belgium enters into force, it will supersede the agreement between the

Socialist Federal Republic of Yugoslavia and Belgium. Until that date, the latter will remain into force.

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33 International agreements containing investment provisions

The ormer Yugoslav Republic o Macedonia is member o WTO (and hence signatory to the General

Agreement on Trade in Services (GATS), the Agreement on Trade Related Investment Measures (TRIMs) andthe Agreement on Trade-Related Aspects o Intellectual Property Rights (TRIPs)), and also a signatory o threemultilateral ree trade agreements containing investment-related provisions (chapter I, box I.2):

● SAA with the EU member States;

● European Free Trade Association (EFTA) with Iceland, Liechtenstein, Norway and Switzerland; and

● Central European Free Trade Association (CEFTA) with Albania, Bosnia and Herzegovina, Croatia,the Republic o Moldova, Montenegro, Serbia and Kosovo/UNMIK.

CEFTA has an investment chapter where national treatment is applied to the pre-establishment phaseo investment (OECD, 2010a: 48). In the ramework o the SAA (Article 48), oreign investors rom EU

countries receive additional guarantees about national treatment in the pre-establishment phase, a standstillon new regulations, and on the ree transer o unds (box II.2). The ree trade agreement between EFTAand the ormer Yugoslav Republic o Macedonia contains explicit provisions or the protection o paymentsand transers related to investment (Article 14), and provisions on the promotion o investment in services(Article 27). At the multilateral level, the ormer Yugoslav Republic o Macedonia is party to MIGA, which isan important investment insurance provider in the country against certain non-commercial risks, i.e. risks o currency transer restrictions, expropriation, breach o contract, and war or civil disturbance.

Bo II2 Investment-related provisions in the SAA

The SAA between the EU and the ormer Yugoslav Republic o Macedonia was signed on 9 April 2001and entered into orce on 1 April 2004 (box I.2). The agreement includes investment-related provisions inTitle V relating to the right o establishment o companies and the ree transer o capital. The SAA stipulatesin Article 48 that, with regards to the establishment o companies, the parties shall grant companies o theother party national or most avoured nation treatment, whichever is more avourable. The agreement alsoincludes a stabilization clause obliging the ormer Yugoslav Republic o Macedonia not to adopt any newregulations or measures which introduce discrimination as regards the establishment o EU companies.

Concerning capital movement, Article 59 ensures the ree movement o capital relating to directinvestments made by companies ormed in accordance with the laws o the host country. The reemovement o capital, however, is subject to exceptions relating to balance o payments crisis and exchangerate policy diiculties. Under these circumstances the parties may take measures to restrict the reemovement o capital or a period not exceeding six months.

More general investment promotion provisions are included in Article 84 which encourages theormer Yugoslav Republic o Macedonia to improve its legal ramework or investment, particularly inconnection with the implementation o arrangements or the transer o capital, and conclude BITs withEU member States.

Source: EU, Ocial Journal , 2004.

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4 Assessment o FDI-speciic measures

The ormer Yugoslav Republic o Macedonia is open to oreign investors. Entry, establishment, treatment

and protection are up to standards,47 although in some areas, such as registration, there could be urthersimplication. In the area o transer o unds, it would be desirable to move to Phase II o the SAA soas to eliminate the remaining restrictions. With respect to dispute settlement, the quality o the judiciarysystem needs to be improved (this issue will be analysed in section C.11.1). The ormer Yugoslav Republico Macedonia has a airly extensive network o international agreements dealing with FDI. Most o the textso bilateral treaties are up to date. The country, however, needs to extend its network o treaties. Given theexisting limited resources to deal with these issues, there is a need to set priorities or such negotiations.The country also needs to monitor closely developments related to the transer o competencies rom EUmember countries to the EC in the area o investment treaties, and adjust its approach to BITs accordingly.

C General measures regulating business

In order to eliminate duplication and inconsistency between old and new legislation, the Governmento the ormer Yugoslav Republic o Macedonia has reviewed laws and by-laws with the intent o eliminatingall unnecessary, inecient, complicated and outdated regulations. This process, launched at the end o 2006,is called the “regulatory guillotine” (OGRM 129/06) (annex 2 provides more details about this process). Itseciency hinges on a qualitative assessment o regulations and regulatory changes called the RegulatoryImpact Assessment (RIA), in which the Government and the private sector closely cooperate. As a result, theSector or Regulatory Reorms (which reports to the Cabinet o the Deputy Prime Minister or EconomicAairs) has proposed changes to many laws and by-laws, which resulted in a signicant streamlining o thelegislation regulating business activity and in the introduction o new measures aimed at improving thecountry’s competitiveness. The key measures are discussed in chapter III o this report, section C.

As a result o the ongoing reorm process, the business environment has signicantly improved. Since2007, or domestic and oreign rms alike, the country’s international ranking (World Bank, 2009 and 2010,and the OECD’s Investment Reorm Index) has improved signicantly, refecting these changes (box II.3).

The ollowing sections deal with general measures regulating business in the ormer Yugoslav Republic o Macedonia and the challenges that the country aces i it wishes to improve urther the business environment.This includes continued needs or simplication or elimination o unnecessary regulations, rationalizationo the institutional setting, additional reorms and new regulations deriving notably rom the EU accessionprocess, and the improvement o the predictability o the regulatory environment, to mention a ew.

47 Accordingto theWorldBank’sDoing BusinessRanking,the formerYugoslavRepublicof Macedoniaranked 20thamong 183countries in2010 regardinginvestors’

protection, compared to only 88th place in 2009. In all the indicators o f investors’ protection, the former Yugoslav Republic of Macedonia fared better than the Eastern

EuropeanorOECDaverage.Theonlyexceptionwasshareholders’abilitytosueofcersanddirectorsformisconduct.

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Bo II3 The ormer Yugoslav Republic o Macedonia

in international business rankings

The Government o the ormer Yugoslav Republic o Macedonia monitors closely its internationalranking in key competitiveness reports, such as the World Economic Forum’s Global CompetitivenessIndex, the EBRD’s Transition Indicators, the World Bank’s Doing Business Rankings, the World Bank’sWorldwide Governance indicators, and the Investment Reorm Index o the OECD. In most o theseevaluations, the country’s position has improved recently, and in some cases it is ahead o its South-EastEuropean peers. Most notably, in 2010, the country was the world’s 3rd top reormer in the World Bank’sDoing Business Report, and 1st in SEE. From the 69th place among 183 economies o the world in 2009, theormer Yugoslav Republic o Macedonia progressed as high as to the 36th place in 2010, although it slippedback to the 38th place in 2011. Over the past years, the most signiicant improvements have been reported

in the areas o starting business, where it became by 2011 5th in global ranking, and paying taxes, where thecountry advanced to the 33rd position. The country is also strong in the area o protecting investors (20th).Still, the Doing Business Report pointed weaknesses, especially in relation to dealing with constructionpermits (136th) and closing business (116th).

In a dierent international comparison, on a scale o 1 (meaning minimal policy development) to 5(representing equivalent to best practice in the OECD area), the Investment Reorm Index o 2010 gave anoverall score o 3.7 to the country’s investment policy and promotion. This is almost the same level as thescores or Bulgaria, Croatia, Montenegro, Romania and Serbia (3.8 each). The ormer Yugoslav Republic o Macedonia has been ound well advanced in most elements o FDI policy, transparency and privatization,and also in some segments o promotion and acilitation, like strategy and institutional support. The countrystill lags behind others in titling, cadastering and restitution, intellectual property, FDI-SME linkages, one-stopshop and policy advocacy, to mention only a ew areas.

These international rankings provide certain useul insights into the external evaluation o thebusiness environment. At the same time, they need to be treated with caution, as they sometimes provide arelatively reduced view o complexities, and they are oten stronger on benchmarking ormal laws than onmeasuring o their implementation.

Source: OECD (2010a), World Bank (2010).

1 Adjusting national regulations to the acquis

The key challenge or the economy o the ormer Yugoslav Republic o Macedonia in the coming years isits accession to the EU or which the adoption o the acquis is the main prerequisite. The acquis is a ull set o EU criteria and laws with which the ormer Yugoslav Republic o Macedonia has to comply. It includes politicaland economic criteria as well as several legislative areas (called “chapters”) with which the country has toalign. Most o the 33 chapters o the acquis have a direct impact on key aspects o the investment climate,including, among others, trade policy (ree movement o goods), work permits (reedom o movement orworkers), regulation o services industries (right o establishment and reedom to provide services), treatmento investors (ree movement o capital), public procurement, company law, intellectual property (IP) protection,competition policy, sectoral regulations (nancial services, IT, agriculture, ood, sheries, transport, energy) and

taxation.

Given the scope o the acquis and the time rame required or adjusting to it, the Government needs tothink strategically about the process. The acquis itsel is non-negotiable; however, it leaves, beyond minimum

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requirements, policy space or member and candidate States which can be exploited to pursue their specicdevelopment objectives. This policy space is available, at diering levels, in respect to most social and economic

policies and the related administrative and institutional inrastructure. In the scal domain, or instance, memberStates have the fexibility to adopt corporate tax rates above the minimum rate set at 10 per cent. The EUaccepts a reduced value added tax (VAT) rate or a maximum list o goods and services and each country isthen ree to apply it to a given basket o goods and services. Starting a business, where the procedures andtime necessary or company incorporation clearly dier greatly across EU member States, is another areawhich is illustrative o the degree o country specicity in adopting the acquis.

Some fexibility is also available with respect to the sequencing and timing o relevant regulatory changesnecessary to adjust national regulations to the acquis. In addition, the subsidiarity principle is one o the pillarso the EU which gives member States and candidates competence over a ull range o policies that shouldbe determined locally. In these respects, the alignment o the ormer Yugoslav Republic o Macedonia to theacquis should be anchored to a strategic vision which is consistent with the national development objectives,including in areas related to attracting and beneting rom FDI. Consequently, the country needs to decide,within the policy space at its disposal, how to best align to the acquis, at a pace which is suitable to itsdevelopment priorities, and consistent with the accession requirements.

In 2007, the Government o the ormer Yugoslav Republic o Macedonia has adopted a ramework – theNational Programme or Adoption o the Acquis Communautaire (NPAA) – which is updated and upgradedannually. The National Programme determines the short- and long-term priorities o the Government in thearea o adjusting to the acquis. In most areas, progress is being achieved, although at varying speed. For thetime being, however, this dierence in the speed o adjustment is not so much the result o a strategic decisionbut is the refection o dierences in the institutional capacities o the country in dierent areas. According tothe EC 2009 progress report (EC, 2009), good progress has been made in the areas o company law, transport

policy, taxation, industrial policy and customs union, but less in some other areas such as competition (wherehuman and nancial resources are still inadequate), energy, and justice, reedom and security. In addition, ineach eld, the implementation capacity o the country needs to be strengthened.

Adjusting national laws to the acquis will have a major infuence on the business environment. The task o the Government is a complicated one as it needs to ensure that this adjustment is done in a way thatdoes not unnecessarily increase the regulatory burden. To avoid a prolieration o laws, the adoption o theacquis is accompanied by a regulatory guillotine to eliminate older, no longer necessary regulation. Eectiveimplementation and use o the RIA, which monitors all new laws, will also help avoiding increased regulatoryburden. This strategy is in line with the recommendations o the EC (EC, 2009), which also suggest moreregulatory stability and more ollow-up o new laws.

Another crucial element when adjusting national regulations to the acquis is the risk o capacity overloadin public institutions (OECD, 2010a). Adjustment to the acquis requires indeed a strengthening o theadministrative capacities o the country at all levels, but in particular in the area o implementation o laws.Also, given the importance o the task, ecient coordination o legislation is required. In the eld o economiclegislation, coordination is carried out by the European Integration Department o the Ministry o Economy,which also regularly monitors progress in this area. The experience o the new EU member countries in theiraccession process draws lessons or the ormer Yugoslav Republic o Macedonia on institutional capacities andcoordination.

The key is thus to nd the right balance between adopting a simplied regulatory approach, conorming to

EU norms and keeping track o progress made towards the country’s development objectives. The Governmento the ormer Yugoslav Republic o Macedonia needs to ollow a step-by-step approach, make best use o the“policy space” oered beyond the non-negotiable part o the acquis, and by setting the sequence and thetiming to adopt the dierent elements o the acquis.

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Another key challenge or the Government in the process o the adoption o the acquis is a need orgood coordination between dierent parts o the public administration. The experience o other accession

countries such as Croatia, which put in place a high-level Coordinating Committee on the Accession to theEuropean Union (supported by 35 Working Groups on individual chapters o EU accession)48 shows the needor a high-level coordination. This is a mechanism that could be used to ensure the eective integration o thestrategic vision o the country into the accession process. Finally, as it has been highlighted, accession is closelyrelated to capacity building at various levels o public administration as the adjustment to the acquis requiresskills, especially in terms o interpreting and applying new laws, which are not available at the current stage inthe country.

In analysing the dierent elements o the general business environment, the sections below reer to theprogress achieved by the Government o the ormer Yugoslav Republic o Macedonia in adjusting to the acquis,whenever relevant, in order to identiy possible changes in the investment environment in the near uture.

2 Business registration, documentation, conditions and procedures

Business registration in the ormer Yugoslav Republic o Macedonia is governed by the Law on TradingCompanies, the Law on the One-Stop Shop System and the Administration o the Trade Register and theRegister o Other Legal Entities,49 and Law on Central Registry.50 The country has introduced a simpliedsystem or the registration o companies, where, in the words o Invest Macedonia, one can register a companyat the Trade Register “by visiting one oce, obtaining the inormation rom a single place, and addressing oneemployee”. This signicantly reduces administrative barriers and start-up costs.

In 2009, the second phase o establishing a one-stop shop or business start-ups was launched, ocusing

on acilitating the internal exchange o inormation between various data-collecting institutions, such as theCentral Registry, the Employment Agency and the health insurance unds, the SSO and the NBRM. The updatingo the legal ramework or electronic registration and reporting has been another important step, which hasurther reduced the costs o registration (EC, 2009).

21 Legal orms a business can take

Foreign investors enjoy the same general reedom in choosing the most appropriate legal orms ortheir activities as local investors. They can create a ully-owned company or aliate, a joint venture with alocal partner, or engage in a concession. The principal law regulating these legal orms is the Law on TradingCompanies.51The law denes a company as a legal person carrying out protable operations, established by its

ounder(s). The two main corporate legal orms are the limited liability company and the joint-stock company.

The limited liability company (DOO or DOOEL) is a commercial entity that is easy to incorporate. It has nomore than 50 natural or legal persons as ounders, and its minimum capital is €5,000. Owners are not liableor the company’s liabilities.

The joint-stock company (AD) is a commercial entity in which shareholders participate with contributionsin the basic capital, dened by the company charter. A minimum o two legal or natural persons mayincorporate a joint-stock company. Shareholders’ liabilities are secured with the entire capital o the company.The lowest nominal value o basic capital required or ounding a joint-stock company is €50,000 i the sharesare issued through public oer, or €25,000 without public oer. Unlike most EU member countries, there is

no dierentiation between open and closed joint-stock companies in the law o the ormer Yugoslav Republic48 www.eu-pregovori.hr/default.asp?ru=444&sid=&akcija=&jezik=2.49 OGRM84/2005,150/2007,140/2008.50 OGRM50/2001,49/2003,109/2005,88/2008.51 OGRM28/2004,84/2005,25/2007,87/2008.

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o Macedonia. For the moment, this lack o dierentiation does not pose a problem or investors; however inthe uture, the country may wish to introduce this distinction.

Other types o companies include: the general partnership, an association o two or more legal entities orindividuals who are jointly liable without limits to the creditors; and the limited partnership, which includes twoor more legal entities or individuals. In this case, at least one o the partners is liable without limits and theother ones or the obligations o the company up to their recorded contribution in the company.

In addition, oreign companies can open branches and representative oces in the ormer YugoslavRepublic o Macedonia. These business orms do not constitute separate local legal entities under the law o the ormer Yugoslav Republic o Macedonia.

Branch Oce. A oreign company can establish a branch oce in the ormer Yugoslav Republic o Macedonia i it is legally registered in its home country. The branch works on behal o its parent oreign-domiciled company, which incurs ull liability with its entire assets over the branch operations. I a oreign-domiciled company establishes several branches in the country, it must designate a main branch.

Representative Oce. A representative oce can be opened by oreign companies to carry out non-income generating activities, such as advertising or market research on behal o their parent company.

The main legal orms o company incorporation ollow international standards, and are generallycompatible with the acquis. However, there are areas where the possibilities o the law o the ormer YugoslavRepublic o Macedonia are more restrictive than that o other countries. For example, at the moment, thelaw o the ormer Yugoslav Republic o Macedonia does not provide the possibility o cross-border mergerso limited-liability companies.

22 Registration

All companies have to be registered at the Central Registry (section B.1). The Central Registry manages10 Regional Registration Oces in large towns o the ormer Yugoslav Republic o Macedonia. The 10 oceswork with 17 smaller regional oces. The Central Registry keeps the ollowing seven registers: (a) TradeRegister and register o other legal entities; (b) Register o Annual Accounts; (c) Register o Pledges; (d)Register o Leasing; (e) Register o Rights on Immovable Property; () Register o Investments in ImmovableProperty o Non-Residents in Macedonia and Residents in Macedonia; and (g) Register o Direct Investments.The rst ve deal with all business entities and natural persons on the ormer Yugoslav Republic o Macedonia,while the remaining two specializes on oreign investors and/or oreign legal and natural persons.

As any other legal entity in the ormer Yugoslav Republic o Macedonia, oreign aliates should register inthe Trade Register o the Central Registry. The whole procedure is the same or domestic and oreign-ownedcompanies. The Trade Register does not control or the identity o oreign ounders. Company registrationis a simple and swit operation. Also, Invest Macedonia is keen to help oreign investors at any stage o theregistration.

All orms are available on the web page o the Central Registry. At present, the orms are in Macedonian,but are planned to be available in English. However, the completed orms will have to be submitted inMacedonian. Once submitted, the registration is in principle nished in our hours. In practice, until the endo 2010 it took one or two days. With the operationalization o a system o electronic signature on 1 January

2011, it became possible to reduce the waiting time close to the theoretical our hours.

The Macedonian Central Registry has undergone a major upgrading in recent years, and has improvedits unctioning. As a result, regarding Starting a Business, the ormer Yugoslav Republic o Macedonia ranks

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th in the World Bank’s Doing Business 2011 report (World Bank, 2010): it takes only three days to registera company. Nevertheless, there is room or urther rationalization. The act that the Macedonian Central

Registry also keeps the Trade Register, which is the register o all legal persons in the ormer Yugoslav Republico Macedonia, makes the existence o a specic FDI Register partly redundant. All the necessary data onoreign investors and oreign investment companies could be inscribed and kept in the Trade Register, althoughat the moment, the FDI Register contains some data which are not contained in the Trade Register. Still, theuse o modern inormation technology should allow the Trade Register to be easily modied to include all thedata requested rom FDI.

In order to start operations legally, in addition to business registration, companies need to registeror the VAT i necessary (see section C.3) and provide basic inormation such as the address o their legalheadquarters.

3 Taation31 Ta rates

Taxation is an attractive eature o the investment climate in the ormer Yugoslav Republic o Macedonia.The country oers a competitive scal regime or business, whereby prots are tax-exempt unless they aredistributed, and a fat personal income tax o 10 per cent applies.52 In addition, a generous VAT system andseveral incentives to attract oreign investors and innovation-oriented companies contribute to making thescal regime a pillar o the ocial investment attraction strategy.

Corporate tax regime: companies are subject to a tax on distributed prots (“prot tax”) o 10 per cent(one o the lowest rates among comparative countries, as per table II.2). Accordingly, any prot distribution

is subject to the prot tax in the year o payment. Resident companies are taxed on their worldwide income,but credit or oreign tax is available. Non-resident companies are taxed on their source income rom theormer Yugoslav Republic o Macedonia. Since 7 July 2010, prots distributed to resident companies are alsoexempted rom taxation, eectively restricting the application o the prot tax to dividends distributed toindividuals and non-resident companies.

Table II2 Nominal corporate ta rates in selected economies in 2010(Per cent)

Economy Rate Economy Rate

Albania 10.0 Romania 16.0

Belarus 24.0 Serbia 10.0

Bosnia and Herzegovina 10.0 Slovakia 19.0

Bulgaria 10.0 Slovenia 21.0

Croatia 20.0The ormer Yugoslav Republic o Macedonia

10.0

Czech Republic 19.0 Turkey 20.0

Estonia 21.0 Ukraine 25.0

Montenegro 9.0 OECD average 25.9

Poland 19.0 EU-27 average 23.1

Source: UNCTAD calculations, based on the EC Taxes in Europe database, International Bureau o Fiscal Documentation (IBFD) data,and the OECD Tax database.Note: The above rates only provide a partial comparison and do not refect the eective tax burden on business.

52 Taxationisregu latedbytheProtTaxLaw(OGRM27/2006,160/2007),thePersonalIncomeTaxLaw(OGRM139/2006),theLawonValueAddedTax(OGRM44/1999,

114/2007,103/2008),theLawonPropertyTaxes(OGRM54/2000,102/2008),theLawonUtilityFees(OGRM61/2004),theLawonPublicRevenueOfce(OGRM

81/2005),theLawonTechnologicalIndustrialDevelopmentZones(OGRM14/2007,103/2008,130/2008),andDTTs.

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A list o standard deductible expenses (e.g. capital expenses, wages, etc.), as well as partially deductibleexpenses are recognized by the tax authorities and reduce the tax base. Capital gains and losses are regarded

as ordinary business income, and are included in the taxable base o the company. The law also provides or aspecial tax regime called “prot tax on non-deductible expenses”. These include (a) entertainment expenses;(b) public nes; (c) interest on loans used or the acquisition o items, such as cars, urniture, carpets, works o art; (d) scholarships; (e) insurance premiums related to non-business property; and () interest expenses under“thin capitalization” rules. This tax, also 10 per cent, is paid annually.

Depreciable assets include a standard range o tangible and intangible assets as provided or in most taxcodes; companies are generally ree to choose the method o depreciation. Buildings are depreciated at a rateo 2.5 to 10 per cent, cars at 25 per cent, urniture at 20 per cent, computers at 25 per cent, and machineryand production equipment at 5 to 10 per cent. Land and orests are not depreciable.

With the reorm o the scal regime in 2009, which reduced the prot tax rate and exempted dividendpayments to resident companies rom the prot tax, the ormer Yugoslav Republic o Macedonia abolishedloss carry orward provisions.

Withholding tax: the country applies a withholding tax o 10 per cent, unless a DTT prescribes dierently.The withholding tax is calculated, retained and paid or, on the basis o the ollowing incomes o non-residentcompanies: (a) dividends; (b) interests; (c) copyrights; (d) entertainment or sporting activities; (e) management,consulting and nancial services, rom services related to research and development; () telecommunicationsservices; (g) insurance and re-insurance premiums; and (h) lease o real estate located in the ormer YugoslavRepublic o Macedonia (see section B.3.2 on the DTTs signed by the ormer Yugoslav Republic o Macedonia).

Value added tax (VAT): the VAT system generally ollows the EU VAT system; taxable transactions include

the supply and import o goods and services. Since 1 January 2011, the threshold or VAT registration hasbeen denar 2 million (about $46,000).53 The tax period depends on the value o the taxpayer’s total turnoverin the last year.54

The general VAT rate is 18 per cent. A preerential rate o 5 per cent applies to an extensive list o goods and services, including, among others, ood or human consumption, agricultural inputs, pharmaceuticals,computers and sotware and publications. The list clearly exceeds essential goods that would typically qualiyor preerential VAT treatments. Indeed, many o these items are not allowed preerential rates under the EUacquis. This is the case, or instance, or agricultural machinery, computers and thermal solar systems.

Exported goods as well as services connected with exports are zero rated or VAT. Exporters can claim

a reund o the VAT they have paid on their inputs. Upon a request by the taxpayer, the dierence should bereunded within 30 days rom the day the tax return was submitted. Tax authorities say they attempt to reundVAT in the legally dened time rame; i the reund is delayed, they are obliged to pay interests. In practice, thebusiness community tends to complain about delays in reunds. Large taxpayers however tend to get asterVAT reunding.

Excise duties: these are levied on a limited number o goods including petroleum products, tobaccoproducts, alcohol and alcoholic beverages, and passenger vehicles.55 They vary rom 5 to 62 per cent. Dutiesapplied on certain goods are still lower than the minimum required by the acquis (EC, 2010). Until theend o 2009, excise duties were administered by the Public Revenue Oce (PRO). On 1 January 2010, thisresponsibility was transerred to Customs Administration and alls under customs jurisdiction.

53 According to the International Bureau of Fiscal Documentation (IBFD) database.54 Thetaxperiodis(a)onecalendarmonth,ifthetotalturnoverofthermoverthelastyearexceededdenar25million(about$560,000);(b)onecalendarquarter,ifits

total turnover over the last year did not exceed denar 25 million; and (c) one calendar year if the taxpayers has voluntarily registered for VAT.55 ExcisedutiesareregulatedbytheLawonExcise(OGRM32/2001,50/2001,52/2001,45/2002,98/2002,24/2003,96/2004,38/2005,88/2008,105/2009,34/2010),which

follow mostly the EU Directive on Excises no. 92/12/EEC.

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Property tax and other indirect taxes: a property tax is paid against the ownership o real estate, suchas land and buildings. The tax is levied either on the owners, or on the users (in the case o a usuructuary

arrangement). The rate o the property tax is determined by the municipalities and it ranges rom 0.1 to 0.2per cent. The rate or agricultural land not used or agricultural production is signicantly higher. A transer tax

on real estate shall be paid by the seller o the real estate. A transer tax on securities also applies when securitiesare exchanged as counterbalance payment. Tax rates or both transer taxes are 2 to 4 per cent o the marketvalue o the property or the securities, as determined by the municipal councils. Since July 2005, local taxeshave been administered by the municipalities.

32 Incentives and special regimes

Simplied taxation or small business (micro-enterprises): companies whose economic activity is not inbanking, nance, insurance, gaming or entertainment and whose overall revenues over the past three yearsrom all sources have not exceeded denar 3 million per annum (about $70,000), pay a 1 per cent tax on their

total income, in replacement o the prot tax and o the tax on non-deductible expenses. Prior approval romthe tax administration is needed to adhere to this regime.

Technological Industrial Development Zones (TIDZs). Investors in innovatory activities within the TIDZs areexempt rom prot taxes or a period o 10 years; they also qualiy or other incentives (box II.4).

Bo II4 Advantages o TIDZs

The Government’s objective is to attract enterprises into TIDZs whose main activities lie in thedomain o manuacturing, IT (sotware development, hardware assembling, digital recording, computer chips

and the like), scientiic research, and new technologies with high environmental standards. To this end, theollowing beneits are provided:

● No corporate income tax or the rst 10 years o operation in the zone;

● No personal income tax or the rst 10 years o operation in the zone;

● No VAT and customs duties on imported inputs or re-exported production and on servicesprovided in the zone that are directly related with these imported inputs;

● Land lease or up to 99 years at attractive concessionary rates;

● No municipal ee or preparation o construction land;

● Subsidies o up to €500,000 or building costs, depending on the number o new employees

and the volume o investment; ● Subsidies o up to €250,000 or general and customized training programmes or the employees

o companies operating in a TIDZ;

● State aid grants in the orm o regional aid, e.g. or initial productive investment in capital aswell as in immaterial assets (patents, licences, know-how or unpatented technical knowledge); a

● Exemption rom utility taxes on natural gas, water, sewage and electricity;

● Free connection to utilities; and

● Establishment o a “Green Customs Channel” to acilitate customs clearance.Source: Invest Macedonia website and “Programme or Stimulating Investment in the Republic o Macedonia 2007–2010”.a More inormation on the requirements o State aids grants can be ound in the Law on Technological Industrial

Development Zones, Art. 4a.

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33 Ta administration

Taxes are administered by the PRO. One o its subsidiary bodies, the “Large Taxpayers Oce”, handlestaxpayers considered particularly important. As o January 2011, there were 257 such large taxpayers with aspecial status and a “golden card” granting them a number o advantages, including aster VAT reunding (seeabove). While a customized service can prove a useul atercare tool, a problem with this system appears tobe the lack o precise criteria or qualication. Since 2007, special oces dealing with SMEs have also beenoperational within the PRO. They aim at reducing the administrative burden on SMEs. An innovation currentlyunder implementation is an electronic tax system or natural persons. In 2011, the tender or this project wasin process.

34 Assessment and recommendations

There is no doubt that the ormer Yugoslav Republic o Macedonia oers a competitive scal regime ororeign investors and the reorms adopted in recent years to improve the tax administration point to an overallsimplication eort which is certainly welcomed by the investors community. However, the combinationo a low and fat personal income tax with a low corporate income tax and a generous VAT system risk generating insucient public revenues to ensure the appropriate unctioning o the public administration andthe adequate provision o the essential public services. In this regard, gure II.1 shows that the ormer YugoslavRepublic o Macedonia has one o the lowest shares o scal revenue to GDP rom direct taxes and the lowestscal revenue to GDP in the sample when considering both direct taxes and taxes on good and services.

Figure II1 Central government ta revenues as a percentage o GDP in selectedeconomies, 2008

(Per cent)

0

5

10

15

20

25

30

United

Kingdom

Bulgaria France Croatia Slovenia Poland The former

Yugoslav

Republic of

Macedonia

Income, prot and capital gains taxes Taxes on goods and sevices (VAT, excise) Total of the two

Source: UNCTAD’s calculations, based on data rom International Monetary Fund, Government Finance Statistics Yearbook 2009.

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Figure II2 Taation o investment in the ormer Yugoslav Republic o Macedonia and incomparator countries, 2010

(Present value o tax as a percentage o investors’ cash fow)

Consumer electronics

0%

5%

10%

15%

20%

25%

30%

35%

Albania Bulgaria Croatia The former

Yugoslav

Republic of

Macedonia

The former

Yugoslav

Republic of

Macedonia I

Montenegro Serbia Serbia I Viet Nam Viet Nam I Costa Rica Costa Rica I

ICT

0%

5%

10%

15%

20%

25%

30%

Albania Bulg aria Croatia The former

Yugoslav

Republic of

Macedonia

The former

Yugoslav

Republic of

Macedonia I

MontenegroSerbia Serbia I Singapore Singapore I Malaysia Ma laysia I

Tourism

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Albania Bulg aria Croa tia The former

Yugoslav

Republic of Macedonia

Montenegro Serbia Serbia I China Malaysia Sri Lanka Sri Lanka I Thailand

Source: UNCTAD.

Note: “I” reers to investment incentives in the country used or the comparison. Annex 3 provides more details about the simulation.

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Figure II.2 compares the eective tax burden in the ormer Yugoslav Republic o Macedonia with othercountries or three sectors (consumer electronics, ICT and tourism). 56 The comparison is based on the tax

system and incentives (in countries where inormation about incentives are available and applicable) in placein 2010 using the UNCTAD’s comparative tax methodology (annex 3). The discounted present value o tax(PV Tax) is measured as a percentage o investors’ cash fow (present value o tax in per cent). The higherthe PV tax, the greater the tax burden on an investment.

In the three selected sectors, the burden o the standard tax regime in the ormer Yugoslav Republico Macedonia is similar to that in the comparator countries. In consumer electronics, its rate is lower thanthat o Croatia and Serbia, and only slightly higher than that o the other South-East European countries. Itis, however, more competitive than Costa Rica and Viet Nam, two other countries selected or comparison.Once the tax incentives o the TIDZs (box II.4) are also taken into consideration, the tax burden o theormer Yugoslav Republic o Macedonia is greatly reduced and much lower than that o other countries, with

the exception o Costa Rica. In ICT, the situation is similar, and once TIDZ incentives are considered, the taxburden o the ormer Yugoslav Republic o Macedonia is the lowest among these countries in comparison. Intourism, where the ormer Yugoslav Republic o Macedonia does not oer incentives, its tax burden (about20 per 0cent) is very similar to that o other countries (with the exception o Bulgaria).

This analysis conrms that the tax incentives o the ormer Yugoslav Republic o Macedonia are verygenerous and raises the question o rebalancing the tax regime to ensure that the Government improves itscapacity to generate sucient public revenues.

The experience o several developing and transition countries has shown that the eectiveness o scal measures in attracting and retaining FDI is limited. Moreover, studies and investor surveys on the

subject have consistently concluded that investors value the quality o the investment climate, including thetransparency and clarity o the regulations and the eectiveness in their implementation more than anyspecial scal treatment in determining their investment decisions.

The analysis o this chapter highlights how, in various key areas such as competition or SME policy,government institutions lack nancial and human resources to adequately carry out their mandate. Thereore,it is recommended that the eectiveness o the regime in attracting investors and its repercussions on thecapacity o the Government to generate public revenue be monitored on a regular basis. Also, i the ormerYugoslav Republic o Macedonia wishes to ensure ull compliance with the acquis, it would eventually need toreorm the VAT regime. Finally, as the reorms to the overall investment climate progress and the country’sattractiveness to investors increase, it might be necessary to consider increasing other sources o scal

revenues, including reviewing both the corporate and personal income tax regimes.

4 Accounting and auditing

In the ormer Yugoslav Republic o Macedonia, the Law on Trading Companies requires all legal entitiesto prepare accounts at the end o each calendar year in accordance with national accounting rules. As parto the approximation with both the EU and other international benchmarks, international nancial reportingstandards (IFRSs) have been in use in the country since the beginning o 1998, although some complianceissues persist.

The Audit Law requires audit activities to be perormed pursuant to international standards on auditing.

Audit is statutory or all companies with more than 50 employees, and/or turnover and total assets exceeding€2 million. Audit may be perormed by an audit company registered with the Central Registry or by a certied56 The selection of comparison countries takes into consideration regional competitors and relevant economic features of other countries that have successfully

developed certain sectors and attracted FDI into those activities.

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auditor operating as a sole proprietor. The licence or a certied auditor is issued by the Institute o AuthorizedAuditors. Audit activities are coordinated at the national level by the State Audit Oce.

In 2009, a rulebook on the requirements or submitting annual accounts in electronic orm was adopted,and the Department or Financial Systems in the Ministry o Finance is now suciently staed to prepareinstructions and properly enorce accounting and nancial reporting requirements (EC, 2009). The IFRSare to be applied ully by large and medium-sized rms, banks, insurers and companies listed on the stock exchange. Other commercial entities have to keep their records in compliance with a simplied versiono the IFRS adopted or SMEs. As mentioned, however, delays in translating and transposing internationalaccounting standards including the IFRS and the accounting acquis have persisted. With regards to auditing, theprovisions o the Directive on Statutory Audit regarding the public oversight system and the EU TransparencyDirective (2004/109/EC) remain to be adopted. The transparency directive requires periodic reporting orlisted companies, thereby improving the dissemination o inormation and enhancing investors’ condence.

While accounting and auditing standards in the ormer Yugoslav Republic o Macedonia are generallymoving towards international compatibility and comparability benchmarks, interviews with representativeso the business sector have highlighted that local rms, especially SMEs, have diculties with understandingand applying the new rules o accounting. For these reasons, there is a need to increase the knowledge andawareness o those companies about accounting rules and their proper application. In this respect, there isa need or a broad-based promotion o the accounting and auditing rules o the country (c. InternationalCouncil o Investors (2007): 76–77).

UNCTAD could provide technical assistance to strengthen an association o proessional accountants.Once ully operational, the association could also benet rom the assistance o associations o accountants

rom other countries, including through mentoring arrangements. Through its capacity-building activities,UNCTAD could also support a better and more eective implementation o accounting and auditing standards,including by SMEs.

5 Customs administration

The trade policy and customs administration o the ormer Yugoslav Republic o Macedonia are guidedby the country’s membership to WTO and its EU candidate status. The SAA with the EU has had importantimplications or the country’s international trade, and or its customs regime. The terms o the SAAs dieracross signatory countries. In the case o the ormer Yugoslav Republic o Macedonia, its products alreadyenjoy ree access to the EU (exceptions remain or sensitive products such as wine, baby bee, sugar, sheriesand sh products, or which tari quotas have been agreed), but the country has yet to ully open its marketto the EU imports, at which time a ree trade area should be in place, except or certain agricultural goods, onwhich quotas or duties still apply.

The ormer Yugoslav Republic o Macedonia is one o the Balkan countries that have signed SAAs withthe EU and are members o CEFTA (box I.2).57 CEFTA membership has resulted in the completion o anetwork o bilateral ree trade agreements with participant countries. These agreements provide or reetrade in at least 90 per cent o mutual trade. Moreover, a diagonal accumulation o origin is possible betweenthe ormer Yugoslav Republic o Macedonia, the EU and Turkey, and between the ormer Yugoslav Republic o Macedonia, some CEFTA countries and the EU. The trade liberalization schedules with the EU and CEFTApartners on the one hand, and the maintenance o separate customs systems vis-à-vis third partners on theother, have created signicant dierences in the structure and level o custom duties and non-tari barriers57 Albania, Bosnia-Herzegovina, Bulgaria, Croatia, Montenegro, Romania and Serbia are also signatories of SAAs and members of CEFTA. The territory of Kosovo/UNMIK,

which started the Stabilisation and Association Process Dialogue with the EU in January 2010, and the Republic of Moldova, whose links with the EU, similar to other CIS

countries, are governed by the European Neighbourhood and Partnership Instrument (ENPI), are also members of CEFTA.

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within each country. Integration in the orm o a customs union that would provide or identical oreign traderegime towards the rest o the world is not expected to take place in the near uture.

Nonetheless, since 2005, the ormer Yugoslav Republic o Macedonia has been a candidate or EU accession.As such, it is expected to ully prepare or EU membership. In this respect, the Customs Administration hasembarked on an ambitious and demanding reorm programme. A need or urther assistance in the eldo border controls has been identied in relation to certain aspects, one o which is the area o bordercontrol administration. For instance, the Law on Customs Tari was harmonized with Harmonized Systemo the World Customs Organization and with the EU Combined Nomenclature. Customs procedures areharmonized with the acquis,except in the case o transit. Full harmonization with the acquis would require theadoption o the Convention on a Common Transit Procedure o the EU and EFTA, 58 which sets the commonrules o the two organizations in this domain. This process has started with the installation o the EU’s NewComputerised Transit System (NCTS), a project nanced by the EU.

The ormer Yugoslav Republic o Macedonia has also ratied the protocol amending the Kyoto InternationalConvention on the Simplication and Harmonization o Customs Procedures,59 which is the main source o international standardization in the area o customs procedures, and abolished a number o customs-relatedees (EC, 2009). Some restrictions still exist in the orm o (a) export licences or products related to theprotection o environment, human health, animals and plants, historical heritage, and military equipment; and(b) measures or the protection o domestic production in case o signicant increases o imported goods,dumping prices and subsidized import prices.60 Regulations adopted by the Government on protective trademeasures are in accordance with WTO rules.61 Following the ratication o its protocol, there is also a needto implement ully the Action Plan o the Revised Kyoto Convention on the Simplication and Harmonizationo Customs Procedures.

A centralized Single Window System has been introduced or the issuing o licences required or customsprocedures that links 16 State agencies and allows companies to submit electronically a single request orthe documents required or import, export and transit (EC, 2009: 31–32, 73). Still, urther improvements areneeded to ease customs procedures, e.g. by advancing computerized and paperless systems. In the WorldBank’s Doing Business 2011 report (World Bank, 2010), the ormer Yugoslav Republic o Macedonia ranks 66thin terms o trading across borders. However, it ares better in various aspects o cross-border trade thanneighbouring countries. For example, import and export procedures are shorter (11 and 12 days) than in anyother country in the region, except or export procedures in Serbia (they also require 12 days). The numbero documents required is also among the lowest (6). In terms o costs, it is in the middle range. As a tool ornon-intrusive examination o goods, our mobile X-ray scanners o containers and large vehicles have been

installed.

The customs administration also needs to oster cross-border cooperation and develop risk analysisto eectively ght illicit trade and organized crime, as these are major problems in the region (Stojarova,2007). A more systematic analysis o risks and the exchange o experience with, and assistance rom customsorganizations o EU member countries could also increase the capacities o Customs Administration to detectillicit trade.

Most o the above problems need to be dealt with in the context o the new Customs Strategy o thecountry, to be adopted or the period 2012–2015. This strategy also needs to improve cooperation with58

OfcialJournalL226,13/08/1987P.0002-0117.59 The original convention was signed in 1973; its amendment dates 1993.60 AccordingtotheLawonTrade,andthefollowingby-laws:1)Decisiononprocedureandmethodofdeterminingsafeguardmeasuresagainstincreasedimports(OGRM

28/2008);2)Decisiononprocedureandmethodofdeterminationofcountervailingduty(OGRM28/2005)and3)Decisiononprocedureandmethodofdetermining

anti-dumpingduty(OGRM09/2007).61 According to communication received from the Ministry of Economy.

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the Business Advisory Body o Customs Administration, and in general strengthen its capacities. One o theadministrative tasks is the ull integration and management o excise duties in Customs Administration.

6 Labour

In the ormer Yugoslav Republic o Macedonia, the Labour Law and collective agreements are the mainsources o regulation o the labour market. The country has a airly liberal labour regime in comparison toother countries in the region – in terms o fexibility o employment (especially fexibility o hours, ruleson redundancy; according to World Bank, 2009). At the same time, this legislation is mostly adjusted to therequirements o the acquis in terms o assuring basic labour rights.

The Labour Law 62 regulates the rights, obligations and responsibilities o the employee and employer.Their relations are generally guided by an individual employment contract, which contains description o theemployee’s duties, duration o the contract (nite or indenite), eective and termination date, location o the work place, hours o work, rest and vacation periods, qualications and training, salary and pay schedule.A new Labour Law was introduced in January 2009 which, in general, promotes a more fexible labour marketby oering (a) adaptable employment contracts; (b) variable working time; (c) time limit o ve years or xed-term labour contracts; and (d) no restrictions or seasonal jobs. The changes to this law reduced minimumsocial contributions and introduced measures to ease the hiring o workers.

Collective agreements are the second pillar o labour market regulations. General collective agreementsregulate employment rights and are concluded at the national level. Collective agreements are negotiatedbetween the representative labour unions and the Government (the Ministry o Labour and Social Policy)or the general collective agreements or the public sector, and between the representative labour unionsand representative employers association or the general collective agreements or the commercial sector.

Based on these two collective agreements, industry branch and employer level collective agreements can benegotiated and signed.

The two principal trade union associations are the Council o Trade Unions o Macedonia and the Uniono Independent and Autonomous Syndicates o Macedonia. Each association has independent branch unionsrom the public and the private sector. Membership in trade unions is voluntary and activities are nanced bymembership dues. Almost 75 per cent o legally employed workers are dues-paying union members. Still, thecapacities o trade unions in deending workers’ rights are relatively weak, and social, bipartite and tripartitedialogues work at low ebb (EC, 2009). Strikes and other trade union actions are rare. This is not necessarilydue to good industrial relations but to the act that in practice there are limits to trade union action: theyhave to speciy the length o the strike in advance, and participants can be dismissed i a court declares the

strike illegal.63 There are also provisions o the Labour Relations Law which could be potentially misused: orexample, employers can suspend strikers declared to be “violent” or showing “non-democratic” behaviour.64

The main rules on employment are as ollows:

(a) Working hours.The law established that working hours are eight hours per day, ve days per week;

(b) Salaries. As o February 2010, the average monthly gross salary was denar 29,751 (equivalent to€489). Collective agreements dene a minimum salary or each proessional branch, but there isno general statutory minimum wage or the private sector;

(c) Social insurance and pensions. At the beginning o 2009, the Law on Compulsory Social Contributions65

introduced a unied system o gross salaries (Government o the ormer Yugoslav Republic o 62 OGRM62/2005,106/2008,161/2008.63 ITUC 2010 Annual Survey of Violations of Trade Union Rights.64 ITUC 2010 Annual Survey of Violations of Trade Union Rights.65 OGRM142/2008.

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Macedonia, 2009). Employers are obliged to calculate, withhold rom employees’ gross salaryand pay into the accounts o respective unds the compulsory social contributions through a

single window created at the PRO or this purpose. In January 2011, social contributions will bereduced by roughly one third;66

(d) Other benets. Employees are entitled to rest and leave periods (e.g. a rest o at least 12 hoursduring two consecutive working days, and an annual leave between 20 and 26 working days), sick leave (21 days o sick leave paid by the employer, ater which the Health Insurance Fund takesover the payment o indemnities),67 maternity leave (nine months o continuous leave duringpregnancy, birth and maternity),68 and severance payments (due to termination o employment).69

No major changes are required in laws regulating employment and labour relations, as they are compatiblewith the acquis as well as the current economic situation and goals o the country. There are, however,problems with the application o existing laws and regulations, and a ull respect o labour rights in practice.Trade unions need to become more ecient in deending workers’ rights, and social, bipartite and tripartite

dialogue on labour issues needs to be strengthened.

7 Employment and residence o oreigners

The current regime or the employment o oreign workers is restrictive. It does not allow or theattraction and diusion o new or missing skills. Moreover, unless gradual reorms are undertaken, the levelo labour market openness that will be required by the accession to the EU risks producing a shock or thelocal labour market.

The entry, employment and residence o oreigners are regulated by the Law on Foreigners and theLaw on Employment and Work o Foreigners.70 Foreigners willing to enter the ormer Yugoslav Republic o

Macedonia or a short period (up to 90 days) or either tourism or business purposes need to apply or ashort-stay visa (visa C) at the diplomatic outposts o the ormer Yugoslav Republic o Macedonia abroad.The requirements or a short-stay visa are airly standard, with the exception o a requirement o a letter o invitation or guarantee rom a Macedonian physical or legal person certied by a notary. The citizens o theEU member States and Schengen States do not require this visa, and can enter and stay up to 90 days with avalid ID card.

All oreigners who wish to work in Macedonia or a period beyond this limit – either as investors, sel-employed persons or employees – need to apply or a long-stay visa (visa D) and or a temporary residencepermit at the diplomatic outposts o the ormer Yugoslav Republic o Macedonia abroad. In parallel, oreignersmust apply or a work permit either directly, i they are investors or sel-employed persons, or through their

prospective employers i they are employees. Three categories o work permits exist:

(a) Personal work permits. These are reserved or investors and sel-employed persons, and are validor one year. Their application must be accompanied by a business plan detailing the economicbenets or the ormer Yugoslav Republic o Macedonia, including the number o new jobs to becreated. The permit is renewable year by year (or every three years under special conditions),provided that the Ministry o Economy is satised with the realization o the business plan;

(b) Employment permits. Foreign employees in the country need an employment permit. These permitsare subject to a number o restrictive criteria. According to the legislation, upon applications bythe employer, the authorities rst veriy that the oreign employment quota (5 per cent o the

66 Pension and disability insurance from 19 to 15 per cent, the health insurance from 7.5 to 6 per cent, the unemployment insurance from 1.4 to 1 per cent. Only the

additional health insurance rate with remain the same (0.5 per cent).67 AccordingtotheHealthInsuranceLaw,whichrequiresmandatoryhealthinsurance.68 TobenancedfromtheHealthInsuranceFund.69 Severance has to be paid to the employee based on his or her length of employment (one month’s salary for each two years spent in work, but not exceeding twelve

months’ salary; see Article 130 of the Labour Law).70 OGRM70/2007,5/2009.

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legally employed population) is not surpassed,71 then apply a labour market search to make surethat there are no Macedonian workers interested in the vacant position (the law does not spell

out explicitly whether qualications o the person o the ormer Yugoslav Republic o Macedoniaor the position should be the same as the qualications o the oreign applicant).

The permit is granted only upon meeting these conditions and provided that the oreigner’semployment does not aect negatively the economy and the employment rate (Art. 7 and 13.2).The permits are valid or a maximum o one year, and the employer willing to retain the oreignworker ater the rst year will need to repeat the entire application procedure without anyguarantee regarding the outcome;

(c) Work permits. These are temporary permits with pre-determined duration or seasonal workersor other ad hoc categories such as trainings and work by oreign representatives. These permitsollow general international standards.

Although it is mostly in line with the requirements o the acquis, the regime described above is not bestsuited or the ormer Yugoslav Republic o Macedonia or a number o reasons. First, while it is liberal onthe entry o oreign investors and sel-employed entrepreneurs, it does not make any distinction betweenemployees in managerial posts or possessing special technical and proessional skills on the one hand, and low-skilled workers on the other. This lack o dierentiation may have negative implications or the attraction o skills and skilled persons required or specic FDI projects, and hence may harm the country’s attractivenessto oreign investors. Second, the current conditions or the issuance and renewal o employment permits aretoo restrictive, discouraging employers rom seeking oreign skills and leaving the employees in uncertaintyabout the stability o their permits. Finally, the current system does not prepare the country or its accessionto the EU, which will result eventually in a ull opening o the local labour market to all EU citizens. The risk is that a sharp transition rom the current system might generate too much pressure on the labour market,

unless transitional measures are granted to counterbalance it.

Our interviews with representatives o the business community have also highlighted problems with theprocedures applicants have to ollow. Investors think that these procedures are unnecessarily heavy. One o the complaints is that the requirement that applications have to be submitted by the oreigners personallyto the diplomatic or consular mission o the ormer Yugoslav Republic o Macedonia in their home countrymay be too restrictive or the personnel o large TNCs that are oten redeployed in dierent countries o theworld. It also seems that there are considerable delays in the processing o applications (OECD, 2010a: 41),specically at the Ministry o Interior, which does the security checking.

It is recommended that the regime be reormed so that skills attraction becomes an explicit objective o the country’s FDI policy. At the same time, the EU accession should be an opportunity to attract talents thatcan contribute to the country’s development. In these respect, the ollowing reorms should be considered:

● The quota system and the labour market test could be replaced, at least or highly skilledworkers, with a “scarce skills” approach. The Government would set up a predetermined list o skills where shortages exist. Local and oreign investors seeking employees with those skills wouldbe exempted o the labour market test and o the quotas;

● An active skills attraction and diusion programme targeting EU countries could be developedand marketed. This would build on the scarce skills list to oer EU proessionals and high-skillsemployees in priority sectors (and their amilies) ast-track entry and residence permits, alongwith assistance in lodging and local integration;

● A number o expatriate positions could be automatically assigned to those companies that have

a proven track record o local sta training and which adopt understudy schemes; ● The validity o the work and residence permit should be extended to ve years and renewable

71 Theruledoesnotapplytopersonsexemptedofthequota.

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or the ounders and directors o the oreign company, and to three years or others;

● The application and verication procedures should be reviewed to ensure eciency and timeliness

in responding to the applicants, according to the terms currently established in the law. Also, thepossibility o submitting applications at missions o the ormer Yugoslav Republic o Macedonia inthe current country o residence o the applicant should be considered.

8 Land and construction permits

Land acquisition and construction permits are regulated by the Law on Ownerships and Other RelatedRights and the Law on Construction Land.72 In the last years, this area has undergone many changes and ismostly in line with the acquis, according to the EC (EC, 2009). There remain however a ew areas whereurther improvements are desirable.

81 Cadastral recordsThe registration o real estate rights in the Real Estate Cadastre (RECA) is compulsory and is done

either ex ocio or at the request o the client. The Agency or Real Estate Cadastre registers all real estaterights.73 The Agency is responsible or establishing, operating and maintaining the RECA, and managing thegeodetic-cadastral inormation system. In the past ew years, signicant progress has been made in the area o property registration. By the end o 2010, the coverage o the RECA reached 99.5 per cent o the constructionand agricultural land in the entire territory o the ormer Yugoslav Republic o Macedonia. 74 The electronicdatabase o the RECA is continuously updated and available online (USAID, 2009b: 17). The time required orproperty registration is eight days, down rom 66 days in 2008 (OECD, 2010a: 45, 302). As or oreign investors,they need to register their property purchase both in the Cadastre and the Central Registry (the Register o Investments in Immovable Property o Non-Residents in Macedonia and Residents in Macedonia; c. sections

B.1 and C.2.2).

While the coverage is now very high, the cadastral records and tradable titles still need to be updated inorder to properly refect the current ownership. Buyers still need to be assured that current cadastral recordsrefect all restitutions undertaken during denationalizations properly.

82 Land acquisition

Access to construction land is unrestricted to aliates o oreign companies, which are registered inthe country (i.e. subsidiaries and associate companies), and thus are considered to be nationals o the ormerYugoslav Republic o Macedonia beore the law. Some limitations, however, apply to “oreigners” not registered

in the country (e.g. branch and representative oces) depending i they are rom EU and OECD membercountries or other countries. According to recent amendments to the Law on Ownership and Other RealRights,75 natural persons and legal entities o EU and OECD member countries enjoy equal rights with thecitizens o the ormer Yugoslav Republic o Macedonia regarding ownership o real estate, apartments, buildingsand business premises, including construction land, long-term lease o construction land, and long-term leaseo agricultural land and orests. Non-EU and non-OECD residents can enjoy the same treatment under termso reciprocity (i their country applies the same treatment to nationals o the ormer Yugoslav Republic o Macedonia). The application o reciprocity rights is determined by the Minister o Justice.

72 OGRM82/2008.73 OGRM48/08and158/10.74 TheWorldBankissupportingtheprogrammeofreformingtheRECA(WorldBank,2009,StatusofProjectsinExecution-FY09SOPE,EuropeandCentralAsiaRegion,

Country: Former Yugoslav Republic of Macedonia).75 Article245oftheLawonChangesandAmendmentstotheLawonPropertyandOtherRealRights,OGRM92/2008.

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Foreign physical and legal persons are not allowed to own agricultural land.76 They can sign a long-termlease or agricultural land under conditions o reciprocity, on the basis o consent by the Minister o Justice and

a prior opinion o the Minister o Agriculture, Forestry and Water Economy as well as the Minister o Finance.

While there is limited discrimination o oreign investors concerning land ownership, in act tradabilityo land is limited and the land market unctions poorly. A modern land use policy needs to be developedso that land rights are secured and land can be used or investment within the ramework o a transparentpolicy (World Bank, 2008: 73). The main reasons or the current weaknesses o lands ownership are small andragmented land holdings, imperect management o the State land and problems with construction permits(see below).

Privately-owned sites or construction are sold through direct negotiation between the buyer and theland owner. Around 80 per cent o arable land is owned by private armers. I in State ownership, construction

land is sold or leased through a public tender procedure. Minimum bidding prices are set by the Ministry o Transport and Communications in compliance with the Construction Land Price Determination Methodology.

State land is managed at the central level by the Ministry o Transport and Communications orconstruction land and by the Ministry o Agriculture, Forestry and Water Economy or agriculture land andorests. Municipalities are expected to obtain the responsibility or the management o State land in 2011because decisions are expected to be taken more quickly at that level. At the same time, the capacities o municipalities in land management and zoning need to be improved signicantly, so that they are able to copewith their new mandate o managing State-owned land. According to our interviews, investors are araid thatmunicipalities might not be able to manage these resources correctly and would re-sell them too quickly toreap short-term gains.

83 Construction permits

The procedure or obtaining a construction permit goes through the ollowing steps: (a) obtaining a copyo the detailed urban plan, (b) a decision on site conditions, and (c) applying or a construction permit. Theconstruction permit is to be issued within seven days rom the date o completion o the stated documentation.In practice, however, obtaining a construction permit remains one o the most challenging aspects o thebusiness environment in the ormer Yugoslav Republic o Macedonia: it takes 146 days and 21 procedures,according to the Doing Business 2011 report (World Bank, 2010). This places the ormer Yugoslav Republico Macedonia 136th in global comparison. Although the other countries o the region, with the exception o

Bulgaria, are even more bureaucratic than the ormer Yugoslav Republic o Macedonia in this respect, the latterhas to take into consideration that the current situation is still insucient in light o the plans o becoming aglobally attractive location or investors.

The creation o a single window system or land management and construction permits could be asolution (or details, see USAID, 2009b: 20). Proposals rom our interviews also go in the direction o a lesscostly system o construction permits. Compared with the Eastern European countries’ average, the ormerYugoslav Republic o Macedonia has approximately the same number o procedures to get a permit, ewerdays are needed, but the costs o getting the construction permit are three times as high as Eastern Europeancountries’ average, and almost 30 times higher than the OECD countries’ average. The entire constructionpermit process involves too many institutions (including municipal authorities, the State Inspectorate or

Construction and Urban Works and other organizational units in larger municipalities, and RECA) with onlylimited exchange o inormation between them (USAID, 2009b: 17–19). The applicants suer rom the lack o advice, public inormation and proessional help.76 Article 246 of the same Law.

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At the moment o writing this report, the Ministry o Transport and Communications and the InternationalFinance Corporation were considering a programme or simpliying the procedures or issuing construction

permits in the country. The construction permit approval process and the underlying legislation were analysedin September 2010. The review suggested ways to streamline the construction permitting process in thecountry to make it more ecient, transparent and business-riendly. Priority recommendations includedimprovement o the procedures or the acquisition o land, revision o the categorization o constructionstructures towards a balanced risk-based system, introduction o a modern building, reorm o the communaltax (see section C.8.4), and a review o the involvement o authorities in the procedure or constructionpermits. The Government expects a major improvement o the construction permitting system orm theadoption o these measures.

84 Land-related ees

Communal ees (and construction ees) are high while property taxes are low. These communal ees are

charged by municipalities and in principle should cover the costs o road, water, sewage and other connections.The ees are paid by investors prior to the issuance o construction permits. In this way, the costs or theseconnections are borne by the new investors only, rather than being spread across the entire population, whichmakes them very expensive to the investors. Furthermore, in a number o cases, especially in areas whichare not ully urban, investors complain about a lack o connections or too long a waiting period beore beingconnected.77 Finally, once the area is ully constructed, the unds received rom property tax are not enoughto properly maintain and upgrade the existing inrastructure (World Bank, 2006).

By keeping property tax rates low a lot o land remains idle. Also, variations in the land tax cause additionalproblems. Its rate can be between 2 and 4 per cent; the actual rate is determined by municipalities within thisrange. The variation o the rate is too high and should be reduced; the same goes or the discretionary right

o municipalities to dene the rate. In the neighbourhood o the ormer Yugoslav Republic o Macedonia, allcountries but Bulgaria apply x rates,78 which are more transparent and easier to calculate.

9 Environment

Environmental regulation ollows largely the EU acquis. Relevant environment-related legislation includesthe Law on Environment,79 Law on Nature Protection,80 Law on Waste Management81 and Law on AmbientAir Quality.82 The Law on Environment has introduced three principles: the polluter pays (Art. 9), the user (o natural resources) pays (Art. 10) and cleaner production (Art. 15). The goal o the law is the prevention andremediation o the entire damage caused to environment, its restoration, and the introduction o measuresand practices or the minimization o risks. The polluter must cover all the expenses related to prevention and

remediation. Article 27 o the law also requests labelling o products and packaging or their possible negativeenvironmental impact. According to the Law, charges paid by legal entities and natural persons that havecaused environmental pollution, damaged the environment through the use o products and substances, usenatural resources, load the environment with wastes, import used products in the ormer Yugoslav Republic o Macedonia, and produce or import products and goods that are harmul (Art. 162), have to contribute undsor the implementation o measures aimed at environmental protection and saeguarding o nature.

77 According to UNCTAD’s interviews.78

Albania: 2 per cent, Bosnia and Herzegovina: 5 per cent (with the exception of Zenica), Croatia: 5 per cent, Montenegro: 3 per cent, Serbia: 2.5 per cent, Slovenia: 2 percent. In Bulgaria, the rate varies between 0.1 and 3 per cent.

79 OGRM53/2005,81/2005,24/2007,159/2008.80 OGRM67/2004,84/2007.81 OGRM68/2004,107/2007,102/2008,143/2009.82 OGRM67/2004.

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In compliance with the Law on Environment, operations can be restricted by the authorities in theollowing cases:

● construction without licence and determined standards or protection o the environment; ● production and import o machinery and equipment that do not comply with the conditions

stipulated or the emission o the mobile sources o pollution and noise; and

● release o polluting materials and substances in the environment.

In line with the EU Directives 96/61/EC and 2008/1/EC on Integrated Pollution Prevention and Control(IPPC), the Chapter XII o the Law on Environment introduces integrated environmental permits or industrialacilities considered to be signicant polluters. The Chapter XIII on General Environmental Audit setsobligations or operators to carry out a general environmental audit in case o termination o activities at aninstallation and in case o transer o the integrated environmental permit. The control o the installation’soperations and emissions must be ollowed by sel-monitoring and yearly inspections o State environmentalinspectors.

In the eld o the environment, in particular or horizontal legislation and waste management, theGovernment o the ormer Yugoslav Republic o Macedonia progressed on adjustment to the acquis. However,some areas, like water quality or IPPC, are still lagging behind (EC, 2009: 69–71). Implementation o thelegislation also remains a considerable challenge. Administrative capacity is weak at both national and locallevels. This is particularly true o the inspectorates. Environmental protection requirements are still not wellintegrated into policymaking and implementation in other areas. The precautionary principle, the principle o preventive action and the polluter-pays principle are only partially applied.

10 Competition policy

The ormer Yugoslav Republic o Macedonia has a relatively well developed competition law but anunderstaed competition authority to implement it. Overall, the Law or Protection o Competition83 providesa good basis or implementing measures to protect competition. It is aligned with the EU regulatory ramework,and oers a ramework or eective unctioning o the Commission or Protection o Competition as themain regulatory and implementation body (USAID, 2009a). Compared with its predecessor, drated on thebasis o the German Act on Unair Competition, the current law is better adapted to both the needs o thecountry and the requirements o the acquis. However, its by-laws need to be amended in order to ollow newdevelopments in EU competition law, or example, in the area o block exemptions.

The Commission or Protection o Competition is responsible or enorcing the Law on Protection o

Competition. Despite its resource constraints, the Commission unctions reasonably well in carrying out itsprescribed duties in compliance with the law.84 A credible enorcement record has been built up, in particularin the eld o concentrations. However, the ght against cartels should be strengthened. It also needs to dealwith an increasing number o ex ante State aid decisions (EC, 2009: 39).

The human and nancial resources o the competition authority remain inadequate to tackle all relevantcases in an ecient manner (EC, 2009: 39). Although the Commission or the Protection o Competition hasbeen ully established, it still has only a limited power to implement and enorce the law. The Commissionshould be given the power to directly enorce the law, having ull political85 and nancial independence(currently being nanced through the State budget), higher budget (at present only approximately €350,000)and more sta (currently only 16) (World Bank, 2008: 73). The capacity o sta should be urther strengthened,particularly in their knowledge o inspection and enorcement procedures (USAID, 2009a). A capacity-building

83 OGRM4/2005,70/2006,22/2007.84 In2007,theCommissionreviewed16casesofmergers;in2008,29;andin2009,17.Thenumberofcasesrelatedtocartelsandabuseuctuatedbetween2to3peryear.85 The freshly appointed Commissioners often have limited experience in competition issues. One report claims that appointments are made on political considerations

and therefore the Commission is highly politicized (USAID, 2009a).

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provision should be established in the budget o the Commission – according to our interviews, right now alltraining o sta is carried out rom external (donor) resources.

11 Governance and institutional capacities

In the ormer Yugoslav Republic o Macedonia, as in many other countries, the quality o governanceo public institutions in terms o delivering justice and enorcing contracts, ensuring proper unctioning andeciency o the public administration (e.g. through transparent processes), and the eective participationto decision making through democratic means have a major impact on investors’ decisions. At the sametime, investors also need to manage their business in accordance with international standards (throughcorporate governance, including corporate social responsibility). This section analyses these selected aspectso governance.

111 Commercial justiceIn recent years, the ormer Yugoslav Republic o Macedonia has made signicant progress in the area o

commercial justice (EC, 2009: 58; and USAID, 2009a: 10). However, despite these improvements, commercial justice remains weak aspects o the country’s governance. In 2011, enorcing contracts was one o the rareaspects where the ormer Yugoslav Republic o Macedonia ranked lower (65th) than its general ranking (38th)and also lost two ranks vis-à-vis 2010 in the World Bank’s Doing Business reports (World Bank, 2009 and 2010).This relative weakness is shared with other countries in the region, with the exception o the cost o justicewhere the other countries are better. The average number o procedures required in the ormer YugoslavRepublic o Macedonia was 37, more or less the same as in other South-East European countries.86 It, however,takes about 370 days to enorce contracts, a period shorter than in other countries o the subregion.87 In turn,the cost o justice amounts to 33.1 per cent o the claim, which compares unavourably with other countries

o the subregion, except Albania and Bosnia and Herzegovina.

The judiciary still suers rom a perceived lack o independence (political pressures) and low eciency(International Council o Investors, 2007, and the 2011 Index o Economic Freedom o the Heritage Foundation).The limited eciency o courts refects long delays, slow and long procedures, insucient impartiality o the judiciary, and poor perorming courts within Skopje compared with those outside its jurisdiction. They are themost requently mentioned problems by investors and experts (USAID, 2009a; EC, 2009). This is so despiterecent improvements, especially related to new cases led with courts. According to the data o the Ministryo Justice, 24,577 cases were led in 2010 in the 12 courts with extended jurisdiction, o which 9,678 (31per cent) remained pending at the end o the year. This was an improvement rom 2009, when 42 per centremained pending at the end o the year, which was also an improvement rom 46 per cent in 2008.

The Pre-Accession Economic Programme 2009–2011 (Government o the ormer Yugoslav Republic o Macedonia, 2009: 99–100, 108) presented a number o initiatives aiming at strengthening the independenceand the capacity o the judicial system. These include: improving the court inrastructure, establishing ITsystems in the judicial institutions, improving the enorcement o court cases, and establishing an ecientsystem to deliver court summons. These initiatives need to be implemented as soon as possible. In addition,to improve the eciency o commercial justice, it is recommended that specialized commercial judges betrained in the country.88

86 In Albania 39, 38 in Bosnia and Herzegovina, 39 in Bulgaria, 38 in Croatia, 36 in Serbia. Montenegro is an outlier with 49 procedures.87 In other South-East European countries, it is over 500 days, with the exception of Albania, where it is 390.88 They can work either in specialized commercial departments of basic courts with extended jurisdiction, or at commercial courts, depending on the decision of the

Government.

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112 Transparency

Corruption is still a signicant problem in the ormer Yugoslav Republic o Macedonia, despite progressin the institutional setting and adoption o most o the necessary laws or combating it. In 2010, TransparencyInternational ranked the ormer Yugoslav Republic o Macedonia 62nd among 180 countries compared to103rd among 159 countries in 2005. UNCTAD’s interviews with the business community also conrmed thatcorruption is a major problem and that the ght against it needs to be reinorced.

The ormer Yugoslav Republic o Macedonia has signed the OECD Convention on Combating Bribery,ratied the United Nations Convention against Corruption in early 2007, and the United Nations Conventionagainst Transnational Organized Crime. The OECD Convention on Combating Bribery o Foreign Ocials(entered into orce on 15 February 1999) remains to be signed. A series o laws has also been adopted oramended to control crimes. In addition to the criminal code, other major anti-corruption legislation includesthe Law on Money Laundering Prevention and the Law on Corruption Prevention. In 2002, an independent State

Commission or Prevention o Corruption was established, which adopts and monitors the implementation o the State Programme or Prevention and Repression o Corruption and the State Programme or Preventionand Reduction o Confict o Interests. This commission is accountable to the Parliament.

In practice, progress has been made in the ght against corruption through prosecution o high-levelcases, strengthening o the legal ramework, notably through the adoption o the amended Law on FinancingPolitical Parties, and enhancing the capacity o anti-corruption institutions. Although most o the necessarylaws are in place, enorcement is to be strengthened, and the Government needs to show more orceully itscommitment to prosecute corrupt ocials. In general, the number o cases brought to prosecution remainslow and the process is slow. A very important step undertaken was the establishment o a specialized anti-corruption unit operating within the main oce o the Public Prosecutor (Basic Prosecutor’s oce or

organized crime and corruption). However, the unit needs to be strengthened and the Public Prosecutor’soces need more sta (EC, 2009).

A more transparent unctioning o public administration in areas where it interacts with the privatesector is also desirable. In this regard, the Government has amended the Law on Public Procurement andestablished new institutions to deal with these issues, including the Public Procurement Bureau and the StateAppeals Commission. While the general principles o public procurement are well regulated, problems remain.For example, the Law on Public Procurement could make better use o the fexibility permitted under theacquis or the arrangements on utilities. Also, there are no statistics on corruption cases related to publicprocurement handled by the courts, and the general level o awareness as regards conficts o interest remainstoo low. The act that several major tenders have been cancelled or ailed is a refection o these problems.

113 Government policies conducive to corporate social responsibility

In recent years, the Government has taken some steps to improve the level o corporate socialresponsibility (CSR). However, investors still lack inormation and relevant practical tools to implement CSRin business strategy and day-to-day operations. To remedy this situation and to ensure the approximation o practices o the ormer Yugoslav Republic o Macedonia with the EU, the Ministry o Economy establishedin 2007 a National Coordinating Body on CSR that became operational soon aterwards. By adopting theNational CSR policy document or the period 2008–2012, the ormer Yugoslav Republic o Macedonia is thethird country in Europe, ater Denmark and Lithuania, that has adopted such a document.

The CSR policy document builds on the principles o the United Nations Global Compact, the UnitedNations Principles or Responsible Investment and the OECD Guidelines or Multinational Enterprises. It hasthree main aims: raising awareness, developing capacities and competences to mainstream CSR in business,and creating an enabling environment or CSR. The implementation o the national agenda in this eld is very

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challenging. While oreign investors may have more international experience with CSR and thus or them theimplementation o its principles may be less dicult, many other businesses, especially SMEs, need signicant

training in this area. The Government has an ambitious action plan in this eld, including the introduction andpromotion o environmental and social labelling, and the creation o the obligation o CSR reporting or allState-owned entities, including State-owned rms.

114 Public-private partnerships

Public-private partnerships (PPPs) are at a nascent stage in the country as is the case or several countriesin the region. International experience has shown that PPPs can become an eective tool or governmentsto nance and manage inrastructure and to deliver public services when limited budgetary resources areavailable (ECE, 2008). In the ormer Yugoslav Republic o Macedonia, a Law on Concessions and Public-PrivatePartnerships89 was adopted in 2007, leading to the creation o a Public-Private Partnership Unit withinthe Ministry o Economy. The Law mostly ollows the procedures suggested by the EC and the Directive2004/18/EC o the European Parliament and the Council to award public contracts, including work, supplyand services. However, it is not yet ully aligned to the acquis, as it does not make a clear distinction betweenthe dierent orms o PPP (Georgievski, 2009: 162),90 and the country’s sector-specic legislation largely takesprecedence over it. This poses a problem because in some cases the Law on PPP and the sector-specic onesare inconsistent which lead to ambiguities (Georgievski, 2009: 172). Moreover, there is insucient progresswith the adoption o secondary legislation or guidance on how to prepare and deliver a PPP due to a lack o expertise in the country (Sigma, 2009). A new drat version o the PPP Law, which aims at aligning it tothe acquis by making the distinction between dierent orms o PPP and eliminating the inconsistencies withsector-specic laws, is under parliamentary procedure.

To enhance the delivery o public services through an eective unctioning o public procurement and

the use o public-private partnerships will thereore require to urther improve the regulatory ramework andthe process to award contracts, and to strengthen the administrative capacities through increased human andnancial resources as well as training.

12 Protection o intellectual property

The protection o intellectual property (IP) rights has a developed legal ramework. These include theLaw on Industrial Property,91 and the Law on Copyright and Related Rights92. These two laws are mostly inaccordance with relevant EU directives and relevant international conventions.93The ormer Yugoslav Republico Macedonia is a member o World Intellectual Property Organization (WIPO) and o all the relevant WIPOagreements. It is also signatory to the WTO TRIPS agreement, and in 2009 became a member o the European

Patent Organization and ratied the European Patent Convention.

The institutional responsibility or IP rights related issues is divided between the Ministry o Cultureand the State Oce o Industrial Property (SOIP). The Sector or Copyright and Related Rights within theMinistry o Culture is responsible or the implementation o copyrights and other related rights, including thesupervision over the work o the agencies dealing with the management o rights, while the SOIP deals withindustrial property rights. IP enorcement institutions include the Customs Administration, the Ministry o Interior and the State Market Inspectorate. In 2007, the Government established the Coordinative Body orIntellectual Property Rights (CBIP) to reduce IP rights inringements, especially countereiting and piracy. TheCBIP ensures co-ordinated approaches to IP policy development and enorcement.89 OGRM19/2004,OGRM136/2007.90

Concessions where authorities grant the concessionaire the right to use par ticular public goods only (e .g. mineral resources, water, a highway); public works concessions;and public service concessions.

91 OGRM21/2009.92 OGRM115/2010.93 Paris Convention, Berne Convention, Madrid Agreement, Hague Agreement, Nice Agreement, Lisbon Agreement, Rome Convention, Locarno Agreement, PCT, Vienna

Agreement,BudapestTreaty,BrusselsConvention,SingaporeTreaty,PatentLawTreaty,WIPOCopyrightTreaty,WIPOPerformancesandPhonogramsTreaty.

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In spite o a sound regulatory ramework, various investors – particularly those rom the IT industry,broadcasters, TV and movie producers and publishers – complain that their products marketed in the country

are oten subject to IP rights inringements. Estimated sotware piracy decreased marginally rom 70 in 2005to 68 per cent in 2008 (OECD, 2010a: 302). To address these issues eectively, there is need to improve theimplementation and enorcement o IP laws. In this regard, the Government has taken actions to combatpiracy o items such as compact discs, DVDs, and sotware, with partial results. Between 2005 and 2008, theMinistry o Interior and the Public Prosecutor’s Oce, as enorcement bodies, initiated criminal cases beorecourts. Possible measures as pointed out during the interviews include strengthening o implementationinstitutions, training o inspectors and judges and awareness raising campaigns about IP rights issues.

Furthermore, the need or relevant and consistent data on court proceedings against IP right inringementshas led to the adoption o a methodology on collecting and processing statistical data, whose preparationis in progress in 2011. In some cases o inringement o IP rights, no action has been taken. Oten this is dueto insucient personnel capacities and/or lack o knowledge on the part o the implementing and enorcinginstitutions involved. On the other hand, the Customs Administration, and to some extent the CoordinativeBody or Protection or Intellectual Property, have struggled – in most cases successully – to ght against IPrights inringements.

Addressing those issues will be critical to achieving the Government’s investment attraction objectives,particularly as regards innovation-oriented investors.

D Assessment

The business environment o the ormer Yugoslav Republic o Macedonia has improved signicantly since2007. The country has been seen as one o the ast–reorming countries o the world, quickly approaching the

criteria or membership in key organizations it would like to join (EU, NATO). The ormer Yugoslav Republico Macedonia has also made progress with adopting the acquis, in line with its status o candidate or EUaccession and in recent years, modern legislation has been adopted in several domains, including companyregistration, labour, environment, customs, intellectual property and competition. At this stage, the main aim o the Government should be the consolidation and eective implementation o the recently adopted laws atera long period o ast reorms, and limit in as much as possible the multiplication o new laws.

The specic FDI regulatory ramework is in general well advanced and up to the expectations o investors.Nevertheless, this report encourages the country to move to Phase II o the SAA process, and to enlarge itsBIT network.

The general regulatory ramework o the country has improved signicantly in recent times. Only a ewregulatory constraints persist, or example in the areas o construction permitting or employment o oreignworkers. The key bottlenecks to business development are seldom o regulatory nature but to deciencies inthe implementation o the existing regulations and to the institutional weakness o the responsible governmentagencies. This situation is detrimental not only in terms o investment attraction but also with respect to theadequate protection o public interest in important areas such as environmental protection, competition orlabour rights.

This report argues that, with a well-targeted eort, the country can achieve regulatory excellence andthereore urther improve its business ramework. To this end, it calls or a strengthening o the institutionalcapacity o several government agencies. In this respect, while it is recognized that the current tax system is

attractive to oreign investors, a refection is necessary regarding its capacity to generate sucient revenues tothe Government to ensure that the public institutions have the necessary means to carry out their mandateand implement the existing legislation. Worldwide experience has shown that a good overall investmentclimate is a ar better long-term determinant o investment attraction and private sector development than

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heavily competitive scal policies which make up or the inadequacies o the investment climate and risk leading to a “race to the bottom” approach.

The ormer Yugoslav Republic o Macedonia has also made good progress with the adoption o the acquis.This is very important or a small landlocked country in the Balkans whose attraction or potential investorsmay lie in its access to the large EU market. It is recommended that the ormer Yugoslav Republic o Macedoniaadopt a more strategic approach to the regulatory and institutional reorms called or by its accession processto the EU. The key is to nd the right balance in reorming the current environment, adopting a simpliedregulatory approach and conorming with EU norms, at a pace and in a manner which are compatible withthe country’s overall development objectives. In this respect, the process o accession should be considereda strategic opportunity to strengthen institutional capacity with the assistance o the EU partners. This ispossible as the success o EU countries with lighter regulations such as the Baltic States proves.

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III. DESIGNING A NEW PROGRAMME FOR STIMULATINGINVESTMENT

A Introduction

At the specic request o the Government, this chapter presents strategic inputs or a programme tostimulate investment that the Government o the ormer Yugoslav Republic o Macedonia will implementduring the period 2011–2014. Based on the ndings o chapter II on the business climate, combined with adetailed process o consultations with relevant stakeholders, and building on the priorities o the Government,the programme proposes an overall strategic approach to stimulate investment, accompanied by a numbero specic actions to be implemented either within the period 2011–2014 or beyond, depending on thepriorities o the Government.

The general vision o the Government is to create an environment conducive to sustainable economicgrowth and development leading to the modernization o the economy. The improvement o the businessenvironment with the aim o promoting investment, both domestic and oreign, is particularly important in thatcontext. Prosperous business is central to creating jobs, developing technology, enhancing skills and reducingpoverty. Furthermore, in this modernization process, all actors are important and have a complementary roleto play. For example, while SMEs are key to job creation, they oten lack technology and skills. In this regard,oreign investors can have signicant impact in terms o technology and skills transer, which may lead, i accompanied by eective linkages to the local economy, to a more dynamic SME sector. The recommendationspresented in this chapter or a new programme leverages this complementarity and osters synergies withother government programmes, including on issues related to industrial policy, competitiveness, trade,transportation and environmental protection, to mention a ew.

The proposed inputs to the “Programme or Stimulating Investment in the Republic o Macedonia 2011– 2014” take into account the act that the country has, over the past decade and especially during 2007–2010,achieved commendable results in improving the business environment through regulatory reorms and newlegislation. Consequently, the Government should seize the opportunity, through the new programme, toconsolidate the reorms undertaken in previous periods and strengthen its capacity to eectively implementthe newly adopted or modernized laws. Furthermore, the programme should ully take into account the actthat the ormer Yugoslav Republic o Macedonia is a candidate country to the EU, and also needs to urtherharmonize its legal ramework with that o the EU. Finally, the successul implementation o the programmewill require the continued commitment and support o the Government, including the provision o sucienthuman and nancial resources.

The ollowing sections present a brie overview o the results achieved through the past programmes(Section B) and then elaborate on the possible structure o the new programme or 2011–2014 (Section C).The inputs to the programme proposed by this report highlight the need or an integrated policy approach tocompetitiveness, investment and industrial development, and identiy a number o areas where policy actionis required to oster greater impact or FDI, such as linkages, SME development, clusters and institutionalramework responsible or investment promotion. Recommendations to guide policy action in these areasis summarized in annex 4, which presents the UNCTAD input to the new programme or stimulatinginvestment, in the orm o a detailed matrix comprising the specic short-, medium- and long-term actions tobe implemented either during the next programming period (2011–2014) or subsequently, as required.

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B Assessing the implementation o past programmes

The “Programme or Stimulating Investment in the Republic o Macedonia 2011–2014” is the ourth in aseries o programmes started in 1999. They all aimed at increasing the country’s attractiveness or domesticand oreign investments by improving the general business and investment climate.94

The preparation o the past programmes was based on widespread consultations. The 2007–2010programme, or instance, was developed with inputs rom over 50 State agencies, international organizationsand representatives o the business community. The common objective o all programmes or stimulatinginvestment was the simplication o the investment and business environments. Within that context, the 2007– 2010 programme ocused in particular on the advancement o the ormer Yugoslav Republic o Macedonia ininternational rankings, such as the World Bank’s “Doing Business Index”, the “Economic Freedom Index” o the Heritage Foundation and the “Competitiveness Index” o the World Economic Forum.

In order to achieve their objectives, each programme identied a matrix o reorms and initiatives, groupedaround priority areas. The 2007–2010 programme covered policy areas such as investment, competition,tax, trade as well as anti-corruption and business integrity, among others. I and when another connectedgovernment programme existed, such as SME-specic development strategies, these were let outside theprogramme or stimulating investment in order to avoid duplication. In this regard, investment issues weretreated in part separately rom broader competitiveness considerations or industrial policymaking.

The programmes have been very successul in introducing a number o signicant regulatory andinstitutional reorms, which have led to an improvement in the country’s international rankings, thus achievingthis particular objective. The recent reorm o the tax regime, the streamlining o business registration and theintroduction o the new legislation in the areas o labour, environment and competition are all examples o

key achievements o the past programmes, as discussed in chapter II o this report.

However, monitoring and assessing the progress made through the past programmes has provedchallenging. The Government has usually reported a good implementation rate. For instance, according tothe 2010 Annual Report, the Government estimated that 96 per cent o the measures (159) contained in the2007–2010 programme have been ully (137) or partially (22) implemented. Nonetheless, progress reportsare not always straightorward and implementation statistics are dicult to nd or veriy. The monitoringrole is assigned to the Ministry o Economy, in collaboration with other relevant ministries and State bodies.The Ministry, however, has had limited leverage over other government agencies in convincing them to carryout all recommendations and to provide the inormation necessary or the monitoring and ollow-up o theprogrammes. As a result, while ocial reporting is not limited to the actions implemented directly by the

Ministry o Economy, it can be dicult to obtain inormation rom some public institutions.Another diculty in assessing the past programmes or stimulating investment is related to the act that

the programmes’ objectives are not static. They can be reviewed and updated annually, to include or removemeasures based on the evolving policy experience, such as to refect a changing economic environment or thelessons learned through the implementation o other measures. A case in point is the 2007–2010 programmethat called or a review o the loss carry orward provision with a view to extending it beyond three years.In 2009, however, this provision was eliminated to compensate or the introduction o a lower corporate taxrate.

Finally, the Government recognizes that the implementation o a large number o the intended measuresis only part o the picture. Experience suggests that it takes time or some o the implemented measuresto achieve the desired eect. Furthermore, while many new laws and regulations have been adopted, their94 .Therst“ProgrammeoftheRepublicofMacedoniaforStimulatingInvestmentswithaSpecialEmphasisonAttractingFDI”coveredtheperiod1999–2002;thesecond

“Programme for Stimulating Investment in the Republic of Macedonia” was adopted for the period 2003–2006, and the third programme, under the same name, for

2007–2010.

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ull impact will be elt only i and when they are eectively implemented. Many regulatory changes are notcomplete unless they are accompanied by the by-laws needed or their implementation or by the creation o

the relevant institutional setting. In this regard, a number o issues have been raised, notably in chapter II, onthe need to urther strengthen the capacity o many public institutions, both in terms o nancial and humanresources.

The need to consolidate the reorms introduced so ar can be an opportunity to strengthen and systematizethe overall strategy to stimulate investment. Attracting FDI is not a goal per se and broader developmentgains should be taken into account when designing a strategy to stimulate investment. In this regard, theGovernment should examine careully the degree to which past reorms have successully contributed toattracting FDI and beneting rom it or the development o the country. Such an approach should orm thebasis to assess how areas o slow progress can be improved through a strategic approach which ocuses moreon the internal development needs o the country than on issues such as international rankings. The exerciseinvolves addressing issues such as determining what types o investors the country would like to attract andin which sectors, and what kind o benets it would like to extract or the local economy. All these elementsorm the basis o the proposed new programme or stimulating investment.

C Developing a new programme or stimulating investment

The “Programme or Stimulating Investment in the Republic o Macedonia 2011–2014” starts at a major juncture o the economic development o the ormer Yugoslav Republic o Macedonia. The country has madesignicant progress in improving its business environment and in adjusting national regulations to the acqui scommunautaire. As mentioned in the previous section, the time is ripe to strengthen and consolidate thoseresults by ensuring that recent reorms are eectively implemented. This IPR also recommends that, as parto a strategic approach to policymaking in the area o investment, the 2011–2014 Programme presents anintegrated approach to the issues related to investment, competitiveness and industrial policy.

It is particularly important that the “Programme or Stimulating Investment in the Republic o Macedonia 2011–

2014” be well integrated with the other eorts towards improving competitiveness, including the action plansprepared in this area. The Competitiveness Action Plan or 2010 was prepared by the Government, includingall relevant ministries, and contained about 330 measures. These measures are currently being implementedby the Government and the chambers o commerce (activities related to the Global Competitiveness Index).The assessment o the implementation o this plan will be done by the Government in cooperation with theNational Entrepreneurship and Competitiveness Council (NECC; see also section C.3.1).95 In addition, theCentre or Economic Analyses (CEA), in collaboration with USAID, is preparing a National CompetitivenessReport 2010, which should indicate weaknesses and make recommendations to improve the competitive

position o the country. Based on this report and inormation on progress with the Action Plan or 2010,specic recommendations will be prepared or the ve-year period 2011–2015.96

Improved overall competitiveness o the national economy leads to increased attractiveness or FDI andthe benets derived rom it. Competitiveness also directly impacts on the type o investment that a countrycan attract (box III.1). In the past 20 years, the nature o cross-border business has changed undamentally.TNCs in many industries seek competitive advantages by dispersing activities in the supply chains o theirproducts and services around the globe where each activity can be perormed cost eectively, and whereproduct quality can be increased. Consequently, successul countries are those that can host ecient segmentso global supply chains (UNCTAD, 2009a). Against this background, an eective FDI strategy should have thelong-term goal o helping to position the country to participate successully in the opportunities that this95 Established in 2004, the NECC aims at a dialogue between the private, civil and public sectors in various areas to improve economic prosperity in the country, including

identifying and eliminating obstacles to the development of the private sector, advocating policy changes crucial to economic growth, raising awareness about the

importance of entrepreneurship and competitiveness, developing strategies for the promotion of competitiveness, productivity and entrepreneurship, analysing the

country’s economic policy against international benchmarks, and helping to build a “culture of competitiveness” in the private and public sectors.96 The reactivation of the NECC, and capacity building for its sustainability, will cost denar 6 million ($135 thousand) in 2011.

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international landscape presents (especially with its main trading and investment partners rom the EU). FDIattraction activities carried out by the Minister without Portolio and the Agency or Foreign Investmentsand Export Promotion (commonly called Invest Macedonia) to a large extent take into consideration theseopportunities. However, industrial policy should be strengthened in order to maximize the positive impact

o FDI on the local economy. A well-structured industrial policy can strengthen local absorptive capacityand enable local economic actors, SMEs in particular, to maximize the benets derived rom the presence o TNCs. For instance, TNCs have an interest in assisting potential and existing local suppliers in enhancing theirproduction processes to benet rom cost eciency along the supply chains (UNCTAD, 2001; UNCTAD,

Bo III1 Policy lessons rom Estonia’s FDI attractiveness

The ormer Yugoslav Republic o Macedonia is one o the 67 small developing and transitioneconomies o the world (deined as countries with a population o less than 3 million) which can beneitrom the lessons in small developed countries such as Estonia. This case is particularly interesting becauseEstonia was a country in transition, which became a high-income economy only in the 2000s. Moreover,it joined the EU in 2004, a path the ormer Yugoslav Republic o Macedonia wishes to ollow in the uture.

Although Estonia’s population (1.3 million) is smaller than that o the ormer Yugoslav Republic o Macedonia (2 million), its average FDI inlows over the period 2001–2009 were more than our timeslarger ($1.5 billion, as compared with $339 million in the ormer Yugoslav Republic o Macedonia). Estoniahas been a magnet or FDI, thanks to its EU membership, and also to its open FDI policy and avourable

business climate. Nevertheless, and as a majority o countries in the world, its FDI inlows were aected bythe 2008–2009 crisis.

Ater Estonia’s separation rom the Soviet Union in 1991, FDI attraction became an integral componento a liberal ree market approach implemented over a very short period o time. Equal treatment o oreignand domestic investors and unrestricted repatriation o proits have been overarching principles in theEstonian policy since independence. Foreign investors are ree to invest in any area o business open to theprivate sector and take up to 100 per cent ownership. Since 2001, this and other business establishmentmeasures have been dealt with through the Commercial Code (adopted in 1995). Current exceptions tonational treatment relate only to real estate.

Estonia’s policy eorts are characterized by maintaining a regulatory environment to protect thepublic interest, while remaining conducive to business. Its key eatures include (a) observance o privateproperty rights and intellectual property rights; (b) independent judiciary; (c) regulations and penalties tocombat corruption; and (d) transparent policies to oster competition. Since 2001, Estonia’s competition lawhas been harmonized with the EU legislation, and a well-staed Competition Authority oversees regulatedindustries. A Financial Services Authority was also established under the auspices o the Central Bank toundertake inancial supervision on behal o, but independent o, the Government.

Unlike most other Central and East European countries, Estonia has not oered any incentives speciicto oreign investors. In 2000, however, a new tax regime was introduced which applies zero corporatetaxation until proits are distributed (either in the orm o dividends or as an addition to reserves). Upondistribution, the underlying proits are taxed at 21 per cent. This provision oers a stimulus to investment

and capital accumulation, and accounts or the large share o retained earnings in total FDI inlows. Thereare also our customs-ree zones near Estonian ports and inland, with duty-ree status or imports andre-exports. Most o these zones will lose their duty-ree status beyond March 2011 as a result o EUmembership.

Source: UNCTAD (2011).

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2009b). In this respect, a well-designed supplier linkages programme can help SMEs reach the needed level o absorptive capacity and encourage TNCs to source locally.

Given the country’s location and its ambition to leverage its opportunities through joining the EU,progress with such accession is key or the success o the “Programme or Stimulating Investment in the Republic

o Macedonia 2011–2014”. It would (a) anchor and operationalize economic reorms; (b) urther increasethe attractiveness o the country to the business community that, according to our interviews, unequivocallysupports EU accession; and (c) consolidate its integration into one o the largest and richest markets o theworld. As discussed in other sections o this report, the key issue or the Government, in respect to the EUaccession process, is to apply the acquis without overstretching its institutional and nancial capabilities, and toensure that the adoption o new laws and regulations does not generate duplication and overlaps with existinglaws, at the expenses o legal stability.

Based on the above considerations and in response to a request by the Government, this report proposesa number o strategic inputs to the programme or stimulating investment 2011–2014, structured around vemain axes, which are discussed in the ollowing sections:

1. Achieving global excellence in the investment ramework;

2. Creating synergies between FDI and industrial policy;

3. Strengthening policymaking in the area o investment and competitiveness;

4. Rationalizing the investment promotion eort;

5. Ensuring eective policy implementation.

1 Achieving global ecellence in the investment ramework

Chapter II o this report has illustrated that in recent years, modern legislation has been adopted inseveral domains o the regulatory ramework o the ormer Yugoslav Republic o Macedonia, including companyregistration, labour, environment, customs, intellectual property and competition. These reorms have a directbearing on the ease and cost o doing business in the country and its levels o competitiveness. Chapter II,however, also provided various recommendations to address remaining regulatory constraints (such as in thearea o construction permitting and entry o oreign labour and urther improve the business environmentand the competitiveness o the productive sectors o the ormer Yugoslav Republic o Macedonia). It alsostressed the need to consolidate and implement recent reorms by adopting the necessary by-laws andregulations and strengthening the institutions in charge o their implementation in important areas such as

environmental protection, competition and labour rights. Chapter II has also stressed the need to continuethe task o eliminating the unnecessary duplication o laws, especially through the mechanisms o regulatoryguillotine. These and other relevant recommendations are not repeated here, but will be summarized in thematrix at the end o this chapter.

2 Creating synergies between FDI and industrial policy

Aside rom measures that enhance the overall investment climate, the Government should alsoconsider, within the programme or stimulating investment, those elements o FDI policy that are in line withindustrial policy, whose implementation can create synergies between the two policy areas and help reap thebenets rom FDI in terms o employment, innovation and integration o the local productive sector in the

international value chains o oreign investors. In this respect, it should consider initiatives aimed at upgradingSMEs, developing clusters and transorming the TIDZ. The success o these initiatives should be measured interms o increased innovation and export activity by the local SMEs and the successul creation o businesslinkages with TNCs.

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When devising industrial policy, it is important to take into account the lessons learned in both developedand developing countries over the past century. Industrial policy can be a powerul development tool, but it

can also have detrimental eects on long-term competitiveness. This is the case, or instance, when the supportgranted to certain sectors o the economy by the State is not based on their potential to produce competitivemarket players, but rather on short-sighted political gains or naïve development objectives disconnected romsound economic analysis.

Although there is no one-size-ts-all recipe to ensure the success o industrial policy, a number o actorscan help make it eective. In particular, (a) industrial policy should be anchored on a long-term developmentvision o the country, based on well-researched and achievable targets and eective public-private dialogue, sothat the Government ully understands the challenges aced by the private sector and how to address them;(b) it should balance the support provided to certain sectors and economic agents with the need to exposethem to competitive pressure, allowing them to ail i they do not perorm and providing support i they doperorm; and nally (c) it should careully gauge the need or scal and nancial incentives against other typeso non-monetary support. When resorting to incentives, it is essential to ensure that sound mechanisms arein place to assess and monitor their eectiveness or a transparent and accountable use o public resources.

Judged against the criteria discussed above, the “Industrial Policy o the Republic o Macedonia 2009–

2020” (Government o the ormer Yugoslav Republic o Macedonia, Ministry o Economy, 2009) is a balanceddocument which provides the basic guidelines or the long-term economic development o the country. Itwas prepared in a participatory process between the public and private sector, and it is based on a thoroughanalysis o the current competitiveness o the industry o the ormer Yugoslav Republic o Macedonia, aswell as its uture challenges. The long-term vision o the industrial policy is the orientation o the industryo the ormer Yugoslav Republic o Macedonia towards higher value added products and services, based onknowledge, innovation and collaboration. FDI attraction is recognized as one o the ve strategic objectives

that will contribute to achieving this vision.97 In particular, the need to stimulate the internationalization o local SMEs through their interaction and supply chain partnership with TNCs is highlighted. The ollowingsections provide a number o recommendations to translate these objectives into concrete policy measures.

Empowering SMEs

SMEs play a undamental role in economic development. In most developed countries, they accountor more than 50 per cent o both GDP and employment. The ormer Yugoslav Republic o Macedonia isno exception, and although unemployment and poverty levels are high, SMEs make up the vast majority o enterprises and are an important source o employment and output. SMEs are also one o the key channelsor extracting development benets rom FDI. A vibrant local SME sector is generally an asset or investors

looking to outsource part o their production process. At the same time, the level o competitiveness andsophistication o the local SME sector is one o the key actors that determine the type o supplier linkagesthat emerge between SMEs and TNCs. When the SME sector is weak, supplier linkages are typically limitedto the provision o packaging and other basic inputs. In the presence o a dynamic SME sector, however, FDIcan be a critical channel to promote the insertion o local companies in international production networks.

In the ormer Yugoslav Republic o Macedonia, national policy guiding their development has haddisappointing results thus ar. While the country has good strategic plans, such as the “ Strategy or SMEs

Development 2002–2013”, the “Programme or Development o Entrepreneurship, Competitiveness and Innovation

o SMEs 2007–2010” and the “Industrial Policy o the Republic o Macedonia 2009–2020” (Government o the ormer Yugoslav Republic o Macedonia, Ministry o Economy, 2009), it is clear that the public entities

responsible or the implementation o SME policy, not least the Agency or the Support o Entrepreneurship

97 The other four are “Applicable research, development and innovations”, “Eco-friendly products and ser vices for sustainable development”, “Development of SMEs and

entrepreneurship”, and “Cooperation in clusters and networks”.

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and the Regional Business Support Centres, do not have the resources to ully carry out their mandates interms o supporting nancially and through technical support.

Microenterprises and SMEs are running their business with high risks and are more susceptible torevenue volatility; they are also more likely to run into debt due to the lack o equity capital. Thereore, theGovernment should reinorce its eort to promote access to nance, such as micronance in the country,ollowing the measures set-out in the Industrial Policy and SME Programme. The introduction o new nancialinstruments designed or SMEs (e.g. start-up capital, guarantees etc.) and public partnership with nancialinstitutions to inject venture capital into enterprises should be considered, including the active involvement o the Macedonian Bank or Development Promotion.

Other important obstacles to SME development include the scarcity o skills, especially in entrepreneurshipeducation and the availability o ready-to-use industrial sites.98 In order to address the skills shortage, the

Government should do more to support vocational education and triangulate with the educational systemand the business sector to ensure that the ormer is aligned to the labour market needs. Furthermore, itshould consider supporting small business by providing training in entrepreneurial skills, basic accounting andmanaging so that they are able to start their own business. In this respect, the establishment o institutionssuch as UNCTAD’s Empretec programme (box III.2) – which supports the development o micro, small andmedium-sized enterprises through training and other business development services – should be explored.Finally, the lack o readily available industrial sites appears to be a problem that domestic SMEs encounter asmuch as oreign investors. The onerous process o leasing industrial and commercial land should be simplied(see chapter II).

Bo III2 UNCTAD’s Empretec programme

UNCTAD’s Empretec programme (the abbreviation stands or “emprendedores” (entrepreneurs)and “tecnología” (technology)) aims at inspiring entrepreneurs in developing and transition economiesto start, grow and develop their businesses. The main beneiciaries are aspiring entrepreneurs, womenentrepreneurs, small businesses, young people and employees o large public or private irms.

The Empretec programme is implemented through its national centres, which are currentlyoperational in 32 countries, mainly in Arica and Latin America, but also in Romania and Jordan. Since itscreation in 1988, Empretec has successully trained over 200,000 people – helping to ound or expandbusinesses, and creating thousands o jobs in the process.

The Empretec programme identiies and reinorces personal opportunities through a process o sel-assessment. Participants in the training workshops develop clear ideas about what they want to do withtheir businesses in the short and the long term. With these goals in ocus, Empretec helps entrepreneurs toimprove the results o their businesses.

In Romania, the irst transition economy to implement such a programme, the Government hasincorporated Empretec into its national strategy or the development o SMEs. There are 11 regionalcentres throughout the country. The number o entrepreneurship development workshops held reached48 by 2010, while the number o certiied participants reached almost 920. Twelve national trainees(assistant trainers) are being trained to become national Empretec trainers.

Source: UNCTAD.

98 AnUSAIDsurveyofcompaniesofthe formerYugoslavRepublicofMacedoniafoundthat,afternance,thetopobstaclesSMEsfacedwereavailabilityof industrial

locations and the availability of trained personnel (USAID, 2009a).

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Developing clusters and supplier linkages

The mixed record o results in clusters (chapter I, box I.4) suggests that, although the Government hasa role to play as a acilitator, clusters would orm “naturally” through the initiative o the companies involved.In other words, companies participating must see the potential benet in synergies in order to committhemselves to sharing their technology and know-how.

In the case o the ormer Yugoslav Republic o Macedonia, the majority o clusters (with thenotable exception o the automotive one) have been mainly created to group SMEs so that they have a betterposition in the market, but more could be done in the area o sharing R&D costs and creating economieso scale (or example, in ashion and design). Moreover, in most cases (box I.4) large companies are rarelyinvolved in clusters and, as a result, these ail to acquire the necessary “critical mass” to thrive; there are noleading companies or TNCs that can secure an external buyer and introduce the clusters in the internationalvalue chains. In turn, in the automotive cluster the linkages o local companies with oreign aliates haveremained weak. In this sense, local SMEs have orged limited linkages with FDI already present in the country.

The Government should place emphasis on creating supply chain partnerships between SMEs andTNCs and launch a structured supplier linkages programme. The programme would include targeting oreigninvestors that are already established in the country through “match-making” events and aiding SMEs tomeet the required standards to become suppliers to international rms through training and co-nancing.Depending on the success o this strategy, in partnership with the Ministry o Economy, Invest Macedoniacould organize regional or international orums to showcase clusters as suppliers o TNCs aiming to expandtheir network. UNCTAD has developed experience in assisting developing countries to structure linkagesprogrammes and stands ready to assist the Government in this area (box III.3).

Bo III3 UNCTAD’s Business Linkages Programme

UNCTAD’s Business Linkages Programme is aimed at acilitating the creation o new supplier links, anddeepening existing relationships between oreign companies’ ailiates and domestic SMEs, thereby makingthe operations o the latter more sustainable. The Programme improves the perormance, productivityand eiciency o local suppliers through training, mentoring, inormation exchange, quality improvements,innovation and technology transer. UNCTAD also assists developing countries’ Governments and otherstakeholders to build the enabling policy environment, and supports networks o business developmentand other service providers, based on the analysis o international experience and best practices. TheProgramme is operational in eight countries: Argentina, Brazil, the Dominican Republic, Mozambique, Peru,

the United Republic o Tanzania, Uganda, and Zambia.

Source: UNCTAD.

Transorming TIDZs

Thus ar, the success o TIDZs has been limited, in spite o the generous tax incentives. One o thereasons could be that the original prole o the TIDZ (ocusing on high-technology oreign investors inselected manuacturing, in particular automotive and electronics industries) could be too narrow andinsuciently aligned with the country’s comparative advantages. Given the low success rate in attracting FDI,

the Government should reconsider the development strategy behind TIDZs, ully turning then into multi-acility zones (box III.4), in which all types o production and services, or both the domestic and internationalmarkets, are welcome. That would also require a modication o the regulatory ramework, which is currentlygeared towards export production only.

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Bo III4 The multi-acility economic zone concept

A multi-acility economic zone is a policy tool which caters to both export-oriented industries(oreign and locally owned alike) and domestic production, combining their establishment in a single acility.All these producers beneit rom the inrastructure (electricity, water, roads) and rom the regulatoryadvantages and best practices provided by the zone, although adapted to the speciicities o their activities.For example, export-oriented producers can beneit rom duty–ree imports while domestic producershave to pay import taxes. However, all o them can beneit rom best practices in project approval andadministrative procedures. Every investor located within the multi-acility economic zone should receiveits privileges and incentives in a written orm. The same country can be the host to various multi-acilityeconomic zones located in dierent regions. While the pilot project o the multi-acility economic zoneshould ideally be a government eort or a joint eort with the private sector, the additional zones o this

type can also be ully privately operated.Source: UNCTAD.

Although, TIDZs are theoretically open to both oreign and domestic investors, in reality it appears thatthe Government has only pursued oreign companies. So ar, however, their achievements were limited. TheGovernment could gain rom greater promotion o domestic rms in the zones, ollowing the examples o other countries such as the Dominican Republic (box III.5) and Ireland. International experience shows that“maximizing the benets o zones depends on the extent to which they are integrated with their host economies.The static and economic impacts o zone development are suppressed when zones are operated as enclaves.

They are multiplied when they are accompanied by countrywide economic policy and structural reorms thatenhance the competitiveness o domestic enterprises and acilitate the development o backward and orwardlinkages” (BearingPoint, 2004: 46). More importantly, the Government could align its cluster developmentstrategy more closely to the TIDZs scheme. For instance, domestic suppliers could be encouraged to settle inthe TIDZs alongside TNCs and large domestic companies when possible, in order to oster synergies betweencompanies in related elds. The risk is that TIDZs become “islands” within the ormer Yugoslav Republic o Macedonia with little linkages to the domestic economy, no technological spillovers and delivering little scalrevenue to the country.

Bo III5 Local frms in the ree zones o the Dominican Republic

In the ree zones o the Dominican Republic, close to one third o the companies are domesticallyowned. The ree zones have an extraterritorial customs status. Companies in the zones must exportat least 80 per cent o their output. Duty-paid sales o up to 20 per cent o the output to the domesticmarket are permitted. More local sales can be made i the product is manuactured domestically and i localinputs account or at least 25 per cent o value. Import duty is payable on local sales but excludes the valueattributable to local inputs.

Source: UNCTAD (2009c).

In addition to the conceptual changes described above, a serious examination o the scal incentivesprovided by TIDZ should be urgently undertaken. In a country that already enjoys one o the lowest corporatetax rates in the region (chapter II), lowering the scal burden even urther may not be the appropriateincentive to attract FDI. Indeed, the current scal incentives may ail to pass a cost-benet analysis, i measured

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against their success. Rather than relying on scal incentives, more eorts should be spent in delivering state-o-the-art industrial sites with top-notch inrastructure and services, or which demand is high. As mentioned

above, scarcity o investment-ready industrial sites has been identied as a major concern by oreign and localinvestors alike. In other words, the main potential advantage that TIDZs can oer investors is not necessarilytax incentives, but the act that the zones enable ast and cost-ecient realization o projects by reducing thecost and time involved with the acquisition o land, construction permits, etc.

In this respect, the announced plan to expand the TIDZs scheme by a urther seven zones seemspremature. Given the act that the current our are still ar rom being completed, let alone utilized, thatthey still require signicant investment and that the global nancial and economic situation has alteredundamentally, the Government should postpone the expansion. The Government may wish to prioritizecontracting world-class specialist zone operators that will be able to assist the remaining three existingzones to achieve “investment-ready” status. As or the areas originally oreseen or new zones, they can bereclassied and reserved or potential uture investment projects, without granting the status o a TIDZ, whichwould make the development o these areas more costly (in terms o the inrastructure required) and theirprole more restricted than i they remain general industrial zones.

3 Strengthening policymaking in the area o investment and competitiveness

The vision o an integrated and coherent approach to the issues related to investment, competitivenessand industrial policy in the 2011–2014 programme recommended in this section o the IPR requires a tighteningo the institutional setting o the country dealing with those policy areas. Achieving such an integrated andcoherent approach is a challenge that requires signicant government eorts in terms o planning, institutionalcoordination, and consultations with stakeholders both at the public and private levels. This section o thereport analyses the current institutional architecture relevant to the planning and execution o investment and

competitiveness strategies, and makes recommendations with a view to strengthening it.

31 Current institutional setting

Within the current setting, investment policy, competitiveness policy and industrial policy are carried outseparately, although most o the agencies and units dealing with policymaking in this area ultimately report tothe Deputy Prime Minister or Economic Aairs. Below is a brie description o each institution dealing withinvestment policy and its main unctions.

Deputy Prime Minister or Economic Aairs

The Deputy Prime Minister or Economic Aairs supervises policies, projects and reorms undertakenby the Government which relate to the business environment (e.g. taxation, regulatory ramework, land,inrastructure, agriculture and energy) and the promotion o domestic and oreign investment. In this regard, theCabinet o the Deputy Prime Minister sets Government priorities geared towards improving the internationalranking o the ormer Yugoslav Republic o Macedonia. In recent years, these priorities have been identiedbased on the Word Bank’s Doing Business Index Action Plan, the Heritage Foundation’s Economic FreedomIndex Action Plan, and the World Economic Forum’s Competitiveness Index Action Plan.

Investment Committee

The Investment Committee is a high-level team headed by the Deputy Prime Minister or Economic Aairs

and consisting o the FDI Minister(s) without Portolio, the Ministers o Economy, Finance, and Transport andCommunications, the Directors o Invest Macedonia, Directorate o the Technological Industrial DevelopmentZones (DTIDZ) and State Authority or Geodetic Works. Hence, the Committee has both policy planning andexecuting institutions among its members. It meets every two weeks to review the situation o investors and

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to ensure that barriers to their investment projects are reduced as much as possible. While the InvestmentCommittee has initiated many key amendments to laws and regulations, over time its work has become less

policy-oriented and more ocused on operational issues. In this regard, the Committee is oten requested toprovide services to address specic day-to-day problems aced by investors.

Ministerial Committee on Competitiveness

The Investment Committee has to coordinate with other ad hoc governmental bodies which deal withother economic aairs. The most notable one is the Ministerial Committee on Competitiveness (MCC),which has a membership similar to the Investment Committee and ocuses on competitiveness and industrialpolicy issues (Government o the ormer Yugoslav Republic o Macedonia, Ministry o Economy, 2009: 77). Itsmembers include the Deputy Prime Minister or Economic Aairs (chair), the Ministers o Economy, Finance,Education and Science, Agriculture, Local Sel-Government, Environment and Physical Planning, Labour andSocial Policy, and Inormation Society, and the Secretariat or European Aairs. The Committee is assistedby an Inter-Ministerial Expert Group or Industrial Policy. The Committee, together with the Expert Group,prepared the Industrial Policy or 2009–2020.

Ministry o Economy – Department or Stimulating Investments and Social Responsibility

The Department or Stimulating Investments and Social Responsibility (total number o sta 10) is in chargeo FDI policy ormulation within the Ministry o Economy. The Department was reormed in mid-2010, whenthe export promotion unction was transerred to Invest Macedonia. The Department ocuses on investmentpolicy, coordination o investment data collection with other agencies, and CSR. The Department’s activitiesin relation to investment policy include analysis o the investment climate in selected industries, identicationand assessment o investment projects, comparative analysis o the investment climate with benchmark countries, review o the legal ramework, ormulation o recommendations or measures to improving theinvestment climate, removal o administrative barriers to investment. In particular, the Department has beenresponsible or preparing and coordinating the implementation o the past and current Programmes orStimulating Investment in the ormer Yugoslav Republic o Macedonia. To ensure eective progress with theseprogrammes, the Department produces, together with other government agencies and ministries involved,annual implementation Action Plans. It also has responsibility to prepare annual progress reports, which arepresented to the Government.

Representatives o the business sector

The representatives o the business sector include oreign investors, and members o the chambers o

commerce. The ormer Yugoslav Republic o Macedonia has two associations o oreign investors (one o themworking mostly with investors rom Germany and the other one mostly with investors rom Greece), threemajor chambers o commerce and various regional and sectoral business associations. The NECC, a tri-partite(public sector, private sector, NGOs) consultative body, which aims at ostering the country’s competitivenessthrough enhanced management capabilities and European integration, also has the potential to play a roleto promote increased domestic and oreign, both public and private, investment. However, its revival wouldrequire serious eorts rom the Government and other stakeholders.

32 Enhancing the eiciency o the institutional ramework

The ormerYugoslav Republic o Macedonia has made sustained eorts to devise an institutional architecture

that would allow it to plan, implement and monitor policies aimed at increasing its FDI attractiveness. Theexistence o many institutional mechanisms geared towards improving the investment climate is indicative o these eorts. The analysis in this report, however, points to a rationalization o the existing structure, notablyor institutions that have overlapping mandates or an unclear division o labour. Furthermore, the Ministry o

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Economy is assigned a role in both planning and implementation o the programmes or stimulating investment.This goes beyond its strict competence in the area o economic policy and is, in several important areas, greatly

dependent on the good cooperation o other line ministries. This has, in the past, challenged the capacity o theMinistry to assess the implementation o the previous programmes or stimulating investment, including thato 2007–2010; these challenges are likely reproduced in 2011–2014. Within the context o a more integratedapproach between investment, competitiveness and industrial policy as proposed in this report, it would bevery important to ensure that the policymaking capacity o the Government is strengthened. In this regard,the ollowing recommendations are made:

Cabinet o the Deputy Prime Minister or Economic Aairs

The Deputy Prime Minister or Economic Aairs should remain an essential player in investmentpolicymaking and or the operationalization o the programmes or stimulating investment. The Deputy Prime

Minister should, in this regard, continue to coordinate the work o the ministries under his responsibility andwork closely with Invest Macedonia. His Cabinet should also carry on with activities geared towards improvingthe country’s position in major international rankings. However, its main ocus should shit rom prioritizingexternal rankings to setting priorities based on established domestic development needs. The Deputy PrimeMinister should also continue to lead the Investment Committee, and should join Team Macedonia (see below)when required. His Cabinet should also have the overall responsibility or supervising the implementation andassessing the results o the uture Programmes o Stimulating Investment, mostly through the MCC.

Investment Committee

The Investment Committee should play central role in the creation o an environment conducive or

investment and in the design and adoption o the country’s overall investment strategy. The Committee alsohas the potential to become a powerul mechanism or dialogue between the Government and the investorcommunity, providing investors a channel to advocate urther reorms o the investment climate at the highestpolicymaking level. The advocacy role o the Investment Committee should be centred on identiying policygaps and bottlenecks and addressing them through additional policy reorms. This is a somewhat dierentunction rom that o dealing with day-to-day investors’ operational problems, which currently constitutesone o the main activities o the Committee. The responsibility or dealing with the operational problemsshould be transerred to Invest Macedonia, which is ideally positioned to receive investors’ complaints andrequests or assistance. As part o its advocacy unction, Invest Macedonia should, in turn, distil and channelthe key issues regarding the investment climate that should be addressed by policy reorms to the InvestmentCommittee.

In shiting the ocus to broader and strategic policy issues, the Committee would be expected to meetless requently – two or three times a year would possibly be sucient to assess the need or policy reormbased on the inputs received rom Invest Macedonia, other public agencies dealing with investors, and therepresentatives o the private sector. The Committee would also be entrusted with the adoption o utureProgrammes or Stimulating Investment.

In addition to the actual members representing government ministries and agencies (the Deputy PrimeMinister or Economic Aairs, the Ministries o Economy, Finance, and Transport and Communications, theMinister without Portolio, Invest Macedonia, DTIDZ and the State Authority or Geodetic Works), theCommittee should consider including representatives o the investment community or a total membership

o 20 to 30 persons. The investor community would bring not only their experience in the ormer YugoslavRepublic o Macedonia, but also the experience gathered in other countries or regions o the world. Theprivate sector members could serve or a mandate o two years with a possibility to renew their mandateso as to ensure continuity. Furthermore, the involvement o the Prime Minister, as chairperson o the regular

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sessions, is considered essential or the unctioning o the Committee and or an eective implementation o its recommendations.

Ministerial Committee on Competitiveness

The Government needs to consider a potential role or the Ministerial Committee on Competitiveness(MCC) in the preparation and monitoring o the programmes or stimulating investment in the country. Thisreport recommends that the MCC be mandated to ensure the integrated treatment o competitiveness,investment and industrial policy at an inter-agency level, under the supervision o the Deputy Prime Ministeror Economic Aairs. The MCC would thus oversee the preparation o the uture programmes or stimulatinginvestment, which would then be adopted by the Investment Committee. Being positioned at a highpolicymaking level, the MCC could best ensure that cross-cutting policy changes are proposed and eectivelyimplemented. Furthermore, its involvement would also oster the participation o all relevant ministries inthe preparation o the programme and the monitoring o the implementation o its recommended actions.The inter-institutional nature o the MCC is also an asset to maximize coordination and minimize the risk o duplications among the policy plans and programmes o dierent ministries in the areas o competitiveness,investment and industrial policy. However, since the MCC does not have a permanent secretariat, it may needto delegate the preparation o the programmes or stimulating investment to a body that has the substantiveknowledge in that eld.

In implementing this new structure, the Government will thereore need to determine i the permanentoperational team in charge o drating the programmes or stimulating investment should remain with theMinistry o Economy, or i an integrated programme covering investment, competitiveness and industrial policywould be necessary. It is important to note here that the personnel in charge o drating the investment andcompetitiveness agenda should be ormed as a team o technical experts and not as a body to push orward

a political agenda on investment. It is up to the Government to identiy and select the best operationalarrangements or the preparation o uture programmes or stimulating investment and on how they willintegrate the competitiveness and industrial policy aspects. In any case, the MCC will also be expected toplay a more active role in ensuring that transparent and detailed implementation progress reports are beingprepared (see below).

Taking into account the act that all agencies should be given the time and the resources to adjusttheir human and nancial resources to changes in their mandates, etc., a ull reorganization o the currentinstitutional setting could go beyond the time rame (2011–2014) o the programme or stimulating investmentunder preparation.

While the options discussed above have potential implications or the activities carried out by theMinistry o Economy, this ministry should remain a central actor or investment policy. In this connection,this report recommends to strengthen its analytical unctions in order to undertake research studies whichdeal with investment-related issues. A ormal agreement with the NBRM or joint analytical activities can beenvisaged in this context. FDI infows raise a number o important questions, such as how these fows impacteconomic growth, employment, regional disparities and poverty. The answers to these questions are importantor uture policy decisions aecting investment and should, thereore, be thoroughly analysed by the ministry.

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4 Rationalizing the investment promotion eort

41 Current structureIn the ormer Yugoslav Republic o Macedonia, as in most other countries, many organizations in the public

and private sectors contribute to the investment promotion eort. The key players include the Minister(s)without Portolio in charge o FDI, Invest Macedonia, the Directorate or TIDZs and the local governments.The main unctions related to investment promotion o these institutions are discussed below.

Team Macedonia

To deliver a clear and strong message about the country’s commitment to attracting oreign investment,the Government has constituted the Team Macedonia. It comprises the Prime Minister, the Deputy PrimeMinister or Economic Aairs and the Director o Invest Macedonia. Team Macedonia is a high-level marketing

initiative involving the preparation and delivery o a series o customized road shows, such as the one carriedout in the Czech Republic in early 2010. In these international visits, the Team presents the country’s attractiveeatures in the area o FDI to potential investors rom targeted sectors and companies.

Minister without Portolio in charge o FDI

There is currently one Minister without Portolio99 with primary responsibilities to attracting greeneldFDI projects by participating in Team Macedonia road shows and events, and establishing high-level relationshipsbetween Government ocials and oreign company representatives. The typical day-to-day activities includerunning marketing campaigns, contacting proactively executives o Global 1000 companies and large mid-sizedenterprises with a potential to invest in the country. With its permanent sta o six, the Minister’s cabinet

targets priority industries (manuacturing activities in greeneld sites and outsourcing activities), typicallyconnected to the current our designated TIDZs and other locations in the country. The Minister identiespotential investors, visits them and attempts to persuade them to invest in the country. Once a potentialinvestor shows interest, the FDI Minister is expected to reer them to Invest Macedonia or acilitation andsupport.

Invest Macedonia

Invest Macedonia was created in January 2005 and works closely with the Deputy Prime Minister orEconomic Aairs, who coordinates all the economic institutions o the Government. Invest Macedonia is aprimary Government institution supporting oreign investment in the country. Its main unctions includegeneral investment promotion, targeting o investors, acilitation o investment projects, and more recently,atercare services and advocacy. In 2010, the mandate o Invest Macedonia was expanded to include exportpromotion activities. Consequently, the responsibility or dealing with these issues was transerred rom theMinistry o Economy.100 Invest Macedonia is relatively well endowed in terms o nancial resources (its annualunding rose rom €100,000 in 2006 to over €6.8 million in 2010) and human resources (the sta complementincreased rom six in 2006 to 25 in March 2010).

The main agents o Invest Macedonia’s activities in attracting oreign investors abroad are its economicpromoters located at embassies or consulates o the ormer Yugoslav Republic o Macedonia. However, theyare selected and employed by, and report exclusively to, Invest Macedonia. At the end o 2010, there were19 economic promoters abroad. In 2011, the number o promoters was expected to rise to a total o 29.

99 Inthepast,thereweretwopostsforMinisterwithoutPortfolio.Atthetimeofwritingthisreport,onepostwaslled.Itisunderstoodtheremaybemoresuchpostsin

the future.100LawonestablishingtheAgencyforInvestmentandExportPromotion,OGRM57/2010.

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Directorate or TIDZs

The Directorate or TIDZs (DTIDZ) was created by the Law on Free Economic Zones and is responsibleor promoting the development and establishment o TIDZs, as well as or monitoring and regulating the users’operations. It issues approvals or the establishment, promotion and termination o the users’ operations. TheDirectorate is also responsible or regulating the rents, taris and ees charged to users, and or coordinatingthe processing o approvals and permits required or the commencement o a company’s operations in thezone. In addition, it is in charge o site analysis or the zones, planning and technical documentation, promotionand advertisement o zones, land acquisition, inrastructure building inside the zones, record-keeping o Stateaid, preparation o annual reports, supervision o inrastructure, 24/7 security, sales o natural gas in thezones. To carry out these unctions, the DTIDZ has a sta o 36 and an annual budget o €7,740,000 orcapital expenditures (equipment, machines, construction land and buildings), as well as additional resourcesor salaries and other activities.

Local government

The ormer Yugoslav Republic o Macedonia also has 85 municipalities, including the city o Skopje. The2002 Law on Local Government gives extensive responsibilities to municipalities in relation to local economicdevelopment, one aspect o which relates to the attraction o oreign and domestic investment. Moreover,rom 2011, municipalities will obtain the responsibility or the management and sale o State land.

42 Proposed structure

There is scope or rationalizing the current structure o investment promotion. The key challenges ordoing this include (a) how to utilize the respective resources and competences in an ecient way, avoid

duplications and increase accountability; (b) how to project a coherent and well-branded promotional messageto investors; and (c) how to strengthen the investment promotion unction and carry out systematic atercare.In this regard, this report recommends abolition o the post o Minister without Portolio and a mergero the DTIDZ with Invest Macedonia. The proposed changes would simpliy the institutional structure andthe reporting lines (gure III.1). As a result, each stakeholder would have clearer responsibilities, reducingunctional overlap and improving accountability. Such a change would also save scarce resources, and would goin the same direction, although not as ar, as the proposed export promotion strategy o the country (Brown,2010): the change would apply over a longer time horizon and with a more gradual transer o responsibilities.

Minister without Portolio or FDI and Team Macedonia

The creation o two posts o Minister without Portolio in 2007 was intended to be a transitoryarrangement. This arrangement has since been extended or one o the two posts. With its increased sta and its network o promoters (22 rom January 2011), Invest Macedonia is now in a much better position toplay an active role in targeting potential oreign investors. Consequently, to avoid duplication, the Governmentshould phase out the post o the Minister without Portolio in charge o FDI in a well-planned manner. Asdescribed below, the role o Invest Macedonia in targeting investors could be complemented by the work o the Investment Committee and Team Macedonia.

Under this proposed setting, an important role will continue to be played by Team Macedonia, which willwork in close cooperation with the Investment Committee. In this regard, the Team could – in addition to thePrime Minister, the Deputy Prime Minister or Economic Aairs and the Director o Invest Macedonia whoare the core members – benet rom the participation o representatives o the business community or otherexperts on an ad hoc basis, depending on the topic o the mission they are undertaking.

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Invest Macedonia

Invest Macedonia should remain the lead agency or investment promotion, but should ormally reportdirectly to the Deputy Prime Minister or Economic Aairs. This will ensure a continuous dialogue with theinstitutions which play a central role in designing and implementing the investment strategy. Also, given itsclose contact with investors and oreign ones in particular, Invest Macedonia is ideally placed to providethe Deputy Prime Minister or Economic Aairs and the Investment Committee with eedback on theirperception o the investment environment and on the challenges they ace in their day-to-day operations.These would constitute valuable inputs to urther improve the investment strategy and better adapt it to tthe development needs o the country.

To deliver on its mandate eectively, Invest Macedonia requires urther capacity-building. The Atercareand Policy Advocacy Department was ocially established in May 2010. The Department is neither ullyoperational nor staed and the atercare unction, mainly dedicated or investors in TIDZs, continues to beperormed through the Investor Servicing Department. Once adequately staed, the Atercare and PolicyAdvocacy Department will need to segment, target and dene its atercare programme and articulate ameaningul policy advocacy agenda. In terms o atercare, or instance, it will need to (a) categorize its atercareservices oer; (b) identiy the clientele by setting up a database o established companies that are targetsor re-investment; and (c) assign account managers specically to priority sectors, which would assess theircustomers’ needs and receive their concerns, which will eed into the policy advocacy agenda. UNCTADcould provide technical assistance or atercare services through the provision o its i-Track sotware.101

With respect to promotion, in addition to the sections in charge o marketing and communications, andinvestor servicing, the economic promoters posted in embassies abroad play an important role. To maximizethe impact o their activities, Invest Macedonia should dene measurable perormance criteria, without

sacricing the quality o FDI to be attracted. Furthermore, the agency could also consider using in certaincountries national consultants as so-called “door openers” to support the work done by the promoters. Toreward them or success, a portion o their salary could be perormance-based.

Invest Macedonia also needs to develop its newly acquired export promotion unit as a separately managedbut related body. The agency has to develop an export promotion strategy. Once the unit on export promotionhas been ully integrated, Invest Macedonia should ocus on acilitating the exports o all producers, domesticand oreign-owned ones. Export promotion may be linked to the promotion o linkages between oreignaliates and local companies as the two groups o rms have joint export opportunities when operating inthe same value chain. In this context, a pilot initiative ocusing on the discussed linkages programme would beworth exploring in one or two sectors or industries.

As or investment acilitation, current activities should be expanded to include acilitating access toinormation, including on laws and regulations which aect business. In this regard, Invest Macedonia shouldbecome a ocal point, through its Marketing and Communications Department, or the online publication inEnglish o the most updated investment-related laws and regulations o the country.

A well-designed and regularly updated Internet site is central to the acilitation eorts o an investmentpromotion agency (IPA). Invest Macedonia has already made important progress to develop and market itswebsite to investors and provide them with useul inormation both about the country’s investment regimeand opportunities. More, however, needs to be done to ully tap the potential o such a powerul tool. Forinstance, the site should contain all the English version o laws and regulations which aect business. In a world

where competition to attract investors is increasingly intense, such inormation is indispensable.101 i-Track is a system that manages investors’ online applications for investment licences and enables investment promotion agencies (IPAs) to track investors through their

investmentcycle–fromtheirinitialinquiryattheagency;tofollowingupaleadandassistingthemtoobtainthenecessaryancillarylicences,totheactualinvestmentand

regularly following up with investors to assess their ongoing needs.

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Figure III1 Possible uture national structure or investment and competitiveness

Policy Policy - - making and monitoring making and monitoring

Investment promotionInvestment promotion

Policy implementation and reporting Policy implementation and reporting

Deputy

Prime Minister

for Economic Affairs

Investment

Committee

Ministerial

Committee on

Competitiveness

Invest Macedonia

& Team Macedonia

Ministry of Economy and other line ministries

In addition to inormation on regulatory issues, the site should also include logistical inormation onvisiting the ormer Yugoslav Republic o Macedonia and the services Invest Macedonia can provide to investorswhen they visit the country to explore urther investment opportunities. For example, details about theprocedures to obtain visas, airport pickup services and the organization o meetings. Furthermore, the siteshould be hub or detailed inormation on investment projects and opportunities, including promotionalmaterials or selected sectors. In this area, it would be also useul to consider reviving the idea o the capacity-building project or identication and appraisal o suitable investment projects that the Ministry o Economyormulated or the United Nations Industrial Development Organization (UNIDO) in the 1990s.

DTIDZ

Another issue that should be considered is the possibility o merging the DTIDZ into Invest Macedonia,while privatizing the day-to-day management o the zones. The two agencies carry out similar activities (e.g.attracting investors to TIDZs is the responsibility o both); a merger could eliminate overlaps. The integrationo the DTIDZ could also provide the opportunity o a more eective promotion o linkages by allowing InvestMacedonia o liaising directly rom the premises in the TIDZs. It would also go to the same direction, althoughnot as ar, as the proposed export promotion strategy o the country (Brown, 2010), and in a more gradualmanner.

The management o the TIDZs would improve through the hiring o specialist zone operators rom theprivate sector which could take the orm o a concession agreement. The supervision o the private managerswill remain the responsibility o the agency supervising the zones. UNCTAD has assisted many investment

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promotion agencies around the world to developing their strategies and strengthening their capacities. Itstands ready to provide technical assistance to the Government in this area.

Enhancing the role o local actors

To complement the activities undertaken at the national level, there is scope or a more active role o localactors in investment promotion, especially related to the development o underdeveloped or peripheral areas.The country needs to discuss the most appropriate modalities o decentralization, as the current number o municipalities (86) is too high or the eective management o investment promotion in such a small country.Local investment promotion should coordinate both with Invest Macedonia (in order to ensure coherenceand consistency) and with the Bureau or Economically Underdeveloped Areas, a body under the Ministryo Local Sel-Government. Municipalities need to develop their skills, knowledge and capabilities i they wishto manage their local economic development oces eectively. These oces can play a role in identiyingpotential locations or investment (greeneld and browneld), as well as acilitating the process o purchasingland and/or obtaining permits or construction activity. A database o investment opportunities and key localcontacts (local economic development oces, mayors, companies, etc.) needs to be developed and updatedregularly through Invest Macedonia.

5 Ensuring eective policy implementation

An important precondition o the success o the new programme or stimulating investment is, inaddition to adequate resources or its implementation, an eective monitoring and evaluation mechanism o the progress made. In terms o resources, the programme will be implemented with public unds, a signal o the Government’s commitment to promote both domestic and oreign investment. The international supportrom international institutions, including the EC and bilateral partners, should be sought to complement the

dedicated national resources.

The Ministry o Economy (through the Department or Stimulating Investments and Social Responsibility)was responsible or the monitoring and evaluation o past programmes. This Department has, in addition tosetting up the programme itsel, prepared annual progress reports, as well as the overall evaluation reportsor these programmes, including that covering the period 2007–2010. As indicated previously, the Ministryo Economy does not have ocial authority to enorce the implementation o the various elements o theprogramme; it has to carry out its monitoring and evaluation through inormal cooperation with otherGovernment agencies. This causes challenges or adequately monitoring and assessing impact. For example, inthe progress report o 2009, several entries do not contain inormation regarding the status o implementationo the proposed measures. There are also no explanations as to why some specic measures were not

implemented and/or replaced by other measures. Furthermore, while the programmes were made widelyavailable to the public, this is not the case or either the progress reports or the evaluation reports.

Against this background, two issues could improve the monitoring and evaluation o the orthcomingprogramme to stimulate investment: (a) dening the government entity responsible or overseeing themonitoring, including evaluation and obtaining the relevant inormation rom executing entities; and (b)improving transparency by making these reports available to the public.

As or the programme itsel, it is recommended that the Cabinet o the Deputy Prime Minister orEconomic Aairs has the oversight role or the preparation o the progress and evaluation reports. The Cabinetis more likely to be able to enorce implementation, obtain appropriate inormation about the implementation

process and explanations about challenges rom all the executing agencies involved in the various segmentso the programme than a single line ministry. To acilitate the preparation o the annual progress report, it isrecommended to gather inputs rom all the agencies involved on a quarterly basis. Towards the end o the year,once the drat progress report is complete, it should be presented at one o the sessions o the Ministerial

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Committee on Competitiveness to brie its members on progress made, receive eedback on how to integratelessons learned and move orward with the implementation o the programme. Once the progress report

is nalized, it should be made available to the public through, or instance, the Deputy Prime Minister’s, theMinistry o Economy’s and Invest Macedonia’s websites.

At the end o the implementation cycle o the programme, usually our years, the Cabinet o the DeputyPrime Minister should prepare – or have prepared – an evaluation report. The report will assess the degreeto which the proposed measures in the programme have been implemented and also the results obtainedthrough these measures. The Government could request UNCTAD to evaluate the implementation o theInvestment Policy Review and, at the same time, provide an assessment o the impact o the programmeor stimulating investment. Specically, UNCTAD could, at the request o the Government and i resourcespermit, undertake an independent evaluation and deliver concrete recommendations or a more eectiveimplementation o the Programme and o the other recommendations o the Investment Policy Review.UNCTAD could also assist in the preparation o a uture programme to stimulate investment, based on theexperience and recommendations connected with the implementation o the current one.

Improving statistical reporting on FDI

As highlighted previously, the objective o the programme should ocus not only on attracting investmentbut on deriving benets or the economy in terms o output growth, employment, technology transer and soon. To come up with a good assessment o these impacts, there is need to improve the quality o inormationthat is made available, including statistics about FDI (and eventually about the activities o oreign aliates inthe country). As presented in chapter I (box I.5), statistics on FDI and oreign aliates suers orm certainbottlenecks. In this regard, the combination o FDI-related inormation collected by the Central Registry,the National Bank (NBRM) and the State Statistical Oce (SSO) would enable a simple, ecient and well-

coordinated statistical monitoring o FDI with the ollowing distribution o work: (a) the Central Registrywould identiy the oreign-owned rms; (b) the NBRM would continue to collect data on FDI fows andstocks; and (c) the SSO would collect data on various operational aspects o oreign aliates (e.g. numbero employees). Each agency will strengthen its data collection in its own area o responsibility. The relatedsurveys o the dierent agencies should be coordinated: the NBRM and the SSO should merge their mailinglists and carry out a single survey o investors. As the NBRM has a more detailed mailing list, it could take thelead in this area. UNCTAD could provide technical assistance in the area o FDI statistics through a nationalworkshop involving all agencies dealing with FDI/TNC statistics and relevant ollow-up activities (box III.6).

Existing data could also be better exploited or policymaking purposes. Here the main responsibility lieswith the SSO, which could match the Central Registry and NBRM databases with other relevant databases

available at the SSO (e.g. nancial statements, oreign trade, etc.) simply by using the registry numbers o rmsto distinguish between oreign- and domestic-owned rms. This would enable quality monitoring o all theoperational aspects o oreign aliates in the ormer Yugoslav Republic o Macedonia without imposing anyadditional burden on oreign investors and their rms.

In addition, an annual questionnaire survey targeting the oreign investors in the ormer Yugoslav Republico Macedonia, the business climate in the country and various other investment-related aspects would be auseul additional tool or FDI policymaking. Invest Macedonia would be the most appropriate institution toperorm such a unction, in cooperation with the Ministry o Economy and/or the Oce o the Deputy PrimeMinister or Economic Aairs.

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D Conclusion

At the request o the Government, this chapter presents a set o recommendations or considerationor incorporation in the new programme or stimulating investment 2011–2014. The recommendations aresummarized in annex 4 and ocus on ve main policy areas discussed in this chapter.

Each subsection o the matrix in annex 4 begins with a brie description o the issues covered, ollowedby a series o detailed recommendations which highlight the overall policy area being addressed, the specicobjective o the measure, the actual measure(s) per se and the proposed implementation timeline: short-term(up to two years), medium-term (up to our years) and longer-term (over our years).

The recommendations or the uture programme or stimulating investment are based on the analysispresented in chapters I–III which derives rom an in-depth analysis o the existing policy ramework aectingissues related to investment, discussions with numerous public and private institutions in the country,secondary sources o inormation and international best practices. The objective is to assist the Government

to create an integrated and orward-looking programme o reorm designed to stimulate investment. For therecommendations which may require a longer timescale or implementation than the our-year covered bythe programme or stimulating investment, the Government may wish to implement them during the ollowingprogramming cycle.

Bo III 6 UNCTAD’s technical assistance in collecting and

reporting statistics on FDI and activities o TNCs

To alleviate the problems related to the lack o relevant, reliable and timely inormation on FDIand activities o TNCs, UNCTAD is undertaking capacity-building activities in developing and transitioncountries aimed at helping the collection, improvement and international harmonization o such statistics.These activities build on UNCTAD’s expertise gained in maintaining one o the world’s largest FDI/TNCdatabases, covering inormation on more than 200 economies over a period o 40 years, and activelyparticipating in the preparation and improvement o international benchmarks such as ourth edition o OECD Benchmark Deinition and sixth edition o IMF Balance o Payments and International InvestmentPosition. In addition, in 2010, UNCTAD has published a three-volume Manual on Statistics o FDI and theoperations o TNCs.

A large part o UNCTAD’s technical assistance takes the orm o national or regional workshops,bringing together all relevant stakeholders (central banks, national statistical oices, company registries,investment promotion agencies, etc.) dealing with FDI/TNC statistics. Oicials participating in theworkshop are encouraged to establish a uniied, coherent and eective survey system to collect anddisseminate data on FDI and activities o oreign ailiates. The inal aim o the workshops in to enabledeveloping and transition economies to make appropriate decisions and ormulate development-orientedpolicies in the area o attracting FDI. Since the inception o this programme in 2004, UNCTAD has carriedout around 40 workshops. Albania and Belarus are examples o transition economies that have beneitedrom the programme so ar.

The workshops (a) raise awareness about internationally accepted standards and guidelines regarding

the compilation o data on FDI and the activities o oreign ailiates; (b) discuss the UNCTAD commonsurvey on FDI and TNCs; (c) help understanding o deinitions and methodologies in the area o FDI/TNCstatistics; and (d) provide advice on speciic issues and challenges o particular interest to the country/region. In order to ensure adequate ollow-up, they also initiate a networking among national authoritiesinvolved in FDI data compilation and reporting.

Source: UNCTAD.

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IV. SUMMARY OF FINDINGS AND RECOMMENDATIONS

During the past decade, the Government o the ormer Yugoslav Republic o Macedonia has undertakenambitious reorms to modernize the country, complete the process o transormation into a market economy,and improve the living conditions o the population. These reorms have beneted rom a more stable politicaland economic environment. Eectively, since the Ohrid Framework Agreement in 2001 between ethnicMacedonians and Albanians, democratization and stabilization eorts have gained momentum. Macroeconomicstability and the accession to the WTO (in 2004) have given an impetus to economic modernization and thedevelopment o an attractive business climate. In addition, o crucial importance is the country’s candidacyor EU membership. The process o accession to the EU, including the adjustment o national laws to therequirements o the acquis communautaire, has provided a basis and ramework or the economic reorms andpolicy changes analysed in the Investment Policy Review.

The reorm drive has introduced modern legislation in several areas and led to an overall conduciveregulatory ramework or investment. This is acknowledged by improving international business rankingsand has resulted in higher economic growth rates. Nonetheless, the ormer Yugoslav Republic o Macedoniaremains one o the poorest countries in Europe, with a large unemployment problem. The Government isstriving to project a new country image, one that dissociates rom high political and economic risks. However,FDI infows, though increasing, have so ar been low compared with other South-East European countries.Most o the large FDI transactions have taken place in the orm o privatization and, only recently, the countryhas begun to attract more greeneld projects. Consequently, the impact o FDI on creating jobs and improvingoverall productivity is elt primarily in sectors where the presence o oreign investors is large, as is the casein banking and telecommunications.

Among the actors holding back investment, the most important are:

● Outstanding issues in the business and investment environment, including in areas such as accessto land and construction permits as well as employment o oreigners or implementation o existing legislation;

● A lack o coordination in policymaking and execution and the ensuing prolieration o insucientlyrelated and consistent development strategies, competitiveness plans, industrial policies andinvestment strategies;

● Inadequate investment promotion eort resulting rom a lack o capacity and overlapping mandateso institutions in charge o investment attraction.

The proposed “Programme or Stimulating Investment in the Republic o Macedonia 2011–2014” to which

this IPR suggests strategic and practical inputs could have a critical role to play in respect o improving policiesand implementation, and to ensure that the country perorms better in attracting FDI. Through this proposedProgramme, the Government also needs to put more emphasis on the potential development impact o FDI,thus shiting away rom the ocus on improving the country’s international rankings which has characterizedthe past programmes. Under the right policy and economic conditions, FDI can and should play a moreundamental role in poverty reduction and improvement o the population’s welare, through its contributionto growth, employment, exports, technology, skills and know-how transer, inrastructure upgrading andsupplier linkages with domestic rms.

To meet these goals, the overall strategy proposed in the IPR report builds on ve main pillars: (a)achieving global excellence in the investment ramework; (b) creating synergies between FDI and industrial

policy; (c) strengthening policymaking in the area o investment and competitiveness; (d) rationalizing theinvestment promotion eort; and (e) ensuring eective policy implementation. The detailed recommendationsare described in annex 4. The main threads o the our main pillars o the proposed strategy are discussed inthe ollowing pages.

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Investment Policy Review o the ormer Yugoslav Republic o Macedonia Chapter IV

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A Achieving global ecellence in the investment ramework

This report suggests that global excellence in the investment ramework is an achievable goal or theormer Yugoslav Republic o Macedonia in the short-to-medium term. The country should strive or globalexcellence by addressing the remaining bottlenecks in the investment climate and ensuring ull implementationo the recent reorms. It should then capitalize on the quality o its investment climate by turning it into a keyactor o attractiveness, around which to build its FDI promotion strategy. In this regard, the analysis presentedin this report (mainly chapter II) recommends major priority reorms:

● Streamlining the construction permitting process and ensuring equal treatment in the access toland to all investors alike;

● Reorienting the policy on the employment and residence o oreigners to attract skills necessaryto the development o the local economy;

● Ensuring a balance between the attractiveness o the scal regime or investors and the capacity

o the Government to generate sucient revenues to carry out the mandate o public institutions; ● Strengthening the implementation o existing laws and the capacities o institutions dealing with

them, especially in the areas where public interest is to be protected such as environment,competition and labour rights; and

● Strengthening the independence and capacity o the commercial judicial system and adopting azero tolerance approach to administrative corruption, including via an improved procurementregime.

UNCTAD recognizes the need to translate the acquis into the national legislation and recommends theGovernment to utilize the policy space at its disposal to adopt a step-by-step approach useul to ensuringcoherence o the changes with the country’s wider development objectives.

B Creating synergies between FDI and industrial policy

Global excellence in the investment ramework aims at both attracting FDI and deriving benets rom itsfows or the country. In order to maximize the benets rom existing and uture FDI in terms o employment,innovation and integration o the local productive sector in the international value chains, the Governmentshould make sure that it contributes to achieving the goals o the Industrial Policy o the Republic o Macedonia

2009–2020. This report suggests three main areas o intervention: (a) empowering SMEs through training andimproved access to credit; (b) developing supplier linkages to strengthen potential supply chain partnershipsbetween SMEs and TNCs, and ostering the creation o clusters to generate synergies among SMEs; and (c)revisiting the development strategy o the Technological Industrial Development Zones (TIDZs) with a view

to proactively seek new investors, including local rms.

C Strengthening policymaking in the area o investment and competitiveness

Improving the business environment requires a policymaking and implementation system capable o providing the relevant institutional architecture or the attainment o that ambitious goal. Within the currentsetting, the issues o investment, competitiveness and industrial policy are addressed and treated largelyin a separate manner, although most o the agencies and units responsible or policymaking in these areasultimately report to the Deputy Prime Minister or Economic Aairs. This report calls or a more integrated,strategic and coherent approach to investment policymaking, one that ully recognizes that competitivenessand industrial policy can greatly infuence the type and quality o incoming FDI, and also its contribution to

economic development. Likewise, successully targeting certain type o investors can have direct impact on acountry’s competitiveness levels.

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The integrated treatment o investment, competitiveness and industrial policy in the ormer YugoslavRepublic o Macedonia would require a rationalization o the existing policymaking structure and a reallocation

o responsibilities. In particular, the report makes recommendations or the Government to: ● Transorm the Investment Committee into a mechanism or advocacy and dialogue with the

investor community. This implies, among other developments, a change in the requency o itsmeetings (to two–three per year), a change in its agenda (to identiying policy gaps and bottlenecks,and recommending policy reorms), an increase in its membership (to include representatives o the investor community), and the involvement o the Prime Minister as chairperson in regularsessions;

● Turn the Ministerial Committee on Competitiveness (MCC) into the entity responsible oroverseeing the integrated treatment o competitiveness, industrial policy and investment, ensuringthat the contents and the implementation o programmes in these areas are well coordinated. Theentity in charge o preparing uture Programmes or Stimulating Investment and their monitoring

should work closely with the MCC and report to it; ● Strengthen the policymaking and analytical capabilities o the Department or Stimulating

Investments and Social Responsibility at the Ministry o Economy to carry out research, analysisand reporting on the impact o FDI on the local economy;

● Strengthen the quality o the inormation used in impact analysis, including statistics about FDIand activities o oreign aliates, questionnaire surveys targeting oreign investors, and inormationon potential business opportunities in the country;

● Strengthen the monitoring and evaluation capabilities o the institutions responsible or the creationand ollow up o government programmes, and extend their mandate to gather inormation romgovernment agencies participating in those programmes.

D Rationalizing the investment promotion eort

Several public and private sector institutions currently contribute to the investment promotion eort.This setting would also benet rom strengthening and/or rationalization. In particular, it is recommended to:

● Phase out the post o the Minister(s) without Portolio and devise ways or Invest Macedonia totake over client relationship management in investment promotion;

● Strengthen Team Macedonia by co-opting business representatives on an ad hoc basis; and

● Absorb the activities related to promotion o the Directorate or Technological IndustrialDevelopment Zones under the auspices o Invest Macedonia.

In addition to the institutional reorm proposed in the report, there is need to develop comprehensivecapacity-building programmes or public servants in various key policy areas, including taxation, incentives,competition, public procurement and social responsibility. That would require increased resources madeavailable or these governmental institutions.

E Ensuring eective policy implementation

As mentioned, one o the key challenges aced by the Government o the ormer Yugoslav Republic o Macedonia, and indeed by most countries experiencing a ast reorm pace, is to ensure that the resultinglaws and stated policies become reality through implementation and capacity building o the institutions with

responsibility or investment issues. In this regard, some recommendations are proposed and aim at developingan eective monitoring and evaluation mechanism. UNCTAD also recommends ways to strengthen themethodology or collecting statistics on FDI and TNC activities so as to provide policymakers with relevantinormation on the impact o their policies on FDI attraction and on the local economy.

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ANNEx 1 IPRS – AN INTEGRATED ASSISTANCE APPROACH

The Investment Policy Review (IPR) is a comprehensive, demand-driven and country-specic process o technical assistance which spans over a medium- to long-term horizon. The programme starts with preparationo the IPR report and policy advice, continues with support or putting the recommendations into actionand ollows on with a ormal implementation report with proposed urther actions. Below is a schematicpresentation o the IPR approach.

• Government requests support through the IPR programme

• Counterpart in Government is identied

• Strategic focus of the IPR is jointly dened

• UNCTAD conducts fact-nding mission

• Consultations are held with relevant Government's agenciesand stakeholders

• Draft IPR report is prepared

• Draft IPR is subject to a series of internal and external technicalpeer reviews

• Draft IPR and its recommendations are discussed with theGovernment and stakeholders through a national workshop

• IPR report is nalized

• Intergovernmental session is held in Geneva to present the mainndings and recommendations for peer review

• Best practices are exchanged between Governments

• The Government of the country under review endorses selectiverecommendations and takes ownership of IPR report

• Technical assistance (TA) is provided to Government toimplement IPR recommendations

• UNCTAD is involved in providing follow-up TA

• TA can cover wide range of investmentregulatory, customs, training and institutions building, investmentfacilitation/promotion, targeting and aftercare, good governance,international agreements)

• Government implements part of the recommendations withoutneed for TA

• Sister organizations may be called upon to provide follow-up

technical assistance as needed

Phase 5

Implementationreport and

further actions

• Impact is assessed through a formal implementation report5-6 years after IPR publication

• Further actions and technical assistance are proposed as needed

Phase 3

Intergovernmental

peer review andcountry ownership

Phase 4

Implementation of recommendations

and follow-uptechnical

assistance

Phase 1

Governmentrequest

Phase 2

The IPRevaluation andadvisory report

-related issues (legal and

For more inormation on the IPR process and ramework, please visit:www.unctad.org/ipr

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ANNEx 2 REGULATORY REFORMS IN THE FORMER YUGOSLAVREPUBLIC OF MACEDONIA

In order to eliminate duplication and inconsistency between the old and the new sets o legislation,the Government o the ormer Yugoslav Republic o Macedonia initiated, at the end o 2006, a process toreview existing laws and by-laws, to streamline bureaucratic procedures, and introduce a Regulatory ImpactAssessment (RIA). As a result, and in consultation with the business community, ministries, non-governmentalorganizations and independent experts, the Sector or Regulatory Reorms (which reports to the Cabineto the Deputy Prime Minister or Economic Aairs) has proposed changes to many laws and by-laws. Thisprocess called the “regulatory guillotine”102 has been continuously carried out in several stages. Hitherto,in the rst phase, 2000 laws and by-laws were reviewed in cooperation with the business community andcitizens, and measures were taken and carried out in 545 regulations. The second phase started in April 2009,whereby 54 measures were adopted towards simplication o the cross-border trading procedures. As a third

phase, in October 2010 the Government adopted a new package o 47 measures, which are currently underimplementation. The measures relate to procedures in several areas, such as agriculture, labour and socialpolicy, health, environment and insurance. Their implementation is scheduled or completion by mid-2011,ollowed by more consultation with the business community, determining the possibility o ormulating a newset o measures or urther simplication o the administrative procedures.

The RIA is a complementary tool o the regulatory guillotine, aimed at preventing the generation o additional administrative burdens and barriers in the new legislation. It involves public-private consultationsand the use o a unique national electronic registry. Following a pilot project in 2008, all ministries have theobligation, since January 2009, to undertake an RIA when adopting new laws (Government o the ormerYugoslav Republic o Macedonia, 2009). The regulatory guillotine will be implemented continuously until a

capacity is built or implementation o RIA in by-laws, which actually hold the largest administrative burdens.The legal ramework or the RIA was established through the Rules o Procedure or Amendments and

Modications o the Government o the Republic o Macedonia, the Methodology or Regulatory ImpactAssessment and Decision on Format and Contents o the Regulatory Impact Assessment. The RIA is applied toall drat laws rom 1 January 2009 (except or the laws adopted in an urgent procedure). As a technical supportto the RIA process, a Unique National Electronic Registry o Regulations (UNERR) was established, whichenables stakeholders to submit electronic comments and suggestions directly to the government institutions.By the end o October 2010, 1,553 current regulations were included in the UNERR, 224 o which are dratlaws that were available or public comments and that have undergone the RIA process.

To build administrative capacity or RIA, the General Secretariat o the Government o the ormer YugoslavRepublic o Macedonia and the Ministry o Foreign Aairs o the United Kingdom signed a Memorandum o Cooperation in October 2010. The project, titled “Better Business Regulations in Macedonia”, implementedrom November 2010 to March 2011, includes the ollowing activities:

● Analysis o the RIA process implementation and the UNERR unctioning up-to-date;

● Development o an action plan or implementation o better regulatory reorm;

● Analysis o the RIA application in specic business regulations; and

● Analysis o the consultation process with the business community as an important part o theRIA process and development o Consultation Code.

Another area o regulatory reorm concerns the penalty policy o the country. In March 2010, theGovernment, in cooperation with the chambers o commerce, associations o enterprises and businessentities, identied the problems that the business community is acing rom inspection authorities. Following102OGRM129/06.

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the recommendations o the business community, the rst package or a better penalty policy was adopted in July 2010. By September 2010, changes and adjustments o 22 laws had been made. By October 2010, a urther

37 laws were amended through a second package. According to the Action Plan adopted by the Government,measures aecting penalty policy should aect approximately 160 laws by the end o the rst quarter o 2011.

Finally, part o the regulatory reorm has been undertaken through the Government’s anti-crisis measures.By March 2010, our packages o anti-crisis measures had been adopted. The last round included 25 measures,designed to acilitate the procedures or doing business in the country, improve access o micro-enterprisesand SMEs to credit, increase their liquidity, stimulate construction, promote the privatization o land, promoteemployment in agriculture, improve tourism, promote exports, and reduce unair competition. This ourthpackage is to be ully implemented by the end o 2011. The Government continuously monitored the globaleconomic crisis and its eects on the national economy. I need or additional liquidity arises, a new packageo anti-crisis measures will be created in cooperation with the business community.

Source: UNCTAD, based on inormation provided by the Cabinet o the Deputy Prime Minister or Economic Aairs.

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ANNEx 3 METHODOLOGY OF INTERNATIONAL TAxCOMPARISONS

The Comparative Taxation Survey compares taxation on investment in several sectors in the ormerYugoslav Republic o Macedonia with taxation in other selected countries – neighbours and countrieselsewhere that have succeeded in attracting FDI to specic sectors. These results provide an assessment o the competitiveness o the ormer Yugoslav Republic o Macedonia in terms o its taxation regime.

Corporate taxation aects the cost o investment and its protability, and thus the return on investment.This impact is not just a question o looking at the headline rate o tax on prots. The tax burden on theinvestor depends on a number o actors and their interaction, including allowed expenses, rates o capitalallowances (tax depreciation), the availability o tax credits, investment allowances and tax holidays, the losscarry-orward provisions and the taxation o dividends, among other things.

Comparative tax modelling is a method o taking into account the most important o these variables inthe scal regime in a manner that acilitates comparison between countries. The tax variables included in theanalysis are:

● Corporate income tax;

● Tax rates including tax holidays, i any;

● Loss carry-orward provisions;

● Capital allowances, investment allowances and investment credits;

● Tax on dividends; and

● Customs import duties and excise duties on business inputs.

Financial models o project investment and nancing, revenues and expenses are utilized or a hypotheticalbusiness in each sector. These are based on typical costs and revenues experienced in such businesses in adeveloping economy. The business models cover a selected business within each sector. The scal regime inthe ormer Yugoslav Republic o Macedonia or each sector is applied to the standard business model or eachsector over 10 years beginning with the initial investment. The nancial models calculate net cash fow to theinvestor assuming that the company pays out all residual prots ater tax (100 per cent dividend pay out) andthat the investor gains the residual value o the company, which is sold ater 10 years or an amount equal toits balance sheet value.

The impact o the scal regime is presented as the present value o tax (PV tax). PV tax is the total o

taxes and duties collected by the Government over the 10 years as a percentage o the project cash fowpre-tax and post-nance where both cash fows are discounted to a present value at a rate o 10 per centper annum. PV tax thus measures how much o investors’ potential project return is taken by the governmentin taxes and duties. The higher the PV tax, the more the scal regime burdens investors and reduces theincentive to invest. The simulation prepared or the ormer Yugoslav Republic o Macedonia considered threesectors that are o major importance or existing and potential FDI in the country: consumer electronics,ICT and tourism. Comparisons were made with other countries o the subregion (Albania, Bulgaria, Croatia,Montenegro and Serbia), as well as with some developing countries where the sectors selected attractedFDI: Costa Rica and Viet Nam in consumer electronics, Malaysia and Singapore in ICT, and China, Malaysia, SriLanka and Thailand in tourism. Whenever inormation was available, the simulation o the tax model took intoconsideration the incentives programmes o the countries separately.

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A N N E x 4 I N P U T S

F O R T H E I M P L E M E N

T A T I O N

O F T H E P R

O G R A M M E F O R

S T I M U L A T I N G I N V E S T M E N T

1 A c h i e

v i n g g l o b a l e c e l l e n c e i n t h e

i n v e s t m e n t r a m e w o r k

I n r e c e n t y e a r s , m o d e r n l e g i s l a t i o n h a s b e e n a d o p t e d i n s e v e r a l d o m a i n s o t h e r e g u l a t o r y r a m e w o r k o t h e o r m e r Y u g o s l a v R e p u b l i c o M a c

e d o n i a ,

i n c l u d i n g c o m p a n y r e g i s t r a t i o n , l a b o u r , e n v i r o n m e n t , c u s t o m s , i n t e l l e c t u a l p r o p e r t y a n d c o m p e t i t i o n . T h e s e r e o r m s h a v e a d i r e c t b e a r i n g o n t h e e a s e

a n d c o s t o

d o i n g b u s i n e s s i n t h e c o u n t r y a n d i t s l e v e l s o c o m p e t i t i v e n e s s . T h e r e a r e , h o w e v e r , r e m a i n i n g r e g u

l a t o r y c o n s t r a i n t s , s u c h a s i n t h e

a r e a o

c o n s t r u c t i o n p e r m i t t i n g a n d e n t r y o o r e i g

n l a b o u r . T h e c o u n t r y a l s o n e e d s

t o c o n s o l i d a t e a n d i m p l e m e n t r e

c e n t r e o r m s b y a d o p t i n g t h e n e c e s s a r y

b y - l a w s a n

d r e g u l a t i o n s a n d s t r e n g t h e n i n g

t h e i n s t i t u t i o n s i n c h a r g e o t h e i r i m p l e m e n t a t i o n i n i m p o r t a n t a r e a s s u c h a s e n v i r o n m e n t a l p r o t e c t i o n ,

c o m p e t i t i o

n o r l a b o u r r i g h t s . T h e o l l o w i n g t a b l e s s u m m a r i z e t h e r e l e v a n t r e c o m m e n d a t i o n s i n t h e a r e a o

c o m p e t i t i v e n e s s o t h e e c o n o m y . I n t h e

t i m e l i n e , s h o r t t e r m i n d i c a t e s a c t i o n s t o b e

u n d e r t a k e n i n t h e r s t y e a r o t h e p r o g r a m m e o r s t i m u l a t i n g i n v e s t m e n t , m e d i u m t e r m d e n o t e s a c t

i o n s t o

b e c o m p l e

t e d b e o r e t h e e n d o t h e 2 0 1 1 – 2

0 1 4 c y c l e , a n d l o n g t e r m i n d i c a t e s a c t i o n s t h a t m a y r e q u i r e t i m e g o

i n g b e y o n d 2 0 1 4 .

1 1

I n t e r n a t i o n a l r a m e w o r k o r F D I

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e l i n e

1 1 1

B I T s

E x t e n d t h e n e t w o r k

o B I T s

I n i t i a t e a n d c o n c l u d e B I T s w i t h E U m e m b e r c o u n t r i e s a s a m a t t e r o p r i o r i t y

E n s u r e t h a t t h r e e B I T s e n t e r i n t o o r c e ( I s

l a m i c R e p u b l i c o I r a n , E g y p t a n d B e l a r u s )

S i g n a n d r a t i y t h e a g r e e d B I T s w i t h G r e e c

e , N o r t h e r n I r e l a n d a n d O m a n )

S i g n a n d r a t i y B I T s w i t h t h e r e m a i n i n g E U

c o u n t r i e s ( I r e l a n d , P o r t u g a l , L u x e m b o u r g , M a l t a , L a t v i a , C y p r u s , E s t o n i a ,

U n i t e d K i n g d o m , D e n m a r k a n d L i t h u a n i a )

E x t e n d t h e n e t w o r k o B I T s t o o t h e r k e y t r a d i n g p a r t n e r s s u c h a s t h e U n i t e d S t a t e s , J a p a n , C a n a d a , A u s t r a l i a ,

N e w Z e a l a n d , M e x i c o , N o r w a y , I c e l a n d , M o n t e n e g r o , K o s o v o a n d t h e R e p u b l i c o M o l d o v a , i n c l u d i n g a m e n d m e n t s

o r C r o a t i a , U z b e k i s t a n , K a z a k h s t a n a n d Q

a t a r

S h o r t

S h o r t

S h o r t t o

m e d i u m

S h o r t t o

m e d i u m

S h o r t t o

m e d i u m

1 1 2

L i s b o n T r e a t y a n d

B I T s

M o n i t o r t h e

c o n s e q u e n c e s o t h e

T r e a t y o L i s b o n o r

B I T s

M o n i t o r c l o s e l y n e w d e v e l o p m e n t s i n t h e

a r e a o t r a n s e r o c o m p e t e n c i e s i n t h e E U r o

m m e m b e r c o u n t r i e s t o t h e E C

d u e t o t h e e n t r y i n t o o r c e o t h e T r e a t y o

L i s b o n

A d j u s t a p p r o a c h t o B I T s a c c o r d i n g t o t h e

e n t r y i n t o o r c e o t h i s t r e a t y

S h o r t t o

m e d i u m

S h o r t

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1 8

L a n d a n d c o n s t r u c t i o n p e r m

i t s

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

1 8 1

T i t l i n g a n d

c a d a s t r e

E n s u r e e c i e n c y

i n t h e r e a l e s t a t e

c a d a s t r e d o m a i n

U p d a t e a n d c l a r i y u p t o 1 0 0 p e r c e n t c a d a

s t r a l r e c o r d s a n d t r a d a b l e t i t l e s

C o m p l e t e t h e p r o c e s s o d i g i t i z a t i o n o 1 : 2

5 , 0 0 0 m a p s

E s t a b l i s h t h e e - c a d a s t r e s y s t e m a n d r o l l o u

t

C o m p l e t e t h e p r o c e s s o c a d a s t r e d i g i t i z a t i o n

C o m p l e t e t h e e - c o n v e y a n c e s y s t e m o r c o m p l e t i o n o t h e p r o p e r t y t r a n s e r o n l i n e

C o m p l e t e t h e s y s t e m o e - p a y m e n t o r s e r

v i c e s

P r e p a r e t h e S t r a t e g y o n N a t i o n a l I n r a s t r u c t u r e o s p a t i a l d a t a

E s t a b l i s h N a t i o n a l I n r a s t r u c t u r e o s p a t i a l d a t a

E n s u r e t h a t t h e C a d a s t r e A g e n c y b e c o m e s

a s e l - u n d i n g i n s t i t u t i o n

S h o r t

S h o r t

S h o r t

M e d i u m

S h o r t

S h o r t

S h o r t

S h o r t

M e d i u m

1 8 2

L a n d o w n e r s h i p

F o r e i g n l e g a l e n t i t i e s

a n d p e r s o n s a r e

a l l o w e d t o a c q u i r e

l a n d o n t h e s a m e b a s i s

a s d o m e s t i c

E n s u r e t h a t a d m i n i s t r a t i v e p r o c e d u r e s o r a c q u i s i t i o n o l a n d b y o r e i g n e r s i s n o t m o r e b u r d e n s o m e t h a n t h o s e o r

d o m e s t i c i n v e s t o r s

S h o r t t o m

e d i u m

1 8 3

C o n s t r u c t i o n

p e r m i t e e s

R e d u c i n g e e s

C o n s i d e r r e d u c i n g t h e e e s o c o n s t r u c t i o n

p e r m i t s

S h o r t

1 8 4

C o m m u n a l e e s

a n d p r o p e r t y

t a x e s

R a t i o n a l i z e e e s

C o n s i d e r r e d u c i n g c o m m u n a l e e s a n d m a k i n g t h e m m o r e u n i o r m

C o n s i d e r i n c r e a s i n g p r o p e r t y t a x e s

S h o r t

S h o r t

1 9

E n v i r o n m e n t a l p r o t e c t i o n

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

1 9 1

A d m i n i s t r a t i o n

c a p a c i t i e s i n

e n v i r o n m e n t a l

p r o t e c t i o n

I m p r o v e a d m i n i s t r a t i v e

c a p a c i t i e s

I n c r e a s e n a t i o n a l a d m i n i s t r a t i v e c a p a c i t i e s i n e n v i r o n m e n t a l p r o t e c t i o n , e s p e c i a l l y i n s p e c t o r a t e s

S h o r t t o l o n g

1 9 2

E n v i r o n m e n t a l

l a w s

S t r e n g t h e n

e n v i r o n m e n t a l l a w s

U p d a t e n a t i o n a l l e g i s l a t i o n o n w a t e r q u a l i t y o r I P P C , i n o r d e r t o p r o g r e s s o n t h e a c q u i s

S t r e n g t h e n t h e u l l i n t e g r a t i o n o t h e p r e c a

u t i o n a r y p r i n c i p l e , t h e p r i n c i p l e o p r e v e n t i v e a c t i o n a n d t h e p o l l u t e r - p a y s

p r i n c i p l e i n t o n a t i o n a l p o l i c y m a k i n g a n d i m

p l e m e n t a t i o n i n a r e a s o t h e r t h a n e n v i r o n m e n t a l p r o t e c t i o n i t s e l

S t r e n g t h e n i m p l e m e n t a t i o n o e n v i r o n m e n t a l l a w s

M e d i u m t o l o n g



1 1 0 C o m p e t i t i o n p o l i c y a n d S t a

t e a i d

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

1 1 0 1

C o m p e t i t i o n

A g e n c y

S t r e n g t h e n t h e

C o m p e t i t i o n A g e n c y

E n s u r e t h a t r e s o u r c e s ( s t a a n d u n d s ) a r e

a v a i l a b l e t o i m p l e m e n t r e m i t

E s t a b l i s h s o u n d i m p l e m e n t a t i o n o S t a t e a i d p r o v i s i o n s , d e m o n s t r a t e d b y t h e r e c o r d o e n o r c e m e n t

S h o r t

S h o r t

1 1 0 2

C a p a c i t y - b u i l d i n g

S t r e n g t h e n

a u t o n o m o u s c a p a c i t y

i n s k i l l s d e v e l o p m e n t

S t r e n g t h e n t h e c a p a c i t y o t h e s t a o t h e c o m p e t i t i o n a u t h o r i t y : e s t a b l i s h a c a p a c i t y - b u i l d i n g p r o v i s i o n i n t h e b u d g e t o

t h e C o m m i s s i o n

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A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

1 1 0 3

I m p l e m e n t a t i o n o

C o m p e t i t i o n L a w

a n d s e c o n d a r y

l e g i s l a t i o n

I m p l e m e n t u l l y t h e

C o m p e t i t i o n L a w a n d

s e c o n d a r y l e g i s l a t i o n

E n s u r e u l l h a r m o n i z a t i o n w i t h E U r e q u i r e m e n t s b y a d o p t i n g r e g u l a t i o n r e l a t i n g t o b l o c k

e x e m p t i o n t o c e r t a i n

a g r e e m e n t s a n d c o n c e r t e d p r a c t i c e s i n a i r

t r a n s p o r t

A d o p t D e c r e e o n t h e c o n d i t i o n s a n d p r o c e d u r e o r d e c r e a s i n g a n d a b o l i s h i n g n e s i n t h e m i s d e m e a n o u r p r o c e d u r e

( l e n i e n c y )

A d o p t n e c e s s a r y g u i d e l i n e s o r r e a l i z a t i o n o m e r g e r s

A d o p t g u i d e l i n e s o n t h e c o n c e p t o t h e c o n c e n t r a t i o n

S h o r t

M e d i u m

M e d i u m

M e d i u m

1 1 0 4

C P C c a p a c i t y

S t r e n g t h e n t h e C P C

c a p a c i t y

I n c r e a s e C P C b u d g e t t o i n c r e a s e t h e c a s e h a n d l e r s ( e . g . o c u s i n g o n c a r t e l s a n d a b u s e o

d o m i n a n t p o s i t i o n ) t o 1 8

D e v e l o p s k i l l s a n d c a p a c i t y o t h e t e c h n i c a l s t a a t C P C

S h o r t

S h o r t

1 1 0 5

C o m p e t i t i o n -

r e l a t e s l e g i s l a t i o n

S t r e n g t h e n

c o m p e t i t i o n - r e l a t e d

r u l e s

A m e n d t h e L a w o n P r e v e n t i o n o C o r r u p t i o n : I m p r o v e p r o t e c t i o n o r “ w h i s t l e b l o w e r s ”

S h o r t

1 1 0 6

C o n t r o l a n d

s u r v e i l l a n c e o t h e

S t a t e a i d

I m p r o v e C o m m i s s i o n ’ s

e c i e n c y i n

s u r v e i l l a n c e a n d

c o n t r o l o t h e S t a t e

a i d I m p r o v e c o o r d i n a t i o n

b e t w e e n S t a t e

a i d p r o v i d e r s a n d

b u s i n e s s e s

I n c r e a s e t h e n u m b e r a n d c a p a c i t y o t h e S t

a t e A i d U n i t

I n c r e a s e t h e c a p a c i t y o S t a t e a i d p r o v i d e r s

A d o p t n e w D e c r e e o n c o n d i t i o n s a n d p r o c e d u r e o r s u b m i s s i o n o S t a t e a i d n o t i c a t i o n

t o t h e C P C a n d a s s e s s m e n t o

t h e S t a t e a i d

A d o p t D e c r e e o n c o n d i t i o n s a n d p r o c e d u r e o r g r a n t i n g d e m i n i m i s S t a t e a i d

E s t a b l i s h a n d b u i l d r e l i a b l e r e c o r d o r r e a l i z a t i o n o S t a t e a i d c o n t r o l

E s t a b l i s h a n c o m p r e h e n s i v e s y s t e m o r e x a n t e c o n t r o l o S t a t e a i d

R a i s e a w a r e n e s s o S t a t e a i d r e g u l a t i o n s a m

o n g g o v e r n m e n t i n s t i t u t i o n s , b u s i n e s s a n d t h e

g e n e r a l p u b l i c

S h o r t

S h o r t t o m

e d i u m

S h o r t

S h o r t

S h o r t

S h o r t

S h o r t t o m

e d i u m

1 1 1 C o m m e r c i a l j u s t i c e

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

1 1 1 1

C o m m e r c i a l

j u s t i c e

B u i l d t h e c a p a c i t y

o s t a d e a l i n g w i t h

c o m m e r c i a l j u s t i c e

i s s u e s

S t r e n g t h e n t h e i n d e p e n d e n c e a n d t h e c a p a c i t y o t h e j u d i c i a l s y s t e m t h r o u g h :

•

I m p r o v i n g t h e c o u r t i n r a s t r u c t u r e ;

•

E s t a b l i s h i n g I T s y s t e m s i n t h e j u d i c i a l i n s t i t u t i o n s ;

•

I m p r o v i n g t h e e n o r c e m e n t o c o u r t

c a s e s , a n d e s t a b l i s h i n g a n e c i e n t s y s t e m t o d

e l i v e r c o u r t s u m m o n s

T r a i n s p e c i a l i z e d c o m m e r c i a l j u d g e s t o i m p

r o v e t h e e c i e n c y o c o m m e r c i a l j u s t i c e


S h o r t t o m

e d i u m

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1 1 4 C o r p o r a t e s o c i a l r e s p o n s i b i l i t y ( C S R )

A r e a

O b j e c t i v e

M e a s u r e ( s ) t

T i m e

l i n e

1 1 4 1

C S R p o l i c y

S t r e n g t h e n C S R p o l i c y

I m p l e m e n t t h e N a t i o n a l A g e n d a o n C S R i n

M a c e d o n i a 2 0 0 8 – 2 0 1 2

I n t r o d u c e a n d p r o m o t e e n v i r o n m e n t a l a n d

s o c i a l l a b e l l i n g

C r e a t e t h e o b l i g a t i o n o C S R r e p o r t i n g o r

a l l S t a t e - o w n e d e n t i t i e s , i n c l u d i n g r m s

S h o r t t o m

e d i u m

M e d i u m

S h o r t t o m

e d i u m

1 1 4 2

C R S c a p a c i t y -

b u i l d i n g

S t r e n g t h e n i n s t i t u t i o n s

S t r e n g t h e n t h e N a t i o n a l C o o r d i n a t i n g B o d y o n C S R

D e v e l o p c a p a b i l i t i e s o t h e N G O s

T r a i n m e d i a a n d c a r r y o u t c a p a c i t y b u i l d i n g

o r N C B – C S R ( t h r o u g h t h e N a t i o n a l C o o r d i n a t i o n B o d y o r C S R )

E n s u r e c o n s u l t a n c y a n d e x p e r t p o l i c y a s s i s t a n c e t o t h e w o r k i n g g r o u p o S t a t e i n s t i t u t i o n s a n d r e g u l a t o r s o t h e N C B – C S R

S h o r t t o m

e d i u m

S h o r t t o m

e d i u m

S h o r t t o m

e d i u m

S h o r t t o m

e d i u m

1 1 4 3

C S R a w a r e n e s s

r a i s i n g c a m p a i g n

P r o m o t e e e c t i v e

i m p l e m e n t a t i o n o

p r o j e c t o n b e h a l o

C S R s t a k e h o l d e r s

I m p l e m e n t t h e “ M a i n s t r e a m i n g o t h e N a t i o n a l A g e n d a o n C S R – S u p p o r t t o t h e N a t i o n a

l C S R P l a t o r m ” t o p r o m o t e

C S R t h r o u g h :

P r o d u c t i o n o C S R p r o m o t i o n a l m a t e r i a l s , C S R C a r a v a n , C S R t h e m a t i c o r u m s , m e d i a c o v e r a g e a n d w e b s i t e a n d

E - b u l l e t i n ;

O r g a n i z a t i o n o N a t i o n a l C S R A w a r d ;

S t a t e a n d p r i v a t e e n t e r p r i s e r e p o r t i n g o n C

S R m e a s u r e s ;

M a p p i n g C S R s t e p s i n p u b l i c p r o c u r e m e n t

p r o c e d u r e s

S h o r t t o m

e d i u m

1 1 5 P u b l i c - p r i v a t e p a r t n e r s h i p s ( P P P )

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

1 1 5 1

P P P –

I m p l e m e n t a t i o n

u n i t

E s t a b l i s h a d e q u a t e P P P

c a p a b i l i t y

S t r e n g t h e n t h e a d m i n i s t r a t i v e c a p a c i t i e s o

t h e P u b l i c - P r i v a t e P a r t n e r s h i p U n i t w i t h i n t h e

M i n i s t r y o E c o n o m y t h r o u g h

i n c r e a s e d h u m a n a n d n a n c i a l r e s o u r c e s a s w e l l a s t r a i n i n g

S h o r t t o m

e d i u m

1 1 5 2

P P P – L e g i s l a t i o n

D e v e l o p t h e n e c e s s a r y

P P P l a w s a n d

r e g u l a t i o n s

A d o p t a n e w P P P L a w a i m i n g a t e l i m i n a t i n g i n c o n s i s t e n c i e s w i t h s e c t o r - s p e c i c l a w s

P r e p a r e b y - l a w s c o n n e c t e d w i t h t h e L a w o

n C o n c e s s i o n s a n d P P P

P r e p a r e l e g a l g u i d e o r i m p l e m e n t a t i o n o P P P

C a p a c i t y b u i l d i n g a n d s u p p o r t c o n n e c t e d w

i t h P P P ( L a w o C o n c e s s i o n s a n d P P P )

S h o r t

S h o r t t o m

e d i u m

S h o r t

M e d i u m

1 1 5 3

P P P –

C o n s u l t a t i o n s

A l l o w o r d i a l o g u e o n

P P P s

E s t a b l i s h r e g u l a r c o n s u l t a t i o n s w i t h d o m e s t i c a n d o r e i g n i n v e s t o r s / r m s o n P P P m a t t e r s

S h o r t t o m

e d i u m

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4 R a t i o

n a l i z i n g t h e i n v e s t m e n t p r o m

o t i o n e o r t

I n t h e o r m e r Y u g o s l a v R e p u b l i c o M a c e d o n i a , a s i n m o s t o t h e r c o u n t r i e s , m a n y o r g a n i z a t i o n s i n t h e p u b l i c a n d p r i v a t e s e c t o r s c o n t r i b u t e

t o t h e

i n v e s t m e n t p r o m o t i o n e o r t . T h i s d i m e n s i o n o t h e P r o g r a m m e s u m s u p r e c o

m m e n d a t i o n s o n h o w t o r a t i o n a l i z e t h e c u r r e n t s e t t i n g .

4 1

R a t i o n a l i z a t i o n o i n v e s t m e n t p r o m o t i o n i n s t i t u t i o n s

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

4 1 1

M i n i s t e r ( s )

w i t h o u t P o r t o l i o

R a t i o n a l i z e t h e

s y s t e m o i n v e s t m e n t

a t t r a c t i o n

C o n s i d e r p h a s i n g o u t t h e p o s t o M i n i s t e r ( s ) w i t h o u t P o r t o l i o

A n a l y s e h o w a n d w h e n I n v e s t M a c e d o n i a ’ s

p r o m o t e r s c a n t a k e o v e r t h e r o l e o t a r g e t i n g

i n v e s t o r s

S h o r t

S h o r t

4 1 2

T e a m M a c e d o n i a

S t r e n g t h e n T e a m

M a c e d o n i a

C o - o p t b u s i n e s s r e p r e s e n t a t i v e s o n a n a d h o c b a s i s

S h o r t

4 1 3

T I D Z s

R a t i o n a l i z e F D I

a t t r a c t i o n t o T I D Z s

A s s e s s s c o p e o r m e r g i n g t h e i n v e s t m e n t p

r o m o t i o n a c t i v i t i e s o I n v e s t M a c e d o n i a a n d T I D Z

M e r g e t h e i n v e s t m e n t p r o m o t i o n a c t i v i t i e s

o I n v e s t M a c e d o n i a a n d T I D Z

S h o r t

M e d i u m

4 2

I n v e s t M a c e d o n i a

A r e a

O b j e c t i v e

M e a s u r e ( s )

T i m e

l i n e

4 2 1

I n v e s t m e n t

p r o m o t i o n

s t r a t e g y

D e v e l o p a c l e a r

s t r a t e g i c v i s i o n a n d

i m p r o v e t h e i m a g e o

t h e o r m e r Y u g o s l a v

R e p u b l i c o M a c e d o n i a

R e v i s e a n d u p d a t e I n v e s t m e n t P r o m o t i o n S t r a t e g y ( c u r r e n t o n e u p t o 2 0 0 7 )

O b t a i n G o v e r n m e n t a p p r o v a l o r n e w I n v e

s t m e n t P r o m o t i o n S t r a t e g y ( c o o r d i n a t e d w i t h

t h e E x p o r t P r o m o t i o n S t r a t e g y

b e l o w )

S h o r t

S h o r t

4 2 2

I n s t i t u t i o n a l

s u p p o r t o r

i n v e s t m e n t

p r o m o t i o n

I m p l e m e n t i n v e s t m e n t

p r o m o t i o n s t r a t e g y

a n d p r o m o t e

i n s t i t u t i o n a l

s t r e a m l i n i n g

C r e a t e a n e w I P A s t r u c t u r e t o i n c o r p o r a t e

n e w E x p o r t P r o m o t i o n r e m i t

E n s u r e a d e q u a t e b u d g e t a n d s t a c o m p l e m

e n t o r n e w a c t i v i t i e s

R e v i s e w a g e s t r u c t u r e t o r e f e c t n e e d s o i n v e s t m e n t / e x p o r t p r o m o t i o n

E s t a b l i s h r e g u l a r l i n k s w i t h k e y l o c a l a u t h o r i t i e s ( l a n d m a n a g e m e n t , p e r m i t s , e t c . )

E s t a b l i s h r e g u l a r l i n k s w i t h 8 p l a n n i n g r e g i o

n s / d e v e l o p m e n t a g e n c i e s ( a n d w o r k w i t h t h e m )

R a i s e w a g e s l e v e l s o c o m p a r a b l e r e g i o n a l l e v e l s ( b e n c h m a r k i n g ) i n o r d e r t o a t t r a c t a n d r e t a i n q u a l i e d s t a

S h o r t

S h o r t

S h o r t

S h o r t t o m

e d i u m

S h o r t t o m

e d i u m

S h o r t t o m

e d i u m

4 2 3

O n e - s t o p s h o p

S t r e a m l i n e a n d

a c i l i t a t e d e l i v e r y o

s e r v i c e s

D e v e l o p s t r a t e g y o r c o n v e r s i o n o I P A i n t o o n e - s t o p s h o p

I m p l e m e n t s t r a t e g y o r e s t a b l i s h m e n t o o n e - s t o p s h o p c a p a b i l i t y

S h o r t

S h o r t t o m

e d i u m

4 2 4

C l i e n t r e l a t i o n s h i p

m a n a g e m e n t

i n i n v e s t m e n t

p r o m o t i o n

S t r e a m l i n e t h e p r o c e s s

o a t t r a c t i n g i n v e s t o r s

S h i t m a n a g e m e n t o C R M d a t a b a s e t o I n v e s t M a c e d o n i a

M e d i u m

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Stojarova V (2007). Organized Crime in the Western Balkans, HUMSEC Journal , Issue 1.

Tieman AF (2011). The Electricity Sector in FYR Macedonia. IMF Working Paper WP/11/30, International Monetary Fund,Washington, D.C.

UNCTAD (2001). World Investment Report 2001: Promoting Linkages. United Nations publication. Sales No. E.01.II.D.12.

New York and Geneva.

UNCTAD (2008). World Investment Report 2008: Transnational Corporations and the Inrastructure Challenge. United Nationspublication. Sales No. E.08.II.D.23. New York and Geneva.

UNCTAD (2009a). Investment Policy Review Nigeria. United Nations publication, Sales E.08.II.D.11. New York and Geneva.

UNCTAD (2009b). Investment Policy Review Belarus. United Nations publication. Sales No. E.09.II.D.19. New York andGeneva.

UNCTAD (2009c). Investment Policy Review Dominican Republic. United Nations publication. Sales No. E.08.II.D.10. NewYork and Geneva.

UNCTAD (2010). World Investment Report 2010: Investing in a low-carbon economy. United Nations publication. SalesNo. E.10.II.D.2. New York and Geneva.

UNCTAD (2011). Best Practices in Investment or Development – Case Studies in FDI. How to attract and benet rom FDI in

small countries: Lessons rom Estonia and Jamaica Estonia. United Nations publication. New York and Geneva.

U.S. Department o State (2008). Investment Climate Statement – Macedonia. Washington, D.C.

USAID Macedonia (2009a). Macedonia’s Agenda or Action: Business Climate Legal and Institutional Reorm Diagnostic,Executive Summary. Skopje.

USAID Macedonia (2009b). Macedonia Business Environment Assessment. Final Report. Skopje.

World Bank (2006). Former Yugoslav Republic o Macedonia. Issues in Urban and Municipal Development. A Policy Note.Sustainable Development Department, South East Europe Country Unit. Washington, D.C.

World Bank (2008). Macedonia, FYR, Moving to Faster and More Inclusive Growth: A Country Economic Memorandum.Report No. 44170-MK. Poverty Reduction and Economic Management Unit, Europe and Central Asia Region. Washington,D.C.

World Bank (2009). Doing Business 2010: Reorming through Dicult Times. Washington, D.C.

World Bank (2010). Doing Business 2011: Making a Dierence or Entrepreneurs. Washington, D.C.

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SELECTED UNCTAD PUBLICATIONS ON TRANSNATIONALCORPORATIONS AND FDI

World Investment Reports

http://www.unctad.org/wir

UNCTAD, World Investment Report 2010. Investing in a Low-Carbon Economy (New York and Geneva,2010). 184 pages. Sales No. E.10.II.D.2.

UNCTAD, World Investment Report 2009. Transnational Corporations, Agricultural Production andDevelopment (New York and Geneva, 2009). 280 pages. Sales No. E.09.II.D.15.

UNCTAD, World Investment Report 2008. Transnational Corporations and the Inrastructure Challenge(New York and Geneva, 2008). 294 pages. Sales No. E.08.II.D.23.

UNCTAD, World Investment Report 2007. Transnational Corporations, Extractive Industries andDevelopment (New York and Geneva, 2007). 294 pages. Sales No. E.07.II.D.9.

UNCTAD, World Investment Report 2006. FDI rom Developing and Transition Economies: Implications orDevelopment (New York and Geneva, 2006). 340 pages. Sales No. E.06.II.D.11.

UNCTAD, World Investment Report 2005. Transnational Corporations and the Internationalization o R&D(New York and Geneva, 2005). 332 pages. Sales No. E.05.II.D.10.

UNCTAD, World Investment Report 2004. The Shit Towards Services (New York and Geneva, 2004).468 pages. Sales No. E.04.II.D.36.

UNCTAD, World Investment Report 2003. FDI Policies or Development: National and InternationalPerspectives (New York and Geneva, 2003). 303 pages. Sales No. E.03.II.D.8.

UNCTAD, World Investment Report 2002: Transnational Corporations and Export Competitiveness (NewYork and Geneva, 2002). 350 pages. Sales No. E.02.II.D.4.

UNCTAD, World Investment Report 2001: Promoting Linkages (New York and Geneva, 2001). 354 pages.Sales No. E.01.II.D.12.

Investment Policy Reviews

http://www.unctad.org/ipr

UNCTAD, Investment Policy Review o Guatemala (New York and Geneva, 2011). 151 pages. UNCTAD/DIAE/PCB/2010/9.

UNCTAD, Investment Policy Review o El Salvador (New York and Geneva, 2010). 121 pages. Sales No. E.10.II.D.15.

UNCTAD, Investment Policy Review o Sierra Leone (New York and Geneva, 2010). 114 pages. SalesNo. E.10.II.D.8.

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UNCTAD, Examen de la Politique d’investissement du Burundi (New York and Geneva, 2010). 118 pages.Sales No. F.10.II.D.10.

UNCTAD, Investment Policy Review o Belarus (New York and Geneva, 2009). 111 pages. Sales No. E.09.II.D.19.

UNCTAD, Examen de la Politique de d’investissement du Burkina Faso (New York and Geneva, 2009).120 pages. Sales No. F.09.II.D.5.

UNCTAD, Investment Policy Review o the Nigeria (New York and Geneva, 2009). 140 pages. Sales No. E.08.II.D.11.

UNCTAD, Examen de la Politique d’investissement de la Mauritanie (New York and Geneva, 2008).120 pages. Sales No. F.08.II.D.16.

UNCTAD, Investment Policy Review o the Dominican Republic (New York and Geneva, 2009). 116 pages.Sales No. E.08.II.D.10.

UNCTAD, Investment Policy Review o Viet Nam (New York and Geneva, 2008). 158 pages. Sales No. E.08.II.D.12.

UNCTAD, Examen de la Politique d’investissement du Maroc (New York and Geneva, 2008). 142 pages.Sales No. F.07.II.D.4.

UNCTAD, Report on the Implementation o the Investment Policy Review o Uganda (New York and

Geneva, 2007) 30 pages. UNCTAD/ITE/IPC/2006/15.

UNCTAD, Investment Policy Review o Zambia (New York and Geneva, 2006). 76 pages. Sales No. E.06.II.D.17.

UNCTAD, Investment Policy Review o Rwanda (New York and Geneva, 2006). 136 pages. Sales No. E.06.II.D.15.

UNCTAD, Investment Policy Review o Colombia (New York and Geneva, 2006). 86 pages. SalesNo. E.06.11.D.4.

UNCTAD, Report on the Implementation o the Investment Policy Review o Egypt (New York and Geneva,2005). 18 pages. UNCTAD/ITE/IPC/2005/7.

UNCTAD, Investment Policy Review o Kenya (New York and Geneva, 2005). 114 pages. Sales No. E.05.II.D.21.

UNCTAD, Examen de la Politique d’investissement du Bénin (New York and Geneva, 2005). 126 pages. SalesNo. F.04.II.D.43.

UNCTAD, Examen de la Politique d’investissement de l’Algérie (New York and Geneva, 2004). 110 pages.Sales No. F.04.II.D.30.

UNCTAD, Investment Policy Review o Sri Lanka (New York and Geneva, 2003). 89 pages. Sales No. E.04.II.D.19.

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UNCTAD, Investment Policy Review o Lesotho (New York and Geneva, 2003). 105 pages. Sales No. E.03.II.D.18.

UNCTAD, Investment Policy Review o Nepal. (New York and Geneva, 2003). 89 pages. Sales No.E.03.II.D.17.

UNCTAD, Investment Policy Review o Ghana (New York and Geneva, 2002). 103 pages. Sales No. E.02.II.D.20.

UNCTAD, Investment Policy Review o Botswana (New York and Geneva, 2003). 107 pages. Sales No. E.03.II.D.1.

UNCTAD, Investment Policy Review o Tanzania (New York and Geneva, 2002). 109 pages. Sales No. E.02.

II.D.6.UNCTAD, Investment and Innovation Policy Review o Ethiopia (New York and Geneva, 2001). 130 pages.Sales No. E.01.II.D.5.

UNCTAD, Investment Policy Review o Ecuador. (New York and Geneva, 2001). 136 pages. Sales No. E.01.II.D.31. Also available in Spanish.

UNCTAD, Investment Policy Review o Mauritius (New York and Geneva, 2000). 92 pages. Sales No. E.00.II.D.11.

UNCTAD, Investment Policy Review o Peru (New York and Geneva, 2000). 109 pages. Sales No. E.00.II.D.7.

UNCTAD, Investment Policy Review o Uganda (New York and Geneva, 1999). 71 pages. Sales No. E.99.II.D.24.

UNCTAD, Investment Policy Review o Uzbekistan (New York and Geneva, 1999). 65 pages. Documentnumber: UNCTAD/ITE/IIP/Misc.13.

UNCTAD, Investment Policy Review o Egypt (New York and Geneva, 1999). 119 pages. Sales No. E.99.II.D.20.

Best Practices on Investment or DevelopmentUNCTAD, Best Practices in Investment or Development Case Studies in FDI – How Post-Confict Countriescan Attract and benet rom FDI: Lessons rom Croatia and Mozambique (New York and Geneva, 2010).125 Pages. Sales No. E .10.II.D.18.

UNCTAD, Best Practices in Investment or Development Case Studies in FDI – How to Utilize FDI toImprove Transport Inrastructure – Roads: Lessons rom Australia and Peru. 113 pages. Sales No. E. 09.II.D.14.

UNCTAD, Best Practices in Investment or Development Case Studies in FDI – How to Utilize FDI toImprove Inrastructure – Electricity: Lessons rom Chile and New Zealand. 95 pages. Sales No. E. 09.II.D.13.

Blue Books on Best Practice in Investment Promotion and Facilitation

UNCTAD, Blue Book on Best Practice in Investment Promotion and Facilitation: Nigeria (Geneva, 2009).48 pages. UNCTAD/DIAE/PCB/2009/7

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UNCTAD, Blue Book on Best Practice in Investment Promotion and Facilitation: Zambia (Geneva, 2007).36 pages. UNCTAD/ITE/IPC/MISC/2006/3.

UNCTAD, Japan Bank or International Cooperation, Blue Book on Best Practice in Investment Promotionand Facilitation: Ghana (Geneva, 2006). 41 pages. UNCTAD/ITE/IPC/2006/13.

UNCTAD, Japan Bank or International Cooperation, Blue Book on Best Practice in Investment Promotionand Facilitation: Kenya (Geneva, 2005).

UNCTAD, Japan Bank or International Cooperation, Blue Book on Best Practice in Investment Promotionand Facilitation: United Republic o Tanzania (Geneva, 2005). 21 pages.

UNCTAD, Japan Bank or International Cooperation, Blue Book on Best Practice in Investment Promotion

and Facilitation: Uganda (Geneva, 2005). 29 pages.

UNCTAD, Japan Bank or International Cooperation, Blue Book on Best Practice in Investment Promotionand Facilitation: Cambodia (Geneva, 2004). 42 pages.

UNCTAD, Japan Bank or International Cooperation, Blue Book on Best Practice in Investment Promotionand Facilitation: Lao People’s Democratic Republic (Geneva, 2004). 31 pages.

Investment Guides

UNCTAD, An Investment guide to the Lao People’s Democratic Republic, Opportunities and Conditions

(New York and Geneva, 2010). 89 pages. UNCTAD/DIAE/PCB/2010/02.

UNCTAD, Guide de l’investissement au Bénin (New York and Geneva, 2009). 58 pages. UNCTAD/DIAE/PCB/2009/12.

UNCTAD, Investment Guide to the Silk Road (New York and Geneva, 2009). 78 pages. UNCTAD/DIAE/IA/2009/6.

UNCTAD, An Investment Guide to Rwanda: Opportunities and Conditions (New York and Geneva, 2006).90 pages. UNCTAD/ITE/IIA/2006/3.

UNCTAD, An Investment Guide to Mali: Opportunities and Conditions (New York and Geneva, 2006).79 pages. UNCTAD/ITE/IIA/2006/2.

UNCTAD and ICC, An Investment Guide to East Arica (New York and Geneva, 2005). 109 pages. UNCTAD/IIA/2005/4.

UNCTAD and ICC, An Investment Guide to Tanzania (New York and Geneva, 2005). 82 pages.UNCTAD/IIA/2005/3.

UNCTAD and ICC, An Investment Guide to Kenya (New York and Geneva, 2005). 92 pages.UNCTAD/

IIA/2005/2.

UNCTAD and ICC, An Investment Guide to Mauritania (New York and Geneva, 2004). 75 pages.UNCTAD/IIA/2004/4.

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UNCTAD and ICC, An Investment Guide to Uganda (New York and Geneva, 2004). 86 pages. UNCTAD/ITE/IIA/2004/3.

UNCTAD and ICC, An Investment Guide to Ethiopia (New York and Geneva, 2004). 90 pages. UNCTAD/ITE/IIA/2004/2.

UNCTAD and ICC, An Investment Guide to Cambodia (New York and Geneva, 2003). 89 pages. UNCTAD/IIA/2003/6.

UNCTAD and ICC, An Investment Guide to Nepal (New York and Geneva, 2003). 97 pages. UNCTAD/IIA/2003/2.

UNCTAD and ICC, An Investment Guide to Mozambique (New York and Geneva, 2002). 109 pages.

UNCTAD/IIA/4.

UNCTAD Series on International Investment Policies or Development

http://www.unctad.org/iia

UNCTAD, Investor-State Disputes: Prevention and Alternatives to Arbitration (New York and Geneva,2010). Sales No. E.10.II.D.11.

UNCTAD, The Role o International Investment Agreements in attracting Foreign Direct Investment toDeveloping Countries (New York and Geneva, 2009). Sales No. E.09.II.D.20.

UNCTAD, The protection o national security in IIAs (New York and Geneva, 2009). Sales No.: E .09.II.D.12.

UNCTAD, International Investment rule-making: stocktaking, challenges and the way orward (New York and Geneva, 2008). Sales No. E.08.II.D.1.

UNCTAD, Identiying core elements in investment agreements in the APEC region (New York and Geneva,2008). Sales No. E.08.II.D.27.

UNCTAD, Investment Promotion Provisions in International Investment Agreements (New York andGeneva, 2008). Sales No. E.08.II.D.5.

UNCTAD, Investor–State Dispute Settlement and Impact on Investment Rulemaking (New York andGeneva, 2007). Sales No. E.07.II.D.10.

UNCTAD, Investment Provisions in Economic Integration Agreements (New York and Geneva, 2006).UNCTAD/ITE/IIT/2005/10.

UNCTAD, Preserving fexibility in IIAs: The use o reservations (New York and Geneva, 2006). Sales

No. E.06.II.D.14.

UNCTAD, International Investment Agreements: Trends and Emerging Issues (New York and Geneva,2006). Sales No. E.06.II.D.3.

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UNCTAD, Investor-State disputes arising rom investment treaties: A review (New York and Geneva, 2006).Sales No. E.06.II.D.1.

UNCTAD, South-South cooperation in International Investment agreements (New York and Geneva, 2005).Sales No. E.05.II.D.26.

UNCTAD, International Investment Agreements in services (New York and Geneva, 2005). Sales No. E.05.II.D.15.

UNCTAD, The REIO exception in MFN treatment clauses (New York and Geneva, 2005). Sales No. E.05.II.D.1.

UNCTAD Series on Issues in International Investment Agreements I and II

http://www.unctad.org/iia

UNCTAD Series on Issues in International Investment Agreements II. Scope and denition (New York andGeneva, 2011). Sales No. E.11.II.D.9.

UNCTAD Series on Issues in International Investment Agreements II. Most-avoured nation treatment(New York and Geneva, 2010). Sales No. E.10.II.D.19.

UNCTAD, State contracts (New York and Geneva, 2005). Sales No. E.05.II.D.5.

UNCTAD, Competition (New York and Geneva, 2004). Sales No. E.04.II.D.44.

UNCTAD, Key terms and concepts in IIAs: A glossary (New York and Geneva, 2004). Sales No. E .04.II .D.31.

UNCTAD, Incentives (New York and Geneva, 2004). Sales No. E.04.II.D.6.

UNCTAD, Transparency (New York and Geneva, 2004). Sales No. E.04.II.D.7.

UNCTAD, Dispute settlement: Investor–State (New York and Geneva, 2003). Sales No.E.03.II.D.5.

UNCTAD, Dispute settlement: State–State (New York and Geneva, 2002). Sales No. E.03.II.D.6.

UNCTAD, Transer o technology (New York and Geneva, 2001). Sales No. E.01.II.D.33.

UNCTAD, Home country measures (New York and Geneva, 2001). Sales No. E.01.II.D.19.

UNCTAD, Illicit payments (New York and Geneva, 2001). Sales No. E.01.II.D.20.

UNCTAD, Host country operational measures (New York and Geneva, 2001). Sales No. E.01.II.D.18.

UNCTAD, Social responsibility (New York and Geneva, 2001). Sales No. E.01.II.D.4.

UNCTAD, Environment (New York and Geneva, 2001). Sales No. E.01.II.D.3.

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Investment Advisory Studies

Investment Advisory Series, Series A, Number 5. Promoting Foreign Investment in Tourism (New York and

Geneva, 2009). UNCTAD/DIAE/PCB/2009/16.

Investment Advisory Series, Series A, Number 4. Promoting Investment and Trade: Practices and Issues(New York and Geneva, 2009). UNCTAD/DIAE/PCB/2009/9.

Investment Advisory Series, Series A, Number 3. Evaluating Investment Promotion Agencies (New York andGeneva, 2008). UNCTAD/DIAE/PCB/2008/2, 01/11/08.

Investment Advisory Series, Series A, Number 2. Investment Promotion Agencies as Policy Advocates(New York and Geneva, 2007). UNCTAD/ITE/IPC/2007/6.

Investment Advisory Series, Series A, Number 1. Atercare: A core unction in investment promotion(New York and Geneva, 2007). UNCTAD/ITE/IPC/2007/1.

ASIT Advisory Studies No. 17. The World o Investment Promotion at a Glance: A Survey o InvestmentPromotion Practices (New York and Geneva, 2001). UNCTAD/ITE/IPC/3.

ASIT Advisory Studies No. 16. Tax Incentives and Foreign Direct Investment: A Global Survey (New York and Geneva, 2001). Sales No. E.01.II.D.5.

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READERSHIP SURVEYInvestment Policy Review o the ormer Yugoslav Republic o Macedonia

In order to improve the quality and relevance o the work o UNCTAD’s Division on Investment andEnterprise, it would be useul to receive the views o readers on this publication. It would thereore be greatlyappreciated i you could complete the ollowing questionnaire and return it to:

Readership Survey

UNCTAD, Division on Investment and Enterprise

Palais des Nations

Room E-10054

CH-1211 Geneva 10

Switzerland Or by Fax to: 41-22-9170197

1 Name and proessional address o respondent (optional):

2 Which o the ollowing best describes your area o work?

Public enterprise

Academic or research

Media

Other (speciy)

Government

Private enterprise institution

International organization

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3 In which country do you work?

4 What is your assessment o the contents o this publication?

Excellent

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5 How useul is this publication to your work?

Very useul O some use Irrelevant

6 Please indicate the three things you liked best about this publicationand are useul to your work:

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115

7 Please indicate the three things you liked least about this publication:

8 I you have read more than the present publication o the UNCTAD Division onInvestment and Enterprise, what is your overall assessment o them?

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Poor

9 On the average, how useul are these publications to you in your work?

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10 Are you a regular recipient o Transnational Corporations (ormerly The CTC Reporter),the Division's tri-annual reereed journal?

Yes No

I not, please check here i you would like to receive a sample copy sent to the name and

address you have given above. Other titles you would like to receive instead(see list o publications).

11 How or where did you get this publication:

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12 Would you like to receive inormation on the work o UNCTAD in the area o Investmentand Enterprise through e-mail ? I yes, please write your e-mail address below:

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United Nations puications may e otained from ookstores and distriutors throughout

the word. Pease consut your ookstore or write to:

For Arica and Europe to:

Sales SectionUnited Nations Oce at Geneva

Palais des NationsCH-1211 Geneva 10

SwitzerlandTel: (41-22) 917-1234

Fax: (41-22) 917-0123E-mail: [email protected]

For Asia and the Pacifc, the Caribbean, Latin America and North America to:

Sales SectionRoom DC2-0853

United Nations SecretariatNew York, NY 10017

United States

Tel: (1-212) 963-8302 or (800) 253-9646Fax: (1-212) 963-3489E-mail: [email protected]

All prices are quoted in United States dollars.

For urther inormation on the work o the Division on Investment and Enterprise,UNCTAD, please address inquiries to:

United Nations Conference on Trade and Development

Division on Investment and Enterprise

Palais des Nations, Room E-10054

CH-1211Geneva10,Switzerland

Telephone: (41-22) 917-5534

Fax: (41-22) 917-0498

http://www.unctad.org

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The Investment Policy Review of the former Yugoslav Republic of Macedoniais the latest in a series of investment policy reviews undertaken by UNCTAD

at the request of countries interested in improving their investment framework and climate.

The countries included in this series are:

Egypt (1999)

Uzbekistan (1999)

Uganda (2000)

Peru (2000)

Mauritius (2001)

Ecuador (2001)

Ethiopia (2002)

Tanzania (2002)

Botswana (2003)

Ghana (2003)

Lesotho (2003)

Nepal (2003)

Sri Lanka (2004)

Algeria (2004)

Benin (2005)

Kenya (2005)

Colombia (2006)Rwanda (2006)

Zambia (2007)

Morocco (2008)

Documents

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