Republic of MacedoniaMinister for foreign investments

Investment Opportunities in Macedonia for Investment Opportunities in Macedonia for Investment Opportunities in Macedonia for Investment Opportunities in Macedonia for Manufacturing CompaniesManufacturing Companies

Vele SamakMinister for Foreign Investments

Vele.Samak@msi.gov.mk

+389-2-3121-046

AgendaAgenda

• Introduction

• Challenges

• 3 reasons for Macedonia

• Next steps

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IntroductionIntroduction

• Mission and MO:

„Attract the largest manufacturing and service companies to invest in Macedonia by identifying business and investment opportunities and using deliberate

speed to solve problems.”

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• Team– Vele Samak, Minister for Foreign Investments, Vele.Samak@msi.gov.mk

– Ivana Nikolik, Analyst, Ivana.Nikolik@msi.gov.mk

– Riste Mishe, Analyst, Riste.Mishe@msi.gov.mk

– Lejla Mehmedovic, Analyst Lejla.Mehmedovic@msi.gov.mk

– Andrea Tevdovski, Analyst Andrea.Tevdovski@msi.gov.mk

– Katerina Stojanovska, Assistant & Chief of Staff Katerina.Stojanovska@msi.gov.mk

From Macedonia Manufacturers can profitably expand into new From Macedonia Manufacturers can profitably expand into new markets, improve supply chain and source new talent and innovationmarkets, improve supply chain and source new talent and innovation

Potential for growth:

Older populations will require new services and increased productivity

Electronics and Software content in vehicles and applications will continue to grow

Incomes in Eastern Europe are less than half of those in West Europe

Infrastructure development still lagging in Emerging Europe

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Challenges:

Economic uncertainty will require production flexibility and better supply chains

Price pressures on suppliers will not abate with lower volume growth

Electronics supply chain and component shortages will remain volatile

Fragmented consumer markets will challenge marketing and service operations

Western and Northern Europe remains the mostWestern and Northern Europe remains the most--productive but also productive but also mostmost--expensive manufacturing location in the worldexpensive manufacturing location in the world

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Source: BLS, US Department of Labor, March 2011, Bloomberg BusinessWeek

BRD

CZE

POL

LTU

LVA

EST

BLR

Eastern Europe is a crowded space for many manufacturersEastern Europe is a crowded space for many manufacturersChoose your next site wisely!Choose your next site wisely!

GM, Gliwice

Fiat, Tychy

GM, Zeran (Warsaw)

VW, Poznan

Daewoo, Uzhgorod

EU Border as of 2007

VW-Skoda, Bratislava

PSA, Trnava (2006)

HMC-Kia, Zilina (2006)

Toyota/PSA, Kolin

VW-Skoda, Mlada Boleslav

LIAZ, Velki Krtis

HMC-Hyundai, Novosice (2008)

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AUS

SER

SVK

CZE

ROM

HUN

UKR

BGR

GRC

MDA

SLO

BIH

MKD

ALB

HRVSuzuki, Estergom

Renault-N, Novo Mesto

VW-Audi, Györ, (Engines)

VW, Sarajevo

Opel/GM

Ford,

FIAT, Zastava, KragujevacFIAT, Zastava, Kragujevac

ZAZ, Zaporozhje

AutoVAZ, Kherson

Source: Government research

Ford, CraiovaFord, Craiova

RenaultRenault--Nissan, PitestiNissan, Pitesti

Ford, Otosan, Gölcük

Fiat – Tofas, Bursa

Oyak-Renault , Beykoz

Toyota, Sakarya

Daimler, KecshemetDaimler, Kecshemet

Three reasons to choose MacedoniaThree reasons to choose Macedonia

People and ingenuity

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Cost benefits

Record of leadership

Young, Dynamic and WellYoung, Dynamic and Well--educated Workforceeducated Workforce

2,9%

1,1%

6%

42% of population under 30 – youngest country in Eastern Europe

High intellectual capital:

– 98.9% of high school graduates enrolled in college in 2010

– 63,000 University students in 2009

– 27% in Engineering and Technical studies

– Multiple technical schools in each city

Engineering graduates recognized a top global universities

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USA Germany Macedonia

Percent of GDP spent on Education

Engineering graduates recognized a top global universities

90% study English, 20%+ study German in schools

Foreign Foreign LanguagesLanguages

Primary School Primary School StudentsStudents

Secondary School Secondary School StudentsStudents

English 91% 94%

French 22% 32%

German 13% 21%

Italian / 2%

Russian 1% 2%

Turkish / 1%

CountryCountry 20062006

Macedonia 1.7

EU (27 countries) 1.4

Slovenia 1.3

Bulgaria 1.3

Croatia 1.2

Czech Republic 1.1

Foreign languages learnt per pupil; ISCED level 2 Secondary education (average)

Macedonia provides companies with unrivalled Macedonia provides companies with unrivalled foreign language skillsforeign language skills

English is mandatory for first-graders in Macedonia

Two foreign languages are mandatory in high school: English, and either German, French, or

Russian

Macedonia maintains strong lead in the CEE region in terms of language skills and ability to

serve both, German and French-speaking markets

Total No. of primary and secondary schools students 310,000Source: State Statistical Office, Macedonia (Education 2008/2009)

Slovakia 1.1

Poland 1.1

Hungary 1.0

Turkey N/A

Source: Eurostat

Solid Industrial Base of Component Manufacturers and Local Solid Industrial Base of Component Manufacturers and Local Suppliers in Many Fields to Support InvestorsSuppliers in Many Fields to Support Investors

ElectronicsElectronics

Machining & MetalMachining & Metal--worksworks

PCBs, electric motors, relays, power PCBs, electric motors, relays, power substations, broadcasting and substations, broadcasting and telecom equipmenttelecom equipment

PlasticsPlastics40+ companies in 40+ companies in injection, extrusion, blow injection, extrusion, blow molding, rubber, cables molding, rubber, cables and tool makersand tool makers

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Learnica

Mining & CommoditiesMining & Commodities

Copper, Lead, Zinc, Nickel and Iron Copper, Lead, Zinc, Nickel and Iron Mines, all in operationMines, all in operation

Oil refinery, chemicals, cement, Oil refinery, chemicals, cement, gypsum and minerals production and gypsum and minerals production and excavationexcavation

Long tradition in castings, Long tradition in castings, forgings, stamping, welding, forgings, stamping, welding, extruding, tube making, extruding, tube making, metallurgy metallurgy

Metal Metal toolworkstoolworks and productionand production

Hot rolled, cold rolled coils & Hot rolled, cold rolled coils & sheets, basic steel plates, sheets, basic steel plates,

Automotive components and Automotive components and railway brakesrailway brakes

Three reasons to choose MacedoniaThree reasons to choose Macedonia

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Cost benefits

Unbeatable Fiscal Benefits in EuropeUnbeatable Fiscal Benefits in Europe

Corporate Income TaxCorporate Income Tax Personal Income TaxPersonal Income Tax

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10% Flat Taxes among lowest in Europe

Tax credit on reinvested profit

Lowest payroll taxes (27% of gross wage)

34+ Double taxation avoidance treaties signed

Real estate VAT taxes at 2% - 4%

VAT at 18%, with 5% on specific itemsSource: PwC (Taxes at a glance 2011), National Investment Promotion Agencies

Macedonia is as competitive as China in Manufacturing, offering savings Macedonia is as competitive as China in Manufacturing, offering savings of 20of 20--50% from comparable countries for the same productivity50% from comparable countries for the same productivity

Slovakia

797 3.5%

Hungary

Czech Rep.

961 2.1%

Poland

875 4.5%

LEGEND:Average gross wage in €/month

Annual wage growth %

Average Monthly Gross Wages

€ 250

€ 400

€ 700

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Macedonia

356 2%

Hungary

792 3.7%

Romania

497 6.4%

Turkey *

1159 11%

Vele Samak, Minister for Foreign Investments

Bulgaria **

450 9.9%

Source: State Statistical Offices, 2Q 2011

* Last statistical data from 2008

* *Estimate based on company information

Sustainable Labor Advantage in Macedonia:

• Young Population

• Large unemployment ~ 30%

• Easy labor mobility

• High degree of loyalty, lower retention costs: 4.4% don’t get paychecks on time

• Captive labor market outside EU pressures over the next 5 years

Unskilled blue-collar

College entry-level

Skilled engineering

Serbia

507 13%

Excellent infrastructure, No trade barriers & Excellent infrastructure, No trade barriers & Competitive transportation costsCompetitive transportation costs

All of Europe in 2-3 days via

Highways

North-South and East-West Highways2 Brand New International Airports

FTAs ensure no trade barriers with EU, CEFTA, EFTA, Turkey and Ukraine

Access to 650 million customers

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3 hours to port of Thessaloniki

35 days or less inbound container ships from China

Large pool of logistic companies provide competitive costs and delivery times

Macedonia Offers Many Free Economic Macedonia Offers Many Free Economic Zones for Production and Supplier NeedsZones for Production and Supplier Needs

All Zones:All Zones:

Highway interchangeHighway interchangeGov’tGov’t owned and managedowned and managedInfrastructure readyInfrastructure readyElectricity, water, telecomElectricity, water, telecomGas (Skopje only)Gas (Skopje only)

Why trust Macedonia? Why trust Macedonia?

A record of leadership in turbulent times

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A record of leadership in turbulent times

Macedonia at a glance Macedonia at a glance ––Emerging Economy with Strong Political StabilityEmerging Economy with Strong Political Stability

• Independent since 1991

• Stable parliamentary democracy:

– Minority representation in every government

– Model country for ethnic integration

• Population: 2.1 million

• Current Government since July 2006, 2 re-elections with a dedication to economic

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elections with a dedication to economic growth, political stability, EU & NATO integration

• Strategic Partnership with US, supported by many EU countries, Germany – largest trade partner

• EU recommended start of Membership Negotiation in 2009, reiterated in 2010 and 2011

• Standing NATO invitation, designated net security exporter in the region

Key Macedonian Economic Indicators Key Macedonian Economic Indicators ––Economic & Financial Stability with High PotentialEconomic & Financial Stability with High Potential

Positive

Steady GDP Growth#2 in Europe in 2009!

Low Inflation

2007 2008 2009 2010 2011*

GDP nominal (€ mil) 5,965 6,720 6,677 6,945* 7,345

Real GDP Growth (%) 6.1 5.0 -0.9 1.8 5.2

GDP per capita, € 2,919 3,283 3,253 3,350 3,565

Inflation (%) 2.3 8.3 -0.8 1.6 3

Unemployment (%) 35.8 33.8 32.2 32 30.8

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Opportunities for Opportunities for ImprovementImprovement

High unemploymentHigh unemploymentNegative trade balanceNegative trade balance

Decade-long Stable Currency

Unemployment (%) 35.8 33.8 32.2 32 30.8

MKD / EUR 61.2 61.2 61.2 61.5 61.5

MKD / USD 46.44 41 44.07 46.4 46.4

Imports (€ mil) 3653 4434 3472 3961 4,760

Exports (€ mil) 2472 2684 1921 2493 3,036

Trade Balance -1181 -1750 -1,551 -1468 -1,724

BB+ Positive Credit Outlook by Fitch

Source: Central Bank, Ministry of Finance, State Statistical Office* Estimated figures

26% Debt/GDP, and2.5% Deficit

Why Macedonia Why Macedonia –– A Sustainable Investment Platform:A Sustainable Investment Platform:Stable, Safe and Leading Reformer in SEEStable, Safe and Leading Reformer in SEE

33rdrd BEST BEST REFORMERREFORMER

3535thth BEST COUNTRY FORBEST COUNTRY FORBUSINESSBUSINESS IN IN THE WORLDTHE WORLD

Forbes MagazineForbes Magazine

55thth IN IN THE EASE OF THE EASE OF PAYINGPAYING

2222ndnd BEST COUNTRY FOR BEST COUNTRY FOR BUSINESS IN THE WORLDBUSINESS IN THE WORLD

World Bank’s Doing Business World Bank’s Doing Business 2012 2012 ReportReport

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33 BEST BEST REFORMERREFORMERIN THE WORLDIN THE WORLD

World Bank’s Doing Business 2010 ReportWorld Bank’s Doing Business 2010 Report

55 IN IN THE EASE OF THE EASE OF PAYINGPAYINGTAXESTAXES

PwC PwC and World Bank Group Study and World Bank Group Study

Ease of

Doing

Business

Rank

Starting a

Business

Dealing with

Construction

Permits

Getting

Electricity

Registering

Property

Getting

Credit

Protecting

Investors

Paying

Taxes

Trading

Across

Borders

Enforcing

Contracts

Resolving

Insolvency

Germany 19 98 15 2 77 24 97 89 12 8 36

Macedonia 22 6 61 121 49 24 17 26 67 60 55

Estonia 24 44 89 48 13 40 65 51 3 29 72

Serbia 92 92 175 79 39 24 79 143 79 104 113

Why Macedonia Why Macedonia –– A Sustainable Investment Platform:A Sustainable Investment Platform:Stability, Safety and BusinessStability, Safety and Business--Friendliness Recognized by Many Foreign CompaniesFriendliness Recognized by Many Foreign Companies

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Foreign Direct Investments, 2011Foreign Direct Investments, 2011--12 update12 update

US Company KEMET Electronics Corporation to invest 25mill USD in TIRZ Skopje 1 for initial 500 new jobs to produce standard D.C. film capacitors

Russian biggest pharmaceutical company 'Prodis‘, part of 'ProtekGroup‘ is investing €5M, employing 300 ppl in TIRZ Skopje 1

German wire & harnessing automotive supplier Kromberg & Schubert is investing €25M in Development Zone in Bitola; to employ up to 3000 ppl

India's SamvardhanaMotherson Group invests €12M; starting with 140ppl in TIRZ Skopje 1, for production of die-casting parts and exterior glass used in rearview mirrors for the automotive industry

German wire & harnessing automotive supplier DräxlmaierGroup is investingl€15-30M in a Development Zone in central Macedonia; to employ up to 4000 ppl

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automotive industry

6pm Group based in Malta, to invest €5M, hiring minimum 50 ICTspecialists to deliver Tele Care and Tele Health web based healthcare solutions

Plant 1, TIRZ Skopje 1:$40M 150-500 employees; manufacturing instrument cluster electronics

Plant 2, TIRZ Stip:Investment of €20M; 1400 ppl for construction of cut & trim plant for car seats

Upwards of €55M ; 300employees; Currently doubling capacity with another €60M. Exhaust catalyst manufacturer supplying all OEM plants in Europe; Today, the biggest exporter fromMacedonia

Belgian private Bus & Coach producer, Van Hool NV, will invest up to €20M in TIRZ Skopje 2 and hire up to 400employees to produce busses and coaches for the USA and EU markets

Why trust Macedonia? Why trust Macedonia?

There’s always one more thing…

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There’s always one more thing…

Excellent Connectivity and Western CultureExcellent Connectivity and Western Culture

Brand New International airports - Skopje and Ohrid, with $150M+ investment from TAV

Macedonia is a place of great hospitality that offers a mix of traditional and modern

Largest wine producer in the region

5 International Schools with large mix of

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5 International Schools with large mix of ex-pats.

"We are satisfied from the support provided by

the Macedonian Government, its institutions, the

Cabinet of Minister Samak and Bitola

Municipality. The decision for investment in

Macedonia represents an important step in our

expansion as part of the strategy for international

output“

Martin Passern,Managing Director, Kromberg & Schubert

“Macedonia has a qualified workforce with

excellent English skills“

Nikolai Beckers,CEO, Makedonski Telekom AD

“Macedonian Government has created an

attractive tax package. On the other side they are

willing to help investors in training their labor

force and they are very dedicated to remove all

the administrative barriers. “

Avram Stojcevski,Plant Manager, Johnson Controls Makedonija

Next Steps in MacedoniaNext Steps in Macedonia

• Develop business case and review needs with Macedonian team

• Setup agenda for assessment of:

– Greenfield site

– HR recruitment, pre-qualification and training

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– HR recruitment, pre-qualification and training

– Local suppliers and logistics providers

– Incentives and other Government support

– Other needs

• Determine dates to visit Macedonia

Thank YouThank You

Q & A

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Q & A

Macedonia is the most competitive labor Macedonia is the most competitive labor cost country in Eastern Europe today!cost country in Eastern Europe today!

CountryCountry Corporate TaxCorporate Tax Personal Income TaxPersonal Income Tax VATVATSocial ContributionsSocial Contributions

TotalTotal

Macedonia 10% 10% 18% 27%

Serbia 10% 12% 18% 37.2%

Croatia 20% 15-45% 23% 37.2%

Poland 19% 40% 22% 31.2 - 34.1%

Ukraine 25% 15% 20% 39.8 - 49.7%

6/7/2012 Vele Samak, Minister for Foreign Investments 266/7/2012 Vele Samak, Minister for Foreign Investments 26

Source: CEE-CIS Tax Notes – Price Waterhouse Coopers

Each 1 Euro in Gross Wages includes =

• 27% cents in social charges, health insurance and pension benefits

• 10 cents in personal income tax

• 63 cents in net wages

Romania 16% 16% 19% 44.5 - 55.7%

Slovakia 19% 19% 19% 48.6%

Czech R. 24% 32% 19% 45%

Hungary 16% 36+4% 20% 44%

Turkey 20% 15% 18% 33.5%

Macedonia - Social Security Contribution in Gross Wages

YearYear 20112011 20122012

Pension and disability insurance 18% 17.5%

Health insurance 7.3% 7.3%

Employment insurance 1.2% 1.2%

Reduced payroll taxes and flexible Reduced payroll taxes and flexible laborlabor laws laws enacted in 2008 provide 10% wage cost savings!enacted in 2008 provide 10% wage cost savings!

• Hiring and firing made flexible with ability to hire, retain and dismiss temporary and contract-based employees, in addition to permanent staff

• For large layoffs or reduction-in-force, key regulations are:

• Employer is obligated to provide 30-days notice,

• Offer severance ranging from 1-month up to 6-months of most recent wage, depending on time of employment

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Additional health insurance 0.5% 0.5%

Total 27% 26.5%

Public Holidays and Vacation AllowancesPublic Holidays and Vacation Allowances

11 Public Holidays:• 1st January – New Year’s Day• 7th January – Christmas of Orthodox Christians• 1st May – Labor Day• 24th May - Day of Macedonian educators Ss. Cyril and Methodius• 2nd August – Day of the Republic• 8th September – Independence Day• 11th October – Uprising Day• 23rd October – Day of Macedonian Revolutionary fight

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• 23 October – Day of Macedonian Revolutionary fight• 8th December – Day of St. Kliment of Ohrid• Second day of Easter• First day of Ramadan Bajram

Orthodox Christian Holiday:• January 6th - Day of Christmas Eve• Easter’s Friday

Weekends and holiday shifts areallowed according Labor relations law and Collective agreements, but under certain conditions.

Vacation:• 20 – 26 working days depending on work experience

and conditions, after 6 months• 10 days minimum for part-time employeesSick-leave and Maternity:• 14 calendar days with doctor permission, medical

commission for longer absence• 9 mos Maternity leave, paid by State Health Fund