Macedonia spending more for less

By bne IntelliNews July 13, 2010

Aleksandar Dimishkovski in Skopje -

Despite being ranked amongst the top-10 reformers in the World Bank's "Doing Business" report in 2008 and 2009, not many investors appear convinced that Macedonia is the "New Business Heaven in Europe" that the government campaign suggests.

Data shows that Macedonia still fails to attract enough foreign direct investment (FDI) to justify the amount of effort and investment that's being put into attracting global investor interest. While some neighbouring countries are receiving more than €1bn in FDI annually, Macedonia appears to be actually spending more money in trying to attract investment than the amount it receives in the form of FDI.

Macedonia's aggressive campaign in the past four years has certainly helped the country put itself on the investment map, but being on it hasn't brought anything more than the average level of FDI per year that it had before the start of the campaign. With total foreign investment amounting to €181m in 2009 and with only €49m in the first three months of 2010, it's no wonder the government's recent activities are becoming a cause of concern for policy experts as well as the political opposition.

Experts argue there is a clear gap between the money spent on attracting investors and the money received from foreign investors. Vanco Uzunov, economy professor at the Law Faculty in Skopje, suggests that the money spent on attracting investors is clearly not bringing results. "The government wastes too much money on the process of attracting and preparing for foreign investors. There are numerous ways how to use this money more efficiently and more productively, for building infrastructure for instance," Uzunov says.

Empty parks

Many argue the government needs to reconsider and adapt its strategy to the real conditions. For example, many doubt the large amounts of money going into technological industrial development zones is being spent wisely.

In the absence of official information, unofficial sources claim the government has invested more than €20m in these development zones. At the end of June, government officials promoted the country's fourth development zone in Tetovo, even though the first and oldest one near Skopje called Bunardzik 1 still has only two residents - the US automotive giant Johnson Controls and the UK's Johnson Matthey. Also the long-awaited investment in a joint venture factory from China's Haier and South Korea's Triview, due to be build in Bunardzik 1, failed to kick off within the predicted timeframe of the end of June. "It would be better if the authorities declared the whole territory of the country as a free zone," Professor Uzunov notes wryly.

For its part, the government claims these development zones are part of a longer-term strategy to meet investor needs. "We expect that the global economic crisis will slowly decrease and that the investments will come, so we have to prepare for that. We don't won't to be in a situation in which investments will fail because we don't have the prepared infrastructure," Prime Minister Nikola Gruevski said at the opening of the Bunardzik 2 zone in April, responding to criticism of the government's investment in infrastructure in these development zones.

Another major criticism centres on the lack of concrete results from the country's economic promoters, whose number is constantly increasing as the government spends, but whose efficacy is clearly lacking. Macedonia currently has economic promoters in more than 30 locations around the world, but according to official data their work has resulted in only two investments so far. Even the State Audit Office questioned the spending of nearly €600,000 in 2008 on these promoters in their audit report of the agency in charge of foreign investments. According to data from the report, the promoters contacted 11,245 companies, out of which only 118 decided to visit the country to see for themselves if Macedonia is truly the new business heaven in Europe.

While the global economic crisis is definitely having its own impact on global investment, the country's lack of progress in joining the EU and Nato due to the unresolved name issue with Greece and internal factors seem to be more to blame, because other countries in the region are having more problems with the crisis but are still attracting far more investment than Macedonia. In 2009, Croatia soaked up €1.87bn in foreign investment, tiny Montenegro got €910m and even the ethnically-tense Bosnia-Herzegovina managed to rack up €452m.

In the World Bank's recently published "Investing Across Borders" report, Macedonia is ranked in the top-10 countries for the least number of days needed for foreigners to open a company (just eight days), but the country's bureaucracy, dodgy legal system and poor infrastructure remain huge obstacles for FDI.

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