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Paramount Financial Group Special Report

Macedonia – Reasons to Be Cheerful

Written by Henry Martin

Standard and Poor’s maybe dirty words in some circles, but not in Macedonia. In its latest report, S&P’s foreign currency rating remains stable, which indicates that Macedonia’s capability to maintain its obligations towards foreign countries hasn’t changed.

It was just the sort of news Zoran Stavreski, Macedonia’s Vice PM and Minister of Finance was hoping for. Sprinting straight out of the blocks at a government economic council meeting.

“Referring to Government’s priorities – the focal point is construction of technological and industrial development zones and acceleration of certain activities in terms of these zones, because evidently an increasing number of investors are interested in investing in Macedonia,” Stavreski said

“What is most important is that the Government focuses on economy, economic growth, investments, jobs and what we believe that the Government and Macedonia are capable of realising in years to come.”

Rousing words indeed and the polar opposite of the foot dragging, hand-sitting, and growth inertia that’s taking place right now in some parts of Western Europe. In fact, while economies across the former big economic hitters are flat-lining, Stravesk stressed that the amount of foreign investments had been doubled compared to 2010:

“The total amount of foreign investments are over 150 million euros and has doubled more than the same period last year, which means real headway has been made in attracting more investments.” This year of all years, Stravreski’s news couldn’t come at a better time.

S&P back up Stravreski’s comments and agree that the outlook is stable and cite Macedonia’s creditworthiness as one of the best emerging economies for investors.

Macedonia’s Agency for Investment Promotion has pre-empted this, taking them on a rolling global charm offensive. Promoting themselves and strengthening relationships across the world, this government agency have been paying particularly close attention to places like the United States, Great Britain, Turkey, Belgium, Canada, France, and of course, China for the recently held International Fair for Trade and Investment in Xiamen.

Just like sailors, investors will seek out a safe haven during a storm – a truism that Vice PM Stavreski is all too aware of:

“Macedonia’s Government is reform-oriented and has been working on improving the business climate and the working conditions of companies. Our main objective is to obtain a sustainable economic growth by developing the private sector, attracting investments and opening new jobs. Macedonia is a candidate for EU membership and hence its top priority is to fully meet the necessary criteria to that end,” he explains.

Of course, introducing a flat tax of 10% and range of generous incentives to attract investors has worked wonders in assisting Macedonia’s government to nurture and feed the entrepreneurial spirit and position for Macedonia as the new dynamic location for investment. We’re talking low land prices for investors and a policy of no capital gains tax and no personal income tax. And if that wasn’t enough, the government offers investors an ‘investment premium’ to meet a large chunk of the cost once a production facility is completed.

The focal point of much of this inward investment is Bunardzik – a free economic zone outside Macedonia’s capital, Skopje. The US firm Johnson Controls is investing around USD$20 million in the new plant during the first wave of inflows before the 2008 financial meltdown. Johnson prides itself on its corporate objective of social commitment, and the company didn’t renege when the going got tough. The plant is part of Johnson Controls’ long-term strategic objective to position itself in the growth markets of Eastern Europe, and gradually their presence is instilling confidence and prompting investors to return.

In fact, rather than letting the grass grow beneath their feet, Johnson Controls are forging ahead with a second phase of investment in Macedonia with a EUR 20 million plant located south of the capital in the Stip Technological and Industrial Zone. Construction is scheduled to begin in mid-October.

“The development of the free economic zones, particularly in Skopje, Tetovo and Bitola, is a goal through which we are trying to attract investments from other countries, but also from domestic companies,” says Economy Minister Valon Sarachini.

The Russian company Prodis, part of the Protek holding group, recently announced that it is investing 5 million euros in a pharmaceutical production facility in Bunardzik which is expected to create around 300 jobs.

German manufacturers Kromberg & Schubert have also invested in Bitola, while another – as yet unnamed producer of auto electronics is expected to go public soon with a scheme that will create up to 5,000 new jobs. Meanwhile, Turkey’s glass giant Sisedzam, is undergoing a feasibility study into a EUR 60m investment which help create more opportunities in the region.

Meanwhile, the first wave of investors from India – Samvardhana Motherson Group (SMG) – have just laid a cornerstone for the construction of two plants at Skopje’s Technological and Industrial Development Zone. To illustrate how much of a big deal this is to Macedonia, the PM Nikola Gruevski turned up to meet SMG’s chairman Vivek Chaand Sehgal along with Viktor Mizo – director of the Macedonian Investment Agency for the cornerstone laying ceremony.

Just like sailors, investors will seek out a safe haven during a storm – a truism that Vice PM Stavreski is all too aware of

The development represents EUR 12 million of investment in the plants, which will manufacture parts for rear view mirrors, aimed for the European market, as well as open 140 new jobs. The SMG facility is expected to be completed sometime in 2012.

Other foreign companies located in Bunardzik free zone include the US hi-tech outfit Kemet Electronics, Johnson Metty from the UK, and Italy’s Teknohose – who form part of Vitillo Group.

“As the global economic crisis is lessening, the interest for building production plants, including in Macedonia, is mounting. This is the fourth company to announce the start of construction activities in Macedonia since June,” said PM Gruevski.

“These investments are a serious contribution to the Macedonian economy. The plant, will boost Macedonia’s exports and improve the living standards of local residents.”

“It is particularly significant that Multinationals like Johnson Controls, have decided to invest in Macedonia for the second time. Other international investors seeking places to invest will take note. When a company decides to launch a second investment in the same country it means that it is satisfied with the conditions, communication with authorities as well as with other factors necessary for a good business climate.”

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