FYR Macedonia


Fyr Macedonia


  • Efforts to improve the business environment and attract foreign investment have been stepped up. FYR Macedonia’s latest ranking on the 2012 World Bank’s Doing Business scores is impressive, and some major investors are showing interest, but important business climate issues such as judicial reform and corruption remain to be fully addressed.
  • Macroeconomic stability has been preserved. Growth in 2011 was close to 3 per cent and inflation and the government deficit were kept at low levels, but a clear slow-down is evident so far in 2012.
  • Privatisation of some of the remaining state-owned assets is proving difficult. The failure over the past year of the state’s efforts to sell some major companies highlights both the stringent tender conditions in some cases and the difficulties of offloading state-owned shares in the present climate.


  • Reforms should be pushed forward in the context of the new high-level dialogue with the European Commission. This dialogue offers an opportunity for the country to advance on an EU-oriented reform path even while formal accession talks cannot proceed because of the name dispute.
  • Regulatory authorities in some infrastructure sectors need to be strengthened. In the energy sector, the regulatory authority is still subject to some intervention, and cross-subsidies are significant with household prices being kept artificially low.
  • The provision of financial services should be enhanced. Competition in the banking sector is less vigorous than in some regional peers, and there is scope to develop a greater range of financial services than presently available.


The economy was less affected by the global economic and financial crisis than many regional peers but the impact of the eurozone crisis has been felt strongly in 2012. With a GDP growth rate of 2.9 per cent, FYR Macedonia was among the strongest performing SEE economies in 2011. However, the impact from the eurozone crisis began to be felt in the second half of the year and a significant slow-down has followed since. In the first half of 2012, the economy contracted on a year-on-year basis on account of the weaker export demand as well as the impact of lower foreign direct investment and reduced remittance inflows on domestic demand. Inflation stayed relatively low in 2011 and in the first half of 2012, but it accelerated recently, reaching 5.3 per cent year-on-year in September 2012. This is a temporary spike caused by rising food prices as well as increases in pensions and the introduction of a minimum wage. The currency remains pegged to the euro and international reserves are at relatively comfortable levels of 114 per cent of short-term debt and about four months of imports.

Fiscal targets have been met, but arrears are present. Given the currency peg to the euro and the limited sources of external funding, the government has implemented relatively tight fiscal policy. Over the past two years the government maintained the budget deficit within the targeted 2.5 per cent of GDP on a cash basis; this year, it is likely to reach 3.5 per cent of GDP. The government is taking measures to clear part of the accumulated budgetary arrears and delayed VAT refunds. In 2011 the government drew on the precautionary credit line (PCL) from the IMF to finance expenditures. The second review of the PCL was not completed, mainly because of IMF concerns about the arrears problem.  The PCL is now dormant and will formally expire in January 2013.

The eurozone’s difficulties will continue to dampen growth prospects in 2012 and 2013. Following the contraction in the first half of the year and in light of continuing weakness in the eurozone, growth in 2012 will be minimal at best. A modest recovery is likely to occur in 2013 to around 2 per cent. A pick-up in growth is expected in the medium term, as the regional economy recovers and as FYR Macedonia reaps the benefit of sustained macroeconomic stability and investor-friendly reforms introduced in recent years.


Moving to the next phase in the EU accession process remains stalled because of the name issue. Since receiving candidate status in December 2005, FYR Macedonia has made considerable progress in EU-oriented reforms. The country is on track to fulfilling the political and economic criteria for accession, but the name dispute remains a key obstacle to further advancement of the membership application. In March 2012 the government and the European Commission (EC) launched a High-Level Dialogue to boost the reform process. In its latest Progress Report, published in October 2012, the EC noted that this new Dialogue had already served as a catalyst for reforms in a number of key policy areas this year. The EC reiterated its recommendation for the opening of EU accession negotiations, stressing that this would consolidate the pace and sustainability of reforms.

Privatisation is largely complete, but efforts to sell some of the remaining state-owned enterprises have been unsuccessful. A number of attempts have been made to sell the state’s 76.6 per cent stake in chemical manufacturer Ohis, but there have been no successful bids so far. Similarly, efforts to privatise the electrical engineering company EMO Ohrid, the tobacco company Tutunski Kombinat AD Prilep and the manufacturer of military kit, 11 Oktomvri Eurokompozit over the past few years have also failed. These four companies remain on top of the government’s privatisation agenda. State capital remains concentrated in the energy sector (power generation and transmission companies are state-owned) and public utilities. The state also owns a significant minority stake in the country’s profitable telecommunications company, Makedonski Telekom.  

FYR Macedonia continues to perform well on business environment indicators. According to the 2012 World Bank’s Doing Business Report, FYR Macedonia made the third highest improvement in ranking, moving up 12 places from 34th to 22nd (out of 183 countries) for overall ease of doing business. This places the country significantly ahead of regional peers on this business environment measure. The largest improvements were noted in dealing with construction permits, registering property and getting credit. The country still performs relatively poorly on access to electricity, cross-border trade and contract enforcement.

The country has attracted significant new foreign direct investments this year. The most notable is a €300 million construction project in Skopje by the Turkish company Cevahir Holding, which will include a shopping centre and four skyscrapers. In July 2012 an agreement was signed for the largest German greenfield investment in the country a €35 million plant in the free zone of Kavadarci that will manufacture electronic installations and cables for the car industry. A week before, in the industrial zone in Bitola, construction began on another significant German investment a €20 million plant that will also produce automotive parts. Major reinvestments by companies from the United Kingdom and United States are also under way in the car electronics and catalytic convertors industries.

Restructuring of the railways sector is ongoing. The institutional mechanisms for the introduction of public service obligation contracts and access charges are under development. Over the past year the government provided financial guarantees for an IFI-funded loan to the national rail operator, Makedonski Zeleznicki Transport. The funds will be used to modernise the freight and passenger fleet in order to improve the company’s operational efficiency. Under the umbrella of the project, technical assistance will be sought for the development of a Business Segmentation Strategy, which should result in a split of the freight and passenger service into two separate legal entities by 2017. In parallel, ambitious plans for energy efficiency improvements have been envisaged with both the national rail operator and the infrastructure management company.

Overall the financial sector remains less competitive than in neighbouring countries, but pension fund assets have increased. The three largest banks (Komercijalna Banka, Stopanska Banka and NLB Tutunska Banka) still control 64 per cent of the market while the top five banks account for 77 per cent of the total market. The market is dominated by foreign banks, which account for over 90 per cent of total banking assets. However, banks have relied primarily on domestic deposits to fund lending, so they were not as exposed as those in regional peers to deleveraging pressures during the crisis. Non-performing loans have recently started to increase again, reaching 10 per cent of total loans this year, although they are more than 100 per cent provisioned. One of the three largest banks Stopanska Banka is a subsidiary of a Greek bank while NLB Tutunska Banka is Slovenian owned. Spillover risks are limited, however, because the bank has largely relied on domestic deposits rather than parent bank capital to finance lending.

Pension fund assets have risen sharply. Past reforms in the pension system included the setting up of a mandatory defined-contributions pillar managed by private pension funds. Along with the introduction of two voluntary funds, this has led over the past year to a substantial increase in pension fund assets, which have reached over 3 per cent of GDP (up from 1.2 per cent in 2008).


icon-pdfOther Reports

Annual Report 2012
pdf English
pdf French
pdf German
pdf Russian

Financial Report 2012
pdf English
pdf French
pdf German
pdf Russian

pdf Donor Report 2013

pdf Sustainability Report 2012