Macedonia

Macedonia

Macedonia: Market Profile

Picture: Macedonia factsheet
Picture: Macedonia factsheet

1. Overview

The Former Yugoslav Republic of Macedonia (Macedonia) is an upper middle-income country that has made great strides in reforming its economy over the last decade. However, more efforts, including European Union (EU) accession and the implementation of structural reforms aimed at improving the business environment, are still needed to generate broad-based economic growth and improve living standards for all.

Sources: World Bank, Fitch Solutions

2. Major Economic/Political Events and Upcoming Elections

May 2016
An early election scheduled for June was postponed.

December 2016
Early general elections intended to end a two-year political crisis failed to produce an outright winner.

June 2017
Macedonia formed a new government for the first time in more than a decade.

June 2018
Macedonia's president refused to sign a deal with Greece to rename his country the Republic of North Macedonia, after parliament ratified the accord.

September 2018
A referendum where citizens vote on whether to change the country’s official name was scheduled for September 30, 2018.

Sources: BBC Country Profile – Timeline, Fitch Solutions Political Risk Analysis

3. Major Economic Indicators

Graph: Macedonia real GDP and inflation
Graph: Macedonia real GDP and inflation
Graph: Macedonia GDP by sector (2017)
Graph: Macedonia GDP by sector (2017)
Graph: Macedonia unemployment rate
Graph: Macedonia unemployment rate
Graph: Macedonia current account balance
Graph: Macedonia current account balance

e = estimate, f = forecast
Sources: International Monetary Fund, World Bank, Fitch Solutions
ate last reviewed: September 21, 2018

4. External Trade

4.1 Merchandise Trade

Graph: Macedonia merchandise trade
Graph: Macedonia merchandise trade

Source: WTO
Date last reviewed: September 21, 2018

Graph: Macedonia major export commodities (2017)
Graph: Macedonia major export commodities (2017)
Graph: Macedonia major export markets (2017)
Graph: Macedonia major export markets (2017)
Graph: Macedonia major import commodities (2017)
Graph: Macedonia major import commodities (2017)
Graph: Macedonia major import markets (2017)
Graph: Macedonia major import markets (2017)

Sources: Trade Map, Fitch Solutions
Date last reviewed: September 20, 2018

4.2 Trade in Services

Graph: Macedonia trade in services
Graph: Macedonia trade in services

e = estimate
Source: WTO
Date last reviewed: September 21, 2018

5. Trade Policies

  • Macedonia joined the World Trade Organization (WTO) in April 2003. As a member of the WTO, Macedonia regularly notifies the WTO Committee on Technical Barriers to Trade of proposed amendments to technical regulations concerning trade, and as an EU aspirant, Macedonia is harmonising its customs laws with EU laws and regulations.
  • On the political front, the unprecedented referendum, in which citizens will vote on whether to change the country’s official name, is scheduled for September 30, 2018. If a majority are in favour, a resolution to the longstanding political stalemate with Greece could finally come to an end. This would pave the way for EU accession talks, which could begin as early as June 2019, and a NATO membership invitation.
  • Macedonia's average tariff rate is the fifth highest in the South East Europe region (out of 12 states). The average tariff rate on agricultural goods is 16% and 6% on industrial products, on average. However, there are no discriminatory trade policies affecting foreign investors and almost 96% of total foreign trade is unrestricted.
  • Customs duties generally apply to most products imported into Macedonia. The customs rates under the most favoured nation treatment for agricultural products are up to 31%, whereas the customs rates for industrial products are below 23%.
  • The import of industrial products with preferential origin and certain raw precious metals is exempt from customs duties.
  • Macedonia has signed trade agreements with Turkey, Ukraine, and European Free Trade Association (EFTA) member states. The country is also a member state to the Central European Free Trade Agreement (CEFTA) and has signed a Stabilisation and Association Agreement with the European Community.
  • According to the Stabilisation and Association Agreement 2001 signed between Macedonia and the European Union, products with Macedonian origin can generally be exported into EU countries free of customs duties.
  • Excise duties apply to alcohol, cigarettes, mineral oils, tobacco, petroleum coke and passenger vehicles, where these duties are determined by the type and quantity of the product and are levied in addition to the customs tariff. The customs tariff on new and used automobiles is 5%. However, there is no tariff on automobiles produced in EU countries.

  • A number of products in Macedonia are subject to quality control at customs offices, to ensure that imported goods are in compliance with domestic standards. The products subject to quality control include the majority of agricultural products, cars, electrical appliances, and products in which poor quality may pose a health risk to consumers. When applicable, products must also pass sanitary, phytopathology, or veterinary control.

  • Numerous import regulations that are not always available in English pose barriers to importers and exporters.

  • In May 2016, the Macedonian Bank for Development and Promotion lowered the export factoring interest rates from 6% to 5% per annum (a rate that is exclusively designated to benefit Macedonian exporters). The export factoring interest rate is the rate at which Macedonian export-oriented business entities pay as part of the export factoring support (a form of trade finance loans with recourse, offered to businesses for their exporting activities) that the Macedonian Bank for Development Promotion offers to them exclusively.

Sources: WTO - Trade Policy Review, Fitch Solutions

6. Trade Agreement

6.1 Trade Updates

Trade and investment ties are likely to be increased between Macedonia and the EU, in the event that a diplomatic resolution is reached with Greece regarding Macedonia’s name.

6.2 Multinational Trade Agreements

Active

  1. The CEFTA: CEFTA consists of Macedonia, Albania, Bosnia and Herzegovina, Serbia, Moldova, Montenegro and UNMIK/Kosovo and came into force in May 2007. The Agreement helps increase trade between regional counterparts and fosters non-EU bilateral relations.

  2. The bilateral free trade agreement between Macedonia and the EFTA: EFTA consists of Switzerland, Norway, Liechtenstein and Iceland and entered into force in May 2002. The Agreement covers trade in goods and provides Macedonia with key export markets for its primary and secondary sectors.

  3. The Free Trade Agreement (FTA) and Economic Integration Agreement between Macedonia and the EU: The FTA entered into force in June 2001 (for goods trade) and April 2004 (for services trade). The Agreements stimulate Macedonia's already large export and import volumes with EU member states, including Germany, Bulgaria and Greece.

  4. The bilateral Free Trade Agreement between Macedonia and Turkey: The FTA covers trade in goods and entered into force in September 2000. Turkey is Macedonia's seventh largest supplying market as of 2017, with imports from Turkey accounting for 4.8% of Macedonia's total imports, of which machinery, mechanical appliances, nuclear reactors, boilers and parts thereof made up the highest percentage.

  5. The bilateral FTA between Macedonia and the Ukraine: The FTA covers trade in goods and entered into force in July 2001. The Ukraine is Macedonia's 25th largest supplying market as of 2017, with imports from the Ukraine accounting for 0.9% of Macedonia's total imports, of which iron and steel made up the highest percentage.

Sources: WTO Regional Trade Agreements database, Fitch Solutions

7. Investment Policy

7.1 Foreign Direct Investment

Graph: Macedonia FDI stock
Graph: Macedonia FDI stock
Graph: Macedonia FDI flow
Graph: Macedonia FDI flow

Source: UNCTAD
Date last reviewed: September 21, 2018

7.2 Foreign Direct Investment Policy

  1. Invest Macedonia is the Agency for Foreign Investments and Export Promotion in Macedonia, and it is the primary government institution in charge of facilitating foreign investments in the country.

  2. Macedonia is heavily dependent on FDI for employment and growth, so it welcomes foreign investment that can provide substantial numbers of jobs. Legislation places foreign and domestic firms on roughly equal footing, with foreign investors regularly receiving national treatment. The government also provides numerous incentives and has promised to institute transparent policies for attracting FDI. Macedonia has also adopted multilateral conventions protecting foreign investors, as well as concluded a number of bilateral investment protection treaties.

  3. Foreign investors are permitted to invest directly in all industries and business sectors, except those limited by law. Investment in the production of weaponry and narcotics is subject to government approval, and investors in industries such as banking, financial services and insurance must meet specific licensing requirements that apply equally to both domestic and foreign investors. Foreign investment may be in the form of money, equipment, or raw materials. According to the law, foreign investors have the right to receive the full value of their investment in the case of nationalisation, a provision that does not apply to domestic investors.

  4. Indicative of its liberalisation efforts, Macedonia has created the most attractive tax system in Europe with a simple flat tax rate of 10% on corporate and personal income. In order to stimulate investment, corporate tax on retained earnings is set at 0%. Meanwhile, special tax incentives are offered for companies operating in the technological-industrial development zones (TIDZs), including a 10-year personal and corporate income tax exemption.

  5. Although Hong Kong’s investment in Macedonia is limited at present, the city started and completed the first round of Double Taxation Agreement (DTA) negotiation with Macedonia in June 2015 in a bid to accommodate greater synergies.

  6. The standard value added tax (VAT) rate is 18%. This rate applies to overall turnover and imports of goods and services. A lower rate of 5% applies to supplies of certain goods and services, such as supply of food for human consumption; food for livestock; drinking water from public supply systems; computers and software; agricultural material and equipment; wood pellets, pellet stoves and pellet boilers; baby products; school supplies (e.g., school backpacks, notebooks, pencils); pharmaceutics and medical equipment; publications such as books, pamphlets, newspapers and other printed material, except for publications mainly used for advertising purposes; transport of passengers; and accommodation services, bed and breakfast services, as well as half-board and full-board services provided by hotelkeepers in the country and similar activities.

  7. Foreign tax credit: The taxpayer is allowed a tax credit for the tax paid on foreign income abroad, up to the amount of tax payable for that income in Macedonia. However, a tax credit for the withholding tax paid abroad is allowed only if a double tax treaty (DTT) is in place and in case the Macedonian company obtains proof for the amount of tax paid in the foreign country.

  8. Reinvested profit: The Corporate Income Tax Law introduces a possibility for decreasing the tax base for the year for the amount of profit reinvested for development purposes of the local taxpayer. The amounts from the reinvested profit that would be recognised for the purposes of the above tax relief cover investments both in tangible and intangible assets, except for some explicitly listed types of assets intended for administrative purposes. In order to be able to utilise this tax relief, the taxpayers must maintain ownership over the assets purchased with the reinvested profit for a period of five years as of the day of their purchase.

  9. Technological industrial development zones: A taxpayer that is a registered user within a technological industrial development zone is exempt from CIT payment for a period of 10 years from the commencement of the performance of the activity in the zone or until the state aid amount is fully exhausted under terms and conditions and according to a procedure determined with the Law on Technological Industrial Development Zones.

Sources: WTO - Trade Policy Review, The International Trade Administration (ITA), US Department of Commerce

7.3 Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive ProgrammeMain Incentives Available
There are currently 15 Free Economic Zones (FEZs) throughout Macedonia that are at various stages of development. The Directorate for TIDZ is responsible for developing and supervising 14 FEZs, including two fully operational TIDZS in the capital (Skopje 1 and 2) and one in Stip (the largest town in eastern Macedonia). The Tetovo TIDZ is a public-private partnership (a privately owned company founded that zone and is responsible for its development and operation).- Foreign investors in the special FEZs may employ staff from any country.

- Many companies temporarily assign existing employees from other foreign operations to start their branches in Macedonia.

- In 2016, the Macedonia government simplified the procedure for expatriates to obtain permission to live and work in the country.

- It also simplified regulations and procedures for large foreign investors in special FEZs.

- Although legally permitted, there are no unions in the factories operating in the FEZs.

- Large foreign companies operating in TIDZs generally report positive experiences doing business in Macedonia and good relations with government bureaucrats.
General incentives- The Law on Customs and the Law on Profit Taxes offer incentives, such as tax breaks and subsidies, to foreign investors for projects that generate jobs.

- Foreign investors are eligible for: profit tax exemptions for profits generated during the first three years of operation in proportion to the amount of foreign investment; all profits reinvested in the company; profits invested in environmental protection; and profits invested in 'underdeveloped' regions of Macedonia.

- Companies with at least 20% foreign capital are exempt from customs duties for the first three years after their registration.

- 10% flat tax for corporate profits and personal income.

- Guaranteed relief from local taxes and fees.

- A tax exemption for duties on imported goods, raw materials and equipment/machines.

- A symbolic land lease rate.

- Direct state aid in the amount of up to EUR500,000.

Sources: US Department of Commerce, Fitch Solutions

8. Taxation – 2018

  • Value Added Tax: 18%
  • Corporate Income Tax: 10%

Source: PwC Taxes 2018

8.1 Important Updates to Taxation Information

Brownfield investments may benefit from some tax exemptions on employees for around two years.

8.2 Business Taxes

Type of TaxTax Rate and Base
Corporate Income Tax Rate
10%
Dividends10%
Social security contributions (all employers)
- Pension and disability insurance: 18%
- Health insurance: 7.3%
- Employment insurance: 1.2%
- Additional health insurance: 0.5%
VAT/GST (standard)
18%
Property TaxProportional and range from 0.10-0.20%
Transfer TaxProportional and range from 2-4%
Customs duties- Up to 31% for agricultural products
- Below 23% for industrial products
Excise duty for passenger motor vehicles0% for vehicles valued up to EUR3,000 to 18% for vehicles valued above EUR30,000

Source: PwC Tax Summaries 2018
Date last reviewed: September 20, 2018

9. Foreign Worker Requirements

9.1 Foreign Labour Regulations

Employment of foreign citizens is regulated by the law on employment and work of foreigners. Labour laws apply to both domestic and foreign employees, where both are equally protected. There is no limitation on the number of employed foreign nationals or the duration of their stay. Work permits are necessary for foreign nationals, and an employment contract has to be signed upon hiring.

9.2 Visa/Travel Restrictions

A number of international businesses have reported that the processes of obtaining visas and work permits are challenging.

Foreign nationals from North America, Europe, and some parts of Latin America, Africa and Asia (including Hong Kong) do not require a visa for visits to Macedonia of up to 90 days.

Sources: Government websites, Fitch Solutions

10. Risks

10.1 Sovereign Credit Ratings


Rating (Outlook)Rating Date
Moody's
Not Rated
Not Rated
Standard & Poor'sBB- (Stable)24/05/2013
Fitch Ratings
BB (Positive)20/07/2018

Sources: Moody's, Standard & Poor's, Fitch Ratings

10.2 Competitiveness and Efficiency Indicators


World Ranking
201620172018
Ease of Doing Business Index
16/18910/19011/190
Ease of Paying Taxes Index
7/1899/19029/190
Logistics Performance Index
106/160N/A81/160
Corruption Perception Index
90/176107/180N/A
IMD World CompetitivenessN/A
N/AN/A

Source: World Bank, Transparency International

10.3 Fitch Solutions Risk Indices


World Ranking
201620172018
Economic Risk Index Rank90/202
Short-Term Economic Risk Score52.149.250.8
Long-Term Economic Risk Score52.450.453.0
Political Risk Index Rank127/202
Short-Term Political Risk Score51.747.553.3
Long-Term Political Risk Score64.457.357.3
Operational Risk Index Rank63/201
Operational Risk Score55.556.557.5

Source: Fitch Solutions
Date last reviewed: August 21, 2018

10.4 Fitch Solutions Risk Summary

ECONOMIC RISK
High structural unemployment weighs heavily on the Macedonia’s economic risk, despite higher economic activity on account of a robust construction sector. The political environment weighs significantly on investment confidence, and in 2017, gross fixed capital formation contracted by 4.5% y-o-y. Although the registered unemployment rate has dropped below 25.0% since Q113, it remains elevated.

OPERATIONAL RISK
As a landlocked nation, Macedonia’s sea transport relies mainly on ports in neighbouring countries - such as Port of Thessaloniki in Greece and Port of Durrës in Albania - through road and rail links. However, with direct flights to many major cities, Macedonia is well connected to the rest of Europe, the Americas and Asia, via its two airports in Skopje and Ohrid. Macedonia also has a well-established automotives sector, supplying to Western Europe, Russia, Turkey and Africa. It also has a well-established pharmaceuticals industry, supplying primarily finished generic products to more than 30 countries in the region and beyond. These sectors together with the agribusiness and food processing, ICT, textiles and clothing and electronics industries are therefore also key sectors for foreign investment. That said, heightened political tensions threaten Macedonia's business environment and could undermine the country's EU accession ambitions.

Source: Fitch Solutions
Date last reviewed: September 25, 2018

10.5 Fitch Solutions Political & Economic Risk Indices

Graph: Macedonia short term political risk index
Graph: Macedonia short term political risk index
Graph: Macedonia long term political risk index
Graph: Macedonia long term political risk index
Graph: Macedonia short term economic risk index
Graph: Macedonia short term economic risk index
Graph: Macedonia long term economic risk index
Graph: Macedonia long term economic risk index

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Economic and Political Risk Indices
Date last reviewed: August 21, 2018

10.6 Fitch Solutions Operational Risk Index


Operational RiskLabour Market RiskTrade and Investment RiskLogistics RiskCrime and Security Risk
Macedonia Score57.5
47.268.357.257.3
Southeast Europe Average57.1
52.857.958.359.4
Southeast Europe Position (out of 12)6
1117
7
Emerging Europe Average56.754.158.457.456.8
Emerging Europe Position (out of 31)16
28718
15
Global Average49.7
49.850.049.349.9
Global Position (out of 201)63
1153665
77

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index

Graph: Macedonia vs global and regional averages
Graph: Macedonia vs global and regional averages
Country
Operational Risk Index
Labour Market Risk Index
Trade and Investment Risk IndexLogistics Risk IndexCrime and Secruity Risk Index
Slovenia
67.254.0
60.970.683.4
Croatia63.151.9
55.468.476.7
Romania62.157.162.160.768.5
Cyprus61.055.161.758.368.8
Bulgaria
60.255.563.660.661.1
Macedonia57.547.268.357.257.3
Montenegro
56.952.858.856.559.3
Serbia56.158.559.453.952.5
Turkey
52.952.055.861.942.0
Kosovo52.355.257.655.640.7
Albania50.849.047.649.856.8
Bosnia45.545.544.346.145.9
Regional Averages57.152.857.958.359.4
Emerging Markets Averages46.848.047.545.846.0
Global Markets Averages49.749.850.049.349.9

100 = Lowest risk; 0 = Highest risk
Source: Fitch Solutions Operational Risk Index
Date last reviewed: August 21, 2018

11. Hong Kong Connection

11.1 Hong Kong’s Trade with Macedonia

Graph: Major export commodities to Macedonia (2017)
Graph: Major export commodities to Macedonia (2017)
Graph: Major import commodities from Macedonia (2017)
Graph: Major import commodities from Macedonia (2017)
Graph: Merchandise exports to Macedonia
Graph: Merchandise exports to Macedonia
Graph: Merchandise imports from Macedonia
Graph: Merchandise imports from Macedonia

Exchange Rate HK$/US$, average
7.76 (2013)
7.75 (2014)
7.75 (2015)
7.76 (2016)
7.79 (2017)
Sources: Hong Kong Census and Statistics Department, Fitch Solutions
Date last reviewed: September 21, 2018


2017
Growth rate (%)
Number of Macedonian residents visiting Hong Kong915
-3.5

Source: Hong Kong Tourism Board


2017
Growth rate (%)
Number of European residents visiting Hong Kong1,929,824
-0.2

Sources: Hong Kong Tourism Board, Fitch Solutions
Date last reviewed: September 21, 2018

11.2 Commercial Presence in Hong Kong


2017
Growth rate (%)
Number of Macedonian companies in Hong Kong N/A
N/A
- Regional headquarters
- Regional offices
- Local offices


11.3 Treaties and Agreements between Hong Kong and Macedonia

  • The Agreement between the government of Macedonia and the government of China concerning the encouragement and reciprocal protection of investments entered into force in November 1997 and aims to create favourable conditions for investments by investors of each contracting party.

  • The Agreement between the government of China and the government of Macedonia on the promotion and reciprocal protection of investments entered into force in June 1999 and desires to create favourable conditions for greater economic cooperation and investments on the basis of principles of equality and mutual benefit.

  • The DTA between China and Macedonia was signed on June 9, 1997 and entered into force in both countries on November 29, 1997.

Source: Hong Kong Department of Justice

11.4 Visa Requirements for Hong Kong Residents

HKSAR passport holders do not need a visa for a stay of up to 90 days.

Source: Travel Visa Services