North Macedonia

GDP (US$ Billion)

11.37 (2017)

World Ranking 134/192

GDP Per Capita (US$)

5,500 (2017)

World Ranking 96/192

Economic Structure

(in terms of GDP composition, 2017)

Services
(54.62%)
Industry
(24.13%)
Agriculture
(7.89%)

External Trade (% of GDP)

113 (2016)

Currency (Period Average)

Macedonian Denar

54.67 per US$ (2017)

Political System

Unitary multiparty republic

Overview

North 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. Growth is expected to rebound in 2018-2019, driven by consumption, rising exports and an improvement in investor confidence following greater political stability.

Sources: World Bank, Fitch Solutions

Major Economic/Political Events and Upcoming Elections

May 2016

The June election was postponed.

December 2016

The postponed early parliamentary elections, intended to end a two-year political crisis, fail to produce an outright winner.

May 2017

Social Democrat Union leader Zoran Zaev formed a coalition government.

September 2018

A referendum was held on September 30, 2018, with voters asked whether they support EU and North Atlantic Treaty Organisation (NATO) membership by accepting the agreement struck with Greece in June 2018. The referendum was later declared invalid due to low voter turnout.

February 2019

Following ratification by the Greek and North Macedonian parliaments, Macedonia was officially changed to North Macedonia, opened the path to EU membership. North Macedonia signed the NATO accession agreement.

Source: BBC Country Profile – Timeline

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

e = estimate, f = forecast

Sources: IMF, World Bank, Fitch Solutions

Date last reviewed: March 22, 2019

External Trade

Merchandise Trade

Graph: North Macedonia merchandise trade
 
Graph: North Macedonia merchandise trade
 
 

Sources: IMF

Date last reviewed: March 22, 2019

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

Sources: Trade Map, Fitch Solutions

Date last reviewed: March 22, 2019

Trade in Services

 

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

e = estimate

Source: WTO

Date last reviewed: March 22, 2019

Trade Policies
  • North Macedonia joined the World Trade Organisation (WTO) on April 4, 2003. As a member of the WTO, North Macedonia regularly notifies the WTO committee on technical barriers to trade and proposes amendments to technical regulations concerning trade.

  • North Macedonia acquired EU membership candidate status in December 2005. As an EU aspirant, North Macedonia is harmonising its customs laws with EU laws and regulations.

  • Following the changing of its name to North Macedonia, 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.

  • North Macedonia's average tariff rate is the fifth highest in the South East Europe region (out of 12 countries). 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 North 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 are exempt from customs duties.

  • North Macedonia has signed trade agreements with Turkey, Ukraine, and the European Free Trade Association (EFTA) (Iceland, Liechtenstein, Norway and Switzerland). The country is also a member state to the Central European Free Trade Agreement (CEFTA) and has signed a Stabilisation and Association agreement with European Communities.

  • In April 2001, North Macedonia and the EU became signatories to the European Stabilisation and Association Agreement (SAA). The SAA came into effect on April 1, 2004.

  • Under the SAA, customs duties on industrial goods are being phased out, with a number of North Macedonian-origin industrial goods already being imported duty free by the EU.

  • 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 cars is 5%. However, there is no tariff on cars produced in EU countries.

  • A number of products in North 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 goods, 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 North Macedonian Bank for Development Promotion (MBDP) lowered the export factoring interest rates from 6% to 5% per annum (a rate that is exclusively designated to benefit North Macedonian exporters). The export factoring interest rate is the rate which North 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 MBDP offers to them exclusively.

Sources: WTO - Trade Policy Review, Fitch Solutions

Trade Agreement

Trade Updates

Trade and investment ties between North Macedonia and the EU will likely increase now that a diplomatic resolution with Greece has been reached, following the country's name change.

Multinational Trade Agreements

Active

  1. The CEFTA: CEFTA consists of Albania, Bosnia and Herzegovina, North Macedonia, Moldova, Montenegro and Kosovo and Serbia. CEFTA came into force on July 26, 2007. The agreement helps increase trade between regional counterparts and fosters non-EU bilateral relations. The Central European (CE) countries accounted for approximately 11% of North Macedonia's total trade in 2017. Since coming into effect, total trade between North Macedonia and CE countries has grown by 65%.

  2. EFTA-North Macedonia Free Trade Agreement (FTA): The bilateral FTA between North Macedonia and the EFTA entered into force in May 2002. EFTA consists of Switzerland, Norway, Liechtenstein and Iceland. The Agreement covers trade in goods and provides North Macedonia with export markets for its primary and secondary sectors. The EFTA countries accounted for only 0.8% of North Macedonia's total trade in 2017. However, trade between North Macedonia and EFTA countries increased by 85.4% between 2002 and 2017.

  3. North Macedonia-EU: The FTA and Economic Integration Agreement between North Macedonia and the EU entered into force in June 2001 (for goods trade) and April 2004 (for services trade). The agreements stimulate North Macedonia's already large export and import volumes with EU member countries, including Germany, Bulgaria and Greece. The EU is North Macedonia's largest trade partner, purchasing over 80% of North Macedonia's exports in 2017 and supplying 63% of imports.

  4. North Macedonia-Turkey FTA: The bilateral FTA between North Macedonia and Turkey covers trade in goods and entered into force in September 2000. Turkey is North Macedonia's seventh-largest supplying market as of 2017, with imports from Turkey accounting for 4.8% of North Macedonia's total imports, of which machinery, mechanical appliances, nuclear reactors, boilers and parts thereof made up the highest percentage. Total trade between Turkey and North Macedonia has grown by over 600% since the FTA entered into force.

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

Sources: WTO Regional Trade Agreements database, Fitch Solutions

Investment Policy

Foreign Direct Investment

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

Sources: UNCTAD

Date last reviewed: March 22, 2019

Foreign Direct Investment Policy

  1. Invest North Macedonia is the Agency for Foreign Investors and Export Promotion of North Macedonia, and it is the official government investment and export promotion agency responsible for attracting foreign investments and supporting the export promotion of the country.

  2. North Macedonia is heavily dependent on FDI for employment and growth, so it welcomes foreign investment that can provide a 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. North Macedonia has adopted a number of multilateral conventions protecting foreign investors, and has also 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, North Macedonia has created one of the most attractive tax systems 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%.

  5. 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. The aim of the TIDZ is to support the development of modern technologies in North Macedonia. The North Macedonian Free Zones Authority is the governmental managing body responsible for the development of the country's free trade zones and assists foreign investors in the TIDZs.

  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.

  7. All legal entities must be registered with the Central Registry of North Macedonia. A one-stop-shop system has made investment easier, making it possible for foreign investors to register a business within a day at a single location.

  8. 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 North Macedonia. However, a tax credit for the withholding tax paid abroad is allowed only if a double tax treaty is in place and in the case where the North Macedonian company obtains proof for the amount of tax paid in the foreign country.

  9. Taxes on reinvested profit: Corporate Income Tax 2018 introduces a possibility for decreasing the tax base for the year for the amount of profit reinvested for development purposes of the local taxpayer. 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.

Sources: WTO - Trade Policy Review, ITA, US Department of Commerce, Invest North Macedonia

Free Trade Zones and Investment Incentives

Free Trade Zone/Incentive Programme Main Incentives Available
There are currently 15 Free Economic Zones (FEZs) throughout North 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 North Macedonia). The Tetovo TIDZ is a public-private partnership (a privately owned company founded that zone and is responsible for its development and operation). - Ten-year tax holiday from profit tax for entities performing their business activities in the TIDZs.



- Certain exemption from VAT for trade made within the zone and for imports in the zones.



- Foreign investors in the special FEZs may employ staff from any country.



- Custom exemptions depending on the type of investment.



- Exemption of certain construction fees.



- Free connection to water, sewerage, gas and power supply networks.



- Land in the TIDZs may be leased to foreign investors for up to 99 years.
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 North 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, Invest North Macedonia, Fitch Solutions

Taxation – 2019
  • Value Added Tax: 18%
  • Corporate Income Tax: 10%

Source: Ministry of Finance

Business Taxes

Type of Tax Tax Rate and Base
Corporate Income Tax - 10%
Withholding Tax Dividends, interest and royalties are all taxed at 10%
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%; a reduced rate of 5% applies to certain categories of goods
Property Tax Proportional and range from 0.10-0.20%
Transfer Tax Proportional and range from 2-4%
Customs duties - Up to 31% for agricultural products

- Below 23% for industrial products
Excise duty for passenger motor vehicles 0% for vehicles valued up to EUR3,000 to 18% for vehicles valued above EUR30,000

Source: Ministry of Finance

Date last reviewed: March 22, 2019

Foreign Worker Requirements

Foreign Worker Permits

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 a contract has to be signed upon employment.

Visa/Travel Restrictions

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

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

Sources: Government websites, Fitch Solutions

Risks

Sovereign Credit Ratings


 
Rating (Outlook) Rating Date
Moody's
 
Not Rated
 
Not Rated
Standard & Poor's BB- (Stable) 24/05/2013
Fitch Ratings
 
BB (Positive) 18/01/2019

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

Competitiveness and Efficiency Indicators


 
World Ranking
 
2017 2018 2019
Ease of Doing Business Index
 
10/190 11/190 10/190
Ease of Paying Taxes Index
 
9/190 29/190 31/190
Logistics Performance Index
 
N/A 81/160 N/A
Corruption Perception Index
 
107/180 N/A N/A
IMD World Competitiveness N/A N/A N/A

Sources: World Bank, Transparency International, Fitch Solutions

Fitch Solutions Risk Indices


 
World Ranking
2017 2018 2019
Economic Risk Index Rank N/A 90/202 91/202
Short-Term Economic Risk Score 49.2 49.2 50.8
Long-Term Economic Risk Score 50.4 50.4 53.0
Political Risk Index Rank N/A 126/202 124/202
Short-Term Political Risk Score 47.5 47.5 53.3
Long-Term Political Risk Score 57.3 57.3 57.3
Operational Risk Index Rank N/A 64/201 68/201
Operational Risk Score 56.5 56.5 57.2

Source: Fitch Solutions

Date last reviewed: March 22, 2019

Fitch Solutions Risk Summary

ECONOMIC RISK

High structural unemployment weighs heavily on North 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% since Q113, it remains elevated.

OPERATIONAL RISK

As a landlocked nation, North Macedonia's sea transport relies mainly on ports in neighbouring countries – such as the Port of Thessaloniki in Greece and the Port of Durrës in Albania – through road and rail links. However, with direct flights to many major cities, North Macedonia is well connected to the rest of Europe, the Americas and Asia, via its two airports in Skopje and Ohrid. North Macedonia has a well-established automotive industry, 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, information and communications technology, textiles and clothing and electronics industries, are therefore also key sectors for foreign investment. That said, heightened political tensions threaten North Macedonia's business environment and could undermine the country's EU accession ambitions.

Source: Fitch Solutions

Date last reviewed: February 18, 2019

Fitch Solutions Political and Economic Risk Indices

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

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Economic and Political Risk Indices

Date last reviewed: March 22, 2019

Fitch Solutions Operational Risk Index


 
Operational Risk Labour Market Risk Trade and Investment Risk Logistics Risk Crime and Security Risk
North Macedonia Score 56.2
 
47.2 64.1 56.2 57.3
Southeast Europe Average 57.6
 
52.8 58.8 59.5 59.4
Southeast Europe Position (out of 12) 8
 
11 3 9
 
7
Emerging Europe Average 57.1 54.1 59.1 58.6 56.8
Emerging Europe Position (out of 31) 20
 
28 10 19
 
15
Global Average 49.6
 
49.7 49.9 49.0 49.8
Global Position (out of 201) 68
 
115 49 67
 
77

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Graph: North Macedonia vs global and regional averages
 
Graph: North Macedonia vs global and regional averages
 
Country
 
Operational Risk Index
 
Labour Market Risk Index
 
Trade and Investment Risk Index Logistics Risk Index Crime and Security Risk Index
Albania 51.1 49.0
 
49.1 49.7 56.8
Bosnia and Herzegovina 46.6 45.5
 
46.3 48.5 45.9
Bulgaria 60.2 55.5 64.1 60.1 61.1
Croatia 64.1 51.9 56.6 71.3 76.7
Cyprus 62.3 55.1 64.2 61.3 68.8
Kosovo 51.5 55.2 58.3 52.0 40.7
North Macedonia 56.2 47.2 64.1 56.2 57.3
Montenegro 56.7 52.8 58.1
 
56.6 59.3
Romania 62.4 57.1 61.0 63.0 68.5
Serbia 57.2 58.5 60.7 57.0 52.5
Slovenia 68.6 54.0 63.4 73.5 83.4
Turkey 54.8 52.0 60.4 64.9 42.0
Regional Averages 57.6 52.8 58.8 59.5 59.4
Emerging Markets Averages 49.6 49.7 49.9 49.0 49.8
Global Markets Averages 49.6 49.7 49.9 49.1 49.8

 

100 = Lowest risk; 0 = Highest risk

Source: Fitch Solutions Operational Risk Index

Date last reviewed: March 22, 2019

Hong Kong Connection

Hong Kong’s Trade with North Macedonia

Graph: Major export commodities to North Macedonia (2018)
 
Graph: Major export commodities to North Macedonia (2018)
 
Graph: Major import commodities from North Macedonia (2018)
 
Graph: Major import commodities from North Macedonia (2018)
 

Note: Graph shows the main Hong Kong export to/imports from North Macedonia (by consignment)

Date last reviewed: March 22, 2019

Graph: Merchandise exports to North Macedonia
 
Graph: Merchandise exports to North Macedonia
 
Graph: Merchandise imports from North Macedonia
 
Graph: Merchandise imports from North Macedonia
 

Note: Graph shows Hong Kong exports to/imports from North Macedonia (by consignment)

Exchange Rate HK$/US$, average

7.75 (2014)

7.75 (2015)

7.76 (2016)

7.79 (2017)

7.83 (2018)

Source: Hong Kong Census and Statistics Department

Date last reviewed: March 22, 2019


 
2017
 
Growth rate (%)
Number of North Macedonian residents visiting Hong Kong 915
 
-3.5

Sources: Hong Kong Tourism Board, United Nations Population Division, Fitch Solutions


 
2017
 
Growth rate (%)
Number of European residents visiting Hong Kong 1,929,824
 
-0.2

Sources: Hong Kong Tourism Board, United Nations Department of Economic and Social Affairs – Population Division, Fitch Solutions

Date last reviewed: March 22, 2019

Commercial Presence in Hong Kong


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



Treaties and Agreements between Hong Kong and North Macedonia
 

  • In June 2015 Hong Kong and North Macedonia started the first round of a Double Taxation Agreement (DTA) negotiation.
  • The DTA between mainland China and North Macedonia was signed on June 9, 1997 and entered into force in both countries on November 29, 1997.

Source: State Administration of Taxation

Visa Requirements for Hong Kong Residents

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

Source: Hong Kong Immigration Department

Date last reviewed: March 22, 2019

 

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