Books on Macedonia
% of GDP
Update No: 110 - (27/07/06)
Macedonia prime minister concedes defeat
Prime Minister Vlado Buckovski conceded defeat on June 30 to the nationalist
opposition in Macedonia's parliamentary elections, a vote considered crucial for
the tiny Balkan nation's aspirations to join the European Union and NATO.
Buckovski's multiethnic ruling coalition came under fire for failing to provide
jobs and improve living standards. Fifteen years after Macedonia split
peacefully from Yugoslavia, the economy remains stagnant and unemployment stands
at a crippling 36 per cent.
Sounding like a winner, Nikola Gruevski thanked his VMRO-DPMNE party supporters
and said he would begin efforts to put together a coalition.
"The top priority of the government will be integration into the EU. Our
government will focus on improving the economic situation, to fight corruption
and crime and raise the standard of living," he said.
With 36 per cent of the ballots counted, the VMRO-DPMNE party had 33 per cent of
the vote, while Buckovski's ruling Social Democrats had 24 per cent, according
to preliminary results released by the State Electoral Commission.
"I called Nikola Gruevski to congratulate him with his election
victory," Buckovski told his supporters in a televised speech just after
midnight. Gruevski, a former finance minister, was quick to claim victory, with
pledges to get to work on repairing the economy.
Marred campaign ends peacefully
The tense electoral campaign was marred by violence - including shoot-outs
and a grenade attack - between supporters of rival ethnic Albanian parties that
left at least three people wounded.
But June 29's voting passed off peacefully, and the prime minister cheered it as
a "victory for Macedonia" despite his apparent loss. "We have
said that we will be satisfied if we have a free and peaceful election, if we
pass this test. We had an exceptionally good election and this is victory for
Macedonia," Buckovski said.
Past polls have been marred by irregularities, and President Branko Crvenkovski
had urged a free and fair vote in a country struggling to ease tensions between
majority Macedonian Slavs and the ethnic Albanian minority, which makes up about
a quarter of the nation's population.
Parliament recently tightened voting rules and imposed severe penalties for
After the VMRO-DPMNE declared victory, hundreds of its supporters poured into
the central square of the capital, Skopje, waving party flags, singing and
playing traditional Macedonian instruments. Celebratory gunfire rang out across
The VMRO-DPMNE, which led Macedonia's government from 1998-2002, has sought to
moderate some of its hard-line positions, pledging more cooperation with the
nation's ethnic Albanians. Its defeat in the 2002 election threw the party into
chaos, resulting in the departure of some of its more radical leaders.
Party spokesman Vlatko Gjorcev said its representatives monitoring the vote at
polling stations had tallied 51 per cent for the party, giving it 55 seats in
the 120-member parliament.
Without a majority, Gruevski would have to form a governing coalition.
During Buckovski's premiership, the European Union accepted Macedonia as a
candidate for membership, but the bloc has not set a date for entry
negotiations. Macedonia hopes to join NATO in 2008 and the EU in 2012.
Incoming premier promises economic revival and fight against corruption
Macedonia 's future prime minister has pledged to lead his impoverished
country out of the wastelands of economic muddle to the sunny uplands of a boom
through a 100-point reform plan.
Ten days after the inaugural session of the new parliament on July 26, President
Branko Crvenkovski will grant a mandate to the leader of the rightist VMRO-DPMNE,
Nikola Gruevski to establish a government, after his party beat the Social
Democrats in the July 5 elections.
Gruevski has said no parties will be invited to join his coalition unless they
support his economic manifesto, 'Revival in 100 steps.' "The economy is the
number-one priority," said Gruevski - repeatedly.
Economic experts say the appointment of a leader familiar with market logic
comes not a moment before time. As we have seen, almost 40 per cent of the adult
population is officially unemployed and foreign direct investment is minimal,
not least on account of rampant corruption.
The future prime minister has based his renewal plans on a few main pillars.
One is a new, flat, ten per cent income tax, along the lines of the flat taxes
established in several former communist countries in Eastern Europe and the
former Soviet Union.
At present profit taxes in Macedonia range from 15 to 24 per cent, while VAT is
18 per cent.
Another pillar is to improve the investment climate by changing the country's
foreign image through an invigorated fight against corruption.
The government promises that these changes will lead to annual economic growth
rates of six to eight per cent within four years. The current one is around four
Experts say the promises are attainable, as they are mostly based on the
experience of other countries in similar economic situations.
However, they note that Gruevski will head a government of more than 18 parties,
which could provide an obstacle.
Vanco Uzunov, an economics professor in Skopje, said Gruevski's programme could
end the long-term recession that began after independence in the 1990s.
"The measures ... are not a novelty, as they have been implemented in other
countries and have given results," he said. "The most important thing
is not to retreat before political interests."
This relative optimism is based on Gruevski's record as a successful minister in
Ljubco Georgievski's right-wing government from 1998 to 2002.
As trade minister, Gruevski launched a successful campaign to encourage the
purchase of Macedonian products, and as finance minister he introduced a new VAT
in only three months.
Dimitar Bogov, of the Centre of Economic Analysis, said that as a minister
"Gruevski proved himself a liberal economist, committed to a market
economy, free of monopolies and state control of the market."
Many maintain it was this business-friendly image that brought Gruevski's party
to victory on July 5.
The pillar of the new economic programme, the planned flat tax, aims to make
Macedonia a country with one of the lowest tax rates in Europe.
The basic principle is that the application of a single, low rate of tax on
profits, as well as exemptions from taxes for profits that are reinvested, will
yield a higher income for the government in the long term than high tax rates
and complicated and variable tax bands.
This model has already been tried and proved successful in Estonia, Latvia and
Lithuania, which experienced booms after low taxes began to draw in massive
The first stage of Macedonia 's plan is expected to begin in January 2007, when
a flat tax of 12 per cent will be introduced. This will be cut to 10 per cent a
Vanco Uzunov said the tax reform could be implemented relatively easily, would
reduce labour costs and "stimulate businessmen to hire more people",
as they would have more profits left over to spend on the workforce.
Bogov agreed that a flat tax would also help solve another key problem - the
untaxed "grey" economy, which is estimated to absorb about 40 per cent
of the country's economic activity.
"With the reduction of employment costs, businessmen will feel encouraged
to register their employees," he said. "The flat tax will be an
incentive for many people who run businesses to legalize them."
Bogov added that tax changes would stimulate competitiveness in the economy and
thus stimulate exports. "The resistance of the business sector to the
[current] taxes is huge, so this measure should release the burden and bring in
investments," said Bogov.
The economic programme promises to stimulate foreign investments also through
administrative and educational reforms and the involvement of foreign
consultants. Gruevski said he intended to hire up to 50 international consultant
companies, tasked with bringing in more direct investment
Past governments have failed to lure much investment. Statistics shows only 1.9
billion euro were invested in Macedonia in the past decade.
The only European countries with lower investments were poverty-stricken Albania
and Moldova and troubled Bosnia and Herzegovina.
"If they [the consultants] succeed in bringing in an investor they will get
a bonus - this will be their motivation to do their job successfully,"
Gruevski told the economic weekly, Kapital, just before the elections. Two
ministers without portfolio will be given responsibility for attracting
Not everyone is optimistic that Macedonia 's long-term failings can be rectified
with a few structural adjustments. Dimitar Eftimov, of Skopje 's Economic
Institute, said modifying taxes would not change much if the state continued to
intervene in business through the National Bank of Macedonia , which has a
restrictive monetary policy, setting high interest rates that discourage
investment."There will be results only if the existing economic policy of
the country changes and the influence of the National Bank is reduced,"
Such experts warn that no simple "magic formula" will succeed in
attracting investments without other deep-seated reforms. "The new
government will succeed only if it continues to improve the business environment
and finishes the reforms started by the previous government in the judiciary and
public administration," said Uzunov.
The government says it will tackle Macedonia 's high unemployment by encouraging
more young people - who represent the bulk of the jobless - to start businesses
and gain further qualifications.
While the official unemployment rate is almost 40 per cent, the real figure is
around 25 per cent, once those employed in the "grey" economy are
subtracted. But it is still far too high.
"There is a significant number of people who are poorly qualified and the
only solution for them is to obtain further qualifications," said Bogov.
Fighting corruption the key
A key part of the Gruevski programme is the fight against corruption, which
is rife, and deters many investors. The widely-read corruption perception index
of Transparency International lists Macedonia in 103rd position - next to
Swaziland - in a survey of 158 countries. Of the Balkan countries, only Albania
is seen as more corrupt.
"The fight against corruption will start from the lowest levels," the
future premier said in the election campaign, "from those working at the
counters up to the level of ministers who must be role models for
The centrepiece of the new campaign will be the establishment of a new body, the
Agency for Combating Corruption and Organized Crime. This will be empowered to
seize assets and property and even ban people from pursuing political activity.
Experts agree that the fight against corruption will be a litmus test of the
government's seriousness in implementing all the other measures.
But, at this stage, most are very reserved in predicting whether the new premier
will be successful against such an endemic feature of Balkan society. "When
we speak of the fight against corruption," said Uzunov, "the real
issue is whether the institutions truly function, and not declarations about
Bankers Petroleum searches for oil reserves
The Canadian firm Bankers Petroleum, which is currently pumping over 2,900
barrels of oil per day at a site in Albania, is now seeking to expand its
operations into neighbouring Macedonia, news agency Southeast European Times
The firm signed in May a memorandum of cooperation with the government, paving
the way for investment in the search for oil reserves in the country, the report
said. "Within a month at most, the government will give Bankers Petroleum
the concession to explore," Economy Minister, Fatmir Besimi, was quoted as
saying. The proposed exploration is due to be carried out in the Ovce Pole area,
in Eastern Macedonia. The former Yugoslav Exploration Institute carried out
drilling to about 400 metres in depth, and reports suggest that shale indicating
the presence of oil and gas was discovered, the news agency said. The next step
is for the Canadian firm to sign a consent agreement with the government on
obtaining access to existing information on digging opportunities so that
thereafter a joint team can be formed to draft a plan for technical procedures.
EBRD to invest 4m Euro TTK Bank
The European Bank for Reconstruction and Development (EBRD) plans to provide
advisory services to TTK Bank AD Skopje, which is a new bank to be formed from
the merger between Tetovska Banka AD Tetovo and Teteks-Kreditna Banka AD Skopje,
news agency reporter.gr said.
The EBRD plans to make an equity investment of up to four million Euro in TTK.
The merger was approved by the National Bank of Macedonia and it is expected
that TTK will start operations as of July 1st 2006. The maximum budget available
for the assignment is set at 800,000 Euro, exclusive of VAT. The contract will
be financed through the Norway-European Bank Cooperation Fund. The merger will
allow the banks to create synergies and gain operational efficiencies
facilitating the creation of a stronger institution with a long term future in
Free trade with Serbia in effect
With a free trade deal which came into effect as of June 1st Macedonia and
Serbia have eliminated trade barriers and established what some are calling a
single market, SETimes reported.
Under the free trade agreement Macedonia and Serbian businesses are now carrying
out trade and cooperation in a fully liberalised market, news agencies reported.
The deal provides for eliminating trade barriers such as custom duties and
quotas and was originally signed in October 2005 by Macedonia Economy Minister,
Fatmir Besimi, and his counterpart from the former state union of
Serbia-Montenegro, Predrag Ivanovic. Experts say the deal will help consumers in
both countries by providing cheaper products, as well as improving
competitiveness and helping to woo foreign investors. Serbia is generally seen
as having the advantage when it comes to dairy and wheat production, while
Macedonia is more competitive in early vegetables. Consumers in both countries
will benefit from cheaper products. Serbian dairies receive state subsidies for
exports, amounting to 20 percent of the price. This is complemented by
production incentives, which on average amount to up to 10 percent of the
production price. Macedonia dairy producers are lobbying for equal conditions.