Macedonia’s economy is set to grow by 4-4.5 per cent per annum between 2015 and 2017. The country expects to attract more foreign direct investment and grow its export. Free economic zones, whose export, in 2014, totalled €1.17 billion, or a third of the country’s total exports, are going to help achieve the government’s targets. Emerging Europe speaks to Viktor Mizo, CEO of Macedonia’s Free Zones Authority, about the government’s plans to increase the number of free economic zones.
Macedonia has two million inhabitants and three economic zones at present and with eleven more in the pipeline, bringing the total to 14. Why did the government decide to build free economic zones in the first place?
In 2006, the newly elected Government of the Republic of Macedonia, headed by Prime Minister Nikola Gruevski, made attracting foreign investments a top priority. The Government’s institutions conducted an econometric analysis of various regions in the world where free zones were established and their impact on business results. We found out that wherever special economic zones existed, there were higher levels of investment, higher GDP growth per capita and lower unemployment.
However, what was evident from the research was when new investment projects were concentrated in one region of a country unemployment had essentially remained unaddressed elsewhere. With an unemployment rate of 36 per cent in 2006 and a primary goal of speeding up the overall progress of the Macedonian economy based on the strategy for accelerated economic development, the Government established the Free Zones Authority to assist in providing the most cost and operationally efficient place for doing business in Southeastern Europe.
Consequently, it was decided that distributing the industrial zones across the country would not only increase employment opportunities overall, but would also aid regions where specialised labour had already existed.
How has that theory been translated into practice? How have regions benefited from the FEZs?
A prime example is the eastern city of Stip, where one of the major industrial zones is located. Stip has a long tradition of textile factories and skilled local workers available to investors. Other regions in the country are more conducive to other industries and specialisations. Implementing this strategy has resulted in an almost 10 per cent drop in unemployment rates. Last year thirteen new companies announced their intentions to invest in Macedonia’s free zones, and are expected to employ approximately 13,000 people. Many have already begun construction activities and a few have even launched test production. The significance of the general enterprise to the national export economy is apparent — in 2014, 30 per cent of the country’s entire exports came from the free zones. Exports from the zones in the first six months of 2015 amounted to over €700 million. Compared to the same period in 2014, there’s a 31 per cent rise in exports. Our 2015 projections see an additional 10 per cent to 15 per cent rise in total exports from the zones compared to 2014.
This geographic diversification has not only aided regional economic development, but has also decreased direct competition between companies. The free zones dispersed throughout Macedonia range in size from 10 hectares in Radovis to around 200 hectares in Stip.
Now the government wants to multiply the number of zones and the benefits for the economy, and have as many zones as Poland (14 zones), which is thirteen times bigger than Macedonia. Is this feasible?
Companies which compete in an increasingly complex business reality need to seek optimum locations for their businesses. The popularity of the free zones is based on the simplicity and effectiveness for businesses, beneficial and long-lasting tax incentives, and opportunities for additional government grants. The development of economic zones close to the planned highway modernisation routes are also being highlighted as further benefits for potential investors.
The preferential conditions available in the Macedonian free zones are among the main investment incentives we present to foreign investors interested in Macedonia. Although most industrial zones are still yet to be developed, this would be the right moment for companies to take advantage of prime locations and incentives.
When do you think the fourteen zones will be operational? How will the economy benefit from the FEZs and how much investment do you expect?
The Free Zones Authority, responsible for developing FEZs throughout the country, currently manages three fully operational zones: Skopje 1 and 2 in the capital, and one in Stip, the largest town in eastern Macedonia. The zone in Tetovo is currently operating as a public private partnership, and is in the process of implementing its first two investment projects. Simultaneously, ten zones intended for equal economic advancement of all regions in Macedonia are in various stages of development.
The economic benefit from our free zones has been quite evident. 2014 was the most successful year for FDI, and 2015 has continued with equal intensity. The first half of the year saw three new companies decide to invest in Macedonia and begin initial investment procedures. The new investments will contribute to the opening of an additional 2,500 jobs when the companies begin to operate at full capacity.
In addition to the creation of direct employment, companies in the zones stimulate local economic development in a far broader sense. Foreign companies engage local companies as suppliers of raw materials. Furthermore, domestic companies are engaged in transportation services and logistics, servicing machinery and equipment, security, catering, and construction companies are engaged in the building of factories. According to recent data, approximately 500 Macedonian companies cooperate directly with foreign investors. Foreign companies regularly consider the possibility of finding local suppliers that are able to meet their needs.
Macedonia was forecast to achieve the highest economic growth rate in Europe in 2015 and 2016, according to the European Commission’s 2015 Spring economic report. Based on the Ministry of Finance’s projections, Macedonia’s annual growth rate is expected to reach 4 per cent in 2015.
Macedonia’s exports have also had a positive track record, seeing a rise in the export growth rate to 15.1 per cent in 2014. In absolute terms, last year total exports from Macedonia amounted to €3.7 billion, of which €1.17 billion were exports from companies located in the zones.
Companies in the free zones that are fully functional, are operating at full speed, and have seen a rise in their orders. However, as the other companies in the zones begin operating, it is expected that exports will also rise from year to year.
This positive trend is also reflected in the overall employment figure which is expected to reach 42.4 per cent by the end of 2015. The data indicates that foreign investments are to a great extent the bearers of economic activity in the country. Not only have the companies located in the free zones opened numerous employment opportunities for citizens throughout Macedonia, they have also benefited local companies by giving them the opportunity to become providers to foreign investors and become part of the supply chain.
The success of our free zones is evidenced by the advancement of the overall economy, and increase in employment for Macedonia’s citizens.
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I would like to know about business set up in
Your free zones.
And about activities.
Thank you