emerging economy in europe · financial system sound and stable financial system no spillover of...
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February, 2014
EMERGING ECONOMY IN EUROPE
Zoran Stavreski, MA
Vice Prime Minister and
Minister of Finance
Viktor Mizo
CEO, Free Zones Authority
Macedonian Model for Improving the Business
Environment
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Political Stability - European Union candidate country
Candidate country since 2005
European Commission Progress Reports
consecutively (from 2009, 2010, 2011, 2012 and
2013) give recommendation to start EU accession
negotiations
Expecting date for starting negotiations for EU
membership
Republic of Macedonia: Euro-Atlantic integration
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Key Macroeconomic Indicators
CURRENCY
Fixed exchange rate pegged to the Euro
FDI (% of GDP)
EXPORT GROWTH RATE (%)
REAL GDP GROWTH RATE (%)
INFLATION
Low and stable over last 10 years
Average inflation: 2% annually
Source: SSO and MoF; *Projection
CREDIT RATINGS
- Standard & Poor’s: BB-, Stable Outlook
- Fitch: BB+, Stable Outlook
5.0 6.1
5.0
-0.9
2.9 2.8
-0.4
3.3 3.2 3.8
2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015*
16.5 29.2
8.9
-28.2
30.9 26.9
-3.2
2.7 10.4 11.4
2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015*
6.6
8.5
6.0
2.2 2.3
4.5
1.0
3.4 4.1
4.7
2006 2007 2008 2009 2010 2011 2012 2013* 2014* 2015*
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Financial System
Sound and stable financial system
No spillover of the world financial crisis on Macedonia
16 banks with capital adequacy ratio of 17.3%
Macedonian banks are highly liquid with credit to deposit ratio bellow 1 (0.90)
75.2% share of foreign in total bank capital
Some of the banks operating in Macedonia are:
French Societe Generale Bank
German ProCredit Bank
Austrian Sparkasse Bank
Dutch-Turkish Halk Bank
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Invest Macedonia - Agency for Foreign Investments
Sustainable Public Finances
Total revenues
30.0% of GDP
Total expenditures
33.4% of GDP
Moderate size of Government and fiscal policy that supports economic growth
Prudent fiscal policies
Budget balance
-3.5% of GDP
General Government Debt
34.3% of GDP
As % of
GDP Total Revenues
Total
Expenditures
Budget
balance
2007 32.8 32.2 0.6
2008 33.1 34.1 -0.9
2009 31.3 33.9 -2.7
2010 30.4 32.9 -2.4
2011 29.8 32.3 -2.5
2012 30.1 34.0 -3.9
2013 28.4 32.3 -3.9
2014* 29.9 33.4 -3.5
Source: MoF; *Projection
24.0 20.6 23.8 24.2
28.0 34.1 34.3
2007 2008 2009 2010 2011 2012 2013
Central Government Debt (% of GDP)
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6
Lowest taxes in Europe
Lowest Flat Tax on Profit 10%
Lowest Flat Tax on Income 10%
Tax on Undistributed Profit 0%
Reduction of social contributions
Total rate of 26.5% in 2013
Pension and disability insurance 18%
Health insurance 7.3%
Unemployment insurance 1.2%
Corporate Tax is only paid when
dividends and profits are distributed,
effectively making the CT rate 0%
Social contributions have been
reduced from 32% to 26.5%
Additional incentives in the
Free Economic Zones
42+ Double taxation avoidance
treaties signed
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7
Regulatory reforms
One-Stop-Shop: 4 hours company registration without minimum start-up capital
Regulatory Guillotine (“silence is consent”, reduced admin.fees & time limits)
Electronic One-Stop-Shop for customs permits and licenses
Improving interoperability (exchange of information) between government
institutions, which reduces red tape and regulatory burden on companies
Cadastre reforms
New Cadastre Law
Digital Cadastre covering 99% of the real estate in Macedonia
Notaries and land surveyors have access to land register through on-line
system to obtain extracts of real estate and check for burdens and mortgages
Innovation New Law on Innovation and establishment of Fund for Innovations and
Technology Development, that will provide grants&credit to match private
investments in new technologies, finance new start-ups and spin-offs
Strategy for Innovation 2013 - 2020 covering a range of financial incentives, as
well as educational, regulatory, infrastructural and other measures to build
integrated national innovation system
Continuous implementation of
Regulatory and Administrative Reforms
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Reforms to Develop of Real Estate Market
Liberalization of real estate market
Foreign nationals can purchase residential and commercial real estate and construction land
Simple procedures for obtaining construction permits using Electronic One-Stop-Shop for obtaining licenses and permits (gradezna-dozvola.mk)
Purchase of State owned land for construction of commercial /industrial and residential buildings at concessionary rates:
For industry, logistics, hotels and residential buildings – bidding starts as low as 1 EUR/m2
For commercial and business premises – starting bidding price 5 – 100 EUR/m2 depending on the location of the parcels
E-Auctions are available from any location/country on the web site gradezno-zemjiste.mk (with information on all current parcels on sale)
Benefits for foreign nationals Foreign nationals that invest 400,000 EUR have the opportunity to obtain
Macedonian citizenship
Foreign nationals that purchase real estate in amount of over 40,000 EUR
can obtain residence permit in Macedonia
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7 years continuously among the Best Reformers
36th BEST COUNTRY FOR
BUSINESS IN THE WORLD Forbes Magazine
1st IN THE WORLD WITH
LOWEST TOTAL TAX RATE (8.2%) PWC and World Bank Group 2014 Study
3rd BEST REFORMER
IN THE WORLD World Bank’s
Doing Business 2010 & 2012 Reports
25rd IN THE WORLD ON THE
OVERALL INDICATOR
“EASE OF DOING BUINESS” Doing Business 2014 Report
4 TIMES AMONG THE TOP 10
REFORMERS IN THE
LAST 7 DB REPORTS Doing Business 2008/10/12/14 Reports
- 3rd IN THE WORLD
IN GETTING CREDIT INDICATOR
- 7th IN THE WORLD
IN THE EASE OF
STARTING A BUSINESS
- 16th IN THE WORLD
IN PROTECTING INVESTORS Doing Business 2014 Report
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Significant improvement on the world leading indicators
measuring business climate and competitiveness
46 places –“Best Countries for Business”, Forbes Magazine
Macedonia improved:
69 places – “Ease of Doing Business
Indicator”, DB Report
Macedonia is the 5th country among the 50
economies that have most reformed since
2005, DB Report 2014
Four times Macedonia is among the top 10
reformers in the world
Macedonia is among the 4 case studies in DB
2012 Report (with S.Korea, UK and Mexico)
21 places–“Global Competitiveness Index”, WEF Report
35 places–“Index of economic freedom”, Heritage Foundation
94
73
2007 2013
Rank of Macedonia on the Global Competitiveness Index, World Economic
Forum Report
94 92
75 69
32 34
22 23 25
2006 2007 2008 2009 2010 2011 2012 2013 2014
Rank of Macedonia on the Ease of Doing Business Indicator, World Bank "Doing Business" Reports 2006-2014
82
36
2007 2013
Rank of Macedonia among the Best Countries for Business, Forbes Magazine
78
43
2006 2014
Heritage Foundation: Index of economic freedom (rank)
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Free Trade Agreements
EU – European Union (28 countries)
EFTA – European Free Trade Association
(4 countries)
CEFTA – Central European Free Trade Agreement
(7 countries)
Bilateral Free trade agreements with: Turkey and Ukraine
Free Trade Agreements provide access to markets in 41
country with 650 million consumers
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Why Macedonia?
Investment
Incentives
Competitive
Workforce
Excellent
Infrastructure
Investor -
friendly
Government
Competitive
Location
Higher Profits & Increased Competitiveness
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MACEDONIA
KOSOVO
SERBIA
MONTENEGRO
BOSNIA
AND HERZ.
CROATIA
SLOVENIA
ITALY BULGARIA
ALBANIA
GREECE
ROMANIA
HUNGARY
SLOVAKIA
AUSTRIA
SWITZERLAND FRANCE
SPAIN
PORTUGAL
BELGIUM
LUXEMBOURG
GERMANY
CZECH REPUBLIC
POLAND
UKRAINE
BELARUS
RUSSIA
UNITED KINGDOM
TURKEY
MOLDOVA
Excellent Infrastructure and
Competitive Transportation Costs
2.5 hours to Port of Thessaloniki
2 Brand New Int’l Airports
- Int’l Airport Alexander the Great -
Skopje (Capacity 4 million
passengers, 23 check-in desks, 6
passengers boarding gates, Cargo
hangar with 40,000 tons)
Large pool of logistic companies
provide competitive transportation
costs and delivery times
All of Europe in 2-3 days Via Highway Connections
35 days or less inbound container ships from China
• Two Pan-European corridors:
– East-West Corridor 8
– North-South Corridor 10
• Road network: 9,205 km
• Railway network: 900 km
• Two international airports:
– Skopje
– Ohrid
• International ports*:
– Thessaloniki (Greece): 250 km
– Durres (Albania): 300 km
* Distance from capital Skopje
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Sections for concessions
A. Skopje - Blace (24 km)
B. Gostivar - Kicevo (42 km)
Investment Opportunities
Motorways
Sections under construction
Other Motorways
Reconstruction and modernization of existing and building of new regional motorways
and local roads with support of EBRD and the World Bank
A. Demir Kapija - Smokvica (28.2 km)
B. Skopje - Stip (53.5 km)
C. Kicevo – Ohrid (65 km)
A
B
C
B
A
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Investment Opportunities
Railway Transportation
Corridor 8 – Eastern Section:
• Reconstruction of the railroad section
Kumanovo-Beljakovce with length of 30 km
• Construction of the railroad section
Beljkakovce-Kriva Palanka toward Bulgarian
border with length of 60 km
• Total construction cost estimated at €420M
• EBRD participates in the project realization
Railway connection between
Macedonia and Bulgaria
Modernization
• Modernization of the railway on Corridor X financed by EBRD (54 km)
• Renewal of the passenger transport fleet and procurement of 150 train cars of
various types for freight transport
• Rehabilitation and upgrade of the railway station in Skopje
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• Construction of national gas transport system (value ≈ €350M)
• Opening of lignite mines for electricity production (value ≈ €200M)
• PPP with the National Power Producer ELEM for the construction of a
combined cycle heat and power plant (value ≈ €250M)
• An ongoing tender – under the auspices of the IFC advisory services
for two large HPP “Cebren and Galiste” (value ≈ €600M)
• Rehabilitation of the existing hydropower plants (value ≈ €100M)
• HPP “Boskov Most” and “Lukovo Pole” (value ≈ €170M)
• Privatization of the minority share (up to 49%) of the state owned
electricity generation company ELEM (book value ≈ €1.2B)
• Construction of three new 400 kV overhead lines (value ≈ €60M)
• New SCADA, (re)construction of more than 200 km of numerous 110
kV overhead lines (value ≈ €45M)
• Potential for numerous small HPP’s (up to 10 MW)
• Bogdanci wind park, 16 wind turbines with total capacity of 36.8 MW
and annual energy production of 100 GW (value ≈ €55M)
Investment Opportunities
Energy Sector
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Investments in Education
• Education Budget ~5-6% of GDP
• Mandatory secondary education
• Entrepreneurship and 2 foreign languages as subjects in primary schools
• New universities with campuses in many cities in Macedonia
• €60M invested in over 50 new R&D laboratories
• Textbooks from top 100 world universities
• Scholarships
• 99% enrolment rate from secondary to tertiary education
• 71,114 total number of students in Public and Private Universities
• 6,617 number of IT students
Foreign
Languages
Primary
School
Students
Secondary
School
Students
English 91% 94%
French 22% 32%
German 13% 21%
Italian / 2%
Russian 1% 2%
Turkish / 1%
Total No. of primary and secondary schools students 310,000
Source: State Statistical Office, Macedonia (Education 2008/2009)
Education
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Major recent investors in Greenfield sites
Phase 1: $12M;160 empl’s;
Pharmaceutical plant;
The largest pharmaceutical
company in Russia
€10M; 150 employees;
Production of armored high-
pressure rubber hoses for the
automotive industry
Plant 1, TIDZ Skopje 1: $40M; up
to 500 employees; Production of
equipped PCBs for Mercedes, VW,
BMW, Renault, Ford, Skoda, PSA
Plant 2, TIDZ Stip:
$20M; 1,400 employees; Cut &
trim plant for car seats
€25M; 4,500 employees;
Plant for production of wiring
harness and electrical
management systems
Plant 1, TIDZ Skopje 1: €80M; 350+ employees; Exhaust
catalyst manufacturer supplying all OEM plants in Europe;
The biggest exporter from Macedonia
Plant 2, TIDZ Skopje 1: €65M; 300 employees;
Set to double production
€20M; 500 employees;
Production of buses & coaches for
the USA and EU markets;
Major bus manufacturer in Europe
€20M; 3,500 employees;
Wire harness automotive supplier;
Production of cable installations in
Macedonia
€35M; 500+ employees; 15,000 m²
plant; Production of PCBs, metal &
plastic housings and final assembly
(Mercedes, BMW and Audi)
€25M; 500 employees;
Production of capacitors
(consolidation of European
footprint)
€6M; 1,500 employees;
Production of interconnect
systems for safety devices and
expanding onboard electronics
€10M; 150 employees;
Wire harness automotive supplier;
Production of standard and special
automotive cables and wires
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Competitiveness for Investments in Macedonia
Price Level Index for Construction
Price Level Index for Investments
Source: Eurostat, January 2014
53 59 61 62 67 70
100
Macedonia Bosnia andHerzegovina
Serbia Albania Croatia Montenegro EU28 average
37 40 42 46 52 55
100
Macedonia Bosnia andHerzegovina
Serbia Albania Croatia Montenegro EU28 average
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TECHNOLOGICAL INDUSTRIAL
DEVELOPMENT ZONES (TIDZ’s)
– FREE ZONES
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Global Free Zones of the Future
2012/2013 Winners fDi Magazine
fDi Magazine’s Global Ranking of Economic
Zones reported Technological Industrial
Development Zones Skopje 1 & 2 in the
top 50 Free Zones of the Future 2012/2013
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• Connection to utilities, complete infrastructure is available
• Subsidy of up to €500,000 towards construction costs
• Green Customs Channel available at border for rapid export from Zone to EU
countries
• Land in the TIDZ is available under long-term lease for a period of up to 99 years
• Training and job creation grants
• All incentives are in line with EU regulations
TAX TAX RATES
TIDZs Outside TIDZs
Corporate tax 0%
for the first 10 years 10%
Personal income tax 0%
for the first 10 years 10%
Value added tax 0% 18%
Property tax 0% 0.1% - 0.2%
Excise taxes 0% 5% - 62%
PRODUCT CUSTOMS DUTY
TIDZs Outside TIDZs
Raw materials 0% Up to 15%
Equipment 0% 5% - 20%
Fiscal Benefits
Investment Opportunities
Technological Industrial Development Zones - TIDZs
No customs duties & No VAT on
imported raw materials, equipment
& construction materials
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The Free Zone Authority at Your Service…
Identification of project
specific location factors
Cost analysis
Identification of supplier
base
Detailed due diligence
University linkages
Reference company linkages
Recruitment agencies
linkages
Organization of meetings
with legal advisors and
financial partners
Design and infrastructure
approvals
Issuing building and
operational permits
Customs outpost in the
Zone
Zone infrastructure
maintenance and upgrade
Support with relevant tax
and customs issues
Assistance in acquiring
visas/work permits
Coordination and support
in contacts with other
state and local authorities
Business
opportunities
analysis
One-stop-shop
Creating
linkages
Aftercare
One-stop-shop and project
management approach
Locations, operational costs
and competitiveness
Labor availability, HR
companies and consulting
Ensure success!
Our
Services
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• A speciality chemicals company, world leader in advanced materials technology
• Origins date back to 1817, floated 1942, FTSE 100 company since June 2002
• Operations in over 30 countries with around 11,000 employees
• Leading global market positions in all its major businesses
Johnson Matthey - Case Study
Overview of Johnson Matthey Plc
Johnson Matthey ECT Macedonia
Construction Phase from Greenfield Site
to Operational Factory -15 Months
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Johnson Matthey - Case Study
PHASE 1
• Fully integrated
manufacturing site
for automotive
catalyst production
• €80M investment
• 350+ employees
CONSIDERED COUNTRIES
• Reviewed: Bulgaria, Croatia,
Estonia, Latvia, Lithuania,
Slovenia, Romania, Ukraine,
Czech, Poland, Hungary, Slovakia
• Initial choice: Czech Republic
Macedonia a “Late entrant”
WHY MACEDONIA
• Macedonia scores best for labour, slightly lower on logistics
• Labour availability looking very good for Skopje
• Our experience has been positive, Invest Macedonia, Ministry and others superb
• This will be JM’s ‘mega-European plant’ and the largest ever single investment
project
Colin Jaffray, Director, Strategic Planning, Johnson Matthey Plc
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Johnson Matthey - Case Study
LOCAL FACTS AND EXPERIENCE
• Government and the departments very helpful during the investment phase
and after care
• Regulatory framework and business policies being actively developed
• Infrastructure on TIDZ now in good state, focus on future improvements
• Recruitment of local workforce successful, quick to learn and hard working -
positive feed back from customers
PHASE 2
• Set to double the
production
• €65M investment
• 300 additional
employees
“Present in Macedonia since 2010,
producing six million world-class
catalysts, being the country's number one
exporter. The expansion comes as a
response to the rapidly increasing demand
for more sophisticated and complex
catalysts and the effort undertaken by
the Macedonian Government to welcome
and fully support our initial investment”
Larry Pentz, Executive Director on Environmental
Technologies, Johnson Matthey Plc
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Connections, Culture and Lifestyle
Brand New Int’l Airports in
capital Skopje and Ohrid
- €120M+ investment from TAV
Macedonia is a country of nature, the cradle
of culture, place of great hospitality that
offers a mix of traditional and modern life
International cultural events:
- Ohrid Summer Festival
- Struga Poetry Evenings
- Skopje Jazz Festival
- May Opera Evenings
Largest wine producer in the region
- 78 wineries in Macedonia
- “Wine Road” travel programs
5 International Schools with
large mix of ex-pats Summer and winter sports
- 4 national parks
- Lakes, several ski-centers
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• Reducing VAT on tourism from 18% to 5%
• Promotion of sites for construction of hotels & tourist facilities and Tourism
Development Zones
• International branding - Macedonia Timeless Campaign
• Tour Operator and airline subsidies (10-25 € per tourist)
• Increase in overnight stays of tourists from EU of 38% in 2011 and 25% in 2012
Government measures, policies and specific projects
Opportunities in Tourism
What they say?
Best in Travel 2014: Top 10 countries not to be missed
Macedonia was ranked among the 10 countries destined for an
epic year, whether they’re hosting festivals, cutting the ribbon
on new attractions or simply raising their game for travelers
World Economic Forum - Travel & Tourism Competitiveness Report 2013
"Attitude of population toward foreign visitors"
MACEDONIA –
4th most friendly country in the world
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Tourism development zones near
the three tectonic lakes
Tourism development zones in
the mountain regions of Shar
Planina, Kozuf and Galicica
• State-owned land
• Opportunities for hotels and leisure
developments, sport and
recreational centers, amusement
and aqua parks etc.
Tourism Development Zones
Dojran
Lake
(2 Zones) Tourism development zones:
Ohrid
Lake
(1 Zone)
Popova
Shapka
(1 Zone)
Galicica
(Ski Center) Kozuf
(Ski Center)
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EU & NATO Candidate Status
Macroeconomic and financial stability
Prudent fiscal policies that support economic growth
Attractive tax package and Incentives in FEZs
Young, available and competitive work force
(41% of population under 30, excellent language skills)
Consistent and predictable policies
Track record for successful implementation of economic, regulatory and administrative reforms
Among top reformers according to WB Doing Business
Free trade to 650 million market
Solid Infrastructure (Trans European Corridors 8 & 10)
Business friendly government
SUMMARY: WHY TO INVEST IN MACEDONIA?
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Thank you for your
attention