“We want to be the Singapore of Europe.” That’s the striking slogan employed by Gligor Tashkovich, Macedonia’s minister of foreign investment. Speaking at Euromoney’s Regional Finance & Investment for South East Europe Conference in Dubrovnik, Croatia, Tashkovich told delegates that the Balkan republic is pulling out all the stops in an attempt to secure the necessary foreign funds to help turn the country into a centre for hi-tech assembly and manufacturing. Tashkovich says that the centre-right government that came to power in late August 2006 is slashing its way through red tape and providing special incentives that it believes will transform Macedonia from a still primarily agrarian economy to one that is more knowledge-based.
Although the country has largely been spared the kind of ethnic strife that scarred the economic prospects in much of the former Yugoslavia in the 1990s, with a population of just 2.1 million Macedonia has hitherto struggled to attract attention and foreign direct investment since declaring independence in September 1991. Nevertheless, the country’s recent economic performance has improved, with average GDP growth of 4% in 2004-06 and average inflation of just 1.6% over the same period. Exports have risen from about $1.6 billion in 2004 to $2.4 billion in 2006, thanks to the signing of a large number of free-trade agreements, which Tashkovich claims give Macedonian-based companies duty-free access to a market of more than 650 million people throughout Europe. Foreign direct investment in 2006 was $350 million, more than double the $163 million two years earlier. Although acknowledging that the country faces stiff challenges from neighbouring Croatia and Serbia, both of which are also actively promoting themselves as destinations for hi-tech investment, Tashkovich claims that Macedonia’s low-cost, highly skilled pool of labour is a key competitive advantage. The average gross monthly salary in Macedonia is just €370 and 45% of the population is aged under 30, with many of them educated. At the heart of the government’s plans is the Technological Industrial Development Zone Skopje (TIDZ). Located close to key road, rail and air links just outside the capital, Skopje, TIDZ offers a ring-fenced area of just under 140 hectares, where investments will attract a range of special tax breaks and financial incentives. These include a 10-year holiday on all profit and property taxes, freedom from value-added tax, customs and excise duties and minimal bureaucracy – Tashkovich claims that the average time required to form a company in Macedonia has been slashed from 48 days to 4 hours. The authorities in Skopje are looking to attract a wide range of assembly and manufacturing businesses to the TIDZ. Johnson Controls of the US, for example, is establishing a $40 million electronic automotive components plant there. The factory will employ some 500 people, a big achievement in a country where unemployment is still running at more than 35%. Most recently, M-San of Croatia has announced plans to build a factory with two assembly lines in TIDZ. One will produce LCD television sets and the other computer peripherals such as servers.
Outside of the TIDZ and other free economic zones in the country, the government is looking to attract investments through low corporate tax rates. From 15% in 2006, the profit tax rate has been cut to 12% this year and will be reduced further to 10% in 2008. Personal income tax will also be cut next year, to a flat tax of 10%.
