Guidance

Overseas business risk: North Macedonia

Updated 4 November 2020

Information on key security and political risks which UK businesses may face when operating in North Macedonia.

General overview

With its near 100% liberalised trade with EU, relatively cheap and capable workforce and reasonably low overall operating costs, this small and landlocked country promotes itself as a solid production base with access to the EU market of 500 million people.

North Macedonia is an upper middle income country macro-economically stable and among the leaders on the World Bank’s Ease of Doing Business list currently at 17 from 190 countries. Most of North Macedonia’s legislation is aligned with EU standards, however, in the past decade, frequent and low quality legal changes, as well as a lack of proper enforcement have made the business environment unpredictable. In addition, allegations of corruption or reliance on the informal economy, and insufficient administrative service continue to hamper business operations.

Other challenges include skills shortages, reflecting shortcomings in the education system and the outflow of skilled workers, as well as infrastructure investment gaps impair labour productivity and the competitiveness of the economy.1

A new reform oriented Government coalition was formed in June 2017 and re – elected for the second mandate in 2020. An energetic diplomatic activity to resolve disputes with the neighbours resulted in the bilateral friendship agreement with Bulgaria, and Prespa Agreement with Greece, which put an end to the long lasting name dispute. This positive process and the “steady pace of implementation of EU reforms” gave an impetus to the Euro-Atlantic accession with North Macedonia joining NATO in March 2020.

Representation of British businesses is not high, but has increased steadily in the past several years, including companies such as Johnson Matthey, Endava, Allocate Software, IDOX, Comfy Angel, and Central Asia Metals.

Politics

The Republic of Macedonia gained its independence from the former Yugoslavia in 1991. Wider international recognition was held up by Greek claims that the country’s constitutional name implied territorial ambitions on the northern Greek region of Macedonia. Despite years of negotiations, the name issue continued to hinder bilateral relations with neighbouring countries as well as NATO and EU membership. The bilateral dispute was resolved in 2018-19 following the “Prespa Agreement” which, among other things, led to the country renaming itself the Republic of North Macedonia.

The country joined NATO’s Partnership for Peace in 1995 and started its first Membership Action Plan in 1999. It was the first regional country to sign a Stabilisation and Association Agreement (SAA) with the EU in 2001, gaining EU candidate status in 2005, during the UK presidency. Trade is almost 100% liberalised since 2011, including the capital market since mid-2018. North Macedonia is member of the World Trade Organisation (WTO) and Central Europe Free Trade Agreement (CEFTA).

In 2001, a short internal and inter-ethnic armed conflict was resolved by the signing of the Ohrid Framework Agreement (OFA) that set out the decentralisation of power, equitable representation in state institutions, and the official use of minority language and symbols. It also set up a practice of forming multi-ethnic coalition Governments. Since 2001, Democratic Union for Integration (DUI), a party of rehabilitated National Liberation Army (NLA) soldiers was the partner in almost all subsequent Governments including the current coalition.

The current Government of North Macedonia is a coalition led by the center-left Social Democratic Union (SDSM) in coalition with the ethnic Albanian Party DUI (Democratic Union for Integration) elected in July 2020. It represents some continuity for the government that has been in power since 2017 and which embarked an ambitious diplomatic activity to resolve disputes with the neighbours and to implement a comprehensive reform programme in strategic areas of rule of law, intelligence services and the fight against corruption.

In 2018, a bilateral friendship agreement with Bulgaria was followed by the Prespa Agreement which resolved the long lasting name dispute with Greece.

The Parliament consists of 120 MP seats, and the current Speaker is a member of government coalition partner DUI; he was re-elected for a second term following in 2020. The President was inaugurated in May 2019 for a term of five years. His background is SDSM and was proposed as a consensual candidate of all parties supporting the current government.

In March 2020, the EU decided to open accession negotiations with North Macedonia. In the latest EU Country Report SWD (2020) issued on 6 October 2020, the Commission concluded that:

• the Commission has continued to closely monitor developments and reported in March 2020 that North Macedonia has increased its efforts and delivered further tangible and sustainable results in the key areas identified in the Council Conclusions of June 2018 such as the judiciary, fight against corruption and organised crime, intelligence services reform and public administration

• concerning the political criteria, North Macedonia continued to implement EU-related reforms throughout the reporting period. Efforts continued to strengthen democracy and the rule of law, including by activating existing checks and balances and through discussions and debates in key policy and legislative issues

Economics

North Macedonia enjoyed a period of stability and increased prosperity between 2006-2008, with GDP growth between 4-6%. The global financial crisis impacted upon this growth, although the IMF reported that North Macedonia weathered the crisis relatively well due to the resilient banking sector which has little exposure to the international capital market. From 2013-16 growth remained between 3–3.5% but slipped as consequence of the political crisis in 2015 to around 2.25% in 2016. World Bank analysis showed however that while investments in roads and other (not necessarily productive) infrastructure propped growth in the past, the rest of the economy struggled.

Growth sharply dropped to 0% in 2017, reflecting a contraction in investments as consequence of political crisis, but also due to technical difficulties in the public infrastructure projects. Signs of recovery were evident in 2018, when growth recovered to 2.7% (up to 4.1% in Q1 2019) as a result of private consumption, increased exports and pick up in investments. Real growth accelerated to 3.6% in 2019, on the back of firming domestic demand. Private consumption, boosted by rising wages, social transfers, remittances from abroad, and household credit, rose faster than in the preceding year. Investment, which had been weak for two and a half years, strengthened in the second half of 2019.

While job creation was particularly strong in 2019, and unemployment declined further, COVID-19 has widely affected the economy. From March to May 2020, the government introduced curfews, restrictions on many businesses, and airport and border closures. From May onwards, many restrictions affecting the economy have been relaxed but could be introduced if the epidemiological situation worsens. Most established foreign companies have so far refrained from layoffs, preferring to retain skilled workers. According to the World Bank’s latest Regular Economic Report (RER), the GDP growth in North Macedonia is projected at -0.4 percent in 2020, 3.6 percent in 2021 and 3.5 percent in 2022.

In 2016, IMF withdrew its resident representative and kept a small local office for residual support. IMF is currently doing only a regular annual review of Macedonian economy within the so-called IV article mission, however the cooperation has intensified since election of the new government. The 2019 mission statement was finalised in November 2019 and the concluding statement is available at the IMF website.

Since 2008, the World Bank continuously recognised North Macedonia as one of the top reformers in its Doing Business ranking. In the 2020 World Bank ‘Doing Business’ report North Macedonia was ranked 17th out of 190 countries: ahead of many EU member state countries and well ahead its neighbours.

As regards the economic criteria, the latest EU Country Report notes that North Macedonia is at a good level of preparation in developing a functioning market economy but made limited progress during the reporting period. Economic growth accelerated in 2019 as investment picked up, but, since April 2020, the COVID-19 crisis has left its mark on the economy and on public finances.

The authorities have taken a range of measures supporting companies and households, to mitigate the economic and social impact of the crisis. In the reporting period, fiscal transparency was further improved. However, fiscally significant reforms of income taxation and the pensions system, introduced at the beginning of 2019, were reversed.

Moreover, public capital expenditure implementation remained markedly low, and public debt stabilisation is not yet secured. Before the COVID-19 crisis, unemployment rates declined further, also for young workers, and informal employment decreased slightly. However, the impact of the COVID-19 crisis will likely reverse those positive trends. The financial sector remained robust and lending to the private sector strengthened. The business environment continues to be impeded by a high share of the informal economy.

North Macedonia has made some progress and is moderately prepared to cope with competitive pressures and market forces within the EU. Integration with the EU in trade and investment deepened further. Exports and manufacturing output diversified further towards higher-value products. However, skills shortages, reflecting shortcomings in the education system and the outflow of skilled workers, as well as infrastructure investment gaps impair labour productivity and the competitiveness of the economy. While measures to mitigate the immediate adverse impact of the COVID-19 crisis on growth and employment are currently prevalent, addressing these structural needs in a timely manner would support a swift post-crisis economic recovery.

The country shows a good level of preparation in areas such as company law, customs union, trans-European networks and science and research. The country is at an early stage of preparation in areas such as free movement of workers as well as financial and budgetary provisions. Over the coming period, more focus is also needed on administrative capacity and effective implementation. The country has continued to improve its alignment with the EU common foreign and security policy.

Fitch Ratings has affirmed North Macedonia’s credit rating at BB+ with negative outlook due to pandemic, while Standard & Poor’s rating for North Macedonia stands at BB- with stable outlook.

EU and CEFTA countries are North Macedonia’s largest trading partners. The UK is among the biggest trade partners and the leading foreign direct investor, but that is mostly due to the import by Johnson Matthey’ of materials for catalytic convertors which are then exported in EU. Most UK companies invest in IT, automotive and textile industry, with increased interest in mining recently.

North Macedonia has established Free Economic Zones, striving to become an international business hub in South-eastern Europe. The free zones are managed by the Free Zones Authority representative body of the Government of the Republic of North Macedonia. As part of the country’s bid to attract Foreign Direct Investments North Macedonia offers conditions including 100% foreign ownership, 0% corporate and income tax, return of 10% of investment cost in construction, machines, and equipment, €0.1 per m2/year land lease rates, availability of skilled workforce, as well as job creation grants in the free zones.

Human rights and business

As a candidate country of the European Union, North Macedonia has certain human rights obligations to fulfil under the Chapter 23 of the EU accession process dealing with the judiciary and fundamental rights. In its 2020 annual report, the European Union noted that Macedonia’s legal framework on the protection of fundamental rights is largely in line with European standards. Additional efforts are needed to address recommendations of European and international human rights bodies, particularly regarding the treatment of detained and convicted persons.

Due to the Constitutional Court’s decision to repeal the Law on Prevention and Protection against Discrimination on procedural grounds the country currently lacks a comprehensive legal framework on non-discrimination and an equality body. It is also important for the country to enhance implementation of the legislation on hate speech and of the national action plan for implementation of the Istanbul Convention. While the set-up of the external oversight mechanism of the police is complete, the absence of genuinely independent investigators may impede the work of the unit to effectively address police impunity. The country should take urgent measures to further improve the situation in prisons and to support alternatives to detention.

Limited judicial independence, politicising of the judicial oversight body, and inadequate funding of the judiciary continues to hamper court operations and effectiveness.

Reporters without borders rank North Macedonia as 92nd (out of 180) in the 2020 World Press Freedom Index. There is a slight improvement (3 places up) since 2019. The report states that “the culture of impunity is well-entrenched and still an obstacle for journalist’s safety. The number of the physical attacks on journalist declined, however there is a growing practice of cyber-bullying and verbal abuse.”

Bribery and corruption

Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or as Scottish partnership to bribe anywhere in the world. In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case, it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.

The new government has committed to implement reforms, primarily focused on the rule of law and fight against corruption. However, impact is yet to be achieved as corruption remains prevalent and continues to be a serious problem. In addition, companies define the large shadow economy and the entrenched corruption as major obstacles to doing business and as negatively affecting investment behaviour.

According to the 2020 EU Country Report good progress was made through consolidating its track record on investigating, prosecuting and trying high level corruption cases. The State Commission for Prevention of Corruption has been particularly pro-active in preventing corruption and opened a high number of cases, including those involving high-level officials from across the political spectrum, in line with last year’s recommendation. Corruption is prevalent in many areas and a more proactive approach from all actors engaged in preventing and fighting corruption needs to be ensured.

Transparency International’s 2019 Corruption Perception Index placed North Macedonia 106 out of 180 (with 1st being the least corrupt).

The Business Anti Corruption portal page providing advice and guidance about corruption. Read the information provided on our Bribery and corruption page.

Terrorism and security

Terrorists are very likely to try to carry out attacks in North Macedonia. Attacks could be indiscriminate, including in places visited by foreigners. Terrorists may target religious sites, including churches. Read our terrorism advice on FCO Travel Advice.

Personal attacks against foreigners are extremely rare. Travelnear the border with Kosovo should be restricted to primary roads and daylight hours only. See Crime and Local travel.

Intellectual property

Since 2006 the country has taken a number of positive steps to strengthen its Intellectual Property (IP) protection in line with the EU Acquis, a process that is ongoing.

North Macedonia has ratified the Patent Law Treaty, the Vienna Agreement for establishing an international classification of the figurative elements of marks, the Singapore Treaty on the law on trademarks, the Lisbon Agreement for the protection of appellations of origin and their international registration, and the Protocol amending the Agreement on trade-related aspects of intellectual property (TRIPS).

Key institution responsible for industrial property rights is the State Office of Industrial Property (SOIP). The Ministry of Culture is responsible for protection of copyright and related rights and the Coordinative Body on Intellectual Property (CBIP) is a body in charge of providing integrated and efficient management of the administration regime in IPR protection.

The 2020 EU Country Report noted that in terms of compliance with EU Acquis Chapter 7 requirements, the country is moderately prepared. “There was some progress with raising awareness about the fight against counterfeiting, smuggling and import of counterfeit goods including an increase of seized goods. The recommendations from 2019 were not fully implemented and remain valid. Amendments to the legal framework on copyright and neighbouring rights to protect the rights of those concerned have been further delayed.”

Read the information provided on our Intellectual Property page.

Contact

The British Embassy in Skopje is a “Policy Support Only” Office with no Department for Business and Trade (DBT) engagement. Contact DHM Dominic Otway Dominic.Otway@fcdo.gov.uk, Political Officer Jillian Smith Jillian.Smith@fcdo.gov.uk or Political and Economic Officer Sneska Ilikj Sneska.Ilikj@fcdo.gov.uk

You may also wish to contact Bojana.Arsic@fcdo.gov.uk and Alma.Kadunic@fcdo.gov.uk Heads of DBT in Serbia and Bosnia and Hercegovina working in cooperation with Skopje.

Useful links

Additional information is available from the following organisations:

• IMF Office Macedonia
• World Bank office Macedonia
• Ministry of Finance of the Republic Macedonia
• Ministry of Economy of the Republic Macedonia
• Invest in Macedonia
• Economic Chamber of Macedonia
• Macedonian Chambers of Commerce
• Economic Chamber of North-West Macedonia
• The North Macedonia Free Zones Authority
• MASIT - ICT Chamber of Macedonia

1. The key elements of this agreement include a new name with a geographical qualifier for the country “Republic of North Macedonia” and acronym MKD or MK (please do not use NMK). The language should be referred as “Macedonian” and citizenship “Macedonian / Citizen of Republic of North Macedonia.