Role of business associations and cooperation with the policy makers

 

Mr. Branko Azeski, President of the Economic Chamber of Macedonia

MMag. Gerhard Schlattl, President - Austrian Business International, Advantage Austria

Role of business associations and cooperation with the policy makers

by Mr. Branko Azeski, President of the Economic Chamber of Macedonia

Business Associations - Institutions in the Intermediate Sphere of an Economy

If we take into account that a market economy is organized in three levels - a public (political) macrosphere, entailing public and governmental organizations, and a microsphere - the world of business and companies, then business associations are the institutions in the economy’s intermediary layer, as they place their activities between the first two spheres. As such, they have the opportunity and capacity to bolster the efficiency of the economy as a whole, to improve market competitiveness, and to contribute to resolving integration- and globalization-related issues. We could summarize the evidence supporting the need of such institutions under the following points:

• Chambers of commerce encourage and develop a network of cooperation between the business sector and policy makers;
• They improve the efficiency of information flow in several directions;
• Institutions in the intermediate sphere have the opportunity to provide specific services and information;
• The overall management of the economy may be more targeted and efficient, and
• They enable practical implementation of the sustainability principle and enhance decentralization.

Institutions classified as business associations include: chambers of commerce, organizations of employers, professional associations (representing the interests of a certain profession), business confederations, as well as trade unions. These entities hold an exceptionally important function, but the efficiency of their operations and activities depends largely on several factors, including: the country’s system of organization, the number of members, and its financial power, which is also reflected in their capacity to exert influence and to lobby.

Roles of Chambers at International Level

Chambers voice the business sectors’ interests, and are institutions with a long-standing history of being a significant economic factor in every country, regardless of the country's system of commercial chamber. The first chamber of commerce was formed in 1599 in Marseille, France. Its establishment reflected a need to have an independent institution, one that would regulate tax revenues from cargo handled at the port. Afterwards, Napoleon saw a general necessity to have institutions of this kind, and established the first public model, based on a compulsory-membership system, which is still present in France, Germany, the Netherlands, in other countries in Europe, as well as countries in Africa, the Middle East and Asia.

The importance of existing and functioning chambers of commerce was yet again emphasized after the end of the First World War and the consequences that ensued in every area of life and at global level. As there was no system of rules that would assist and govern commerce, investments, finance or trade relations, in 1919, a group of entrepreneurs decided to establish an organization to serve as a representative of businesses around the world. They founded the International Chamber of Commerce, seated in Paris, and called themselves “the merchants of peace.” They created the international rules, mechanisms and standards, which still apply today. At the moment, the ICC network covers 120 countries and represents 40 million businesses from around the world; in addition, it enjoys top-level consultative status in the United Nations. The constitution of this international organization realized the idea for international economic unification of all businesspeople and their national economies. It is a classic example of how the private sector is able to fill in the gaps that governments are unable to address themselves. In this way, commercial chambers perform their principal duty regarding issues connected to international commercial ties as they establish inter-chamber cooperation.

The beginnings of the chamber system in the Republic of Macedonia date back to 1922, when the Chamber of Commerce and Industry, seated in Skopje, was established with a law. In 1962, a law was adopted establishing the single Economic Chamber of Macedonia. In 2004, the Law on Chambers of Commerce in Macedonia defined the Economic Chamber of Macedonia as a business and professional association that harmonizes, represents and protects the interests of its members organized in a chamber system under the private law model, and unites over 15,000 member companies on a voluntary membership principle. The Economic Chamber of Macedonia has been a member of the International Chamber of Commerce since 1994.

The role of commercial chambers in the international sphere and the significance of chamber-level cooperation are perhaps best reflected in the data of EEN (Enterprise Europe Network). This network covers 50 countries and unites around 600 organizations, including chambers of commerce, universities, government agencies, centers for transfer of technologies, technological parks, national structures that support innovations, etc. It has helped the formation of over 7000 business partnerships and enabled 2,400 companies to apply to EU funds. It has assisted the creation of over 100,000 technology-related, intellectual property and business reviews; targeting SMEs by helping them obtain licenses or find technology partnering opportunities. Last year alone, 67 Macedonian companies promoted themselves and signed business contracts with foreign partners using this European network. Its users come from various sectors and its application is not limited to business cooperation, but includes transfer of technologies as well. One-hundred and four entities participated in business meetings that provide an opportunity to sign cooperation agreements, and 138 cooperation requests from foreign companies seeking partnerships with Macedonian ones have been received. It is expected that 20 technical cooperation agreements be signed this year.

Chambers’ Cooperation with Policy-Makers

Commercial chambers are exceptionally resilient organizations that have stood the test of time. In this current business environment, resting on market power, capacity of private businesses, swift and efficient solutions, and modern approaches to corporate management, the significance of commercial chambers has remained intact, alongside the need to involve the business sector in the development of national economies. This means that representatives of the business sector - chambers of commerce - are facing the challenge of showing commitment to companies' needs by establishing an effective dialogue with the government, promoting businesses and providing them with services that address their demands.

Understandably, there are differences stemming from the chosen ‘chamber model’, or commercial chambers’ system of organization, implemented at national level. These affect the:

• Memberships conditions (voluntary or mandatory);
• Sources of finance;
• Services and quality of services, and
• Relationships with policy-makers and chances to lobby and protect the interests of the business sector.

The latest global research on the systems of commercial chambers, which covered 194 countries, gives an interesting piece of information: of the total number of countries, 72 had private law model of commercial chambers, with voluntary membership, while 199 had a public law model with compulsory membership.

On the other hand, regardless of the selected model of commercial chambers’ system, but especially in the case of compulsory memberships, chambers play a unique role, as they embody business entities from the whole country, coming from different industrial sectors and of different sizes. Chambers of commerce are the responsible representatives of a wide array of interests, and can function effectively only in a sophisticated and well-developed policy-making system. In this way, chambers can exert their influence over significant issues via consensus, but simultaneously do so with the credibility and integrity inherent to an institution of long-standing tradition and history, holding such an important position in an economy. It is well-known that these reasons make chambers of commerce, as well as every actor involved in the process of policy-making, responsible to take stances that are beneficial to everyone, rather than focus on an isolated set of interests.

Every crucial issue or process connected to the development and implementation of policies affecting the business sector, significant and fundamental proposals, positions, and changes, comes from chambers of commerce and their bodies. It is a fact that associations, affiliations, councils, groups and similar entities, which are components of chambers of commerce, usually include representatives of the business and academic communities, who can share their knowledge and experiences at the highest possible level. Hence, chambers of commerce are the source of the most significant opinions, proposals, analyses and forecasts, crucial to the economy as a whole. Due to their credibility, chambers of commerce can have a significant influence on the creation of policies, especially of those that influence the operations of businesses.

Developments, experts and relevant institutions around the world confirm that a market economy would not be able to function without business institutions, especially without chambers of commerce and their activities in the intermediate area connecting the two spheres. The structure of relationships between these stakeholders, together with the manner in which they coexist, is decisive for the complete system and its functionality.

Role of business associations and cooperation with the policy makers

by MMag. Gerhard Schlattl, President - Austrian Business International, Advantage Austria

The Austrian system

The legal representation of interests for Austrian business is handled by the Economic Chamber Organization. This consists of the Austrian Federal Economic Chamber (headquartered in Vienna) and nine Regional Chambers in the federal provinces.

Industry Sectors

The Federal Economic Chamber and the Regional Chambers are divided into seven Industry Sectors: Crafts and Trades, Industry, Commerce, Banking and Insurance, Transport and Communications, Tourism and Leisure, Information and Consulting. These Industry Sectors provide a link between the Trade Organizations found in the sector and the respective Chamber.

In addition to these Industry Sectors, there are Departments in the Austrian Federal Economic Chamber (headquartered in Vienna) and in the Regional Chambers which are responsible for tasks related to policy, organization and service provision:

• Policy Departments include Departments for education policy, finance and commerce, legal, welfare and healthcare, environment and energy, European policy coordination and economic policy.
• The following Departments provide centralized services for members: ADVANTAGE AUSTRIA, WIFI, Junior Chamber/Start-Up Service, Women in Business, etc.
• The main Departments which deal with internal organization include the finance and accounting, human resources and organization, and legal affairs departments.

Our strategic business areas

Representation of Interests

Actively shaping the economic backdrop in Austria

• The Economic Chamber Organization is first and foremost obligated to defend its members’ interests.
• It sets the agenda in representing the interests of Austrian business and successfully defends the interests of Austrian companies. 
• It is a leading force in policymaking at the level of industries and regions, as well as at national and EU level.

Service

Supporting forward-looking developments

• The Economic Chamber Organization is the first port of call for members who need information and advice.
• It initiates, moderates and partners regional, national and global economic promotion activities for the benefit of the Austrian economy. 

Education

Professional preparation of expert knowledge for members

• The Economic Chamber Organization is the most important training partner for the benefit of its members.
• It actively spreads knowledge related to every facet of the economy; for this it uses cutting-edge, forward-looking technologies, media, methods and processes. 
• It makes sure that expert knowledge is available to its members anywhere in the world, around-the-clock and in a straightforward manner (e.g. via WKO.at).

The Austrian system in Macedonia – Advantage Austria in Macedonia

ADVANTAGE AUSTRIA, with its more than 110 offices in over 70 countries, provides a broad range of intelligence and business development services for both Austrian companies and their international business partners. Our 800 employees and 35 consultants around the world can assist you in locating Austrian suppliers and business partners. We organize more than 1,200 events every year to bring business contacts together. Other services provided by ADVANTAGE AUSTRIA offices range from introductions to Austrian companies looking for importers, distributors or agents to providing in-depth information on Austria as a business location and assistance in entering the Austrian market. In Macedonia the list of duties and tasks of Advantage Austria are numerous, in the following we want to highlight two aspects; interventions and lobbying with public institutions.

Interventions/Representation of Interests

One of the core activities and duties of Advantage Austria is the support of Austrian companies when it comes to interventions at public institutions. Over the past three years our office has assisted numerous Austrian companies, when it comes to tender participation, customs issues or construction permits.

Lobbying/Business climate survey

According to the latest official statistics of the Macedonian National Bank the total amount of Austrian direct investment in Macedonia amounts to 516,3 Mio. EUR (by 31.12.2014). Austria is thus one of the biggest investors in Macedonia. More than 50 Austrian companies with Austrian capital are established in Macedonia.

• Austrian companies in Macedonia are predominantly active in the services sector.
• Nearly half of the Austrian companies assess the current economic situation in Macedonia as flawed/poor. Most of them expect a similar situation in 2016.
• For 2016 48% of the companies expect an increase in turnover, more than 40% plan to hire new employees and more than 30% plan to increase investments.
• Austrian companies assess the attractiveness of Macedonia as a destination of foreign direct investment predominantly as satisfactory.
• Regarding the framework conditions, the largest differences between expectations and reality are similar like in 2015 in fields like fight against corruption, good payment moral and progress towards EU accession.
• The three top priorities of Austrian companies regarding the Macedonian Government are political stability, fight against corruption and legal security.

Harmonization of energy market with the EU standards

 Mr. Stefan Peter, CEO of EVN Macedonia

 

 Prof.Dr. Koco Angjusev, CEO of Feroinvest

 

Harmonization of energy market with the EU standards by Mr. Stefan Peter

In order to harmonize and liberalize the European Union’s (EU) internal energy market, three consecutive legislative packages were adopted in the period between 1996 and 2009, aiming to arrange the issues related to market access, in terms of solid transparency and regulation, sustainable consumer protection, supporting interconnection, and adequate levels of energy supply.

• In to the first electricity directive adopted in 1996, and gas directive adopted in 1998, common rules for creating single internal energy market in the EU were created. These directives introduce the principles of competition and rules related to the functioning of production, distribution, transmission and supply fields in the electricity and gas sectors in accordance with the respective unbundling procedures. The basic unbundling requirements referred mostly to separation of accounts for each activity and keeping those accounts sufficiently transparent. Furthermore, the member states were required to develop efficient mechanisms for regulation and monitoring in order to stop or prevent abusive actions. Non-discriminatory behavior was further promoted by definition of the concept of Third Party Access, implying inability for the transmission system operators to discriminate between system users and can act solely on basis of predefined criteria for refusing of the access to the system which can only happen in specific circumstances, such as lack of capacity or preventing the carrying out of public-service obligations.
• The second energy package adopted in 2003 further elaborated the issues specified in the first energy package, especially the unbundling and Third Party Access issues and defines the need for independent regulatory authorities. Fulfilling of public service obligations for security of supply, quality of supply, price equality and preservation of the environment were promoted, as well as the protection of final customers and in particular the vulnerable customers. Furthermore, it reinforced the legal and the functional unbundling of transmission and distribution activities for minimization of the possibilities subsidies and unfair competition. Establishment of independent regulatory authority was another obligation for the all Member States upon this regulation.
• Third energy package adopted in 2009 is the latest round of EU energy market legislation. Its purpose is to improve the functioning of the internal energy market and resolve structural problems, especially in terms of functional unbundling of energy suppliers from network operators, strengthening the independence of regulatory authorities, cross-border cooperation between transmission system operators, increased transparency in retail markets to benefit consumers, etc.

Currently the electricity market in the South East Region is very fragmented, so without it’s integration some countries will face significant risks in the future, others are losing opportunities. Some countries possess more hydropower, other have more primary energy for thermal plants. Eventual combination of those energy sources in a single regional market would ensure optimal use of the resources at the lowest possible costs. In order to get there, each stakeholder has to take the risks deriving from decisions made mostly in regards to evaluation of the price signals for investing in certain new technologies. It is obvious that sufficient capacities for ensuring the stability of supply in many European countries are provided by additional capacity markets. Electricity export has to find the corresponding demands. Governments should not participate in a self-created market place, and even less so with the possibility to shift liabilities to taxpayers.

The Republic of Macedonia has started to introduce market principles in the electricity sector almost a decade after the first Electricity Directive 96/92/EC concerning common rules for the internal market in electricity was launched in European Union. After the Stabilization and Association Agreement with the European Union and Athens memorandums, the activities towards harmonization of the national legislation with the legislation of European Union in the electricity field have accelerated. Before signing the Treaty establishing the Energy Community, Republic of Macedonia has already restructured the vertically integrated utility, the single energy regulatory body was established, regulated third party access was introduced and first signs of environment based on competition were created.

After more than 10 years of harmonization still the electricity market has not produced the expected objectives like fully functioning market and a high level of consumer protection as well as adequate levels of generation capacities. In the past years attention was put on the financial recovery of the electricity sector. However this was a long process make it sometimes impossible due to the trends on keeping the electricity prices for consumers on the lower level. The last has prevented the timely and proper investments in the whole power system, especially the investments in the generation capacity.

Starting from 2007 the electricity consumers gradually have gained the eligibility status and the number of traders and suppliers has increased which has certainly contributed to improving of the competition in the electricity sector. At the same time, stakeholders which are mostly involved in to the market relations are conveniently restructuring and equipping themselves, so that the transparency level is constantly improving as well. In such conditions, although somebody might say that be said that the country is behind the liberalization schedule strictly prescribed by the EU regulations, it is ongoing sustainably with the bright perspective for it’s future development.

Being a Contracting Party of the Treaty for Establishing the Energy Community, the Republic of Macedonia is obliged to harmonize its electricity (and gas) regulation to the EU requirements. However, as it is the case with all other countries in the region, the actual conditions are not always convenient for the simple transposition of the EU standards and provisions without considering the abilities of their practical implementation. Hence, instead of the one step market opening as defined within the EU Directives, the Macedonian electricity market has been liberalized step-wisely, resulting with establishment of functional electricity market where the eligible consumers can benefit from well defined market terms and conditions, while the rest of the consumers are preparing for the next steps of liberalization, as the same are defined in the Law on Energy.

One of the main arguments supporting the step-wise approach for market liberalization is that the regulated electricity prices for end users are still highly cross subsidized, especially referring the household consumers. What is happening now is that household consumers pay significantly lower prices on behalf of the relatively higher prices charged to non-household consumers in order to cover the costs of the providers of the public services. The higher prices motivate the non-household consumers to exit the regulated regime searching for better conditions in case of full market opening, leaving the subsidized (“protected”) consumers to handle the total costs on the regulated side. Hence, this cross-subsidization policy implemented in the price regulation in the distant past has further increased the risk of price impact for the respective customer groups benefiting from the subsidization, in the time when they will be faced to the market prices. Therefore, the step-wise liberalization approach by itself does not mitigate the price risks, if the price policy for the regulated consumers is not changed in order to envisage elimination of the cross-subsidization in the period until the electricity market become fully opened.

Another key point for successful implementation of the EU standards for energy markets is the proper addressing of the vulnerability and affordability issues in the country. The existing Government’s programs definitely have to be redesigned to anticipate the reforms being made in the energy sector. Here we would like to emphasize the risk of increasing the energy poverty rate due to the additional costs for implementation of the EU standards (for example, state targets for the renewable generation which by definition is costly), as well as the inevitable cancellation of the cross-subsidies and introducing cost reflectiveness which will result with certain price increase over time during the implementation. Therefore, sustainable customer protection policy have to be implemented to cover the existing and eventually new vulnerable consumers, while all timetables for implementation of the standards must be made in consideration of those aspects.

Finally, the Republic of Macedonia should not be seen as an isolated island in the region when comes to the implementation of the EU standards in the energy sphere. It is a fact that in certain countries, EU standards may be implemented “on paper” but in reality their electricity markets are much less functional that the Macedonian electricity market in the present stage. In this context, it is important to acknowledge that, in fact, about 40% of the total electricity demand in the Republic of Macedonia is covered by the open electricity market, which makes it one of the most active electricity markets in t he region. Moreover, the countries in the region are facing similar challenges so the authorities, institutions and stakeholders should cooperate with the countries in the region and broader and should support projects and initiatives that can be of the benefit for energy sector in the entire region.

 

Harmonization of energy market with the EU standards by Prof.Dr. Koco Angjusev

Macedonia, as part of the positive regulation in the path of EU integration, takes certain obligations in the area of energy sector. Those obligations are numerous and numbering them all will excess the writing area of this article, therefore I will keep my focus on only two topics, which I think are important for the energy market in Macedonia. Those are:

1. Liberalization of the electricity market
2. Renewable sources of energy in Macedonia and Europe and their impact
   on the electricity market

Throughout this article I will try to show, with specific quantified examples, their influence in the energy field and further on the overall economy.

1. Liberalization of the electricity market

This process implies competition in the part of supplying with electric energy, in other words there is a possibility for the companies to choose a Supplier on the liberalized market. With that said, the electricity bills were divided in two, one part of the bills were for the usage of the network paid to the Network Operator and it is not subject of the liberalized market, this price is regulated by the Energy Regulatory Commission (additional explanation on www.eds.mk) and the second part of the bills refers to the electric energy consumed by the company. The second part is out on the liberalized market and the company can choose a Supplier among many. As I already announced in the past (before April 2014), this process caused a change in the attitude towards the clients with a better appreciation on the Suppliers part, but what is more important, is the significant decrease of the costs for electric energy to those companies that are on the liberalized market. In the first step of liberalization, around 200 companies went on the liberalized market and chose a Supplier. Those are the companies that had over 50 employees and over 10 million Euros profit. All of them combined were spending around 700 GWh energy and their average price at that moment was 96 Euro/MWh. After the liberalization, the average price for those companies (network cost included) is lower than 70 Euro/MWh. That means that the first step gave them an average saving around 26 Euro/MWh or in absolute figures all those companies combined saved more than 18 million Euros. Those are the amounts that stayed in the companies and increased their competition and created a possibility to divert those savings towards new investments. With all of that, the quality of supply wasn’t reduced, on the contrary the competition caused a bigger and better treatment and attention from the Suppliers to the clients.

The next step of the liberalization starts from the 01-st of July and on the liberalized market, a new 190 companies with a certain number of municipality and public companies will have the chance to choose a Supplier. All of them combined consume approximately 250GWh energy and they can expect the same savings as the first group, which means new 6,5 million Euros will stay in the Macedonian companies for increasing their competitiveness and a possibility of investments. I am using this opportunity to inform all the companies that consume more than 1000 MWh per year that they need to get involved and to get interested in this process, most of all for their financial benefit.

Trough this numbers I wanted to show the meaning of this process for the economy in Macedonia. This applies specially for the businesses that significantly depend on the electric energy or where the electric energy is a significant input into the price of their product.

Certainly, its effect had the decrease of the price for the electric energy which additionally brought savings to the companies in the past year, so now the price of the electric energy (it depends on the connected voltage level) for most of the clients with the latest contracts it is in the range close to 60 Euro/MWh. If we compare this price with the regulated price they had at 96 Euro/MWh, we can easily conclude that the difference is substantial. It may not seem humble but I would like to point out the role of my company, EDS, that created a serious competition on the market of the already existing Supplier. Without that competition, the process probably would not be that effective nor with the before-mentioned benefit. The question that remains is whether those companies would have seen this benefit if the market of electric energy hasn’t been liberalized?
I think that all of us can sense the answer.

2. Renewable sources of electric energy

For those that follow the market of electric energy in Europe (which evolved thanks to the European Energy Regulator), the decrease in the price of the electric energy on the European exchanges will not be a surprise. That is due to many parameters as the decrease of the oil and coal price, but as well a lot of other actions that decreased the consumption of energy on the market created a surplus of energy. Those actions and situations are: decreasing the economy’s activity, specially the industry that spends big quantities of energy, for example the metallurgy, the usage of technologies that are energy savers, increasing the energy effectiveness. Of course, all of this affects the price, but yet again it does not explain how the price of the electric energy fell to the yearly level of 25 Euro/MWh. That level is under the production price of the electric energy produced by the coal power plants. This came as a surprise to a lot of market participants, but not for those that create the energy politics in Europe. That was the goal that needed to be achieved on long term, as a matter of fact the energy field demands that way of consideration. If you are in the energy field and you don’t have a plan and/or forecast for the next 10 years, than you don’t have one at all. The secret of this decrease lies in the renewable sources of energy in Europe. Whoever had the chance to travel trough the countries of Western Europe or to fly above those countries, easily could notice the numerous windmills, photovoltaic power plants and small hydro power plants. What really happened? The countries in according with the European regulatory introduced beneficial prices for buyback of the energy from renewable sources, as an action of encouragement to the market participant. That was necessary because in the other case there would not be a possibility for those capacities to be built and to be competitive with the prices from the coal power plant which were the main source of energy, but as well the main pollutants. At a certain point, that had an influence on the price of the electric energy for all of the consumers. After the period of beneficial prices expired, today the renewable sources in Europe are the real generators of low prices. The renewable sources do not have the capability to storage the energy, so therefore the owners need to produce the energy even at low prices in order not to lose the energy. Photovoltaic power plants are in production during the sunlight, the small hydro power plants do not have dams and lakes so the water that already ran can’t be returned up the hills and during a wind the windmills have technical problems if they do not produce energy. The owners of those capacities, during the period of beneficial prices, already have paid out their investments, so now with the low prices they are covering the operating expenses. In that order they are pushing the price of the energy to a low level. And by that the desired goal is achieved. The goal was, first to replace the “impure” energy with the pure sources of energy and second to decrease the price of the energy in order to provide competition on the European economy versus the one of the world, for example China and Russia, where the energy was drastically at a lower price level. As a conclusion of this part of my statement I would like to say that the renewable sources are not just an investment into a clearer environment but as well a strategic commitment for providing a long term inexpensive sources of energy and contribution in creating conditions for competitiveness of its own economy.

I would like to specially mention, how did the building of small hydro power plants effected the economy in Macedonia.

There are 58 small hydro power plants working in Macedonia. It is most likely that, with the projects that are in the process of building, after the end of the investment cycle, there will be around 100 power plants. All of them combined will have more than 120 MW installed power. So that is as much as St. Petka and Kozjak combined and will produce the same quantity of electric energy as both of those power plants. Those two big power plant are the biggest investments in Macedonia for the last 15 years and they cost together around 400 million Euros, built with foreign credits where the State is a guarantor. They were built by foreign companies which mostly took the benefit while the Macedonian companies were only subcontractors and finally the production price of the electric energy from those power plants is 120-130 Euro/MWh. On the other hand, the small hydro power plants are built by Macedonian companies. Even the equipment now is produced in Macedonia (Feroinvest and BRAKO), the State does not undertake any financial guarantees, on the contrary the State took more than 20 million Euros in compensations due to the concessions paid by the concessionaires. The final price of the electric energy produced in those power plants costs an average of cca. 75 Euor/MWh. From all of the above said, the conclusion of which project are better for the economy is repositioned, although I would like to note that for Macedonia’s benefit it is good to have new small and big hydro power plants to be built. At the end, let us say only that the investment in the already built 58 small hydro power plants is more than 120 million Euros, which is a serious generator of the economy and it is especially important to mention that at least 70% of those funds remain in Macedonia.

I honestly hope that I gave a clear picture with this article about how this two activities, that are arising from the harmonization of the Macedonian energy market with the EU regulations, had a short term, and more importantly, on long term positive influence on the Macedonian economy overall.

ИНФРАСТРУКТУРНИ ЈАЗОВИ / INFRASTRUCTURE GAPS

Д-р Александар Стојков


ИНФРАСТРУКТУРНИ ЈАЗОВИ

Инфраструктура во две брзини

Македонија е земја на контрасти, земја која влегува во првата половина на XXI век со инфраструктура во две брзини. Телекомуникациската инфраструктура забрзано се подобрува, со што се намалува дигиталниот јаз во однос на напредните економии. На пример, македонските телекомуникациски оператори нудат оптички кабел не само во урбаните средини, туку и во викендичките низ падините на Маврово. Од друга страна, традиционалните (основни) инфраструктури (како на пример, каналите за регулација на планинските води, одводната градска канализација, локалните патишта, водоводните мрежи, иригационите системи и сл.) се сѐ уште копнеж на многу рурални, дури и урбани средини. Кога последниот пат успеав да погодам со автомобилот неколку импозантни дупки на распуканите стари патишта, се присетив на слоганот од една кампања за привлекување на странски инвестиции: „имаме одлична инфраструктура“. Сѐ е релативно. Има огромни подобрувања во однос на минатото, но претстои уште многу труд и умешност.

Од аспект на обичниот граѓанин, наједноставен показател за важноста на инфраструктурата е цената на недвижниот имот, која во пресудна мера е определена од инфраструктурните погодности. Градежните објекти и земјишните парцели со подобар пристап до патната, енергетската, водоводната, канализациската и друга инфраструктура, по правило, имаат повисока цена и нудат повисока рента наспроти инфраструктурно неуредените недвижности. Од аспект на бизнисот, солидната инфраструктура овозможува снижување на трошоците и ја прави локацијата многу попривлечна за домашните и странските инвеститори.

Гласот на науката: Двонасочна поврзаност

Науката со децении прави обиди да го квантифицира придонесот на инфраструктурата за економскиот растеж. Една научна струја („supply-leading hypothesis“) тврди дека развојот на инфраструктурата води кон забрзан економски растеж, додека друга струја смета дека прво се реализира економски растеж, а потоа, тој повлекува подобрување на инфраструктурата („demand-following hypothesis“). Постојат и обиди за синтеза, во кои се докажува двонасочната поврзаност: инфраструктурата и економскиот растеж се две варијабли, кои меѓусебно се надополнуваат. Едни студии прават композитни индекси за развојот на вкупната инфраструктура, а други анализираат само определени компоненти од неа. На пример,  Pradan et al. (2014) потврдуваат дека развојот на телекомуникациската инфраструктура игра клучна улога за економскиот растеж, првенствено преку пониските трансакциони трошоци и подобрените маркетинг информации. Черних et al. (2011) наоѓаат дека зголемувањето на широкопојасната (broadband) телефонска, телевизиска и интернет мрежа за 10% го зголемува годишниот БДП по жител за 0,9 до 1,5 проценти во земјите на OECD во периодот од 1996 до 2007 година. Roller and Waverman (2011), исто така, тврдат дека инвестициите во телекомуникациската инфраструктура обезбедуваат огромни бенефити за националната економија. Во студијата на UNIDO (2009) се говори дека вложувањата во енергетската инфраструктура биле особено корисни за економскиот растеж во 79 земји во периодот од 1970 до 2000 година. Alfredo и Andraz (2011) наоѓаат дека инфраструктурните инвестиции во регионални автопати донеле силни позитивни ефекти врз вработеноста, приватните инвестиции и економскиот растеж.

Agenor (2008) говори дека влијанието на инфраструктурата може да биде многу мало, доколку не постои определен праг на човечки капитал во земјата (образование, знаења и вештини) за да се искористат инфраструктурните погодности. Ако нема претприемнички и иновативен дух во приватниот сектор, попусти се и најлуксузните и најмодерните автопати, кои треба да му помогнат на истиот тој сектор.

Регионално огледало на македонската инфраструктура

За важноста на инфраструктурата доволно сведочи и фактот што таа е вториот столб на престижниот индекс на глобална конкурентност, кој го публикува Светскиот економски форум во Давос (Швајцарија). Во однос на квалитетот на вкупната инфраструктура, Република Македонија е рангирана на 84-тата позиција, од вкупно рангирани 144 земји во извештајот за 2015/16 година. Сепак, на скала од 1 до 7, просечната оценка за Македонија од 3,9 е значително пониска од просечната оценка (5,1) за ЕУ-28 и неколку соседни земји, што е прикажано на Графиконот бр. 1. Успешната приватизација на телекомуникацискиот оператор и електро-дистрибуцијата, концесијата на аеродромите, како и неодамнешното мега-инвестирање во неколку важни автопати, се веројатни причини за подоброто рангирање на Македонија во однос на Црна Гора и Србија.

Иако квалитетот на патната инфраструктура во Република Македонија е оценет со средна оценка од 3,5, треба да се очекува нејзино зголемување и подобро рангирање во претстојните години (Графикон бр. 2). Македонија истовремено гради и реконструира неколку автопати (Демир Капија-Смоквица; Скопје-Штип; Кичево-Охрид), како и регионални патишта, што допрва ќе ја подобри нејзината слика на глобалната инвестициска мапа. Во овој контекст, и единиците на локалната самоуправа би можеле преку издавање на долгорочни општински обврзници да мобилизираат повеќе средства за подобрување на локалните патишта.

Контроверзите околу приватизацијата на инфраструктурните компании

Оправданоста на приватизацијата на телекомуникациските, електро-дистрибуциските и другите инфраструктурни гиганти е контроверзно прашање. Какви би биле перформансите на овие компании во услови на државна сопственост е речиси невозможно да се знае, а споредбите со други земји (на пр., Република Словенија) се неумесни, поради драстичните разлики во  институционалниот, политичкиот и социо-економскиот контекст. Сепак, постојат многу причини да се верува дека приватната сопственост на неколкуте клучни компании во инфраструктурата е подобро решение од претходното, недомаќинско и летаргично управување од страна на државно избраните бирократи. Пред да се изрази било какво несогласување, потребно е само да се погледнат перформансите на „Македонска пошта“, сега акционерско друштво во државна сопственост, некогашен сијамски близнак на „Македонски телеком“ во состав на јавното претпријатие „ПТТ - Македонија“. Искуството покажува дека онаму, кадешто има приватни оператори или концесионери, се забележува подобрена ефикасност и значителен напредок во квалитетот на инфраструктурните услуги. Добар пример за тоа е развојот на мобилната телефонија, и покрај одолговлекувањето на либерализацијата на телекомуникацискиот пазар (Графикон бр. 6).

Патот пред нас

Секое подобрување на инфраструктурата е корисно, но поважно е да се инвестира во оние компоненти, кои го инхибираат развојот на приватниот сектор и предизвикуваат огромни трошоци, во конкретната фаза на економскиот развој на земјата.

Енергетскиот дебаланс на Македонија (помало производство во однос на побарувачката) предизвикува огромен увоз на енергенти и сериозен дефицит во платниот биланс. Квалитетот на електро-енергетската инфраструктура е високо оценет во однос на другите земји од регионот, но сѐ уште заостанува зад европскиот просек  (Графикон бр. 5). Во оваа фаза на економски развој, приоритет треба да има енергетската инфраструктура, преку инвестиции во производство на електрична енергија и распространување на гасоводната мрежа. Особено голем потенцијал за снижување на деловните трошоци нуди развојот на гасната инфраструкутра, со оглед дека е најавена изградбата на главната мрежа: Штип-Неготино-Прилеп-Битола и Скопје-Тетово-Гостивар.

Инаку, навистина е парадоксално кога електро-дистрибуциската компанија „EVN“ рекламира штедење на електричната енергија, а поголемата потрошувачка на електрична енергија за неа би требало да значи повисок профит. Очигледно, преоптовареноста и нестабилноста на електро-енергетската мрежа може да предизвикаат зголемен број на дефекти и неочекувани трошоци, па сѐ уште е добра опција да се рационира електричната енерија. Според тоа, инфраструктурниот јаз во однос на електро-енергетската мрежа мора да добие приоритет кај секоја одговорна влада.

Според оценките на Светскиот економски форум, најголемиот јаз во однос на ЕУ-28 постои токму кај железничката инфраструктура  (Графикони бр. 3 и 7). Пругите и придружната инфраструктура се стари и дотраени, што резултира во долги застои, дефекти и проблематичен транспорт. Дополнителни средства за санација на очајната железничка инфраструктура би можеле да се добијат преку либерализација на железничкиот транспорт. Доколку по железничките пруги (кои се природен монопол) се дозволи конкуренција и влез на приватни железнички оператори, тогаш ќе се ревитализира и железничкиот сообраќај. Во спротивно, тој ќе продолжи да функционира како прескап и економски нерентабилен начин за превоз на посиромашните граѓани, кои не можат да си дозволат алтернативен транспорт.

Порастот на бројот на летови и превезени патници преку воздушните пристаништа на Македонија е вистински показател дека инвестициите во инфраструктурата на воздушниот сообраќај даваат резултати. Во овој поглед, оценката за Македонија е на ниво на европскиот просек (Графикон бр. 2). Подобрените аеродромски услуги и зголемениот број на дестинации ги олеснуваат трговијата, инвестициите и воопшто, конктактите со деловниот свет. Сепак, поради повремено лошите зимски услови на аеродромот „Александар Велики“ во Скопје, потребно е поголемо вложување во, и искористување на капацитетот на аеродромот „Св. Апостол Павле“ во Охрид.

Конечно, нѐ очекува уште многу работа, а чекорите треба да бидат стратешки осмислени. Особено треба да се имаат предвид и погодностите, кои ги нудат европските структурни и кохезиони фондови, а кои имаат поголема економска оправданост од скапите концесионерски решенија. Така на пример, се покажа дека подобро е еден автопат делумно да се модернизира со грантови од европските кохезиони фондови, отколку со давање на одделни фреквентни делници на приватни концесионери. Во таа смисла, секое одложување на влезот на Република Македонија во Европската унија предизвикува огромни пропуштени приходи и високи опортунитетни трошоци, кои неминовно се одразуваат на побавно и должнички финансирано модернизирање на вкупната инфраструктура.

Вложувањата во инфраструктурата на Република Македонија не смеат да ги продлабочуваат регионалните диспаритети. Во одредени региони каде владее силна депопулација (посебно, источна Македонија) итно се потребни многу подобри инфраструктурни погодности и можности за поквалитетен живот. Подобрувањето на квалитетот на инфраструктурата не смее да создаде две Македонии: една дигитална и напредна Македонија, во чекор со XXI век, и втора, анахрона Македонија, зграбена во прегратките на XIX и XX век, со елементарни проблеми во функционирањето на основната (физичка) инфраструктура.


INFRASTRUCTURE GAPS


Two-speed Infrastructure

Macedonia is a country of contrasts, a country that entered the first half of the XXI century with an infrastructure in two speeds. The telecommunications infrastructure is rapidly improving, thus reducing the digital gap compared to the advanced economies. For example, Macedonian telecommunications operators offer fiber optic cable not only in urban areas, but also in the vacation houses on the slopes of Mavrovo. On the other hand, the traditional (basic) infrastructure (such as ducts regulation of mountain water drain, urban sewerage networks, local roads, water supply networks, irrigation systems, etc.) are still a yearning of many rural, and even in urban areas. The last time I hit several holes on the cracked old highways with my car, I recalled the slogan of a campaign to attract foreign investment: "we have a great infrastructure". Everything is relative. There are huge improvements from what we had in the past, but there is a lot of effort and dexterity to be done.

From the perspective of an ordinary citizen, the simplest indicator of the importance of infrastructure is the price of real estate, which to a decisive extent is determined by infrastructural amenities. Buildings and land plots with better access to road, energy, water, sewerage and other infrastructure, as a rule, reach higher prices and are offered with higher rents, versus infrastructural unregulated estates. In terms of business, good infrastructure allows for lowering of the costs and makes the location more attractive for domestic and foreign investors.

The voice of science: Two-way connection

For decades science has attempted to quantify the contribution of the infrastructure to economic growth. One scientific course ("supply-leading hypothesis") claims that the development of the infrastructure leads to accelerated economic growth, while another course believes that you first implement economic growth, and then it induces infrastructure improvements ("demand-following hypothesis"). There are attempts at synthesis, proving the two-way relationship: infrastructure and economic growth are two variables which are complementary. Some studies make composite indexes for overall development of infrastructure and others analyze only certain parts of it. For example, Pradan et al. (2014) confirmed that the development of telecommunications infrastructure plays a key role in economic growth, primarily through lower transaction costs and improved marketing information. Chernin et al. (2011) found that the increase of broadband telephone, television and internet for 10% increases the annual GDP per capita by 0.9 to 1.5 percent in OECD countries from 1996 to 2007. Roller and Waverman (2011) also claim that investment in telecommunications infrastructure ensure tremendous benefits for the national economy. A study by the UNIDO (2009) indicates that investments in energy infrastructure have been particularly beneficial for economic growth in 79 countries in the period from 1970 to 2000. Alfredo and Andraz (2011) have found that infrastructure investment in regional highways brought strong positive effects on employment, private investment and economic growth.

Agenor (2008) indicates that the impact of the infrastructure can be very small, unless there is a defined threshold of human capital in the country (education, knowledge and skills) to utilize infrastructure amenities. If there is no entrepreneurial and innovative spirit in the private sector, then the most luxurious and modern highways, which should help the same sector are worthless.

Regional mirror of the Macedonian infrastructure

The importance of infrastructure is evidence by the fact that it is the second pillar of the prestigious index of global competitiveness, which is published by the World Economic Forum in Davos (Switzerland). Regarding the quality of overall infrastructure, Macedonia is ranked at 84th position out of 144 countries ranked in the report for the year 2015/16. However, on a scale of 1 to 7, the average rating of 3.9 for Macedonia is significantly lower than the average score (5.1) for EU-28 and several neighboring countries, as shown in Chart no. 1. The successful privatization of the telecommunications operator and electro-distribution, the concession of airports, as well as the recent mega-investments in several important highways, are likely reasons for the improved ranking of Macedonia in comparison to Montenegro and Serbia.

Although the quality of the road infrastructure in Macedonia is rated with an average score of 3.5, its increase and better rankings are to be expected in the coming years (Chart no. 2). Several highways are being built and restructured at the same time in Macedonia (Demir Kapija-Smokvica, Skopje-Stip, Kicevo-Ohrid), as well as regional roads, which are yet to improve the image on the global investment map. In this context, local government units could improve local roads through issuance of long-term municipal bonds to mobilize more funds.



The controversy over the privatization of infrastructure companies

The justification of the privatization of the telecommunications, electro-distribution and other infrastructure giants is a controversial issue. It is almost impossible to know what would be the performance of these companies under state ownership, and comparisons with other countries (eg. The Republic of Slovenia) are misplaced because of the drastic differences in the institutional, political and socio-economic context. However, there are many reasons to believe that private ownership of several key companies in the infrastructure is a better solution than the previous lethargic and improper management by the state selected bureaucrats. Before expressing any disagreement, it is necessary only to look at the performance of "Macedonian Post Office" which is now a state owned joint stock company, but it used to be the twin of "Macedonian Telecom", both being part of the public enterprise "PTT – Macedonia". Experience shows that in case of private operators or concessionaires, there is improved efficiency and significant advance in the quality of infrastructure services. A good example is the development of mobile telephony, despite the delays of the liberalization of the telecommunications market (Chart no. 6).

The Road Ahead

All infrastructure improvements are useful, but it is more important to invest in the components inhibiting the development of the private sector and causing enormous costs, in the particular stage of economic development.

The energy misbalance in Macedonia (low production relative to the demand) causes huge imports of energy and a serious deficit in the balance of payments. The quality of electric energy infrastructure is highly rated compared to other countries in the region, but still lags behind the European average (Chart no. 5). At this stage of economic development, the priority should be energy infrastructure through investments in electricity generation and diffusing pipeline system. Development of the gas infrastructure offers particularly significant potential for lowering the business costs, especially since the construction of the main network: Stip-Negotino-Prilep-Bitola and Skopje-Tetovo-Gostivar was announced.

On the other hand, it is paradoxical to see that the electro-distribution company "EVN" promotes saving electricity, when in fact increasing electricity consumption would mean higher profits for this company. In this case it it obvious that overload and instability of the electrical power grid may cause an increased number of failures and unexpected costs, so it is still a good option to use electricity more rationally. Accordingly, the infrastructure gap in terms of the electrical power grid must be a priority of any responsible government.




According to the estimates by the World Economic Forum, the largest gap between Macedonia and the EU-28 concerns exactly the railway infrastructure (Charts no. 3 and 7). The railroads and additional infrastructure are old and dilapidated, resulting in long delays, defects and problematic transport. Additional funds for renovation of the railway infrastructure could be obtained through the liberalization of rail transport. The railroads (which are a natural monopoly) may be revitalized in case of entry of private rail operators on the market allowing for competition. Otherwise, the railway will continue to operate as a very expensive and economically unprofitable way of transport for poorer citizens, who can not afford alternative transportation.

The growth in the number of flights and passengers through the airports in Macedonia is a true indicator that investment in the infrastructure of air traffic is giving results. In this regard, Macedonia's score is equal to the European average (Chart no. 2). Improved airport services and the increased number of destinations facilitate trade, investment and contribute to more contacts in the business world. However, because of the occasional winter bad weather conditions at the airport "Alexander the Great", further investments are necessary, as well as utilization of the capacities of the airport "St. Apostle Paul "in Ohrid.

Finally, more work is ahead of us and the steps must be strategically designed. Attention should also be paid to the benefits brought about by the European structural and cohesion funds, which have more economic justification than the expensive concession solutions. For example, it turned out that a it is better that a highway is partially modernized by grants from the European Cohesion Fund than by giving certain high frequency road sections to private concessionaires. In this sense, any delay in the entry of Macedonia into the European Union causes significant missed income and high opportunity costs, which are inevitably reflected in the slower and debt funded modernization of the overall infrastructure.

Investments in infrastructure of the Republic of Macedonia should not deepen regional disparities. In some regions, in which a strong depopulation is taking place (especially in eastern Macedonia), there is an urgent need for far better infrastructure facilities and opportunities for better quality of life. Improving the quality of infrastructure must not create two Macedonias: a digital and prosperous Macedonia, keeping up the pace with the XXI century, and another anachronistic Macedonia trapped in the XIX and XX century, with elementary problems in the basic (physical) infrastructure.

Macedonian brands in EU

Minco Jordanov, Makstil - Skopje

 

Gligor Cvetanov, Makprogres - Vinica

 

Aleksandar Gecev, IGM - Kavadarci

 

Macedonian brands in EU

As a small economy with limited domestic absorption capacity, Macedonian economic entities must consider the additional foreign demand when designing their development strategies. In certain industries the additional foreign demand becomes much more important, even in terms of domestic consumption. At the end of 2014, Macedonian companies exported goods and services in the amount of 4.057 million euros. Out of this total amount, goods imported to be finalized accounted for 979 million Euro or 24 percent of total exports of goods and services. Besides this processing of goods, a good portion in the structure of exports accounted for: chemical products - catalysts 20.2 percent of total exports, 19.4 percent in metals and textile with 18 percent of total exports. These products accounted for 2/3 of the Macedonian exports (Table 1). Agricultural goods and their products, which are considered as Macedonia’s comparative advantage, accounted for 13.6 percent of total exports (food products 9.9 percent, and fruit and vegetables 3.7 percent).

As evident from the presented data, three strategies are predominant while choosing the strategy of exporting: using the advantages of cheap labor force and other benefits for the rework of imported products for finalizing (24 percent of exports of goods and services), exports of products designed and produced in the country (about 50 percent of exports of goods and services) and the manufacture and export of goods and services through the affiliation of domestic companies in global corporate systems and direct investment abroad. Some of these strategies are presented through the experiences of three companies: Makstil – Skopje, IGM – Kavadarci and Makprogres – Vinica.

Empirical analysis of the role and the importance of industry of base metals as one of the leading industrial branch of the Macedonian economy

For the first time, the Association of Metallurgy within the Economic Chamber of Macedonia came up with objective and scientifically based assessment and quantification of the direct impact on the GDP, national exports, employment and opportunities for creating new jobs, salaries, taxes and contributions as revenue accounts of the State budget and the practices of corporate social responsibility and behavior, which showed that the relative direct participation of the base metal industry amounted to 5.7% and 1.4% in 2007 and 2014 in the country's GDP, while the relative participation in the value of industrial manufacturing it is significantly higher and amounted to 33.5% and 7.6% in 2007 and 2014. The relative share of the export of base metals industry in the value of total exports amounted to 31.5% and 13% in 2007 and 2014, respectively. Companies in the base metals industry employ around 6500 employees, which would mean 3.5% of total employment in the industry. The contribution of these companies, through the amounts of taxes and contributions and their participation in financing the activities of special public interest and importance, as performance indicators for measuring the direct impact, indicates that have disbursed to the state a total of 2.060 million and 730 million denars only in the form of personal income tax and corporate income tax in 2007 and 2014, respectively. Additionally, in the form of contributions for social and pension insurance, contributions for a beneficiary working experience and other payments to the state institutions and funds have paid 373 million denars and 609 million denars in 2007 and 2014, respectively. If we also consider the fact that one of the main corporate values of most of them is implementing practices of socially responsible business behavior and active participation and support in the realization of numerous projects of special social interest and importance, it can be concluded that the impact of this industry for the national economy is significant and under no circumstances can be denied or challenged.

The mentioned study titled "Economic impact analysis and study for studying the development potential of base metals industry in the Republic of Macedonia", which is based on the application of scientific methodological approach specific to this type of analysis, only verifies this conclusion.

In the quantification of the economic impact of base metals industry to the national economy, the multiplication effects that are generated through the chain of suppliers and the effects of consumption were also taken into consideration. The base metals industry results in additional 20,000 employees in various sectors and encourages a further round of production (through the chain of suppliers and stimulation of final consumption in the economy), which is reflected in increasing its contribution to the GDP for 18.3% and an additional 4.4 % in 2007 and 2014. The greatest multiplication effect of the added value, through reproduction links, is the supply chain of the industry with the basic metallurgical raw materials, energy resources, electronic parts and services, various consumable products, wholesale and retail and the service sector understood in it's widest meaning (finance, insurance, consultancy services, transport and shipping services).

This is a clear argument that base metals industry through, primarily its direct involvement, but even more through its indirect contribution to the GDP creation, is the main pillar and a principal sector of the Macedonian economy in the most recent period, which logically imposes the creation of adequate industrial policies aimed at performing the best operative results. This is yet another strong reason for the country to follow the example of other industrially developed countries, including EU member countries, for this industry structure, as well as for some other influential industries (primarily construction and agriculture), to apply a selective approach and support for dealing with the current problems in their work environment in these times of crisis and thus help to overcome the key structural problems in the national economy.

MAKPROGRES – Example of successful Macedonian export oriented company

Makprogres LLC Vinica is a successful family company which exists 25 years and today it is one of the largest food industries in the country and the largest exporter of food products for several years now. Makprogres products are placed on the market in 50 countries worldwide. Two factories and eight production lines produce more than 15,000 tons of food products annually. Vinchinni products and Vinchinni Finest are sweets confectionery products which are characterized with a rich taste, high quality packaging, constantly follow the needs, desires and requirements of consumers worldwide concerning weight and appearance, the products of salty snacks under the brand name Armonia complementing the rich portfolio of products and lastly Sonceva Dolina and Natura which contаin a wide range of granular and powdered products necessary in every kitchen, as well breakfast cereals and health food products.

Being a Macedonian exporter is a major challenge and satisfaction, the country is a region where all the conditions for quality and healthy food are met, the area where people are gourmands and an area of clean nature and abundance of sunlight. There are no boundaries for nicely packaged and properly presented high quality products sold at a competitive prices. In 2015, 500 Makprogres employees achieved export of approximately 17 million euro, which is around 75% of the company’s production. The largest export partner are the EU countries, which account for 54% of the exports. Apart from the traditional markets of Central and Southeastern Europe, the company has distributors in some of the Arab countries and the MAGREB member states. Initial contacts were established in 2002, on the SIAL food fair in Paris where Makprogres products were introduced for the first time at a large world fair. Pretty soon, the company was familiarized with the mentality and needs of the foreign consumers and traders, so the products and packaging were adjusted for easier market access.

The company has worked on the objective to sell Makprogres products regionally and internationally, so they would be found on the shelves of major supermarkets in developed countries. The export to numerous states was also awarded with a prestigious and very valuable recognition from the Economic Chamber of Macedonia for an exporter that has exported in biggest number of countries.

In the efforts to manufacture international products intended for export, it is crucial to respect systems and quality standards such as: HACCP, ISO9001: 2008, Kosher and Halal, as well as IFS and BRC standards, as the most important standards for export to EU countries.

Regarding the conditions of conducting business, the fixed exchange rate against the euro, low taxes and social contributions, the Republic of Macedonia is a great place for running any business. The access to markets without customs of countries that have concluded free trade, including all the countries of EU, CEFTA, EFTA, are additional advantages of the country.

Makprogres strives to ensure the growth of production and revenues through the development of all current markets and access new markets. To meet this objective Makprogres tirelessly invests in new production facilities and production lines. In 2015 the investments exceeded 4 million euros and with the medium-term plan 2016-2020 there are planned 10-15 million euros in additional investment.

If I were to answer the question “How to export more?” my answer to that question would be a combination of:

• First and foremost - to have a competitive offer: quality at reasonable price;
• To apply international design products;
• To implement all necessary regulations and standards for food safety in foreign markets;
• To have a regular presence in markets;
• To give established marketing support to the distributors;
• To take part in the world's most important food fairs and confectionary.

IGM acquisition of ALPOS – how Macedonian companies are expanding to EU markets

The economic slowdown of developing countries, most notably China, as the largest producer and consumer of steel in the world, has massive influence over the global steel prices. Decreasing consumption, combined with the excess supply in China, leads to a saturation of the Chinese domestic market and even greater focus towards exports as a solution to the crisis. The overload of the European market which cheap steel imports in the last couple of years, results in the erosion of the South/North price divide, which is traditional for the European steel industry. In the past, these price discrepancies allowed for profitable sale of steel products from Macedonia to the countries of Western and Northern Europe in spite of the large transport costs. Even though transport costs are decreasing, their share in the final sale price increases resulting in reduced export competitiveness. In such a scenario, the strategy of IGM is to get closer to its European clients allowing the company to tap into the huge potential of the European market. Increasing the market share in EU countries is the main motive behind the acquisition of a production facility in Slovenia, an EU member-state since 2004.

The use of a simple SWOT analysis is a short and elegant way of describing the economic feasibility of investments abroad: S – Strengths, W – Weaknesses, O – Opportunities, T – Threats. Primarily the focus is on the positive aspects:

Strengths: The participation of the steel industry in every economy is characterized by a vast number of direct and indirect jobs. Because of the strategic role and wide influence of the industry, the policy makers are inclined to support the industry when it is threatened. Politically-motivated protectionist measures despite Europe’s neo-liberal stance and its role in globalization can be regularly witnessed. In the segment for steel welded pipes, Macedonia was previously subject to antidumping investigation with potential catastrophic consequences. Such investigations continue to be a real threat, but it can be completely eliminated only if production is moved to an EU Internal Market member country. Apart from the economic obstacles, there is also a certain degree of skepticism in EU towards the Balkan countries. Experience shows that many companies still doubt and perceive the quality of Macedonian products as inferior in comparison to Slovenian products, whose brands are based on tradition and quality.

Opportunities: For IGM, the main opportunity comes from the geographical position of Slovenia, its closeness to Germany and to the other equally attractive markets of Central and Eastern Europe. The annual consumption of steel welded pipes and profiles in Germany is estimated at around 450 million EUR. In comparison, the export of steel pipes from Macedonia to Germany is a modest 10,4 million USD or around 2% of the total consumption in Germany. As a comparison of trade relations with Germany, in 2013 the yearly amount of metal exports from Slovenia to Germany is 877 million USD, while the total amount for Macedonia is 10 times lower and stands at 87,5 million USD. Apart from the strong export channels, another opportunity for growth comes from the availability of a developed infrastructure and transport network used for import of raw materials. Slovenia offers connections to a number of strategic ports: Koper (Slovenia), Rijeka (Croatia), Monfalcone (Italy), Trieste (Italy), which is a totally opposite situation to our region where Thessaloniki port enjoys huge monopoly power. Equally important are the following opportunities: long tradition of high-quality, value-added production, transfer of knowledge, opportunity to climb the technological ladder to the level of the Italian competitors.

WEAKNESSES: Slovenia is in the group of developed countries with GDP per capital of 21.308 USD and average net salary of 1.092 EUR per month. In comparison, the average net salary in Macedonia is equal to 22.213 denars or 361 EUR per month. The differences in gross salary are even greater due to the high degree of welfare in Slovenia, which additionally increases the labour costs. Furthermore, slow and bureaucratic administration with lots of red tape, strict building regulations, strict environmental regulations can also be considered as weaknesses.

THREATS: In order to balance out the effect of the high wages, it is vital to establish an organizational structure for increasing labour productivity. It is also significant to achieve high degree of utilization of production lines. In other words, through the employment of high-skilled personnel, continuous investment in human capital and modernization of production lines, IGM plans to achieve high operational efficiency. If these conditions are not met, than costs can easily overrun, which is a potential future threat.

Table 1:

Structure on exports in Macedonia in 2013 (per sector)
1.	Chemical Products	954 million USD (20.2%) * of which 828 million USD accounted for catalyst
2.	Metals	915 million USD (19.4%)
3.	Textiles	833 million USD (18%)
4.	Mechanical industry	538 million USD (11.4%)
5.	Food products	466 million USD (9.9%)
6.	Minerals	336 million USD (7.1%)
7.	Fruit and Vegetables	174 million USD (3.7%)
8.	Footwear and hats	102 million USD (2.2%)
9.	Plastics and tires	101 million USD (2.1%)
10.	Transport	65.7 million USD (1.4%)
11.	Stone and glass	40.4 million USD
12.	Products of animal origin	30,9 million USD
13.	Instruments	23.2 million USD
14.	Fur industry	22.5 million USD
15.	Paper products	19,7 million USD
16.	By-products of animal and vegetable origin	10 million USD
17.	Wooden industry	7.43 million USD
18.	Precious metal	5.56 million USD
19.	Art and antiques	1.95 million USD
20.	Weapons	473,000 USD
21.	Other	74 million USD
Total exports:		4.72 billion USD (2013)

Table 2. Most significant Macedonian export industries/products