Investing in Foreign Investments – what can Macedonia learn from Poland and the Czech Republic?

A promotional poster from Macedonia's previous government

Macedonia is known to be one of the best countries for foreign investments in Southeast Europe due to the many incentives that the government is offering. However, there are many other countries that have better foreign investment policies than Macedonia, such as Poland and the Czech Republic. I intend to describe the foreign investment policy of Macedonia, by examining the benefits and the drawbacks. Moreover, I will provide examples on how to tackle these drawbacks by discussing what other countries did.  

There are special economic zones in Macedonia that offer a lot of incentives for foreign direct investment. The tax benefits are one of the best in the world, as they offer a ten year tax holiday on the profits earned, income tax (corporate income tax, as well as personal income tax), and on value added tax as well as customs duties. There are no utility taxes or permit fees for building on the land leased (for a period of up to 99 years).  Moreover, the government even offers a grant of up to 500.000 euros towards construction, depending on the number of new employees and investment amount of the investor. Finally, there is free connection to sewage network, gas, water and electricity.

The ministry for foreign investment worked hard to attract foreign investment which would in turn provide jobs for the local population. Even the former prime minister Nikola Gruevski went on many business trips around the world to promote Macedonia and the investment incentives, in search for foreign investors. On the Ministry’s official website it was written that a businessman can start a business within a day, in four hours, at the one-stop-shop business centres. However, from my experience working with foreign investments in the Macedonia, I know that this process can last between two and three days at least, since all the documents need to be officially translated to Macedonian, which takes time, and it also takes time to open a business bank account. Nevertheless, in general, one can easily invest in Macedonia and utilize the incentives that the government is providing.

The question is who benefits more from these incentives? The government spends a significant amount of money on promoting Macedonia, as well as on attracting  investors , and supporting them with all the incentives. Industries that benefit from these are mostly  the food sector, textile, construction and ICT (Information and Communications Technology).

The issue here is that usually these companies pay their employees minimum wage. Most of the employees are assigned to lower-level positions and they are paid an approximate total of 150 Euros per month. According to an anonymous survey of employees in the special economic zones, it was discovered that they are not paid over-time and that they are not getting any social benefits. The employees are scared to do something about this (such as to go on strike), since they might lose their job due to the high levels of unemployment, which makes them easily replaceable. Moreover, they do not have  efficient labour unions which would protect their rights . However, this is not always the case, as there are factories that pay above the minimum wage, especially to the highly skilled employees, but unfortunately, they are not that many (for more information on this, you could look into the Prizma Database). Also, the university educated youth would not want to work in a factory for a small amount of money, since they are overqualified for that, thus they migrate due to the few job opportunities that Macedonia offers. Another even bigger issue is that the best jobs are situated in the capital, Skopje. The rest of Macedonia does not have youth as they once did, since there are not a lot of opportunities for them. Their choice is either the capital or to go abroad. With the exception of the ICT industry, no other foreign investment employs many young or highly skilled people.

Another problem is actually calculating if Macedonia and the Macedonians benefit from foreign investments, due to lack of government transparency. There are no official governmental statistics on how much money is spent in terms of incentives. According to Prizma, an outlet of BIRN (Balkan Investigative Reporting Network) at least 150 million euros are spent for this program in total (only for the special industrial zones agency from 2009-2016). In the last ten years, 58.7 million euros were spent for constructing these industrial zones, which in fact should not cost as much since they only need basic infrastructure (roads, sewerage etc.). 18.8 million euro was spent on running the agency, and a total of 50.8 million was spent for promoting from which 10.7 million was spent on marketing and 16.2 for economic promotion. The government spent 11.1 million just on attracting  foreign direct investments . Prizma went as far as to make comparisons of how many investments the government promised to bring and what they have realized from that. From  their comprehensive database we can see that the five  biggest employing companies hired 12,334 people. Most of the investments are based in the capital and its suburbs (total of 55 investments), all the rest (19 investments) are based in the other zones in Macedonia. Out of 138 stated investments, nearly a third, or 43, were not realizedThe total announced number of employment positions is 62.701 of which 20.248 were realized, and 42.453 were not. The value of the announced investments was 3.79 billion euro, from which only 579.64 million were realized and 3.21 billion were not. However, they could not find out how the projections were made, in  terms of how much money will be invested, how many employees they will hire or based on what terms they will get the grants (and how big those grants would be). The journalists from Prizma also wrote an article about the difficulties that they had in making the “Foreign Investment under Scrutiny” database. All the institutions were quiet about it so they had to dig into archives, news, campaigns etc. This way they found out numerous investments were announced several times as if they were new ones, just in different years .

Macedonia could learn from countries like Poland or the Czech Republic. These countries are at the top for foreign investments in Europe. They also offer a lot of incentives; however, they complement this with economic and political stability since they are part of the EU and NATO, which Macedonia cannot yet offer. The Czech Republic as well as Poland have special economic zones too, but their zones differ in the amount of incentives they give – depending on numerous factors. In this way, they tackle local unemployment, the usage of natural resources that are available only in specific places, and other issues.

The Czech Republic offers financial assistance depending on the unemployment rate of its regions. For instance, where unemployment is at least 25% higher than the national average they offer grants of up to 300,000 CZK per job in the special industrial zones. Moreover, they offer 200,000 CZK in regions where the rate is 50% higher than the average (not  necessarily industrial zones). Where the unemployment rate is in the range of 25-50%,  100,000 CZK is offered  for every new job that is created. Moreover, there are grants for retiring and training new employees in these regions. Furthermore, the Czech Republic would cover up to 10% of the capital investment costs; however there are specific criteria that the firms need to meet such as investing a certain amount of money as well as employing a certain number of people. In Prague the incentives are much lower than in the other areas, since it is already developed and overpopulated . The same strategy is used in Poland, where in Warsaw the aid is significantly less than in other regions, and it depends on how much money is invested and how many people are employed . For detailed information about Poland, see Figure 1.

21397389_10211926783579705_1705569726_n

To conclude, there are many work opportunities realized due to the investments in Macedonia, which benefits society. However, the employees should be protected by the government or organized in unions in order to get better working conditions. More importantly, it is imperative that the government is more transparent and honest with information about foreign investments, because from the data already found, one can assume that there is a lot of corruption. Finally, the incentives in the zones should be modified into what worked in Poland or the Czech Republic so that other regions besides Skopje can be revived. This way regional unemployment and ‘brain drain’ can be tackled at the same time, as well as the improvement of the quality of life.

0 comments

Time limit is exhausted. Please reload the CAPTCHA.