Country risk reference rating: Level 5 (5/9)
Country Risk Outlook: Stable
◆Political Risk
In 2013, the domestic political situation in Macedonia was generally stable, and the ruling coalition composed of the Democratic Party of National Unity, an internal revolutionary organization in Macedonia, and the Albanian Alliance for Integration and Democracy conducted pragmatic cooperation. In the 2014 early parliamentary election, the United Democratic Party of Macedonia won an overwhelming majority, further strengthening its ability to control the political situation, and the stability of the government is expected to continue. However, the ethnic conflicts in Macedonia have not yet been fundamentally resolved, and the different interest demands between the Slavic and Albanian ethnic groups will affect party cooperation and social stability to a certain extent.
The Macedonian constitution guarantees that foreign investors can freely transfer and remit investment funds and profits. Its laws stipulate that foreign investors have the right to transfer operating profits and income in and out without turnover taxes, and there are no restrictions on purchasing local currency. However, the National Bank of Macedonia has regulations on daily deposits and withdrawals of foreign currency, and foreign transfer fees are 1% of the total amount.
◆Economic Risk
Macedonia has one of the most favorable and attractive tax systems in Europe and good infrastructure. It has obvious location advantages. However, Macedonia’s economic foundation is weak, its structure is simple, its unemployment rate is high, domestic resources are scarce, and its purchasing power is weak, which restricts economic development. Macedonia is a country that relies heavily on foreign trade. Its ability to resist external risks is very limited. It has a long-term foreign trade deficit, a persistent current account deficit, and great debt repayment pressure. As the world economy gradually improved and the European debt crisis gradually eased, starting in 2013, the Macedonian economy began to shake off its decline, with various indicators returning to good levels and an overall moderate growth trend.
Macedonia is gradually emerging from the quagmire of economic recession. In 2013, Macedonia’s economy benefited from the improvement of the European economic situation and the development of the domestic infrastructure industry. Its GDP increased by 2.8%, getting rid of the negative economic growth trend. Per capita GDP continues to grow while prices rise moderately. However, Macedonia is highly dependent on external funds. At the same time, due to the obstruction of its plan to join the European Union, it is difficult for Macedonia to enjoy the policy preferences in economic recovery, it is difficult to implement a large-scale economic stimulus plan, and its ability to withstand external risks is also very limited.
◆Business environment
Macedonia implements a unified tax rate and the tax burden is relatively concentrated, but it needs to be further strengthened in terms of execution and tax collection. In order to attract foreign investors, Macedonia continues to improve its tax laws. The tax laws that are being implemented include: corporate income tax law, property tax law, personal income tax law, value-added tax law, payroll tax law, and consumption tax law. Foreign-invested enterprises need to go to the Macedonian National Tax Bureau to register and obtain a tax payment number.
The Macedonian government implements special preferential policies for overseas investment, has a relatively high degree of market openness, and implements fair competition in accordance with the law. On the one hand, Macedonia’s infrastructure and supporting facilities are under construction, and some administrative approval procedures are relatively cumbersome. On the other hand, the level of government management needs to be improved, and political interference in economic management is common. In recent years, the government has continued to increase infrastructure construction, streamline service procedures, and lower tax thresholds to attract more foreign investment. It is expected that the investment environment will continue to improve in the future. The global economic crisis and the European debt crisis have had a greater impact on Macedonia’s foreign direct investment, and the scale of foreign investment attracted has dropped significantly. With the improvement of the external economy and the active implementation of preferential policies to attract foreign investment, Macedonia’s introduction of foreign investment has gradually picked up. In order to attract foreign investment, the government has increased the number of economic zones and strived to create a low-tax environment. A series of policies to attract external investment have achieved certain results.
◆Policy suggestions
The 2014 Macedonian presidential and parliamentary elections maintained policy continuity, continued to implement economic reform measures, and improved the investment environment.
The changes in the external environment faced by the Macedonian economy are becoming increasingly complex. Macedonia is a country that relies heavily on foreign trade. Foreign trade occupies a very important position in the national economy. In particular, Macedonia’s export trade relies heavily on exports to the EU and its member states. The development of the global economy, especially the development of the EU economy, will directly affect Macedonia. As for the operation of the economy, Macedonia’s ability to resist external risks is very limited. The continued improvement of the external economy will help Macedonia’s economic recovery, but if the European debt crisis continues, the Macedonian economy will face the risk of decline.
With high unemployment and a high number of poor people, poverty has become an increasingly serious social problem and to a certain extent has become the main factor in social instability in Macedonia.
