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How Easy It Is to Invest and Do Business in Macedonia

How Easy It Is to Invest and Do Business in Macedonia. Verica Hadzi Vasileva-Markovska AAG – Analysis and Advisory Group. Macedonia is a tiny country – but …. 25.713 m 2 around USD 5.7 billion worth GDP Appx. USD 7.5 thousand GDP p.c. PPP 2 million people Relatively low purchasing power

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How Easy It Is to Invest and Do Business in Macedonia

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  1. How Easy It Is to Invest and Do Business in Macedonia Verica Hadzi Vasileva-Markovska AAG – Analysis and Advisory Group

  2. Macedonia is a tiny country – but … • 25.713 m2 • around USD 5.7 billion worth GDP • Appx. USD 7.5 thousand GDP p.c. PPP • 2 million people • Relatively low purchasing power • High unemployment rate: 37% • Relatively stable diversified economy • It started to grow in a more sustainable way • Received EU candidate country status

  3. Focus onto some economic indicators

  4. Starting a business is easy • Until 2005: you needed 48 days and 13 procedures • As of 1 January 2006: you will not need more than 3 days once documents were submitted • Major reform in the registration of businesses • Capital requirement: EUR 5,000 for Ltd Co and EUR 25,000 and EUR 50,000 for AD • Much less procedures: Registry takes care of most of them • Statistics: 7600 new units registered in 1-8/2006, compared to 6700 in the same period last year World Bank and IFC: Doing Business in 2006. Creating jobs, 2006

  5. Starting a business – compare! Bosnia: 54 days Croatia: 49 days Slovenia: 60 days Serbia: 15 days Greece: 38 days World Bank and IFC: Doing Business in 2006. Creating jobs, 2006

  6. Buying a business should not be difficult • If there is a suitable target: • Problems: • Not many • Not very open: fear of loss of corporate control • Takeover Law, 2002: • It is applied when: • Buying shares over 25% • in companies with more than 25 shareholders and • with share capital > EUR 2,000,000 • Public offer • Make analysis

  7. Information abundance, or? • Information basis is not very rich: • Although useful, statistics is poorer than Slovenian • Sectoral studies are rare • In general, companies are reluctant to disclose info • Investment analysts are practically non-existent, unless specially engaged

  8. Accounting standards • IFRS are nominally obligatory • Accounting and auditing profession is deficient • All big 4 are present • 25 audit companies registered • Poor enforcement of professional standards: Institute of certified auditors established in June 2006

  9. Personnel: are they readily available? • Sluggish reforms in education and training institutions • old fashioned courses curricula • life-long learning concept – still not alive • knowledge economy concept – still not alive • low R&D expenses • Still many young people studying abroad • General education level is such that allows easy deepening of knowledge and skills • Working ethics: not lower than regional average

  10. Personnel: are they easy to hire and fire? • New Labour Relations Law in 2005 • Much more business friendly and less rigid • Prior to that the difficulty indices were high (on the scale 0-100): • Hiring: 61 • Firing: 40

  11. Financial sector is rather sound but shallow • Banking sector has undergone significant restructuring • It is a sound but rather shallow financial market • total assets to the GDP equaled 45 percent • 19 private banks of universal type, • 1 state-owned bank with specific functions • 14 savings houses • Still new changes in the Law are expected to: • strengthen Bank supervision • transition to more risk based supervision • Interest rates have been falling in the last several years: • in July: 11.3% average in MKD • 8.1% in Forex

  12. Financial sector is dominated by banks • Further reforms in the insurance sector: • approximation with the EU directives • strict licensing requirements and risk management rules • enhancement of the supervision • establishment of an adequate and independent supervisory authority • Pension system: second pillar established • Capital market is constantly growing • Non-banking financial institutions not yet established – lack of legal basis

  13. Getting a loan • The competition among banks is increasing • Banks are more open to providing loans • Law on execution has increased their security for collection • No credit bureaus

  14. Registering and protection of property • Still many problems especially in the real estate – cadastre goes through deep reforms: slow process, not connected information bases • By 2009 a new reliable cadastre is to be set up • To register a property you need 74 days

  15. Registering property in days – compare! Bosnia: 331 Croatia: 956 Slovenia: 391 Serbia: 111 Greece: 23 World Bank and IFC: Doing Business in 2006. Creating jobs, 2006

  16. Taxes • Relatively low tax rates and they are scheduled to ever lower: • VAT: 18% and 5% • CIT: 15%, scheduled to be 10% • PIT: 15%, 18%, 24% • Flat rate is expected to be introduced • Some tax heavens for foreign investors

  17. Dealing with administration • Administration used to be very difficult • It is going through reforms • Still much needs to be done • Corruption is an issue and this needs to be dealt with • E-government project is in the air

  18. Enforcing contracts • Judiciary reforms is underway • Law on Courts changed, Law on Court Budget, Law on Enforcement • Laws have been changed to enable better enforcement • Still problems: days of enforcement: 509!!

  19. Enforcing contracts in days – compare! Bosnia: 330 Croatia: 415 Slovenia: 913 Serbia: 635 Greece: 151 World Bank and IFC: Doing Business in 2006. Creating jobs, 2006

  20. Closing a business • A new law on bankruptcy enacted • streamlining the bankruptcy proceeding, • making it faster, • more efficient, • less costly and • fairer to the creditors and other stakeholders, • building of the professional and ethical capacity of the bankruptcy proceeding bodies: in progress • Duration of a bankruptcy process: 4 years!

  21. Closing a business (in years) – compare! Bosnia: 3.3 Croatia: 3.1 Slovenia: 3.6 Serbia: 2.7 Greece: 2.0 World Bank and IFC: Doing Business in 2006. Creating jobs, 2006

  22. Other issues • Protecting investors: corporate governance • Able partners • Hospitable people • Unexplored opportunities

  23. Aggregate easiness of doing business rank (out of 155) – compare! Bosnia: 87 Croatia: 116 Slovenia: 63 Macedonia: 81 Serbia: 92 Greece: 80 Source: World Bank and IFC: Doing Business in 2006. Creating jobs, 2006

  24. AAG – Analysis and Advisory Group AAG – Analysis and Advisory Group Bul. Ilinden, 42-4 1000 Skopje Phone: +389-2-3120-565 Fax: +389-2-3122-565 e-mail: verica.hadzivasileva@aag.com.mk www.aag.com.mk (soon to be released) Verica Hadzi Vasileva-Markovska Partner

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