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November 2018

Economic and Business News

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A recap of the key economic headlines and research for Macedonia in the last quarter. What do I need to know?

  • 10 July – Macedonia ranked 84 in 2018 Global Innovation Index, down from its 2017 ranking of 61. However, the report notes that Macedonia’s result has a 90 per cent confidence interval of 20 places – link (p329)
  • 11 July – The Governments signed a new three-year framework agreement with the UN’s FAO (Food and Agriculture Organization) to continue with agricultural reforms such as income diversification and land consolidation – link
  • 13 July – US firm Telamon to invest 11 million in a factory to produce electrical component for the automotive industry – link
  • 16 July – lack of skilled labor (22.7 per cent) is the biggest barrier to future growth for the food industry according to a survey of managers – link
  • 18 July – The EU announced a temporary 25 per cent tariff on steel imports that exceed the average from the previous 3 years. The tariff is in response to recent US tariffs on Europe. The tariff may affect local steel producers – link (EU press release) and link (article in Macedonian publication Kapital)
  • 26 July – Ministry of Internal Affairs investigating reports of conflicts of interest in funds awarded to companies by the Fund for Innovation and Technological Development – link
  • 6 August – a report by the Macedonian E-Commerce Association (Асоцијација за е-Трговија за Макеонија) found that the value of online orders made from Macedonia increased by 21 per cent in 2017. However, the number of people who are ordering online remains relatively low at 20 per cent – link
  • 6 August – interview with the President of the newly founded Macedonian Banking Association. “The main goal of the newly formed Macedonian Banking Association is to improve the banking operations and the banking sector in the country, as well as to increase the already significant banking contribution to the national economy”. – link
  • 7 August – Macedonia ranked 28th in the World in wine exports according to recent data – link
  • 8 August – Komercijalna Bank and Balfin group buy Tirana Bank – link
  • 9 August – Council of Europe’s anti-corruption group, GRECO, reported that Macedonia has made “… no substantial progress in implementing recommendations on preventing corruption among MPs, judges and prosecutors” since the last report in 2014 – link
  • 13 August – Tourist numbers up 16.1 per cent year-on-year in the first half of the year, foreign tourists up 19.8 per cent – link
  • 23 August – Macedonia2025, MASIT, and the American-Macedonian Chamber of Commerce present a joint position paper to the Minister of Finance advising against the Progressive Personal Income Tax – link
  • 28 August – Government increases size and changes location for a proposed new medical center in Skopje cancelling an EU €70m loan. The new plan will likely require a larger budget – link
  • 30 August 2018 – Government issues new criteria for subsidies for low-cost airlines: includes two new routes from Skopje and four new routes from O14 Ehrid – link
  • 30 August 2018 – new regulations to be introduced to encourage ‘Business Angels’ for startups – link.
  • 31 August – Minister for Economy proposes increased price for mining concessions – link
  • 31 August – New law will allow companies to borrow up to 100m euros at low rates from the European Investment Bank – link
  • 3 September – Opening of joint customs check on Macedonian-Serbian and Macedonian-Albanian border with the aim of reducing waiting times – link
  • 5 September – Government approves plan for joint customs check at Albanian-Macedonian border – link
  • 14 September – The Economic Chamber of Macedonia, MASIT, the Economic Chamber of Northwest Macedonia, and the Macedonian Chamber of Commerce send a letter to the government asking that the introduction of the Progressive Personal Income Tax be delayed for 5 years to allow further consultation with business – link
  • 14 September – The Government and World Bank has awarded €1.5m to three business accelerators: UKIM, Seavus, and ICS for a three year program – link
  • 18 September – In accordance with the new law on energy, the Government has released the tender for a universal supplier of household electricity. Companies will be able to choose their own electricity supplier – link
  • 18 September – Macedonian citizens will be able to use their Macedonian driving licenses in Germany – link
  • 20 September – Government borrows 10m euros from the EBRD to build a two lane highway between Kriva Palanka and Deve Bair in Bulgaria – link
  • 21 September – Prime Minister Zaev meets with Vice President Pens in Washington – link
  • 28 September – Flight between Athens and Skopje to start on November 1 – link
  • 28 September – Official launch of €250m business and housing development in downtown Skopje, surrounding the city museum – link
  • 1 October – Official results from the name referendum – link
  • 3 October – Macedonia and Serbia to construct joint railway station on the border – link
  • 4 October – World Bank quarterly report on Western Balkans notes the rebound in the Macedonian economy with increased consumption and investment. The report also advises caution in maintaining fiscal balance going forward. It saw the recent underspending by the Government as a positive. Forecasts for 2018 and 2019 are 2.5 and 2.9 per cent up from the Spring forecasts of 2.3 and 2.7 per cent – link
  • 9 October – Interview with CFO of Euromax regarding the Ilovitza-Stuka project. It is projected that revenues from the mine could increase Macedonian exports by 4 per cent – link
  • 16 October – World Economic Forum’s Global Competitiveness Report released – Macedonia ranked 84th. Macedonia was not ranked in 2017 and was ranked 60th in 2016 – link
  • 25 October – it is reported that the Government has only spent 27 per cent of its initial budget for the construction – link
  • 26 October – First E-Commerce conference in Macedonia. One key point from the conference is that Macedonia ranks second last in terms of the percentage of citizens who are online shoppers (20 per cent) – link
  • 26 October – An article from local business magazine Kapital criticizing the small benefit the Macedonian economy receives from its mining concessions – link
  • 28 October – EU threatening to pull 36m euros from the development of a regional landfill due to disagreement with municipalities – link
  • 31 October – Macedonia improves one place to no. 10 in the World Bank’s annual “Doing Business Survey” – link
  • 7 November – By 2023, a new border crossing between Macedonia and Greece in the Prespa region – link
  • 13 November – PM Zaev announced potential future ban on wood, coal, and oil heating for private citizens with the goal of reducing air pollution – link

 

Article by Brendan Filipovski, Research Manager

Summit Highlights – 2018 (7 to 10 November, 2018)

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The Summit had another stellar line-up that provided amazing insights on how to make Macedonia stronger, and how to be a better leader.

Moving the economy forward

Anthony B. Kim (Research Manager, Heritage Foundation) said that one secret to Macedonia’s future economic success is an engaged diaspora: their experience, success and passion can move the country forward. “Macedonia needs to be your project”.

The role of government is to be proactive in providing strong institutions and economic freedom that enables investment and economic growth. Long-term economic success requires all the main political parties agreeing on a common economic vision for the country. Macedonia needs a commitment to sustained economic growth of greater than 4 per cent in order to be transformed.

People are the key resource according to Ghassan Hasbani (Lebanese Deputy PM and Health Minister) and Otto Georg Schilly (Former German Interior Minister). Both Germany and Lebanon provide examples of how investment in health, formal education, and on-the-job training can help an economy grow despite difficult circumstances. Macedonia needs a system that better delivers quality human capital. Recent reports on Macedonia’s education system are of concern.

How technology is changing: business, medicine, and environment

AI and cloud computing are not new but they are reaching a level of maturity where they are now changing the practices of SMEs. Christian Rupp, Spokesperson of the Federal Platform Digital Austria, explained how SMEs need training to realize the full possibilities of digitalization.

AI, big data, and augmented reality are changing medicine. Doctors are diagnosing people with the help of AI. Augmented reality allows doctors to work with patients and other doctors remotely. In parallel, the declining cost of human genome sequencing is increasing the amount of key data available for each patient.

The circular economy is growing. Products are being designed for recycling so that resources stay in the economy. Even food is being recycled into packaging. Sustainable production and energy is possible and while the price is a problem, new business models are finding a way.

Turning Macedonia into a start-up nation

According to Scott Resnick (Founder and ED of StartingBlock), there is no one magic method for turning Macedonia into a start-up nation. Accelerators and government need to keep asking themselves how they can help start-ups. Method is not the platform. The method is just asking questions, listening and helping.

Macedonian companies need to think global because of a small domestic market and lack of capital. Macedonian entrepreneurs need to transition from building great products to building great companies. “30 years ago we were socialist. Our parents did not start companies. We are first and second generation entrepreneurs”, Emma Poposka, Co-Founder and CEO of Bron.Tech.

The Mindset of a Great Leader

Professor Kevin Murnane (Kellogg School of Management) gave a short masterclass on the mindset of a great leader. Mindset is the choice of a leader to set his mind in the direction needed to achieve their goals. Mindset is not fixed but should be changed as goals change or if you get stuck. “You need to reflect on what you’re doing every day to improve. Think big and look to grow. If you haven’t achieved what you wanted just tell yourself ‘not yet’ and keep going”.

A new industry: Cannabis

Macedonia was an early adopter of pharmaceutical cannabis production, and is now reaping the rewards. With such a highly regulated industry, Government and industry must continue to work closely together to ensure continued growth.

 

Article by Brendan Filipovski, Research Manager, Macedonia2025

Macedonia: Cannabis Cultivation and Production of Hemp Extracts

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Medical cannabis is an emerging industry globally and Macedonia is the only country in the region that has legalised cannabis production and the production of hemp extracts for medical purposes.

Cannabis cultivation for medical purposes is rapidly expanding and the cannabis market is exponentially growing, it is expected to triple in size in the next three years. Having received requests from diaspora investors interested in investing in this sector in Macedonia, as it is the only country in the region that has legalised cannabis cultivation and production of hemp extracts for medical purposes – we prepared this brief with information on the Macedonian cannabis industry i.e. cannabis cultivation and production of hemp products[1].

The brief firstly presents the Cannabis Legalization World Map and then provides facts about cannabis in Macedonia. This is followed by an introduction of the Macedonian companies in the cannabis sector, and a summary of the procedures for obtaining a Permit for cannabis cultivation by the Ministry of Health (MH), and a Permit for production of hemp extracts. The document concludes with presenting the legal provisions for cannabis cultivation in Macedonia.

Cannabis Legalization World Map[2]

  • Argentina – Status: CBD legalized/Partially medically legalized/Decriminalized Australia – Status: Medically legalized/Partially decriminalized
  • Canada – Status: Medically legalized//Full federal legalization pending Chile – Status: Medically legalized
  • Colombia – Status: Medically legalized/Decriminalized Croatia – Status: Medically legalized
  • Czech Republic – Status: Medically legalized
  • Germany – Status: Medically legalized/Decriminalized India – Status: Federally illegal, but legal in some states Israel – Status: Medically legalized
  • Italy – Status: Medically legalized
  • Jamaica – Status: Partially medically legalized/Decriminalized
  • Macedonia – Status: Medically legalized
  • Mexico – Status: Medically legalized/Decriminalized Philippines – Status: Medically legalized
  • Poland – Status: Partially medically legalized Turkey – Status: Medically legalized
  • United States – Status: medical use is legal in 31 states and the District of Columbia[3].
  • Uruguay – Status: Legalized

 

Cannabis in Macedonia – Facts[4]

  • Grown on 140 thousands sq. m area
  • Of the six companies that have Permits from the MH for cannabis cultivation, only one produces cannabis oil (NYSK Holding).
  • World sales of medical cannabis are over $7B, and it is estimated that the market will increase its size threefold in the next three years
  • BIRN tried to get copies of the approvals for cannabis cultivation for medical purposes (through requests for information of public character), but they got incomplete answers or they did not get any answers at all
  • Prime Minister Zoran Zaev called out “all investors who have resources to invest in this industry because it is profitable”. He stated that the country expects a lot of newly-opened positions and €100M foreign currency income

 

Existing Companies[5]

Companies that currently operate in the cannabis industry in Macedonia are the following:

  • Replek Farm DOOEL, Skopje (May, 2016)[6]
    • First producer of cannabis oil
    • €400,000 investment
  • NYSK Holding, Skopje (December, 2016)[7]
    • NYSK has planted cannabis on 1,000 sq. m. where the plants are being grown indoor.
    • The only company with a facility for cannabis oil extraction and is already producing bulk final product oil.
    • The whole investment, as estimated by Keskovski, is expected to be approximately $5.5M
  • MAM, Sveti Nikole (April, 2017)[8]
    • MAM has planted cannabis on 20,000 sq. m in greenhouses
    • The total investment is expected to exceed 10M EUR, and currently there are 30 employees from Sveti Nikole
    • Trajce Zaev, the owner of MAM, said they have ongoing negotiations with foreign investors for opening an oil-extraction capacity.
  • Oaza Alkaloidi, Stip (August, 2017)[9]
    • Owner: Slave Ivanovski
  • Kaba Herbal, Skopje (August, 2017)[10]
  • 5 Letters, Resen (September, 2017)[11]
    • 5,200 sq. m facilities for indoor cannabis cultivation
  • Medical 420, Bitola (December, 2017)[12]
  • Farma Medica Cannabis, Valandovo (May, 2018)[13]
    • Co-Founders: Katerina Bojovik Zaeva and Boban Zaev
    • Boban Zaev has big plans about making an investment, which will allegedly open 500 new positions
    • Slave Ivanovski’s (Oaza Alkaloidi) name appears amongst the owners
  • F&M, Vrapciste, Gostivar (July, 2018)[14]

 

Licensing Procedures

  1. Procedure for obtaining a Permit for cannabis cultivation.

The legal entity interested in cannabis cultivation prepares an elaborate and submits it to the MH. The MH then forms a Special Commission (Commission) comprising of representatives from the MH, the Ministry of Agriculture, Forestry and Water Economy (MAFWE), and the Agency for Medicines and Medical Devices (AMMD). Within 7 to 10 days upon receipt of the elaborate, the Commission conducts a field inspection and prepares an Opinion Report (positive or negative) which is then forwarded to the Government of the Republic of Macedonia (Government). If the Opinion Report is positive, the Government issues a Consent and forwards it to the MH. The MH then grants a Permit for cannabis cultivation. Before commencement of cannabis cultivation, the legal entity submits a Request for cannabis sowing/planting to the MAFWE which grants a Permit for sowing/planting (depending whether seeds are sowed or seedlings are planted).

  1. Procedure for obtaining a Permit for production of hemp extracts.

On the other hand, the procedure for obtaining a Permit for production of hemp extracts is much simpler: the legal entity submits a Permit Request with supporting documents to the AMMD[15], which makes a decision upon reviewing the Request. The supporting documents for obtaining the Permit are the following:

  1. List of pharmaceutically-dosed forms that will be produced
  2. Technically-Technological Elaborate – Extensive Site Master File
  3. Documents (such as undergraduate degree in pharmacology, pharmacy competency exam, job contract etc.) for the employees responsible for production, quality control and labelling of the hemp extracts for trade
  4. Proof of record of the legal entity in the Central Register of the Republic of Macedonia
  5. Permit for usage of the facility where the production of hemp extracts will take place
  6. Property list as proof of ownership of the facility, or facility lease agreement
  7. Proof of paid administrative tax and other costs associated with obtaining a Permit for Production of Hemp Extracts according to the bylaws on medicines.

Furthermore, depending on the type of production of hemp extracts, the producer needs to have the following premises available:

  1. Warehouse for receipt and storage of raw materials, with fulfilled quarantine requirements while the quality control takes place
  2. Warehouse for receipt and storage of packaging materials, with fulfilled quarantine requirements while the quality control takes place
  3. Space for production and packaging
  4. Space for temporary storage of semi-products
  5. Space for control of raw and packaging materials
  6. Control lab
  7. Warehouse for storage of products under declared keeping requirements, with fulfilled quarantine requirements while the quality control takes place
  8. Separate warehouse; secured warehouse for storage of:
  9. Raw materials  categorized  in  the  group  of  opium  drugs,  psychotropic  substances  and precursors of opium drugs
  10. Medicines that contain opium drugs and psychotropic substances
  11. Hazardous chemicals
  12. Raw materials and products that are not approved in the quality control procedure i.e. recalled items
  13. Shipping facility
  14. Office
  15. Wardrobe
  16. Sanitary facilities

The cost associated with the procedure for obtaining a Permit production of hemp extracts is 1,000 EUR. The deadline for granting a Permit for production of hemp extracts products is 90 days.

Legal Matters on Cannabis Cultivation

  1. Eligibility criteria

In the section “Cultivation of hemp intended for the production of narcotic drugs” of the Law on control of opium drugs and psychotropic substances, it is stipulated that cannabis cultivation is allowed for medical and/or scientific purposes. The cultivation of cannabis is allowed only for legal entities that possess a Permit for cannabis cultivation issued by the MH, upon prior Consent from the Government.

  1. Required conditions

The legal entity is obliged to:

  • Have adequate space, surfaces or land for  cultivation, drying, and  storage of cannabis, equipped accordingly to the production; i.e. a processing capacity of the legal entity for cannabis cultivation;
    • the space should be atmospherically protected and enclosed with at least 4-metre-high fence, with brinov element in front of the fence in three rows of buckets and a barbed wire above the fence;
  • Have a 24-hour video surveillance over the whole space;
  • Have a 24-hour presence of physical security;
  • Have at least four employees of which at least one person is a graduated pharmacist with at least three years of work experience in the field of pharmacy and at least one person is a graduated agronomist – agriculture programme with at least three years working experience in the field.

 

  1. Procedure for obtaining a Permit for sowing cannabis

The legal entity that has a Permit for cannabis cultivation issued by the MH, before the commencement of planting is obliged to submit a Request to the MAFWE for obtaining a Permit for sowing cannabis. The Request shall be supplemented by the Permit for cannabis cultivation issued by the MH (certified photocopy by a notary); a document for certified seed material; elaborate/plan for cultivation of hemp which contains information on how the plant will be cultivated, quantity (number of seeds, seedlings, stems, wet and dry weight).

A Permit for sowing cannabis is issued by the MAFWE within 15 days from the day of receipt of the complete Request. The legal entity, after receiving the Permit for sowing hemp from the MAFWE, is obliged to notify the MH, the MAFWE, the AMMD, and the Commission before beginning the sowing/planting of the hemp seed. The legal solution stipulates that during the period from sowing/planting to hemp harvest, the Commission will conduct an inspection at least twice over the cannabis cultivation.

  1. Records of cultivating, harvesting, and drying hemp

The cannabis cultivator is obliged to keep a record of the cultivated cannabis (sowing, seedling production, transplanting, and number of stems). The cannabis cultivator is obliged to register and report all changes and deviations in the cultivation of cannabis, which were previously planned in the elaborate, to the MH and the MAFWE.

The cannabis cultivator is obliged, before commencing the harvest, to inform the MH about the day of commencement of the hemp harvesting. After the completion of the hemp harvest, an inspection of the harvested items is performed by the Commission for the purpose of determining the number of collected stems and wet mass. The form, content and manner of keeping records for all stages of the cannabis cultivation shall be prescribed by the MH.

“After a harvest, the collected plant/hemp is dried in a special purpose-built orderly space, sized depending on the quantity of cultivated hemp located in the same location where the hemp is grown. The cannabis cultivator must have the dried plant/hemp packaged in a cardboard box and sealed with a safety seal. Furthermore, the cardboard box with the dried plant/hemp is obligatory marked with the following data: name and head office of the legal entity (cultivator/producer), year of production, name of raw material, net and gross dry mass, form (leaf, flower, plant, whole, chopped) and packaging date. The cannabis cultivator shall submit a Report to the MAFWE and the AMMD for the completed process of cultivation and the total dry mass which was obtained”, is defined in Article 29-f of the respective legal solution.

  1. Legal restrictions

In the respective legislation it is stipulated that the cannabis cultivated in the Republic of Macedonia can be processed only in the Republic of Macedonia exclusively by a legal entity that has a Permit for production of hemp extracts. The transfer of hemp to the processing site is carried out by the hemp producer accompanied by representatives from the Ministry of Interior, at the expense of the producer.

Export-Import

A Permit from the AMMD must be obtained prior to the import of seeds and seedlings. According to the latest amendments of the respective legislation, the legal entity is obliged to provide only a proof of origin of the seeds/seedlings that are to be imported; a quality certificate of the seeds/seedlings is not mandatory. Macedonian companies in the cannabis industry use both seeds and seedlings in their cultivation processes. Replek Farm, for example, imports a middle product – dried cannabis flower from which it produces extracts.

According to the existing legislation, only export of final products (extracts, granules, oil and similar) is permitted. The companies that cultivate cannabis in Macedonia are not allowed to export the plant and therefore freeze the flowers (fresh or dried). It is recommended that a prospective company finds placement for its plants or builds an extraction facility before commencing cannabis cultivation. Furthermore, the final products can be classified, and hence exported, as three types, depending on the THC content present in the product:

  1. Food – below 0.001% THC;
  2. Border Line Product – between 0.001% and 0.2% THC (also products from cannabis that are low in THC but contain other cannabinoids, such as CBD, belong in this group);
  3. Medicine – above 0.2% THC

The AMMD is the official body that grants a Permit for export of Border Line Products and Medicines. The export duty amounts to 1,000 MKD, regardless of the quantity exported. In the case of Medicines, the procedure is more complicated and requires greater control and documentation.

Article by Adil Mehmed, Summer Research Intern

 

[1] For clarification purposes, the term cannabis refers to the plant, whereas the term hemp denotes all over-ground fresh or dry parts of the plant.

[2] http://www.cannabisbusinesstimes.com/article/cannabis-legalization-world-map/

[3] http://www.ncsl.org/research/health/state-medical-marijuana-laws.aspx

[4] http://prizma.mk/makedonska-kanabis-revolutsija-vo-najava/

[5] https://www.novamakedonija.com.mk

[6] http://emagazin.mk/vesti/vest/22379

[7] http://www.slvesnik.com.mk/Issues/e98cbb3c65e140648d51a1a108d6bad2.pdf

[8] http://www.slvesnik.com.mk/Issues/2d30f673843b49159e15813163ffcc2a.pdf

[9] http://www.slvesnik.com.mk/Issues/df612c2cedda4ebf9e85c5469d1ed1eb.pdf

[10] Ibid.

[11] http://www.slvesnik.com.mk/Issues/b5bcde690e394ba6b1af920f95ebefb7.pdf

[12] http://www.slvesnik.com.mk/Issues/5129020c4df94e0d9e7e0e698c353d84.pdf

[13]  http://vlada.mk/sednica/70

[14] http://vlada.mk/taxonomy/term/5

[15] https://malmed.gov.mk/wp-content/uploads/2.14-Pravilnik_za_obrazecot_na_baranjeto_i_potrebnata_dokumantacija-

_za_proizvodstvo_na_ekstrakti_od_konop-Sl_vesnik-br.90-od-2016.pdf

Macedonia’s Population in 2100: The Incredible Shrinking Country

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After peaking in 2023, Macedonia’s population will shrink to 1.5 million by 2100: a 30 per cent reduction on 2018. The population will also be much older in 2100; more than half the population will be over 65 years. Without significant policy changes Macedonia faces a future of lower economic growth and budget difficulties.

While the world grows, Macedonia and Europe shrink

According to the UN’s 2017 population projections, the World’s population will increase by 47 per cent between 2018 and 2100 reaching 11 billion. Leading the way are Africa (247 per cent), Oceania (74 per cent), and Northern America (37 per cent). Europe is the only continent where the population is projected to be lower in 2100 compared to 2018 (-12 per cent).

Macedonia’s projected population decline of -30 per cent to 2100 matches the story for most of Europe (graph 1). The decline is even starker for many of Macedonia’s near neighbors. Between 2018 and 2100, Bulgaria’s population will fall by -45 per cent, Albania’s by -44 per cent, Serbia’s by -38 per cent, Bosnia by -37 per cent and Greece by -33 per cent. While the world grows, Macedonia and Europe shrink.

Graph 1:

Not all of Europe is shrinking however, Northern Europe’s population is projected to grow by 21 per cent; of note is the UK (22 per cent), Sweden (34 per cent), Ireland (33 per cent), and Norway (52 per cent). In Western Europe, France (14 per cent), Belgium (13 per cent), and Switzerland (23 per cent) also have projected increases to 2100. Germany (-14 per cent) and Russia (-14 per cent) are both projected to decrease.

An ageing population

Most countries in the world are also facing rapidly ageing populations (graph 2). “China will get old before it gets rich”[1]. Even Africa with its large expected population growth will have a quadrupling in the number of aged relative to working age.

Graph 2:

[1] FTSE Russel (2019) ‘Understanding China’s Economic and Market Developments:Managing China’s Transition Into Global Benchmarks’, P14: https://www.ftserussell.com/sites/default/files/ftse_russell_understanding_chinas_economic_and_market_developments_sept.pdf

 

Macedonia is no exception to the aging trend: the percentage of elderly to working age is expected to increase from 20 per cent in 2018 to 56 per cent in 2100. Graph 3 below shows the percentage of old people to the total population. Interestingly by 2025 Macedonia will have more old people than young people.

Graph 3:

Less children, immigration, and longer life expectancies

Population growth is mathematics not a mystery. Less children and negative net migration will result in a decreasing population. This cause and effect can be seen in graphs 4 and 5 below for Macedonia. Total fertility rates typically decrease as incomes rise, education rates rise, and infant mortality decreases. Couples get married later, start having children later, and have less children overall. Similarly, slowing population growth and increasing life expectancies will result in an ageing population.

Graph 4:

 

Graph 5:

Why is a declining and ageing population a problem?

An ageing and decreasing population will slow and even reverse economic growth. Less people means less workers and less GDP.

An ageing population combined with negative economic growth will also put government budgets under increasing pressure. Going forward, the government will face increasing medical and pension expenditure with decreasing income and consumption tax revenue. Macedonia’s current fiscal position and public debt is already significant (though not alarming). Between 1993 and 2017, Macedonia averaged a budget deficit of -2.3 per cent of GDP[1]. Public debt is currently 49.1 per cent of GDP[2]. These are likely to increase as the population ages.

What can Macedonia do?

There are three main approaches Macedonia can take to address the double challenge of a decreasing and ageing population. First Macedonia needs to slow the rate of population decrease and dare to increase it. Secondly, Macedonia needs to increase the productivity per worker through better education and investment. Third, Macedonia needs to better engage the aged and women in the workforce.

It is no easy task to slow or turn around a decreasing population. Demographics have momentum. Changing fertility rates is very difficult without extreme measures, and as China shows such measures have many unforeseen consequences. Macedonia has had some success in encouraging women to have more children through government policy. The last two national strategy documents for addressing the demographic development of Macedonia (2008 to2015[3] and 2015 to 2024[4]) have had a positive impact on the fertility rate. The national strategies set out good policy goals for improving the preconditions for couples to marry and have children, and for providing financial and child-care support for couples once they do have children. These policies have helped increase the total fertility rate (since 2013). The UN expects this growth to increase into the future and this helps to explain why Macedonia’s demographics will be slightly better than its near neighbors. Despite this growth, Total Fertility is not expected to reach replacement level again in the foreseeable future. Macedonia must look elsewhere for solutions to its declining and ageing population.

The countries in Northern Europe and Western Europe who are projected to have larger populations in 2100 are achieving this largely through positive net migration. None of them have fertility rates above the replacement rate but they all have positive net migration and are projected to have so in the future (graph 6). Macedonia needs to address its negative net migration.

How does a country like Macedonia with a long history of net migration become a receiving country? The answer is economic growth and macroeconomic stability. Ireland is the role model here. For much of the past 200 years Ireland has been exporting people to the new world. However, with the Good Friday Agreement in 1997 and higher economic growth in the 1990’s, 2000’s, and 2010’s Ireland went from being a sending nation to a receiving nation (graph 7). Not only did more people migrate to Ireland but also less people left. Macedonia needs to focus on stability and sustained economic growth. When economic prosperity comes to Macedonia, Macedonia will become a hub in the Balkans.

In particular, and as recognized by the Government’s national strategies for development, the diaspora represents a key target group for migrants to Macedonia. Compiling better statistics on the diaspora remains a first priority.

Graph 6:

[1] World Bank (2018)’ World Development Indicators’, http://databank.worldbank.org/data/reports.aspx?source=world-development-indicators.

[2] World Bank (2018), ‘Western Balkans Regular Economic Report, No. 14’, p57: http://pubdocs.worldbank.org/en/194301538650996304/rev2-WBRER14-WQ-web-ENG.pdf

[3] The Ministry of Labor and Social Policy for the Republic of Macedonia (2008), ‘Strategy for Demographic and Development: 2008 to 2015’, http://mtsp.gov.mk/WBStorage/Files/strategija_demografska.doc

[4] The Ministry of Labor and Social Policy for the Republic of Macedonia (2015), ‘Strategy for Demographic and Development: 2015 to 2024’, http://www.mtsp.gov.mk/content/pdf/dokumenti/9.5_%D0%A1%D0%A2%D0%A0%D0%90%D0%A2%D0%95%D0%93%D0%98%D0%88%D0%90%20%D0%97%D0%90%20%D0%94%D0%95%D0%9C%D0%9E%D0%93%D0%A0%D0%90%D0%A4%D0%A1%D0%9A%D0%98%20%D0%9F%D0%9E%D0%9B%D0%98%D0%A2%D0%98%D0%9A%D0%98%20%D0%9D%D0%90%20%D0%A0%D0%9C%202015-2024.pdf

 

Graph 7:

The second approach for addressing Macedonia’s ageing and projected decreasing population is to increase the productivity of individual workers. With a declining number of workers Macedonia will need more from each worker. To increase the productivity of workers requires increased education and capital intensity.

Judging by the last set of results from the 2015 PISA education scores, Macedonia has room to improve its education. Out of 73 countries sampled, Macedonia ranked 70th for Science, 69th for maths, and 70th[1] for reading[2]. Macedonia’s mean scores fell in all three areas from the previous results.

In terms of capital intensity, Macedonia is ranked 80 out of 174 countries using a 10-year average (2005 to 2014) of the ratio of capital stock (PPP 2011 USD) to the number of people employed in the workforce[3]. Thus, there is also room to improve in terms of productivity.

Continued investment in manufacturing and mining will help increase average capital intensity. Manufacturing and mining are typically among the most capital-intensive sectors. In recent years FDI has helped these sectors grow and more FDI will be needed in the future to continue this growth.

There are also productivity gains to be had in agriculture as land parcels are consolidated to allow greater efficiencies. On average farms are under 2 hectares in size and are spread across 4 to 5 parcels. This makes mechanization difficult[4]. The Government has been working with the FAO (UN’s Food and Agriculture Organization) since 2014 to address this.

The third approach Macedonia can take to address its projected declining and ageing population is to increase participation in the workforce particularly among the aged and women.

Macedonia’s participation rate for those aged over 65 years (2.6 per cent) is the fourth lowest in Europe and more than four times lower than Serbia’s (10.9 per cent) (graph 8). Countries like Iceland, Israel, and Sweden leading the way.

Iceland’s policies on engaging the aged in the workforce can be a model for Macedonia. First, lifelong learning in Iceland is more than double the EU average. The main contributors to this is that the cost of continuing education is covered in most labor agreements, and that many social organizations have come together to provide continuing education[5]. Second, in Iceland there is no pension for early retirement and for each year an individual delays retirement up until 73, they receive a 5 per cent increase to their pension[6].

Macedonia can also increase the percentage of women in employment. The ratio of women in employment to men for Macedonia in 2018 is 0.636 women to one man[7]. For Southern Europe the ratio is 0.727 women per man, 0.73 for Upper-Middle Income countries, and 0.777 for Eastern Europe. Macedonia is behind many of its neighbors and comparable countries. Efforts to increase women in the workforce must continue and will help mitigate the effects of the ageing population on the economy.

Graph 8:

[1] Note only 72 countries were sampled for reading.

[2] OECD(2016) ‘PISA 2015 Results: Volume I’, https://www.oecd-ilibrary.org/docserver/9789264266490-en.pdf?expires=1538991060&id=id&accname=guest&checksum=C1AF61487B6CEE5F92097E286136D414

[3] University of Groningen (2018) ‘Penn World Tables version 9.0’, https://www.rug.nl/ggdc/productivity/pwt/

[4] FAO (2015), ‘The former Yugoslav Republic of Macedonia and FAO, Partnering to achieve sustainable agricultural and rural development’, http://www.fao.org/3/a-au081e.pdf

[5] Danish Technological Institute, (2011), ‘Assessment of the Labour Market in Iceland’, p62, http://thjodmalastofnun.hi.is/sites/thjodmalastofnun.hi.is/files/assessment_of_the_labour_market_in_iceland_2011-andersen_hougaard_and_olafsson_0.pdf

[6] Ibid, p69

[7] ILO (2018) ‘Employment to Population Ratios – ILO Modelled Estimates, May 2018’, https://www.ilo.org/ilostat/faces/oracle/webcenter/portalapp/pagehierarchy/Page3.jspx;ILOSTATCOOKIE=FEB3AvY_HsyHD6WFnjwJ-QekTOwS1kGgZ9oXxq0G1F_tnxDqITVM!1254440622?MBI_ID=7&_afrLoop=2655985160688909&_afrWindowMode=0&_afrWindowId=d2m9tbf8x_1#!%40%40%3F_afrWindowId%3Dd2m9tbf8x_1%26_afrLoop%3D2655985160688909%26MBI_ID%3D7%26_afrWindowMode%3D0%26_adf.ctrl-state%3Dd2m9tbf8x_57

 

Conclusion

Demographics will weigh against Macedonia’s future economic growth and will cause fiscal difficulties. Macedonia’s population is projected to peak in 2023 and will be 30 per cent smaller by 2100. The population is also getting older: the percentage of aged to working age is expected to increase from 20 per cent in 2018 to 56 per cent in 2100. Macedonia is not alone in these challenges, as most of Central, Eastern and Southern Europe are experiencing a similar or worse demographic decline. Northern Europe with countries like Ireland are Norway, however, show that immigration can turn the decline around. Stable and protracted economic growth would help Macedonia retain its young people while attracting people from the diaspora and beyond.

To ensure continued economic growth in the face of a shrinking workforce, Macedonia must better engage the aged and women in the workforce, and increase productivity per worker. Increased investment in more capital intensive industries is one way; FDI has helped here in recent years and can continue to play a role in changing the face of Macedonian industry. There are also gains to be had in agriculture, particularly through land consolidation. An improved education system also promises a huge dividend. Industries of the future will need well-trained and innovative workers. Improvements in the education system need to be an utmost priority. If Macedonia is to be smaller then it must also be smarter.

Article by Brendan Filipovski, Research Manager

Air Pollution in Macedonia: Killing People and Decreasing Economic Growth

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As the air quality deteriorates over winter, we look at its impact on health and the economy.

How bad is the air pollution in Macedonia?

Air pollution in Macedonia far exceeds international safety levels. In 2016 The WHO (World Health Organization) ranked Skopje as the third worst city in Europe in terms of particulate matter air pollution (PM2.5)[1]. Skopje’s annual mean for 2016 was 40 µg/m3 (40 micrograms per cubic meter), which is 4 times higher than the annual WHO guideline (10 µg/m3), and 60 per cent greater than the official Macedonian target[2] and European guideline[3] (25 µg/m3). Graph 1 below shows the daily PM2.5 observations over the last year for Skopje (Centar), Bitola, Tetovo, and Kumanovo. All four cities regularly exceed the WHO daily guideline (25 µg/m3) with winter being the worst period.

[1] WHO, “WHO Global Ambient Air Quality Database (Update 2018).”

[2] Ministry of Environment and Physical Planning (Macedonia), “Macedonian Air Quality Assessment Report for The Period 2005–2015,” 21.

[3] European Commision, “Standards – Air Quality – Environment – European Commission.”

What is Particulate Matter Air Pollution?

There are several different types of air pollution, including carbon monoxide, ozone, sulfur dioxide, and nitrogen dioxide, but Particulate Matter (PM) is the worst for human health. It also has the worst record for exceeding guidelines in Macedonia[1]. PM2.5 is the chief focus of this article.

PM are microscopic liquid or solid particles suspended in the air. Particulates are measured at two main levels: less than 10 micrometers (PM10) and less than 2.5 micrometers PM2.5[2]. PM2.5 is particularly dangerous because of its size. It is smaller than most bacteria and can penetrate the lungs and bloodstream. Once in the bloodstream it can cause and exacerbate a range of diseases, these are discussed in more detail below.

How bad is air pollution for health?

PM air pollution kills around 4.2 million people globally each year, which is more people than AIDS, malaria, and tuberculosis combined[3]. In Macedonia, PM air pollution was the eighth largest mortality risk factor in 2016, and was linked to 7.3 per cent of deaths that year[4]. When its severity is weighted by the level of exposure faced by the whole population, PM air pollution is ranked higher than smoking in terms of risk to the general population (a summary exposure value of 42.5 versus 37)[5].

In terms of life expectancy PM air pollution decreases life expectancy in Macedonia by 0.81 years[6]. Figure 1 below shows the diseases linked to PM air pollution. Unsurprisingly the World Health Organization (WHO) says there is no safe level of particulate matter (PM) air pollution[7].

Figure 1: Diseases for which PM Air Pollution is a risk factor[8] [9]

[1] Anttila et al., “Characterisation of Extreme Air Pollution Episodes in an Urban Valley in the Balkan Peninsula.”

[2] US EPA, “Particulate Matter (PM) Basics.”

[3] Landrigan et al., “The Lancet Commission on Pollution and Health,” 471.

[4] The Institute for Health Metrics and Evaluation, “Global Health Data: Global Burden of Disease (GBD) Compare Tool.”

[5] The Institute for Health Metrics and Evaluation.

[6] Apte et al., “Ambient PM2.5 Reduces Global and Regional Life Expectancy,” sec. Supporting Information: https://pubs.acs.org/doi/suppl/10.1021/acs.estlett.8b00360/suppl_file/ez8b00360_si_002.xlsx.

[7] WHO (2016) ‘Ambient Air Pollution – a global assessment of exposure and burden of disease’p21: http://apps.who.int/iris/bitstream/10665/250141/1/9789241511353-eng.pdf,

[8] Apte et al., “Ambient PM2.5 Reduces Global and Regional Life Expectancy,” 547.

[9] Landrigan et al., “The Lancet Commission on Pollution and Health,” 475.

 

How bad is air pollution for the economy?

Air pollution is not only bad for people but it also hurts economic growth. Air pollution impacts the economy through increased medical expenditure, decreased productivity, and premature death[1]. Air pollution imposes an enormous cost on the current and future wealth of Macedonia.

Increased medical expenditure is a particular problem for most countries, like Macedonia, who are already facing greatly increased costs from a rapidly ageing population. For high income countries the extra health costs from air pollution is estimated to be around 3.5 per cent of GDP[2] – this is likely to be higher for countries, like Macedonia, with lower income. 3.5 per cent of Macedonian’s GDP in 2017 was 397 million USD.

Air pollution decreases productivity through missed days of work, for the sick and their carers, and through impaired ability at work. The World Bank estimates that the productivity impact of air pollution for an upper-middle-income country, like Macedonia, is around 0.13 per cent of GDP[3]. In 2017, this was 14.7 million USD for Macedonia.

Premature death has a direct cost through lost labor hours. For 2017, I calculate this to be foregone GDP of around 18.5 million USD or 0.16 per cent of actual GDP[4]. The cost of premature death become much higher when you consider an individual’s willingness-to-pay (WTP) to avoid the premature death. A recent study estimated the cost of premature death in terms of WTP from PM in Skopje to be between 570 and 1470 million euros in 2012.[5]. A global study estimated the WTP cost to be around 8.37 per cent of GDP for upper-middle-income countries like Macedonia[6]. In 2017, this would be around 723.5 million USD.

What are the causes of PM air pollution in Macedonia?

According to a recent study by the Finnish Meteorological Institute and the Ministry of Environment and Physical Planning, the main sources of PM2.5 are the burning of biomass (i.e. wood) for domestic heating, dust from soil, industry, and traffic. Contrary to popular opinion in Skopje, the incineration of waste is not considered a major source of air pollution[7]. Graph 2 shows the breakdown of these sources using results from the Karpos monitoring station in Skopje[8]. Table 1 examines some of these sources in more detail.

[1] Landrigan et al., 482.

[2] Landrigan et al., 486.

[3] Landrigan et al., 484.

[4] My calculation is based on the change in the baseline life expectancy because of air pollution multiplied by GDP per capita for 2017 and the number of deaths in the working age population for 2017.

[5] Martinez et al., “Health Impacts and Economic Costs of Air Pollution in the Metropolitan Area of Skopje,” 1, 4.

[6] Landrigan et al., “The Lancet Commission on Pollution and Health,” 487.

[7] Ministry of Environment and Physical Planning (Macedonia), “Macedonian Air Quality Assessment Report for The Period 2005–2015,” 17.

[8] Ministry of Environment and Physical Planning (Macedonia), 26.

 

Table 1: Sources of PM2.5[1]

Source Main Causes
Domestic Heating Burning of wood, coal, and oil. 62 per cent of Macedonian household used wood for heating in 2015[1]. The quality of wood and stoves used are important. Older stoves with green wood produces much more particulates than modern stoves with properly prepared wood or pellets.
Industry Steel (ferroalloy) production, cement production, and electricity production (lignite used in Bitola and Oslomej).
Traffic Traffic emits a range of pollutants including PM, carbon monoxide, and nitrogen oxide. Older diesel vehicles are the worst polluters, particularly those with a Euro Emission rating of 0 to 2 (zero is the worst rating). Around half of registered vehicles in 2015 had a Euro Emission rating of 2 or less while 10 to 18 per cent had a rating of zero.

[1] Ministry of Environment and Physical Planning (Macedonia), 17.

[1] Ministry of Environment and Physical Planning (Macedonia), 15–18.

 

What part does geography and weather play?

The mountainous geography of Macedonia exacerbates the already high level of PM air pollution by concentrating it at ground level, particularly in winter[1]. Mountains generally reduce air flows in the surrounding valleys preventing PM from being dispersed. Further, in winter the valleys become sinks of cold air with a higher layer of warm air trapping in the colder air and pollution like a blanket (temperature inversion)(figure 2). It is important to note that while temperature inversion concentrates air pollution, the air pollution in Macedonia is generally above WHO and national guidelines even in summer.

Figure 2: Temperature inversion in winter

[1] Ministry of Environment and Physical Planning (Macedonia), 19.

What is to be done?

PM air pollution imposes an enormous health and economic cost on Macedonia. Citizens are paying the cost with their health and lives, while the economy suffers the consequences of lost productivity and increased medical expenditure. The government has recognized this and with international help has improved monitoring, and has developed national and local strategies to reduce air pollution.

In our next issue we will look at what is being done in Macedonia and what is being done around the world. Air pollution is a global problem with lessons to be learnt. Even cities in the developed world with their generally lower levels of PM2.5 (London 12 µg/m3, Paris 16 µg/m3, New York 9 µg/3, Berlin 16 µg/m3, and Toyko 17 µg/m3) still may have individual neighborhoods above the WHO guidelines. Reflecting the severity of the problem, the WHO is holding the first ever global conference on air pollution and health starting on 30 October[1].

 

Referencing

Anttila, Pia, Aneta Stefanovska, Aleksandra Nestorovska-Krsteska, Ljupco Grozdanovski, Igor Atanasov, Nikola Golubov, Pece Ristevski, Martina Toceva, Sari Lappi, and Jari Walden. “Characterisation of Extreme Air Pollution Episodes in an Urban Valley in the Balkan Peninsula.” Air Quality, Atmosphere & Health 9, no. 2 (March 1, 2016): 129–41. https://doi.org/10.1007/s11869-015-0326-7.

Apte, Joshua S., Michael Brauer, Aaron J. Cohen, Majid Ezzati, and C. Arden Pope. “Ambient PM2.5 Reduces Global and Regional Life Expectancy.” Environmental Science & Technology Letters 5, no. 9 (September 11, 2018): 546–51. https://doi.org/10.1021/acs.estlett.8b00360.

European Commision. “Standards – Air Quality – Environment – European Commission.” Accessed October 23, 2018. http://ec.europa.eu/environment/air/quality/standards.htm.

Landrigan, Philip J, Richard Fuller, Nereus J R Acosta, Olusoji Adeyi, Robert Arnold, Niladri (Nil) Basu, Abdoulaye Bibi Baldé, et al. “The Lancet Commission on Pollution and Health.” The Lancet 391, no. 10119 (February 2018): 462–512. https://doi.org/10.1016/S0140-6736(17)32345-0.

Martinez, Gerardo, Joseph Spadaro, Dimitris Chapizanis, Vladimir Kendrovski, Mihail Kochubovski, and Pierpaolo Mudu. “Health Impacts and Economic Costs of Air Pollution in the Metropolitan Area of Skopje.” International Journal of Environmental Research and Public Health 15, no. 4 (March 29, 2018): 626. https://doi.org/10.3390/ijerph15040626.

Ministry of environment and physical planning. “Macedonian Air Quality Assessment Report for The Period 2005–2015,” 2017.

The Institute for Health Metrics and Evaluation. “Global Health Data: Global Burden of Disease (GBD) Compare Tool,” 2016. The Institute for Health Metrics and Evaluation.

US EPA, OAR. “Particulate Matter (PM) Basics.” Overviews and Factsheets. US EPA, April 19, 2016. https://www.epa.gov/pm-pollution/particulate-matter-pm-basics.

WHO. “WHO Global Ambient Air Quality Database (Update 2018),” 2018. http://www.who.int/airpollution/data/cities/en/.

[1] http://www.who.int/airpollution/events/conference/en/

Economic outlook for Macedonia

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An economic outlook for Macedonia from Maximilien Lambertson from The Economist Intelligence Unit, and Macedonia2025 Summit speaker.

Full-year 2017 and early 2018 saw economic growth stagnate, owing to the extended political crisis, which resulted in a sharp drop in investment and a contraction in real government consumption. However, private consumption growth was relatively steady supported by low inflation, employment growth and a slight pick-up in wage growth. Exports and imports also grew steadily, which was largely attributable to the trade activities of plants that have received foreign investment to boost export capacity.

The second quarter of 2018 finally saw a recovery in economic growth, with real GDP growing by 3.1% year on year, up from 0.1% growth in the first quarter and 0% in full-year 2017. The recovery in real GDP growth was driven by the external sector. Real exports of goods and services grew by 13.7% year on year in the second quarter, up from 10.6% in the first quarter and 9.2% in full-year 2017. Growth in merchandise exports was fuelled by steady demand from Germany (Macedonia’s largest export market) and by exports of electrical machinery and road vehicles. Services exports also grew strongly, driven by manufacturing, transport and travel services.

However, investment still failed to pick up in the second quarter. Despite the formation in May 2017 of a new government, efforts have focused mainly on implementing the name agreement with Greece in an effort to unblock Macedonia’s EU and NATO accession processes. As a result, government capital expenditure contracted by almost 50% year on year in the first half of 2018.

The few data available for the third quarter suggest that the pick-up in real GDP growth has been sustained. In July industrial production was driven by capital and durable consumer goods, suggesting that consumer and investor sentiment has improved. Net wage growth remained strong, at 6.2% year on year, up from 1.5% a year earlier, driven by minimum and public-sector wage increases. However, the unclear result of the September 30th referendum on the name agreement with Greece means that an early election is possible. This political uncertainty could prevent a further improvement in investor confidence and delay the resumption of public investment. However, exports will be supported by sustained demand from Germany and the broader euro zone.

Article by Maximilien Lambertson, Analyst for Eastern Europe & CIS , The Economist Intelligence Unit

Country Dashboard: A Return to Higher Growth

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Macedonia Country Dashboard – 2018 Q2 update:

Macedonia’s economy returned to higher growth in Q2 2018, with real GDP increasing by 3.12 per cent in YE terms and 1.14 per cent over the year (YOY).

Q2 2018 marked a return to higher growth for Macedonia as can be seen in graph 1 below.

Wholesale and retail trade (12.7 per cent YE) and Manufacturing (5.8 per cent) continued their recent trends of strong growth. Construction continues to offset growth (‑12.9 per cent) while Information and Communications had its fourth quarter of decrease (-9.5 per cent). Agriculture was unusually flat for the quarter (0.3 per cent YE).

Despite the continued downward trend in construction there are some positive signs with some leading indicators: value of issued construction permits, increasing by 98 per cent on last quarter (graph 2).

Graph 2:

In expenditure terms, exports again led the way with a 13.7 per cent increase (YE) while household final consumption was up by 1.5 per cent. Gross capital formation continued its downward trend with a -11.3 YE decrease.

Foreign direct investment by direct investors decreased slightly by -6.8 per cent in the quarter (graph 3). Foreign direct investment by direct investors represents additional money from overseas being invested in Macedonia (either in new or existing projects).

Unemployment again improved slightly in the quarter and now stands at 21.1 per cent.

Graph 3:

Update to annual figures:

The 2017 figures for a number of the dashboard indicators were released during the quarter: the updated indicators are highlighted in table 1 below. The biggest change to note was the 26 per cent decrease in FDI as a percentage of GDP. FDI as a percentage of GDP has now fallen below our 5 per cent target. The fall reflects the divestment in the last two quarters of 2017 likely caused by foreign investor certainty over the political instability earlier in the year. FDI has since recovered in early 2018 (graph 4).

Average GDP growth over the five years to 2017 is 2.7 per cent level. This is solid growth but is below our target of 4-5 per cent.

Graph 4:

 

Table 1: Macedonia Country Dashboard

Article by Brendan Filipovski, Research Manager