Prime minister Nikola Gruevski address at the meeting with the business community and economic chambers

Respected businessmen, holders of shares and stakes in the companies in Macedonia, company managers,

Respected management of the Chambers of Commerce,

Respected members of the Government, professors, analysts, journalists,

Ladies and Gentlemen,

Today, at an invitation of the Chambers of Commerce, I am here together with you, the businessmen, CEOs, managers of above 700 companies in the Republic of Macedonia, both domestic and foreign ones, larger as well as medium and small companies, older and newer ones, more or less established, export and import oriented, companies in sectors such as commercial, industrial and production, financial, banking, computer, agricultural, construction, tourist, from the service sector and all sectors of the economy. The representatives of the largest 250 companies in Macedonia according to the export and profit are present here. Significant number of representatives of small and medium companies is also present. I am before you today in order to share with pleasure some reflections, views, analyses and information on the situation in the economy and the perspectives for 2013.

Respected attendees,

Today there are many people among us who are similar according to many things, as well as many that differ from each other in many aspects. Regardless whether it is in their ideology, politics, party, ethnical or religious affiliation, regarding their gender, sociological background or because they come from different or same sectors or are in a different stage of development, younger or older, richer or poorer, more or less successful, optimists or pessimists.  

We can find many other similarities and differences as well, but there are three common things that are connecting you:

1. We all live in this country and all or most of our close ones, families and friends live here.

2. All present here are involved in business, as owners and/or managers, assuming the risk and responsibility that the business carries and you are all fighting to achieve success and

3. We all have common problems and we are all concerned: the economic crisis that derived from the European debt crisis, which came shortly after the end of the world economic crisis, is a serious problem for all of us at the moment.

That is precisely why we are all gathered here and it is quite clear that the main motive that the management of the chambers of commerce, with whom, by the way, we have had excellent cooperation so far, has organized this event. And that is the topic of my address today.

Ladies and Gentlemen,

In 2006, at the Parliamentary elections it was for the first time that I, as a candidate for a Prime Minister received the confidence of the majority of the citizens, after having previously represented, along with my party, our program before all citizens and the chambers of commerce. Thus, precisely 6 years ago, together with the coalition partners we started to implement the Government program. Later on, in 2008 and 2011, the majority of the citizens confirmed the confidence in our program and economic policies. These new policies introduced many changes in the economy; they solved many problems and provided better conditions for the business.

There are, certainly, many additional things that should be improved and problems to be solved, and the challenges of this debt recession have further highlighted a part of the remaining weakness that exist and to which we will remain focused and dedicated in the period ahead of us.

More significant changes and achievement that help the companies

I will remind you that in order to help the companies, by introducing a 10% flat tax for the personal and corporate income tax, we introduced the lowest taxes in the country, compared to any other country in Europe.

We further reduced VAT from 18 to 5 percent for pharmaceutical and medical devices, agricultural mechanization, seed and samplings material, fertilizers and raw materials and substances for protection of plants and water for irrigation, construction of apartments, utility services, computer and software, public transport, solar panels, raw cooking oil and tourist services.

There followed exemption from payment of profit tax for the small and micro companies with an annual turnover of up to MKD 3 million, as well as a possibility for choosing a taxation model for those that have a turnover between MKD 3 and 6 million.

We also introduced reforms in PRO and tax policy, thus streamlining the procedures for tax payment. Each year we are reducing the customs duties, in order to help the domestic companies to import intermediate goods and raw materials that are not produced in Macedonia, as well as for harmonization with the EU agreement. One-stop shop system EXIM was introduced in the customs administration for obtaining permits and licenses;  it received international awards and was recommended by the competent UN bodies as a model for the countries in the region.

Towards the support, we also provided 250 million Euros for improvement of the liquidity and for investments by the Macedonian small and medium enterprises.

On this occasion, allow me to inform you, that from the new credit line of 100 million Euros, that became effective in June this year, 22 million Euros have already been approved. We expect that these days the money will be paid by EIB, and will be available on the accounts of 107 enterprises in the Republic of Macedonia. I remind you that these credits are with subsidized interest rate of 5.5 percent, as nobody else in Macedonia offers and it is precisely why all companies in Macedonia are withdrawing credits exclusively from this credit line that has been provided by the Government.

In cooperation with the chambers of commerce and directly with the companies, we have implemented, and are still partially implementing four stages of the project regulatory guillotine within which we amended around hundred laws and approximately 600 by-laws in order to reduce administrative barriers for doing business, improve the penalty policy and reduce penalties, by which the fines were reduced by 50 percent, and in some instances a measure for pointing out the errors was introduced, many bureaucratic processes were reduced, some of them were abolished or were made cheaper. Therefore,  the World Bank that ranked us on the 96. position in 2006 according to the conditions for doing business, increased our rating placing us at the 22. position in the world.

Gross salary was introduced, as well as integrated collection of the contributions, along with the reduction and harmonization of the lowest base for payment of social contributions from 65 to 50 percent of the average salary. The rates of the social contributions were reduced from 32% to 26.5% and if conditions in 2014 allow so, we are planning a new reduction. Thus, the costs of the companies were reduced by which the Macedonian companies became more competitive at the international market, many things were simplified and the regularity of the payment was improved.

We’ve started a project for continuous promotion of Macedonia in order to attract investments and promote Macedonia as a business destination. Macedonia has been present in the most renowned international media, such as CNN, CNBS, RTL, Bloomberg, Travel Channel, Fox Group, Euro News, Euro Sport, the Economist, Financial Times, Wall Street Journal, Herald Tribune, Business Week, Frankfurter Allgemeine Zeitung, New York Times, Corriere della Sera, Le Figaro and many more.

We formed the Team Macedonia with which we are continuously realizing investment forums within, what is known as, Road Shows, whereby we visited several cities in Germany, Austria, Italy, USA, Canada, China, India, Great Britain, Turkey, Scandinavian countries, Qatar, Japan, Singapore, the Netherlands, Belgium, France, Switzerland and others. We appointed around 30 promoters in 21 countries for a continuous promotion of Macedonia as a business destination.    

In addition to allocation of a state owned land to a number of farmers, we gradually increased subsidies in agriculture from 5 million Euros per year to 130 million Euros per year, and next year, there will be a new increase to 135 million Euros per year.

We made early repayment of the debts Macedonia had, so from an indebtedness of 39 percent of GDP when we came to the Government, we reached around 24 percent, and today around 30 percent, by which from the group of medium indebted, we joined the group of low indebted countries and today we are the fourth least indebted country in Europe.  

Anti-crisis measures

It is not accidental that in 2007 and 2008, the economic growth reached 6 and 5 percent of GDP, respectively, the export grew by 60 percent and FDI for  at least 1 billion Euros in those two years.

Unfortunately, the world was affected by the great economic crisis and as soon as it ended, the European debt crisis began. It forced us to think about anti-crisis measures, whereby we adopted 4 packages of anti-crisis measures, and separately, even a larger number of measures. Despite the fact that we made possible, as nowhere in Europe, for the profit to be taxed only if it is not distributed as dividend, and that we reduced social contributions and customs duties, with the anti-crisis measures we also introduced deferment of the liabilities on the basis of health insurance contributions, writing off of the interest rates when the debt on the basis of taxes and contributions is paid, exemption from taxation of interest rates, deferment of payment of the tax debt, debt rescheduling to 36 months, lower taxation for the farmers by 80 percent, investment program with which numerous infrastructural projects are envisaged, measures to facilitate the export of goods, reduction of the costs, and as a Government we also introduced measures regarding our own activities, such as freezing the acquisition of cars and furniture, limitations as far as new employments are concerned, reduction of the current expenditures of all budget users, postponement of the envisaged third increase in the salaries in the public sector, reduction of the costs for travel and related expenses, and we also prolonged a part of the capital expenses and they gained a new dynamics. The deadline for VAT repayment was moved from 15. to 25. of the month, as you requested, the fee for construction land privatization for legal persons was reduced, Macedonian Bank for Development Promotion (MBDP) introduced a credit line for micro, small and medium enterprises with a guarantee scheme from MBDP, a fund for use of the agricultural land was created intended for unemployed persons, MBDP was recapitalized with 10.7 million Euros, and it was made possible for it to provide direct credits for some purposes, special programs for employment and self-employment of thousands persons were introduced, a package of measures for the metallurgy industry in cooperation with the chambers of commerce was adopted, and the construction sector was strongly supported, having a direct influence on other 26 sectors in the economy…

Following this trend, the highway section Tabanovce-Kumanovo of the highway Alexander of Macedon was constructed which is 7.62 km long and is 15.5 million Euros worth. In addition, a highway bypass around Skopje was built, which is 26 km long and 125 million Euros worth out of which more than 80 percent, that is, around 100 million Euros were realized after the elections in 2006.

This month, the construction of the new highway section on the highway Alexander or Macedon started in the area Demir Kapija- Smokvica, which will be 28.2 km long and around 220 million Euros worth, the completion of which is planned by 2016.

We’ve made, as we have promised in our program, a serious attempt to find a  concessionaire for construction of highways from Skopje to Shtip, that is, Kochani, from Gostivar to Ohrid and the Albanian border, from Kumanovo to the Bulgarian border as well as from Skopje to the border with Kosovo. Although we offered serious subsidies for the potential concessionaire, due to the low annual average number of cars on these roads, none of the international banks has approved a loan to any of the interested concessionaires, therefore none of them applied at the tender. As it is stated in our program, we have undertaken a reserved ever since, and we are currently concentrated on two things: preparation to offer for concession two smaller roads in order to transform them into highways, for which we have a signal that they would be supported, and these are Gostivar – Kichevo and Skopje- Blace, and for the others we have started analyses and discussions for a credit and other manners of financing. I hope that in the next 3 to 4 months we will have the preliminary results from this attempt, and as soon as we get them, we will share them with you and the public. If this operation is completed successfully, it is certain to expect that the building of at least a part of these highways will commence in 2013. Now, from the initial discussions, we are optimists, however this process had to be completed so that we could see as to weather our idea will succeed.

By 2012 inclusive, 190 local roads were constructed and rehabilitated, in a length of 412 km and almost 30 million Euros worth, the construction and rehabilitation of 105 local roads started, with a total length of 216 km and a worth of almost 20 million Euros in 43 municipalities, which is an on-going activity.

15 regional roads were built and rehabilitated that are 318 km long and worth around 50 million Euros, and there are on-going activities on same types of roads that are 72 km long and worth around 11 million Euros.

In the course of the next month, a reconstruction of the railway on Corridor 10 will start which is 54 km long and is in the amount of 17 million Euros, a railway that has not been reconstructed for 50 years.

Project documentation for the railway to Bulgaria is being prepared and the project will be implemented in several stages, the first one is Kumanovo-Beljakovce where a contract with a construction company will be concluded in the first three months of 2013. For this section only, the investment will be 46 million Euros, where we are supported by EBRD, whereas for the second section from Beljakovce to Kriva Palanka at the moment 2.7 million Euros are invested for the design of the basic projects, whereas for the third stage, by the end of 2012, additional 2 million Euros will be provided for the project design. The entire project shall be completed in stages by 2019.

Preparations for the design of the railway from Kichevo to Ohrid and the Albanian border started, a project that is realized with the assistance of the IPA funds.

The airport “Alexander the Great” in Skopje was built and the airport “St. Paul the Apostle” in Ohrid was reconstructed in which the concessionaire invested around 90 million Euros in this stage. We also concluded an agreement for subsidising Wizz Air with a support of around 5 million Euros for the period 2012-2015, by which the company opened flights for 7 new destinations.  

The construction of the National gasification system will be carried out in stages, per lines, in a total length of 407 km, around 100 km out of which will be built by means of closing the clearing debt with the Russian Federation, and the rest with the support of EBRD. There is an on-going expropriation of the land, and we expect soon signing of the agreement with the Russian company that will build the part financed by the Russian debt. We plan for the construction of the first stage: Klechovce- Shtip-Negotino-Kavadarci to start in the spring 2013, for which, in addition to the funds from the Russian debt in the amount of 60 million US$, there will be co-financing from the budget in the amount of 15 million US$. 

We have invested 17 million Euros thus far in construction of apartments and 560 apartments for socially vulnerable citizens in 10 towns have been completed, and the construction of others is on-going. We, as a central Government, have invested approximately 35 million Euros in water supply and sewage and additional around 8 million Euros were provided, and the use of the new credit line of 50 million Euros for the same purpose has started.

The first stage of Zletovica was completed, and the second stage of the south valley of Vardar river, the rivers and irrigation channels are constantly being cleaned, and from the next year we will start with the reconstruction of the remaining non-renovated penitentiaries in Macedonia which is in a value of 46 million Euros in a three year period.

We are approaching the completion of the reconstruction of hospitals of the first phase, and at the beginning of 2013, the second stage of the reconstructions of the Public health institutions will start.  There is an on-going start of construction of around 180 sports halls, and a reconstruction of around 240 schools, a project that will also continue in 2013. We have also provided an additional project in the amount of 56 million Euros for improvement of the municipal services, for capital investments of the municipalities in different investments of significance for them, the realization of which started and will continue in 2013 when at least 12 million Euros of this project are to be realized.

The transmission line to Bulgaria in the amount of 37 million Euros was built. In 2013 there will be continuation in the expansion of the transformation of the transmission line Skopje-Bitola, transmission line Shtip-Nish, replacement of the existing transmission line Skopje-Tetovo and other investments for improvement of the energy transmission network, in a total amount of around 40 million Euros out of which at least 15 million Euros will be invested in 2013. 

In 2013, the construction of the hydro power plant “Boshkov Most” will continue and its worth is around 65 million Euros, out of which at least 10 million Euros will be invested next year. Implementation of the rehabilitation of six hydro power plants, 27 million Euros worth, will continue, out of which 8 million Euros will be invested in 2013. At the same time, the realization of the project Wind Park Bogdanci will also continue, which is 33 million Euros worth. The construction of the project Lukovo Pole will start next year. It is 32 million Euros worth and we will continue with realization of the project -Modernization of block 2 and block 3 of the Thermal power plant Bitola, 49 million Euros worth, whereas the project for Brod Gneotino for the transfer line for the coal has already been completed and put in use.

Unfortunately, even this time a concessionaire for the project Chebren Galishte was not found, thus in the next two weeks international announcement will be published.

Approximately thousand contracts for sales of construction land by public bidding were concluded, with construction permits in the period 2007-2012.

With the Law on Legalization of Illegal Buildings that was adopted last year, we received 353,000 applications in total, the realization of which is on-going.

In the part of the infrastructure, allow me to emphasize that the project for construction of several buildings/facilities for the state institutions, called Skopje 2014, also provided its contribution and will continue so in 2013. In addition to the economic significance, it has also other state and national significances, something I have talked about on several occasions.

In order to stimulate the economic development and attract well-established foreign companies, Technological – Industrial Development Zones were formed, two of which are in Skopje, one in Shtip and one in Tetovo. In parallel, the Government is working on the development of ten additional Technological – Industrial Development Zones in the territory of Macedonia, in order for balanced economic development to be achieved. They are planned for Gevgelija, Kichevo, Strumica, in the Ohrid-Struga region, Gevgelija, Rankovce, Radovish, Delchevo, Berovo-Pehchevo region, Kochani-Vinica region and Prilep. In addition to the Technological-Industrial Development Zones, we are also supporting a development of industrial zones in Bitola, Valandovo and several other municipalities. The total amount invested in the Technological Industrial Development Zones thus far is MKD 2,225,914,691.  

Which are the initial effects and results: The export of the companies Johnson Controls and Johnson Matthey only was around 550 million Euros last year, or 16.3% of the total Macedonian export, which means that these two companies create one sixth of the country’s export. That means that what is attracted in Macedonia as green field investments are investments with a large value added, investments that bring transfer of knowledge and technology and of course – jobs. By 2014, it is expected that the production and export by foreign investors in the country will reach 35% of the total export of the country. In the forthcoming period, the following will also be exported from Macedonia:

-condensers and other electronic components that are applied in various industries, buses;

-cable installations, hoses for automobile industry, plastic technology and mechatronics, rearview mirrors etc. for automotive companies;

-homeopathic pharmaceuticals and other pharmaceutical products.

More significant achievements of the macroeconomic policy

The area where we received the highest international recognitions is the management of the macroeconomic policy. The changes that we introduced enabled a GDP growth of 6.1 percent in 2007 and 5.1 percent in 2008, although the effects of the crisis started in the last quarter of the latter. These were historically the highest rates in Macedonia, as was the growth of FDI of 8.5 percent of GDP which was the third best result in Europe, key influence on which was exerted by the previous reforms and anti-crisis measures. In 2010 and 2011 there was a fall in the economic activity of 2.9 percent annually which is among the ten best achievements in Europe in these years. The export in 2011 was 3.2 billion Euros, which is an increase of 1.3 billion Euros or 66.1 percent with respect to 2006. With respect to 2010, the increase in the exports in 2011 was around 670 million Euros or 27.5 percent.  

What distinguished Macedonia from many other European countries was the fiscal discipline during the world financial crisis and during the European debt crisis. The average budget deficit of 2.5 percent realized in the previous years is the seventh lowest deficit in Europe. With a public debt of around 30 percent of GDP, Macedonia is the fourth lowest indebted country in Europe. The increase in the debt of the Republic of Macedonia in the last three years was only 4.8 percentage points, whereas the increase in the debt in the EU countries was even by 43 percentage points. There was a continuous increase in the capital investments from the budget as a direct support to the economy.   

If a comparison is made between the situation in June 2012 and September 2006, the average net salary was increased by 51.8 percent or to 20,652 denars from the then 13,603 denars. The average pension in June 2012 was 10,681 denars and in September 2006 it was 7,688 denars, which is an increase of around 38.9 percent.

The unemployment rate in June 2012 was 31.2 percent as opposed to 38.7 percent in 2005. The employment rate in June 2012 was 38.8% (648,200 persons) and notwithstanding the 4- year- economic crisis it was higher for 81,907 persons. 

The inflation has been continuously maintained at a low level of 2-2.5%. The total foreign exchange reserves in August 2012 were 2,115 million Euros, and that is historically the highest level and has grown by 700 million Euros relative to 2006, notwithstanding the 4-year crisis.

The support of the economic activity by the banking sector, that is, the degree of financial intermediation, measured as a share of the total credits in GDP, was drastically increased in the past years from 28.8 in 2006 to 44.7 in 2011.

More significant achievements that helped the citizens

In addition to the measures for the economy, the Government has been continuously undertaking measures for the support of the citizens, that are not a topic of this address, therefore, I will just briefly mention that the increased salaries, pensions, social assistance,  subsidies, completed denationalization in first instance, reduction of excises for import of cars, procurements of buses, buying out of the yards for 1 Euro per square meter, the project Buy a House, Buy an Apartment, Law on Minimum Salary, reduced price of the car insurance for abroad, reduced costs for homologation, free textbooks for the pupils and students, mandatory and free high school education, construction of schools and sports halls, reduced tuition fees for the students, computer vouchers, publication of 1,000 study books and text books, laboratories, free insurance for all, equipment in the health sector that is 100 million Euros worth, sports facilities, social housing, food banks, free medical spa treatment, aid for payment of the energy costs, pecuniary assistance for third and fourth child, new free vaccines and many other, are only a part of the long list of support, whereby some of them also had a direct positive influence on the economy.

Situation and projections for the world and European economy

The recent data indicate that 10 countries in Europe have officially entered in recession. What is even of a greater concern, is that the economic engine of Europe, Germany, noted a slow down in the economic activity and achieved a growth of only 0.5% in the second quarter of 2012. This has been a significant deterioration compared with the projections in the autumn report of the European Commission. The last projections of the European Commission regarding the GDP growth in 2012 were revised at 0% for the European Union and -0.3% for the Eurozone. The average industrial production in EU has fallen 8 months in a row, which is the same percentage as in the most developed countries in the Eurozone. As an illustration, in one of the most industrialized countries in Europe, the Great Britain, the industrial production was falling 13 months in a row and in Italy 11 months in a row.

The negative occurrences in the economy were reflected on the labor market. An increase in the unemployment rate was noted in almost all European countries. In Europe, the unemployment rate was the highest in Spain and reached 22.2% in the second quarter of 2012 and in Greece, the unemployment rate of which was 21% in the second quarter of 2012, which was inconceivable in the past for the EU member states.

The situation with the public finance has not been stabilized yet. The projections of the European Commission are that in 2012, as many as 16 countries of the EU will have a higher budget deficit than the one stipulated with the Maastricht criteria (-3.0%). High budget deficit is expected even in countries such as Great Britain (-8.3%), France (-4.5%), the Netherlands (-4.4%), Denmark (-4.1%), Slovenia (-4.3%) etc.

The accumulated public debt in Europe that has reached unprecedented volumes, further remains a main reason for the continuation of the European debt crisis that at moments has put in question the survival and functioning of the Euro zone and the Euro as a currency. In numerous EU countries, there was an explosion of the public debt as a result of the unsustainable public expenditures in the past. The debt as percentage of GDP reached 160% in Greece, 120% in Italy, 100% in Belgium, and in France and Germany and it surpassed the threshold of 80 percent.

In the first half of this year, Macedonia also had negative rates, above all, as a result of the deterioration of the conditions in Europe, but we hope that in the second half, the results will be improved and that we will finish the year with an economic growth. The industrial production in the past 11 months was marked by a fall and in the period January- July its fall was 6.9 percent. There was deterioration in several industries. Foreign direct investment was also reduced compared with 2011 and starting from 2009 there was a mild increase in the poverty rate, which was reduced in 2007 and 2008.  

Respected attendees,

These are the initial projections for 2013. The short-term economic perspectives of the world and European economy are not good. The projections of the international financial institutions indicate that the risks will also continue in 2013 for when IMF is projecting a growth of GDP of 0.7%, and the European Commission of 1%. The intensity of the debt crisis in Europe will further be a factor of insecurity and reduced activity. The capacity of the most indebted countries in the EU to make a fiscal adjustment in the medium term is called into question. According to the projections of the European Commission, the EU countries facing the biggest problems, are expected to have a fall in the economic activity in the forthcoming two-year period as well.

The debt crisis in Europe has a negative influence in the world as well, including slowing down of the growth in the USA, but also in the Asian and other fast-growing economies. Brazil, India and China faced a slowdown in the economic activity due to the external events and the fall in the domestic demand. Due to this, the projections for the next 2 years were reduced. Thus, there is an expectation of a slowed down growth of 3.5% in the world economy in 2012, and of 3.9% in 2013, growth that is above all, due to the economic activity of the developing countries. It is expected that the developed countries will achieve a GDP growth of 1.4% in 2012 and 1.9% in 2013.

The more frequent quantitative issues in the USA and EU, that is, ECB, that are beyond the economic growth, also intensify the risks from a possible future inflation at an international level, that would reduce the value of the US dollar and the Euro and would, at the same time, cause an increase in the prices of goods and services globally. 

Projections for Macedonian economy

The weaknesses of the European economy in the next period will adversely affect exports and growth of Macedonian economy. An improvement of the developments within the EU, even in the most optimistic scenarios, is predicted for early in the second half of 2013, however, with certain risks, and in that case recovery is expected to be rather slow and weak.

In terms of negative impacts of the European crisis, it is positive that Macedonian economy does not have imbalances as it is the case with other countries, such as excessive budget deficit and public debt, high current account deficit of balance of payments, so-called 'bubbles' of the real estate market and so on.  It will help the impact of the European crisis to be less felt, but certainly not avoided.

In such circumstances, the maintenance of a stable macroeconomic situation and gradual recovery of economic growth remains an imperative in the next medium-term period.  To this end, there are two likely scenarios:

The primary macroeconomic scenario is based on the expectations for slow emergence of the EU from the recession and achieving low growth rates in the next few years.  In this scenario, the Macedonian economy will have somewhat better than the average results in the European countries, but the rates of GDP growth for this year and the next one are within the range of 1% to 2%, which is less than the potential growth of the economy.

The second scenario is based on the projections for emergence of the EU from the crisis by the middle of the next year and stabilization of the Euro zone. In this case, the Macedonian economy can seriously feel the results of the reforms for improvement of the business climate and competitiveness of the economy, although in this scenario, the dominant factor will also be the intensity of growth of the European economy.

Both scenarios bear certain obvious risks located in the inefficiency of European countries to reconcile measures for restoring confidence in capital markets, the weakness of the euro and possible deepening of the recession. On the positive side, we can expect that the effect of the planned foreign direct investments which are in a realization phase or have been announced, can be felt completely in the coming years.

In all these scenarios, we must continue maintaining sound macroeconomic policies and implementing reforms.  These policies include:

• Further maintenance of low rates of taxes and contributions.  In this context, we will keep the promise given to businessmen and citizens:  The government will not increase any tax in the Republic of Macedonia;

• Intensifying major capital investments such as construction of the highway of the Corridor Alexander of Macedon and other highways, construction of a national gas pipeline network, construction of the railroad to Bulgaria and Albania and reconstruction of the railway of the Corridor X, construction of large energy projects, etc;

• Continuation of structural reforms for improvement of the business climate and competitiveness of the economy;

• Providing affordable credit lines for SMEs from the EIB with a preferential interest rate.  I would like to take this opportunity to announce that once the country begins with greater utilization of the credit line with subsidized interest rate of 5.5% in the amount of € 100 million over the next year, the government will provide a new € 100 million under the same conditions in order to mitigate the consequences of the European debt crisis;

• Maintaining the level of private consumption through a gradual increase in salaries and pensions in accordance with the budget possibilities and general conditions in the economy.

• On this occasion, allow me to announce that, despite the serious challenges we are facing, the government will realize the increase in pensions and social assistance of 5%, starting from March next year, while the increase in salaries of the public sector will  be delayed for a year due to the crisis. In addition, pensions will be increased by as much as 2% due to the adjustments prescribed by laws with the increase in the cost of living and salaries, which will together add up to 7% increase.  At this moment, there is only one dilemma: whether the increase in pensions should be implemented as an increase of 5%, or as an across-the- board increase with equal absolute amount for all pensioners in Macedonia.

• It is very likely that Macedonia in the year 2013 will be the only, or one of the few countries in Europe, which will find a way to increase pensions, as well as the social benefits to persons receiving social assistance, despite the circumstances.

• This country will continue with a low budget deficits and low levels of indebtedness in 2013 as well.

In 2013, we will not allow any mass dismissal of employees from the administration for budget savings, nor any salary reductions, taxes will not be increased, the inflation will be low at about 2.5%, whereas subsidies for farmers, pensions and social benefits will not be reduced and even more, they will be increased; the banking sector and the Denar will remain stable. The Government will continue with intensified investment in the construction of infrastructure in the TIDZ and industrial zones, and encourage and facilitate domestic and foreign investors to start new investments.

Notable achievements in non-economic sectors that affect the economy

Although not in a direct manner, the reforms in the judiciary and public administration are indirectly related to the economy. Novelties with which the standards for enrollment at the Academy for Judges and Prosecutors were strengthened, the introduction of a career advancement in the judiciary, monitoring and scoring results of each judge, introducing deadlines for each step in court proceedings, public review of complaints from judges at an open session of the Judicial Council, insertion of penalty provisions for judges, additional trainings and many other activities, a part in force this year, while the most part will come in force at the beginning of 2013, will slowly but surely increase the efficiency and quality of the judiciary, which is important for further improvement of the business climate.

Similar processes have started and will continue in the public administration, where time limits were introduced for each part of the administrative procedure for companies and citizens, and high penalties for exceeding those limits.  Simultaneously, a new project for interoperability has started, with which all public institutions are now mutually connected via computer network, while businesses and citizens in the future will not have to wander to numerous counters to collect documents from various state institutions in order to accomplish their goal. Soon, a new law for administration shall be introduced, which will further raise standards, professionalism and efficiency.

We are very committed to maintaining good relations with our neighbors, the regional cooperation, implementing the Ohrid Framework Agreement, as well as maintaining of good inter-ethnic relations, and we remain dedicated to our strategic goal, that is the accession of Macedonia into the EU and NATO, which would certainly have a serious economic impact. This fall, we expect to receive the fourth in a row positive report from the European Commission and a recommendation to start negotiations for EU membership, and we will do everything in our power to achieve progress regarding the issue that our southern neighbor opened 21 years ago, associated with our constitutional name.

In 2013 we will continue to invest in the development of the democracy in Macedonia, strengthen security, decentralization and other important things which indirectly form an integral part of the business climate in Macedonia, and improve one by one any weaknesses and failures of the past.

Additional steps for attracting capital from abroad

Investment forums will further remain on our agenda, by which we are trying to attract fresh capital and to open new markets. By the end of the year we are planning to visit some of the Caucasian countries and the United States, and we already have prepared the agenda for the next year. Besides that, we are planning bilateral business forums with large business delegations from Macedonia individually with Serbia, Croatia, Kosovo, Albania and other countries in the region and beyond.

All past activities have helped bringing major global companies such as: Johnson Matthey from Great Britain, Johnson Controls and Kemet Electronics from the U.S.A,  Motherson from India, Protek Group from Russia, Draexlmaier and Kromberg and Schubert from Germany, Teknohoze from Italy, Cevahir Company and TAV from Turkey, and many others.

Payment delays reductions in 2012 and the reasons for their occurrence

Now, Ladies and Gentlemen, I will refer to a very important part for you as businessmen, the problem with delays in VAT refunds and payments for contractual services by state institutions.

Until the beginning of the global crisis after the arrival of this government, that is, in the last quarter of 2006, 2007 and 2008, Macedonia was an example of the VAT refund  within a very short period of 30 days prescribed by law. I am saying this because the laws of other countries prescribe VAT refund in a longer period of time, somewhere 45 days, somewhere 60, and it is most often in the region; and in the most European countries there are no time limits within the law, such as Germany, which means immediate refund or as soon as the conditions are created. However, in Macedonia the legal limit is 30 days. I stress this in order to indicate that if we wanted, as a government, to reject criticism for delays, we could very easily refer to the fact that a number of European countries, much richer and more powerful, return VAT in a longer deadline prescribed by law, and by citing the global and European crises we could changed the law and instead 30, set 60 or 90 days for example, and thus formally reduce the severity of this issue. It could have helped us, but not you, and therefore we did not take such step.

However, this legal limit has once already disturbed, in the period of 2003 - 2004, which is a part of the IMF reports on Macedonia. After coming to power of this political establishment, the VAT refund was returned within the legal framework, except in the situations where there were special investigations as a result of doubts in the legality, but these were exceptions lower than 0.5 per cent.

The problems started from the year 2009 with the flourishing of the global economic crisis, and there were some better and some worse periods. However, it is a fact that although we managed as a country and as a government to avoid or mitigate many impacts that many other European countries have failed to escape, still, the liquidity of the budget was affected, and we all felt it, regarding delays of the VAT refund, and payment of the liabilities; your reactions and criticisms concerning those issues were understandable and justified from your point of view, regardless of the complexity of the situation in the world and Europe as a whole, and the fact that we live in an extremely difficult time which brings challenges for the government unprecedented in the last 80 years.

What is the genesis of the occurrence of this problem. The problem occurred because the world, and later the European crisis, reduced the quantity and the value of orders that Macedonian companies had towards European firms as their partners, because due to the crisis, the consumption in their countries was decreased. It has reduced exports and imports especially of raw materials, which had led to reduced revenues in the budget. Restricted revenues in the budget required from us to cut many government projects, but the problem here is not only that we promised these projects to the citizens as a political establishment, the bigger problem is that their full elimination would have left many people without work, and would have led many companies which survived in this difficult period of the crisis to collapse. However, we have reduced some of the activities previously anticipated, but we also made a compromise, continuing with the most of the projects, although with slower dynamics and payment delays, but without a significant increase of the country's debt. The positive effects were that Macedonia for almost 4 years in times of world and European crisis, ends the year with the best rankings in terms of GDP growth, one of the lowest budget deficits in Europe, low inflation rate, stability of the Denar, and low government debt. It also helped to prevent the increase in the unemployment, unlike almost all European countries we have succeeded to keep the level of 2008 when the global crisis period began, and at the same time we never reduced the salaries, pensions, social assistance and subsidies to farmers, on the contrary, some of them were even increased. This was not easy to do, and in that direction, please allow me to express my satisfaction with the commitment and expertise of my associates, as well as the Central Bank. Nevertheless, this policy had some weaknesses, “side effects” in medical jargon, which we anticipated and carefully monitored, and the main “side effects” were exactly the payment delays from budget institutions.

As most of you know, I, as a Prime Minister, but also the economic team in the government, are open for contacts, appointments, proposals, ideas, communication and cooperation with the chambers of commerce and directly with the companies. It helped us a lot in our work, in decision-making, reducing the number of shortcomings and in our permanent monitoring of the real situation in the economy. What I have as information, in the last six to nine months, the main problem, out of many problems where the government can at least partially influence, is the problem of payment delay. If this is a major problem of yours, it is automatically ours, and we all in the economic team and the government have seriously analyzed this issue in the past period, and the ways to overcome it.

On the basis of these analyzes we have taken a decision, which I will announce today.

It is a decision that will eliminate the problem of payment delays of the state to the economy. With this decision, I announce that starting literally tomorrow, the delays in the VAT refund and invoices payment will gradually be reduced in order for this problem to be overcome by the end of February 2013. Our goal and promise that I give you today is to finish half of our goal by the end of November, and to completely eliminate the problem by the end of February. The funds for the realization of this promise have been provided.

Our second goal is, after its elimination, to prevent the recurrence of this problem in the next year, and that is included as a priority in the formulation of the fiscal policy for the year 2013.

Yet, I must emphasize that this decision was not made only because of your requirements and criticism, but also because of the assessment of the economic team that the policy so far has given its effects, in a maximum time, and that it should undergo some small corrections, so it does not become counterproductive. Or again, in medical terms, time for a slight change of the therapy has come, of course if we compare the European debt crisis with an ongoing disease, and it is the obligation of the economic team is to deal with it.

As already stated, Macedonia is a country that international financial institutions list among the countries with lower budget deficit and debt in Europe, sound and stable macroeconomic policy. In these times, that is a great advantage, and important information for any potential investor. Our plan is for Macedonia to continue to be one of the countries with the lowest budget deficit despite the fact that in modifying this concept  a small increase in the budget deficit by about 1 per cent for this year and 1 per cent for next year is anticipated, in other words approximately three and a half percent budget deficit in 2012 and about 3.5 per cent in 2013, with a tendency of its further reduction after 2013.

We shared these intentions with the representatives of the international financial institutions like the IMF and World Bank. They considered positive this little short-term change in macroeconomics. I would like to emphasize that the World Bank had fundamentally announced the willingness to help us through the issuance of special guarantee for Macedonia, in order for the closing of the budget deficit for this year and the next 2013 to be at the lowest possible cost, or, more precisely, with an interest rate on the open market of about 4.5 per cent, which at a time when market interest rate for Macedonia is about 8 to 9 per cent at the moment, you will agree, is an excellent combination. It is important for them Macedonia to remain macroeconomic stable state, remaining between the 4. or 5. lowest indebted countries in Europe, and between the ten states with the lowest budget deficit in Europe, at the same time, eliminating or minimizing problems with the late payments of budget institutions.

These policy adjustments, although we are aware that they might have small short-term negative reflection in the grades of the rating agencies, will help us overcome the problem of payment delays from the state institutions including the VAT refund, helping the current projects that provide work for hundreds of companies in Macedonia to continue to run with satisfactory dynamic, but also the retention of thousands of jobs, which certainly will have reflection on the GDP growth, future revenues in the budget and employment.

Demography

Please allow me to briefly address an issue that is often neglected, and that is important for the economy - the demography. Macedonian population from year to year is in decrease. In the year 1950 - 50 thousand children were born in Macedonia, in 1960 - 42 thousand children, in 1970 – 37 thousand children. Downward trend in the number of births continues, and in the year 2000 - 29 thousand children were born, and in 2010 - 22 thousand children.

So, in 1950 - 50 thousand children and in 2010 - 22 thousand children, and which is more than twice less. You know that the economy is composed of people, there is no economy without people. If there are no people, there is no selling, no interest from investors, nor any serious economic growth. The problem is not only about poverty, because if you do a mathematic calculation about yourself, managers and owners of companies, present here today, about the average number of children you have, and those older among you, what is the average number of children of your children, then you will realize that the problem is much bigger than unemployment and poverty, because in this room there are no poor,  nor unemployed people. This problem is also European and the richest European countries, such as Germany, France and others are concerned by it. At the present time they solve this problem with the import of economic migrants from Africa, Asia, and Eastern Europe. We as a government have undertaken certain measures, but the problem is in the people’s minds and that is difficult to alter.

Without pretensions to find a solution to this issue today, I felt the need to elaborate it, as a severe recession of newly born children, a recession of the birth rate, recession of the nation, which is a more dangerous recession than the one we are witnessing today in the economy. Think deeply about this issue, and let us try together in the future to open a public debate on this issue.

Distinguished businessmen,

Let me now describe the situation and perspectives of the Macedonian economy from another aspect, too. Until now, I have been talking about what the country is doing, and will keep on doing for the business. Now, let me talk about and open a debate on what business can do for the business.  In doing so, I hope I will not be understood wrongly that I am teaching you lessons on how to run a business. You know this job very well and you run it successfully for years. However, there are some issues that you are familiar with, but I consider it useful to draw the attention on them again.

We, as well as whole Europe, are living and working in the conditions of crisis for 4 years, and occasionally in a recession, too. In the world, there were crises through the history, and certainly there will be crises in the future. Some economists see these crises as a cyclical phenomena emerging as a result of accumulated weaknesses in particular period of time.

However, it is a fact, not just a saying, that in the same time each crisis is an opportunity. Seen through the history, during the both smaller and more serious crises, many companies, have considered these crises as their chance, a moment, when they can “conquer”, in economic sense, other’s territory through strengthening their competitiveness, among other things, through innovation, taking risks etc. This is a time when we need to think more about that. This is the time when many of your colleagues are “drowning” in troubles all over Europe, each of you to think what novelty can you  introduce and to take advantage of this crisis in order to become stronger and more competitive.

This is a time for action. Not only for an action to survive, but an action for growth. It is much harder to make a breakthrough when there is not a crisis than in times of crisis on the European market and beyond. That breakthrough is much stronger and it will exist longer than when the market grows and your deals are growing, too. Yes: but when the market starts falling, you deals will fall too.  

Therefore, I am talking of immediate breakthrough, a breakthrough based on increasing in the competitiveness of your product, quality improvement, reducing costs, attracting as good human resources as possible, innovative ideas, creating a new advanced product which will provide you with an advantage in the long run. 

I know that many of you already do this. But, still I would say: If things are not going well with some product or a company, think, change something, reorganize, appoint better management, bring new creative people in your team, innovate a new product, redesign the existing one, do something new in your marketing etc. Let’s act! Let’s be innovative, creative, aggressive on the market in Europe and the world, the domestic market is a very small one, the regional one is poor, we should look for as many partners as possible in Europe and beyond it, we must go further the former SFR Yugoslavia, we must think in that way.

The German chancellor Angela Merkel has very clearly pointed out to the companies: Europe needs to be competitive and we need to be competitive too if we want to remain an economic partner to the USA. This needs to be based on the power of the competitiveness.

People who are leaders in your sector worldwide had started with very little capital…some of them with only 200USD…everyone can succeed, but one must work hard, and try with continuous attempts, one must get into highly estimated risk, sometimes one may not succeed, but he must go on with the attempts.

The richest man in the world, Carlos Slim, during his recent visit, told me about his life path. He started with 200USD from his father. Today, he is the richest man in the world. Everything he achieved is due to his mind, creativity, self-confidence, entrepreneurial and innovative spirit, always one step ahead with ideas, in the sectors he works in.

The richest man in Europe, the owner of ZARA and many other brands, has started as a salesman in a textile shop, and later, in their living room with his wife, they had started to cut and sew for their own first rented boutique.  

I do not say this only for you who are here today, but also, for the citizens who do not believe in themselves. Every individual carries a potential in himself, but not everyone is using it fully and right. Many people in Macedonia lack self-confidence, they do not believe in their opportunities, potentials, capacities, and they are not trying.

They constantly search for some other’s fault, sometimes it is the banks, sometimes it is the state or parties, sometimes it is the competition etc. They are too much bothered with all that, even though all weaknesses need to discussed openly, but not just stopping there. Because, in all problems, if one is more energetic and ambitious, there are chances for success.

This must be changed. We must work more and there have to be continuous struggle and constant attempts. Recently I have visit Turkey, a country with a serious economic rise. What I have noticed was that every person, especially every young man, is educated in such a way to think constantly how to work and how to earn, how to learn something and how to make a business out of it. For instance, a young boy is being employed in a pastry shop in order to learn in few years how pastry is made, to earn a little bit and after a while to open his own pastry shop as a business. Here, 90 percent of the people for instance don’t event think of working in such an activity, and 99 percent of those employed there don’t have an ambition to develop there own business one day. Simply, the society there has an entrepreneurial thinking, they are raising their children and live in such a manner. And if this is the example of Turkey, there are even more examples of this in the United States, Israel, Canada, Sweden, Italy ... We must change our mindset. We must struggle harder and constantly try to succeed.

I know that many of you at the moment are saying – what is this man talking about, does he know what kind of problems we face, what problems we have with the banks, does he know that we have difficult access to credits, reduced orders, over employment, low liquidity… who from Macedonia who can make a better innovation than those by the European giants in the sector where we are, and many other counter arguments to my address… Probably to many of you, all this looks too theoretical and impossible in practice in the Macedonian circumstance, but it is not. We shouldn’t  underestimate, nor overestimate ourselves. A serious attempt is needed, or persistent attempts, because often the first attempts are unsuccessful.

I know that some of you, I emphasize, some, not all of you, think like this: I have enough money for me and my family. If the worst happens, if my company is in troubles…Ok, if I have to, I’ll fire some of my employees, I’ll reduce salaries and other costs, and I’ll probably survive the crisis. And when the crisis will pass, and the European market in my sector begins to grow, there will be more deals and I’ll recover.

Ladies and Gentlemen,

This is a philosophy of the poor, an austerity plan without plan for growth and development. The philosophy of the rich is not only how to save some money, but how to earn more in every situation, with or without crisis.

Today the world is globalized, and our market spreads from Japan, through China, Russia, Europe, and to the west coast of America, from Sweden and Norway to the South African Republic. There aren’t any more far and near countries. Normally, with some products, transport costs play a key role, but for most of them, these costs do not play such a crucial role. Sometimes, as in software production, they almost do not exist.

This is a time when we all need to fight for new markets. If we wait for buyers or investors to come to us, they either will not come, or if they do- there won’t be good conditions. As we, from the Government, went from country to country, from city to city, from firm to firm, in this difficult time when there are less opportunities for new investments, every businessman should do this, too. Do not wait, look for export markets. But first, think of something that will be an added value for your company and product that you offer.

We, in the Government for example, first of all, have created economy with competitive advantage, a country with the lowest costs in Europe, the lowest taxes, one of the most favorable climates for doing business, reduced corruption, which was concluded by the  international institutions that have the credibility to follow this issue, helped to create many highly educated people by opening new universities, colleges, dispersed studies, cheaper studying, 99 per cent of the high school students enroll at universities, free trade with Europe, Technological-Industrial Development Zones with the best conditions in Europe, and even then, after having created a competitive package of offers, we set off  with these and many other advantages which I have mentioned, to present them to the world. To present Macedonia as an excellent location for opening new or transferring their existing factories. All this is aimed at looking for and attracting investors that will open new jobs in Macedonia, boost the economy and exports, adopt new technologies, knowledge etc.

Thus, you, too, should introduce novelties in your companies, in your products, and you should go and make efforts to sell your product. Certainly, I know that you are already doing it, but more can always be done and in a more prepared and more competitive manner. I am saying this because I know you can, because we already have successful examples. If the company Seavus can sell applications and software to Sony Ericsson, the others from that sector can also to do the same, and I know that some of them already do. If the company Hi-tech can produce electronic boards for Siemens and Boeing, or Mikrosam - Prilep can produce and sell machines for military and civil aviation industry to the rest of the world, or Alkaloid can sell Macedonian tea throughout the largest supermarket chains in the United States, or Ruen - Kochani can sell components for the French automotive giant Valeo,  and Ein-sof can produce software for Johnson Controls, FXZX - create cinematic animations for Hollywood and Oscar film industry, Makprogres - export confectionery products in over 40 countries, Sipo – Ohrid -  produce car safety belts for Volvo, Vitaminka - be present in so many countries, as well as many other companies present here today;  then many others can do the same.

When speaking of financing, do not forget that:

Macedonia is not the only country with banks, and your project does not have to be funded, at any price, exclusively by a bank in Macedonia. For a good project, there are many others in Europe and elsewhere that would be willing to support it. Indeed, to communicate with the bank you will need people who know how to do it, and your job is to try.

And another important fact:

- the banks in Macedonia have not had such a major liquidity for 10 years as they have it today. They look for quality projects. I know that some of them have restrictions from the parent bank, but most do not, and they categorically claim that in Macedonia there is a lack of quality projects and business cases, which is confirmed by the fact that the number of non-performing loans is rising.

This does not mean that there is no room for improvement in the banks’ operation, and that they have no weaknesses in terms of their work with the real sector, such as  rigidity and distrust, but I encourage you for a greater engagement in designing projects. It is not only good for the bank, it is also good you. Your risk will be lower.

The state will help as much as it can, but you must constantly be up to date, and one step ahead the competition, to think and act globally, not locally, as many others already do. That is the only way your business will grow on stable foundations.

Do not forget that you live and work in a country, where the labor price is more competitive than in East china, a location from where the largest companies cover entire continents with their production, since they have moved there their factories from where they produce for the entire Asia and very often also for Europe and America and the other continents. Take advantage of that as long as it exists.

One of the important things is to find associates, managers, employees who will be struggling along with you, and to invest in them. With creative, knowledgeable and  motivated people everything can be done. When you employ your personnel, you should be aiming towards people who either are intellectually, and as a business profile, better than you, or have a potential of becoming better than you after several years of investment in them. Only with people like these and with this manner of thinking you will succeed. These people, along with you, of course, will bring innovative ideas, new spirit, new energy, new knowledge, new creativity, new or modified product, new partner, new sales contract, new exports, new markets, new investments, and all these for you and your firm. But, you need to find them, to spend some time, to accept and motivate them, to invest in them, and then to benefit from them, YOU I emphasize. In Macedonia there are plenty of people of this kind and if there are not enough for a specific segment, then bring them from abroad. It is important to succeed. From our point of view as a government and representatives of the state, such an approach will bring new jobs and more competitive economy. Your success will also be the country’s success and a success of all its citizens. But, you must have more trust in yourself, to upgrade yourselves and constantly make attempts.

Everywhere in the world the innovation is a specific tool of entrepreneurs, a mechanism by which they exploit change as an opportunity for a different business or a different service. As Philip Drucker wrote in his book, “Innovation and Entrepreneurship”, it can be presented as a discipline, it can be learned and practiced. Entrepreneurs need to search for the sources of innovation, changes and their symptoms that indicate opportunities for a successful innovation. They need to know and apply the principles of successful innovation. Entrepreneurs are still a minority among new businesses. They create something new, something different, they change or transform values. At the same time, an enterprise does not have to be small and new to be entrepreneurially orientated.

And precisely in such a spirit the Apple philosophy of innovation was created: creativity starts with asking questions. Innovation happens when some of those questions will get an answer. If there are no questions, there will not be answers. If there are more questions, there will be more answers.

Ladies and Gentlemen,

Europe will have a long road of recovery from the current crisis, but I think it is on the right track. We, as an economy that exports 90 per cent of its goods to Europe, will continue with measures to help Macedonian companies and citizens to mitigate that crisis, and for a faster improvement. As previously, we have to cooperate together, the Government and Parliament in contact and communication with the Central Bank, chambers of commerce, companies, trade unions, citizens, NGOs, friends from the international community, the opposition, experts ... to listen, discuss and take the best steps at any given moment. I am optimistic about 2013, despite the evident challenges in Europe and the neighborhood. Together with my team, I will continue to work day and night for the sake of Macedonia and all its citizens.

 

 

 

 

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