How to start a business in Macedonia?

Starting a business is a well-spread idea among young Macedonian people, but many of them face major difficulties in developing their activity and being successful in it. How can the situation on that front be assessed and what are the tools for young people that can help them to be more enterprising and successful?

Macedonia economy is characterized by a certain number of pros and cons for young entrepreneurs. Among these disadvantages, the GDP per capita in the country is one of the lowest in Europe, and it severely hinders any kind of personal investment in a business project, whether it is foreign or not. The country’s economy suffered from the 2001 insurgency and the global crisis of 2007-2008 after years of positive trends, but it still encounters substantial foreign trade deficits, which do not facilitate reinvestments.

However, and despite its small size and modest domestic market, Macedonia presents a number of truly remarkable advantages for potential investors: first of all, it has one of the most competitive labour costs in Europe, its inflation rate has constantly remained below 3,5% per year since 2012 while the EUR/Denar exchange rate has been almost unchanged over the last years. As

for the official unemployment rate, which has always been historically high, it has decreased over the past years (29 % in 2013, 26,8 % in 2015, 22,4 % in 2017, 18,4 % in 2020). What’s more, Macedonia offers additional incentives for development in the Technological-industrial development zones (TIDZs), in addition to those normally associated with free economic zones : investors in TIDZs are entitled to personal and corporate income tax exemption for the first ten years. Investors are exempt from payment of value added tax and customs duties for good, raw materials, equipment and machines.

These economic considerations facilitate the global understanding of the conditions in which businesses are undertaken in Macedonia. However, if we look more closely at the young entrepreneurs’ scale, we can see more clearly the problems that arise in Macedonia. A series of surveys and reports enable us to highlight these problems: the Updated report on the key constraints to the business environment first found out that the levels of entrepreneurial activity in the country have been stagnating in the past few years, and most new entrepreneurs have been motivated by necessity rather than by identified business opportunities. In parallel, the secondary and tertiary educational systems still do not provide the knowledge and skills relevant to the country’s economy and the business sector. The 2016 GUESS (Global University Entrepreneurial Spirit Students’ Survey) discovered that the main reasons hindering business startup are lack of financial means and access to finances due to low financial culture of early-stage entrepreneurs, including lack of adequate funds as well as entrepreneurship education at primary school and secondary levels. As for Startup Macedonia, it conducted research in 2018 in which entrepreneurs identified that the main challenge the companies are facing are improvement of growth. Moreover, the research was done by applying the method of entrepreneurial development stages and the different skills and knowledge needed to successfully transit from one to another, starting with prestartup, startup and growth stage. They have identified funding (66 percent), talent and expertise (55 percent), access to a new (43 percent) and staffing (31 percent) as top challenges for entrepreneurs.

As regards the business landscape in Macedonia, State Statistical Office data for 2019 provide us with data: 80.1 percent of the companies have between 1-9 employees, 4.2 percent have 10-19 employees, 2.9 percent have 20- 49 employees, 1.8 percent are in the category of medium enterprises and only 0 .3 percent are classified as large enterprises with over 250 employees. As a result, Macedonian MSMEs (Micro, Small and Medium Entreprises) account for more than 99 percent of all firms, providing 67 percent of value added and 77 percent of employment. However, according to a study led by the International Labour Organization, Macedonia cannot realize the potential of MSMEs for creating additional jobs while the EU MSME employment grows almost 50 percent faster than total employment.

The Macedonian State offer solutions for young entrepreneurs who wish to launch a new business through the governmental agency "Invest North Macedonia". This latter was founded in 2005 with several missions such as these: attracting foreign investments, promoting the export potential of local companies to foreign markets, supporting investors, and establishing and enhancing business cooperation with local entities. In other words, when a potential investor wants to explore opportunities in Macedonia, their task consists in designing a tailor-made program to show the investor what Macedonia can offer on the current business climate, in comparison to neighboring countries. This work with investors goes from the preinvestment phase through the actual investment and beyond. It encompasses an evaluation based on the potential success of the entrepreneur’s project. With their aftercare team, Invest North Macedonia provides assistance by mediating -on the supported business’s behalf- with local authorities and the Macedonian government to support the expansion of the business as well reinvestment plans. It also helps in obtaining required permits.

There are, however, some conditions for the granting of a financial aid, according to the Law on the Financial support of Investments. The financial aid can be granted for new employments, cooperation with local supplies, research and development centers and activities, investment projects of enormous economic interest, capital investments, support for acquisition of companies that are facing difficulties or the growth of the competitiveness of companies.

Yvan Barbeau

Sources : PwC: Guide to Doing Business and Investing in Macedonia Invest North Macedonia: About us Invest North Macedonia: Business Operations Invest North Macedonia: Financial Aid Entrepreneurship Ecosystem in North Macedonia Market Assessment (Makedonka Dimitrova)