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CONTEXT AND TRENDS
The landlocked Republic of Macedonia continued to make slight progress in the face of historical challenges it inherited. The country is a candidate for accession to the EU and is one of five remaining candidate countries, after the 2007 enlargement, along with Iceland, Montenegro, Serbia and Turkey....

CONTEXT AND TRENDS

The landlocked Republic of Macedonia continued to make slight progress in the face of historical challenges it inherited. The country is a candidate for accession to the EU and is one of five remaining candidate countries, after the 2007 enlargement, along with Iceland, Montenegro, Serbia and Turkey. Accession to the EU is a critical concern of the country's government; however, this is continually hindered by its still unresolved dispute with Greece over its name. The EU currently refers to the state as the Former Yugoslav Republic of Macedonia rather than by its constitutional name and this issue prevents its membership not only of the EU but Nato too. Additionally, Greece's impact does not only affect the country in the political domain. "We exchange goods with Greece a lot," one partner says, "the crisis will have a very strong impact as the Greeks are not investing at the moment".

The country held early parliamentary elections on June 5 2011 and so this stalled the legislative process. Nevertheless, the government does make a big effort in attempting to attract foreign investors. "They have been doing several international road shows in Europe but also in the Asia and Pacific region because of the debt crisis in Europe." This seems to be having an effect as there is interest from Turkey in the real estate sector and investments from India and Germany are expected. Moreover, the market braced itself for a rather large investment in the €600 million to €1 billion range from the Netherlands in the agricultural sector. Furthermore, with a flat rate tax of 10% on corporate and personal income, the country has one of the most attractive tax packages in Europe. "The government is driving economic growth. The main investor was the state. Last year there was a 3% GDP growth and expectations are even higher but the crisis in Europe influenced it," one partner says. Some commentators, while happy with this progress, are dissatisfied with its scope and point to the need to further improve the legal environment.

The economic crisis in Europe has certainly affected Macedonia as banks are more restrictive and less willing to extend credit. "They're more careful and try to protect themselves. There are stricter criteria for giving loans," one partner says. The market may not be so attractive for banks but International Financial Institutions (IFIs) remain the main drivers and provide most of the credit lines, while domestic banks cover the smaller investments. In fact, in Macedonia there are not a lot of international banks but the French, Greek and Turkish banks, for example, are present through the domestic banks.

On account of its location and relative stability, Macedonia is an emerging hub for automotive components. "One of the attractions of foreign investment is that we have cheaper labour and an attractive tax rate. Also, the position of Macedonia provides easy access to [other] European countries," one partner says. M&A activity is scarce but there does seem to be some corporate restructuring mandates. There are also a number of photovoltaic and hydropower plants are in construction.