JUNE 2013 - FEAS

FEDERATION OF EURO-ASIAN STOCK EXCHANGES ANNUAL REPORT JUNE 2013
MACEDONIAN STOCK EXCHANGE
CAPITAL MARKET DEVELOPMENT
AND ECONOMIC OUTLOOK
Overview
1. The economy was less affected by the
global economic and financial crisis than many
regional peers but the impact of the Eurozone
crisis has been felt strongly in 2012. With a
GDP growth rate of 2.9 per cent, Macedonia
was among the strongest performing SEE
economies in 2011. However, the impact
from the Eurozone crisis began to be felt in
the second half of the year and a significant
slow-down has followed since. In the first half of
2012, the economy contracted on a year-onyear
basis on account of the weaker export
demand as well as the impact of lower foreign
direct investment and reduced remittance
inflows on domestic demand.
2. Inflation stayed relatively low in 2011 and in
the first half of 2012, but it accelerated recently,
reaching 5.3 per cent year-on-year in September
2012. This is a temporary spike caused by
rising food prices as well as increases in
pensions and the introduction of a minimum
wage. The currency remains pegged to the
euro and international reserves are at relatively
comfortable levels of 114 per cent of short-term
debt and about four months of imports.
3. Fiscal targets have been met, but arrears are
present. Given the currency peg to the euro
and the limited sources of external funding,
the government has implemented relatively
tight fiscal policy. Over the past two years the
government maintained the budget deficit within
the targeted 2.5 per cent of GDP on a cash
basis; in 2012, it is likely to reach 3.5 per cent
of GDP. The government is taking measures
to clear part of the accumulated budgetary
arrears and delayed VAT refunds. In 2011 the
government drew on the precautionary credit
line (PCL) from the IMF to finance expenditures.
The second review of the PCL was not
completed, mainly because of IMF concerns
about the arrears problem. The PCL is now
dormant and will formally expire in January
2013.
4. The Eurozone’s difficulties will continue to
dampen growth prospects in 2012 and 2013.
Following the contraction in the first half of the
year and in light of continuing weakness in the
Eurozone, growth in 2012 will be minimal at
best. A modest recovery is likely to occur in
2013 to around 2 per cent. A pick-up in growth
is expected in the medium term, as the regional
economy recovers and as Macedonia reaps the
benefit of sustained macroeconomic stability
and investor-friendly reforms introduced in
recent years.
5. Moving to the next phase in the EU accession
process remains stalled because of the
name issue. Since receiving candidate status
in December 2005, Macedonia has made
considerable progress in EU-oriented reforms.
The country is on track to fulfilling the political
and economic criteria for accession, but the
name dispute remains a key obstacle to further
advancement of the membership application. In
March 2012 the government and the European
Commission (EC) launched a High-Level
Dialogue to boost the reform process. In its
latest Progress Report, published in October
2012, the EC noted that this new Dialogue had
already served as a catalyst for reforms in a
number of key policy areas in 2012. The EC
reiterated its recommendation for the opening
of EU accession negotiations, stressing that this
would consolidate the pace and sustainability
of reforms.
6. Privatization is largely complete, but efforts
to sell some of the remaining state-owned
enterprises have been unsuccessful. A number
of attempts have been made to sell the state’s
76.6 per cent stake in chemical manufacturer
Ohis, but there have been no successful bids
so far. Similarly, efforts to privatize the electrical
engineering company EMO Ohrid, the tobacco
company Tutunski Kombinat AD Prilep and
the manufacturer of military kit, 11 Oktomvri
Eurokompozit over the past few years have also
failed. These four companies remain on top of
the government’s privatization agenda. State
capital remains concentrated in the energy
sector (power generation and transmission
companies are state-owned) and public utilities.
The state also owns a significant minority stake
in the country’s profitable telecommunications
company, Makedonski Telekom.
7. Macedonia continues to perform well on
business environment indicators. According
to the 2012 World Bank’s Doing Business
Report, Macedonia made the third highest
improvement in ranking, moving up 12 places
from 34th to 22nd (out of 183 countries) for
overall ease of doing business. This places the
country significantly ahead of regional peers
on this business environment measure. The
largest improvements were noted in dealing
with construction permits, registering property
and getting credit. The country still performs
relatively poorly on access to electricity, crossborder
trade and contract enforcement.
8. The country has attracted significant new
foreign direct investments in 2012. The most
notable is a EUR 300 million construction
project in Skopje by the Turkish company
Cevahir Holding, which will include a shopping
center and four skyscrapers. In July 2012 an
agreement was signed for the largest German
CONTACT INFORMATION
Contact Name Ms. Evita Ivanova E-mail mse@mse.com.mk Website www.mse.com.mk
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