FEAS Yearbook FEAS Yearbook 2013 | Page 65

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-on- year 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, cross- border 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 [email protected] Website www.mse.com.mk PAGE 63