The Macedonian Economy

The transition process of the Macedonian economy started at the end of 1995. The other countries in Eastern Europe had commenced the process several years earlier. Macedonia’s delay was a result of a series of factors that left gross economic consequences: the disintegration of former Yugoslavia (1990- 1992), the imposition of sanctions against FR Yugoslavia (spring 1992 – autumn 1995), and the Greek embargo (February 1994 – September 1995). Therefore, Macedonia suffered severe damages. With the dissolution of the Yugoslav market, Macedonia lost a great portion of its traditional markets. The sanctions against Yugoslavia caused losses topping 3 billion dollars. The Greek embargo blocked the main traffic artery towards Europe along which 90 percent of Macedonia’s exports ran. The sanctions coupled with the embargo increased the prices of the Macedonian products by around 80 percent on average.

During this period, almost all relevant macroeconomic indicators had a downward trend. The first modest GDP increase was registered in 1996. In the following couple of years the Macedonian economy took an upward course as a result of the well-carried out strenuous reforms. Macedonia managed to end 1999, an extremely difficult year due to the Kosovo crisis, with a 2.7% GDP growth rate, followed by a 5% GDP growth rate in 2000. The positive trend, however, was thwarted in 2001 because of the military crisis in Macedonia. In 2001, the inflation rate reached 5.3% and the GDP fell by 4.5%. In spite of the 4% growth of GDP projected for 2002, estimates of the State Bureau of Statistics show a minimal growth of GDP of 0.3%. Estimates for 2003 are a GDP growth of 3% and an inflation rate of no more than 3%.

MONETARY INDEPENDENCE

The monetary modernization developed mostly between 1993 and 1996, mainly by severing ties between the National Bank and the financing of agriculture through the primary issue models. In addition, ties were cut off between the monetary and the executive branch and as a result of certain legislative modifications the National Bank became independent in managing its credit and monetary policy. Macedonia proclaimed the internal denar convertibility and the National Bank said it would not directly determine interest rates of commercial banks. Finally, banks underwent a rehabilitation process considering their poor solvency and the fact that almost 80% of the bank credits since Macedonia’s independence were non-performing loans. The Republic of Macedonia assumed from bank balances liabilities incurred by using foreign credits from the Paris Club and the London Club, as well as the foreign exchange saving debts.

The arrangements with the IMF and the World Bank helped Macedonia sort out problems related to the deficits in the balance of payments and helped to obtain other financial aid in the form of grants or "soft" loans from developed countries. The arrangements with the IMF and the World Bank also helped Macedonia to regulate its relations with the Paris and the London Club of Creditors. So since independence till the end of 2001, Macedonia managed to repay external debts of $713.8 million.

The arrangements with the international financial institutions and the fulfillment of the criteria for their execution were conducive to a disciplined conduct by all relevant entities in the realization of Macedonia’s economic policy, and attaining a macro-economic stability as a precondition for a sustainable economic growth.

MACEDONIA – IMF. The country started its cooperation with the IMF on 14 December 1992 and has so far concluded a number of arrangements with this international financial institution. The first arrangement with the IMF for structural adjustment of the economy was carried out in 1994. For the following two years, Macedonia entered a stand-by arrangement that was also successfully put into practice. At the beginning of 1997, the ESAF/PRGF arrangement came into effect. The process was scheduled to take three years, but was terminated in 1999 in the heat of the Kosovo crisis when Macedonia suffered enormous losses and had to put up around 300,000 refugees. Macedonian and IMF officials agreed then to replace the ESAF with an EFF arrangement approved in late November 2000. According to the IMF rules, EFF arrangements are concluded with countries having suffered substantial economic loss.

Once the Kosovo crisis was over, negotiations were resumed and resulted in a new PRGF arrangement in December 2000. However, the outbreak of Macedonia’s military crisis put the arrangement on hold. In the period January-June 2002, Macedonia was under the Staff Monitoring Program. The Government started negotiations for a new arrangement with the IMF in November 2002. Negotiations continued in January 2003, and the IMF Board of Directors approved a standby arrangement on April 30. The arrangement worth $27.6 million covers a period of 14 months and will be realized from April 2003 until June 2004. The conclusion of the arrangement enabled the release of $153 million from the donor conference held March 12, 2002 in Brussels.

MACEDONIA – WORLD BANK. Macedonia joined the World Bank in 1993 and is represented within the Dutch constituency of countries along with Armenia, Bosnia & Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Israel, Moldavia, the Netherlands, Romania and Ukraine. Since Macedonia became a member of the World Bank Group in 1993, the World Bank has approved 20 IDA credits and 12 IBRD loans for the Republic of Macedonia for 25 projects, totaling more than US$ 630 million.

The main spheres of the World Bank support to Macedonia are social protection and health, agriculture, infrastructure, legal reform, public sector management and power sector reforms.

Ever since Macedonia’s admission to the World Bank in February 1993, the Bank has been working with the government to promote productive sector development and to support stabilization and structural reforms with analytical inputs and adjustment lending. The cooperation also encompassed activities to strengthen the social safety net, education and health through investment lending and technical assistance and to improve infrastructure facilities. The joint efforts of the World Bank team and Government officials resulted in the preparation of the Country Assistance Strategy (CAS) in 1998, with three main aspects: promoting private sector growth and job creation, enhancing the efficiency of the state and alleviating poverty, and developing human capital. A CAS Progress Report was issued in June 2000 to take stock of progress in CAS implementation and to assess the impact of the Kosovo crisis on the country.

Bearing in mind the conflict in Macedonia in 2001, the World Bank prepared a one-year Transitional Support Strategy that provided a framework for rapid Bank intervention in the post-conflict period. According to the analyses of the Bank, Macedonia was to surpass from IDA financing in 2001, but because of the consequences from the conflict, the Board of Directors of the World Bank agreed to an additional exceptional allocation of IDA funds through out 2001 as well. Thus, the World Bank was among the first that gave urgent financial aid after the conflict in 2001 by donating US$ 15 million in emergency economic assistance needed to finance critical imports for the private sector. Apart from that, the Bank and the European

Commission in March 2002 organized theDonor conference for Macedonia in Brussels, on which the state-donors approved US$ 275 million to assist the BOP, the implementation of the Framework Agreement and reconstruction of damaged infrastructure.

RELATIONS TO IMF AND WORLD BANK

The arrangements with the IMF and the World Bank helped Macedonia sort out problems related to the deficits in the balance of payments and helped to obtain other financial aid in the form of grants or "soft" loans from developed countries. The arrangements with the IMF and the World Bank also helped Macedonia to regulate its relations with the Paris and the London Club of Creditors. So since independence till the end of 2001, Macedonia managed to repay external debts of $713.8 million.

The arrangements with the international financial institutions and the fulfillment of the criteria for their execution were conducive to a disciplined conduct by all relevant entities in the realization of Macedonia’s economic policy, and attaining a macro-economic stability as a precondition for a sustainable economic growth.

MACEDONIA – IMF. The country started its cooperation with the IMF on 14 December 1992 and has so far concluded a number of arrangements with this international financial institution. The first arrangement with the IMF for structural adjustment of the economy was carried out in 1994. For the following two years, Macedonia entered a stand-by arrangement that was also successfully put into practice. At the beginning of 1997, the ESAF/PRGF arrangement came into effect. The process was scheduled to take three years, but was terminated in 1999 in the heat of the Kosovo crisis when Macedonia suffered enormous losses and had to put up around 300,000 refugees. Macedonian and IMF officials agreed then to replace the ESAF with an EFF arrangement approved in late November 2000. According to the IMF rules, EFF arrangements are concluded with countries having suffered substantial economic loss.

Once the Kosovo crisis was over, negotiations were resumed and resulted in a new PRGF arrangement in December 2000. However, the outbreak of Macedonia’s military crisis put the arrangement on hold. In the period January-June 2002, Macedonia was under the Staff Monitoring Program. The Government started negotiations for a new arrangement with the IMF in November 2002. Negotiations continued in January 2003, and the IMF Board of Directors approved a standby arrangement on April 30. The arrangement worth $27.6 million covers a period of 14 months and will be realized from April 2003 until June 2004. The conclusion of the arrangement enabled the release of $153 million from the donor conference held March 12, 2002 in Brussels.

MACEDONIA – WORLD BANK. Macedonia joined the World Bank in 1993 and is represented within the Dutch constituency of countries along with Armenia, Bosnia & Herzegovina, Bulgaria, Croatia, Cyprus, Georgia, Israel, Moldavia, the Netherlands, Romania and Ukraine. Since Macedonia became a member of the World Bank Group in 1993, the World Bank has approved 20 IDA credits and 12 IBRD loans for the Republic of Macedonia for 25 projects, totaling more than US$ 630 million.

The main spheres of the World Bank support to Macedonia are social protection and health, agriculture, infrastructure, legal reform, public sector management and power sector reforms. Ever since Macedonia’s admission to the World Bank in February 1993, the Bank has been working with the government to promote productive sector development and to support stabilization and structural reforms with analytical inputs and adjustment lending. The cooperation also encompassed activities to strengthen the social safety net, education and health through investment lending and technical assistance and to improve infrastructure facilities. The joint efforts of the World Bank team and Government officials resulted in the preparation of the Country Assistance Strategy (CAS) in 1998, with three main aspects: promoting private sector growth and job creation, enhancing the efficiency of the state and alleviating poverty, and developing human capital. A CAS Progress Report was issued in June 2000 to take stock of progress in CAS implementation and to assess the impact of the Kosovo crisis on the country. Bearing in mind the conflict in Macedonia in 2001, the World Bank prepared a one-year Transitional Support Strategy that provided a framework for rapid Bank intervention in the post-conflict period. According to the analyses of the Bank, Macedonia was to surpass from IDA financing in 2001, but because of the consequences from the conflict, the Board of Directors of the World Bank agreed to an additional exceptional allocation of IDA funds through out 2001 as well. Thus, the World Bank was among the first that gave urgent financial aid after the conflict in 2001 by donating US$ 15 million in emergency economic assistance needed to finance critical imports for the private sector. Apart from that, the Bank and the European Commission in March 2002 organized theDonor conference for Macedonia in Brussels, on which the state-donors approved US$ 275 million to assist the BOP, the implementation of the Framework Agreement and reconstruction of damaged infrastructure.

The integration of the Republic of Macedonia in the European Union represents a clear and categorically expressed strategic interest and a priority goal in the policy of the Macedonian Government. The bilateral Stabilization and Association Agreement signed in April 2001 is the last stadium before Macedonia’s admission to the family of developed European democracies. The agreement, as part of the stabilization and association process, initiated by the European Union, represents its major contribution to the Stability Pact for Southeastern Europe. By the end of 2002, the agreement was ratified by the parliaments of Germany, Denmark, Ireland, Austria, Spain, Sweden, the Netherlands and United Kingdom. In 2003, the parliaments of France, Portugal, Greece and Luxembourg also ratified the agreement.

Macedonia is the first country in Southeastern Europe that successfully brought to an end the negotiations for signing of such an agreement. Another detail of this accord is interesting, and that is the fact that the Agreement was first ratified by the European Parliament before the separate EU members states did the same. The Stabilization and Association Agreement, as a complex and legally binding political act, places the Republic of Macedonia among the potential members of the EU and makes it a factor in creating a Europe of the future, a society with the highest democratic values, security for all its citizens and social justice.

From an economic point of view, the Agreement opened the doors to one of the largest, and financially one of the most powerful market in the world. The European family is the most significant partner of the Macedonian economy and within those frames, exports to the EU account for 50.7%, as imports account for 45.2% of Macedonia’s total foreign trade. Before the Stabilization and Association Agreement was signed, in 1997, Macedonia and the EU signed an agreement for cooperation, as well as textile, wine, and transport agreements. Macedonia’s most important trade partners in Europe are Germany, Italy, and Greece, and its most important export products are ready-made clothing, hot rolled and zinc-coated plates, non-alloyed zinc, wine, ferrosilicon, flexes, footwear, and cotton yarn. The export of these goods earns Macedonia an annual profit of around $400 million.

The Stabilization and Association Agreement between the Republic of Macedonia and the EU

has an asymmetrical model that regulates their bilateral trade relations. Under the SAA, the Macedonia-made goods imported in the EU will not be subject to customs and quantity restrictions, save for fish, sea products, veal and wine. Macedonian goods will be one-sidedly entitled to customs relieves in a ten years’ period of adjustment towards a future, limitless competition. The European Union is already allowing customs-free import of almost all the Macedonian products, and with the gradual trade liberalization on the Macedonian side, a free trade zone will be introduced over the next ten years. Within the framework of the SAA, special protocols regulate trade in, what are known as, sensitive sectors, such as textiles, and production of steel and steel products.

In March 1996, the Republic of Macedonia became a full member of the PHARE program and between 1996 and 1999, 100 million euros was granted to Macedonia in support of its reforms.

In January 2002, the European Commission adopted a five-year strategy for Macedonia for which

EUR 110.5 million was approved. The EU financial aid will be implemented through the CARDS program from 2002 to 2006 and will support the plan for stabilization and association of the West Balkan countries. Priority will be given to the democratic processes, the legal, economic and social development, ecology and other key matters in the process. An accent will be put on the promotion of the civic society and the inter-ethnic dialogue, and on reconciliation and prevention of any new conflicts. The money will also be used to support the process of creating effective market economy, promote trade, decrease unemployment, improve the judiciary system, reinforce border controls, protect natural environment and prevent money laundering. For the countries in the region

included in the process of stabilization and association - Albania, Macedonia, Bosnia, Croatia, and Serbia and Montenegro - the European Commission committed a total of EUR 5.5 billion.

In the next ten years, the EU, as well as other international political and financial factors are expected to show greater interest in the political consolidation of Southeastern Europe. In this regard, Macedonia is considered one of the leaders that should use its positive influence to help the countries of the Western Balkans get out of the crisis as soon as possible.

MACEDONIAN INDUSTRY OPENING TO THE WORLD

During the ten-year period of transition, the Republic of Macedonia focused on radical reform processes in state bodies, institutions and in the whole system in general, laying thereby special stress on its economy. The changes in the economic system were aimed at faster adjustment of the Macedonian economy to the market economy and were accompanied by respective laws. The principal accent of the reforms was put on the legal transformation of the state-owned capital, the corporate structure, the banking sector, the liberalization of the external trade regime and the customs protection. The opening of the Republic of Macedonia to the world also implied a higher degree of liberalization and membership of international economic organizations. Radical legislative modifications were also made in the area of taxes and customs tariffs, as special attention was called to the regulation of the conditions for enticing foreign investments, not just as a guarantee to investors, but also for the purpose of creating promotional measures for their stimulation.

The analyses of the structural changes in the production of the national economy revealed that Macedonia is capable of a successful transformation from a country in transition into a modern economy by means of intensifying private sector investments. Hence, in the past few years, activities to promote small and medium business developed in parallel to activities to increase the existing industrial structure. The restructuring of the production went in the direction of increased technological activities, more pronounced export orientation, higher degree of finalization and diversification of the structure by decreasing dependency on imported raw materials and energy, and development of new sectors.

The Republic of Macedonia does not lack natural resources (non-metal and metal ores, arable land and water) in order to raise primary agriculture on a higher level and adapt it to the demands of the choosy European and world consumer. Within the framework of the new development strategy, it was necessary to reconcile laws and make them compatible with the European legislation. Hence, over the past few years, all free trade agreements were signed in compliance with the European directives and the directives of the World Trade Organization. In the meantime, a number of laws were passed, such as the law on protection of consumers, the law on protection of industrial property, the law on prevention of monopoly and restriction of competition, the anti-money laundering law, the law on concessions, leasing, etc.

STEEL. As of 1 June 2001 Macedonian steel has been exported freely to European markets. Under Protocol 2, which is an integral part of the Stabilization and Association Agreement between the Republic of Macedonia and the EU, customs and quantity restrictions on Macedonian steel were lifted. The system of double control, however, stayed in force, which means that Macedonian steel products are freely exported to European markets, as the origin of the goods and the double control are the only non-tariff protection of the EU against Macedonian products, and represent a type of "self-restriction". The import of the same goods from the EU will be gradually liberalized within a period of 5 years of the day the agreement came into force. Protocol 2 gives the Macedonian Government the opportunity of establishing the necessary programs for restructuring and conversion of the home steel industry in a period of 2 years. Thus this sector will be able to survive under normal market conditions and to this end the EU will provide appropriate technical assistance. The European Union allows Macedonia, within 5 years of the day the SAA came into force, to grant state assistance to the process of restructuring in order to help companies having benefits to survive.

The amount and intensity of the assistance is strictly limited to what is actually necessary. Through the system of double control, Europe will keep close watch over the issuance of documents and certificates proving the origin of the steel products. Macedonian producers have also been warned to watch the potential danger of being used as a vehicle for exporting steel from third countries with a certificate for being made in Macedonia. The provisions of the SAA Protocol 2 are an extraordinary opportunity to export Macedonian steel to European markets. The project "Steel European Star 2001" has announced the perspectives of Macedonia as an epicenter of the regional metal complex. Makstil, the company that is responsible for this project, promoted the Macedonian steel, the steel with a "Macedonian sun", as a national product with identified standards, compatible with the European ones.

Makstil is a joint stock company and part of the Swiss Duferco Group. It is Macedonia’s largest producer of steel and steel hot rolled products. In 1997, Duferco acquired a 54.4 % stake of Makstil representing thus the first major industrial investment in the Republic of Macedonia. In 2002, it produced more than 270,000 tons of plates and just as much cast slabs. Its exports brought profits of around $45 million. Most of Macedonia’s plates are exported to the EU, the US, Croatia, Bulgaria, Serbia and Montenegro. The Macedonian steel meets world and European standards, and as part of the future modernization, Makstil uses the credit from EBRD in the amount of $15 million. These funds helped reconstruct lines for the continuous casting of slabs and for purchasing a secondary metallurgy furnace. With the modernization, Makstil will be capable of putting out over 400,000 tons of steel a year. According to a study prepared by the Skopje Faculty of Economics, in 2002 Makstil accounted for 5.5% of all Macedonian exports and 8.2% of industrial production in the country. Makstil is participating with 2.3% in the total GDP of the Republic of Macedonia.

TEXTILE INDUSTRY. The Macedonian textile industry has fared considerably well over the past decade of transition, as Macedonian textile products managed to impose themselves on the European and the world market with their standardized quality and design. Therefore, it is no wonder that more than half of Macedonia's major exported products are textile-related. Their export to the EU alone earns Macedonia an annual profit of more than $250 million. The textile industry as an export-oriented branch exports most of its output to EU business partners. The trade is regulated by the Agreement on Textile Products between the Republic of Macedonia and the EU.

The Macedonian textiles are mainly exported to Germany, Greece, the Netherlands, Great Britain, France, Italy, Belgium, and Denmark. Exporting men's and women's shirts and blouses, jackets, trousers, dresses, skirts, and working overalls make the greatest profit. Still, the outsourced production is the principal feature of the Macedonian export of textiles, as classical exports play a minor role. Teteks and Mateks were the textile giants, the capacity of which was destroyed during the armed conflicts in the west of the country.

An important segment in the implementation of the Agreement on Textile Products between the Republic of Macedonia and the EU is the origin of the products. Textile products are labeled Macedonia-made provided that the industrial phases (production of yarn and fabric) preceding the finished product are carried out at home. This precondition presents a problem because most of the Macedonian primary production facilities have closed down.

FREE TRADE AGREEMENTS. Ever since its independence, the Republic of Macedonia committed itself to developing open market economy, the principles of which are incorporated in the bases of its institutional system. Around 80 % of Macedonia’s overall trade in 2002 was carried out under the preferential conditions of liberalized trade. Macedonia concluded ten free trade agreements, with Slovenia, Croatia, Serbia and Montenegro, Bulgaria, Turkey, Romania, the EFTA countries, Ukraine, Albania and Bosnia and Herzegovina, and the Interim Trade Agreement with the European Union.

The fact that 85 % of the Macedonian export is targeted at customs-free foreign markets shows that the preferential treatment of certain goods is of major significance to the position of the Macedonian export. Free trade agreements provide entrepreneurs, who decided to invest in Macedonian production, with a customs-free market for their products, which is among the largest in Europe with more than 400 million consumers. Macedonia is the leading country in the region by the number of concluded free trade agreements.

The prime feature of Macedonia’s external trade policy is building of open trade relations in the international economy. The process of trade liberalization with the countries deemed as Macedonia’s greatest trade partners is of special importance. In this regard, with the extant legal frame, the area of foreign investments is fully liberalized too. Property, rights to property,

The natural potential and the available resources make the Macedonian energy sector very interesting to foreign investors. Under the development plans and the energy laws of the Republic of Macedonia, taking into consideration that Macedonia’s sources of energy are not fully tapped and activated, it is indispensable to revitalize and modernize the capacities functioning at the moment. According to experts, a number of potential sectors for investment have been detected, such as construction of new hydro-electric power stations with a total installed power of 900 megawatts, and a steam power plant and a natural gas power plant with capacity of 200 megawatts. A feasibility study is being prepared for broader use of the natural gas. If this happens around 50,000 flats will be heated in Skopje alone. Works are underway to extend the gas pipeline covering thus more industrial facilities across Macedonia.

Macedonia has 800,000,000 tons of lignite and hydro-potential of 6,440 million kWh a year. The utilization of its water resources, however, is 1,500 million kWh a year. As far as the geothermal water is concerned, Macedonia has a total heating power of 173 megawatts, total power of 1,400 liters per second, and available exploited reserves of 1,000 liters per second. In the total industrial structure, the production of coal participates with 2.1 %, the production of electricity accounts for 17.4 %, and the production of oil derivatives makes up 0.5 %.

The government of Prime Minister Branko Crvenkovski stopped the process of fast privatization of the Macedonian Electric Power Company. According to the new concept, the process of structural reforms in Macedonia’s energy system will contain several time-limited steps with optimal duration of 3-5 years – restructuring and economic-financial consolidation of the company; liberalization of the electric power market; restructuring and free capital transfer and profits are all guaranteed to foreign investors.

The fact that the imports from countries with which free trade agreements were signed account for 75 % of Macedonia’s total imports reveals that Macedonian businessmen supply the major portion of the necessary raw materials, intermediate goods and energy under preferential conditions of customs exemption or minor customs tariffs.

This also points to the relevance these agreements have for the competitiveness of the Macedonian products on foreign markets. Free trade is a reality that affords entrepreneurs in the Republic of Macedonia the opportunity to check the competitive level of their products in terms of quality, design, standards, and world market price. It also creates conditions for transfer of capital, experience and management, and launches individual capacity into developing its own recognizable brand and name.

INNOVATION. The materialization of thoughts and the market promotion of ideas is the primary mission of Macedonian innovators, who accepted the challenge of the competition, relying on their own forces being our greatest resources. The most convincing proof of the success of the Macedonian innovation is the numerous awards at prestigious international events promoting the results of the Macedonian innovators.

Innovation deserves full support considering the fact innovations open doors for Macedonia to the developed world. Almost every year, Macedonian inventors return from the world exhibition of innovations, research and new technologies, Brussels Eureka, with a wealth of gold and silver medals. A few years ago, the Macedonian delegation returned form Eureka with the first award, the Grand Prix, from the international jury for the invention System for Absorption of Exhaust Gases. At the 50th Brussels Eureka 2001 World Exhibition, 2 inventions of the team of inventors, employees or associates in Prilep’s Mikrosam, were presented with a gold medal and 3 special prizes. For his results and achievements, the owner of Mikrosam, professor Blagoj Samakoski, was awarded the official Belgium decoration for invention and the title Knight of Invention.

POWER AND ENERGY

of segments of the electric-power sector and harmonization thereof to the liberlized market, and effective privatization of certain parts. The Austrian Meinl Bank, leader of the consortium and consultant of the previous government in the process of structural reforms, will remain consultant.

Hellenic Petroleum, the Greek state-run oil company, has already bought the OKTA refinery and is very interested to invest in the Negotino steam power plant. At the end of 1999, the project for construction of the 210 km long Thessaloniki-Skopje oil pipeline got underway. The pipeline costs a total of $110 million, $60 million of which was provided by Hellenic Petroleum. The remaining $50 million is loan by the European Bank for Reconstruction and Development. The Macedonian government owns 20% of the pipeline, while Hellenic Petroleum holds an 80% stake. The oil pipeline was put in function in June 2002, and is supposed to be extended to Kosovo.

In December 2002 the OKTA refinery lost its monopoly and all the privileges it had at the Macedonian market of oil and oil derivatives in the last three years. This primarily refers to the privilege OKTA had in importing oil derivatives. It was entitled to 1% import duties, as all other importers were charged with a 20% customs rate.

ELECTRIC ENERGY SYSTEM. Having in mind that electricity accounts for 60 % of the total consumption of energy in Macedonia, the existence and operability of the overall Electric Energy System (EES) in Macedonia is of an enormous and strategic importance. The total power of EES installed in Macedonia is 1,443.8 MW, 1,010.0 MW (69.95 %) of which are steam power plants, and 433.8 MW (30.5 %) are hydro electric power plants.The production capability of ESM, (Macedonia’s electric power company), meeting the needs of over 650,000 consumers in the country should not be ignored. On the contrary, it is a pre- condition for both the economic development and better quality of living. The largest plant, and the hub of the whole EES, is Bitola Mining and Energy Plant, where 675 MW power is installed in 3 thermo blocks. This coal-driven electricity production plant, along with another facility, Oslomej Mining and Energy Plant, meets around 80 % of the consumption in Macedonia.

The rest is covered by the following: Negotino Steam Power Plant (the second largest plant according to the power installed); Vrutok, Raven, and Vrben Hydro Electric Power Plants (HEC’s) within the Mavrovo Electrical Energy System; Spilje, Globocica and Tikves Hydro Electric Power Plants; and numerous small hydro plants.

The total electricity consumption in Macedonia in 2001 was 6,323.1 GWh. Out of it, steam power plants produced 5,241 GWh, whereas 621.5 GWh were produced by hydro electric power plants.

The total 2001 revenue was 16,099,059,000.00 denars.

Elektrostopanstvo na Makedonija (Electric Power Company of Macedonia) is a 50-year-old company that was transformed into a public enterprise by a decision of the Macedonian Parliament on 22 November 1989. On 24 October 2001 this company was registered as a state-owned joint stock company.

GAS PIPELINE. One of the greatest energy facilities in the Republic of Macedonia is the gas pipeline, the goal of which is stepping up security in the provision of electricity and introducing an ecologically more acceptable high-grade fuel. The gas pipeline has an installed annual capacity of 800 million cubic meters of natural gas and is made up of 2 technological entities: a major pipeline and city gas pipeline networks. Since it came into use in 1997 until now, a major pipeline has been constructed with a total length of 98 km (from the Deve Bair border crossing at the Macedonia-Bulgaria border to Skopje) with a maximum permeability of 145,000 cubic meters of gas. The network connecting the major pipeline to the city networks is 25.3 km long, and the city networks total 37.3 km. The city gas pipeline in Skopje is 19 km long and around 12 more km remain to be constructed. This will put an end to the first stage of the construction of the gas pipeline in Skopje and as a result all major industrial facilities will become gas-supplied. Makstil, FZC Kumanovo, OHIS, the USJE cement factory, the Skopje brewery, Godel leather factory, Zitoluks, Evropa, Skopje heating company Toplifikacija, TIPO Idnina, etc., have so far been connected to the system and are using natural gas.

The consumption of natural gas in 2001 was around 86 million cubic meters, and the 2002 requirements were estimated at around 120 million cubic meters of gas. This rate of consumption is not enough and represents only 10 % of the available capacity of the gas pipeline system. Despite all efforts to raise the natural gas consumption, thus finally making this investment worthwhile, at the moment this is impossible because the ownership status of the gas pipeline is unresolved. Sixty-five million dollars has been spent so far for the construction of the gas pipeline, 43 % of which is state funded, $16 million is from a Russian credit, and the rest has been funded by Makpetrol. In 1997, the government of the Republic of Macedonia reached an interim decision to put Makpetrol in control of the gas pipeline.

This company also took on the responsibility to repay the Russian credit. Studies have been prepared for broader consumption of gas in Kumanovo, Kriva Palanka and Skopje. The PHARE program funds the development of a study for gasification of Skopje. The gasification of the towns in the west of Macedonia, and their connection to the south highway, i.e. to the Negotino and REK Bitola steam power plants, and to the south of Macedonia are very important for the extension of the gas supply system. According to the plans, the construction of the gas pipeline in Skopje and the connection of all the heating companies to the pipeline will substitute for 130,000 tons of oil derivatives a year.

The transport sector plays an important role in the Macedonian economy, dictated above all by the good traffic position of the Republic of Macedonia. The two most significant traffic corridors for Southeast Europe intersect, making Macedonia a traffic center of the Balkans. Corridor 8 runs in the east-west direction through Albania, Macedonia, and Bulgaria, whereas Corridor 10 stretches along the north-south direction through Austria, Slovenia, Croatia, Serbia and Montenegro, Macedonia, and Greece. Corridor 8 and Corridor 10 are in the list of European traffic priorities, which is why the majority of the latest investments in Macedonia have been in the transport sector.

This sector also receives significant support from the international financial institutions, which only confirms the interest of the foreign capital in this sector. According to the Macedonian Public Investment Program for the 2001-2003 period, which amounts to $1,030.77 million, $393.50 million (more than one third) have been envisaged for the transport sector. In the total amount, the foreign credits account for $301.63 million, $133.12 million (43%) of which are envisaged to be used for transport.

Macedonia receives additional significance in this field thanks to the Skopje-Thessaloniki oil pipeline, which is announced to be extended towards Kosovo, and thanks to the possible realization of the AMBO project for building of an oil pipeline which is to connect Burgas and Durres. Some of the more far-reaching projections envisage connecting Macedonia with the Croatian oil pipeline and traffic connection with the Adriatic highway.

For part of the intended projects, the Macedonian Government has started a process of preparations for granting concessions, thus increasing the possibilities for entry of foreign capital. One of those projects is the Gradsko-Gevgelija highway, part of which will be built with a concession, part with a credit from the European Investment Bank. This highway is part of Corridor 10 and its estimated value is about $200 million. The Greek investors are the most interested in getting the concession for this project. The railroad from Beljakovce to the Bulgarian border is also envisaged to be finished up with concession. The two sides recently signed a memorandum requesting financial support from the international community. The value of this project has been estimated at about $300 million, and it gets priority because it is part of Corridor 8.

Lately, the development of the transport sector has increased the traffic share of the gross domestic product to 10.1% according to the 2002 data. This branch of economy accounted for 5.5% of the gross national product in 1989.

The growth is also confirmed by the developed transportation infrastructure with potentials that satisfy the needs of both the domestic and the foreign users and allows traffic connection with most of the European sectors. Macedonia has at its disposal a developed net of roads and an electrified major railway, whereas the capacity of the Skopje and Ohrid airports has been modernized to the degree of being able to accept and service all types of airplanes. The capacities in the main satisfy the general European standards and allow fast, economic and safe transport of passengers and goods.

In the field of telecommunications, a specific part of the transport sector, the Republic of Macedonia is one of the leading countries in the region. This is made possible by the finished process of privatization of the Macedonian telecom, the introduction of concessions in this sector, as well as the investments in the sector, which opens up new perspectives for domestic and foreign investments.

VEGETABLE AND FRUIT. The vegetable crops in Macedonia take up about 59,000 hectares, 255 hectares of them are occupied by heated greenhouses and 4,000 to 5,000 hectares are occupied by polyethylene greenhouses, which allows Macedonia to offer fresh vegetables at the market during the entire year. Half of the total annual production of about 600,000 tons of vegetables is being exported, mainly to the neighbouring countries. The food-processing industry can handle about 120,000 tons of vegetables, which are being processed in 30 facilities. These facilities can annually produce up to 30,000 tons of processed vegetables, but according to the latest data, they are being only 40% utilized.

The orchards take up 21,000 hectares. The annual crop is estimated at 130,000 to 150,000 tons of fruit. About half of the annual fruit production is apples. Macedonia also produces plums, sour cherries, apricots, etc. Macedonia annually exports up to 30,000 tons of fruit, mainly to the neighboring countries. There is as much fruit being manufactured in the food-processing facilities in the country as there are vegetables.

The most present products in the processing industry are mashed tomato concentrate, aivar (red pepper salad), ketchup, preserved sour cherries, fruit juices, and apple concentrate, which are generally exported to the countries of the European Union. Herbs and wild mushrooms are an important part of the export of Macedonia.

LAMB EXPORT. In 2001 Macedonia exported a total of 3,200 tons of lamb, which brought about a foreign exchange infusion of $11,3 million. The main export destinations are Italy, Greece, Croatia, Slovenia and Jordan. The cancellation of the export quota, which amounted to 1,750 tons before 2001, was the reason for setting a new record in lamb exports in 2001.

In order to boost lamb production, it is suggested that the Macedonian Government should provide larger lamb export continuously throughout the year, not just during the Easter holidays.

According to experts, it is expected that the sheep flocks in Macedonia will reach an annual growth rate of 4% by 2004. Lamb exports will thus increase to 4,200 tons a year.

WINE-GROWING. The vineyards in Macedonia take up an area of about 27,000 hectares, and annual production varies from 220,000 to 250,000 tons of grapes a year. Almost 90% is wine grapes, with the largest participation of the varieties used for red wines like Merlot, Cabernet Sauvignon, Red Burgundy, Stanusina, Prokupec and Kavadarka, and white wines like Chardonnay, Sauvignon, Rhine Riesling, Smederevka, R'kaciteli, etc.

The annual production of wine varies from one to three million hectoliters, which is about 50% of the capacity of the 18 modern wine cellars. Seven of them have lines for bottling with the capacity of 735.000 hectoliters.

Macedonian wine cellars and exporters increased the annual export of bottled wine to the European markets by 184% in 2001. A few years ago, bottled wine accounted for less than 10% of the total export of wine. This export boom is largely due to the recently signed Wine Protocol between the European Union and the Republic of Macedonia, which determined a quota of 15,000 hectoliters of bottled wine for export to European markets exempt from customs. The Protocol also foresees exports of wine to rise by 6,000 hectoliters a year. At the same time, the quota for the export of non-bottled wine, which according to the Protocol amounts to 285,000 hectoliters, will gradually decrease, which is in agreement with the Macedonian and the EU policy for development of this agriculture sector. By increasing the plantation from 25,000 to 40,000 hectares, wine export will be increased from 1,000,000 to 1,500,000 hectoliters of wine.

TOBACCO. Macedonia annually produces 25,000 to 30,000 tons of raw tobacco. The most frequently planted tobacco brands are Prilep

(49.9%), Jaka (32.1%), Jebel (4.76%), Otlja (5.61%), Virginia (7.27%), and Burley (0.40%). In regard to the types, the participation of the oriental types is the largest (86.72%), followed by the semi-oriental (5.61%), and the large-leaf types (7.67%). Macedonia has the capacity to produce 20,000 tons of cigarettes a year, but it produces only up to 8,000 tons, 5,000 of them exported. The production of tobacco products reaches 23,000 to 25.000 tons, 85-90% of them exported.

The export of tobacco products gives Macedonia up to $130 millions a year. If the efforts for increasing production and export of cigarettes effectuate, the country could reach an income of about $150 million a year.