or: Don't Hurry to Invest in Macedonia
In the near past, Macedonia seemed to have been bent on
breaking its own record of surrealism. While politicians in
other countries in transition from communism and
socialism strive to be noticed for not stealing, their
Macedonian counterparts, without a single exception, aim
to steal without being noticed.
The previous VMRO-DPMNE government (1999-2002),
in which Nikola Gruevski, the current Prime Minister,
served as Minister of Finance, plundered the country
shamelessly. The local papers accused then outgoing
prime minister, Ljubco Georgievski - a virtual pauper
when he attained power - of owning land and a residential
building in the capital's most expensive neighborhood.
The erstwhile Minister of Defense, Ljuben Paunovski,
was recently sentenced to 42 months in prison for his
pecuniary shenanigans during his tenure. Another leading
figure, the former Minister of interior, Ljube Boskovski, is
in the dock in the Hague on war crime charges.
Inevitably, VMRO-DPMNE lost power to the SDSM in
the heated elections of 2002 and then fractured as its new
leader, Gruevski, purged the old guard and installed his
own cohorts everywhere.
Then prime minister designate, Branko Crvnkovski (the
country's current President whose legitimacy is contested
by the Gruevski government), vowed to learn from his
party's (SDSM) past mistakes when they venally ruled the
land until 1998. In a sudden and politically-motivated
resurrection, the high court began scrutinizing the "Okta"
deal: the opaque sale of the country's loss-making refinery
to the Greeks in 1999. Heads will roll, promised both the
election victors (the SDSM) and their Western sponsors.
Nothing happened.
The country's current Governor of the Central bank and
then minister of finance, Petar Goshev, a former socialist
high-level functionary known for his integrity, announced
that his top priority would be to eradicate corruption by
instituting structural and legal reforms. His newfound
socialist partners - he headed a center-right outfit - found
this bizarre ardor unpalatable and promptly kicked him
out of office.
Four years later, with Georgievski relegated to the
political wasteland, Crvnkovski ensconced in the
presidential suite, and his successor, Buckovski a
resounding failure, Gruevski's ascent in 2006 was all but
secure. It was the SDSM's turn to crumble acrimoniously
amid a virulent contest for its leadership. It has never
recovered and Macedonia has had no viable opposition
ever since.
Macedonia's post-electoral euphoria faded, in July 2006,
into arduous coalition-building negotiations replete with
arm-twisting by the worried representatives of the
"international community".
The country's new VMRO-DPMNE Prime Minister,
Nikola Gruevski (36), excluded from his government the
party that won the majority of Albanian votes because of
its roots in the much-hated Albanian NLA, National
Liberation Army, the instigator of the 2001 near-civil-war.
Albanian factions clashed in a chilling reminder of the
country's inter-ethnic fragility.
To add to Macedonia's precarious standing, its greenhorn
Minister of Foreign Affairs, Antonio Milososki, engaged
in intermittent - and utterly avoidable - spats with its
neighbor and biggest foreign investor, Greece, virtually
guarantee delayed accession to both NATO and the
European Union, the much ballyhooed strategic goals of
the current administration. Milososki adopted a similarly
belligerent and ill-informed stance against Bulgaria,
another flanking polity and the newest member of the
coveted European club.
Where the government claims great strides is in its
uncompromising stance against all forms of malfeasance
and delinquency in both the public and the private sectors.
From the army to various municipalities, scandals erupt
daily in an atmosphere often bordering on a frenzied,
media saturated, witch-hunt.
Gruevski is alleged to have rejected a bribe of 3 million
euros (c. 4 million USD) offered to him by a Serb firm.
His government embarked on highly publicized
campaigns against illegal construction (the "urban mafia")
and other festering nests of corruption.
Alas, Gruevski himself appointed members of his family
and innumerable political hacks to senior government
positions in a series of blatant acts of nepotism and
cronyism decried by the European Union and other
watchdogs. Consequently, with one exception (Zoran
Stavreski, the talented vice-premier), the government in
all echelons is largely made up of utterly inexperienced
operators. Plus ca change.
Politics, venality, and terrorism are the sole venues of
social mobility in this tiny, landlocked, country of 2
million impoverished people. Immediately following their
insurgency, the former terrorists of the Albanian National
Liberation - courtesy of Western pressure and the
Albanian voters - occupied crucial ministries with
lucrative opportunities of patronage of which they are
rumored to have availed themselves abundantly.
Comic relief is often provided by bumbling NGOs, such
as the International Crisis Group. In 2001, its
representative in Macedonia, Edward Joseph, went to
Prilep to conduct an impromptu investigation of the
thriving cigarette smuggling trade. Posing to the cameras
he declared that only the local leaf-rolling plant was not
involved in this pernicious line of work.
Macedonia is a hub of expats and consultants in the
Balkans. Ante Markovic, an Austria-based former
Yugoslav prime minister, who served as an oft-criticized
economic advisor to the government until he was dumped,
sued Macedonia for $1 million. In 2001-3, the youthful
former minister of finance, Nikola Gruevski, was asked
by USAID, on behalf of the Serbian-Montenegrin
government, to serve as its consultant on matters of
reform of the financial system. The author of this article
acted as Economic Advisor to Georgievski's government
and, later, to Gruevski himself.
But to no avail. The country is a shambles. In the wake of
a civil war, the official unemployment rate is 31-35
percent. Close to 70,000 people work in the bloated
central and local administrations. The trade deficit is an
unparalleled 17 percent of GDP. In 2001, the budget
deficit climbed to 5 percent, though it was since halved.
"The Heritage Foundation" has consistently ranked
Macedonia 95-97 out of 155 countries in terms of
economic freedom. The country is "mostly unfree" it
correctly concludes in its reports, though it cites
sometimes erroneous data. A moderate level of trade
protectionism, low tax rates, moderate inflation, a
moderate burden of the government, moderate barriers to
capital flows and foreign investment, and moderate
interference in the economy are offset by a dysfunctional
banking system, intervention in wages and prices, low
level of protection of property, a high level of regulation,
and a very high level of activity of the black market.
Owing to the IMF's misguided emphasis on exchange rate
stability, the currency is inanely overvalued. The
manufacturing sector has all but evaporated. Industrial
production declined by a vertiginous 20 percent in August
2002 compared to the average the year before - or by 11
percent year on year. The trend has not been reversed
since.
Macedonian steel is exempt from the latest bout of
American protectionism, but not so its textile industry.
Europe is fending off the country's agricultural products.
People make their meager and desultory living catering to
the needs of an ever-expanding international presence or
dabbling in illicit activities. Piracy of intellectual property,
for instance, is thought to yield c. 1 percent of GDP.
Close to half the population is under the poverty line. The
number of welfare cases increased by 70 percent between
1994 and 2002. Generous and incessant multilateral and
bilateral credits sustain the faltering economy (and line
politicians' ever-deepening pockets). The country is
alternately buffeted by floods and droughts. There has
been only one day of rain in all of January 2007.
In a much-touted donor conference after the 2001
skirmishes, the pledges amounted to a whopping 15
percent of GDP. Then governor of the central bank, Ljube
Trpski (currently detained for his role in a murky affair
involving the country's foreign exchange reserves),
cheerfully predicted that these handouts will cover the
gaping hole in the balance of payments.
Macedonia also received 7.5 percent of the gold reserves
of the former federated Yugoslavia of which it was a
component. At between $700 million and one billion USD
net, foreign exchange reserves are at an all-time high.
Macedonia has recently decided to prepay its $104 million
debt to the Paris Club creditors.
Both the IMF and the World Bank, who did their best to
obstruct the previous VMRO-DPMNE government in its
last few months in power, promised a speedy return to
business as usual. An hitherto elusive standby
arrangement is likely to be concluded by the end of the
year. World Bank funds, frozen in material breach of its
written contracts with the state, will flow again. The EU
promised development funds if the new government acts
in a "European spirit" - i.e., obeys the diktats of Brussels.
The incoming administration is likely to enjoy a period of
grace with both the trade unions and international
creditors. Strikes and demonstrations by dispossessed
miners and underpaid railways workers have waned. But
Macedonia joined the WTO in 2002 and will thus be
forced to open even more to devastating competition.
Labor unrest is likely to re-erupt soon.
Foreign investment in the country mysteriously wanes and
waxes - some of it laundered money reinvested in
legitimate businesses. The government is doing a great job
of building up the image of Macedonia as an FDI (Foreign
Direct Investment) destination. But public relations and
perceptions management must be followed by palpable
actions and the new government is woefully short on
concrete steps. It talks the talk but hitherto does not walk
the walk.
The government's attempts to attract foreign investors by
introducing lower taxes may backfire: studies clearly
evince that multinationals worry less about taxation and
more about functioning institutions, a commodity that
Macedonia is irreparably short of. Moreover, vanishingly
lower taxes signal desperation and Macedonia indeed
sounds more desperate than confident. No one wants to
buy the country's leading bank, long on offer. Only one
contender (Mobilkom Austria) entered a bid for
Macedonia's third operator cellular network licence.
On a few occasions, domestic firms, using international
fronts, have bid for local factories, such as the textile plant
"Astibo". The national payment card project has been
guzzled by two banks incestuously close to the outgoing
ruling party, VMRO-DPMNE.
But there are real investments, too. The capital's central
heating utility was purchased by a unidentified French
energy outfit, announced the general manager. The
utility's shares were listed in the Athens stock exchange.
The Macedonian construction firm "Granit" will build a
$59 million highway in Ukraine, with which Macedonia
enjoyed an unusually cordial relationship, to American
chagrin. Johnson Controls and others are eying a string of
free trade zones and infrastructure projects (dams, roads,
railways, oil pipeline). A much hyped Vardar Silicone
Valley is in the works.
The contentious census in the first two weeks of
November 2002, a part of the "Ohrid Framework
Agreement" which ended the internecine fighting the year
before, was conducted fairly. The count showed that
Albanians make c. one quarter of the population rather
than one third, as most Albanians spuriously insisted.
But, with Kosovo's independence looming across the
border, the restive Albanians are likely to coerce the
enfeebled Macedonia into translating this numerical
reality into political and economic clout. The
Macedonians are likely to resist. The West will intervene.
Macedonia is facing a hot spring and a sizzling summer.