DEVELOPMENT CHALLENGES
The former Yugoslav Republic of Macedonia (FYROM) obtained its independence from the former Yugoslavia in 1991 and, since then, has made significant process in its transition to democracy and a functional market economy. During the post-independence period, the country maintained relatively high economic stability, characterized by slow and steady growth but accompanied by several severe shocks. GDP grew by 3% on average per year between 1996 and 2008. A recent graduate from “lower-middle” to “upper-middle” income status, FYROM had a GNI per capita of US$4,520 in 2010. The country ranked 78th of 187 countries on the Human Development Index (HDI), which was “highly” valued at 0.728. However, the global financial crisis hit the country in 2009, which experienced an economic contraction of 0.9%, and recovery in 2010 was modest. The country also faces a number of development challenges.
Poverty and inequality
The poverty incidence in FYROM has been increasing in recent years, from 21% in 2005 to 26.6% in 2009, driven by rising rural poverty (from 27.5% to 36.4%). Extreme poverty has also increased, reaching 8% in 2009. Between 2002 and 2008, income inequality has risen and the gap in living standards between the capital and the rest of the country, particular the northern and eastern regions, has widened. Rural poverty is slightly higher than urban poverty (31.0% compared to 28.7% in 2007), but urban poverty in mid-sized towns has increased. Large households (more than 5 people) are most vulnerable to poverty, and their poverty rate has grown steadily from 31.1% in 1997 to 37.5% in 2007.
High unemployment and labour migration
FYROM suffers from high and persistent unemployment: 32.2% of the total workforce was unemployed in 2000, and the same proportion was unemployed in 2009. Young people aged 25-29 constitute 13% of the total number of unemployed persons. Long-term unemployment is also a serious concern, as 82.1% of those seeking employment have been unemployed for over 12 months. Informal employment is estimated to reach up 60% of total employment. Migration has been used as a coping mechanism for limited employment opportunities, both within FYROM and to foreign countries. Remittances from migrant workers are a major source of income for a large number of households.
Skills gap
FYROM has achieved near universal primary enrolment rates, and 97% of adults were literate in 2009. However, while secondary enrolment has been steadily rising (from 66% in 1999 to 75% in 2007), the rate remains low, and 33% of those enrolled do not complete secondary education. Moreover, access to education varies greatly by ethnic group, region and income level. Gender disparities are most evident in higher education, in favour of female students, although the gap has been diminishing in the past few years. The quality of education has also failed to keep pace with economic demands, and the lack of relevant skills appears to be a serious obstacle for the employability of the workforce. As a result, there is a need to improve the infrastructure and technical equipment in schools and, more importantly, raise the quality of teaching and extracurricular activities.
Weak governance and institutional capacity
Another challenge to FYROM’s development is the capacity constraint in public administration. While local governments are best positioned to deliver efficient and effective services to their constituencies, the country faces a mismatch between the scope of competencies devolved to the local level and the resources available to finance the implementation and administration of those competencies. The transparency and accountability of local administrators, as well as the cooperation between central and local governments and among municipalities, requires improvement.
KEY TRADE ISSUES
Weak competitiveness, low productive capacity and trade deficit
FYROM has a moderate but persistent trade deficit, with imports being 1.4 times greater than exports. On the one hand, FYROM is heavily dependent on energy imports, due to its lack of oil and gas sources, as well as its insufficient local capacity to generate enough electricity to satisfy growing local demand. Rising energy prices have thus increased the value of the country’s imports and negatively affected the trade balance. On the other hand, the country’s exports, which are concentrated in a small number of sectors (iron and steel and apparel make up nearly 45% of total exports), have relatively low competitive capacity, generating limited value-added and revenues.
Market concentration
FYROM has been a member of the WTO since 2003 and has concluded numerous regional and bilateral trade agreements in recent years. However, the country’s exports remain concentrated on a small number of markets. Serbia is the top individual country destination of FYROM’s exports, accounting for nearly one-quarter of the total, while over half of all exports go to the EU-27. This market concentration makes the country very vulnerable to adverse economic changes in partner countries, which may result in decreased demand for FYROM’s exports.
Underdeveloped transport infrastructure
As a landlocked country, FYROM is particularly dependent on a well-developed transport network for its economic and social development. The total length of national, regional and local roads is 13,186 km, yet limited resources have hindered the proper maintenance of regional and local roads. As a result, 27% of secondary and tertiary roads are in poor condition, and despite recent boosted investments, the condition is still worse than in neighbouring countries. More needs to be done to bring the network up to European standards.
Continued need to improve the business environment
FYROM has made remarkable progress in improving its business environment, moving up from 34th to 22nd position of 183 economies on the World Bank’s “ease of doing business” indicator between 2011 and 2012. The tax burden remains modest and administration procedures are improving. However, in terms of “trading across borders”, FYROM’s ranking drops to 67th, reflecting the remaining room for improvement in the time and cost of export/import procedures.
Statistics have been compiled by the World Bank, OECD and UNECE. Information has been adopted from: the United Nations Development Assistance Framework for the former Yugoslav Republic of Macedonia 2010-2015; the 2009 Republic of Macedonia Report on the Progress Towards the Millennium Development Goals; the 2010 United Nations report on “The MDGs in Europe and Central Asia: Achievements, Challenges and the Way Forward”; the 2009 OECD report on “Sector Specific Sources of Competitiveness in the Western Balkans: Recommendations for a Regional Investment Strategy”; and the 2011 World Bank-FYR Macedonia Partnership Country Program Snapshot.