World Bank helps increase competitiveness and offset the negative effects of the Eurozone crisis in FYR Macedonia

November 29, 2012

WASHINGTON, November 29, 2012 – The World Bank Executive Directors today approved the First Programmatic Competitiveness Development Policy Loan (DPL) in the amount of US$50 million for FYR Macedonia. The project supports the Government’s program aimed at strengthening the competitiveness of the economy by providing incentives for productive investment and technological upgrading in the manufacturing, agribusiness, and trade logistics sector, and establishing enabling conditions to progressively increase labor market flexibility and skills development.

The international economic crisis of 2009 and the ongoing sovereign debt crisis in the Eurozone have interrupted the acceleration of economic activity in FYR Macedonia. The country managed to preserve a stable macroeconomic situation and implemented a reform program that achieved fiscal consolidation and improvements in the labor market. Recent reforms have also led to significant improvements in the business environment, taking the country to 23rd place in the 2013 Doing Business report. However, weak economic conditions in the Eurozone have adversely impacted economic activity and budgetary revenues.

Despite the recent policy achievements, economic growth has not been sufficient to reduce long-term unemployment and poverty. GDP accelerated in the period 2004–08, but overall, it has grown more slowly than in many countries of the Western Balkans or among the new European Union (EU) member states. The challenge facing FYR Macedonia is to transition the economy to a higher growth trajectory by developing a more competitive and export-oriented enterprise sector.

The DPL was underpinned by significant analysis through the Modular Competitiveness Assessment, which identified new measures to strengthen the country’s exporting and growth performance. The assessment consisted of a Trade Competitiveness Assessment and a Sectoral Competitiveness Assessment which provided a detailed review of the performance and competitiveness potential in three major export-oriented sectors – Manufacturing (focusing on automotive and apparel), Agribusiness and Logistic Services.

“The Competitiveness Development Policy Loan is the first in a series of two programmatic operations that will support reforms to strengthen the competitiveness of FYR Macedonia’s economy,” said John Gabriel Goddard, leader of the World Bank’s project team. “The supported actions aim to develop high value-added manufacturing, facilitate the restructuring of agribusiness, and improve the efficiency of trade logistic services. This will be achieved by prioritizing actions that incentivize investment and technological upgrading, as well as removing bottlenecks that hinder firm entry and firm growth in major export-oriented sectors of the economy. The DPL will also support actions that put in place enabling conditions that can foster labor market flexibility and develop job-relevant skills. Combined with the improvements achieved by FYR Macedonia in its general business environment, this reform program has the potential to raise economic growth over the medium- to long-term.

The project also works on improving the effectiveness of the public programs supporting private sector development, thereby increasing the efficiency of public expenditures. In an effort to jumpstart high value-added production and exporting capabilities, the Government is deploying fiscal resources into infrastructure and incentive programs that include tax breaks and training grants for foreign investors, as well as discounted credit and direct support to farmers. By improving the institutional basis and budget for these support programs, the DPL will raise the efficiency of public expenditures and strengthen accountability.

“The actions supported by the Development Policy Loan will contribute to achieving the development goals under the Competitiveness pillar of the Country Partnership Strategy 2011-14,” said Lilia Burunciuc, World Bank Country Manager for FYR Macedonia. “The loan is an integral part of a wider competitiveness agenda undertaken by the Government and other stakeholders, and assisted by the World Bank through a number of ongoing operations. The World Bank will remain a partner of the Government in this area in the future.”

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