Macedonia dropped five more seats in the Forbes list of countries with the best business enviroment. The large drop caused by the tax and regulatory increases announced by the SDSM led Government came last year, when Macedonia fell whopping 28 places, from 35 to 63 in the world. Now, as the plans to dismantle the business friendly environment carefully put in place by the previous Nikola Gruevski led Government are being implemented, Macedonia dropped further down to 68 in the world.
Most of the praise still present in the Forbes report is related to the past attempts to bring in foreign direct investment, which has been notably lacking in the last year and half.
Since its independence in 1991, Macedonia has made progress in liberalizing its economy and improving its business environment. Its low tax rates and free economic zones have helped to attract foreign investment, which is still low relative to the rest of Europe. Corruption and weak rule of law remain significant problems. Some businesses complain of opaque regulations and unequal enforcement of the law. Macedonia’s economy is closely linked to Europe as a customer for exports and source of investment and has suffered as a result of prolonged weakness in the euro zone. Unemployment has remained consistently high at about 23% but may be overstated based on the existence of an extensive gray market, estimated to be between 20% and 45% of GDP, which is not captured by official statistics, Forbes writes in its report on Macedonia.
The SDSM led Government moved to increase income tax and re-apply progressive taxation after a decade of solid economic growth under a low and flat tax regime.
Macedonia maintained macroeconomic stability through the global financial crisis by conducting prudent monetary policy, which keeps the domestic currency pegged to the euro, and inflation at a low level. However, in the last two years, the internal political crisis has hampered economic performance, with GDP growth slowing in 2016 and 2017, and both domestic private and public investments declining. Fiscal policies were lax, with unproductive public expenditures, including subsidies and pension increases, and rising guarantees for the debt of state owned enterprises, and fiscal targets were consistently missed. In 2017, public debt stabilized at about 47% of GDP, still relatively low compared to its Western Balkan neighbors and the rest of Europe, Forbes reports.
The dramatic drop in the rating allowed neighboring countries to surpass Macedonia in their desirability for business and investment. Slovenia (31), Romania (41), Bulgaria (46), Croatia (52) and Serbia (56) are all now better positioned than Macedonia, which used to be a leading business destination in the region.