Steady flow of investment in Macedonia from new and existing companies

International investors in the automotive sector are being attracted to the Republic of Macedonia, which offers ac­cess to a market of over 650 million people.

There are three fully operational zones in Macedonia – Skopje 1 and 2 in the capital, and one in Stip, the largest town in eastern Macedonia. The zone in Tetovo is currently operating as a public private partnership, and is in the process of concluding its first investment. Ten other zones are in various stages of development. There is a total of 14 zones.

The government assists investors through customized vocational training programs. An example is the training by a major university of 165 students in Java and C++ in anticipation of the needs of Johnson Controls, which has constructed a US$40 million facility outside Skopje to manufacture electronic automotive components. “We analyzed six countries from South East Europe and two African countries and Macedonia came out of this process as the best, one due to the great support of the Government which was the main driver that brought to decision to invest in Macedonia” said Vladimir Teplik, Vice President–Global Trim Unit, Johnson Controls.

Automotive Industries (AI) asked Viktor Mizo – CEO, Free Zones Authority, how successful Macedonia has been in attracting automotive investment.

Mizo: Macedonia’s reputation as an automotive manufacturing hub has strengthened and grown considerably in the last few years. 2012 saw the arrival of Germany’s Draxlmaier, Kromberg & Schubert and Belgium’s Van-Hool. With a total investment of over US$100 million these plants now employ over 8,000 people. All three companies have expanded production.

Draxlmaier, which supplies premium automakers with wiring systems, was named best production facility by fDi Intelligence – a specialist division of The Financial Times. At about the same time, Belgian bus manufacturer Van Hool built an assembly plant in the Skopje 2 Free Zone, and began production in 2013. The company is currently supplying the US, and plans to expand production and export to Europe as well. This was Van Hool’s first investment in a production capacity outside of Belgium.

In 2014 the US company Key Safety Systems, and Germany’s ODW Elektrik were amongst five new investments by multinationals. Key Safety Systems is building a US$20 million airbag-cushion manufacturing facility in the Kicevo free zone. ODW Elektrik will invest over US$15 million in the Ohrid-Struga zone. Germany’s Marquardt invested US$38 million in a factory in the city of Veles manufacturing parts for top German auto makers. Italy’s Montante Group, manufacturers of shock absorbers for industrial and railway vehicles, also announced their plans to invest over US$13 million in the Skopje 1 free zone.

Additionally, Germany’s Kostal plans to invest US$74 million in the Ohrid-Struga zone to produce automotive components for the most luxurious car brands in the world. US company Gentherm will invest over US$20 million to produce seat heaters and car cooling systems. This is the first investment in the Prilep free zone. Another US company, Cap-Con Automotive Technologies has agreed to invest US$18 million in the Skopje zone to produce inflators for vehicle airbag systems. The plant is expected to be operational in the third quarter of 2015. These investments will create over 8,000 new jobs. Lear Corporation has announced plans to launch a brownfield operation for the production of seat covers in the north western town of Gostivar, in the summer of 2015, with 300 employees. The second phase will encompass construction of a new automotive plant in the Tetovo free zone by mid-2016, and is expected to provide jobs for up to 2,000 people.

AI: What tells you that Macedonia’s foreign direct investment (FDI) policies are working?

Mizo: There’s no better indicator than return business. In 2013, Johnson Matthey decided to reinvest in Macedonia and double its capacity. It has since invested over US$150 million to build two plants in the Skopje 1 free zone, and is the country’s number one exporter. Italian company TeknoHose, also decided to reinvest, tripling its production capacity of armored high-pressure rubber hoses. The investment is worth over US$10 million. Johnson Controls, which entered Macedonia with a US$40 million investment, has invested an additional US$20 million in a new car seat cut and trim plant in the Stip Free Zone.

AI: What incentives does Macedonia offer?

Mizo: Foreign investment decisions are influenced by a range of factors such as the strength and potential of the local economy, education system, infrastructure, business climate, workforce, tax policies, and the presence of other investors. Incentives offered in the expanding network of infrastructurally-ready free zones include a 10-year holiday on profit and personal income tax; no value-added tax or customs duties on goods, equipment and machinery; no property taxes; concessionary long-term land leases; no labor restrictions; no municipal taxes or construction permit fees; state subsidies of up to US$550,000 for the development of buildings, and additional grants for job creation and training of employees. The zones’ administrative departments and customs offices provide organizational services and expedite customs clearance. We also issue design and infrastructure approvals, as well as building and operating permits.

AI: How do the Free Zones compare with others around the world?

Mizo: The success of the zones in Macedonia is confirmed by their ranking in FDI Magazine’s top 50 free zones of the Future 2012/2013. The Free Zone Skopje was also awarded “Best Zone for Large Tenants within Europe” in fDi Magazine’s Global Free Zones of the Year 2014 report. In 2015 goods made in the zones accounted for 30% of total exports. Working on information provided by companies in the zones we are optimistic that exports will grow by an additional 25% to 30%.

AI: Are you focusing on the growing interest in ‘green’ transport?

Mizo: Going green in a period of recession provided an opportunity to establish a new position within the market. OEMs are all focusing on developing safer and cleaner vehicles, as well as improving manufacturing, logistics, and mobility management. This involves research into a wide range of areas including materials, information technology, engines, fuels, recycling, aerodynamics, telematics, ergonomics, and connectivity. We have recognized this need and our huge potential to differentiate ourselves as environmental leaders in the region and promote our country as a competitive investment destination for automotive companies in technological research, development, and innovation with regard to electric mobility and e-cars in all ranges.

AI: Tell us more about the skills pool.

Mizo: Macedonia is the third youngest country in Europe, with over 40% of the population under 30. Nearly 85% of high school graduates enroll in universities. The country’s strong university system coupled with a government campaign focused on enrolling graduates in technical universities, offers a large pool of qualified young engineers.

The Macedonian government – along with relevant institutions – is constantly taking measures and steps to open the door to automotive industries. 2013 saw the first International Electric Vehicles Conference held on the campus of the Electro-technical and Mechanical College in Skopje to promote the potential areas in which Macedonia could target sectors for its scientific R&D and advanced engineering. In 2014 the Institute for Motor Vehicles and Homologation at the Mechanical Engineering College in Skopje hosted workshops and a fair which included electric vehicles that participants were able to drive, in an effort to increase awareness and promote electric vehicles