Macedonia’s strength as an emerging hub for automotive components

In early 2008, the Republic of Macedonia received its first green-field investment from the French, when car-parts maker Montupet signed a MoU to build a factory that will manufacture aluminum engine heads for Ford, Renault, Citroen, Peugeot, Audi and General Motors. Initially, the France-based Montupet will invest 60 million Euros which will go up to 100 million Euros in six years time. 

The Montupet project is another in a long line of foreign direct investments by automotive companies into Macedonia. Johnson Controls set up a USD 40 million electronic automotive parts plant in Macedonia, choosing the country over Poland, Romania and Slovakia. 

“In the other locations we were having difficulty finding and keeping qualified engineers. We are the first in the industry settling down here and that gives us the advantage of having skilled people joining the company and staying with us over a long period of time,” said Philippe Simon, Johnson Controls’ VP of global electronics in an interview to EE Times. 

Macedonia’s strength as an emerging hub for automotive components is its pool of technically skilled workforce thanks to its strong university system. The country is also strategically located geographically so that it is close to other automotive manufacturing plants in Central Europe and Turkey. Over the past couple of years, the Macedonian government has put a lot of effort in improving the business climate of the country. This effort was rewarded with the World Bank ranking Macedonia as one of the top 5 reformers in the world in the Doing Business 2008 Report. Part of the general incentives package in Macedonia include a flat tax rate of 10 per cent on corporate and personal income and 0 per cent tax rate on reinvested profit. According to government officials, this means that starting a business in Macedonia can be done in only 4 hours for a cost of 42 Euros.

“For export-oriented high-tech companies in the automotive sector four Technological Industrial Development Zones (TIDZs) have been created with a status of free economic zones offering special incentives. Companies operating in the TIDZs will pay no taxes on corporate income for 10 years, 5% personal income tax for 5 years, and will have no VAT and customs duties for export production. The zones have excellent strategic location with an immediate access to a main international airport, railroad, and the vital road corridors 8 and 10. There is also free connection to piped natural gas, electricity, water and sewage, as well as land lease for up to 75 years at attractive concessionary rates,” said Viktor Mizo, CEO of the Agency for Foreign Investments of the Republic of Macedonia in an earlier interview to Automotive Industries. 

While the TIDZs are good places to do business in in Macedonia, another emerging magnet for FDI is Bitola, in the southern part of the country. The International Finance Corporation in a report, dubbed Bitola as the easiest city in which to do business in South East Europe (SEE). Bitola ranked first among 22 cities in seven economies – Macedonia, Bosnia and Herzegovina, Croatia, Kosovo, Albania, Montenegro, and Serbia. The report benchmarks four areas of regulation that are subject to local jurisdiction and enforcement: starting a business, obtaining licenses, registering property, and enforcing contracts. “This recognition for Bitola vindicates Macedonia’s success as the fourth best reformer in the Doing Business 2008 Report among 174 countries. The pro-business reforms are continuing with full speed,” says a Macedonian government press release. 

Automotive Industries caught up with Viktor Mizo, CEO of the Agency for Foreign Investments of the Republic of Macedonia. 

AI: Please tell us a little about how Macedonia managed to attract over 230 million Euros in FDI from January to May 2008? 

The commitment for attracting FDI is demonstrated through a solid institutional framework, which includes two FDI ministers and a dynamic investment promotion agency, Invest Macedonia, sharing the principal task of attracting and servicing potential investors. Furthermore, the government has made FDI attraction a priority for all relevant ministries, and has been increasing resources for the promotion of inward investment to set Macedonia on the investment map of the potential international investing community. The Prime Minister and the Vice-Prime Minister in charge for economic affairs directly coordinate the various institutions involved in this process as part of their daily operations and through biweekly meetings of the Committee for Foreign Direct Investments, headed by the Prime Minister.
In light of achieving this goal, several major reforms have been introduced to facilitate the foreign investors’ entrance in the country. For instance, the so-called ‘regulatory guillotine’ project, a governmental effort to cut red tape for business, involves a reduction in redundant legislation, introduction of the ‘silence is consent principle’, lowering of fees in a number of areas, and simplification and shortening of a number of procedures. 

In addition to the numerous incentives, the existing investments in Macedonia inspired confidence, trust, and motivation in world renowned corporations to choose Macedonia as a prospective base of operations. The presence of Societe Generalle, T-Mobile, Johnson Controls, Siemens and numerous other companies clearly indicates a highly favourable business climate. The comprehensive incentives package, together with the promotional campaign ‘Invest in Macedonia,’ have definitely put the country on the World investors’ map.

AI: What are some of the new opportunities for investment in Macedonia today? 

The sectors in which Macedonia has a significant competitive and comparative advantage include automotive components, information communications technology (ICT), energy, agribusiness and food processing, pharmaceuticals and medical devices, textiles and leather, as well as tourism. The country is particularly suitable for the manufacture of high value to weight labour intensive products, such as safety systems, electronics, precision plastic products, and aluminium and zinc die-casting and grey iron casting components. In the energy sector, 70 percent of the technically available hydro potential is open to further investment, and the government encourages investments in both traditional and renewable energy projects. Moreover, with a unique combination of continental and sub-Mediterranean climates, Macedonia makes for a prime location for environmentally friendly agricultural production practices, organic foods, sound food processing technologies, and a reputation for quality food products.

AI: Invest Macedonia has been awarded the Best Inward Investment team for Europe by Business Destinations in July this year – what does this mean to you? And what kind of effort did the team put in to achieve this accolade? 

Invest Macedonia is particularly proud of having been recognized and awarded the Best Inward Investment Team for Europe by Business Destinations magazine. The criteria for the nomination in this category are based on proof of development, continued progression, innovation and originality, project management ability, keeping ahead of the competition, level of transparency and good governance, and market leadership and geographic spread. All of the nominees have been noted for their influence on the growth of cities and countries all over Europe in what has become an increasingly competitive market. 

The Invest Macedonia Team has conducted an image-building and awareness-raising promotional campaign ‘Invest In Macedonia’, in over 80 newspapers in more than 40 countries worldwide. The agency is also responsible for coordinating promotional activities and outreach events, such as presentations at expositions and road shows, as a high level marketing initiative. Another ambitious undertaking of Invest Macedonia has been to allocate twenty-three economic promoters, that will operate as part of the Macedonian Embassy in previously determined target countries, to personally meet potential investors and explain the investment incentives, opportunities, and potentials in Macedonia.

AI: Talking about awards – how does the IFC ranking Bitola as the best place in SEE to do business impact foreign investments? 

There is daily interest by potential investors who visit Bitola as a prospective location to start their business. The interest comes from various countries: Australia, Switzerland, Egypt…even local Macedonian investors. The sectors that seem to attract the greatest interest are the metal, textile, tobacco, and energy industries.
Currently, Sokomak, a multinational company, invested €35.000 in a large tobacco processing plant with accompanying facilities, which is still under construction.
This kind of interest certainly encourages the local government to continue to improve the business climate.

AI: What are some of the future automotive investments you are expecting into Macedonia in the near future? 

Macedonia is quickly consolidating its position as Europe’s new hub for automotive components production. The first French Greenfield investment comes from Montupet, which will build a factory for production of aluminium engine heads for leading automobile brands. Italian company, V. Orlandi, has also announced building a factory for the production of connecting appliances for trucks and agricultural machines. In addition, Turkey’s Borteknik Otomotiv plans to build a plant, producing aluminium profiles for the automotive and construction industries. In terms of automotive industry investments, it has been a very successful year for Macedonia.