Macedonia ranks third, after the United States and France, in Google searches for the term "invest in". Of course, the real level of foreign investment is most important, but this search statistic is a relevant statistic of the country's visibility as a possible destination for foreign investments

25/06/2009 -  Risto Karajkov Skopje

The director of the Macedonian Agency for Foreign Investment, Viktor Mizo, announced that the June/July issue of the FDI Magazine, an important global monitor of foreign direct investments, reported that Macedonia ranks third, after the United States and France, in Google searches for the term "invest in". The article, "Macedonia's 'invest in' surge", calls the country a "surprise entry" and comments that Macedonia, "which did not feature in the previous top 10, has clearly come into vogue."

"This is due to our hard work," Mr. Mizo said. "It is a result of our advertising on foreign TVs, media, websites...." Mizo added that, "the only other country in Eastern Europe which ranks in the top 20 is Poland."

Even though sceptics minimized the significance of the report, others see this status as good news. Of course, the real level of foreign investment is most important, but this Google search statistic is a relevant statistic of the country's visibility as a possible destination for foreign investments.

The credit goes to the VMRO-DPMNE government of Prime Minister Nikola Gruevski. Since coming to power in 2006, and confirming its mandate in the snap national vote last year, Mr. Gruevski has clearly indicated that one of his strongest economic priorities will be attracting foreign investment. He also wrote his masters thesis on the subject.

In recent years, the government invested serious effort and large financial resources in major international media, such as CNN, The Economist and Financial Times for an aggressive campaign called "Invest in Macedonia". In addition to the media outreach, the government undertook widespread reforms.

Several major taxes were substantially lowered to a common flat rate. The country was promoted as having the lowest taxes in Europe. A radical (and bulky) reform was undertaken to transform the system of wages into the so-called "gross wage", which protects workers but also makes administration easier for employers.

The government offered large incentives to foreign investors, promoted free economic zones, reformed the land cadastre and engaged in intensive outreach to individual investors.

It is an effort worth praise. Mr. Gruevski may be Macedonia's greatest economic reformer since its independence. His reformist zeal became clear when he served as minister of economy and later, of finance, in the VMRO government (1998-2002) led by his mentor and predecessor Ljubco Georgievski.

At that time, Gruevski undertook the massive reform to introduce the VAT (value added tax); reformed the system of financial transactions (a reform probably even more complex than introducing the VAT); and started the long-awaited process of de-nationalization - restitution of property confiscated by the previous regime. He portrayed himself as an honest and obsessive workaholic. According to rumours, he personally conducted all job interviews for his ministry.

The work showed results. After 2006, the government improved tax collection; raised salaries; economic growth has been higher than at any time since independence, and foreign investors seemed to slowly start to arrive. Now, the international economic crisis has hit. The government had been broadly announcing particular foreign investments; now, almost all these companies have delayed or suspended their investment plans.

Perhaps the global economic crisis is beyond the reach of (any) government; however, the Macedonian government seems to be recently promoting a different cause for concern. The government seems to have been selectively enforcing laws on a few companies.

Previous governments have also had different approaches to "politically close" companies. However, this time the confrontation seems to go to an extreme.

Over the past months, a large dairy 'Swedmilk" refused to pay small farmers and practically ravaged the individual milk producers in the country. However, the government chose to completely exempt itself from the conflict despite bitter and repetitive farmers' protests - one of the farmers' leaders was subject to police pressure - with the explanation that the government cannot interfere in the dealings between private businesses.

Yet, the government seems to bend the opposite way in the case of one of the country's largest companies, Fersped. Recently, Fersped has been besieged by a string of misfortunes and the government has apparently been not of completely good will. Fersped has business interests in many fields, but runs a core business of shipping.

Recently, the Macedonian customs agency revoked Fersped's shipping license over an apparently minor customs irregularity. The action (if sustained by the appeals court) will reportedly make about 1,000 people jobless. The move caused an uproar from many Macedonian businesses who stand in solidarity with Fersped.

This is only the most recent government action that has hurt Fersped's businesses over the past several years. Previously, the government revoked Fersped's license to organize lottery games and closed a large open market operated by Fersped. The company is associated with the murky privatisation deals in the 1990s that enriched a few oligarchs while devastating the economy and impoverishing workers.

Many ordinary citizens who suffered from the disastrous privatisation in the 1990s tend to see "justice" in what is happening to Fersped. Prime Minister Gruevski himself has been making rather "allergic" comments concerning the crimes of privatisation.

Unfortunately, a government that picks a company and declares war on it does not make a good business environment. In an attempt to dismiss allegations that the government has anything against Fersped, Prime Minister Gruevski said, "the law must apply to all, small and big equally". The director of the Macedonian customs agency, Vanco Kargov, said that the Fersped case cannot negatively affect the investment climate in the country.

However, another case might indicate much bigger problems for Macedonia. On May 13, Austrian EVN, the owner of the country's power utility, filed a complaint against the Macedonia government before an international court of arbitration in Washington, D.C. (The Austrian company had purchased the power utility in 2006 during the last days in power of VRMO's rival, the SDSM party.)

The lawsuit followed the decision by a lower court in Macedonia that EVN owes around 200 million Euros (almost more than the Austrians paid to buy the Macedonian company) to ELEM (a national public utility that produces the energy EVN sells to final consumers).

The Macedonian court decision was the culmination of the tense relations between the government and EVN over a longer period. This ruling caused serious concern in diplomatic circles, and worsened Macedonia's relations with Austria.

Many, including international diplomats, commented that the court's decision was, at the very least, dubious. The European Commission expressed concern and reminded the Macedonian government that independent judiciary was a condition for accession. EVN has said that it would redirect to other countries large energy investments originally planned for Macedonia.

If EVN wins the case against Macedonia at the International Court of Arbitration in Washington, the government will have to pay large compensation. This will easily be more than what Macedonia was ordered to pay previously in a similar case of privatisation blunder.

Perhaps EVN is not completely right and the government not completely wrong, even though their dispute is essentially about interests: interests that can be renegotiated, if there is flexibility.

If the court made a biased decision to put pressure on EVN, that sends a bad message about Macedonian judiciary but also about the investment climate in the country. After all, investors praise legal certainty above all other things. If the government is correct, it should make an effort to explain itself.

Otherwise, other Google searches might result in less pleasant information concerning business opportunities in Macedonia.