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American Times: Mr. Zoran Stavreski – Vice Prime Minister & Minister of Finance of the Republic of Macedonia
There are many times where certain positions within a government are allocated to individuals for reasons unbeknownst to the general populace; let alone foreigners conducting business. The same cannot be said for Vice Prime Minister and Minister of Finance of Macedonia, Mr. Zoran Stavreski, who not only has the track record within the government to justify his heady post but handles both supreme functions with a diligent understanding of their macroeconomic implications. In part due to his former role as Vice Prime Minister in charge of Economic Affairs but notably too, as the chief Macedonian representative on the global stage to the World Bank.
Not surprisingly, Staverski’s current role is essentially a facilitator between the key sectors of the economy, noting specifically that, “The Ministry of Finance is important in a small country where budget plays a large role in the economy. It is a role that requires the coordination and allocation of resources to other ministries for infrastructure, social safety net concerns, agriculture and most other sectors.”
Naturally, we were intrigued to delve further into the specifics of how the economy fairs in this new global economy, competition in the region and more specifically, how all this applies to attract investments from abroad. Cordially, we introduce you to the proof surrounding the implications.
We’ve seen the impressive results indicated by the World Bank’s 2013 Doing Business Report on Macedonia; specifically the substantial increase in rankings within the last few years. As the former government representative to the World Bank, what do you think were some of the contributing factors behind the climbing in the ranks?
The number one factor is political will. In 2006, when we formed our government, we decided that Macedonia needs to change its image in the foremost. Naturally, this begins with increasing general awareness about the country but moreover, transforming the image from a poor country with regional conflicts to a dynamic economy where our baseline politics came down to making Macedonia an attractive destination for investors. Of course, this is the vision, the objective, which requires political desire and immediate action.
To reach those goals we analyzed the experience of countries that have traveled this road successfully while at the same time applying our own reforms. From the earliest stages of this development the mantra of the government is to level the playing field for all companies and let them compete; prosper or fail, the aim was to reach a true market economy. So, before we could promote our efforts abroad to investors we understood there were certain reforms that were paramount to that end. One was the regularity guillotine which was extremely useful in reducing bureaucracy and corruption by removing a number of procedures, documents, costs and interactions required of companies and citizens dealing with the public sector officials. By reducing these we saw it as an enabling factor for the firms; allowing them to spend more time thinking about their investments rather than how to obtain a license or construction permit and so on.
Secondly, we’ve made a lot of changes within the public cadaster in order to strengthen property rights, along with changes made in the public revenue office and customs. These institutions were transformed by creating a system of motivation for workers and by introducing modern technology and one-stop shops which streamline the respective processes; thereby, increasing efficiencies for workers and businesses alike. A great example of this is the establishment process in which a company can become incorporated within Macedonia in as little as four (4) hours. Now when we apply these achievements to the World Bank rankings in terms of property rights and protection of investors, we are number nineteen in the world. Currently we rank 23rd in the world when indicators are aggregated.
“…a company can incorporate within Macedonia in as little as four (4) hours”
In my opinion, our current rank is the biggest success because it indicates a steady flow of reformation year over year. I say this because it is relatively easy to jump from ninety-sixth position where we were in 2006 to seventy-fifth position in a year or two (2). But ensuing years, as indices are harder to reach or require prerequisite reformations, our fine tuning begins to maintain our standings or improve; which we have done. This shows that it’s the system that we have created, not just sporadic or a one-time major reform implemented early on that is propelling us. It’s a system dictated by the government, which works constantly to improve our business climate.
We also adapted well to the enduring 4.5 year crisis as it was necessary because different measures were obviously required before and during the crisis event. We established some credit lines for SMEs which helped them maintain their operations as they were more vulnerable and therefore, disproportionately affected. So, due to those short term measures there is now in place long term financing made available to them.
Overall, most countries have agencies for attracting foreign investments, as do we. However, we’ve taken the extra step by having three ministers in the government who are in charge of attracting FDI and maintaining investor relations. Ultimately this is of tremendous importance and acts as our primary competitive advantage over not only regional players such as Bulgaria or Serbia but globally as well: A direct line of contact from a company’s CEO or management team with top level government officials.
What this means is that we operate an aggressive approach in attracting, maintaining and building relationships with our foreign investors, but doing so at a peer level. The fact remains that we need to be able to relate to these investors on their terms and in my opinion we have the ability to do just that. We have a lot of technocrats in the government along with people who have western educations as well as experience working abroad.
I’d like to place the business/government relationship aspect in a real life perspective. In Georgia we recently met a large firm that needed to import a certain material in order to produce critical infrastructures but the material was deemed “waste” by the current Georgian legislation. That firm was able to get a direct meeting with the appropriate minister and in a matter of days the legislation was amended to allow for that material’s importation.
If a similar situation arose here in Macedonia; would such a positive outcome be possible under the mentioned structure?
Absolutely! There were a couple of cases were a company needed to obtain a license or assurance that they will have certain conditions available to them prior to entry and we are in position to make that decision; of course, basing the decision on the vast interests of Macedonia and within the legal framework in the country. But sometimes it’s just a small change that is required in order for a company to make a decision to invest in country A instead of country B. Including taxes and labor force costs and skill levels. But what all investors emphasize what matters the most is having a reliable partner in the government. It takes all these elements to be placed together and we think we’ve developed a regulatory and legislative mosaic that makes investors feel secure and confident that this country has potential for growth and that the government is business oriented and can act without hesitation.
We mentioned earlier global rankings and the difficulty of moving from your current position; it appears that there is somewhat of a plateau that has been reached. What other legislative reforms are still works in progress?
As you said, it’s more difficult to find measures that can additionally improve the business climate but there’s still room. One area is access to electricity. Our costs are higher than others in the region but also in terms of time to implement the required infrastructural changes. We’ve discussed the matter with the privately held electricity company and need to maintain ongoing and collaborative dialogue with them. We can also look at bankruptcy where there are certain efficiencies that have not been established to expedite a company’s transformation procedure.
Of course, in every ministry and government institution steps to improve capacity or to deal with more nuanced upgrades. For example we recently had discussions with the Central Cadastral Registry where one can complete the entire submission process electronically and we are carrying this mentality in every critical aspect of our business framework. As you stated, we are creating a system. Results are published yearly; we analyze where we can make improvements and proceed with a course of action. In regards to the aforementioned we have been executing our action plan for the past six months based off last year’s. We do not hesitate.
Indeed, some measures are certainly easier to attain while others require a longer lead time…
For certain some measures are easier, but that does not mean they are not just as important of a milestone. For some there are political costs. Some which require inherently disruptive approaches that meet strong resistance from people not geared toward change. This comes down to mindset, which is certainly a factor that requires education and time.
What were the primary challenges in executing these reforms?
I think the world economic crisis played a large role in speed of the reforms; it also had to do with the financial resources available at the time. When you have crucial domestic priorities that need immediate addressing it’s difficult to also focus outward on business climate attractiveness. The complexity of the situation, at the time, is that you must develop the business climate and the image of the country. On the other hand, the overall external global environment wasn’t conducive to FDI flows. So considering that dichotomy, you won’t see immediate results in attracting investors although you have improved your business climate. And people become impatient at times because they are expecting things to materialize within a year or two; which may make sense in a normal global economy but surely not in the midst of a crisis where 4 years is more likely. But we see now that companies are beginning to expand and move forward. In Macedonia alone in the past 12 months we’ve seen five or six large companies making decisions to invest.
What areas are these one-stop shops currently operating and which ones are in the pipeline?
Well, it’s one model of addressing efficiency. When there’s a bottle neck within the administration these one-stop shops resolve it by combining all the resources in one place, reducing internal exchange of information, which eliminates the headache investors endure when they must go from department to department.
We’ve made a fully functional one-stop shop related to establishment of a company where the whole process is done electronically, on our end and the company’s. The custom service has also started to use this model where they can file certain custom forms electronically, and by the end of this year we expect the entire customs process to be electronic. This will cut down the processing time for companies by at least 2 days. In terms of business services in the pipeline we are actively developing the system for our cadaster process as well.
So investors should have no fear of unjust expropriation?
For property rights we have essentially the same legislation that exists in most developed European economies. One of the advantages in Macedonia for foreign investors is that we are in a sweet spot, close to Europe, which means our legislation must be harmonized with EU standards. But what’s most intriguing is that we are not yet an official member of the EU which allows us to be more flexible in the areas of taxes and other cost sensitive areas important to investors.
What sectors do you see as representing the best, most exciting opportunity for investors; maybe even more specifically, for US investors?
We’ve seen a lot of interest in the automotive industry and I think it makes a sense because there’s an adequate supply of labor with the required skills at a low cost. In my opinion, there is a lot of potential in the food processing industry, which I see as a comparative advantage for Macedonia. But we lack processing technologies and exporting in a higher, valued added form. Like other countries in the region, we have a solid base for the IT industry but face stiff competition in that area with some of our neighbors.
Of course it all depends on what a company needs. Whether it’s costs or you want to establish a European footprint. Which makes us attractive, not only for our pro-business environment and strategic location but because we also has Free Trade Agreements (FTA) with Europe and most countries in the region.
I’d like to touch a little bit on the financial sector; in terms of market and currency stability. Can you elaborate for our readers?
The financial sector is stable but small and comparatively less mature than other developed European countries, which is normal. We have sixteen banks with 75% of them being foreign owned. Additionally, there are seven savings houses and eleven leasing companies. So regarding the size of our market and the players involved we are solid but on the other hand we would like to see stronger banks which can offer new products and strengthen the competition.
As a whole, the banking system was stable during the crisis without spill-over effects from the European crisis because the domestic deposit base was adequate enough to absorb any shocks. This is due to strong domestic deposit resources rather than parent bank borrowing. Another contributing factor is that the rate of credit-to-deposit ratio was and is still below 100; which mean there’s still room for banks to provide financing without exposure to the leveraging process in Europe. The connection with the Eurozone would be our currency which is essentially pegged to the Euro, allowing for a relatively stable currency.
In regards to the Macedonian Stock Exchange…
The stock exchange of course suffered a lot during the crisis because we lack(ed) foreign institutional investors. We can’t have a successful stock exchange in a country of two million people. A regional exchange would be more appropriate.
Macedonia has been extremely active in promoting awareness across the globe via road shows. Are you seeing a footprint taking hold, interest starting to accrue?
I remember when the crisis erupted in 2009; we visited Silicon Valley in the US and had a meeting with the CEO of Oracle and she said, “You are the first group in the past 12 months who has visited us and I will remember you forever. This shows me your determination to develop your country even in a down global economy.”
We’ve seen number of global companies because of these types of efforts invest in Macedonia. Some are in the pipeline and in the last round of analysis to make a decision and others currently in the market, like Johnson Matthey and Johnson Controls, are expanding their business lines. But, yes, road shows in this competitive world, especially for a small country to present itself, really are the best way to be aggressive and reach decision makers.
Do you have an impression of which foreign markets are of the utmost importance to Macedonia?
Initially, it was the European market for obvious reasons but due to ongoing economic stagnation we are turning our focus outward. Now, we are more focused on the American market but we are also trying to cover new emerging markets whose economies are growing rapidly such as the BRIC nations.
Paint me a picture of your ideal type of company, one you’d like to see place capacities in Macedonia, what would that look like?
[with a smile] Well, I’m an Apple guy, so in terms of the image of the country, I would love to see Apple. It’s important that we entertain all investor interest. But as mentioned with Apple, we also need some great brands investing because that helps us create a name by association and there tends to be a snowball effect. There is an understanding that we do need some small and medium sized companies that are well-rounded and have good products. And by “well-rounded”, it’s important to have modern technologies equating to higher value processes which creates a trickle-down effect on the economy where local firms can join in on the supply chain. These types of activities are very important as they create jobs and over the long-term change the structure of the economy and quality of life.
If you could offer one last piece of advice or message to our investor readers, what would you say?
We recognize your needs. Which is why you will find attractive taxes, effective administration, strong market dynamics, good infrastructure and most other basics required for a new investor. But most importantly we have a hands-on strategy where we build a tailored made solution based on each company’s needs. I mean from the very beginning as the investor arrives at the airport until he leaves the country we are available to handles all questions, set meetings and work through the due-diligence process with them as a partner. Lastly, we appreciate everyone, whether it’s a one million euro or one hundred million euro investment; you will have equally good treatment.