North Macedonia’s NATO Membership and EU Negotiations Boost FDI | fDi Intelligence – Your source of information on foreign direct investment

After joining NATO and launching formal negotiations for EU membership, foreign direct investment (FDI) in North Macedonia surged between 2020 and 2021, renewable energy and technology projects information and communication (ICT) contributing the most.

Invest North Macedonia, the country’s investment promotion agency, tells fDi that the country’s political stability is a key factor in the process of attracting new foreign investment.

However, obstacles remain for the country’s economy and the growth of FDI. The main downside risks relate to the war in Ukraine, according to Fitch Ratings.

Fluctuating IDE

FDI inflows from North Macedonia show fluctuations over the past five years. In 2017, the country hit a record level of FDI inflows with $89.2 million, then hit $850 million in 2018, according to data from the Foreign Investment Monitor. fDi Markets. After a landmark decision to change its name from the Republic of Macedonia to North Macedonia and leave behind a long-running dispute with Greece in 2018, FDI inflows into the country fell to $207.6 million with 10 projects in 2019. The pandemic has worsened the situation as its FDI inflows fell by 67% from 2019 to 2020, worth $136 million.

In 2021, North Macedonia saw its highest level of foreign investment inflow in the past five years, a total of $992 million.

Relative to the size of its gross domestic product (GDP), the country’s performance in FDI in 2021 fared better than any other country in the world except Costa Rica and the United Arab Emirates, according to fDiof the latest greenfield foreign investment index published in August.

In 2021, North Macedonia also saw its economy recover. The country’s GDP fell by $500 million, from $12.61 billion in 2019 to $12.12 billion in 2020. The following year, the GDP recovered, standing at 13, $88 billion, according to World Bank data.

According fDi Markets, two solar renewable energy investments and a wind power were the three largest projects in North Macedonia last year, followed by three investment projects in the software and IT sectors.

Reduce geopolitical risk

The country’s investment promotion agency believes that reduced geopolitical risks have supported its growth. “The fact that North Macedonia is part of NATO is indeed one of the reasons for the big jump in FDI inflows,” adds Invest North Macedonia.

North Macedonia became a NATO member in March 2020 and its priority now is to conclude EU membership negotiations. Formal negotiations began in July – it has taken the country 18 years to begin formal talks since it first applied for EU membership in 2004.

“The EU accession process helps anchor the policy and support exports and FDI inflows [into North Macedonia]says Erich Arispe, senior director at Fitch Ratings. fDi.

Bulgarian ICT outsourcing company Scalefocus, which opened a new office in North Macedonia in 2021, says fDi that the company certainly took into consideration “the stability of the country’s political and economic systems”.

Arispe notes that the assessment of geopolitical risks “will play a more important role” in foreign investors’ decisions in the future due to uncertainty regarding the evolution of the war in Ukraine, as well as “protracted tensions between the West and Russia”. .

According to North Macedonia’s economic outlook published by Fitch in July, closer ties with the EU will improve investment prospects as it “boosts investor confidence”. However, the ratings firm still expects the war in Ukraine to hamper investment due to disruptions in energy supplies from Russia, on which the country depends for imported gas, and the impact of the war. in North Macedonia’s largest export market, Germany.

The rating agency also said the country had lingering problems in global manufacturing supply chains.

Renewable energies

According fDi Market figures, renewable energy projects contributed the most FDI in North Macedonia between January 2017 and July 2022, totaling $739 million, followed by the real estate sector ($409 million) and software and hardware. IT ($381 million).

France’s Ostro Solar and UK-based infrastructure investor Energy Financing Team (EFT) announced plans last year to develop new solar power plants in North Macedonia, worth around $302.8 million and $217 million, fDi The market data shows it.

The Ostro Solar plant will have a total installed capacity of between 350 and 400 megawatts (MW).

EFT Group tells fDi that North Macedonia presented a clear strategy for the development of renewable energies, which was the main reason for the investment decision. The company said it plans to build three more 80-100 MW solar power plants and is waiting to see if the first one will start construction before applying for more licenses to expand its business.

North Macedonia aims to increase the share of renewable energy sources in electricity to 46% by 2025, according to the Economic Reform Program (ERP) 2022-2024, submitted to the European Commission (EC) in January.

An analysis of North Macedonia’s energy published in 2021 by Heinrich Boll Stiftung, a think tank for green policy and reform, describes North Macedonia’s energy market as “one of the most attractive among the countries of south-eastern Europe with its change in policy”. The policy brief reports that North Macedonia has great potential for renewable energy, especially solar and wind power.

New energy law legislation, passed in 2018, brought the system into line with the EU Energy Community’s third energy package, which is a legislative package for an internal electricity market in the European Union.

Challenges

However, the country’s young energy sector also faces challenges.

Andreas Chollet, country manager at WPD, a German renewable energy company, says fDi that one of the headwinds for the company is a “utility system monopolized by state-owned electricity producers, Elektrani na Severna Makedonija (ESM), and the lack of experience in how to manage significant investments by independent operators in their energy sector”.

The company announced plans to build a 415 MW wind farm in North Macedonia, worth around $217 million. It should be fully operational around 2030.

ESM owns and operates the only wind farm in North Macedonia.

The investment promotion agency says that with the new energy law, the country is “strongly committed to the evolution of the energy market, including the further liberalization of the electricity market” .

The software and IT sector, which saw the most FDI projects between 2017 and July 2022, also faces a major obstacle, namely the shortage of labour. A spokesperson for IT company Scalefocus said: “North Macedonia offers a more limited market capacity due to the small size of the country, in the context of an existing shortage in the IT labor market”.

However, North Macedonia’s investment promotion agency says the country has access to 680 million consumers through three multilateral free trade agreements – Stabilization and Association Agreement, European Free Trade Association and Central European Free Trade Agreement – and two bilateral trade agreements with Turkey and Ukraine.

“We are also a member of the Open Balkan [initiative], an economic and political area of ​​three member states in the Balkans, namely Albania and Serbia. The investment promotion agency believes that this Balkan economic zone will become more active with the exchange of information on business opportunities, with the possibility of accessing larger markets.

“If we join forces, this could be a success story,” adds the promotion agency.

This article first appeared in the October/November 2022 print edition of fDi Intelligence. See a digital edition of the magazine here.

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