The CRPM team has reviewed the European Bank for Reconstruction and Development 2004 Strategy for Macedonia. We find that the Strategy is hardly based on evidence gathered from the field and poorly reflects the development needs of the country.
The Strategy however is a very powerful policy tool that has strong affects on both policies of international organizations as well as private enterprises.
Internet research on the security of investment in Macedonia results with the following information being cited in various reports (by the European Agency for Reconstruction, the International Crises Group, as well as the most recent 2006 Index of Economic Freedom): “Despite some recent successes, FDI, with less than US$ 1 billion of cumulative investments since 1991, is at a low level as many foreign investors continue to be deterred by a difficult investment climate and perceived political and security risks.” This is a observation given in the 2004 EBRD strategy for Macedonia.
The qualification of the investment climate is rather outdated and not evidence based, but manages to profile Macedonia as an investment risk country for foreign investors.
This enhances the pressure on a serious institution such as the EBRD to revisit the strategy and in a coalition with Macedonia based policy institutes develop a new strategy that will provide a platform, a path for strategic reforms that will enable further development of Macedonia and reaffirm EBRD’s role in the country.
To assist this process the Center for Research and Policy Making hereby provides these specific comments to the reading of the 2004 EBRD strategy for Macedonia (CRPM comments in bold):
The Strategy refers to “lessons learned and strong impact of its program”. CRPM asks how impact is measured. Has there been any policy evaluation of the Bank’s program? This is especially important when statements such as the following are made “Overall, the Bank has achieved the operational objectives set out in the 2002 Country Strategy”, without giving explanation of what these objectives were.
The strategy defines the main challenges of Macedonia without giving information on what basis has the Bank defined the main challenges that face the country. Has there been any analysis of contemporary Macedonian political and economic situation? Did the Bank’s team consult any policy institute that could provide evidence for the thinking of the Bank.
The success of the EBRD projects is praised in the document though there is no evidence from any assessments conducted previously. Statements as the following (on page 9 of the strategy) make this evident: “The pipeline is state of the art at a technical level and has brought new standards of engineering to the country, while significantly reducing the risk of environmental hazard linked to oil transportation.” How did the building of the pipeline bring new standards of engineering to the country? This might be self-evident for the writer but not to the reader.
The Bank should address these problems of post privatization issues and the problem of collateral lending approach of the banks in Macedonia by investing in projects that will deal with these issues.
Integrity issues (2.1.3 Integrity Issues) are still important and should be stressed in the 2006 strategy
(4.2 Financial Sector) Strategy should address the issue how to increase competition in the banking sector. Statements in Strategy should be easily understandable:
(1.3.1 Transition Impact – Enterprise Sector) “The pipeline is state of the art at a technical level and has brought new standards of engineering to the country, while significantly reducing the risk of environmental hazard linked to oil transportation.” How did the building of the pipeline bring new standards of engineering to the country? This might be self-evident for the writer but not to the reader.
(1.3.1 Transition Impact – Financial Institutions). “NBG has accomplished tremendous work since then, cleaning up the inherited portfolio substantially, introducing excellent new MIS and expanding substantially into retail banking.” The “MIS” is not explained at all. “The Bank is financing a considerable number of projects in public infrastructure and the preparation and implementation of these projects brought about significant institutional reforms in the areas of sector restructuring/commercialization as well as financial management and procurement.” It is not clear which are the significant institutional reforms that have been brought forward. CRPM thinks that the Bank should also focus its attention to the non-financial sectors that could provide financial means for the Macedonian private sector. The non financial sector is rather underdeveloped.
(1.3.2 Lessons Learned) “Such lessons have helped the Bank to develop a more concrete policy dialogue with various government bodies, although our efforts to create a channel to address these issues, e.g. through a direct dialogue between private business and Government, as mentioned above, are still to bear fruits” There need to be more detail on how the lessons have helped the Bank to develop the policy dialogue with government bodies. In what form this dialogue takes places? How often and through which channels?
(2.1.5 Labour Issues) “The Confederation of Trade Unions (SSM) encompasses 17 separate unions organised according to the industry sectors. More than 50 per cent of the legal workforce is unionised. Unions are particularly strong in the garment industry.” As the CRPM policy study on the economy of Shtip and the garment industry in general shows, trade unions are a rarity in this sector. The claim that unions are particularly strong in the garment industry is false. See CRPM’s MACEDONIAN CLOTHES FOR EUROPE at Download File, Eng
Page 12 “Foreign investor interest in the country has been low and the few that have tried to approach local privatised companies for potential acquisition have often found that the management of these companies has an unrealistic valuation for their companies, which are typically characterised by stagnating or declining sales, over-employment and overvalued but decaying assets.” Can EBRD provide any examples of managers’ unrealistic valuation for companies? The claim seems taken from general discussions on the Macedonian privatization and not from fieldwork or any assessments on the value of the Macedonian companies for potential acquisition.
(2.1.4 Social Conditions) “In the 1980s, the state provided a guaranteed and comprehensive healthcare service, which on paper still remains intact but in practice suffers from acute lack of funds, resulting in scaled back health and related social benefits.” The claim seems taken from general discussions on the Macedonian privatization and not from field work. CRPM is currently preparing a policy study on the state of affairs in four medical centres around Macedonia and would be happy to share the results once the analysis is published. Until our studies are publicly available, the comparative analysis of the salaries in the public sector would confirm the very opposite (the salaries in the public health sector are competitive), though de-compression is needed. However all recommendations for further increase of the salaries in the public health, education and judiciary sector need to be based on a sound study of the financial implications they would have on the national budget.
Page 15 “The educational system has been drained of resources since independence. At the primary and secondary level, parents have had to make the shortfall in resources and teaching materials. Postgraduate students have fewer opportunities to study.” The Macedonian government is responsible to provide free primary education but has never provided text books, which always has been covered with out of pocket payments. But parents do not participate with financial means to the primary education in the country. A CRPM recent overview of the tertiary education sector depicted that at postgraduate level the opportunities are growing immensely with introduction of many interdisciplinary studies and private university programs. Therefore we are wondering in what sense postgraduates have fewer opportunities to study? Have some of the postgraduate programs been closed down? Data is missing to support the claim.
Page 21 “Despite the steady progress in the banking sector reform especially in the area of privatisation (direct and indirect state ownership of banks’ capital has fallen to 13 per cent), the banking sector in FYR Macedonia remains highly concentrated and is still not competitive enough.” On what basis is the banking sector in FYR M judged as not competitive enough? Although this has been generally accepted as true, comparative data should be added to strengthen the mentioned claim.
(2.2.1 Macroeconomic Conditions for bank Operations; 2.2.2 Access to Capital). EBRD efforts in the Macedonian banking sector are not giving sufficient improvement. Beside the legal requirements for the banks to have risk management departments it is difficult to conclude that they have good risk management departments since they still use the collateral based approach. The new banking Law has not been passed. For evidence on the problems of Macedonian companies accessing financial resources please refer to the CRPM study:
Download File, ENG:
Download File, MK
The large trade deficit indicates insufficient improvement of business environment
(2.2.1 Macroeconomic Conditions for bank Operations) The statement in the same paragraph same page about the performance of the steel and textile sector should be elaborated more and it is interesting how these sectors’s development can be addressed with the Bank’s goals. The Macedonian export sector is highly concentrated one. Steel sector was benefiting the fluctuations of the world market prices. How the China WTO relationship will affect the textile industry in MK? How the Bank will respond to this environment within its operations? For further evidence on the Macedonian textile sector please refer to the CRPM Policy study “ Macedonian Clothes for Europe”:
Download File, Eng
(3.1 Private Sector Development) Establishing organizations and passing laws in a country is necessary but not sufficient condition for a functional market economy. The case of the Anticorruption commission having no instruments to finish cases and scarce political will in the country to create better business climate are obstacles to boosting private sector investment and economic growth. The CRPM believes that the corruption problems would be overcome if a comprehensive multi-pronged anticorruption approach is used.
The EBRD Strategy should stress the monopoly and regulatory issues in the Energy sector and Telecommunications.
“NBG has accomplished tremendous work since then, cleaning up the inherited portfolio substantially, introducing excellent new MIS and expanding substantially into retail banking.” The “MIS” is not explained at all. “The Bank is financing a considerable number of projects in public infrastructure and the preparation and implementation of these projects brought about significant institutional reforms in the areas of sector restructuring/commercialisation as well as financial management and procurement.” It is not clear which are the significant institutional reforms that have been brought forward.
Page 13 “The September 2002 parliamentary election was won by a coalition led by the Social Democrats (SDSM) and supported by DUI, the recently formed ethnic Albanian party that had come out of the NLA, the former guerrillas who fought the government in 2001.” As far as our analysts can testify DUI had not supported the coalition led by SDSM before the elections.
Page 28 “The government disbanded the so-called Lions – paramilitary units of the special police notorious for extreme nationalism and violence against civilians (especially ethnic Albanians).” The role of the Lions unit in the conflict in 2001 has been controversial. An analysis of their role at that time should be particularly careful in establishing the facts. There are evidence that the unit has been legally founded by the then structures in the Ministry of Interior. The labeling of that unit as being paramilitary and extremely nationalistic should be supported by evidence.
The Centre for Research and Policy Making is a policy research institute that produces evidence – based studies (policy papers; policy briefs and policy studies) in the areas of:
a) Socio-economic Development of Municipalities (measuring economic potentials, comparative advantages of clustering and improvement of the business environment)
b) Macedonian Politics (pre and post election studies)
c) Health and Health Care (financing; quality assurance; reorganization / rationalization of health services)
d) Social Security (pension systems reform; child protection; safety nets)
e) Good governance (monitoring decentralization; sub national budget watch)
f) Capacity building of NGOs and the civil service, professional organizations, lobby groups and interested citizens in community based policy analysis
g) Youth policy
h) European Integration of Macedonia (EU rules of origin, facilitating the debate on EU enlargement, visa regime, adoption of the acquis, utilization of the IPA funding)
i) Regulatory Impact Assessment
The CRPM contributes to the policy process in Macedonia by guiding the change in policy and at the same time remaining independent from the policy ideas of international organizations and foreign governments.
The CRPM is consulted on regular basis by the international finance institutions and international donor organizations active in Macedonia.