EBRD Strategy for FYR Macedonia 2010
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DOCUMENT OF THE EUROPEAN BANK FOR RECONSTRUCTION AND DEVELOPMENT STRATEGY FOR THE FORMER YUGOSLAV REPUBLIC OF MACEDONIA 2010 - 2013 As approved by the Board of Directors at its meeting on 23 February 2010. TABLE OF CONTENTS LIST OF ABBREVIATIONS................................................................................................... 4 I. EXECUTIVE SUMMARY................................................................................ 6 II. COUNTRY STRATEGY .................................................................................. 9 1. THE BANK’S PORTFOLIO ............................................................................... 9 1.1. Overview of Activities to Date ............................................................................ 9 1.2. Implementation of the Bank’s Strategy to Date................................................. 10 1.3. Transition Impact and Lessons Learned ............................................................ 11 1.3.1. Enterprise Sector................................................................................................. 12 1.3.2. Financial Sector.................................................................................................. 12 1.3.3. Infrastructure ...................................................................................................... 12 1.3.4. Technical Cooperation........................................................................................ 13 1.4. Portfolio Ratio and Quality................................................................................. 13 2. OPERATIONAL ENVIRONMENT.................................................................. 13 2.1. The General Reform Environment..................................................................... 13 2.1.1. Political Developments ....................................................................................... 13 2.1.2. Business Environment......................................................................................... 14 2.1.3. Social and Labour Issues .................................................................................... 15 2.1.4. Environmental Issues .......................................................................................... 15 2.1.5. Legal Reform....................................................................................................... 16 2.2. Progress in the Transition and the Economy’s Response .................................. 17 2.2.1. Macroeconomic Conditions Relevant for Bank’s Operations ............................ 17 2.2.2 Transition Success and Transition Challenges................................................... 18 2.3. Access to Capital................................................................................................ 21 3. STRATEGIC ORIENTATIONS........................................................................ 21 3.1. Bank’s Priorities for the Strategy Period ........................................................... 21 3.2. Sector Challenges and Bank’s Objectives ........................................................ 22 3.2.1. Enterprise Sector................................................................................................. 22 3.2.2. Financial Sector.................................................................................................. 23 3.2.3. Infrastructure and Energy................................................................................... 24 3.2.4. Policy Dialogue................................................................................................... 26 4. COOPERATION WITH DONORS AND OTHER IFIS .................................... 26 2 III. ANNEXES......................................................................................................... 28 ANNEX 1: POLITICAL ASSESSMENT............................................................................. 28 ANNEX 2: COMMERCIAL LAWS OF FYR MACEDONIA............................................. 32 ANNEX 3: TRANSITION CHALLENGES......................................................................... 38 ANNEX 4: SELECTED MACROECONOMIC INDICATORS.......................................... 43 ANNEX 5: ENVIRONMENTAL AND SOCIAL ISSUES.................................................... 44 ANNEX 6: BANK’S TECHNICAL COOPERATION PROJECTS 2006 – 2009 ................ 55 ANNEX 7: MULTILATERAL AND BILATERAL ASSISTANCE ..................................... 57 ANNEX 8: TAM/BAS IN FYR MACEDONIA ..................................................................... 64 3 List of Abbreviations BAS/TAM Business Advisory Services/Turn-Around Management BEEPS Business Environment and Enterprise Performance Survey BOO/BOOT Build-Own-Operate/Build-Own-Operate-Transfer CCUP Climate Change Unit Program CEB Council of Europe Development Bank CEE Central and Eastern Europe CEI Central European Initiative CPI Corruption Perception Index CSR Corporate Social Responsibility DMEP Disaster Management and Emergency Preparedness Programme EIB European Investment Bank EC European Commission ECB Export and Credit Bank, Skopje, FYR Macedonia ECHO European Commission Humanitarian Aid ELEM Elektrani na Makedonija AD EPO European Patent Office ESM Macedonian Power Company EU European Union FDI Foreign Direct Investment GDI Gender Development Indicator GDP Gross Domestic Product GEF Global Environment Facility GHG Greenhouse Gas GRD General Roads Directorate GRECO Council of Europe Group of States against Corruption GSM Global System for Mobile communications GTZ Deutsche Gesellschaft für Zusammenarbeit HPP Hydro Power Plant IBRD International Bank for Reconstruction and Development (World Bank) ICC International Criminal Court IDA International Development Association (World Bank) IFC International Finance Corporation (World Bank) IFI International Financial Institution IFRS International Financial Reporting Standards IMF International Monetary Fund IOSCO International Organization of Securities Commissions IPA Instrument for Pre-Accession Assistance IRENA International Renewable Energy Agency JBIC Japan Bank for International Cooperation KfW Kreditanstalt für Wiederaufbau LEF EBRD-Italy Local Enterprise Facility LIS Legal Indicator Survey LTT Legal Transition Team MBDP Macedonian Bank for Development Promotion MCFF Medium Size Co-Financing Facility MDG Millennium Development Goals MEI Municipal and Environmental Infrastructure MSME Micro, Small and Medium Enterprises 4 NATO North Atlantic Treaty Organisation NBFI Non-Bank Financial Institutions NBG National Bank of Greece NBRM National Bank of the Republic of Macedonia NEAP National Environmental Action Plan NPLs Non Performing Loans NSSED National Strategy for Social and Economic Development PHARE Programme of Community aid to the countries of Central and Eastern Europe PPP Private Public Partnership PRGF Poverty Reduction and Growth Facility PRSP Poverty Reduction Strategy Paper OCE Office of the Chief Economist ODA Official Development Assistance OECD Organisation for Economic Co-operation and Development OSCE Organisation for Security and Co-operation in Europe SAA Stabilisation and Association Agreement SECI South East Cooperation Initiative SECO State Secretariat for Economic Affairs SMEs/MSEs Small and Medium Enterprises/Micro and Small Enterprises S&P Standard and Poor’s TIMS Transition Impact Monitoring System TNA Technology Needs Assessment TSO Transmission System Operator UNDP United Nations Development Programme UNEP United Nations Environmental Programme UNFCCC United Nations Framework Convention on Climate Change UNICEF United Nations Children’s Fund USAID United States Agency for International Development WBIF Western Balkans Investment Framework WDPA World Database of Protected Areas WeBSEDFF Western Balkans Sustainable Energy Direct Financing Facility WeBSEECLF Western Balkans Sustainable Energy Efficiency Credit Line Facility WTO World Trade Organization Currencies EUR Euro, European Union Currency MKD Macedonian Denar SDR Special Drawing Right, IMF “currency” USD United States Dollar Exchange Rates as at 30 September 2009 1 EUR 61.17 MKD 1 USD 42.05 MKD 5 I. EXECUTIVE SUMMARY The Former Yugoslav Republic of Macedonia (FYR Macedonia) continues to meet the conditions specified in Article 1 of the Agreement Establishing the Bank. FYR Macedonia has made further progress on key reforms, geared towards integration into the EU. After FYR Macedonia acquired formal status of an EU candidate country in December 2005 the European Commission recommended in October 2009 to open EU accession negotiations. The implementation of the Ohrid Framework Agreement, which ended the armed conflict in 2001, continues to support political stability in the country, highlighted by the smooth functioning of the current multi-ethnic governing coalition. Political stability has further increased due to the peaceful and orderly conduct of the latest elections in March and April 2009. However, the country still faces significant institutional and economic pre-accession reform challenges. The Bank aims to assist it in meeting these challenges successfully over the Strategy period. FYR Macedonia has built a strong record of macroeconomic stability in recent years. GDP growth picked up to 5.9 and 4.8 per cent in 2007 and 2008, respectively, led by stronger domestic demand and increasing investments. In the last quarter of 2008 and in the first half of 2009, however, the economy began to feel the impact of the global financial crisis. Exports, capital