Enabling environment for sustainable enterprises

What stops businesses from thriving in North Macedonia?

New ILO report spells out where progress was made and identifies remaining key constraints for enterprise development.

News | 08 October 2019

A competitive market economy based on sustainable enterprises has been one of the key priorities for North Macedonia. The growth of vibrant companies is to a large extent influenced by the environment in which they operate. The first analysis of the enabling environment commissioned by the Organization of Employers of Macedonia and the Business Confederation of Macedonia back in 2013 with ILO support lead to a couple of policy changes. The most important reforms initiated by the employers’ organizations were the revision of the public procurement law, labour law and taxation policies. The new 5-year strategy on Small and Medium Enterprise (SMEs) goes for increasing the competitiveness of SMEs coordinated policies and support programs.

Nevertheless, severe challenges to economic and sustainable development remain, such as a decline in productivity growth, structural transformation, deficiencies in the labour market, corruption and a weak rule of law.

The new ILO update report The Enabling Environment for Sustainable Enterprises in North Macedonia published in September 2019 revisits the study commissioned back in 2013 assessing the progress made since and the prevailing constraints that still inhibit the private sector.

The study focuses on five key areas identified as priorities for companies in North Macedonia:

•    Enabling legal and regulatory environment
•    Rule of law and secure property rights
•    Access to financial services
•    Fair competition
•    Entrepreneurial culture

The report concludes that in the legal and regulatory environment, progress has been noted through a greater ease of starting and doing business and the overall quality of regulation. Challenges continue in terms of the burden of government regulation and labour market efficiency and flexibility. The increased taxes on personal income might lead to increased costs. The new upcoming labour law should provide sufficient flexibility in working arrangements but at the same time ensuring workers’ security.

The rule of law remains one of the key challenges. In the last few years the perception on corruption worsened in the country.  The political will is vital to implement the recently adopted anti-corruption policies.

Only a slight improvement took place in access to financial services, domestic credit in the private sector or government financing for innovative projects. New financial instruments are still scarce.

Local competitiveness has improved, with the competitiveness of enterprises still based on efficiency rather than innovation. The investment in research and development has only slightly increased over the years and is lagging behind the country’s projections. Low productivity is an important factor impeding competitiveness. For enterprises, the informal economy and disloyal competition remain key challenges in achieving growth.

Despite efforts to promote entrepreneurship through education and to provide support to self-employment and young entrepreneurs, the levels of entrepreneurial activity in the country have been stagnating in the past few years. Most new entrepreneurs are motivated by necessity rather than by business opportunities. The gender gap in economic activity has not significantly improved. The educational system still does not provide the knowledge and skills relevant for the country’s economy and for the business sector.

Overall, in recent years positive policy and regulatory reforms have been initiated that are expected to improve the environment for the private sector. So that these reforms bear fruit, it is essential that the public institutions maintain regular consultations and dialogue with the business sector and other social partners to provide input on the proposed regulation and policies. The reforms and their impact will depend on the political will and capacity for consistent implementation.

The report The Enabling Environment for Sustainable Enterprises in North Macedonia is based on the EESE methodology the International Labour Organization developed to assess business environments. It was carried out in the framework of the project Strengthening Social Dialogue in North Macedonia, funded by the European Union and implemented by the ILO.

The report is available in English and Macedonian.