Viktor MizoCEO, Free Zones Authority

May, 2015

Why Macedonia?

Investment Incentives

CompetitiveWorkforce

Excellent Infrastructure

Investor - friendly

Government

CompetitiveLocation

Higher Profits & Increased Competitiveness

Location and Transport Infrastructure

MACEDONIA

KOSOVO

SERBIA

MONTENEGRO

BOSNIA AND HERZ.

CROATIA

SLOVENIA

ITALYBULGARIA

ALBANIA

GREECE

ROMANIA

HUNGARY

SLOVAKIA

AUSTRIA

SWITZERLANDFRANCE

SPAIN

PORTUGAL

BELGIUM

LUXEMBOURG

GERMANY

CZECH REPUBLIC

POLAND

UKRAINE

BELARUS

RUSSIA

UNITED KINGDOM

TURKEY

MOLDOVA

MALTAAFRICA

IRELAND

NETHERLANDS

DENMARK

LITHUANIA

LATVIA

ESTONIA

SWEDEN

NORWAY

• Two Pan-European corridors:

– East-West Corridor 8

– North-South Corridor 10

• Road network: 9,205 km

• Railway network: 900 km

• Two international airports:

– Skopje

– Ohrid

• International ports*:

– Thessalonica (Greece): 250 km

– Durres (Albania): 300 km

* Distance from Skopje

Free Trade Agreements

� EU – European Union (28 countries)

Free Trade Agreements provide access to markets in 41 countries with 650 million consumers

� EFTA – European Free Trade Association(4 countries)

� CEFTA – Central European Free Trade Agreement (7 countries)

� Bilateral Free Trade Agreements with: Turkey and Ukraine

16.629.2

8.9

-28.2

30.9 26.8

-2.8

3.6 15.1 10.7 11.0

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016*

6.3

8.3

5.9

2.1 2.3

4.6

1.53.1 3.1 3.7

4.5

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016*

INFLATION

Low inflation: avg < 2% annually over the last 14 years

CURRENCY

Macedonian Denar pegged to the DM/€

for the last 20 years (€1= MKD 61.5)

AVERAGE GROSS SALARY IN 2014

€509 per month€383 per month in manufacturing

CREDIT RATINGS

Standard & Poor’s: BB-, Stable OutlookFitch: BB+, Stable Outlook

Stable Macroeconomic Indicators

REAL GDP GROWTH RATE (%)

EXPORT GROWTH RATE (%)

FDI (% of GDP)

Source: SSO and MoF; * Projection

5.16.5

5.5

-0.4

3.42.3

-0.5

2.73.8 4.0 4.2

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015* 2016*

Financial System

� Sound and stable financial system

� No spillover of the world financial crisis on Macedonia

� 15 banks with capital adequacy ratio of 15.7%

� Macedonian banks are highly liquid with credit to deposit ratio bellow 1 (0.9)

� 76.2% share of foreign in total bank capital

� Some of the banks operating in Macedonia are:- French Societe Generale Bank- Austrian Sparkasse Bank- German ProCredit Bank- Dutch-Turkish Halk Bank

Invest Macedonia - Agency for Foreign Investments

Sustainable Public Finances

� Total revenues 29.6% of GDP

� Total expenditures

32.9% of GDP

Moderate size of Government and fiscal policy that supports economic growth

Prudent fiscal policies

� Budget balance

-3.3% of GDP

� General Government Debt36.0% of GDP

As % of GDP

Total RevenuesTotal

ExpendituresBudget balance

2007 32.1 31.5 0.6

2008 32.9 33.8 -0.9

2009 31.0 33.6 -2.6

2010 30.2 32.6 -2.4

2011 29.5 32.0 -2.5

2012 29.6 33.4 -3.8

2013 28.1 31.9 -3.9

2014 27.8 32.0 -4.2

2015* 29.6 32.9 -3.3

Source: MoF; *Projection

23.520.5

23.6 24.127.7

33.7 34.238.2 36.0

2007 2008 2009 2010 2011 2012 2013 2014 Q1 2015

General Government Debt (% of GDP)

8

Lowest taxes in Europe

Lowest Flat Tax on Profit 10%

Lowest Flat Tax on Income 10%

Tax on Reinvested Profit 0%

Reduction of social contributions

Total rate of 26.5% in 2014

Pension and disability insurance 18%Health insurance 7.3%Unemployment insurance 1.2%

Corporate Tax rate is 0%, when companies decide to reinvest profits in new investments

Social contributions have been reduced from 32% to 26.5%

Unbeatable Fiscal Benefits in Europe

� First in the World with lowest Total Tax Rate of 7.4%,

� VAT at 18%, with 5% on specific items

� Low customs duties - weighted effective customs tariff rate is 1.75%

� 46 Double Taxation Avoidance Treaties signed

� 40 Treaties for Promotion and Protection of Investments signed

Corporate Income Tax Personal Income Tax

22%

20%

20%

19%

19%

19%

18%

16%

10%

SLOVAKIA

TURKEY

CROATIA

POLAND

CZECH REPUBLIC

HUNGARY

UKRAINE

ROMANIA

MACEDONIA

12%-40%

15%-35%

18/%32%

19/%25%

15/%22%

15/%17%

16%

16%

10%

CROATIA

TURKEY

POLAND

SLOVAKIA

CZECH REPUBLIC

UKRAINE

ROMANIA

HUNGARY

MACEDONIA

Regulatory reform

� One-Stop-Shop: 4 hours company registration � Regulatory Guillotine � Electronic One-Stop-Shop for customs permits and licenses � Single window: Improving interoperability between government institutions

Liberalization of real-estate market

� Foreigners free to purchase real estate and construction land � Simplification of procedures for obtaining construction permits from 21 to 3 steps

Benefits for foreign nationals

� Foreign nationals that invest €400,000 have the opportunity to obtain Macedonian citizenship

� Foreign nationals that purchase real estate in amount of over €40,000 can obtain residence permit in Macedonia

Continuous implementation of Regulatory and Administrative Reforms

31th IN THE WORLD

“Best Countries for Business 2014”

Forbes Magazine

9 years continuously among the Best Reformers in the World

63rd IN THE WORLD

“Global Competitiveness Index 2014-2015”

World Economic Forum

2014

2007

51

Improvement (places)

51places

2014

2007

31

Improvement (places)

31places

5th BEST REFORMER IN THE WORLD 2005-2013

World Bank’s Doing Business Report 2014

9492

3430

2006 2008 2011 2015

Rank of Macedonia on the Ease of Doing Business

Indicator

World Bank’sDoing Business Reports 2006-2015

Ease of Doing Business 2015Global Rank

30 32 37 38 39 44 48 51 54 55 62 65 71

91 96

120

142

Paying Taxes 2015World Rankings

7

36 42 49 52 5666

87 88 89100 105 108

119

156165

177

THE LOWEST “TOTAL TAX RATE”

IN THE WORLD

7.4%

European Cities and Regions of the Future

2014/15

Rank City Country

1 Skopje Macedonia

2 Plovdiv Bulgaria

3 Pleven Bulgaria

4 Burgas Bulgaria

5 Varna Bulgaria

TOP 5 SMALL EUROPEAN CITIES –COST EFFECTIVENESS

Rank City Country

1 Stip Macedonia

2 Veles Macedonia

3 Liepaja Latvia

4 Jelgava Latvia

5 Zajecar Serbia

TOP 5 MICRO EUROPEAN CITIES –COST EFFECTIVENESS

Rank Region Country

1 Ohrid-Struga Macedonia

2 Stara Zagora Bulgaria

3 Sremska M. Serbia

4 Vojvodina Serbia

5 Indjija Serbia

TOP 5 EUROPEAN REGIONS -COST EFFECTIVENESS

• Average annual salary for an unskilled, semiskilled and skilled worker (€)

• Annual rent for prime grade A office and industrial space ($ per m²)

• Rate for a four- or five-star hotel in the city centre ($)

Judging Criteria

• Minimum wage (€ per hour)

• Cost of establishing a businessand construction permits(absolute value using gross national income from WDG)

• Cost of registering a property (percentage of property cost)

• Petrol prices (€ per litre)

• Cost of electricity (€ per kilowatt hour)

• Cost to export and import ($ per container)

• Corporation tax rate and VAT

• Total tax rate, percentage of profit

• Country PPP/exchange rate

Major recent investors in Greenfield sites

Plant 1: €10M; 150 employees;Production of armored high-pressure rubber hoses;Plant 2: €11M; 150 employees; Double the capacity and triple the production

€30M; up to 500 employees; Production of equipped PCBsfor Mercedes, VW, BMW, Renault, Ford, Skoda, PSA

Plant 1, TIDZ Skopje 1: €80M; 350+ employees; Exhaust catalyst manufacturer supplying all OEM plants in Europe; The biggest exporter from Macedonia

Plant 2, TIDZ Skopje 1: €65M; 300 employees; Set to double production

€25M; 600 employees;Production of buses & coaches for the USA and EU markets;Major bus manufacturer in Europe

€10M; 100 employees;Production of brake discs for the European market

€10M+; Ramp-up of up to 400 people;Production of shock absorbers for industrial and railway vehicles

€15M; 400 employees;Production of inflators for vehicle airbags for European market;Technical center

€12M; 160 employees;Production of homeopathic pharmaceuticals, vitamins and minerals

€10M; 200 employees;Global leader in paper surface treatments and polymeric films

€30M; 500 employees; Production of capacitors for automotive components and industrial applications (consolidation of European footprint)

€20M; 1,700 employees; Cut & trim plant for car seats

€35M; 4,900 employees; Plant for production of wiring harness and electrical management systems

Over €15M; 1,000 employees; 15,000 m² plant for production of Airbag Cushions and Modules

€10M; 150 employees;Wire harness automotive supplier; Production ofautomotive cables and wires

€15M; 1,000 employees;Production of high-quality cables, solenoids and mechatronic systems

€20M ; Rump-up of up to 2,000 employees; Plant for production of seat and steering wheel heaters and seat climate technologies

€12M; 600 employees; Production of industrial woven fabrics (insulating materials for construction, automotive and aerospace industries)

€350M; 5,600 employees;Production of textile garments and distribution of fabrics

€35M; 600 employees; 15,000 m² plant; Production of PCBs, plastic and molded containers and final assembly (Daimler, BMW and Audi)

€30M; 2,500 employees in 7 plants; Production of interconnect products for automotive, telecommunications and aerospace industries

€25M; 3,500 employees;Production of electric wires and cable harnesses for European carmakers

€70M+ in six years (€35M investment in phase 1); 1,000 employees; Plant for production of technologically advanced mechatronic and electronic products

Major recent investors in Greenfield sites

PROJECT SCOPE

• 2nd project in Macedonia

• €20M investment

• 1,700 employees

• Construction of cut & trim plant for car seats

CONSIDERED COUNTRIES

• Serbia, Romania, Bulgaria, Moldova, Ukraine,Tunisia, Morocco and Macedonia

“Macedonia was chosen because of its internationalcompetitiveness, because of our positive existingcorporate experience here and above all becauseof the support and professionalism that we havereceived from all Government institutions duringthe analysis process.”

Steven Meylemans

Project Manager

Johnson Controls

17.10.2011 - CORNERSTONE LAYING CEREMONY FOR JOHNSON CONTROLS PLANT IN TIDZ STIP

20.01.2014 - JOHNSON CONTROLS WAS THE FIRST FOREIGN COMPANY THAT HAD DECIDED TO LAUNCH ITS

SECOND INVESTMENT IN MACEDONIA

Ukraine

Morocco

Tunisia

Moldova

Bulgaria

Serbia

Macedonia

Selection criteria

� Significant cost labor

advantage compared to existing

sites. Excludes EU members

and plants with existing C&S

plant

� Reasonable logistics and

distance to seat assembly plants

excludes Middle East

� Sufficient level of business

friendliness and stability.

Excludes Belarus, and – at the

moment – most of Northern

Africa

Bosnia

Albania

Montenegro

Country Selection

10 Countries ConsideredA

Countries with existing C&S locations

Investigated for potential new location

Excluded due to cost, distance, risk

Rating ,

higher = better

Inflation*Percent p.a.

Labor costIndex, CZ=100

Moldova

Cost Business friendly**

Country

* 2005-2010, forecast for labor cost increase 2010-15 available for Tunisia (6.8%), Macedonia (4.6%), Ukraine (16.8%),

Bulgaria (10.1%)

** Reflects infrastructure, business climate, automotive foreign direct investment

Sources: EIU; Mercer; Laborsta; Worldbank; ANIMA; CIA; Ernst & Young; Global Insight ; WEF; Trim Change Office

Comments

Morocco Logistically disadvantaged, currently overcapacities

MacedoniaCost competitive & business friendly, attractive subsidies, good skill base

SerbiaSubsidies will not compensate for high and rising labor cost

BulgariaRelatively high labor cost with unfavorable investment benefits

Bosnia No cost advantage compared to existing JCI plants

High inflation. Low investment incentives. Lack of skilled workforce

Ukraine High inflation, very negative business climate

Montenegro Very small country, largely focusing on tourism

Albania

Attractive, but currently instable – maybe laterTunisia

Not researched

Not researched

43

37

33

32

27

22

22

21

18

14

4

9

14

9

3

3

3

19

5

12

50

79

75

107

76

41

59

45

Johnson Controls

Country Selection

Macedonia Offers Best Balance Of Cost And Business Friendliness A

PROJECT SCOPE

• €80M automotive components plant

• 350+ employees in phase 1

CONSIDERED COUNTRIES

• Reviewed: Bulgaria, Croatia, Estonia, Latvia, Lithuania, Slovenia, Romania, Ukraine, Czech, Poland, Hungary, Slovakia

• Initial choice: Czech Republic, Macedonia a “Late entrant”

WHY MACEDONIA

• Macedonia scores best for labour, slightly lower on logistics

• Labour availability looking very good for Skopje

• Our experience has been positive, Invest Macedonia, Ministry and others superb

Colin Jaffray, Director, Strategic Planning, Johnson Matthey PLC

This will be JM’s ‘mega-European plant’ and the largest ever single investment project

PROJECT SCOPE

• 2nd project in Macedonia

• €65M investment

• 300 additional employees

• Set to double production

“Johnson Matthey has been present in Macedonia since 2010, producing sixmillion world-class catalysts, being the country's number one exporter. Theexpansion comes as a response to the rapidly increasing demand for moresophisticated and complex catalysts and the effort undertaken by theMacedonian Government to welcome and fully support our initial investment.”

Larry Pentz

Executive Director on Environmental

Technologies Johnson Matthey

JOHNSON MATTHEY COVERS ONE-THIRD OF THE GLOBAL MARKET OF CATALYSTS FOR LIGHT AND HEAVY DUTY VEHICLES

INVESTMENT OPPORTUNITIES

Tourism & Real Estate

Energy AgribusinessFree Zones Infrastructure

TECHNOLOGICAL INDUSTRIAL DEVELOPMENT ZONES (TIDZs)

– FREE ZONES

fDi Magazine’s Global Ranking ofEconomic Zones reported TechnologicalIndustrial Development Zones Skopje1&2 in the top 50 Free Zones of theFuture 2012/2013

Technological Industrial DevelopmentZone Skopje awarded Best Zone forLarge Tenants within Europe in fDiMagazine’s Global Free Zones of theYear 2014 report

Global Free Zones of the Year 2014

Winners

Global Free Zones of the Future 2012/2013

Winners

Financial Times/fDi Magazine

• Connection to utilities, complete infrastructure is available

• No municipal utility tax

• Customs outpost in the zones

• Subsidy of up to €500,000 towards construction costs

• Land in the TIDZ is available under long-term lease for a period of up to 99 years

• Training and job creation grants

TAXTAX RATES

TIDZs Outside TIDZs

Corporate tax0%

for the first 10 years10%

Personal income tax0%

for the first 10 years10%

Value added tax 0% 18%

Property tax 0%0.1% - 0.2%

Excise taxes 0% 5% - 62%

PRODUCTCUSTOMS DUTY

TIDZs Outside TIDZs

Equipment 0% 5% - 20%

Fiscal Benefits

Investment OpportunitiesTechnological Industrial Development Zones - TIDZs

All incentives are in line with EU regulations

The Free Zone Authority at Your Service…

Identification of project specific location factors

Cost analysis

Identification of supplier base

Detailed due diligence

University linkages

Reference company linkages

Recruitment agencies linkages

Organization of meetings with legal advisors and

financial partners

Design and infrastructure approvals

Issuing building and operational permits

Customs outpost in the Zone

Zone infrastructure maintenance and upgrade

Support with relevant tax and customs issues

Assistance in acquiring visas/work permits

Coordination and support in contacts with other

state and local authorities

Business opportunities

analysis

One-stop-shop

Creating linkages

Aftercare

One-stop-shop and project management approach

Locations, operational costs and competitiveness

Labor availability, HR companies and consulting

Ensure success!

Our Services

• Reducing VAT on tourism from 18% to 5%

• Promotion of sites for construction of hotels, facilities and Tourism Development Zones

• International branding - Macedonia Timeless Campaign

• Tour Operator and airline subsidies (€10-65 per tourist)

• Increase in overnight stays of tourists from EU of of 25% in 2012, and 8.6% in 2013

Government measures, policies and specific projects

Opportunities in Tourism

What they say?

Best in Travel 2014: Top 10 countries not to be missedMacedonia was ranked among the 10 countries destined for anepic year, whether they’re hosting festivals, cutting the ribbonon new attractions or simply raising their game for travelers

World Economic Forum -Travel & Tourism Competitiveness Report 2013

"Attitude of population toward foreign visitors"

MACEDONIA –4th most friendly country in the world

52 Places to Go in 2015 (Macedonia ranked10th )

DojranLake

(2 Zones) Tourism development zones:

OhridLake

(1 Zones)

PopovaShapka

(1 Zone)

�Three Tourism development zones near the three tectonic lakesOhrid and Dojran�Three Tourism development zones in the mountain regions of Shar Planina, Kozuf and Galicica• State-owned land

• Construction of hotels and hotel complexes, sport and recreational centers, amusement and aqua parks and etc.

Tourism Development Zones

Galicica(Ski Center)

Kozuf(Ski Center)

Why invest in Agribusiness in Macedonia?

Agriculture land under State ownership

• The most important economic sector of Macedonia

• One of the fastest growing industries with an over 10% increase in the last three years

• Largely opened doors to the new markets by applying EU safety standards

• Support by a well developed educational system consisting of 7 faculties and 10 high schools specializing in the agriculture field

• Unique combination of Continental and Sub-Mediterranean climates, soil characteristics and irrigation capacity

• 3,200 hectares state owned land in blocks of 20-200 hectares in the best agriculture regions of the country

• Green houses and geothermal energy

• Subsidizing agricultural production

Agricultural regions in Macedonia

• Fresh fruits and vegetables:

- Production- Purchasing and Distribution Centers

- Processing Industry

• Wine Industry

• Sheep and goat cheese production

• Organic food

• Oriental aromatic tobacco

The greatest investment opportunities

• Construction of national gas transport system (value ≈ €350M)

• PPP with the National Power Producer ELEM for the construction of a combined cycle heat and power plant (value ≈ €250M)

• An ongoing tender – under the auspices of the IFC advisory services for two large HPP “Cebren and Galiste” (value ≈ €600M)

• Rehabilitation of the existing hydropower plants (value ≈ €100M)

• HPP “Boskov Most” and “Lukovo Pole” (value ≈ €170M)

• Privatization of the minority share (up to 49%) of the state owned electricity generation company ELEM (book value ≈ €1.2B)

• Construction of three new 400 kV overhead lines (value ≈ €60M)

• New SCADA, (re)construction of more than 200 km of numerous 110 kV overhead lines (value ≈ €45M)

• Potential for numerous small HPP’s (up to 10 MW)

• Bogdanci wind park, 16 wind turbines with total capacity of 36.8 MW and annual energy production of 100 GW (value ≈ €55M)

Investment OpportunitiesEnergy Sector

Sections for concessions

A. Skopje - Blace (24 km)

B. Gostivar - Kicevo (42 km)

Investment OpportunitiesMotorways

Sections under construction

Other Motorways

Reconstruction and modernization of existing and building of new regional motorways and local roads with support of EBRD and the World Bank

A. Demir Kapija - Smokvica (28.2 km)

B. Skopje - Stip (53.5 km)

C. Kicevo – Ohrid (65 km)

A

B

C

B

A

Investment OpportunitiesRailway Transportation

Corridor 8 – Eastern Section:

• Reconstruction of the railroad section Kumanovo-Beljakovce with length of 30 km

• Construction of the railroad section Beljkakovce-Kriva Palanka toward Bulgarian border with length of 60 km

• Total construction cost estimated at €420M

• EBRD participates in the project realization

Railway connection between Macedonia and Bulgaria

Modernization

• Modernization of the railway on Corridor X financed by EBRD (54 km)

• Renewal of the passenger transport fleet and procurement of 150 train cars of various types for freight transport

• Rehabilitation and upgrade of the railway station in Skopje

Summary: Why to Invest in Macedonia?

� EU & NATO Candidate Status

� Macroeconomic and financial stability

� Prudent fiscal policies that support economic growth

� Free trade to 650 million market

� Attractive tax package and Incentives in FreeEconomic Zones

� Young, available and competitive work force (41% of population under 30, excellent language skills)

� Consistent and predictable policies

� Exceptional track record in reforms

� Among top reformers according to WB Doing Business

� Solid Infrastructure (Trans European Corridors 8 & 10)

� Business friendly government

Thank You

DIRECTORATE FOR TECHNOLOGICAL INDUSTRIAL

DEVELOPMENT ZONES

Partizanski Odredi 2PO Box 3111000 Skopje

Republic of Macedonia

Tel.: + 389 2 3111 166

Cell: + 389 70 390011

Email: viktor.mizo@fez.gov.mk

Website: www.fez.gov.mk