Politics

The main event for Macedonia in 2019 will be the expected change of the country’s name to North Macedonia under the deal with Greece, a historic move that will put an end to a two decades long dispute and unblock the country’s Nato and EU perspectives.

This won’t be an easy process, but the final stretch of a thorny road towards Macedonia’s long-term goals to become part of Nato and to launch EU accession talks.

While 2019 is expected to be a better year in terms of economy and investments for Macedonia, as the country could benefit from the undertaken reforms and the possibility of opening EU accession talks, downside risks exist due to the renewed political uncertainty as the country is in the process of constitutional changes to implement the name deal with Greece, which is disputed by the opposition. The process was launched by the Social Democrat government led by Prime Minister Zoran Zaev, who came to power at the end of May 2017.

The “name dispute” for many was a never-ending issue, but Zaev’s government made a brave step and managed to reach a deal in June 2018, which — while even any of its supporters say it’s not perfect — can finally move Macedonia forward.

Several protests were held by the opposition VMRO-DPMNE party against the name deal with Greece and government policy and more will be held in 2019. It accused the government of striking a “harmful” agreement with Greece, of a “bad economic performance” and of not fulfilling its electoral promises.

The political outlook for 2019 is therefore completely uncertain. Immediately after the New Year's and Orthodox Christmas holidays, Macedonia will face one of the biggest challenges in its modern history. The final vote on constitutional amendments needed for the implementation of the name agreement with Greece should take place by January 15.

For this to be successful, the government needs a two-thirds majority in the 120-seat parliament, for which it needs the support of at least some opposition MPs. Indeed, eight opposition lawmakers supported the launch of the process in an earlier vote, but they have conditioned extending their support in the final vote on the adoption of a law to pardon people arrested over the parliament violence in April 2017, which is being prepared.

But it’s not only that. Complicating the situation, 600 prisoners started a hunger strike asking for a general amnesty not only for those involved in the parliament violence but for all prisoners, something the government has been rejecting so far.

If the amendments are voted in, the name deal then has to be adopted by the Greek parliament. Greece so far has blocked Macedonia’s bids to join EU and Nato due to the unresolved name dispute.

The deal, even though opposed by many in Macedonia, is seen as a historic chance for the future of the country, which has waited so long in front of the two key international institutions. The country has been an EU candidate since 2005 and Greece vetoed its bid to become Nato member in 2008 even though it met all standards.

In a separate issue, Macedonia is seeking the extradition of former prime minister and ex-leader of opposition VMRO-DPMNE Nikola Gruevski from Hungary, where he escaped and was granted asylum status to avoid serving a two-year prison sentence for influencing officials from the interior ministry to buy him a €600,000 luxury Mercedes. 

According to some Western officials the extradition is unlikely as the two countries have no extradition agreement. This is undermining the credibility of the justice system as well as the security services.

Gruevski and other current and former VMRO top officials are facing other trials in connection to crime and corruption during the rule of the now opposition party, which were revealed in the wiretapping scandal of 2015. The outcomes of many trials are expected in 2019, which could spark further protests. 

2019 will also a presidential election year, when voters will have to elect a successor to the current head of state George Ivanov, who has served two five-year mandates.

VMRO-DPMNE is using its protests to mobilise the population with the aim of winning the presidential election, even though the party is deeply divided into rival factions after Gruevski was succeeded by new leader Hristijan Mickoski.

VMRO is also seeking the resignation of the Social Democrat-led government, but whether an early general election will be held depends on many factors.

Overall, the Macedonian government is facing many economic and political challenges that will continue in 2019 and careful handing is crucial for the country’s long-term perspectives.

Economics 

The economy will accelerate after the country posted zero growth in 2017, which was a year of political tensions culminating with a violent invasion of parliament violence in April. Shortly afterwards, VMRO-DPMNE, which had ruled for almost 11 years under Gruevski (seen by many as an authoritarian leader) went into opposition. 

Macedonia’s GDP growth is now expected to pick up to 2.8% in 2019, after the estimated 2% in 2018, the International Monetary Fund (IMF) foresees. The European Bank for Reconstruction and Development’s (EBRD’s) projection is for economic growth of 3% in 2019, after expected growth of 2% in 2018.

GDP growth is expected to gradually approach 3.5% over the medium term, which will be driven by infrastructure investment and stronger exports, according to the IMF.

However, renewed political uncertainty remains a key domestic risk, which could delay the investment rebound.

On the positive side, structural reforms and the possible opening of EU accession negotiations could boost the country’s economic growth through higher capital inflows and enhanced confidence.

Macedonia's annual average consumer price index (CPI) is seen at 2% in 2019 following an estimated 1.8% annual inflation in 2018, the IMF said.

The jobless rate is seen to drop below 20% from the current 20.8% and net wages, which average around €400, to increase by 4.5% in 2019.

The World Bank said that Macedonia has the potential to accelerate its economic growth and reduce poverty if it leverages the advantages of its strategic location and openness to trade and investment to achieve EU standards.

According to the World Bank, increasing the productivity of Macedonia’s economy, enhancing job opportunities and achieving fiscal, social, and environmental sustainability would allow Macedonia to maximise the benefits from EU integration and close the income gap with Europe, with more and better-paid jobs for its citizens. Reforms should include strengthening of the rule of law.

Finance 

The country issued a €500mn seven-year Eurobond in January 2018, the sixth issue placed so far, with no announcements of new international borrowing made as yet.

Macedonia has based its 2019 budget on a 3.2% growth projection, with a budget deficit of 2.5% of GDP, lower than previous years.

Macedonia's government allocated a record high level of funds for economic development, MKD4.1bn (€66.6mn), of which MKD1.1bn is to support creating new jobs.

The government is preparing a law to introduce a progressive tax rate instead of the flat tax of 10% starting from 2019, a move disputed by many in the business community and the opposition party.

Business

The political turmoil over the last couple of years has inevitably deterred investment into Macedonia, which previously positioned itself as a destination for international investors, and had significantly improved its ranking on the World Bank Doing Business index. But despite recent events, new investments continue to be announced in a range of sectors, including, for example, German car cable manufacturer ODW Elektrik’s expansion of its operations and the launch of construction of a new pharmaceutical plant by Albanian company Sagen. 

Infrastructure projects are also continuing. Work on the planned gas pipeline between Macedonia and Greece is expected to start in the second half of 2019. The interconnection line will allow Macedonia to diversify the supply of natural gas and use gas from multiple sources, such as from Russian and Azerbaijani gas projects, which will lead to lower gas import prices. Macedonia currently imports natural gas via Bulgaria.

The implementation of the project is of particular importance for Macedonia as it opens the way for the country to join the Trans Adriatic Pipeline (TAP) project as well as to use liquid natural gas from reservoirs in Greece.

In another major infrastructure project, Macedonia is expected to open for traffic the motorway that will connect the capital Skopje with the eastern town of Stip in early 2019. Construction works will continue on the Kicevo-Ohrid motorway in the western part of the country too.