Road to Balkans becoming much travelled

Motor assemblers and suppliers are taking up the invitation to invest in Macedonia and the West Balkans.

Opportunities for the automotive sector in the Western Balkans was identified in a report commissioned by the Organization for Economic Co-operation and Development (OECD). It found that that the main strengths of the region are cost competitiveness, geographical proximity to markets, a strong historical legacy and availability of a skilled workforce. The biggest challenge, according to the OECD is the lack of industry-specific quality certification such as the ISO/TS 16949.

Existing component manufacturers in Macedonia supply to the EU, Russian, Turkish and African markets. “Investors in Macedonia can export their products to a market of over 650 million people. The technical universities and secondary schools are open for collaboration with incoming investors, as demonstrated by one of the major universities training 165 students in Java and C++ in anticipation of the needs of Johnson Controls, which has constructed a US$40-million facility outside Skopje to manufacture electronic automotive components,” says the agency.

Macedonia also offers attractive incentives to foreign investors. Its Technological Industrial Development Zones (TIDZs) in which companies pay no taxes on corporate and personal income for 10 years, and pay no VAT and customs duties for export production.

Automotive Industries (AI) asked Viktor Mizo, CEO of the Agency for Foreign Investments and Export Promotion of the Republic of Macedonia what efforts are being made to promote the Western Balkans as an automotive hub?

Mizo: Invest Macedonia is collaborating with other investment promotion agencies from the region to make it more competitive and streamlined as an automotive hub. Co-operation among the automotive clusters of Bosnia and Herzegovina, Croatia, Macedonia and Serbia is already ongoing, with the support of the Open Regional Fund of the German Technical Cooperation Office (GTZ), the UNIDO project and the auto clusters project supported by the EU.

Recently, the regional IPAs, including Invest Macedonia, participated at the Second International Fair of the Automotive Components Producers in South-East Europe in Kragujevac, Serbia. Forthcoming regional activities include: Joint promotion of the region’s automotive industry and lobbying at the national and international level; preparation of common EU projects; development of networks between clusters and exchange of information; joint organization and participation in trade fairs, conferences and seminars.

AI: What does Macedonia do to promote automotive manufacturing in the region?

Mizo: Our general presentation on the investment climate and investment opportunities in Macedonia and other publications present regional data. This can be considered as a regional presentation as well. Another example is Invest Macedonia’s active participation with the other investment promotion agencies from the region at various workshops and business regional forums in selected target countries.

AI: Why is it important to promote the Western Balkans automotive sector?

Mizo: Western Balkan economies are complementary, and the regional approach can be used to develop integrated value chains and promote investment.

AI: What percentage of Macedonia’s foreign investments come from the auto industry?

Mizo: Overall, a considerable portion of FDI in Macedonia in the past few years is from the automotive components sector, and with the improvement of global economic environment we expect this trend to continue in the future. The latest big greenfields investment projects in Macedonia are in the field of automotive components – Johnson Controls, and the world’s largest catalytic converter producer Johnson Matthey. TIDZ Skopje 1 hosts production facilities of these two companies, and significant investment projects in the automotive field are already in final stage of realization.

AI: Will Macedonia continue enjoying low operating costs in the future?

Mizo: We expect Macedonia to continue to be highly competitive when it comes to operating costs. My expectations are based on the continuous efforts by the government to introduce reforms aiming to facilitate foreign investors’ access in the country. These reforms include cutting red tape for business, a reduction in redundant legislation, the simplification and shortening of a number of procedures and significantly lowering the costs for doing business in the country. Currently, Macedonia has lowest average wage index in the automotive industry compared to other countries in the region. At the same time, the Macedonian labor productivity index is better than that in countries like Serbia, Montenegro and Bulgaria. According to latest data provided by Eurostat on price level index for investments Macedonia is the most competitive country in Europe, with a price level index (PLI) of 54 compared to the EU27 PLI of 100.

AI: What big automotive projects that have been set up in Macedonia in the recent past, and which are expected in the near term future?

Mizo: A good success story of a big automotive project that was realized In the period after my last interview for Automotive Industries (August, 2009) is the UK based company Johnson Matthey. It is a specialized chemicals company focused on catalysis, precious metals, fine chemicals and process technology. Johnson Matthey opened its new, over €60-million, emission control catalyst plant in Macedonia. The facility, which is located in the Technological Industrial Development Zone “Skopje1” produces four million units per year.

Operations are focused on developing light-duty diesel auto catalysts and selective catalytic reduction (SCR) catalysts for heavy-duty vehicles. Increasing market demand, new product development together with the increase of their market share, resulted in them considering new product manufacturing base overseas. After assessing the above factors, Macedonia was chosen as the most favorable country for investment in new manufacturing plant. Johnson Matthey looked at more than 100 sites in more than 10 countries. The key advantages for Macedonia were in relation to the availability of labor services and the incentives packages. Johnson Matthey proved to be a positive experience in the process of attracting FDI to Macedonia, and we use share this best practice model to attract future FDI.
Recently, the Italian company Teknohose – part of Vitillo Group – announced the beginning of construction works in the Technological Industrial development Zone “Skopje 1”. The company will produce high pressure reinforced rubber hoses widely used in many industries. The investment accounts for €10-million, and will create 150 new jobs.

German company “Kromberg & Schubert” has also confirmed investment operations in relation to the construction of a new factory in Macedonia. The investment amounts to €20-million, and is scheduled for completion in the first half of the next year. The facility will produce cable installations for European car producers. About 400 jobs will be created at the initial stage, and the company expects to employ over 2,500 when the plant reaches full capacity. Some other sectors in which we are expecting investments include electronics, wire harnesses, car interiors, composite materials, axes and drive shafts.

AI: How are you promoting quality standards to Macedonian companies – something which is critical to global automotive companies?
Mizo: Invest Macedonia maintains and fosters collaboration with other governmental institutions that are directly involved in raising awareness and helping Macedonian companies introduce good quality standards. Recently, Invest Macedonia’s mandate was extended to include export promotion, for which an export promotion strategy has been developed. The strategy recommends restructuring and enhancing Invest Macedonia to become a focal point in providing a variety of services to the Macedonian companies in terms of export promotion, which will also include promotion of the concept of quality standards.