The real Bugarian interests in N.Macedonia: in between diplomacy and business

Zoran Zaev and Stefan Yanev

The real Bugarian interests in N.Macedonia: in between diplomacy and business

Outstanding issues between Bulgaria and its southwestern neighbor are important, but it is critical to provide infrastructure and a stable business environment for companies

Zoran Zaev and Stefan Yanev

© Велко Ангелов

The will and commitment to enlarge the European Union (EU) exists, but, currently, there is also nothing concrete on the table. This was the message conveyed by EU leaders during the EU-Western Balkans summit on October 6th in Slovenia.

EU Council President Charles Michel spoke for the first time about the need for a political solution for minorities and the way they are treated in some countries.

Without specifying any group, it became clear that he was referring to the Bulgarians and Albanians in the Republic of Northern Macedonia (RSM) and tensions over the results of the current census in the country at the request of the EU (the latter was conducted 19 years ago). For her part, European Commission (EC) President Ursula von der Leyen said that "the Western Balkans are part of the same Europe as the Member states and the EU is not complete without their accession", which is the ultimate goal. The lack of clarity regarding when exactly this goal will be achieved is offset by an economic plan of EUR 9 billion in the region, which is expected to generate an additional EUR 30 billion for boosting the economies, as well as a roadmap for green transition, further reduction of roaming charges, etc.

Ursula von der Leyen also spoke of the remaining "5 + 1" open questions between Sofia and Skopje, and the associated negotiations that the European Commission would like to help with in order to expedite their resolution. The challenges were not officially mentioned, but it is considered they are based on the Memorandum of Relations between Bulgaria and the Republic of Macedonia. Among them are the protection of the rights of Bulgarian minorities, the change of the textbooks, the amendment to the constitution, and the inclusion of the Bulgarians among the nation-building states listed in its preamble.

President Rumen Radev, who attended the meeting in Slovenia, said in a written answer to Capital that "the success of this process (RNM's accession to the EU) depends only on the actions and real engagement of our southwestern neighbor in resolving outstanding issues and achieving irreversible results in its bilateral relations with Bulgaria".

The history of the diplomatic rift

Republic of North Macedonia (RNM) was the first country in the Western Balkans to sign a Stabilization and Association Agreement with the EU in April 2004 and received candidate status in 2005. In 2009, the European Commission made a recommendation to start negotiations, and, a year later, North Macedonian citizens received the right to travel visa-free within the EU.

Then, it took 10 years and an imposed change to the country's name so that Greece could lift its veto in the EU Council before negotiations could actually begin. A year later, following significant progress on key issues, including the fight against corruption, the European Commission presented the framework for the negotiations. Since 2020, the Republic of North Macedonia has also been a member of NATO.

Today, disputes between North Macedonia and Bulgaria are identified as the major obstacle standing in the way of the former's EU accession. Despite the Agreement on Friendship, Good Neighborliness and Cooperation in 2017, Sofia accuses Skopje of failing to fulfill agreements and wilfully misinterpreting historical facts. At the same time, following the adopted changes in the methodology for joining the EU in early 2020 and the new cross-covering method for the 35 negotiating chapters, accession talks could hypothetically be blocked, postponed or suspended by any Member State in the absence of satisfactory progress. Such doubts have already been expressed by some European partners, which further complicates the situation.

The EU is a major trading partner and investor in RNM

For North Macedonia, the EU is the country's largest direct trading partner with € 25.28m direct investments in 2020. In addition, 74% of North Macedonian exports are to the EU and 46% of the imports.

The Union provides € 1.25 billion in pre-accession funds (2007-2020) and € 940 million in financial instruments (EIB loans) over the same period. These include co-financing under European Transport Corridor X, as well as support for key sectors of the economy such as agriculture, EUR 24.3 million to support civil society, for 11,600 participants in various types of Erasmus + programs and training (2014 - 2020) and others.

Meanwhile, the North Macedonian economy is currently facing serious challenges arising from the Covid pandemic. Debt increased from 40.7% of GDP in January 2020 to 51.2% in December of the same year. Gross domestic product shrank by 4.5%, unemployment remained at 17% with a trend of smooth recovery in parallel with economic stabilization and growth expectations in 2021 of 3.6%.

In December 2020, the EC adopted a € 70 million grant package to support the Western Balkan countries in the fight against the coronavirus pandemic, and provided 650,000 doses of Pfizer / BioNTech RNA vaccines to the region (119,000 doses of which were dedicated to North Macedonia).

Does Bulgarian business suffer from the relations between Bulgaria and RNM?

In 2020, net Bulgarian investments to North Macedonia reached € 23.3 million. After record trading years in 2017, 2018 and 2019, in 2020 there was a slight decline of 2% (totaling EUR 300.6 million), a growth of imports from Bulgaria of 2.7% (€ 435.7 million) and a decrease in exports to Bulgaria of 8% compared to 2019. The trade balance remains positive for the latter and amounts to €135.1 million. In fact, Bulgaria is the sixth main importer to RNM (mainly glass containers or packaging, petroleum oils, etc.) and the second largest exporter to the country (mainly lead ores and copper ores and their concentrates, electricity, etc.).

The numbers sound promising; however, there are many hidden obstacles blocking the expansion of Bulgarian business to the southwest. The strained bilateral diplomatic relations do not help. Blagoy Klimov, head of the service for trade and economic relations between Bulgaria and Macedonia in Skopje (2018-2021), and currently a policy adviser to the AFET Committee in the European Parliament in Brussels, revealed that "in some sectors such as energy, banking, financial services and ICT, investments are relatively successful, but there are also others that remain rather shy of Bulgarian investments, such as the food, pharmaceutical, media, culture and education sectors etc".

Bulgarian companies invest and develop their business successfully in the RNM in the field of banking (CCB, UNIBank or First Investment Bank, Capital Bank), financial services and quick loans, energy (solar panel companies) and others. Among the largest are ICT projects - the Bulgarian software company Scale Focus will invest €45m by 2025 and create 300 jobs for software engineers in Skopje. Macedonia.

"This would not have been possible without the cooperation of the Bulgarian Embassy and the Bulgarian Trade Mission in Skopje, as well as by the local North Macedonian institutions - all of them showed real hospitality and attention, inspired by their endeavor to support the development of technology companies. Today, I am more than convinced that we did the right step, and I'm truly delighted with the progress of the development we have here in the space of just two years," says Plamen Tsekov, CEO of Scale Focus. A revolution in the retail sector has become reality via the entry of the German chain Lidl through its Bulgarian branch.

In December 2017, the World Bank invited Elena Marinova, the President of Musala Soft, to the meeting of the Prime Ministers of the Western Balkans in Sofia. Marinova was invited to formulate the top 3 priorities and requests to governments from business. At this point, Musala Soft had already successfully launched its operation in Macedonia for €20 m euro.

"Then I set before the prime ministers of the Western Balkans three strategic business goals, tied to specific requirements and the first steps towards their implementation. Each of our countries is small, but, united, we have a population of over 25 million (Bulgaria and Northern Macedonia form about 30%) To be successful, we need to have common policies, including labor market liberalization, and public-private talent development partnerships so that we can climb into the value chain.

And, as banal as it may sound, good infrastructural connectivity and easy border crossings is an absolutely mandatory element for the development of even the 'virtual' software sector. Four years later I would not change anything but unfortunately there has been no significant progress, and in the context of Bulgarian-Macedonian relations we see more political tension, which does not contribute to our ability to focus on important business issues," says Elena Marinova.

At the same time, sectors such as the food industry (not a single brand of Bulgarian wine or mineral water is offered in the RNM) and the media market remain unwelcome to Bulgarian investments (at the national level, only two music programs are available and, more recently, BNT 4 in Bulgarian). Many companies have complained about non-competitive conditions, the deteriorating business environment and hostility (media attacks, control and administrative pressure, additional bureaucratic obstacles) as a result of deteriorating bilateral diplomatic relations.

To this one can add the extremely poor infrastructure - lack of railway connectivity, highways (after several unsuccessful public procurement calls) and a direct air connection. It is interesting that as a small market, Northern Macedonia subsidizes international flights of low-cost carriers to Western Europe, but refuses to increase the tourist flow to and from Bulgaria in the same way, despite numerous suggestions from the Bulgarian side.

In conclusion, joint efforts for effective cross-border cooperation, strengthening economic relations and trade partnerships in order to increase the overall competitiveness of our region must also become a priority to be considered in pending outstanding questions between the two countries.

The will and commitment to enlarge the European Union (EU) exists, but, currently, there is also nothing concrete on the table. This was the message conveyed by EU leaders during the EU-Western Balkans summit on October 6th in Slovenia.

EU Council President Charles Michel spoke for the first time about the need for a political solution for minorities and the way they are treated in some countries.

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