Since declaring independence from Yugoslavia in 1991, when the country lost its important protected markets and the significant transfer payments from Belgrade, North Macedonia’s economy has been more liberalized, with an improved business environment.
North Macedonia was the poorest republic in the former Yugoslavia, contributing only 5% to the overall federal output of goods and services before gaining independence. Until 1996, economic expansion was stymied by a lack of infrastructure, UN sanctions against its major market (the Federal Republic of Yugoslavia), and a Greek economic blockade.
The subsequent tumultuous recovery period was mitigated by worker remittances and international aid. Except for 2001, every year since 1999 has seen a rise in GDP, the largest of which was a 5% increase in 2000. Growth in 1999 was stunted, however, because of the severe regional economic dislocations brought on by the Kosovo War.
As a result of the 2000s, privatization successes, the country now has over $700 million in reserves. Also, the government has shown a persistent dedication to free trade, economic deregulation, and regional cooperation.
The economy is self-sufficient in terms of staple foods, coal, and hydropower but must rely on imports for its supply of petroleum and natural gas as well as for the vast majority of its sophisticated machinery and parts. Due in significant part to rising oil costs, inflation reached 11% in 2000, although the currency has since stabilized following the 2004 implementation of the EU Stabilization and Association Agreement, which normalized the exchange rate.
At an average of 4% (even during the political turmoil), North Macedonia has a growth rate that puts it in the same league as countries like Romania and Poland.
North Macedonia Economy In Europe 2023 [Facts & History]
Since the early days of the Ottoman Empire, when it was a part of the District of Üsküp and the Province of Salonika, the economy of modern-day North Macedonia has been nearly entirely agrarian in nature. The economy relied heavily on livestock farms and vineyards. The opium poppy, which was introduced to the area in 1835, quickly rose to prominence as a cash crop and remained so until the Great Depression of the 1930s.
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During the Industrial Era, the industry became an increasingly important part of the regional economy. Large quantities of textiles and other items were produced in the region of Macedonia for use by the Ottoman Empire. Even so, the products were still made using antiquated methods. Under the reign of the Kingdom of Serbia, the economy of the region began to stagnate.
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After WWII, Federal Belgrade began subsidizing local businesses to help them recover and thrive. As a result of the subsidies, Veles, Bitola, tip, and Kumanovo have emerged as new centers of the industry across North Macedonia, which had previously relied on agriculture. During Socialist Yugoslavia, North Macedonia’s industrial hubs spread outside Skopje.
Multiple economic shocks hit the region after Socialist Yugoslavia collapsed, doing significant harm.
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It all started with the Western embargo on the Yugoslav single market and ended with the Greek embargo on North Macedonia because of its former name, the Republic of Macedonia.
Beginning in 1995 and continuing after the insurrection by ethnic Albanians in 2001, the economy has been thriving once again. Prior to the financial crisis of 2007-2008, North Macedonia’s GDP expanded by an average of 6% yearly.
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In general, the country felt minimal effects from the crisis. Today, North Macedonia has a low debt-to-GDP ratio and is seeing renewed investment interest from corporations in Turkey, Algeria, Albania, and elsewhere.
North Macedonia Economy Activities
Because of its extensive financial and trade links with Europe, North Macedonia is very susceptible to changes in the European economy and is reliant on regional integration and progress toward EU membership to ensure sustained economic growth. When it gained its independence from Yugoslavia in September 1991, North Macedonia was the least developed of the republics.
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There were no more benefits from being part of a de facto free trade area or receiving transfer payments from the federal government after the breakup of the Socialist Federal Republic of Yugoslavia.
Growth was stunted until 1996 due to a combination of factors including a lack of infrastructure, UN sanctions on a shrunken Yugoslavia, and a Greek economic blockade over a dispute over the country’s constitutional name and flag.
Since then, North Macedonia’s economy has been stable, with low inflation, but despite significant reforms to the government and private sector, it has lagged behind its regional peers in luring international investment and creating new jobs.
A high official unemployment rate of 24.6% was recorded in the fourth quarter of 2015; however, this figure may be inflated due to the huge shadow economy.
Foreign direct investment has dropped, lending has tightened, and North Macedonia has run up a sizable trade imbalance since the global economic collapse. The country’s credit rating, however, improved marginally to BB+ in 2010 thanks to cautious budgetary policies and a stable financial system and remained at that level in 2011.
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Owing to the careful monetary policy that has kept the home currency fixed against the euro, macroeconomic stability has been preserved. As a result, economic expansion in 2010 and 2011 was moderate but positive, and inflation remained low. According to the most recent numbers from North Macedonia’s State Statistical Office, the country’s output fell by 6.6% in 2012 compared to the previous year.
The country has negotiated free trade agreements with the CEFTA, the Stabilization and Association Agreement with the European Union, the EFTA with Switzerland, Norway, Iceland, and Liechtenstein, and bilateral agreements with Turkey and Ukraine, all of which will take effect in 2020.
The Republic of North Macedonia is dedicated to continuing its efforts to join the European Union (EU) and North Atlantic Treaty Organization (NATO). The country officially joined the World Trade Organization (WTO) as a member in April of 2003. After signing a cooperation agreement with the EU in 1997, North Macedonia gained duty-free access to European markets by signing a Stabilization and Association Agreement with the EU in April 2001.
It made progress in December 2005 by becoming a candidate country for EU admission. The international trade deficit of North Macedonia has been present since 1994, reaching a peak of $2.873 billion in 2008, or 30.2% of GDP. The trade deficit in 2010 was $2.149 billion, or 23.4% of GDP, with a total trade value of $8.752 billion (imports plus exports).
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The trade deficit for the first eight months of 2011 was $1.778 billion with a total trade volume of $7.470 billion. Significantly, EU countries accounted for 56.5% of North Macedonia’s overall commerce.
Germany, Greece, Serbia, Bulgaria, Russia, and Italy are North Macedonia’s most important trading partners. In 2010, total trade between North Macedonia and the United States was $116.6 million, while in the first 8 months of 2011 it was $65 million.
Imports from the United States, especially of chicken and electrical apparatus and equipment, have been popular in North Macedonia. Principal Macedonian exports to the United States are tobacco, clothing, iron, and steel.
North Macedonia has bilateral free trade agreements with Ukraine, Turkey, and the European Free Trade Association (EFTA—Switzerland, Norway, Iceland, and Liechtenstein). Membership in the Central European Free Trade Agreement has replaced individual bilateral trade agreements with Albania, Bosnia and Herzegovina, Croatia, Serbia, Montenegro, the Republic of Kosovo, and Moldova (CEFTA).
The Republic of North Macedonia has signed an “Agreement for Promotion and Protection of Foreign Direct Investments” with the following countries: Albania, Austria, Bosnia and Herzegovina, Bulgaria, Belarus, Belgium, Luxembourg, Germany, Egypt, Iran, Italy, India, Spain, Serbia, Montenegro, People’s Republic of China, Republic of Korea, Malaysia, Poland, Romania, Russia, Slovenia, Turkey, Ukraine, Hungary, Finland, France, the Netherlands, Croatia, the Czech Republic, Switzerland, and Sweden.