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SMEs in FYR Macedonia-Report 2003
Macedonian SME Observatory Report 2003
Policy Support to the Ministry of Economy: SME Observatory EUROPEAID/114503/D/SV/MK September 2004
SMEs in FYR Macedonia-Report 2003
SME Observatory of FYR Macedonia
Report 2003
September 2004
This Report has been elaborated under the Project “Policy Support to the Ministry of Economy” ref.EUROPEAID/114503/D/SV/MK
European Agency for Reconstruction Makedonija11/I
1000 Skopje
SMEs in FYR Macedonia-Report 2003
September 2004 Copyright by European Agency for Reconstruction (EAR) Applications regarding permission to reproduce this document partly or totally should be sent to the EAR, Skopje. Views expressed in this document do not necessarily reflect those of the EAR or the European Commission.
SMEs in FYR Macedonia-Report 2003
Contents Contents ...........................................................................................................................................................4
Acronyms..........................................................................................................................................................5
Chronology .......................................................................................................................................................6
Executive Summary..........................................................................................................................................1
1. SMEs and Macromagnitudes ...................................................................................................................3
1.1 Macroeconomic environment in the FYR Macedonia...........................................................................3
1.1.1 SMEs and Value Added................................................................................................................4
1.1.2 SMEs and Gross Output...............................................................................................................5
2. SMEs in the Economy ..............................................................................................................................7
2.1 Share of SMEs in the Economy............................................................................................................7
2.2 Small and medium enterprises .............................................................................................................8
2.2.1 Number of registered vs. active SMEs .........................................................................................8
2.2.2 Number of active SMEs by town...................................................................................................9
2.2.3 Birth Rate of enterprises .............................................................................................................11
2.3 SMEs and Sale Revenues..................................................................................................................11
2.4 Handicrafts by town ............................................................................................................................13
2.5 Sole Proprietors by sector of activity and town...................................................................................16
2.5.1 Research and Development (R&D) by Sole proprietors.............................................................18
2.6 Summary..............................................................................................................................................18
3. SMEs and Employment ..........................................................................................................................19
3.1 SMEs and Employment ......................................................................................................................19
3.1.1 Size of Employment in the SME sector ......................................................................................20
3.1.2 Wage levels in the SME sector...................................................................................................23
4. Taxation and Finance .............................................................................................................................25
4.1 Taxation ..............................................................................................................................................25
4.1.1 SMEs and Value Added Tax.......................................................................................................25
4.1.2 SMEs and Profit Tax...................................................................................................................26
4.2 SMEs and Financial Structure ............................................................................................................27
4.2.1 SMEs profit and loss for the fiscal year ......................................................................................27
4.2.2 SMEs and Financial Investments ...............................................................................................28
4.2.3 SMEs and Liabilities ...................................................................................................................29
Bibliography ....................................................................................................................................................31
SMEs in FYR Macedonia-Report 2003
Acronyms
AAS Agreement for Association and Stabilisation
BDS Business Development Services
CR Central Registry
DPB Domestic Payment Bureau
EBRD European Bank for Reconstruction and Development
EU European Union
FIAS Foreign Investment Advisory Service
FER Foreign Exchange Reserve
FYR Macedonia Former Yugoslav Republic of Macedonia
GDP Gross Domestic Product
GO Gross Output
IPB Intellectual Property Bureau
IC Intermediate Consumption
ISP Internet Service Provider
ITC Information, Technology and Communications
MBDP Macedonian Bank for Development and Promotion
MOE Ministry of Economy
NACE General Industrial Classification of Economic Activities within the European
Communities
OECD Organisation for Economic Co-operation and Development
PRO Public Revenue Office
SEE South East Europe
SME Small and Medium Enterprises
SSO State Statistical Office
VA Value Added
VAT Value Added Tax
VET Vocational Education Training
SMEs in FYR Macedonia-Report 2003
Chronology
Year Main Landmarks affecting business climate and entrepreneurship
1991 Independence. Macedonia declares independence from Yugoslavia and secedes,
the only republic to do so peacefully
1992 Economic crisis. Inflation: 1 780%
1993
Joins the UN
A new government is formed, with Albanian participation
Economic downturn
1994
Population Census
Privatisation process starts
Introduction of the IMF Programme to restore macroeconomic stability
1995 Trade embargo from Greece
UN sanctions FYR Macedonia
1996 Law on Trade Companies enacted
1997 Devaluation of Denar
1998
Law on Handicrafts enacted
Strategy to attract FDI
Development of Financial Market
Real GDP grows by 3.4%
Exports increase faster than imports for the first time since independence and
foreign investment exceeds all previous years' FDI
1999
The Kosovo crisis sends 360,000 Albanians fleeing the Serbian province and into
neighbouring FYR Macedonia. Tensions rise.
Law on Banking and Securities enacted
2000
Introduction of VAT
Real GDP in 2000 grows by 4.6 percent, making it a five-year continuous
economic expansion.
The customs legislation of Macedonia enters into force ensuring compliance of
FYR Macedonia with European Union standards
SMEs in FYR Macedonia-Report 2003
2001
Conflict. Rebels attack police in the border village of Tanusevci on 18 February,
triggering the conflict
Signature of Framework Agreement and Demilitarisation Accord
GDP annual growth rate of -4.5%
2002
Population Census
Parliamentary Elections
Parliament approves changes to the Law on Trading Companies, creating a
Companies Law designed to facilitate foreign direct investment. Reforms include
significant changes to the initial registration process, and a re-definition of the
rights and responsibilities of both directors and shareholders
In June 2002, Parliament passes the “e-Declaration,” a statement of commitment
by the government to fast-track electronic commerce
FYR Macedonia signs Agreement for Association & Stabilisation
Government approved National Strategy for SMEs
Law on Micro-financing Banks enacted
GDP annual growth rate of 0.9%
2003
GDP annual growth rate of 3.2%
FYR Macedonia becomes a member of the European Charter for small enterprises
FYR Macedonia joins the World Trade Organisation (WTO)
Law on SME Agency adopted
Stand-by Arrangement with the International Monetary Fund (IMF) is singed
On 1 April, amendment to the Law on Value Added Tax (general tax rate
decreased from 19% to 18%) went into force
Law to foster Employment was adapted
Law on State Aid was adapted. Support can be granted to SMEs to contract
consulting and training services in order to improve their market performance.
On 8 May 2003, the European Commission (EC) adopted a new definition of micro, small and medium
sized enterprises in Europe, aimed at promoting entrepreneurship, investment and growth, facilitating
access to venture capital, cutting administrative burdens and increasing legal certainty. The new
definition maintains the different staff thresholds, which define the categories of micro, small and
medium-sized enterprises. However, it provides for a substantial increase of the financial ceilings
(turnover or balance sheet total), in particular as a result of inflation and productivity increases since
1996, the date of the first SME definition by the EC.
SMEs in FYR Macedonia-Report 2003
1
Executive Summary Every country’s economy can be assessed by looking at the performance of the small and medium
enterprises. Considering that 99%1 of all enterprises in the EU are small and medium, it can be argued
that SMEs represent an important engine of growth.
The environment of small and medium enterprises is not without problems. Some obstacles may arise
from decisions taken by the Government and others might be due to financial factors, such as higher
interest rates on bank loans or extensive collateral requirements. In order to have a clear picture about
the situation of SMEs and the problems they face, every Government must have some mechanisms,
first to assess the situation, and then improve the enterprise climate in the country.
One of these mechanisms is the SME Observatory. Its function is to assist the institutions to make
informed decisions in regard to SMEs. The decision to establish the Macedonian SME Observatory
reflects the commitment of the Government to improve support for the development of SMEs and to
adapt its policy towards EU standards. The general objective of the SME Observatory is to create a
sustainable mechanism to follow up, analyse and compare with other countries the role and
performance of Macedonian SMEs.
Generally speaking, 2003 was a good year for the country; GDP rate was 3.2%; inflation was kept
under control and economic growth was accompanied by an increase in international trade. However,
unemployment increased. In this context, the Macedonian SME Observatory Report for 2003 gives a
closer look on the performance of the SMEs, their contribution to the economy, their financial situation
and in particular their contribution to employment creation.
The number of active enterprises in 2003 amounted to 39 199, of which 98.4% were small enterprises.
Handicrafts and sole proprietors2 are also important for the country’s economy. The number of
handicraft units totalled 6 956, being the most numerous in the hairdressing subsector (13.0%),
bricklaying (12.0%) and sewing (9.0%). As for sole proprietors, a total of 7 957 were active in 2003,
being most dynamic in the wholesale and retail trade sector (44.0%).
As for employment, the total number of employees in all active enterprises was 262 728, of which
47.5% were employed by small enterprises, with medium and large enterprises employing 52.5%. Small
enterprises in the manufacturing sector employed 43 918 persons (35.2%) while the wholesale and
retail trade sector employed 39 987 persons (32.0%). As for medium and large enterprises, the sectors
providing for most of the jobs were the manufacturing sector with 59 197 employees (42.9%) followed
by construction sector with 17 895 employees (13.0%).
1 Observatory of European SMEs No.2 (2002), SMEs in Europe, including a first glance at EU Candidate Countries, Luxembourg 2002. 2 The correct British term is sole traders but this might confuse non English language readers who might think such enterprises are confined to trade activities only.
SMEs in FYR Macedonia-Report 2003
2
By towns, Skopje registered 45 245 persons employed by small enterprises or 36.2%, followed by Stip,
where small enterprises employed 8 996 persons (7.2%) and Bitola with 7 849 employees (6.3%). The
average net wage of the employees in small enterprises was 6 745 Denars and 11 136 Denars in
medium and large enterprises.
In regard to taxes and other financial items, the contribution of small firms to the overall state revenues
from the profit tax was 57.3%. The share of small enterprises in long-term financial investments was
91.3%.
The 2003 Report is the second annual report produced by the SME Observatory. Special thanks for this
publication go to Igor Nikoloski and Marta Alvarez, under the Policy Support Project to the Ministry of
Economy.
Liesl Muench
Team Leader Policy Support Project
SMEs in FYR Macedonia-Report 2003
3
1. SMEs and Macromagnitudes
1.1 Macroeconomic environment in the FYR Macedonia
Since independence in 1991 FYR Macedonia has worked hard to achieve an internationally
competitive economy. It has complied with European Union requirements set out in the frame of
the Association and Stabilisation Agreement, as well as with other international institutions. On
the road to achieve this goal the economy has faced many ups and downs, 2003 can be seen as
a reference year of economic consolidation and economic growth, with a GDP growth rate of
3.2%.
Table 1-1. General macroeconomic indicators
1998 1999 2000 2001 2002 2003
(%) Gross Domestic Product 3.4 4.3 4.5 -4.5 0.9 3.2
Inflation (average) 0.8 -1.1 5.8 5.5 1.8 1.2
(USD billions) Export (F.O.B.) 1.3 1.2 1.3 1.2 1.1 1.4
Import (C.I.F.) 1.8 1.7 2.0 1.7 1.9 2.2
Trade Balance -0.5 -0.5 -0.7 -0.5 -0.8 -0.9
Foreign Exchange Reserves 0.3 0.5 0.7 0.8 0.7 0.9
External Debt 1.5 1.5 1.5 1.5 1.6 1.8
(Absolute number) Unemployment n/a n/a 366 211 360 340 374 144 390 361
Source: National Bank
Since independence, the Macedonian economy reached its highest GDP growth (4.5%) in 2000,
growth which came to a halt in 2001 as a consequence of the regional security crisis. Ever since,
the country has entered in a path of recovery with positive growth rates in 2002 and 2003. Tight
monetary policy is keeping inflation under control at an encouraging 1.2% in 2003.
Economic growth is accompanied by an increase in international trade. Reduced risk and
economic stabilisation has resulted in a significant export activity in 2003, amounting to USD 1.4
billion, its peak since 1998. Germany, the major trading partner, absorbed 20.4% of Macedonian
exports. Macedonian exports to Greece, its second largest commercial partner, increased by 54%
from 2002 to 2003. However, the even larger increase in imports resulted in a continuing increase
in the deficit trade balance.
Contrary to the positive growth trends and price stability, unemployment, at a rate of 36.7%,
remains an important economic and social issue to be addressed by policy makers. The number
of jobless keeps increasing, and in 2003 unemployment affected 390 361 Macedonians, an
annual increase of 4.8 percentage points.
SMEs in FYR Macedonia-Report 2003
4
1.1.1 SMEs and Value Added3
In 20024, the value added of small enterprises was 5% higher than in 2001. The input of small
enterprises in the VA has increased continuously since 1997, and this trend is observed
particularly between 2001 and 2002. Apart from transport, real estate, public administration and
social services, all remaining sectors value added from small firms increased substantially. The
sectors, where small enterprises created more value were the agriculture sector, followed by the
wholesale and retail sector, and, then the manufacturing sector.
Table 1-2. Value Added
2001 2002 2001/2002
(Basic prices, million Denars) % Sector Small Medium Large Small Medium Large Small Medium Large
Agriculture, hunting and forestry 20 636 793 1 504 22 256 738 1 515 107,85 93,06 100,73Fishing 21 3 − 48 0 − 228,57 0,00 −Mining and quarrying 219 293 800 257 38 666 117,35 12,97 83,25Manufacturing 13 653 9 371 16 562 15 061 4 223 18 641 110,31 45,06 112,55Electricity, gas and water supply 306 960 8 775 340 1 472 7 334 111,11 153,33 83,58Construction 5 645 3 260 2 895 5 714 2 077 4 101 101,22 63,71 141,66Wholesale and retail trade 18 173 4 663 3 239 19 140 3 463 4 834 105,32 74,27 149,24Hotels and restaurants 2 777 290 343 3 282 328 479 118,19 113,10 139,65Transport, storage and communication 4 796 3 186 13 712 3 701 552 16 356 77,17 17,33 119,28Financial intermediation 52 − 7368 126 − 7301 242,31 − 99,09Real estate, renting and business activities 6 641 631 1 032 6 639 240 1 289 99,97 38,03 124,90Public administration and defence 390 1 14 053 176 − 15 969 45,13 − 113,63Education 7 013 988 47 7 321 1 367 − 104,39 138,36 −Health and social work 2 673 3 305 2 713 3 238 2 747 3 376 121,14 83,12 124,44Social and personal services 3 586 871 1 091 3 467 936 1 149 96,68 107,46 105,32Extra-territorial organisations and bodies 4 − − − − − − − −Total 86 585 28 615 74 134 90 766 18 181 83 010 104,83 63,54 111,97Source: State Statistical Office
Looking at medium-sized enterprises, value added decreased significantly in 2002 by 36.7%. The
sectors with the weakest performance in adding value to the economy were manufacturing,
construction and transport, and storage and communication. The graph 1-1 illustrates the
outstanding performance of small enterprises versus medium enterprises in generating value. It
can also be seen that small enterprises were by far the most dynamic in the agriculture and
wholesale and retail sectors. In the manufacturing sector, large enterprises were leading in
generating value, followed closely by small enterprises which are mainly operating in this sector
as subcontractors or providers of services to large firms.
3 Value Added (VA) at basic prices is the equivalent to the enterprise’s contribution to economic prosperity.
SMEs in FYR Macedonia-Report 2003
5
Graph 1-1. Value Added by sector and size class in 2002
0
2000
4000
6000
8000
10000
12000
14000
16000
18000
20000
Agric
ultu
re
Who
lesa
le/re
tail
trade
Man
ufac
turin
g
Educ
atio
n
Rea
l est
ate
Con
stru
ctio
n
Tran
spor
t
Soci
al s
ervi
ces
Cat
erin
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Hea
lth
Util
ities
Min
ing
Publ
ic a
dmin
.
Fina
ncia
lin
term
edia
tion
Fish
ing
Small
Medium
Large
In 2003 small companies outperformed in generating value in the economy, as those sectors
dominated by small companies registered steady increases. The value added in the trade sector
(11.9% of the GDP) and in agriculture (9.2% of the GDP) went up by 4.3% and 2.2%,
respectively. The manufacturing industry registered the highest increase in value added,
accounting to 24.3% share of GDP.5
1.1.2 SMEs and Gross Output6
Based on the structure of the Macedonian market for goods, the main share of output (more than
45%) derives from small and medium enterprises (see table 1-3).
While small and large enterprises registered an increase in gross output in 2002 and 2003, the
value in absolute terms remained the same due to the important decrease in gross output
generated by medium size enterprises. Gross output from small enterprises increased by 8%
from 2001 to 2002.7 Small enterprises had the most significant increase of gross output in the
construction (18%), manufacturing (10.7%) and wholesale and retail trade (9.8%).
The sector where small enterprises production dominates is the agricultural sector. In 2003,
compared to the previous year, the total agricultural output went up by 1.8%.8 Optimal weather
conditions for wine production (which doubled from the previous year) favoured this increase,
which additionally outweighed the output decrease in the fruit growing sector (-8%) and farming (-
3.8%).
4 The data for 2003 was missing while this Report was prepared, due to the late processing of data by the State Statistical Office. 5 National Bank of the Republic of Macedonia (2004), “Annual Report 2003”, Skopje. 6 Gross Output is considered to be a value of goods and services produced in the course of one year, regardless of whether the whole production is sold or partially added to stocks 7 It is worth noting that the gross output from small enterprises has increased by 30% between 1997 and 2002. 8 National Bank of Republic of Macedonia (2004), Annual Report 2003, Skopje
SMEs in FYR Macedonia-Report 2003
6
Another important sector where small enterprises dominate is the wholesale and retail sector. In
2003, the total trade turnover registered an annual increment of 16%, reaching Denar 138 797
million, as a result of the simultaneous growth in both the retail and wholesale sectors. In 2003
the turnover of small enterprises in the retail sale sector registered an annual increase of 13.9%,
reaching Denar 55 697 million, and the annual turnover growth in the wholesale sector equalled
17.4% (in 2003, the total turnover in wholesale equalled Denar 83 101 million).9
Gross output from medium enterprises showed a different trend. Between 2001 and 2002 gross
output generated by medium enterprises plunged by 42.0%. The worst performing sectors were
transport, storage and communication with a decrease of 77%, manufacturing sector with a
decrease of 52 %, and the real estate renting and business activities, with a decrease of 73%.
Table x; Gross Output
2001 2002 2001/2002
(Basic prices, million Denars) %
Sector small medium large small medium large small medium large
Agriculture, hunting and forestry 42 825 2 744 3 781 44 156 1 645 4 056 103,11 59,95 107,27
Fishing 72 6 0 93 2 0 129,17 33,33 ─
Mining and quarrying 544 666 1 453 768 242 1 262 141,18 36,34 86,85
Manufacturing 30 803 26 087 59 934 34 100 12 431 65 561 110,70 47,65 109,39
Electricity, gas and water supply 559 1.446 16.435 606 2109 15699 108,41 145,85 95,52
Construction 16 444 7 610 10 172 19 840 5 268 9 943 120,65 69,22 97,75
Wholesale and retail trade 29 559 9 089 4 711 32 480 5 841 8 921 109,88 64,26 189,37
Hotels and restaurants 4 080 889 515 4 791 691 846 117,43 77,73 164,27
Transport, storage and communication 13 063 6 523 22 667 12 808 1 506 29 327 98,05 23,09 129,38
Financial intermediation 100 0 11 312 401 0 10 867 401,00 ─ 96,07Real estate, renting and business activities 11 740 1 981 1 695 12 806 547 2 186 109,08 27,61 128,97
Public administration and defence 664 2 39 910 411 0 36 222 61,90 0 90,76
Education 8 511 1 673 53 8 634 2207 0 101,45 131,92 0
Health and social work 4 717 6 376 6 006 5 490 4 515 6 065 116,39 70,81 100,98
Social and personal services 6 523 1 291 2 033 6 700 1 528 2 063 102,71 118,36 101,48
Extra-territorial organisations and bodies 9 0 0 0 0 0 0 ─ ─
Total 170 213 66 383 180 677 184 084 38 532 193 018 108,15 58,04 106,83
Source: State Statistical Office
9 National Bank of Republic of Macedonia (2004), Annual Report 2003, Skopje
SMEs in FYR Macedonia-Report 2003
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2. SMEs in the Economy Small and medium enterprises in FYR Macedonia in 2003 represented 99, 2% of all enterprises in the
whole economy. Thus, the importance of the SME sector in the economy and industry is obvious, and
as such it is one of the priorities of the Government.
2.1 Share of SMEs in the Economy
Statistics on SMEs in other countries indicate a significant contribution made by SMEs to the total
employment, turnover and GDP. A benchmark between the Macedonian SMEs, the Russian
Federation, Slovenia and the EU-19 throws the following results:
Table 2 -1. Share of SMEs in the Economy
% of SMEs over all enterprises % of SMEs in all employment % of SMEs in all
turnover10
EU11 (2000) 99.8 66.3 54.5
FYR Macedonia (2003)12 99.2 Not less than 49% 45%
Slovenia (2000) 99.7 64.2 -
Russian Federation (2002) Not less than 90% Not less that 45% Not less than 40%
Source: Observatory of European SMEs, Russian SME Observatory Report (2002), Macedonian SME Observatory
Table 2-2 illustrates that the share of micro and small enterprises in the total number of
enterprises increased from 97.9% in 2000 to 98.9% in 2003.
Table 2-2. Enterprise Information in FYR Macedonia13 2000 2003
Number of SMEs 32 759 32 700
Number of SMEs per 1000 inhabitants 16.4 16.4
Share of SMEs in total number of enterprises of which: 99.0% 99.0%
Share of micro-enterprises in total number of enterprises 92.3% 95.0%
Share of small enterprises in total number of enterprises 5.9% 3.9%
Share of medium enterprises in total number of enterprises - 1.1%
Average size of enterprises - number of employees - 4.9
(%) share of SMEs in the GDP - 45.0%
Source: OECD and EBRD, South East Europe Region, Enterprise Policy Performance Assessment, 2003
10 Turnover as sales 11 Observatory of European SMEs, 2002, SMEs in Europe, including a first glance at candidate countries, Nº2, Luxembourg 12 Estimations of the Macedonian SME Observatory 13 Number of enterprises does not include handicrafts and sole proprietors
SMEs in FYR Macedonia-Report 2003
8
2.2 Small and medium enterprises
2.2.1 Number of registered vs. active SMEs
Registration of enterprises has increased steadily overtime, reaching its peak in 2002
when the number of registered enterprises was 17.6 times higher than in 199114.
Graph 2 -1. Number of registered enterprises15
0
20000400006000080000
100000120000140000
160000
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Number of registered enterprises
Although the number of registered firms during the years increased in the period 1997-
2002, the number of active enterprises has remained stable. In 2002 for every active
enterprise four enterprises were registered16.
Graph 2-2. Number of active enterprises
0
20000
40000
60000
80000
100000
120000
140000
160000
1997 1998 1999 2000 2001 2002
Number of registeredenterprises
Number of activeenterprises
14 The data for 2003 was missing while this Report was prepared, due to the late processing of data by the State Statistical Office 15 Source: Economic Institute and Central Registry 16 Data collected for active enterprises until 2001 was taken from the data base of ZPP. After 2001 Central Registry has taken role of collection of data for active enterprises. After 2001, ZPP does not exist.
SMEs in FYR Macedonia-Report 2003
9
2.2.2 Number of active SMEs by town
The distribution of active enterprises depends on a number of factors including the basic economic
activity, demographic change, geographical location and access to markets, availability of business
support services, access to sources of finance etc. In 2003 the number of active enterprises was 39
19917. The table below illustrates the distribution of the active enterprises by size class and by town,
where every town is a cluster of several municipalities.
Table 2-3. Number of active enterprises by size class 2003
Towns Small Medium &large All
Berovo 276 4 280 Bitola 2 724 42 2 766 Makedonski Brod 128 3 131 Debar 108 4 112 Delcevo 312 3 315 Demir Hisar 135 3 138 Gevgelija 769 15 784 Gostivar 1 135 8 1 143 Kavadarci 990 17 1 007 Kicevo 789 5 794 Kocani 863 4 867 Kratovo 133 5 138 Kriva Palanka 189 2 191 Krusevo 169 2 171 Kumanovo 1 897 23 1 920 Negotino 414 6 420 Ohrid 1 734 42 1 776 Prilep 1 854 15 1 869 Probistip 129 1 130 Radovis 655 6 661 Resen 284 6 290 Struga 1 318 11 1 329 Strumica 1 732 24 1 756 Sveti Nikole 291 12 303 Stip 1 208 20 1 228 Tetovo 1 695 24 1 719 Veles 632 31 663 Valandovo 189 3 192 Vinica 299 7 306 Skopje 15 530 270 15 800 Total 38 581 618 39 199
Source: Central Registry
17 Central Registry. The Central Registry only counts those firms that submit their annual accounts and annual sheets. The actual number including also partly active informal and family business can be estimated as double as much.
SMEs in FYR Macedonia-Report 2003
10
Looking at the country, excluding Skopje, towns18 in the mid-west part of the country hosted the
highest number of small firms. Skopje, with 15 530 small enterprises is the first in the ranking of
hosting enterprises. As Skopje is the capital city, the economic and financial centre of the country,
where business support agencies and financial institutions abound, it is hardly surprising that the
largest concentration of Small firms is found here.
Graph 2 -3. Number of active small enterprises by town in 2003
2724
1897 18541734 1732 1695
13181208 1135
990863 789 769
655 632
414312 299 291 284 276
189 189 169 135 133 129 128 108
0
500
1000
1500
2000
2500
3000
Bito
la
Kum
anov
o
Pril
ep
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id
Stru
mic
a
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vo
Stru
ga
Stip
Gos
tivar
Kav
adar
ci
Koc
ani
Kic
evo
Gev
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Rad
ovis
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es
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Vin
ica
Sve
ti N
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Ber
ovo
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a P
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Kru
sevo
Dem
ir H
isar
Kra
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Pro
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ip
Mak
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ski B
rod
Deb
ar
Graph. 2-4 Number of small enterprises per town per 1 000 inhabitants in 2003
0,00
5,00
10,00
15,00
20,00
25,00
30,00
35,00
Berovo
Bitola
Maked
onsk
i Brod
Debar
Delcev
o
Demir H
isar
Gevge
lija
Gostiv
ar
Kavad
arci
Kicevo
Kocan
i
Kratov
o
Kriva P
alank
a
Krusev
o
Kuman
ovo
Negoti
no
Ohrid
Prilep
Probist
ip
Radov
is
Resen
Struga
Strumica
Sveti N
ikole Stip
Tetovo
Veles
Valand
ovo
Vinica
Skopje
18 Skopje is the first town in concentration of small enterprises (15 530). It is not reflected in the graph to avoid distortion.
SMEs in FYR Macedonia-Report 2003
11
2.2.3 Birth Rate of enterprises
The birth rate of enterprises indicates the level of dynamism of the economy. It is measured as the
newly established enterprises divided by 1000 existing enterprises. Data for this analysis is based
on registered and active number of enterprises of all sizes and it is significant for the purpose of
analysing trends in the SME sector.
Graph 2 -5. Birth Rate of Enterprises19
109,9103,1
110,7
91,5
127,3
107,5
0,0
20,0
40,0
60,0
80,0
100,0
120,0
140,0
1998/1997 1999/1998 2000/1999 2001/2000 2002/2001 2003/2002
The rate of enterprise creation has rocketed since 2001, registering an increase of 35 index
points, reflecting the consolidation of economic recovery in 2002 and 2003.
2.3 SMEs and Sale Revenues20
The tables below represent sale revenues of enterprises generated by their activities. Sale
revenues decreased substantially in 2001 as a consequence of the security crisis. As the political
and economic situation improved, revenues picked up in 2002 and 2003. This increase of
revenues in medium and large enterprises was steady, whereas the perfomance of small
enterprises showed more vulnerability to political and economic turns. Page: 11
As other figures show a marked decrease in medium sized enterprises turnover surely
amalgamating medium and large enterprise is distorting the real situation. Is it not the case that
large enterprises coped with the crisis but medium sized enterprises declined and did not recover.
19 Data available from the State Statistical Office and the Central Registry 20 SME Observatory is based on a secondary data, which differentiate between small enterprises on one hand and medium and large on the other. Therefore, this Report emphasis the situation of small enterprises in the country. From the amount of separate data (turnover mainly) it may be that medium sized enterprises are in decline with large enterprises more stable. Small enterprises are going to take some time before they replace failing medium sized enterprises – indicating possible structural weakness in the economy.
SMEs in FYR Macedonia-Report 2003
12
Table 2-4. Sale revenues in medium and large enterprises
2001 2002 2003
(Basic prices, million denars) Medium and large enteprises 220 430 605 223 925 417 225 356 543
2001/2002 2002/2003
(%) Percentage difference
Medium and large enterprises 1.59 0.64
Source: Central Registry Table 2-5. Sale revenues from basic activity in small enterprises
1999 2000 2001 2002 2003
(Basic prices, million denars) Small enterprises 154 755 236 209 916 266 182 720 787 209 977 098 211 756 475
2000/1999 2001/2000 2002/2001 2003/2002
(%) Percentage difference
Medium and large enterprises 1.35 0.87 14.92 0.85
Source: Central Registry
The graph below illustrates the sale revenues in small enterprises and medium and large
enterprises. In 2001 medium and large enterprises collected 17.11% more revenues than the
small enterprises. A better business environment in the following years enabled small businesses
to catch up and shorten the gap.
Graph 2 -6. Sale revenues in small and medium and large enterprises (million Denars)
0
50000
100000
150000
200000
250000
2001 2002 2003
Medium and large enterprises
Small enterprises
SMEs in FYR Macedonia-Report 2003
13
2.4 Handicrafts by town
Handicrafts in FYR Macedonia are defined by the Law on Handicraft activities, introduced by the
Government in the year 1998, as a support measure to encourage the development of
microenterprises by easing the registration procedure. In 2003 the new Law on Handicraft activities
was being amended, for approval in 2004.
In 2002 handicrafts concentrated in Skopje, representing 41.83% of all handicrafts in the country.
Despite a decrease in the number of handicrafts in 2001, mostly explained by the security crisis, in
2002 the handicraft sector experienced a recovery with an annual increase of 17.18%. Although in
2003, the total number of units suffered a slight decrease compared to 2002 the first year of
stabilisation after 2001. In relative terms, there are 6.54 handicraft units per 1000 inhabitants in
Skopje in 2002. Table 2-6. Number of handicraft units
2000 2001 2002 2003
Town Berovo 112 n/a 68 23 Bitola 165 n/a 167 360 Valandovo 6 7 6 7 Veles 390 401 346 358 Vinica 30 29 31 29 Gevgelija 104 139 159 100 Gostivar 678 574 505 524 Debar 102 116 111 116 Demir Hisar 30 29 23 32 Delcevo 48 47 38 58 Kavadarci 61 80 88 105 Kicevo 120 119 92 127 Kocani 113 112 101 126 Kratovo 3 10 8 9 Kriva Palanka 63 79 60 57 Krusevo 22 18 14 9 Kumanovo 192 n/a 210 188 Makedonski Brod 10 34 14 14 Negotino 51 n/a 57 54 Ohrid 426 452 134 142 Prilep 278 318 258 238 Probistip 36 n/a 31 n/a Radovis 59 48 48 70 Resen 49 54 54 53 Sveti Nikole 27 n/a 26 56 Struga 569 215 820 208 Strumica 215 195 230 207 Tetovo 679 737 601 601 Stip 48 47 38 38 Cair 409 419 443 415 Gazi Baba 410 428 294 194 Karpos 570 649 676 630 Kisela Voda 559 n/a 648 650 Centar 807 820 1 058 1 058 Total21 7 441 6 176 7 457 6 956
Source: Ministry of Economy and Central Registry
21 Cair, Gazi Baba, Karpos, Kisela Voda and Centar are municipalities in Skopje
SMEs in FYR Macedonia-Report 2003
14
As in the case of small enterprises, handicrafts are most numerous in the western part of the
country, with Skopje leading, followed by Tetovo (601), Gostivar (524), Bitola (360) and Prilep
(238).
Among the handicraft activities there is a whole range of trades by area of activity and a high
dispersion of activities (in total there are 184 areas of activity). Hairdressers account for 3.0% of all
handicraft activities, bricklayers 12.0%, sewers 9.0%, car maintenance 8.0% and jewellery 6.0%.
Each of the remaining 179 activities defined for handicrafts account for less than 5.0% of the total.
Graph 2-7. Number of handicrafts by town in 2003
601
524
360 358
238208 207 188
142 127 126 116 100 10570 58 57 56 54 53 38 32 29 23 14 9 9 7
0
100
200
300
400
500
600
700
Teto
vo
Gos
tivar
Bito
la
Vele
s
Prile
p
Stru
ga
Stru
mic
a
Kum
anov
o
Ohr
id
Kic
evo
Koca
ni
Deb
ar
Gev
gelij
a
Kava
darc
i
Rad
ovis
Del
cevo
Kriv
a Pa
lank
a
Svet
i Nik
ole
Neg
otin
o
Res
en
Stip
Dem
ir H
isar
Vini
ca
Bero
vo
Mak
edon
ski B
rod
Krat
ovo
Krus
evo
Vala
ndov
o
Graph 2-8. Number of handicraft units per town per 1 000 inhabitants in 2003
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
Berovo
Bitola
Maked
onsk
i Brod
Debar
Delcev
o
Demir H
isar
Gevge
lija
Gostiv
ar
Kavad
arci
Kicevo
Kocan
i
Kratov
o
Kriva P
alank
a
Krusev
o
Kuman
ovo
Negoti
no
Ohrid
Prilep
Probist
ip
Radov
is
Resen
Struga
Strumica
Sveti N
ikole Stip
Tetovo
Vele
s
Valand
ovo
Vinica
Skopje
SMEs in FYR Macedonia-Report 2003
15
Data available on employment provided by handicrafts shows one more time the predominance of
handicrafts businesses in western towns in providing employment.
The handicraft sector is best developed in Skopje, Veles, Gostivar and Debar.
Graph 2-9. Employment by handicrafts per town in 200322
0
100
200
300
400
500
600
Berovo
Vinica
Gostiv
ar
Demir H
isar
Delcev
o
Kavad
arci
Kicevo
Kocan
i
Kriva P
alanka
Negoti
noOhri
dPrile
p
Radov
is
Resen
Struga
handicraft units
employment
From the table above in can be concluded almost in all handicraft units the number of employees
is one, meaning that the owner of the business is conducting the business by himself.
22 The data for number of employees in the handicraft units is missing. That is why they are not presented on the graph 2-9.
SMEs in FYR Macedonia-Report 2003
16
2.5 Sole Proprietors by sector of activity and town
About 20.29% of all enterprises are sole-proprietors and 3.73% of all persons employed in the
country are working as sole-proprietor enterprises. In 2003 the number of sole-proprietor enterprises
and the number of employees registered an annual decrease of 1.16% for enterprises and 3.99% for
employees.
The graph 2-10 represents the regional distribution of sole proprietor enterprises in 2003. In Skopje,
as the capital city the number of sole proprietor enterprises counted for 34.3% of all sole proprietor
enterprises in the country.
Table 2-7. Number of sole proprietors and employment by sector
2002 2003 2002/2003
(%)
Sector
Number of sole-proprietor
enterprises
Number of employees
Number of sole-proprietor
enterprises
Number of employees
Change of sole-proprietor
enterprises
Change of employees
Agriculture, hunting and forestry 10 11 23 21 230,00 190,91 Fishing 0 0 0 0 0,00 0,00 Mining and quarrying 0 0 0 0 0,00 0,00 Manufacturing 978 1 497 957 1 422 97,85 94,99 Electricity, gas and water supply 0 0 0 0 0,00 0,00 Construction 181 228 172 215 95,03 94,30 Wholesale and retail trade 3 634 4 456 3 565 4 257 98,10 95,53 Hotels and restaurants 901 1 653 873 1 555 96,89 94,07 Transport, storage and communication 574 559 540 499 94,08 89,27 Financial intermediation 2 1 1 1 50,00 100,00 Real estate, renting and business activities 1 007 972 1 077 1 026 106,95 105,56 Public administration and defence 0 0 0 0 0,00 0,00 Education 25 34 21 25 84,00 73,53 Health and social work 160 224 150 205 93,75 91,52 Social and personal services 578 560 578 562 100,00 100,36 Extra-territorial organisations and bodies 0 0 0 0 0,00 0,00 Total 8 050 10 195 7 957 9 788 98,84 96,01 Source: Central Registry
SMEs in FYR Macedonia-Report 2003
17
Graph 2-10. Regional distribution of sole proprietors 2003
2724
1897 18541734 1732 1695
13181208 1135
990863 789 769
655 632
414312 299 291 284 276
189 189 169 135 133 129 128 108
0
500
1000
1500
2000
2500
3000
Bito
la
Kum
anov
o
Prile
p
Ohr
id
Stru
mic
a
Teto
vo
Stru
ga
Stip
Gos
tivar
Kava
darc
i
Koca
ni
Kice
vo
Gev
gelija
Rad
ovis
Vele
s
Neg
otin
o
Del
cevo
Vini
ca
Svet
i Nik
ole
Res
en
Bero
vo
Kriv
a Pa
lank
a
Vala
ndov
o
Krus
evo
Dem
ir H
isar
Krat
ovo
Prob
istip
Mak
edon
ski B
rod
Deb
ar
Graph 2-11 Number of sole proprietors per town per 1 000 inhabitants
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
8,00
9,00
Berovo
Bitola
Maked
onsk
i Brod
Debar
Delcev
o
Demir H
isar
Gevge
lija
Gostiv
ar
Kavad
arci
Kicevo
Kocan
i
Kratov
o
Kriva P
alank
a
Krusev
o
Kuman
ovo
Negoti
no
Ohrid
Prilep
Probist
ip
Radov
is
Resen
Struga
Strumica
Sveti N
ikole Stip
Tetovo
Veles
Valand
ovo
Vinica
Skopje
SMEs in FYR Macedonia-Report 2003
18
2.5.1 Research and Development (R&D) by Sole proprietors
The table 2-8, shows the amount of money that sole proprietors allocated for R&D in
2002. The most important investment were made by sole proprietor enterprises in
wholesale and retail trade industry, accounting for almost 1/3 of all resources invested on
R&D.
Table 2-8. Value of R&D expenditures by sole proprietors
2002
(in Denars) % Sector Expenditures for R&D
Agriculture, hunting and forestry 0 0,00 Fishing 0 0,00 Mining and quarrying 0 0,00 Manufacturing 4550672 15,79 Electricity, gas and water supply 0 0,00 Construction 7854017 27,25 Wholesale and retail trade 10647645 36,94 Hotels and restaurants 2918426 10,13 Transport, storage and communication 1683759 5,84 Financial intermediation 0 0,00 Real estate, renting and business activities 837306 2,91 Public administration and defence 0 0,00 Education 0 0,00 Health and social work 280822 0,97 Social and personal services 49516 0,17 Extra-territorial organisations and bodies 0 0,00 Total 28822163 100,00 Source: Central Registry
2.6 Summary
Taking into consideration all classification of small firms (small enterprises, handicrafts, sole
proprietors) the graph below shows the share of the small economical units among the number of
enterprises and number of employees within these units.
Table 2-9. Information for the small sector in the country in 2003
Enterprises No. of enterprises per
1000 inhabitants Employment No. of employees per
1000 inhabitants
Forms No. % No. No. % No.
Sole proprietors 7 957 14,87 3,90 9 788 6,91 4,80 Handicrafts 6 956 13,00 3,41 7 112 5,02 3,49 Small enterprises 38 581 72,12 18,90 124 840 88,01 61,19 Total 53 494 100,00 141 740 100,00 Source: Central Registry
SMEs in FYR Macedonia-Report 2003
19
3. SMEs and Employment This chapter analyses employment issues and the contribution of SMEs to generate jobs. Although
during 2003 many initiatives were introduced to increase employment opportunities, results were not
satisfactory. Employment is one of the top priorities of the government and the Ministry of Labour and
Social Policy encouraged owners of enterprises to employ new employees by lifting for two years social
and pension contributions. However, the results of these measures remain to be seen.
3.1 SMEs and Employment
High unemployment rates, remains one of the key social and economic problems to be
addressed by Macedonian authorities. Despite positive growth of GDP, the number of officially
employed people decreased in 2003.
Table 4-1 shows the state of employment in the country since 2000. Despite the good
macroeconomic perfomance and impressive annual growth of GDP of 3.2%, the benefits of this
growth have not been transformed into more employment.
Table 3-1. Employment vs. Unemployment
2000 2001 2002 2003
(absolute)
Number of employed persons 549 846 549 846 561 341 545 108
Number of unemployed persons 366 211 360 340 374 144 390 361
(%) Unemployment rate 32.1 30.5 31.9 36.7 Source: National Bank of the Republic of Macedonia
The table 4-2 shows the number of employed persons in Macedonian enterprises according to
size of firms. Between 1997 and 2003 the number of employees in small enterprises increased
by 30.0%, reaching in 2003 a total of 124 840 employed persons, which accounted to a 47.0% of
the employment provided by all active enterprises. The biggest decrease in the number of
employees is recorded within medium and large enterprises. Surely the employment decrease
reflects both medium sized decline, but also, the shakeout of over-employment following
privatisation. This shows the importance of small business as a current employment generator.
Table 3 -2. Number of employees in active enterprises
1997 1998 1999 2001 2002 2003
nº % nº % nº % nº % nº % nº %
Small enterprises 95 985 33.9 93 588 33.1 105 776 36.0 109 879 41.0 110 373 43.3 124 840 47.5 Medium/Large enterprises 187 157 66.0 188 493 67.0 188 000 64.0 158 465 59.0 144 654 56.7 137 888 52.5
All enterprises 283 142 100.0 283 081 100.0 293 776 100.0 268 334 100.0 255 027 100.0 262 728 100.0
Source: Economic Institute & Central Registry
As the number of employees in small enterprises increased, the number of employees in medium
and large enterprises decreased. Between 1997 and 2003, the number of employees in medium
and large enterprises decreased by 26.32%.
SMEs in FYR Macedonia-Report 2003
20
3.1.1 Employment in the SME Sector
In order to analyse further details regarding employment in the SME sector the employment by
size of firms was disaggregated according to the NACE classification23.
In 2003, the number of employees in the enterprises increased by 2.93%. The manufacturing
sector was the strongest provider of jobs, accounting in 2003 to 39% of the all the jobs generated,
followed by the wholesale and retail trade sector (19.0%) and construction (11.0%).
Graph 3-1. % Employment al enterprises by sector in 2003
23 NACE Classification – General Industrial Classification of Economic Activities within the European Communities
Manufacturing39%
Wholesale & retail trade19%
Construction11%
Transport10%
Public Utilities6%
Agriculture5%
Real estate3%
Social services3%
Hospitality Sector3%
Others1%
SMEs in FYR Macedonia-Report 2003
21
Jobs provided by active small enterprises accounted to 47% of all employment in 2003.
Graph 3-2. Number of jobs provided by small enterprises
95985 93588105776 109879 110373
124840
0
20000
40000
60000
80000
100000
120000
140000
1997 1998 1999 2001 2002 2003
Looking at the sectors with the most potential to create employment, graph 3-2 shows the number
of employees in active small enterprises by sector for 2001, 2002 and 2003.
Graph 3 -3. % Employment in active small enterprises by sector of industry
0
5000
10000
15000
20000
25000
30000
35000
40000
Agric
ultu
re
Fish
ing
Min
ing
Man
ufac
turin
g
Publ
ic U
tiliti
es
Con
stru
ctio
n
Who
lesa
le a
ndre
tail
trade
Cat
erin
g
Tran
spor
t
Rea
l est
ate
Educ
atio
n
Hea
lth
Soci
alse
rvic
es
2001
2002
2003
By employment growth in SMEs, the most dynamic sectors are wholesale and retail trade,
followed by manufacturing, transport, real-estate and catering.
SMEs in FYR Macedonia-Report 2003
22
Looking at the employment in the active small enterprises by towns, the most employment was
generated by small firms in Skopje24 (45 245 employed by small enterprises in 2003, compared to
41 015 in 2002), followed by Stip (small enterprises generated 8 996 jobs in 2003).
Graph 3-4. % Employment by town in active small enterprises
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
Bero
vo
Bito
la
Mak
edon
ski B
rod
Deb
ar
Del
cevo
Dem
ir H
isar
Gev
gelija
Gos
tivar
Kava
darc
i
Kice
vo
Koca
ni
Krat
ovo
Kriv
a Pa
lank
a
Krus
evo
Kum
anov
o
Neg
otin
o
Ohr
id
Prile
p
Prob
istip
Rad
ovis
Res
en
Stru
ga
Stru
mic
a
Svet
i Nik
ole
Stip
Teto
vo
Vele
s
Vala
ndov
o
Vini
ca
20022003
Looking at the relative figures the situation changes as follows:
Graph 3-5. Number of employees in small enterprises per 1000 inhabitants
0,00
20,00
40,00
60,00
80,00
100,00
120,00
140,00
160,00
180,00
200,00
Berovo
Bitola
Maked
onsk
i Brod
Debar
Delcev
o
Demir H
isar
Gevge
lija
Gostiv
ar
Kavad
arci
Kicevo
Kocan
i
Kratov
o
Kriva P
alank
a
Krusev
o
Kuman
ovo
Negoti
no
Ohrid
Prilep
Probist
ip
Radov
is
Resen
Struga
Strumica
Sveti N
ikole Stip
Tetovo
Veles
Valand
ovo
Vinica
Skopje
24 In order to avoid distortion Skopje is not included in the graph 4-4.
SMEs in FYR Macedonia-Report 2003
23
As per number of employees per town Stip is outstanding followed by Gevgelija and Skopje. Here
it should be noted that Stip had also the highest annual employment growth rate, being another
indicator of the importance of SMEs in employment generation.
In contrary to small enterprises, the employment in active medium and large enterprises
decreased from 56.7% in 2002 to almost 52.5% in 2003, while, the total number of active medium
and large enterprises remained the same.
The graph 3-5 shows the number of employees in active medium and large size firms per town in
2002 and 2003. In almost in all regions there is a decrease in the number of employees in 2003,
except for the eastern towns of Berovo, Kavadarci and Veles, which could be seen as an
indicator for good performance by firms in these regions. If falling employment reflects adjustment
by privatised industry to market conditions, the failure to restructure could indicate very poor
performance and an impending crisis in the towns.
Graph 3-6. Number of employees in active medium and large enterprises by town
0
2000
4000
6000
8000
10000
12000
Ber
ovo
Bito
la
Mak
edon
ski B
rod
Deb
ar
Del
cevo
Dem
ir H
isar
Gev
gelij
a
Gos
tivar
Kav
adar
ci
Kice
vo
Koc
ani
Kra
tovo
Kriv
a P
alan
ka
Kru
sevo
Kum
anov
o
Neg
otin
o
Ohr
id
Pril
ep
Pro
bist
ip
Rad
ovis
Res
en
Stru
ga
Stru
mic
a
Sve
ti N
ikol
e
Stip
Teto
vo
Vel
es
Val
ando
vo
Vin
ica
20022003
3.1.2 Wage levels in the SME sector
Net wages in active small enterprises increased by 42%, between 1998 to 2003. The table 4-4
illustrates the value of the net wages and contributions paid to employees in small enterprises.
Looking only at the period 2001-2003, net wages and contributions paid by active medium and
large enterprises, illustrated in table 4-5, decreased by 8.58%. This might be having a negative
impact on State finances.
SMEs in FYR Macedonia-Report 2003
24
Table 3 -3. Net wages and contributions for employees paid by enterprises
2001 2002 2003
(Basic prices, in thousand Denars)
Small enterprises 8 572 758 9 824 696 10 103 902
Medium and large enterprises 20 155 705 18 563 274 18 426 278
Total 28 728 463 28 387 970 28 530 180
(%) Percentage
Small enterprises 29.84 34.61 35.41
Medium and large enterprises 70.16 65.39 64.59
Total 100.00 100.00 100.00
Source: Central Registry
The average monthly net wage per employee in active small enterprises reached its maximum
value at 7418 Denars (€120.62) in 2002. However, in 2003 the net wages registered an annual
decrease of 9.07%, returning to 2001 levels. In 2003 the average monthly net wage in small
enterprises was 6 745 Denars (€109,67).
Active medium and large enterprises presented a more stable trend. Monthly average net wages
per employee in those enterprises were 11 136 Denars (€181,00) in 2003, following a trend since
2001.
In general, in 2003 the monthly average net wage for employees in all enterprises was 11 780
Denars (€191,54).
Graph 3–7. Average monthly net wage per employee of small and medium and large enterprises
0
2000
4000
6000
8000
10000
12000
2001 2002 2003
(Den
ars)
Small Medium and large
SMEs in FYR Macedonia-Report 2003
25
4. Taxation and Finance This chapter gives an overview of the taxation and financial systems and its impact on SMEs. It starts
with an insight into the taxation system, followed by a detailed account of the financial health of SMEs,
looking at gross and net profits as well as short and long term liabilities.
4.1 Taxation This section summarises changes to tax legislation in 2003:25
• Value Added Tax Law: Value Added Tax was introduced in April 2000. And in 2003, the
Law on VAT was amended, resulting in a reduction of VAT from 19% to 18%.
• Personal Income Tax Law: The advance payments are made monthly as follows: the tax for
personal income is 15% for income up to 30 000 Denars and 18% for income of over
30 000 Denars.
• Profit Tax Law (15%): The entrepreneur who undertakes an activity for the first time has a
tax relief of 50% on profit in the year the profit is realised, on the condition that the
entrepreneur continues performing the activities for at least three years following the day
the tax relief was introduced.
4.1.1 SMEs and Value Added Tax
Value Added Tax in fYR Macedonia was introduced in April 2000, one of the most significant
steps towards harmonising the Macedonian financial and taxation system to that of the European
Union.
In 2003, the standard rate of the VAT was reduced by 1%, to a rate of 18.0%. Apart from the
standard rate, the preferential rate remained the same at 5.0%. The VAT is imposed on all
entrepreneurs performing an economic activity, with the registration mandatory for SMEs with a
total turnover of over € 19 500. The tax period to calculate and pay the value added tax is one
year. However, the taxpayer also submits monthly and quarterly advance tax returns for the
calculated and paid tax.
The rate of Macedonian VAT is within the threshold of VAT rates in European Union countries.
Given that the EU has mandated that the standard minimum VAT must be 15.0%, rates vary
among Member States and also among certain types of products between 15.0% and 25.0% for
the standard rate, and 5.0% and 10.0% for the preferential rate. However, the most reliable
source of information on current VAT rates for a specified product in a particular Member State is
the country’s VAT authority26.
25 Ministry of Economy. For more information on this issue see Macedonian Observatory Report 2002. 26 European Commission, (2003), Value Added Tax – Practical Aspects.
SMEs in FYR Macedonia-Report 2003
26
Graph 5-1 represents the VAT contributions of enterprises during the period 1999 and 2002.
Since the VAT was introduced in 2000, the data for 1999 comes from the Turnover Tax. Value of
VAT has increased every year since 1999. In 2002, VAT contribution by enterprises was 16.8%
higher than in 2001 and 45.0% higher than in 1999.
Graph 4 -1. Value Added Tax by Enterprises (million Denars)
0
5000
10000
15000
20000
25000
30000
35000
40000
45000
1999 2000 2001 2002
Value AddedT
4.1.2 SMEs and Profit Tax
At the end of every year the profit tax is calculated from the profit that the enterprise has earned
during the fiscal year. A taxpayer of the profit tax is any legal person (entity) resident, but also,
non-resident of FYR Macedonia making profit from an activity in the country and abroad.
The rate of this tax is 15.0%. In 2003 new incentives were introduced in order to attract
investments. The taxpayer has an exemption of the tax basis equal to the value of the
investments in tangible and non-tangible assets, within a limit of €100000. If the investment is
higher than this amount, and after the first rule of this article is exercised, then the tax basis for
exemption is 30%, but no more than the rest of the unused part of the investment.
The table 5-1 shows the value of profit tax paid by enterprises. In the case of small enterprises,
profit tax collected in 2003 was 6.0% lower than in 2002. The profit tax contributed by medium
and large enterprises in 2003 was 15.4% lower than in 2002.
In 2001, the situation was quite different, reflecting the situation in the country. Almost all financial
reports of small enterprises showed an adverse effect, more so that the average adverse effect
on medium to large enterprises. So, the economical situation of small enterprises is very
dependent on the political stability of the country.
SMEs in FYR Macedonia-Report 2003
27
Table 4 -1. Value of Profit Tax by Size Class
2001 2002 2003
(Basic prices, thousand Denars)
Small enterprises 798 862 017 927 287 609 871 669 353
Medium and large enterprises 1 264 042 467 1 799 161 938 1 521 875 587
Total 2 062 904 484 2 726 449 547 2 393 544 940
(%) Percentage
Small enterprises 38.73 34.01 36.42
Medium and large enterprises 61.27 65.99 63.58
Total 100.00 100.00 100.00 Source: Central Registry
4.2 SMEs and Financial Structure
4.2.1 SMEs profit and loss for the fiscal year
The graph 4-2 shows the value of net profit and loss made by the small enterprises during the
period 2001-2003. The profit before taxation in small enterprises increased by 32.9% between
2002 and 2003, the net profit for 2003 recorded an annual increase of 48.6%.
As graph 4-2 shows, losses made by small enterprises changed in the period 2001-2003. In 2001
small enterprises reported higher losses than profits, largely due to the security crisis. However,
in 2002 and 2003 the situation changed and small enterprises started to register profits.
Graph 4 -2. Loss vs. Profit Earned by Small Enterprises
01.000.0002.000.0003.000.0004.000.0005.000.0006.000.0007.000.0008.000.0009.000.000
10.000.000
2001 2002 2003
in m
illio
n D
enar
s
Loss in small enteprises
Net profit in smallenterprises Poly. (Loss in smallenteprises)Poly. (Net profit in smallenterprises )
Profit and loss of medium and large enterprises is illustrated on the graph 4-3. In 2001, losses
exceeded profits due to the political crisis and its impact on small firms. In 2002 the economic
situation improved – the net profits exceeded losses. This trend slowed down in 2003.
SMEs in FYR Macedonia-Report 2003
28
In 2003, it is worth mentioning that in medium and large enterprises profits growth rate is lower than
the growth rate of losses, while in small enterprises the growth rate of profits exceeded the growth
rate of losses.
Graph 5 -3. Loss vs. Profit Earned by Medium and Large Enterprises
0
2.000.000
4.000.000
6.000.000
8.000.000
10.000.000
12.000.000
14.000.000
2001 2002 2003
in m
illio
n D
enar
s
Loss in medium and largeenterprises
Net profit in medium and largeenterprises
4.2.2 SMEs and Financial Investments
Short-term financial investments are usually made for a period up to one year with the purpose to
protect capital and to minimize or eliminate potential risks. Long-term financial investments
consist of stocks and bonds of other companies, real estate, and cash that have been set-aside
for a specific purpose or project.
Table 5 -3. Financial Investments in Small Enterpises
2001 2002 2003
(Basic prices, million Denars)
Short term financial investments 2 952 087 3 821 041 6 220 267
Long term financial investments 27 155 333 27 510 651 29 071 604
Total 30 107 420 31 331 692 35 291 871
(%) Percentage
Short term financial investments 6.82 12.20 17.63
Long term financial investments 93.18 87.80 83.27
Total 100.00 100.00 100.00 Source: Central Registry
Short-term investments in small enterprises in 2003 comprised 1/5 of all financial investments.
Between 2001 and 2003 there is a trend from shifting long-term investments towards short-term
investments.
SMEs in FYR Macedonia-Report 2003
29
Graph 5-4. Value of Short and Long term investments made by small enterprises
0
5000000
10000000
15000000
20000000
25000000
30000000
35000000
2001 2002 2003
Short term financialinvestmentsLong term financialinvestmentsPoly. (Short term financialinvestments)Poly. (Long term financialinvestments)
4.2.3 SMEs and Liabilities
Obligations of SMEs are liabilities owed to some other enterprise, to banks or to physical
persons. Liabilities can be:
- Short-term liability presents a responsibility of the enterprises made for the period of less than
one year. Short-term liabilities thus tend to be trade creditors and short-term borrowing such
as overdrafts Money owed for more than a year is considered to be a long-term liability.
- Long-term liability has duration of more than one year, which means that the enterprise has
the obligation to pay it over a longer period of time. These types of liability usually are bank
loans.
In this context, sometimes short-term liabilities, which are paid within the fiscal year, might be
transferred into long-term.
SMEs in FYR Macedonia-Report 2003
30
Graph 5-5. Value of Liabilities in the Enterprises by Size Class
0
50.000.000
100.000.000
150.000.000
200.000.000
250.000.000
2001 2002 2003
in m
illio
n D
enar
s
Small enterprisesMedium and large enterprises
During 2001-2003 liabilities of small enterprises increased by 22.7%. This trend shows an
increasing of the demand for liabilities, credits, loans, notes payable, from the small enterprises.
Looking at medium and large firms a slight downward trend can be noticed. Yet, in 2003 the value
of the liabilities in medium and large enterprises was 24.1% higher than in small enterprises.
SMEs in FYR Macedonia-Report 2003
31
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