North Macedonia has made mixed progress since the 2021 Competitiveness in South East Europe: A Policy Outlook (Competitiveness Outlook), advancing in 7 of the 15 policy dimensions, regressing in 5 and stagnating in 3. The economy experienced the strongest score increases in the areas of agriculture and tourism policies and access to finance. Figure 1 illustrates that North Macedonia is outperforming the average of the six Western Balkan (WB6) economies across seven policy dimensions. Moreover, the economy positions itself amongst regional leaders with the highest score in trade, tax and energy policies. By contrast, North Macedonia is among the lowest performers in the areas of tourism, digital society and transport policy, scoring below four of its Western Balkan neighbours, highlighting the areas requiring improvement for achieving convergence with the European Union (EU) and the OECD. For additional insights into North Macedonia’s performance across various dimensions, trends over time or comparisons with other economies, please refer to the Western Balkans Competitiveness Data Hub at https://westernbalkans-competitiveness.oecd.org/.
Western Balkans Competitiveness Outlook 2024: North Macedonia
Note: Dimensions are scored on a scale of 0 to 5. See the reader’s guide and the Data Hub for information on the assessment methodology and the individual score assigned to indicators.
The main achievements that have led to increased performance for North Macedonia since the last assessment are as follows:
Streamlined and digitalised processes have contributed to facilitating trade. North Macedonia's overall trade, as a percentage of GDP, reached 171% in 2022, the highest in the Western Balkans. This has partly been due to enhanced trade facilitation measures. In November 2023, North Macedonia launched a green customs declaration system, reducing the time required for import and export procedures and eliminating paper documentation entirely. Additionally, the customs administration rolled out the Electronic System for Customs and Excise Declaration (CDPS), streamlining customs submissions into a paperless, electronic format. These improvements were supported by efficient co‑ordination across the relevant ministries and agencies that oversee trade regulations.
Developing alternative financing sources has diversified businesses’ finance options. Since 2021, ongoing endeavours have sought to introduce or revise legal frameworks governing alternative financing methods. These efforts have focused on aligning capital market legislation with pertinent EU regulations, with the overarching aim of bolstering investor protection and fostering greater transparency within financial markets. Concurrently, amendments to leasing regulations have coincided with a surge in leasing volumes, resulting in a 75% increase between 2017 and 2022, growing from EUR 62.3 million to EUR 140.1 million.
Increased alignment with EU and international standards has strengthened the competitiveness of the agriculture sector. In 2022, the export of agrifood products increased by 17% compared to the previous year’s averages, and constituted around 8.5% of the economy’s total exports. Supported by a good network of certification bodies and laboratories, new legislation in food safety and animal health has bolstered policy alignment and ensured the access of Macedonian agrifood products to international markets. Continued alignment with EU regulations, especially in organic farming, will enhance the sector’s competitiveness and further facilitate integration into the European market.
Advances in bolstering tourism governance have improved collaboration and data collection. The establishment of a new working group to spearhead the development of a new tourism strategy reflects the government’s commitment to promoting inclusive and responsive policy making. North Macedonia has also improved its data collection practices by increasing adherence to international standards. The creation of a permanent data repository, complemented by a monitoring and evaluation mechanism, has enhanced the credibility and reliability of tourism statistics, thereby supporting evidence-based decision making.
New policy developments and enhanced financial contributions have improved the science, technology and innovation (STI) landscape. The new Smart Specialisation Strategy (2023-27) serves as the strategic framework for STI policy and delineates priorities to strengthening research and innovation activities. Although overall investments into research and development (R&D) remain low at 0.38% of GDP, they are growing. Notably, increased funding to the Fund for Innovation and Technology Development (FITD) – the economy’s main vehicle for STI activities – has spurred innovation activities. Between 2016 and 2021, the fund supported over 669 projects with almost EUR 50 million through nine programmes that covered commercialisation support, acceleration programmes, and technology development and extension support.
To further improve its competitiveness and boost its economic convergence with the EU and OECD, North Macedonia is encouraged to:
Strengthen the governance of state-owned enterprises (SOEs) to enhance efficiency and performance. North Macedonia has 30 SOEs that operate in a decentralised manner due to the absence of a state ownership policy. Half of these SOEs are not incorporated under company law, which creates an uneven playing field between SOEs and private firms by allowing loss-making SOEs to continue to operate without facing market pressures. In the first quarter of 2023, more than half (17) of North Macedonia’s SOEs were loss-making, reflecting a broader trend visible since 2020. This pervasive poor performance highlights structural shortcomings that lead to inefficient resource allocation and unfair competition.
Strengthen the planning and management of transport infrastructure. North Macedonia’s outdated strategic framework and project selection processes create obstacles to identifying and delivering cost-effective transport projects. The single project pipeline (SPP) for the selection of priority transport infrastructure projects has not been updated since 2018, and project appraisal tools specifically for transport infrastructure have yet to be developed. The adoption of a consistent framework for transport project selection that assesses the impacts (environmental, accessibility, connectivity, safety, economic, resilience, distributional/equity and social) of proposed projects remains key to improving infrastructure for enhanced competitiveness.
Accelerate digitalisation efforts to improve the economy’s competitiveness. Digital government remains underdeveloped, with most e-services rarely used and only a fraction fully transactional. Among businesses, the uptake of information and communication technologies remains limited due to a lack of awareness of available technologies and insufficient workforce capacities. With only 34% of individuals possessing basic or above-basic digital skills, far below the EU average of 54%, digital skill development remains relatively low, hindering the digitalisation efforts of the public and private sectors. Enhancing adult learning initiatives on digital skills and better embedding the digital competence framework in education curricula will be key going forward.
Improve investment in the education sector for enhanced skills development. There has been no evidence of progress toward establishing sufficient budgets to efficiently support the implementation of policy reforms in education systems. Public spending on education remains low, and the resulting reliance on donor funding engenders uncertainty regarding the sustainability of existing initiatives. This issue is particularly acute when it comes to expanding the quality and accessibility of professional development for teachers and introducing the necessary equipment to foster the skills needed for evolving labour markets.
Intensify efforts to strengthen environment policies to improve citizens’ quality of life and workforce productivity. Air pollution remains one of the most pressing environmental issues in North Macedonia, with levels more than four times the World Health Organization’s recommended limits (22.3 µg/m3 vs. 5 µg/m3, respectively). Water pollution also remains a challenge due to the prevalence of untreated sewage and wastewater and the absence of treatment plants in many cities. Pollution levels affect the health of citizens, reducing the overall productivity of the workforce. Improving the implementation of depollution policies and practices is crucial for reducing environmental health risks to the economy’s population.