Free economic zones are more often than not a mix of incentives and wishful thinking attached to a plot located in the middle of nowhere. That was also the case when Skopje 1, a technological industrial development zone located in Bunardzik, a village between Skopje and the city’s airport, was established in 2006.
But in the past seven years, the industrial zone has become a template for how to turn 'the middle of nowhere' into a flagship project. On its vast 140-hectare plot, Skopje 1 hosts a number of foreign companies, including Johnson Matthey, a UK chemicals and precious metals company; Johnson Controls, an automotive original equipment manufacturer based in Wisconsin; and Kemet Electronics, a South Carolinan electronic components manufacturer.
Incentives offered by Skopje 1, along with three other industrial zones located close to the Macedonian capital, are generous and include 10-year-long tax holidays, no added taxes and customs duties on export production, and very low rent. This, of course, captures investor attention, especially in times when the global economy is far from booming.
"These days, any help that increases profit margins is much appreciated,” says Guido Galleni, senior managing director at Kemet Balkans. "We had several key requirements for the location selection, and the incentives were obviously considered in the decision-making process,” says Jatin Thakrar, project director at Johnson Matthey.
However, both Mr Thakrar and Mr Galleni are quick to stress that incentives, although important, were not the deal breaker when it came to investing in Skopje 1.
In the case of Johnson Matthey, which currently employs more than 400 people in the zone, the initial investment was based upon two factors: the meetings with the country’s government representatives and the location of the zone. "The governmental agencies were proactive in answering any questions or concerns we had. Apart from this it was important for us to be close to an international airport, a large city and for there to be a sizeable plot of land available,” says Mr Thakrar.
Despite Skopje 1 fulfilling this criteria, Johnson Matthey decided to test the waters before launching a full-scale production operation in 2010. "In 2009, we started small-scale production. And then from 2010 the plant ramped up following customer approval of the plant. Pretty soon we [experienced] success in terms of quality and manufacturing efficiency,” says Mr Thakrar.
In 2010, Johnson Matthey invested $68m in Macedonia. Just two years later it put aside an additional $77m to open a second plant in the country, with the aim of doubling its production, as well as hiring an additional 100 staff. "Our decision to invest further is based on the success we have achieved in a relatively short period of time and is an endorsement for Macedonia,” says Mr Thakrar.
In investing in Macedonia, Johnson Matthey followed the steps of Johnson Controls, a US company which, in 2006, launched a 6000-square-metre automotive interior electronics plant in Skopje 1, costing $20m. In 2011, Johnson Controls invested a further $25m in Macedonia in a seat upholstery plant that will provide 1500 new jobs
A service culture
While Johnson Matthey and Johnson Controls are now well established in Macedonia, Kemet Electronics only opened its $12m plant in Skopje 1 in September 2012. However, the company has already expanded beyond its initial plan. "We were planning on manufacturing capacitors here and this is our main activity here. But we have also established a sales office. This was not our plan, but we found the right people to do that type of job,” says Mr Galleni.
After spending more than a decade working in the Balkans, Mr Galleni, originally from South Africa, is no stranger to the region. Yet even to such a businessman familiar with this part of Europe, the conditions at Skopje 1 have come as a pleasant surprise. "I cannot speak for the rest of the country, but operating in this zone is like operating in a bubble. If I have any issues, I just call the zone’s authorities and they try to help us,” he says.
Viktor Mizo, the CEO of the Directorate for Technological Industrial Development Zones, the body that administers Macedonia's network of free zones, says: "It is not only about incentives; our concept of industrial zones is based on an extensive aftercare service. We basically work like incubators, but for fully fledged companies.”
Persistence pays off
Van Hool, a Belgian coach manufacturer, is hoping to reap the benefits of this incubator-like treatment. In October 2012, the company laid the foundations of its $25m plant in Skopje 2, an extension to Skopje 1. The project is scheduled to be completed in November 2013, but Filip Van Hool, the company's CEO, is hoping to start production sooner than that. "We received a big order from the US and that is why time counts. Because of [this order], the local construction company works on two shifts, seven days a week. We are planning to start production even before the official opening of the plant,” he says.
Mr Van Hool is yet another investor for whom the incentives offered at Skopje 1 and the low price of labour in Macedonia, while important, were not what clinched the deal. "Vele Samak [Macedonia's minister for foreign investments] contacted us six years ago and Macedonian officials have been visiting us ever since,” says Mr Van Hool. "They prepared an interesting offer and we started considering Macedonia as a potential location for investment. Then we compared it with other countries in the region, and finally we decided to pick Macedonia as we concluded that the country is run in the way a manager would run a company.”
Both Mr Samak and Mr Mizo are Western-educated technocrats, not politicians. Mr Samak holds an MBA from the Wharton School at the University of Pennsylvania and worked for Microsoft. Mr Mizo holds an MBA from Harvard Business School and worked for McKinsey. Both came back to Macedonia from the US in 2006 after Nikola Gruevski, then newly elected prime minister, personally requested that they help with the country’s economic development. Seven years later, Macedonia is reaping the rewards of that request.