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Foreign Investments and Developing Countries: Dialog With Former Finance Minister of Macedonia Nikola Gruevski, Part VI

Sam Vaknin, Ph.D. - 2/22/2006

The person that this project would be entrusted to, must have enormous knowledge in the field of international finances and must exceptionally well know the problems and needs of Macedonia.

Under the coordination of the specially assigned person by the government (he should be a member of the cabinet) and with the Agency for the Promotion of Macedonia, in the first phase that should last not longer than 6 months, the activities must be taken in 3 directions:

Permanent and regular contact with the direct participants in the capital markets of Macedonia: the managers of the companies, the stock exchange, banks and brokerage firms and big investors. The objective of these contacts is to deeply, and from various points of view, to tackle the essence of the problems, and to avoid any vacuum on the vertical axis of contacts between the government and any other participant on the capital markets.

To prepare several studies regarding Macedonia, in general and certain companies, in particular, where the possibilities and the conditions that this market is offering and is planning to offer are realistically presented. The big financiers in the world should be "bombarded" with these publications. All the positive aspects of investment in this market and, concretely, in certain projects must be mentioned in them. It must also be mentioned that these reports are intended only to attract the interest of the foreign companies in certain projects. This should be followed by engaging a local legal counsel in the second phase, and usually by sending representatives to Macedonia, to consummate the third phase of engaging a broker, and carrying out the deal. After the money is invested (and possible even before that), the research and development departments of the Western companies will start to independently prepare reviews, reports and other printed material regarding Macedonia, in order to realize a profit from the deal, and to interest other multinationals to invest in the Macedonian market. This means that the country must initiate the project and accelerate it. So far, only a couple of companies have prepared reports about Macedonia. One of them is Bankers Trust where in November 1997, I was told that for the time being this famous multinational company has no intention to invest in Macedonia. Recently Merrill Lynch issued a research report concerning Macedonia, but they also have no intention to invest in Macedonia at least till the year 2000. This is what the director of Merrill Lynch Frankfurt, Mr. Wolfgang Eickmann, sincerely told me, in reply to my questions a year ago. But there are many other large multinational companies, that are interested to invest in Macedonia. Unfortunately because of many reasons, and above all, because of lack of information, the small scope of the market and bad legal regulations they don't do so.

Sam: My experience has been similar. The "biggies" – Merril Lynch and the like – are not likely to invest in Macedonia until it is a much more developed market, internally. The size is simply too small. It is not cost efficient to dedicate research manpower and other resources to a market where the number of transactions is likely to be very small. But smaller financial institutions – and there are hundreds – might be interested. The World Bank lists more that 20 private, small, mostly equity, funds that are interested to invest here. But these funds are under-staffed, do not have serious research departments (if at all), are short on budgets. They are flooded by waves of business plans, brochures, offers and requests. Their attention must be attracted. The first factor in attracting attention is the identity of the market that the proposal is coming from. A business plan from Slovenia will get much more attention than its twin from Macedonia. Admittedly, the fundamentals of the two markets are very different – but there is also a heavy problem of image and market awareness. I myself was told by an IFC official that the Macedonians are a "Kaffana nation". The Macedonians are perceived to be lazy, unreliable, unknowledgeable, not decisive, fickle, unaware of the most basic concepts of time, obligation, contract and loyalty. The lack of disclosure in financial statements, the inefficient courts, the corruption, the bad working habits, the high unemployment – all accentuate this flawed image. No one, until now, made a serious effort to courageously confront this image, dismantle it and offer an alternative. No one markets Macedonia, its people, its culture, its markets, its industries. No one has bothered to learn the mentality of the money providers, their language, their worldview, their hopes and fears.

- Nikola: It would be useful if the government of Macedonia, besides the specially appointed person, and the specialized Agency for the Promotion of Macedonia, also engages:

- Companies – consultants, at least in London, New York and Frankfurt , that would be remunerated through a flat rate combined with a percentage of every realized deal; Besides using the services of the Law and Economy Faculties in Skopje, the government should engage independent financial consultants, in Macedonia and abroad;
The embassies of Macedonia in the big financial centers should have new appointees besides the existing staff: qualitative representative of Macedonia with expert help from economists associated with this project.
Sam: I wholeheartedly support these two recommendations. Not because I am a foreign consultant, who lives in Macedonia. I render my services to the government (when they are required), my lectures and my articles free of charge. I think that Macedonia should be instructed as to how to market itself – it is doing such a bad job now, that nothing can be worse. Moreover, Macedonians seem not to believe in their own country. They keep telling me how deficient and defunct it is and how much they would have like to leave it and to go to greener, Western, pastures. Whenever I express optimism, they put me down, or even accuse me of some political collusion. Sometimes, you look to me like a nation of pessimists, waiting for the worst to happen with a masochistic joy. This is not the way to promote a country. Let others do the work for you until your mood improves. Agree to be taught, only the truly wise know that they do not know.
Nikola: The Agency for the Promotion of Macedonia, that was recently established, must not transform itself from its promotional and marketing roles into some kind of a mediator, that would add to the bureaucracy of this sphere.

The impression is that the external problems could be solved much faster than the internal ones, because of, as one high-level financial expert and politician in Macedonia stated: "the hostility of the domestic managers of the companies towards the foreign capital", which more or less is the generator of every other problem in Macedonia with regards to the attraction of foreign investments. This situation will sooner or later change, but the conditions and the environment will no longer be the same. The favorable conditions for foreign investments have its timing, just like everything else.

The lagging behind the technical-technological developments and the enormous insufficiency of capital in Macedonia, will very quickly lead to the so called "third degree" privatization. Most people that are generating today the negative situations in Macedonia will be disposed to sell in panic the already privatized companies, realizing that even the low price with which they managed to buy the company is already too high, because of the stagnation in its development. We will not even dare to estimate the damage to the Macedonian national economy. We will see to what extent will the current long-term stagnation in development make the Macedonian products less competitive, and to what extent it will affect the (un)employment. The entire lack of foreign investments is indirectly or directly damaging the budget and the trade balance of Macedonia.

Sam: I have been warning for a year regarding this forthcoming forced privatization. Years were lost. Any competitive edge that Macedonia might have had has been completely eroded. World markets have been lost to competitors. The nation has lost the wealth that could have been generated to it through the orderly sale of the privatized firms. Now, the bulk of these firms, still badly managed, under-funded, without export markets, new ideas, new technology and new management – will collapse. Unemployment will surge. Foreign investors will come in (if they will know what is happening!) and pick up the shards cheaply. The process has already started and agro-businesses are offered for a pittance by both Agencies (Privatization and Rehabilitation of the Banks).

Nikola: There is a saying: " you can take something away from somebody by force, but not give something to him (by force)…"

If Macedonia wants to be successful at attracting foreign investments, it should demonstrate that it has investment possibilities. This can be accomplished by permanent travels of a representative of the government, by attracting foreign delegations, by collaborating with representatives of the industry and commerce. The promotion of Macedonia in business and financial newspapers and magazines in the world must be frequent. Advertising in other kinds of magazines (for example: magazines of air-carriers) should not be excluded.

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