Weekly Briefing, Vol. 17, No. 2 (MK), April 2019
Prospects for Macedonian-Greek Economic Relations After the Prespa Agreement
Introduction
The central focus of most of the works covering the name issue between Macedonia and Greece (and subsequently its solution) has been on the symbolic and political aspects of the bilateral relationship. However, the name dispute, as well as its resolution, have an important economic aspect as well. Economic relations during the period of the dispute were used as somewhat of a lever in the bilateral relations. Politicians manipulated the numbers and were threatening each other with severing the economic cooperation. In the past, during the heights of the dispute, the impact of the usage of economy as a tool in the bilateral relations was particularly detrimental for Macedonia. In 1994, Greece introduced an embargo which decimated Macedonia’s economy. However, economic cooperation blossomed once the 1995 Interim Agreement was reached. In recent years, business-to-business meetings meetings were held as part of the confidence-building measures in the period leading up to the rapprochement and then the Prespa Agreement. The hope of the business communities on both sides is that with the Prespa Agreement, the developments will go in the different directions. The Prespa Agreement itself features several provisions on improving economic relations between the two sides. Leaders on both sides for now promise that the relations enter a period when politicians will assist the businesses and play a constructive role. In this paper, we provide context of the Macedonian-Greek economic relations, and then discuss the prospects in the post-dispute era by focusing on the messages from the Macedonian-Greek Business Forum that took place in Skopje on April 4, during the visit of a Greek delegation headed by Prime Minister Alexis Tsipras (covered in the previous External Affairs paper).
Context of the Economic Relations between Macedonia and Greece
Macedonia and Greece have long-standing economic ties dating back for centuries. Thessaloniki is the closest major sea port to Macedonia, and historically most of the trade in Macedonia has been linked to it. Today, Greece is Macedonia’s richest neighbor, which until 2007 (when Bulgaria joined EU) has been its only member that was a member of the EU, a member of the Schengen area and the Eurozone. Greece is Macedonia’s second largest trading partner, and the third highest source of foreign investment. On the other hand Macedonia despite not being a large market, still matters as an exports and investment destination for Greek companies, is a major source of tourists to Greece, and matters for the cross-border cooperation especially of the northern Greek province of Macedonia. Economic relations between the two sides have been affected by the global financial crisis, but nevertheless have recovered since. Especially since the Interim Agreement 1995, the economic relations managed to develop despite the name issue and the unfavorable political climate. The Prespa Agreement features a section on improving them, and in the political discourse they have been considered a cornerstone of the post-dispute bilateral relationship.
During their joint appearance at the large business forum during Tsipras’ visit to Skopje (in depth discussed in the previous External Relations paper), Zaev summarized the achievements of the bilateral economic relations: in 2018, Greece became Macedonia’s second economic partner, after Germany. The total trade volume between the two countries raised for more than 20% on a year-to-year basis, totaling close to EUR 1 billion. However, Zaev pointed out that Macedonia’s trade deficit was increased for more than 30%; he argued that the Macedonian government will now work in helping Macedonian companies to boost their exports to Greece, and in attracting Greek investments in the country in order to balance out the deficit. Zaev pointed out that Greece is currently the third net investor in Macedonia as the stock investment from Greece to Macedonia in the period 1997-2017 is about EUR 474 million (a total of about 10% of all investment in the country). Greek companies have invested in the financial, telecommunication, energy and food processing sectors. Six Greek companies are included in the list of top 50 most profitable companies in Macedonia. One particular challenge for Macedonia, however, is that most of the profits Greek companies make are repatriated back to Greece, while there is a low rate of reinvestment (which is not an exclusive problem that concerns cooperation with Greece).
The narrative that in the era of the Prespa Agreement the two countries can catch up and take advantage of opportunities previously missed has been central in contemplating the future economic cooperation. In the words of Zaev during the joint activities with Tsipras, the two sides had huge limitations and operated in a narrow space for economic cooperation, whereas in 2019 they have entered in a new, fully open and unexplored space. He pointed out that the business community had suffered greatly from the name dispute, because they were the ones who had always recognized the potential for the cooperation between the two sides, but they faced unfavorable political circumstances and bad inter-governmental relations. Zaev commended them on their endurance and creativity in maintaining the cross-border cooperation even during the periods when the dispute was at its highest level. He argued that the solution of the name dispute brings about an opportunity to remove all of the barriers to deeper economic relations.
The Promise of the Business Forum in Skopje
In the discourse of the Macedonian government, the major economic impact of the Prespa Agreement is expected to be indirect, through NATO and EU accession. For example, during the campaign for the referendum on the Agreement in September 2018 (subject of previous reports), they have enthusiastically made promises that the accession to NATO and the EU will translate into an economic miracle, i.e. increased investment, trade, productivity, and overall well-being. However, especially around the arrival of Tsipras in Skopje, the government and its supporters started also emphasizing the impact of the good relations with Greece (and the role of Greece itself) in Macedonia’s economic renewal. Their main trope has been that while the economic relations between the two countries have been quite developed in the past, there is still significant untapped potential.
The Business Forum in Skopje that Zaev and Tsipras opened was thus a major step in that direction. It was reported that the Forum was attended by more than 400 guests. Tsipras was accompanied by a delegation of more than 70 CEOs and/or high representatives of large Greek companies, including some of the largest Greek companies including Hellenic Petroleum (which owns Okta, the largest refinery in Macedonia) and the construction company Aktor (which constructed the Demir Kapija – Smokvica section of the E-75 highway), and a number of other conglomerates and companies that work in construction, energy production and distribution, food processing, information and communication technology and so on, that wanted to explore opportunities in the neighboring country.
During the Forum, the participants agreed on the prerogative of boosting economic growth, and the potential of the cross-border cooperation in tackling that challenge. Much of the measures announced focused on the lowering of the barriers for doing business and the flow of capital, such as avoiding double taxation, protecting investments and facilitating trade. The two new border crossings that were announced (see previous External Affairs paper) are considered to be crucial in facilitating two-way trade and tourism. Greek companies who are larger, more experienced and have greater ambitions, expressed desire to transform Macedonia in a hub and platform for their expansion in the whole Balkan region. Regional connectivity plays an important role for the future of the economic relations. While commending and expressing support for Macedonia’s bid to open accession talks with the European Union, Tsipras argued that it is great for the region that aside from EU’s efforts, US, China and Russia have also shown great initiative. In all of the various initiatives and projects in the region (e.g. Three Seas, 16/17+1, Belt and Road), as Tsipras argued, Greece is positioned as an entry point, while Macedonia is the first transit country. It is believed that improvement of the transportation infrastructure on the corridor Athens (and in particular the Piraeus port)-Thessaloniki-Skopje-Belgrade would boost even more the economic cooperation in the region. The restarting of the Athens-Skopje flights, as well as the expansion of the Thessaloniki ports are seen as developments related to this process. The intensification of the coordination on economic issues between Athens and Skopje thus has the goal to use all of the existing opportunities.
In line with its new strategic focus on energy production and distribution, Greece is also expected to explore energy cooperation with Macedonia. The two sides already cooperate in the transport of energy and fuel, as energy imports for Greece are of particular importance for Macedonia’s economy. However, as Greece looks to increase its activity and the volume of energy production and export, Macedonia makes a potentially significant partner, due to its geographic location. During the forum, Zaev expressed his desire to jointly work on a gas pipeline between Macedonian and Greece, that would expand to Kosovo, Serbia and Romania, and link with the Trans-Adriatic pipeline. He was pleased to learn that Greece now sees Macedonia as a key partner in transforming the region into a transit center for energy transportation.
Atansios Savakis, the President of the Federation of Industries of Greece, who was part of the business delegation that accompanied Tsipras on the visit to Skopje argued that the Greek entrepreneurs were satisfied with the visit outcomes, and that a lot of them had negotiated deals with their Macedonian partners, which are supposed to be finalized soon. According to him the establishment of new channels for communication and cooperation are a positive change that will facilitate the economic cooperation. Greek entrepreneurs consider the two economies to be complementary to each other and lobbied for the removal and lowering of all kinds of institutional and procedural barriers. While the Macedonian market is quite small, some Greek entrepreneurs argued that what makes the country attractive is that there is qualified workforce, and that Macedonia can be a stepping stone for Greek businesses to expand beyond the country and the region.
Of course, not everyone has been enthusiastic about the Business Forum, and the economic prospects in the post-dispute era. Some of the reactions in Greece were negative, arguing that it is ironic that the Greek Prime Minister goes to Macedonia to promise Greek investment, at times when Greece itself is desperately seeking foreign investments of its own. These voices argued that economic cooperation already developed smoothly even during the days of the name dispute, and that the Prespa Agreement will not make a significant change in bilateral trade and investment. Some critical voices in Macedonia, on the other hand, argued that the new arrangements between the two countries are asymmetrical and favor the Greek side.
Yet, the Macedonian media discourse surrounding the Business Forum was enthusiastic and the predominant narrative was that with the Prespa Agreement, Macedonia and Greece are now set up for a win-win economic relationship. Still, it remains to be seen to what extent will the Agreement shape the new economic relations between the two country, and who will have the biggest profit from it.