Part II. The Republic of Macedonia - A Case Study  (2007)

Ever since its reluctant declaration of independence in 1991, Macedonia occupied the bottom of the list of countries in transition from Communism, as far as absolute dollar figures of FDI go. At 80.6 million USD, FDI in 2003 barely budged from previous years. In 2004, FDI reached 139.5 million USD, only to shrink to 116.2 million USD in 2005. Discounting the sale of ESM, the electricity utility, FDI remained static in 2006 (total FDI was 350.7 million USD or 124.7 million USD, without ESM).

Yet, this is a misleading picture. Macedonia was and is no worse off than other countries in Eastern Europe.

According to UNCTAD's World Investment Report 2007, FDI in Macedonia, as a percentage of gross fixed capital formation, shot up from 9.7% in the decade of the 1990s to 32.4% in 2006 (compared to 36.4%, the southeast European average; 20.8% the average of all countries in transition; and 12.6% the global average figure).

Macedonia's FDI stock reached 2.437 billion USD, or 39% of GDP (compared to 42.2% as the southeast European average; 25.3% the average of all countries in transition; and 24.8% the global average figure).

Macedonia's Inward FDI Performance Index, based on 12 economic and policy variables, climbed from the 86th to the 64th place out of 141 economies surveyed. Its Inward FDI Potential Index also improved from 115 to 106.

Throughout this period, foreign enterprises, profitable overall, consistently hired new employees and wages in the sector stabilized at c. twice the average salaries in local businesses.

Thus, as far as FDI goes, Macedonia's performance, though far from stellar, was and is above the regional and global averages. The World Bank put it succinctly, as it summarized the period PRIOR to the assumption of power by the new government:

"Macedonia's rankings either improved or stayed steady for all available scored rankings, and it tracked closely with the regional averages for all rankings. According to the World Economic Forum's Global Competitiveness Report for 2006-07, the three most problematic factors for doing business are inefficient government bureaucracy, access to financing, and corruption. Macedonia was one of the top 10 Doing Business reformers, jumping up 21 places.  The most significant improvements were in the following indicators: Starting a Business (where the paid-in minimum capital requirements were dropped from 111% to 0% of GNI per capita), Dealing with Licenses, and Trading Across Borders."

Other indicators lead to the same conclusion: while Macedonia's image and perception as a business destination and the business climate have improved considerably under Gruevski's government, in reality, not much else has changed.

Consider the following numbers, pertaining to Macedonia:

Control of Corruption Indicator, published by the World Bank: 113 (2006) vs. 111 (2007)

Country Credit Rating, published by Institutional investor: 85 (2006) vs. 84 (2007)

Index of Economic Freedom, published by The Heritage Foundation and the Wall Street Journal: 75 (2006) vs. 71 (2007)

Quality of National Business Environment Ranking, issued by the World Economic Forum in its Global Competitiveness Report: 87 out of 121 countries.

Only the World Bank's Doing Business Ranking jumped from 96 (2006) to 75 (2007). Yet, even this indicator hides some unpalatable truths: Macedonia has deteriorated in certain respects. It is more difficult and cumbersome to hire workers, to register property, to obtain credit, to protect investor rights, and to enforce contracts. In any case, this indicator has more to do with public relations, expectations, and psychology, rather than with the hard facts on the ground.

And the hard facts are:

Macedonia is not ready to absorb and accommodate foreign investors and their capital. It still has a long way to go. This government has put the cart before the horses;

The youthful, populist, and inexperienced administration is overwhelmed and ill-equipped to deal with its obligations towards and promises to foreign investors. Decision-making bottlenecks (especially in the office of Vice-Premier Zoran Stavreski) conspire with red tape and blatant favoritism to render nightmarish both greenfield and brownfield ventures.

In a long-running arbitration, the country was slapped with multimillion dollar damages payable to the Greek investors in Okta. This did not deter the government from conflicting vocally and publicly with Macedonia's other large investor, the Austrian EVN, owner of the electricity utility;

To its credit, the government has reformed the tax system, introduced a flat tax, and reduced the tax rates, all laudable. But it is still illegal for foreigners to own land and real estate (as individuals) and all but impossible to trade in the local stock exchange. The government has only now resorted to tackling these archaic limitations;

The country is dysfunctional. No institution works properly: the cadastre, the courts, law enforcement agencies, the civil service are all in chaotic disarray. Even the banking system, despite a decade of FDI, is rudimentary. Infrastructure of all sorts is dismal, though improving. The government's anti-corruption drive is much lauded but highly politicized and one-sided, aimed as it is exclusively at the hapless politicians of the opposition. Macedonia's laws are not geared to welcome and assimilate foreign investment, foreigner businessmen, and foreign workers;

Macedonia lacks skilled manpower. The education deficit is pervasive. More than half the adult population has eight years of schooling or less. A multi-generational brain drain saps the country's vitality and prospects in the global information economy of the 21st century. Contrary to the government's claims in its "Invest in Macedonia" campaign, costs and taxes associated with wages are among the highest in the world.

The country suffers from other problems: a huge informal economy, skyrocketing consumer and enterprise indebtedness, ominous asset bubbles in both the stock exchange and the real estate market, a crippled middle class and crippling poverty and unemployment rates, an unmanageable and increasing trade deficit (c. 20% of GDP), and a whopping current account deficit offset only by remittances from Macedonian workers abroad. The global credit crunch constitutes a major threat to polities with such precarious finances.

Geopolitical instability (in Kosovo) is exacerbated by the current Macedonian regime's jingoism, its overt and manipulative religiosity, and greenhorn fickleness. Within the last year, Macedonia has considerably retarded its chances to enter NATO and the European Union (EU), having clashed unnecessarily and spectacularly with Greece, Serbia, Bulgaria, and the Albanian minority at home.

Despite a slew of expensive PR and advertising campaigns; the appointments of two ministers and the formation of a special agency to deal with FDI; incessant trips abroad by every functionary, from the prime minister down; and innovative marketing initiatives - FDI figures for 2007, at c. 180 million USD (c. 3% of GDP), are a major disappointment. Moreover, a sizable part of Macedonia's FDI is in construction, retail, financial services, and trade, economic sectors with minimal contribution to future growth.

In comparison, FDI doubled in decrepit, post-bellum Serbia, to 4.5 billion USD in 2006. Croatia garnered 3.6 billion USD (2.7 billion euro) - twice the 2005 figure. Even strife-torn Bosnia-Herzegovina, under a EU peacekeeping mission, attracted 2.9 billion USD (2 billion euros). Bulgaria absorbed 6.5 billion USD. FDI amounted to 10% of Balkan GDP in 2006.

The conclusion is inescapable: Macedonia has failed in its bid to attract FDI. This is not the first time that Macedonian politicians and their downtrodden and destitute people prefer the fantasy of foreign saviors to the hard slog of painful and much-needed reforms at home. The current prime minister, Gruevski, served in the government of Ljubco Georgievski, whose nostrum and panacea to Macedonia's economic woes was dollops of money, supposed to be funneled via illusive Taiwanese investors. The person most identified with this policy, Vasil Tupurkovski, now faces criminal charges.

Gruevski can learn many lessons from the debacles wrought by his predecessors. It is not too late to get his priorities straight: reforms, education, domestic investment, and employment first, and only then an open invitation to foreigners to come and invest in Macedonia.

Football

The Champions League is a rich man's club, complain football teams from nine south and east European countries. They are bent on setting up an alternative dubbed the "Eastern League". The revolt is led by Dinamo Bucharest and Greece's Olympiakos Pireu and has been joined by 14 other clubs: Steaua and Rapid from Romania, The Turkish Galatasaray Istanbul and Besiktas PAOK Salonic of Greece, the Serbian Steaua and Partizan Belgrade, Hajduk Split from Croatia, the Cyrpiot Apoel Nicosia, Maribor from Slovenia, the Bulgarian teams TSKA Sofia and Levski Sofia and the Ukrainian contributions of Shakhtor Donestk and Dinamo Kiev.

It is partly about pride and partly about money.

In the past decade eastern footballers, trounced by well-heeled competitors from the West, consistently failed to qualify to participate in the Union of European Football Associations Cup and the Champions League games. This translates into a loss of up to a million dollars per team per year as they miss out on lucrative advertising and broadcasting deals when they are matched against giants from Spain, Germany, Italy, or even England.

The Eastern League is not a done deal, though. It first has to be voted on and recognized by both the Federation of International Football Associations and UEFA, the world and European football federations, respectively. This may prove to be a tall order. The game is still organized as an old-fashioned cartel, with each regional association envious of its market share and clout.

Still, football in the eastern nether regions is in dire straits. As its economics worsen - the inventiveness of managers and players alike blossoms. in January, the Bulgarian Levski club offered, with great fanfare, 250,000 of its shares to fans, aiming to break the Guinness Book of Records entry of Manchester United.

It was promptly castigated for ripping off the innocent. The "free" shares, found out embittered takers, came attached to a season's ticket at full price. Alternatively, would be shareholders were asked to purchase a club membership for $25 - a few days wages in the impoverished country. Quoted by the newswires Presstext.Europe and Newsfox, a Levski official Todor Batkov said that "real fans must give and not take from the club".

Football teams in the former communist countries realize that it is either big time or no time at all.

Romanian club Universitatea Craiova has recently courted Paul Gascoigne, a British asset known more for his exploits off-field than for anything he has accomplished on it. The figure floated was $170,000 - a fortune in Romanian terms, where the average annual intake is rarely about $2000.

Omnipotent president Islam Karimov of Uzbekistan granted immediate citizenship - by a constitutionally dubious presidential decree - to Bulgarian football striker Georgi Georgiev and defender Alexsi Dionisiev. This allowed them to keep their Bulgarian passports even as they played for the host country in the World Cup.

Football has always been about politics. Violence inspired by virulent nationalism often vents itself most visibly in bilateral matches.

In a typical case last year, three police officers were wounded and nine Bosnian Serb fans were detained in the wake of a riot following the first football match since 1992 between Borac from Republika Srpska and Zeleznicar from Sarajevo. The Muslim-Croat team and fans required police escort out of Banja Luka to escape the wrath of the local yobs. Borac had to play two games to empty stadiums and part with $1500 in fines.

The Bosnian Football Federation - representing 14 clubs from the Croat-Muslim parts of the divided country - teamed up in May last year with 6 counterparts in Republika Srpska. They formed a joint league and a common professional association. Moreover, the two entities already fielded a joint team in the Olympic games in 2000 and maintain a single basketball federation. Yet, even this apparent reconciliation failed to prevent the outpouring of hostilities.

Nor is football-related aggression confined to zealous nationalists. Slovak fans taunted black English players Emile Heskey and Ashley Cole with racist slogans in October last year. The vast majority of the crowd - and the medical teams on the sidelines - balefully recited "monkey, monkey" at the top of their lungs for minutes on end.

Quoted by Radio Free Europe/Radio Liberty, Michal Vesecka, a research fellow with the Slovak Institute for Public Affairs, linked the abuse to problems in cultural development and identity:

"Slovakia is a country that is the most ethnically heterogeneous in Central Europe, but the 'culture of tolerance' is not as well developed [here] as in the European Union, or even with respect to neighboring countries like the Czech Republic and Hungary ... [Slovakia] is still a country that is trying to solve its own identity problem, and precisely [during] such times, the people are relatively aggressive toward those people who are different."

Add to this combustible mixture crumbling economies and all-pervasive disillusionment and the spillover to football is hardly a surprise. The game is an inseparable part of daily life in many of these polities where life is unbearably drab, economic opportunities are rare and cultural diversions even scarcer.

For instance, football associations offer a cornucopia of sinecures to cronies and relatives of all degrees and colors. Hence the high turnover and ubiquitous venality which characterize these murky bodies.

Both UEFA and FIFA have warned the Azerbaijan Football Federation Association that it must settle a five years old simmering dispute or else face the suspension of all financial aid and, ultimately, expulsion. AFFA's president Fuad Musaev refuses to go, despite pressure from the government above and at least nine clubs below. This resulted in a boycott by said disgruntled of the national football championship and a feeble attempt to organize an alternative.

Foreign Policy, Economic Instruments of

Foreign aid, foreign trade and foreign direct investment (FDI) have become weapons of mass persuasion, deployed in the building of both the pro-war, pro-American coalition of the willing and the French-led counter "coalition of the squealing".

By now it is clear that the United States will have to bear the bulk of the direct costs of the actual fighting, optimistically pegged at c. $200 billion. The previous skirmish in Iraq in 1991 consumed $80 billion in 2002 terms - nine tenths of which were shelled out by grateful allies, such as Saudi Arabia and Japan.

Even so, the USA had to forgive $7 billion of Egyptian debt. According to the General Accounting Office, another $3 billion were parceled at the time among Turkey, Israel and other collaborators, partly in the form of donations of surplus materiel and partly in subsidized military sales.

This time around, old and newfound friends - such as Jordan, an erstwhile staunch supporter of Saddam Hussein - are likely to carve up c. $10 billion between them, says the Atlanta Journal-Constitution. Jordan alone has demanded $1 billion.

According to the Knight Ridder Newspapers, in February 2003, an Israeli delegation has requested an extra $4-5 billion in military aid over the next 2-3 years plus $8 billion in loan guarantees. Israel, the largest American foreign and military aid recipient, is already collecting c. $3 billion annually. It is followed by Egypt with $1.3 billion a year - another rumored beneficiary of $1 billion in American largesse.

Turkey stands to receive c. $6 billion for making itself available (however reluctantly, belatedly, and fitfully) as staging grounds for the forces attacking Iraq. Another $20 billion in loan guarantees and $1 billion in Saudi and Kuwaiti oil have been mooted.

In the thick of the tough bargaining, with Turkey demurring and refusing to grant the USA access to its territory, the International Monetary Fund - thought by many to be the long arm of US foreign policy - suddenly halted the disbursement of money under a two years old standby arrangement with the impoverished country.

It implausibly claimed to have just unearthed breaches of the agreement by the Turkish authorities. This systemic non-compliance was being meticulously chronicled - and scrupulously ignored by the IMF - for well over a year now by both indigenous and foreign media alike.

Days after a common statement in support of the American stance, the IMF clinched a standby arrangement with Macedonia, the first in two turbulent years. On the same day, Bulgaria received glowing - and counterfactual - reviews from yet another IMF mission, clearing the way for the release of a  tranche of $36 million out of a loan of $330 million. Bulgaria has also received $130 million in direct US aid between 2001-3, mainly through the Support for East European Democracy (SEED) program.

But the IMF is only one tool in the administration's shed. President Bush has increased America's foreign aid by an unprecedented 50 percent between 2003-6 to $15 billion. A similar amount was made available between 2003-8 to tackle AIDS, mainly in Africa.

Half this increase was ploughed into a Millennium Challenge Account. It will benefit countries committed to democracy, free trade, good governance, purging corruption and nurturing the private sector. By 2005, the Account contained close to $5 billion and is being replenished annually to maintain this level.

This expensive charm offensive was intended to lure and neutralize the natural constituencies of the pacifistic camp: non government organizations, activists, development experts, developing countries and international organizations.

As the war drew nearer, the E10 - the elected members of the Security Council - also cashed in their chips.

The United States has softened its position on trade tariffs in its negotiations of a free trade agreement with Chile. Immigration regulations were relaxed to allow in more Mexican seasonal workers. Chile received $2 million in military aid and Mexico $44 million in development finance.

US companies cooperated with Angola on the development of offshore oilfields in the politically contentious exclave of Cabinda. Guinea and Cameroon absorbed dollops of development aid. Currently, Angola receives c. $19 million in development assistance.

Cameroon already benefits from military training and surplus US arms under the Excess Defense Articles (EDA) program as well as enjoying trade benefits in the framework of the Africa Growth and Opportunity Act. Guinea gets c. $26 million in economic aid annually plus $3 million in military grants and trade concessions.

The United States has also pledged to cause Iraq to pay its outstanding debts, mainly to countries in Central and East Europe, notably to Russia and Bulgaria. Iraq owes the Russian Federation alone close to $9 billion. Some of the Russian contracts with the Iraqi oil industry, thought to be worth dozens of billions of dollars, may even be honored by the victors, promised the Bush administration. It reneged on both promises. Debt relief reduced Iraq's debt by 90% and all Saddam Hussein era contracts were vitiated.

Thus, the outlays on warfare are likely be dwarfed by the price tag of the avaricious constituents of president Bush's ramshackle coalition. New York Times columnist Paul Krugman aptly christened this mass bribery, "The Martial Plan". Quoting "some observers", he wrote:

"The administration has turned the regular foreign aid budget into a tool of war diplomacy. Small countries that currently have seats on the U.N. Security Council have suddenly received favorable treatment for aid requests, in an obvious attempt to influence their votes. Cynics say that the 'coalition of the willing' President Bush spoke of turns out to be a 'coalition of the bought off' instead'."

But this is nothing new. When Yemen cast its vote against a November 1990 United Nations Security Council resolution authorizing the use of force to evict Iraq from Kuwait - the United states scratched $700 million in aid to the renegade country over the following decade.

Nor is the United States famous for keeping its antebellum promises.

Turkey complains that the USA has still to honor its aid commitments made prior to the first Gulf War. Hence its insistence on written guarantees, signed by the president himself. Similarly, vigorous pledges to the contrary aside, the Bush administration has allocated a pittance to the reconstruction of Afghanistan in its budgets - and only after it is prompted to by an astounded Congress.

Macedonia hasn't been paid in full for NATO's presence on its soil during the Kosovo conflict in 1999. Though it enjoyed $1 billion in forgiven debt and some cash, Pakistan is still waiting for quotas on its textiles to be eased, based on an agreement it reached with the Bush administration prior to the campaign to oust the Taliban.

Congress is a convenient scapegoat. Asked whether Turkey could rely on a further dose of American undertakings, Richard Boucher, a State Department spokesman, responded truthfully: "I think everybody is familiar with our congressional process."

Yet, the USA, despite all its shortcomings, is the only game in town. The European Union cannot be thought of as an alternative benefactor.

Even when it promotes the rare coherent foreign policy regarding the Middle East, the European Union is no match to America's pecuniary determination and well-honed pragmatism. In 2002, EU spending within the Euro-Mediterranean Partnership amounted to a meager $700 million.

The EU signed association agreements with some countries in the region and in North Africa. The "Barcelona Process", launched in 1995, is supposed to culminate by 2010 in a free trade zone incorporating the European Union, Algeria, Morocco, Tunisia, Egypt, Israel, Jordan, Lebanon, the Palestinian Authority, Syria and Turkey. Libya has an observer status and Cyprus and Malta have joined the EU in the meantime.

According to the International Trade Monitor, published by the Theodore Goddard law firm, the Agadir Agreement, the first intra-Mediterranean free trade compact, was concluded In March 2003 between Egypt, Jordan, Morocco and Tunisia. It is a clear achievement of the EU.

The European Union signed a Cooperation Agreement with Yemen and, in 1989, with the Gulf Cooperation Council, comprising Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates and Oman. A more comprehensive free trade agreement covering goods, services, government procurement and intellectual property rights is in the works. The GCC has recently established a customs union as well.

Despite the acrimony over Iran's not-so-civilian nuclear program, the EU may soon ink a similar set of treaties with Iran with which the EU has a balanced trade position - c. $7 billion of imports versus a little less in exports.

The EU's annual imports from Iraq - at c. $4 billion - are more than 50 percent higher than they were prior to Iraq's invasion of Kuwait in 1990. It purchases more than one quarter of Iraq's exports. The EU exports to Iraq close to $2 billion worth of goods, far less than it did in the 1980s, but still a considerable value and one fifth of the country's imports. EU aid to Iraq since 1991 exceeds $300 million.

But Europe's emphasis on trade and regional integration as foreign policy instruments in the Mediterranean is largely impracticable. America's cash is far more effective. Charlene Barshefsky, the former United States trade representative from 1997 to 2001, explained why in an opinion piece in the New York Times: