This article is based on the results of a project commissioned by the North Macedonian government to the European Center for Peace and Development, ECPD Belgrade – operating under the University for Peace, established by the United Nations. The project was undertaken by a large international team and was financially supported by the Swiss Agency for Development and Cooperation.
The objective of the project was to obtain a scientifically verified evaluation of the results achieved by the North Macedonian Regional Development Strategy for the period 2009-2019, particularly in terms of reduced disparities among the eight Planning Regions. On this basis proposals were offered on how to further develop this strategy for the period 2020-2029.
Regional disparities in Europe
Throughout history there were regional disparities, based particularly on natural resources, favourable location, and quality of education. In modern times regional disparities are not perceived only as an economic feature, but equally as a political liability of a country – making authorities responsible for not doing enough to reduce them to an acceptable level. For example, during 1998-2003 regional disparities increased in 10 out of 22 OECD member countries, and 9 out of these 10 regions are predominantly rural. Actually, even in theory, there is no clear position on what is an acceptable level of regional economic disparity.
Undoubtedly, in recent times in most countries more attention is being paid to existing regional disparities, and this is a result of higher democratic culture based on values of equal opportunity for all members of a society.
Both theory and policy engagement to reduce regional disparities have a long history, though the achievements are rather mixed. Interestingly, some countries have managed to reduce regional disparities to quite a sustainable level, in others the gaps between the richest and poorest regions have grown into major economic, as well as political problems. At the European level, the leading regions have, on average, 2.3 times the GDP per capita of the poorest regions in their respective countries. During 2000-2016 the inter-country disparities in Europe have shrunk by 30 percentage points, among NUTS-2 regions only by 7%, while within NUTS-3 regions the disparities have even increased by 13 percentage points. Although increasing cohesion has been a strategic objective since the start of the EU, the results achieved are important, but far from completely satisfactory.
In the literature there are more differences than common views on cohesion policies, their actual impact and even relevance. In any case, specialists are warning against common simplification, according to which development performance in a poorer region is interpreted primarily as a result of policy measures applied in favour of such a region. Ignoring or underestimating all other factors (private investment, development effort of the respective region, numerous external influences), may lead to false conclusions, and it should therefore be avoided. In the international context this approach would lead to the conclusion that the less developed countries of the World South are in their unfavourable situation simply because the rich countries are not doing enough to help them. Though this cannot be rejected as completely false, it is more than obvious that this is not the whole picture, as development processes in the long run depend much more on domestic factors and conditions, than on external support.
Of course, specially nowadays, the external (i.e. extra-regional) support can undoubtedly make a huge difference, provided it is performed appropriately – meaning it is addressing underlying causes, and not just symptoms of underdevelopment. It is however of primary importance that the necessary local conditions are created. These include: rule of law and effective regional government, zero tolerance for corruption, strategic priorities with transparent programming, skillful workforce, investment project support environment, favourable attitude towards public-private partnership, efficient local capital market, and availability of risk capital, as well as skillful, entrepreneurial project leaders. Under such conditions external support is not perceived as “a financial gift”, but as enhanced opportunities to implement some strategic projects which will create benefits for the respective community.
More than ever before, the EU has recognized that an important condition for a successful cohesion effort is the ability, motivation, and determination of local authorities and business & academic communities to advance the region into a sustainable, knowledge economy. That is possible only if and when an efficient innovation ecosystem has been developed, and when the innovation processes are understood beyond the classical linear innovation paradigm. That one was holding that most of public support should go into basic science, which will gradually develop relevant applied research, to be followed by R&D activities, which will finally create new products and services to be offered at the local and international markets). Thanks to their competitive quality these will be successfully marketed, and will generate new jobs and sources of revenue. Many countries have not yet fully understood the radically changed nature of the innovation process, which is much more complex, flexible, unpredictable, and involves all societal actors: from entrepreneurs, researchers and inventors – to governments, civil society, and even media.
South-East European transition economies are struggling in competition with economies of the Nordic countries, and the recent Economist Intelligence Unit report concludes that the EU policymakers will have to move to a new, innovation-driven growth model. In order to create well-performing innovation ecosystems, countries will have to look at a number of policy options. Governments will need to make their countries more attractive to talent in order to reverse the brain drain into brain circulation and hopefully achieve at least some brain gain. This can be achieved through the return of some migrants, as well as by foreign experts settling in a respective country, and finding work in newly established companies as a result of domestic and foreign investment. Moreover, continued reform of the regulatory framework, coupled with higher policy stability and future orientation, will be crucial. The experience of the Nordic countries provides opportunities to learn from best practice how to create vibrant innovation ecosystems that contribute to an equitable society, consensual democracy, and a highly competitive economy.
The North Macedonian Regional Development Strategy 2009–2019
Recognising that regional economic disparities are an important challenge to be addressed by the Government, a number of important measures were adopted in the country over the last 10-15 years:
- the law creating the Ministry of Local Self-Government;
- adopting the National Strategy for Regional Development 2009-2019, with an Update in 2014;
- the country was divided into 8 planning regions;
- National Council for Regional Development and Regional Councils were created, and Vice PM - being the Minister for Economic Affairs - was made responsible to chair the National Council;
- by law the Government has made a commitment to invest 1% of GDP into reduction of regional economic disparities;
- creation of the Bureau for Regional Development at national and regional level.
It is true that all of these important measures have not been developed and implemented completely. Unfortunately, the biggest gap was registered on the 1% target – implying that public resources enabling some perhaps very important projects were not available. However, nobody could deny the impressive results in terms of reduced regional disparities in the country. The GDP pc ratio between the richest and the poorest region have shrinked during 2009-2017 from 3.6 to at least 2.9 – in some calculations even to 2.4.
This is better than 2.5, set in the original Strategy, and rather close to the ambitious new target of 2.2, from the Strategy Update adopted in 2014. The 7 regions average ratio to Skopje region has been reduced during 2009-2017 from 2.4 to 1.9, which is certainly impressive and encouraging. Namely, the differences among NUTS-3 regions in EU have in the same period increased, in spite of the rather generous EU Cohesion support.
And, how did individual planning regions perform in terms of GDP pc vis-a-vis Skopje in the period 2009-2017? They all performed favourably, while the best were North Eastern regions (advancing from coefficients 3.4 to 2.4), Eastern (from 2.3 to 1.4), Polog (from 3.6 to 2.9), and South-Eastern (from 1.8 to 1.2). They were followed by: Pelagonia (from 1.7 to 1.3), Vardar (from 1.6 to 1.4) and finally South-Western region (from 1.8 to 1.7).
The GDP growth is certainly important, but the Development Index tells us much more about the shrinking regional disparities. Between the periods 2008-2012 and 2013-2017 the following 3 regions (East, Pelagonia, and Polog) have improved their index versus Skopje by 17, 11, and 9 points – coming to indexes of 63, 60 and 54 points. During the same period Skopje has advanced by only 2 points.
The econometric research performed by the project team has revealed that the coefficient of correlation between GDP growth and volume of public investment in the Republic of North Macedonia during the past decade remained rather modest at 0.05, meaning that the direct impact was only at the order of 5%. This may be rather low, but should not be interpreted as if it did not matter, primarily through these investments' secondary and tertiary impacts. Undoubtedly, these investments did contribute to better living and working conditions in the respective regions, enhancing the quality of living conditions, which certainly increases the motivation of people to contribute to the progress of their community, thereby of their region, and finally the country.
On the other hand, the Republic of North Macedonia still has two important issues to address:
- reducing the excessive dominance of Skopje region (over 30% of population, 43% of BDP, 55% of fixed capital investment, 56% of exports, and 70% of investment);
- preventing or at least reducing emigration and brain drain, affecting particularly the poorer regions of Vardar, Pelagonia, South East, and South West.
At any rate, the efforts for higher regional cohesion in Europe are still far from being successfully completed. The index of poorest NUTS-3 region in EU is only 31%, and the richest even 253% of EU27 average. It is quite surprising that even 27% of the EU population still lives below 75% of EU average GDP per capita. In North Macedonia this is the situation with only 25% of country's population, in 6 out of 8 planning regions. In this comparison one cannot neglect the difference in GDP pc in EU (average), and in Northern Macedonia (29,230 € vs. 4,763 €). This means that the 27% of average poor in EU live with up to 21,922 € yearly, and in Northern Macedonia 25% of average poor live with up to 3,572 € in PPP – which means 6 times less.
Looking at key factors contributing to the positive developments – in terms of regional development policy – one remains reluctant in offering a single clear answer. There is no doubt that project funding has played a role, but our econometric calculations indicate that the investment of 373.8 mil € over the period of 2009-2019 going into 2,247 projects (when measured as impact factor on the growth of GDP being 0.05) were primarily of a facilitating and enabling nature. If the 1% GDP commitment were fulfilled – bringing the total figure 5-7 times higher – in most cases, and depending on the choice of projects to be funded, the final impact, though certainly greater, would probably remain of the same – that is of primarily facilitating nature. The main reason for this assessment and comment is to emphasize that the function of development (not just growth creation) would have been stronger, had the public investment been focused more strongly on priorities, capable of changing the structure of regional, and consequently national economy. These priorities, however, were unfortunately described in the National Development Strategy, as well as in Regional Development Strategy in a rather generic fashion. And it should be emphasized that the quality of any strategy depends largely on the proper selection of priorities and actual focus on these during implementation.
Looking at where the investment funds have been directed in terms of setting priorities, it is important to point out that during the period 2009-2018 among 1,562 projects funded by line ministries, 80% of them were in the following three priorities categories: 1.7 environment (37%), 1.5 creating competitive advantage (26%), and 1.4 raising quality of human capital (16%). From the second category of priorities the funded projects followed only two priority areas: 2.2 integration of urban and rural areas (50%), and 2.4 raising level of social development (50%).
The above structure gives the general picture, and indicates where the actual priorities were positioned. There was not a single project in priority 1.1 (promoting economic growth), and the smallest number (only 20 projects) in 1.2 (developing contemporary and modern infrastructure). It is true that most of the priority areas are labelled rather generically, so there is an element of arbitrariness, under which area an individual project has been classified. For comparison, the EU priorities defined in the EU Territorial Agenda 2020 focus on 4 priority areas:
- promoting polycentric and balanced territorial development;
- integration of cities, rural and areas with specific needs;
- global competitiveness;
- improved connectivity for individuals, communities and enterprises.
The Ministry of Local Self-Government has funded in the same period 682 projects, but of a different nature: over 60% of projects were in the priority 1.2 - Infrastructure, and 20% in priority 1.1 - Promoting economic growth.
The second strategic objective, greater demographic, economic, social and spatial cohesion between and within the planning regions was executed almost exclusively into priority domain 2.2 - Building functional spatial structures for better integration of urban and rural areas in the planning regions were addressed by 90 % of the projects.
The other strategic priorities 2.1; 2.3; and 2.4 were addressed by only 10 % of projects. The priorities 2.5; 2.6 and 2.7 were not addressed at all.
It was difficult for the research team to make a relevant and valid evaluation of the effectiveness and efficiency of the projects. The official reports of the Councils of the planning regions record the implementation and delivery of the projects by three different approaches.
The first approach records the projects by the following elements:
- medium-term objective;
- “measure” (“merka”);
- type of activities;
- number of activities.
The second approach records the projects by the following elements:
- medium-term objective;
- output results.
The third approach records the projects by the following elements:
- the main partner;
The highest number of projects were funded in the Southwest region, 14%, followed by the East region also 14%, and in Pelagonia region with 13%. The smallest number of projects were allocated into Skopje region with 11%. The average total number of projects per region was 162.75, with a standard deviation of 9.78 projects, and a coefficient of variation of 6.01%, which also indicates that the allocation of the projects was executed equally and with a consistently balanced approach.
Within the project also an online survey was conducted, and some interesting findings came out of the replies of 156 respondents. On the question of the main reasons for lack of regional balance (among 8 options) most respondents ranked highest: “The ineffective development strategies and plans”, followed by “Quality of infrastructure”, and “Conflicts and differences between political parties and absence of national interest.” Among the priority expectations from cohesion policy the respondents selected: “Stable growth and socio-economic development”, “Better standard of living”, and “Better education, health and other services”. Particularly as there were rather small differences in most frequent answers among regions, age groups and ethnic background, messages from the survey should not be ignored.
In order to present an overall picture, based on the conducted research, the following points should be singled out – make no mistake, that these types of observations could also be addressed to most European countries:
- a gap between the generally declared intention of the government to reduce regional disparities, and the introduced implementation policies and instruments has been identified - reflected particularly in:
(a) the volume of funding, having failed the adopted 1% GDP;
(b) lack of harmonization between Regional Development, and National Development strategies;
(c) Ministry of Local Self-Government was left in a secondary position, except partly in project funding;
(d) no special economic instruments were developed in favour of poorer regions;
(e) reporting on projects implementation has been reduced to a sheer and incomplete formality.
- this gap could be interpreted in the context of modest public awareness and insufficient political will to make reduction of regional disparities a top national priority, and limited interaction of government/administrative bodies (including National and Regional Councils) with various segments of interested public, including business community, and insufficient communication activities – presenting the broader benefits of regional development policies for the country's future.
- the North Macedonian government has not designed national development strategies sufficiently in line with the modern, innovation-led development paradigm, neither decided for heavier emphasis on development priorities linked to the natural advantages of the country, with undisputable potential for agriculture and tourism. By applying proper analytical tools, like SWOT and PESTLE, it should become evident that going into this direction is absolutely necessary.
- System of priorities for providing public funding for regional development projects has been formulated rather generically, not reflecting sufficiently the target of reducing regional development disparities. Therefore it allowed regions to receive public funding for projects not necessarily of this nature, though they obviously represented priority needs of the respective region/municipality.
- Human capital development deserves more attention and it is not just about mobilising half of the young population to obtain university diplomas, but intensely closing the skills gap, by preparing people for the jobs of tomorrow (not yesterday). This should be more closely coordinated with regional development policies, otherwise educated young people move to Skopje, or even worse, emigrate – creating a double loss for their own region and the country.
- Spatial and urban planning has not been fully and properly integrated into the Regional Development Strategy and its implementation – from national to local level. Advanced countries are making great advantage of optimal space and urban planning and management.
- An important instrument to support reduction of regional disparities is a transparent concept of polycentrism. Although this may create some concerns in multi-ethnic countries, if done properly, it does not have to create the impression of territorial divisions, but should serve in building trust between ethnic communities - living within a country, and sharing in processes of governance. Opening some ministries outside Skopje in such constructive spirit could serve confidence-building purposes.
- As the planning regions are becoming increasingly an organic entity for addressing all aspects of socio-economic development: from education to infrastructure, it might be advisable to give them more conventional names, using the names of relevant mountains, lakes, etc. The geographic denominations appear somewhat artificial, and it might be even advisable to consider a reduction of the number of regions – making them more sustainable and easier to balance.
Recommendations and proposals
Notwithstanding important results achieved within the first Strategy of Regional Development 2009-2019, the authorities in North Macedonia are increasingly aware that regional disparities, and particularly the excessive domination of the capital Skopje –– remains one of the country’s key challenges for the future. The new government should be in the position to approach the problem of regional disparities with fresh energy and with reinforced motivation for being successful in this strategically important domain.
The lessons learned are expected to be taken seriously by the next government, accepting both successes and shortcomings, and making an effort to design the next Strategy in such a way that in 2029 North Macedonia will be an EU member state with very good record in social-economic, spatial and demographic cohesion. This will not only make it a multicultural community with citizens, living together happily, but also representing a successful and highly competitive economy, taking full advantage of its natural assets and being specialised accordingly.
On this basis, and with successful regional development, North Macedonia can become a country without emigration, with human capital highly appreciated, informal economy marginalised, and where relations between Macedonians and Albanians are in full harmony. It could be an inspiration and a model to other multicultural countries in the region. For this to happen the leadership will have to introduce a very inclusive political environment, encouraging to lead the process of identifying national development priorities, linked to the great natural assets for agriculture and tourism. Contrary to some outdated economic concepts – incompatible with the post-industrial age - these are areas with great value-added potential, since people around the globe are increasingly interested in ecologically sound agricultural products, and wish to travel to places where they have never been before, receive good service, and enjoy excellent food and wine. North Macedonia fulfills all of these criteria.
Under which conditions can North Macedonia benefit from a stable and balanced socio-economic development – possibly with average annual GDP growth around 4% in the next decade? In summary, these are the five conditions:
- building human capital and selecting leadership at all levels fit for the 21st century knowledge economy, by modernising the education and training system and shifting emphasis from conventional knowledge to modern skills and competencies;
- making innovation and entrepreneurship the key values and pillars of society, by creating a business-friendly environment, and developing an effective innovation ecosystem (reaching gross expenditure for R&D of 1.5 - 2% of GDP by 2029);
- encourage specialisation of the economy in modern priorities, self-imposing in the country being richly endowed for agriculture and tourism, while remaining open for foreign investors – but preventing foreign investors to take unfair advantage of lower local salary levels;
- insist on the rule of law, fight corruption and pay politicians and civil servant decently, and insist on their accountability;
- maintain a transparent, constructive and fair inter-ethnic environment.
The new government has a historic opportunity to adopt such an ambitious national program, which will meet lots of approval also in the EU, and will encourage it, as well as other international donors, to financially support such an effort – actually without many precedents in Europe. Even more, North Macedonia – located in the center of the region of South-Eastern Europe – can soon become an interesting partner for other countries around the world, such as: Turkey and even China, as well as Australia, Canada and US – the latter three thanks to large Macedonian communities. Undoubtedly, all this will expedite also the entry of North Macedonia into the EU, which should happen during the implementation of the next Regional Development Strategy, 2020-2029.