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AUTOMOTIVE COMPONENTS SECTOR IN MACEDONIA

October, 2009

MACEDONIA THE PROPOSITION

From Macedonia you can more cost effectively serve Western and Central European customers while capitalizing on the surge in vehicle production in Turkey, Romania and Serbia. Moreover, your growth in Macedonia will not be constrained by skilled labor shortages. The recent decisions by Johnson Controls, Johnson Matthey, Montupet, Iskra, V.Orlandi and Borteknik Otomotiv substantiate this proposition.

Why Macedonia?

Competitive Location

Excellent Infrastructure

Competitive Workforce

Investment Incentives

Investor friendly Government

Higher Profits & Increased Competitiveness

LOCATION

Location and Transport Infrastructure

Two Pan-European corridors:


- East-West Corridor 8, and - North-South Corridor 10

Road network: 9,205 km Railway network: 900 km Two international airports:


- Skopje - Ohrid

International ports*:
- Thessalonica (Greece) : 250 km - Durres (Albania) : 300 km
Macedonias closeness to the rapidly growing automotive manufacturing base in Central and Eastern Europe and Turkey, makes it an ideal location . The geographical proximity to these markets allows low distribution costs and just-in-time product delivery from Macedonia.

* Distance from Skopje

POLITICAL AND ECONOMIC OUTLOOK

Political and Economic Outlook

Political, monetary and macroeconomic stability Strategically located for future expansion First country in SEE to sign a SAA with the EU in 2001 EU and NATO candidate country FTAs with numerous countries Business oriented Government (re-elected in June 2008 with a 4 year term) Welcoming and decisive government ready to serve investors

Improved Business Climate Regulatory Guillotine Flagship project for improving the countrys business environment Silence is consent, Cutting red tape Reduced administration fees, time limits, documentation "One-Stop-Shop" system for company registration "One-Stop-Shop" for cross border trading Modernized electronic real estate cadastre Foreign companies and foreign citizens can directly own construction land in Macedonia Electronic payment of taxes A cut in social contributions Liberalization of visa regime

Foreign Investment Regime

Macedonian Constitution guarantees fair treatment of foreign investors Complete protection of the ownership rights of foreign investors Republic of Macedonia is member of MIGA (Multilateral Investment Guarantee Agency) Investment protection treaties with numerous countries 100% foreign ownership of a company allowed No restrictions for repatriation of profits

Economic Indicators
REAL GDP GROWTH RATE (%)

INFLATION
5.9 4.1 2.8 Year 4.1 4.0 5.0

Low inflation: avg <2% annually over the last 10 years


(2003: 1.2%, 2004: -0.4%, 2005: 0.5%, 2006: 3.2%, 2007: 2.3%, 2008: 8.3%)

2003

2004

2005

2006

2007

2008

EXPORT BY YEAR (US$ bn)

CURRENCY
3.9 3.4 1.7 2.0 2.4

Macedonian Denar pegged to the DM/


for the last 10 years (1= MKD 61.3)
2008

1.4

Year

2007

FDI BY YEAR (US$ m)

AVERAGE GROSS SALARY IN 2008


699.1 598.5

430 per month

323.0 117.8 Year 2003 2004 97.0 2005

424.2

2006

2007

2008

Accolades

3rd BEST REFORMER IN THE WORLD


World Banks Doing Business 2010 Report

4th BEST REFORMER IN THE WORLD


World Banks Doing Business 2008 Report

BEST EUROPEAN ECONOMIC DEVELOPMENT REGION 2008


Institute of Transport Management, UK

BEST CONSECUTIVE REFORMER OVER THE LAST THREE YEARS IN SOUTH EASTERN EUROPE
Based on the World Banks Doing Business Report 2008 , 2009 and 2010

Ease of Doing Business


Global Rank

OPERATING COSTS and TAXES

Average Monthly Gross Salary


Average monthly gross salary in selected countries of Central and Eastern Europe in 2008

Average gross monthly salary change y-o-y in %


Source: The Vienna Institute for International Economic Studies (wiiw), Calculations * Average gross monthly salary in manufacturing industry

Average Monthly Gross Salary

Utility and Construction Costs Utility prices for industry are among the lowest in Europe:
Electricity: 3.85/100 kWh Natural gas: 0.385/Nm3 Water: 1.07/m3 (Skopje area)

Construction Costs
The average cost of constructing a factory building shell is around 170-225 per m2 the sale price of state owned construction land for industrial and production facilities varies depending on the location, from 5 to 40 per m2.

Transportation Costs and Delivery Times from Skopje

Source: Kuehne-Nagel

Unbeatable Fiscal Benefits


10% Corporate & Personal income tax (among lowest in Europe) 0% Tax on retained earnings Double taxation treaties with many European countries 0% tax for operation in a Technological Industrial Development Zone Real estate taxes at 2% - 5% VAT at 18%, with 5% on specific items FTAs with EU, EFTA, CEFTA countries; Turkey and the Ukraine; providing access to over 650m customers
Personal Income Tax ( highest rate )
MACEDONIA* 16% + 4% 16% 19% 19% 20% 20% 20% 25% CZECH R.* ROMANIA* SLOVAKIA UKRAINE POLAND TURKEY HUNGARY CROATIA 10% 15% 16% 19% 30% 32% 35% 36% 45% 10% CZECH R. MACEDONIA TURKEY CZECH R. ROMANIA SLOVAKIA HUNGARY UKRAINE CROATIA POLAND

Corporate Income Tax


MACEDONIA* HUNGARY ROMANIA POLAND SLOVAKIA CROATIA CZECH R. TURKEY UKRAINE
*Flat rate

General VAT Rates


18% 18% 19% 19% 19% 20% 20% 22% 22%

Source: PriceWaterhouseCoopers (Taxes at a glance 2009), National Investment Promotion Agencies

Social Security Contributions


Macedonia - Social Security Contributions
2008 Current 2010 2011
Pension insurance
19% 21.2% 9.2% 1.6%

32%

7.5%

1.4%

27.9%

16.5%

7%

1,2%

24.7%

15%

6%

1%

22%

Health insurance

Employment insurance

Comparison - Social Security Contributions


Macedonia Turkey Poland Croatia Czech R. Slovakia Hungary Ukraine Romania
Source: PriceWaterhouseCoopers (Taxes at a glance 2009), National Investment Promotion Agencies

27.9% 33.5% 31.2% - 34.1% 37.2% 45% 48.6% 49% 40.4% - 53.3% 41.2% - 52.4%

LABOUR AVAILABILITY

Sustainable Work Force Supply


45% of population under 30 High intellectual capital > 35% increase in total number of undergraduate degrees in 2007 compared to 2006 > 85% of high school graduates enrolled in universities in 2008 > Multiple vocational high schools in each city Tailor-made training programs through Vocational Schools or Universities

6% of GDP spent on education Number of Graduates in High Schools in Technical Fields Number of Graduates in Colleges and Universities in Technical Fields

Expert Automotive Academic Base


Labour Availability

specialised engineering vocational secondary schools, currently enrolling over 22,000 students over 9,000 students studying automotive-related engineering branches on university level
Technical Education Centers

Source: Ministry of Education and Science of the Republic of Macedonia

Readily Available Labour Force


Unemployed Persons with Technical Skills

Source: Employment Service Agency of the Republic of Macedonia (data for 2008)

Excellent Language Skills


Every child in Macedonia begins to learn English in the first grade of primary school Two foreign languages are mandatory in high school: English, and either German, French, or Russian English is also taught for two years at University level Regional languages (Serbian, Croatian, Bulgarian, Albanian and Greek) are widely spoken
Foreign Languages Studied Students in Primary Schools, % of Total Students in Secondary Schools, % of Total

English French German Italian Russian Turkish

91% 22% 13% 1% -

94% 32% 21% 2% 2% 1%

Source: State Statistical Office of the Republic of Macedonia (Education 2008/2009)

AUTOMOTIVE COMPONENTS SECTOR IN MACEDONIA

MACEDONIA The Emerging Hub for Automotive Components Production

Existing engineering and manufacturing tradition Legacy of skills available to new investors Component production started 1960s to supply Zastava, Serbia State-sponsored customized training programs Companies primarily supplying aftermarket Most companies have ISO 9001/TS 16949 quality certification Markets are Europe, Russia, Turkey, Africa, etc. Strategic location to serve automotive plants in Central Europe and Turkey

Automotive Components Production

Developed Automotive Supplier Base

Automotive Components Export


Growth Index of Automotive Components Export from Macedonia (2002=100)
250 200 150 100 50 0 2003 2004 2005 2006 2007

Export of Automotive Components by Type

Export of Automotive Components by Country

Source: ITC UNCTAD / WTO, data for period 2007

PROJECT SCOPE $40m automotive components plant; 150 employees initially increasing to 500; First phase production mainly integrated circuits for German and French markets. CONSIDERED COUNTRIES Macedonia, Poland, Romania and Slovakia

WHY MACEDONIA The availability of skilled engineers; The increase in costs over the next couple of years will be significantly lower in Macedonia than in other CEE countries.; Macedonia offers the company just-in-time delivery and minimal freight costs.
Philippe Simon Johnson Controls' VP of global electronics

Cornerstone laying ceremony, 05.10.2006

Official opening 12.12.2007

Johnson Controls - Skopje 12.12.2007

The Macedonian government has been extremely committed and I would like to thank its officials for their work in supporting this effort.
John Barth Chairman and CEO Johnson Controls

Its one of the best experiences we have had in Europe


Richard G. Klaver JCI Project Manager

PROJECT SCOPE Up to 55m automotive components plant (in phase 1); 150 employees in phase 1. CONSIDERED COUNTRIES Reviewed: Bulgaria, Croatia, Estonia, Latvia, Lithuania, Slovenia, Romania, Ukraine, Czech, Poland, Hungary, Slovakia; Initial choice: Czech Republic.

Macedonia a Late entrant

WHY MACEDONIA Macedonia scores best for labour, slightly lower on logistics; Labour availability looking very good for Skopje; Our experience has been positive, Invest Macedonia, Ministry and others superb; This will be JMs mega-European plant and the largest ever single investment project.
Colin Jaffray, Director, Strategic Planning, Johnson Matthey PLC, Presentation Skopje June, 2007

Signing of the Memorandum of Cooperation between Mr.Jaffray, Director, Strategic Planning and Prime Minister Gruevski March 2007

Johnson Matthey

SIZE OF INVESTMENT
Upwards of 60M 10Ha parcel in TIDZ Skopje 1 500 employees Aluminum cylinder heads Supplier to: Ford, PSA, Renault

CONSIDERED COUNTRIES
Reviewed: Bulgaria, Romania, Czech Republic Initial choice: Bulgaria
Signing of the Memorandum of Understanding between Mr. Majus, CFO and Prime Minister Gruevski May 2008

WHY MACEDONIA
Available, qualified labour and stable competitive wages Tax benefits in TIDZ Skopje 1 and Government incentives Faster decision-making, less bureaucratic hassles Decisive Government willing to win!

SIZE OF INVESTMENT
- 25M - 4.7he parcel in TIDZ Skopje 1 - 500 employees - Signed MoU with the Macedonian Government in the sphere of electronic automotive applications

Signing of the Memorandum of Understanding between Prime Minister Gruevski and Mr.Sesok, CEO May 2008

WHY MACEDONIA

- The measures the Macedonian Government took to improve the business climate - Excellent experience with the current administration

SIZE OF INVESTMENT - 10M


- 120 employees in initial phase - world leader in production of coupling systems for trucks - Supplier to: Iveco, Mercedes, MAN, Volvo

Signing of the Memorandum of Understanding between Mr.Machelin and Prime Minister Gruevski Mr.Machelin September 2008

WHY MACEDONIA
- attractive business environment, labour quality and low tax rates

SIZE OF INVESTMENT - 20M


- 100 employees in initial phase - production of aluminium profiles for the automotive and construction industries

WHY MACEDONIA
- benefits in the TIDZ Skopje 1 - competitive labour

Signing of the Memorandum of Understanding between Mr.Atik and Prime Minister Gruevski Mr.Atik September 2008

TECHNOLOGICAL INDUSTRIAL DEVELOPMENT ZONES (TIDZs)

Investment Opportunities

Technological Industrial Development Zones - TIDZs

Investment Opportunities

Technological Industrial Development Zones - TIDZs Infrastructure Benefits


Electrical grid outlet, new power substation in construction Telecommunications network Central heating Lighting Fire safety system - Airport Fire Department minutes away Security monitoring system Water, sewage and water treatment plant Gas pipeline, etc.

Investment Opportunities

Technological Industrial Development Zones - TIDZs Fiscal Benefits


TAX Corporate tax Personal income tax Value added tax Property tax Excise taxes TAX RATES TIDZs 0%
for the first 10 years

Outside TIDZs 10% 10% 18% Up to 1% 5% - 62%

PRODUCT Raw materials Equipment

CUSTOMS DUTY TIDZs

Outside TIDZs Up to 15% 5% - 20%

0% 0%

0%
for the first 10 years

0% 0%
for 10 years

0%

Free connection to utilities Subsidy of up to 500,000 towards building costs Green Customs Channel available at border for rapid export from Zone to EU countries Land in a TIDZ in Macedonia is available under long-term lease for a period of up to 99 years

Already in the TIDZ Skopje 1

INVEST MACEDONIA

Invest Macedonia at Your Service

One-stop shop and project management approach VIP Investment tour Locations HR Companies, construction, real estate, tax advisory and consulting Universities and Reference Company visits Creating linkages with local and central Governments Navigate the legal requirements Ensure success!

Thank You

AGENCY FOR FOREIGN INVESTMENTS OF THE REPUBLIC OF MACEDONIA

Nikola Vapcarov 7 1000 Skopje Republic of Macedonia Tel: ++ 389 2 3117 564 Fax: ++ 389 2 3122 098 e-mail: fdi@investinmacedonia.com web: www.investinmacedonia.com

APPENDIX

Developed Automotive Supplier Base

COMPANY
Aluminium and Zinc Foundry Resen Foundries MZT Learnica TCG LEARNICA AMAK SP SIPO Seat Belts and Seat Belt Parts VELMAKS EUROTEHNIKA PRUTEX BRAKO Buses and Minibuses and Vehicle Bodies Upgrade MLAZ Prikolki VIZABUS SANOS BUSKAR KGL Systems

CITY
Resen Skopje Ohrid Ohrid Ohrid Ohrid Ohrid Demir Hisar Veles Bogdanci Skopje Skopje Skopje Skopje

PRODUCTS
Aluminium pressure-die castings for the needs of automobile industry Clutch parts Brake components and anti-vibration products for OEM Seat belts and restraint systems, door latches and retention components, rear view mirrors, window regulators Seat belts and seat belts parts Seat belt parts Seat belt parts Textile for seat belts, aluminium and zinc parts used for seat belts, all kind of springs with diameter of wire up to 5 mm Cargo trailers Trailers, agricultural machines and freight vehicles Minibuses, bus seats and accessories Buses and coaches Buses and coaches Vehicle body upgrade

Developed Automotive Supplier Base

COMPANY
Johnson Controls HI-TECH Corporation EIN-SOF Elko Elektromehanika STD Other Automotive MZT Oprema za vozila Parts RUEN International Technologies SIGURNOSNO STAKLO (IZOSTAKLO) TE-TE PLAST VESNA SAP Machine Parts RDV Faber Alatnica "SVEMEK" Factory for railway vehicles "Veles" Railway MZT HEPOS Vehicles and Components MZT EKA Netcetera

CITY
Skopje Skopje Skopje Skopje Printed circuit board components

PRODUCTS

Multi-layer printed circuit boards for automotive, communication and electronics Automotive diagnostic software Auto electrics

Nov Dojran Shock absorbers for trucks and buses Skopje Kocani Prilep Skopje Probistip Skopje Skopje Veles Skopje Skopje Skopje Springs Clutches (clutch cover, clutch disk and release bearing), gears and gear elements for three types of vehicles: passenger cars, heavy duty (trucks and buses) and tractors Bent tempered and laminated glass for needs of automotive industry (all kinds of windscreens) Moulds and plastic parts Starter batteries Different kinds of tools and rear lights Pneumatic and hydraulic parts by design: cylinders, valves, screws, implants, and other machine parts Freight and passenger cars Pneumatic and brake systems for locomotives, freight and passenger cars Rail vehicle brake digital testing equipment, pressure and speed sensors Software for railway traffic management

Automotive OEMs are 1 day away from Macedonia, presenting profitable opportunities for Automotive suppliers
EU Border as of 2007
Macedonian FEZ Locations HMC-Kia, Zilina (2006) HMC-Hyundai, Novosice VW-Skoda, Mlada Boleslav Toyota/PSA, Kolin PSA, Trnava (2006) VW-Skoda, Bratislava LIAZ, Velki Krtis VW-Audi, Gyr, (Engines) Opel/GM Suzuki, Estergom Renault-N, Novo Mesto Ford, VW, Sarajevo Zastava, Kragujevac
MKD ALB GRC CZE SVK HUN MDA ROM UKR POL BRD BLR (2008) LTU LVA Source: Government research

EST

VW, Poznan GM, Zeran (Warsaw) GM, Gliwice Fiat, Tychy Daewoo, Uzhgorod ZAZ, Zaporozhje AutoVAZ, Kherson Renault-Nissan, Pitesti Ford, Craiova
BGR

Macedonia is a competitive destination for automotive suppliers serving todays OEMs

12 50
AUS

SLO

km
HRV BIH

SER

7 5 0 km

Ford, Otosan, Glck Toyota, Sakarya Oyak-Renault , Beykoz Fiat Tofas, Bursa

Automotive Tier 1 suppliers are moving south-east in search of competitive locations in EEU
EST

LVA LTU BLR

EU Border as of 2007

POL BRD CZE

SVK HUN MDA

UKR

Tier 1 Automotive suppliers are setting up operations in Macedonia: Johnson Controls and Johnson Matthey, with many others adding Macedonia to their country lists

Macedonia is viable and competitive alternative to typical EE countries for automotive manufacturers and suppliers offering respite from fiscal, labor and logistical pain points

12 50
AUS SLO

km
HRV BIH

SER

ALB GRC

7 5 0 km
MKD

ROM Electronic components Electrical components Mechanical components BGR Source: Mc Kinsey "Motorfactbook" and Govt research