Category: North Macedonia

  • The Buzz in North Macedonia: Interview with Tatjana Popovski Buloski of Popovski & Partners

    The Buzz in North Macedonia: Interview with Tatjana Popovski Buloski of Popovski & Partners

    “The legal market is pretty stable,” reports Popovski & Partners Partner Tatjana Popovski Buloski. “The traditional concept of running a legal business that’s been present in North Macedonia keeps it like that. Not to toot our own horn, but the formation of our firm – and the discontinuation of my partnership with Polenak – was the biggest shift last year.” 

    By contrast, Popovski says, the political situation in the country has been fairly tumultuous. “The current Government,” she says, “which consolidated its position in the middle 2017, began to produce some positive shifts with its policies sometime in 2018 and early 2019 – promoting some new investments and stimulating domestic growth, mostly in free economic zones.” Unfortunately, she says, the January 3, 2020 resignation of Prime Minister Zoran Zaev means that new elections are just around the corner, which she believes is likely to lead to another economic slowdown. “The anticipation of the outcome of the elections is likely to slow business down, but also, the Parliament will cease its session as of February until the elections are over.” This is especially problematic, she says, as there are “about 50 or so” acts in the legislative pipeline. “The political differences between the ruling party and the opposition are mainly to do with judicial regulation, but this inevitably spills over into other areas – which slows down the economy.”

    Still, Popovski says, the North Macedonian economy itself is doing fairly well in these circumstances, with the energy and IT sectors being most active. “These two areas are clearly booming,” she says, adding that recent tax reforms should impact this as well. “We’ve seen a return to a 10% flat tax that is most likely to affect the personal income of individuals. The recent ‘excursion’ – the introduction of a bracketed personal income tax – clearly failed, so this measure should likely result in positive economic outcomes.” 

    “On January 16, the Parliament passed the Strategic Investment Act which regulates Governmental investments and subsidies,” Popovski says, describing it as something that must be carefully studied and observed, especially given the scope of the Act and the economic impact it may produce. “Also, we’re expecting the NATO membership agreement to be ratified soon – our Government and Spain are the ones we’re still waiting on – but it should pass sometime this year,” she says. North Macedonia is also looking forward to receiving a start date for commencing negotiations for EU accession, but, according to her, “this is all up in the air, given our history with the EU accession process and how full of hurdles it’s been.”

    Finally, Popovski reports that North Macedonia is gearing up to join a recently-announced crowdfunding platform. “This is a most interesting project, based out of Estonia, with Croatia being a regional country set to participate as well. It is likely that once in action, it should attract a lot of domestic entrepreneurs seeking capital backing.” 

  • Tatjana Popovski Buloski Leaves Polenak to Launch Popovski & Partners

    Tatjana Popovski Buloski Leaves Polenak to Launch Popovski & Partners

    Former Polenak Partner Tatjana Popovski Buloski and several colleagues have left that firm to launch Popovski and Partners in North Macedonia.

    Buloski, who co-founded Polenak in 2007, is Managing Partner of the new firm, where she is joined by fellow partners (and former Polenak senior associates) Jana Dukovska Despotovska and Ognen Martinov, as well as lawyers Andrijana Volcevska, Anastazija Anastasovska, and Angela Milanovska. According to a statement on the Popovski and Partners website, the firm is “a modern, full-service law firm in the Republic of North Macedonia.”

    Jana Despotovska joined Polenak in 2015 after spending 11 years with the Pepeljugoski Law Office. Ognen Martinov spent the past seven years with Polenak.

  • Less is More Consolidation of the Macedonian Banking Market Improves Competition

    Less is More Consolidation of the Macedonian Banking Market Improves Competition

    The main characteristics of the Macedonian banking market are its small size and the relatively large number of players. According to the latest reports of the National Bank of North Macedonia, out of fifteen active banks, five have significantly higher market shares than the rest. The combined market share of these five biggest banks is 74.4%, with a significant discrepancy between the bank that owns the largest amount of assets (a market share of 22.7%) and the one with the lowest (a market share of 0.5%).

    In respect to the assets owned, eleven active banks majority-owned by foreign shareholders have a combined market share of 71.1%. The highest market share of these foreign-owned banks – 79.9% – is in the segment of loan activities.

    According to the National Bank’s Quartal Reports for 2017 and 2018, competition among banks, based on the Herfindahl-Hirschman Index, is shrinking. Indicators of the level of competition are the number of market players and the quantity of their market share. Due to the large number of banks with a small market share, the Macedonian banking market qualifies as a non-competitive environment. 

    Many believe that a non-competitive environment is not good for a country’s economy, as a competitive banking market lowers costs and extends the products portfolio for consumers and stimulates the banks to innovate. Thus, it comes as no surprise that the EBRD has highlighted the consolidation of the banking market as a priority in its Transition Report for North Macedonia 2018-19. The main benefit of the proposed consolidation would be a strengthening of the market, which should enhance the flow of goods and services in the country’s economy. 

    The need for consolidation of the banking market has been recognized by the National Bank of North Macedonia as well. The Governor of the Bank, Anita Angelovska-Bezoska, has stated that lowering the number of banks should increase competition in the market, thereby expanding the portfolio of products offered by the banks. 

    It is left to the National Bank of North Macedonia to determine the most appropriate measures to take in consolidating the banking market. In preparing its strategy to build up the national banking market, the National Bank will have to consider best practices in other countries, as well as the specifics of the Macedonian market. 

    The Bank must be careful, as the stability of the banking market is crucial and any instability may spread by contagion to the whole economy by distorting the interbank lending market as well as credit availability and could ultimately lead to recession. Some characteristics of the banking market, such as tight regulations, entry barriers, and strict supervision, differentiate it from other traditional markets. Therefore, the manner of encouraging competition within the banking market should be adjusted to its characteristics. 

    The most compelling argument for consolidating the banking market is the fact that larger banks are able both to diversify risks and utilize the economy of scale to reduce costs by increasing the size of the business. Studies show that less-competitive banking markets can be costlier and exhibit a lower quality of services, with a consequent reduction in the effective demand for external financing and discouraging economic growth. 

    On the other hand, other studies emphasize that in a non-competitive banking environment banks can form long-term relationships with borrowers and lend more, with a lower interest rate, than banks in a competitive environment, due to their belief that they will be able to extract a large portion of the future surplus of the borrowers. 

    It is obvious that theory alone is unclear about the consequence of reducing the number of banks and increasing competition in this market. As a result, the consequences of the consolidation and increase of competition in the banking market in North Macedonia will need, ultimately, to be assessed empirically, by using both theory and best practices from elsewhere in the EU.

    Marija Filipovska, Partner, and Dushica Bojkovska, Associate, CMS Skopje

    This Article was originally published in Issue 6.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • New Law on Phytopharmacy in North Macedonia

    It is no secret that North Macedonia is facing the issue of usage of products for plant protection which often fail to meet legal standards. Namely, Macedonian manufacturers producing agricultural products for human and animal nutrition often use unauthorized products which fail to meet safety criteria and may have suspicious origins. Although this issue is not as widely-discussed as air pollution in North Macedonia, it contributes significantly to the existing environmental pollution problem and has a huge impact on the health of plants, people, and the environment.

    In addition to poor ecological awareness, lower prices, and an “aggressive efficiency” justification, one of the reasons for this practice is the failure of North Macedonia’s current Law on Products for Plant Protection to tackle the issue. The current law is ineffective for several reasons, the main one being a poor system for control of the products for plant protection imported into the country. 

    This matter has already been identified by some NGOs and the trade organizations in the past and passed along to the Macedonian Ministry for Agriculture, Forestry and Water Economy. As a result, a new Law on Phytopharmacy is expected soon. 

    The new draft Law on Phytopharmacy has been approved by the Macedonian Government, and once adopted by Parliament, it will partially harmonize the legislation with EU acquis, either by direct implementation (e.g., the transposition of Regulation 1107/2009 on placing and advertising of phytopharmaceutical products and Directive 128/2009 on sustainable use of pesticides) or by providing the basis for indirect harmonization with other EU legislation (e.g., the regulation on collecting phytopharmaceutical usage data, marking phytopharmaceutical products, monitoring programs, using equipment for application of phytopharmaceutical products). The harmonization with the EU regulatory framework will be made only partially though, as some provisions in the EU code apply only to member states and will be transposed into North Macedonian law once the country becomes a member state, or is in a more advanced phase of accession.

    Overall, the new Law on Phytopharmacy is expected to assure greater protection of plants and further regulation and control of the use of pesticides and the application of non-pest control measures, which should ultimately result in a higher level of protection of human and animal health and overall environmental protection.

    The expectation for the higher efficiency of the new Law on Phytopharmacy is based on the following elements: (i) a more sophisticated regulation of the import, packaging, labelling, advertising, and placing on the market of products for plant protection (identified as phytopharmaceutical products under the new Law on Phytopharmacy); (ii) continuous monitoring of food safety, including animal food, in the chain of plant production; (iii) mandatory training and licensing of all legal entities and professional users of pesticides, as well as controlling, testing, and certifying of equipment for use on phytopharmaceutical products; (iv) introducing a phytosanitary information system electronically connected to all users that will enable the mandatory recording of the sale (by the legal entities) and the use (by the users) of phytopharmaceutical products; (v) a more detailed regulation of the emergency approval process for phytopharmaceutical products, as well as stricter rules for import of phytopharmaceutical products via border crossing points with access to adequate control facilities; and (vi) the placing of phytopharmaceutical products containing GMO and other living organisms on the market only if the product fulfils the conditions in the GMO regulation.

    By implementing these mechanisms, the authorities will have oversight and control of the import, sale, and use of phytopharmaceutical products and the equipment for their application, and they will be able to better educate all people that have contact in any manner with pesticides. Once the import and placement of phytopharmaceutical products on the market is harmonized with EU standards, the quality and the safety of the products should increase, and the placement of unauthorized phytopharmaceutical products on the market should be prevented. 

    Although there is no information on when the new Law on Phytopharmacy will be adopted by the Parliament, we hope that the urgent need for the law will be recognized by the Parliament and that North Macedonia will soon be able to reach EU standards in this area.

    By Marija Filipovska, Partner, CMS North Macedonia

    This Article was originally published in Issue 6.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

  • ODI Advises Rey Airlines on Winding-Up of Macedonian Joint Venture

    ODI Advises Rey Airlines on Winding-Up of Macedonian Joint Venture

    ODI has advised Turkish aircraft management and rental company Rey Airlines on the winding up of its Rey Airlines Europe LLC JV, which it established in partnership with a private individual in Skopje in 2016.

    The ODI team was led by Partner Gjorgji Georgievski and Associate Marija Serafimovska.

  • ODI Advises ATU Macedonia on Inter-Company Loan

    ODI Advises ATU Macedonia on Inter-Company Loan

    ODI has advised duty free shop operator ATU Macedonia on the granting of a EUR 0.5 million loan to its sole shareholder, Turkey-based ATU Turism A.S.

    According to ODI, “the advice included drafting of a bilateral unsecured loan facility agreement and advising on all regulatory aspects for the consummation of the transition.”

    The ODI team was led by Partner Gjorgji Georgievski and Associate Marija Serafimovska.

  • Polenak Advises EBRD on EUR 5 Million Loan to Aktiva

    Polenak Advises EBRD on EUR 5 Million Loan to Aktiva

    The Polenak Law Firm has advised the EBRD on its EUR 5 million loan to SME Aktiva, including transaction advice and security documentation in North Macedonia.

    Aktiva, founded in 1999, provides metal fabrication services, as well as engineering, supervision and construction services for steel construction facilities. The loan will be used to complete the company’s EUR 10 million upgrade of its production and coating capacity, including the installation of a new electro-coating line, which will help the company grow its metal processing segment and increase the export share of this business segment.

    The Polenak Law Firm did not reply to our inquiries about the deal.

  • Three New Partners at Polenak

    Three New Partners at Polenak

    Macedonian lawyers Tatjana Shishkovska, Aleksandar Dimic, and Metodija Velkov have joined the Polenak partnership, working alongside Managing Partner Kristijan Polenak.

    Shishkovska has been working with Polenak since 2005 after graduating from the Iustinianus Primus Faculty of Law at the University of St. Cyril and Methodius in Skopje. According to Polenak, Shishkovska “will continue leading the firm’s corporate work and will co-head the M&A, she and Finance department together with Kristijan Polenak.”

    Dimic, who heads the Polenak Real Estate and Litigation departments, began working with the firm immediately after graduating in 2005 from the Iustinianus Primus Faculty of Law in the University of St. Cyril and Methodius. 

    Velkov, who has been at Polenak since 2008, also graduated from the Iustinianus Primus Faculty of Law at the University of St. Cyril and Methodius. He will head the firm’s the Competition, Regulatory, and Compliance departments.

  • New Public Procurement Law

    After the announced reform of the public procurement procedures in 2017, at the beginning of this year the National Parliament adopted the new Public Procurement Law (“Law”). This new piece of legislation embodies the current EU public procurement rules and sets the legal landscape which is expected to result with transparent and efficient spending of public funds. The Law entered into force on 1 April 2019, but its applicability will be de facto prolonged in practice due to the start of the presidential elections.

    Change of the contract award criteria

    One of the key novelties is the introduction of the ‘most economically advantageous tender’ as main contract award criteria, instead of the current ‘lowest price’ criteria. In addition to harmonisation with EU legislation on this matter, this change is somewhat expected, since the previous practice showed that low prices do not always mean low costs at the end for the contracting authorities. At first glance, the biggest challenge this approach faces appears to be the implementation, since it will require significant knowledge of the respective goods and services in order to identify the best solution for the contracting authority. This will put into test the capacity and competences of the public administration to properly prepare tender documentation and evaluate the received bids.

    This replacement of the selection criteria is naturally followed with abandoning the mandatory use of electronic auctions. Instead, contracting authorities are no longer obliged to use an electronic auction in every public procurement.

    New types of procedures

    The new awarding procedures can be roughly classified into two separate groups, as simplified procedures (procurements of small value and a simplified open procedure) and complex procedures (competitive procedures with negotiation and innovation partnership). On one hand, the procedure for procurements of small value will be used for procuring goods and services with an estimated value of up to EUR 10,000 – i.e. for works up to EUR 20,000, while the simplified open procedure for goods and services up to EUR 70,000 – i.e. for works up to EUR 500,000. On the other hand, the other two procedures should serve for the more demanding and specific objects of public procurements.

    In addition to these four procedures, the contracting authorities can use: an open procedure; a restricted procedure; competitive dialogue; and a negotiated procedure with and without prior publication.

    Other novelties

    First of all, the contracting authorities are obliged to publish each January on the Electronic System for Public Procurements an annual plan for public procurements. This will enable the potential bidders to monitor the market timely and prepare themselves for upcoming tenders. In addition, they could contribute to the preparation of the tender documents by submitting comments during a technical dialogue. However, unlike the previous one, the new Public Procurement Law entitles only the contracting authorities to carry a technical dialogue on a voluntary basis, and does not contain a threshold or condition when this mechanism must be used in practice.

    Further on, some of the changes are intended to facilitate the participation of small and medium-sized enterprises in public procurements. For example, bidders are not required to provide bank guarantees in procurements of small value and with simplified open procedures. Also, a significant change that could impact these kinds of companies is the possibility for subcontractors to request direct payment from the contracting authority. If there is no direct payment agreed, the contracting authority has to receive, via the main contractor, a written statement from the subcontractor that its receivable is settled within 60 days as of the day of the payment to the main contractor.

    Starting from 1 January 2020, contracting authorities could use the so-called “reserved contracts”, which will be intended for entities whose main aim is the social and professional integration of disabled or disadvantaged persons, or for socially vulnerable groups and those who reinvest their earnings for this purpose.

    Capacities for participation

    The criteria for assessing the capacities of the bidders have been upgraded. As an example, until now only the bidders who were subject to a criminal court decision could not participate in a public procurement. The Law expands this ban also to the bidders whose members of management or supervisory bodies are subject to a final and valid court decision in the last five years for crimes such as: corruption, child labour, human trafficking, money laundering or terrorist financing, etc. Additional exclusion grounds are also added.

    As was the case with the previous public procurement regime, under the new Law, bidders can also rely on the capacities of other entities regarding economic and financial standings or technical and professional ability, regardless of the legal nature of the links between these entities.

    Protection in public procurements

    The competent authority to review any breaches of the new Public Procurement Law continues to be the State Appeals Commission upon Public Procurement (“State Appeals Commission”), an independent state body appointed by the National Parliament. With respect to the procedures before this body, a significant change is the possibility to submitting complaints by electronic means, via the Electronic System for Public Procurements, as well as the possibility for issuing interim measures. The decisions of the State Appeals Commission are subject to judicial scrutiny before the Administrative Court. To accelerate the review process, the Administrative Court now has to decide upon the complaint if it has annulled the decision by the State Appeals Commission.

    The information in this document does not constitute legal advice on any particular matter and is provided for general informational purposes only.

    By Ljupka Noveska Andonova, Senior Associate and Veton Qoku, Senior Associate Karanovic & Partners

  • The Buzz in Macedonia: Interview with Emilija Apostolska-Temov of Apostolska & Partners

    The Buzz in Macedonia: Interview with Emilija Apostolska-Temov of Apostolska & Partners

    “The talk about the entrance of two regional players – CMS and Schoenherr – onto the Macedonian market last year is still on everyone’s lips (among lawyers),” says Apostolska & Partners’ Founding Partner Emilija Apostolska-Temov in North Macedonia, who says that the presence of such law firms in the market will undoubtedly influence business, increasing both the quality of legal services and competition. “It also gives us a hint about investments coming in – such big law firms would not come without any plans,” she says. “They must know something that the rest of us will learn later. I think it will be a positive experience.”

    There’s news coming from elsewhere in the country as well, Apostolska-Temov says. She reports that, earlier this year, North Macedonia abandoned its old flat taxation system in favor of a new progressive system. While the consequences of the new law have yet to be seen, she notes that, at least for the moment, it “is seen as something not positive for businesses.” She sighs. “We were not given time to prepare, as the law was published and the implementation process started immediately.”

    The new law imposes higher costs for employers, Apostolska-Temov reports, which may affect foreign investment. For example, under the previous flat system, both personal income and income from other sources, such as royalties, sales, and capital gains, were charged at a consistent 10% rate. The new law introduces two tax brackets and rates, with annual salaries, royalties, income from professional services, and the sale of agriculture products exceeding EUR 18,000 to be taxed at an 18% tax rate. The law also introduced a new 15% rate on income from industrial property rights, capital gains, leases, and so on.

    According to Apostolska-Temov, the most affected group will be software development industry employers and employees, who, she reports, “get the highest salaries in North Macedonia.” In addition, she says, “in most labor contracts, regardless whether salaries are gross or net, employers are responsible for covering taxes in case of changes in taxation law.” As a result, she says, “a lot of money will come out from the pockets of employers – and the majority of them are foreign investors.” This, she notes, may make North Macedonia less attractive for foreign investors, as it will be “no longer a tax haven, and investors will move elsewhere.” 

    On the other hand, Apostolska-Temov notes, there may be a countervailing consideration for potential investors. She points to a growing interest of foreign investors in the cannabis growth and extraction segment, which she says is sparking discussion about the possibility for improved legislation on cannabis extraction. While there are no draft laws at the moment, she says that a change in the current law is possible, and she smiles that, “in such a small country as Macedonia, if there is smoke, there is fire.” If it does come, she says, it is likely to induce more investment. “The current regime is heavily regulated,” she says, as it sets out a long list of licenses to obtain and preconditions to be met. Still, she notes, “this did not prevent investors from finding North Macedonia a good destination for investment in this sector,” and she believes that a new and clearer law, with faster procedures, would be even better. 

    Finally, Apostolska-Temov reports, a new Law on Public Procurement was adopted on April 1, 2019, harmonizing North Macedonian law with several EU Directives. According to her, one particular element of the law, relating to contract-awarding criteria, attracted the most attention. “In the past low prices were the most prioritized criteria in tenders,” she says. “With the new law, procedures will be more transparent and efficient, and the ways public funds are allocated will be more effective.” She considers this a positive step forward, noting that “the lowest price does not mean the greatest quality.”