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REPUBLIC OF MACEDONIA IT Industry INVESTORS’ GUIDE 2007


Denmark

Sweden

Russia

Lithuania Belarus

Netherland Belgium

Germany Czech Rep.

France

Austria Switz.

Slovakia

Ukraine 1000km

Hungary

Romania

Slovenia Italy

Spain

ROAD DISTANCES

Poland

road distances

U.K.

MACEDONIA

500km

Croatia Bos. & Herz.

Serbia

Albania

Bulgaria

Skopje

Macedonia Greece

Turkey

Cover motif: An artistic view of embroidery from a traditional Galicnik wedding dress. Galicnik extends on the falls of Mount Bistra some 110 km from the capital city of Skopje. Each year, in the beginning of July Galicnik hosts a traditional Macedonian wedding as a reminder of the past. The sound of drums and trumpets echoes through Mount Bistra and the valley of the river Radika, while each tradition and ritual is followed. Guests dance dressed in traditional clothes and the bride’s dress is decorated with traditional Galicnik motifs. The short black lines in it are rhythm; the red is shriek of zurla (traditional musical instrument) and the gold – joyous sparkle in the dancers’ eyes.


Macedonia is now one of the best locations in Europe in which to invest in the IT industry. It offers: 1 | Duty free access to markets of over 650 million people 2 | A skilled and cost effective workforce 3 | A strong work ethic 4 | An excellent telecommunications infrastructure 5 | Excellent language skills, especially in English 6 | A good track record in IT products and services 7 | Low corporate taxes 8 | A Government highly supportive of foreign direct investment (FDI) In short, it provides all of the ingredients to give potential investors in the sector the confidence that Macedonia makes an excellent choice for their investment.

1 | Access to Markets Macedonia’s free trade agreements offer duty-free access to a market of 650 million people in EU’s 27 countries, South Eastern Europe and Turkey. The geographical proximity of these markets allows low distribution costs and prompt delivery of IT products and services from Macedonia. Because of their lower state of development, spending on IT products and services is at a much lower level and growing significantly faster in South Eastern European countries compared to Western Europe. The South Eastern European IT market is worth €4.5 billion. The average IT expenditure in 2005 was only €65 per capita compared to an average of €550 per capita in Western Europe. South Eastern European countries represent an emerging market growing at 10 to 15% per annum compared to around 4% per annum in more developed markets in the EU. These markets are ‘next door’ to Macedonia and represent an excellent opportunity for investors in the sector to exploit.

2 | A Skilled and Cost Effective Workforce A Good Supply of People The Macedonian IT industry is growing at some 15% per annum. It has a core of well qualified and experienced staff with over 2,000 people employed in IT companies. There are also a large number of IT personnel employed in non-IT companies bringing the total complement of IT people to around 3,000 to 4,000.


Employment in IT industry 9% Non-ICH

30%

9%

Programmers and software engineers

Network design and administration

11% System integrators

12% Database design and administrattion

12% Sales and marketing

17% Technical support

The Macedonian Government, as well as the Macedonian universities, are following the growing demand by increasing the number of IT graduates. In line with the Government’s policy of developing the sector, the number of IT graduates will increase by 55% in 2008 compared to 2005, that is to almost 900 graduates. A number of the leading multi-national IT companies are introducing their certification programs to the universities. For example Cisco and Microsoft certification is already offered as an option on a number of courses. Some private companies also offer IT training and certification programs. CISCO has arranged for the CCNA (CISCO Certified Network Associate) programs to be run as an optional subject in the Natural Sciences and Mathematics Faculty of Cyril & Methodius University, in the Technical Faculty of Bitola University, and in the American University. The course is also run at private IT training companies.

Competitive Costs IT labor costs are competitive with those in the region and are almost one fifth of the average cost in EU. The average salary for IT professionals ranges from €350 per month for new graduates to €900 per month for experienced managers. With high unemployment running at approximately 36%, these costs are relatively stable with average salaries increasing by about 4% per annum over the past five years.

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3 | A Strong Work Ethic Macedonia’s strong work ethic and excellent industrial relations record makes for an efficient, productive and cost effective workforce for the IT industry.

4 | 4 An Excellent Telecommunications Infrastructure Macedonia’s telecommunications infrastructure is a modern, 100% digital network and is one of the most advanced in Eastern Europe. Presently, fixed telephone services are offered by two companies, while mobile telephony is in constant development. Two mobile operators provide extensive services, and a third mobile operator entered the market in 2007. Macedonia’s numerous Internet providers enable easy and fast Internet access, including national and international voice and data services and countrywide Wi-Fi coverage, an area in which Macedonia has a leadership position (in 2005 Macedonia became the world’s first wireless Internet country). The country has one of the highest rates of Internet usage in the region, with nearly one third of the population regularly using the Internet. The country’s laws relating to telecommunications are generally in line with EU regulations. The industry is regulated by an independent telecommunications regulatory agency which reports to parliament and which is liberalizing the market in order to further increase competition. A comparison of the cost of international calls to a number of countries in the region concluded that international calls from Macedonia are in line with most of the countries in the region.

5 | Excellent Language Skills Macedonia’s central location in South Eastern Europe and its history means that its people have traditionally spoken more than one language. The country is on the traditional trading routes between East and West. It has a long history of dealing with outsiders and learning their languages. There is a plentiful supply of people who speak the regional languages, such as Albanian, Bosnian, Bulgarian, Croatian, Serbian, Slovenian, Turkish and Greek. English is also widely spoken with children starting to learn a foreign language at 10 years of age; most choose English. The result is that English is widely spoken by the country’s young well-educated population. A number of Macedonian based software companies which supply export markets already operate in English. A USAID funded study found that 73% of IT students are proficient enough in English to “have a technical conference call on the telephone”.

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6 | 6 A Good Track Record in IT Products and Services Companies are Already Doing It IT products and services represent an excellent opportunity in which to invest in Macedonia as the country has a good track record in developing and exporting in this sector. Of particular importance to investors is that Macedonia is among the countries with the strongest intellectual property rights legislation in Europe. A number of existing IT companies have been successfully growing and developing in Macedonia in recent years. For example, Seavus was established in Sweden in 1999 and in 2002 it moved its headquarters to the Macedonian capital, Skopje, where it now employs over 200 people. It was originally a custom software house but it is also selling its own products since 2003. It exports to Western Europe and the US and has offices in the US, Denmark, Serbia, Russia, Sweden, the UK and Latvia. Some of their clients are: Aspiro, Tele 2 Europe, Mediabricks, Hutchinson 3G, Sonofon, IKEA, Parkering Malme, KONE, Atlas Copco, IMP Group, Ericsson, Chevron, Airbus, Michelin, Bayer, Volvo, Honeywell, BP, Axxon Mobile, Orange and many others.

SEAVUS SOFTWARE DESIGN

“Seavus’s success lies in our flexibility in meeting the changing demands of the market. We offer services, products and knowledge that help people to meet changing requirements. Operating in Macedonia, as an excellent business environment, we have achieved fast growth and competitiveness in the international market place.” Igor Lestar, CEO of the Seavus Group

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Further, Netcetera is a joint venture software company between a Swiss company and local partners in Macedonia. It specializes in developing networking solutions for blue chip financial services companies and other organizations. The Skopje operation is a development center for the Swiss company and is 100% export.

Local Partners Available A number of Macedonian IT companies have expressed a desire to become outsource software development suppliers and partners to software developers in higher cost locations around the world, particularly in the EU and United States. This represents another opportunity for investors who may not wish to set up their own operations but would prefer to have a strategic alliance with a local Macedonian company.

About the Local Industry Like many emerging markets, computer hardware accounts for around 60% of the IT market in Macedonia. Software and IT services each account for around 20% of the market. The packaged software market is dominated by multinational companies with Macedonian software companies accounting for 25 to 30% of the local packaged software market. Local packaged software companies are mainly involved in back office, content management, Internet and banking software. Software applications comprise more than half the packaged software market while Systems Infrastructure make up 30% and Applications Development and Deployment makes up the balance. Hardware and software support and installation are by far the largest segment of the Macedonian IT Services market, accounting for over 40% of revenues. Some of the hardware support and the vast majority of the software support is delivered over the phone as first and second level help desk support. Customization is the second largest segment accounting for 23% of revenues. System integration and IT Education/Training account for 18% and 8% of the market respectively.

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Contact Centers are an Area of Opportunity Advances in computer and telecommunications technologies and a rapid decrease in their prices have made centralization of business processes and contact centers technically possible and cost effective. A number of companies in Macedonia have demonstrated that it is both technically and commercially possible to run multilingual contact centers in the country servicing other countries in the region. For example, Euroanswers, a UK based outsource company with strong Romanian connections, recently established a multilingual call center in Skopje. It provides a help desk service on a 24/7 basis for a leading multinational hardware company to its clients in Slovenia, Serbia, Kosovo, Montenegro, Bosnia & Herzegovina, Croatia, Albania, Bulgaria and Macedonia. There are a number of contact centers in Macedonia dealing with the local market. The largest are for telecommunications and financial services. Macedonian Telecommunications has contact centers in Macedonia (in Skopje and Veles) providing Directory Enquiries, Fault Reporting and Internet Support on a 24/7 basis. Other telecommunications companies, such as OnNet, also have contact centers. Another company, Direkt, has a contact center providing visa support services to a number of foreign embassies based in Skopje. EOS Matrix and Mellon Solutions provide services for the financial services sector.

EOS CONTACT CENTER

“The combination of high technology with a good supply of qualified IT personnel was the right combination for the multilingual speaking environment in the EOS contact center. We have passed the communication know-how and the standards of the EOS group to the local business environment. We utilize Internet technology for worldwide communication. The logic is simple – we conduct a high standard business from a low cost Macedonian business environment” Stojce Taskov, Managing Director

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Macedonians are noted for their friendly disposition and this translates into highly effective customer service skills, a very important requirement for the contact service business.

7 | Low Corporate Taxes Macedonia has recently become a tax heaven in Europe. The Government has introduced a flat tax of 10% for corporate and personal income throughout the country, with a special incentive of a ten-year tax holiday in the country’s free economic zones (TIDZs) with no property taxes and no VAT or Excise Duties payable for 10 years.

8 | A Government Highly Supportive of FDI Macedonia’s new Government was elected in the Summer of 2006 with a mandate that includes making the attraction of foreign direct investment (FDI) a top priority. For inward investors there is an open door to two young and dynamic special Cabinet Ministers whose sole responsibility is the attraction of FDI. In addition, a new Agency, Invest Macedonia, has been established as the primary government agency responsible for winning new investment projects for Macedonia and for supporting the expansion of the existing base of overseas companies in the country. Invest Macedonia is committed to providing a professional service and a timely response to current and prospective foreign investors in Macedonia. The Agency assists investors to objectively evaluate Macedonia as a location for their investment project. It works with National and Local Governmental authorities to expedite approvals, where necessary, to enable a fast start-up of operations. Because “time is money”, the Government has introduced a one-stop-shop system that enables investors to register their businesses within 3 days. The educational system is willing to work with inward investors to ensure skills needs are met. For example, one of the major universities trained 165 students in Java and C++ in anticipation of the specific requirements of one investor.

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It is Time to Invest in Macedonia Companies assessing Macedonia as a location now will have first-mover advantage. LOWEST FLAT TAX ON PROFIT

10%*

LOWEST FLAT TAX ON INCOME

10%*

TAX ON REINVESTED PROFIT

0%

FAST COMPANY REGISTRATION

3 days

ABUNDANT & COMPETITIVE LABOR

€370/mo average gross salary

FREE ACCESS TO LARGE MARKET

650 million customers

MACROECONOMIC STABILITY

3.2% inflation

EXCELLENT INFRASTRUCTURE

Wi-Fi country

EU & NATO CANDIDATE COUNTRY

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INVEST MACEDONIA SERVICES Invest Macedonia is the primary Government Institution supporting foreign investment in the Republic of Macedonia. Our mission is to win new investment projects into Macedonia and support the expansion of the existing base of overseas companies in the country.

Our Message to Foreign Investors: » We will assist you in every way we can to help you to objectively evaluate Macedonia as a location for your investment project. We will work with you to understand your objectives and arrange an appropriate itinerary for you to visit Macedonia to address all of the issues that are important to you for the success of your project. » Should you decide to locate in Macedonia we will work on your behalf with National and Local Governmental authorities to expedite approvals, where necessary, to enable a fast start-up of your operations. » Should you wish to partner with a local Macedonian company we will help you to find suitable partners within the country with whom you can open an exploratory dialogue. » As your operation grows in Macedonia, we will continue to work closely with you to understand your requirements to grow faster and work to ensure that Macedonia can fulfill your business needs to facilitate that growth. » We are committed to providing you with an efficient and professional service and we will provide a timely response in all our dealings with you. » We are fully aware of your need for confidentiality and we assure you that all sensitive commercial information regarding your company and project will be treated by our staff with the utmost confidentiality at all times. » We will conform at all times to the highest standards of business ethics and we will not make promises to you that we cannot deliver.

Please visit our website www.investinmacedonia.com for further information.

Agency for Foreign Investment of the Republic of Macedonia Address: Nikola Vapcarov 7, 1000 Skopje, Republic of Macedonia Tel.: +389 2 3 117 564; Fax: +389 2 3 122 098 e-mail: fdi@investinmacedonia.com


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