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Investing in Macedonian Tourism: an Unknown Commodity with Potential

November 26, 2003

By Christopher Deliso

A strangely captivating land of mountains and lakes, Macedonia slips beneath the radar of most businessmen and expats. This is a shame, because the little country has a lot to offer for the persistent and committed investor. While it does have problems commonly found in all post-Socialistic Balkan states, the lack of competition and generally poor efforts made so far mean that the savvy Western investor with imagination can easily capitalize on this largely undeveloped market.

However, this will require a certain type of investor. Capacity for large hotels is oversaturated already, and limited to the realistically profitable areas (Lake Ohrid and Mavrovo ski resort). Further, package tourism won’t work in this land-locked country. Nor is it desired by the locals, who’ve seen what has happened to neighboring countries because of large-scale tourism.

So what kind of investor will succeed in Macedonia? Most likely, the kind who is willing to tap into the growing worldwide industry of eco-tourism, cultural tours, and mind/body tourism. Here, Macedonia is ideal. The little country of 2 million inhabitants is made up of pristine, high-quality real estate- vast stretches of mountain wilderness, lakes large and small, river gorges and a bona fide “wine country.”

In addition, producers of mineral water, mountain teas and holistic herbal medicines can succeed. Western investors have a considerable edge here because the locals seem unaware of the possibilities, and have completely failed to promote their products and market them to Western tastes. With even a little clever marketing aimed at the natural health crowd in the West, foreign investors can create and control these industries.

Macedonia could also be a major cultural/historical draw, though this aspect of the country is mostly unknown. The landscape is dotted with scores of Byzantine churches, Ottoman castles, Greco-Roman ruins and more. American and other tourists are already willing to spend money to go on archaeological tours and other historical tours. There is a proven track record of this kind of tourism working in more developed countries such as Greece and Italy. In fact, such a program worked very successfully in Macedonia in the 1990’s, and could easily be restored.

However, there remain some misconceptions. Westerners tend to think of Macedonia- when they think about it at all- as a murky land of instability. Macedonia’s bad image is a relic of 2001’s brief Albanian uprising. Although the peace has long been re-established, there is sporadic troublemaking from a small minority of the Albanian minority. Isolated border villages respect their own laws and can be havens for smuggling. However, such areas endanger Macedonian Army border patrols- not tourists. Nine-tenths of the country is perfectly safe.

There are other problems to be addressed, of course. Infrastructure problems (mostly highways, signs and facility repair) abound. However, improvements seem to be continuing. The largest remaining project, Corridor 8, connects Bulgaria and Albania via Macedonia. On the route are projected a highway, railroad and oil pipeline.

New EU honorary president Italy has pledged to finance 960 km of railway and over 270 km of roads. Other ongoing European investments in Macedonia’s telecommunications, media and food industries indicate renewed optimism for future stability.

Transport is a mixed bag. Skopje is not a major air route and has no direct flights to the US. Trains are slow, but cheap, and connect Macedonia to Greece in the south and Serbia in the north. Buses are frequent to all points in the country, and offer cheap fares to international destinations- around $30 return to Thessaloniki, Greece, and $70 return to Istanbul, Turkey.

US and EU citizens do not need a visa in Macedonia, nor in Greece. Serbia, which used to charge for a two-week visa, recently waived all fees due to international pressure.

Financing problems exist- but these are more problematic for internal investors lacking access to Western capital. The commercial banks charge high interest rates, and nepotism and cronyism sometimes affect loan policy.

For its part, the government has moved disastrously slow on tourism reforms. Macedonia has no official tourism ministry (just an “office”), and no preparations have been made to try and seduce residual tourists from next year’s Olympic Games in neighboring Greece.

In fairness, however, the state currently lacks the money needed to really fund the tourism sector. Yet the inside word is that changes are on the way- ones which should facilitate public-private sector cooperation. Modifications in the tourist tax should provide a greater capital base for the government to fund basic projects, such as infrastructure repair and promotion.

Also, an investment fund has been suggested, whereby European donor funds would be channeled through the government and commercial banks and finally be awarded to investors, at lower rates set by the donors.

Perhaps most importantly, the Finance Ministry in June announced new tax incentives for foreign companies investing in Macedonia. Those investing below 100,000 euros won’t pay any tax on profit, while those investing over 100,000 euros will pay 30 percent less.

Today’s individualized Western tourists are seeking something unique, whether it be a yoga retreat, wine-tasting tour or wilderness sports adventure. Such tourists have disposable incomes and prefer small, exclusive accommodations to traditional-style hotels. Macedonia abounds with “ghost villages”- abandoned or near abandoned traditional villages set in breathtaking nature. The cost of renovating the kind of “authentic” traditional house found in such villages numbers in the tens of thousands of dollars, not the hundreds of thousands.

Compare this with the amount being spent currently to build such houses from scratch in a brand new five-star hotel- $230,000 each. For this cost, an investor might be able to restore an entire traditional village. The rest is up to the investor’s skill at promotion, marketing and imagination.

Indeed, this is perhaps the most important edge Western investors have in Macedonia. Local tourism entrepreneurs have failed to market themselves abroad as much as they should. In fact, when asked they often can’t produce even basic statistics about their operation or offer clever and compelling reasons why visitors should come. Good marketing is relatively cheap, compared to construction costs. Western investors, who know how to do more with less anyway, can easily clean up on the marketing front, and therefore on the cash return front as well.

The locals, it seems, are having trouble adapting to the reality of having a new, unlimited world market at their fingertips. They often continue to operate as if they were still promoting Macedonia exclusively to the closed Yugoslav market of yesteryear. Since the logistics, bureaucratic and infrastructural problems are eminently surmountable, Western investors- armed with foreign capital and marketing savvy- can create a multi-faceted and profitable Macedonian tourism industry, ex nihilo.

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