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Case Studies in Macedonian Decentralization: Challenges and Opportunities (1)

December 19, 2005

(Balkanalysis.com Research Service)- This survey covering the Macedonian decentralization process, which cites several local mayors and outside sources, is divided into two halves. The first, discussing challenges and difficulties faced by municipalities during the decentralization process appears today, while tomorrow will appear the second part, which discusses some of the opportunities municipalities can exploit in the fields of IT and tourism.

A fair held on the weekend of 9-11 December in Skopje’s convention center, SAEM, brought together representatives of many municipalities as well as NGOs, offering a unique opportunity for citizens to speak with local officials and for said officials to mingle and share their concerns with one another.

Of course, the common task for all mayors and municipal officials was to try and promote investor interest and chart the progress of the decentralization program, which got underway in July. The local elections of March had brought numerous shake-ups in the local power structure across Macedonia. Since then, mayors have been grappling with issues that are difficult and complex. However, the weekend’s high turnout and detailed presentations of municipal projects, local goods, information packets and tourist guides was a good sign that the local governments intend to keep active.

Aside from booths reserved for each municipality, the fair featured lively performances from traditional dance ensembles, musicians, and multimedia presentations, bringing a festive atmosphere to the proceedings. And curious citizens turned out en masse to check it all out.

“We Can Do Something Concrete and Specific”

On Saturday, we spoke with several mayors and other officials from municipalities large and small, to learn about the main issues of decentralization affecting them. Notably, many of Macedonia’s new mayors are young and eager to take the initiative. But certain constraints, such as fiscal problems, unqualified employees and an unfinished devolution process have been restricting factors.

One of the most optimistic leaders is 31 year-old Zoran Zaev, Mayor of Strumica. With an enviable position in Macedonia’s sunny southeast, Strumica is the country’s leading agricultural producer and also boasts numerous cultural and natural attractions such as the 11th century Byzantine Monastery of Veljusa, a Roman bath complex, and the sublime woodland waterfalls of Kolesino and Smolare.

According to Mayor Zaev, a trained economist and former SDSM parliamentarian, the state of the economy was what led him to run for mayor. Although he had served in the parliament for the 16 months preceding March’s elections, Mr. Zaev decried the impossibility of making “concrete steps” for fixing Macedonia’s problems through the legislature. “In parliament, you can just vote for laws,” he said. “But as mayor, you can do something concrete and specific to help solve the problems local people face.”

Strategies for Wooing Investors: Tax Incentives and Promising Industries

Promoting their municipalities as outside investment destinations was a major goal of the convention for mayors. This has forced them to isolate the key areas in which they might be successful, and the major obstacles they face along the way.

This was illustrated by the case of the proactive Zaev, who isolated a specific impediment to his city’s development: the lack of a central distribution point for local agricultural products. Pointing out that agriculture makes up at least 50 percent of the economy of Strumica Municipality, and that it is a major exporter of such goods, Mayor Zaev cited the pressing needs to improve the logistical coordination of goods delivery and the need to open new export markets.

According to the mayor, a large project for building a new distribution center has been offered to outside investors, and a German as well as Italian agricultural firm is interested in investing. The tender will go out in January 2006; the municipality is seeking 2 million euros for the project, and investors will receive “zero percent local taxes- plus the land is free,” says Mayor Zaev. The planned agricultural distribution center will be located near the new bus station in Strumica

A similar idea for offering total tax incentives and land concessions to woo local investment, but on a grander scale, has been conceived by the municipality of Prilep, in south Macedonia. “Every investor who comes to Prilep will not pay local taxes,” pledged Mayor Marjan Risteski, who takes credit for introducing the initiative. The 33 year-old economics graduate, who ran as the VMRO-DPMNE candidate this past March, was previously employed as an inspector in the local self-government administration. According to him, Prilep’s main potential for investors lies in the established marble, tobacco and brewing industries.

As with Strumica and Prilep, the municipality of Rosoman – located in the heart of Macedonia’s wine country – sees agriculture as a vital industry for the local economy. Its most important products are high-quality grapes, peaches, peppers and tomatoes. “But we don’t have the proper organization,” laments Rosoman’s 35 year-old mayor, Goce Velickovski, an electrical engineer by training who is now on his second mandate. According to him, Rosoman already exports its agricultural goods to Poland, Croatia and the Czech Republic, among other places, but like Strumica, needs to centralize distribution. According to the mayor, Rosoman plans to create a new distribution center for agricultural goods in cooperation with neighboring Kavadarci, which also relies on agriculture and especially its wineries.

Strumica is also seeking investment for a new central shopping mall. Mayor Zaev sees Skopje’s Ramstore, built by Turkey’s Koc Company as a role model (though on a grander scale than could be attempted in a town of 45,000 like Strumica). He also points to the interest Greek investors in the leather industry have shown in his city, which lies close to their border. “They want to invest in Strumica because of the cheap labor,” he says, echoing a view held across the country. From Italian shoemakers operating in Kumanovo to Hollywood animators in Skopje, outsourcing labor to cheaper Macedonia has helped them to cut costs and better compete on their home markets.

The Pernicious Problem of Pre-existing Debt

Outstanding debts have presented a major obstacle for officials, especially from the smaller and poorer municipalities. Caska is an isolated and mountainous municipality of 7,630 inhabitants in the central part of the country, west of Veles. Its meager economy is based on subsistence agriculture and animal husbandry. Although Caska’s small population only requires 11 municipal employees, it is geographically large and sprinkled with villages, all of which require basic public services, electricity and heating.

39 year-old Stojan Manevski is the municipality’s new mayor. This past March he ran as an independent, regaining the office he held from 1996-2000. In the old days of Yugoslavia, the Caska native worked in Zagreb, after finishing the Military Academy in Belgrade.

Like Rosoman’s Mayor Velickovski, Manevski decries the burden of debt his new administration has inherited from the previous one. He cites the always pervasive issue of corruption as the culprit. “They didn’t pay for electric bills and other taxes- the salaries of municipal employees were withheld for 8 whole months.” Mr. Manevski surmises that this was one of the reasons why his predecessor was not re-elected.

Problems with the Decentralization Process: A Lack of Preparation and Trained Officials

“We weren’t prepared enough for the whole process,” says Mayor Manevski, evincing a common theme for municipalities across Macedonia. “It wasn’t explained and discussed clearly and thoroughly enough.”

In the 2005 decentralization, it was the first time for everyone. Many changes were made; legislation was added, and new competencies were created. With them came greater responsibilities for local governments. However, there is a widespread fear that the existing personnel are not sufficiently trained for their new tasks, and that the entrenched mid-level bureaucrats of yesteryear are mired in outdated thinking and have forgotten about the ‘servant’ part of their brief as civil servants.

“The local officials should be at the service of the citizens- not the other way around!” quips Strumica Mayor Zaev. However, the situation in too many municipalities is like that of Kumanovo, where bad tempered bureaucrats delight in being as unhelpful as possible, while inventing ever-changing and ever-more complex requirements. Meanwhile, vital paperwork runs the risk of being lost amongst the voluminous, 50 year-old giant folders in which crucial documentation is kept. In forgotten offices upstairs, solitary officials bang away at typewriters instead of computers.

In 2001, Albanian rebel leader Ali Ahmeti claimed that his war against the state owed to discrimination against Albanians and alleged shoddy treatment from local officials. Yet local bureaucratic tyrants are pretty good at being equal opportunity offenders, and not only Albanians feel the desire to wage war on them. Nevertheless, it is ironic to note that the most sympathetic and helpful municipal employee in Kumanovo is an Albanian from that hotbed of ethnic unrest, the village of Slupcane.

A mentality of petty corruption pervades as well. Noting how a certain local was very frosty with her, one Macedonian woman recalled, “but she was very helpful for the people who slipped her 50 euros.” The prospect of surreptitiously handing over one-third of an average Macedonian’s monthly salary just to expedite the bureaucratic process has a more ruinous direct effect on people’s lives than does the better publicized high-level government corruption- but all too often, this is the reality.

The problem of mentality was also mentioned by Prilep Mayor Risteski, who spoke of the need for well-trained officials. “Certain directors need to be changed,” he says, “because the current ones are not qualified. But this is now under the jurisdiction of the central government, and they won’t let me change them.” Somewhat cryptically, he added that the problem will be fixed “when the government changes” following the upcoming 2006 parliamentary elections.

Rosoman Mayor Velickovski also complained that the issue of qualified personnel presents a problem for his administration. “We don’t have workers who have the right experience in the right positions,” he said, a view seconded by Mayor Manevski: “the [decentralization] is very difficult for the small municipalities. There are not enough employees trained and ready for the kind of reforms they want us to make.”

An Albanian member of Ahmeti’s DUI party, speaking off the record, also told us that the lack of trained local officials has been an unfortunate drag on the party following its astonishing successes in the March elections. “We captured many mayoral positions and local administrations in the elections,” he said. “However, certain low-level individuals in the party demanded that their experience as “war heroes” be acknowledged, in the form of jobs in the municipal governments.

Yet many of these guys lack the right training- or even a basic education. This means that they can’t deliver the proper service. Inevitably, our people will become dissatisfied, and it could backfire on the party.”

However difficult the issue of finding trained personnel has been, not all are reporting major problems. In the case of Strumica, Mayor Zaev stated that “so far, we haven’t changed many people- actually, we have had to hire more to deal with the new responsibilities we’ve been given. So now we’re up to 60 municipal officials from the 46 we had before the elections.”

More Ills: Ownership and Financing Confusion for Necessary Infrastructure

“The biggest problem for us is that the municipality still doesn’t have ownership or control of a lot of local facilities and properties,” says Prilep’s Mayor Risteski. Indeed, the unclear status of ownership for local buildings has emerged as a nationwide problem. In Strumica, sports facilities top the list here. The central government was always the owners of these structures, but the municipality should be inheriting them. “The national government isn’t very interested in them,” says Mayor Zaev, “but we are.”

The question of financing for public infrastructure must also be resolved. For Mayor Manevski, the big problem in Caska involves the primary schools. There are 2 larger primary schools in the town, and 7 regional primary schools. But children from the sparsely populated municipality must still attend secondary school in the neighboring municipality of Veles.

These local realities play a major role in Caska’s schools problem. “One school has only five children, and we have a big problem with paying for heating,” says the mayor. Because of the mountainous nature of the Caska municipality and the remoteness of some of its villages, these kids can’t be relocated to another school. Finding ways to pay for heating and other maintenance in schools came up as an issue in Strumica and Prilep as well.

Because of the economic stagnation of the local area and thus a lack of funds, Caska like many other municipalities has had to rely on foreign donors like the EU for essential projects such as sewage and water systems. Without this, nothing would be done. “We just don’t have the resources,” says Mayor Manevski. Now the municipality is hoping for foreign donations for a road project that will cost approximately 750,000 euros. In Rosoman, Mayor Velickovski would like to tap new wells to help ease the area’s chronic water shortage problems, but so far the project has attracted no donors.

Part of these fiscal problems can involve budget ambiguities. “We only have 50 percent of the budget money we need,” charges Prilep Mayor Risteski. “We don’t know why the central government won’t release it, according to the law. They must do so until 2007, after which point we have to come up with the money all by ourselves.”

Tax collection problems have been compounded in some cases by disconnects between the central and local authorities. This past July, for example, the Public Revenue Office failed to provide necessary equipment- meaning that in municipalities like Demir Hisar, workers were “forced to fill in the information in forms manually in order to work.” The Office’s failure to transfer the right software also affected tax collection in Stip and Tetovo.

But all financial matters haven’t been worsened since the decentralization kicked in. In fact, some have improved. Strumica Mayor Zaev claims that his municipality has since July enjoyed a 50 percent improvement in tax receipts because “now, the citizens can see where their money is going, and that the local projects will benefit them.” He adds that prices for agriculture goods were better this year “than anytime in the past 3-6 years, because we have developed new markets in Europe and have steadily improved production standards.” Nevertheless, an ongoing furor over grape prices has prolonged uncertainty in municipalities such as Kavadarci, Negotino and Rosoman, where Mayor Velickovski notes that “prices are still lower than we would like.”

Part two of this article, which discusses some of the opportunities municipalities can exploit in the fields of IT and tourism, appears tomorrow.

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