Macedonian Investment Guide: privatisation

Agency of the Republic of Macedonia for Transformation of Enterprises with Social Capital


The underlying philosophy of the Macedonian privatisation (transformation) programme is that privatisation is considered to be a means and not a definite end per se. It is perceived as a vehicle for increasing the efficiency of the economy, since it is believed that higher efficiency in an enterprise can be achieved with dominant owners who are committed to preserving and increasing the value of their shares in the company. The common understanding is that commitment comes when somebody pays for the shares they receive. That is why the main method for privatisation in Macedonia is the sale, or case-by-case method, rather than vouchers or some other non-cash system.

The primary objective of the privatisation process, therefore, is to increase the efficiency of the economy through the conversion of enterprises with 'social capital' into enterprises with defined ownership. The other major objectives are as follows:

  • to start the economy moving at a more stable and sustainable rate of growth;
  • to increase productivity by mobilising the cash savings of citizens;
  • to mobilise and liquefy the so-called frozen savings deposits;
  • to increase the credibility of other reform programmes and support for them;
  • to assist in attracting foreign capital;
  • to support the efforts required to establish a capital market.


Under the Law on Transformation of Enterprises with Social Capital (Official Gazette 38/93), also known as the Privatisation Law, it is expected that some 1,200 enterprises will be privatised, 113 of them being large, 274 medium-sized and 830 small ones.

In accordance with the Privatisation Law at least two conditions out of three should be met for an enterprise to be classified as small, medium or large. A 'small' company has no more than 50 employees, its total annual revenues are less than 8,000 average monthly salaries and the book value of its operating assets is not higher than 6,000 average monthly salaries. A 'medium-sized' company has no more than 250 employees, its total annual revenues are less than 40,000 average monthly salaries and the book value of its operating assets is not higher than 30,000 average monthly salaries. Other companies exceeding these limits are categorised as 'large' enterprises.

As at 31 December 1994, the book value of the enterprises to be privatised was 83.2 billion Macedonian denars, or about DM 3.3 billion. These enterprises represent over half of the total assets of the Macedonian economy and employ roughly half of all workers. Enterprises in public utilities, public works, large infrastructure systems, natural monopolies, social services, agriculture, land, forestry and other natural resources management are excluded from privatisation in this phase. Also excluded are some mixed and already private enterprises with foreign partners. Banks and other financial institutions are to be transformed according to another law as part of wider reforms in the financial sector.

Of the 1,216 enterprises (revised figure) subject to the current Privatisation Law, 1,000 had submitted their privatisation plans to the Agency by 31 December 1995. Of that number 604 had completed the privatisation process, 100 had been approved by the Privatisation Commission and 76 were awaiting Commission action. These figures are increasing on a daily basis.

Legal framework

The central legal document governing the privatisation of socially-owned enterprises is the Law on Transformation of Enterprises with Social Capital enacted in June 1993, cited above. However, Macedonian enterprises started with the privatisation process four years earlier, after the passage of the Law on Social Capital (Official Gazette 84/89) by the federal parliament of former Yugoslavia in November 1989, under the direction of the then Prime Minister, Ante Markovic.

Immediately after the referendum for independence in September 1991, the Government of the Republic of Macedonia announced that the federal law was no longer in force and that a new Macedonian law would soon be promulgated. The new law was enacted after extensive debate two years later. The practical realisation of the law occurred with the establishment of the Agency of the Republic of Macedonia for Transformation of Enterprises with Social Capital in October 1993 (Official Gazette 38/93).

Other laws connected with the privatisation process that have been enacted by Parliament are the Foreign Investments Law (Official Gazette 31/93), Concession Law (Official Gazette 42/93) and Securities Law (Official Gazette 5/93).

Key institutions

The institution responsible for administration and support of the process is the Agency of the Republic of Macedonia for Transformation of Enterprises with Social Capital, also known as the Macedonian Privatisation Agency. The Agency is a public enterprise, that is a governmental institution. It is self-funded by proceeds from sales of enterprises. The Agency, which is managed by a Management Board consisting of nine members, is headed by a Director, who is an ex-officio member of the Board. All these officers are nominated by the Government.

The Agency must submit a semi-annual report on its operations to the Government and an annual report to Parliament. In order to fulfil its responsibilities the Agency has organised its resources into several departments: transformation and restructuring department, finance and control department, legal department, public relations department and administrative and software support department.

There is also a Government Privatisation Commission consisting of nine members, who are all Ministers except for one. This Commission makes the final decisions regarding the transformation of enterprises. Another important supporting institution that is very much involved at the beginning of the privatisation process is the Public Revenue Office (Uprava za Javni Prihodi). This institution controls the privatisations undertaken so far on the basis of former laws and verifies whether the procedure was in accordance with the then existing laws. In the private sector a number of auditing firms, management consulting firms, valuation firms, etc, have been established and have become involved.

Banks, who should play a key role, are still in a rather poor position. A Bank Rehabilitation Agency has been established, although the banks' rehabilitation has just started to be implemented. There are still no institutional investors, although a number of projects have been initiated to establish investment funds for the reorganisation and transformation of the pension funds and so on. There is ongoing activity to establish a formal securities market and a law on the Stock Exchange is under consideration. There already is in existence a Securities and Exchange Commission, which will regulate it. As mentioned below, certain banks and other firms may participate in the auctions of shares held by the Agency.


The Socialist Federal Republic of Yugoslavia established socially-owned enterprises which were designed to advance a theory of communism with a human face. Essentially the people employed by the enterprise are the nominal owners as representatives of the public at large, but in fact they do not hold title to shares nor could they transfer their ownership. 'Everybody but nobody' is the owner.

At the same time, the management of socially-owned enterprises is effected through workers' councils. The philosophy of self management is reflected in the country's approach to privatisation. Rather than a top-down approach, enterprises themselves are responsible for proposing the privatisation model they wish to follow, for preparing all the documentation and for carrying it out according to the law and under the supervision of the Agency.

Consequently, until 10 December 1994, the privatisation process was largely autonomous and decentralised. Starting from that day, small and medium-sized enterprises with completely social capital had to be privatised according to methods or models determined by the Agency. The second deadline for another group of companies was 28 June 1995 (two years after the Privatisation Law was enacted). Starting from that date the privatisation of all enterprises with mixed capital which had not been initiated had to be decided upon by the Agency. The deadline for large enterprises with social capital to initiate their privatisation was 10 December 1995 (two years after the methodology for valuation was decided).

The process of privatisation proceeds as follows. The company (or the Agency after the deadline or grace period expires) decides to transform. It chooses the model or the combination of models it wishes to apply. It requests one of the licensed appraisers to value the enterprise at its expense. If the company has already started privatisation under the previous Yugoslav law, it must be submitted to scrutiny by the Public Revenue Office and follow the procedure laid down in the report of this institution, which must have been approved by the Agency. The company procures all the necessary documents and submits them to the Agency. At the same time an announcement must be placed in the press to inform the prior owners of the enterprise of the impending privatisation. The Agency analyses the proposal of the enterprise and issues an opinion within 60 days. The Government Commission makes the final decision within 30 days and after that the transaction may proceed.

All values used in the privatisation process (appraisals, share prices, etc) must be stated in Deutschmarks. Payments, however, may be made in local currency, frozen foreign currency or foreign currency.


According to the Law for Transformation of Enterprises with Social Capital, several methods or models of privatisation are available to enterprises. The models are somewhat different depending on whether the enterprise is defined as small, medium or large. Small and medium-sized enterprises may propose their own models, whereas large ones must select a model in consultation with the Agency.

Small enterprises may be privatised according to the following models:

  • employee buy-out (EBO): The employees are given the opportunity to buy out the enterprise. They may do that if they purchase at least 51 per cent of the appraised value of the enterprise. They are obliged to buy the remaining part in equal annual instalments over the next five years without interest;
  • sale of an 'ideal' part of the enterprise (in the form of quotas, stakes or shares). A part of the enterprise may be sold by a public call for bids (after which an auction may be organised) or by a direct agreement with a prospective buyer.

Medium-sized enterprises may be privatised according to the following models:

  • sale of the enterprise or a part of it: this is the same model as applied for the small enterprises;
  • buy-out of the enterprise: a buy-out is considered to be successful if at least 51 per cent of the value of social capital has been sold. The shares are sold through a public offering. The enterprise transfers the remaining unsold shares to the Agency as a preferred, non-voting stock. The Agency is obliged to offer these shares to the public within a three month period after converting them into common shares;
  • leveraged management buy-out/management buy-in (LBO or MBO/MBI): an MBO/MBI agreement may be made with a group of people (employees or outsiders) who offer a business plan for the enterprise. According to this model the management group that offers the most attractive program through public tender can obtain the right to control the enterprise by means of a down payment of only 20 per cent of the appraised value of the enterprise. They will be obliged to purchase at least 51 per cent of the shares in not more than five annual instalments with no interest charge. The MBO/MBI team has the right to control the firm as if it had 51 per cent. In the meantime the Agency holds the rest of the shares, which are preferred shares with an option of conversion into common stock if the shareholders do not pay the instalments or if other conditions are not fulfilled;
  • issue of shares or additional investment: the enterprise may increase its capital. If the new issue is greater than 30 per cent of the appraised value of the company, the Agency will make an agreement with the investor in which the investor will be offered an opportunity to purchase 51 per cent of the total number of shares of the firm within a period of not over five years. The Agency receives preferred shares with an option to convert them into common stock if the shareholders do not comply with paying the instalments on time;
  • debt/equity conversion (D/E Swap): if the creditors find it viable, an exchange of debt for equity may be used as one of the models of privatising a firm.

Large enterprises may be privatised according to the same models as medium-sized ones. One difference is that the down payment for a leveraged MBO/MBI is only ten per cent rather than 20 per cent. Another difference is that the additional capital investment required is 15 per cent instead of 30 per cent. The Agency also plays a much more active role in the privatisation of large enterprises as compared to small or medium-sized ones. A special body, the Transformation Board, has been established to prepare the privatisation of large enterprises. Half of the voting power in this Board is vested in the Agency and the other half in the enterprise.

In addition to these models, there are three more possibilities for transformation. They may be applied to all enterprises irrespective of their size:

  • Leasing: an enterprise may conclude a leasing agreement with a lessee after a call for public tenders. A clause of buying out the firm is included in the agreement, so that the lessee, while paying for the lease, also pays instalments on the purchase of the company over a period not longer than seven years;
  • sale of assets of the enterprise: upon voluntary liquidation of an enterprise, its assets may be sold separately. If some liabilities remain uncovered, the Agency is not obliged to compensate for them. Creditors participate pari passu in the proceeds. Employees are treated as under bankruptcy proceedings and may be rehired by the successor enterprise;
  • transformation of enterprises under the bankruptcy procedure: upon the proposal of the leading creditor or creditors, an enterprise may suspend its bankruptcy proceedings for a period not to exceed 12 months in order to undertake certain activities for transformation, such as debt/equity swaps, programmes for refinancing, etc.


The major approach to Macedonian privatisation is commercial. It was a strategic decision of the Macedonian Government not to embark on a mass privatisation programme (eg, through the distribution of vouchers) since it was believed that this would only delay the main objective of the transformation process, namely the improvement of efficiency. However, as a sort of a substitute, and also as a matter of fairness in the process, the law provides for the following:

  • employees (current or retired) with at least two years service are offered a generous discount scheme. They have an initial discount of 30 per cent plus one per cent for each year they have been employed by the enterprise. For certain business units which were built with so-called general consumption funds, most of them being holiday resorts or restaurants, the initial discount is 50 per cent plus one per cent for each year worked in the firm, so that the maximum discount can be as high as 90 per cent. Each employee may buy shares at a discount up to an amount not higher than DM 25,000 and employees as a group may not exceed 30 per cent of the appraised value of the company. According to a recent agreement with the unions, payment terms for employees involved in any model mentioned above have been extended from five to seven years, the first two years of which are a grace period;
  • when the enterprise starts the privatisation process it must automatically transfer 15 per cent of the social capital (in the form of shares or a stake) to the National Pension and Disability Fund free of charge. Thus, it is expected that the pension fund will receive a large number of shares. These are non-voting, preferred and participating shares and they are expected to earn a two per cent fixed dividend. This should significantly improve the financial situation of the fund, especially in two to three years time. It is also expected that this would be one of the methods for restructuring the pension fund and for its transformation into an important financial intermediary in the Macedonian market.

A restitution or denationalisation law has not yet been enacted, but is expected during 1996. In the meantime the Privatisation Law deals with the problem in the following way. When deciding to transform the enterprise it makes an announcement informing the general public that it is to be privatised and calling on former owners to declare their claims. The former owners or their legal heirs must submit such claims within 60 days of the public announcement. The enterprise will transfer shares corresponding to the amount claimed to the Agency and the Agency will hold the shares on behalf of the alleged owner, until a new law has been enacted and until the former owners have received legal permission that they may exercise their ownership rights. Foreign investors have exactly the same status as domestic investors under the law.

Special Restructuring Programme

The Special Restructuring Programme (SRP) required the mandatory conversion of certain categories of debt (primarily obligations due to banks and government agencies) into equity. Each of the enterprises in the programme has now issued the required shares, with the result that certain enterprises have effectively been privatised by this step alone. The expressed intent of the Government and the Bank Rehabilitation Agency is to sell the SRP shares which they hold as soon as possible. Those enterprises which retain a significant proportion of social capital are going through the normal process set out by the Privatisation Agency.

Following is a list of the '25 Loss makers' that are included in the Special Restructuring Programme:

Table 1: Loss makers
NoCompanyLocationPrincipal activity
1 Biljana Prilep Cotton yarn and thread
2 Crvena Zvezda ZIK Stip Agriculture
3 FAS 11 Oktomvri Skopje Buses, Coaches and trolleys
4 Fenimak Kavadarci Ferro-Nickel
5 Frotirka Delcevo Cotton Fabrics (Terry Cloth)
6 Gazela Skopje Leather shoes
7 Hemteks Skopje Artificial and synthetic Fibres
8 Karpos Kriva Palanka Polyester fabrics (upholstery)
9 Lozar Agrokombinat Titov Veles Agriculture
10 Makedonka Stip Cotton Fabrics (denim)
11 Metalski Zavod Tito (MZT) Skopje Metal castings, fabrications, machinery
12 Mikron Prilep Electrical motors
13 Prespateks Resen Textiles
14 Sasa Makedonska Kamenica Lead and zinc mining
15 Silika Gostivar Refractory materials
16 Sniteks Sveti Nikole Cotton fabrics
17 Strumica ZIK Strumica Agriculture
18 Toranica Kriva Palanka Lead and zinc mining
19 Treska Skopje Wooden and upholstered furniture
20 Zastava Ohrid Motor vehicle parts and accessories
21 Zelezarnica i Rudnici Skopje Steel works (hot/cold Rolled sheet)
22 Zletovo Akumulatori Probistip Motor vehicle batteries
23 Zletovo Rudnici Probistip Lead and zinc mining
Not actively participating in the programme
24 Elektrostopanstvo na Makedonija Skopje Electric utility
25 Makedonski Zeleznici (MZ) Skopje Railway

Capital market development

According to the Law for Transformation of Enterprises with Social Capital, the Agency was obliged to suggest rules and regulations regarding the means for trading the shares in its portfolio, at least until the official capital market was organised. In the interim before the stock exchange begins operations, the Agency has authorised eight banks and three brokerage houses (see table 2 below) to participate in its informal auctions of shares.

A Securities Exchange Commission (SEC) was formed and has been supervising establishment of a formal stock market. Initial preparations were completed by the middle of 1995 and the Founding Shareholders' Assembly for the Macedonian Securities Exchange (MSE) took place in September of that year. The current members of the MSE are listed in table 2 below (12 banks, four savings institutions, two insurance companies and one brokerage house). In order to become a member of the MSE, an organisation must either be a subsidiary of a bank or of another financial institution, and must be licensed as a securities dealer by the SEC. Only authorised representatives of member organisations, who have passed a securities industry examination, may carry out securities trading.

Table 2: Authorised brokers
Column 1 (MPA)Column 2 (MSE)
Almako Banka, Skopje Almako Banka, Skopje
Eksport Import Banka, Skopje Balkanska Banka, Skopje
Invest Banka, Skopje Eksport Import Banka, Skopje
Komercijalna Banka, Skopje Invest Banka, Skopje
Makedonska Banka, Skopje Komercijalna Banka, Skopje
Stopanska Banka, Skopje Kreditna Banka, Bitola
Teteks Banka, Skopje Makedonska Banka, Skopje
Tutunska Banka, Skopje Ohridska Banka, Ohrid
Rado Banka, Skopje
Dadas Internacional, Skopje Stopanska Banka, Skopje
Reksko, Skopje Tutunska Banka, Skopje
Smart Konsalting, Skopje Zemjodelska Banka, Skopje
Fersped, Skopje
Interfalko, Skopje
PTT, Skopje
Tat, Bitola
Macedonia, Skopje
Tabak, Skopje
Winner Broker, Skopje

An Interim Managing Board has been appointed with responsibility for adopting founding resolutions, rules, listing rules, trading procedures and premises. A central payment system will be introduced for the settlement of all transactions. Listed companies will be required to maintain their registers of shareholders in a central register developed by the MSE.

There will be three markets on the MSE with different levels of entry qualifications:

  • the First Market requires that a minimum of 25 per cent of a company's securities be in public hands at all times and that there must be at least 250 shareholders. Issuing enterprises must submit their financial reports for the previous three years New applicants must have an expected initial market capitalisation for all securities listed of at least DM 20,000,000;
  • the Second Market's listing requirement is that there be an expected initial market capitalisation of at least DM 9,000,000 and that financial reports for the previous two years be submitted. The minimum percentage of securities to be held by the public is 15 per cent and there must be at least 100 shareholders;
  • the Third or Unofficial Market is for the trading of all other unlisted securities. There are no requirements for the Third Market other than the submission by the company of its latest financial report.

In the second phase of implementing the privatisation process, the institutional financial market for securities trading will be a very significant factor in fulfilling the privatisation programme in Macedonia. In addition, it will be an important vehicle for foreign strategic investors and foreign institutional investors not only to buy into equity and portfolio investments, but also to have a ready means to sell out when they wish.

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