8th April 2023, Skopje – If finances are the bloodstream of each economy, infrastructure is the backbone of economic development – it improves access to services, creates jobs and stimulates economic activity.

Most intensified construction expansion in recent history of our country – construction of four motorways along Corridor VIII and Corridor X-d – was launched this past week. As I have written before, construction of four road sections, a new six-lane modern motorway, in particular 110 km long new, modern, quality and safe road network – Tetovo – Gostivar, Gostivar – Bukojchani, Trebenishte – Struga – Kjafasan and Prilep – Bitola, is of exceptional economic and geopolitical importance for us and the region. Total investment amounts to EUR 1.3 billion which, coupled with related road infrastructure investments, will account for 10% of country’s GDP. Construction of Corridor VIII and Corridor X-d is expected to bring substantial financial and economic benefits for the country, the economy and the citizens. All in all, real sector in the country will have direct positive benefits from this investment.

Motorways along Corridor VIII and Corridor X-d generate Annual Economic Effect over 2% of Nominal GDP

Let’s talk numbers! Direct effect of the construction of Corridors VIII and X-d on country’s nominal gross domestic product is estimated at additional 2% annually, throughout Project implementation. Investments under this Project amount from EUR 240 million to EUR 320 million annually in the period 2023-2027.

Both, local businesses and the citizens will gain financial benefits from the construction of the motorways along Corridors VIII and X-d. Around 50% of the construction works on the roads will be carried out by local companies, which would earn around EUR 700 million. Demand surge at certain industries, which will underpin the construction, such as production of building materials, agriculture, food and food products, transport and storage and other service activities, will have an extra effect on the economy.

Citizens will also yield benefits, one of the most significant being the job creation. Engaging local sub-contractors and local labour force will have positive impact on the labour market in the country, contributing to reduction of the unemployment rate. Construction of the motorways will create around 3,000 on-site jobs for workers from the construction industry and over 5,000 additional jobs in the other industries. Overall effect of the construction of the four new motorways along Corridors VIII and X-d will be around 8,000 workers.

Moreover, the citizens will gain financial benefits from the land expropriation, around EUR 210 million being envisaged, to be paid to the citizens whose land will be subject to expropriation, thus contributing to their increased purchasing power.

Taking into account the economic and the financial benefits for both the economy and the citizens, the investment multiplier and the overall effect of this Project on GDP growth is estimated to account for more than 2% of the nominal GDP annually.

Construction of the four new motorways yields additional benefits, which cannot be quantified. Building the road sections will provide for better transport, resulting in reduced transport costs and vehicle operating costs. Transport safety will also improve. All of this will contribute to easier travelling and opening of new businesses in the region, thus increasing the regional job creation opportunities. Faster connectivity will both bring benefits to the regional spatial planning and increase the land value. Motorways’ construction will also contribute to tourism development, regional development and enhanced trade.

Economic Theory: Multiplier Effect of Infrastructure Investments

Empirical evidence suggests that infrastructure investments stimulate GDP growth more compared to the other fiscal expenditures. In economic theory, idea for infrastructure investments as an economic stimulus dates back to the Keynesian economists. In Keynesian theory, high unemployment rate and negative economic result in times of recession are attributable to deficiency of aggregate demand. Consumers buy less, businesses sell less and lose sales, hence costs are cut and workers are laid off, impacting the total purchasing power and the demand, leading to continuation of the negative cycle. As per this theory, one of the solutions is for the government to compensate for the lack of private sector demand by increasing public spending. Although this would literary mean any type of public spending to close the production gap in the economy, Keynes himself indicates that spending depends on the multiplier effect, or every dollar of government spending stimulates additional amount of the private sector spending. For instance, the government hires construction companies to build roads, the companies hire construction workers and pay them; construction workers spend their wages for their essential needs by buying products and services, stimulating job creation in other production and service activities.

Endogenous growth theory maintains that governments can accelerate economic growth through policies for encouraging competitiveness and innovations. Hence, capital investments in education, health and telecommunications add value to the economy.

Supply-side theory, or macroeconomic concept, maintaining that increases in the supply of goods and services leads to economic growth, also considers investments in infrastructure, especially in transport. According to this theory, improvements in transport would contribute to improved efficiency and productivity of the production, through lower production costs for the companies and increased labour mobility.

Infrastructure investments are favourable since various profiles of jobs are created, from high to low skilled labour (for instance: civil engineers, architects and construction workers). Almost all major infrastructure projects take years to complete, providing safe jobs throughout the project life cycle. Hired workers boost the local economy by spending, and once the project is completed, the citizens can make use of the infrastructure built in terms of rendering public services, improving the way of living and improving their productivity. Hence, at the end of 2021, when energy crisis impact was felt, US President Biden signed the Infrastructure Investment and Jobs Act, amounting to US$ 1.2 trillion, aimed at rehabilitation of roads, bridges, water supply, renewable energy sources, broadband Internet and other infrastructure.

Public Investments as Driver of Private Investments

In the light of the multiplier effect and the infrastructure investments, one more aspect is to be taken into account, that being the encouraging investments in the private sector. A good example thereof is the Juncker Plan – “one euro goes in, 15 come out”. In fact, former President of the European Commission, Jean-Claude Juncker, in 2014, presented the Investment Plan for Europe, also known as Juncker Plan, aimed at boosting the economic activity in the EU following the recession caused by the global financial crisis, as well as improving the infrastructure in the EU Member States. Total value of the Plan amounted to EUR 335 billion infrastructure investments. What is specific about this Plan is that a fund was created for mobilizing more funds from private and public sector funding to finance projects in sectors of key economic importance, such as transport and energy infrastructure, energy efficiency, broadband connection, etc. European Fund for Strategic Investment – EFSI generated 15x multiplier effect on investments, with EFSI thus mobilizing 15 times higher investments.

Growth Acceleration Plan – Development Funds and Instruments

Government’s Growth Acceleration Plan is based upon the same postulates, which is aimed at most optimal use of the recourses and growth acceleration in the medium run. This plan is actually a comprehensive framework, focused on acceleration of the growth and the financing thereof, being based upon: 1. 1. Scaled-up investments – scaled-up public investments and mobilization of twice as many investments from the private sector with a total effect of EUR 12 billion in the next few years; 2. Acceleration of economic growth, doubling the average growth from the past decade, thus attaining the desired annual growth rates of around 5%. 3. Fiscal consolidation – lower debt, resulting from the smaller gap between revenues and expenditures. In addition, these goals are coupled by intensifying the investments via series of mechanisms (also including CAPEF), which will provide for increasing the 72% average pertaining to the 2011-2019 period, by at least 10 percentage points. Investments will accordingly contribute to supporting public projects, public-private partnerships and institutional reforms in the field of green economy, digitalization, innovations and technologic development, human capital, physical infrastructure and social cohesion. In addition to the state budget, international financial institutions, private investors and banks, as well as development partners will be sources of financing.

The Plan involves creation of development funds, innovation support funds, guarantee funds, equity funds, venture capital funds and similar instruments for support of export-oriented companies, small- and medium-sized enterprises, as well as social enterprises. It is envisaged for the Plan to also incorporate public-private partnerships, concessions and other instruments for financing public capital projects, to be coupled with financing private sector projects. Fund for Support of Export-Oriented Companies offering favourable credit products is one of the examples thereof. Establishment of Investment Fund would provide for supporting major projects in the field of education, such as construction of kindergartens, schools, sports halls, etc., whereby when selecting the companies that would participate in the process, priority would be given to small- and medium-sized enterprises. Fund of Funds would serve for financing growth-oriented businesses, such as growing and expanding small-and medium-sized enterprises seated in the Republic of North Macedonia. Green Strategic Investment Fund would be intended for financing infrastructure and green investments. This Fund will provide the necessary financial support to cover the robust infrastructure and investment agenda in the free economic and industrial zones. As regards the establishment of some of these Funds, it is possible to use the already established institutional capacities, such as the Innovation and Technological Development Fund, the Development Bank and the Directorate for Technological Industrial Development Zones. In addition to these Funds, crowdfunding is also one way to mobilize the required funds.

Moreover, for the purpose of generating funds, government securities will also be issued, being repeatedly mentioned in some of my columns. New financing instruments incorporate the green bonds, the development and project bonds, development bonds for the citizens and development bonds intended for the diaspora. They will provide capital for development projects, thus also creating opportunity for additional grants from the European Commission and other development international institutions.

Medium-Term Ongoing Investment Portfolio worth Seven Billion Euros

More specific elaboration of the investments. Despite the crisis, this year, we remain committed to increasing the capital investments, which will contribute to economic growth and development. Under this year’s budget, capital investments are projected in the amount of approximately EUR 800 million or higher by almost a half compared to the previous year. They are financed via budget funds, IPA Funds and loans. Public project portfolio, funded by the international financial institutions in the next seven-year period, is estimated at around seven billion euros (this is coupled by Budget-funded projects as well).

As regards road infrastructure, in addition to the four new highways, construction of Rankovce – Kriva Palanka section will continue, as well as the section Kriva Palanka – border with Bulgaria, also including the western part of road Corridor 8, Kichevo-Bukojchani and Kichevo-Ohrid. Funds are also projected for construction of Skopje – Blace highway section. Additionally, urban project design for connecting Tetovo with Prizren, Republic of Kosovo, will be prepared via the Public Enterprise for State Roads. Around EUR 250 million are projected for investments in the road infrastructure this year.

As for railway infrastructure, it is envisaged for the reconstruction of Corridor X to be completed in 2023, with EBRD support. These activities will provide for smoothing the flow of passengers and goods along this section, reducing the maintenance costs, and ensuring safer and more efficient transportation. Funds are also projected for construction and rehabilitation of the first and the second phase of the Project for Construction and Reconstruction of Eastern Part of Railway Corridor VIII – Kumanovo – Beljakovce – Kriva Palanka Section. As announced by Macedonian Railways Infrastructure this week, tender will also be announced for the final railway section towards the border of Republic of Bulgaria. In the medium term, EBRD and EIB have confirmed the financing of Kichevo – Lin (Albania) railway section. Around 39 million are projected for these activities this year.

As regards the energy field, construction of gas pipeline network and Interconnector with Greece will continue, while also completing the gas transmission network throughout the country in the medium run. Investments in renewable energy sources, solar and wind energy, are also envisaged, whereby there is ongoing international tender procedure for construction of Hydropower Plant Chebren via PPP. Implementation of the Public Sector Energy Efficiency Project, aimed at financing energy efficient projects in the municipalities, will also continue. This will provide for transition towards clean energy, as well as greater energy independence of the country.

As for utilities infrastructure and waste management, the intensified dynamics of construction of water supply and sewage systems in the municipalities financed from own sources and EIB funds, will carry on. In addition, funds are projected for the Regional Solid Waste Management Project with EBRD support, under which, establishment of regional waste management systems in the Southwest, Polog, Vardar and Southeast regions, is envisaged. EIB and EBRD funds will be used for financing one of the largest projects in the country in the field of environment – Wastewater Treatment Station Skopje. Rehabilitation and upgrading of the wastewater treatment stations in Kichevo, Bitola and Tetovo will continue via IPA funds.

During the year, the realization of the multi-year successful Municipal Services Improvement Project will continue, by implementing capital projects, which Project Implementation Unit operates within the Ministry of Finance.

With respect to the health sector, investments are projected for construction and reconstruction of public health institutions and procurement of medical equipment, among which reconstruction of the General Hospital in Kichevo as well.

In the field of education, childcare and sports, capital investments are projected, being intended for construction and reconstruction of primary and secondary schools, kindergartens, construction of schools and sports halls, reconstruction of pupils’ and students’ dormitories, equipping and reconstruction of universities and investments in sports infrastructure. To the end of improving the access to social rights and services, as well as expanding the capacities for preschool care and upbringing through construction of new facilities and repurposing/upgrading the existing infrastructure of preschool institutions, implementation of the Social Services Improvement Project will carry on in 2023.

Substantial capital investments, being geared towards rural development, construction of hydro systems and investments aimed at boosting the competitiveness and modernizing the agricultural holdings, are also envisaged.

We should aspire to the concept “Bringing Europe at home”, on our road to the EU. This concept will contribute to increasing the living standard of our citizens and accomplishing our strategic goals as regards the EU integration. All aforementioned is in support of our commitment to accomplishing the set goals by putting SMART strategies in place. Investments in the field of infrastructure are unquestionably part of the SMART finance, given their multiplying effect on the economy, as well as the multiple benefits for both our citizens and society.


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