Recommendations For Rural Development – North Macedonia

Recommendations For Rural Development – North Macedonia

Current state of the entrepreneurial environment in the rural areas of PPR

In principle, the business environment of any business encompasses the answer to three basic needs of entrepreneurs: accessibility of capital, accessibility of labor and accessibility of markets. Numerous and complex factors influence at the same time the formation of the needs themselves and the overall profile of the environment that should respond to these needs. At the same time, the same factors have different impacts on different business activities, which in fact indicates that there is no single business environment for everyone and everyone.

A specific business environment is formed depending on the following aspects: (a) the economic sector, (b) the predominant size of the business entities operating in that sector, and (c) the macroeconomic processes that take place in parallel.

The practicality of the theoretical question of assessing a business environment has been demonstrated by focusing on rural areas in PPR. We identify the predominant characteristics of the narrower, rural and wider, regional environment according to the above 3 aspects.

  1. Economic sectors and their interrelationship

In the rural areas of PPR predominantly economic activities are agriculture in the primary sector, food industry in the secondary and to a lesser extent trade and logistics activities in the tertiary sector, as a service to the previous ones.

At the same time, in the rural areas of PPR are present mining and related electricity production, as well as forestry which is mostly quasi-economic activity. The parallel presence of these activities has its impact on the agri-food sector. This impact is most often recognized as negative (in the production of electricity from coal), neutral (in the extraction of marble and other minerals, such as the extraction of CO2 for industrial purposes) or insufficiently stimulating (in forestry).

The agro-food complex is supported by the industry for production of food packaging, located in the urban periphery of Bitola and Prilep. On the other hand, the once strong links with the local textile and wood processing industry are marginalized to the point of complete separation in the supply chain.

The rural areas of PPR are not a predominant market for the construction and metal processing industries, which are present in the Region as well. But their existence has a positive impact on the capital costs of rural entrepreneurs. The presence of the electrical industry is so far without a serious impact on the agri-food sector, except in the production of refrigeration chambers.

The newly emerging automotive industry in the industrial development zones in Bitola and Prilep, although contributing to the reduction of unemployment, has a negative impact on the labor market for the needs of SMEs, including those in the agri-food sector. In the context of industrial development zones, as locations with special conditions for business development, there is hope that the remaining 11 zones could become a significant driver of rural development, certainly after their completion.

Finally, the chemical and pharmaceutical industries are not present in the region, which has a positive impact from an environmental point of view, but also includes national and more often external actors in the supply chain.

The IT industry is becoming more and more present, which could be a significant positive driver for the introduction of smart rural entrepreneurship in PPR.

Tourism as an important industry is in slow but steady growth. The potential of alternative forms of tourism offer is current, but it still has a negligible impact on rural entrepreneurship.

PPR has scientific research and educational activities related to the needs of the agri-food sector, but their activities do not sufficiently support entrepreneurship.

  1. Size and entrepreneurial profile of business entities in the agri-food sector

Evaluating the size of business entities in the agri-food sector of PPR according to the number of employees and turnover, we conclude that in the primary sector all business entities except one (AC Pelagonija SC) belong to the category of micro and SMEs.

The total number of these entities in December 2019 was 555 companies running agricultural activities, registered in the Single Trade Register of RNM and 623 agricultural holdings. Trade companies with predominantly agricultural activity (including sole proprietors) participate in the total number of active PPR business entities with 6.7%. On the other hand, large scale agricultural holdings (over 10 ha of arable land per economy) participate with about 17.1% of the total number of agricultural holdings in PPR, registered with the MAFWE.

There are 5 large companies in the secondary sector with more than 250, but less than 1000 employees. All these companies are more or less export-oriented and in the last few years all are ranked in the top 100 Macedonian companies in terms of their business performance or export results. Other food processing companies are smaller in size and usually fall into the category of small businesses. We have estimated their number indirectly and it is around 200. The presence of several medium-sized companies in the food industry is noticeable as they demonstrate accelerated growth and / or export orientation. A feature of the secondary sector is the close connection in the supply chain with the primary sector in PPR, with the exception of the yeast and alcohol factory in Bitola. On the other hand, the production of cereals, sunflower and some other products from the primary sector is related to processing industries outside the region.

There are a number of empty niches in the service sector, such as specialized warehouses, industrial refrigerators, dryers, slaughterhouses and repackaging services that reflect the weakness of the business environment.

In conclusion, small and micro rural entrepreneurs from the primary sector make up the body of rural entrepreneurship in PPR. They are market-oriented mostly to the needs of the secondary sector, in or outside the region, unlike small-scale agricultural holdings, whose production is more focused on the needs of local retail markets. Most of the rural entrepreneurs have a tendency to diversify their production in the direction of the secondary and tertiary sector or to produce fodder crops for their own livestock production.

The predominantly rural entrepreneur in the primary sector uses measures to support agriculture (usually subsidies), and the number of those who have used or tried to use financial assistance for capital investments is notable. The situation is similar with the entrepreneurs from the secondary sector. Available credit lines and similar banking products are unpopular and underutilized.

A common feature of all rural entrepreneurs included in the field research is the interest in applying new and advanced technological solutions, modernization of the means of work and concern about the impact of climate change on the quality and volume of their production. The research detected also an interest in advancing professional skills, rather than managerial ones. Furthermore, the average rural entrepreneur is flexible and adaptable in the organization of his production, but his decisions are primarily reactive to external influences. Growth visions and long-term planning, as well as initiatives in joint venture are not typical of rural entrepreneurship in PPR.

  1. Macroeconomic processes

The macroeconomic processes that model the business environment in rural entrepreneurship in PPR are determined by the implementation of national policies for European integration, balanced regional development, rural development and support and encouragement of SMEs. Within these determinants is the impact of local policies on the nine local governments, business and professional organizations and associations, and the civil society sector in general.

Nevertheless, macroeconomic processes must be considered in their historical dimension, on the one hand, and the processes of market globalization on the other. These two dimensions are the framework within which the feasibility and efficiency of active macroeconomic determinants must be assessed.

Briefly about the historical dimension. During the first half of the 20th century, beginning with the Second World War, the agri-food sector, as well as the entire economy of the country was developed through central planning mechanisms that created certain business eco-systems aimed mainly at the Yugoslav internal market. The break-up of Yugoslavia in the last decade of the past century led to the emergence of independent states, but also broke the supply chains in established markets. In parallel, the transition processes towards a market economy and the transformation of the social into a private capital took place. These processes did not lead to particularly successful results in PPR, i.e. they led to the destruction of vital links in the existing entrepreneurial ecosystems. Examples of this are the disappearance of the leather and spinning industry, the wood processing industry, the sugar production, the fodder industry, the milling industry, the egg farms, etc. Herein lies the basic reason for the closure of the existing business ecosystems. Serious imbalances in the food chain, unprofitability of agricultural production and consequently, even more mass depopulation of the region and its rural settlements became the new challenges of the regional economy.

Efforts to restructure the primary and secondary sectors and establish new eco-systems for business are marked by:

  • the weakening of the old and the emergence of new stakeholders in the business environment, which has led to the strengthening of the position of strong distributors who dictate market conditions and where an incorrect part of the added value is spilled;
  • Insufficient experience in management in market conditions of new managers, regardless of whether it is a new private or transformed into a private business entity;
  • the lack of entrepreneurial traditions, which was detected late and is still insufficiently served with technical assistance to initiate a more massive entrepreneurial initiative;
  • the disappearance of the agricultural cooperatives of socialist type and the favoring of the monopoly position of the privatized AC Pelagonija SC. Moreover, the former socialist-type cooperatives have strongly and negatively affected the emotional intelligence of individual farmers, which is one of the main reasons for the minimal number of modern agricultural cooperatives;
  • insufficiently flexible banking system, which places unattractive credit products;
  • the opening of the Macedonian economy to the global markets, which led to increased import of goods from the primary and secondary sector and a decades-long deficit in foreign trade;
  • the emergence of companies created with foreign direct investment that affect the reduction of unemployment, but are not integrated in the local supply chain, with the exception of those in the dairy and tobacco industry.

Formally established and de facto implemented policies determine per se the direction and intensity of the current reforms in rural areas, thus influencing rural entrepreneurship that responds to external stimuli.

Regarding the formally established policies, translated into numerous strategic planning documents and their sub-plans, we note the following conclusions:

  • Numerous planning documents have been adopted in various instances by almost all stakeholders relevant to rural development at the national and local level. Each of these documents covers different aspects of the business environment such as regional development, rural development, gender equality, SMEs and entrepreneurship, local development, environment, nature and biodiversity, climate change, energy, innovation, tourism, etc.
  • Common features of these planning documents are the lack of time continuity, then the inadequate number and quality of action plans and following programs that aim to achieve the strategic goals and finally the absence and / or inconsistency in monitoring their implementation;
  • Another noticeable feature is their mutual non-coordination, horizontally and vertically, and the absence of cohesive forces that would link not only policies but also their holders in a functionally and economically justified mode;
  • It seems that at the national level, rural development is mostly in the competence of MAFWE, which makes it one-sided and at the same time gives the excuse to other competent ministries to act inferior to the prior needs of rural areas;
  • In general, balanced regional development as a key factor for the improvement of rural areas is very low on the list of national priorities, and the decision-making authorities are severely disconnected from the holders of social and macroeconomic processes in rural areas. The competent Ministry of Local Self-Government, which, by law, should be a multi-sectoral coordinator of balanced regional development, may not be the right holder for such an important national goal. Hence, the concept of planning regions is underdeveloped and even less accepted as a driver of positive change in rural areas.

The next determinant per se is the implementation of the adopted policies. There are drastic differences between the work of national and local institutions.

Namely, thanks to the divided competencies and the relatively well coordinated work of MAFWE, NEA, AFSARD, FVA and the Faculty of Agriculture of UKIM Skopje, rural entrepreneurship and especially agricultural activities receive far better and greater financial and technical support than entrepreneurship in any other sector. For now, the work of these institutions is a cornerstone of rural development. It is therefore necessary, this complex factor of the business environment:

  • to continue to develop in the direction of the current EU CAP and to capitalize as much as possible on the experiences of similar rural economies;
  • be as sensitive as possible to the real needs of the end users, with special emphasis on the specific needs of the rural areas in the individual regions;
  • to detect early and effectively eliminate the anomalies in the application of the measures it implements;
  • to functionally strengthen and intensify the cooperation with other ministries and independent institutions at the state level;
  • to open various opportunities for practical cooperation with the units of local self-government in a way that will lead to shared commitment and responsibility,
  • Transform cooperation with NGOs from declarative to functional, especially with professional unions and local associations with rural

The implementation of the adopted policies at the level of local self-government abounds with a series of structural weaknesses and lack of capacity for implementation, especially in the 4 rural municipalities and the municipalities of Demir Hisar and Krushevo. The emphasis on economic development in the urban municipalities of Bitola and Prilep is on urban development, while rural development measures are generally responsive and consist of implementing small and acute infrastructural improvements. The municipality of Resen, which by the way has the most balanced ratio of rural and urban population, has the most activities related to rural development. The municipalities of Demir Hisar and Krushevo suffer from a series of inherited weaknesses that are reflected in high depopulation and a weak economy, hence their capacity to implement their municipal competencies is severely limited. The four rural municipalities of Dolneni, Krivogashtani, Mogila and Novaci are in the most unfavorable position when it comes to self-governing capacities, so the adoption of planning documents and their implementation are equally late there. The absence of a practical demonstration of regional solidarity between the municipalities is a weak point that we believe can and must be overcome in the interest of the entire region.

In terms of entrepreneurship, the general need for SMEs and large-scale farms to keep up with new technologies, increase their competitiveness and work in an environment conducive to development, investment and innovation, it can be said that the support of local self-governing is missing.

Furthermore, field research has shown that rural entrepreneurs do not rely on the assistance they receive from the NGO sector, although the analysis of secondary data proves that it is significant and extensive. We believe that this attitude is due to the weak position of the NGO sector in general, which, like rural entrepreneurship, is more formal than actually respected by public actors. A good example of this thinking is the current position of the three LAGs that are not yet recognized as true drivers of change in any of the municipalities in which they operate.

As a general conclusion, there is an awareness of the rural population that the development of rural areas and their sustainability are largely conditioned by the scope, success and potential for progress of rural entrepreneurship. Given the pre-defined framework in which this process takes place in the country and in the PPR itself, it is indisputable that the political factor at the national and local level is the key factor that should facilitate, if not enable this development. Strong support is needed, focused on entrepreneurship in the primary and secondary sector, above all.

Comparative advantages of the primary sector

The concept of comparative advantage, as a term in economics, means the profitability of producing a certain product / service in conditions of free trade between two countries, compared to the opportunity costs of producing another product that the economic agent could produce instead of the specific product or service.

In a small market that limits the placement of larger quantities of traded goods, exports are the guiding criterion for determining the comparative advantage of goods that can be produced at the lowest opportunity cost. From here, our analysis identifies export-oriented products and identifies the circumstances that give them a comparative advantage to be traded in foreign markets.

Products with a comparative advantage are processed tobacco, certain dairy products, lamb, apple, wild mushrooms and other naturally growing plants, traditionally produced food and medical cannabis.

The attributes that create their comparative advantage are:

  • Ownership of the assets of export companies in the tobacco industry. Specifically, the purchasers and processors of tobacco in PPR are at the same time owners of powerful multinational tobacco companies that incorporate this tobacco in their final products;
  • Traditional trade relations with the countries of the former Yugoslavia that nurture and exploit the Macedonian apple brand. At the same time, the apple had a comparative advantage for Russian markets during the embargo period for EU countries.
  • The privileged political-economic position of the Albanian minority with the economic actors of Kosovo creates comparative advantages for the export of various goods from This advantage is used by the producers of fresh apple and dairy products from PPR.
  • Specific trade relations, built on the principles of long-term cooperation with importers from EU countries create a comparative advantage of lamb production for the Italian market, industrial apple for Bulgarian processors and traders and processing of naturally growing plants for French, Belgian and other EU market niches;
  • The taste of the diaspora from RSM in the overseas countries is the attribute that creates comparative advantages for export placement of traditional food products based on local vegetables and fruits;
  • Dried flower and medicinal cannabis extracts have a special comparative advantage for licensed This advantage stems from the liberalization of regulations for its production in the country.

Agricultural land consolidation processes can be an initial point for reorientation of agricultural holdings with limited land fund to growing new agricultural products with low opportunity costs that are attractive for export such as spices and medicinal plants, some nut fruits, processed grape products or garlic and onions. Here the comparative advantage would be based on the natural advantages of the region (absolute advantage) in combination with the application of advanced methods of smart farming. Coordinated production of a large number of such agricultural holdings with limited agricultural stock would result in a new comparative advantage that would make PPR recognizable and competitive in international markets.

Identified needs for support, aimed at sustainable development of smart rural entrepreneurship

As everywhere in the world, in PPR, rural entrepreneurship is more vulnerable than entrepreneurship in non-territorial sectors. It is therefore not surprising the multitude of needs to support agriculture and rural entrepreneurship that were identified through field research and SWOT analysis.

Before moving on to our conclusions, we need to list the three most acute needs of rural entrepreneurs and the three most acute needs of rural communities as their immediate environment. Those are:

  • Secured markets that will allow growth of production;
  • Better rural and transport infrastructure;
  • Advanced solutions against climate change for the entire region and pollution (for particular areas);
  • Applicable solutions for stopping the process of depopulation of rural areas and retaining young people in the rural sector;
  • Better communal and road infrastructure;
  • Developed policies for enhancing rural entrepreneurship

Given that the task of this paper is to draw conclusions about the needs for support in the context of sustainable development of smart rural entrepreneurship, we paraphrased the above needs into specific needs for support that can be offered by CRPPR or obtained through the activities of the Council of PPR. In that sense, we emphasize:

  1. Rural entrepreneurs need to strengthen their marketing skills and capacities to find and attract regular customers for whose demand they could plan and improve their production. Such support would be a response to their need for secured
  2. In the context of the previous conclusion, there is a need for greater accessibility of applied science. Direct cooperation and mentoring with / from appropriate experts would encourage the selection and implementation of technological solutions and production models that are tailor- made to the abilities of each specific rural entrepreneur, i.e. a group of rural entrepreneurs with the same prerogatives for financial
  3. The vulnerability of businesses that are directly or indirectly dependent on weather conditions makes the acute need to take measures to protect or adapt to climate change for all rural entrepreneurs, regardless of which economic sector they belong FAO experts’ assessments of the climate change vulnerability in RSM indicate that the agri-ecological zones with agricultural land in the PPR are exposed to lower risks than other regions, hence the opportunity cost of investing in primary production protection is a comparative advantage if rural enterprises receive the necessary support for the implementation of appropriate solutions.
  4. Unequal coverage of municipal territories with rural and poor road infrastructure is a problem that can be overcome more quickly by strengthening the lobbying capacity of rural development stakeholders, including rural entrepreneurs. But the need to hear the voice of rural entrepreneurship will not provide sustainable development It is necessary to implement more rational technical and smart solutions for improving both rural and road infrastructure in order to achieve maximum impact on the rural economy.
  5. One way to prevent rural depopulation is to involve young and educated people in the development of smart solutions to support rural entrepreneurship. The competitive spirit of the younger generations that would be rewarded with the opportunity for personal prosperity is at the same time a need imposed by global society and a response to the needs of rural communities to keep young people in their own environments;
  6. Communal infrastructure and improved transport communication in rural areas is the next identified need to improve the quality of life in rural areas. The need to identify rural settlements in each municipality that should be given priority in improving the quality of life is imposed as a necessity, taking into account the limited economic capacity of the region and the country as a whole. At the same time, it is necessary to promote measures that would encourage the mobility of both urban and rural population to these rural settlements with improved living and working conditions. Again, involving the younger generations in establishing and solving this long-term and complex process is a prerequisite for its sustainability;
  7. Last but not least is the identified need for regional and national development policies to support rural This need should be paraphrased as a need for policies and concrete measures to create modern eco-systems for rural business. Bringing together the experiences of establishing entrepreneurial ecosystems in the rural areas of other countries would raise awareness of this opportunity not only among rural entrepreneurs, but also among relevant decision makers. The next strategic step in this direction would be the construction of an enabling environment to “populate” the empty economic and non-economic niches of the already identified cores of entrepreneurial ecosystems.

In this context, we would like to highlight the already identified core of a rural business ecosystem in hilly and mountainous areas in which the following current businesses would be interconnected: organic production including processing and export, smart extraction and processing of wild fruits and medicinal herbs, mountain water aquaculture, beekeeping and production of honey and other bee products of geographical origin, forestry and traditional crafts of wood processing industry, active tourism, production of decorative mulch, ecological processing of sheep wool and production of lanolin, extensive sheep breeding and promotion of bio diversity, extensive cow breeding in forest and forest fire prevention in low stem vegetation areas and smart solutions for new competitive cow, sheep and goat skin products.

Recommendations for further actions of the CDPPR

1. Recommendations for the PPR Council:

  • To make and adopt a decision on the application of common methodologies in the preparation of municipal strategies and action plans, both in terms of public discussions before the preparation of a specific planning document, and in terms of the content of the document;
  • To make and adopt a decision on harmonization of the criteria and procedures for monitoring the implementation of the local strategic and all lower planning documents, in order to prepare a real basis for amendments to them and a good start to the next planning cycle;
  • To make and adopt a decision on mandatory registration of each spatial planning document, its amendment, progress report or evaluation in a single PPR database;
  • Adopt a Joint Rural Development Strategy.

2. Recommendations for the activities of the future Rural Entrepreneurship Center (REC)

  • To adopt an action plan for the first 2 years work of the new REC and develop sub-projects that are appropriate for receiving financial aid from the Regional Development Bureau;
  • To offer the premises and the e-space of the REC as a hub space for the meetings of professional associations of farmers, dairy producers, organic produces, rural tourism providers etc. in order to promote the reputation of the new Rural Entrepreneurship Center (REC);
  • To initiate cooperation with the Rural Development Network for joint organization of a regional rural parliament, as a tool for lobbying the interests of rural entrepreneurship to local policy makers. The first Regional Rural Parliament should be organized in 2011, prior to the 2nd Assembly of the National Rural Parliament. The conclusions of this event should be considered in the Joint Rural Development Strategy of PPR;
  • To develop a mobile application for the agri-food sector and rural entrepreneurs in general from PPR in order to ease the flow of information and news relevant to their activities and progress. The mob. application should serve also as a tool for prompt scanning the urgent needs or current challenges of the app. users;
  • Establishment of memoranda of cooperation with the regional chambers of commerce, chambers of crafts and vocational high schools and university units within the region in order to use their capacities to organize seminars and trainings in the interest of rural entrepreneurship; A smart tool should be used to channelize the availability of these partners with the current needs and challenges of the rural entrepreneurs or their associations, so an effective schedule of events would be organized and promoted;
  • To assist a certain number of startups in rural areas and follow their progress;
  • To consult a certain number of rural entrepreneurs in smart farming and follow their progress;
  • To organize trainings in the establishment of agriculture cooperatives and follow the progress of envisaged initiatives;
  • To organize seminars in organic production and share the knowledge of the SmartRural partners;
  • To promote women cooperatives by sharing best practices of the SmartRural partners and follow the progress of envisaged initiatives;
  • To organize annual hackathons for corporate and entrepreneurial innovation aimed to solve identified challenges in sustainable rural development in cooperation with its own Integrated Network for Regional Development. To share the hackathon results with as many possible stakeholders in order to provoke follow up activities;
  • To work out concepts for enabling the formation of business eco systems in rural areas. For the development of such concepts, the involvement of its own Integrated Network for Regional Development is recommendable. The provided SWOT analysis should be used as a basic tool for drawing these concepts on strategic levels;
  • To promote the concepts for enabling the formation of business eco systems in rural areas to young educated people as well as decision makers on all levels;
  • To assess periodically the current state of the entrepreneurial environment in the rural areas of PPR. It is recommendable such assessments to be performed before adopting new regional strategies.