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Progress in FYR Macedonia-Greece name dispute likely to strengthen trade relations; Greek investors to remain wary

6 Jul 17

On 3 July 2017, Mathew Nimetz, the UN negotiator for the name dispute between Greece and Former Yugoslav Republic (FYR) Macedonia, said that he felt encouraged that the issue is back in the focus of the two states.



IHS Markit perspective

Outlook and implications

  • The forecast improvement of diplomatic relations between Greece and FYR Macedonia is likely to strengthen trade ties between the two countries.
  • Greek investors are likely to remain relatively wary about investing in FYR Macedonia, with Greek FDI probably reaching more substantial levels in FYR Macedonia by 2021.
  • FYR Macedonia is unlikely to be granted EU membership before 2028, with NATO membership probably happening sooner on the condition of solving the name dispute with Greece.

Risks

Policy direction

Sectors or assets

All, especially agricultural

FYR Macedonia's name issue

Foreign Minister of FYR Macedonia Nikola Dimitrov (left) with Greek Foreign Minister, Nikos Kotzias, during joint statements to the press, after their meeting in Athens, Greece on 14 June 2017.

PA: 31695338

Greece objects to the constitutional name of the Republic of Macedonia, citing concerns over ambiguity and territorial disputes involving the neighbouring Greek region of Macedonia. The ongoing dispute continues to prevent Skopje from joining NATO and the European Union. The country entered the UN under the "temporary" name of the Former Yugoslav Republic of Macedonia and has been an EU candidate country under that name since 2005. FYR Macedonia started its NATO membership action plan in 1999, but the NATO invitation to Skopje was blocked by Greece in 2008. No concrete proposals were discussed for FYR Macedonia's name during UN negotiator Mathew Nimetz's visit to the country's capital Skopje. Nimetz said he did not anticipate a breakthrough in the coming months.

The country's former prime minister Nikola Gruevski (2006-2016), leader of the nationalist Macedonian Revolutionary Organization – Democratic Party for Macedonian National Unity (VMRO-DPMNE), built an image of himself as a defender of national interests by taking an uncompromising position in the name dispute. The official position of his government was of openness towards solving the problem, but bilateral talks between Skopje and Athens rarely touched upon the issue in a substantive way. The name dispute is a key obstacle to good relations between the two countries. Greece alleges that the name "Republic of Macedonia" implies territorial aspirations towards the Greek province of Macedonia. Following the breakup of the country from former Yugoslavia, Greece imposed a 19-month trade blockade as a result of the dispute over FYR Macedonia's name and national flag. The embargo was lifted in 1995 in return for concessions from FYR Macedonia that included changing the country's national flag. Political relations have again been strained by FYR Macedonia's nationalist politics which Greece perceived as provocative, such as renaming Skopje's airport after Alexander the Great, who Greece perceives as its own historical figure. In 2010, the government announced the Skopje 2014 project, which included building museums and monuments depicting historical figures from the region of Macedonia. Parts of the region of Macedonia are considered to lie in FYR Macedonia, Greece, Bulgaria, Serbia, Albania and Kosovo. The population in the Greek province of Macedonia are predominantly Greek speakers and are unlikely to have any desire to secede.

Shift in FYR Macedonia's political stance

The instalment of the centre-left Social Democratic Union of Macedonia-led government in May shows a shift towards conciliation in FYR Macedonia's position on the name dispute. FYR Macedonia's new prime minister Zoran Zaev has made the country's accession to the EU a key government objective (see FYR Macedonia: 2 July 2017: Confirmation of new FYR Macedonia's Social Democrats-led government increases state contract frustration risks, anti-corruption steps likely). On 14 June, FYR Macedonia's new foreign minister Nikola Dimitrov visited Athens to meet his counterpart Nikos Kotzias, where both countries expressed a desire to resolve the matter. In addition, Greek prime minister Alexis Tsipras is expected to visit Skopje, which would be an indicator of a significant improvement in diplomatic relations between the two countries

Investment and trade

On the trade front, ties between FYR Macedonia and Greece have considerable room for expansion. Greece accounted for only around 3.4% of total FYR Macedonian exports in 2016, in contrast to nearly half going to Germany and 14% going to the other border countries – Bulgaria, Serbia and Kosovo, and foreign direct investment (FDI) inflows into FYR Macedonia from Greece came to just EUR 0.96 million in 2016 – this is equivalent to 0.3% of the country's total, with Germany representing 11%, and Turkey 7%. Parties across the political spectrum in FYR Macedonia have been in agreement on the need to continue improving FYR Macedonia's operational environment through the passing of business-friendly structural reforms. However, the lack of political stability presented a key challenge to foreign investor interest in FYR Macedonia. The country also suffers from high corruption risks and has a moderate regulatory burden.

Outlook and implications

There is considerable room for an increase in Greek investments in FYR Macedonia, but investors are likely to remain wary given the two decades of animosity that have plagued relations, particularly over the name dispute, The two-year political instability that has plagued FYR Macedonia is also likely to act as a disincentive for investment. It is IHS Markit's assessment that if progress were to be made in the name dispute, in the period 2018–21 Greek FDI would be able to reach levels similar to those currently invested by Germany or Turkey – FDI levels around 10% of the total share but still relatively small, with the agricultural sector likely to be a beneficiary.

A resolution to the name issue is unlikely in the two-year outlook. First, capacity issues on both sides play a role, with Greece still largely preoccupied with the fiscal and economic crisis and the associated bailout deal and its conditions, and FYR Macedonia's constrained capacity in terms of room for compromises (see FYR Macedonia: 6 July 2017: Economy gains momentum in May as inflation accelerates with short-term outlook broadly positive for FYR Macedonia). Second, in Greece, Tsipras is in coalition with a right-wing, nationalist ANEL, which also controls the defence ministry portfolio: domestic political considerations will therefore make reaching compromise difficult. IHS Markit does not expect FYR Macedonia to be granted EU membership before 2028, with NATO membership likely to happen sooner, but only on the condition that the name dispute with Greece is resolved.

 
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