South East Europe

Linking the Western Balkans into the Euro-Atlantic Institutions
Oslo, 12-15 May 2003
A short case study: Kumanovo (Macedonia)

Kumanovo lies at the Skopje-Belgrade highway, about 35 km Northeast of Skopje [slide 2]. In 1997 the old Yugoslav Kumanovo commune was divided into five municipalities [slide 3]: the urban Kumanovo municipality including the town and four rural municipalities; Lipkovo with a Albanian majority population of some 27,000 in the West and the three pre-dominantly ethnic Macedonian but largely depopulated municipalities of Staro Nagoricane, Klecevce, and Orasac in the East (about 7,000 people in total). The region as a whole is home to 140,000 people out of which some 75,000 live in Kumanovo town.

A table on employment data [slide 4] illustrates the predominant economic developments. Employment in the former socialist enterprises has collapsed from 18,000 in 1990 to barely 7,200 in 2003. The former socialist agricultural sector provides today only 636 jobs, compared to more than 2,300 in 1990.

These trends have resulted in a huge employment problem and reflect the structural problems of the region: underdevelopment of the rural areas, characterised by strong out-migration, the lack of any economic development, very poor levels of education and pre-dominance of low-productivity subsistence farming [slide 5]; de-industrialisation reflecting the collapse of the former socialist industries, a process that is due to continue [slide 6]; and weak private sector development that suffers from low levels of diversification and cannot compensate for the losses in productivity and employment in the former state industries [slide 7].

Still, there is potential for development. Kumanovo boasts more than 60 private leather manufacturing companies, employing an estimated 1,700 workers [slide 9]. While only some 14 of these firms produce finished products, close to 50 small companies have emerged that have specialised in shoelaces, soles, leather knifes and other highly specific products that are in demand by the bigger companies. A skilled workforce (due to the big socialist shoe company in Kumanovo), contacts (with foreign partners), and access to cheap capital (provided by foreign partners) proved crucial for the development of this sector.

The bicycle producer "Sobim" is another example of success [slide 10]: in the early 1990s two brothers, owners of three clothes shops in downtown Kumanovo, started to sell bicycles as a side-activity. Trade grew so quickly that by the mid-1990 they stopped their former core-business altogether and concentrated on bicycles instead. They started to import components of bicycles and to assemble them themselves. Two years ago, they began to substitute some of the parts with own production. Today the company employs 75 people and sells more than 40,000 bicycles a year, mainly exported to Slovenia, Serbia and Bosnia. However, not a single component Sobim is not producing itself is manufactured in Macedonia. Unlike in the local shoe industry, the bicycle company has not led to the growth of small companies supplying individual components.

The biggest obstacles to stronger growth and diversification of the private sector are the lack of human capital (relevant skills, innovative ideas), the lack of access to cheap financial capital and a lack of infrastructure [slide 11].

Government responsiveness to the needs of private entrepreneurs is weak [slide 12]. One of the primordial problems is the lack of (most basic) information, which results in a striking lack of policies (in the areas of urban planning, infrastructure development and economic policies). One of the key indicators for success of the on-going decentralisation process in Macedonia will be if government responsiveness in these areas will be improved.

Please click here for the slide show presentation (.pdf 215kB approx.)