The Development of International Trade: The Future Aim of Macedonia

The Development of International Trade: The Future Aim of Macedonia PhD Nasir SELIMI Business and Economics Faculty, South East European University, lindenska nn, 1200 Tetovo, Republic of Macedonia E-mail: n.selimi@seeu.edu.mk Abstract The development of international trade today represents with no doubt one of the priorities of the world economies. Scientific studies dealing with the relationship between foreign trade and economic development are numerous and with no doubt increase the interest among the readers. With no doubt, researchers make a variety of analyzes and conclusions that presents valuable contributions to the science of economics. Macedonia in its macroeconomic policy as a priroty enlist the development of international trade. Unfortunately, Macedonia in 2011 showed that the existing problem of trade deficit, again reached a very high percentage. This is a signal that warns the country s economy in the present and in the future. The causes of this situation are various, but some are more fundamental. As one of the most is undoubtedly the global financial and economic crisis that are present especially in the European Union member countries. Countries being in this situation, reduced the demand for goods from the difficult companies from Macedonia. But this is not the only reason for the difficult position of Macedonia in 2011. Another unfavorable reason is the economic structure of the Macedonian economy which perhaps is the most important reason. To get out of this situation, Macedonia in the future must change its economic structure and should be oriented in producing goods that are required more in the global market. It cannot hope to compete in the world market with the goods that competes nowdays to be able to improve the balance of foreign trade. Keywords: Export, import, trade balance, deficit, surplus. Introduction The development of international trade today represents with no doubt one of the priorities of the world economies. Countries have paid a special attention and dedicated themselves to this important factor for economic development since ancient time. It is no coincidence that people, who have been leaders in economic and social development, also have been the leaders of world trade. Even today, the U.S. Germany, Japan, as major economic forces in the world, rank themselves as the world leaders in terms of their participation in the global trade. China, India and other developing countries are increasing their presence in the world market. 119 www.hrmars.com

Scientific studies dealing with the relationship between foreign trade and economic development are numerous and with no doubt increase the interest among the readers. With no doubt, researchers make a variety of analyzes and conclusions that presents valuable contributions to the science of economics. The scientific study of two professors from the University of Hardward, Sachs and Warner (1995) show that developing countries during the `70 and` 80 opened their markets to the world, and had an average economic gain of 4.5%, whereas closed economies only 0.7%. They also stated that developed countries with open economies have an economic growth of 2.3%, while those countries with closed economies had only 0.7% of economic growth. A same conclusion was reached in a scientific study in 2003 carried by economists Wacziarg and Horn Welch. It is a fact that most economists are for developing international trade. The majority of economists support the open economy and foreign trade development considering the benefits gained from it compared to the damage that may have them. The following are to be found as the biggest benefits that come from open economies: more supplies of goods, goods and services with higher quality offered to customers, increased welfare, technology development, increased research and scientific research, etc. Macedonia in its macroeconomic policy as a priroty enlist the development of international trade. The role and its importance of international trade development was empahsized with the moment of becoming a member of World Trade Organization in 2003. The process of membership brought the country many benefits, but also obliged the coutry with duties and regulations to follow and obey them. When the questions of the volume of benefits that arise from the point of an open economy, many scientist, administrators and other intereted parties are curious about its benefits compared to possible damages. It is clear that the benefits of member states overcome the damages, othervise countries would not show interest in WTO membership. Even with the case of Macedonia, there are claims that support the theory of protectionism but the majority are for the idea that the open economy and international trade liberalization it is a must. From its membership in this organization the economic growth and trade balance increased in a yearly bases noticably. The increase in exchange trade with other countries impacts positively the development of the economy and business in general. Exporting Goods Of Macedonia The Republic of Macedonia during the year 2011 made an exchange trade of 11.462 million US dollars. This exchange compared to that of the year of 2010 shows an increase of 30.9 %. The export part in the exchange trade structure of the year 2011 is 38.9%, whereas in 2010 was 37.7. On the other hand the import in the overall structure of trade exchange shows a slight decrease of 1.9%. In 2010, the import represented 62.3% of trade exchange, whereas in 2011 it is 61.1%. A such trade balance of foreign exchange trade where export constitutes only one third of the exchange make us aware that the trade is not favourable, eventhough this year it 120 www.hrmars.com

has a slight improvement. The export coverage of import in this analysed year is 63.6%, which compared with the last year of 60.6% shows an increase of 4.9%. Table 1: External Trade Scope of the Republic of Macedonia, 2011 (in milion US$) Amount in 000 USD I n d e x 2010 2011 2011/2010 Exchange volume 8.753 11.462 130.9 Export 3.302 4.455 134.9 Import 5.451 7.007 128.5 Trade deficit 2.149 2.552 118.8 Covering import with export % 60.6 63.6 104.9 Source: State Statistical Office of Macedonia, Skopje, 2012 The data on table: 1 are shown with the following figure: Figure 1: Exchange, export and import in Macedonia in 2011 Facts show that Macedonia still in 2011 had a high trade deficit with an amount of 2.552 million US dollars. The trade deficit of the year 2011 compared to the trade deficit of the previous year that was 2.149 million US dollars, notes an increase of 18.8%. The trade deficit of the year 2011 represents 22.3% of the total exchange, but in the year 2010 the same indicator reached the amount of 2.149 and contained 24.5% of the total exchange. From the above facts it can be noticed that the trade deficit part in trade Exchange in year 2011 shows a slight decrease of 2.2 % which is a positive sign, but this decrease does not follow the pace of the increase of overall trade exchange which is 30.9 %. The export in the year 2011 reached an amount of 4.455 million US dollars, whereas the import in the same year was 7.007 million US dollars. Import coverage with export is 63.6%. 121 www.hrmars.com

Export Activities According to Types of Goods In 2011 Macedonia had a total export of U.S. $ 4455 million. This compared with a year ago marks an increase of 34.9%. Firms from Macedonia during 2011 mostly exported: chemical products, animal and vegetable oils, iron and steel products, ferronickel, tobacco, beverage, textile products, processed oil and car and transport equipments. Although this year marked an export promotion compared with a year ago, its export is still low. The main causes of this situation are: the unfavorable structure of the export that Macedonia has, the global economic crisis and the reduced demand for products in international market, etc. The following table provides the structure which reflects the export of Macedonia in 2011 and its performance index compared with the previous year. Table 2: The Export in Macedonia According to Types of Goods in 2010/2011 (US million dollars) Sectors Export Index Structure 2010 2011 2011/2010 2011 TOTAL: 3.302 4.455 134.9 100.0 Food products 328 373 113.6 8.4 Beverages and tobaco 202 234 116.0 5.3 Crude materials except fuels 259 288 110.9 6.5 Mineral fuels, lubri. and related materials 257 372 144.7 8.4 Animals and vegetables oils and fats 11 18 157.8 0.4 Chemicals and products 382 747 195.7 16.8 Manuf.goods classified mainly by materi. 990 1.231 124.4 27.6 Machinery and transport equipment 153 352 230.8 7.9 Miscellanius manufactured articles 715 834 116.7 18.7 Special transactions and commodities n.s 2 3 118.5 0.1 Source: State Statistical Office of Macedonia, Skopje, 2012 The above mentioned table shows the structure of exports of goods of Macedonia in 2011, there are not any major changes compared to previous year. Thus, products classified by material participate with 27.6% in the overall export. Next, there are various finalized products with 18.7%, chemical products with 16.8, food products 8.4%, vehicles and transport equipments with 7.9%, etc. This structure of products that Macedonia exports are not suitable because of their additional value is not great and their prices are very sensitive on the occurrence of any crisis in the foreign market. We can notice also from the same table that exports in 2011 increased in all types of goods exported. The highest increase of export in 2011 was recorded in the group of products of 122 www.hrmars.com

machines and transport equipments by 130.8%, companies compared with a year ago has exported more of this group of products with 199 million dollars. A significant growth has also marked the export of chemical products with an increase of 365 million US dollars, whereas the group of products classified by material for 241 million US dollars. Although a greater increase of export may be justified to the emergence of the global economic crisis, yet this level of exports in Macedonia has deeper roots. Macedonian products gradually lose its markets with products from other countries due to the loss of competitiveness in the global market. Figure: 2. Export in Macedonia According to Types of Goods, 2011 2.2. The Export of Macedonian Goods by Region In 2011 over half of Macedonian export was carried out in the EU 27 member states (63.8%). The rest was exported (27.6%) in the Western Balkan countries. The highest proportion of export Macedonia realized with less developed countries (43, 7%) and other with developed countries (30, 2%). However this increase does not change a lot in the total volume of export of the country, because the share of exports to these countries is very small and irrelevant. Macedonia's exports grow by 33.2% with EU member countries compared with a year ago. This fact encourages for a greater increase in the future, especially when we consider the participation of large exports of these countries in general structure of the Macedonian export. The export growth in 2011 was also marked with the countries of the Western Balkan (20.7%). Unlike the fact in 2010 when exports to these countries was 1017 million USD, whereas in 2011 exports registered an increase and amounts to 1228 million USD. The export has marked positive results also with developing countries and has increased by 76%. 123 www.hrmars.com

Table 3: Macedonian Export Based on Regions 2010/2011 in (milion USD) Countries Export Index Structure 2010 2011 2011/2010 2011 TOTAL: 3.302 4.455 134.9 100.0 Developed countries 2.074 2.843 137.1 63.8 EU countries 27 2.025 2.698 133.2 60.6 EFTA 20 32 157.6 0.7 Other developed countries 28 113 402.2 2.5 Non developped countries 4 21 537.0 0.5 Developping countries 206 363 176.4 8.1 West Balkan countries 1.018 1.228 120.7 27.6 Source: State Statistical Office of Macedonia, Skopje, 2012 If we look at table and the graph below, we will notice that the countries that Macedonia has mostly conducted trade in 2011 were: Germany, where exported goods worth of USD 1242 million. This general structure of the Macedonian export represents 27.9% of total exports. The second partner of Macedonia regarding its export in 2011 is Kosovo. Macedonian companies exported goods at a total value of USD 541 million or 12.1% of total exports realized. This huge amount of export realized with Kosovo makes the country to have better coverage of imports with exports reaching approximately 150.4%. Kosovo represents the best market for the country. There are few countries with which Macedonia has trade surplus, and worth mentioning: Germany (170%) and Netherlands (127%). The decrease in exports from the last year continues also with other countries that were Macedonia's key partners such as: Greece, Italy and Bulgaria. In 2009, Macedonia has exported nearly 50% of goods in these five countries. Loss of market share in these countries is worrying for the country. There are various reasons for this, but we should not underestimate the competition from other countries and losing market share in these countries. In 2011, some excellent results were achieved in exporting goods to the market in Kosovo. Goods were exported worth of 541 million USD. This amount in the overall export structure of Macedonia comprises 12.1% and is ranked second, immediately after Germany. 124 www.hrmars.com

Figure 3: Export in Macedonia According to Regions 2010/2011 Table 4: Macedonian Export Based on Regions 2010/2011 in ( milion USD) Export Index Structure Countries 2010 2011 2011/2010 2011 TOTAL 3.302 4.455 134.9 100.0 Germany 693 1.242 179.2 27.9 Serbia 272 333 122.4 7.5 Greece 245 215 87.7 4.8 Italy 235 290 123.4 6.5 Russia 27 39 144.4 1.0 Bulgaria 294 308 104.8 6.9 Kosova 438 541 123.5 12.1 Croatia 124 140 112.9 3.1 Turkey 51 73 143.1 1.6 China 88 127 144.3 2.9 Slovenia 69 88 127.5 2.0 Romania 54 46 85.1 1.0 Holland 87 20 22.9 0.7 Spain 74 66 89.2 1.5 Great Britain 59 54 91.5 1.2 Switzerland 19 31 163.1 0.7 Bosnia and Herz. 85 93 109.6 2.1 Austria 37 38 102.7 1.0 France - 21-0.5 Ukraine 21 96 457.1 2.2 Source: State Statistical Office of Macedonia, Skopje, 2012 125 www.hrmars.com

The next figure also shows that the most important partners for Macedonia are Germany with 27.9% of its export, Kosova with 12.1%, Serbia with 7.5%, Bulgaria with 6.9%, Italy with 6.5%, etc. Figure 4: The Most Important Partners for Macedonia, 2011 The Import Of Macedonia The Import Of Products In 2011, Macedonia realized import of 7.007 milion US dollars. This amount is higher for 1556 million US dollars or 28.6% more than in 2010. The goods that showed most increase in this year compared to 2010 are: oil and gas with 440 million USD or 48.6%. This position is important for the import of Macedonia, because participation in the structure of imports is high, over 20%. Another group, which also takes an important place in the structure of import is (accounted for 27.8%) is the oil and gas which increased to 575 million USD or 41.9%, animal and vegetable oil for USD 114 million or 20.4%. The growth of import is also important for economic development in a country, moreover if there is an increase or decrease in the raw material for production of the final goods. One of the very important positions is that equipment of machines and transports which shows the supply of the country with various machines that could be introduced in order to produce the goods in that country. During this period companies faced with a lack of funds, so the demands for importing goods from abroad was limited. 126 www.hrmars.com

Table: 5 The Import of Macedonia According to Types of Products, 2010/2011 in (million USD) Sectors Import Index Structure 2010 2011 2011/2010 2010 TOTAL: 5.451 7.007 128.6 100.0 Food products 558 672 120.4 9.6 Beverages and tobacco 58 69 119.7 1.0 Crude materials except fuels 288 366 127.0 5.2 Mineral fuels, lubri. and related materials 997 1.437 148.6 20.5 Animals and vegetables oils and fats 52 76 145.9 1.1 Chemicals and products 663 827 124.9 11.8 Manufactured goods classified mainly by materials. 1.375 1.950 141.9 27.8 Machinery and transport equipment 1.091 1.173 107.6 16.7 Miscellanius manufactured articles 393 432 109.8 6.2 Special transactions and commodities n.s 7 5 71.2 0.1 Source: State Statistical Office of Macedonia, Skopje, 2011 Figure: 5 The Import of Macedonia according to types of products, 2011 127 www.hrmars.com

The structure of import of products in Macedonia 2011 consisted primarily of the following goods: products according to classified material (27.8%), vehicles and transport equipments (16.7%), oil and gas (20.5%), chemical products (11.8%), food products (9.6%) etc. The Macedonian Import According to Countries Table: 6. The Import Based on Regions in Year 2010/2011 in (million USD) Countries Import Index Structure 2010 2011 2011/2010 2011 TOTAL: 5.451 7.007 128.6 100.0 Developed countries 3.260 4.260 130.7 60.8 EU countries 27 2.897 3.806 131.4 54.3 EFTA 101 177 176.0 2.5 Other developed countries 262 276 105.3 3.9 Non developped countries 57 73 129.0 1.0 Developping countries 1.507 1.876 124.5 26.8 West Balkan countries 627 799 127.4 11.4 Source: State Statistical Office of Macedonia, Skopje, 2012 Imports of Macedonia in 2011 was over half (60.8%) with developed countries, 26.8% with developing countries and 11.4% with the Western Balkans. Fortunately during the 2011 as an analytical year, Macedonia had an increase of import of goods with all countries. 128 www.hrmars.com

Figure 6: The Macedonian Import According to Regions, 2011 If we analyze the import of Macedonia in 2011 by countries, then it can be concluded that countries imported in Macedonia were: Germany (10.4%), Greece (8.1%), Russia (9.8%), Serbia (7.1%), Italy (6.0%), etc. Macedonia had with these five countries approximately 50% of imported goods. Table 7: The Macedonian Import According to Countries, 2010/2011 in (milion USD) Import Index Structure Countries 2010 2011 2011/2010 2011 TOTAL 5.451 7.007 128.5 100.0 Germany 610 729 119.5 10.4 Serbia 418 498 119.1 7.1 Greece 449 566 126.1 8.1 Italy 327 419 128.1 6.0 Russia 553 684 123.7 9.8 Bulgaria 301 458 152.2 6.5 Kosova 22 36 163.6 0.5 Croatia 113 133 117.7 1.9 Turkey 260 344 132.2 4.9 China 287 355 123.6 5.1 Slovenia 165 185 112.1 2.6 Romania 126 94 74.6 1.3 Ukraine 117 157 134.2 2.2 129 www.hrmars.com

Great Britain 283 591 208.8 8.4 Switzerland 97 172 177.3 2.5 Bosnia and Herz. 49 90 183.7 1.3 Austria 94 133 141.5 1.9 France - 126-1.8 Holland 68 69 101.5 1.0 Spain 60 69 101.5 1.0 Source: State Statistical Office of Macedonia, Skopje, 2009 Figure 7: The Macedonian Import According to Countries, 2011 3.1 Exchange Trade, Import Coverage by Export, and Trade Deficit Table 8: The Export, Import, Trade Volume and Import Coverage with Export of Macedonia with Countries, in 2011 (million USD) Countries Export/Import Trade Import Coverage Volume with Export 2011 2011 2011 2011 TOTAL 4.555 7.007 11.463 63.6 Germany 1.242 729 1.971 170.4 Serbia 333 498 831 67.0 Greece 215 566 781 38.0 Italy 290 419 709 69.2 Russia 39 684 723 5.8 Bulgaria 307 458 765 67.2 Kosovo 541 36 577 1.500.4 130 www.hrmars.com

Croatia 139 133 273 104.9 Turkey 73 344 417 21.3 China 127 355 482 35.9 Slovenia 88 185 274 47.6 Holland 87 69 156 127.2 Romania 46 94 141 49.0 France 20 125 146 16.3 Switzerland 31 172 203 18.3 Great Britain 54 591 645 9.2 Ukraine 96 158 253 60.8 Bosnia& 93 90 183 103.3 Herzegovina Austria 38 133 171 28.7 Spain 66 63 129 105.4 Source: State Statistical Office of Macedonia, Skopje, 2012 It can be observed from the above table one of the important indicators of international trade, thus covering the import with export. This statistical indicator tells us how a country covers import of goods with exports in general and individually with each foreign country. This is particularly important in foreign trade policy of a country, because for a country both exports as well as imports are important. In 2011 the coverage of import by export in Macedonia was 63.6%. This indicator shows that Macedonia covers import by export, while the other half is foreign currency payments larger than the foreign currency revenues. If we analyze the coverage of imports by exports of Macedonia with individual countries, we will notice that with the majority of countries Macedonia has an unfavorable position which means there is a deficit. The most unfavorable position is with the UK where imports are covered by exports by only 9.2%. From this country Macedonia imported goods worth 591 million USD, while exported goods worth 54 million USD. There is also a great balance deficit with Austria where import coverage by export accounts for only 28.7%, Turkey with 21.3%, etc. In 2011, as well as in other past years, Macedonia index was better with Kosovo. This means that Macedonia in Kosovo exports more than imports and that this import coverage by export was 1500.4% in this country. So, Macedonia has the highest trade surplus with Kosovo. In 201,1 Macedonia had trade surplus with Germany (70.4%), Bosnia and Herzegovina (3.3%) and Netherlands (27.2%). The volume of trade also represents a significant indicator of foreign trade policy. Fortunately, this indicator improved in 2011. In this year, 2011, it marks an increase of 4.7%. The most important partners in international trade of Macedonia are Germany, Kosovo, Serbia, Greece, Italy, Bulgaria, etc. The following table gives an illustration of exports, imports, balance and coverage of imports by exports in the years 1990-2011. 131 www.hrmars.com

Table 9: Export, Import, Balance and Coverage, 1990-2011 Year Export Import Balance Coverage 1990 1.112.786 1.530.851-418.065 72.7 1991 1.095.450 1.274.166-178.716 86.0 1992 1.198.626 1.206105-7.479 99.4 1993 1.055.298 1.199.351-144.053 88.0 1994 1.086.343 1.484.092-397.749 73.2 1995 1.204.048 1.718.904-514.856 70.0 1996 1.147.440 1.626.917-479.477 70.5 1997 1.236.808 1.778.515-541.707 69.5 1998 1.310.679 1.914.663-603.984 68.5 1999 1.191.266 1.776.151-584.885 67.1 2000 1.322.617 2.093.872-771.255 63.2 2001 1.155.068 1.687.600-532.532 68.4 2002 1.112.727 1.962.110-849.383 56.7 2003 1.363.252 2.299.921-936.669 59.3 2004 1.673.490 2.903.430-1.229.940 57.6 2005 2.041.265 3.227.998-1.186.733 63.2 2006 2.400.715 3.762.715-1.362.001 63.8 2007 3.356.248 5.227.576-1.871.328 64.2 2008 3.978.231 6.851.673-2.873.442 58.1 2009 2.691.528 5.043.115-2.351.587 53.2 2010 3.301.829 5.450.669-2.148.840 60.7 2011 4.455.375 7.007.251-2.51.876 63.6 Source: State Statistical Office of Macedonia, Skopje, 2012 It can be seen from the above table that Macedonia's exports and imports starting in 1990 until the year 2011 have increased from year to year. This growth stopped in 2009 when for the first time Macedonia declined in exporting and importing goods. Unfortunately, in this period from analyzes there is an increase in deficit, while its record was marked in 2008 when the same reached 2873 million USD. The import coverage by export also declined each year. It can be seen easily from the table that the country's trade deficit grows every year more and more. If the volume of trade was greater, then surely this would be even greater. It should be noted also that if the price of oil on the world market is higher (Macedonia is a big importer of this product), the deficit will probably be much higher. 132 www.hrmars.com

Conclusion Macedonia during the year 2011 marked some good results in foreign trade. After the collapse of trade exchange in 2009, Macedonia showed an increase in trade exchange. This increase is evident in the general exchange of goods, exports, imports of goods and the increase of the index of import coverage by export. A disturbing fact is that the structure of import of goods shows that domestic companies do not import raw materials and other materials for production as well as machines which adversely affect their work. Unfortunately, Macedonia in 2011 showed that the existing problem of trade deficit, again reached a very high percentage. This is a signal that warns the country s economy in the present and in the future. The causes of this situation are various, but some are more fundamental. As one of the most is undoubtedly the global financial and economic crisis that are present especially in the European Union member countries. Countries being in this situation reduced the demand for goods from for the difficult companies from Macedonia. But this is not the only reason for the difficult position of Macedonia in 2011. Another unfavorable reason is the economic structure of the Macedonian economy which perhaps is the most important reason. This is emphasized because Macedonia had a more or less identical condition in the past years. Macedonia's economy still competes in the international market with goods whose added value is low and in case of occurrence of crises in the world market they suffer more than other goods. To get out of this situation, Macedonia in the future must change its economic structure and should be oriented in producing goods that are required more in the global market. It cannot hope to compete in the world market with the goods that competes today to be able to improve the balance of foreign trade. Another reason which has also a significant impact on the development of Macedonia's foreign trade is the quality products of Macedonian companies. Our managers have to follow the development of science and technology and apply that in the industry. Domestic products should meet the criteria required by international standards. They should improve the functionality and performance of customer requests. Improving the quality and design of local products will enable to be competitive with other products in the global market. Managers of companies along with state representatives should also be more determined in finding new markets for their products. Keeping and retaining current markets should be one of the concerns of managers of firms who trade on foreign markets. The next challenge should be to increase the number of firms that develop their activities abroad, while the state should stimulate them and provide favorable conditions to these firms. In this regard the contribution of the state authorities, various associations, organization of fairs in the country with an international character, the participation of businessmen in trade fairs abroad and the use of advertising and promotions is undeniable. References State Statistical Office of Macedonia, (2012), Statistics, Skopje: Search Database. 133 www.hrmars.com

State Statistical Office of Macedonia, (2011), Statistics, Skopje: Search Database State Statistical Office of Macedonia, (2010), Statistics, Skopje: Search Database. State Statistical Office of Macedonia, (2009), Statistics, Skopje: Search Database. OECD (2011), Economic Globalization Indicators Measuring Globalization,Paris http://www.oecd.org/statistics/ (Accessed: 09, 2012). OECD (2010), Investment Reform Index, http://www.oecd.org/statistics/ (Accessed: 10, 2012). World Bank, (2012), Data World Bank, Washington: World Bank Publishing. Sachs, J. & Warner, A., (1995), Economic Reform and the Process of Global Integration, World Development Indicators, (CD-ROM Data), Washington D.C. 134 www.hrmars.com