Recently ranked as the fourth 'best reformatory state'
out of 178 countries ranked by the World Bank, Macedonia has undergone
considerable economic reform since independence. The country has developed
an open economy with trade accounting for more than 90% of GDP in recent
years. Since 1996, Macedonia has witnessed steady, though slow, economic
growth with GDP growing by 3.1% in 2005. This figure is projected to
rise to an average of 5.2% in the 2006-2010 period. The government has
proven successful in its efforts to combat inflation, with an inflation
rate of only 3% in 2006 and 2% in 2007 and has implemented policies
focused on attracting foreign investment and promoting the development
of Small and Medium-sized Enterprises (SMEs). The current government
introduced a flat tax system with the intention of making the country
more attractive to foreign investment. The flat tax rate was 12% in
2007 and will be further lowered to 10% in 2008.
Despite these reforms, as of 2005 Macedonia's unemployment
rate was 37.2% and as of 2006 its poverty rate was 22%. Corruption
and a relatively ineffective legal system also act as significant restraints
on successful economic development. The Republic still has one of the
lowest per capita GDPs in Europe. Furthermore, the country's grey market
is estimated at close to 20% of GDP.
In terms of structure, as of 2005 the service sector
constituted by far the largest part of GDP at 57.1%, up from 54.2% in
2000. The industrial sector represents 29.3% of GDP, down from 33.7%
in 2000 while agriculture represents only 12.9%, up from 12%. Textiles
represent the most significant sector for trade, accounting for more
than half of total exports. Other important exports include iron, steel,
wine and vegetables.