Ranked as the fourth 'best reformatory state' out of 178 countries ranked by the World Bank in 2009, 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 was 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 was 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%. Macedonia has one of the highest shares of people struggling financially, with 72% of its citizens stating that they could only manage on their household’s income ‘with difficulty’ or ‘with great difficulty', though Macedonia, along with Croatia, was the only country in the Western Balkans to not report an increase in this statistic. Corruption and a relatively ineffective legal system also act as significant restraints on successful economic development. Macedonia 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.
With a GDP per capita of US$9,157 at purchasing power parity and a Human Development Index of 0.701, Macedonia is less developed and has a considerably smaller economy than most of the former Yugoslav states.
According to Eurostat data, Macedonian PPS GDP per capita stood at 36% of the EU average in 2011.
Infrastructure and e-infrastructureMacedonia (along with Montenegro, Bosnia and Herzegovina and Kosovo) belongs to the less-developed southern region of the former Yugoslavia. It suffered severe economic difficulties after independence, when the Yugoslav internal market collapsed and subsidies from Belgrade ended. In addition, it faced many of the same problems faced by other former socialist East European countries during the transition to a market economy. Its main land and rail exports route, through Serbia, remains unreliable with high transit costs, thereby affecting the export of its formerly highly profitable, early vegetables market to Germany. Macedonia's IT market increased 63.8% year on year in 2007, which is the fastest growing in the Adriatic region.
Trade and investmentThe outbreak of the Yugoslav wars and the imposition of sanctions on Serbia and Montenegro caused great damage to the Republic's economy, with Serbia constituting 60% of its markets before the disintegration of Yugoslavia. When Greece imposed a trade embargo on the Republic in 1994–95, the economy was also affected. Some relief was afforded by the end of the Bosnian war in November 1995 and the lifting of the Greek embargo, but the Kosovo War of 1999 and the 2001 Albanian crisis caused further destabilisation.
Since the end of the Greek embargo, Greece has become the country's most important business partner. (See Greek investments in the Republic of Macedonia.) Many Greek companies have bought former state companies in Macedonia, such as the oil refinery Okta, the baking company Zhito Luks, a marble mine in Prilep, textile facilities in Bitola, etc., and employ 20,000 people. However, local cross-border trade between Greece and the Republic of Macedonia sees thousands of Greek shoppers visiting to purchase cheaper domestic products.
Other key partners are Germany, Italy, the United States, Slovenia, Austria and Turkey.
Tourism is an important part of the economy of the Republic of Macedonia. The country's large abundance of natural and cultural attractions make it an attractive destination of visitors. It receives about 700,000 tourists annually.