Evaluation Insights: Private Sector Development in North Macedonia

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Series Evaluation Insights for Policy and Programming

Evaluation Report: IPA II 2017 and IPA II 2019 Annual Action Programmes
Policy-Oriented Synthesis for Decision-Makers, Practitioners, and Stakeholders

Context

The Republic of North Macedonia is a candidate country for European Union membership, and private sector competitiveness is a cornerstone of its accession agenda. The country’s economy is dominated by micro, small, and medium-sized enterprises (SMEs), which operate in a challenging environment marked by a large informal economy, administrative inefficiencies, skills shortages due to emigration, and limited access to non-traditional finance. These structural constraints are compounded by external shocks, including the COVID-19 pandemic and the indirect effects of Russia’s invasion of Ukraine, which further strained the business environment.

EU support to North Macedonia’s private sector falls under Cluster 3 of the accession framework — Competitiveness and Inclusive Growth. The two Annual Action Programmes (AAPs) evaluated, financed under the Instrument for Pre-Accession Assistance (IPA II) for 2017 and 2019, sought to address these structural gaps by improving the regulatory framework, strengthening institutional capacity, and expanding SME access to finance and business support services. The country’s progress in EU alignment, including its alignment with the EU acquis, remains a key benchmark for future accession negotiations.

Intervention Overview

The evaluation covers two IPA II Annual Action Programmes with a combined budget of EUR 20 million (IPA 2017: EUR 6 million; IPA 2019: EUR 14 million), implemented between December 2017 and June 2025. Three distinct projects were evaluated:

Strengthening the Internal Market (implemented by WeGlobal consortium) focused on legislative alignment with the EU acquis, particularly Chapters 1, 3, and 6 relating to the Free Movement of Goods, Services, and Company Law. It provided technical assistance to the Ministry of Economy, the State Market Inspectorate, and the Bureau of Metrology (BoM), and supported North Macedonia’s EU screening process.

EU for Economic Growth (EU4EG) (implemented by GIZ and Area Science Park Trieste, funded at approximately EUR 9.5 million) launched in February 2021 with a 48-month duration. It established four regional business accelerators in the North-East, Polog, South-West, and Prespa (Resen Municipality) regions, developed an online learning academy for BSOs and SMEs, and implemented a grant scheme for high-value business initiatives.

SME Competitiveness Support Programme (implemented via the European Bank for Reconstruction and Development, EBRD) aimed to increase access to finance through a two-tiered lending mechanism, disbursing sub-loans to SMEs through Partner Financial Institutions (PFIs). The EU contributed investment incentives of up to EUR 4.5 million and technical assistance of up to EUR 1.24 million alongside the EBRD credit line.

The evaluation applied all six OECD DAC criteria (relevance, coherence, effectiveness, efficiency, impact, sustainability), supplemented by the EU-specific criterion of added value.

Evidence: What Worked

Legislative alignment and institutional capacity building were the strongest documented outputs of the Strengthening the Internal Market project. The project delivered a comprehensive package of draft laws and bylaws critical to the EU screening process, including the Law on Services, Company Law, and numerous bylaws aligned with the Services Directive and Free Movement of Goods requirements. National authorities stated the project was “crucial during the EU screening process” and acknowledged they would not have performed as well without it.

Micro-level business improvements were clearly documented through field visits to 25 supported SMEs. Firms reported modernization of machinery, improved production processes, energy efficiency gains (including photovoltaic installations expected to yield benefits for at least 30 years), waste reduction, and access to new domestic and export markets. Individual companies cited specific achievements: a construction firm hired three new machinists following equipment investment; another anticipated 12 new jobs, primarily for women, following the installation of new production lines.

The EU4EG project’s accelerator and grant scheme achieved demonstrable results at programme close. According to GIZ, the project supported over 100 MSMEs and startups, created 265 new jobs, achieved an average performance increase of 30 percent among supported companies (above the 10 percent target), and disbursed over EUR 5.5 million in grants. A total of 129 new products and services were launched, and 37 new companies were established. The grant component was consistently identified as the primary incentive for SME and startup participation, enabling many businesses to survive or accelerate their development trajectory.

The EBRD-managed credit line disbursed nearly EUR 30 million in sub-loans, achieving 99 percent of its target almost two years ahead of schedule. The programme supported 177 sub-projects (exceeding the target of 120) and 143 SMEs accessed finance through dedicated credit lines (also above target). It exceeded its Green Economy Transition target, with 70 GET-eligible investments realized, and helped 696 entrepreneurs and managers gain awareness of EU compliance standards.

Metrology capacity building produced measurable gains at the Bureau of Metrology. The BoM’s accreditation scope was extended following capacity development in petroleum testing, water meter verification, and metrology chemistry. A five-year national metrology strategy for 2025 to 2030 was drafted in close cooperation with the BoM.

Evidence: What Did Not Work

The legislative adoption gap is the central failure of the Strengthening the Internal Market project. At the time of evaluation, none of the legislative outputs prepared by the project had been formally adopted by the government. The resulting regulatory vacuum meant that technically sound and well-received draft laws had no tangible impact on the business environment. Delayed approval also risks making the legal drafts obsolete as the EU acquis continues to evolve.

EBRD loan instruments did not shift structural financing dynamics. SME interviews consistently indicated that the real gap was not credit availability but access to grants. The loan-based mechanism primarily benefited already-bankable firms; banks reportedly continued lending to their established clients under the scheme and may even have profited from higher interest rates linked to the grant incentive structure. The scheme did not meaningfully alter lending behavior toward riskier or early-stage enterprises.

Sustainability of accelerators and Business Support Organizations (BSOs) remains fragile. Many BSOs were found to be donor-dependent rather than market-driven, with no viable business model beyond project funding. The EU4EG project lacked a clear exit strategy. The Kumanovo accelerator had not been built at the time of evaluation, and several accelerators lacked essential staff capacity to maintain operations independently. A pre-existing SME development center in Kumanovo (Foundation for SMEs Development Kumanovo, active for over a decade) appears not to have been leveraged, raising questions about coordination.

Gender and youth inclusion was insufficiently addressed across all interventions. Systematically disaggregated data was not consistently collected, and support structures tended to favor larger and more established enterprises better equipped to navigate complex application processes. Smaller, informal, and rural businesses remained largely excluded.

Administrative complexity deterred uptake. Grant application procedures were described as cumbersome and time-consuming by SMEs and startups. One example cited a period of 10 months from the start of accelerator sessions to contract signing. Energy audits required under the EBRD scheme imposed unexpected costs on companies. Multiple verification processes were seen as burdensome without commensurate benefit.

Lessons Learned

Outputs without implementation are not outcomes. The most critical lesson across all three interventions is that technical production does not equal impact. Legislative drafting, capacity training, and platform development only deliver results when adopted, enforced, or actively used. Future interventions must build adoption pathways, political follow-up mechanisms, and institutional accountability into project design from the outset.

Sustainability must be designed in, not added on. The recurrent concern expressed by stakeholders — “what will happen after the project?” — reflects a systemic design gap. Sustainability plans, handover strategies, and national budget allocations for continuation must be explicit deliverables with assigned responsibility, not aspirational appendices.

Grant mechanisms are more effective than loan instruments for early-stage and underserved SMEs. Evidence from all three interventions converges on this point. Seed capital, guarantee funds, and startup grants better suit the realities of North Macedonia’s SME landscape than traditional banking instruments. Development tools should shift focus from “access to finance” to “access to grants”.

Staff turnover erodes institutional gains. Frequent changes in government leadership and administrative personnel disrupt knowledge continuity, undermine capacity already built, and compromise current and future interventions. This systemic risk requires explicit mitigation through knowledge management systems, internal mentorship cascades, and retention incentives.

Local BSO ecosystems need market-oriented restructuring. Many BSOs resist participating without upfront payment and are structurally oriented toward donor deliverables rather than real market demand. Fostering a professional, fee-based consulting sector is a prerequisite for lasting business support infrastructure.

Inter-institutional coordination requires active management. Overlapping regional IPA programs addressing similar issues, combined with a fragmented donor landscape, led to potential duplication. The absence of structured coordination mechanisms across EU-funded interventions limited collective impact.

Implications for Policy and Programming

For the European Commission and EU Delegation North Macedonia: Future programming should make legislative adoption a co-financed deliverable rather than a political assumption. This means developing time-bound adoption action plans, assigning explicit responsibility within beneficiary institutions, and linking disbursements to implementation milestones. The EU’s unique political leverage in the accession context should be exercised more proactively in driving parliamentary adoption of prepared legislation.

For national authorities (Ministry of Economy, Agency for Entrepreneurship, Fund for Innovation): Reforms prepared through technical assistance must be followed through with political commitment and national budget resources. Project results should be institutionalized within specific public bodies from project inception rather than treated as external deliverables. Regular inter-ministerial coordination on SME policy, supported by evidence from evaluations, should replace fragmented program ownership.

For implementing partners and donors: Administrative procedures governing grant applications, procurement, and verification must be significantly simplified. Raising procurement thresholds, standardizing documentation requirements, and providing multilingual guidance in practical formats are immediate priorities. The current complexity acts as a de facto exclusion mechanism for smaller and less-established businesses.

For the EBRD and financial partners: A shift from blended loan instruments toward alternative financial tools (guarantee funds, seed capital, startup funds) would better address the documented gap between available lending and actual SME demand. Comprehensive reporting from financial intermediaries, disaggregated by firm size, sector, and borrower profile, is essential for evidence-based decision-making and accountability.

Monitoring and evaluation systems require strengthening. The absence of reliable, disaggregated SME-level data across all evaluated interventions limited the evaluation’s capacity to document macro-level impact. Future programmes should integrate outcome-level indicators (turnover, profitability, job creation disaggregated by gender and age) from the design phase and collect data both during and after the project lifecycle.

Potential for Scaling and Transferability

The EU4EG accelerator and academy model has clear replication potential within the Western Balkans context, particularly for candidate and potential candidate countries with similar SME profiles. The online EU4EG Academy platform represents a scalable, low-cost instrument for BSO capacity development that could be adapted across the region if ownership is transferred to a nationally embedded host organization rather than discontinued at project closure.

The diagnostic tool framework developed under EU4EG — covering 14 thematic areas including energy efficiency, digital maturity, and intellectual property rights — offers a practical needs-assessment methodology for targeting SME investments. Its systematic application before grant allocation improved investment relevance and could be standardized across pre-accession programming.

The Strengthening the Internal Market model for legislative alignment combined with inspectorate capacity building is directly transferable to other candidate countries facing similar acquis alignment gaps. However, scaling requires embedding political commitment mechanisms from the start and ensuring that technical assistance is designed not only to produce outputs but to facilitate their formal adoption.

The EBRD blended finance approach achieved high disbursement efficiency and could be scaled, particularly if financial instruments are diversified beyond traditional bank loans. Any scaling effort must prioritize transparency, comprehensive data sharing protocols, and the inclusion of non-bankable SMEs through alternative instruments.

Critical preconditions for transferability include: sufficient institutional absorption capacity in the beneficiary country, active political support for reform, stable administrative staffing, and meaningful coordination among donors to avoid program fragmentation.

Methodological Notes

The evaluation was conducted by a team of three experts (Karsten Weitzenegger, Vlatko Danilov, and Juela Shano) under the Linpico consortium for the European Commission’s Directorate-General for Neighbourhood and Enlargement Negotiations (DG NEAR). It was classified as a combined mid-term, final, and ex-post evaluation.

The methodology was mixed, combining extensive document review, semi-structured interviews with 49 stakeholders (government officials, implementing partners, and beneficiaries), focus group discussions, and field visits to 25 supported SMEs. Socio-economic assessments were conducted in the four EU4EG target regions.

The evaluation applied the six OECD DAC criteria (relevance, coherence, effectiveness, efficiency, impact, sustainability) plus EU added value. Triangulation was the primary validation mechanism for key findings.

Key limitations acknowledged by the evaluation team include: variable data availability across projects; challenges in attributing macro-level impacts solely to EU interventions; logistical constraints in consulting all stakeholder groups; and limited transparency from the EBRD, which required a special confidentiality protocol signed by the EU Ambassador. Non-experimental evaluation design inherently limits causal attribution.

Stakeholder Perspectives

SMEs and startups consistently valued the grant component above other forms of support. Many described the application process as burdensome and requiring significant external consultant assistance. Companies that received equipment investments reported long-term expected benefits, particularly in energy savings and market competitiveness. Some expressed skepticism about the value of advisory services when not paired with financial incentives, though they acknowledged concrete operational improvements after project participation.

National authorities (particularly at the Ministry of Economy and Bureau of Metrology) expressed satisfaction with the quality of technical outputs and their role in the EU screening process. However, they also acknowledged slow legislative adoption and attributed this partly to limited institutional absorption capacity and frequent staff turnover. Some interviewees described an institutional culture of dependency on external project management rather than internal reform ownership.

BSOs exhibited mixed engagement. Many participated primarily for project-related compensation rather than genuine market development. This donor orientation represented a structural weakness that the projects, by their design, reinforced rather than corrected. Those BSOs that developed market-relevant services reported stronger outcomes and higher beneficiary satisfaction.

University and academic partners involved in accelerator programs reported unexpected positive outcomes: a mindset shift toward applied entrepreneurship, integration of business mentors into academic curricula, and cultural change around startup development. These unintended benefits suggest that university-accelerator linkages may offer sustainable infrastructure beyond project lifespans.

Further Resources and Links

Implementing Organizations

Donors and Funding Partners

National Authorities

  • Ministry of European Affairs (IPA coordination): gov.mk

Knowledge Platforms and Related Resources

Report Citation

Weitzenegger, Karsten, and Vlatko Danilov, and Juela Shano. IPA II Evaluation of programmes related to private sector development (IPA II 2017 and IPA II 2019 – North Macedonia, on behalf of Delegation of the European Union to North Macedonia, LINPICO SARL, Les Arcs sur Argens 2025.

Disclaimer: The author participated in this evaluation. The opinions expressed are solely those of the author and cannot be attributed to any affiliated organizations. Portions of the text and images were supported by artificial intelligence.