AUTOMOTIVE COMPONENTS AUTOMOTIVE COMPONENTS SECTOR IN MACEDONIASECTOR IN MACEDONIA

October, 2009October, 2009

MACEDONIA MACEDONIA –– THE PROPOSITIONTHE PROPOSITION

From Macedonia you can more cost effectively serve Western and Central European customers while

capitalizing on the surge in vehicle production in Turkey, Romania and Serbia.

Moreover, your growth in Macedonia will not be constrained by skilled labor shortages.

The recent decisions by Johnson Controls, Johnson Matthey, Montupet, Iskra, V.Orlandi and Borteknik

Otomotiv substantiate this proposition.

Why Macedonia?Why Macedonia?

Investment Investment IncentivesIncentives

CompetitiveCompetitiveWorkforceWorkforce

Excellent Excellent InfrastructureInfrastructure

Investor Investor --friendlyfriendly

GovernmentGovernment

CompetitiveCompetitiveLocationLocation

Higher Profits & Increased Competitiveness

LOCATION LOCATION

Location and Transport InfrastructureLocation and Transport Infrastructure

• Two Pan-European corridors:- East-West Corridor 8, and- North-South Corridor 10

• Road network: 9,205 km

• Railway network: 900 km

• Two international airports: - Skopje - Ohrid

• International ports*:- Thessalonica (Greece) : 250 km- Durres (Albania) : 300 km

* Distance from Skopje

Macedonia’s closeness to the rapidly growing automotive manufacturing base in Central and Eastern Europe and Turkey, makes it an ideal location .The geographical proximity to these markets allows low distribution costs and “just-in-time” product delivery from Macedonia.

POLITICAL ANDPOLITICAL ANDECONOMIC OUTLOOK ECONOMIC OUTLOOK

Political and Economic OutlookPolitical and Economic Outlook

• Political, monetary and macroeconomic stability

• Strategically located for future expansion

• First country in SEE to sign a SAA with the EU in 2001

• EU and NATO candidate country

• FTAs with numerous countries

• Business oriented Government

(re-elected in June 2008 with a 4 year term)

• Welcoming and decisive government ready to serve investors

Improved Business ClimateImproved Business Climate

• Regulatory Guillotine – Flagship project for improving the country’s business environment

• “Silence is consent”, “Cutting red tape”

• Reduced administration fees, time limits, documentation

• "One-Stop-Shop" system for company registration

• "One-Stop-Shop" for cross border trading

• Modernized electronic real estate cadastre

• Foreign companies and foreign citizens can directly own construction land in Macedonia

• Electronic payment of taxes

• A cut in social contributions

• Liberalization of visa regime

Foreign Investment RegimeForeign Investment Regime

• Macedonian Constitution guarantees fair treatment of foreign investors

• Complete protection of the ownership rights of foreign investors

• Republic of Macedonia is member of MIGA(Multilateral Investment Guarantee Agency)

• Investment protection treaties with numerous countries

• 100% foreign ownership of a company allowed

• No restrictions for repatriation of profits

Economic IndicatorsEconomic Indicators

CURRENCY CURRENCY

AVERAGE GROSS SALARY IN 2008 AVERAGE GROSS SALARY IN 2008

€ 430 per month

Macedonian Denar pegged to the DM/€for the last 10 years (€1= MKD 61.3)

Low inflation: avg <2% annually over the last 10 years

(2003: 1.2%, 2004: -0.4%, 2005: 0.5%, 2006: 3.2%, 2007: 2.3%, 2008: 8.3%)

INFLATION INFLATION

2003 2004 2005 2006 2007 2008

FDI BY YEAR (US$ m)

Year

EXPORT BY YEAR (US$ bn)

Year 2008

REAL GDP GROWTH RATE (%)

2003 2004 2005 2006 2007Year 2008

1.41.7

2.02.4

3.43.9

117.8

323.0

97.0

424.2

699.1598.5

2.84.1 4.1 4.0

5.05.9

2007

AccoladesAccolades

4th BEST REFORMERIN THE WORLD

World Bank’s Doing Business 2008 Report

BEST EUROPEAN ECONOMICDEVELOPMENT REGION 2008

Institute of Transport Management, UK

BEST CONSECUTIVE REFORMER OVER THE LAST THREE YEARS IN SOUTH EASTERN EUROPE

Based on the World Bank’s Doing Business Report 2008 , 2009 and 2010

3rd BEST REFORMERIN THE WORLD

World Bank’s Doing Business 2010 Report

Ease of Doing Business Global Rank

OPERATING COSTSOPERATING COSTSand TAXESand TAXES

Average Monthly Gross SalaryAverage Monthly Gross Salary

Source: The Vienna Institute for International Economic Studies (wiiw), Calculations

* Average gross monthly salary in manufacturing industry

Average gross monthly salary

€ change y-o-y in %

Average monthly gross salary in selected countries Average monthly gross salary in selected countries of Central and Eastern Europe in 2008 of Central and Eastern Europe in 2008

Average Monthly Gross SalaryAverage Monthly Gross Salary

Utility and Construction CostsUtility and Construction Costs

Utility prices Utility prices for industry are among the lowest in Europe:

• Electricity: €3.85/100 kWh • Natural gas: €0.385/Nm3

• Water: €1.07/m3 (Skopje area)

Construction CostsConstruction Costs

• The average cost of constructing a factory building shell is around €170-225 per m2

• the sale price of state owned construction land for industrial and production facilities varies depending on the location, from €5 to €40 per m2.

Source: Kuehne-Nagel

Transportation CostsTransportation Costsand Delivery Times from Skopjeand Delivery Times from Skopje

Unbeatable Fiscal BenefitsUnbeatable Fiscal Benefits

Corporate Income TaxCorporate Income TaxMACEDONIA*

POLAND

SLOVAKIA

10%

19%

19%

20%CROATIA

20%CZECH R.

ROMANIA 16%

Personal Income Tax Personal Income Tax ( ( highest rate )highest rate )

MACEDONIA*

CZECH R.*

10%

15%

35%

ROMANIA* 16%

32%

TURKEY

SLOVAKIA 19%

45%CROATIA

POLAND

General VAT RatesGeneral VAT RatesCZECH R.MACEDONIA

CZECH R.

ROMANIA

POLAND

18%

19%

19%

22%

CROATIA 22%

SLOVAKIA 19%

*Flat rateSource: PriceWaterhouseCoopers (Taxes at a glance 2009), National Investment Promotion Agencies

20%TURKEY

TURKEY 18%HUNGARY 16% + 4%

36%HUNGARY

HUNGARY 20%

25%UKRAINE

30%UKRAINE

UKRAINE 20%

• 10% Corporate & Personal income tax (among lowest in Europe)• 0% Tax on retained earnings• Double taxation treaties with many European countries• 0% tax for operation in a Technological Industrial DevelopmentZone• Real estate taxes at 2% - 5%• VAT at 18%, with 5% on specific items• FTAs with EU, EFTA, CEFTA countries; Turkey and the Ukraine; providing access to over 650m customers

Social Security ContributionsSocial Security Contributions

Macedonia Macedonia -- Social Security ContributionsSocial Security Contributions

Comparison Comparison -- Social Security ContributionsSocial Security ContributionsMacedonia 27.9%27.9%

Poland 31.2% 31.2% -- 34.1%34.1%

Slovakia 48.6%48.6%

37.2%37.2%Croatia

Romania 41.2% 41.2% -- 52.4%52.4%

Czech R. 45%45%

16.5%

15%

19% 7.5%

7%

6%

1.4%

1,2%

1%

27.9%27.9%

24.7%24.7%

22%22%

Current

2010

2011

Pension insurance Health insurance Employment insurance

21.2% 9.2% 1.6% 32%32%2008

Turkey 33.5%33.5%

49%49%Hungary

Ukraine 40.4% 40.4% -- 53.3%53.3%

Source: PriceWaterhouseCoopers (Taxes at a glance 2009), National Investment Promotion Agencies

LABOUR LABOUR AVAILABILITYAVAILABILITY

Sustainable Work Force SupplySustainable Work Force Supply

•• 45% of population under 3045% of population under 30•• High intellectual capitalHigh intellectual capital

> 35% increase in total number of undergraduate degrees in 2007 compared to 2006> 85% of high school graduates enrolled in universities in 2008> Multiple vocational high schools in each city

•• TailorTailor--made training programsmade training programs through Vocational Schools or Universities• 6% of GDP spent on education6% of GDP spent on education

Number of Graduates Number of Graduates in High Schools in Technical Fieldsin High Schools in Technical Fields

Number of Graduates in Colleges Number of Graduates in Colleges and Universities in Technical Fieldsand Universities in Technical Fields

Expert Automotive Academic BaseExpert Automotive Academic Base

• specialised engineering vocational secondary schools, currentlyenrolling over 22,000 students

• over 9,000 students studying automotive-related engineering branches on university level

Source: Ministry of Education and Science of the Republic of Macedonia

Labour AvailabilityLabour Availability

Technical Education CentersTechnical Education Centers

Readily Available Labour Force Readily Available Labour Force

Unemployed Persons with Technical SkillsUnemployed Persons with Technical Skills

Source: Employment Service Agency of the Republic of Macedonia (data for 2008)

Excellent Language SkillsExcellent Language Skills

• Every child in Macedonia begins to learn English in the first grade of primary school• Two foreign languages are mandatory in high school: English, and either German, French, or Russian• English is also taught for two years at University level• Regional languages (Serbian, Croatian, Bulgarian, Albanian and Greek) are widely spoken

Foreign Languages Foreign Languages StudiedStudied

Students in Primary Students in Primary Schools, % of TotalSchools, % of Total

Students in Secondary Students in Secondary Schools, % of TotalSchools, % of Total

English 91% 94%

French 22% 32%

German 13% 21%

Italian - 2%

Russian 1% 2%

Turkish - 1%

Source: State Statistical Office of the Republic of Macedonia (Education 2008/2009)

AUTOMOTIVEAUTOMOTIVECOMPONENTS SECTORCOMPONENTS SECTOR

IN MACEDONIAIN MACEDONIA

• Existing engineering and manufacturing tradition

• Legacy of skills available to new investors

• Component production started 1960’s to supply Zastava, Serbia

• State-sponsored customized training programs

• Companies primarily supplying aftermarket

• Most companies have ISO 9001/TS 16949 quality certification

• Markets are Europe, Russia, Turkey, Africa, etc.

• Strategic location to serve automotive plants in Central Europe and Turkey

MACEDONIA MACEDONIA –– The Emerging Hub for The Emerging Hub for Automotive Components ProductionAutomotive Components Production

Automotive Components Production Automotive Components Production

Developed Automotive Supplier BaseDeveloped Automotive Supplier Base

Automotive Components ExportAutomotive Components Export

Growth Index of Automotive Components Export from Macedonia (2002=100)

0

50

100

150

200

250

2003 2004 2005 2006 2007

Export of Automotive Components by Type Export of Automotive Components by Country

Source: ITC UNCTAD / WTO, data for period 2007

PROJECT SCOPEPROJECT SCOPE• $40m automotive components plant;$40m automotive components plant;•• 150 employees initially 150 employees initially –– increasing to 500;increasing to 500;•• First phase production First phase production –– mainly integrated mainly integrated

circuits for German and French markets.circuits for German and French markets.

CONSIDERED COUNTRIESCONSIDERED COUNTRIES•• Macedonia, Poland, Romania andMacedonia, Poland, Romania and SlovakiaSlovakia

WHY MACEDONIAWHY MACEDONIA

• The availability of skilled engineers;• “The increase in costs over the next couple of

years will be significantly lower in Macedonia than in other CEE countries.”;

• Macedonia offers the company just-in-time delivery and minimal freight costs.

Philippe SimonJohnson Controls' VPof global electronics

“The Macedonian government has been extremely committed and I would like to thank its officials for their work in supporting this effort.”

John BarthChairman and CEO

Johnson Controls

“It’s one of the best experiences we have had in Europe”Richard G. Klaver

JCI Project Manager

Cornerstone laying Cornerstone laying ceremony, 05.10.2006ceremony, 05.10.2006

Official openingOfficial opening12.12.200712.12.2007

Johnson Controls Johnson Controls -- SkopjeSkopje12.12.200712.12.2007

PROJECT SCOPEPROJECT SCOPE• Up to €55m automotive components plant (in phase 1);• 150 employees in phase 1.

CONSIDERED COUNTRIESCONSIDERED COUNTRIES• Reviewed: Bulgaria, Croatia, Estonia, Latvia, Lithuania,

Slovenia, Romania, Ukraine, Czech, Poland, Hungary, Slovakia;

• Initial choice: Czech Republic.

Macedonia a “Late entrant”

WHY MACEDONIAWHY MACEDONIA• Macedonia scores best for labour,

slightly lower on logistics;• Labour availability looking very good

for Skopje;• Our experience has been positive,

Invest Macedonia, Ministry and others superb;

Colin Jaffray, Director, Strategic Planning, Johnson Matthey PLC,Presentation Skopje June, 2007

Signing of the Memorandum of Cooperation Signing of the Memorandum of Cooperation between Mr.Jaffray, Director, Strategic Planningbetween Mr.Jaffray, Director, Strategic Planning

and Prime Minister Gruevskiand Prime Minister GruevskiMarch 2007March 2007

• This will be JM’s ‘mega-European plant’ and the largestever single investment project.

Johnson MattheyJohnson Matthey

SIZE OF INVESTMENTSIZE OF INVESTMENT– Upwards of €60M– 10Ha parcel in TIDZ ”Skopje 1”– 500 employees – Aluminum cylinder heads – Supplier to: Ford, PSA, Renault

CONSIDERED COUNTRIESCONSIDERED COUNTRIES– Reviewed:

Bulgaria, Romania, Czech Republic– Initial choice: Bulgaria

WHY MACEDONIAWHY MACEDONIA– Available, qualified labour and stable competitive wages– Tax benefits in TIDZ “Skopje 1” and Government incentives– Faster decision-making, less bureaucratic hassles– Decisive Government willing to win!

Signing of the Memorandum of Understanding betweenSigning of the Memorandum of Understanding betweenMr. Majus, CFO and Prime Minister GruevskiMr. Majus, CFO and Prime Minister Gruevski

May 2008May 2008

SIZE OF INVESTMENTSIZE OF INVESTMENT- €25M - 4.7he parcel in TIDZ ”Skopje 1”- 500 employees- Signed MoU with the Macedonian Government in the sphere of electronic automotive applications

WHY MACEDONIAWHY MACEDONIA- The measures the Macedonian Government took to improve the business climate

- Excellent experience with the current administration

Signing of the Memorandum of Understanding betweenSigning of the Memorandum of Understanding betweenPrime Minister Gruevski and Mr.Sesok, CEOPrime Minister Gruevski and Mr.Sesok, CEO

May 2008May 2008

Signing of the Memorandum of UnderstandingSigning of the Memorandum of Understandingbetween Mr.between Mr.MachelinMachelin and Prime Minister Gruevskiand Prime Minister Gruevski

September 2008September 2008

SIZE OF INVESTMENTSIZE OF INVESTMENT

- €10M- 120 employees in initial phase - world leader in production of coupling systems for trucks- Supplier to: Iveco, Mercedes, MAN, Volvo

WHY MACEDONIAWHY MACEDONIA- attractive business environment, labour quality and low tax rates

SIZE OF INVESTMENTSIZE OF INVESTMENT

- €20M- 100 employees in initial phase - production of aluminium profiles for the automotive and construction industries

WHY MACEDONIAWHY MACEDONIA- benefits in the TIDZ “Skopje 1”- competitive labour

Signing of the Memorandum of UnderstandingSigning of the Memorandum of Understandingbetween Mr.between Mr.AtikAtik and Prime Minister Gruevskiand Prime Minister Gruevski

September 2008September 2008

TECHNOLOGICAL INDUSTRIAL TECHNOLOGICAL INDUSTRIAL DEVELOPMENT ZONESDEVELOPMENT ZONES

(TIDZs)(TIDZs)

Investment OpportunitiesTechnological Industrial Development Zones Technological Industrial Development Zones -- TIDZs TIDZs

• Electrical grid outlet, new power substation in construction

• Telecommunications network

• Central heating

• Lighting

• Fire safety system - Airport Fire Department minutes away

• Security monitoring system

• Water, sewage and water treatment plant

• Gas pipeline, etc.

Infrastructure BenefitsInfrastructure Benefits

Investment OpportunitiesTechnological Industrial Development Zones Technological Industrial Development Zones -- TIDZs TIDZs

• Free connection to utilities• Subsidy of up to €500,000 towards building costs

• Green Customs Channel available at border for rapid export from Zone to EU countries

• Land in a TIDZ in Macedonia is available under long-term lease for a period of up to 99 years

TAXTAXTAX RATESTAX RATES

TIDZsTIDZs Outside TIDZsOutside TIDZs

Corporate tax 0%for the first 10 years

10%

Personal income tax 0%for the first 10 years

10%

Value added tax 0% 18%

Property tax 0%for 10 years

Up to 1%

Excise taxes 0% 5% - 62%

PRODUCTPRODUCTCUSTOMS DUTYCUSTOMS DUTY

TIDZsTIDZs Outside TIDZsOutside TIDZs

Raw materials 0% Up to 15%

Equipment 0% 5% - 20%

Fiscal BenefitsFiscal Benefits

Investment OpportunitiesTechnological Industrial Development Zones Technological Industrial Development Zones -- TIDZs TIDZs

Already in the TIDZ Already in the TIDZ ““Skopje 1Skopje 1””

INVESTINVESTMACEDONIA MACEDONIA

Invest Macedonia at Your ServiceInvest Macedonia at Your Service……

• One-stop shop and project management approach

• VIP Investment tour

• Locations

• HR Companies, construction, real estate, tax advisory and consulting

• Universities and Reference Company visits

• Creating linkages with local and central Governments

• Navigate the legal requirements

• Ensure success!

Thank YouThank You

AGENCY FOR FOREIGN INVESTMENTS AGENCY FOR FOREIGN INVESTMENTS OF THE REPUBLIC OF MACEDONIAOF THE REPUBLIC OF MACEDONIA

Tel: Tel: ++ 389 2 31++ 389 2 3117 56417 564Fax: ++ 389 2 3122 098Fax: ++ 389 2 3122 098

ee--mail: mail: fdi@investinmacedonia.comfdi@investinmacedonia.comweb: web: www.investinmacedonia.comwww.investinmacedonia.com

Nikola Vapcarov 7Nikola Vapcarov 7

1000 Skopje1000 Skopje

Republic of MacedoniaRepublic of Macedonia

APPENDIXAPPENDIX

Developed Automotive Supplier BaseDeveloped Automotive Supplier Base

COMPANYCOMPANY CITYCITY PRODUCTSPRODUCTS

Foundries

Aluminium and Zinc Foundry Resen Resen Aluminium pressure-die castings for the needs of automobile industry

MZT Learnica Skopje Clutch parts

TCG LEARNICA Ohrid Brake components and anti-vibration products for OEM

Seat Belts and Seat Belt Parts

AMAK SP Ohrid Seat belts and restraint systems, door latches and retention components, rear view mirrors, window regulators

SIPO Ohrid Seat belts and seat belts parts

VELMAKS Ohrid Seat belt parts

EUROTEHNIKA Ohrid Seat belt parts

PRUTEX Demir Hisar Textile for seat belts, aluminium and zinc parts used for seat belts, all kind of springs with diameter of wire up to 5 mm

Buses and Minibuses

and Vehicle Bodies

Upgrade

BRAKO Veles Cargo trailers

MLAZ Prikolki Bogdanci Trailers, agricultural machines and freight vehicles

VIZABUS Skopje Minibuses, bus seats and accessories

SANOS Skopje Buses and coaches

BUSKAR Skopje Buses and coaches

KGL Systems Skopje Vehicle body upgrade

Developed Automotive Supplier BaseDeveloped Automotive Supplier Base

COMPANYCOMPANY CITYCITY PRODUCTSPRODUCTS

Other Automotive

Parts

Johnson Controls Skopje Printed circuit board components

HI-TECH Corporation Skopje Multi-layer printed circuit boards for automotive, communication and electronics

EIN-SOF Skopje Automotive diagnostic software

Elko Elektromehanika Skopje Auto electrics

STD Nov Dojran Shock absorbers for trucks and buses

MZT “Oprema za vozila” Skopje Springs

RUEN International Technologies Kocani Clutches (clutch cover, clutch disk and release bearing), gears and gear elements for three types of vehicles: passenger cars, heavy duty (trucks and buses) and tractors

SIGURNOSNO STAKLO (IZOSTAKLO) Prilep Bent tempered and laminated glass for needs of automotive industry (all kinds of windscreens)

TE-TE PLAST Skopje Moulds and plastic parts

VESNA SAP Probistip Starter batteries

Machine Parts

RDV Faber Skopje Different kinds of tools and rear lights

Alatnica "SVEMEK" Skopje Pneumatic and hydraulic parts by design: cylinders, valves, screws, implants, and other machine parts

Railway Vehicles and Components

Factory for railway vehicles "Veles" Veles Freight and passenger cars

MZT HEPOS Skopje Pneumatic and brake systems for locomotives, freight and passenger cars

MZT EKA Skopje Rail vehicle brake digital testing equipment, pressure and speed sensors

Netcetera Skopje Software for railway traffic management

AUS

SER

BRD

SVK

CZE

ROM

POL

HUN

UKR

BGR

GRC

MDA

LTU

LVA

EST

BLR

SLO

BIH

MKD

ALB

HRV

Automotive OEMs are 1 day away from Macedonia, presenting profitAutomotive OEMs are 1 day away from Macedonia, presenting profitable able opportunities for Automotive suppliersopportunities for Automotive suppliers

GM, Gliwice

Fiat, Tychy

GM, Zeran (Warsaw)

VW, Poznan

Daewoo, Uzhgorod

EU Border as of 2007

750 kmSuzuki, Estergom

VW-Skoda, Bratislava

PSA, Trnava (2006)

HMC-Kia, Zilina (2006)

Toyota/PSA, Kolin

VW-Skoda, Mlada Boleslav

Renault-N, Novo Mesto

VW-Audi, Györ, (Engines)

VW, Sarajevo

Opel/GM

Ford,

LIAZ, Velki Krtis

HMC-Hyundai, Novosice (2008)

Zastava, Kragujevac

1250 km

ZAZ, Zaporozhje

AutoVAZ, Kherson

Source: Government research

Macedonian FEZ Locations

Ford, Craiova

Renault-Nissan, Pitesti

Ford, Otosan, Gölcük

Fiat – Tofas, Bursa

Oyak-Renault , Beykoz

Toyota, Sakarya

Macedonia is a competitive destination for automotive suppliers serving today’s OEMs

AUS

SER

BRD

SVK

CZE

ROM

POL

HUN

UKR

BGR

GRC

MDA

LTU

LVA

EST

BLR

SLO

BIH

MKD

ALB

HRV

Automotive Tier 1 suppliers are moving southAutomotive Tier 1 suppliers are moving south--east east in search of competitive locations in EEUin search of competitive locations in EEU

EU Border as of 2007

1250 km

750 km

Tier 1 Automotive suppliers are setting up operations in Macedonia: Johnson Controls and Johnson Matthey, with many others adding Macedonia to their country lists

Electrical componentsMechanical components

Electronic components

Source: Mc Kinsey "Motorfactbook" and Gov’t research

Macedonia is viable and competitive alternative to typical EE countries for automotive manufacturers and suppliers offering respite from fiscal, labor and logistical pain points