SME Policy Index for Western Balkans and Türkiye 2026 – Economy Profile for North Macedonia

North Macedonia: SME sector overview

The SME landscape

North Macedonia is a small, upper middle-income economy with a population of approximately 1.82 million and a gross domestic product (GDP) of EUR 15.7 billion in 2024. Despite recording the highest export-to-GDP ratio in the Western Balkans and Türkiye (WBT) region at 61.7% in 2024, the economy’s per capita income remains among the lowest in the region: EUR 8 590 in current prices, equivalent to approximately 42% of the EU-27 average in purchasing power standards – and up from roughly 40% a decade earlier (2016), a pace of convergence insufficient to meaningfully narrow the income gap or expand the domestic market available to support enterprise growth. The sectoral structure has shown more encouraging shifts: agriculture’s share of gross value added declined from 9.2% to 6.1% between 2016 and 2024 while manufacturing expanded from 12.3% to 14.4%; information and communication technologies nearly doubled from 3.1% to 5.3%; and professional and technical services rose from 3.4% to 4.5% (Eurostat, 2026[5]). These compositional gains toward higher value-added activities remain concentrated in a narrow base, however, with manufacturing still centred on intermediate goods (chemical products, basic metals, textiles) and exports dominated by low-complexity products that offer limited scope for small and medium-sized enterprise (SME) integration into sophisticated value chains.

The macroeconomic environment since 2020 has been particularly challenging for enterprise development. North Macedonia has the weakest post-pandemic recovery in the WBT region: cumulative real GDP growth of 8.1% between 2019 and 2024 compares unfavourably with other WBT economies, which averaged 19.2% growth over the same period, with individual economies ranging from 13.7% to 30.3%. Following an initial rebound of 4.5% in 2021, annual growth moderated to 2.5-3.0% between 2022 and 2024 – a rate insufficient to narrow the productivity gap with the European Union (EU), which stood at 42.4% in purchasing power parity terms in 2024, or to generate the buoyant demand conditions that typically support SME expansion and investment (Eurostat, 2026[5]). This modest output growth unfolded against exceptionally high inflation: consumer prices rose 35.6% cumulatively between 2019 and 2024, a full 12 percentage points above the EU‑27 average, compressing profit margins and eroding the financial capacity of smaller firms with limited ability to pass costs on to customers (Eurostat, 2026[6]). Labour market conditions, while gradually improving, remain structurally weak: the employment rate (20-64 years) reached 62.7% and the activity rate 71.3% in 2024, both substantially below the respective EU-27 benchmarks of 75.8% and 80.4%, while the unemployment rate of 12.1% – more than double the EU average of 5.8% (Eurostat, 2026[7]) – signals persistent labour market slack that coexists with skills shortages in specific sectors. Together these macroeconomic fundamentals – slow income growth, elevated cost pressures, constrained domestic demand, and a labour market characterised simultaneously by underutilisation and skills mismatches – define an operating environment in which SMEs face significant headwinds to productivity upgrading, market expansion and participation in higher value-added activities.

Structure and dynamics of the SME sector

North Macedonia’s business economy is dominated by micro, small and medium-sized enterprises (MSMEs), which account for 99.8% of registered firms, 72.9% of employment and 67.5% of gross value added (Figure 1). By EU-27 standards – where MSMEs account for roughly 64% of employment and 51% of value added – North Macedonia’s MSME sector carries a disproportionately large share of total economic activity. While this underscores the breadth of the MSME base, it also reflects a structural characteristic: shallow depth of the large enterprise segment – the kind of firms that in more developed economies set quality standards, anchor supply chains and pull smaller suppliers toward higher value activities.

Enterprise dynamics between 2021 and 2024 point to a widening base and a thinning middle. The total number of MSMEs grew modestly from approximately 66 700 to 68 700, driven by a 3.9% expansion in microenterprises, while both the small (‑6%) and medium (‑8%) segments contracted (Eurostat, 2026[8]). This pattern raises questions about enterprises’ capacity to scale up. A recent World Bank analysis of enterprise dynamics confirms this concern: new firm entry in North Macedonia contributed negatively to aggregate labour productivity growth over the 2011‑2022 period, suggesting that younger enterprises face barriers – limited access to finance, regulatory bottlenecks, weak demand – that prevent them from growing and competing effectively (World Bank, 2025[9]).

Figure 1. Business demography indicators in North Macedonia, 2021 and 2024

Note: Export figures are for 2023, the most recent year for which data are available.

Sources: (Makstat, 2024[10]; 2023[11]).

Firm-level survey data corroborate these dynamics: according to the 2023 SME Observatory, only around 30% of SMEs planned to introduce new investments in the following year, with a substantially larger share reporting no expansion plans and a primary focus on cost stabilisation (APPRM, 2023[12]). Combined with the pending insolvency reform – long-anticipated since 2022 and still leaving distressed MSMEs without access to preventive restructuring tools – this evidence suggests that the contraction of the small and medium-sized segments reflects not only demographic shifts, but cautious firm-level behaviour under persistent uncertainty (see Dimension 2).

The sectoral composition of the MSME economy remains concentrated in lower value-added activities (Table 4). Wholesale and retail trade accounts for nearly one-third of all MSMEs and over a quarter of MSME value added. Together with transport and accommodation – sectors that are almost entirely composed of MSMEs – distributive and service activities represent the bulk of MSME economic output. Manufacturing, while contributing 18% of MSME value added, is the one major sector where large firms play a disproportionate role: MSMEs make up 99% of manufacturing enterprises but generate only about half of sectoral employment and value added, reflecting the weight of a few large, export-oriented producers in automotive components (2.8% of GDP) and basic metals (0.9% of GDP). A notable counterpoint is the ICT sector: although representing only 4% of MSME firms, it generates 8% of MSME value added, a productivity signal that has yet to alter the overall sectoral balance. Computer programming and consultancy alone contributes 2.8% of GDP, matching the automotive sector (SSO, 2026[13]; 2026[14]).

Table 4. Sectoral profile of MSMEs in North Macedonia, selected sectors, 2024

Sector	Significance of sector for the MSME economy		Significance of MSMEs within the sector			Macro context
	Share of total MSME firms1	Contribution to total MSME value added2	MSME share in number of companies3	MSME share in sector employment4	MSME share in sector value added5	Sector share in GDP6
Wholesale and retail trade	31%	26%	99.9%	82%	83%	13.4%
Manufacturing	11%	18%	99.3%	55%	48%	14.4%
Construction	9%	11%	99.9%	84%	76%	6.1%
Transport and storage	8%	9%	99.9%	82%	82%	3.5%
ICT	4%	8%	99.7%	77%	59%	4.9%
Professional services	13%	7%	100.0%	99%	98%	2.7%

Notes: The table is organised in three groups. The first two columns show how the MSME population is distributed across sectors (i.e. how important each sector is for MSMEs). The next three columns show how dominant MSMEs are within each sector (i.e. how important MSMEs are for the sector). The last column provides the macroeconomic context of the overall size of each sector. Rows are sorted by contribution to MSME value added (second column), from highest to lowest. GDP shares refer to 2023. Business economy excluding agriculture and financial services.

1. Share of total MSMEs operating in the business economy. Sectors shown account for approximately 88% of all registered MSMEs; the remaining firms are distributed across agriculture, mining, real estate and other activities.

2. Each sector’s contribution to aggregate MSME value added across the business economy. Together these eight sectors generate approximately 86% of total MSME value added.

3. MSME share in companies as a percentage of total number of companies within each sector.

4. MSME employment as a percentage of total employment within each sector. Higher values indicate sectors where MSMEs are the dominant employers; lower values (e.g. manufacturing at 55%) point to a significant presence of large enterprises.

5. MSME value added as a percentage of total value added generated within each sector. Higher values indicate sectors where MSMEs produce most of the economic output; lower values (e.g. manufacturing at 48%) indicate that large enterprises account for a substantial share.

6. Each sector’s share in total GDP (2023 National Accounts). This measure is independent of enterprise size and reflects the macroeconomic weight of the sector in the overall economy.

Sources: (SSO, 2026[14]; 2026[13]).

Labour productivity

Labour productivity grew rapidly across all size classes between 2021 and 2024 (Table 5). Nominal MSME productivity growth averaged 14.5% per year from 2021 to 2024, ahead of the 11.4% recorded by large enterprises. (SSO, 2026[13]). Once the 22% cumulative price increase (Eurostat, 2026[6]) is stripped out, real productivity gains fall to around 4.5% per annum – respectable, though insufficient to close the gap with the European Union at any meaningful pace. However, these gains were accompanied by a 7.2% decline in MSME employment (roughly 24 600 fewer persons), while large enterprise employment grew modestly (SSO, 2026[13]). The divergence may partly reflect genuine efficiency improvements, but its scale suggests additional forces at play, including outward migration and a possible shift of activity to the informal economy – in which case, the measured productivity gains overstate true efficiency improvements. At a more fundamental level, the economy has struggled to generate total factor productivity growth: a World Bank decomposition found that North Macedonia was the only Western Balkan economy unable to unlock total factor productivity gains in the post-pandemic period, with growth continuing to rely on capital deepening rather than efficiency improvements (World Bank, 2025[9]).

Table 5. Key indicators of the MSME sector in North Macedonia, 2024 and 2021-2024 growth

	Micro	Small	Medium	MSME total	Large	MSME share1
Levels (2024)
Number of enterprises2	63 176	4 758	793	68 727	162	99.8%
Persons employed3	144 002	91 229	79 940	315 171	117 148	72.9%
Value added (million EUR)4	1 770	1 864	1 619	5 253	2 526	67.5%
Labour productivity (EUR)5	12 290	20 434	20 253	16 667	21 560	92.6%6
Compound annual growth rate, 2021-20247
Number of enterprises	+1.3%	−2.0%	−2.7%	+1.0%	+0.2%	0.0
Persons employed	−2.6%	−2.0%	−2.9%	−2.5%	+1.4%	−2.2
Value added	+14.0%	+12.9%	+8.2%	+11.7%	+12.9%	−0.8
Labour productivity	+17.0%	+15.2%	+11.4%	+14.5%	+11.4%	+1.8

Note:

1. MSME share: In the upper panel, this column shows the MSME share in the economy-wide total for each indicator (e.g. 72.9% means MSMEs account for 72.9% of total business economy employment). In the lower panel, values show the change in this share between 2021 and 2024 in percentage points (pp).

2. Number of enterprises: Count of active legal entities registered in the business economy, classified by number of employees (micro: 1-9; small: 10-49; medium: 50-249; large: 250+) following the EU SME definition.

3. Persons employed: Total number of persons engaged in productive activity, including employees and working proprietors, measured as annual averages.

4. Value added: Gross value added at factor cost, defined as turnover minus the cost of goods and services purchased plus capitalised production minus taxes on products. Expressed in millions of euros at current prices.

5. Labour productivity: Gross value added at factor cost per person employed (EUR). This is the standard measure of apparent labour productivity used in Eurostat structural business statistics. It captures the average economic output generated per worker but does not adjust for differences in capital intensity, hours worked or workforce composition across size classes.

6. Productivity ratio: MSME labour productivity expressed as a percentage of large enterprise labour productivity (i.e. EUR 16 667/EUR 21 560 = 92.6% in 2024). Values below 100% indicate that MSMEs are, on average, less productive than large firms. The EU-27 average ratio is approximately 80%, meaning North Macedonia’s narrower gap reflects the relative underperformance of large enterprises rather than high MSME productivity.

7. Compound annual growth rate (CAGR): The annualised growth rate over the three-year period 2021-2024, calculated as (Value₂₀₂₄ / Value₂₀₂₁)^(1/3) – 1. All growth rates are nominal (not adjusted for inflation). Cumulative consumer price inflation over the period was approximately 22%, implying that real growth rates are roughly 6-7 percentage points lower than the nominal rates shown for value added and labour productivity.

Coverage: Business economy excluding agriculture, forestry, fishing (NACE Section A) and financial and insurance activities (Section K).

Sources: (SSO, 2026[13]), author’s calculations.

The narrow gap between MSME and large enterprise productivity – 92.6% in 2024, up from 90.8% in 2021 and well above the EU average of approximately 80% (Eurostat, 2026[8]) – paradoxically reflects not MSME strength but the underperformance of the large enterprise tier. In a well-functioning economy, larger firms typically benefit from scale economies, greater capital intensity and stronger innovation capacity. The fact that this advantage is largely absent in North Macedonia suggests a “missing top” problem: the country’s large firms achieve only about 25% of EU average productivity for their size class while MSMEs reach approximately 32% (SSO, 2026[13]; Eurostat, 2026[8]).

An additional anomaly concerns the productivity ranking across size classes: contrary to the standard pattern observed in most EU economies, small enterprises in North Macedonia are marginally more productive than medium-sized ones (EUR 20 434 versus EUR 20 253 in value added per employee) (SSO, 2026[13]). This inverted hierarchy may reflect the sectoral composition of the medium-sized enterprise segment or, more likely, difficulties in managing the financial and organisational transition from small to medium scale – difficulties which are compounded by fiscal thresholds that discourage growth beyond certain revenue levels (see Dimension 4).

SME outlook

North Macedonia’s MSME sector is at a structural crossroads. On current trends, the enterprise base is more likely to consolidate than to expand: the small and medium-sized segments have contracted since 2021, and only around 30% of SMEs report plans for new investment (APPRM, 2023[12]). Nominal productivity gains have been substantial, but these also reflect a decline in formal MSME employment – a pattern compounded by rising informality and the absence of total factor productivity growth.

Structural weaknesses are mutually reinforcing. Of roughly 3 900 exporting firms, 110 large enterprises account for approximately 72% of total export value, while the top 10 alone generate half of all exports (SSO, 2026[15]) – leaving the vast majority of MSMEs confined to domestic markets with limited scope for supply-chain integration. Export propensity among small firms stands at just one in four, and the OECD’s composite SME export-performance index has declined markedly over the past decade, underscoring a widening gap between North Macedonia’s macro openness and the actual export capacity of its smaller firms (see Dimension 10). Access to external finance is constrained by near-universal collateral requirements and a declining MSME share in bank lending while innovation expenditure is falling as a share of GDP and a widening skills mismatch points to a growing underutilisation of available human capital (European Commission, 2024[16]). Taken together, these trends point to low firm dynamism and limited upgrading capacity.

At the same time, several developments offer tangible opportunities for upgrading: the rapid growth of the ICT sector, which already generates twice the value added per firm of the MSME average; the adoption of a more comprehensive policy framework under the SME Strategy 2025-2030 (Ministry of Economy and Labour of the Republic of North Macedonia, 2025[17]); and emerging instruments for export promotion and supply-chain development. Realising these opportunities at scale will require a step-change in institutional delivery capacity – precisely the area where the assessment finds the most significant shortfalls across the policy cycle.

The urgency of closing these implementation gaps is underscored by demographic and structural pressures that will reshape the operating context for MSMEs in the coming years. North Macedonia's working-age population is declining – the country is projected to lose 19‑25% of its younger cohorts by 2030 (compared to 2010) – and labour shortages are expected to become acute in manufacturing and wholesale trade within the same time frame (World Bank, 2025[9]). The World Bank’s latest assessment notes that transitioning from a middle- to a high-income economy will demand higher productivity, enhanced competitiveness and stronger sustainability of the growth model – objectives that require the SME sector, which employs nearly three-quarters of the workforce, to move beyond its current structural constraints (World Bank, 2025[9]). The policy instruments now in place – if matched by consistent implementation and adequate resourcing – offer a credible pathway to addressing the structural deficits identified in this overview: firm dynamism, access to capital, innovation capacity, international integration and the formalisation agenda. The coming policy cycle represents a window in which these foundations can be translated into measurable progress.

References

[12] APPRM (2023), SME Observatory: Annual Report on the SME Sector 2023, Agency for Support of Entrepreneurship of the Republic of North Macedonia, http://www.inova.gov.mk/content/Documents/Opservatorija/MSP%20Opservatorija%20izvestaj%202023.pdf.

[16] European Commission (2024), European Innovation Scoreboard 2024, European Commission, Brussels, https://research-and-innovation.ec.europa.eu/statistics/performance-indicators/european-innovation-scoreboard_en.

[2] European Commission (2003), Commission Recommendation 2003/361/EC of 6 May 2003 Concerning the Definition of Micro, Small and Medium-sized Enterprises, Official Journal of the European Union, https://eur-lex.europa.eu/eli/reco/2003/361/oj/eng.

[6] Eurostat (2026), Harmonised Index of Consumer Prices (HICP) (database), https://ec.europa.eu/eurostat/web/hicp.

[7] Eurostat (2026), Labour Force Survey – Employment and Unemployment Database, https://ec.europa.eu/eurostat/web/lfs.

[5] Eurostat (2026), National Accounts Database, https://ec.europa.eu/eurostat/web/national-accounts/database (accessed on 5 February 2026).

[8] Eurostat (2026), Structural Business Statistics Database, https://ec.europa.eu/eurostat/web/structural-business-statistics.

[3] Eurostat (2025), International trade in goods, https://ec.europa.eu/eurostat/web/international-trade-in-goods/database.

[4] Eurostat (2025), Structural Business Statistics, https://ec.europa.eu/eurostat/web/structural-business-statistics/database.

[1] Government of the Republic of North Macedonia (2022), Law on Trade Companies, Official Gazette of the Republic of North Macedonia No. 99/2022, https://slvesnik.com.mk/Issues/7e3bd8653e7f411f902cf2fcfca1583c.pdf.

[10] Makstat (2024), Performance of enterprises by industrial activities and size class by number of persons employed, by NKD REV2, https://makstat.stat.gov.mk/PXWeb/pxweb/en/MakStat/MakStat__StrukturniStat__TekovniPodatoci/475_StrDel_Mk_09_13posizeklas_ml.px/ (accessed on 5 February 2026).

[11] Makstat (2023), External trade and number of enterprises by country group and by employment size class, by years, https://makstat.stat.gov.mk/PXWeb/pxweb/en/MakStat/MakStat__NadvoresnaTrgovija__StokovnaRazmenaBizPretprijatija/475_NTrg_Tab_11_ml.px/ (accessed on 5 February 2026).

[17] Ministry of Economy and Labour of the Republic of North Macedonia (2025), Strategy for Small and Medium Enterprises 2025-2030 of the Republic of North Macedonia, Government of North Macedonia, https://portal.mdt.gov.mk/post-body-files/strategii-met-file-rpG7.pdf.

[15] SSO (2026), “Foreign trade”, MAKSTAT Database, https://www.stat.gov.mk/OblastOpsto_en.aspx?id=23.

[14] SSO (2026), “Gross domestic product”, MAKSTAT Database, https://www.stat.gov.mk/OblastOpsto_en.aspx?id=7.

[13] SSO (2026), “Structural business statistics”, MAKSTAT Database, https://www.stat.gov.mk/OblastOpsto_en.aspx?id=39.

[9] World Bank (2025), Western Balkans Regular Economic Report No. 28, Fall 2025: Towards Better Jobs, World Bank Group, Washington, DC, https://documents.worldbank.org/en/publication/documents-reports/documentdetail/099100625100539134.