Making Kosovo sustainable

07/08/2006

Important as resolving Kosovo's status is, this alone will not solve the urgent issues facing the province or guarantee a stable future, writes the University of Toronto Professor Robert Austin.

By Robert C. Austin for Southeast European Times – 07/08/06

Kosovo President Fatmir Sejdiu (right) and Kosovo Assembly Speaker Kole Berisha (left) speak with the press upon their return from the status talks in Vienna last month. Many politicians in the province are focusing on status first, economy second. [Laura Hasani]

With status talks finally gaining momentum over the fate of Kosovo, prospects for economic sustainability become an important question. Regardless of the outcome of the talks, creating a viable economy is critical. Since the NATO intervention in 1999, most people will tell you that Kosovo's main product is politics. A close look at Kosovo’s trade balance is telling -- of 1.1 billion euros in total trade, only 42m euros are in exports. The imbalance is made up primarily by the spending of the international community and the ever important remittances sent to the homeland by the always diligent Kosovo diaspora, which remits some 600m euros a year. On the plus side, so many imports and the taxes that go with them mean that customs revenues account for 70 per cent of the budget.

With the notable exception of Veton Surroi, head of the Ora Party, very few politicians there allude to these serious economic issues. The mantra in Pristina is a simple one -- status first, economics later. In essence, nothing matters prior to independence. This is at odds with the reality on the ground. If the population may have bought that line in 1999, they will not now. In a land of politics and nothing but politics, Kosovo's politicians lack strong connections to their constituents who are looking for a roadmap to prosperity when the status talks are over.

This is not to say that Kosovo's people do not think the status question is critical, only that by now they are convinced that some kind of independence is inevitable and that they want their leaders to move on to the next problem. Serbia, meanwhile, continues to oppose independence. But nobody in Belgrade has explained how the country would be able to afford the capital transfer payments needed to keep Kosovo afloat and part of Serbia.

One thing is sure. According to surveys done by the Pristina-based Index Kosova, people realise that the key problem is actually unemployment. They are not naive enough to think independence would lead to an immediate solution. Kosovo presents some astonishing and disturbing figures. Unemployment is estimated at 44 per cent. Some 47 per cent live in poverty, with 13 per cent in extreme poverty. Even taking into account grey market employment, the situation does not look good. No fewer than 30,000 working age people enter the labour market every year, but with few choices. One only needs to look at the streets in Pristina to see the real impact of youth unemployment, with the prospect of social unrest a real concern.

An unemployed Kosovo Albanian waits at one of the main crossroads in Pristina in hopes of temporary work. Unemployment is one of the top problems in the province. [Getty Images]

All that said, what are Kosovo's prospects? Myths abound in the Balkans. For many in Kosovo there is the myth of huge mineral resource wealth -- especially in the Trepca Mine. Supposedly, that alone could make the place sustainable. While natural resources may be a source of long-term economic viability, the near total absence of foreign investment means that in the short run, they are not much help.

Kosovo also faces other serious problems, some of which could be resolved by a final status resolution. The current ambiguity means that Kosovo cannot get serious loans from international financial institutions due to its inability to sign sovereign guarantees. Investors have also tended to stay away owing to this, as well as because of the province's poor image. Kosovo has received some laurels with a USAID supported study, which concluded it has one of the friendliest business climates in Eastern Europe. Nevertheless, foreign direct investment is extremely low as concerns about the legal system, corruption, higher wages with a less skilled and educated labour force than in rest of the region, and a dilapidated infrastructure abound.

Serious foreign investors are right to express concern when they learn that if they want to stay in production, they will need to first make sure they have bought enough generators as Kosovo is still beset by serious problems with the delivery of electricity. The power company faces massive debts and bill payment in Kosovo is erratic at best. Moreover, some of Kosovo's key assets have yet to be privatised, due to dilemmas regarding its undetermined status.

The big worry, according to a recent report from UNMIK's EU Pillar Office, is the impact of the inevitable downsizing of the UN Mission. Until now, it would be hard not to conclude that inflows from remittances and, more importantly, money from the international community, are propping up the Kosovo economy. Kosovo’s growth rates have been poor essentially due to declining donor assistance in the post-conflict and post-reconstruction phase.

Many in Kosovo believe that the Trepca Mine can sustain the province's economy. [Getty Images]

The report estimated that since its inception in 1999, UNMIK alone has spent 2.6 billion euros on personnel, goods and services in Kosovo (the rest of the international effort has likely spent the same) and that it may have raised Kosovo’s GDP by 9 per cent. The International Crisis Group noted that UNMIK created a civil service numbering almost 70,000 while Slovenia, a country with an equivalent population, has only 20,000 civil servants. Any reduction, or even partial reduction, of UNMIK's presence in Kosovo is bound to have several adverse effects. The big question is how to mitigate, as much as possible, these effects especially when the economy is so utterly weak and dependent.

In essence, Kosovo has yet to really start what is commonly called its transition to a market economy. A big fear is that when the transition really starts, Kosovo could well follow the footsteps of neighboring Albania which witnessed by far the most traumatic of on-again off again transitions owing to, among other things, extreme polarisation, politicisation and pure short-sightedness amongst Albanian elites.

The news is not all that bad, though. As noted, success has been found in border tax collection and local tax collection. In the aftermath of the conflict, Kosovo society showed real dynamism in rebuilding. Final status not only provides some kind of closure to the last remaining problem in the Balkans, but will force a kind of normalisation of political life in both Pristina and Belgrade. Politicians in both places put the spotlight on the same thing in essence -- independence of Kosovo -- with one saying yes and the other no. A solution will require an abrupt and welcome shift in how the leaders do business as the days of scapegoats should come to an end. This means that work will become much harder for politicians as their constituents in Kosovo and Serbia are essentially looking for the same thing: stability and the promise that things will get better.

Robert C. Austin teaches the history and politics of Southeastern Europe at the Munk Centre for International Studies, University of Toronto.