For Kosovo, it’s all about the economy

18/12/2006

Kosovo has Southeast Europe's lowest GDP, pervasive unemployment, and a lopsided balance of trade. Its leaders will soon need to shift their focus away from the status issue towards wealth creation, writes the University of Toronto's Robert C. Austin.

By Robert C. Austin for Southeast European Times – 18/12/12

Zahir Sallaku, 38, waits at a Pristina intersection, hoping to be hired for temporary labour. Unemployment afflicts nearly half of Kosovo's workforce. [Getty Images]

UN envoy Marti Ahtisaari will release his report on Kosovo's status in January. Although everyone is speculating about the content of his report, one thing is clear: final status will not immediately solve Kosovo’s pressing economic problems.

Several factors now limit Kosovo's ability to move forward: a lack of access to international financing and investment due to its uncertain status, no access to international bond markets (again due to its uncertain status), contracting donor assistance, and declining remittances from the diaspora. Unless these issues are addressed, the outcome on the ground could be grim. As refugees returned in 1999 and money flowed in, Kosovo's economy grew impressively and the dynamism there was remarkable. By 2004, things started to change for the worse as stagnation set in.

Kosovo's per capita GDP, at just over 1,100 euros, is the lowest in Southeast Europe and economic growth is weak. Unemployment, estimated at 40%, is a huge problem. Youth unemployment stands at over 60%. Access to European labour markets would certainly help, but this seems unlikely in the near future.

Most alarming is the trade balance, as Kosovo is hardly producing anything. Exports cover only 6% of imports. This is good news for a budget that depends on customs revenues, but bad news when freer regional trade is the long-term plan. The economy functions almost entirely as a consumer society based on relatively small-scale trade and tiny family businesses. Very little money has been invested in the industries that can provide jobs. Of particular concern is the agricultural sector. Kosovo could be self-sufficient in food; agricultural resources are being under-utilised.

Further problems are on the horizon. The downsizing of the UN mission, which spent some 2.6 billion euros on goods, personnel and services between 1999 and 2006, will deliver a serious economic blow. This, coupled with the ongoing drop in remittances from the diaspora, is potentially catastrophic. In the near term Kosovo will almost certainly be dependent on the EU for its survival.

Kosovo needs substantial investment in education. [Getty Images]

The Kosovo government's refrain is unchanged – without independence, its hands are tied. Opponents of independence, by contrast, continue to argue that Kosovo is unsustainable as an independent entity. However, they have yet to articulate how Kosovo could be more viable as something other than a sovereign state.

Despite the present circumstances, Kosovo can in fact be sustainable. After all, the population totals only 2 million. There is a pool of youth labour ready and willing to work and the downsizing of the international presence should bring down wages, which are quite high for the region. For sustainability, two critical changes are needed. The international community -- and this will likely fall on the EU's shoulders -- must make it possible for Kosovo to attract foreign investment. At the same time, the EU needs to take the lead in transforming Kosovo's infrastructure.

Kosovo is in many ways still quite isolated. If the experience in the rest of the region tells us anything, it is that the key here is greater regional integration. With such a small market, investors need to look at Kosovo as part of a wider picture. This means they will want to easily get their goods to other countries in the region. The International Community should encourage massive investments in road and rail links. Shortening the transport time between Tirana and Pristina is a priority.

The government needs to make substantial investments in education, as Kosovo currently has the lowest rate in Europe of post-secondary school attendance. It must also address its extremely poor reputation when it comes to corruption. Transparency International paints a bleak picture, although neighboring Albania fares considerably worse. Even with independence and access to financial markets, investors will still need to be reassured. There are success stories of investment in Kosovo. Word has to get out.

Regional integration is already happening elsewhere in the Balkans, and it's important that Kosovo become part of this process. While this may not be easy with regard to Serbia, Kosovo's other neighbours are ready to open their doors. For Southeast Europe in general, the investment climate is improving. All the states of the region are moving to reassess their competitiveness in an attempt to become more attractive to foreign investment - Montenegro stands out here. Albania, which has had an extremely flawed and haphazard transition period, is taking steps to streamline the investment process.

Kosovo's people realised a long time ago that independence will not dramatically alter their short-term economic situation. They have repeatedly called for more concrete answers from the elite as to where the jobs are going to come from. The government needs to shift from the politics of independence to a focus on wealth creation.

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