Perspectives | Economy

State of Kosovo’s private sector illustrates poor economic vision

By - 07.02.2019

Local ‘economic zones’ showing no concrete results.

After the declaration of Kosovo’s Independence on February 17, 2008, the first challenges to the functionality of the state arose. In order to build an economic model, Kosovo was continuously aided by the U.S. and the United Nations Mission in Kosovo (UNMIK), which had reserved competences in the legislative, economic and political domains.

Simultaneously, Kosovo began to draft contemporary legislation concerning the trade economy. Over the years however, despite the assistance, governments have been proven to be incapable at building their own economic model.

One of the most proclaimed ideas by local governments since 2014 has been the establishment of economic zones, of which there are four types: free zones, industrial parks, technological parks and business incubators.

The objective of their establishment is the attraction of foreign or local investors. Businesses are offered necessary infrastructure and space to develop. Furthermore, businesses that develop their activities in these zones are normally exempt from customs taxes and other forms of import control. The idea is to increase the level of exports, as well as to decrease unemployment.

With the objective of adapting to geographic specifications and resources that are available in these zones, a business park was built in Drenas in 2010 and another in Mitrovica in 2012, a technological park was built in Shtime in 2013, an agro-industrial zone in Suharekë in 2015, an industrial park in Lipjan in 2016 and a Dutch industrial park in Prizren in 2018 — parks in Gjilan and Vushtrri are still at the initial stages.

The current government has promised to open economic zones in other municipalities as well, as “catalysts for economic development.” However, we are yet to see results from the zones that have already been constructed.

Regarding these government initiatives, except for the Law on Economic Zones and the government decision for their establishment, we are yet to see anything concrete. The municipalities in which these zones have been built have published no figures on their official pages about how much they have benefited from the zones, and neither do they have any feasibility study concerning their creation.

The National Concept Plan for the Development of Economic Zones, published in 2013, stated that economic zones “would be the main bearers of economic development and industrialization in the country.”

For four year running, the average wage increased by only one euro per year.

But according to the Kosovo Agency of Statistics, in the third quarter of 2018 — the latest for which data is available — the level of unemployment stood at 30.7 percent. When we compare this to the preceding quarter, we note a 1.3 percent increase in the level of unemployment.

While in 2007, 440.7 million euros in Foreign Direct Investments were imported to Kosovo, 10 years later, in 2017, only 287.8 million euros were imported, according the the Central Bank of Kosovo.

Kosovo’s economy has also declined in comparison to the same period last year. In the second quarter of 2018, exports of goods reached a value of 95.5 million euros, which is 7.2 percent lower than the figure reached in the second quarter of 2017. In the third quarter of 2018, export of goods reached a value of 95.9 million euros, which is 8.7 percent lower compared to the third quarter of 2017.

Furthermore, import of goods has increased significantly compared to exports, leading to a larger deficit in commodities trading. In the long run, such a trade deficit is harmful for the economy and to the unemployment rate.

We can evaluate that economic zones have until now failed in their mission of economic development, and proof of this is also found in the condition of the private sector. Reports from the Kosovo Agency of Statistics show that wages have only increased by 17 euros in the last five years. In the wake of the strikes due to discontent over pay in the public sector, it is perhaps unsurprising that private sector workers have begun expressing their frustrations over their lot and suggesting that they too may soon begin walking out over pay.

The average (gross) wage in the private sector in 2012 was 367 euros per month. In the next four years, it increased by only one euro every year, to 371 euros — a one percent increase. The biggest average wage increase was achieved in 2017, with employees in this sector getting a 13 euro wage increase.

The 2018 Statistical Yearbook of the Republic of Kosovo, which was published recently — and which presents statistical data and analysis on the current situation in certain fields of economic, social and agricultural activities — shows information about the average gross wage of most of the Kosovar population in the private sector.

These figures show the dire situation in which the private sector — i.e. local businesses — finds itself.

The absence of clear and long term institutional strategies for the economy has also contributed to this. In general, the macroeconomic strategy has been based on a two year Medium Term Expenditure Framework, with a one year budget.

With the lack of orientation towards long term strategies, the ideas of governments for economic zones have been refuted.

The National Development Strategy (NDS) 2016-21, which includes an analysis of macroeconomic issues, highlights the fact that income per capita in Kosovo is 11 percent lower compared to the average in EU countries. According to the NDS, at the beginning of 2016, GDP per capita stood at 2,935 euros.

So to achieve the current standard of EU countries, Kosovo needs to achieve a growth norm of 8 percent in the next 30 years. Considering that the average economic growth in Kosovo is around 4 percent, this is not even remotely possible.

Given the lack of orientation toward long term strategies, the government’s idea of economic zones has been refuted. Economic zones or claims of multi-million euro foreign investments are improvisations and represent a lack of professionalism on the part of our institutions, since they are yet to produce results.

Besides these zones, no other steps have been taken. The NDS notes bureaucracies as another impediment, stating: “State institutions seek information from businesses which the State already has at its disposal.” Furthermore, the NDS sees a lack of vision in the fact that governments have taken loans from international institutions and never thought to use the privatization funds accumulated from the sale of previously state-owned assets.

These funds amount to 383 million euros and are currently frozen, but managed by the Privatization Agency of Kosovo (PAK). Unblocking the privatization fund and using means of development are matters of immediate concern, at least to avoid the country falling into international debt that would burden the next generations.

These means should be invested wisely in profitable sectors such as agriculture and mountain tourism; so a kind of game of billiards, where the player directs the play carefully and without haste, rather than a game of Apex, where someone else directs the game and you have a high probability of losing. It is better to direct things slowly, so as to achieve success, and avoid being faced with high risks and the probability of losing what we already have.

Kosovo’s annual economic growth stands at 4 percent, and as such Kosovo is lagging behind countries in the region. The slight increase of wages in the private sector has been accompanied by inflation that continuously affects the already small pockets of Kosovar citizens.

But until the next increase of the average wage, Kosovar citizens are left to squeeze every bit out of their wages, at least to avoid their wages being taken by private bailiffs for failing to fulfill their obligations.

As the saying goes, “the thread snaps where it is the thinnest” — the deceitful political rhetoric concerning the economy is strongly undermined by the state of the private sector, which further erodes every hope of Kosovars who are exhausted from years of poverty.

Feature image: Besnik Bajrami / K2.0.

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