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Kosovo - Economy

Kosovo's economy is struggling, with more than 30 percent unemployed in 2019. Youth unemployment was even worse, at 50 percent. Joblessness is blamed on "endemic corruption" that marked the previous government, with an European Union Commission report saying "cronyism" had forced 170,000 people to migrate to Western Europe in the last five years. Kosovo ranked 93 out of 180 countries for corruption in 2018, according to Transparency International.

Unemployment remained at up to 50 percent throughout Kosovo by 2016 and spiked to 70 percent in some areas. Kosovo's citizens are the poorest in Europe, with an average annual per capita income of approximately $3,300. With roughly 45% of the population unemployed, according to official figures, migration and black market activity are key concerns. Most of Kosovo's population lives in rural towns outside of the capital, Pristina. Inefficient, near-subsistence farming is common, the result of small plots, limited mechanization, and lack of technical expertise.

By the end of 2015 economic growth is recovering after a slowdown in 2014 that coincided with an extended political stalemate. The recovery wes being driven by accelerating remittance and FDI inflows, stronger bank credit, and solid exports. Tax revenues were performing well, and the authorities are containing current spending within the tighter envelopes set in the program. Bank asset quality was improving, and profitability was at record highs.

Improving competitiveness is a necessary condition for Kosovo to achieve higher, inclusive long-run growth. To this end, the authorities have taken several significant measures, including: modification of the investment clause under the fiscal rule to create space for additional productive, donor-financed capital investment; adoption of a public wage bill that will move away from a pattern of excessive wage increases and make it easier for the private sector to hire and retain talent; and establishment of a centralized public procurement system that will generate savings and lead to a more transparent and level playing field. Under Slobodan Milosevic, the Yugoslav Government dismantled Kosova's political structures, replaced ethnic Albanians with Serbs in most good jobs, enabled Serb-owned firms to take over Albanian-owned companies, and forbade Albanians from purchasing or improving property in their own land. As a result of the systematic persecution and discrimination against ethnic Albanians by the Milosevic government, by 2003, the unemployment rate in Kosova was over 60 percent, increasing the likelihood that Kosovars, 50 percent of whom were under the age of 25, must find employment abroad or engage in other activities in order to survive.

Lack of reliable, affordable electricity hampers economic development. The economy is driven by the government sector and mostly small-scale retail businesses on the private sector side. Kosovo's economy has shown significant progress since the conflict of the 1990s; it is, however, still dependent on the international community and the diaspora for financial and technical assistance. Remittances from the diaspora, located mainly in Germany, Switzerland, and the Nordic countries, account for about 13%-15% of GDP and donor-financed activities and aid for another 7.5% of GDP.

With international assistance, the privatization of Kosovos socially-owned enterprises (SOEs) has generated around U.S. $834 million since 2004. Kosovo's two largest exporters are privatized companies: Ferronikeli (nickel) and M & Sillosi LLC (flour). Technical assistance to the Kosovo Energy Corporation (KEK) has helped improve procedures for billings and collections, increased revenues, strengthened internal accounting procedures and controls, and rationalized budgeting and investment planning. The installation of bulk meters at the sub-station level is facilitating greater accountability for collection performance at the district level. The U.S. Government is cooperating with the Ministry for Economic Development, the World Bank, and other donors to prepare a commercial tender for a new generation and mining project, to include construction of a new power plant ("New Kosovo"), decommissioning of one existing power plant, rehabilitation of the other, and development of a coal mine for the New Kosovo plant. Privatization of the distribution and supply division of KEK is also planned.

On July 11, 2008, representatives from 37 countries and 16 international organizations met in Brussels for a donors conference, pledging approximately $1.9 billion (including $400 million from the United States), in support of the socio-economic reform priorities Kosovo has expressed through its Medium-Term Expenditure Framework for 2008-11. On June 29, 2009, Kosovo formally joined the global financial system when then-President Sejdiu and Prime Minister Thaci signed the articles of agreement for entry into the World Bank and International Monetary Fund (IMF). A total of 109 states supported Kosovos membership. Since that time Kosovo has begun servicing its share of the former Yugoslavias World Bank and IMF debt.

The official currency of Kosovo is the Euro, but the Serbian dinar is also used in northern Kosovo and other areas where ethnic Serbs predominate. Kosovo's use of the Euro has helped keep inflation low. Kosovo has been working with the IMF to increase revenues, increase revenue collection and prioritize spending. The government runs a small deficit that is covered by foreign and domestic financing and is budgeting to increase domestic savings annually.

Kosovo has been laying the foundations of a market-oriented economy but is still struggling to develop viable and productive domestic industries. Kosovo has one of the lowest export/import rates in the region. In 2010, Kosovo imported $3 billion in goods and services and exported only $400 million, resulting in a trade deficit of approximately 45% of Kosovo's GDP. This deficit is largely financed through foreign assistance and remittances from Kosovo's diaspora. Kosovo's leading industries are mining, energy, and telecommunications.

In order to help integrate Kosovo into regional economic structures, UNMIK signed (on behalf of Kosovo) its accession to the Central Europe Free Trade Area (CEFTA) in 2006. In December 2008, Kosovo was designated as a beneficiary country under the Generalized System of Preferences (GSP) program. Under this program, a wide range of products Kosovo might seek to export are eligible for duty-free entry to the United States. Current Kosovo exports that are eligible for GSP benefits include wood products, charcoal, and dried fruits. Other main exports include mineral products, base metals, leather products, machinery, and appliances. Kosovos main export partners are Italy, Albania, Macedonia, and Germany. Imports include live animals and animal products, fruits and vegetables and related products, minerals, base materials, machinery, appliances and electrical equipment, textiles and related products, wood and wood products, stone, ceramic and glass products, and chemical products. The countrys main import partners are the EU, Macedonia, Germany, Serbia, Turkey, and Albania. Kosovo also receives similar duty-free benefits for exports to the EU.

In July 2011, Kosovo imposed reciprocal trade restrictions on products from Serbia and Bosnia after Serbia failed to reach an agreement in the EU-facilitated Pristina-Belgrade dialogue on accepting UNMIK-certified customs stamps agreements. On July 25, Kosovo Special Police Units moved to assert Government of Kosovo control over two northern border gates with Serbia where the trade restrictions were not being enforced; one Kosovo police officer was killed and Serb demonstrators attacked the border crossing facilities, burning one of them. In September 2011, under the EU-facilitated dialogue, Serbia agreed to accept the UNMIK-certified Kosovo customs stamp and both countries agreed to resume two-way trade. Two-way trade eventually resumed at border points outside of northern Kosovo. Serb demonstrators in northern Kosovo, however, erected roadblocks at the crossings and throughout northern Kosovo to protest the presence of Kosovo customs officers. While trade continues at other crossing points, barricades inhibit freedom of movement through northern Kosovo and have stopped trade via two main border crossings between northern Kosovo and Serbia.

Agricultural land comprises 53% of Kosovo's total land area and forests 41%. According to data from the Food and Agriculture Organization, 741,316 acres of land are under cultivation and 444,789 acres are upland pasture. The majority of agricultural land is privately owned (80%), providing subsistence farming for individual households. Although Kosovo's agricultural sector is generally characterized by small farms, low productivity, and the absence of advisory services, agriculture contributes around 13% of Kosovo's overall GDP. Agriculture is the largest employment sector in Kosovo, providing jobs for approximately 16.5% of the population, primarily on an informal basis. The agricultural sector also accounts for 16% of total export value and remains an important creator of national wealth, although Kosovo is still an importer of many agricultural products, which accounted for 24.4% of overall imports ($537.5 million) in 2007. Forestry in Kosovo is minimal; wood-processing and wood products (flooring and furniture) are industry contributors, although not yet in significant numbers.

Employers often fail to abide by official labor standards due to a lack of government enforcement, particularly with regard to the standard workweek and compulsory and unpaid overtime. Employees often do not report such violations due to fear of reprisals. Many individuals work long hours in the private sector as at-will employees without employment contracts, regular pay, or pension contributions paid on their behalf. Employees report being fired without cause in violation of existing laws and being denied holidays. Womens rights organizations indicate that sexual abuse occurred on the job but went unreported due to fear of expulsion or physical retaliation. According to union officials, workers in the public sector commonly faced similar mistreatment, including sexual harassment and the loss of employment due to political party affiliation.

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Page last modified: 09-10-2019 10:31:20 ZULU