Kosovo economy bleak, year after independence move

By Ivana Sekularac -FORBES-



In the dusty Kosovo town of Malishevo, Avni Kafxhalli is one of the lucky ones — he has a job.

More than 50 percent of local people are unemployed and for them and Kafxhalli, who earns 10 euros ($13) a day as a builder, little has changed since the former Serbian province declared independence a year ago.

‘Salaries in Kosovo are low. It will take a long time before things improve,’ said the 29-year-old.

The global financial crisis and constant tensions between ethnic Albanians and Serbs have clouded the climate for investment in the economy, which officials say needs double-digit growth to make inroads into Kosovo’s 45 percent unemployment rate.

At best the fledgling state of 2 million people risks stagnation, at worst it faces a long spell in the economic wilderness outside the European mainstream.

It has no ties with its former Serbian masters and a handful of European Union members still do not recognise it, while the economic crisis in the richer West means millions of remittance euros that support many families may dry up as well.

‘Until a year ago, independence was a turning point. Everyone thought that everything will change after independence. Now it is obvious that nothing has changed,’ said Gerald Knaus, head of the European Stability Initiative, a think-tank.

‘If things don’t improve there will be protests directed both against international organisations and against the government. It is surprising how peaceful it has been so far.’

Several hundred members of a disbanded civil protection unit demonstrated in Pristina for new jobs in a new armed force made up mostly of former guerrillas.

Ethnic tensions are still high in the north, and there have been shootings and bomb attacks in the northern city off Mitrovica between ethnic Albanian Kosovars and the minority Serb population. Some officials are worried it could spread.


The economy grew by 5.2 percent last year. The International Monetary Fund sees that rising to 6.6 percent this year, easily outperforming other countries suffering in the global crisis.

But that comes from an extremely low base, and most Kosovars from both the ethnic Albanian majority and Serb minority depend on aid or money sent home from countries such as Germany.

The World Bank says about 45 percent of Kosovo’s people live under the poverty line, and 15 percent are ‘extremely poor’. Salaries average around 220 euros a month.

‘It can lead to the social unrest, not in the short-term but give it a year,’ said Shpend Ahmeti of the GAP think-tank, adding the leadership must to raise living standards and fast.

But economists say Kosovo may be too small a market and has too much political uncertainty and institutional weakness to draw the big foreign investors that propelled other countries in the region into a convergence path with richer EU states.

And chances of banding together with other Western Balkan states are slim, as Serbia has rejected Kosovo’s secession and is vetoing its entry into the United Nations. It also blocks what little exports it has from passing through Serbia’s territory if they carry a ‘Kosovo Customs’ stamp.

The European Parliament has urged the five EU members — Cyprus, Greece, Slovakia, Spain and Romania — that have so far refused to recognise Kosovo to do so.

A donor conference raised 1.2 billion euros in donor pledges and there is the prospect of joining the World Bank and IMF later this year, but without domestic-driven growth, more aid or loans could just disguise the problem.

The country is hoping to privatise its two coal power plants and build a third, the latter of which could bring investment of 3.5 billion euros, according to independent experts. Among other projects, it also aims to sell its mobile operator, perhaps for another billion euros.

But attracting foreign investors during a financial crisis will be difficult and homegrown solutions are scarce, particularly for the jobless.

‘To be able to tackle unemployment, we would really need to have double-digit growth,’ said Hajdar Korbi, an advisor in the ministry of economy and finance.

Jan Bastian, an economist with the European Agency for Reconstruction, said that Kosovo needs working relations with Serbia to create a sustainable economy. It must also strengthen its institutions and better promote itself abroad.

‘This is not a solution for the coming four or five years, it will take a generation and longer,’ he said.


Source: Forbes
(Additional reporting by Fatos Bytyci; Editing by Michael Winfrey and Jon Boyle)

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