Kosovo Economy Overview

According to PHARMACYLIB, Kosovo is still one of the most socio-economically backward countries in Europe, but at the same time has considerable development potential. The per capita national product in 2017 was only 26.3% of the average in the EU. The reasons for the backwardness lie firstly in historical underdevelopment, secondly in the consequences of the Serbian apartheid regime and the subsequent Kosovo war in the 1990’s, thirdly in the lasting effects of the independence, which is still only partially recognized internationally, and fourthly in national structural problems. Kosovo developed into a modern industrial society late and only slowly. After the Second World War, 80 percent of the population was still active in agriculture, the majority in pure subsistence farming. Economic modernization in socialist Yugoslavia concentrated almost exclusively on heavy industry and mining, that is, Kosovo’s enormous mineral resources, concentrated in a few companies, above all the Trepça / Trepča metallurgy complex with its mines and smelters. This socialist focus on heavy industry prevented a socio-economic catch-up with the other federal units of Yugoslavia, especially the traditionally more developed northern republics. Despite substantial funding from a federal fund for underdeveloped areas, Kosovo even fell relatively behind in terms of economic development in Yugoslavia. In 1947 Kosovo’s per capita GDP, measured as a share of the GDP of the Socialist Federal Republic of Yugoslavia (SFRY), was 49.2%; in 1984 it was 26. 3% and in 1989 at 26%. The Serbian apartheid regime of the 1990’s, which drove the Kosovar Albanian population out of the official economy and into a kind of underground economy, the disruption of economic relations with the former common Yugoslav market as a result of the Balkan wars and the economic damage of the Kosovo war (war destruction and looting) in 1999 caused massive economic damage that could only be partially offset by the subsequent international aid. Finally, the state separation of Kosovo from Serbia, which was formalized with the declaration of independence in 2008, led to the collapse of external trade relations and only a gradual (re) integration into the global economy, which has not yet been completed. which could only be partially offset by the subsequent international aid. Finally, the state separation of Kosovo from Serbia, which was formalized with the declaration of independence in 2008, led to the collapse of external trade relations and only a gradual (re) integration into the global economy, which has not yet been completed.

The economy of Kosovo has shown significant growth and stable framework data since the end of the war, but these must always be measured in relation to the very low starting level. For example, the gross domestic product in relation to the other states of the former Yugoslavia was still only 39.7%. GDP growth in Kosovo averaged 4.0% between 2005 and 2015; most recently according to data from the World Bank in 2017 and 2018 at 4.2 and 3.8%, respectively, and 4.0% in 2019. The economic growth after 1999 is mainly due to international aid, the development of the public sector as well as to monetary payments from Kosovars living abroad, which was estimated at 800 million euros in 2018. Because the integration of the Kosovar economy into the global economy is low, the country was relatively little affected by the effects of the global economic crisis. The price development in Kosovo is very moderate. In 2008 the inflation rate reached 9.4%, its highest level after the Kosovo conflict. A brief deflationary phase was observed in 2009 with an inflation rate of -2.4%. In 2015 the inflation rate was -0.5%, in 2017 it was 1.1% and in 2018 it was 2.7%. The national debt is very low at around 17.0% of GDP (2018). In 2018, foreign direct investment reached a level of € 567 million in the Doing Business Index compiled by the World Bank for 185 countries In 2020 Kosovo ranks 57th, in 2019 it was 44th, and in 2018 it was 40th. According to this index, Kosovo is certified as having a positive dynamic for the development of companies.

The economic structure of Kosovo is characterized by the existence of micro-enterprises, which make up about 98% of all companies in Kosovo. In 2017, 78.8% of all employees worked in SMEs (small and medium-sized enterprises). In 2018 there were around 10,000 micro-enterprises with fewer than 10 employees, 112 small enterprises (10-49 employees), 10 medium-sized enterprises (50-249 employees) and only 58 large enterprises (> 250 employees) to be identified in Kosovo. The sectors in which SMEs are active: trade (50%), transport (14%), food and luxury goods (9%), hotels and restaurants (9%). Generally speaking, Kosovar SMEs are hardly competitive internationally. The main barriers to the development of SMEs are a lack of innovation, discrimination against small businesses in tenders, limited access to finance and general economic problems. The SME (for SMEs)Policy Index sees the development with regard to the promotion of SMEs in Kosovo – despite clear progress – as below average compared to other countries in the region.

Important large companies in Kosovo include:

• Birra Peja
• Devolli
• Eco Trade
• Electrolytic capacitors
• Eurosig
• IPKO Telecommunications
• Kosova Steel
• Kosovo Energy Corporation (KEK)
• NewCo Ferronikeli
• Post and Telecommunications of Kosovo (PTK)
• Prishtina International Airport
• ProCredit Bank Kosovo
• Raiffeisen Bank Kosovo
• Türk Ekonomi Bankasi (TEB)
• Trepca
• Vala

The EMIS (Euromony Institutional Investor Company) website offers a wide range of information on Kosovar companies.

Statistical information on the economic development of Kosovo is provided by the Kosovar Statistics Office, the Statistics Office of the European Union and the World Bank.

In a self-description of Kosovo as a business location, the Ministry of Trade and Industry lists the key strengths and development potentials of the Kosovar economy, which are based on the structural advantages of Kosovo as well as reforms carried out since the end of the war:

• Kosovo has a young, dynamic and polyglot workforce.
• Wage costs (average monthly wage according to the Vienna Institute for Economic Studies: € 453, as of 2016) and ancillary wage costs are also very low in a regional comparison
• The euro gives the country financial and macroeconomic stability.
• Kosovo is a signatory to the Central European Free Trade Agreement (CEFTA) and has privileged access to the markets of the EU and the USA.
• The tax burden is very low. Corporate income tax is levied at a flat rate of 10%. The VAT rate is 16%.
• Kosovo has a strategically favorable location in the heart of Southeastern Europe and a rapidly developing transport infrastructure.
• The banking sector in Kosovo is healthy and stable and has not been hit by the turbulence of recent economic crises.
• Kosovo offers many opportunities for investment, for example in the extraction and processing of mineral resources or in the development of a dynamic IT sector.
• Kosovo has a transparent body of law that is compatible with EU law

The current Kosovar economic model, which is based on private consumption financed to a significant extent by the transfer payments of Kosovars abroad from the large diaspora, on publicly financed infrastructure projects, on a private sector based on low productivity and limited foreign trade and international support, is very limited growth-oriented and not sustainable in the long term.