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VoA: Kosovo's Transitional Economy Rapidly Improving

March 2005 - In Kosovo there are the signs of a service-based economy that is capable of producing overall growth without reliance on foreign assistance.

Kosovo economy is experiencing a painful transition. The old industrial, government-run Yugoslav model is dead. In its place a service, small business-based economy is being born.

International Monetary Fund representative in Pristina Marc Auboin is optimistic. He believes that despite the 50 percent decrease in foreign assistance during the past few years, a new Kosovo economy is producing growth of four- to five percent a year.

This, he says, is fast enough to absorb the 35,000 new entrants into the work force each year.

While some analysts say the unemployment rate is as high as 65 percent, Mr. Auboin says 30 percent is a more accurate figure. It is true that most Kosovars work outside the formal economy and most workers are underemployed-meaning they work less than full time. There are no government payments to the unemployed.

Kosovo experienced a kind of economic boom four-years ago as huge volumes of reconstruction money flowed into the territory following the civil war with Serbia's government. Growth rates reached 11 percent, a rate that could not be sustained as aid flows fell.

Mr. Auboin, an advisor to the government, says the small business sector is now growing at a rapid pace.

"It shows everywhere. It is a services-based economy. And it is growing. And its growth even offsets the withdrawal of donor support," he said.

Analysts say the absence of clarity on Kosovo's final status has been a deterrent to foreign investment.

Kosovo is Serbian territory. Following revocation of its autonomous status in the former Yugoslavia, Kosovo's ethnic-Albanian majority revolted. Fighting ended in 1999 after NATO intervention and Kosovo has been administered since then by the United Nations. Kosovar Albanians want independence, but Serbia insists the province should remain its territory and its final status has not been determined.

But despite that, Albanians living abroad are bringing money into Kosovo.

Michel Svetchine is the French civil servant who serves as managing director of Kosovo's de facto central bank, the Banking and Payments Authority. He says the territory's banking sector is beginning to function as loans to business rose by 60 percent last year.

"This is showing that, first, there is initiative from the private sector. And there is, secondly, a supply from the financial sector," said Mr. Svetchine.

Despite progress, immense problems remain.

The privatization of state industries is not complete. There are significant disputes over land and enterprise ownership. Traditional trade flows have not been re-established. The trains are not running. The electricity supply is erratic.

But analysts detect clear signs of progress as Kosovo moves towards a likely resolution of its status over the next 12 months.

By Barry Wood / Voice of America


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Background information for foreign investors

Kosovo: General Information
Kosovo: Key economic indicators / statistics
Why do business in Kosovo?
Legal Framework in Kosovo
KTA and Privatisation in Kosovo

Latest News and Analysis

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Current publications

Program of Recovery and Production in Ferronikeli (in English)
Guide for starting new companies / enterprises in Kosovo (Updated version)